Status as on- 09/03/2021

The Supreme Court recently ruled that the National Company Law Tribunal (NCLT) has jurisdiction over contractual disputes that arise solely on account of insolvency. (Gujarat Urja Vikas Nigam Limit v. Amit Gupta)

A bench of Justices DY Chandrachud and MR Shah held that when a dispute arises only on the ground of the insolvency of the Corporate Debtor, the NCLT is authorized to adjudicate such a dispute under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC). However, the Court added that the NCLT and the National Company Law Appellate Tribunal (NCLAT) have to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and for when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor.

Section 60(5)(c) of IBC, 2016

Section 60 of the IBC, 2016 talks about “Adjudicating Authority for corporate persons”. Section 60(5)(c) states:

“(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 –

…(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.”

Facts of the case:

1. The NCLT had on August 29, 2019 stayed the termination by the appellant of its Power Purchase Agreement (PPA) with Astonfield Solar (Gujarat) Private Limited (Corporate Debtor).
2. The order of the NCLT was passed in applications moved by the Resolution Professional of the Corporate Debtor and Exim Bank under Section 60(5) of the IBC, 2016.
3. The appellant has assailed the order of NCLAT on two broad grounds:
   • 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;
   • That 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.

Judgment:

1. The Court rejected the appeal finding that the NCLT had jurisdiction to hear the case.
2. The court observed that the PPA was terminated solely due to insolvency in this case, since the occurrence of default contemplated under Article 9.2.1(e) was the initiation of insolvency proceedings against the Corporate Debtor.
3. The court determined that there would be no need to terminate the PPA unless the Corporate Debtor was insolvent.
4. The Supreme Court also held that the Resolution Professional can approach the NCLT for adjudication of disputes arising during the insolvency resolution process, but not for adjudication of disputes arising outside of the Corporate Debtor’s insolvency.

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