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TMI Blog2021 (3) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 "Adjudicating Authority" stayed the termination by the appellant of its Power Purchase Agreement "PPA" with Astonfield Solar (Gujarat) Private Limited "third respondent" or "Corporate Debtor". The order of the NCLT was passed in applications CA No. 701/2019 (first respondent); CA No. 700/2019 (second respondent) moved by the Resolution Professional of the Corporate Debtor "first respondent" or "RP" a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first 12-15 years, and a scaled-down tariff for the remaining years. The tariff was to be applicable to solar projects commissioned within the control period of the First Tariff Order, i.e., from 29 January 2010 to 28 January 2012. 7 The appellant filed a petition before the State Commission on 28 May 2013, seeking initiation of proceedings for re-determination of the capital cost and tariff fixed under the First Tariff Order. This petition was filed on the basis that subsequent incentives given to power producers on 27 February 2010 had brought down their cost of capital and, as a consequence, the tariff fixed under the First Tariff Order should be revised. This petition was dismissed by the State Commission on 8 August 2013. An appeal against the order was dismissed by the Appellate Tribunal for Electricity "APTEL" on 22 August 2014. An appeal Civil Appeal No. 10301 of 2014 against APTEL's decision is pending before this Court, with notice having been issued on 28 November 2014. 8 The appellant and the Corporate Debtor entered into a PPA on 30 April 2010, in accordance with which the appellant has to purchase all the power generated by the Corporate Debtor. The PPA was amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amaged 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 Power Finance Corporation), who proposed to declare the Corporate Debtor a non-performing asset ("NPA"). 17 On 15 February 2018, in accordance with Article 8.1 of the PPA, the Corporate Debtor intimated the appellant regarding the impact of the rainfall and floods on the Plant, and the measures adopted by it in this regard. The Corporate Debtor requested the appellant to treat the letter as a formal communication regarding cause for failure in the performance of the Corporate Debtor's obligations under the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 2019, a meeting was scheduled between the first respondent and the General Manager (IPP) of the appellant. During this meeting, the first respondent emphasized that if the PPA was to be terminated, revival of the Corporate Debtor will be at stake, since prospective resolution applicants may not submit resolution plans or may withdraw the resolution plans, if submitted, citing termination of the PPA. Declining to accede to this position, the appellant made it clear that in accordance with a legal opinion obtained by them, they will be terminating the PP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aragraph 35 reads thus: "35. It is however, made clear that if due to any reason, the Corporate Debtor goes into liquidation, the Respondent Company will be at liberty to terminate the Power Purchase Agreement." 26 The NCLAT by its judgment dated 15 October 2019 dismissed the appeal against the NCLT's order. The NCLAT noted that the appellant attempted to terminate the PPA on the sole ground that the CIRP has been initiated for the Corporate Debtor. It observed that during the CIRP, the first respondent has to maintain the Corporate Debtor as a 'going concern' and the termination of its sole PPA, under which it supplied electricity only to the appellant, would render the Corporate Debtor defunct. Hence, the NCLAT held that the appellant could not terminate the PPA solely on the ground of the initiation of CIRP of the Corporate Debtor, which was supplying power to the appellant during the period of the CIRP. Further, it restrained the appellant from terminating the PPA even in the event that the Corporate Debtor underwent liquidation, by setting aside the observations made by the NCLT in paragraph 35 of the order dated 29 August 2019. 27 The NCLAT thereafter directed the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judgment dated 30 September 2020. G Submissions of counsel G.1 Submissions on behalf of the appellant 33 The case of the appellant has been presented initially in the articulate and carefully reasoned submissions made by Ms Ranjitha Ramachandran, learned counsel. Mr Shyam Diwan, learned senior counsel has then urged his submissions. The following submissions were urged in relation to the jurisdiction of the NCLT/NCLAT under section 60(5) of the IBC: (i) Section 60(5) must be interpreted in the context of Section 25(2)(b) of the IBC, which provides that the RP has to "exercise the rights for the benefit of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the PPA. The sanctity of the contracts must be upheld unless there is a statutory provision interdicting such contracts. There can be no exercise of any inherent or residual power by the NCLT to set aside the termination of a contract absent a statutory interdict. The Resolution Applicant or NCLT have no powers to modify the PPA through a resolution plan. The formation, novation or alteration of the contract must be in accordance with Section 30(2)(e) of the IBC, which provides that the Resolution Plan cannot contravene any provision of law which is in force. The provisions of the Indian Contract Act, 1872 ("Contract Act"), require mutual agreement of the parties for such a modification; (vi) The submission of the respondents that 'property' under Section 3(27) of the IBC includes an actionable claim and hence the dispute falls under the jurisdiction of the NCLT is erroneous in view of the judgement in Embassy Property (supra); (vii) The contention of the respondents that there is a direct connection between the termination of the PPA by the appellant and the insolvency resolution process should be rejected because the issue in the present case is not of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has been omitted by way of interpretation, analogy or implication; (iv) The termination of the PPA cannot be set aside based on the objective of the IBC to ensure that the Corporate Debtor remains a 'going concern', in the absence of a specific provision under the IBC. The objective of the IBC cannot be understood to mean that the vested rights of parties can be interfered with or extinguished except to the extent contemplated under Section 14 of the IBC. While in the United States there are specific provisions providing for non-enforcement of ipso facto clauses such as Article 9.2.1(e) of the PPA, no such provisions exist under the IBC. Hence, such a bar cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan or process does not modify the terms of the contract of the Corporate Debtor with third parties. Each party took a calculated risk to enter into the contract with the knowledge that the appellant is entitled to terminate the PPA; (viii) The PPA is not an instrument under Section 238 of IBC, since the phrase used in the section - "instrument having effect by virtue of any such law" - does not cover commercial bilateral agreements between a corporate debtor and a third party laying down the terms of an executory contract entered between them. It only applies to a statutory contract or an instrument entered into by operation of law that is inconsistent with the IBC; (ix) No provision of the PPA is inconsistent with the IBC. Article 9.3.1 which specifies a period of 30 days for the Corporate Debtor to remedy a default, and gives the appellant the right to terminate the contract in case of a failure to do so, is not inconsistent with the time limit provided in section 12 of the IBC to complete the insolvency resolution process. Article 9.3.1 obliges the Corporate Debtor to ensure that the proceedings initiated against it come to an end within 30 days by an act of the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the PPAs being drafted as per Guidelines for Tariff Based Competitive Bidding Process for renewable energy sources; and (c) The bargain between the parties was fair and not one sided. The same default clause has been provided under the appellant's defaults in Article 9.2.2(c), and a corresponding right to terminate has been provided under Article 9.3.2. Similar clauses are provided under the standard PPAs issued by the Government of India for competitive bidding under Section 63 of the Electricity Act. Therefore, the clauses cannot be said to be unreasonable or unconscionable. 35 In summing up their submissions, the appellants have raised two more arguments: (i) The NCLAT's observations in relation to the termination of the PPA if the Corporate Debtor goes into liquidation were incorrect: (a) In the appeal filed by the appellant against the order of the NCLT dated 29 August 2019, the appellant had not challenged the determination of the NCLT that the PPA can be terminated in the event of the initiation of a liquidation proceeding against the Corporate Debtor. It is a settled principle of law that the courts cannot go beyond the pleadings or the prayer put forth by the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of the Electricity Act, the NCLT has jurisdiction to consider an application filed by the RP which may not specifically relate to a particular section of the IBC (such as Section 14), provided the application involves any question of law or facts, arising out of or in relation to the insolvency resolution of the third respondent; (ii) Relatedly, since the jurisdiction vested in the NCLT under Section 60(5)(c) is of a residuary character, even where a question of law or fact is not specifically covered under Section 14, the NCLT would have the jurisdiction to consider such a question of law or fact, provided it arises out or is in relation to the insolvency resolution process of the corporate debtor. Any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 violation of law when NCLT injuncted the appellant from terminating the PPA on the ground of the initiation of the CIRP of the Corporate Debtor. In addition, the facts in Abhilash Lal (supra) dealt with the public duty of Municipal Corporation in hereinafter referred to as "Abhilash Lal" respect of the construction of a hospital. Further, there were existing defaults and a show cause-notice was issued in this regard prior to the commencement of the CIRP of the company. As opposed to this, in the present case, termination by the appellant is not on grounds of default but solely on the ground of the initiation of the insolvency resolution process of the Corporate Debtor and, that too, nearly six months after the admission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to assume the obligations of the power producer under the PPA. Article 9.2.1(e) must be read in light of this background. (ii) In relation to the interpretation of Article 9.2.1(e), it was submitted: (a) When the PPA was entered into in 2010, the IBC was not in existence. The contract was a standard form contract. While the clause refers to insolvency or bankruptcy proceedings, the intent of Article 9.2.1(e) could only have been to cover liquidation proceedings as contemplated under the CA 1956. The CA 1956 did not contemplate 'insolvency' or 'bankruptcy' proceedings. Insolvency at the time of the drafting of the clause was understood to include individual insolvency. Hence, Article 9.2.1(e) could not have intended to cover 'insolvency resolution' proceedings under the IBC as a trigger for an event of default; (b) If the term 'insolvency' proceedings in Article 9.2.1(e) of the PPA, which was entered into in 2010, is sought to be applied to the 'insolvency resolution' proceedings contemplated under the IBC then the exception in the clause, in the form of 'reorganization' will also necessarily need to be applied in light of the updated understanding. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o terminate would only arise in case the third respondent fails to cure the default, i.e., resolve itself in accordance with the IBC; and (c) In view of Section 238, the IBC overrides the provisions of the Electricity Act. Section 63 of the IBC provides that "No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under IBC." NCLT's jurisdiction excludes that of the GERC. (ii) In relation to the legislative intent underlying Section 14 of the IBC, it was submitted that: (a) The Notes on Clauses to the Insolvency and Bankruptcy Bill, 2015 and the Insolvency Law Committee Report dated 20 February 2020 suggest a clear legislative intent of Section 14 that, an ipso facto clause allowing a party to terminate the contract if the counterparty enters into some form of insolvency resolution process must either be declared void or be suitably read down in order to ensure that the objective of the IBC in keeping the company as a going concern is met. If in the facts of a given case, the relevant authorities find that to preserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was an event of default. The exception under which "reorganization" is excluded as an event of default, would apply to the proceedings which were initiated under section 10 of the IBC for the sole purpose of the reorganization of the Corporate Debtor; and (b) The invocation of Article 9.2.1(e) on the ground that proceedings under Section 10 of the IBC had been commenced was both erroneous and premature. It was erroneous because at the time of commencement of the proceedings, the Corporate Debtor was looking at the reorganization of its affairs. It squarely fell within the exception to Article 9.2.1(e). It was premature because unless and until the appellant was sure that after a reorganization the resulting entity would not have the financial standing to perform its obligations or as to its lack of creditworthiness, it had no basis to terminate the PPA on the ground that it constituted an event of default under Article 9.2.1(e). (iii) In relation to the jurisdiction of the NCLT, it was submitted that: (a) The NCLT's jurisdiction with respect to Section 60(5) was invoked to seek quashing of the default notice issued by "taking insolvency proceedings as Event of Default." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to, effecting or hampering the insolvency resolution process. NCLT has the jurisdiction to intervene to the extent of removing any obstacle in the CIRP process for it to reach its logical end, which is approval of the resolution plan or liquidation. The contours of Section 14 of the IBC must be determined under such an understanding of Section 60(5)(c); (vi) The moratorium under Section 14 of IBC is not exhaustive because: (a) The object of section 14 is protection of the Corporate Debtor during the CIRP; (b) The preamble of the IBC provides for preserving the maximum value of the assets of the Corporate Debtor; and (c) Section 14(3) only excludes certain kinds of agreements and transactions from moratorium under Section 14(1), as notified by the Central Government in consultation with the financial regulator or any other authority. The NCLT has the power to impose moratorium or status quo in the interest of protecting the corporate debtor and the CIRP in addition to the protections enumerated in Section 14(1); (vii) Maintaining the Corporate Debtor as a 'going concern' is the soul of the CIRP. Section 14(2A) provides that a supply of goods or services which an IRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an "instrument", "includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded." Hence the PPA qualifies as an instrument; (xii) Section 14(1)(d) provides for protection of the property of the Corporate Debtor. The expression "property" would include the PPA in terms of its definition in Section 3(27) of the IBC. Paras 8.1 to 8.3 of the Third Insolvency Committee Report dated 20 February 2020 indicate that the intent of the IBC is to ensure that the Corporate Debtor remains a going concern and contracts cannot be terminated by way of ipso facto clauses relating to insolvency; and (xiii) The appellant terminated the PPA not due to the default per se but due to a commercial decision to negotiate and reduce the purchase price of electricity under tariff. It is not the intent of the IBC to allow an entity to take the benefit of the CIRP to negotiate a better price for a contract and in effect reduce the value of the Corporate Debtor. H Issues arising from the dispute 41 The following two issues arise for determination: (i) Whether the NCLT/NCLAT can exercise jurisdiction under the IBC over d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 to its determination was that termination of the PPA would prejudice the status of the Corporate Debtor as a ''going concern', and lead to the failure of the CIRP. The NCLT observed: "30. ...the CIR process in the instant case was triggered on 20.11.2018, which was further extended by 90 days on 16.05.2019 and the default notices were issued by the Respondent Company on 01.05.2019. That termination of PPA at this stage may have adverse consequences on the status of the Corporate Debtor as "going concern" and eventually, may jeopardise the entire CIR Process. While elaborating on the objectives of IBC as enshrined in the Preamble, the Hon'ble Supreme Court, had held in the matter of Swiss Ribbons Pvt. Ltd. v Union of India, 2019 SCC Online SC 73: " ....... What is interesting to note is that Preamble does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor (in this case its rights under the PPA) is sought to be taken away on the ground of insolvency. For their argument, the respondents have relied on Section 60(5)(c) to submit that NCLT is vested with a wide jurisdiction to consider questions of law or fact "arising out of" or "in relation to" insolvency resolution proceedings. 48 In varying contexts, this Court has expansively construed the expressions "relating to" and "arising out of" in its previous decisions. The respondents have relied on some of these judgments to buttress their submissions in regard to the width of Section 60(5)(c). In Renusagar Power Co. Ltd. vs General Electric Company (1984) 4 SCC 679, a two judge Bench while interpreting the words "arising out of" or "related to" in an arbitration clause held as follows, speaking through Justice V.D. Tulzapurkar "25...(2) Expressions such as "arising out of" or "in respect of" or "in connection with" or "in relation to" or "in consequence of" or "concerning" or "relating to" the contract are of the widest amplitude and content.." 49 In Mansukhlal Dhanraj Jain vs Eknath Vithal Ogale (1995) 2 SCC 665, another two judge Bench of this Court emphasized the comprehe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 G.P. Singh in his authoritative commentary on the interpretation of statutes, Principles of Statutory Interpretation, has noted that the same words used in different sections of the same statute or used at different places in the same clause or section can have different meanings G.P. Singh, Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015). Therefore, it is necessary to bear in mind the context in which the phrases have been used. Justice G.P. Singh has stated in his commentary that Ibid: "When the question arises as to the meaning of a certain provision in a statute, it is not only legitimate but proper to read that provision in its context. The context here means, the statute as a whole, the previous state of the law, other statutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arison of the provisions of Section 60(5) of the IBC with Section 446(2) of CA 1956 would reveal some similarities of expression, with textual variations. For the purposes of the present proceedings, it suffices to note that clause (c) of Section 60(5) confers jurisdiction on the NCLT to entertain or dispose of "any question of priorities or any question of law or facts arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the Code". Section 446(2)(d) of CA 1956 and section 280(d) of CA 2013 use the expression any question of priorities or any other question whatsoever whether of law or fact. These words bear a striking resemblance to the provisions of section 60(5) (c) of the IBC. But textually similar language in different enactments has to be construed in the context and scheme of the statue in which the words appear. The meaning and content attributed to statutory language in one enactment cannot in all circumstances be transplanted into a distinct, if not, alien soil. For, it is trite law that the words of a statute have to be construed in a manner which would give them a sensible meaning which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code." 54 The salient aspects which emerge from the state of the law prior to the enactment to the IBC can be formulated thus: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided at the tribunal/BIFR often come for review to the High Courts. This gives rise to two types of problems in implementation of the resolution framework. The first is the lack of clarity of jurisdiction. In a situation where one forum decides on matters relating to the rights of the creditor, while another decides on those relating to the rights of the debtor, the decisions are readily appealed against and either stayed or overturned in a higher court. Ideally, if economic value is indeed to be preserved, there must be a single forum that hears both sides of the case and makes a judgment based on both. A second problem exacerbates the problems of multiple judicial fora. The fora entrusted with adjudicating on matters relating to insolvency and bankruptcy may not have the business or financial expertise, information or bandwidth to decide on such matters. This leads to delays and extensions in arriving at an outcome, and increases the vulnerability to appeals of the outcome...a matrix of fragmented and contrary outcomes,..." A "debtor and creditor led process of corporate insolvency" had resulted in a matrix of fragmented and contrary outcomes rather than "coherent and consistent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up the company so as to facilitate the disposal of winding-up proceedings...To save the Company which is ordered to be wound up from this prolix and expensive litigation and to accelerate the disposal of winding-up proceedings, the Parliament devised a cheap and summary remedy conferring jurisdiction on the court winding up the company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2) and therefore, it must receive such construction at the hands of the court as would advance the object and at any rate not thwart it" 59 Section 4(1) of the PIA used similar words in relation to the jurisdiction of the insolvency court as Section 60(5) of the IBC. Section 4(1) of the PIA provided: "Section 4 - Power of Court to decide all questions arising in insolvency (1) Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or necessary to decide fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company or before or after the commencement of the Banking Companies (Amendment) Act, 1953 (52 of 1953)." (emphasis supplied) 62 In Dhirendra Chandra Pal vs Associated Bank of Tripura Ltd. AIR 1955 SC 213, a four judge Bench of this Court examined the scope of Section 45-B. Justice B. Jagannadhas observed: "4. It is to be remembered that section 45-B is not confined to claims for recovery of money or recovery of property, movable or immovable, but comprehends all sorts of claims which relate to or arise in the course of winding up." 63 The above judgements were undoubtedly in relation to the jurisdiction of courts in relation to winding up and insolvency proceedings under distinct statutes. But considerations such as avoiding multiplicity of fora, speedy disposal and litigation costs would also be germane to the establishment of an exclusive body under the IBC to adjudicate matters arising from or in relation to the insolvency resolution process. 64 In this context, it would be useful to trace the history of the NCLT and NCLAT, which are empowered to deal with all issues relating to insolvency, specifically with the aim of avoiding a multiplicity of fora. The Justice Eradi C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Law Board (CLB) dealt with matters relating to prevention of oppression and mismanagement etc. Considering the laws on corporate insolvency prevailing in industrially advanced countries, the Committee recommended various amendments in regard to the provisions of Companies Act, 1956 for setting-up of a National Company Law Tribunal which will combine the powers of the CLB under the Companies Act, 1956, BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as also the jurisdiction and powers relating to winding-up presently vested in the High Courts. 4. It is stated that the recommendations of the Eradi Committee were accepted by the Government and Company (Second Amendment) Act, 2002 was passed providing for establishment of NCLT and NCLAT to take-over the functions which are being performed by CLB, BIFR, AAIFR and the High Courts. It is submitted that the establishment of NCLT and NCLAT will have the following beneficial effects: (i) reduce the pendency of cases and reduce the period of winding-up process from 20 to 25 years to about two years; (ii) avoid multiplicity of litigation before various fora (High Courts and quasi-judicial Authorities li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f firm insolvency and liquidation, while NCLAT will have appellate jurisdiction on the same." (emphasis supplied) 67 The institutional framework under the IBC contemplated the establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora. In the absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the corporate debtor would have to file and/or defend multiple proceedings in different for a. These proceedings may cause undue delay in the insolvency resolution process due to multiple proceedings in trial courts and courts of appeal. A delay in completion of the insolvency proceedings would diminish the value of the debtor's assets and hamper the prospects of a successful reorganization or liquidation. For the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner. Pursuing this theme in Innoventive (supra) this court observed that "one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process". The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e event of default contemplated under Article 9.2.1(e) was the commencement of insolvency proceedings against the Corporate Debtor. In the absence of the insolvency of the Corporate Debtor, there would be no ground to terminate the PPA. The termination is not on a ground independent of the insolvency. The present dispute solely arises out of and relates to the insolvency of the Corporate Debtor. 70 Ms Ramachandran and Mr Diwan have contended that CA 1956, PIA and BRA do not contain any provisions equivalent to Sections 25(2)(b) and 18(f)(vi) of the IBC which empower the RP to exercise rights for the benefit of the Corporate Debtor in certain adjudicatory proceedings. They submit that Section 60(5)(c) of the IBC must be read in consonance with Sections 25(2)(b) and 18(f)(iv), which would be rendered nugatory if NCLT becomes the exclusive forum for the enforcement of all the Corporate Debtor's rights. Section 25(2)(b) of the IBC provides: "Section 25 - Duties of resolution professional (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:-- .... (b) represent and act on behalf of the corporate debtor with third pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he PPA, GERC is entitled to entertain the disputes relating to the PPA. 74 Our attention has also been drawn to Section 86(1)(f) of the Electricity Act, which provides that GERC shall discharge the function of adjudicating "the disputes between the licensees, and generating companies and to refer any dispute for arbitration". It has been submitted that, therefore, any issue in relation to the PPA must be raised before the GERC and not the NCLT. 75 Reliance has also been placed on the judgement of this Court in Embassy Property (supra), where this Court held that the NCLT and NCLAT did not have jurisdiction over a dispute arising under the Mines and Minerals (Development and Regulation) Act, 1957, in relation to the refusal of the State of Karnataka to extend a mining lease. The primary consideration which weighed with this Court while coming to its decision was that NCLT cannot have jurisdiction on matters of public law. This Court held: "37....Clause (c) of Sub-section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the government or a statutory au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in Abhilash Lal (supra) was terminated due to defaults unrelated to the insolvency of the corporate debtor. In the present case, the sole default attributed by the appellant to the Corporate Debtor was that it was undergoing an insolvency resolution process, which makes the present dispute amenable to the jurisdiction of the NCLT under Section 60(5)(c) of the IBC. 77 Section 238 of the IBC stipulates that IBC would override other laws, including an instrument having effect by virtue of any such law. The NCLT in its decision dated 29 August 2019 gave detailed findings on the issue of whether the PPA is an instrument within the meaning of section 238 of the IBC. Section 238 of the IBC provides: "Section 238 - Provisions of this Code to override other laws The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." The findings of the NCLT are extracted below: "19. That from the plain reading of Section 238, it is evident that the aforesaid Section is applicable to an 'instrument' too. However, we find that the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been created in the Power Purchase Agreement and such an agreement is enforceable by law and the word 'instrument' inter alia, includes an 'agreement', we are of the view, that the Power Purchase Agreement i.e., PPA is an 'Instrument' for the purpose of Section 238 of IBC 2016." 78 It has been urged on behalf of the appellant that Section 238 does not apply to a bilateral commercial contract between a Corporate Debtor and a third party and only applies to statutory contracts or instruments entered into by operation of law. The basis of this submission is that the word "instrument" should be given a meaning ejusdem generis to the provision "contained in any other law". We do not find force in this argument. Section 238 does not state that the "instrument" must be entered into by operation of law; rather it states that the instrument has effect by virtue of any such law. In other words, the instrument need not be a creation of a statute; it becomes enforceable by virtue of a law. Therefore, we are inclined to agree with the view taken by the NCLT. Section 238 is prefaced by a non-obstante clause. NCLT's jurisdiction could be invoked in the present case becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where a party has been denied the protection of any law to which he is entitled, whether by a private party, a public institution, the government or even the Courts of law. We are of the opinion that if a person is entitled to benefit under a particular law, and benefits under that law have been denied to him, it will amount to a violation of his human rights." (emphasis supplied) 82 In D.R. Kohli vs Atul Products Ltd. (1985) 2 SCC 77, a three judge Bench of this Court differentiated between the power of Central Excise authorities for recovery of monies due to the Government under two provisions, one of them being a residuary provision: "14. The next question relates to the appropriate provision of law under which action could have been taken in this case by the Central Excise authorities. This question was not decided by the High Court in view of its finding on the liability of the respondent to pay excise duty on the products manufactured by it. Since we have not agreed with the decision of the High Court on this point, it has become necessary for us to decide this question in this appeal. While the Department asserts that it was open to it to proceed under Rule 10-A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t specifically enumerated under a legislation. While a residuary jurisdiction of a court confers it wide powers, its jurisdiction cannot be in contravention of the provisions of the concerned statute. In A. Deivendran vs State of T.N. (1997) 11 SCC 720, a two judge Bench of this Court, while determining the limitations of the residuary jurisdiction under Section 465 of the Code of Criminal Procedure, 1973 "CrPC", held that a residuary jurisdiction cannot be invoked when there is a patent defect of jurisdiction or an order is passed in contravention of any mandatory provision of the CrPC. Speaking through Justice G.B. Pattanaik, this Court observed that a competent court is vested with the power to exercise residuary jurisdiction under section 465 of the CrPC in the following terms: "15. We may notice also the arguments advanced by Mr Mohan, learned counsel appearing for the State, that the conviction and sentence against the appellants should not be interfered with in view of the provisions of Section 465 of the Code, inasmuch as there has been no failure of justice. We are unable to accept this contention. Section 465 of the Code is the residuary section intended to cure any err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, learned Counsel appearing for the State in this regard has to be rejected." (emphasis supplied) 84 In Johri Lal Soni vs Bhanwari Bai (1977) 4 SCC 59 : hereinafter, referred to as "Johri Lal Soni" ("Johri Lal Soni"), a two judge Bench of this Court had to determine whether an insolvency court can scrutinize the validity of a transfer made seven years before the transferor was adjudged as insolvent, when Section 53 of the PIA classified only those transfers as voidable against the receiver, where the transferor was adjudged insolvent on a petition presented within two years after the date of transfer. This Court, in view of the wide discretion granted in terms of Section 4, held that the insolvency court will have the jurisdiction to determine the validity of void transfers undertaken at any point of time. While Section 53 was applicable only to voidable transactions, this Court was of the view that Section 4 provides a discretion to an insolvency court to decide all questions which arise in a case of insolvency and an interpretation which allowed the court to examine void transfers undertaken at any point of time would be in consonance with the object of the provision. The Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against the receiver does fix a time-limit within which the transfer could be annulled by the Court. But a plain construction of Section 53 would manifestly/indicate that the words "within two years after the date, be voidable as against the receiver and shall be annulled by the Court" clearly connote that only those transfers are excepted from the jurisdiction of the Court which are voidable. The section has, therefore, made a clear distinction between void and voidable transfers-a distinction which is well-known to law. A void transfer is no transfer at all and is completely destitute of any legal effect: it is a nullity and does not pass any title at all. For instance, where a transfer is nominal, sham or fictitious, the title remains with the transferor and so does the possession and nothing passes to the transferee. It is manifest, therefore, that such a transfer is no transfer in the eye of the law. Such transfers, therefore, clearly fall beyond the purview of Section 53 of the Act which refers only to transfers which are voidable. It is well settled that a voidable transfer is otherwise a valid transaction and continues to be good until it is avoided by the party aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the IBC in matters of preserving the value of the corporate debtor and its status as a 'going concern'. We hasten to add that our finding on the validity of the exercise of residuary power by the NCLT is premised on the facts of this case. We are not laying down a general principle on the contours of the exercise of residuary power by the NCLT. However, it is pertinent to mention that the NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta (supra). J Validity of ipso facto clauses 88 Before we proceed to analyze the validity of the termination of the PPA by the appellant under Articles 9.2.1(e) and 9.3.1 in the present case, it is important to contextualize it within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a number of factors, including the desirability of respecting commercial bargains; the need to prevent the debtor from selectively performing contracts that are profitable and rejecting others (an advantage that is not available to the counterparty); the effect on financial contract netting of not upholding an automatic termination provision; the belief that, since an insolvent business will generally be unable to pay, delaying the termination of contracts potentially only increases existing levels of debt; the need for creators of intellectual property to be able to control the use of that property; and the effect on the counterparty's business of termination of a contract, especially one with respect to an intangible. 116. Under a different approach, the insolvency law overrides those clauses, making them unenforceable. Where the clause provides, for example, for termination on the occurrence of the defined event, the contract can be continued over the objection of the counterparty. Although the approach of overriding such clauses can be regarded as interfering with general principles of contract law, such interference may be crucial to the success of the proceedings. In reorg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of clauses can be balanced by providing compensation to creditors who can demonstrate that they have suffered damage or loss as a result of the contract continuing to be performed after commencement of insolvency proceedings, or including exceptions to a general override of these clauses for certain types of contracts, such as contracts to lend money and, in particular, financial contracts (see below, paras. 208-215)." (emphasis supplied) 91 The World Bank, in its Principles for Effective Insolvency and Creditor/Debtor Regimes published in 2016 Available at accessed 18 February 2021, notes that ipso facto clauses should be overridden, subject to limited exceptions. It states thus: "C10 Treatment of Contractual Obligations ... C10.2 To gain the benefit of contracts that have value, the insolvency representative should have the option of performing and assuming the obligations under those contracts. Contract provisions that provide for termination of a contract upon either an application for commencement or the commencement of insolvency proceedings should be unenforceable subject to special exceptions." 92 While assessing the position adopted by supranational organizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipso facto clauses when the 'event of default' is a Corporate Debtor undergoing restructuring. Article 7 of the Directive states as follows: "Article 7 Consequences of the stay of individual enforcement actions ... 5. Member States shall ensure that creditors are not allowed to withhold performance or terminate, accelerate or, in any other way, modify executory contracts to the detriment of the debtor by virtue of a contractual clause providing for such measures, solely by reason of: (a) a request for the opening of preventive restructuring proceedings; (b) a request for a stay of individual enforcement actions; (c) the opening of preventive restructuring proceedings; or (d) the granting of a stay of individual enforcement actions as such." J.2 National jurisdictions 94 As we begin assessing the positions of national jurisdictions, it is apposite that we begin by analyzing the contradictory positions adopted by the United States and the United Kingdom before looking at European and other nations with civil law traditions, and thereafter at nations with common law roots. J.2.1 United States 95 In the US, Section 365(e) of the United States Bankruptcy Code, 1979 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in another case, an ipso facto clause in a non-executory contract was held to be invalid because "it would defeat the purposes of the [US] Bankruptcy Code" and "cannot be enforced by a court of equity" In the Matter of James Margaret Rose Jr., Debtors 21 B.R. 272 (Bankr. D.N.J. 1982) (United States Bankruptcy Court, D. New Jersey). The Bankruptcy Court reasoned that: "Under the Bankruptcy Code, there is no statutory mandate that bankruptcy-default clauses are valid and enforceable. The only Congressional statement is clear that in most, if not all, instances, such clauses are not enforceable. Also, cf. Sections 363(l) and 541(c)(1)(B) of the Bankruptcy Code, where bankruptcy-default clauses are not given effect. Thus, there is simply no reason to assume that Congress intended to make these clauses enforceable only in non-executory contracts. Such an assumption would be directly contrary to the spirit and purposes of the Bankruptcy Code. One of the objectives of bankruptcy laws is to enable debtors to make a fresh start." Ibid. However, it is important to note that District Court of New York has taken a contrary position, holding that the text of Section 365(e) of the US Bankru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to the Noteholders. The Agreement was governed by English law; (ii) On the basis that Lehman Brothers' and LBSF's Chapter 11 filings (i.e., for bankruptcy in the US) in 2008 were 'Events of Default' as outlined in the Agreements, the Noteholders directed the Trustee to terminate the Agreements. The Collateral, which was held by the Trustee, provided security for the Issuer's obligations to the Noteholders and LBSF. Although the latter had priority to the Collateral, the Agreements contained a (iii) LBSF argued the flip clause was invalid for two reasons: first, it deprived LBSF of property that it would have been otherwise entitled to in its bankruptcy; and second, the clause offended the anti-deprivation rule by reversing LBSF's and the Noteholders' respective priorities on the basis of LBSF's bankruptcy. 100 The UKSC in this case was considering the contours of the anti-deprivation rule, which protects against the dilution of the debtor's value. This is quite distinct from a situation where the effect of the concerned clause would be the failure of the insolvency resolution process in its entirety. Writing the majority opinion, Lord Collins upheld the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy." (emphasis supplied) 101 Lord Mance in his concurring opinion, expressed a similar view: "177 However, Mr Snowden advanced propositions which would mean that any provision for termination on bankruptcy, which would deprive the trustee or liquidator of the opportunity of continuing the contract and so the bankrupt estate of future potential advantage, would infringe the principle. There is in my opinion no basis for any such rule. Where a contract provides for the performance in the future of reciprocal obligations, the performance of each of which is the quid pro quo of the other, I see nothing objectionable or evasive about a provision entitling one party to terminate if the other becomes bankrupt." (emphasis supplied) As such, it was understood that bona fide commercial contracts entered into by parties which contained ipso facto clauses would not violate the anti-deprivation rule. 102 Lord Mance also discussed the parallel proceedings in the US and the legislative invalidation of ipso facto clauses there. Noting the difference between the position in the UK and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh court to the insolvency provisions in clause 28.1 of the contract, it is helpful for present purposes to understand why those provisions do not infringe the anti-deprivation rule or any other rule of English insolvency law. The scope of the anti-deprivation rule has been considered recently by the Supreme Court in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd (Revenue and Customs Comrs intervening) [2011] Bus LR 1266; [2012] 1 AC 383..." (emphasis supplied) 104 In his treatise, Principles of Corporate Insolvency Law 5th ed (London: Sweet & Maxwell, 2018), paras 7-24 and 7-29 and appears to have been accepted by Lord Mance in Belmont. Such provisions do not escape the rule because they effect no deprivation of property (in substance, they do), but because they are commercially sensible or (in Lord Mance's language) have a legitimate commercial basis., Professor Roy Goode has discussed the effect of the decision in Belmont Park (supra) on the validity of ipso facto clauses. Professor Goode does so in the following terms: "As explained above, the validity of provisions for the termination of contracts by reason of one party's entry into insolvency proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes subject to the relevant insolvency procedure, or (b) the supplier would be entitled to terminate the contract or the supply, or to do any other thing, because the company becomes subject to the relevant insolvency procedure. (4) Where- (a) under a provision of a contract for the supply of goods or services to the company the supplier is entitled to terminate the contract or the supply because of an event occurring before the start of the insolvency period, and (b) the entitlement arises before the start of that period, the entitlement may not be exercised during that period. (5) Where a provision of a contract ceases to have effect under subsection (3) or an entitlement under a provision of a contract is not exercisable under subsection (4), the supplier may terminate the contract if- (a) in a case where the company has become subject to a relevant insolvency procedure as specified in subsection (2)(b), (c), (e) or (f), the office-holder consents to the termination of the contract, (b) in any other case, the company consents to the termination of the contract, or (c) the court is satisfied that the continuation of the contract would cause the supplier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of Section 233B, the decision in Belmont Park (supra) would still have been decided in the same way even under this new regime 'Corporate Insolvency and Governance Act: Ipso Facto (Termination) Clauses' (Ashurst, 26 June 2020) accessed 18 February 2021.. Finally, discussing the legislative process behind CIGA, Felicity Toube QC and Joanne Rumley have noted that the UK Parliament did not intend to use CIGA to bring UK in line with the US position on broad invalidation of ipso facto clauses, but rather their focus was on ensuring that the Corporate Debtor retains its supply of goods during the insolvency process Felicity Toube QC, Joanne Rumley 'A brave new world? Should the UK ban ipso facto clauses in non-executory contracts?' Insolvency Intelligence 2018. J.2.3 Austria 108 A position similar to the US has been adopted in Austria where, after the insolvency regime reform which came into force on 1 July 2010, ipso facto clauses are broadly considered invalid in accordance with Section 25b(2) of the Austrian Insolvency Code "Invalid Agreements. Section 25b. - (2) A contractual provision rescinding or terminating a contract in the event of the opening of insolvency proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the contract in the future to prevent termination Ibid at 305. J.2.5 Germany 110 The German insolvency regime is governed by Insolvency Statute, 1999 (Insolvenzordnung) "InsO". However, a change is forthcoming, since on 17 December 2020, the German Parliament passed the Act on the Further Development of Restructuring and Insolvency Law "SanInsFoG", which is expected to lead to a fundamental modification of the restructuring landscape in Germany. The SanInsFoG primarily serves to implement the EU Directive discussed above, and aims at introducing a comprehensive legal framework for out-of-court restructurings. The centerpiece of the SanInsFoG is the Act on the Stabilization and Restructuring Framework for Companies "StaRUG", which partially entered into force on 1 January 2021. In accordance with Section 46 of the StaRUG, during the moratorium period, the contracting parties of the debtor cannot terminate their contract with the debtor based on ipso facto clauses in a pending restructuring matter. 111 However, before the StaRUG came into effect, the validity of ipso facto clauses had been previously considered by German Courts. On 15 November 2012, the 9th Senate of the Federal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd enforceable. Accordingly, the ipso facto termination of a partnership contract has in the past been upheld by the Federal Supreme Court Volker Gattringer, 'German Supreme Court renders ipso facto clauses invalid and unenforceable - Roma locuta, causa finita?' (K&L Gates, 27.02.2013). Further, in a 2016 decision, the 7th Senate of the Federal Supreme Court upheld an ipso facto clause contained in a construction contract, in favour of the terminating party. It held that such clauses are valid when the contracting party has a reasonable right to terminate the contract in insolvency, and the estate's interests are not unreasonably affected. Thus, the position of German law on the validity of such clauses was never entirely settled judicially Jan Felix Hoffmann, 'Executory Contracts, Ipso Facto Clauses and Licensing Agreements in Cross-Border Insolvencies' (2018) 27 Int'l Insolvency Rev 300, 305. J.2.6 Greece 114 Article 32 of the Bankruptcy Code (Law 3588/2007) states that there would be "no prejudice to the counter contracting party's rights to rescind the contract, based on a clause that allows the rescission in case of insolvency of the other party or subjection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The trustee of Jinro Co Ltd "Allied Domecq". This was noted in the decision of Pan Ocean Co Ltd (supra) Para 49., discussed above, where the Chancery Division was considering the ipso facto clause in a contract governed by English law, but where the party was undergoing insolvency proceedings in Republic of Korea. The Korean Supreme Court held in Allied Domecq (supra) that, in a case not governed by Article 119, an insolvency termination clause would be valid. It then considered the types of contract which came within Article 119, and referred to the nature of the obligations under the particular unperformed bilateral contract in that case. Ultimately, it held that the contract in that case was not governed by Article 119. 117 Further, Pan Ocean Co Ltd (supra) also discussed Para 52 a later decision of a Korean Court dated 24 January 2014 in Trustee of Tongyang Networks Co Ltd vs Standard Chartered Bank Ltd, which concerned a contract under which the debtor company was to provide services to the bank. The contract contained an insolvency termination clause and the bank gave, or purported to give, notice to terminate pursuant to that clause. The trustee of the debtor company argue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d annulled. ... 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." and 84.2 "Certain rights limited 84.2 (1) No person may terminate or amend - or claim an accelerated payment or forfeiture of the term under - any agreement, including a security agreement, with a bankrupt individual by reason only of the individual's bankruptcy or insolvency. ... 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 this section is of no force or effect." of the Bankruptcy & Insolvency Act "BIA" and provisions of the Companies' Creditors Arrangement Act "CCAA" invalidate ipso facto clauses in both commercial and consumer restructurings, and are intended to protect consumer debtors from the deleterious consequences of provisions that trigger upon bankruptcy. These provisions also clarify that any contractual clause that, in substance, is contrary to the provisions as a whole is of no force or effect. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, and was neither judicially nor legislatively excluded. It further continued to exist even though it was not fully codified in the BIA. Since this rule voids contractual terms that prevent property from passing to the bankruptcy trustee, the non-application of this rule would also go against the purpose of section 71 of the BIA. The majority opinion ultimately relied on the 'effects-based' test for understanding the anti-deprivation rule, noting it was in consonance with the BIA, thereby holding that any clause which had the 'effect' of removing a debtor's estate would be invalid as being against the anti-deprivation rule. On the contrary, the dissenting opinion relied on the 'bona fide commercial transaction test' as enunciated by the UKSC in Belmont Park (supra), and noted that the codification of the invalidity of ipso facto clauses in BIA was unrelated to the principles behind anti-deprivation rule since "ipso facto provisions are aimed at protecting debtors; the anti-deprivation rule, by contrast, protects creditors" Para 118. 121 Some commentators note that the practical effect of this decision is that if a contracting party enters insolvency proceedings, certain contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), even where the right does not expressly operate on the basis of one of the prohibited reasons set out above, if the court is satisfied that a counterparty is likely to exercise those rights for a prohibited reason 'Australia's New Ipso Facto Regime Is Now Live: Are Your Contractual Rights Affected?' (Herbert Smith Freehills | 2 July 2018) accessed 18 February 2021. J.2.10 Singapore 125 In Singapore, ipso facto clauses are prohibited in accordance with Section 440 "Certain contractual rights limited 440.-(1) No person may, at any time after the commencement, and before the conclusion, of any proceedings by a company - (a) terminate or amend, or claim an accelerated payment or forfeiture of the term under, any agreement (including a security agreement) with the company; or (b) terminate or modify any right or obligation under any agreement (including a security agreement) with the company, by reason only that the proceedings are commenced or that the company is insolvent. (2) ... (3) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect. (4) On an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t contracts, that contain a netting or set-off arrangement; (c) covered bond or connected agreements; (d) debentures or connected agreements; (e) any agreement to clear or settle transactions relating to a derivatives contract; and (f) business rules of an approved exchange, a licensed trade repository, an approved or recognized clearing house or a recognized market operator; and (ii) Exclusion from this provision can also be sought, in accordance with section 440(4), if the injunction of the ipso facto clause would "likely cause the applicant significant financial hardship" 'Ipso facto clauses under the Insolvency, Restructuring and Dissolution Act' (White and Case LLP | 20 August 2020) accessed on 18 February 2021. 127 It is also important to note the background to this legislative reform. In 2013, Singapore's Insolvency Law Committee recommended against the adoption of such restrictions on ipso facto clauses. It noted the benefits in favour of restricting such clauses, which included: (a) keeping key contracts alive; and (b) protecting the interests of different contract holders and incentivizing the management to bring the defaulting company back on track. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other events of default in the contract; (vii) Some nations which invalidate ipso facto clauses, such as Austria, Canada, Singapore and UK (limited to supplier contracts), provide for an exception based on "hardship" being caused to the terminating party. This "hardship" is to be determined by the courts; and (viii) Even in nations which legislatively invalidate ipso facto clauses, there are often contrasting judicial decisions in relation to the scope of their invalidation. There are certain judicial decisions which go beyond the legislative text to invalidate ipso facto clause on broad considerations of the object and purpose of the relevant insolvency regimes. On the other hand, there are judicial precedents, which follow a more conservative approach and strictly construe the legislative mandate. J.3 Position in India 129 Before we consider the extent to which the lessons of other jurisdictions should be applied to India, it is important to advert to the discussion on the invalidation of ipso facto clauses in India. 130 In 2005, the Report of the Expert Committee on Company Law headed by J.J. Irani Available at accessed 24 February 2021 noted the requirement of reforms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology services to the extent they are not direct inputs to the output produced or supplied by the corporate debtor), and also provides relief to the corporate debtor from the recovery of any property by an owner or lessor during the moratorium". As a solution, the report recommends a conditional stay on the operation of ipso facto clauses, beginning from the insolvency commencement date, since "a complete stay on the operation of ipso facto clauses would constitute a serious restraint on the freedom of contract and would effectively compel suppliers to perform contracts even when such an action is against their commercial interests". In relation to the implementation of this solution, the report suggests the insertion of a new provision to the IBC. 133 More recently, however, the IBC was amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2020 which, inter alia, introduced an Explanation to Section 14(1). The Explanation to Section 14(1) reads thus: "14. Moratorium.- ... Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be contrary to the purpose of introducing the provision for moratorium itself. Thus, the Committee concluded that the legislative intent behind introducing the provision for moratorium was to bar such termination. 8.5. In this regard, the Committee noted that depending on the nature of rights conferred by them, these grants may constitute the "property" of the corporate debtor. Section 3(27) of the Code provides an inclusive definition of property which includes "money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property." This definition is substantially the same as the definition of "property" under Section 436 of the Insolvency Act, 1986 (UK), which has been considered the widest possible definition of property. In India too, it is accepted that certain licenses and concessions can convey permission to use property, or may embody a lease, permit, etc. granting rights in the property. Thus, their termination in certain circumstances, could have been considered contrary to an order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njab (1955) 2 SCR 225 , speaking for a Constitution Bench, Chief Justice Bijan Kumar Mukherjea, spoke about the 'separation of powers' doctrine in the following terms: "12...The Indian Constitution has not indeed recognised the doctrine of separation of powers in its absolute rigidity but the functions of the different parts or branches of the Government have been sufficiently differentiated and consequently it can very well be said that our Constitution does not contemplate assumption, by one organ or part of the State, of functions that essentially belong to another..." 137 In Kesavananda Bharati vs State of Kerala (1973) 4 SCC 225, Chief Justice S.M. Sikri noted that the 'separation of powers' doctrine is part of the basic structure of the Constitution: "292. The learned Attorney-General said that every provision of the Constitution is essential; otherwise it would not have been put in the Constitution. This is true. But this does not place every provision of the Constitution in the same position. The true position is that every provision of the Constitution can be amended provided in the result the basic foundation and structure of the constitution remains the same. The ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enumeration only seeks to highlight the complexity of the task at hand, which will require consideration of a variety of principles, which have to be balanced. The tension between the rights of a corporate debtor during the insolvency process as against the contractual rights of a terminating party, which is central to the task at hand, is one which has been acknowledged even by the UNCITRAL in its UNCITRAL Guide. There is a public interest underlying each of these balancing considerations. The law confronts the judge with the greatest challenges of adjudication when a balance has to made between what is right and what is right. 142 There are limitations of the judicial process in providing absolute answers to these questions. Judgments are rendered in cases involving specific fact situations. While they immediately bind the parties before the court, the impact of the pronouncement of principle will have a bearing on others whose contracts may contain similar provisions. In Northern Securities Company vs United States 1904 SCC OnLine US SC 63 : 24 S.Ct. 436, Justice Oliver Wendell Holmes Jr. acknowledged a similar judicial conundrum in the following terms in his dissenting opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solar Projects effective on the date of commissioning of the plant or the tariff provided under the clause, whichever is lower. 148 Article 9.1 of the PPA clarifies that the PPA shall become effective upon the execution and delivery thereof by the parties and shall remain in operation for a period of 25 years. Article 9.2.1 enumerates the Events of Default by the Corporate Debtor, within which Article 9.2.1(e) states that the Corporate Debtor becoming voluntarily or involuntarily, the subject of a proceeding in any bankruptcy or insolvency laws, constitutes an Event of Default. The exception to this clause is triggered where dissolution of the Corporate Debtor is for the purpose of a merger, consolidation or reorganization and where the resulting entity has the financial standing to perform its obligations under PPA and creditworthiness. Article 9.2.1(e) of the PPA is quoted below: "9.2. 1 Power Producer's Default: The occurrence of any of the following events at any time during the Tariff [sic term] of this Agreement shall constitute an Event of Default by Power Producer: xxx e. If the Power Producer becomes voluntarily or involuntarily the subject of proceeding under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the PPA is very critical to the "going concern" status of the Corporate Debtor. ... 30... That termination of PPA at this stage may have adverse consequences on the status of the Corporate Debtor as "going concern" and eventually, may jeopardise the entire CIR Process." In the impugned judgment, the NCLAT held as follows: "'Gujarat Urja Vikas Nigam Ltd.' is the only purchaser of electricity generated by 'Astonfield Solar (Gujrat) Pvt. Ltd.' (Corporate Debtor). [T]he electricity line have been given only to the 'Gujarat Urja Vikas Nigam Ltd.' and in terms of an agreement, they are supposed to supply electricity to 'Gujarat Urja Vikas Nigam Ltd.'" 152 As the above excerpts indicate, but for the subsistence of the PPA, the Corporate Debtor would no longer remain as a 'going concern'. Differently stated, by virtue of the PPA with the appellant being the sheet-anchor of the Corporate Debtor's business and consequently of the CIRP, its continuation assumes enormous significance for the successful completion of the CIRP. The termination of the PPA will have the consequence of cutting the legs out from under the CIRP. K.2 Validity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board: Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate." Parliament would have been conscious of the provision which was adopted in the SICA. Yet, no concrete position has been adopted in relation to the termination of ipso facto clauses by the legislature under the IBC. In the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation.--For the purposes of this Sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, 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, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period. (2) The supply of essentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of ipso facto clauses or non-payment of dues is in contravention of the purpose behind imposition of moratorium itself. 158 While recommending the inclusion of an explanation, the Report of the Insolvency Law Committee stated that while it was of the view that termination or suspension of such grants is prevented by Section 14, it recommended adding the Explanation "to avoid any scope for ambiguity and in exercise of abundant caution" Para 8.7, and to ensure that the legislative intent should be made explicit by introduction of the explanation by way of an amendment to Section 14(1). The Insolvency Law Committee (in its discussion in the February 2020 Report) took the position that Section 14 even in its unamended form, contained an interdict on the invalidation of government grants, though the language of Section 14 did not make this position explicit. 159 In contrast, this Court's judgment in Embassy Property (supra), concluded that the non-renewal of a mining lease was not within the ambit of Section 14. The Explanation to Section 14(1) was added by Parliament to make the position clear, on whether the moratorium under Section 14 included government licenses, grants, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a going concern (1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. (2) For the purposes of sub-section (1), the interim resolution professional shall have the authority- ....... to take all such actions as are necessary to keep the corporate debtor as a going concern." It is also relevant to note that Section 25(1) provides: "Section 25 - Duties of resolution professional (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor." Resolution plan is defined under Section 5(26) of the IBC as follows: "(26) "resolution plan" means a plan proposed by 3[resolution applicant] for insolvency resolution of the corporate debtor as a going concern in accordance with Part II; Explanation.--For the removal of doubts, it is hereby clarified that a resolution plan may include provisions for the restructuring of the corporate debtor, including by way of merger, amalgamation and demerger;" 163 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the widest sense, sometimes even in a sense more wide than etymologically belongs or is popularly attached to them, in order to carry out effectually the legislative intent, or, to use Sir Edward Cole's words, to suppress the mischief and advance the remedy." (emphasis supplied) 165 Given that the terms used in Section 60(5)(c) are of wide import, as recognized in a consistent line of authority, we hold that the NCLT was empowered to restrain the appellant from terminating the PPA. However, our decision is premised upon a recognition of the centrality of the PPA in the present case to the success of the CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the Corporate Debtor. In doing so, we reiterate that the NCLT would have been empowered to set aside the termination of the PPA in this case because the termination took place solely on the ground of insolvency. The jurisdiction of the NCLT under Section 60(5)(c) of the IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Dodd Frank Wall Street Reform and Consumer Protection Act, 2010 in US or any other appropriate mechanism for oversight of profession of the auditors. Question whether on account of conflict of interest of auditors with consultants, the auditors' profession may need an exclusive oversight body may be examined. The Committee may examine the Study Group and the Expert Group Reports referred to above, apart from any other material. It may also consider steps for effective enforcement of the provisions of the FDI policy and the FEMA Regulations referred to above. It may identify the remedial measures which may then be considered by appropriate authorities. The Committee may call for suggestions from all concerned. Such Committee may be constituted within two months. Report of the Committee may be submitted within three months thereafter. The UOI may take further action after due consideration of such report." 169 Conscious as we are of the fact that this case is about statutory and not constitutional interpretation, we think it would be apposite to quote the following observations by Anne Meuwese and Marnix Snel Anne Meuwese and Marnix Snel, 'Constitutional Dialogue': An Overvie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted the observations made by the NCLT in paragraph 35, thereby holding that the appellant cannot terminate the PPA even if the Corporate Debtor goes into liquidation. Since no pleadings or prayers were made in relation to paragraph 35 of NCLT's order, NCLAT could not have considered this issue as a subject matter of the appeal. We hold that the NCLAT exceeded its jurisdiction by considering the issue of liquidation. In the absence of any liquidation proceedings initiated against the Corporate Debtor, we are not required to consider the issue of whether the appellant would be entitled to terminate the contract in such a context. Such a discussion would be academic in nature, and beyond the scope of this appeal. M Appellant's liability to pay for the electricity injected by the Corporate Debtor 172 The appellant had served a notice of termination to the Corporate Debtor with effect from 7 June 2019, though the termination could not be carried out due to the operation of interim protection which had been granted to the respondents by the NCLT. It was contended on behalf of the appellant that it cannot be made to suffer on the ground of erroneous injunctions granted by the NCLT a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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