GUJARAT URJA VIKAS NIGAM LIMITED versus MR. AMIT GUPTA & ORS.
[2021] 13 S.C.R. 611, Supreme Court of India, 2021
Outcome: Dismissed (Dismissed)
Segment: Body
[2021] 13 S.C.R. 611
611
GUJARAT URJA VIKAS NIGAM LIMITED
v.
MR. AMIT GUPTA & ORS.
(Civil Appeal No. 9241 of 2019)
MARCH 08, 2021
[DR. DHANANJAYA Y CHANDRACHUD AND
M. R. SHAH, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss. 10, 31, 60(5),
61, 238 – Power Purchase Agreement – Corporate Insolvency
Resolution Process – Jurisdiction of NCLT over contractual dispute
– The appellant allocated a 25-megawatt capacity to the Corporate
Debtor for developing and setting up a solar photovoltaic based
power project – The appellant and the corporate debtor entered
into a PPA on 30.04.2010, according to which the appellant was to
purchase all the power generated by the corporate debtor – Due to
floods and heavy rainfall in 2015 then again in 2017, Plant was
severely damaged – Resultantly, it was only able to operate at 10-
15% of its original capacity – Corporate debtor intimated the
appellant regarding cause for failure in its performance under the
PPA, and to confirm that this event may be treated as a Force Majeure
Event – The second respondent (Bank) declared the Corporate
Debtor to be an NPA – Corporate Debtor filed a petition in the
NCLT u/s 10 of IBC, pursuant to which NCLT commence the CIRP
and issued an order of moratorium – First respondent was appointed
as the Interim Resolution Professional – Appeal was filed against
the said order in the NCLAT, same was dismissed – The appellant
issued two notices of default to the corporate debtor expressing
their intention to terminate the
PPA – Thereafter, the first and second
respondents approached NCLT by filing applications u/s. 60(5) of
the IBC in regard to the notices issued by the appellant to the
corporate debtor, and sought an injunction restraining the appellant
from terminating the PPA – NCLT restrained the appellant from
terminating the PPA and sets aside the First Notice – NCLAT dismissed
the appeal filed against the order of NCLT – Issue arose for
determination before the Supreme Court – Whether the NCLT/NCLAT
can exercise jurisdiction under IBC over disputes arising from
contracts such as the PPA – Held: Neither NCLT nor NCLAT in its
A
B
C
D
E
F
G
H
612
SUPREME COURT REPORTS
[2021] 13 S.C.R.
decision specifically examine the issue of its jurisdiction u/s. 60(5)(c)
of the IBC – The institutional framework under the IBC contemplates
the establishment of a single forum to deal with matters of insolvency,
which were distributed earlier across multiple fora – The corporate
debtor would have to file and/or defend multiple proceedings in
different fora and these proceedings may cause undue delay in the
insolvency resolution process – Therefore, considering s. 60(5)(c)
and the interpretation of similar provisions in other insolvency
related statutes, NCLT has jurisdiction to adjudicate disputes, which
arise solely from or which relate to the insolvency of the corporate
debtor – The nexus with the insolvency of the corporate debtor
must exist – In the present case, the PPA was terminated solely on
the ground of insolvency, therefore, in the absence of the insolvency
of the corporate debtor, there would be no ground to terminate the
PPA – The RP 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 – Since, the dispute in the instant case has arisen solely
on the ground of the insolvency of the corporate debtor, NCLT is
empowered to adjudicate this dispute u/s. 60(5)(c) of the IBC.
Insolvency and Bankruptcy Code,
2016 – Right of Appellant
to terminate Power Purchase Agreement – Whether the appellant‘s
right to terminate the PPA in terms of Article 9.2.1(e) read with 9.3.1
is regulated by the IBC – Held: In accordance with Article 9.3.1 of
PPA, the appellant, on the occurrence of an Event of Default
u/Article 9.2.1, can issue a default notice which shall specify in
reasonable detail the Event of Default giving rise to the default
notice, and call upon the Corporate Debtor to remedy it – At the
expiry of 30 days from such notice, unless otherwise agreed, if the
default has not been remedied, the appellant can terminate the PPA
– In the instant case, it is the sole contract for the sale of electricity
which was entered into by the corporate debtor – The PPA was
terminated solely on the ground of insolvency, which gives the NCLT
jurisdiction u/s. 60(5)(c) to adjudicate this matter and invalidate
the termination of the PPA – NCLT is the forum vested with the
responsibility of ensuring the continuation of the insolvency
resolution process, which requires preservation of the Corporate
Debtor as a going concern – The NCLT/NCLAT correctly stayed the
A
B
C
D
E
F
G
H
613
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.
Interpretation of Statutes – Textually similar language in
different enactments has to be construed in the context and scheme
of the statute in which the words appear – The meaning and content
attributed to statutory language in one enactment cannot in all
circumstances be transplanted into a distinct, if not, alien soil – It is
trite law that the words of a statute have to be construed in a manner
which would give them a sensible meaning which accords with the
overall scheme of the statute, the context in which the words are
used and the purpose of the underlying provision – Insolvency and
Bankruptcy Code – sec. 60(5) – Companies Act, 1956 – 446(2).
Ipso Facto Clause – Validity of – Discussed
Dismissing the appeal, this Court
HELD: Jurisdiction of the NCLT/NCLAT over contractual
disputes
1. The enactment of the IBC is in significant senses a break
from the past. While interpreting the provisions of the IBC, care
must be taken to ensure that the regime which Parliament found
deficient and which was the basic reason for the enactment of the
new legislation is not brought in through the backdoor by a
process of disingenuous legal interpretation. However, this is
not to say that the interpretation given to the statutory provisions
that existed prior to the enactment IBC
is to be rejected in toto.
The interpretation given to such statutory provisions that are
textually similar to Section 60(5)(c) may be relevant, provided
that such interpretation is in tandem with the objective of enacting
the IBC, that is, inter alia, avoidance of multiplicity of fora and a
timely resolution of the insolvency process. The IBC was a reform
which was distilled through many committee reports, most
importantly the Report of the BLRC, which recommended that
the earlier institutional framework relating to the winding up and
liquidation of the companies should continue under the IBC. The
institutional framework under the IBC contemplated the
establishment of a single forum to deal with matters of insolvency,
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
614
SUPREME COURT REPORTS
[2021] 13 S.C.R.
which were distributed earlier across multiple fora. 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. 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. For the success of an
insolvency regime, it is necessary that insolvency proceedings
are dealt with in a timely, effective and efficient manner. Pursuing
this theme in Innoventive this court observed that one of the
important objectives of the Code is to bring the insolvency law in
India under a single unified umbrella with the object of speeding
up of the insolvency process. The principle was reiterated in
Arcelor Mittal where this court held that the non-obstante Clause
in Section 60(5) is designed for a different purpose: to ensure
that the NCLT alone has jurisdiction when it comes to applications
and proceedings by or against a corporate debtor covered by the
Code, making it clear that no other forum has jurisdiction to
entertain or dispose of such applications or proceedings .
Therefore, considering the text of Section 60(5)(c) and the
interpretation of similar
provisions in other insolvency related
statutes, NCLT has jurisdiction to adjudicate disputes, which arise
solely from or which relate to the insolvency of the Corporate
Debtor. However, in doing do, we issue a note of caution 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 relate to the insolvency
of the Corporate Debtor. The nexus with the insolvency of the
Corporate Debtor must exist. [Para 57, 66 & 67][666-D-F;
671-B-C; 672-B-H]
2. In the present case, the PPA was terminated solely on
the ground of insolvency, since the event of default contemplated
under Article 9.2.1(e) was the commencement of insolvency
proceedings against the Corporate Debtor. In the absence of the
insolvency of the Corporate Debtor, there would be no ground to
A
B
C
D
E
F
G
H
615
terminate the PPA. The termination is not on a ground
independent of the insolvency. The present dispute solely arises
out of and relates to the insolvency of the Corporate Debtor. The
RP 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. For instance, if the dispute in the present matter related
to the non-supply of electricity, the RP would not have been
entitled to invoke the jurisdiction of the NCLT under the IBC.
However, since the dispute in the present case has arisen solely
on the ground of the insolvency of the Corporate Debtor, NCLT
is empowered to adjudicate this dispute under Section 60(5)(c)
of the IBC. [Para 69 & 72][673-E-F; 675-A-C]
Jurisdiction of NCLT and GERC
3. Section 238 of the IBC stipulates that IBC would
override other laws, including an instrument having effect by virtue
of any such law. The NCLT in its decision dated 29 August 2019
gave detailed findings on the issue of whether the PPA is an
instrument within the meaning of section 238 of the IBC. It has
been urged on behalf of the appellant that Section 238 does not
apply to a bilateral commercial contract between a Corporate
Debtor and a third party and only applies to statutory contracts
or instruments entered into by operation of law. The basis of this
submission is that
the word instrument should be given a meaning
ejusdem generis to the provision contained in any other law. We
do not find force in this argument. Section 238 does not state
that the instrument must be entered into by operation of law;
rather it states that the instrument has effect by virtue of any
such law. In other words, the instrument need not be a creation
of a statute; it becomes enforceable by virtue of a law. Therefore,
we are inclined to agree with the view taken by the NCLT. 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. [Para 77 & 78][677-A-B; 678-F-H; 679-A-B]
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
616
SUPREME COURT REPORTS
[2021] 13 S.C.R.
4. The residuary jurisdiction of the NCLT under Section
60(5)(c) of the IBC 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 IBC, there
would have been no requirement for the legislature to enact
Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered
otiose if Section 14 is held to be the exhaustive of the grounds of
judicial intervention contemplated under the IBC in matters of
preserving the value of the corporate debtor and its status as a
‘going concern’. We hasten to add that our finding on the validity
of the exercise of residuary power by the NCLT is premised on
the facts of this case. This Court not laying down a general
principle on the contours of the exercise of residuary power by
the NCLT. However, it is pertinent to mention that the NCLT
cannot exercise its jurisdiction over matters dehors the
insolvency proceedings since such matters would fall outside the
realm of IBC. Any other interpretation of Section 60(5)(c) would
be in contradiction of the holding of this Court in Satish Kumar
Gupta. [Para 87][686-C-F]
Validity of ipso facto clauses
5. Before analyzing the validity of the termination of the
PPA by the appellant under Articles 9.2.1(e) and 9.3.1 in the
present case, it is important to contextualize it
within the larger
debate on this issue. Globally, ipso facto clauses arise in a variety
of contracts. Ipso facto clauses are contractual provisions which
allow a party (“terminating party”) to terminate the contract with
its counterparty (“debtor”) due to the occurrence of an ‘event of
default’. In the context of insolvency law, in some of these ipso
facto clauses, the ‘event of default’ includes applying for
insolvency, commencement of insolvency proceedings,
appointment of insolvency representative, et al. The United
Nations Commission on International Trade Law released its
Legislative Guide on Insolvency Law in 2004. The validity of
such ipso facto clauses has been considered in a global
perspective by international organizations and in the domestic
jurisdictions of nation-states in their national insolvency laws. As
A
B
C
D
E
F
G
H
617
India develops into a responsive member of the international
community, our laws cannot afford to be inward-looking. In 2005,
the Report of the Expert Committee on Company Law headed
by J.J. Irani noted the requirement of reforms in the Indian
insolvency regime, specifically citing the lessons from the recently
published UNCITRAL Guide. The Committee noted the need to
invalidate ipso facto clauses so as to prevent the value of a
Corporate Debtor‘s assets from becoming diluted during the
insolvency process. However, this invalidation was to be subject
to exceptions, keeping in mind the compelling, commercial, public
or social interest in upholding the contractual rights of the counter
party to the contract. [Paras 88, 130 & 131][686-F-H; A, C-E;
714-E-F; 715-D-E]
6. However, as is evident, this recommendation was never
directly embodied legislatively since the current IBC contains
no clear-cut provision which invalidates ipso facto clauses. In fact,
the issue of the invalidation of ipso facto clauses was noted in a
December 2018 report titled ‘Insolvency and Bankruptcy Code:
The journey so far and the road ahead‘ issued by Vidhi Centre
for Legal Policy. The report notes that the IBC “does not per se
prohibit the operation of ipso facto clauses during insolvency
proceedings. However, Section 14 provides for a limited
exception prohibiting the termination, suspension or interruption
of specified “essential goods or services” (i.e. water, electricity,
telecommunication services and information technology services
to the extent they are not direct inputs to the output produced or
supplied by the corporate debtor), and also provides relief to the
corporate debtor from the recovery of any property by an owner
or lessor during the moratorium”. As a solution, the report
recommends a conditional stay on the operation of ipso facto
clauses, beginning from the insolvency commencement date, since
“a complete stay on the operation of ipso facto clauses would
constitute a serious restraint on the freedom of contract and would
effectively compel suppliers to perform contracts even when such
an action is against their commercial interests”. In relation to
the implementation of this solution, the report suggests the
insertion of a new provision to the IBC. More recently, however,
the IBC was amended by the Insolvency and Bankruptcy Code
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
618
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(Amendment) Act, 2020 which, inter alia, introduced an
Explanation to Section 14(1). [Para 132 & 133][715-E-H;
716-A-C]
7.  The position of law in India today invalidates ipso facto
clauses in:
(i) Government licenses, permits, registrations, quotas,
concessions, clearances or a similar grant or right given by the
Central Government, State Government, local authority, sectoral
regulator or any other authority constituted under any other law
for the time being in force, in accordance with the Explanation to
Section 14(1);
(ii) and Contracts where the counter-party supplies
essential/critical goods and services to the Corporate Debtor,
within the meaning of Sections 14(2) and 14(2A).
However, no clear position emerges in relation to the
validity of ipso facto clauses in other contracts, from the bare
text of the IBC. Hence, this task is now left to this Court in the
present case. [Para 135][718-E-H]
8.  In performing duties as members of the judicial branch
in this case, this Court must tread a fine line between providing
a just decision while not entering into the domain of the legislature.
It has been already noted above that the invalidation of ipso facto
clauses seems to have occurred through legislative intervention.
Although, in certain jurisdictions, there have been a few judicial
decisions which have given an expansive interpretation to the
legislative text, in order to invalidate ipso facto clauses (and their
variations) which have not been explicitly barred by the
legislature, these decisions have often been issued in order to
give effect to legislative policy, intent and purpose of the
insolvency regime. In countries like the Republic of Korea, where
it is yet to happen legislatively, it is recommended. In others like
the UK, Lord Mance in his concurring opinion in Belmont Park
(supra) has noted that it should happen only legislatively, and not
through the intervention of the court. Consequently, this Court
holds that question of the validity/invalidity of ipso facto clauses
is one which the court ought not to resolve exhaustively in the
A
B
C
D
E
F
G
H
619
present case. Rather, what we can do is appeal in earnest to the
legislature to provide concrete guidance on this issue, since the
lack of a legislative voice on the issue will lead to confusion and
reduced commercial clarity. [Paras 138, 139 & 143][720-A-D;
721-F]
Appellant’s right to terminate the PPA in the present case
9. Article 9.1 of the PPA clarifies that the PPA shall become
effective upon the execution and delivery thereof by the parties
and shall remain in operation for a period of 25 years. Article
9.2.1 enumerates the Events of Default by the Corporate Debtor,
within which Article 9.2.1(e) states that the Corporate Debtor
becoming voluntarily or involuntarily, the subject of a proceeding
in any bankruptcy or insolvency laws, constitutes an Event of
Default. The exception to this clause is triggered where
dissolution of the Corporate Debtor is for the purpose of a merger,
consolidation or reorganization and where the resulting entity
has the financial standing to perform its obligations under PPA
and creditworthiness. In accordance with Article 9.3.1, the
appellant, on the occurrence of an Event of Default under Article
9.2.1, can issue a Default Notice which shall specify in reasonable
detail the Event of Default giving rise to the default notice, and
call upon the Corporate Debtor to remedy it. At the expiry of 30
days from such notice, unless otherwise agreed, if the default
has not been remedied, the appellant can terminate the PPA.
Further, the Corporate Debtor shall have the liability to make
payments towards compensation to the appellant which is
equivalent to three years‘ billing based on the first-year tariff
considered on normative PLF while determining the tariff by
GERC, within 30 days from the termination notice. In accordance
with Article 10.4, when differences or disputes between the parties
are not settled through mutual negotiation within 60 days of the
dispute arising, it shall be adjudicated by the State Commission,
in accordance with Law. [Para 148 & 149][722-F-H; 723-D-F]
Validity of the termination of PPA
10.  As discussed above, the broader question of the validity
of ipso facto clauses has been the subject matter of sustained
legislative intervention in many jurisdictions. This is an intricate
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
620
SUPREME COURT REPORTS
[2021] 13 S.C.R.
policy determination, for it raises a series of questions about
striking the appropriate balance between contractual freedom
on the one hand and corporate rescue on the other. We are
cognizant that any rule that we might craft, howsoever narrow,
could have a series of unintended second order effects, in terms
of opening the floodgates for intervention from the NCLT that
might impinge upon contractual freedom of the terminating party.
Further, the comparative experience also teaches us that, given
that the invalidation of ipso facto clauses can unsettle the interests
that contractual relationships are founded upon, some jurisdictions
that have invalidated such clauses have done so in a cautious,
prospective fashion. This ensures that while the policy of the
insolvency law is brought into tandem with the global regimes, it
does not affect the contractual rights of those parties who could
not have reasonably accounted for this change in position while
negotiating their contractual terms. Such an approach is an
evidence and recognition of the harmful effects on commercial
stability that such encroachment into contractual freedom can
generate, even when done legislatively after careful deliberation.
The question of the validity/invalidity of ipso facto clauses has
been discussed in a variety of documents over the years, such
as: (a) UNCITRAL Guide of 2004; (b) J.J. Irani Committee
Report of 2005; (c) Vidhi’s Report of
2018 critiquing the IBC;
and (d) IBBI‘s Report of 2020, which acknowledges the issue of
ipso facto clauses in relation to government grants. All these
materials were available to the members of the various
committees which discussed the IBC. Further, suspension of
contracts during insolvency was specifically allowed under Section
22(3) of SICA, which was the erstwhile statutory regime.
Parliament would have been conscious of the provision which
was adopted in the SICA. Yet, no concrete position has been
adopted in relation to the termination of ipso facto clauses by the
legislature under the IBC. In the absence of an express
prohibition by the legislature, it can be argued that there is no
general embargo on the operation of such clauses if they are part
of a valid contract under the Contract Act. [Paras 153 & 154]
[724-G-H; 725-A-E; 726-B-C]
11. At the same time, this Court cannot lose sight of the
fact that this Court is apprised with a novel situation where the
A
B
C
D
E
F
G
H
621
‘going concern’ status of a corporate debtor will be negated by a
termination of its sole contract, on the basis of an ipso facto clause.
It is pertinent to note that the IBC has been in effect from 5
August 2016, and has also been amended multiple times. Hence,
if the ‘going concern’ status of corporate debtors was being
affected on a regular basis due to ipso facto clauses (which are in
vogue even in the present contracts similar to the current PPA),
then the legislature may, if it considered necessary, have
proceeded to legislate on an explicit position with regard to the
operation of ipso facto clauses. However, this Court in the present
case is not required to resolve the broad question of whether the
invalidation/stay of ipso facto clauses in India, generally, is legally
permissible. This is a matter which raises complex issues of legal
policy and a balancing between distinct and conflicting values.
Reform will have to take place through the legislative process.
The stages through which legislative reform must take place -
absolute or incremental – is a matter for legislative change. Our
task is limited to the issue of deciding whether the NCLT
correctly exercised the jurisdiction vested in it, in the facts of
this case, to stay the termination of the PPA. In the absence of an
explicit stand taken by the legislature, this Court’s intervention
in this matter would be guided by ascertaining the legislative
intention from the provisions of the IBC.
Although various
provisions of the IBC indicate that the objective of the statute is
to ensure that the corporate debtor remains a ‘going concern’,
there must be a specific textual hook for the NCLT to exercise
its jurisdiction. The NCLT cannot derive its powers from the
‘spirit’ or ‘object’ of the IBC. Section 60(5)(c) of the IBC vests
the NCLT with wide powers since it can entertain and dispose of
any question of fact or law arising out or in relation to the
insolvency resolution process. We hasten to add, however, that
the NCLT’s residuary jurisdiction, though wide, is nonetheless
defined by the text of the IBC. Specifically, the NCLT cannot do
what the IBC consciously did not provide it the power to do.
[Paras 155 & 163][726-C-G; 731-B-C]
12. In this case, the PPA has been terminated solely on the
ground of insolvency, which gives the NCLT jurisdiction under
Section 60(5)(c) to adjudicate this matter and invalidate the
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
622
SUPREME COURT REPORTS
[2021] 13 S.C.R.
termination of the PPA as it is the forum vested with the
responsibility of ensuring the continuation of the insolvency
resolution process, which requires preservation of the Corporate
Debtor as a going concern. In view of the centrality of the PPA to
the CIRP in the unique factual matrix of this case, this Court
must adopt an interpretation of the NCLT’s residuary jurisdiction
which comports with the broader goals of the IBC. Sir P.B.
Maxwell in his commentary, On Interpretation of Statutes 129,
has emphasized that a provision should be given an harmonious
interpretation which comports with the intention of the
Legislature. Given that the terms used in Section 60(5)(c) are of
wide import, as recognized in a consistent line of authority, this
Court holds that the NCLT was empowered to restrain the
appellant from terminating the PPA. However, our decision is
premised upon a recognition of the centrality of the PPA in the
present case to the success of the CIRP, in the factual matrix of
this case, since it is the sole contract for the sale of electricity
which was entered into by the Corporate Debtor. In doing so, we
reiterate that the NCLT would have been empowered to set aside
the termination of the PPA in this case because the termination
took place solely on the ground of insolvency. The jurisdiction of
the NCLT under Section 60(5)(c) of the IBC cannot be invoked
in matters where a termination may take place on
grounds
unrelated to the insolvency of the corporate debtor. Even more
crucially, it cannot even be invoked in the event of a legitimate
termination of a contract based on an ipso facto clause like Article
9.2.1(e) herein, if such termination will not have the effect of
making certain the death of the corporate debtor. As such, in all
future cases, NCLT would have to be wary of setting aside valid
contractual terminations which would merely dilute the value of
the corporate debtor, and not push it to its corporate death by
virtue of it being the corporate debtor‘s sole contract (as was the
case in this matter’s unique factual matrix). [Paras 164 &
165][731-D-F; 732-C-F]
13. The terms of intervention in the present case are
limited. Judicial intervention should not create a fertile ground
for the revival of the regime under section 22 of SICA which
provided for suspension of wide-ranging contracts. Section 22 of
A
B
C
D
E
F
G
H
623
the SICA cannot be brought in through the back door. The basis
of our intervention in this case arises from the fact that if we
allow the termination of the PPA which is the sole contract of the
Corporate Debtor, governing the supply of electricity which it
generates, it will pull the rug out from under the CIRP, making
the corporate death of the Corporate Debtor a foregone
conclusion. The Court is at its heart, an institution which responds
to concrete cases brought before it. It is not within its province
to engraft into law its views as to what constitutes good policy.
This is a matter falling within the legislature’s remit. Equally,
when presented with a novel question on which the legislature
has not yet made up its mind, we do not think this Court can sit
with folded hands and simply pass the buck onto the Legislature.
In such an event, the Court can adopt an interpretation – a
workable formula – that furthers the broad goals of the concerned
legislation, while leaving it up to the legislature to formulate a
comprehensive and well-considered solution to the underlying
problem. To aid the legislature in this exercise, this Court can
put forth its best thinking as to the relevant considerations at
play, the position of law obtaining in other relevant jurisdictions
and the possible pitfalls that may have to be avoided. It is through
the instrumentality of an inter-institutional dialogue that the
doctrine of separation of powers can be operationalized
in a
nuanced fashion. It is in this way that the Court can tread the
middle path between abdication and usurpation. [Paras 166 &
170][732-G-H; 734-C-F]
NCLAT’s decision on the issue of liquidation
14. NCLT in paragraph 35 of its order dated 29 August
2019 upheld the right of the appellant to terminate the PPA, in
case a liquidation process is initiated against the Corporate
Debtor. The appellant had neither challenged this issue in its
appeal before NCLAT nor was it raised by any other party.
However, the NCLAT deleted the observations made by the
NCLT in paragraph 35, thereby holding that the appellant cannot
terminate the PPA even if the Corporate Debtor goes into
liquidation. Since no pleadings or prayers were made in relation
to paragraph 35 of NCLT’s order, NCLAT could not have
considered this issue as a subject matter of the appeal. This Court
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
624
SUPREME COURT REPORTS
[2021] 13 S.C.R.
holds that the NCLAT exceeded its jurisdiction by considering
the issue of liquidation. In the absence of any liquidation
proceedings initiated against the Corporate Debtor, this Court
is not required to consider the issue of whether the appellant
would be entitled to terminate the contract in such a context.
Such a discussion would be academic in nature, and beyond the
scope of this appeal. [Para 171][734-F-G; 735-A-C]
Union of India vs R. Gandhi, President, Madras Bar
Association (2010) 11 SCC 1 : [2010] (6) SCR 857;
Rai Sahib Ram Jawaya Kapur vs State of Punjab (1955)
2 SCR 225; Kesavananda Bharati vs State of Kerala
(1973) 4 SCC 225 : [1973] (0) Suppl. SCR 1 – followed.
Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar (1984)
4 SCC 657 : [1985] (1) SCR 511; Thampanoor Ravi vs
Charupara Ravi (1999) 8 SCC 74 : [1999] (2) Suppl.
SCR 419; Dhirendra Chandra Pal vs Associated Bank
of Tripura Ltd. AIR 1955 SC 213 : [1955] SCR 1098;
D.R. Kohli vs Atul Products Ltd. (1985) 2 SCC 77 :
[1985] (2) SCR 832; P Mohanraj vs Shah Brothers Ispat
Pvt. Ltd. Civil Appeal No. 10355 of 2018 decided on 1
March 2021 – relied on.
Municipal Corporation vs Abhilash Lal (2020) 13 SCC
234 : [2019] (14) SCR 659; Embassy Property
Developments (Private) Limited vs State of Karnataka
(2020) 13 SCC 308 : [2019] (17) SCR 559 –
distinguished.
Johri Lal Soni vs Bhanwari Bai (1977) 4 SCC 59 :
[1978] (1) SCR 231; Swiss Ribbons Private Limited vs
Union of
India (2019) 4 SCC 17 : [2019] (3) SCR 535;
Ashoka Marketing vs PNB 1990 (4) SCC 406 : [1990]
(3) SCR 649; Renusagar Power Co. Ltd. vs General
Electric Company (1984) 4 SCC 679 : [1985] (1) SCR
432; Mansukhlal Dhanraj Jain vs Eknath Vithal Ogale
(1995) 2 SCC 665 : [1995] (1) SCR 996; Doypack
System (P) Ltd. vs Union of India (1988) 2 SCC 299 :
[1988] (2) SCR 62; Madras Petrochem Limitted. vs BIFR
A
B
C
D
E
F
G
H
625
(2016) 4 SCC 1 : [2016] (11) SCR 419; Innoventive
Industries vs ICICI Bank (2018) 1 SCC 407 : [2017]
(8) SCR 33; Arcelor Mittal (India) (Private) Limited. vs
Satish Kumar Gupta (2019) 2 SCC 1 : [2018] (12) SCR
362; Committee of Creditors of Essar Steel India Limited
vs Satish Kumar Gupta (2020) 8 SCC 531 : [2019] (16)
SCR 275; Remdeo Chauhan vs Bani Kant Das (2010)
14 SCC 209 : [2010] (15) SCR 957; A. Deivendran vs
State of T.N. (1997) 11 SCC 720 : [1997] (4) Suppl. SCR
591; Chandos Construction Ltd. vs Deloitte
Restructuring Inc. 2020 SCC 25; Northern Securities
Company vs United States 1904 SCC OnLine US SC
63 : 24 S.Ct. 436; S. Sukumar vs The Secretary, Institute
of Chartered Accountants of India (2018) 14 SCC 360
: [2018] (2) SCR 442 – referred to.
Riggs National Bank of Washington, D.C. v. John Gillis
Perry, Jr., in Re John Gillis Perry, Jr., Debtor, 729
F.2d 982 (4th Cir. 1984)n(Court of Appeals for the
Fourth Circuit); Belmont Park Investments Pty Ltd and
others vs BNY Corporate Trustee Services Ltd and
another (Revenue and Customs Comrs and another
intervening) [2011] 3 W.L.R. 521; Fibria Celulose S/A
v Pan Ocean Co Ltd vs Fibria Celulose S/A Chancery
Division [2014] Bus. L.R. 1041 – referred to.
Case Law Reference
[2019] (17) SCR 559
distinguished
Para 33
[2019] (3) SCR 535
referred to
Para 34
[2019] (14) SCR 659
distinghuished
Para 36
[1990] (3) SCR 649
referred to
Para 40
[1985] (1) SCR 432
referred to
Para 48
[1995] (1) SCR 996
referred to
Para 49
[1988] (2) SCR 62
referred to
Para 50
[2016] (11) SCR 419
relied on
Para 56
[2017] (8) SCR 33
referred to
Para 56
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
626
SUPREME COURT REPORTS
[2021] 13 S.C.R.
[2018] (12) SCR 362
referred to
Para 56
[1985] (1) SCR 511
relied on
Para 58
[1999] (2) Suppl. SCR 419
referred to
Para 60
[1955] SCR 1098
relied on
Para 62
[2010] (6) SCR 857
followed
Para 65
[2019] (16) SCR 275
referred to
Para 80
[2010] (15) SCR 957
referred to
Para 81
[1985] (2) SCR 832
relied on
Para 82
[1997] (4) Suppl. SCR 591
referred to
Para 83
[1978] (1) SCR 231
referred to
Para 84
2020 SCC 25
referred to
Para 119
(1955) 2 SCR 225
followed
Para 136
[1973] (0) Suppl. SCR 1
followed
Para 137
[2018] (2) SCR 442
referred to
Para 168
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9241
of 2019.
From the Judgment and Order dated 15.10.2019 of the National
Law Appellate Tribunal at New Delhi in Company Law Appeal (AT)
(Insolvency) No. 1045 of 2019.
Shyam Divan, Ramji Srinivasan, C.U. Singh, Nakul Dewan, V.
Giri, Sr. Adv., Ms. Hemantika Wahi, Ms. Ranjitha Ramachandran, Ms.
Jesal Wahi, Vinayak Bhandari, Shubham Arya, Ms. Srishti Khanderia,
Ravi Nair, Prithu Garg, Shailendera Singh, Siddharth Mehta, Ms.
Harimohana N., Ms. Athira Sankar, Raghav Tankha, Rajat Sehgal, Ms.
Pooja Mahajan, Ms. Mahima Singh, S. Mahajan, Ms. Neelu Mohan,
Ms. Ila Sheel, Ritesh Kumar, Ashish Rana, Avinash B. Amarnath, Ashok
Kumar Singh, Ms. Pragya Singh, Shantwanu Singh, Vikram Jain,
Abhishek Paruthi, S. S. Shroff, Atul Sharma, Abhishek Sharma, Ms.
Ashly Cherian, Ms. Anisha Mahajan, Ms. Harshita Agarwal, Gautam
Talukdar, Advs. for the appearing
parties.

A
B
C
D
E
F
G
H
627
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
This judgment has been divided into sections to facilitate analysis.
They are:
A
The appeal
B
The genesis of the PPA
C
Initiation of CIRP
D
Termination of the PPA
E
Proceedings before NCLT and NCLAT
F
Proceedings by the Successful Resolution Applicant
G
Submissions of counsel
G.1
Submissions on behalf of the appellant
G.2
Submissions on behalf of the respondents
H
Issues arising from the dispute
I
Jurisdiction of the NCLT/NCLAT over contractual disputes
I.1
Section 60(5)(c): “arising out of” and “in relation to”
I.2
Jurisdiction of NCLT and GERC
I.3
Residuary jurisdiction of the NCLT under Section
60(5)(c)
J
Validity of ipso facto clauses
J.1
Position of international and multilateral organisations
J.2
National jurisdictions
J.3
Position in India
K
Appellant’s right to terminate the PPA in the present case
K.1
Analysis of the PPA
K.2
Validity of the termination of PPA
K.3
Dialogical Remedies
L
NCLAT’s decision on the issue of liquidation
M
Appellant’s liability to pay for the electricity interjected by
the Corporate Debtor
N
Conclusion
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
A
B
C
D
E
F
G
H
628
SUPREME COURT REPORTS
[2021] 13 S.C.R.
A The appeal
1. By its judgment dated 29 August 2019, the National Company
Law Tribunal1 stayed the termination by the appellant of its Power
Purchase Agreement2 with Astonfield Solar (Gujarat) Private Limited3.
The order of the NCLT was passed in applications4 moved by the
Resolution Professional of the Corporate Debtor5 and Exim Bank6 under
Section 60(5) of the Insolvency and Bankruptcy Code, 20167. On 15
October 2019, the NCLAT dismissed the appeal by the appellant8 under
Section 61 of the IBC. The decision by the NCLAT is called into question.
2. The appellant assails the order dated 15 October 2019 of the
NCLAT on, inter alia, two broad grounds: first, that the NCLT and
NCLAT do not possess jurisdiction under the IBC to adjudicate on a
contractual dispute between the appellant and the Corporate Debtor;
and second, in any event, the termination of the PPA was validly made
under Article 9.2.1(e) and Article 9.3.1 of the PPA.
B The genesis of the PPA
3. The narrative of this case begins with the Government of Gujarat
notifying the Solar Power Policy, 20099 on 6 January 2009, for development
of Solar Power projects in the state. The appellant, a Government of
Gujarat undertaking, is a successor to the Gujarat Electricity Board, and
is also the holding company of all the State Power Utilities in Gujarat.
4. On 1 August 2009, the Government of Gujarat allocated a 25-
megawatt capacity to the Corporate Debtor for
developing and setting
up a solar photovoltaic based power project in the State of Gujarat. The
Corporate Debtor expressed its desire to setup a ‘Solar Photovoltaic
Grid Interactive Power Plant’10 of 10-megawatt capacity and exercised
its option for sale of the entire electrical energy produced from the plant
to the appellant for commercial purposes.
1 “NCLT” or “Adjudicating Authority”
2 “PPA”
3 “third respondent” or “Corporate Debtor”
4 CA No. 701/2019 (first respondent); CA No. 700/2019 (second respondent)
5 “first respondent” or “RP”
6 “second respondent”
7 “IBC”
8 “appellant” or “GUVNL”
9 “Policy”
10 “Plant”
A
B
C
D
E
F
G
H
629
5. In exercise of its powers under Sections 61(h), 62 and 86 of the
Electricity Act, 200311, the Gujarat Electricity Regulatory Commission12
published a draft tariff order for purchase of solar energy, inviting
comments and suggestions from members of the public and stakeholders.
Public hearings were held by the State Commission on the price at which
power could be procured.
6. After the process of public hearings and consultations, a Tariff
Order dated 29 January 201013 was issued by the State Commission for
procurement of power by the appellant from power producers, under
Section 86(1)(a) of Electricity Act. The tariff was determined on the
basis of the then prevailing capital and financing costs, and debt equity
ratio. It was envisaged that the PPA will be for 25 years, with higher
tariffs in the first 12-15 years, and a scaled-down tariff for the remaining
years. The tariff was to be applicable to solar projects commissioned
within the control period of the First Tariff Order, i.e., from 29 January
2010 to 28 January 2012.
7. The appellant filed a petition before the State Commission on
28 May 2013, seeking initiation of proceedings for re-determination of
the capital cost and tariff fixed under the First Tariff Order. This petition
was filed on the basis that subsequent incentives given to power producers
on 27 February 2010 had brought down their cost of capital and, as a
consequence, the tariff fixed under the First Tariff Order should be
revised.
This petition was dismissed by the State Commission on 8 August
2013. An appeal against the order was dismissed by the Appellate Tribunal
for Electricity14 on 22 August 2014. An appeal15 against APTEL’s decision
is pending before this Court, with notice having been issued on 28
November 2014.
8. The appellant and the Corporate Debtor entered into a PPA on
30 April 2010, in accordance with which the appellant has to purchase
all the power generated by the Corporate Debtor. The PPA was amended
by two Supplementary Agreements dated 7 August 2010 and 13 April
2011, due to an increase in the capacity of the Plant and a change in its
location.
11 “Electricity Act”
12 “State Commission” or “GERC”
13 “First Tariff Order”
14 “APTEL”
15 Civil Appeal No. 10301 of 2014
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
630
SUPREME COURT REPORTS
[2021] 13 S.C.R.
9. Article 9.1 of the PPA provides that it would remain in force
for 25 years, from the ‘Commercial Operation Date’ which, in accordance
with Article 1.1 is “the date on which the Solar Photovoltaic Grid
Interactive power plant is available for commercial operation (certified
by GEDA) and such date as specified in a written notice given at least
ten days in advance by the [Corporate Debtor] to GUVNL”.
10. Article 5.2 of the PPA stipulates that in case the commissioning
of the Plant is delayed beyond 31 December 2011, the appellant shall
pay the tariff as determined by the State Commission for Solar Projects
effective on the date of commissioning of the Plant or the tariff provided
under the clause, whichever is lower. Article 5.2 provides that Rs 15 per
unit is payable for the first 12 years and Rs 5 per unit is payable from the
13th to the 25th year.
11. While the Corporate Debtor was in the process of
commissioning the Plant, the State Commission, in exercise of its powers
under Sections 62 and 86 of the Electricity Act, issued the Tariff Order
dated 27 January 201216 for procurement of power from solar energy
developers by distribution licensees in the State of Gujarat. The tariff
was to be applicable to solar projects commissioned within the control
period of the Tariff Order, i.e., from 29 January 2012 to 31 March 2015.
12. Having signed the financing documents and attained financial
closure with the second
respondent and Power Finance Corporation in
terms of the PPA, and established the Plant as defined in it, the Corporate
Debtor commissioned 1.296MW on 11 December 2012 and 10.212 MW
on 20 December 2012. Accordingly, the PPA was to remain in force
until December 2037.
13. Since it was commissioned within the applicable period of the
Second Tariff Order, the tariff applicable was Rs 9.98 per unit for first
12 years and Rs 7 per unit for next 13 years.
C Initiation of CIRP
14. The initial years of the operationalization of the PPA appear
to have been relatively calm. The first major issue arose between July to
December 2015. During this period, there was heavy rainfall and floods
in the State of Gujarat, due to which the Plant was shut down for two
months. The Plant was severely damaged due to the floods, and the
generation of electricity was temporarily paused. By December 2015,
16 “Second Tariff Order”
A
B
C
D
E
F
G
H
631
normalcy was restored in the generation of electricity and the Plant was
generating electricity at 70% of its total generating capacity.
15. During June and July 2017, Gujarat was again affected by
floods due to heavy rainfall. The Plant was severely damaged due to the
floods. Resultantly, it was only able to operate at 10-15% of its original
capacity.
16. Due to the financial stress caused by the disruptions and
damage, for which insurance claims remained pending, the Corporate
Debtor was unable to fully service its debt to the Financing Parties (the
second respondent and Power Finance Corporation), who proposed to
declare the Corporate Debtor a non-performing asset (“NPA”).
17. On 15 February 2018, in accordance with Article 8.1 of the
PPA, the Corporate Debtor intimated the appellant regarding the impact
of the rainfall and floods on the Plant, and the measures adopted by it in
this regard. The Corporate Debtor requested the appellant to treat the
letter as a formal communication regarding cause for failure in the
performance of the Corporate Debtor’s obligations under the PPA, and
to confirm that this event may be treated as a ‘Force Majeure Event’ in
accordance with Article 8.1.
18. On 4 May 2018, the second respondent declared the Corporate
Debtor to be an NPA. On 20 November 2018, the NCLT admitted a
petition17 filed by the Corporate Debtor under Section 10 of the IBC.
NCLT commenced the Corporate Insolvency Resolution Process18 in
respect of the
Corporate Debtor, issued an order of moratorium and the
first respondent was appointed as the Interim Resolution Professional19.
19. The second respondent and Power Finance Corporation
Limited, filed an appeal20 challenging the order dated 20 November 2018.
The appeal was dismissed by the NCLAT on 4 December 2018, holding
that the right of the Corporate Debtor’s shareholders to vote on the
initiation of the CIRP under Section 10 of the IBC was not curtailed by
the Deed of Pledge of Securities dated 28 March 2013 entered into
between the Corporate Debtor, the second respondent and Power Finance
Corporation Limited. The first respondent was confirmed as the RP by
the NCLT on 1 February 2019.
17 CIRP petition, C.P. (I.B.) No. 940(ND)/2018
18 “CIRP”
19 “IRP”
20 Company Appeal (Insolvency) No. 754 of 2018
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
632
SUPREME COURT REPORTS
[2021] 13 S.C.R.
D Termination of the PPA
20. The appellant issued two notices of default to the Corporate
Debtor on 1 May 2019, which were received by the first respondent on
8 May 2019:
(i)
The basis of the First Notice is that under Article 9.2.1(e)
of the PPA, the Corporate Debtor undergoing CIRP under
the IBC amounts to an ‘event of default’. The appellant
called upon the Corporate Debtor to remedy this default
within 30 days from the date of receipt of the said notice,
failing which the appellant stated that it shall terminate the
PPA by issuing a termination notice; and
(ii)
The basis of the Second Notice is that under Article 9.2.1(a)
of the PPA, there was a default in the operation and
maintenance of the Plant. Once again, the appellant called
upon the Corporate Debtor to remedy the O&M default
within 90 days from the receipt of the notice, failing which
the appellant stated that it shall terminate the PPA by issuing
a termination notice.
21. The first respondent issued his replies to both the notices on
10 May 2019. The replies are summarized below:
(i)
The reply to the First Notice states that the Corporate
Debtor’s PPA with the appellant is its only PPA, and hence
they are heavily dependent on it for reaching a resolution
under the IBC. In case the appellant terminates the PPA,
prospective resolution applicants21 who had submitted their
expression of interest for the Corporate Debtor might not
submit a resolution plan,
which would eventually lead to
liquidation of the Corporate Debtor, defeating the main object
of the IBC; and
(ii)
The reply to the Second Notice states that since the
Corporate Debtor is undergoing CIRP under the IBC, the
operations at the Plant were severely affected due to force
majeure events in terms of the PPA. Thus, the conditions
of the PPA could not be said to have been breached.
21 “PRAs”
A
B
C
D
E
F
G
H
633
22. On 21 May 2019, a meeting was scheduled between the first
respondent and the General Manager (IPP) of the appellant. During this
meeting, the first respondent emphasized that if the PPA was to be
terminated, revival of the Corporate Debtor will be at stake, since
prospective resolution applicants may not submit resolution plans or may
withdraw the resolution plans, if submitted, citing termination of the PPA.
Declining to accede to this position, the appellant made it clear that in
accordance with a legal opinion obtained by them, they will be terminating
the PPA under Articles 9.2.1(e) and 9.3.1 under the First Notice, since
the Corporate Debtor is under CIRP. However, the appellant confirmed
that the O&M default stood cured, and hence it would not act upon the
Second Notice. It may also be noted at this stage that the appellant has
not pressed the issue of the O&M default either before this Court or
before the NCLAT/NCLT.
E Proceedings before NCLT and NCLAT
23. In May 2019, the first and second respondents filed applications
under Section 60(5) of the IBC before the NCLT in regard to the Notices
issued by the appellant to the Corporate Debtor, and sought an injunction
restraining the appellant from terminating the PPA. By an interim order
dated 31 May 2019, NCLT restrained the appellant from terminating the
PPA till the next date of hearing.
24. While the interim order was in operation, the appellant wrote
to the first respondent on 7 June 2019,
stating that the notice period for
curing the default had expired. The appellant claimed that Corporate
Debtor had failed to cure the default, as a result of which the appellant
was entitled to issue the final termination notice under Article 9.3.1 of
the PPA. However, since the NCLT had provided an interim protection
to the Corporate Debtor till the next date of hearing (12 June 2019), the
appellant stated that it was not issuing the final termination notice at the
present.
25. On 29 August 2019, the NCLT issued its final order through
which it allowed the applications filed by the first and second respondents,
thereby restraining the appellant from terminating the PPA and setting
aside the First Notice. The NCLT’s reasoning is premised on the following:
(i)
The clauses of the PPA cannot be placed on a higher
pedestal than the provisions of the IBC, in the context of
drawing a timeline for completion of the CIRP. The fact
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
634
SUPREME COURT REPORTS
[2021] 13 S.C.R.
that the CIRP has not concluded within 30 days from the
receipt of the notice of default cannot be construed as an
event of default since the time limit for the CIRP under the
IBC is 330 days; and
(ii)
The PPA is an ‘instrument’ within the meaning of Section
238 of the IBC. The clauses of the PPA are inconsistent
with the provisions of the IBC, and stand overridden.
However, in paragraph 35 of its order, the NCLT held that the
appellant could terminate the PPA, in the event that liquidation
proceedings are initiated against the Corporate Debtor. Paragraph 35
reads thus:
“35. It is however, made clear that if due to any reason, the
Corporate Debtor goes into liquidation, the Respondent Company
will be at liberty to terminate the Power Purchase Agreement.”
26. The NCLAT by its judgment dated 15 October 2019 dismissed
the appeal against the NCLT’s order. The NCLAT noted that the appellant
attempted to terminate the PPA on the sole ground that the CIRP has
been initiated for the Corporate Debtor. It observed that during the CIRP,
the first respondent has to maintain the Corporate Debtor as a ‘going
concern’ and the termination of its sole PPA, under which it supplied
electricity only to the appellant, would render the Corporate Debtor
defunct. Hence, the NCLAT held that the appellant could not terminate
the PPA solely on the ground of the initiation of CIRP of the Corporate
Debtor, which was supplying power to the
appellant during the period of
the CIRP. Further, it restrained the appellant from terminating the PPA
even in the event that the Corporate Debtor underwent liquidation, by
setting aside theobservations made by the NCLT in paragraph 35 of the
order dated 29 August 2019.
27. The NCLAT thereafter directed the appellant to pay the dues
for power supplied by the Corporate Debtor during the CIRP period. On
12 June 2020, the appellant, as an interim measure but without prejudice
to its rights, agreed to release an ad-hoc payment of Rs 50 lakhs to the
Corporate Debtor. However, the appellant informed the first respondent
that this payment to the Corporate Debtor is conditional, and the
Corporate Debtor must submit an undertaking on stamp paper stating
that the amount released by the appellant will be refunded to them with
interest, in case this Court allows the present appeal. The first respondent
A
B
C
D
E
F
G
H
635
furnished the undertaking sought on 18 June 2020, following which the
appellant released an ad-hoc payment of Rs 50 lakhs to the Corporate
Debtor on 1 July 2020. Since then, the appellant has paid a further amount
of Rs 1.07 crores to the Corporate Debtor, against a similar written
undertaking given by first respondent dated 27 January 2021.
F Proceedings by the Successful Resolution Applicant
28. During the course of these hearings, the court has been
informed of parallel proceedings initiated against the respondents by M/
s Kundan Care Products Limited22, whose Resolution Plan in relation to
the Corporate Debtor was approved by 99.28% of voting shares of the
Committee of Creditors23.
29. An application24 under Section 31 of the IBC was filed by the
first respondent on 15 November 2019 before the NCLT seeking approval
of the Resolution Plan approved by the CoC. This application is currently
pending adjudication before the NCLT, due to the present appeal filed
by the appellant before this Court.
30. However, on 20 December 2019, the Successful Resolution
Applicant filed an application25 under Section 60(5) of the IBC before
the NCLT, seeking withdrawal of their Resolution Plan submitted for
the Corporate Debtor. Further, on 16 January 2020, the Successful
Resolution Applicant filed an interlocutory application26 before this Court
in the present appeal, seeking certain reliefs from this Court or, in the
alternative, seeking permission of this Court to
allow them to withdraw
their Resolution Plan dated 12 November 2019. This Court allowed the
Successful Resolution Applicant to withdraw the interlocutory application
filed in the present appeal on 20 July 2020.
31. The NCLT by an order dated 3 July 2020, dismissed the
application filed by the Successful Resolution Applicant, thereby refusing
to grant them permission to withdraw the Resolution Plan. Thereafter,
the NCLAT by a judgment dated 30 September 2020, dismissed the
appeal filed by the Successful Resolution Applicant against NCLT’s order
dated 3 July 2020.
22 “Successful Resolution Applicant”
23 “CoC”
24 C.A. No. 1526 of 2019
25 C.A. 1679 of 2019
26 I.A. No. 9682 of 2020
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
636
SUPREME COURT REPORTS
[2021] 13 S.C.R.
32. The Successful Resolution Applicant has since filed an appeal27
before this Court challenging NCLAT’s judgment dated 30 September
2020. By an order dated 16 November 2020, this Court granted a stay
against the NCLAT’s judgment dated 30 September 2020.
G Submissions of counsel
G.1 Submissions on behalf of the appellant
33. The case of the appellant has been presented initially in the
articulate and carefully reasoned submissions made by Ms Ranjitha
Ramachandran, learned counsel. Mr Shyam Diwan, learned senior
counsel has then urged his submissions. The following submissions were
urged in relation to the jurisdiction of the NCLT/NCLAT under section
60(5) of the IBC:
(i)
Section 60(5) must be interpreted in the context of Section
25(2)(b) of the IBC, which provides that the RP has to
“exercise the rights for the benefit of the corporate debtor
in judicial, quasi judicial or arbitration proceedings.” Hence,
if NCLT is conferred with the exclusive jurisdiction in
relation to the Corporate Debtor, this section would be
rendered redundant. This Court in Embassy Property
Developments (Private) Limited vs State of
Karnataka28 has held that the RP cannot sidestep the
jurisdiction of other authorities and approach the NCLT for
the enforcement of the Corporate Debtor’s rights. Although
this judgment was in the context of a renewal of a mining
lease by a statutory authority, the interpretation of Section
60(5) would not be
limited to statutory authorities particularly
in the backdrop of Sections 18 (duties of interim resolution
professional) and 25(2)(b). In the present case, Article 10.4
of the PPA has granted jurisdiction to the State Commission,
the regulatory authority under the Electricity Act, to entertain
disputes relating to the PPA. Article 10.4 provides:
“In the event that such differences or disputes between
the Parties are not settled through mutual negotiations
within sixty (60) days, after such dispute arises, then it
27 Civil Appeal No. 3560 of 2020
28 (2020) 13 SCC 308; hereinafter referred to as “Embassy Property”
A
B
C
D
E
F
G
H
637
shall be adjudicated by the Commission in accordance
with Law.”
(ii)
Section 86(1)(f) of the Electricity Act provides that the State
Commission shall discharge the function of adjudicating “the
disputes between the licensees, and generating companies
and to refer any dispute for arbitration”. Therefore, any
issue in relation to the PPA must be raised before the State
Commission, and not the NCLT. Further, the second
respondent has no locus to file a petition before the NCLT
in relation to the PPA;
(iii)
The NCLT cannot preclude the appellant from exercising
its contractual rights under the PPA read with the Electricity
Act;
(iv)
If Section 60(5) is given a broad interpretation to include
contractual disputes, it would disrupt the streamlined and
timebound process under the IBC. Although the NCLT,
being conscious of its limitations, has not proceeded to
adjudicate on whether the termination of the PPA was valid,
or dwelt on the interpretation of the PPA, it has still
erroneously set aside the termination of the PPA by the
appellant without any basis under the IBC;
(v)
Even if it is assumed that NCLT has jurisdiction over disputes
relating to the PPA, the adjudication of such disputes should
be in accordance with the PPA. The sanctity of the contracts
must be upheld unless there is a statutory provision
interdicting such contracts. There can be no exercise of
any inherent or residual power by the NCLT to set aside
the termination of a contract absent a
statutory interdict.
The Resolution Applicant or NCLT have no powers to
modify the PPA through a resolution plan. The formation,
novation or alteration of the contract must be in accordance
with Section 30(2)(e) of the IBC, which provides that the
Resolution Plan cannot contravene any provision of law
which is in force. The provisions of the Indian Contract
Act, 1872 (“Contract Act”), require mutual agreement of
the parties for such a modification;
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
638
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(vi)
The submission of the respondents that ‘property’ under
Section 3(27) of the IBC includes an actionable claim and
hence the dispute falls under the jurisdiction of the NCLT
is erroneous in view of the judgement in Embassy
Property (supra);
(vii)
The contention of the respondents that there is a direct
connection between the termination of the PPA by the
appellant and the insolvency resolution process should be
rejected because the issue in the present case is not of
interpretation of the insolvency resolution process but of
the PPA, and only the State Commission has the jurisdiction
to interpret the PPA; and
(viii) The respondents have relied on judgments under other
statutes like the Companies Act, 195629, Banking Regulation
Act, 194930 and Provincial Insolvency Act, 192031 with
provisions corresponding to Section 60(5). However, these
statutes do not contain any provisions equivalent to Sections
18 and 25 (2) (b) of IBC. The interplay between these
provisions and Section 60(5) must be considered for the
purpose of determining NCLT’s jurisdiction. Further, the
facts of these judgements are also distinguishable from the
present case.
34. However, assuming but not conceding that the NCLT could
have had jurisdiction over the dispute, the appellants argue that there is
no embargo under the IBC on exercise of contractual rights by the
appellant, which does not include this termination:
(i)
Except for the moratorium
stipulated under Section 14 of
IBC, there is no other bar in the scheme of the IBC to
intervene in contractual arrangements that the Corporate
Debtor has entered with a third party. In the present case,
the NCLT/NCLAT did not hold that the termination of the
PPA was prohibited under Sections 14(1) and (2) of IBC.
Sections 14(2) and (2A) deal with supply of essential/critical
goods and services to the Corporate Debtor, and do not
29 “CA 1956”
30 “BRA”
31 “PIA”
A
B
C
D
E
F
G
H
639
mandate the third party to purchase any goods and services
from the Corporate Debtor. Section 14(2) provides for
continued supply of essential goods and services to the
Corporate Debtor. However, there is no bar on termination
of other agreements. Section 14(2A) was introduced after
the issuance of the default notice by the appellant and, in
any event, it does not prohibit the termination of the PPA.
Parliament has chosen not to include any provision to this
effect despite the multiple amendments that have been made
to the IBC;
(ii)
The Explanation to Section 14(1) of the IBC, which was
introduced by an amendment in December 2019, covers
licenses or approvals granted by a government authority.
However, no reference has been made there to contracts
such as PPAs;
(iii)
The respondents are attempting to resurrect the regime
under Section 22(3) of the Sick Industrial Companies
(Special Provisions) Act, 198532, which empowered the
Board to suspend the operation of all or any of the contracts
to which the sick industrial company was a party. In Swiss
Ribbons Private Limited vs Union of India33, this Court
held that the IBC was introduced because the regime under
SICA and Board for Industrial and Financial Reconstruction34
had failed. Under the IBC, there is no such power to suspend
contracts. Hence, when the legislature has wilfully omitted
something or in a situation of a casus omissus, this Court
cannot introduce what has been omitted by way of
interpretation, analogy or implication;
(iv)
The termination of the PPA cannot be set aside based on
the objective of the IBC to ensure that the Corporate Debtor
remains a ‘going concern’, in the absence of a specific
provision under the IBC. The objective of the IBC cannot
be understood to mean that the vested rights of parties can
be interfered with or extinguished except to the extent
contemplated under Section 14 of the IBC. While in the
32 “SICA”
33 (2019) 4 SCC 17; hereinafter referred to as “Swiss Ribbons”
34 “BIFR”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
640
SUPREME COURT REPORTS
[2021] 13 S.C.R.
United States there are specific provisions providing for
non-enforcement of ipso facto clauses such as Article
9.2.1(e) of the PPA, no such provisions exist under the IBC.
Hence, such a bar cannot be read into the legislation by
reference to the object of the IBC or duties of the RP. The
parties cannot wish away a contractual right because it is
not suitable to them by way of a narrow understanding of
“public interest”. The public interest lies in preserving the
sanctity of contracts and for the contractual bargains to
play out;
(v)
The duty of the RP to preserve the Corporate Debtor as a
going concern and the definition of resolution plan do not
bind third parties to act in favour of the Corporate Debtor.
The NCLAT has stressed that the Corporate Debtor would
become defunct if the PPA is terminated because it supplies
power exclusively to the appellant. However, the Corporate
Debtor chose to supply power solely to the appellant. The
Corporate Debtor was empowered under Sections 7 and
10 of the Electricity Act to sell electricity to any licensee or
consumer. The power producing company can convey
electricity to any part of the country using the transmission
network under Sections 2(4), 38(2)(d), 39(2)(d), 40(c) and
42(2) of the Electricity Act. Hence, the Corporate Debtor
is free to supply power to any other licensee or consumer
after the termination of the PPA. The only difference would
be that the Resolution
Applicant would have to supply
electricity at a lower cost;
(vi)
The second respondent and Power Finance Corporation
Limited were aware that the appellant can terminate the
PPA under Article 9.2.1(e). They are vested with the right
to assign the rights and obligations under the PPA to a third
party, in the event of a default committed by the Corporate
Debtor, under the financing documents under Article 12.9
of the PPA. Hence, the second respondent could have
exercised its power to assign prior to the initiation of the
CIRP on 20 November 2018. Instead, it declared the
account of Corporate Debtor as an NPA. Then, when the
Corporate Debtor applied for the initiation of the CIRP under
A
B
C
D
E
F
G
H
641
Section 10 of the IBC, which was admitted by the NCLT
through its order dated 20 November 2018, it challenged
the order before in an appeal, which was dismissed by the
NCLAT on 4 December 2019. Therefore, the appellant has
the right to terminate the PPA under Article 9.2.1(e),
irrespective of whether any assignment has taken place
under Article 12.9;
(vii)
The first respondent cannot rely on the resolution plan to
prevent termination of the PPA since the resolution plan or
process does not modify the terms of the contract of the
Corporate Debtor with third parties. Each party took a
calculated risk to enter into the contract with the knowledge
that the appellant is entitled to terminate the PPA;
(viii) The PPA is not an instrument under Section 238 of IBC,
since the phrase used in the section - “instrument having
effect by virtue of any such law” - does not cover
commercial bilateral agreements between a corporate
debtor and a third party laying down the terms of an
executory contract entered between them. It only applies
to a statutory contract or an instrument entered into by
operation of law that is inconsistent with the IBC;
(ix)
No provision of the PPA is inconsistent with the IBC. Article
9.3.1 which specifies a period of 30 days for the Corporate
Debtor to remedy a default, and gives the appellant the
right to terminate the contract in case of a failure to do so,
is not inconsistent with the time limit provided in section 12
of the IBC to complete
the insolvency resolution process.
Article 9.3.1 obliges the Corporate Debtor to ensure that
the proceedings initiated against it come to an end within
30 days by an act of the Corporate Debtor and does not
govern the resolution process undertaken under the IBC;
(x)
The right to terminate the PPA in accordance with Article
9.3.1 has accrued to the appellant, since an event of default
has occurred within the meaning of Article 9.2.1(e):
(a)
Article 9.2.1(e) of the PPA provides that if the
Corporate Debtor “becomes voluntarily or
involuntarily, the subject of a proceeding in any
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
642
SUPREME COURT REPORTS
[2021] 13 S.C.R.
bankruptcy or insolvency laws”, it would be
considered as an event of default. Article 9.2.1(e)
also lists other events of default like dissolution,
liquidation and the appointment of a receiver. Each
of these eventualities is independent. The clause may
have referred to the legislation which preceded the
IBC since the PPA was entered into in 2010.
However, each of these laws related to companies
that were bankrupt/insolvent. The exception under
Article 9.2.1(e) covers voluntary reconstruction and
merger undertaken under the Companies Act, 201335,
leading to a dissolution of the company without
liquidation or winding up. The exception is limited to
dissolution undertaken for the above purposes and
does not contemplate a dissolution in relation to an
insolvency or bankruptcy proceeding. There is no
dissolution in the present case. Respondents have
contended that the third “or” under the Article 9.2.1(e)
should be changed into “and” or other situations
should be read into the exception which is only for
dissolution. The interpretation of “or” as “and” would
mean that initiation of proceedings under any
bankruptcy or insolvency laws would constitute an
event of default only if the company goes into
liquidation. The usage of words “or” and “and” are
deliberate. The interpretation proposed by the
respondents would exclude liquidation taking place
for reasons other than insolvency/bankruptcy, which
could not have been the
intent of the parties. In
absence of any ambiguity or uncertainty in the clause,
the court cannot imply any term or interpret the clause
contrary to its plain meaning;
(b)
Clauses such as Article 9.2.1(e) are standard clauses
in agreements of this nature. Even after the
notification of the IBC, similar provisions continue in
PPA formats notified by the Government of India as
part of the Standard Bid Documents for Tariff Based
35 “CA 2013”
A
B
C
D
E
F
G
H
643
Competitive Bid Process under Section 63 of the
Electricity Act for conventional power. Similar
provisions are found in the PPAs being drafted as
per Guidelines for Tariff Based Competitive Bidding
Process for renewable energy sources; and
(c)
The bargain between the parties was fair and not
one sided. The same default clause has been provided
under the appellant’s defaults in Article 9.2.2(c), and
a corresponding right to terminate has been provided
under Article 9.3.2. Similar clauses are provided under
the standard PPAs issued by the Government of India
for competitive bidding under Section 63 of the
Electricity Act. Therefore, the clauses cannot be said
to be unreasonable or unconscionable.
35. In summing up their submissions, the appellants have raised
two more arguments:
(i)
The NCLAT’s observations in relation to the termination of
the PPA if the Corporate Debtor goes into liquidation were
incorrect:
(a)
In the appeal filed by the appellant against the order
of the NCLT dated 29 August 2019, the appellant
had not challenged the determination of the NCLT
that the PPA can be terminated in the event of the
initiation of a liquidation proceeding against the
Corporate Debtor. It is a settled principle of law that
the courts cannot go beyond the pleadings or the
prayer put forth by the parties; and
(b)
NCLAT erroneously proceeded on the basis that
there is no difference between the liquidation and
resolution process. On the commencement of
liquidation
proceedings, the corporate debtor is no
longer a going concern. The assets of the corporate
debtor are sold for recovery of money. However,
agreements with third parties are not assets. The
appellant cannot be compelled to continue the
agreement with a new person or entity for the benefit
of the creditors of the Corporate Debtor.
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
644
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(ii)
NCLAT’s direction to the appellant to pay for the electricity
injected by the Corporate Debtor was flawed:
(a)
The appellant was entitled to terminate the PPA from
7 June 2019, and cannot be compelled to procure
and pay for power to preserve the value of the
Corporate Debtor. The injection of electricity from 7
June 2019 is due to the orders of the court and not
under the PPA. Under the principle of “actus curiae
neminem gravabit”, the act of the court cannot
prejudice any party. The court is under an obligation
to undo the wrong caused to a party due to its actions.
The appellant cannot be made to suffer on account
of the erroneous injunctions granted by NCLT/
NCLAT when it could have procured electricity at a
lower cost from other solar power projects;
(b)
The appellant has paid the Corporate Debtor an
amount of Rs 50 lakhs and Rs 1.07 crores pending
the present appeal and against the undertaking that
the amount would be returned with interest if the
appeal is decided in its favour. Additionally, under
Article 9.3.1 of the PPA, the compensation for
termination of the PPA is Rs 55.80 crores; and
(c)
The issues relating to tariff determination and
replacement of solar panels raised by the respondents
were not considered by the NCLT/NCLAT, and are
not relevant for the interpretation of the PPA and
provisions of the IBC.
G.2 Submissions on behalf of the respondents
36. Mr C U Singh and Mr Nakul Dewan, learned
Senior counsel
appearing on behalf of the first respondent, have argued that NCLT had
the jurisdiction to consider the validity of the termination of the PPA by
the appellant on the sole ground of the initiation of the insolvency
proceedings of the Corporate Debtor and that the jurisdiction was rightly
exercised by the NCLT, in the present case. Mr C U Singh has made
the following submissions on the jurisdiction of the NCLT:
(i)
The application for staying the termination of the PPA was
filed by the first respondent before the NCLT under Section
A
B
C
D
E
F
G
H
645
60(5) of the IBC. Section 60(5)(c) confers upon the NCLT
complete jurisdiction to decide any application by or against
the Corporate Debtor on any question of priorities or any
question of law or facts, arising out of or in relation to the
insolvency resolution of the Corporate Debtor,
notwithstanding any other law for the time being in force.
Hence, notwithstanding the provisions of the Electricity Act,
the NCLT has jurisdiction to consider an application filed
by the RP which may not specifically relate to a particular
section of the IBC (such as Section 14), provided the
application involves any question of law or facts, arising
out of or in relation to the insolvency resolution of the third
respondent;
(ii)
Relatedly, since the jurisdiction vested in the NCLT under
Section 60(5)(c) is of a residuary character, even where a
question of law or fact is not specifically covered under
Section 14, the NCLT would have the jurisdiction to consider
such a question of law or fact, provided it arises out or is in
relation to the insolvency resolution process of the corporate
debtor. Any other interpretation of Section 60(5) would
render it otiose;
(iii)
A narrow interpretation of Section 60(5) is neither warranted
from the language of the section, nor is it in line with judicial
precedents which have interpreted similar provisions in other
insolvency laws. Provisions similar to Section 60(5)(c) have
been read in an expansive way. In this regard, reliance is
placed on the interpretation of Section 446(2) of the CA
1956, Section 4(1) of the PIA and Section 45-B of the BRA;
(iv)
The expressions used in Section 60(5)(c), i.e., ‘relating to’
and ‘arising out of’ have been interpreted as words of the
widest amplitude. The expression ‘relating to’ has been held
to be equivalent to or synonymous with ‘as to,’ ‘concerning
with,’ and ‘pertaining to’. In view of the broad scope of
these terms, an interpretation divesting the NCLT of the
power to injunct the termination of the PPA should not be
countenanced in this case;
(v)
The first respondent is not advocating for the adoption of
an absolute rule about what falls within and beyond the
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
646
SUPREME COURT REPORTS
[2021] 13 S.C.R.
NCLT’s jurisdiction under Section 60(5)(c). Rather, it
submits that this determination must be made on the facts
of each case;
(vi)
The termination of the PPA in the present case is sought
solely on the ground of insolvency. The cause of action for
termination is therefore alleged to be the insolvency of the
Corporate Debtor and the contention that the Corporate
Debtor is no longer ‘reliable’ on account of the insolvency
resolution process. There would be no termination of the
PPA but for the initiation of the CIRP against the Corporate
Debtor. Hence, the cause of action arises out of and is in
relation to the insolvency resolution of the Corporate Debtor.
This case is materially different from cases in which
termination of the PPA is sought for reasons independent
of the insolvency of the Corporate Debtor (for instance
where termination is sought for non-supply of electricity);
(vii)
The fact that Sections 20(2)(e) and 25 of the IBC are
couched in terms of a duty, does not necessarily mean that
the NCLT does not have jurisdiction to decide matters that
arise from the duty of the RP to preserve the assets or
maintain the Corporate Debtor as a ‘going concern’. On
the contrary, NCLT is the only forum which has the
jurisdiction to oversee the resolution process of the Corporate
Debtor which necessarily includes the continuation of the
Corporate Debtor as a going concern and its successful
resolution;
(viii) The facts of
this case are different from those of Embassy
Property (supra) and Municipal Corporation vs Abhilash
Lal36. Unlike Abhilash Lal (supra), the property in this
case (long term contractual right under the PPA) is the
property of the Corporate Debtor and not the property of a
statutory authority. Further, there was no violation of law
when NCLT injuncted the appellant from terminating the
PPA on the ground of the initiation of the CIRP of the
Corporate Debtor. In addition, the facts in Abhilash Lal
(supra) dealt with the public duty of Municipal Corporation
36 (2020) 13 SCC 234; hereinafter referred to as “Abhilash Lal”
A
B
C
D
E
F
G
H
647
in respect of the construction of a hospital. Further, there
were existing defaults and a show cause-notice was issued
in this regard prior to the commencement of the CIRP of
the company. As opposed to this, in the present case,
termination by the appellant is not on grounds of default but
solely on the ground of the initiation of the insolvency
resolution process of the Corporate Debtor and, that too,
nearly six months after the admission of the application
under Section 10 of the IBC; and
(ix)
In Embassy Property (supra), what was at issue in was
whether the NCLT has jurisdiction over a matter which is
in the realm of public law. In the present case, the decision
of the appellant to terminate the PPA is not a decision taken
by the Government or by a statutory authority in relation to
a matter which is in the realm of public law. The decision
of the appellant to terminate the PPA is only because the
Corporate Debtor is undergoing insolvency resolution. The
Corporate Debtor has not defaulted in supplying solar power
to the appellant and is otherwise not in breach of its
obligations under the PPA.
37. Assuming that the NCLT has jurisdiction, the following
submissions were made by Mr C U Singh in relation to the interpretation
of the PPA:
(i)
Article 9.2.1 of the PPA, read with Article 9.3.1, which
allows the appellant to terminate the PPA if the third
respondent commits an event of default, must be read with
other provisions of the PPA. In this regard, our
attention
was drawn to:
(a)
The recitals to the PPA state that the Power Producer
will include its successors and assignees;
(b)
Article 4.1(iii) of the PPA provides that the Corporate
Debtor shall sell the power produced by it to the
appellant on first priority basis and is not allowed to
sell to any third party;
(c)
Article 4.1(x) of the PPA provides for the eventuality
of an equity dilution of the power producer;
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
648
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(d)
Article 9.1 of the PPA provides for the term of the
agreement, i.e., 25 years from the commercial
operation date;
(e)
Article 9.3.1 of the PPA provides that in case of a
default of the Corporate Debtor, it shall have the
liability to make payments towards compensation to
the appellant which is equivalent to three years billing
based on the first-year tariff considered on normative
PLF while determining the tariff by GERC, within
30 days from the termination notice;
(f)
Article 12.9 of the PPA specifically provides that the
financing parties may cause the power producer to
assign its interest, rights and obligations to a third
party; and
(g)
The PPA contemplates the financing of the project
and that there could be financial defaults by the
Corporate Debtor. Hence, the PPA specifically
allowed financing parties to step in and change the
identity of the power producer provided the successor
was capable of and willing to assume the obligations
of the power producer under the PPA. Article
9.2.1(e) must be read in light of this background.
(ii)
In relation to the interpretation of Article 9.2.1(e), it was
submitted:
(a)
When the PPA was entered into in 2010, the IBC
was not in existence. The contract was a standard
form contract. While the clause refers to insolvency
or bankruptcy proceedings,the intent of Article
9.2.1(e) could only have been to cover liquidation
proceedings as contemplated under the CA 1956. The
CA
1956 did not contemplate ‘insolvency’ or
‘bankruptcy’ proceedings. Insolvency at the time of
the drafting of the clause was understood to include
individual insolvency. Hence, Article 9.2.1(e) could
not have intended to cover ‘insolvency resolution’
proceedings under the IBC as a trigger for an event
of default;
A
B
C
D
E
F
G
H
649
(b)
If the term ‘insolvency’ proceedings in Article
9.2.1(e) of the PPA, which was entered into in 2010,
is sought to be applied to the ‘insolvency resolution’
proceedings contemplated under the IBC then the
exception in the clause, in the form of ‘reorganization’
will also necessarily need to be applied in light of the
updated understanding. Read thus, the term must
extend to any form of reorganization because of which
the company does not go into liquidation or winding-
up. Read in this manner, Article 9.2.1(e) must be
interpreted to exclude the reorganization proceedings
under the IBC; and
(c)
Assuming, arguendo, that Article 9.2.1(e) of the PPA
is ambiguous, it ought to be interpreted in favour of
the power producer. The PPA is a standard form
contract. The third respondent and the appellant do
not stand on a footing of equality. The application of
the rule of contra preferentum is well settled and an
interpretation of the contract which favours the party
with lesser bargaining power is preferred. Applying
that rule here, any ambiguity in the interpretation of
Article 9.2.1(e) must be resolved in favour of the
third respondent.
38. Submissions were also urged by Mr C U Singh in relation to
Sections 14 and 238 of the IBC:
(i)
In relation to the application of Section 238 of the IBC to
the PPA, it was submitted that:
(a)
Under Article 9.3.1 of the PPA, the third respondent
is required to remedy the default (if any) within 30
days of service of the
default notice. If read in this
manner, on the receipt of a default notice during the
pendency of the CIRP, the third respondent would
be required to complete the reorganization process
within 30 days so as to obviate the consequence of
the PPA getting terminated. The IBC provides a
period of 330 days for the completion of the CIRP.
There is a dichotomy between the provisions of the
PPA and the IBC. The timelines under the PPA for
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
650
SUPREME COURT REPORTS
[2021] 13 S.C.R.
curing a default are inconsistent with those under
the IBC for completing the CIRP with respect to the
third respondent. In view of the non-obstante clause
in Section 238, the provisions of the IBC would
override those of the PPA;
(b)
The argument that the PPA is not an “instrument”
under the IBC is incorrect. Since the term
“instrument” has not been defined in the IBC, it may
bear a meaning drawn from the definition in other
statutes. The PPA is approved by the GERC and
has the force of law under the Electricity Act. The
PPA sets out the rights and liabilities of the parties
and is an instrument for the purposes of Section 238.
Being an “instrument”, which is inconsistent with the
provisions of the IBC, the latter would have overriding
effect over the former, in view of Section 238 of the
IBC. Therefore, the right to terminate would only
arise in case the third respondent fails to cure the
default, i.e., resolve itself in accordance with the IBC;
and
(c)
In view of Section 238, the IBC overrides the
provisions of the Electricity Act. Section 63 of the
IBC provides that “No civil court or authority shall
have jurisdiction to entertain any suit or proceedings
in respect of any matter on which National Company
Law Tribunal or the National Company Law
Appellate Tribunal has jurisdiction under IBC.”
NCLT’s jurisdiction excludes that of the GERC.
(ii)
In relation to the legislative intent underlying Section 14 of
the IBC,
it was submitted that:
(a)
The Notes on Clauses to the Insolvency and
Bankruptcy Bill, 2015 and the Insolvency Law
Committee Report dated 20 February 2020 suggest
a clear legislative intent of Section 14 that, an ipso
facto clause allowing a party to terminate the
contract if the counterparty enters into some form of
insolvency resolution process must either be declared
void or be suitably read down in order to ensure that
A
B
C
D
E
F
G
H
651
the objective of the IBC in keeping the company as
a going concern is met. If in the facts of a given
case, the relevant authorities find that to preserve
the assets of the Corporate Debtor and to keep it as
a going concern, certain contracts need to be
protected, they ought to be invalidated or read down;
and
(b)
The nature of the third respondent and its business
renders the PPA a valuable asset, and its termination
would have the effect of running the third respondent
to the ground. Therefore, in view of the legislative
intent, and reading the provisions of the PPA as a
whole, Article 9.2.1 (e) must be read to exclude
reorganization proceedings under the IBC as an event
of default.
39. Supplementing these submissions, Mr Nakul Dewan, learned
Senior Counsel made the following additional submissions:
(i)
The Resolution Plan submitted by the Successful Resolution
Applicant and approved by the CoC was dependent on the
continuation of the PPA:
(a)
The following aspects of the resolution plan need to
be highlighted: (i) the significance of the PPA to the
continued commercial viability of the corporate
debtor; (ii) the reason for the initiation of the CIRP
including the nature of the debts; (iii) the experience
of the RP in reviving the Corporate Debtor including
the revival plan; (iv) the summary of the resolution
plan, including the ‘haircut’ being taken by the
creditors in order to ensure that the Corporate Debtor
is restructured; (v) the relevant rates
pertaining to
solar tariff; (vi) the business plan; (vii) the financial
plan; and (viii) the potential risks and mitigation
measures;
(b)
The Corporate Debtor was put into financial difficulty
on account of the force majeure events which
transpired in 2015 and 2017. The first respondent
had started putting the Corporate Debtor back on its
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
652
SUPREME COURT REPORTS
[2021] 13 S.C.R.
track, and along with the Resolution Applicant had
formulated a plan under which the Corporate Debtor
would be revived. The resolution plan was dependent
on the continuation of the PPA; and
(c)
If the termination is permitted, the Corporate Debtor
would not be able to revive in terms of the resolution
plan which has been agreed upon by the lenders, even
though it continues to be able to perform its obligations
under the PPA.
(ii)
In relation to the interpretation of Article 9.2.1(e):
(a)
The term ‘law’, in Article 9.2.1(e) must be interpreted
in a dynamic sense. The interpretation of Article
9.2.1(e) must be considered at the point of time it
was sought to be invoked in order to ascertain whether
there was an event of default. The exception under
which “reorganization” is excluded as an event of
default, would apply to the proceedings which were
initiated under section 10 of the IBC for the sole
purpose of the reorganization of the Corporate
Debtor; and
(b)
The invocation of Article 9.2.1(e) on the ground that
proceedings under Section 10 of the IBC had been
commenced was both erroneous and premature. It
was erroneous because at the time of commencement
of the proceedings, the Corporate Debtor was looking
at the reorganization of its affairs. It squarely fell
within the exception to Article 9.2.1(e). It was
premature because unless and until the appellant was
sure that after a reorganization the resulting entity
would not have the financial standing to perform its
obligations or as to its lack of creditworthiness, it had
no basis to terminate the PPA on the ground that it
constituted an event of default under Article 9.2.1(e).
(iii)
In relation to the jurisdiction of the NCLT, it was submitted
that:
(a)
The NCLT’s jurisdiction with respect to Section 60(5)
was invoked to seek quashing of the default notice
issued by “taking insolvency proceedings as Event
A
B
C
D
E
F
G
H
653
of Default.” Therefore, the application filed before
the NCLT was within the realm of its jurisdiction
under Section 60(5) of the IBC;
(b)
The appellant’s submission about GERC having
jurisdiction should not be accepted. Instead, this Court
should adopt the position that, should the
commencement of proceedings under the IBC be
used as a ground to terminate a contract, then the
matter ought to be determinable by the NCLT. This
is further bolstered by the exclusion of the jurisdiction
of civil courts under Section 231 of the IBC; and
(c)
IBC, being a special law, enacted after the Electricity
Act, the NCLT and NCLAT have exclusive
jurisdiction to govern all questions of fact and law
relating to the insolvency process of the corporate
debtor.
40. Mr V Giri, learned senior counsel on behalf of the second
respondent, made the following submissions in support of the arguments
made by the first respondent:
(i)
Once an application under sections 7, 9 or 10 of the IBC is
admitted by the NCLT, it is conferred with the jurisdiction
to deal with matters relating to the insolvency of the
corporate debtor;
(ii)
Both the Electricity Act and the IBC are special legislations,
which have been enacted to deal with electricity related
issues and insolvency, respectively. In Ashoka Marketing
vs PNB37 this court held that a harmonious construction of
two special laws containing non-obstante clauses can be
undertaken by looking at the purpose of both the laws. This
Court was
also mindful of the principle that a special law
enacted at a later date prevails over the earlier special law.
In this regard, the non-obstante clause under Section 174
of the Electricity Act would be overridden by Section 238
of IBC in case of a conflict of jurisdiction to resolve a
dispute;
37 1990 (4) SCC 406
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
654
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(iii)
The NCLT can exercise its jurisdiction under Section 60(5)
of the IBC to ensure that the Corporate Debtor survives as
a ‘going concern’. It would not be possible to enter into
another PPA with the same terms and conditions as the
current PPA;
(iv)
The second respondent as a lender bank may not be able to
initiate a dispute resolution process under Section 86(f) of
the Electricity Act since it contemplates the resolution of
disputes between a generator and a trading licensee;
(v)
Section 60(5)(c) of the IBC provides that the NCLT can
entertain or dispose of any event or action arising out of, in
relation to, effecting or hampering the insolvency resolution
process. NCLT has the jurisdiction to intervene to the extent
of removing any obstacle in the CIRP process for it to reach
its logical end, which is approval of the resolution plan or
liquidation. The contours of Section 14 of the IBC must be
determined under such an understanding of Section 60(5)(c);
(vi)
The moratorium under Section 14 of IBC is not exhaustive
because:
(a)
The object of section 14 is protection of the Corporate
Debtor during the CIRP;
(b)
The preamble of the IBC provides for preserving
the maximum value of the assets of the Corporate
Debtor; and
(c)
Section 14(3) only excludes certain kinds of
agreements and transactions from moratorium under
Section 14(1), as notified by the Central Government
in consultation with the financial regulator or
any
other authority. The NCLT has the power to impose
moratorium or status quo in the interest of protecting
the corporate debtor and the CIRP in addition to the
protections enumerated in Section 14(1);
(vii)
Maintaining the Corporate Debtor as a ‘going concern’ is
the soul of the CIRP. Section 14(2A) provides that a supply
of goods or services which an IRP or RP considers critical
for protecting and preserving the value of the Corporate
A
B
C
D
E
F
G
H
655
Debtor, and managing its operation as a going concern
cannot be terminated, suspended or interrupted. Section
20(1) imposes a duty on the IRP to protect and preserve
the value of the Corporate Debtor and manage the
operations as a ‘going concern’. The ‘Resolution Plan’ has
been defined under Section 5(26) of the IBC as a plan
proposed by the resolution applicant for insolvency resolution
of the Corporate Debtor as a ‘going concern’. The
termination of the PPA would push the Corporate Debtor
towards a corporate death, namely, liquidation;
(viii) The Explanation to Section 14(1) clarifies that, inter alia,
“a similar grant of right given by the Central government,
State government, local authority, sectoral regulator or any
other authority shall not be terminated on the ground of
insolvency”. This indicates the intent of the legislature that
no right conferred on the Corporate Debtor can be taken
away due to the initiation of the CIRP;
(ix)
Article 9.2.1(e) must be read with Article 12.9 of the PPA,
which provides that if a default is committed under the
financing documents, lenders have a right to assign the rights
and obligations of the Corporate Debtor under the PPA to
a third party. Hence, the PPA contemplates a situation
where the Corporate Debtor may go through a
reorganization. The present proceedings under the IBC are
in the nature of a reorganization. Hence, the CIRP cannot
be construed as event of default under the PPA;
(x)
The lenders extended
the loan based on the: (a) right of
assignment granted under Article 12.9 of the PPA; (b)
purchase of electricity as a fixed tariff; and (c) term of the
PPA for a period of 25 years. The financial projections on
the loan and its repayment were made on the above terms.
The default notice is in violation of the terms of the PPA
and the understanding reached between the parties;
(xi)
Article 9.3.1 of the PPA is inconsistent with the IBC, since
the PPA grants a time of 30 days to remedy the insolvency
whereas the IBC provides a timeline of 180 days, which is
extendable up to 330 days. Section 238 of IBC ensures
that the IBC will prevail over the PPA. The phrase
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
656
SUPREME COURT REPORTS
[2021] 13 S.C.R.
“instrument” in Section 238 can be interpreted in light of
Section 2(14) of the Indian Stamp Act, 1899 and Section
2(b) of the Notaries Act, 1952 which provide that an
“instrument”, “includes every document by which any right
or liability is, or purports to be, created, transferred, limited,
extended, extinguished or recorded.” Hence the PPA
qualifies as an instrument;
(xii)
Section 14(1)(d) provides for protection of the property of
the Corporate Debtor. The expression “property” would
include the PPA in terms of its definition in Section 3(27) of
the IBC. Paras 8.1 to 8.3 of the Third Insolvency Committee
Report dated 20 February 2020 indicate that the intent of
the IBC is to ensure that the Corporate Debtor remains a
going concern and contracts cannot be terminated by way
of ipso facto clauses relating to insolvency; and
(xiii) The appellant terminated the PPA not due to the default
per se but due to a commercial decision to negotiate and
reduce the purchase price of electricity under tariff. It is
not the intent of the IBC to allow an entity to take the benefit
of the CIRP to negotiate a better price for a contract and in
effect reduce the value of the Corporate Debtor.
H Issues arising from the dispute
41. The following two issues arise for determination:
(i)
Whether the NCLT/NCLAT can exercise jurisdiction under
the IBC over disputes arising from contracts such as the
PPA; and
(ii)
Whether the appellant’s right
to terminate the PPA in terms
of Article 9.2.1(e) read with 9.3.1 is regulated by the IBC.
I Jurisdiction of the NCLT/NCLAT over contractual
disputes
42. The primary issue upon which the outcome of this appeal
would turn is the nature of the jurisdiction which is exercised by the
NCLT under Section 60(5) of the IBC. The provision reads thus:
“(5) Notwithstanding anything to the contrary contained in any
other law for the time being in force, the National Company Law
Tribunal shall have jurisdiction to entertain or dispose of –
A
B
C
D
E
F
G
H
657
(a) any application or proceeding by or against the corporate debtor
or corporate person;
(b) any claim made by or against the corporate debtor or corporate
person, including claims by or against any of its subsidiaries
situated in India; and
(c) any question of priorities or any question of law or facts, arising
out of or in relation to the insolvency resolution or liquidation
proceedings of the corporate debtor or corporate person under
this Code.”
43. Sub-section (1) of Section 60 provides the NCLT with territorial
jurisdiction over the place where the registered office of the corporate
person is located. NCLT shall be the adjudicating authority “in relation
to insolvency resolution and liquidation for corporate persons including
corporate debtors and personal guarantors”. The NCLT has been
constituted under Section 408 of the CA 2013 “to exercise and discharge
such powers and functions as are, or may be, conferred on it by or under
this Act or any other law for the time being in force”38.
44. NCLT owes its existence to statute. The powers and functions
which it exercises are those which are conferred upon it by law, in this
case, the IBC.
45. The NCLT in its decision dated 29 August 2019 did not
specifically examine the issue of its jurisdiction under Section 60(5)(c)
of the IBC. It prohibited the termination of the PPA on the ground that it
is an “instrument” under Section 238; Articles 9.2.1(e) read with 9.3.1
of the PPA are inconsistent with the
provisions of the IBC; and the latter
overrides aninstrument having effect by virtue of law. One of the
considerations which weighed with the NCLT while coming to its
determination was that termination of the PPA would prejudice the status
of the Corporate Debtor as a ‘‘going concern’, andlead to the failure of
the CIRP. The NCLT observed:
38 “Section 408. The Central Government shall, by notification, constitute, with effect
from such date as may be specified therein, a Tribunal to be known as the National
Company Law Tribunal consisting of a President and such number of Judicial and
Technical members, as the Central Government may deem necessary, to be appointed
by it by notification, to exercise and discharge such powers and functions as are, or may
be, conferred on it by or under this Act or any other law for the time being in force.”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
658
SUPREME COURT REPORTS
[2021] 13 S.C.R.
“30. …the CIR process in the instant case was triggered on
20.11.2018, which was further extended by 90 days on 16.05.2019
and the default notices were issued by the Respondent Company
on 01.05.2019. That termination of PPA at this stage may have
adverse consequences on the status of the Corporate Debtor as
“going concern” and eventually, may jeopardise the entire CIR
Process. While elaborating on the objectives of IBC as enshrined
in the Preamble, the Hon’ble Supreme Court, had held in the matter
of Swiss Ribbons Pvt. Ltd. v Union of India, 2019 SCC
Online SC 73:
“ ....... What is interesting to note is that Preamble does not,
in any manner, refer to liquidation, which is only availed of
as a last resort if there is either no resolution plan or the
resolution plan submitted are not up to the mark. Even in
liquidation, the liquidator can sell the business of the
corporate debtor as a going concern”.”
46. In appeal, the NCLAT by its order dated 15 October 2019,
upheld the exercise of jurisdiction by the NCLT. The NCLAT held:
“Taking into consideration the nature of the case, we are of the
view that to keep the ‘Corporate Debtor’ a going concern, which
is generating electricity and supplying only to ‘Gujarat Urja Vikas
Nigam Ltd.’, the Adjudicating Authority rightly asked ‘Gujarat
Urja Vikas Nigam Ltd.’ not to terminate the ‘Power Purchase
Agreement’ dated 30th April, 2010.
We may make it clear that the ‘Gujarat Urja
Vikas Nigam Limited’,
being purchaser of the electricity cannot terminate the ‘Power
Purchase Agreement’ solely on the ground that the ‘Corporate
Insolvency Resolution Process’ has been initiated against
‘Astonfield Solar (Gujrat) Pvt. Ltd.’ (Corporate Debtor) which is
generating electricity and supplying it and there is no default in
supplying electricity and during the ‘Corporate Insolvency
Resolution Process’...”
However, like the NCLT, the NCLAT did not give any specific
finding on whether it or the NCLT can exercise its jurisdiction under
section 60(5)(c) over a dispute arising out of the termination of the PPA.
In this regard, the task falls on this Court to enumerate the contours of
the jurisdiction that can be exercised under Section 60(5)(c) of the IBC.
A
B
C
D
E
F
G
H
659
I.1 Section 60(5)(c) : “arising out of” and “in relation to”
47. It has been submitted before us on behalf of the appellant that
the NCLT does not have any inherent powers, and its exercise of
jurisdiction is circumscribed by the provisions of the IBC. As such, it
does not have the jurisdiction to entertain all disputes or all issues related
to the Corporate Debtor. On the other hand, the respondents have made
a limited submission that while the NCLT may not have jurisdiction to
adjudicate upon contractual disputes that arise independent of the
insolvency of the Corporate Debtor, it has the sole jurisdiction to decide
a dispute that arises from or relates to the insolvency of the Corporate
Debtor or where the property of the Corporate Debtor (in this case its
rights under the PPA) is sought to be taken away on the ground of
insolvency. For their argument, the respondents have relied on Section
60(5)(c) to submit that NCLT is vested with a wide jurisdiction to consider
questions of law or fact “arising out of” or “in relation to” insolvency
resolution proceedings.
48. In varying contexts, this Court has expansively construed the
expressions “relating to” and “arising out of” in its previous decisions.
The respondents have relied on some of these judgments to buttress
their submissions in regard to the width of Section 60(5)(c). In Renusagar
Power Co. Ltd. vs General Electric Company39, a two judge Bench
while interpreting the words “arising out of” or
“related to” in an
arbitration clause held as follows, speaking through Justice V.D.
Tulzapurkar
“25…(2) Expressions such as “arising out of” or “in respect of”
or “in connection with” or “in relation to” or “in consequence of”
or “concerning” or “relating to” the contract are of the widest
amplitude and content..”
49. In Mansukhlal Dhanraj Jain vs Eknath Vithal Ogale40,
another two judge Bench of this Court emphasized the comprehensive
nature and wide sweep of the term “relating to” in the context of the
Small Causes Courts Act, 1887. Justice SB Majumdar held:
“16. It is, therefore obvious that the phrase “relating to recovery
of possession” as found in Section 41(1) of the Small Cause Courts
39 (1984) 4 SCC 679
40 (1995) 2 SCC 665
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
660
SUPREME COURT REPORTS
[2021] 13 S.C.R.
Act is comprehensive in nature and takes in its sweep all types of
suits and proceedings which are concerned with the recovery of
possession of suit property from the licensee and, therefore, suits
for permanent injunction restraining the defendant from effecting
forcible recovery of such possession from the licensee-plaintiff
would squarely be covered by the wide sweep of the said phrase.
Consequently in the light of the averments in plaints under
consideration and the prayers sought for therein, on the clear
language of Section 41(1), the conclusion is inevitable that these
suits could lie within the exclusive jurisdiction of Small Cause Court,
Bombay and City Civil Court would have no jurisdiction to entertain
such suits.”
50. In Doypack System (P) Ltd. vs Union of India41,a two
judge Bench held that the expression “in relation to” is broad and is
equivalent to the expressions “concerning with” and “pertaining to”, with
the latter also being expansive in ambit. Justice Sabyasachi Mukharji (as
the learned Chief Justice of India then was) observed:
“50. The expression “in relation to” (so also “pertaining to”), is a
very broad expression which presupposes another subject matter.
These are words of comprehensiveness which might have both
direct significance as well as indirect significance depending on
the context [internal citation omitted]. Assuming that the
investments in shares and in lands do not form part of
the
undertaking but are different subject matters, even then these
would be brought within the purview of the vesting by reason of
the above expressions. In this connection reference may be
made to 76 Corpus Juris Secundum at pages 620 and 621
where it is stated that the term “relate” is also defined as
meaning to bring into association or connection with. It has
been clearly mentioned that “relating to” has been held to
be equivalent to or synonymous with as to “concerning with”
and “pertaining to”. The expression “pertaining to” is an
expression of expansion and not of contraction.”
(emphasis supplied)
51. While the phrases “arising out of” and “relating to” have been
given an expansive interpretation in the above cases, words can have
41 (1988) 2 SCC 299
A
B
C
D
E
F
G
H
661
different meanings depending on the subject or context. Words are after
all, a vehicle for communicating ideas, thoughts and concepts. A one-
size-fits-all analogy may not always hold good when we construe similar
words in entirely distinct settings. Justice G.P. Singh in his authoritative
commentary on the interpretation of statutes, Principles of Statutory
Interpretation, has noted that the same words used in different sections
of the same statute or used at different places in the same clause or
section can have different meanings42. Therefore, it is necessary to bear
in mind the context in which the phrases have been used. Justice G.P.
Singh has stated in his commentary that43:
“When the question arises as to the meaning of a certain provision
in a statute, it is not only legitimate but proper to read that provision
in its context. The context here means, the statute as a whole, the
previous state of the law, other statutes in pari materia, the general
scope of the statute and the mischief that it was intended to
remedy.”
52. Bearing in mind the above caution, it may be of relevance to
discuss the interpretation of similar provisions in other insolvency laws.
Textually, the provisions of Section 60(5) bear a flavor of resemblance
to the provisions which were contained in sub-Section 2 of Section 44644
of the CA 1956, which correspond now to Section 28045 of CA 2013.
42 G.P. Singh, Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015)
43
Ibid.
44 Sub-section 2 of section 446 provides as follows:
“(2) The Court which is winding up the company shall, notwithstanding anything contained
in any other law for the time being in force, have jurisdiction to entertain, or dispose of-
(a) any suit or proceeding by or against the company; (b) any claim made by or against
the company (including claims by or against any of its branches in India); (c) any
application made under section 391 by or in respect of the company; (d) any question of
priorities or any other question whatsoever, whether of law or fact, which may relate to
or arise in course of the winding up of the company; whether such suit or proceeding
has been instituted, or is instituted, or such claim or question has arisen or arises or
such application has been made or is made before or after the order for the winding up
of the company, or before or after the commencement of the Companies (Amendment)
Act, 1960.”
45 Section 280 of the CA 2013 provides as follows:
“280. Jurisdiction of Tribunal.— The Tribunal shall, notwithstanding anything contained
in any other law for the time being in force, have jurisdiction to entertain, or dispose
of,— (a) any suit or proceeding by or against the company; (b) any claim made by or
against the company, including claims by or against any of its branches in India; (c) any
application made under section 233; (d) any scheme submitted under section 262; (e)
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA
Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
662
SUPREME COURT REPORTS
[2021] 13 S.C.R.
53. A textual comparison of the provisions of Section 60(5) of the
IBC with Section 446(2) of CA 1956 would reveal some similarities of
expression, with textual variations. For the purposes of the present
proceedings, it suffices to note that clause (c) of Section 60(5) confers
jurisdiction on the NCLT to entertain or dispose of “any question of
priorities or any question of law or facts arising out of or in relation to
the insolvency resolution or liquidation proceedings of the corporate debtor
or corporate person under the Code”. Section 446(2)(d) of CA 1956 and
section 280(d) of CA 2013 use the expression any question of priorities
or any other question whatsoever whether of law or fact. These words
bear a striking resemblance to the provisions of section 60(5) (c) of the
IBC. But textually similar language in different enactments has to be
construed in the context and scheme of the statue in which the words
appear. The meaning and content attributed to statutory language in one
enactment cannot in all circumstances be transplanted into a distinct, if
not, alien soil. For, it is trite law that the words of a statute have to be
construed in a manner which would give them a sensible meaning which
accords with the overall scheme of the statute, the context in which the
words are used and the purpose of the underlying provision. Therefore,
while construing of section 60(5), a starting point for the analysis must
be to
decipher Parliamentary intent based on the object underlying the
enactment of the IBC. The Statement of Objects and Reasons leading
up to the enactment to the IBC conveys a strong sense of the intent of
the legislature. According to it:
“There is no single law in India that deals with insolvency and
bankruptcy. Provisions relating to insolvency and bankruptcy for
companies can be found in the Sick Industrial Companies (Special
Provisions) Act, 1985, the Recovery of Debt Due to Banks and
Financial Institutions Act, 1993, the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 and the Companies Act, 2013. These statutes
provide for creation of multiple fora such as Board of Industrial
any question of priorities or any other question whatsoever, whether of law or facts,
including those relating to assets, business, actions, rights, entitlements, privileges,
benefits, duties, responsibilities, obligations or in any matter arising out of, or in relation
to winding up of the company, whether such suit or proceeding has been instituted, or is
instituted, or such claim or question has arisen or arises or such application has been
made or is made or such scheme has been submitted, or is submitted, before or after the
order for the winding up of the company is made.”
A
B
C
D
E
F
G
H
663
and Financial Reconstruction (BIFR), Debts Recovery Tribunal
(DRT) and National Company Law Tribunal (NCLT) and their
respective Appellate Tribunals. Liquidation of companies is handled
by the High Courts. Individual bankruptcy and insolvency is dealt
with under the Presidency Towns Insolvency Act, 1909, and the
Provincial Insolvency Act, 1920 and is dealt with by the Courts.
The existing framework for insolvency and bankruptcy is
inadequate, ineffective and results in undue delays in resolution,
therefore, the proposed legislation.
2. The objective of the Insolvency and Bankruptcy Code, 2015 is
to consolidate and amend the laws relating to reorganization and
insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner for maximization of value of
assets of such persons, to promote entrepreneurship, availability
of credit and balance the interests of all the stakeholders including
alteration in the priority of payment of government dues and to
establish an Insolvency and Bankruptcy Fund, and matters
connected therewith or incidental thereto. An effective legal
framework for timely resolution of insolvency and bankruptcy
would support development of credit markets and encourage
entrepreneurship. It would also improve Ease of Doing Business,
and facilitate more investments leading to higher economic growth
and development.
3. The Code seeks to provide for designating the NCLT and DRT
as the Adjudicating Authorities
for corporate persons and firms
and individuals, respectively, for resolution of insolvency, liquidation
and bankruptcy. The Code separates commercial aspects of
insolvency and bankruptcy proceedings from judicial aspects. The
Code also seeks to provide for establishment of the Insolvency
and Bankruptcy Board of India (Board) for regulation of insolvency
professionals, insolvency professional agencies and information
utilities. Till the Board is established, the Central Government shall
exercise all powers of the Board or designate any financial sector
regulator to exercise the powers and functions of the Board.
Insolvency professionals will assist in completion of insolvency
resolution, liquidation and bankruptcy proceedings envisaged in
the Code. Information Utilities would collect, collate, authenticate
and disseminate financial information to facilitate such proceedings.
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
664
SUPREME COURT REPORTS
[2021] 13 S.C.R.
The Code also proposes to establish a fund to be called the
Insolvency and Bankruptcy Fund of India for the purposes specified
in the Code.”
54. The salient aspects which emerge from the state of the law
prior to the enactment to the IBC can be formulated thus:
(i)
There was a multiplicity of legislation dealing with
insolvency and bankruptcy;
(ii)
Multiplicity of statutes led to the creation of multiplicity of
fora;
(iii)
Provisions relating to insolvency and bankruptcy of
companies were embodied in the SICA, the Recovery of
Debt Due to Banks and Financial Institutions Act, 199346,
the Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 200247 and the
CA 2013;
(iv)
The above statutes provided for the establishment of
multiplicity of adjudicating bodies including the BIFR, Debt
Recovery Tribunal48, NCLT and the Appellate Tribunal;
(v)
While the liquidation of companies was adjudicated upon
by the High Courts exercising company jurisdiction,
individual insolvency was governed by the Presidency-
Towns Insolvency Act, 1909 and the PIA;
(vi)
The multiplicity of statute and fora in the regime prior to
the IBC led to a framework for insolvency and bankruptcy
which was inadequate and ineffective, and resulted in undue
delay;
(vii)
The underlying purpose and object of enacting the IBC was
to ensure a timely resolution of insolvency and bankruptcy
which would:
(a)
Maximize of the
value of assets;
(b)
Promote entrepreneurship;
(c)
Facilitate the availability of credit;
46 “RDDB”
47 “SARFAESI”
48 “DRT”
A
B
C
D
E
F
G
H
665
(d)
Support the development of credit markets; and
(e)
Balance interests of all stake-holders.
(viii) Bearing the above aspects in mind, the IBC, which is a
consolidating and amending statute, came to be enacted;
and
(ix)
The IBC, in a clear departure from the past, separates
commercial aspects of insolvency and bankruptcy
proceedings from judicial aspects.
55. In the decision of this Court in Swiss Ribbons (supra), where
the challenge was to the constitutional validity of some provisions of the
IBC, the judgment by Justice RF Nariman contains a section titled
“Prologue: the pre-existing state of the law”. The problems which
arise from multiplicities of statutes and fora in the erstwhile regime were
noticed in the report of the Bankruptcy Law Reforms Committee (2015)
(“BLRC”):
“14. …The current state of the bankruptcy process for firms is a
highly fragmented framework. Powers of the creditor and the
debtor under insolvency are provided for under different Acts…
It is problematic that these different laws are implemented in
different judicial fora. Cases that are decided at the tribunal/BIFR
often come for review to the High Courts. This gives rise to two
types of problems in implementation of the resolution framework.
The first is the lack of clarity of jurisdiction. In a situation where
one forum decides on matters relating to the rights of the creditor,
while another decides on those relating to the rights of the debtor,
the decisions are readily
appealed against and either stayed or
overturned in a higher court. Ideally, if economic value is indeed
to be preserved, there must be a single forum that hears both
sides of the case and makes a judgment based on both. A second
problem exacerbates the problems of multiple judicial fora. The
fora entrusted with adjudicating on matters relating to insolvency
and bankruptcy may not have the business or financial expertise,
information or bandwidth to decide on such matters. This leads to
delays and extensions in arriving at an outcome, and increases
the vulnerability to appeals of the outcome…a matrix of
fragmented and contrary outcomes,…”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
666
SUPREME COURT REPORTS
[2021] 13 S.C.R.
A “debtor and creditor led process of corporate insolvency” had
resulted in a matrix of fragmented and contrary outcomes rather than
“coherent and consistent.… precedents”.
56. The BLRC noted that speed is of the essence for the working
of a bankruptcy code. From the point of the view of creditors, a good
realization can be obtained when a firm is sold as a going concern. The
decisions of this Court in Madras Petrochem49, Innoventive
Industries50 and Arcelor Mittal (India) (Private) Limited51
emphatically advert to the failure of the statutory resolution machinery
in the regime prior to the IBC. It was in this backdrop that the IBC was
enacted to provide for a timely resolution of the CIRP. The primary
focus of the IBC is to ensure the revival and continuation of the corporate
debtor. The interests of the corporate debtor have been bifurcated and
separated from the interests of persons in management. The timelines
which are prescribed in the IBC are intended to ensure the resuscitation
of the corporate debtor.
57. The enactment of the IBC is in significant senses a break
from the past. While interpreting the provisions of the IBC, care must be
taken to ensure that the regime which Parliament found deficient and
which was the basic reason for the enactment of the new legislation is
not brought in through the backdoor by a process of disingenuous legal
interpretation. However, this is not to say that the interpretation
given to
the statutory provisions that existed prior to the enactment IBC is to be
rejected in toto. The interpretation given to such statutory provisions
that are textually similar to Section 60(5)(c) may be relevant, provided
that such interpretation is in tandem with the objective of enacting the
IBC, that is, inter alia, avoidance of multiplicity of fora and a timely
resolution of the insolvency process.
58. In Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar52, a
three judge Bench of this Court held that the object of Section 446(2) of
CA 1956 was to enlarge the jurisdiction of the Company Court to avoid
a multiplicity of proceedings, delay and expensive litigation. The Court
was speaking through Justice D.A Desai held:
49 Madras Petrochem Limitted. vs BIFR : (2016) 4 SCC 1
50 Innoventive Industries vs ICICI Bank : (2018) 1 SCC 407; hereinafter referred to
as “Innoventive Industries”
51 Arcelor Mittal (India) (Private) Limited. vs Satish Kumar Gupta : (2019) 2 SCC
1; hereinafter referred to as “Arcelor Mittal”
52 (1984) 4 SCC 657
A
B
C
D
E
F
G
H
667
“8..Sub-Section (2) was introduced to enlarge the jurisdiction of
the court winding up the company so as to facilitate the disposal
of winding-up proceedings…To save the Company which is
ordered to be wound up from this prolix and expensive litigation
and to accelerate the disposal of winding-up proceedings, the
Parliament devised a cheap and summary remedy conferring
jurisdiction on the court winding up the company to entertain
petitions in respect of claims for and against the company. This
was the object behind enacting Section 446(2) and therefore, it
must receive such construction at the hands of the court as would
advance the object and at any rate not thwart it”
59. Section 4(1) of the PIA used similar words in relation to the
jurisdiction of the insolvency court as Section 60(5) of the IBC. Section
4(1) of the PIA provided:
“Section 4 - Power of Court to decide all questions arising
in insolvency
(1) Subject to the provisions of this Act, the Court shall have full
power to decide all questions whether of title or priority, or of any
nature whatsoever, and whether involving matters of law or of
fact, which may arise in any case of insolvency coming within
the cognizance of the Court, or which the Court may deem it
expedient or necessary to decide for the purpose of doing complete
justice or making a complete distribution of property in any such
case.”
(emphasis supplied)
60. Another threejudge Bench of this Court, in Thampanoor Ravi
vs Charupara
Ravi53, held that a High Court does not have the jurisdiction
to determine whether a person is an undischarged insolvent in an election
petition filed under the Representation of People Act, 1951, in view of
the exclusive jurisdiction conferred upon an insolvency court constituted
under the PIA. Justice S. Rajendra Babu, held:
“11…..The Insolvency Act is a complete code and determination
of all questions regarding insolvency including a question as to
whether (1) a person is an insolvent or not, or (2) an insolvent be
discharged or not and subject to what conditions, can be decided
by the court constituted under that Act alone…..
53 (1999) 8 SCC 74
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
668
SUPREME COURT REPORTS
[2021] 13 S.C.R.
13. In the present case, as we have explained earlier the scheme
of the provisions of the Insolvency Act, the exclusive jurisdiction
to deal with any question relating to insolvency could be
adjudicated upon only by the court constituted under that Act. In
such a situation, it would not be possible to hold that the High
Court had, while dealing with an election petition, jurisdiction to
decide a question as to whether a person is an undischarged
insolvent or not. Admittedly, in this case, there is no such
adjudication. Hence the High Court could not declare the appellant
to be an ‘undischarged insolvent’.”
61. Section 45-B of the BRA uses language similar to Section
60(5) of the IBC. Section 45-B of the BRA provides:
“Section 45B - Power of High Court to decide all claims in
respect of banking companies
The High Court shall, save as otherwise expressly provided in
section 45C, have exclusive jurisdiction to entertain and decide
any claim made by or against a banking company which is being
wound up (including claims by or against any of its branches in
India) or any application made under section 39of the Companies
Act, 1956 by or in respect of a banking company or any question
of priorities or any other question whatsoever, whether of law or
fad [sic fact]which may relate to or arise in the course of the
winding up of a banking company, whether such claim or
question has arisen or arises or such application has been
made
or is made before or after the date of the order for the winding up
of the banking company or before or after the commencement of
the Banking Companies (Amendment) Act, 1953 (52 of 1953).”
(emphasis supplied)
62. In Dhirendra Chandra Pal vs Associated Bank of Tripura
Ltd.54, a four judge Bench of this Court examined the scope of Section
45-B.Justice B. Jagannadhas observed:
“4. It is to be remembered that section 45-B is not confined to
claims for recovery of money or recovery of property, movable
or immovable, but comprehends all sorts of claims which relate to
or arise in the course of winding up.”
54 AIR 1955 SC 213
A
B
C
D
E
F
G
H
669
63. The above judgements were undoubtedly in relation to the
jurisdiction of courts in relation to winding up and insolvency proceedings
under distinct statutes. But considerations such as avoiding multiplicity
of fora, speedy disposal and litigation costs would also be germane to
the establishment of an exclusive body under the IBC to adjudicate matters
arising from or in relation to the insolvency resolution process.
64. In this context, it would be useful to trace the history of the
NCLT and NCLAT, which are empowered to deal with all issues relating
to insolvency, specifically with the aim of avoiding a multiplicity of fora.
The Justice Eradi Committee was constituted by the Department of
Company Affairs to make recommendations on reforming the existing
law on winding up of companies to increase transparency and reduce
delays in the liquidation of companies. The Report of the High Level
Committee on Law relating to Insolvency and Winding Up of Companies
(2000) stated that:
“…there is a need for establishing a National Tribunal as a
specialized agency to deal with matters relating to rehabilitation,
revival and winding up of companies. With a view to avoiding
multiplicity of fora, the National Tribunal. should be
conferred with jurisdiction and powers to deal with matters
under Companies Act, 1956 presently exercised by the
Company Law Board; jurisdiction, power and authority
relating to winding up of companies vested with High
Courts and power to
consider rehabilitation and revival of
companies presently vested in the BIFR. This suggestion of
the Committee will involve amending the provisions of Part VU
of Companies Act, 1956 besides repeal of Sick Industrial
Companies (Special Provisions) Act, 1985 and amending section
10E of the Companies Act relating to the present Company Law
Board. All the existing cases pending with the High Courts and
the Company Law Board may be transferred to the Tribunal and
the pending references before BIFR/ AAFIR shall abate.”
(emphasis supplied)
65. The above report was discussed in the decision of this Court
in Union of India vs R. Gandhi, President, Madras Bar Association55.
A Constitution Bench noted that the recommendations of the Committee
55 (2010) 11 SCC 1
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
670
SUPREME COURT REPORTS
[2021] 13 S.C.R.
were accepted by the Government, which established the NCLT and
NCLAT to transfer the functions being performed by High Courts,
Company Law Board, BIFR and Appellate Authority for Industrial and
Financial Reconstruction to a single forum to avoid long drawn litigation
before multiple fora. Justice R.V. Raveendran observed:
“3. (…) The Committee found that multiplicity of court
proceedings is the main reason for the abnormal delay in
dissolution of companies. It also found that different
agencies dealt with different areas relating to companies,
that Board for Industrial & Financial Reconstruction
(BIFR) and Appellate Authority for Industrial & Financial
Reconstruction (AAIFR) dealt with references relating to
rehabilitation and revival of companies, High Courts dealt
with winding-up of companies and Company Law Board
(CLB) dealt with matters relating to prevention of
oppression and mismanagement etc. Considering the laws on
corporate insolvency prevailing in industrially advanced countries,
the Committee recommended various amendments in regard to
the provisions of Companies Act, 1956 for setting-up of a National
Company Law Tribunal which will combine the powers of the
CLB under the Companies Act, 1956, BIFR and AAIFR under
the Sick Industrial Companies (Special Provisions) Act, 1985 as
also the jurisdiction and powers relating to winding-up presently
vested in the High Courts.
4. It is stated that the
recommendations of the Eradi Committee
were accepted by the Government and Company (Second
Amendment) Act, 2002 was passed providing for establishment
of NCLT and NCLAT to take-over the functions which are being
performed by CLB, BIFR, AAIFR and the High Courts. It is
submitted that the establishment of NCLT and NCLAT will have
the following beneficial effects: (i) reduce the pendency of cases
and reduce the period of winding-up process from 20 to 25 years
to about two years; (ii) avoid multiplicity of litigation before various
fora (High Courts and quasi-judicial Authorities like CLB, BIFR
and AAIFR) as all can be heard and decided by NCLT; (iii) the
appeals will be streamlined with an appeal provided against the
order of the NCLT to an appellate Tribunal (NCLAT) exclusively
dedicated to matters arising from NCLT, with a further appeal to
A
B
C
D
E
F
G
H
671
the Supreme Court only on points of law, thereby reducing the
delay in appeals; and (iv) with the pending cases before the
Company Law Board and all winding-up cases pending before
the High Courts being transferred to NCLT, the burden on High
Courts will be reduced and BIFR and AAIFR could be abolished.”
(emphasis supplied)
66. The IBC was a reform which was distilled through many
committee reports, most importantly the Report of the BLRC, which
recommended that the earlier institutional framework relating to the
winding up and liquidation of the companies should continue under the
IBC. The Report stated:
“4.2.2 Territorial jurisdiction
…
Further, following from current law, once a liquidation or bankruptcy
order has been made, leave of the NCLT or DRT would be
necessary to proceed with any pending suit or proceeding or to
file any fresh suit or proceeding by or against the debtor firm or
individual. This will ensure the sanctity of the liquidation or
bankruptcy process. The NCLT or DRT should also have
jurisdiction to entertain and dispose of any pending or fresh
suit or legal proceeding by or against the debtor company
or individual; question of priorities or any other question,
whether of law or facts, in relation to the liquidation or
bankruptcy. By bringing all litigations that may have a
monetary impact on the economic value of debtor firm or
individual’s assets within the jurisdiction of the NCLT, the
liquidation or bankruptcy process will be made
streamlined
and efficient…
4.21 Tribunals Jurisdiction on firm insolvency and
liquidation
Under Companies Act, 2013, the National Company Law Tribunal
(NCLT) has jurisdiction over the winding up and liquidation of
companies. NCLAT has been vested with the appellate jurisdiction
over NCLT. Similarly, the Limited Liability Partnership Act, 2008
also confers jurisdiction to NCLT for dissolution and winding up
of limited liability partnerships, while appellate jurisdiction is vested
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
672
SUPREME COURT REPORTS
[2021] 13 S.C.R.
with NCLAT. The Committee recommends continuing with
this existing institutional arrangement. NCLT should have
jurisdiction over adjudications arising out of firm insolvency
and liquidation, while NCLAT will have appellate jurisdiction
on the same.”
(emphasis supplied)
67. The institutional framework under the IBC contemplated the
establishment of a single forum to deal with matters of insolvency, which
were distributed earlier across multiple fora. 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. 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. For the success of an
insolvency regime, it is necessary that insolvency proceedings are dealt
with in a timely, effective and efficient manner. Pursuing this theme in
Innoventive (supra) this court observed that “one of the important
objectives of the Code is to bring the insolvency law in India under a
single unified umbrella with the object of speeding up of the insolvency
process”. The principle was reiterated in Arcelor Mittal (supra) where
this court held that “the
non-obstante Clause in Section 60(5) is designed
for a different purpose: to ensure that the NCLT alone has jurisdiction
when it comes to applications and proceedings by or against a corporate
debtor covered by the Code, making it clear that no other forum has
jurisdiction to entertain or dispose of such applications or proceedings”.
Therefore, considering the text of Section 60(5)(c) and the interpretation
of similar provisions in other insolvency related statutes, NCLT has
jurisdiction to adjudicate disputes, which arise solely from or which relate
to the insolvency of the Corporate Debtor. However, in doing do, we
issue a note of caution 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 relate to the
insolvency of the Corporate Debtor. The nexus with the insolvency of
the Corporate Debtor must exist.
A
B
C
D
E
F
G
H
673
68. It is appropriate to refer to the observations in the Report of
the BLRC, wherein it noted the role of the NCLT, as the Adjudicating
Authority for the CIRP, in the following terms:
“An adjudicating authority ensures adherence to the process
At all points, the adherence to the process and compliance with
all applicable laws is controlled by the adjudicating authority. The
adjudicating authority gives powers to the insolvency professional
to take appropriate action against the directors and management
of the entity, with recommendations from the creditors committee.
All material actions and events during the process are recorded
at the adjudicating authority. The adjudicating authority can assess
and penalise frivolous applications. The adjudicator hears
allegations of violations and fraud while the process is on. The
adjudicating authority will adjudicate on fraud, particularly during
the process resolving bankruptcy. Appeals/actions against the
behaviour of the insolvency professional are directed to the
Regulator/Adjudicator.”
As such, it is important to remember that the NCLT’s jurisdiction
shall always be circumscribed by the supervisory role envisaged for it
under the IBC, which sought to make the process driven by trained
resolution professionals.
69. In the present case, the PPA was terminated solely on the
ground of insolvency, since the event of default contemplated under
Article 9.2.1(e) was the commencement of insolvency proceedings
against
the Corporate Debtor. In the absence of the insolvency of the
Corporate Debtor, there would be no ground to terminate the PPA. The
termination is not on a ground independent of the insolvency. The present
dispute solely arises out of and relates to the insolvency of the Corporate
Debtor.
70. Ms Ramachandran and Mr Diwan have contended that CA
1956, PIA and BRA do not contain any provisions equivalent to Sections
25(2)(b) and 18(f)(vi) of the IBC which empower the RP to exercise
rights for the benefit of the Corporate Debtor in certain adjudicatory
proceedings. They submit that Section 60(5)(c) of the IBC must be read
in consonance with Sections 25(2)(b) and 18(f)(iv), which would be
rendered nugatory if NCLT becomes the exclusive forum for the
enforcement of all the Corporate Debtor’s rights. Section 25(2)(b) of
the IBC provides:
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
674
SUPREME COURT REPORTS
[2021] 13 S.C.R.
“Section 25 - Duties of resolution professional
(2) For the purposes of sub-section (1), the resolution professional
shall undertake the following actions, namely:—
….
(b) represent and act on behalf of the corporate debtor with third
parties, exercise rights for the benefit of the corporate debtor in
judicial, quasi-judicial or arbitration proceedings;”
Section 18(f)(vi) provides:
“Section 18 - Duties of interim resolution professional
The interim resolution professional shall perform the following
duties, namely:-
……
(f) take control and custody of any asset over which the corporate
debtor has ownership rights as recorded in the balance sheet of
the corporate debtor, or with information utility or the depository
of securities or any other registry that records the ownership of
assets including—
…….
(vi) assets subject to the determination of ownership by a court or
authority;”
71. We are inclined to agree with the submission made by Mr
Singh that merely because a duty has been imposed on the IRP or the
RP, it does not mean that the jurisdiction of the NCLT is circumscribed
under section 60(5)(c) of the IBC. In Embassy Property (supra), it
was argued that the term “property” under Section 3(27) of the IBC
includes a mining lease granted by government and the lRP is duty bound
under Section 20(1) of the IBC to preserve the value of the property of
the Corporate Debtor. Hence, the submission was that the RP can invoke
the jurisdiction of the NCLT to adjudicate upon a dispute relating to non-
extension of the lease. However, Justice V. Ramasubramanian, speaking
for this Court, observed that “the said argument cannot be sustained for
the simple reason that the duties of a resolution professional are entirely
different from the jurisdiction and powers of NCLT”56.
56 Embassy Property (supra), para 39.
A
B
C
D
E
F
G
H
675
72. Therefore, we hold that the RP 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. For instance, if the dispute in the present matter
related to the non-supply of electricity, the RP would not have been
entitled to invoke the jurisdiction of the NCLT under the IBC. However,
since the dispute in the present case has arisen solely on the ground of
the insolvency of the Corporate Debtor, NCLT is empowered to
adjudicate this dispute under Section 60(5)(c) of the IBC.
I.2 Jurisdiction of NCLT and GERC
73. It has been urged on behalf of the appellant that in terms of
Article 10.4 of the PPA, GERC is entitled to entertain the disputes relating
to the PPA.
74. Our attention has also been drawn to Section 86(1)(f) of the
Electricity Act, which provides that GERC shall discharge the function
of adjudicating “the disputes between the licensees, and generating
companies and to refer any dispute for arbitration”. It has been submitted
that, therefore, any issue in relation to the PPA must be raised before
the GERC and not the NCLT.
75. Reliance has also been placed on the judgement of this Court
in Embassy Property (supra), where this Court held that the NCLT
and NCLAT did not have jurisdiction over a dispute arising under the
Mines and Minerals (Development and
Regulation) Act, 1957, in relation
to the refusal of the State of Karnataka to extend a mining lease. The
primary consideration which weighed with this Court while coming to its
decision was that NCLT cannot have jurisdiction on matters of public
law. This Court held:
“37….Clause (c) of Sub-section (5) of Section 60 is very broad in
its sweep, in that it speaks about any question of law or fact,
arising out of or in relation to insolvency resolution. But a decision
taken by the government or a statutory authority in relation to a
matter which is in the realm of public law, cannot, by any stretch
of imagination, be brought within the fold of the phrase “arising
out of or in relation to the insolvency resolution” appearing in
Clause (c) of Sub-section (5)...”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
676
SUPREME COURT REPORTS
[2021] 13 S.C.R.
In the present case the decision to terminate the PPA has not
been taken by any governmental or statutory authority acting within the
domain of its public law functions. The decision has been simply taken
by a contracting party solely on account of the initiation of insolvency
proceedings against the Corporate Debtor in terms of an agreement
between the parties.
76. Ms Ramachandran and Mr Diwan have also relied on the
judgment of this Court in Abhilash Lal (supra), which concerned taking
the approval of the Municipal Corporation of Greater Mumbai
(“MCGM”) for implementing a resolution plan. The Corporate Debtor
in that case had committed defaults prior to the initiation of the CIRP, in
relation to its obligation to construct a hospital on a land owned by the
MCGM, subsequent to which a lease deed was to be executed. It had
also apparently failed to pay annual lease rentals. In this context, Justice
S. Ravindra Bhat, speaking for this Court held that:
“47….. Section 238 cannot be read as overriding the MCGM’s
right – indeed its public duty to control and regulate how its
properties are to be dealt with.” Further, this Hon’ble Court held
that “in the absence of approval in terms of Section 92 and 92A of
the MMC Act, the adjudicating authority could not have overridden
MCGM’s objections and enabled the creation of a fresh interest
in respect of its properties and lands….Nevertheless, the
authorities under the Code could
not have precluded the control
that MCGM undoubtedly has, under law, to deal with properties
and land in question, which undeniably are public properties. The
resolution plan, therefore, would be a serious impediment to
MCGM’s independent plans to ensure that public health amenities
are developed in the manner it chooses, and for which fresh
approval under the MMC Act may be forthcoming for a separate
scheme formulated by that corporation (MCGM)”
In other words, the statutory powers entrusted to the Municipal
Corporation to exercise control over its own properties are not overridden
by Section 238 of the IBC. Once again, the present situation is
distinguishable. The contract in question in Abhilash Lal (supra) was
terminated due to defaults unrelated to the insolvency of the corporate
debtor. In the present case, the sole default attributed by the appellant to
the Corporate Debtor was that it was undergoing an insolvency resolution
process, which makes the present dispute amenable to the jurisdiction of
the NCLT under Section 60(5)(c) of the IBC.
A
B
C
D
E
F
G
H
677
77. Section 238 of the IBC stipulates that IBC would override
other laws, including an instrument having effect by virtue of any such
law. The NCLT in its decision dated 29 August 2019 gave detailed findings
on the issue of whether the PPA is an instrument within the meaning of
section 238 of the IBC. Section 238 of the IBC provides:
“Section 238 - Provisions of this Code to override other
laws
The provisions of this Code shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for the
time being in force or any instrument having effect by virtue of
any such law.”
The findings of the NCLT are extracted below:
“19. That from the plain reading of Section 238, it is evident that
the aforesaid Section is applicable to an ‘instrument’ too. However,
we find that the term ‘instrument’ has not been defined anywhere
under IBC 2016.
20. To know, whether the Power Purchase Agreement (PPA) is
an ‘instrument’ or not, we referred to the provisions of Section 3
(37) of the Code, which is reproduced as below:
“Section 3(37) : Words and expressions used but not defined in
this Code but defined in the Indian Contract Act, 1872, the Indian
Partnership Act, 1932, the Securities Contract (Regulation) Act,
1956, the Securities Exchange Board of India Act, 1992, the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993, the Limited Liability Partnership Act, 2008 and the
Companies Act, 2013, shall have the meanings respectively
assigned to them in those Acts.”
21. However, in the definition clauses of all these enactments and
of General Clause Act 1897, we failed to find a definition of the
term ‘instrument’.
22. For interpretation of the term ‘instrument’, we, therefore,
thought it proper to check how the Legislature has defined the
term ‘instrument’ in other enactments.
23 . Finding that the PPA has been executed on a Stamp Paper,
we referred to the Section 2(14) of the Indian Stamp Act, 1899,
which reads as follows:
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
678
SUPREME COURT REPORTS
[2021] 13 S.C.R.
“Section 2(14): “Instrument” - “instrument” includes every
document by which any right or liability is, or purports to be,
created, transferred, limited, extended, extinguished or recorded”.
24. That near similar definition of the term ‘instrument’ is provided
under Section 2(b) of Notaries Act, 1952 :
“Section 2(b): “instrument” includes every document by which
any rightor liability is, or purports to be, created, transferred,
modified, limited, extended, suspended, extinguished or recorded;”
25. Further, the Bombay Stamp Act, 1958 defines the term
‘instrument’ in Section 2(1) as follows :
“Section 2(1): instrument” includes every document by which any
right or liability is, or purports to be, created, transferred, limited,
extended, extinguished or recorded, but does not include a bill of
exchange, cheque, promissory note, bill of lading, letter of credit,
policy of insurance, transfer of share, debenture, proxy and
receipt;”
26. That the Merriam-Webster Dictionary defines the word
‘instrument’, inter alia, as:
“a formal legal document (such as a deed, bond or agreement)”
27. Since, the rights and liabilities of parties have been created in
the Power Purchase Agreement and such an agreement is
enforceable by law and the word ‘instrument’ inter alia, includes
an ‘agreement’, we are of the view, that the Power Purchase
Agreement i.e., PPA is an ‘Instrument’ for the purpose of Section
238 of IBC 2016.”
78. It has been
urged on behalf of the appellant that Section 238
does not apply to a bilateral commercial contract between a Corporate
Debtor and a third party and only applies to statutory contracts or
instruments entered into by operation of law. The basis of this submission
is that the word “instrument” should be given a meaning ejusdem generis
to the provision “contained in any other law”. We do not find force in
this argument. Section 238 does not state that the “instrument” must be
entered into by operation of law; rather it states that the instrument has
effect by virtue of any such law. In other words, the instrument need not
be a creation of a statute; it becomes enforceable by virtue of a law.
A
B
C
D
E
F
G
H
679
Therefore, we are inclined to agree with the view taken by the NCLT.
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.
79. Section 63 of the IBC provides that “no civil court or authority
shall have jurisdiction to entertain any suit or proceedings in respect of
any matter on which National Company Law Tribunal or the National
Company Law Appellate Tribuna lhas jurisdiction under this Code”.
I.3 Residuary jurisdiction of the NCLT under section
60(5)(c)
80. The respondents have relied upon the decision of this Court in
Committee of Creditors of Essar Steel India Limited vs Satish
Kumar Gupta57, where this Court held that section 60(5)(c) of the IBC
“is in the nature of residuary jurisdiction vested in the NCLT so that
NCLT may decide all questions of law or fact arising out of or in relation
to insolvency or liquidation under the Code”58.
81. At this stage we may visit some of the precedents emanating
from this court where a statutory conferment of residuary powers has
been analyzed. A two-judge Bench of this Court discussed the contours
of the residuary power in Remdeo Chauhan vs Bani Kant Das59,
while interpreting sub-Section (j) of Section 12 of the National Human
Rights Commission Act, 1993 which confers NHRC with “such other
functions
as it may consider necessary for the promotion of human rights”.
While construing the provision, this Court held that:
“45….It is not necessary that each and every case relating to the
violation of human rights will fit squarely within the four corners
of Section 12 of the 1993 Act for invoking the jurisdiction of the
NHRC. One must accept that human rights are not edicts inscribed
on a rock. They are made and unmade on the crucible of
experience and through reversible process of human struggle for
freedom. They admit of a certain degree of fluidity. Categories of
human rights, being of infinite variety, are never really closed.
That is why the residuary clause in Sub-section (j) has been
57 (2020) 8 SCC 531; hereinafter referred to as “Satish Kumar Gupta”
58 Ibid, para 69
59 (2010) 14 SCC 209
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
680
SUPREME COURT REPORTS
[2021] 13 S.C.R.
so widely worded to take care of situations not covered by
Sub-sections (a) to (i) of Section 12 of the 1993 Act.
46.The jurisdiction of NHRC thus stands enlarged by Section 12(j)
of the 1993 Act, to take necessary action for the protection of
human rights. Such action would include inquiring into cases where
a party has been denied the protection of any law to which he is
entitled, whether by a private party, a public institution, the
government or even the Courts of law. We are of the opinion that
if a person is entitled to benefit under a particular law, and benefits
under that law have been denied to him, it will amount to a violation
of his human rights.”
(emphasis supplied)
82. In D.R. Kohli vs Atul Products Ltd.60, a three judge Bench
of this Court differentiated between the power of Central Excise
authorities for recovery of monies due to the Government under two
provisions, one of them being a residuary provision:
“14. The next question relates to the appropriate provision of law
under which action could have been taken in this case by the
Central Excise authorities. This question was not decided by the
High Court in view of its finding on the liability of the respondent
to pay excise duty on the products manufactured by it. Since we
have not agreed with the decision of the High Court on this point,
it has become necessary for us to decide this question in this
appeal. While the Department asserts that it
was open to it to
proceed under Rule 10-A of the Rules, the respondent contends
that even if there was any short levy, the proper Rule applicable
to its case was Rule 10 and not Rule 10-A. Rule 10 and Rule 10-
A of the Rules during the relevant period ran as follows :
10. Recovery of duties or charges short-levied, or erroneously
refunded: When duties or charges have been short-levied through
inadvertence, error, collusion or misconstruction on the part of an
officer, or through misstatement as to the quantity, description or
value of such goods on the part of the owner, or when any such
duty or charge, after having been levied/has been owing to any
such cause, erroneously refunded, the person chargeable with
60 (1985) 2 SCC 77
A
B
C
D
E
F
G
H
681
the duty or charge, so short-levied, or to whom such refund has
been erroneously made, shall pay the deficiency or pay the amount
paid to him in excess, as the case may be, on written demand by
the proper officer being made within three months from the date,
on which the duty or charge was paid or adjusted in the owner’s
account-current, if any, or from the date of making the refund.
10-A. Residuary powers for recovery of sums due to
Government:
Where these Rules do not make any specific provision for the
collection of any duty, or of any deficiency in duty if the duty has
for any reason been short-levied, or of any other sum of any kind
payable to the Central Government under the Act or these Rules,
such duty, deficiency in duty or sum shall, on a written demand
made by the proper officer, be paid to such person and at such
time and place, as the proper officer may specify.
15. The points of difference between the above two Rules were
that (i) whereas Rule 10 applied to cases of short levy through
inadvertence, error, collusion or misconstruction on the part of an
officer, or through misstatement as to the quantity, description or
value of the excisable goods-on the part of the owner Rule 10-A
which was a residuary clause applied to those cases which
were not covered by Rule 10 and that (ii) whereas under Rule
10, the deficit amount could not be collected after the expiry of
three months from the date on which the duty or charge was paid
or adjusted in
the owners account-current or from the date of
making the refund, Rule 10-A did not contain any such period of
limitation.”
(emphasis supplied)
83. Hence, the residuary jurisdiction conferred by statute may
extend to matters which are not specifically enumerated under a
legislation. While a residuary jurisdiction of a court confers it wide powers,
its jurisdiction cannot be in contravention of the provisions of the concerned
statute. In A. Deivendran vs State of T.N.61, a two judge Bench of
this Court, while determining the limitations of the residuary jurisdiction
under Section 465 of the Code of Criminal Procedure, 197362, held that
61 (1997) 11 SCC 720
62 “CrPC”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
682
SUPREME COURT REPORTS
[2021] 13 S.C.R.
a residuary jurisdiction cannot be invoked when there is a patent defect
of jurisdiction or an order is passed in contravention of any mandatory
provision of the CrPC. Speaking through Justice G.B. Pattanaik, this
Court observed that a competent court is vested with the power to
exercise residuary jurisdiction under section 465 of the CrPC in the
following terms:
“15. We may notice also the arguments advanced by Mr Mohan,
learned counsel appearing for the State, that the conviction and
sentence against the appellants should not be interfered with in
view of the provisions of Section 465 of the Code, inasmuch as
there has been no failure of justice. We are unable to accept this
contention. Section 465 of the Code is the residuary section
intended to cure any error, omission or irregularity committed by
a Court of competent jurisdiction in course of trial through accident
or inadvertence, or even an illegality consisting in the infraction of
any provisions of law. The sole object of the Section is to secure
justice by preventing the invalidation of a trial already held, on the
ground of technical breaches of any provisions in the Code causing
no prejudice to the accused. But by no stretch of imagination
the aforesaid provisions can be attracted to a situation where
a Court having no jurisdiction under the Code does
something or passes an order in contravention of the
mandatory provisions of the Code. In view of our
interpretation
already made, that after a criminal proceeding is committed to a
Court of Sessions it is only the Court of Sessions which has the
jurisdiction to tender pardon to an accused and the Chief Judicial
Magistrate does not possess any such jurisdiction, it would be
impossible to hold that such tender of pardon by the Chief Judicial
Magistrate can be accepted and the evidence of the approver
thereafter can be considered by attracting the provisions of Section
465 of the Code. The aforesaid provision cannot be applied
to a patent defect of jurisdiction. Then again it is not a case of
reversing the sentence or order passed by a Court of competent
jurisdiction but is a case where only a particular item of evidence
has been taken out of consideration as that evidence of the so-
called approver has been held by us to be not a legal evidence
since pardon had been tendered by a Court of incompetent
jurisdiction. In our opinion, to such a situation the provisions of
Section 465 cannot be attracted at all. It is true, that procedures
A
B
C
D
E
F
G
H
683
are intended to subserve the ends of justice and undue emphasis
on mere technicalities which are not vital or important may
frustrate the ends of justice. The Courts, therefore, are required
to consider the gravity of irregularity and whether the same has
caused a failure of justice. To tender pardon by a Chief Judicial
Magistrate cannot be held to be a mere case of irregularity nor
can it be said that there has been no failure of justice. It is a case
of total lack of jurisdiction, and consequently the follow up
action on account of such an order of a Magistrate without
jurisdiction cannot be taken into consideration at all. In this
view of the matter the contention of Mr Mohan, learned Counsel
appearing for the State in this regard has to be rejected.”
(emphasis supplied)
84. In Johri Lal Soni vs Bhanwari Bai63 (“Johri Lal Soni”),a
two judge Bench of this Court had to determine whether an insolvency
court can scrutinize the validity of a transfer made seven years before
the transferor was adjudged as insolvent, when Section 53 of the PIA
classified only those transfers as voidable against the receiver, where
the transferor was adjudged insolvent on a petition presented within two
years after the date of transfer. This Court, in view of the wide discretion
granted in terms of Section 4, held that the insolvency court will have the
jurisdiction to determine the validity of void transfers undertaken at any
point of time. While Section 53 was applicable
only to voidable
transactions, this Court was of the view that Section 4 provides a discretion
to an insolvency court to decide all questions which arise in a case of
insolvency and an interpretation which allowed the court to examine
void transfers undertaken at any point of time would be in consonance
with the object of the provision. The Court held:
“4. We now proceed to interpret the provisions of s. 4 itself, the
relevant part of which may be extracted thus:
4. (1) Subject to the provisions of this Act, the Court shall have
full power to decide all questions whether of title or priority, or of
any nature whatsoever and whether involving matters of law or
of fact, which may arise in any case of insolvency coming within
the cognizance of the Court, or which the Court may deem it
expedient or necessary to decide for the purpose of doing complete
63 (1977) 4 SCC 59 : hereinafter, referred to as “Johri Lal Soni”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
684
SUPREME COURT REPORTS
[2021] 13 S.C.R.
justice or making a complete distribution of property in any such
case.
5. It would be seen that the section has been couched in the widest
possible terms and confers complete and full powers on the
Insolvency Court to decide all questions of title or priority, or of
any nature whatsoever, which may arise in any case of insolvency.
The only restriction which is contained in Section 4 is that
these powers are subject to the other provisions of the Act.
In other words, the position is that where any other section of the
Act contains a provision which either runs counter to Section 4 or
expressly excludes the application of Section 4, to that extent
Section 4 would become inapplicable. Counsel for the respondent
strongly relied on the provisions of Section 53 which runs thus:
53. Any transfer of property not being a transfer made before
and in consideration of marriage or made in favour of a purchaser
or incumbrancer in good faith and for valuable consideration shall,
if the transferor is adjudged insolvent on a petition presented within
two years after the date of the transfer, be voidable as against the
receiver and may be annulled by the Court.”
(emphasis supplied)
It is relevant to note that unlike Section 4 of the PIA, Section
60(5)(c) of the IBC is not subject to other provisions of the statute.
Hence, Section 60(5)(c) of the IBC has been worded more expansively
than Section 4 of the PIA.
85. In respect of the
interplay between Sections 53 and 4 of the
PIA, in Johri Lal Soni (supra), this Court further held:
“6. It was submitted that the effect of Section 53 of the Act
clearly is that it bars the jurisdiction of the Insolvency Court
to determine the validity of any transfer made beyond two
years of the transferor being adjudged insolvent. It is no
doubt true that the words “within two years after the date
of the transfer” being voidable as against the receiver does
fix a time-limit within which the transfer could be annulled
by the Court. But a plain construction of Section 53 would
manifestly/indicate that the words “within two years after
the date, be voidable as against the receiver and shall be
A
B
C
D
E
F
G
H
685
annulled by the Court” clearly connote that only those
transfers are excepted from the jurisdiction of the Court
which are voidable. The section has, therefore, made a clear
distinction between void and voidable transfers-a distinction
which is well-known to law. A void transfer is no transfer at
all and is completely destitute of any legal effect: it is a
nullity and does not pass any title at all. For instance, where
a transfer is nominal, sham or fictitious, the title remains with the
transferor and so does the possession and nothing passes to the
transferee. It is manifest, therefore, that such a transfer is no
transfer in the eye of the law. Such transfers, therefore, clearly
fall beyond the purview of Section 53 of the Act which refers
only to transfers which are voidable. It is well settled that a
voidable transfer is otherwise a valid transaction and continues to
be good until it is avoided by the party aggrieved. For instance,
transfers executed by the transferor to delay or defraud his
creditors may be avoided under Section 53 of the Transfer of
Property Act. Similarly transfers made under coercion, fraud or
undue influence may be avoided by the party defrauded. It is only
such transfers which, if they take place beyond two years of the
date of transfer, cannot be enquired into by the Court by virtue of
Section 53 of the Act. This appears to us to be the plain and
simple interpretation of the combined reading of Sections
4 and 53 of the Act.
Indeed, if a different interpretation is
given, it will render the entire object of the section [4]
nugatory, because the Court would be powerless to set at
naught transfers which are patently void, merely because
they had been made at a particular point of time.”
(emphasis supplied)
86. The decision in Johri Lal Soni (supra) gave an expansive
interpretation to the powers of an insolvency court under Section 4 of
the PIA, which is similar to Section 60(5)(c) of the IBC. This Courtheld
that an insolvency court was empowered to consider the validity of void
transfers under Section 4 of the PIA, which did not explicitly fall under
Section 53 of the PIA. However, this Court’s decision was premised on
the finding that Section 53 of the PIA only dealt with voidable transfers.
This Court noted that the jurisdiction of an insolvency court will be
restricted in matters where a voidable transfer has taken place beyond
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
686
SUPREME COURT REPORTS
[2021] 13 S.C.R.
the time-limit stipulated under Section 53 within which the transfer could
be annulled by the court. Hence, in the name of exercising a residuary
jurisdiction, a court cannot cloak itself with jurisdiction which is contrary
to the provisions of a statute. However, at the same time, as held by this
Court in Johri Lal Soni (supra), an interpretation which renders the
objective of a residuary jurisdiction nugatory cannot be upheld by this
Court. A fine line has to be drawn between ensuring that a residuary
jurisdiction is not rendered otiose due to an excessively restrictive
interpretation, as well as, guarding against usurpation of power by a
court or a tribunal not vested in it.
87. The residuary jurisdiction of the NCLT under Section 60(5)(c)
of the IBC 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 NCLTwere to be confined to actions prohibited
by Section 14 of the IBC, there would have been no requirement for the
legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would
be rendered otiose if Section 14 is held to be the exhaustive of the grounds
of judicial intervention contemplated under the IBC in matters of
preserving the value of the corporate debtor and its status as a ‘going
concern’. We hasten to add that our finding on the validity of the exercise
of residuary power by the
NCLT is premised on the facts of this case.
We are not laying down a general principle on the contours of the exercise
of residuary power by the NCLT. However, it is pertinent to mention
that the NCLT cannot exercise its jurisdiction over matters dehors the
insolvency proceedings since such matters would fall outside the realm
of IBC. Any other interpretation of Section 60(5)(c) would be in
contradiction of the holding of this Court in Satish Kumar Gupta (supra).
J Validity of ipso facto clauses
88. Before we proceed to analyze the validity of the termination
of the PPA by the appellant under Articles 9.2.1(e) and 9.3.1 in the
present case, it is important to contextualize it within the larger debate
on this issue. Globally, ipso facto clauses arise in a variety of contracts.
Ipso facto clauses are contractual provisions which allow a party
(“terminating party”) to terminate the contract with its counterparty
(“debtor”) due to the occurrence of an ‘event of default’. In the context
of insolvency law, in some of these ipso facto clauses, the ‘event of
default’ includes applying for insolvency, commencement of insolvency
proceedings, appointment of insolvency representative, et al. The United
A
B
C
D
E
F
G
H
687
Nations Commission on International Trade Law64 released its Legislative
Guide on Insolvency Law in 200465. This guide defines ipso facto
clauses in the following terms:
“114. Many contracts include a clause that defines events of
default giving the counterparty an unconditional right, for example,
of termination or acceleration of the contract (sometimes referred
to as “ipso facto” clauses). These events of default commonly
include the making of an application for commencement, or
commencement, of insolvency proceedings; the appointment of
an insolvency representative; the fact that the debtor satisfies the
criteria for commencement of insolvency proceedings; and even
indications that the debtor is in a weakened financial position…”
The validity of such ipso facto clauses has been considered in a
global perspective by international organizations and in the domestic
jurisdictions of nation-states in their national insolvency laws. In order
for us to assess their validity in India, we must first understand the global
trends in contemporary jurisprudence. We can attempt to extrapolate
our experiential learning from comparative law. As India develops into a
responsive member of the international community, our laws cannot afford
to be inward-looking.
J.1 Position of international and multilateral organizations
89. The UNCITRAL Guide notes that insolvency laws across
various jurisdictions either uphold ipso facto clauses or invalidate them.
It notes the
arguments of both sides thus:
“115. The approach of upholding these types of clauses may be
supported by a number of factors, including the desirability of
respecting commercial bargains; the need to prevent the debtor
from selectively performing contracts that are profitable and
rejecting others (an advantage that is not available to the
counterparty); the effect on financial contract netting of not
upholding an automatic termination provision; the belief that, since
64 “UNCITRAL”
65 “UNCITRAL Guide”; Available at <https://uncitral.un.org/sites/uncitral.un.org/files/
media-documents/uncitral/en/05-80722_ebook.pdf> accessed 18 February 2021. The
UNITRAL Guide was created with the intent that it would be used “as a reference by
national authorities and legislative bodies when preparing new laws and regulations or
reviewing the adequacy of existing laws and regulations”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
688
SUPREME COURT REPORTS
[2021] 13 S.C.R.
an insolvent business will generally be unable to pay, delaying the
termination of contracts potentially only increases existing levels
of debt; the need for creators of intellectual property to be able to
control the use of that property; and the effect on the counterparty’s
business of termination of a contract, especially one with respect
to an intangible.
116. Under a different approach, the insolvency law overrides
those clauses, making them unenforceable. Where the clause
provides, for example, for termination on the occurrence of the
defined event, the contract can be continued over the objection of
the counterparty. Although the approach of overriding such clauses
can be regarded as interfering with general principles of contract
law, such interference may be crucial to the success of the
proceedings. In reorganization, for example, where the contract
is a critical lease or involves the use of intellectual property
embedded in a key product, continued performance of the contract
may enhance the earnings potential of the business; reduce the
bargaining power of an essential supplier; capture the value of
the debtor’s contracts for the benefit of all creditors; and assist in
locking all creditors into a reorganization.”
90. In finding a pragmatic solution to a vexed issue such as the
validity of ipso facto clauses, the law acknowledges the inherent tension
between the primary arguments on both sides of the
debate. One the
one hand there is a need of ensuring that the debtor remains as a ‘going
concern’ throughout the insolvency process. On the other hand, the law
has to respect the freedom to enter upon contracts and the sanctity of
enforcing contractual remedies. Controlling the ambit of ipso facto clauses
does give rise to arguments of infringing upon the parties’ freedom to
enter into and enforce their contracts. The UNCITRAL Guide offers
guidance to national authorities by concluding that it is desirable that
their national insolvency laws override such ipso facto clauses, subject
to limited exceptions, since the continued performance of the terminated
contracts is often crucial to the success of the insolvency process. The
UNCITRAL Guide states this in the following terms:
“118. Although some insolvency laws do permit these types of
clause to be overridden if insolvency proceedings are commenced,
this approach has not yet become a general feature of insolvency
laws. There is an inherent tension between promoting the debtor’s
A
B
C
D
E
F
G
H
689
survival, which may require the preservation of contracts, and
injecting unpredictability and extra cost into commercial dealings
by creating a variety of exceptions to general contract rules. While
this issue is clearly one that may require a careful weighing
of the advantages and disadvantages, there are,
nevertheless, circumstances where the ability of the
insolvency representative to ensure that a contract
continues to be performed will be crucial to the success of
reorganization and also, but perhaps to a lesser extent,
liquidation where the business is to be sold as a going
concern. For these reasons, it is desirable that an insolvency
law permit such clauses to be overridden. Any negative impact
of a policy of overriding these types of clauses can be balanced
by providing compensation to creditors who can demonstrate that
they have suffered damage or loss as a result of the contract
continuing to be performed after commencement of insolvency
proceedings, or including exceptions to a general override of these
clauses for certain types of contracts, such as contracts to lend
money and, in particular, financial contracts (see below, paras.
208-215).”
(emphasis supplied)
91. The World Bank, in its Principles for Effective Insolvency
and Creditor/Debtor Regimes published in 201666, notes that ipso facto
clauses should be overridden, subject to limited exceptions. It states thus:
“C10 Treatment of Contractual Obligations
…
C10.2 To gain the benefit of
contracts that have value, the
insolvency representative should have the option of performing
and assuming the obligations under those contracts. Contract
provisions that provide for termination of a contract upon either
an application for commencement or the commencement of
insolvency proceedings should be unenforceable subject to special
exceptions.”
66 Available at <http://pubdocs.worldbank.org/en/919511468425523509/ICR-Principles-
Insolvency-Creditor-Debtor-Regimes-2016.pdf> accessed 18 February 2021.
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
690
SUPREME COURT REPORTS
[2021] 13 S.C.R.
92. While assessing the position adopted by supranational
organizations, we note that the European Parliament issued Directive
(EU) 2019/1023 on 20 June 201967 in relation to the restructuring and
insolvency framework in the European Union, thereby amending the
previous Directive. The EU Directive notes in its Recitals the issues
which can arise for a Corporate Debtor undergoing restructuring when
its suppliers terminate contracts based on ipso facto clauses. The Recitals
state as follows:
“(40) When a debtor enters an insolvency procedure, some
suppliers can have contractual rights, provided for in so called
ipso facto clauses, entitling them to terminate the supply contract
solely on account of the insolvency, even if the debtor has duly
met its obligations. Ipso facto clauses could also be triggered when
a debtor applies for preventive restructuring measures. Where
such clauses are invoked when the debtor is merely
negotiating a restructuring plan or requesting a stay of
individual enforcement actions or invoked in connection
with any event connected with the stay, early termination
can have a negative impact on the debtor’s business and
the successful rescue of the business. Therefore, in such
cases, it is necessary to provide that creditors are not
allowed to invoke ipso facto clauses which make reference
to negotiations on a restructuring plan or a stay or any
similar event connected to the stay.
(41) Early
termination can endanger the ability of a business
to continue operating during restructuring negotiations,
especially when contracts for essential supplies such as gas,
electricity, water, telecommunication and card payment
services are concerned. Member States should provide that
creditors to which a stay of individual enforcement actions applies,
and whose claims came into existence prior to the stay and have
not been paid by a debtor, are not allowed to withhold performance
of, terminate, accelerate or, in any other way, modify essential
executory contracts during the stay period, provided that the debtor
complies with its obligations under such contracts which fall due
during the stay. Executory contracts are, for example, lease and
67 “EU Directive”
A
B
C
D
E
F
G
H
691
licence agreements, long term supply contracts and franchise
agreements.”
(emphasis supplied)
93. Thereafter, the EU Directive recommends that the member
States of the European Union shall ensure that creditors are not allowed
to terminate contracts based on ipso facto clauses when the ‘event of
default’ is a Corporate Debtor undergoing restructuring. Article 7 of the
Directive states as follows:
“Article 7
Consequences of the stay of individual enforcement actions
…
5. Member States shall ensure that creditors are not allowed to
withhold performance or terminate, accelerate or, in any other
way, modify executory contracts to the detriment of the debtor by
virtue of a contractual clause providing for such measures, solely
by reason of:
(a) a request for the opening of preventive restructuring
proceedings;
(b) a request for a stay of individual enforcement actions;
(c) the opening of preventive restructuring proceedings; or
(d) the granting of a stay of individual enforcement actions as
such.”
J.2 National jurisdictions
94. As we begin assessing the positions of national jurisdictions, it
is apposite that we begin by analyzing the contradictory positions adopted
by the United States and the United Kingdom before looking at European
and other nations with civil law traditions, and thereafter at nations with
common law roots.
J.2.1 United States
95. In the US, Section 365(e) of the United States Bankruptcy
Code, 1979 (“US Bankruptcy Code”) renders ipso facto
clauses
unenforceable when they are present in an executory contract or an
unexpired lease. Section 365(e) stipulates:
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
692
SUPREME COURT REPORTS
[2021] 13 S.C.R.
“(1) Notwithstanding a provision in an executory contract or
unexpired lease, or in applicable law, an executory contract or
unexpired lease of the debtor may not be terminated or modified,
and any right or obligation under such contract or lease may not
be terminated or modified, at any time after the commencement
of the case solely because of a provision in such contract or lease
that is conditioned on-
(A) the insolvency or financial condition of the debtor at any time
before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a trustee in a case
under this title or a custodian before such commencement”
96. A related provision, Section 541(c)(1)(B) of the US Bankruptcy
Code provides that “an interest of the debtor in property becomes property
of the estate” in spite of any “agreement, transfer instrument, or applicable
non-bankruptcy law” which “gives an option to effect a forfeiture,
modification, or termination of the debtor’s interest in property”. However,
even so, the US Bankruptcy Code does allow ipso facto clauses in
certain contracts (swap agreements, securities, forwarding, et al) to be
enforceable.
97. Further, there have been instances where District Bankruptcy
Courts in United States have invalidated ipso facto clauses in contracts
other than executory contracts or unexpired leases based on broad
considerations relating to the
purpose of the US Bankruptcy Code. The
ipso facto provisions in such contracts may not be per se invalid, but
they may be set aside where “any such default would deprive the debtor
of the advantages of the Code’s liquidation procedures”68. For instance,
the District Court for the District of Delaware has noted “the general
trend of the federal courts that the prohibition against ipso facto clauses
is not limited to actions [involving executory contracts or unexpired
leases]”, while invalidating an ipso facto clause premised on bankruptcy
filing69. Similarly, in another case, an ipso facto clause in a non-executory
68 Riggs National Bank of Washington, D.C. v. John Gillis Perry, Jr., in Re John Gillis
Perry, Jr., Debtor, 729 F.2d 982 (4th Cir. 1984)n(Court of Appeals for the Fourth
Circuit).
69 In re W.R. Grace & Co., 475 B.R. 34, 154 (D. Del. 2012).
A
B
C
D
E
F
G
H
693
contract was held to be invalid because “it would defeat the purposes of
the [US] Bankruptcy Code” and “cannot be enforced by a court of
equity”70. The Bankruptcy Court reasoned that:
“Under the Bankruptcy Code, there is no statutory mandate that
bankruptcy-default clauses are valid and enforceable. The only
Congressional statement is clear that in most, if not all, instances,
such clauses are not enforceable. Also, cf. Sections 363(l) and
541(c)(1)(B) of the Bankruptcy Code, where bankruptcy-default
clauses are not given effect. Thus, there is simply no reason to
assume that Congress intended to make these clauses enforceable
only in non-executory contracts. Such an assumption would be
directly contrary to the spirit and purposes of the Bankruptcy Code.
One of the objectives of bankruptcy laws is to enable debtors to
make a fresh start.”71
However, it is important to note that District Court of New York
has taken a contrary position, holding that the text of Section 365(e) of
the US Bankruptcy Code is clear and limits its prohibition only to executory
contracts and unexpired leases72. Hence, the position in relation to this
issue seems to be unsettled even in the US.
J.2.2 United Kingdom
98. Coming to the position of law in the UK, we must first
acknowledge that the insolvency regime there is governed not just by
legislation but also through common law doctrine. The important common
law doctrine is the ‘anti-deprivation rule’, which seeks to prevent the
improper removal of an asset from the debtor’s estate, which would
reduce the debtor’s overall net asset value, which would in turn reduce
the size of the pie. Hence, the rule seeks to prevent the debtor’s assets
from being reduced before they can become subject to the insolvency
process. As such, it has been argued that ipso facto clauses could be in
violation of the anti-deprivation rule since they allow a party to terminate
a contract upon commencement on insolvency, which then takes away
the debtor’s valuable asset (i.e., the contract).
70 In the Matter of James Margaret Rose Jr., Debtors 21 B.R. 272 (Bankr. D.N.J. 1982)
(United States Bankruptcy Court, D. New Jersey).
71 Ibid
72 In Re General Growth Properties, Inc., 451 B.R. 323 (Bankr. S.D.N.Y. 2011) (United
States Bankruptcy Court, S.D. New York).
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
694
SUPREME COURT REPORTS
[2021] 13 S.C.R.
99. The scope of the anti-deprivation rule was clarified by the
UK Supreme Court73 in the case of Belmont Park Investments Pty
Ltd and others vs BNY Corporate Trustee Services Ltd and another
(Revenue and Customs Comrs and another intervening)74. The
facts of this case have been succinctly summarized in an article by
Adrienne Ho in the McGill Law Journal: the reproduction below is from
the footnoted article 75:
(i)
Lehman Brothers set up special purpose vehicles (“Issuer”),
which in turn issued Notes to investors (“Noteholders”),
including the respondents. The Issuer used the Notes’
proceeds to purchase secure investments (“Collateral”)
while simultaneously entering into credit default swap
agreements (“Agreements”) with Lehman Brothers Special
Financing (“LBSF”). LBSF agreed to pay the Issuer
premiums in exchange for the latter’s credit protection on
loans owned by Lehman Brothers. The premiums the Issuer
received from LBSF were then paid to the Noteholders. The
Agreement was governed by English law;
(ii)
On the basis that Lehman Brothers’ and LBSF’s Chapter
11 filings (i.e., for bankruptcy in the US) in 2008 were
‘Events of Default’ as outlined in the Agreements, the
Noteholders directed the Trustee to terminate the
Agreements. The Collateral, which was held by the Trustee,
provided security for the Issuer’s obligations to the
Noteholders and LBSF. Although the latter had priority to
the Collateral, the Agreements
contained a provision (“flip
clause”) that would reverse the priorities in favour of the
Noteholders if an Event of Default occurred; and
(iii)
LBSF argued the flip clause was invalid for two reasons:
first, it deprived LBSF of property that it would have been
otherwise entitled to in its bankruptcy; and second, the clause
offended the anti-deprivation rule by reversing LBSF’s and
the Noteholders’ respective priorities on the basis of LBSF’s
bankruptcy.
73 “UKSC”
74 [2011] 3 W.L.R. 521; hereinafter referred to as “Belmont Park”
75 As noted in Adrienne Ho, The Treatment of Ipso Facto Clauses in Canada, (2015)
61:1 McGill LJ 139.
A
B
C
D
E
F
G
H
695
100. The UKSC in this case was considering the contours of the
anti-deprivation rule, which protects against the dilution of the debtor’s
value. This is quite distinct from a situation where the effect of the
concerned clause would be the failure of the insolvency resolution process
in its entirety. Writing the majority opinion, Lord Collins upheld the flip
clause on the basis that it was “a complex commercial transaction entered
into in good faith” and that the provisions were not used deliberately to
evade the application of insolvency law, which was a key requirement
for the application of the anti-deprivation rule. The learned judge held
thus:
“102 It would go well beyond the proper province of the judicial
function to discard 200 years of authority, and to attempt to re-
write the case law in the light of modern statutory developments.
The anti-deprivation rule is too well-established to be
discarded despite the detailed provisions set out in modern
insolvency legislation, all of which must be taken to have
been enacted against the background of the rule.
103 As has been seen, commercial sense and absence of intention
to evade insolvency laws have been highly relevant factors in the
application of the anti-deprivation rule. Despite statutory inroads,
party autonomy is at the heart of English commercial law. Plainly
there are limits to party autonomy in the field with which this
appeal is concerned, not least because the interests of third party
creditors will be involved. But, as Lord Neuberger stressed
[2010] Ch 347, para 58, it is desirable that, so far as possible,
the courts give effect to contractual terms which parties
have agreed. And there is a particularly strong case for
autonomy in cases of complex financial instruments such
as those involved in this appeal.
104 No doubt that is why, except in the case of a blatant
attempt to deprive a party of property in the event of
liquidation (Folgate London Market Ltd v Chaucer Insurance
plc [2011] EWCA Civ 328; The Times, 13 April 2011), the modern
tendency has been to uphold commercially justifiable
contractual provisions which have been said to offend the
anti-deprivation rule: Money Markets International
Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR
1150; Lomas v JFB Firth Rixson Inc [2011] 2 BCLC 120; and the
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
696
SUPREME COURT REPORTS
[2021] 13 S.C.R.
judgments of Sir Andrew Morritt C and the Court of Appeal in
these proceedings. The policy behind the anti-deprivation rule is
clear, that the parties cannot, on bankruptcy, deprive the bankrupt
of property which would otherwise be available for creditors. It
is possible to give that policy a common sense application
which prevents its application to bona fide commercial
transactions which do not have as their predominant
purpose, or one of their main purposes, the deprivation of
the property of one of the parties on bankruptcy.”
(emphasis supplied)
101. Lord Mance in his concurring opinion, expressed a similar
view:
“177 However, Mr Snowden advanced propositions which would
mean that any provision for termination on bankruptcy, which would
deprive the trustee or liquidator of the opportunity of continuing
the contract and so the bankrupt estate of future potential
advantage, would infringe the principle. There is in my opinion no
basis for any such rule. Where a contract provides for the
performance in the future of reciprocal obligations, the
performance of each of which is the quid pro quo of the
other, I see nothing objectionable or evasive about a
provision entitling one party to terminate if the other
becomes bankrupt.”
(emphasis supplied)
As such, it was understood that bona fide commercial contracts
entered into by parties which contained ipso facto clauses would not
violate the anti-deprivation rule.
102.
Lord Mance also discussed the parallel proceedings in the
US and the legislative invalidation of ipso facto clauses there. Noting
the difference between the position in the UK and the US, he concluded
by holding that a similar invalidation of ipso facto clauses in the UK
should be done legislatively, and not through a common law development.
He held thus:
“173 It is relevant to note that the American bankruptcy rule
invalidating ipso facto termination clauses is a product of legislation:
section 365(e) of the Bankruptcy Code 1978…
A
B
C
D
E
F
G
H
697
174 The anti-deprivation principle recognised in English
case law finds a parallel in section 541. But the English
case law has to date focused on deprivation of property,
and has not recognised any equivalent principle to that
enacted in section 365(e). Further, section 365(e) is itself
qualified by the “safe harbour” provisions of section 560, which
specifically protect a non-defaulting swap participant’s contractual
rights to liquidate, terminate or accelerate a swap agreement
because of a condition of the kind specified in section 365(e)(1),
that is the insolvency or financial condition of the debtor and the
commencement of a bankruptcy case... What it does suggest
is that any general rule invalidating ipso facto termination
clauses ought to be a matter for legislative attention, rather
than novel common law development.”
(emphasis supplied)
103. The decision in Belmont Park (supra) has been followed
by the Chancery Division in Fibria Celulose S/A v Pan Ocean Co
Ltd vs Fibria Celulose S/A Chancery Division, dated 30 June
201476.Morgan J held thus:
“12 In some jurisdictions, a clause which allows a party to a contract
to terminate the contract by reason of the insolvency of the
counterparty is called an ipso facto clause. In certain jurisdictions
in the United States of America such clauses are automatically
invalid. In Canada, the court has power to stay the exercise of
rights under such clauses. Later in this judgment, I will consider
how such
clauses are treated under Korean insolvency law.
13 There was no dispute before me as to the efficacy in
English law of the provisions in clause 28.1 of the contract
which allow termination by reason of an insolvency event.
It was accepted that those provisions are valid in English
law. In particular, it was accepted that the rule of insolvency
law, known as the anti-deprivation rule, does not strike
down those provisions.
14 Although there was no argument as to the approach of an
English court to the insolvency provisions in clause 28.1 of the
76 [2014] Bus. L.R. 1041; hereinafter referred to as “Pan Ocean Co Ltd”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
698
SUPREME COURT REPORTS
[2021] 13 S.C.R.
contract, it is helpful for present purposes to understand why those
provisions do not infringe the anti-deprivation rule or any other
rule of English insolvency law. The scope of the anti-deprivation
rule has been considered recently by the Supreme Court in Belmont
Park Investments Pty Ltd v BNY Corporate Trustee Services
Ltd (Revenue and Customs Comrs intervening) [2011] Bus LR
1266; [2012] 1 AC 383…”
(emphasis supplied)
104. In his treatise, Principles of Corporate Insolvency Law77,
Professor Roy Goode has discussed the effect of the decision in Belmont
Park (supra) on the validity of ipso facto clauses. Professor Goode
does so in the following terms:
“As explained above, the validity of provisions for the
termination of contracts by reason of one party’s entry into
insolvency proceedings has long been assumed, and
appears to have been accepted by Lord Mance in Belmont.
Such provisions do not escape the rule because they effect
no deprivation of property (in substance, they do), but
because they are commercially sensible or (in Lord Mance’s
language) have a legitimate commercial basis.
…
The statute law of some jurisdictions prohibits counterparties from
relying on clauses in contracts that permit termination on another
party’s entry into insolvency proceedings (so-called ipso facto
clauses). Absent statutory control, such clauses allow a
counterparty to terminate even in circumstances where the debtor
is ready,
willing and able to perform their part of the bargain so
that creditors can enjoy the benefit of performance by the
counterparty. Such clauses can also be wielded as leverage to
extract concessions from the debtor, as where the counterparty
agrees to keep the contract on foot on the proviso that any
outstanding debts owing by the company to it are discharged.
English law has traditionally taken a generous approach to
such clauses. The common law anti-deprivation rule does
not invalidate termination clauses, there being “nothing
77 5th ed (London: Sweet & Maxwell, 2018), paras 7-24 and 7-29
A
B
C
D
E
F
G
H
699
objectionable or evasive about a provision entitling one
party to terminate it [a bilateral contract] if the other
becomes bankrupt”. As David Richards J explained in the
Football Creditors case:
“In the absence of specific statutory provision, insolvency law
does not compel a party to continue to deal with a company in
administration or liquidation, nor does it prohibit a party from
stipulating that all future dealings shall be on terms that not only
future debts but also existing debts are paid in full. It is then for
the administrator or liquidator to decide whether to accept these
terms.””
(emphasis supplied)
105. On the legislative side, the insolvency regime in the UK is
governed by the Insolvency Act, 198678, which does not invalidate ipso
facto clauses. However, the UK Act was recently amended by the
Corporate Insolvency and Governance Act 202079, which came into force
on 26 June 2020. Amongst other changes, it introduced Section 233B
into the UK Act. Section 233B reads thus:
“Protection of supplies of goods and services
(1)This section applies where a company becomes subject to a
relevant insolvency procedure.
(2) …
(3)A provision of a contract for the supply of goods or
services to the company ceases to have effect when the
company becomes subject to the relevant insolvency
procedure if and to the extent that, under the provision—
(a)the contract or the supply would terminate, or any other
thing would take place, because the company becomes
subject to the relevant insolvency procedure, or
(b)the supplier would be entitled to terminate the contract
or the supply, or to do any other thing, because the company
becomes subject to the relevant insolvency procedure.
78 “UK Act”
79 “CIGA”
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
700
SUPREME COURT REPORTS
[2021] 13 S.C.R.
(4)Where—
(a)under a provision of a contract for the supply of goods or
services to the company the supplier is entitled to terminate
the contract or the supply because of an event occurring
before the start of the insolvency period, and
(b)the entitlement arises before the start of that period,
the entitlement may not be exercised during that period.
(5)Where a provision of a contract ceases to have effect
under subsection (3) or an entitlement under a provision
of a contract is not exercisable under subsection (4), the
supplier may terminate the contract if—
(a)in a case where the company has become subject to a relevant
insolvency procedure as specified in subsection (2)(b), (c), (e) or
(f), the office-holder consents to the termination of the contract,
(b)in any other case, the company consents to the termination of
the contract, or
(c)the court is satisfied that the continuation of the contract
would cause the supplier hardship and grants permission
for the termination of the contract.
(6)Where a provision of a contract ceases to have effect
under subsection (3) and the company becomes subject to
a further relevant insolvency procedure, the supplier may
terminate the contract in accordance with subsection (5)(a)
to (c).
(7)The supplier shall not make it a condition of any supply of
goods and services after the time when the company becomes
subject to the relevant insolvency procedure, or do anything which
has
the effect of making it a condition of such a supply, that any
outstanding charges in respect of a supply made to the company
before that time are paid.
(8) …
(9) …
(10) …”
(emphasis supplied)