TMI Blog2021 (3) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... cy 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 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. 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 matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan based on the: (a) right of assignment granted under 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 A The appeal 1 By its judgment dated 29 August 2019, the National Company Law Tribunal NCLT or Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. 6 After the process of public hearings and consultations, a Tariff Order dated 29 January 2010 First Tariff Order 3 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 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned within the applicable period of the Second Tariff Order, the tariff applicable was ₹ 9.98 per unit for first 12 years and ₹ 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, 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 Pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicants PRAs 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. 22 On 21 May 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The fact 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 suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 application I.A. No. 9682 of 2020 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. 32 The Successful Resolution Applicant has since filed an appeal Civil Appeal No. 3560 of 2020 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, 1985 SICA , 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 India (2019) 4 SCC 17; hereinafter referred to as Swiss Ribbons , this Court held that the IBC was introduced because the regime under SICA and Board for Industrial and Financial Reconstruction BIFR 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 execu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 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 provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 Lal (2020) 13 SCC 234 . 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 vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate 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 liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had started putting the Corporate Debtor back on its 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 erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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; (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignment 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 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 IB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act or any other law for the time being in force 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. . 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 an instrument having effect by virtue of law. One of the considerations which weighed with the NCLT while coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contours of the jurisdiction that can be exercised under Section 60(5)(c) of the IBC. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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) 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. of CA 2013. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Pillar (1984) 4 SCC 657 , 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: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 39 of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve report was discussed in the decision of this Court in Union of India vs R. Gandhi, President, Madras Bar Association (2010) 11 SCC 1 . A Constitution Bench noted that the recommendations of the Committee 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramanian, 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 Embassy Property (supra), para 39. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 right or 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 'inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied 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-lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 NCLT were to be confined to actions p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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 contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination 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 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). 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 filing In re W.R. Grace Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i.e., the contract). 99 The scope of the anti-deprivation rule was clarified by the UK Supreme Court UKSC 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) [2011] 3 W.L.R. 521; hereinafter referred to as Belmont Park . 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 As noted in Adrienne Ho, The Treatment of Ipso Facto Clauses in Canada, (2015) 61:1 McGill LJ 139. provision ( flip clause ) that would reverse the priorities in favour of the Noteholders if an Event of Default occurred; and : (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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2014 [2014] Bus. L.R. 1041; hereinafter referred to as Pan Ocean Co Ltd . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1986 UK Act , which does not invalidate ipso facto clauses. However, the UK Act was recently amended by the Corporate Insolvency and Governance Act 2020 CIGA , 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppliers will not be able to rely on contractual terms to stop supplying the company or vary the contract terms (e.g. by increasing the price of supplies). The customer is required to pay for any supplies made once the company is in the insolvency process, but is not required to pay outstanding amounts due for past supplies while it is arranging its rescue plan. Safeguards are contained in the Bill to ensure that suppliers can be relieved of the requirement to supply if it causes hardship to their business, and a temporary exemption will operate for small companies during the Coronavirus emergency. (emphasis supplied) 107 We can therefore conclude that while Section 233B invalidates ipso facto clauses, it does so only in relation to contracts where the terminating party is supplying goods and services to the Corporate Debtor, and does not cover those contracts where the Corporate Debtor was supplying to the terminating party. Further, Section 233B(5)(c) allows an exception even in relation to supplier contracts when it causes financial hardship to the terminating party, and Section 233B(6) allows a termination if once after the terminating party is prevented from termi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with Articles L622-13 Notwithstanding any legal rule or contractual term to the contrary, the indivisibility, termination or rescission of the contract may not result from the commencement of safeguard proceedings alone English Translation available at accessed 24 February 2021. , L631-14(I) I - Articles L622-2 to L622-9 and L622-13 to L622-33 shall apply to reorganization proceedings. English Translation available at accessed 24 February 202 and L641-11 The supervisory judge shall perform the duties entrusted to him by Articles L621-9, L623-2 and L631-11, the first paragraph of Article L622-13 and the fourth paragraph of Article L622-16. English Translation available at accessed 24 February 2021 of the Commercial Code, categorically states that ipso facto clauses in executory contracts are invalid International Comparative Legal Guides (International Comparative Legal Guides International Business Reports) accessed 18 February 2021. However, termination rights referring to breaches of executory contract, other than ipso facto clauses, remain valid due to events of default occurring both pre- and post-commencement of insolvency proceedings. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Federal Supreme Court based its decision on the purpose of the insolvency administrator s right to opt for the performance/non-performance of contracts, which protects the assets of the insolvent company and increases such assets in the interest of a settlement of creditor claims pari passu. Particularly, it was noted that the insolvency administrator has the right to choose which contracts of the insolvent debtor she will perform in accordance with Section 103 of the InsO. Hence, any contractual provision excluding or limiting this right is invalid in accordance with Section 119 of the InsO. Therefore, this would be obstructed if the contractual partner of the insolvent debtor, just because of its insolvency, could terminate a contract which is in the interest and to the benefit of the insolvent debtor. Further, the Federal Supreme Court noted that the stay on termination based on ipso facto clauses did not lead to any disadvantage to the terminating party since they will then receive payment for their deliveries in full as so-called preferred estate liability Potential Invalidity of Insolvency-Related Termination Clauses under German Insolvency Rules (Global Restructuring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot cancel or terminate the bilateral contract after the assembly of related persons held to deliberate on a rehabilitation proposal or a decision is made to pass a written resolution on any case pursuant to the provisions of Article 240. , the custodian of a company undergoing rehabilitation may choose to cancel or terminate an unperformed bilateral contract. Article 119 appears to allow the custodian to require the other party to fulfil its obligations under such a contract. While some commentators have noted that this is believed to essentially be in the nature of a restriction on an ipso facto clause, others state that this position has not been adopted uniformly by all courts June Young Chung and Sy Nae Kim, Korean Corporate Rehabilitation Proceedings and Cross-Border Insolvency - From the Perspective of the Hanjin Shipping Bankruptcy Case accessed 24 February 2021. In fact, the International Monetary Fund issued a technical note in September 2020 on Insolvency and Creditor Rights while conducting a Financial Sector Assessment Program of Republic of Korea, in which they also noted this lack of clarity and recommended legislative guidance Footnote 26 at Page 16, av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been appeal in Republic of Korea. J.2.8 Canada 118 Legislatively, in Canada, Sections 65.1 Certain rights limited 65.1 (1) If a notice of intention or a proposal has been filed in respect of an insolvent person, no person may terminate or amend any agreement, including a security agreement, with the insolvent person, or claim an accelerated payment, or a forfeiture of the term, under any agreement, including a security agreement, with the insolvent person, by reason only that: (a) the insolvent person is insolvent; or (b) a notice of intention or a proposal has been filed in respect of the insolvent person. Provisions of section override agreement (5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to subsections (1) to (3) is of no force or effect. , 66.34 Certain rights limited 66.34 (1) If a consumer proposal has been filed in respect of a consumer debtor, no person may terminate or amend any agreement, including a security agreement, with the consumer debtor, or claim an accelerated payment, or the forfeiture of the term, under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that: (i) Chandos had subcontracted a project s steel work to Capital Steel. The subcontract included a term under which Capital Steel agreed to forfeit ten percent of the contract price if it became insolvent as a fee for the inconvenience of [Chandos] completing the work using alternate means and/or for monitoring the work ( Insolvency Clause ); and (ii) Capital Steel completed most of its work under its subcontract with Chandos before making an assignment in bankruptcy. Deloitte was appointed as trustee of the estate of Capital Steel and Capital Steel ceased operations at that time. As a result, Chandos had to complete the steel work at its own cost. Even after costs of completion were accounted for, Chandos owed a balance to the estate of Capital Steel based on the remaining unpaid contract price. However, Chandos took the position that it could rely on the Insolvency Clause to deduct 10% of the contract price (almost $140,000) as an inconvenience fee and that, once deducted, Chandos owed nothing to Capital Steel. The trustee brought an application seeking a judicial determination of whether the Insolvency Clause was enforceable. 120 The majority opinion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure, a right in a contract, agreement or arrangement will not be enforceable, and self-executing provisions will not apply, by reason only of [t]he company entering the specified procedure; the company s financial position; a prescribed reason; or a reason that is in substance contrary to the above . 123 Before this amendment, termination of contracts based on ipso facto clauses was permitted 'The Impact of Insolvency on Licence Agreements' (2015) 254 Managing Intell Prop 31, 32. The new regime also applies to contracts entered into on or after 1 July 2018, i.e., its application is prospective only. However, certain contracts and contractual rights have been excluded from the operation of the stay under this new regime. Critically, in respect of financing arrangements, the ipso facto reforms will not apply to (amongst other things) syndicated loans, securities, bonds, promissory notes, financial products, derivatives, and certain contracts involving special purpose vehicles. The excluded contractual rights do not depend on the type of contracts in which they are embodied. 124 However, according to the Explanatory Memorandum to the Amending Act, the stay i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the Convention as defined in section 2(1) of the International Interests in Aircraft Equipment Act (Cap. 144B); or (f) any agreement that is the subject of a treaty to which Singapore is party, as may be prescribed. (6) of the Insolvency, Restructuring and Dissolution Act, 2018 ( IRDA ), which came into force on 30 July 2020. This provision limits the exercise of ipso facto clauses which are triggered by reason only of the insolvency of a contracting party or the commencement of corporate rescue proceedings, namely proceedings for judicial management and schemes of arrangement Singapore - Restructuring: Ipso Facto Clauses, Distressed Debt Market Update And DIP/Rescue Finance | Conventus Law accessed 18 February 2021. However, this provision may not restrict a contracting party from terminating the contract if there are other events of default, for instance: (a) failure to pay outstanding sums; (b) appointment of a receiver; or (c) passing of a resolution for the winding up of the debtor. Further, section 440 does not apply retroactively, and only applies to contracts entered into after 30 July 2020 Ipso Facto Clauses under the New Insolvency, Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses: What Comes next? | Lexology accessed 18 February 2021. J.2.11 Analysis 128 On the basis of our discussion of the above-mentioned jurisdictions, the following conclusions emerge: (i) Many jurisdictions follow the US model of legislatively invalidating ipso facto clauses. Interestingly, this shift has been far more prominent in the last decade even though the US Bankruptcy Code has had this position since 1979; (ii) Some of the recent jurisdictions to follow the US model, such as Australia and Singapore, invalidate ipso facto clauses prospectively, i.e., ipso facto clauses contained in the contracts entered into before the laws came into effect will not be invalidated; (iii) The UK, through the CIGA, only invalidates ipso facto clauses in supplier contracts, which is similar to the effect of Section 14(2) of the IBC. Further, other ipso facto clauses are understood to be valid, based on the UKSC s decision in Belmont Park (supra). However, as noted previously, the UKSC decision was given in the context of the application of the anti-deprivation rule, which protects against the dilution of the value of the company in debt and does not necessarily affect the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns which are not fulfilled completely. Such interference or overriding powers would assist in achieving the objectives of the insolvency process. The power is necessary to facilitate taking appropriate business and other decisions including those directed at containing rise in liabilities and enhancing value of assets. 13.6 Exceptions of such powers are also essential to be insured in the law where there is a compelling, commercial, public or social interest in upholding the contractual rights of the counter party to the contract. (emphasis supplied) 131 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 . 132 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw Committee dated 20 February 2020. The Report noted the importance of keeping the Corporate Debtor as a going concern during the moratorium period imposed under Section 14, and how it was being affected by the termination of certain Government licenses, permits, et al, based on ipso facto clauses which allowed termination upon commencement of insolvency. Noting that the legislative intent underlying Section 14 would be to invalidate such terminations, the Report recommended the addition of the Explanation to Section 14(1) of the IBC. The relevant portion, in relation to the Explanation to Section 14(1), reads thus Available at accessed on 18 February 2021 : Prohibition on Termination on Grounds of Insolvency 8.3. It was brought to the Committee that in some cases government authorities that have granted licenses, permits and quotas, concessions, registrations, or other rights (collectively referred to as grants ) to the corporate debtor attempt to terminate or suspend them even during the CIRP period. This could be attempted in two ways: one, by relying on ipso facto clauses, by virtue of which these grants may be terminated on the advent of insolvency proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on panel or other authority. (Emphasis supplied). This provision has been given an expansive reading by the Appellate Authority and the Adjudicating Authority, that had passed orders preventing recovery by stock exchanges and regulators, as well as the de-registration of aircrafts. 8.7. Relying on this, the Committee was of the view that termination or suspension of such grants during the moratorium period would be prevented by Section 14. However, to avoid any scope for ambiguity and in exercise of abundant caution, the Committee recommended that the legislative intent may be made explicit by introducing an Explanation by way of an amendment to Section 14(1). 135 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); and (ii) Contracts where the counter-party supplies essential/critical goods and services to the Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous other national jurisdictions 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. 140 Further, we also acknowledge the myriad complex questions which will arise while deciding on the issue of the validity/invalidity of ipso facto clauses, such as: (i) The extent of invalidation of ipso facto clauses, i.e., termination solely based on an insolvency event (filing of an application for commencement of CIRP, commencement of CIRP, appointment of RP, et al) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice on the issue will lead to confusion and reduced commercial clarity. K Appellant s right to terminate the PPA in the present case K.1 Analysis of the PPA 144 We now turn to a consideration of the text, structure and salient features of the PPA. As the PPA records in its recitals: [T]he Government of Gujarat through letter dated 1st August 2009 has allocated 25 MW capacity to power producer for developing and setting up Solar Photovoltaic based power project in the State of Gujarat. The power Producer desires to set up a Solar Photovoltaic Grid Interactive Power Plant of 10 MW capacity at village Loria, Taluka-Bhuj, District Kutchh using new Solar Photovoltaic Grid Interactive power plants to produce the Electric Energy. 145 The preambular portion of the PPA also clarifies that the Power Producer (the Corporate Debtor) includes its respective successors and permitted assignees. Article 1, containing the definitions, clarifies that the term Commission refers to the GERC. 146 The PPA defines the term law in the following terms: Law means any valid legislation, statute, rule, regulation, notification, directive or order, issued or promulgated by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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. 150 In accordance with Article 12.9, assignment of the Corporate Debtor s rights under the PPA is permissible, with the prior written consent of the other party. The proviso to this Article makes it clear that any assignee shall expressly assume the Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 154 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of Sub-section (1) shall not apply to-- (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; (b) a surety in a contract of guarantee to a corporate debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan Under Sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor Under Section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 157 Section 14 of the IBC lists the conditions under which a moratorium can be imposed by the NCLT in terms of sub-sections (a) to (d). It further clarifies that a license, permit, quota, concessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. The order of moratorium has effect till the culmination of insolvency resolution process. 161 The inclusion of the Explanation to Section 14(1) and Section 14(2A) indicates that Parliament has been amending the IBC to ensure that the status of a corporate debtor as a going concern is not hampered on account of varied situations, which may not have been in contemplation at the time of enacting the IBC. It will be relevant to note that in a recent three judge Bench decision of this Court in P Mohanraj vs Shah Brothers Ispat Pvt. Ltd. Civil Appeal No. 10355 of 2018 decided on 1 March 2021 , Justice Rohinton Fali Nariman, speaking for the Court, expounded upon the object of Section 14 in the following terms: ...the object of a moratorium provision such as Section 14 is to see that there is no depletion of a corporate debtor's assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. 164 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 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 Roy Wilson, Brian Galpin and Peter Benson Maxwell, On Interpretation of Statutes, (11th edn., Sweet and Maxwell 1962). , has emphasized that a provision should be given an harmonious interpretation which comports with the intention of the Legislature. The commentary provides: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct (as was the case in this matter s unique factual matrix). 166 The terms of our 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 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. K.3 Dialogical Remedies 167 As indicated above in section J.3 of this judgment, we would like to take this opportunity to note the desirability of Parliament providing its legislative vision on the broader validity of ipso facto clauses. We have outlined some of the complex considerations in paragraph 138. 168 In the past, this Court has adopted such dialogical remedies where the Court engages in a dialogue in its judgments with the other two organs of government so that each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, and legislative supremacy on the other . 170 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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