Supreme Court: NCLT has Jurisdiction to Adjudicate Contractual Disputes Arising Solely from Corporate Debtor's Insolvency

Supreme Court: NCLT has Jurisdiction to Adjudicate Contractual Disputes Arising Solely from Corporate Debtor's Insolvency

The Supreme Court of India (SC) held on 8 March 2021, in the case titled Gujarat Urja Vikas Nigam Limited (Appellant) v. Amit Gupta & Ors. (Respondent), held that "When a dispute arises solely on the ground of the insolvency of the Corporate Debtor, the NCLT is empowered to adjudicate such a dispute under Section 60(5)(c) of the Insolvency and Bankruptcy Code (Code)."

The SC bench consisting of Justices DY Chandrachud and M R Shah stated, "Considering the text of Section 60(5)(c) of the Code and the interpretation of similar provisions in other insolvency-related statutes, the NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor."

An appeal was filed before the Top Court by the appellant against the order of the National Company Law Appellant Tribunal (NCLAT) wherein it had upheld the decision of the National Company Law Tribunal (NCLT). The order stated the termination of the Power Purchase Agreement (PPA) entered with a firm Astonfield Solar (Gujarat) Private Limited, which later went into insolvency.

Issue before the SC

Whether the NCLT/NCLAT can exercise jurisdiction under the IBC over disputes arising from contracts such as the PPA?

The SC dismissed the appeal and stated that the institutional framework under the Code contemplated the establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora.

The Apex Court further clarified that "In the absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the corporate debtor would have to file and/or defend multiple proceedings in different fora."

The Court added, "These proceedings may cause undue delay in the insolvency resolution process due to multiple proceedings in trial courts and courts of appeal. A delay in completion of the insolvency proceedings would diminish the value of the debtor's assets and hamper the prospects of a successful reorganization or liquidation."

The Court stated that to ensure the success of an insolvency regime, it is must that insolvency proceedings should be completed in a timely, effective and efficient manner.

Justice Chandrachud stated that in the instant case, the PPA was terminated solely on the ground of insolvency. It clarified that there was an absence of the insolvency of the corporate debtor and hence there would be no ground to terminate the PPA.

The SC noted that the termination cannot be treated as a ground of the insolvency independently. It stated that the present dispute solely arises out of and relates to the insolvency of the corporate debtor.

The Apex Court further clarified that the Code would override other laws that would also include an instrument having effect by virtue of any law. It stated that "Section 238 is prefaced by a non-obstante clause. NCLT's jurisdiction could be invoked in the present case because the termination of the PPA was sought solely on the ground that the Corporate Debtor had become subject to an insolvency resolution process under the IBC."

The bench said, "The residuary jurisdiction of the NCLT under Section 60(5)(c) of the Code provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the Code, there would have been no requirement for the legislature to enact Section 60(5)(c) of the Code."

The SC said that it is issuing a caution note to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other Courts, Tribunals, and Fora when the dispute is one which does not arise solely from or relating to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist."

The Apex Court concluded-

- The NCLT/NCLAT could have exercised jurisdiction under Section 60(5)(c) of the Code to stay the termination of the PPA by the appellant, since the appellant sought to terminate the PPA under Article 9.2.1(e) only on account of the CIRP being initiated against the Corporate Debtor;

- The NCLT/NCLAT correctly stayed the termination of the PPA by the appellant since allowing it to terminate the PPA would certainly result in the corporate death of the Corporate Debtor due to the PPA being its sole contract.

The SC dismissed the appeal and stated that "The RP (resolution professional) can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the corporate debtor, the RP must approach the relevant competent authority."