Section 60 of the Insolvency and Bankruptcy Code empowers the Adjudicating Authority to entertain or dispose of 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 debtors under IBC. To that end, Subsection (5) of Section 60 of IBC contemplates residuary jurisdiction with NCLT “notwithstanding anything to the contrary contained in any other law for the time being in force”. In Arcelor Mittal, the Supreme Court had 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 application or proceedings”. However, the exercise of jurisdiction by NCLT under Section 60(5)(c) of the IBC to the exclusion of designated statutory fora has come into conflict with other laws. As is evident from the wordings of Section 60(5)(c) of IBC, a finding of jurisdiction in favor of Adjudicating Authority is contingent upon question of fact or law involved in dispute “arising out of or in relation to the insolvency resolution or liquidation  proceedings of the corporate debtor”. Thus, the ambit of jurisdiction of Adjudicating Authority under Section 60(5)(c) of IBC remains unclear. Recently, in Tata Consultancy Services Limited v. Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited, (“Tata Consultancy) Hon’ble Supreme Court of India (“Court”) explored the ambit of proceedings that may be covered under “arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor”. The Court ruled that NCLT does not have any residuary jurisdiction to entertain a contractual dispute arising out of issuance of termination notice as the same had arisen dehors the insolvency of the corporate debtor. In Tata Consultancy, the Court was adjudicating the validity of the exercise of jurisdiction by NCLT with respect to the issuance to termination notice under Clause 11(b) of the Facilities Agreement which provided that either party may terminate the Agreement immediately by written notice to the other Party in the event of a material breach which is not cured within thirty days of the receipt of the said notice period. Pursuant to issuance of the termination notice, the Corporate Debtor instituted a miscellaneous application before NCLT[i] under Section 60(5)(c) of the IBC for quashing of the termination notice whereupon NCLT granted an ad-interim stay on the termination notice and directed the appellant to comply with the terms of the Facilities Agreement. On Appellant’s appeal to NCLAT, NCLAT upheld the order of the NCLT observing that stay of termination of the Facilitation Agreement was correct as the main objective of the IBC is to ensure that the Corporate Debtor remains a going concern.[ii]

In its judgment, the Court framed two issues for its consideration, namely; (i) Whether the NCLT can exercise its residuary jurisdiction under Section 60(5)(c) of the IBC to adjudicate upon the contractual dispute between the parties and, (ii) Whether in the exercise of such a residuary jurisdiction, it can impose an ad-interim stay on the termination of the Facilities Agreement. In respect to the former, the Court ruled against the exercise of jurisdiction by NCLT on the ground that the invocation of termination was a question dehors the insolvency of the corporate debtor.

Prerequisites for exercise of jurisdiction under Section 60(5)(c) of IBC

In the backdrop of non-obstante clause provided in Section 238 of IBC, the assumption of jurisdiction under Section 60(5)(c) of IBC operates at two levels; firstly, the contractual dispute found upon any contract or agreement would be covered under Section 60(5)(c) as the same involves an “instrument having effect by virtue of any such law”. Secondly, the contractual dispute pertains to any question of law or fact arising out of and in relation to the insolvency proceeding of the Corporate Debtor. In Gujarat Urja Vikas Nigam Limited v. Mr. Amit Gupta & Ors, Supreme Court ruled that any dispute pertaining to PPA, being an “instrument having effect by virtue of any such law”, was to be adjudicated by the NCLT under Section 60(5)(3) of IBC rather than Gujarat Electricity Regulatory Commission which held the jurisdiction over any dispute pertaining to the Power Purchase Agreement. Nonetheless, the ambit of Section 60(5)(c) of IBC is not open-ended. In Tata Consultancy, Supreme Court held that NCLT does not have any inherent power and jurisdiction to adjudicate upon contractual disputes that arise independently of the insolvency of the corporate debtor or where the property of the Corporate debtor is sought to be taken away on the ground of insolvency. In Park Embassy, the Supreme Court had held that a decision taken by the government or a statutory authority in relation to a matter which is in the realm of public law, cannot be brought within the fold of the phrase “arising out of or in relation to the insolvency resolution” appearing in Section 60(5)(c) of IBC.[iii] The key issue is the relationship between the contractual dispute and the insolvency proceedings of the corporate debtor. In this regard, Supreme Court in Gujarat Urja had held that NCLT was found to possess jurisdiction as the termination of PPA was sought solely on the ground that the corporate debtor had become subject to an insolvency resolution process under IBC. The contract in question in Gujarat Urja was terminated by a third party based on an ipso facto clause i.e. the fact of insolvency itself constituted an event of default. Pertinently, in Gujrat Urja, the Appellant had also issued notice of default in operation and maintenance of the plant which was not pressed before the Supreme Court. The Supreme Court in Tata Consultancy found that the alleged termination was not “a smokescreen to terminate the agreement because of the insolvency of the Corporate Debtor.” As a result of the aforesaid observation of the Court, there is some confusion as to the validity of the exercise of jurisdiction by NCLT under Section 60(5)(c) of IBC in cases where a dispute is latently or indirectly involved and connected with the insolvency of the Corporate Debtor.

The Need and standard for Factual Analysis under Section 60(5)(c) of IBC

The enquiry for the exercise of jurisdiction under Section 60(5)(c) of IBC refers to connection between the question of fact or law and the insolvency of the Corporate Debtor. Inevitably, this ‘connection’ or lack of it is a factual determination that would involve contesting fact patterns and submissions by the parties. The lack of defining standard under Section 60(5)(c) of IBC and difficulties in its interpretation is most evident in cases where contractual dispute has an existence independent of insolvency proceedings that nevertheless impact the insolvency proceedings of the Corporate Debtor. In Tata Consultancy, the issuance of termination notice was challenged on the ground that no material breach had occurred to warrant the termination of Facilitation Agreement. To this end, Tata Consultancy differs from Gujarat Urja where the fact of insolvency itself constituted an event of default. Thus in Gujarat Urja, Supreme Court held that the jurisdiction of NCLT under Section 60(5)(c) of IBC cannot be invoked in matters where termination may take place on grounds unrelated to the insolvency of the corporate debtor. More importantly, Supreme Court held that Section 60(5)(c) of IBC cannot be invoked in the event of a legitimate termination of a contract based on an ipso facto clause if such termination would not have the effect of making certain the death of the corporate debtor. The basis for jurisdiction under Section 60(5)(c) was based on the fact that PPA was the sole contract for supply of electricity by the corporate debtor and termination of the same “pull the rug out from under CIRP” and thus “making the corporate death of the corporate debtor a foregone conclusion.” In Tata Consultancy, the Supreme Court recorded the absence of factual analysis of how the termination of the Facilitation Agreement would put the survival of the Corporate Debtor in jeopardy. However, Tata Consultancy fails to make clear the standard for the factual analysis that may be required to sustain a finding in favor of the exercise of jurisdiction by NCLT under Section 60(5)(c) of IBC. In Gujarat Urja, Article 4.1(iii) of the PPA provided that the Corporate Debtor shall sell the power produced by it to the appellant on a first priority basis and was not allowed to sell to any third party. It is unclear as to how far did the legal constraint in form of Article 4.1. (iii) went to favor the exercise of jurisdiction by NCLT under Section 60(5)(c) of IBC. It is also unclear as to how Courts in the future may interpret the contractual dispute as being ‘sheet-anchor’ and whose termination might “pull the rug” out from under the CIRP. It is unclear as to whether the same would be framed in legal terms such as Article 4.1 (iii) of PPA in Gujarat Urja or commercial terms as required by “factual analysis” in Tata Consultancy for adjudicating the validity of the exercise of jurisdiction under Section 60(5)(c) of IBC.

Conclusion

In Tata Consultancy, Supreme Court had rightly interpreted the ambit of Section 60(5)(c) of IBC as being limited only to question of law or fact which arise out of insolvency proceedings. The same is consistent with residuary character of the jurisdiction. The Court’s conclusion is conducive to enforcement of contractual stipulations and disputes thereon that despite being dehors to the insolvency proceedings were caught in the dragnet of insolvency proceeding of Corporate Debtor. To this end, Tata Consultancy sheds some light on how Courts in future might interpret “arising out of or in relation to Insolvency proceedings of corporate debtor. Furthermore, the Supreme Court also contextualized the obligation of keeping the corporate debtor a going concern vis-à-vis enforcement of legitimate contractual arrangements entered into by Corporate debtor.  Nonetheless, the reasoning afforded by Hon’ble Court raises several pertinent questions which would affect the right and remedies available to the Corporate debtor as well as other stakeholders under IBC. 

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[i] M.A. No. 2054/2019 in Company Petition (IB) 4301 (MB)/2018.

[ii] Company Appeal (AT) (Insolvency) No. 237 of 2020.

[iii] M/s Embassy Property Developments Pvt Ltd v. State of Karnataka, Para 36.