TMI Blog2021 (12) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 of the agreement, the Corporation terminated the contract. In the termination letter it is also mentioned that the provisional time extension vide office letter dated 30.03.2020 upto 30.06.2020 shall be treated as null and void after termination of work - There is nothing on record to presume that the clauses 59, 60 61 of the agreement were deleted, modified or varied. Thus, the termination of Work Order No. 1 is not in violation of extension order dated 30.03.2020. Whether the termination of Work Order No. 2 is inviolation of Government Order dated 08.06.2020? - HELD THAT:- In the Government order 6 months extension is granted to discharge the obligation under the contract to those awardees of contracts who are not in default for their obligation prior to 19.02.2020, whereas, the Corporate Debtor is defaulter prior to 19.02.2020. Therefore, the Corporate Debtor is not entitled to get the advantage of aforesaid Government order. Thus, it is not convincing that the termination of Work Order No. 2 is in violation of Government order. Whether termination of work orders are in violation of provisions of Sections 14 238 of IBC? - HELD THAT:- Admittedly, the Appellant (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 3- PNB JUDGMENT Jarat Kumar Jain: J. The Appeal is preferred against the order dated 07.01.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Jaipur Bench) in I.A. No. 167/JPR/2020 and I.A. No. 214/JPR/2020 in CP No. (IB) 131/09/JPR/2019. Whereby Ld. Adjudicating Authority disposed of both the Applications with the direction that the terminationofWork Order Nos. 1 and 2 by Rajasthan State Road Development Construction Corporation Ltd. (the Corporation) are inconsistent with Section 20 of Insolvency and Bankruptcy Code, 2016 (IBC) and are invalid and prohibited under Section 238 of IBC. Moreover, the termination proceeding could not be initiated or continued under bar of moratorium of Section 14 of IBC. Consequently, invocation of performance bank guarantees is untenable. 2(a). Brief facts of this case are that the Work Order No. 1was awarded to the Aesthetic Stone Arts India Pvt. Ltd. (Corporate Debtor) vide Work Order No. PD/JP-11/2016-17/31dated 28.03.2017 by the Corporation (Appellant herein) for construction of building for State of Art Capacity Building and Training Centre and Help Desk Commercial Tax Department, Jaipur for amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.A. No. 167/JPR/2020. 4. The Corporation filed reply and resisted the Applications on various grounds including that the Applications are not maintainable as per the provisions of IBC. 5. Ld. Adjudicating Authority vide impugned order disposed of both the Applications with the following directions.: Para 29. In view of entirety of the foregoing, we hold and order as follows:- a. Provisions for termination included in or connected with instruments of Work Order No. 1 and 2, are inconsistent inter-alia with Section 20 of IBC, 2016 and are invalid and prohibited under Section 238 of the Code. Moreover, termination proceedings could not be initiated or continued by Respondent No. 1 under bar of moratorium of Section 14 of the Code. b. Termination of Work Orders 1 and 2 all communication, including notices, in this regard is /are held tobe inoperative and null. c. Consequent invocation of bank guarantees by Respondent No. 1, in the factual situation is untenable. Respondent No. 3 is hereby directed to place a lien on one or more bank account(s) of Respondent No. 1, at any of the branches of Respondent No. 3, for a cumulative sum equivalent to the total amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination is not on the ground of Insolvency but due to repeated default committed by the Corporate Debtor and as such in the present matter the termination is not barred by Section 14 of IBC. Since, Section 14 is not intended to dispense with the obligation to comply with the non-pecuniary requirements during the moratorium period. 8. It is also submitted that the Rajasthan Government Order dated 08.06.2020 clearly states that the extension shall be applicable for those awardees who are not in default for their obligations prior to 19.02.2020. Ld. Adjudicating Authority has wrongly placed reliance on this Government Order. 9. Ld. Counsel for the Appellant submitted that the performance bank guarantee does not fall within the definition of Security Interest under sub-Section (31) of Section 3 of IBC and as such the provisions of moratorium cannot be applied. For this proposition of law, he placed reliance on the Judgment of this Appellate Tribunal in the case of GAIL (India) Limited VS Rajeev Manaadiar Ors. (CA (AT) (Ins) No. 319 of 2018 order dated 24.07.2018). Thus, the direction of Ld. Adjudicating Authority in respect of performance bank guarantee is erroneous. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration has arbitrarily terminated the work orders of the Corporate Debtor. 13. Ld. Adjudicating Authority has rightly held that work order is an instrument within the definition of Section 2 (14) of Indian Stamp Act, 1899 and that Section 238 of IBC has an overriding effect over such instrument (i.e. work order). The invocation of bank guarantee by the Appellant has a consequence of illegal termination of work orders, is per se illegal and invalid. It is settled law that if the basic act is itself unlawful, all resultant steps in pursuance of the action are illicit, unacceptable and prohibited as held by the Hon ble Supreme court in the case of State of Punjab Vs. Davinder Pal Singh Bhullar Ors AIR 2012 SC 364. The Respondent No. 1 has never concealed any fact in respect of earlier litigation before Civil Court. Ld. Adjudicating Authority has rightly held that the termination of work orders are a nullity and ab-initio void. Consequently, invocation of bank guarantee was illegal and liable to be set aside. 14. After hearing Ld. Counsels for the parties, we have gone through the record. 15. Following issues arose for our consideration: (i) Whether termination of Work Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended even though till 11.06.2020 the Corporate Debtor has completed only 76% of the work (See Pg. 29 of the Rejoinder). In exercise of the power given in clauses 59, 60 61 of the agreement, the Corporation terminated the contract. In the termination letter it is also mentioned that the provisional time extension vide office letter dated 30.03.2020 upto 30.06.2020 shall be treated as null and void after termination of work. The Corporation vide letter dated 30.03.2020 provisionally extended the period upto 30.06.2020. The Corporate Debtor has to complete the work within 15 months whereas after lapse of 38 months could not complete the work. There is nothing on record to presume that the clauses 59, 60 61 of the agreement were deleted, modified or varied. Thus, we are of the view that the termination of Work Order No. 1 is not inviolation of extension order dated 30.03.2020. 20. Now, we have considered whether the termination of work order No. 1 is inviolation of Government order dated 08.06.2020. The Government order is reproduced in Para 8 of the impugned order. In the order, it is mentioned that six months extensions is granted to discharge obligation under contract to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in respect of work order as it created a right or an obligation(liability). Therefore, work order is an instrument. Section 238 of IBC provides that 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 work order is an instrument for the purpose of Section 238 of IBC and consequently any terms of work orders in contravention of the provisions of IBC could not be enforced as the provisions of IBC shall have overriding effect.For this interpretation, the Adjudicating Authority has placed reliance on the Judgment of Astonfield Solar (Gujarat) Pvt. Ltd. Vs. Gujarat Urja Vikas Nigam Ltd. CA-700/ND/2019 decided by NCLT. The decision upheld by this Appellate Tribunal in Appeal namely Gujarat Urja Vikas Nigam Ltd. Vs. Amit Gupta CA (AT) (Ins) No. 1045 of 2019. 25. The finding of the Ld. Adjudicating Authority is solely depend on the Judgment of this Appellate Tribunal in Gujarat Urja Nigam Ltd.(Supra). This Judgment was assailed before the Hon ble Supreme Court in Civil Appeal No. 9241 of 2019 Gujarat Urja Vikas Ltd. Vs. Amit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be exhaustive of the grounds of judicial intervention contemplated under 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 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 NCLT. However, it is pertinent to mention that 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 [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531: (2021) 2 SCC (Civ) 443]. 28. Admittedly, the Appellant (Corporation) is neither supplying any goods or services to the Corporate Debtor in terms of Section 14(2) nor is it recovering any property that is in possession or occupation of the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause the termination of PPA was sought solely on the ground that the corporate debtor had become subject to an insolvency resolution process under IBC. (emphasis added) 21. Section 60(5)(c) grants residuary jurisdiction to the NCLT to adjudicate any question of law or fact, arising out of or in relation to the insolvency resolution of the Corporate Debtor. Section 60(5)(c) provides thus: Section 60 - Adjudicating Authority for corporate persons .. (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of- . (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. Clause 12 (d) of the Facilities Agreement provides that any dispute between the parties relating to the agreement could be the subject matter of arbitration. However, the Facilities Agreement being an instrument under Section 238 of the IBC can be overridden by the provisions of the IBC. In terms of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion was terminated by a third party based on an ipso facto clause, i.e., the fact of insolvency itself constituted an event of default. It was in that context, this Court held that the contractual dispute between the parties arose in relation to the insolvency of the corporate debtor and it was amenable to the jurisdiction of the NCLT under Section 60(5)(c). This Court observed that .NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the corporate debtor The nexus with the insolvency of the corporate debtor mustexist (para 69). Thus, the residuary jurisdiction of the NCLT cannot be invoked if the termination of a contract is based on grounds unrelated to the insolvency of the Corporate Debtor. 27. It is evident that the appellant had time and again informed the Corporate Debtor that its services were deficient, and it was falling foul of its contractual obligations. There is nothing to indicate that the termination of the Facilities Agreement was motivated by the insolvency of the Corporate Debtor. The trajectory of events makes it clear that the alleged breaches noted in the termination notice dated 10 June 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant are entitled to terminate the work orders. The trajectory of events makes it clear that the alleged breaches noted in the termination notices dated 11.06.2020 and 04.08.2020 were not a smokescreen to terminate the agreement because of the Insolvency of the Corporate Debtor. Thus, we are of the view that the Adjudicating Authority does not have any residuary jurisdiction to entertain the present contractual dispute which has been arisen dehors the Insolvency of the Corporate Debtor.In the absence of jurisdiction over the dispute, the Adjudicating Authority could not have held that the termination of work orders are inconsistent with Section 20 of IBC are in valid and prohibited under Section 238 of IBC. Moreover, Section 14 is not applicable to the present case. 32. Even if the contractual dispute arises in relation to the Insolvency, a party can be restrained from terminating the contract only if it s central to the success of the CIRP. Crucially, the termination of contract should result in the corporate death of the Corporate Debtor. 33. In the present case, there is no factual analysis on how the termination of work orders would put survival of the Corporate Debtor i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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