GUJARAT URJA VIKAS NIGAM LIMITED versus MR. AMIT GUPTA & ORS. on 8 March 2021

1. The enactment of the IBC is in significant senses a breakfrom the past. While interpreting the provisions of the IBC, caremust be taken to ensure that the regime which Parliament founddeficient and which was the basic reason for the enactment of thenew legislation is not brought in through the backdoor by aprocess of disingenuous legal interpretation. However, this isnot to say that the interpretation given to the statutory provisionsthat existed prior to the enactment IBC is to be rejected in toto.The interpretation given to such statutory provisions that aretextually similar to Section 60(5)(c) may be relevant, providedthat such interpretation is in tandem with the objective of enactingthe IBC, that is, inter alia, avoidance of multiplicity of fora and atimely resolution of the insolvency process. The IBC was a reformwhich was distilled through many committee reports, mostimportantly the Report of the BLRC, which recommended thatthe earlier institutional framework relating to the winding up andliquidation of the companies should continue under the IBC. Theinstitutional framework under the IBC contemplated theestablishment of a single forum to deal with matters of insolvency, AB

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Awhich were distributed earlier across multiple fora. In the absenceof a court exercising exclusive jurisdiction over matters relatingto insolvency, the corporate debtor would have to file and/ordefend multiple proceedings in different fora. These proceedingsmay cause undue delay in the insolvency resolution process dueto multiple proceedings in trial courts and courts of appeal. ABdelay in completion of the insolvency proceedings would diminishthe value of the debtor’s assets and hamper the prospects of asuccessful reorganization or liquidation. For the success of aninsolvency regime, it is necessary that insolvency proceedingsare dealt with in a timely, effective and efficient manner. PursuingCthis theme in Innoventive this court observed that one of theimportant objectives of the Code is to bring the insolvency law inIndia under a single unified umbrella with the object of speedingup of the insolvency process. The principle was reiterated inArcelor Mittal where this court held that the non-obstante Clause in Section 60(5) is designed for a different purpose: to ensureDthat the NCLT alone has jurisdiction when it comes to applicationsand proceedings by or against a corporate debtor covered by theCode, making it clear that no other forum has jurisdiction toentertain or dispose of such applications or proceedings .Therefore, considering the text of Section 60(5)(c) and theEinterpretation of similar provisions in other insolvency relatedstatutes, NCLT has jurisdiction to adjudicate disputes, which arisesolely from or which relate to the insolvency of the CorporateDebtor. However, in doing do, we issue a note of caution to theNCLT and NCLAT to ensure that they do not usurp the legitimatejurisdiction of other courts, tribunals and fora when the disputeFis one which does not arise solely from or relate to the insolvencyof the Corporate Debtor. The nexus with the insolvency of theCorporate Debtor must exist. [Para 57, 66 & 67][666-D-F;671-B-C; 672-B-H]

2. In the present case, the PPA was terminated solely onGthe ground of insolvency, since the event of default contemplatedunder Article 9.2.1(e) was the commencement of insolvencyproceedings against the Corporate Debtor. In the absence of theinsolvency of the Corporate Debtor, there would be no ground to H

terminate the PPA. The termination is not on a groundindependent of the insolvency. The present dispute solely arisesout of and relates to the insolvency of the Corporate Debtor. TheRP can approach the NCLT for adjudication of disputes that arerelated to the insolvency resolution process. However, foradjudication of disputes that arise dehors the insolvency of theCorporate Debtor, the RP must approach the relevant competentauthority. For instance, if the dispute in the present matter relatedto the non-supply of electricity, the RP would not have beenentitled to invoke the jurisdiction of the NCLT under the IBC.However, since the dispute in the present case has arisen solelyon the ground of the insolvency of the Corporate Debtor, NCLTis empowered to adjudicate this dispute under Section 60(5)(c)of the IBC. [Para 69 & 72][673-E-F; 675-A-C]

Jurisdiction of NCLT and GERC

Jurisdiction of NCLT and GERC

3. Section 238 of the IBC stipulates that IBC wouldoverride other laws, including an instrument having effect by virtueof any such law. The NCLT in its decision dated 29 August 2019gave detailed findings on the issue of whether the PPA is aninstrument within the meaning of section 238 of the IBC. It hasbeen urged on behalf of the appellant that Section 238 does notapply to a bilateral commercial contract between a CorporateDebtor and a third party and only applies to statutory contractsor instruments entered into by operation of law. The basis of thissubmission is that the word instrument should be given a meaningejusdem generis to the provision contained in any other law. Wedo not find force in this argument. Section 238 does not statethat the instrument must be entered into by operation of law;rather it states that the instrument has effect by virtue of anysuch law. In other words, the instrument need not be a creationof a statute; it becomes enforceable by virtue of a law. Therefore,we are inclined to agree with the view taken by the NCLT. Section238 is prefaced by a non-obstante clause. NCLT‘s jurisdictioncould be invoked in the present case because the termination ofthe PPA was sought solely on the ground that the CorporateDebtor had become subject to an insolvency resolution processunder the IBC. [Para 77 & 78][677-A-B; 678-F-H; 679-A-B]

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A4. The residuary jurisdiction of the NCLT under Section60(5)(c) of the IBC provides it a wide discretion to adjudicatequestions of law or fact arising from or in relation to the insolvencyresolution proceedings. If the jurisdiction of the NCLT were tobe confined to actions prohibited by Section 14 of the IBC, therewould have been no requirement for the legislature to enactBSection 60(5)(c) of the IBC. Section 60(5)(c) would be renderedotiose if Section 14 is held to be the exhaustive of the grounds ofjudicial intervention contemplated under the IBC in matters ofpreserving the value of the corporate debtor and its status as a‘going concern’. We hasten to add that our finding on the validityCof the exercise of residuary power by the NCLT is premised onthe facts of this case. This Court not laying down a generalprinciple on the contours of the exercise of residuary power bythe NCLT. However, it is pertinent to mention that the NCLTcannot exercise its jurisdiction over matters dehors theinsolvency proceedings since such matters would fall outside theDrealm of IBC. Any other interpretation of Section 60(5)(c) wouldbe in contradiction of the holding of this Court in Satish KumarGupta. [Para 87][686-C-F]

Validity of ipso facto clauses

E5. Before analyzing the validity of the termination of thePPA by the appellant under Articles 9.2.1(e) and 9.3.1 in thepresent case, it is important to contextualize it within the largerdebate on this issue. Globally, ipso facto clauses arise in a varietyof contracts. Ipso facto clauses are contractual provisions whichallow a party (“terminating party”) to terminate the contract withFits counterparty (“debtor”) due to the occurrence of an ‘event ofdefault’. In the context of insolvency law, in some of these ipsofacto clauses, the ‘event of default’ includes applying forinsolvency, commencement of insolvency proceedings,appointment of insolvency representative, et al. The UnitedGNations Commission on International Trade Law released itsLegislative Guide on Insolvency Law in 2004. The validity ofsuch ipso facto clauses has been considered in a globalperspective by international organizations and in the domesticjurisdictions of nation-states in their national insolvency laws. As H

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India develops into a responsive member of the internationalcommunity, our laws cannot afford to be inward-looking. In 2005,the Report of the Expert Committee on Company Law headedby J.J. Irani noted the requirement of reforms in the Indianinsolvency regime, specifically citing the lessons from the recentlypublished UNCITRAL Guide. The Committee noted the need toinvalidate ipso facto clauses so as to prevent the value of aCorporate Debtor‘s assets from becoming diluted during theinsolvency process. However, this invalidation was to be subjectto exceptions, keeping in mind the compelling, commercial, publicor social interest in upholding the contractual rights of the counterparty to the contract. [Paras 88, 130 & 131][686-F-H; A, C-E;714-E-F; 715-D-E]

6. However, as is evident, this recommendation was neverdirectly embodied legislatively since the current IBC containsno clear-cut provision which invalidates ipso facto clauses. In fact,the issue of the invalidation of ipso facto clauses was noted in aDecember 2018 report titled ‘Insolvency and Bankruptcy Code:The journey so far and the road ahead‘ issued by Vidhi Centrefor Legal Policy. The report notes that the IBC “does not per seprohibit the operation of ipso facto clauses during insolvencyproceedings. However, Section 14 provides for a limitedexception prohibiting the termination, suspension or interruptionof specified “essential goods or services” (i.e. water, electricity,telecommunication services and information technology servicesto the extent they are not direct inputs to the output produced orsupplied by the corporate debtor), and also provides relief to thecorporate debtor from the recovery of any property by an owneror lessor during the moratorium”. As a solution, the reportrecommends a conditional stay on the operation of ipso factoclauses, beginning from the insolvency commencement date, since“a complete stay on the operation of ipso facto clauses wouldconstitute a serious restraint on the freedom of contract and wouldeffectively compel suppliers to perform contracts even when suchan action is against their commercial interests”. In relation tothe implementation of this solution, the report suggests theinsertion of a new provision to the IBC. More recently, however,the IBC was amended by the Insolvency and Bankruptcy Code AB

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A(Amendment) Act, 2020 which, inter alia, introduced anExplanation to Section 14(1). [Para 132 & 133][715-E-H;716-A-C]

7. The position of law in India today invalidates ipso factoclauses in:B

(i) Government licenses, permits, registrations, quotas,concessions, clearances or a similar grant or right given by theCentral Government, State Government, local authority, sectoralregulator or any other authority constituted under any other lawfor the time being in force, in accordance with the Explanation toCSection 14(1);

(ii) and Contracts where the counter-party suppliesessential/critical goods and services to the Corporate Debtor,within the meaning of Sections 14(2) and 14(2A).

However, no clear position emerges in relation to theDvalidity of ipso facto clauses in other contracts, from the baretext of the IBC. Hence, this task is now left to this Court in thepresent case. [Para 135][718-E-H]

8. In performing duties as members of the judicial branchin this case, this Court must tread a fine line between providingEa just decision while not entering into the domain of the legislature.It has been already noted above that the invalidation of ipso factoclauses seems to have occurred through legislative intervention.Although, in certain jurisdictions, there have been a few judicialdecisions which have given an expansive interpretation to theFlegislative text, in order to invalidate ipso facto clauses (and theirvariations) which have not been explicitly barred by thelegislature, these decisions have often been issued in order togive effect to legislative policy, intent and purpose of theinsolvency regime. In countries like the Republic of Korea, whereit is yet to happen legislatively, it is recommended. In others likeGthe UK, Lord Mance in his concurring opinion in Belmont Park(supra) has noted that it should happen only legislatively, and notthrough the intervention of the court. Consequently, this Courtholds that question of the validity/invalidity of ipso facto clausesis one which the court ought not to resolve exhaustively in the H

present case. Rather, what we can do is appeal in earnest to thelegislature to provide concrete guidance on this issue, since thelack of a legislative voice on the issue will lead to confusion andreduced commercial clarity. [Paras 138, 139 & 143][720-A-D;721-F]

Appellant’s right to terminate the PPA in the present case

9. Article 9.1 of the PPA clarifies that the PPA shall becomeeffective upon the execution and delivery thereof by the partiesand shall remain in operation for a period of 25 years. Article9.2.1 enumerates the Events of Default by the Corporate Debtor,within which Article 9.2.1(e) states that the Corporate Debtorbecoming voluntarily or involuntarily, the subject of a proceedingin any bankruptcy or insolvency laws, constitutes an Event ofDefault. The exception to this clause is triggered wheredissolution of the Corporate Debtor is for the purpose of a merger,consolidation or reorganization and where the resulting entityhas the financial standing to perform its obligations under PPAand creditworthiness. In accordance with Article 9.3.1, theappellant, on the occurrence of an Event of Default under Article9.2.1, can issue a Default Notice which shall specify in reasonabledetail the Event of Default giving rise to the default notice, andcall upon the Corporate Debtor to remedy it. At the expiry of 30days from such notice, unless otherwise agreed, if the defaulthas not been remedied, the appellant can terminate the PPA.Further, the Corporate Debtor shall have the liability to makepayments towards compensation to the appellant which isequivalent to three years‘ billing based on the first-year tariffconsidered on normative PLF while determining the tariff byGERC, within 30 days from the termination notice. In accordancewith Article 10.4, when differences or disputes between the partiesare not settled through mutual negotiation within 60 days of thedispute arising, it shall be adjudicated by the State Commission,in accordance with Law. [Para 148 & 149][722-F-H; 723-D-F]

Validity of the termination of PPA

10. As discussed above, the broader question of the validityof ipso facto clauses has been the subject matter of sustainedlegislative intervention in many jurisdictions. This is an intricate A

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Apolicy determination, for it raises a series of questions aboutstriking the appropriate balance between contractual freedomon the one hand and corporate rescue on the other. We arecognizant that any rule that we might craft, howsoever narrow,could have a series of unintended second order effects, in termsof opening the floodgates for intervention from the NCLT thatBmight impinge upon contractual freedom of the terminating party.Further, the comparative experience also teaches us that, giventhat the invalidation of ipso facto clauses can unsettle the intereststhat contractual relationships are founded upon, some jurisdictionsthat have invalidated such clauses have done so in a cautious,Cprospective fashion. This ensures that while the policy of theinsolvency law is brought into tandem with the global regimes, itdoes not affect the contractual rights of those parties who couldnot have reasonably accounted for this change in position whilenegotiating their contractual terms. Such an approach is anevidence and recognition of the harmful effects on commercialDstability that such encroachment into contractual freedom cangenerate, even when done legislatively after careful deliberation.The question of the validity/invalidity of ipso facto clauses hasbeen discussed in a variety of documents over the years, suchas: (a) UNCITRAL Guide of 2004; (b) J.J. Irani CommitteeEReport of 2005; (c) Vidhi’s Report of 2018 critiquing the IBC;and (d) IBBI‘s Report of 2020, which acknowledges the issue ofipso facto clauses in relation to government grants. All thesematerials were available to the members of the variouscommittees which discussed the IBC. Further, suspension ofcontracts during insolvency was specifically allowed under SectionF22(3) of SICA, which was the erstwhile statutory regime.Parliament would have been conscious of the provision whichwas adopted in the SICA. Yet, no concrete position has beenadopted in relation to the termination of ipso facto clauses by thelegislature under the IBC. In the absence of an expressGprohibition by the legislature, it can be argued that there is nogeneral embargo on the operation of such clauses if they are partof a valid contract under the Contract Act. [Paras 153 & 154][724-G-H; 725-A-E; 726-B-C]

11. At the same time, this Court cannot lose sight of theHfact that this Court is apprised with a novel situation where the

‘going concern’ status of a corporate debtor will be negated by atermination of its sole contract, on the basis of an ipso facto clause.It is pertinent to note that the IBC has been in effect from 5August 2016, and has also been amended multiple times. Hence,if the ‘going concern’ status of corporate debtors was beingaffected on a regular basis due to ipso facto clauses (which are invogue even in the present contracts similar to the current PPA),then the legislature may, if it considered necessary, haveproceeded to legislate on an explicit position with regard to theoperation of ipso facto clauses. However, this Court in the presentcase is not required to resolve the broad question of whether theinvalidation/stay of ipso facto clauses in India, generally, is legallypermissible. This is a matter which raises complex issues of legalpolicy and a balancing between distinct and conflicting values.Reform will have to take place through the legislative process.The stages through which legislative reform must take place -absolute or incremental – is a matter for legislative change. Ourtask is limited to the issue of deciding whether the NCLTcorrectly exercised the jurisdiction vested in it, in the facts ofthis case, to stay the termination of the PPA. In the absence of anexplicit stand taken by the legislature, this Court’s interventionin this matter would be guided by ascertaining the legislativeintention from the provisions of the IBC. Although variousprovisions of the IBC indicate that the objective of the statute isto ensure that the corporate debtor remains a ‘going concern’,there must be a specific textual hook for the NCLT to exerciseits jurisdiction. The NCLT cannot derive its powers from the‘spirit’ or ‘object’ of the IBC. Section 60(5)(c) of the IBC veststhe NCLT with wide powers since it can entertain and dispose ofany question of fact or law arising out or in relation to theinsolvency resolution process. We hasten to add, however, thatthe NCLT’s residuary jurisdiction, though wide, is nonethelessdefined by the text of the IBC. Specifically, the NCLT cannot dowhat the IBC consciously did not provide it the power to do.[Paras 155 & 163][726-C-G; 731-B-C]

12. In this case, the PPA has been terminated solely on theground of insolvency, which gives the NCLT jurisdiction underSection 60(5)(c) to adjudicate this matter and invalidate the ABC

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Atermination of the PPA as it is the forum vested with theresponsibility of ensuring the continuation of the insolvencyresolution process, which requires preservation of the CorporateDebtor as a going concern. In view of the centrality of the PPA tothe CIRP in the unique factual matrix of this case, this Courtmust adopt an interpretation of the NCLT’s residuary jurisdictionBwhich comports with the broader goals of the IBC. Sir P.B.Maxwell in his commentary, On Interpretation of Statutes 129,has emphasized that a provision should be given an harmoniousinterpretation which comports with the intention of theLegislature. Given that the terms used in Section 60(5)(c) are ofCwide import, as recognized in a consistent line of authority, thisCourt holds that the NCLT was empowered to restrain theappellant from terminating the PPA. However, our decision ispremised upon a recognition of the centrality of the PPA in thepresent case to the success of the CIRP, in the factual matrix ofthis case, since it is the sole contract for the sale of electricityDwhich was entered into by the Corporate Debtor. In doing so, wereiterate that the NCLT would have been empowered to set asidethe termination of the PPA in this case because the terminationtook place solely on the ground of insolvency. The jurisdiction ofthe NCLT under Section 60(5)(c) of the IBC cannot be invoked

Ein matters where a termination may take place on groundsunrelated to the insolvency of the corporate debtor. Even morecrucially, it cannot even be invoked in the event of a legitimatetermination of a contract based on an ipso facto clause like Article9.2.1(e) herein, if such termination will not have the effect ofmaking certain the death of the corporate debtor. As such, in allFfuture cases, NCLT would have to be wary of setting aside validcontractual terminations which would merely dilute the value ofthe corporate debtor, and not push it to its corporate death byvirtue of it being the corporate debtor‘s sole contract (as was thecase in this matter’s unique factual matrix). [Paras 164 &G165][731-D-F; 732-C-F]

13. The terms of intervention in the present case arelimited. Judicial intervention should not create a fertile groundfor the revival of the regime under section 22 of SICA whichprovided for suspension of wide-ranging contracts. Section 22 of H

the SICA cannot be brought in through the back door. The basisof our intervention in this case arises from the fact that if weallow the termination of the PPA which is the sole contract of theCorporate Debtor, governing the supply of electricity which itgenerates, it will pull the rug out from under the CIRP, makingthe corporate death of the Corporate Debtor a foregoneconclusion. The Court is at its heart, an institution which respondsto concrete cases brought before it. It is not within its provinceto engraft into law its views as to what constitutes good policy.This is a matter falling within the legislature’s remit. Equally,when presented with a novel question on which the legislaturehas not yet made up its mind, we do not think this Court can sitwith folded hands and simply pass the buck onto the Legislature.In such an event, the Court can adopt an interpretation – aworkable formula – that furthers the broad goals of the concernedlegislation, while leaving it up to the legislature to formulate acomprehensive and well-considered solution to the underlyingproblem. To aid the legislature in this exercise, this Court canput forth its best thinking as to the relevant considerations atplay, the position of law obtaining in other relevant jurisdictionsand the possible pitfalls that may have to be avoided. It is throughthe instrumentality of an inter-institutional dialogue that thedoctrine of separation of powers can be operationalized in anuanced fashion. It is in this way that the Court can tread themiddle path between abdication and usurpation. [Paras 166 &170][732-G-H; 734-C-F]

NCLAT’s decision on the issue of liquidation

14. NCLT in paragraph 35 of its order dated 29 August2019 upheld the right of the appellant to terminate the PPA, incase a liquidation process is initiated against the CorporateDebtor. The appellant had neither challenged this issue in itsappeal before NCLAT nor was it raised by any other party.However, the NCLAT deleted the observations made by theNCLT in paragraph 35, thereby holding that the appellant cannotterminate the PPA even if the Corporate Debtor goes intoliquidation. Since no pleadings or prayers were made in relationto paragraph 35 of NCLT’s order, NCLAT could not haveconsidered this issue as a subject matter of the appeal. This Court ABC

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Aholds that the NCLAT exceeded its jurisdiction by consideringthe issue of liquidation. In the absence of any liquidationproceedings initiated against the Corporate Debtor, this Courtis not required to consider the issue of whether the appellantwould be entitled to terminate the contract in such a context.Such a discussion would be academic in nature, and beyond theBscope of this appeal. [Para 171][734-F-G; 735-A-C]

Union of India vs R. Gandhi, President, Madras BarAssociation (2010) 11 SCC 1 : [2010] (6) SCR 857;Rai Sahib Ram Jawaya Kapur vs State of Punjab (1955)2 SCR 225; Kesavananda Bharati vs State of Kerala(1973) 4 SCC 225 : [1973] (0) Suppl. SCR 1 – followed.

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Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar (1984)4 SCC 657 : [1985] (1) SCR 511; Thampanoor Ravi vsCharupara Ravi (1999) 8 SCC 74 : [1999] (2) Suppl.SCR 419; Dhirendra Chandra Pal vs Associated Bankof Tripura Ltd. AIR 1955 SC 213 : [1955] SCR 1098;D.R. Kohli vs Atul Products Ltd. (1985) 2 SCC 77 :[1985] (2) SCR 832; P Mohanraj vs Shah Brothers IspatPvt. Ltd. Civil Appeal No. 10355 of 2018 decided on 1March 2021 – relied on.

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Municipal Corporation vs Abhilash Lal (2020) 13 SCC234 : [2019] (14) SCR 659; Embassy PropertyDevelopments (Private) Limited vs State of Karnataka(2020) 13 SCC 308 : [2019] (17) SCR 559 –distinguished.

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Johri Lal Soni vs Bhanwari Bai (1977) 4 SCC 59 :[1978] (1) SCR 231; Swiss Ribbons Private Limited vsUnion of India (2019) 4 SCC 17 : [2019] (3) SCR 535;Ashoka Marketing vs PNB 1990 (4) SCC 406 : [1990](3) SCR 649; Renusagar Power Co. Ltd. vs GeneralElectric Company (1984) 4 SCC 679 : [1985] (1) SCR432; Mansukhlal Dhanraj Jain vs Eknath Vithal Ogale(1995) 2 SCC 665 : [1995] (1) SCR 996; DoypackSystem (P) Ltd. vs Union of India (1988) 2 SCC 299 :[1988] (2) SCR 62; Madras Petrochem Limitted. vs BIFR

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GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.

(2016) 4 SCC 1 : [2016] (11) SCR 419; InnoventiveIndustries vs ICICI Bank (2018) 1 SCC 407 : [2017](8) SCR 33; Arcelor Mittal (India) (Private) Limited. vsSatish Kumar Gupta (2019) 2 SCC 1 : [2018] (12) SCR362; Committee of Creditors of Essar Steel India Limitedvs Satish Kumar Gupta (2020) 8 SCC 531 : [2019] (16)SCR 275; Remdeo Chauhan vs Bani Kant Das (2010)14 SCC 209 : [2010] (15) SCR 957; A. Deivendran vsState of T.N. (1997) 11 SCC 720 : [1997] (4) Suppl. SCR591; Chandos Construction Ltd. vs DeloitteRestructuring Inc. 2020 SCC 25; Northern SecuritiesCompany vs United States 1904 SCC OnLine US SC63 : 24 S.Ct. 436; S. Sukumar vs The Secretary, Instituteof Chartered Accountants of India (2018) 14 SCC 360: [2018] (2) SCR 442 – referred to.

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Riggs National Bank of Washington, D.C. v. John GillisPerry, Jr., in Re John Gillis Perry, Jr., Debtor, 729F.2d 982 (4th Cir. 1984)n(Court of Appeals for theFourth Circuit); Belmont Park Investments Pty Ltd andothers vs BNY Corporate Trustee Services Ltd andanother (Revenue and Customs Comrs and anotherintervening) [2011] 3 W.L.R. 521; Fibria Celulose S/Av Pan Ocean Co Ltd vs Fibria Celulose S/A ChanceryDivision [2014] Bus. L.R. 1041 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9241of 2019.

EFrom the Judgment and Order dated 15.10.2019 of the NationalLaw Appellate Tribunal at New Delhi in Company Law Appeal (AT)(Insolvency) No. 1045 of 2019.

Shyam Divan, Ramji Srinivasan, C.U. Singh, Nakul Dewan, V.Giri, Sr. Adv., Ms. Hemantika Wahi, Ms. Ranjitha Ramachandran, Ms.FJesal Wahi, Vinayak Bhandari, Shubham Arya, Ms. Srishti Khanderia,Ravi Nair, Prithu Garg, Shailendera Singh, Siddharth Mehta, Ms.Harimohana N., Ms. Athira Sankar, Raghav Tankha, Rajat Sehgal, Ms.Pooja Mahajan, Ms. Mahima Singh, S. Mahajan, Ms. Neelu Mohan,Ms. Ila Sheel, Ritesh Kumar, Ashish Rana, Avinash B. Amarnath, AshokGKumar Singh, Ms. Pragya Singh, Shantwanu Singh, Vikram Jain,Abhishek Paruthi, S. S. Shroff, Atul Sharma, Abhishek Sharma, Ms.Ashly Cherian, Ms. Anisha Mahajan, Ms. Harshita Agarwal, GautamTalukdar, Advs. for the appearing parties.

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AThe appealBThe genesis of the PPA

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AThe appealBThe genesis of the PPA

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CInitiation of CIRPDTermination of the PPAEProceedings before NCLT and NCLATCFProceedings by the Successful Resolution ApplicantGSubmissions of counselG.1Submissions on behalf of the appellantG.2Submissions on behalf of the respondentsDHIssues arising from the disputeIJurisdiction of the NCLT/NCLAT over contractual disputesI.1Section 60(5)(c): “arising out of” and “in relation to”I.2Jurisdiction of NCLT and GERCI.3Residuary jurisdiction of the NCLT under SectionE60(5)(c)JValidity of ipso facto clausesJ.1Position of international and multilateral organisationsJ.2National jurisdictionsFJ.3Position in IndiaKAppellant’s right to terminate the PPA in the present caseK.1Analysis of the PPAK.2Validity of the termination of PPAGK.3Dialogical RemediesLNCLAT’s decision on the issue of liquidationMAppellant’s liability to pay for the electricity interjected bythe Corporate DebtorNConclusionH

AA The appeal

1. By its judgment dated 29 August 2019, the National CompanyLaw Tribunal[1] stayed the termination by the appellant of its PowerPurchase Agreement[2] with Astonfield Solar (Gujarat) Private Limited[3].The order of the NCLT was passed in applications[4] moved by theBResolution Professional of the Corporate Debtor[5] and Exim Bank[6] underSection 60(5) of the Insolvency and Bankruptcy Code, 2016[7]. On 15October 2019, the NCLAT dismissed the appeal by the appellant[8] underSection 61 of the IBC. The decision by the NCLAT is called into question.

2. The appellant assails the order dated 15 October 2019 of theCNCLAT on, inter alia, two broad grounds: first, that the NCLT andNCLAT do not possess jurisdiction under the IBC to adjudicate on acontractual dispute between the appellant and the Corporate Debtor;and second, in any event, the termination of the PPA was validly madeunder Article 9.2.1(e) and Article 9.3.1 of the PPA.

DB The genesis of the PPA

3. The narrative of this case begins with the Government of Gujaratnotifying the Solar Power Policy, 2009[9] on 6 January 2009, for developmentof Solar Power projects in the state. The appellant, a Government ofGujarat undertaking, is a successor to the Gujarat Electricity Board, andEis also the holding company of all the State Power Utilities in Gujarat.

4. On 1 August 2009, the Government of Gujarat allocated a 25-megawatt capacity to the Corporate Debtor for developing and settingup a solar photovoltaic based power project in the State of Gujarat. TheCorporate Debtor expressed its desire to setup a ‘Solar PhotovoltaicFGrid Interactive Power Plant’[10] of 10-megawatt capacity and exercisedits option for sale of the entire electrical energy produced from the plantto the appellant for commercial purposes.

1 “NCLT” or “Adjudicating Authority”

2 “PPA”

3 “third respondent” or “Corporate Debtor”

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4 CA No. 701/2019 (first respondent); CA No. 700/2019 (second respondent)

5 “first respondent” or “RP”

6 “second respondent”

7 “IBC”

8 “appellant” or “GUVNL”

9 “Policy”

H10 “Plant”

5. In exercise of its powers under Sections 61(h), 62 and 86 of theElectricity Act, 2003[11], the Gujarat Electricity Regulatory Commission[12]published a draft tariff order for purchase of solar energy, invitingcomments and suggestions from members of the public and stakeholders.Public hearings were held by the State Commission on the price at whichpower could be procured.

6. After the process of public hearings and consultations, a TariffOrder dated 29 January 2010[13] was issued by the State Commission forprocurement of power by the appellant from power producers, underSection 86(1)(a) of Electricity Act. The tariff was determined on thebasis of the then prevailing capital and financing costs, and debt equityratio. It was envisaged that the PPA will be for 25 years, with highertariffs in the first 12-15 years, and a scaled-down tariff for the remainingyears. The tariff was to be applicable to solar projects commissionedwithin the control period of the First Tariff Order, i.e., from 29 January2010 to 28 January 2012.

7. The appellant filed a petition before the State Commission on28 May 2013, seeking initiation of proceedings for re-determination ofthe capital cost and tariff fixed under the First Tariff Order. This petitionwas filed on the basis that subsequent incentives given to power producerson 27 February 2010 had brought down their cost of capital and, as aconsequence, the tariff fixed under the First Tariff Order should berevised. This petition was dismissed by the State Commission on 8 August2013. An appeal against the order was dismissed by the Appellate Tribunalfor Electricity[14] on 22 August 2014. An appeal[15] against APTEL’s decisionis pending before this Court, with notice having been issued on 28November 2014.

8. The appellant and the Corporate Debtor entered into a PPA on30 April 2010, in accordance with which the appellant has to purchaseall the power generated by the Corporate Debtor. The PPA was amendedby two Supplementary Agreements dated 7 August 2010 and 13 April2011, due to an increase in the capacity of the Plant and a change in itslocation.

11 “Electricity Act”12 “State Commission” or “GERC”13 “First Tariff Order”14 “APTEL”15 Civil Appeal No. 10301 of 2014

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A9. Article 9.1 of the PPA provides that it would remain in forcefor 25 years, from the ‘Commercial Operation Date’ which, in accordancewith Article 1.1 is “the date on which the Solar Photovoltaic GridInteractive power plant is available for commercial operation (certifiedby GEDA) and such date as specified in a written notice given at leastten days in advance by the [Corporate Debtor] to GUVNL”.B

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10. Article 5.2 of the PPA stipulates that in case the commissioningof the Plant is delayed beyond 31 December 2011, the appellant shallpay the tariff as determined by the State Commission for Solar Projectseffective on the date of commissioning of the Plant or the tariff providedunder the clause, whichever is lower. Article 5.2 provides that Rs 15 perCunit is payable for the first 12 years and Rs 5 per unit is payable from the13th to the 25th year.

11. While the Corporate Debtor was in the process ofcommissioning the Plant, the State Commission, in exercise of its powersunder Sections 62 and 86 of the Electricity Act, issued the Tariff OrderDdated 27 January 2012[16] for procurement of power from solar energydevelopers by distribution licensees in the State of Gujarat. The tariffwas to be applicable to solar projects commissioned within the controlperiod of the Tariff Order, i.e., from 29 January 2012 to 31 March 2015.

12. Having signed the financing documents and attained financialEclosure with the second respondent and Power Finance Corporation interms of the PPA, and established the Plant as defined in it, the CorporateDebtor commissioned 1.296MW on 11 December 2012 and 10.212 MWon 20 December 2012. Accordingly, the PPA was to remain in forceuntil December 2037.F13. Since it was commissioned within the applicable period of theSecond Tariff Order, the tariff applicable was Rs 9.98 per unit for first12 years and Rs 7 per unit for next 13 years.

C Initiation of CIRP

14. The initial years of the operationalization of the PPA appearGto have been relatively calm. The first major issue arose between July toDecember 2015. During this period, there was heavy rainfall and floodsin the State of Gujarat, due to which the Plant was shut down for twomonths. The Plant was severely damaged due to the floods, and thegeneration of electricity was temporarily paused. By December 2015, H16 “Second Tariff Order”

normalcy was restored in the generation of electricity and the Plant wasgenerating electricity at 70% of its total generating capacity.

15. During June and July 2017, Gujarat was again affected byfloods due to heavy rainfall. The Plant was severely damaged due to thefloods. Resultantly, it was only able to operate at 10-15% of its originalcapacity.

16. Due to the financial stress caused by the disruptions anddamage, for which insurance claims remained pending, the CorporateDebtor was unable to fully service its debt to the Financing Parties (thesecond respondent and Power Finance Corporation), who proposed todeclare the Corporate Debtor a non-performing asset (“NPA”).

17. On 15 February 2018, in accordance with Article 8.1 of thePPA, the Corporate Debtor intimated the appellant regarding the impactof the rainfall and floods on the Plant, and the measures adopted by it inthis regard. The Corporate Debtor requested the appellant to treat theletter as a formal communication regarding cause for failure in theperformance of the Corporate Debtor’s obligations under the PPA, andto confirm that this event may be treated as a ‘Force Majeure Event’ inaccordance with Article 8.1.

18. On 4 May 2018, the second respondent declared the CorporateDebtor to be an NPA. On 20 November 2018, the NCLT admitted apetition[17] filed by the Corporate Debtor under Section 10 of the IBC.NCLT commenced the Corporate Insolvency Resolution Process[18] inrespect of the Corporate Debtor, issued an order of moratorium and thefirst respondent was appointed as the Interim Resolution Professional[19].

19. The second respondent and Power Finance CorporationLimited, filed an appeal[20] challenging the order dated 20 November 2018.The appeal was dismissed by the NCLAT on 4 December 2018, holdingthat the right of the Corporate Debtor’s shareholders to vote on theinitiation of the CIRP under Section 10 of the IBC was not curtailed bythe Deed of Pledge of Securities dated 28 March 2013 entered intobetween the Corporate Debtor, the second respondent and Power FinanceCorporation Limited. The first respondent was confirmed as the RP bythe NCLT on 1 February 2019.

17 CIRP petition, C.P. (I.B.) No. 940(ND)/201818 “CIRP”19 “IRP”20 Company Appeal (Insolvency) No. 754 of 2018

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632SUPREME COURT REPORTS

[2021] 13 S.C.R.

AD Termination of the PPA

20. The appellant issued two notices of default to the CorporateDebtor on 1 May 2019, which were received by the first respondent on8 May 2019:

(i) The basis of the First Notice is that under Article 9.2.1(e)Bof the PPA, the Corporate Debtor undergoing CIRP underthe IBC amounts to an ‘event of default’. The appellantcalled upon the Corporate Debtor to remedy this defaultwithin 30 days from the date of receipt of the said notice,failing which the appellant stated that it shall terminate theCPPA by issuing a termination notice; and

(ii) The basis of the Second Notice is that under Article 9.2.1(a)of the PPA, there was a default in the operation andmaintenance of the Plant. Once again, the appellant calledupon the Corporate Debtor to remedy the O&M defaultDwithin 90 days from the receipt of the notice, failing whichthe appellant stated that it shall terminate the PPA by issuinga termination notice.

21. The first respondent issued his replies to both the notices on10 May 2019. The replies are summarized below:

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(i) The reply to the First Notice states that the CorporateDebtor’s PPA with the appellant is its only PPA, and hencethey are heavily dependent on it for reaching a resolutionunder the IBC. In case the appellant terminates the PPA,prospective resolution applicants[21] who had submitted theirFexpression of interest for the Corporate Debtor might notsubmit a resolution plan, which would eventually lead toliquidation of the Corporate Debtor, defeating the main objectof the IBC; and

(ii) The reply to the Second Notice states that since theGCorporate Debtor is undergoing CIRP under the IBC, theoperations at the Plant were severely affected due to forcemajeure events in terms of the PPA. Thus, the conditionsof the PPA could not be said to have been breached.

22. On 21 May 2019, a meeting was scheduled between the firstrespondent and the General Manager (IPP) of the appellant. During thismeeting, the first respondent emphasized that if the PPA was to beterminated, revival of the Corporate Debtor will be at stake, sinceprospective resolution applicants may not submit resolution plans or maywithdraw the resolution plans, if submitted, citing termination of the PPA.Declining to accede to this position, the appellant made it clear that inaccordance with a legal opinion obtained by them, they will be terminatingthe PPA under Articles 9.2.1(e) and 9.3.1 under the First Notice, sincethe Corporate Debtor is under CIRP. However, the appellant confirmedthat the O&M default stood cured, and hence it would not act upon theSecond Notice. It may also be noted at this stage that the appellant hasnot pressed the issue of the O&M default either before this Court orbefore the NCLAT/NCLT.

E Proceedings before NCLT and NCLAT

23. In May 2019, the first and second respondents filed applicationsunder Section 60(5) of the IBC before the NCLT in regard to the Noticesissued by the appellant to the Corporate Debtor, and sought an injunctionrestraining the appellant from terminating the PPA. By an interim orderdated 31 May 2019, NCLT restrained the appellant from terminating thePPA till the next date of hearing.

24. While the interim order was in operation, the appellant wroteto the first respondent on 7 June 2019, stating that the notice period forcuring the default had expired. The appellant claimed that CorporateDebtor had failed to cure the default, as a result of which the appellantwas entitled to issue the final termination notice under Article 9.3.1 ofthe PPA. However, since the NCLT had provided an interim protectionto the Corporate Debtor till the next date of hearing (12 June 2019), theappellant stated that it was not issuing the final termination notice at thepresent.

25. On 29 August 2019, the NCLT issued its final order throughwhich it allowed the applications filed by the first and second respondents,thereby restraining the appellant from terminating the PPA and settingaside the First Notice. The NCLT’s reasoning is premised on the following:

(i) The clauses of the PPA cannot be placed on a higherpedestal than the provisions of the IBC, in the context ofdrawing a timeline for completion of the CIRP. The fact AB

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that the CIRP has not concluded within 30 days from thereceipt of the notice of default cannot be construed as anevent of default since the time limit for the CIRP under theIBC is 330 days; and A

(ii) The PPA is an ‘instrument’ within the meaning of SectionB238 of the IBC. The clauses of the PPA are inconsistentwith the provisions of the IBC, and stand overridden.

However, in paragraph 35 of its order, the NCLT held that theappellant could terminate the PPA, in the event that liquidationproceedings are initiated against the Corporate Debtor. Paragraph 35Creads thus:

“35. It is however, made clear that if due to any reason, theCorporate Debtor goes into liquidation, the Respondent Companywill be at liberty to terminate the Power Purchase Agreement.”

26. The NCLAT by its judgment dated 15 October 2019 dismissedDthe appeal against the NCLT’s order. The NCLAT noted that the appellantattempted to terminate the PPA on the sole ground that the CIRP hasbeen initiated for the Corporate Debtor. It observed that during the CIRP,the first respondent has to maintain the Corporate Debtor as a ‘goingconcern’ and the termination of its sole PPA, under which it suppliedEelectricity only to the appellant, would render the Corporate Debtordefunct. Hence, the NCLAT held that the appellant could not terminatethe PPA solely on the ground of the initiation of CIRP of the CorporateDebtor, which was supplying power to the appellant during the period ofthe CIRP. Further, it restrained the appellant from terminating the PPAeven in the event that the Corporate Debtor underwent liquidation, byFsetting aside theobservations made by the NCLT in paragraph 35 of theorder dated 29 August 2019.

27. The NCLAT thereafter directed the appellant to pay the duesfor power supplied by the Corporate Debtor during the CIRP period. On12 June 2020, the appellant, as an interim measure but without prejudiceGto its rights, agreed to release an ad-hoc payment of Rs 50 lakhs to theCorporate Debtor. However, the appellant informed the first respondentthat this payment to the Corporate Debtor is conditional, and theCorporate Debtor must submit an undertaking on stamp paper statingthat the amount released by the appellant will be refunded to them withinterest, in case this Court allows the present appeal. The first respondentH

furnished the undertaking sought on 18 June 2020, following which theappellant released an ad-hoc payment of Rs 50 lakhs to the CorporateDebtor on 1 July 2020. Since then, the appellant has paid a further amountof Rs 1.07 crores to the Corporate Debtor, against a similar writtenundertaking given by first respondent dated 27 January 2021.

F Proceedings by the Successful Resolution Applicant

28. During the course of these hearings, the court has beeninformed of parallel proceedings initiated against the respondents by M/s Kundan Care Products Limited[22], whose Resolution Plan in relation tothe Corporate Debtor was approved by 99.28% of voting shares of theCommittee of Creditors[23].

29. An application[24] under Section 31 of the IBC was filed by thefirst respondent on 15 November 2019 before the NCLT seeking approvalof the Resolution Plan approved by the CoC. This application is currentlypending adjudication before the NCLT, due to the present appeal filedby the appellant before this Court.

30. However, on 20 December 2019, the Successful ResolutionApplicant filed an application[25] under Section 60(5) of the IBC beforethe NCLT, seeking withdrawal of their Resolution Plan submitted forthe Corporate Debtor. Further, on 16 January 2020, the SuccessfulResolution Applicant filed an interlocutory application[26] before this Courtin the present appeal, seeking certain reliefs from this Court or, in thealternative, seeking permission of this Court to allow them to withdrawtheir Resolution Plan dated 12 November 2019. This Court allowed theSuccessful Resolution Applicant to withdraw the interlocutory applicationfiled in the present appeal on 20 July 2020.

31. The NCLT by an order dated 3 July 2020, dismissed theapplication filed by the Successful Resolution Applicant, thereby refusingto grant them permission to withdraw the Resolution Plan. Thereafter,the NCLAT by a judgment dated 30 September 2020, dismissed theappeal filed by the Successful Resolution Applicant against NCLT’s orderdated 3 July 2020.

22 “Successful Resolution Applicant”23 “CoC”24 C.A. No. 1526 of 201925 C.A. 1679 of 201926 I.A. No. 9682 of 2020

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A32. The Successful Resolution Applicant has since filed an appeal[27]before this Court challenging NCLAT’s judgment dated 30 September2020. By an order dated 16 November 2020, this Court granted a stayagainst the NCLAT’s judgment dated 30 September 2020.

G Submissions of counselB

G.1 Submissions on behalf of the appellant

33. The case of the appellant has been presented initially in thearticulate and carefully reasoned submissions made by Ms RanjithaRamachandran, learned counsel. Mr Shyam Diwan, learned seniorcounsel has then urged his submissions. The following submissions wereCurged in relation to the jurisdiction of the NCLT/NCLAT under section60(5) of the IBC:

(i) Section 60(5) must be interpreted in the context of Section25(2)(b) of the IBC, which provides that the RP has toD“exercise the rights for the benefit of the corporate debtorin judicial, quasi judicial or arbitration proceedings.” Hence,if NCLT is conferred with the exclusive jurisdiction inrelation to the Corporate Debtor, this section would berendered redundant. This Court in Embassy PropertyDevelopments (Private) Limited vs State ofEKarnataka[28] has held that the RP cannot sidestep thejurisdiction of other authorities and approach the NCLT forthe enforcement of the Corporate Debtor’s rights. Althoughthis judgment was in the context of a renewal of a mininglease by a statutory authority, the interpretation of SectionF60(5) would not be limited to statutory authorities particularlyin the backdrop of Sections 18 (duties of interim resolutionprofessional) and 25(2)(b). In the present case, Article 10.4of the PPA has granted jurisdiction to the State Commission,the regulatory authority under the Electricity Act, to entertaindisputes relating to the PPA. Article 10.4 provides:

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“In the event that such differences or disputes betweenthe Parties are not settled through mutual negotiationswithin sixty (60) days, after such dispute arises, then it 27 Civil Appeal No. 3560 of 2020H28 (2020) 13 SCC 308; hereinafter referred to as “Embassy Property”

shall be adjudicated by the Commission in accordancewith Law.”

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(ii) Section 86(1)(f) of the Electricity Act provides that the StateCommission shall discharge the function of adjudicating “thedisputes between the licensees, and generating companiesand to refer any dispute for arbitration”. Therefore, anyissue in relation to the PPA must be raised before the StateCommission, and not the NCLT. Further, the secondrespondent has no locus to file a petition before the NCLTin relation to the PPA; B

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(iii) The NCLT cannot preclude the appellant from exercisingits contractual rights under the PPA read with the ElectricityAct;

(iv) If Section 60(5) is given a broad interpretation to includecontractual disputes, it would disrupt the streamlined andtimebound process under the IBC. Although the NCLT,Dbeing conscious of its limitations, has not proceeded toadjudicate on whether the termination of the PPA was valid,or dwelt on the interpretation of the PPA, it has stillerroneously set aside the termination of the PPA by theappellant without any basis under the IBC; EFG

(v) Even if it is assumed that NCLT has jurisdiction over disputesrelating to the PPA, the adjudication of such disputes shouldbe in accordance with the PPA. The sanctity of the contractsmust be upheld unless there is a statutory provisioninterdicting such contracts. There can be no exercise ofany inherent or residual power by the NCLT to set asidethe termination of a contract absent a statutory interdict.The Resolution Applicant or NCLT have no powers tomodify the PPA through a resolution plan. The formation,novation or alteration of the contract must be in accordancewith Section 30(2)(e) of the IBC, which provides that theResolution Plan cannot contravene any provision of lawwhich is in force. The provisions of the Indian ContractAct, 1872 (“Contract Act”), require mutual agreement ofthe parties for such a modification; A(vi)The submission of the respondents that ‘property’ underSection 3(27) of the IBC includes an actionable claim andhence the dispute falls under the jurisdiction of the NCLTis erroneous in view of the judgement in EmbassyProperty (supra); B(vii)The contention of the respondents that there is a directconnection between the termination of the PPA by theappellant and the insolvency resolution process should berejected because the issue in the present case is not ofinterpretation of the insolvency resolution process but ofthe PPA, and only the State Commission has the jurisdictionCto interpret the PPA; and

(viii) The respondents have relied on judgments under otherstatutes like the Companies Act, 1956[29], Banking RegulationAct, 1949[30] and Provincial Insolvency Act, 1920[31] withprovisions corresponding to Section 60(5). However, theseDstatutes do not contain any provisions equivalent to Sections18 and 25 (2) (b) of IBC. The interplay between theseprovisions and Section 60(5) must be considered for thepurpose of determining NCLT’s jurisdiction. Further, thefacts of these judgements are also distinguishable from theEpresent case.

34. However, assuming but not conceding that the NCLT couldhave had jurisdiction over the dispute, the appellants argue that there isno embargo under the IBC on exercise of contractual rights by theappellant, which does not include this termination:

F(i)Except for the moratorium stipulated under Section 14 ofIBC, there is no other bar in the scheme of the IBC tointervene in contractual arrangements that the CorporateDebtor has entered with a third party. In the present case,the NCLT/NCLAT did not hold that the termination of theGPPA was prohibited under Sections 14(1) and (2) of IBC.Sections 14(2) and (2A) deal with supply of essential/criticalgoods and services to the Corporate Debtor, and do not mandate the third party to purchase any goods and servicesfrom the Corporate Debtor. Section 14(2) provides forcontinued supply of essential goods and services to theCorporate Debtor. However, there is no bar on terminationof other agreements. Section 14(2A) was introduced afterthe issuance of the default notice by the appellant and, inany event, it does not prohibit the termination of the PPA.Parliament has chosen not to include any provision to thiseffect despite the multiple amendments that have been madeto the IBC;

(ii) The Explanation to Section 14(1) of the IBC, which wasintroduced by an amendment in December 2019, coverslicenses or approvals granted by a government authority.However, no reference has been made there to contractssuch as PPAs;(iii)The respondents are attempting to resurrect the regimeunder Section 22(3) of the Sick Industrial Companies(Special Provisions) Act, 1985[32], which empowered theBoard to suspend the operation of all or any of the contractsto which the sick industrial company was a party. In SwissRibbons Private Limited vs Union of India[33], this Courtheld that the IBC was introduced because the regime underSICA and Board for Industrial and Financial Reconstruction[34]had failed. Under the IBC, there is no such power to suspendcontracts. Hence, when the legislature has wilfully omittedsomething or in a situation of a casus omissus, this Courtcannot introduce what has been omitted by way ofinterpretation, analogy or implication;

(iv) The termination of the PPA cannot be set aside based onthe objective of the IBC to ensure that the Corporate Debtorremains a ‘going concern’, in the absence of a specificprovision under the IBC. The objective of the IBC cannotbe understood to mean that the vested rights of parties canbe interfered with or extinguished except to the extentcontemplated under Section 14 of the IBC. While in the 32 “SICA”

33 (2019) 4 SCC 17; hereinafter referred to as “Swiss Ribbons”

34 “BIFR”

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AUnited States there are specific provisions providing fornon-enforcement of ipso facto clauses such as Article9.2.1(e) of the PPA, no such provisions exist under the IBC.Hence, such a bar cannot be read into the legislation byreference to the object of the IBC or duties of the RP. Theparties cannot wish away a contractual right because it isBnot suitable to them by way of a narrow understanding of“public interest”. The public interest lies in preserving thesanctity of contracts and for the contractual bargains toplay out; A

(v) The duty of the RP to preserve the Corporate Debtor as aCgoing concern and the definition of resolution plan do notbind third parties to act in favour of the Corporate Debtor.The NCLAT has stressed that the Corporate Debtor wouldbecome defunct if the PPA is terminated because it suppliespower exclusively to the appellant. However, the CorporateDDebtor chose to supply power solely to the appellant. TheCorporate Debtor was empowered under Sections 7 and10 of the Electricity Act to sell electricity to any licensee orconsumer. The power producing company can conveyelectricity to any part of the country using the transmissionnetwork under Sections 2(4), 38(2)(d), 39(2)(d), 40(c) andE42(2) of the Electricity Act. Hence, the Corporate Debtoris free to supply power to any other licensee or consumerafter the termination of the PPA. The only difference wouldbe that the Resolution Applicant would have to supplyelectricity at a lower cost; D

F(vi)The second respondent and Power Finance CorporationLimited were aware that the appellant can terminate thePPA under Article 9.2.1(e). They are vested with the rightto assign the rights and obligations under the PPA to a thirdparty, in the event of a default committed by the CorporateGDebtor, under the financing documents under Article 12.9of the PPA. Hence, the second respondent could haveexercised its power to assign prior to the initiation of theCIRP on 20 November 2018. Instead, it declared theaccount of Corporate Debtor as an NPA. Then, when theCorporate Debtor applied for the initiation of the CIRP under G

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Section 10 of the IBC, which was admitted by the NCLTthrough its order dated 20 November 2018, it challengedthe order before in an appeal, which was dismissed by theNCLAT on 4 December 2019. Therefore, the appellant hasthe right to terminate the PPA under Article 9.2.1(e),irrespective of whether any assignment has taken placeunder Article 12.9; A

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(vii) The first respondent cannot rely on the resolution plan toprevent termination of the PPA since the resolution plan orprocess does not modify the terms of the contract of theCorporate Debtor with third parties. Each party took aCcalculated risk to enter into the contract with the knowledgethat 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 havingeffect by virtue of any such law” - does not covercommercial bilateral agreements between a corporatedebtor and a third party laying down the terms of anexecutory contract entered between them. It only appliesto a statutory contract or an instrument entered into byoperation of law that is inconsistent with the IBC; D

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(ix) No provision of the PPA is inconsistent with the IBC. Article9.3.1 which specifies a period of 30 days for the CorporateDebtor to remedy a default, and gives the appellant theright to terminate the contract in case of a failure to do so,is not inconsistent with the time limit provided in section 12of the IBC to complete the insolvency resolution process.Article 9.3.1 obliges the Corporate Debtor to ensure thatthe proceedings initiated against it come to an end within30 days by an act of the Corporate Debtor and does notgovern the resolution process undertaken under the IBC; F

(x) The right to terminate the PPA in accordance with Article9.3.1 has accrued to the appellant, since an event of defaulthas occurred within the meaning of Article 9.2.1(e):

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(a) Article 9.2.1(e) of the PPA provides that if theCorporate Debtor “becomes voluntarily orinvoluntarily, the subject of a proceeding in any H

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bankruptcy or insolvency laws”, it would beconsidered as an event of default. Article 9.2.1(e)also lists other events of default like dissolution,liquidation and the appointment of a receiver. Eachof these eventualities is independent. The clause mayhave referred to the legislation which preceded theIBC since the PPA was entered into in 2010.However, each of these laws related to companiesthat were bankrupt/insolvent. The exception underArticle 9.2.1(e) covers voluntary reconstruction andmerger undertaken under the Companies Act, 2013[35],leading to a dissolution of the company withoutliquidation or winding up. The exception is limited todissolution undertaken for the above purposes anddoes not contemplate a dissolution in relation to aninsolvency or bankruptcy proceeding. There is nodissolution in the present case. Respondents havecontended that the third “or” under the Article 9.2.1(e)should be changed into “and” or other situationsshould be read into the exception which is only fordissolution. The interpretation of “or” as “and” wouldmean that initiation of proceedings under anybankruptcy or insolvency laws would constitute anevent of default only if the company goes intoliquidation. The usage of words “or” and “and” aredeliberate. The interpretation proposed by therespondents would exclude liquidation taking placefor reasons other than insolvency/bankruptcy, whichcould not have been the intent of the parties. Inabsence of any ambiguity or uncertainty in the clause,the court cannot imply any term or interpret the clausecontrary to its plain meaning; (b)Clauses such as Article 9.2.1(e) are standard clausesin agreements of this nature. Even after thenotification of the IBC, similar provisions continue inPPA formats notified by the Government of India aspart of the Standard Bid Documents for Tariff Based

Competitive Bid Process under Section 63 of theElectricity Act for conventional power. Similarprovisions are found in the PPAs being drafted asper Guidelines for Tariff Based Competitive BiddingProcess for renewable energy sources; and

(c) The bargain between the parties was fair and notone sided. The same default clause has been providedunder the appellant’s defaults in Article 9.2.2(c), anda corresponding right to terminate has been providedunder Article 9.3.2. Similar clauses are provided underthe standard PPAs issued by the Government of Indiafor competitive bidding under Section 63 of theElectricity Act. Therefore, the clauses cannot be saidto be unreasonable or unconscionable.

35. In summing up their submissions, the appellants have raisedtwo more arguments:

(i) The NCLAT’s observations in relation to the termination ofthe PPA if the Corporate Debtor goes into liquidation wereincorrect:

(a) In the appeal filed by the appellant against the orderof the NCLT dated 29 August 2019, the appellanthad not challenged the determination of the NCLTthat the PPA can be terminated in the event of theinitiation of a liquidation proceeding against theCorporate Debtor. It is a settled principle of law thatthe courts cannot go beyond the pleadings or theprayer put forth by the parties; and (b)NCLAT erroneously proceeded on the basis thatthere is no difference between the liquidation andresolution process. On the commencement ofliquidation proceedings, the corporate debtor is nolonger a going concern. The assets of the corporatedebtor are sold for recovery of money. However,agreements with third parties are not assets. Theappellant cannot be compelled to continue theagreement with a new person or entity for the benefitof the creditors of the Corporate Debtor.

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A(ii)NCLAT’s direction to the appellant to pay for the electricityinjected by the Corporate Debtor was flawed:

(a) The appellant was entitled to terminate the PPA from7 June 2019, and cannot be compelled to procureand pay for power to preserve the value of theBCorporate Debtor. The injection of electricity from 7June 2019 is due to the orders of the court and notunder the PPA. Under the principle of “actus curiaeneminem gravabit”, the act of the court cannotprejudice any party. The court is under an obligationto undo the wrong caused to a party due to its actions.CThe appellant cannot be made to suffer on accountof the erroneous injunctions granted by NCLT/NCLAT when it could have procured electricity at alower cost from other solar power projects; (b)The appellant has paid the Corporate Debtor anDamount of Rs 50 lakhs and Rs 1.07 crores pendingthe present appeal and against the undertaking thatthe amount would be returned with interest if theappeal is decided in its favour. Additionally, underArticle 9.3.1 of the PPA, the compensation forEtermination of the PPA is Rs 55.80 crores; and E

(c) The issues relating to tariff determination andreplacement of solar panels raised by the respondentswere not considered by the NCLT/NCLAT, and arenot relevant for the interpretation of the PPA andFprovisions of the IBC.

G.2 Submissions on behalf of the respondents

36. Mr C U Singh and Mr Nakul Dewan, learned Senior counselappearing on behalf of the first respondent, have argued that NCLT hadthe jurisdiction to consider the validity of the termination of the PPA byGthe appellant on the sole ground of the initiation of the insolvencyproceedings of the Corporate Debtor and that the jurisdiction was rightlyexercised by the NCLT, in the present case. Mr C U Singh has madethe following submissions on the jurisdiction of the NCLT:

(i) The application for staying the termination of the PPA wasHfiled by the first respondent before the NCLT under Section

Issues

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

60(5) of the IBC. Section 60(5)(c) confers upon the NCLTcomplete jurisdiction to decide any application by or againstthe Corporate Debtor on any question of priorities or anyquestion of law or facts, arising out of or in relation to theinsolvency 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 filedby the RP which may not specifically relate to a particularsection of the IBC (such as Section 14), provided theapplication involves any question of law or facts, arisingout of or in relation to the insolvency resolution of the thirdrespondent;

(ii) Relatedly, since the jurisdiction vested in the NCLT underSection 60(5)(c) is of a residuary character, even where aquestion of law or fact is not specifically covered underSection 14, the NCLT would have the jurisdiction to considersuch a question of law or fact, provided it arises out or is inrelation to the insolvency resolution process of the corporatedebtor. Any other interpretation of Section 60(5) wouldrender it otiose;

(iii) A narrow interpretation of Section 60(5) is neither warrantedfrom the language of the section, nor is it in line with judicialprecedents which have interpreted similar provisions in otherinsolvency laws. Provisions similar to Section 60(5)(c) havebeen read in an expansive way. In this regard, reliance isplaced on the interpretation of Section 446(2) of the CA1956, Section 4(1) of the PIA and Section 45-B of the BRA;

(iv) The expressions used in Section 60(5)(c), i.e., ‘relating to’and ‘arising out of’ have been interpreted as words of thewidest amplitude. The expression ‘relating to’ has been heldto be equivalent to or synonymous with ‘as to,’ ‘concerningwith,’ and ‘pertaining to’. In view of the broad scope ofthese terms, an interpretation divesting the NCLT of thepower to injunct the termination of the PPA should not becountenanced in this case;

(v) The first respondent is not advocating for the adoption ofan absolute rule about what falls within and beyond the ABCD

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NCLT’s jurisdiction under Section 60(5)(c). Rather, itsubmits that this determination must be made on the factsof each case; A

(vi) The termination of the PPA in the present case is soughtsolely on the ground of insolvency. The cause of action forBtermination is therefore alleged to be the insolvency of theCorporate Debtor and the contention that the CorporateDebtor is no longer ‘reliable’ on account of the insolvencyresolution process. There would be no termination of thePPA but for the initiation of the CIRP against the CorporateDebtor. Hence, the cause of action arises out of and is inCrelation to the insolvency resolution of the Corporate Debtor.This case is materially different from cases in whichtermination of the PPA is sought for reasons independentof the insolvency of the Corporate Debtor (for instancewhere termination is sought for non-supply of electricity); D(vii)The fact that Sections 20(2)(e) and 25 of the IBC arecouched in terms of a duty, does not necessarily mean thatthe NCLT does not have jurisdiction to decide matters thatarise from the duty of the RP to preserve the assets ormaintain the Corporate Debtor as a ‘going concern’. OnEthe contrary, NCLT is the only forum which has thejurisdiction to oversee the resolution process of the CorporateDebtor which necessarily includes the continuation of theCorporate Debtor as a going concern and its successfulresolution;

F(viii) The facts of this case are different from those of EmbassyProperty (supra) and Municipal Corporation vs AbhilashLal[36]. Unlike Abhilash Lal (supra), the property in thiscase (long term contractual right under the PPA) is theproperty of the Corporate Debtor and not the property of astatutory authority. Further, there was no violation of lawGwhen NCLT injuncted the appellant from terminating thePPA on the ground of the initiation of the CIRP of theCorporate Debtor. In addition, the facts in Abhilash Lal(supra) dealt with the public duty of Municipal Corporation H36 (2020) 13 SCC 234; hereinafter referred to as “Abhilash Lal”

in respect of the construction of a hospital. Further, therewere existing defaults and a show cause-notice was issuedin this regard prior to the commencement of the CIRP ofthe company. As opposed to this, in the present case,termination by the appellant is not on grounds of default butsolely on the ground of the initiation of the insolvencyresolution process of the Corporate Debtor and, that too,nearly six months after the admission of the applicationunder Section 10 of the IBC; and A

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(ix) In Embassy Property (supra), what was at issue in waswhether the NCLT has jurisdiction over a matter which isCin the realm of public law. In the present case, the decisionof the appellant to terminate the PPA is not a decision takenby the Government or by a statutory authority in relation toa matter which is in the realm of public law. The decisionof the appellant to terminate the PPA is only because theCorporate Debtor is undergoing insolvency resolution. TheDCorporate Debtor has not defaulted in supplying solar powerto the appellant and is otherwise not in breach of itsobligations under the PPA.

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37. Assuming that the NCLT has jurisdiction, the followingsubmissions were made by Mr C U Singh in relation to the interpretationof the PPA:

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(i) Article 9.2.1 of the PPA, read with Article 9.3.1, whichallows the appellant to terminate the PPA if the thirdrespondent commits an event of default, must be read withother provisions of the PPA. In this regard, our attentionwas drawn to:

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(a) The recitals to the PPA state that the Power Producerwill include its successors and assignees; (b)Article 4.1(iii) of the PPA provides that the CorporateDebtor shall sell the power produced by it to theGappellant on first priority basis and is not allowed tosell to any third party;

(c) Article 4.1(x) of the PPA provides for the eventualityof an equity dilution of the power producer; H

(d) Article 9.1 of the PPA provides for the term of theagreement, i.e., 25 years from the commercialoperation date; A

(e) Article 9.3.1 of the PPA provides that in case of adefault of the Corporate Debtor, it shall have theliability to make payments towards compensation tothe appellant which is equivalent to three years billingbased on the first-year tariff considered on normativePLF while determining the tariff by GERC, within30 days from the termination notice; B

(f) Article 12.9 of the PPA specifically provides that thefinancing parties may cause the power producer toassign its interest, rights and obligations to a thirdparty; and C

(g) The PPA contemplates the financing of the projectDand that there could be financial defaults by theCorporate Debtor. Hence, the PPA specificallyallowed financing parties to step in and change theidentity of the power producer provided the successorwas capable of and willing to assume the obligationsof the power producer under the PPA. ArticleE9.2.1(e) must be read in light of this background.

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(ii) In relation to the interpretation of Article 9.2.1(e), it wassubmitted:

(a) When the PPA was entered into in 2010, the IBCwas not in existence. The contract was a standardFform contract. While the clause refers to insolvencyor bankruptcy proceedings,the intent of Article9.2.1(e) could only have been to cover liquidationproceedings as contemplated under the CA 1956. TheCA 1956 did not contemplate ‘insolvency’ orG‘bankruptcy’ proceedings. Insolvency at the time ofthe drafting of the clause was understood to includeindividual insolvency. Hence, Article 9.2.1(e) couldnot have intended to cover ‘insolvency resolution’proceedings under the IBC as a trigger for an eventof default; H

(b) If the term ‘insolvency’ proceedings in ArticleA9.2.1(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 theexception in the clause, in the form of ‘reorganization’will also necessarily need to be applied in light of theBupdated understanding. Read thus, the term mustextend to any form of reorganization because of whichthe company does not go into liquidation or winding-up. Read in this manner, Article 9.2.1(e) must beinterpreted to exclude the reorganization proceedingsunder the IBC; andC

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(c) Assuming, arguendo, that Article 9.2.1(e) of the PPAis ambiguous, it ought to be interpreted in favour ofthe power producer. The PPA is a standard formcontract. The third respondent and the appellant donot stand on a footing of equality. The application ofthe rule of contra preferentum is well settled and aninterpretation of the contract which favours the partywith lesser bargaining power is preferred. Applyingthat rule here, any ambiguity in the interpretation ofArticle 9.2.1(e) must be resolved in favour of thethird respondent.

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38. Submissions were also urged by Mr C U Singh in relation toSections 14 and 238 of the IBC:

(i) In relation to the application of Section 238 of the IBC tothe PPA, it was submitted that:

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(a) Under Article 9.3.1 of the PPA, the third respondentis required to remedy the default (if any) within 30days of service of the default notice. If read in thismanner, on the receipt of a default notice during thependency of the CIRP, the third respondent wouldGbe required to complete the reorganization processwithin 30 days so as to obviate the consequence ofthe PPA getting terminated. The IBC provides aperiod of 330 days for the completion of the CIRP.There is a dichotomy between the provisions of thePPA and the IBC. The timelines under the PPA forH

curing a default are inconsistent with those underthe IBC for completing the CIRP with respect to thethird respondent. In view of the non-obstante clausein Section 238, the provisions of the IBC wouldoverride those of the PPA; A

B(b)The argument that the PPA is not an “instrument”under the IBC is incorrect. Since the term“instrument” has not been defined in the IBC, it maybear a meaning drawn from the definition in otherstatutes. The PPA is approved by the GERC andhas the force of law under the Electricity Act. TheCPPA sets out the rights and liabilities of the partiesand is an instrument for the purposes of Section 238.Being an “instrument”, which is inconsistent with theprovisions of the IBC, the latter would have overridingeffect over the former, in view of Section 238 of theDIBC. Therefore, the right to terminate would onlyarise in case the third respondent fails to cure thedefault, i.e., resolve itself in accordance with the IBC;and D

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(c) In view of Section 238, the IBC overrides theEprovisions of the Electricity Act. Section 63 of theIBC provides that “No civil court or authority shallhave jurisdiction to entertain any suit or proceedingsin respect of any matter on which National CompanyLaw Tribunal or the National Company LawAppellate Tribunal has jurisdiction under IBC.”FNCLT’s jurisdiction excludes that of the GERC.

(ii) In relation to the legislative intent underlying Section 14 ofthe IBC, it was submitted that:

(a) The Notes on Clauses to the Insolvency andGBankruptcy Bill, 2015 and the Insolvency LawCommittee Report dated 20 February 2020 suggesta clear legislative intent of Section 14 that, an ipsofacto clause allowing a party to terminate thecontract if the counterparty enters into some form ofinsolvency resolution process must either be declaredHvoid or be suitably read down in order to ensure that the objective of the IBC in keeping the company asa going concern is met. If in the facts of a givencase, the relevant authorities find that to preservethe assets of the Corporate Debtor and to keep it asa going concern, certain contracts need to beprotected, they ought to be invalidated or read down;and (b)The nature of the third respondent and its businessrenders the PPA a valuable asset, and its terminationwould have the effect of running the third respondentto the ground. Therefore, in view of the legislativeintent, and reading the provisions of the PPA as awhole, Article 9.2.1 (e) must be read to excludereorganization proceedings under the IBC as an eventof default.

39. Supplementing these submissions, Mr Nakul Dewan, learnedSenior Counsel made the following additional submissions:

(i) The Resolution Plan submitted by the Successful ResolutionApplicant and approved by the CoC was dependent on thecontinuation of the PPA:

(a) The following aspects of the resolution plan need tobe highlighted: (i) the significance of the PPA to thecontinued commercial viability of the corporatedebtor; (ii) the reason for the initiation of the CIRPincluding the nature of the debts; (iii) the experienceof the RP in reviving the Corporate Debtor includingthe revival plan; (iv) the summary of the resolutionplan, including the ‘haircut’ being taken by thecreditors in order to ensure that the Corporate Debtoris restructured; (v) the relevant rates pertaining tosolar tariff; (vi) the business plan; (vii) the financialplan; and (viii) the potential risks and mitigationmeasures; (b)The Corporate Debtor was put into financial difficultyon account of the force majeure events whichtranspired in 2015 and 2017. The first respondenthad started putting the Corporate Debtor back on its A

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track, and along with the Resolution Applicant hadformulated a plan under which the Corporate Debtorwould be revived. The resolution plan was dependenton the continuation of the PPA; and A

(c) If the termination is permitted, the Corporate DebtorBwould not be able to revive in terms of the resolutionplan which has been agreed upon by the lenders, eventhough it continues to be able to perform its obligationsunder the PPA.

(ii) In relation to the interpretation of Article 9.2.1(e):

C(a)The term ‘law’, in Article 9.2.1(e) must be interpretedin a dynamic sense. The interpretation of Article9.2.1(e) must be considered at the point of time itwas sought to be invoked in order to ascertain whetherthere was an event of default. The exception underwhich “reorganization” is excluded as an event ofDdefault, would apply to the proceedings which wereinitiated under section 10 of the IBC for the solepurpose of the reorganization of the CorporateDebtor; and

(b) The invocation of Article 9.2.1(e) on the ground thatEproceedings under Section 10 of the IBC had beencommenced was both erroneous and premature. Itwas erroneous because at the time of commencementof the proceedings, the Corporate Debtor was lookingat the reorganization of its affairs. It squarely fellwithin the exception to Article 9.2.1(e). It wasFpremature because unless and until the appellant wassure that after a reorganization the resulting entitywould not have the financial standing to perform itsobligations or as to its lack of creditworthiness, it hadno basis to terminate the PPA on the ground that itGconstituted an event of default under Article 9.2.1(e).

(iii) In relation to the jurisdiction of the NCLT, it was submittedthat:

(a) The NCLT’s jurisdiction with respect to Section 60(5)was invoked to seek quashing of the default noticeHissued by “taking insolvency proceedings as Event GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

of Default.” Therefore, the application filed beforethe NCLT was within the realm of its jurisdictionunder Section 60(5) of the IBC; (b)The appellant’s submission about GERC havingjurisdiction should not be accepted. Instead, this Courtshould adopt the position that, should thecommencement of proceedings under the IBC beused as a ground to terminate a contract, then thematter ought to be determinable by the NCLT. Thisis further bolstered by the exclusion of the jurisdictionof civil courts under Section 231 of the IBC; and

(c) IBC, being a special law, enacted after the ElectricityAct, the NCLT and NCLAT have exclusivejurisdiction to govern all questions of fact and lawrelating to the insolvency process of the corporatedebtor.

40. Mr V Giri, learned senior counsel on behalf of the secondrespondent, made the following submissions in support of the argumentsmade by the first respondent:

(i) Once an application under sections 7, 9 or 10 of the IBC isadmitted by the NCLT, it is conferred with the jurisdictionto deal with matters relating to the insolvency of thecorporate debtor;

(ii) Both the Electricity Act and the IBC are special legislations,which have been enacted to deal with electricity relatedissues and insolvency, respectively. In Ashoka Marketingvs PNB[37] this court held that a harmonious construction oftwo special laws containing non-obstante clauses can beundertaken by looking at the purpose of both the laws. ThisCourt was also mindful of the principle that a special lawenacted at a later date prevails over the earlier special law.In this regard, the non-obstante clause under Section 174of the Electricity Act would be overridden by Section 238of IBC in case of a conflict of jurisdiction to resolve adispute; A

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A(iii)The NCLT can exercise its jurisdiction under Section 60(5)of the IBC to ensure that the Corporate Debtor survives asa ‘going concern’. It would not be possible to enter intoanother PPA with the same terms and conditions as thecurrent PPA; B(iv)The second respondent as a lender bank may not be able toinitiate a dispute resolution process under Section 86(f) ofthe Electricity Act since it contemplates the resolution ofdisputes between a generator and a trading licensee;

(v) Section 60(5)(c) of the IBC provides that the NCLT canCentertain or dispose of any event or action arising out of, inrelation to, effecting or hampering the insolvency resolutionprocess. NCLT has the jurisdiction to intervene to the extentof removing any obstacle in the CIRP process for it to reachits logical end, which is approval of the resolution plan orliquidation. The contours of Section 14 of the IBC must beDdetermined under such an understanding of Section 60(5)(c);

(vi) The moratorium under Section 14 of IBC is not exhaustivebecause:

(a) The object of section 14 is protection of the CorporateEDebtor during the CIRP; (b)The preamble of the IBC provides for preservingthe maximum value of the assets of the CorporateDebtor; and

(c) Section 14(3) only excludes certain kinds ofFagreements and transactions from moratorium underSection 14(1), as notified by the Central Governmentin consultation with the financial regulator or anyother authority. The NCLT has the power to imposemoratorium or status quo in the interest of protectingthe corporate debtor and the CIRP in addition to theGprotections enumerated in Section 14(1);

(vii) Maintaining the Corporate Debtor as a ‘going concern’ isthe soul of the CIRP. Section 14(2A) provides that a supplyof goods or services which an IRP or RP considers criticalfor protecting and preserving the value of the CorporateH

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

Debtor, and managing its operation as a going concerncannot be terminated, suspended or interrupted. Section20(1) imposes a duty on the IRP to protect and preservethe value of the Corporate Debtor and manage theoperations as a ‘going concern’. The ‘Resolution Plan’ hasbeen defined under Section 5(26) of the IBC as a planproposed by the resolution applicant for insolvency resolutionof the Corporate Debtor as a ‘going concern’. Thetermination of the PPA would push the Corporate Debtortowards a corporate death, namely, liquidation;

(viii) The Explanation to Section 14(1) clarifies that, inter alia,“a similar grant of right given by the Central government,State government, local authority, sectoral regulator or anyother authority shall not be terminated on the ground ofinsolvency”. This indicates the intent of the legislature thatno right conferred on the Corporate Debtor can be takenaway due to the initiation of the CIRP;

(ix) Article 9.2.1(e) must be read with Article 12.9 of the PPA,which provides that if a default is committed under thefinancing documents, lenders have a right to assign the rightsand obligations of the Corporate Debtor under the PPA toa third party. Hence, the PPA contemplates a situationwhere the Corporate Debtor may go through areorganization. The present proceedings under the IBC arein the nature of a reorganization. Hence, the CIRP cannotbe construed as event of default under the PPA;

(x) The lenders extended the loan based on the: (a) right ofassignment granted under Article 12.9 of the PPA; (b)purchase of electricity as a fixed tariff; and (c) term of thePPA for a period of 25 years. The financial projections onthe loan and its repayment were made on the above terms.The default notice is in violation of the terms of the PPAand the understanding reached between the parties;

(xi) Article 9.3.1 of the PPA is inconsistent with the IBC, sincethe PPA grants a time of 30 days to remedy the insolvencywhereas the IBC provides a timeline of 180 days, which isextendable up to 330 days. Section 238 of IBC ensuresthat the IBC will prevail over the PPA. The phrase A

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A“instrument” in Section 238 can be interpreted in light ofSection 2(14) of the Indian Stamp Act, 1899 and Section2(b) of the Notaries Act, 1952 which provide that an“instrument”, “includes every document by which any rightor liability is, or purports to be, created, transferred, limited,extended, extinguished or recorded.” Hence the PPABqualifies as an instrument;

(xii) Section 14(1)(d) provides for protection of the property ofthe Corporate Debtor. The expression “property” wouldinclude the PPA in terms of its definition in Section 3(27) ofthe IBC. Paras 8.1 to 8.3 of the Third Insolvency CommitteeCReport dated 20 February 2020 indicate that the intent ofthe IBC is to ensure that the Corporate Debtor remains agoing concern and contracts cannot be terminated by wayof ipso facto clauses relating to insolvency; and

(xiii) The appellant terminated the PPA not due to the defaultDper se but due to a commercial decision to negotiate andreduce the purchase price of electricity under tariff. It isnot the intent of the IBC to allow an entity to take the benefitof the CIRP to negotiate a better price for a contract and ineffect reduce the value of the Corporate Debtor.

EH Issues arising from the dispute

41. The following two issues arise for determination:

(i) Whether the NCLT/NCLAT can exercise jurisdiction underthe IBC over disputes arising from contracts such as thePPA; and F

(ii) Whether the appellant’s right to terminate the PPA in termsof Article 9.2.1(e) read with 9.3.1 is regulated by the IBC.

I Jurisdiction of the NCLT/NCLAT over contractualdisputesG42. The primary issue upon which the outcome of this appealwould turn is the nature of the jurisdiction which is exercised by theNCLT under Section 60(5) of the IBC. The provision reads thus:

“(5) Notwithstanding anything to the contrary contained in anyother law for the time being in force, the National Company LawHTribunal shall have jurisdiction to entertain or dispose of –

(a) any application or proceeding by or against the corporate debtoror corporate person; (b) any claim made by or against the corporate debtor or corporateperson, including claims by or against any of its subsidiariessituated in India; and

(c) any question of priorities or any question of law or facts, arisingout of or in relation to the insolvency resolution or liquidationproceedings of the corporate debtor or corporate person underthis Code.”

43. Sub-section (1) of Section 60 provides the NCLT with territorialjurisdiction over the place where the registered office of the corporateperson is located. NCLT shall be the adjudicating authority “in relationto insolvency resolution and liquidation for corporate persons includingcorporate debtors and personal guarantors”. The NCLT has beenconstituted under Section 408 of the CA 2013 “to exercise and dischargesuch powers and functions as are, or may be, conferred on it by or underthis Act or any other law for the time being in force”[38].

44. NCLT owes its existence to statute. The powers and functionswhich it exercises are those which are conferred upon it by law, in thiscase, the IBC.

45. The NCLT in its decision dated 29 August 2019 did notspecifically examine the issue of its jurisdiction under Section 60(5)(c)of the IBC. It prohibited the termination of the PPA on the ground that itis an “instrument” under Section 238; Articles 9.2.1(e) read with 9.3.1of the PPA are inconsistent with the provisions of the IBC; and the latteroverrides aninstrument having effect by virtue of law. One of theconsiderations which weighed with the NCLT while coming to itsdetermination was that termination of the PPA would prejudice the statusof the Corporate Debtor as a ‘‘going concern’, andlead to the failure ofthe CIRP. The NCLT observed:

38 “Section 408. The Central Government shall, by notification, constitute, with effectfrom such date as may be specified therein, a Tribunal to be known as the NationalCompany Law Tribunal consisting of a President and such number of Judicial andTechnical members, as the Central Government may deem necessary, to be appointedby it by notification, to exercise and discharge such powers and functions as are, or maybe, conferred on it by or under this Act or any other law for the time being in force.”

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SUPREME COURT REPORTS

A“30. …the CIR process in the instant case was triggered on20.11.2018, which was further extended by 90 days on 16.05.2019and the default notices were issued by the Respondent Companyon 01.05.2019. That termination of PPA at this stage may haveadverse consequences on the status of the Corporate Debtor as“going concern” and eventually, may jeopardise the entire CIRBProcess. While elaborating on the objectives of IBC as enshrinedin the Preamble, the Hon’ble Supreme Court, had held in the matterof Swiss Ribbons Pvt. Ltd. v Union of India, 2019 SCCOnline SC 73:

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“ ....... What is interesting to note is that Preamble does not,Cin any manner, refer to liquidation, which is only availed ofas a last resort if there is either no resolution plan or theresolution plan submitted are not up to the mark. Even inliquidation, the liquidator can sell the business of thecorporate debtor as a going concern”.”

D46. In appeal, the NCLAT by its order dated 15 October 2019,upheld the exercise of jurisdiction by the NCLT. The NCLAT held:

“Taking into consideration the nature of the case, we are of theview that to keep the ‘Corporate Debtor’ a going concern, whichis generating electricity and supplying only to ‘Gujarat Urja VikasENigam Ltd.’, the Adjudicating Authority rightly asked ‘GujaratUrja Vikas Nigam Ltd.’ not to terminate the ‘Power PurchaseAgreement’ dated 30th April, 2010.

We may make it clear that the ‘Gujarat Urja Vikas Nigam Limited’,being purchaser of the electricity cannot terminate the ‘PowerFPurchase Agreement’ solely on the ground that the ‘CorporateInsolvency Resolution Process’ has been initiated against‘Astonfield Solar (Gujrat) Pvt. Ltd.’ (Corporate Debtor) which isgenerating electricity and supplying it and there is no default insupplying electricity and during the ‘Corporate InsolvencyResolution Process’...”G

However, like the NCLT, the NCLAT did not give any specificfinding on whether it or the NCLT can exercise its jurisdiction undersection 60(5)(c) over a dispute arising out of the termination of the PPA.In this regard, the task falls on this Court to enumerate the contours ofthe jurisdiction that can be exercised under Section 60(5)(c) of the IBC.H

I.1 Section 60(5)(c) : “arising out of” and “in relation to”

47. It has been submitted before us on behalf of the appellant thatthe NCLT does not have any inherent powers, and its exercise ofjurisdiction is circumscribed by the provisions of the IBC. As such, itdoes not have the jurisdiction to entertain all disputes or all issues relatedto the Corporate Debtor. On the other hand, the respondents have madea limited submission that while the NCLT may not have jurisdiction toadjudicate upon contractual disputes that arise independent of theinsolvency of the Corporate Debtor, it has the sole jurisdiction to decidea dispute that arises from or relates to the insolvency of the CorporateDebtor or where the property of the Corporate Debtor (in this case itsrights under the PPA) is sought to be taken away on the ground ofinsolvency. For their argument, the respondents have relied on Section60(5)(c) to submit that NCLT is vested with a wide jurisdiction to considerquestions of law or fact “arising out of” or “in relation to” insolvencyresolution proceedings.

48. In varying contexts, this Court has expansively construed theexpressions “relating to” and “arising out of” in its previous decisions.The respondents have relied on some of these judgments to buttresstheir submissions in regard to the width of Section 60(5)(c). In RenusagarPower Co. Ltd. vs General Electric Company[39], a two judge Benchwhile interpreting the words “arising out of” or “related to” in anarbitration 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 widestamplitude and content..”

49. In Mansukhlal Dhanraj Jain vs Eknath Vithal Ogale[40],another two judge Bench of this Court emphasized the comprehensivenature and wide sweep of the term “relating to” in the context of theSmall Causes Courts Act, 1887. Justice SB Majumdar held:

“16. It is, therefore obvious that the phrase “relating to recoveryof possession” as found in Section 41(1) of the Small Cause Courts 39 (1984) 4 SCC 679

40 (1995) 2 SCC 665

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AAct is comprehensive in nature and takes in its sweep all types ofsuits and proceedings which are concerned with the recovery ofpossession of suit property from the licensee and, therefore, suitsfor permanent injunction restraining the defendant from effectingforcible recovery of such possession from the licensee-plaintiffwould squarely be covered by the wide sweep of the said phrase.BConsequently in the light of the averments in plaints underconsideration and the prayers sought for therein, on the clearlanguage of Section 41(1), the conclusion is inevitable that thesesuits could lie within the exclusive jurisdiction of Small Cause Court,Bombay and City Civil Court would have no jurisdiction to entertainCsuch suits.”

50. In Doypack System (P) Ltd. vs Union of India[41],a twojudge Bench held that the expression “in relation to” is broad and isequivalent to the expressions “concerning with” and “pertaining to”, withthe latter also being expansive in ambit. Justice Sabyasachi Mukharji (asDthe learned Chief Justice of India then was) observed:

“50. The expression “in relation to” (so also “pertaining to”), is avery broad expression which presupposes another subject matter.These are words of comprehensiveness which might have bothdirect significance as well as indirect significance depending onEthe context [internal citation omitted]. Assuming that theinvestments in shares and in lands do not form part of theundertaking but are different subject matters, even then thesewould be brought within the purview of the vesting by reason ofthe above expressions. In this connection reference may bemade to 76 Corpus Juris Secundum at pages 620 and 621Fwhere it is stated that the term “relate” is also defined asmeaning to bring into association or connection with. It hasbeen clearly mentioned that “relating to” has been held tobe equivalent to or synonymous with as to “concerning with”and “pertaining to”. The expression “pertaining to” is anGexpression of expansion and not of contraction.”

51. While the phrases “arising out of” and “relating to” have beengiven an expansive interpretation in the above cases, words can have H41 (1988) 2 SCC 299

different meanings depending on the subject or context. Words are afterall, a vehicle for communicating ideas, thoughts and concepts. A one-size-fits-all analogy may not always hold good when we construe similarwords in entirely distinct settings. Justice G.P. Singh in his authoritativecommentary on the interpretation of statutes, Principles of StatutoryInterpretation, has noted that the same words used in different sectionsof the same statute or used at different places in the same clause orsection can have different meanings[42]. Therefore, it is necessary to bearin mind the context in which the phrases have been used. Justice G.P.Singh has stated in his commentary that[43]:

“When the question arises as to the meaning of a certain provisionin a statute, it is not only legitimate but proper to read that provisionin its context. The context here means, the statute as a whole, theprevious state of the law, other statutes in pari materia, the generalscope of the statute and the mischief that it was intended toremedy.”

52. Bearing in mind the above caution, it may be of relevance todiscuss the interpretation of similar provisions in other insolvency laws.Textually, the provisions of Section 60(5) bear a flavor of resemblanceto the provisions which were contained in sub-Section 2 of Section 446[44]of the CA 1956, which correspond now to Section 280[45] of CA 2013.

42 G.P. Singh, Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015)43 Ibid.

44 Sub-section 2 of section 446 provides as follows:

“(2) The Court which is winding up the company shall, notwithstanding anything containedin any other law for the time being in force, have jurisdiction to entertain, or dispose of-(a) any suit or proceeding by or against the company; (b) any claim made by or againstthe company (including claims by or against any of its branches in India); (c) anyapplication made under section 391 by or in respect of the company; (d) any question ofpriorities or any other question whatsoever, whether of law or fact, which may relate toor arise in course of the winding up of the company; whether such suit or proceedinghas been instituted, or is instituted, or such claim or question has arisen or arises orsuch application has been made or is made before or after the order for the winding upof the company, or before or after the commencement of the Companies (Amendment)Act, 1960.”

45 Section 280 of the CA 2013 provides as follows:

45 Section 280 of the CA 2013 provides as follows:

“280. Jurisdiction of Tribunal.— The Tribunal shall, notwithstanding anything containedin any other law for the time being in force, have jurisdiction to entertain, or disposeof,— (a) any suit or proceeding by or against the company; (b) any claim made by oragainst the company, including claims by or against any of its branches in India; (c) anyapplication made under section 233; (d) any scheme submitted under section 262; (e)

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A53. A textual comparison of the provisions of Section 60(5) of theIBC with Section 446(2) of CA 1956 would reveal some similarities ofexpression, with textual variations. For the purposes of the presentproceedings, it suffices to note that clause (c) of Section 60(5) confersjurisdiction on the NCLT to entertain or dispose of “any question ofpriorities or any question of law or facts arising out of or in relation toBthe insolvency resolution or liquidation proceedings of the corporate debtoror corporate person under the Code”. Section 446(2)(d) of CA 1956 andsection 280(d) of CA 2013 use the expression any question of prioritiesor any other question whatsoever whether of law or fact. These wordsbear a striking resemblance to the provisions of section 60(5) (c) of theCIBC. But textually similar language in different enactments has to beconstrued in the context and scheme of the statue in which the wordsappear. The meaning and content attributed to statutory language in oneenactment cannot in all circumstances be transplanted into a distinct, ifnot, alien soil. For, it is trite law that the words of a statute have to beconstrued in a manner which would give them a sensible meaning whichDaccords with the overall scheme of the statute, the context in which thewords are used and the purpose of the underlying provision. Therefore,while construing of section 60(5), a starting point for the analysis mustbe to decipher Parliamentary intent based on the object underlying theenactment of the IBC. The Statement of Objects and Reasons leadingEup to the enactment to the IBC conveys a strong sense of the intent ofthe legislature. According to it:

“There is no single law in India that deals with insolvency andbankruptcy. Provisions relating to insolvency and bankruptcy forcompanies can be found in the Sick Industrial Companies (SpecialFProvisions) Act, 1985, the Recovery of Debt Due to Banks andFinancial Institutions Act, 1993, the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 and the Companies Act, 2013. These statutesprovide for creation of multiple fora such as Board of Industrial Gany question of priorities or any other question whatsoever, whether of law or facts,including those relating to assets, business, actions, rights, entitlements, privileges,benefits, duties, responsibilities, obligations or in any matter arising out of, or in relationto winding up of the company, whether such suit or proceeding has been instituted, or isinstituted, or such claim or question has arisen or arises or such application has beenmade or is made or such scheme has been submitted, or is submitted, before or after theHorder for the winding up of the company is made.”

and Financial Reconstruction (BIFR), Debts Recovery Tribunal(DRT) and National Company Law Tribunal (NCLT) and theirrespective Appellate Tribunals. Liquidation of companies is handledby the High Courts. Individual bankruptcy and insolvency is dealtwith under the Presidency Towns Insolvency Act, 1909, and theProvincial Insolvency Act, 1920 and is dealt with by the Courts.The existing framework for insolvency and bankruptcy isinadequate, ineffective and results in undue delays in resolution,therefore, the proposed legislation.

2. The objective of the Insolvency and Bankruptcy Code, 2015 isto consolidate and amend the laws relating to reorganization andinsolvency resolution of corporate persons, partnership firms andindividuals in a time bound manner for maximization of value ofassets of such persons, to promote entrepreneurship, availabilityof credit and balance the interests of all the stakeholders includingalteration in the priority of payment of government dues and toestablish an Insolvency and Bankruptcy Fund, and mattersconnected therewith or incidental thereto. An effective legalframework for timely resolution of insolvency and bankruptcywould support development of credit markets and encourageentrepreneurship. It would also improve Ease of Doing Business,and facilitate more investments leading to higher economic growthand development.

3. The Code seeks to provide for designating the NCLT and DRTas the Adjudicating Authorities for corporate persons and firmsand individuals, respectively, for resolution of insolvency, liquidationand bankruptcy. The Code separates commercial aspects ofinsolvency and bankruptcy proceedings from judicial aspects. TheCode also seeks to provide for establishment of the Insolvencyand Bankruptcy Board of India (Board) for regulation of insolvencyprofessionals, insolvency professional agencies and informationutilities. Till the Board is established, the Central Government shallexercise all powers of the Board or designate any financial sectorregulator to exercise the powers and functions of the Board.Insolvency professionals will assist in completion of insolvencyresolution, liquidation and bankruptcy proceedings envisaged inthe Code. Information Utilities would collect, collate, authenticateand disseminate financial information to facilitate such proceedings.

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664SUPREME COURT REPORTS

[2021] 13 S.C.R.

AThe Code also proposes to establish a fund to be called theInsolvency and Bankruptcy Fund of India for the purposes specifiedin the Code.”

54. The salient aspects which emerge from the state of the lawprior to the enactment to the IBC can be formulated thus:

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(i) There was a multiplicity of legislation dealing withinsolvency and bankruptcy;

(ii) Multiplicity of statutes led to the creation of multiplicity offora;

(iii) Provisions relating to insolvency and bankruptcy ofCcompanies were embodied in the SICA, the Recovery ofDebt Due to Banks and Financial Institutions Act, 1993[46],the Securitization and Reconstruction of Financial Assetsand Enforcement of Security Interest Act, 2002[47] and theCA 2013; D(iv)The above statutes provided for the establishment ofmultiplicity of adjudicating bodies including the BIFR, DebtRecovery Tribunal[48], NCLT and the Appellate Tribunal;

(v) While the liquidation of companies was adjudicated uponby the High Courts exercising company jurisdiction,Eindividual insolvency was governed by the Presidency-Towns Insolvency Act, 1909 and the PIA;

(vi) The multiplicity of statute and fora in the regime prior tothe IBC led to a framework for insolvency and bankruptcywhich was inadequate and ineffective, and resulted in undueFdelay;

(vii) The underlying purpose and object of enacting the IBC wasto ensure a timely resolution of insolvency and bankruptcywhich would:

(a) Maximize of the value of assets;

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(b) Promote entrepreneurship;

(c) Facilitate the availability of credit; 46 “RDDB”47 “SARFAESI”H48 “DRT”

(d) Support the development of credit markets; and (e)Balance interests of all stake-holders.

(viii) Bearing the above aspects in mind, the IBC, which is aconsolidating and amending statute, came to be enacted;and

(ix) The IBC, in a clear departure from the past, separatescommercial aspects of insolvency and bankruptcyproceedings from judicial aspects.

55. In the decision of this Court in Swiss Ribbons (supra), wherethe challenge was to the constitutional validity of some provisions of theIBC, the judgment by Justice RF Nariman contains a section titled“Prologue: the pre-existing state of the law”. The problems whicharise from multiplicities of statutes and fora in the erstwhile regime werenoticed in the report of the Bankruptcy Law Reforms Committee (2015)(“BLRC”):

“14. …The current state of the bankruptcy process for firms is ahighly fragmented framework. Powers of the creditor and thedebtor under insolvency are provided for under different Acts…

It is problematic that these different laws are implemented indifferent judicial fora. Cases that are decided at the tribunal/BIFRoften come for review to the High Courts. This gives rise to twotypes of problems in implementation of the resolution framework.The first is the lack of clarity of jurisdiction. In a situation whereone 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 oroverturned in a higher court. Ideally, if economic value is indeedto be preserved, there must be a single forum that hears bothsides of the case and makes a judgment based on both. A secondproblem exacerbates the problems of multiple judicial fora. Thefora entrusted with adjudicating on matters relating to insolvencyand bankruptcy may not have the business or financial expertise,information or bandwidth to decide on such matters. This leads todelays and extensions in arriving at an outcome, and increasesthe vulnerability to appeals of the outcome…a matrix offragmented and contrary outcomes,…”

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A “debtor and creditor led process of corporate insolvency” hadresulted in a matrix of fragmented and contrary outcomes rather than“coherent and consistent.… precedents”.

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56. The BLRC noted that speed is of the essence for the workingof a bankruptcy code. From the point of the view of creditors, a goodBrealization can be obtained when a firm is sold as a going concern. Thedecisions of this Court in Madras Petrochem[49], InnoventiveIndustries[50]and Arcelor Mittal (India) (Private) Limited[51]emphatically advert to the failure of the statutory resolution machineryin the regime prior to the IBC. It was in this backdrop that the IBC wasenacted to provide for a timely resolution of the CIRP. The primaryCfocus of the IBC is to ensure the revival and continuation of the corporatedebtor. The interests of the corporate debtor have been bifurcated andseparated from the interests of persons in management. The timelineswhich are prescribed in the IBC are intended to ensure the resuscitationof the corporate debtor.

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57. The enactment of the IBC is in significant senses a breakfrom the past. While interpreting the provisions of the IBC, care must betaken to ensure that the regime which Parliament found deficient andwhich was the basic reason for the enactment of the new legislation isnot brought in through the backdoor by a process of disingenuous legalEinterpretation. However, this is not to say that the interpretation given tothe statutory provisions that existed prior to the enactment IBC is to berejected in toto. The interpretation given to such statutory provisionsthat are textually similar to Section 60(5)(c) may be relevant, providedthat such interpretation is in tandem with the objective of enacting theIBC, that is, inter alia, avoidance of multiplicity of fora and a timelyFresolution of the insolvency process.

58. In Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar[52], athree judge Bench of this Court held that the object of Section 446(2) ofCA 1956 was to enlarge the jurisdiction of the Company Court to avoida multiplicity of proceedings, delay and expensive litigation. The CourtGwas speaking through Justice D.A Desai held:

49 Madras Petrochem Limitted. vs BIFR : (2016) 4 SCC 1

50 Innoventive Industries vs ICICI Bank : (2018) 1 SCC 407; hereinafter referred to as “Innoventive Industries”

51 Arcelor Mittal (India) (Private) Limited. vs Satish Kumar Gupta : (2019) 2 SCC

1; hereinafter referred to as “Arcelor Mittal”

H52 (1984) 4 SCC 657

“8..Sub-Section (2) was introduced to enlarge the jurisdiction ofthe court winding up the company so as to facilitate the disposalof winding-up proceedings…To save the Company which isordered to be wound up from this prolix and expensive litigationand to accelerate the disposal of winding-up proceedings, theParliament devised a cheap and summary remedy conferringjurisdiction on the court winding up the company to entertainpetitions in respect of claims for and against the company. Thiswas the object behind enacting Section 446(2) and therefore, itmust receive such construction at the hands of the court as wouldadvance the object and at any rate not thwart it”

59. Section 4(1) of the PIA used similar words in relation to thejurisdiction of the insolvency court as Section 60(5) of the IBC. Section4(1) of the PIA provided:

“Section 4 - Power of Court to decide all questions arisingin insolvency

(1) Subject to the provisions of this Act, the Court shall have fullpower to decide all questions whether of title or priority, or of anynature whatsoever, and whether involving matters of law or offact, which may arise in any case of insolvency coming withinthe cognizance of the Court, or which the Court may deem itexpedient or necessary to decide for the purpose of doing completejustice or making a complete distribution of property in any suchcase.”

60. Another threejudge Bench of this Court, in Thampanoor Ravivs Charupara Ravi[53], held that a High Court does not have the jurisdictionto determine whether a person is an undischarged insolvent in an electionpetition filed under the Representation of People Act, 1951, in view ofthe exclusive jurisdiction conferred upon an insolvency court constitutedunder the PIA. Justice S. Rajendra Babu, held:

“11…..The Insolvency Act is a complete code and determinationof all questions regarding insolvency including a question as towhether (1) a person is an insolvent or not, or (2) an insolvent bedischarged or not and subject to what conditions, can be decidedby the court constituted under that Act alone…..

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A13. In the present case, as we have explained earlier the schemeof the provisions of the Insolvency Act, the exclusive jurisdictionto deal with any question relating to insolvency could beadjudicated upon only by the court constituted under that Act. Insuch a situation, it would not be possible to hold that the HighCourt had, while dealing with an election petition, jurisdiction toBdecide a question as to whether a person is an undischargedinsolvent or not. Admittedly, in this case, there is no suchadjudication. Hence the High Court could not declare the appellantto be an ‘undischarged insolvent’.”

61. Section 45-B of the BRA uses language similar to SectionC60(5) of the IBC. Section 45-B of the BRA provides:

“Section 45B - Power of High Court to decide all claims inrespect of banking companies The High Court shall, save as otherwise expressly provided inDsection 45C, have exclusive jurisdiction to entertain and decideany claim made by or against a banking company which is beingwound up (including claims by or against any of its branches inIndia) or any application made under section 39of the CompaniesAct, 1956 by or in respect of a banking company or any questionof priorities or any other question whatsoever, whether of law orEfad [sic fact]which may relate to or arise in the course of thewinding up of a banking company, whether such claim orquestion has arisen or arises or such application has been madeor is made before or after the date of the order for the winding upof the banking company or before or after the commencement ofFthe Banking Companies (Amendment) Act, 1953 (52 of 1953).”

62. In Dhirendra Chandra Pal vs Associated Bank of TripuraLtd.[54], a four judge Bench of this Court examined the scope of Section45-B.Justice B. Jagannadhas observed:G“4. It is to be remembered that section 45-B is not confined toclaims for recovery of money or recovery of property, movableor immovable, but comprehends all sorts of claims which relate toor arise in the course of winding up.”

H54 AIR 1955 SC 213

63. The above judgements were undoubtedly in relation to thejurisdiction of courts in relation to winding up and insolvency proceedingsunder distinct statutes. But considerations such as avoiding multiplicityof fora, speedy disposal and litigation costs would also be germane tothe establishment of an exclusive body under the IBC to adjudicate mattersarising from or in relation to the insolvency resolution process.

64. In this context, it would be useful to trace the history of theNCLT and NCLAT, which are empowered to deal with all issues relatingto insolvency, specifically with the aim of avoiding a multiplicity of fora.The Justice Eradi Committee was constituted by the Department ofCompany Affairs to make recommendations on reforming the existinglaw on winding up of companies to increase transparency and reducedelays in the liquidation of companies. The Report of the High LevelCommittee on Law relating to Insolvency and Winding Up of Companies(2000) stated that:

“…there is a need for establishing a National Tribunal as aspecialized agency to deal with matters relating to rehabilitation,revival and winding up of companies. With a view to avoidingmultiplicity of fora, the National Tribunal. should beconferred with jurisdiction and powers to deal with mattersunder Companies Act, 1956 presently exercised by theCompany Law Board; jurisdiction, power and authorityrelating to winding up of companies vested with HighCourts and power to consider rehabilitation and revival ofcompanies presently vested in the BIFR. This suggestion ofthe Committee will involve amending the provisions of Part VUof Companies Act, 1956 besides repeal of Sick IndustrialCompanies (Special Provisions) Act, 1985 and amending section10E of the Companies Act relating to the present Company LawBoard. All the existing cases pending with the High Courts andthe Company Law Board may be transferred to the Tribunal andthe pending references before BIFR/ AAFIR shall abate.”

65. The above report was discussed in the decision of this Courtin Union of India vs R. Gandhi, President, Madras Bar Association[55].A Constitution Bench noted that the recommendations of the Committee AB

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Awere accepted by the Government, which established the NCLT andNCLAT to transfer the functions being performed by High Courts,Company Law Board, BIFR and Appellate Authority for Industrial andFinancial Reconstruction to a single forum to avoid long drawn litigationbefore multiple fora. Justice R.V. Raveendran observed:

B“3. (…) The Committee found that multiplicity of courtproceedings is the main reason for the abnormal delay indissolution of companies. It also found that differentagencies dealt with different areas relating to companies,that Board for Industrial & Financial Reconstruction(BIFR) and Appellate Authority for Industrial & FinancialCReconstruction (AAIFR) dealt with references relating torehabilitation and revival of companies, High Courts dealtwith winding-up of companies and Company Law Board(CLB) dealt with matters relating to prevention ofoppression and mismanagement etc. Considering the laws onDcorporate insolvency prevailing in industrially advanced countries,the Committee recommended various amendments in regard tothe provisions of Companies Act, 1956 for setting-up of a NationalCompany Law Tribunal which will combine the powers of theCLB under the Companies Act, 1956, BIFR and AAIFR underthe Sick Industrial Companies (Special Provisions) Act, 1985 asEalso the jurisdiction and powers relating to winding-up presentlyvested in the High Courts.

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4. It is stated that the recommendations of the Eradi Committeewere accepted by the Government and Company (SecondAmendment) Act, 2002 was passed providing for establishmentFof NCLT and NCLAT to take-over the functions which are beingperformed by CLB, BIFR, AAIFR and the High Courts. It issubmitted that the establishment of NCLT and NCLAT will havethe following beneficial effects: (i) reduce the pendency of casesand reduce the period of winding-up process from 20 to 25 yearsGto about two years; (ii) avoid multiplicity of litigation before variousfora (High Courts and quasi-judicial Authorities like CLB, BIFRand AAIFR) as all can be heard and decided by NCLT; (iii) theappeals will be streamlined with an appeal provided against theorder of the NCLT to an appellate Tribunal (NCLAT) exclusivelydedicated to matters arising from NCLT, with a further appeal to H

the Supreme Court only on points of law, thereby reducing thedelay in appeals; and (iv) with the pending cases before theCompany Law Board and all winding-up cases pending beforethe High Courts being transferred to NCLT, the burden on HighCourts will be reduced and BIFR and AAIFR could be abolished.”

66. The IBC was a reform which was distilled through manycommittee reports, most importantly the Report of the BLRC, whichrecommended that the earlier institutional framework relating to thewinding up and liquidation of the companies should continue under theIBC. The Report stated:

“4.2.2 Territorial jurisdiction

…

Further, following from current law, once a liquidation or bankruptcyorder has been made, leave of the NCLT or DRT would benecessary to proceed with any pending suit or proceeding or tofile any fresh suit or proceeding by or against the debtor firm orindividual. This will ensure the sanctity of the liquidation orbankruptcy process. The NCLT or DRT should also havejurisdiction to entertain and dispose of any pending or freshsuit or legal proceeding by or against the debtor companyor individual; question of priorities or any other question,whether of law or facts, in relation to the liquidation orbankruptcy. By bringing all litigations that may have amonetary impact on the economic value of debtor firm orindividual’s assets within the jurisdiction of the NCLT, theliquidation or bankruptcy process will be made streamlinedand efficient…

4.21 Tribunals Jurisdiction on firm insolvency andliquidation Under Companies Act, 2013, the National Company Law Tribunal(NCLT) has jurisdiction over the winding up and liquidation ofcompanies. NCLAT has been vested with the appellate jurisdictionover NCLT. Similarly, the Limited Liability Partnership Act, 2008also confers jurisdiction to NCLT for dissolution and winding upof limited liability partnerships, while appellate jurisdiction is vested A

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Awith NCLAT. The Committee recommends continuing withthis existing institutional arrangement. NCLT should havejurisdiction over adjudications arising out of firm insolvencyand liquidation, while NCLAT will have appellate jurisdictionon the same.”

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67. The institutional framework under the IBC contemplated theestablishment of a single forum to deal with matters of insolvency, whichwere distributed earlier across multiple fora. In the absence of a courtexercising exclusive jurisdiction over matters relating to insolvency, theCcorporate debtor would have to file and/or defend multiple proceedingsin different fora. These proceedings may cause undue delay in theinsolvency resolution process due to multiple proceedings in trial courtsand courts of appeal. A delay in completion of the insolvency proceedingswould diminish the value of the debtor’s assets and hamper the prospectsDof a successful reorganization or liquidation. For the success of aninsolvency regime, it is necessary that insolvency proceedings are dealtwith in a timely, effective and efficient manner. Pursuing this theme inInnoventive (supra) this court observed that “one of the importantobjectives of the Code is to bring the insolvency law in India under asingle unified umbrella with the object of speeding up of the insolvencyEprocess”. The principle was reiterated in Arcelor Mittal (supra) wherethis court held that “the non-obstante Clause in Section 60(5) is designedfor a different purpose: to ensure that the NCLT alone has jurisdictionwhen it comes to applications and proceedings by or against a corporatedebtor covered by the Code, making it clear that no other forum hasFjurisdiction to entertain or dispose of such applications or proceedings”.Therefore, considering the text of Section 60(5)(c) and the interpretationof similar provisions in other insolvency related statutes, NCLT hasjurisdiction to adjudicate disputes, which arise solely from or which relateto the insolvency of the Corporate Debtor. However, in doing do, weissue a note of caution to the NCLT and NCLAT to ensure that they doGnot usurp the legitimate jurisdiction of other courts, tribunals and forawhen the dispute is one which does not arise solely from or relate to theinsolvency of the Corporate Debtor. The nexus with the insolvency ofthe Corporate Debtor must exist.

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68. It is appropriate to refer to the observations in the Report ofthe BLRC, wherein it noted the role of the NCLT, as the AdjudicatingAuthority for the CIRP, in the following terms:

“An adjudicating authority ensures adherence to the process At all points, the adherence to the process and compliance withall applicable laws is controlled by the adjudicating authority. Theadjudicating authority gives powers to the insolvency professionalto take appropriate action against the directors and managementof the entity, with recommendations from the creditors committee.All material actions and events during the process are recordedat the adjudicating authority. The adjudicating authority can assessand penalise frivolous applications. The adjudicator hearsallegations of violations and fraud while the process is on. Theadjudicating authority will adjudicate on fraud, particularly duringthe process resolving bankruptcy. Appeals/actions against thebehaviour of the insolvency professional are directed to theRegulator/Adjudicator.”

As such, it is important to remember that the NCLT’s jurisdictionshall always be circumscribed by the supervisory role envisaged for itunder the IBC, which sought to make the process driven by trainedresolution professionals.

69. In the present case, the PPA was terminated solely on theground of insolvency, since the event of default contemplated underArticle 9.2.1(e) was the commencement of insolvency proceedingsagainst the Corporate Debtor. In the absence of the insolvency of theCorporate Debtor, there would be no ground to terminate the PPA. Thetermination is not on a ground independent of the insolvency. The presentdispute solely arises out of and relates to the insolvency of the CorporateDebtor.

70. Ms Ramachandran and Mr Diwan have contended that CA1956, PIA and BRA do not contain any provisions equivalent to Sections25(2)(b) and 18(f)(vi) of the IBC which empower the RP to exerciserights for the benefit of the Corporate Debtor in certain adjudicatoryproceedings. They submit that Section 60(5)(c) of the IBC must be readin consonance with Sections 25(2)(b) and 18(f)(iv), which would berendered nugatory if NCLT becomes the exclusive forum for theenforcement of all the Corporate Debtor’s rights. Section 25(2)(b) ofthe IBC provides:

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(2) For the purposes of sub-section (1), the resolution professionalshall undertake the following actions, namely:—

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B(b) represent and act on behalf of the corporate debtor with thirdparties, exercise rights for the benefit of the corporate debtor injudicial, quasi-judicial or arbitration proceedings;”

Section 18(f)(vi) provides:

“Section 18 - Duties of interim resolution professionalCThe interim resolution professional shall perform the followingduties, namely:- ……

(f) take control and custody of any asset over which the corporateDdebtor has ownership rights as recorded in the balance sheet ofthe corporate debtor, or with information utility or the depositoryof securities or any other registry that records the ownership ofassets including—

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E(vi) assets subject to the determination of ownership by a court orauthority;”

71. We are inclined to agree with the submission made by MrSingh that merely because a duty has been imposed on the IRP or theRP, it does not mean that the jurisdiction of the NCLT is circumscribedFunder section 60(5)(c) of the IBC. In Embassy Property (supra), itwas argued that the term “property” under Section 3(27) of the IBCincludes a mining lease granted by government and the lRP is duty boundunder Section 20(1) of the IBC to preserve the value of the property ofthe Corporate Debtor. Hence, the submission was that the RP can invokeGthe jurisdiction of the NCLT to adjudicate upon a dispute relating to non-extension of the lease. However, Justice V. Ramasubramanian, speakingfor this Court, observed that “the said argument cannot be sustained forthe simple reason that the duties of a resolution professional are entirelydifferent from the jurisdiction and powers of NCLT”[56].

H56 Embassy Property (supra), para 39.

72. Therefore, we hold that the RP can approach the NCLT foradjudication of disputes that are related to the insolvency resolutionprocess. However, for adjudication of disputes that arise dehors theinsolvency of the Corporate Debtor, the RP must approach the relevantcompetent authority. For instance, if the dispute in the present matterrelated to the non-supply of electricity, the RP would not have beenentitled to invoke the jurisdiction of the NCLT under the IBC. However,since the dispute in the present case has arisen solely on the ground ofthe insolvency of the Corporate Debtor, NCLT is empowered toadjudicate this dispute under Section 60(5)(c) of the IBC.

I.2 Jurisdiction of NCLT and GERC

73. It has been urged on behalf of the appellant that in terms ofArticle 10.4 of the PPA, GERC is entitled to entertain the disputes relatingto the PPA.

74. Our attention has also been drawn to Section 86(1)(f) of theElectricity Act, which provides that GERC shall discharge the functionof adjudicating “the disputes between the licensees, and generatingcompanies and to refer any dispute for arbitration”. It has been submittedthat, therefore, any issue in relation to the PPA must be raised beforethe GERC and not the NCLT.

75. Reliance has also been placed on the judgement of this Courtin Embassy Property (supra), where this Court held that the NCLTand NCLAT did not have jurisdiction over a dispute arising under theMines and Minerals (Development and Regulation) Act, 1957, in relationto the refusal of the State of Karnataka to extend a mining lease. Theprimary consideration which weighed with this Court while coming to itsdecision was that NCLT cannot have jurisdiction on matters of publiclaw. This Court held:

“37….Clause (c) of Sub-section (5) of Section 60 is very broad inits sweep, in that it speaks about any question of law or fact,arising out of or in relation to insolvency resolution. But a decisiontaken by the government or a statutory authority in relation to amatter which is in the realm of public law, cannot, by any stretchof imagination, be brought within the fold of the phrase “arisingout of or in relation to the insolvency resolution” appearing inClause (c) of Sub-section (5)...”

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76. Ms Ramachandran and Mr Diwan have also relied on thejudgment of this Court in Abhilash Lal (supra), which concerned takingthe approval of the Municipal Corporation of Greater Mumbai(“MCGM”) for implementing a resolution plan. The Corporate Debtorin that case had committed defaults prior to the initiation of the CIRP, inCrelation to its obligation to construct a hospital on a land owned by theMCGM, subsequent to which a lease deed was to be executed. It hadalso apparently failed to pay annual lease rentals. In this context, JusticeS. Ravindra Bhat, speaking for this Court held that:

“47….. Section 238 cannot be read as overriding the MCGM’sDright – indeed its public duty to control and regulate how itsproperties are to be dealt with.” Further, this Hon’ble Court heldthat “in the absence of approval in terms of Section 92 and 92A ofthe MMC Act, the adjudicating authority could not have overriddenMCGM’s objections and enabled the creation of a fresh interestin respect of its properties and lands….Nevertheless, theEauthorities under the Code could not have precluded the controlthat MCGM undoubtedly has, under law, to deal with propertiesand land in question, which undeniably are public properties. Theresolution plan, therefore, would be a serious impediment toMCGM’s independent plans to ensure that public health amenitiesFare developed in the manner it chooses, and for which freshapproval under the MMC Act may be forthcoming for a separatescheme formulated by that corporation (MCGM)”

In other words, the statutory powers entrusted to the MunicipalCorporation to exercise control over its own properties are not overriddenGby Section 238 of the IBC. Once again, the present situation isdistinguishable. The contract in question in Abhilash Lal (supra) wasterminated due to defaults unrelated to the insolvency of the corporatedebtor. In the present case, the sole default attributed by the appellant tothe Corporate Debtor was that it was undergoing an insolvency resolutionprocess, which makes the present dispute amenable to the jurisdiction ofHthe NCLT under Section 60(5)(c) of the IBC.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

77. Section 238 of the IBC stipulates that IBC would overrideother laws, including an instrument having effect by virtue of any suchlaw. The NCLT in its decision dated 29 August 2019 gave detailed findingson the issue of whether the PPA is an instrument within the meaning ofsection 238 of the IBC. Section 238 of the IBC provides:

“Section 238 - Provisions of this Code to override otherlaws The provisions of this Code shall have effect, notwithstandinganything inconsistent therewith contained in any other law for thetime being in force or any instrument having effect by virtue ofany such law.”

The findings of the NCLT are extracted below:

“19. That from the plain reading of Section 238, it is evident thatthe aforesaid Section is applicable to an ‘instrument’ too. However,we find that the term ‘instrument’ has not been defined anywhereunder IBC 2016.

20. To know, whether the Power Purchase Agreement (PPA) isan ‘instrument’ or not, we referred to the provisions of Section 3(37) of the Code, which is reproduced as below:

“Section 3(37) : Words and expressions used but not defined inthis Code but defined in the Indian Contract Act, 1872, the IndianPartnership Act, 1932, the Securities Contract (Regulation) Act,1956, the Securities Exchange Board of India Act, 1992, theRecovery of Debts Due to Banks and Financial Institutions Act,1993, the Limited Liability Partnership Act, 2008 and theCompanies Act, 2013, shall have the meanings respectivelyassigned to them in those Acts.”

21. However, in the definition clauses of all these enactments andof General Clause Act 1897, we failed to find a definition of theterm ‘instrument’.

22. For interpretation of the term ‘instrument’, we, therefore,thought it proper to check how the Legislature has defined theterm ‘instrument’ in other enactments.

23 . Finding that the PPA has been executed on a Stamp Paper,we referred to the Section 2(14) of the Indian Stamp Act, 1899,which reads as follows:

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A“Section 2(14): “Instrument” - “instrument” includes everydocument by which any right or liability is, or purports to be,created, transferred, limited, extended, extinguished or recorded”.

24. That near similar definition of the term ‘instrument’ is providedunder Section 2(b) of Notaries Act, 1952 :

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“Section 2(b): “instrument” includes every document by whichany rightor liability is, or purports to be, created, transferred,modified, limited, extended, suspended, extinguished or recorded;”

25. Further, the Bombay Stamp Act, 1958 defines the term‘instrument’ in Section 2(1) as follows :C

“Section 2(1): instrument” includes every document by which anyright or liability is, or purports to be, created, transferred, limited,extended, extinguished or recorded, but does not include a bill ofexchange, cheque, promissory note, bill of lading, letter of credit,Dpolicy of insurance, transfer of share, debenture, proxy andreceipt;”

26. That the Merriam-Webster Dictionary defines the word‘instrument’, inter alia, as:

“a formal legal document (such as a deed, bond or agreement)”E

27. Since, the rights and liabilities of parties have been created inthe Power Purchase Agreement and such an agreement isenforceable by law and the word ‘instrument’ inter alia, includesan ‘agreement’, we are of the view, that the Power PurchaseAgreement i.e., PPA is an ‘Instrument’ for the purpose of SectionF238 of IBC 2016.”

78. It has been urged on behalf of the appellant that Section 238does not apply to a bilateral commercial contract between a CorporateDebtor and a third party and only applies to statutory contracts orinstruments entered into by operation of law. The basis of this submissionGis that the word “instrument” should be given a meaning ejusdem generisto the provision “contained in any other law”. We do not find force inthis argument. Section 238 does not state that the “instrument” must beentered into by operation of law; rather it states that the instrument haseffect by virtue of any such law. In other words, the instrument need notHbe 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 jurisdictioncould be invoked in the present case because the termination of the PPAwas sought solely on the ground that the Corporate Debtor had becomesubject to an insolvency resolution process under the IBC.

79. Section 63 of the IBC provides that “no civil court or authorityshall have jurisdiction to entertain any suit or proceedings in respect ofany matter on which National Company Law Tribunal or the NationalCompany Law Appellate Tribuna lhas jurisdiction under this Code”.

I.3 Residuary jurisdiction of the NCLT under section60(5)(c)

80. The respondents have relied upon the decision of this Court inCommittee of Creditors of Essar Steel India Limited vs SatishKumar Gupta[57], where this Court held that section 60(5)(c) of the IBC“is in the nature of residuary jurisdiction vested in the NCLT so thatNCLT may decide all questions of law or fact arising out of or in relationto insolvency or liquidation under the Code”[58].

81. At this stage we may visit some of the precedents emanatingfrom this court where a statutory conferment of residuary powers hasbeen analyzed. A two-judge Bench of this Court discussed the contoursof the residuary power in Remdeo Chauhan vs Bani Kant Das[59],while interpreting sub-Section (j) of Section 12 of the National HumanRights Commission Act, 1993 which confers NHRC with “such otherfunctions as it may consider necessary for the promotion of human rights”.While construing the provision, this Court held that:

“45….It is not necessary that each and every case relating to theviolation of human rights will fit squarely within the four cornersof Section 12 of the 1993 Act for invoking the jurisdiction of theNHRC. One must accept that human rights are not edicts inscribedon a rock. They are made and unmade on the crucible ofexperience and through reversible process of human struggle forfreedom. They admit of a certain degree of fluidity. Categories ofhuman rights, being of infinite variety, are never really closed.That is why the residuary clause in Sub-section (j) has been 57 (2020) 8 SCC 531; hereinafter referred to as “Satish Kumar Gupta”

58 Ibid, para 69

59 (2010) 14 SCC 209

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Aso widely worded to take care of situations not covered bySub-sections (a) to (i) of Section 12 of the 1993 Act.

46. The jurisdiction of NHRC thus stands enlarged by Section 12(j)of the 1993 Act, to take necessary action for the protection ofhuman rights. Such action would include inquiring into cases whereBa party has been denied the protection of any law to which he isentitled, whether by a private party, a public institution, thegovernment or even the Courts of law. We are of the opinion thatif a person is entitled to benefit under a particular law, and benefitsunder that law have been denied to him, it will amount to a violationof his human rights.”

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82. In D.R. Kohli vs Atul Products Ltd.[60], a three judge Benchof this Court differentiated between the power of Central Exciseauthorities for recovery of monies due to the Government under twoDprovisions, one of them being a residuary provision:

“14. The next question relates to the appropriate provision of lawunder which action could have been taken in this case by theCentral Excise authorities. This question was not decided by theHigh Court in view of its finding on the liability of the respondentEto pay excise duty on the products manufactured by it. Since wehave not agreed with the decision of the High Court on this point,it has become necessary for us to decide this question in thisappeal. While the Department asserts that it was open to it toproceed under Rule 10-A of the Rules, the respondent contendsthat even if there was any short levy, the proper Rule applicableFto its case was Rule 10 and not Rule 10-A. Rule 10 and Rule 10-A of the Rules during the relevant period ran as follows :

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10. Recovery of duties or charges short-levied, or erroneouslyrefunded: When duties or charges have been short-levied throughinadvertence, error, collusion or misconstruction on the part of anGofficer, or through misstatement as to the quantity, description orvalue of such goods on the part of the owner, or when any suchduty or charge, after having been levied/has been owing to anysuch cause, erroneously refunded, the person chargeable with the duty or charge, so short-levied, or to whom such refund hasbeen erroneously made, shall pay the deficiency or pay the amountpaid to him in excess, as the case may be, on written demand bythe proper officer being made within three months from the date,on which the duty or charge was paid or adjusted in the owner’saccount-current, if any, or from the date of making the refund.

10-A. Residuary powers for recovery of sums due toGovernment:

Where these Rules do not make any specific provision for thecollection of any duty, or of any deficiency in duty if the duty hasfor any reason been short-levied, or of any other sum of any kindpayable to the Central Government under the Act or these Rules,such duty, deficiency in duty or sum shall, on a written demandmade by the proper officer, be paid to such person and at suchtime and place, as the proper officer may specify.

15. The points of difference between the above two Rules werethat (i) whereas Rule 10 applied to cases of short levy throughinadvertence, error, collusion or misconstruction on the part of anofficer, or through misstatement as to the quantity, description orvalue of the excisable goods-on the part of the owner Rule 10-Awhich was a residuary clause applied to those cases whichwere not covered by Rule 10 and that (ii) whereas under Rule10, the deficit amount could not be collected after the expiry ofthree months from the date on which the duty or charge was paidor adjusted in the owners account-current or from the date ofmaking the refund, Rule 10-A did not contain any such period oflimitation.”

83. Hence, the residuary jurisdiction conferred by statute mayextend to matters which are not specifically enumerated under alegislation. While a residuary jurisdiction of a court confers it wide powers,its jurisdiction cannot be in contravention of the provisions of the concernedstatute. In A. Deivendran vs State of T.N.[61], a two judge Bench ofthis Court, while determining the limitations of the residuary jurisdictionunder Section 465 of the Code of Criminal Procedure, 1973[62], held that 61 (1997) 11 SCC 72062 “CrPC”

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“15. We may notice also the arguments advanced by Mr Mohan,learned counsel appearing for the State, that the conviction andsentence against the appellants should not be interfered with inview of the provisions of Section 465 of the Code, inasmuch asthere has been no failure of justice. We are unable to accept thisCcontention. Section 465 of the Code is the residuary sectionintended to cure any error, omission or irregularity committed bya Court of competent jurisdiction in course of trial through accidentor inadvertence, or even an illegality consisting in the infraction ofany provisions of law. The sole object of the Section is to secureDjustice by preventing the invalidation of a trial already held, on theground of technical breaches of any provisions in the Code causingno prejudice to the accused. But by no stretch of imaginationthe aforesaid provisions can be attracted to a situation wherea Court having no jurisdiction under the Code doessomething or passes an order in contravention of theEmandatory provisions of the Code. In view of our interpretationalready made, that after a criminal proceeding is committed to aCourt of Sessions it is only the Court of Sessions which has thejurisdiction to tender pardon to an accused and the Chief JudicialMagistrate does not possess any such jurisdiction, it would beFimpossible to hold that such tender of pardon by the Chief JudicialMagistrate can be accepted and the evidence of the approverthereafter can be considered by attracting the provisions of Section465 of the Code. The aforesaid provision cannot be appliedto a patent defect of jurisdiction. Then again it is not a case of reversing the sentence or order passed by a Court of competentGjurisdiction but is a case where only a particular item of evidencehas been taken out of consideration as that evidence of the so-called approver has been held by us to be not a legal evidencesince pardon had been tendered by a Court of incompetentjurisdiction. In our opinion, to such a situation the provisions ofHSection 465 cannot be attracted at all. It is true, that procedures GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

are intended to subserve the ends of justice and undue emphasison mere technicalities which are not vital or important mayfrustrate the ends of justice. The Courts, therefore, are requiredto consider the gravity of irregularity and whether the same hascaused a failure of justice. To tender pardon by a Chief JudicialMagistrate cannot be held to be a mere case of irregularity norcan it be said that there has been no failure of justice. It is a caseof total lack of jurisdiction, and consequently the follow upaction on account of such an order of a Magistrate withoutjurisdiction cannot be taken into consideration at all. In thisview of the matter the contention of Mr Mohan, learned Counselappearing for the State in this regard has to be rejected.”

84. In Johri Lal Soni vs Bhanwari Bai[63](“Johri Lal Soni”),atwo judge Bench of this Court had to determine whether an insolvencycourt can scrutinize the validity of a transfer made seven years beforethe transferor was adjudged as insolvent, when Section 53 of the PIAclassified only those transfers as voidable against the receiver, wherethe transferor was adjudged insolvent on a petition presented within twoyearsafter the date of transfer. This Court, in view of the wide discretiongranted in terms of Section 4, held that the insolvency court will have thejurisdiction to determine the validity of void transfers undertaken at anypoint of time. While Section 53 was applicable only to voidabletransactions, this Court was of the view that Section 4 provides a discretionto an insolvency court to decide all questions which arise in a case ofinsolvency and an interpretation which allowed the court to examinevoid transfers undertaken at any point of time would be in consonancewith the object of the provision. The Court held:

“4. We now proceed to interpret the provisions of s. 4 itself, therelevant part of which may be extracted thus:

4. (1) Subject to the provisions of this Act, the Court shall havefull power to decide all questions whether of title or priority, or ofany nature whatsoever and whether involving matters of law orof fact, which may arise in any case of insolvency coming withinthe cognizance of the Court, or which the Court may deem itexpedient or necessary to decide for the purpose of doing complete A

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Ajustice or making a complete distribution of property in any suchcase.

5. It would be seen that the section has been couched in the widestpossible terms and confers complete and full powers on theInsolvency Court to decide all questions of title or priority, or ofBany nature whatsoever, which may arise in any case of insolvency.The only restriction which is contained in Section 4 is that these powers are subject to the other provisions of the Act.In other words, the position is that where any other section of theAct contains a provision which either runs counter to Section 4 orexpressly excludes the application of Section 4, to that extentCSection 4 would become inapplicable. Counsel for the respondentstrongly relied on the provisions of Section 53 which runs thus:

53. Any transfer of property not being a transfer made beforeand in consideration of marriage or made in favour of a purchaseror incumbrancer in good faith and for valuable consideration shall,Dif the transferor is adjudged insolvent on a petition presented withintwo years after the date of the transfer, be voidable as against thereceiver and may be annulled by the Court.”

EIt is relevant to note that unlike Section 4 of the PIA, Section60(5)(c) of the IBC is not subject to other provisions of the statute.Hence, Section 60(5)(c) of the IBC has been worded more expansivelythan Section 4 of the PIA.

85. In respect of the interplay between Sections 53 and 4 of theFPIA, in Johri Lal Soni (supra), this Court further held:

“6. It was submitted that the effect of Section 53 of the Actclearly is that it bars the jurisdiction of the Insolvency Courtto determine the validity of any transfer made beyond twoyears of the transferor being adjudged insolvent. It is nodoubt true that the words “within two years after the dateGof the transfer” being voidable as against the receiver doesfix a time-limit within which the transfer could be annulledby the Court. But a plain construction of Section 53 wouldmanifestly/indicate that the words “within two years afterthe date, be voidable as against the receiver and shall be H

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annulled by the Court” clearly connote that only thosetransfers are excepted from the jurisdiction of the Courtwhich are voidable. The section has, therefore, made a cleardistinction between void and voidable transfers-a distinctionwhich is well-known to law. A void transfer is no transfer atall and is completely destitute of any legal effect: it is anullity and does not pass any title at all. For instance, wherea transfer is nominal, sham or fictitious, the title remains with thetransferor and so does the possession and nothing passes to thetransferee. It is manifest, therefore, that such a transfer is notransfer in the eye of the law. Such transfers, therefore, clearlyfall beyond the purview of Section 53 of the Act which refersonly to transfers which are voidable. It is well settled that avoidable transfer is otherwise a valid transaction and continues tobe good until it is avoided by the party aggrieved. For instance,transfers executed by the transferor to delay or defraud hiscreditors may be avoided under Section 53 of the Transfer ofProperty Act. Similarly transfers made under coercion, fraud orundue influence may be avoided by the party defrauded. It is onlysuch transfers which, if they take place beyond two years of thedate of transfer, cannot be enquired into by the Court by virtue ofSection 53 of the Act. This appears to us to be the plain andsimple interpretation of the combined reading of Sections4 and 53 of the Act. Indeed, if a different interpretation isgiven, it will render the entire object of the section [4]nugatory, because the Court would be powerless to set atnaught transfers which are patently void, merely becausethey had been made at a particular point of time.”

86. The decision in Johri Lal Soni (supra) gave an expansiveinterpretation to the powers of an insolvency court under Section 4 ofthe PIA, which is similar to Section 60(5)(c) of the IBC. This Courtheldthat an insolvency court was empowered to consider the validity of voidtransfers under Section 4 of the PIA, which did not explicitly fall underSection 53 of the PIA. However, this Court’s decision was premised onthe finding that Section 53 of the PIA only dealt with voidable transfers.This Court noted that the jurisdiction of an insolvency court will berestricted in matters where a voidable transfer has taken place beyond A

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Athe time-limit stipulated under Section 53 within which the transfer couldbe annulled by the court. Hence, in the name of exercising a residuaryjurisdiction, a court cannot cloak itself with jurisdiction which is contraryto the provisions of a statute. However, at the same time, as held by thisCourt in Johri Lal Soni (supra), an interpretation which renders theobjective of a residuary jurisdiction nugatory cannot be upheld by thisBCourt. A fine line has to be drawn between ensuring that a residuaryjurisdiction is not rendered otiose due to an excessively restrictiveinterpretation, as well as, guarding against usurpation of power by acourt or a tribunal not vested in it.

87. The residuary jurisdiction of the NCLT under Section 60(5)(c)Cof the IBC provides it a wide discretion to adjudicate questions of law orfact arising from or in relation to the insolvency resolution proceedings.If the jurisdiction of the NCLTwere to be confined to actions prohibitedby Section 14 of the IBC, there would have been no requirement for thelegislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) wouldDbe rendered otiose if Section 14 is held to be the exhaustive of the groundsof judicial intervention contemplated under the IBC in matters ofpreserving the value of the corporate debtor and its status as a ‘goingconcern’. We hasten to add that our finding on the validity of the exerciseof 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 exerciseEof residuary power by the NCLT. However, it is pertinent to mentionthat the NCLT cannot exercise its jurisdiction over matters dehors theinsolvency proceedings since such matters would fall outside the realmof IBC. Any other interpretation of Section 60(5)(c) would be incontradiction of the holding of this Court in Satish Kumar Gupta (supra).FJ Validity of ipso facto clauses

88. Before we proceed to analyze the validity of the terminationof the PPA by the appellant under Articles 9.2.1(e) and 9.3.1 in thepresent case, it is important to contextualize it within the larger debateon this issue. Globally, ipso facto clauses arise in a variety of contracts.GIpso facto clauses are contractual provisions which allow a party(“terminating party”) to terminate the contract with its counterparty(“debtor”) due to the occurrence of an ‘event of default’. In the contextof insolvency law, in some of these ipso facto clauses, the ‘event ofdefault’ includes applying for insolvency, commencement of insolvencyHproceedings, appointment of insolvency representative, et al. The United GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

Nations Commission on International Trade Law[64] released its LegislativeGuide on Insolvency Law in 2004[65]. This guide defines ipso factoclauses in the following terms:

“114. Many contracts include a clause that defines events ofdefault giving the counterparty an unconditional right, for example,of termination or acceleration of the contract (sometimes referredto as “ipso facto” clauses). These events of default commonlyinclude the making of an application for commencement, orcommencement, of insolvency proceedings; the appointment ofan insolvency representative; the fact that the debtor satisfies thecriteria for commencement of insolvency proceedings; and evenindications that the debtor is in a weakened financial position…”

The validity of such ipso facto clauses has been considered in aglobal perspective by international organizations and in the domesticjurisdictions of nation-states in their national insolvency laws. In orderfor us to assess their validity in India, we must first understand the globaltrends in contemporary jurisprudence. We can attempt to extrapolateour experiential learning from comparative law. As India develops into aresponsive member of the international community, our laws cannot affordto be inward-looking.

J.1 Position of international and multilateral organizations

89. The UNCITRAL Guide notes that insolvency laws acrossvarious jurisdictions either uphold ipso facto clauses or invalidate them.It notes the arguments of both sides thus:

“115. The approach of upholding these types of clauses may besupported by a number of factors, including the desirability ofrespecting commercial bargains; the need to prevent the debtorfrom selectively performing contracts that are profitable andrejecting others (an advantage that is not available to thecounterparty); the effect on financial contract netting of notupholding an automatic termination provision; the belief that, since 64 “UNCITRAL”

65 “UNCITRAL Guide”; Available at <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf> accessed 18 February 2021. TheUNITRAL Guide was created with the intent that it would be used “as a reference bynational authorities and legislative bodies when preparing new laws and regulations orreviewing the adequacy of existing laws and regulations”

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116. Under a different approach, the insolvency law overridesthose clauses, making them unenforceable. Where the clauseprovides, for example, for termination on the occurrence of thedefined event, the contract can be continued over the objection ofthe counterparty. Although the approach of overriding such clausesCcan be regarded as interfering with general principles of contractlaw, such interference may be crucial to the success of theproceedings. In reorganization, for example, where the contractis a critical lease or involves the use of intellectual propertyembedded in a key product, continued performance of the contractDmay enhance the earnings potential of the business; reduce thebargaining power of an essential supplier; capture the value ofthe debtor’s contracts for the benefit of all creditors; and assist inlocking all creditors into a reorganization.”

90. In finding a pragmatic solution to a vexed issue such as theEvalidity of ipso facto clauses, the law acknowledges the inherent tensionbetween the primary arguments on both sides of the debate. One theone hand there is a need of ensuring that the debtor remains as a ‘goingconcern’ throughout the insolvency process. On the other hand, the lawhas to respect the freedom to enter upon contracts and the sanctity ofenforcing contractual remedies. Controlling the ambit of ipso facto clausesFdoes give rise to arguments of infringing upon the parties’ freedom toenter into and enforce their contracts. The UNCITRAL Guide offersguidance to national authorities by concluding that it is desirable thattheir national insolvency laws override such ipso facto clauses, subjectto limited exceptions, since the continued performance of the terminatedGcontracts is often crucial to the success of the insolvency process. TheUNCITRAL Guide states this in the following terms:

“118. Although some insolvency laws do permit these types ofclause to be overridden if insolvency proceedings are commenced,this approach has not yet become a general feature of insolvencyHlaws. There is an inherent tension between promoting the debtor’s

survival, which may require the preservation of contracts, andinjecting unpredictability and extra cost into commercial dealingsby creating a variety of exceptions to general contract rules. Whilethis issue is clearly one that may require a careful weighingof the advantages and disadvantages, there are,nevertheless, circumstances where the ability of theinsolvency representative to ensure that a contractcontinues to be performed will be crucial to the success ofreorganization and also, but perhaps to a lesser extent,liquidation where the business is to be sold as a goingconcern. For these reasons, it is desirable that an insolvencylaw permit such clauses to be overridden. Any negative impactof a policy of overriding these types of clauses can be balancedby providing compensation to creditors who can demonstrate thatthey have suffered damage or loss as a result of the contractcontinuing to be performed after commencement of insolvencyproceedings, or including exceptions to a general override of theseclauses for certain types of contracts, such as contracts to lendmoney and, in particular, financial contracts (see below, paras.208-215).”

91. The World Bank, in its Principles for Effective Insolvencyand Creditor/Debtor Regimes published in 2016[66], notes that ipso factoclauses 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, theinsolvency representative should have the option of performingand assuming the obligations under those contracts. Contractprovisions that provide for termination of a contract upon eitheran application for commencement or the commencement ofinsolvency proceedings should be unenforceable subject to specialexceptions.”

66 Available at <http://pubdocs.worldbank.org/en/919511468425523509/ICR-Principles-Insolvency-Creditor-Debtor-Regimes-2016.pdf> accessed 18 February 2021.

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A92. While assessing the position adopted by supranationalorganizations, we note that the European Parliament issued Directive(EU) 2019/1023 on 20 June 2019[67] in relation to the restructuring andinsolvency framework in the European Union, thereby amending theprevious Directive. The EU Directive notes in its Recitals the issueswhich can arise for a Corporate Debtor undergoing restructuring whenBits suppliers terminate contracts based on ipso facto clauses. The Recitalsstate as follows:

“(40) When a debtor enters an insolvency procedure, somesuppliers can have contractual rights, provided for in so calledipso facto clauses, entitling them to terminate the supply contractCsolely on account of the insolvency, even if the debtor has dulymet its obligations. Ipso facto clauses could also be triggered whena debtor applies for preventive restructuring measures. Wheresuch clauses are invoked when the debtor is merelynegotiating a restructuring plan or requesting a stay ofDindividual enforcement actions or invoked in connectionwith any event connected with the stay, early terminationcan have a negative impact on the debtor’s business andthe successful rescue of the business. Therefore, in suchcases, it is necessary to provide that creditors are notEallowed to invoke ipso facto clauses which make referenceto negotiations on a restructuring plan or a stay or anysimilar event connected to the stay.

(41) Early termination can endanger the ability of a businessto continue operating during restructuring negotiations,Fespecially when contracts for essential supplies such as gas,electricity, water, telecommunication and card paymentservices are concerned. Member States should provide thatcreditors to which a stay of individual enforcement actions applies,and whose claims came into existence prior to the stay and havenot been paid by a debtor, are not allowed to withhold performanceGof, terminate, accelerate or, in any other way, modify essentialexecutory contracts during the stay period, provided that the debtorcomplies with its obligations under such contracts which fall dueduring the stay. Executory contracts are, for example, lease and GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

licence agreements, long term supply contracts and franchiseagreements.”

93. Thereafter, the EU Directive recommends that the memberStates of the European Union shall ensure that creditors are not allowedto terminate contracts based on ipso facto clauses when the ‘event ofdefault’ is a Corporate Debtor undergoing restructuring. Article 7 of theDirective states as follows:

“Article 7

Consequences of the stay of individual enforcement actions …

5. Member States shall ensure that creditors are not allowed towithhold performance or terminate, accelerate or, in any otherway, modify executory contracts to the detriment of the debtor byvirtue of a contractual clause providing for such measures, solelyby reason of:

(a) a request for the opening of preventive restructuringproceedings; (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 assuch.”

J.2 National jurisdictions

94. As we begin assessing the positions of national jurisdictions, itis apposite that we begin by analyzing the contradictory positions adoptedby the United States and the United Kingdom before looking at Europeanand other nations with civil law traditions, and thereafter at nations withcommon law roots.

J.2.1 United States

95. In the US, Section 365(e) of the United States BankruptcyCode, 1979 (“US Bankruptcy Code”) renders ipso facto clausesunenforceable when they are present in an executory contract or anunexpired lease. Section 365(e) stipulates:

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A“(1) Notwithstanding a provision in an executory contract orunexpired lease, or in applicable law, an executory contract orunexpired lease of the debtor may not be terminated or modified,and any right or obligation under such contract or lease may notbe terminated or modified, at any time after the commencementof the case solely because of a provision in such contract or leaseBthat is conditioned on- (A) the insolvency or financial condition of the debtor at any timebefore the closing of the case; (B) the commencement of a case under this title; or C

(C) the appointment of or taking possession by a trustee in a caseunder this title or a custodian before such commencement”

96. A related provision, Section 541(c)(1)(B) of the US BankruptcyCode provides that “an interest of the debtor in property becomes propertyDof the estate” in spite of any “agreement, transfer instrument, or applicablenon-bankruptcy law” which “gives an option to effect a forfeiture,modification, or termination of the debtor’s interest in property”. However,even so, the US Bankruptcy Code does allow ipso facto clauses incertain contracts (swap agreements, securities, forwarding, et al) to beenforceable.E

97. Further, there have been instances where District BankruptcyCourts in United States have invalidated ipso facto clauses in contractsother than executory contracts or unexpired leases based on broadconsiderations relating to the purpose of the US Bankruptcy Code. Theipso facto provisions in such contracts may not be per se invalid, butFthey may be set aside where “any such default would deprive the debtorof the advantages of the Code’s liquidation procedures”[68]. For instance,the District Court for the District of Delaware has noted “the generaltrend of the federal courts that the prohibition against ipso facto clausesis not limited to actions [involving executory contracts or unexpiredGleases]”, while invalidating an ipso facto clause premised on bankruptcyfiling[69]. Similarly, in another case, an ipso facto clause in a non-executory 68 Riggs National Bank of Washington, D.C. v. John Gillis Perry, Jr., in Re John GillisPerry, Jr., Debtor, 729 F.2d 982 (4th Cir. 1984)n(Court of Appeals for the FourthCircuit).H69 In re W.R. Grace & Co., 475 B.R. 34, 154 (D. Del. 2012).

contract was held to be invalid because “it would defeat the purposes ofthe [US] Bankruptcy Code” and “cannot be enforced by a court ofequity”[70]. The Bankruptcy Court reasoned that:

“Under the Bankruptcy Code, there is no statutory mandate thatbankruptcy-default clauses are valid and enforceable. The onlyCongressional statement is clear that in most, if not all, instances,such clauses are not enforceable. Also, cf. Sections 363(l) and541(c)(1)(B) of the Bankruptcy Code, where bankruptcy-defaultclauses are not given effect. Thus, there is simply no reason toassume that Congress intended to make these clauses enforceableonly in non-executory contracts. Such an assumption would bedirectly contrary to the spirit and purposes of the Bankruptcy Code.One of the objectives of bankruptcy laws is to enable debtors tomake a fresh start.”[71]

However, it is important to note that District Court of New Yorkhas taken a contrary position, holding that the text of Section 365(e) ofthe US Bankruptcy Code is clear and limits its prohibition only to executorycontracts and unexpired leases[72]. Hence, the position in relation to thisissue seems to be unsettled even in the US.

J.2.2 United Kingdom

98. Coming to the position of law in the UK, we must firstacknowledge that the insolvency regime there is governed not just bylegislation but also through common law doctrine. The important commonlaw doctrine is the ‘anti-deprivation rule’, which seeks to prevent theimproper removal of an asset from the debtor’s estate, which wouldreduce the debtor’s overall net asset value, which would in turn reducethe size of the pie. Hence, the rule seeks to prevent the debtor’s assetsfrom being reduced before they can become subject to the insolvencyprocess. As such, it has been argued that ipso facto clauses could be inviolation of the anti-deprivation rule since they allow a party to terminatea contract upon commencement on insolvency, which then takes awaythe debtor’s valuable asset (i.e., the contract).

70 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).

71 Ibid

72 In Re General Growth Properties, Inc., 451 B.R. 323 (Bankr. S.D.N.Y. 2011) (UnitedStates Bankruptcy Court, S.D. New York).

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A99. The scope of the anti-deprivation rule was clarified by theUK Supreme Court[73 ]in the case of Belmont Park Investments PtyLtd and others vs BNY Corporate Trustee Services Ltd and another(Revenue and Customs Comrs and another intervening)[74]. Thefacts of this case have been succinctly summarized in an article byAdrienne Ho in the McGill Law Journal: the reproduction below is fromBthe footnoted article [75]:

(i) Lehman Brothers set up special purpose vehicles (“Issuer”),which in turn issued Notes to investors (“Noteholders”),including the respondents. The Issuer used the Notes’proceeds to purchase secure investments (“Collateral”)Cwhile simultaneously entering into credit default swapagreements (“Agreements”) with Lehman Brothers SpecialFinancing (“LBSF”). LBSF agreed to pay the Issuerpremiums in exchange for the latter’s credit protection onloans owned by Lehman Brothers. The premiums the IssuerDreceived from LBSF were then paid to the Noteholders. TheAgreement was governed by English law;

(ii) On the basis that Lehman Brothers’ and LBSF’s Chapter11 filings (i.e., for bankruptcy in the US) in 2008 were‘Events of Default’ as outlined in the Agreements, theNoteholders directed the Trustee to terminate theEAgreements. The Collateral, which was held by the Trustee,provided security for the Issuer’s obligations to theNoteholders and LBSF. Although the latter had priority tothe Collateral, the Agreements contained a provision (“flipclause”) that would reverse the priorities in favour of theFNoteholders if an Event of Default occurred; and

(iii) LBSF argued the flip clause was invalid for two reasons:first, it deprived LBSF of property that it would have beenotherwise entitled to in its bankruptcy; and second, the clauseoffended the anti-deprivation rule by reversing LBSF’s andGthe Noteholders’ respective priorities on the basis of LBSF’sbankruptcy.

73 “UKSC”

74 [2011] 3 W.L.R. 521; hereinafter referred to as “Belmont Park”

75 As noted in Adrienne Ho, The Treatment of Ipso Facto Clauses in Canada, (2015)H61:1 McGill LJ 139.

100. The UKSC in this case was considering the contours of theanti-deprivation rule, which protects against the dilution of the debtor’svalue. This is quite distinct from a situation where the effect of theconcerned clause would be the failure of the insolvency resolution processin its entirety. Writing the majority opinion, Lord Collins upheld the flipclause on the basis that it was “a complex commercial transaction enteredinto in good faith” and that the provisions were not used deliberately toevade the application of insolvency law, which was a key requirementfor the application of the anti-deprivation rule. The learned judge heldthus:

“102 It would go well beyond the proper province of the judicialfunction to discard 200 years of authority, and to attempt to re-write the case law in the light of modern statutory developments.The anti-deprivation rule is too well-established to bediscarded despite the detailed provisions set out in moderninsolvency legislation, all of which must be taken to havebeen enacted against the background of the rule.

103 As has been seen, commercial sense and absence of intentionto evade insolvency laws have been highly relevant factors in theapplication of the anti-deprivation rule. Despite statutory inroads,party autonomy is at the heart of English commercial law. Plainlythere are limits to party autonomy in the field with which thisappeal is concerned, not least because the interests of third partycreditors will be involved. But, as Lord Neuberger stressed[2010] Ch 347, para 58, it is desirable that, so far as possible,the courts give effect to contractual terms which partieshave agreed. And there is a particularly strong case forautonomy in cases of complex financial instruments suchas those involved in this appeal.

104 No doubt that is why, except in the case of a blatantattempt to deprive a party of property in the event ofliquidation (Folgate London Market Ltd v Chaucer Insuranceplc [2011] EWCA Civ 328; The Times, 13 April 2011), the moderntendency has been to uphold commercially justifiablecontractual provisions which have been said to offend theanti-deprivation rule: Money Markets InternationalStockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR1150; Lomas v JFB Firth Rixson Inc [2011] 2 BCLC 120; and the AB

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Ajudgments of Sir Andrew Morritt C and the Court of Appeal inthese proceedings. The policy behind the anti-deprivation rule isclear, that the parties cannot, on bankruptcy, deprive the bankruptof property which would otherwise be available for creditors. Itis possible to give that policy a common sense applicationwhich prevents its application to bona fide commercialBtransactions which do not have as their predominantpurpose, or one of their main purposes, the deprivation ofthe property of one of the parties on bankruptcy.”

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C101. Lord Mance in his concurring opinion, expressed a similarview:

“177 However, Mr Snowden advanced propositions which wouldmean that any provision for termination on bankruptcy, which woulddeprive the trustee or liquidator of the opportunity of continuingDthe contract and so the bankrupt estate of future potentialadvantage, would infringe the principle. There is in my opinion nobasis for any such rule. Where a contract provides for theperformance in the future of reciprocal obligations, theperformance of each of which is the quid pro quo of theother, I see nothing objectionable or evasive about aEprovision entitling one party to terminate if the otherbecomes bankrupt.”

As such, it was understood that bona fide commercial contractsFentered into by parties which contained ipso facto clauses would notviolate the anti-deprivation rule.

102. Lord Mance also discussed the parallel proceedings in theUS and the legislative invalidation of ipso facto clauses there. Notingthe difference between the position in the UK and the US, he concludedby holding that a similar invalidation of ipso facto clauses in the UKGshould be done legislatively, and not through a common law development.He held thus:

“173 It is relevant to note that the American bankruptcy ruleinvalidating ipso facto termination clauses is a product of legislation:section 365(e) of the Bankruptcy Code 1978…H

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

174 The anti-deprivation principle recognised in Englishcase law finds a parallel in section 541. But the Englishcase law has to date focused on deprivation of property,and has not recognised any equivalent principle to thatenacted in section 365(e). Further, section 365(e) is itselfqualified by the “safe harbour” provisions of section 560, whichspecifically protect a non-defaulting swap participant’s contractualrights to liquidate, terminate or accelerate a swap agreementbecause of a condition of the kind specified in section 365(e)(1),that is the insolvency or financial condition of the debtor and thecommencement of a bankruptcy case... What it does suggestis that any general rule invalidating ipso facto terminationclauses ought to be a matter for legislative attention, ratherthan novel common law development.”

103. The decision in Belmont Park (supra) has been followedby the Chancery Division in Fibria Celulose S/A v Pan Ocean CoLtd vs Fibria Celulose S/A Chancery Division, dated 30 June2014[76].Morgan J held thus:

“12 In some jurisdictions, a clause which allows a party to a contractto terminate the contract by reason of the insolvency of thecounterparty is called an ipso facto clause. In certain jurisdictionsin the United States of America such clauses are automaticallyinvalid. In Canada, the court has power to stay the exercise ofrights under such clauses. Later in this judgment, I will considerhow such clauses are treated under Korean insolvency law.

13 There was no dispute before me as to the efficacy inEnglish law of the provisions in clause 28.1 of the contractwhich allow termination by reason of an insolvency event.It was accepted that those provisions are valid in Englishlaw. In particular, it was accepted that the rule of insolvencylaw, known as the anti-deprivation rule, does not strikedown those provisions.

14 Although there was no argument as to the approach of anEnglish court to the insolvency provisions in clause 28.1 of the A

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Acontract, it is helpful for present purposes to understand why thoseprovisions do not infringe the anti-deprivation rule or any otherrule of English insolvency law. The scope of the anti-deprivationrule has been considered recently by the Supreme Court in BelmontPark Investments Pty Ltd v BNY Corporate Trustee ServicesLtd (Revenue and Customs Comrs intervening) [2011] Bus LRB1266; [2012] 1 AC 383…”

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104. In his treatise, Principles of Corporate Insolvency Law[77],Professor Roy Goode has discussed the effect of the decision in BelmontCPark (supra) on the validity of ipso facto clauses. Professor Goodedoes so in the following terms:

“As explained above, the validity of provisions for thetermination of contracts by reason of one party’s entry intoinsolvency proceedings has long been assumed, andDappears to have been accepted by Lord Mance in Belmont.Such provisions do not escape the rule because they effectno deprivation of property (in substance, they do), butbecause they are commercially sensible or (in Lord Mance’slanguage) have a legitimate commercial basis.

E…

The statute law of some jurisdictions prohibits counterparties fromrelying on clauses in contracts that permit termination on anotherparty’s entry into insolvency proceedings (so-called ipso factoclauses). Absent statutory control, such clauses allow aFcounterparty to terminate even in circumstances where the debtoris ready, willing and able to perform their part of the bargain sothat creditors can enjoy the benefit of performance by thecounterparty. Such clauses can also be wielded as leverage toextract concessions from the debtor, as where the counterpartyagrees to keep the contract on foot on the proviso that anyGoutstanding debts owing by the company to it are discharged.

English law has traditionally taken a generous approach tosuch clauses. The common law anti-deprivation rule doesnot invalidate termination clauses, there being “nothing GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

objectionable or evasive about a provision entitling oneparty to terminate it [a bilateral contract] if the otherbecomes bankrupt”. As David Richards J explained in theFootball Creditors case:

“In the absence of specific statutory provision, insolvency lawdoes not compel a party to continue to deal with a company inadministration or liquidation, nor does it prohibit a party fromstipulating that all future dealings shall be on terms that not onlyfuture debts but also existing debts are paid in full. It is then forthe administrator or liquidator to decide whether to accept theseterms.””

105. On the legislative side, the insolvency regime in the UK isgoverned by the Insolvency Act, 1986[78], which does not invalidate ipsofacto clauses. However, the UK Act was recently amended by theCorporate Insolvency and Governance Act 2020[79], which came into forceon 26 June 2020. Amongst other changes, it introduced Section 233Binto the UK Act. Section 233B reads thus:

“Protection of supplies of goods and services

(1) This section applies where a company becomes subject to arelevant insolvency procedure.

(2) …

(3) A provision of a contract for the supply of goods orservices to the company ceases to have effect when thecompany becomes subject to the relevant insolvencyprocedure if and to the extent that, under the provision—

(a) the contract or the supply would terminate, or any otherthing would take place, because the company becomessubject to the relevant insolvency procedure, or (b)the supplier would be entitled to terminate the contractor the supply, or to do any other thing, because the companybecomes subject to the relevant insolvency procedure.

79 “CIGA”

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A(4)Where—

(a) under a provision of a contract for the supply of goods orservices to the company the supplier is entitled to terminatethe contract or the supply because of an event occurringbefore the start of the insolvency period, and B(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 effectunder subsection (3) or an entitlement under a provisionof a contract is not exercisable under subsection (4), theCsupplier may terminate the contract if—

(a) in a case where the company has become subject to a relevantinsolvency procedure as specified in subsection (2)(b), (c), (e) or(f), the office-holder consents to the termination of the contract, D(b)in any other case, the company consents to the termination ofthe contract, or

(c) the court is satisfied that the continuation of the contractwould cause the supplier hardship and grants permissionfor the termination of the contract.

E(6)Where a provision of a contract ceases to have effectunder subsection (3) and the company becomes subject toa further relevant insolvency procedure, the supplier mayterminate the contract in accordance with subsection (5)(a)to (c).

F(7)The supplier shall not make it a condition of any supply ofgoods and services after the time when the company becomessubject to the relevant insolvency procedure, or do anything whichhas the effect of making it a condition of such a supply, that anyoutstanding charges in respect of a supply made to the companybefore that time are paid.

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(8) …

(9) …

(10) …”

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GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

106. The Legislative Comment to the introduction of Section 233Breads as follows:

“Ipso facto (termination) clauses

A permanent change to the use of termination clauses in supplycontracts is introduced by the Bill. In circumstances where acompany has entered an insolvency or restructuringprocedure, or obtains a moratorium, the company’ssuppliers will not be able to rely on contractual terms tostop supplying the company or vary the contract terms (e.g.by increasing the price of supplies).

The customer is required to pay for any supplies made oncethe company is in the insolvency process, but is not requiredto pay outstanding amounts due for past supplies while it isarranging its rescue plan. Safeguards are contained in theBill to ensure that suppliers can be relieved of therequirement to supply if it causes hardship to their business,and a temporary exemption will operate for small companiesduring the Coronavirus emergency.”

107. We can therefore conclude that while Section 233Binvalidates ipso facto clauses, it does so only in relation to contractswhere the terminating party is supplyinggoods and services to theCorporate Debtor, and does not cover those contracts where theCorporate Debtor was supplying to the terminating party. Further, Section233B(5)(c) allows an exception even in relation to supplier contractswhen it causes “financial hardship” to the terminating party, and Section233B(6) allows a termination if once after the terminating party isprevented from terminating, the Corporate Debtor goes through anotherinsolvency proceeding. It has also been noted by certain commentatorsthat, given the narrow scope of Section 233B, the decision in BelmontPark (supra) would still have been decided in the same way even underthis new regime[80]. Finally, discussing the legislative process behind CIGA,Felicity Toube QC and Joanne Rumley have noted that the UK Parliamentdid not intend to use CIGA to bring UK in line with the US position on 80 ‘Corporate Insolvency and Governance Act: Ipso Facto (Termination) Clauses’(Ashurst, 26 June 2020) <https://www.ashurst.com/en/news-and-insights/legal-updates/ciga—ipso-facto-termination-clauses/> accessed 18 February 2021.

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Abroad invalidation of ipso facto clauses, but rather their focus was onensuring that the Corporate Debtor retains its supply of goods during theinsolvency process[81].

J.2.3 Austria

108. A position similar to the US has been adopted in AustriaBwhere, after the insolvency regime reform which came into force on 1July 2010, ipso facto clauses are broadly considered invalid in accordancewith Section 25b(2) of the Austrian Insolvency Code[82]. This law rendersunenforceable all such provisions in contracts which provide a partywith termination rights, due to the opening of insolvency proceedingsCagainst the debtor. However, this is only so when the terminating party’sinterests are not unreasonably affected, i.e., when a terminating partycan show a good cause for termination, the termination shall not berendered unenforceable. Further, contractual terminations due to otherevents of defaults mentioned in contracts remain valid[83].

J.2.4 FranceD

109. This is also the position in France which, since its 2014 reform,in accordance with Articles L622-13[84], L631-14(I)[85] and L641-11[86] of 81 Felicity Toube QC, Joanne Rumley ‘A brave new world? Should the UK ban ipsofacto clauses in non-executory contracts?’ Insolvency Intelligence 2018E82 “Invalid Agreements. Section 25b. - (2) A contractual provision rescinding orterminating a contract in the event of the opening of insolvency proceedings shall beunenforceable, except for contracts pursuant to Section 20(4).” English Translationavailable at <https://www.rautner.com/wp-content/uploads/2016/05/3645187_Austrian_Insolvency-Code_ENG.pdf> accessed 24 February 2021.

83 Jan Felix Hoffmann, ‘Executory Contracts, Ipso Facto Clauses and LicensingAgreements in Cross-Border Insolvencies’ (2018) 27 Int’l Insolvency Rev 300, 304;F‘International Comparative Legal Guides’ (International Comparative Legal GuidesInternational Business Reports) <https://iclg.com/practice-areas/restructuring-and-insolvency-laws-and-regulations/austria> accessed 18 February 2021.

84 “…Notwithstanding any legal rule or contractual term to the contrary, the indivisibility,termination or rescission of the contract may not result from the commencement ofsafeguard proceedings alone…” English Translation available at <https://www.wipo.int/edocs/lexdocs/laws/en/fr/fr199en.pdf> accessed 24 February 2021.G85 “I - Articles L622-2 to L622-9 and L622-13 to L622-33 shall apply to reorganizationproceedings.” English Translation available at <https://www.wipo.int/edocs/lexdocs/laws/en/fr/fr199en.pdf> accessed 24 February 2021.

86 “The supervisory judge shall perform the duties entrusted to him by Articles L621-9,L623-2 and L631-11, the first paragraph of Article L622-13 and the fourth paragraphof Article L622-16.” English Translation available at <https://www.wipo.int/edocs/Hlexdocs/laws/en/fr/fr199en.pdf> accessed 24 February 2021.

the Commercial Code, categorically states that ipso facto clauses inexecutory contracts are invalid[87]. However, termination rights referringto breaches of executory contract, other than ipso facto clauses, remainvalid due to events of default occurring both pre- and post-commencement of insolvency proceedings. Further, the insolvencyadministrator does not have to treat pre-insolvency claims arising out ofan executory contract preferentially to continue the contract; however,she has to comply with the contract in the future to prevent termination[88].

J.2.5 Germany

110. The German insolvency regime is governed by InsolvencyStatute, 1999 (Insolvenzordnung)[89]. However, a change is forthcoming,since on 17 December 2020, the German Parliament passed the Act onthe Further Development of Restructuring and Insolvency Law[90], whichis expected to lead to a fundamental modification of the restructuringlandscape in Germany. The SanInsFoG primarily serves to implementthe EU Directive discussed above, and aims at introducing a comprehensivelegal framework for out-of-court restructurings. The centerpiece of theSanInsFoG is the Act on the Stabilization and Restructuring Frameworkfor Companies[91], which partially entered into force on 1 January 2021.In accordance with Section 46 of the StaRUG, during the moratoriumperiod, the contracting parties of the debtor cannot terminate their contractwith the debtor based on ipso facto clauses in a pending restructuringmatter.

111. However, before the StaRUG came into effect, the validityof ipso facto clauses had been previously considered by German Courts.On 15 November 2012, the 9th Senate of the Federal Supreme Court ofGermany issued a decision which overruled the lower courts’ decisionsand held that ipso facto clauses in contracts regarding the continuousdelivery of goods or energy should be invalid if such termination is eithertriggered by a request for the opening of insolvency proceedings or theopening of insolvency proceedings over the assets of the other contractual 87 ‘International Comparative Legal Guides’ (International Comparative Legal GuidesInternational Business Reports) <https://iclg.com/practice-areas/restructuring-and-insolvency-laws-and-regulations/france> accessed 18 February 2021.

88 Ibid at 305.

89 “InsO”

90 “SanInsFoG”91 “StaRUG”

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Aparty. The Federal Supreme Court also held that for such invalidation, itwas irrelevant whether the trigger was institution of insolvencyproceedings or filing of an insolvency petition. Briefly, the facts of thecase were that a utility provider had entered into a long-term contractfor providing electricity. The energy contract had an ipso facto clausewhich allowed for automatic termination if bankruptcy proceedings wereBinstituted over the utility provider’s customer or if the customer filed apetition for bankruptcy. The ipso facto clause was then given effect toby the terminating party.

112. The Federal Supreme Court based its decision on the purposeof the insolvency administrator’s right to opt for the performance/non-Cperformance of contracts, which protects the assets of the insolventcompany and increases such assets in the interest of a settlement ofcreditor claims pari passu. Particularly, it was noted that the insolvencyadministrator has the right to choose which contracts of the insolventdebtor she will perform in accordance with Section 103 of the InsO.DHence, any contractual provision excluding or limiting this right is invalidin accordance with Section 119 of the InsO. Therefore, this would beobstructed if the contractual partner of the insolvent debtor, just becauseof its insolvency, could terminate a contract which is in the interest andto the benefit of the insolvent debtor. Further, the Federal Supreme Courtnoted that the stay on termination based on ipso facto clauses did notElead to any disadvantage to the terminating party since they will thenreceive payment for their deliveries in full as so-called preferred estateliability[92].

113. However, to the extent the statutory law itself already providesfor an ipso facto termination right, such termination rights have beenFheld to be valid and enforceable. Accordingly, the ipso facto terminationof a partnership contract has in the past been upheld by the FederalSupreme Court[93]. Further, in a 2016 decision, the 7th Senate of the FederalSupreme Court upheld an ipso facto clause contained in a constructioncontract, in favour of the terminating party. It held that such clauses areG

92 ‘Potential Invalidity of Insolvency-Related Termination Clauses under GermanInsolvency Rules’ (Global Restructuring Watch, 17 September 2014) <https://www.globalrestructuringwatch.com/2014/09/potential-invalidity-of-insolvency-related-termination-clauses-under-german-insolvency-rules/> accessed 18 February 2021.93 Volker Gattringer, ‘German Supreme Court renders ipso facto clauses invalid andHunenforceable – Roma locuta, causa finita?’ (K&L Gates, 27.02.2013).

valid when the contracting party has a reasonable right to terminate thecontract in insolvency, and the estate’s interests are not unreasonablyaffected. Thus, the position of German law on the validity of such clauseswas never entirely settled judicially[94].

J.2.6 Greece

114. Article 32 of the Bankruptcy Code (Law 3588/2007) statesthat there would be “no prejudice to the counter contracting party’s rightsto rescind the contract, based on a clause that allows the rescission incase of insolvency of the other party or subjection to collective executionproceedings”[95]. Hence, ipso facto clauses are legislatively providedvalidity in Greece.

J.2.7 Republic of Korea

115. The Republic of Korea follows the civil law tradition. UnderArticle 119(1) of the Debtor Rehabilitation and Bankruptcy Act ofKorea[96], the custodian of a company undergoing rehabilitation may chooseto cancel or terminate an unperformed bilateral contract. Article 119appears to allow the custodian to require the other party to fulfil itsobligations under such a contract. While some commentators have notedthat this is believed to essentially be in the nature of a restriction on anipso facto clause, others state that this position has not been adopteduniformly by all courts[97]. In fact, the International Monetary Fund issued 94 Jan Felix Hoffmann, ‘Executory Contracts, Ipso Facto Clauses and LicensingAgreements in Cross-Border Insolvencies’ (2018) 27 Int’l Insolvency Rev 300, 305.95 Christoph G Paulus and Stathis Potamitis and Alexandros Rokas and Ignacio Tirado,‘Insolvency Law as a Main Pillar of Market Economy - A Critical Assessment of theGreek Insolvency Law’ (2015) 24 Int’l Insolvency Rev 1, 18.

96 “Article 119 (Options when Both Parties Fail to Fulfill Bilateral Contract) - (1) Whenthe debtor and the other party to a bilateral contract have yet to complete performanceof the contract at the time rehabilitation procedures commence, any custodian maycancel or terminate such bilateral contract and request the debtor to meet his/herobligations and require the other party to fulfill his/her obligations: Provided, That thecustodian shall not cancel or terminate the bilateral contract after the assembly ofrelated persons held to deliberate on a rehabilitation proposal or a decision is made topass a written resolution on any case pursuant to the provisions of Article 240.”97 June Young Chung and Sy Nae Kim, “Korean Corporate Rehabilitation Proceedingsand Cross-Border Insolvency - From the Perspective of the Hanjin Shipping BankruptcyCase” <https://nysba.org/NYSBA/Sections/International/Events/2018/Seoul%20Regional%20Meeting/Course%20Materials/4_Korean%20Corporate%20Rehabilitation%20Proceedings%20and%20Cross-border%20Insolvency_....pdf>accessed 24 February 2021.

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Aa technical note in September 2020 on “Insolvency and Creditor Rights”while conducting a “Financial Sector Assessment Program” of Republicof Korea, in which they also noted this lack of clarity and recommendedlegislative guidance[98].

116. A lack of this clarity is shown by a case where the predecessorBof Article 119 was considered by the Korean Supreme Court in its decisiondated 6 September 2007 in the case of Allied Domecq (Holdings) plcvs The trustee of Jinro Co Ltd[99]. This was noted in the decision ofPan Ocean Co Ltd (supra)[100], discussed above, where the ChanceryDivision was considering the ipso facto clause in a contract governedby English law, but where the party was undergoing insolvencyCproceedings in Republic of Korea. The Korean Supreme Court held inAllied Domecq (supra) that, in a case not governed by Article 119, aninsolvency termination clause would be valid. It then considered the typesof contract which came within Article 119, and referred to the nature ofthe obligations under the particular unperformed bilateral contract in that Dcase. Ultimately, it held that the contract in that case was not governedby Article 119.

117. Further, Pan Ocean Co Ltd (supra) also discussed[101] a laterdecision of a Korean Court dated 24 January 2014 in Trustee ofTongyang Networks Co Ltd vs Standard Chartered Bank Ltd,which concerned a contract under which the debtor company was toEprovide services to the bank. The contract contained an insolvencytermination clause and the bank gave, or purported to give, notice toterminate pursuant to that clause. The trustee of the debtor companyargued that the bank’s right to terminate should be considered null andvoid by reason of Article 119 or, alternatively, the bank should refrainFfrom terminating the contract at least during the period of the rehabilitation.The court considered the earlier decision in Allied Domecq (supra)and held that to achieve a proper balance between the purpose ofrehabilitation and the principle of freedom of contract and thecounterparty’s need to be able to trust the debtor company, it was necessary to look at all the circumstances, such as the nature of theGcontract, the necessity to protect the debtor and the counterparty and 98 Footnote 26 at Page 16, available at <https://www.imf.org/~/media/Files/Publications/CR/2020/English/1KOREA2020003.ashx> accessed 24 February 2021.99 “Allied Domecq”100 Para 49.H101 Para 52.

allied relevant factors. The Court then conducted a detailed examinationof what it regarded as the relevant factors, and held that Article 119 didnot render the insolvency termination clause null and void. However, theChancery Division in Pan Ocean Co Ltd (supra) did note that thisdecision may have been appeal in Republic of Korea.

J.2.8 Canada

118. Legislatively, in Canada, Sections 65.1[102], 66.34[103 ]and 84.2[104]of the Bankruptcy & Insolvency Act[105] and provisions of the Companies’

102 “Certain rights limited 65.1 (1) If a notice of intention or a proposal has been filedin respect of an insolvent person, no person may terminate or amend any agreement,including a security agreement, with the insolvent person, or claim an acceleratedpayment, or a forfeiture of the term, under any agreement, including a security agreement,with the insolvent person, by reason only that:

(a) the insolvent person is insolvent; or (b) a notice of intention or a proposal has been filed in respect of the insolvent person.

…

Provisions of section override agreement

(5) Any provision in an agreement that has the effect of providing for, or permitting,anything that, in substance, is contrary to subsections (1) to (3) is of no force oreffect.”

103 “Certain rights limited

66.34 (1) If a consumer proposal has been filed in respect of a consumer debtor, noperson may terminate or amend any agreement, including a security agreement, withthe consumer debtor, or claim an accelerated payment, or the forfeiture of the term,under any agreement, including a security agreement, with the consumer debtor, byreason only that:

(a) the consumer debtor is insolvent, or (b) a consumer proposal has been filed in respect of the consumer debtor until theconsumer proposal has been withdrawn, refused by the creditors or the court, annulledor deemed 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 oreffect.”

104 “Certain rights limited

84.2 (1) No person may terminate or amend — or claim an accelerated payment orforfeiture of the term under — any agreement, including a security agreement, with abankrupt 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.”105 “BIA”

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ACreditors Arrangement Act[106] invalidate ipso facto clauses in bothcommercial and consumer restructurings, and are intended to protectconsumer debtors from the deleterious consequences of provisions thattrigger upon bankruptcy. These provisions also clarify that any contractualclause that, in substance, is contrary to the provisions as a whole is of noforce or effect. However, their prohibition on ipso facto clauses doesBnot apply to agreements such as commodities and forward contracts.Further, the terminating party, including utilities, can apply for a courtorder that these provisions do not apply, or only apply to an extentdetermined by the court, if they can demonstrate that the operation ofthese provisions will cause it significant hardship[107].C119. On the other hand, judicially, in a split decision on 2 October2020, the Supreme Court of Canada[108] upheld the Alberta Court ofAppeal’s majority decision in Chandos Construction Ltd. vs DeloitteRestructuring Inc.[109] in its capacity as Trustee in Bankruptcy of CapitalSteel Inc., a bankrupt (Chandos). Briefly, the facts of the case wereDthat:

(i) Chandos had subcontracted a project’s steel work to CapitalSteel. The subcontract included a term under which CapitalSteel agreed to forfeit ten percent of the contract price if itbecame insolvent “as a fee for the inconvenience ofE[Chandos] completing the work using alternate means and/or for monitoring the work” (“Insolvency Clause”); and

(ii) Capital Steel completed most of its work under itssubcontract with Chandos before making an assignment inbankruptcy. Deloitte was appointed as trustee of the estateFof Capital Steel and Capital Steel ceased operations at thattime. As a result, Chandos had to complete the steel workat its own cost. Even after costs of completion wereaccounted for, Chandos owed a balance to the estate ofCapital Steel based on the remaining unpaid contract price.However, Chandos took the position that it could rely onG

106 “CCAA”107 See Adrienne Ho, The Treatment of Ipso Facto Clauses in Canada, (2015) 61:1McGill LJ 139.108 “SCC”H109 2020 SCC 25

the Insolvency Clause to deduct 10% of the contract price(almost $140,000) as an ‘inconvenience fee’ and that, oncededucted, Chandos owed nothing to Capital Steel. Thetrustee brought an application seeking a judicial determinationof whether the Insolvency Clause was enforceable.

120. The majority opinion of the SCC held that the present clauseviolated the common law doctrine grounded in the ‘anti-deprivation rule’,which invalidates provisions that are “engaged by a debtor’s insolvencyand remove value from the debtor’s estate to the prejudice of creditors”.Further, it reasoned that the anti-deprivation rule continues to exist atcommon law; that it was part of Canadian law, and was neither judiciallynor legislatively excluded. It further continued to exist even though itwas not fully codified in the BIA. Since this rule voids contractual termsthat prevent property from passing to the bankruptcy trustee, the non-application of this rule would also go against the purpose of section 71 ofthe BIA. The majority opinion ultimately relied on the ‘effects-based’test for understanding the anti-deprivation rule, noting it was in consonancewith the BIA, thereby holding that any clause which had the ‘effect’ ofremoving 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 inBelmont Park (supra), and noted that the codification of the invalidityof ipso facto clauses in BIA was unrelated to the principles behind anti-deprivation rule since “ipso facto provisions are aimed at protectingdebtors; the anti-deprivation rule, by contrast, protects creditors”[110].

121. Some commentators note that the practical effect of thisdecision is that if a contracting party enters insolvency proceedings, certaincontractual clauses that are triggered by insolvency and remove valuefrom the debtor’s estate are void and will not be given effect by Canadiancourts. Further, they believe that the SCC rejected the UK SupremeCourt’s more lenient view of the anti-deprivation rule and aligned moreclosely to the policy underlying the anti-ipso facto clause provisions inthe US Bankruptcy Code[111].

110 Para 118.

111 ‘Chandos Upheld by Supreme Court of Canada: The Anti-Deprivation Rule inCanada’ (Norton Rose Fulbright, January 2021) <https://www.nortonrosefulbright.com/en-ca/knowledge/publications/db4bb7a6/chandos-upheld-by-supreme-court-of-canada>accessed 18 February 2021.

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AJ.2.9 Australia

122. Recently in Australia, the Treasury Laws Amendment (2017Enterprise Incentives No. 2) Act, 2017[112] amended the CorporationsAct, 2001, which governs the insolvency regime. Under this new regime,during the period of a specified restructuring or insolvency procedure, aBright in a contract, agreement or arrangement will not be enforceable,and ‘self-executing provisions’ will not apply, by reason only of “[t]hecompany entering the specified procedure; the company’s financialposition; a prescribed reason; or a reason that is in substance contrary tothe above”.

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C123. Before this amendment, termination of contracts based onipso facto clauses was permitted[113]. The new regime also applies tocontracts entered into on or after 1 July 2018, i.e., its application isprospective only. However, certain contracts and contractual rights havebeen excluded from the operation of the stay under this new regime.Critically, in respect of financing arrangements, the ipso facto reformsDwill not apply to (amongst other things) syndicated loans, securities, bonds,promissory notes, financial products, derivatives, and certain contractsinvolving special purpose vehicles. The excluded contractual rights donot depend on the type of contracts in which they are embodied.

124. However, according to the Explanatory Memorandum to theEAmending Act, the stay is not intended to restrict a counterparty fromenforcing a right (or disapply self-executing provisions) for any otherreason, such as a breach involving non-payment or non-performance.Further, the ipso facto provisions also allow the relevant insolvencyadministrator to apply for an order expanding the stay to prohibit theFexercise of rights (for example, a right to terminate for convenience),even where the right does not expressly operate on the basis of one ofthe prohibited reasons set out above, if the court is satisfied that acounterparty is likely to exercise those rights for a prohibited reason[114].

G112 “Amending Act”

113 ‘The Impact of Insolvency on Licence Agreements’ (2015) 254 Managing IntellProp 31, 32.

114 ‘Australia’s New Ipso Facto Regime Is Now Live: Are Your Contractual RightsAffected?’ (Herbert Smith Freehills | 2 July 2018) <https://www.herbertsmithfreehills.com/latest-thinking/australia%E2%80%99s-new-ipso-facto-regime-is-now-live-are-Hyour-contractual-rights-affected> accessed 18 February 2021.

J.2.10 Singapore

125. In Singapore, ipso facto clauses are prohibited inaccordance with Section 440[115 ]of the Insolvency, Restructuring andDissolution Act, 2018 (“IRDA”), which came into force on 30 July2020. This provision limits the exercise of ipso facto clauses whichare triggered by reason only of the insolvency of a contracting party orthe commencement of corporate rescue proceedings, namelyproceedings for judicial management and schemes of arrangement[116].However, this provision may not restrict a contracting party fromterminating the contract if there are other events of default, for instance:(a) failure to pay outstanding sums; (b) appointment of a receiver; or(c) passing of a resolution for the winding up of the debtor. Further, 115 “Certain contractual rights limited

115 “Certain contractual rights limited

440. —(1) No person may, at any time after the commencement, and before theconclusion, 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 securityagreement) 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 application by a party to an agreement, the Court may declare that thissection does not apply, or applies only to the extent declared by the Court, if theapplicant satisfies the Court that the operation of this section would likely cause theapplicant significant financial hardship.

(5) Subsection (1) does not apply in respect of any legal right under —

(a) any eligible financial contract as may be prescribed; (b) any contract that is a licence, permit or approval issued by the Government or astatutory body;

(c) any contract that is likely to affect the national interest, or economic interest, ofSingapore, as may be prescribed; (d) any commercial charter of a ship; (e) any agreement within the meaning of the Convention as defined in section 2(1) ofthe International Interests in Aircraft Equipment Act (Cap. 144B); or(f) any agreement that is the subject of a treaty to which Singapore is party, as may beprescribed.(6) …”

116 ‘Singapore - Restructuring: Ipso Facto Clauses, Distressed Debt Market UpdateAnd DIP/Rescue Finance | Conventus Law’ <https://www.conventuslaw.com/report/singapore-restructuring-ipso-facto-clauses/> accessed 18 February 2021.

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Asection 440 does not apply retroactively, and only applies to contractsentered into after 30 July 2020[117].

126. In addition, two legislative safeguards have been built intothe IRDA to balance the contractual interests of stakeholders:

(i) Certain types of contracts are exempted from theseBrestrictions. These are the following: (a) derivativescontracts, margin lending agreements or securitiescontracts; (b) master netting agreements, securities/commodities lending or repurchase agreements, or spotcontracts, that contain a netting or set-off arrangement; (c)Ccovered bond or connected agreements; (d) debentures orconnected agreements; (e) any agreement to clear or settletransactions relating to a derivatives contract; and (f)business rules of an approved exchange, a licensed traderepository, an approved or recognized clearing house or arecognized market operator; andD

(ii) Exclusion from this provision can also be sought, inaccordance with section 440(4), if the injunction of the ipsofacto clause would “likely cause the applicant significantfinancial hardship”[118].

E127. It is also important to note the background to this legislativereform. In 2013, Singapore’s Insolvency Law Committee recommendedagainst the adoption of such restrictions on ipso facto clauses. It notedthe benefits in favour of restricting such clauses, which included: (a)keeping key contracts alive; and (b) protecting the interests of differentcontract holders and incentivizing the management to bring the defaultingFcompany back on track. Further, it also noted the disadvantages of suchrestrictions, which included: (A) existing counterparties would be locked-in to unfavourable contracts, and compelled to perform their contractualobligations even where there may be no hope of being paid; and (B) alegislative provision would be too static for the dynamic character ofG117 ‘Ipso Facto Clauses under the New Insolvency, Resolution & Dissolution Act’(Rajah Tann & Asia, July 2020) <https://eoasis.rajahtann.com/eoasis/lu/pdf/2020-07_Ipso-Facto-Clauses.pdf> accessed 18 February 2021.

118 ‘Ipso facto clauses under the Insolvency, Restructuring and Dissolution Act’ (Whiteand Case LLP | 20 August 2020) <https://www.whitecase.com/publications/alert/ipso-facto-clauses-under-insolvency-restructuring-and-dissolution-act> accessed on 18HFebruary 2021.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

modern-day commercial transactions in this domain. It therefore advisedagainst legislative intervention to restrict such clauses. However, havingtaken note of these criticisms, Singapore nevertheless followed theexamples of Australia and the UK in legislating such restrictions on ipsofacto clauses[119].

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128. On the basis of our discussion of the above-mentionedjurisdictions, the following conclusions emerge:

(i) Many jurisdictions follow the US model of legislativelyinvalidating ipso facto clauses. Interestingly, this shift hasbeen far more prominent in the last decade even thoughthe US Bankruptcy Code has had this position since 1979; C

(ii) Some of the recent jurisdictions to follow the US model,such as Australia and Singapore, invalidate ipso factoclauses prospectively, i.e., ipso facto clauses contained inthe contracts entered into before the laws came into effectDwill not be invalidated;

(iii) The UK, through the CIGA, only invalidates ipso factoclauses in supplier contracts, which is similar to the effectof Section 14(2) of the IBC. Further, other ipso facto clausesare understood to be valid, based on the UKSC’s decisionin Belmont Park (supra). However, as noted previously,the UKSC decision was given in the context of theapplication of the anti-deprivation rule, which protectsagainst the dilution of the value of the company in debt anddoes not necessarily affect the status of the company as a‘going concern’; E

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(iv) Greece is one of the few countries which legislativelyupholds ipso facto clauses;

(v) The position of law in the Republic of Korea is unclear dueto contradictory judicial decisions, which has prompteddemands for legislative clarity. This highlights the growingcommercial importance of legislative clarity in this area; G

119 ‘Singapore’s Restrictions on Ipso Facto Clauses: What Comes next? | Lexology’<https://www.lexology.com/library/detail.aspx?g=4d40d932-2ac4-45dd-abf4-76853aa7331a> accessed 18 February 2021.

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A(vi)Generally, even where ipso facto clauses are invalidated,it does not have effect on the termination rights of theterminating party based on other events of default in thecontract;

(vii) Some nations which invalidate ipso facto clauses, such asBAustria, Canada, Singapore and UK (limited to suppliercontracts), provide for an exception based on “hardship”being caused to the terminating party. This “hardship” is tobe determined by the courts; and

(viii) Even in nations which legislatively invalidate ipso factoCclauses, there are often contrasting judicial decisions inrelation to the scope of their invalidation. There are certainjudicial decisions which go beyond the legislative text toinvalidate ipso facto clause on broad considerations of theobject and purpose of the relevant insolvency regimes. Onthe other hand, there are judicial precedents, which followDa more conservative approach and strictly construe thelegislative mandate.

J.3 Position in India

129. Before we consider the extent to which the lessons of otherjurisdictions should be applied to India, it is important to advert to theEdiscussion on the invalidation of ipso facto clauses in India.

130. In 2005, the Report of the Expert Committee on CompanyLaw headed by J.J. Irani[120] noted the requirement of reforms in theIndian insolvency regime, specifically citing the lessons from the recentlypublished UNCITRAL Guide. In relation to the moratorium period, itFmade the following observations:

“Moratorium and suspension of proceedings 13.1 A limited standstill period is essential to provide an opportunityto genuine business to explore re-structuring.

G…

13.4 The law should provide for treatment of unperformedcontracts. Where the contracts provide for automatic 120 Available at <https://ibbi.gov.in/uploads/resources/May%202005,%20J.%20J.%20Irani%20Report%20of%20the%20Expert%20 Committee%20on%20Company%20HLaw.pdf> accessed 24 February 2021.

termination on filing of insolvency, its enforcement shouldbe stayed on commencement of insolvency.

13.5 There should be enabling provisions to interfere with thecontractual obligations which are not fulfilled completely. Suchinterference or overriding powers would assist in achieving theobjectives of the insolvency process. The power is necessary tofacilitate taking appropriate business and other decisions includingthose directed at containing rise in liabilities and enhancing valueof assets.

13.6 Exceptions of such powers are also essential to be insured inthe law where there is a compelling, commercial, public or socialinterest in upholding the contractual rights of the counter party tothe contract.”

131. The Committee noted the need to invalidate ipso facto clausesso as to prevent the value of a Corporate Debtor’s assets from becomingdiluted during the insolvency process. However, this invalidation was tobe subject to exceptions, keeping in mind the “compelling, commercial,public or social interest in upholding the contractual rights of the counterparty to the contract”.

132. However, as is evident, this recommendation was neverdirectly embodied legislatively since the current IBC contains no clear-cut provision which invalidates ipso facto clauses. In fact, the issue ofthe invalidation of ipso facto clauses was noted in a December 2018report titled ‘Insolvency and Bankruptcy Code: The journey so far andthe road ahead’ issued by Vidhi Centre for Legal Policy[121]. The reportnotes that the IBC “does not per se prohibit the operation of ipso factoclauses during insolvency proceedings. However, Section 14 providesfor a limited exception prohibiting the termination, suspension orinterruption of specified “essential goods or services” (i.e. water,electricity, telecommunication services and information technologyservices to the extent they are not direct inputs to the output produced orsupplied by the corporate debtor), and also provides relief to the corporatedebtor from the recovery of any property by an owner or lessor duringthe moratorium”. As a solution, the report recommends a conditional 121 Pages 34-35, available at <https://vidhilegalpolicy.in/wp-content/uploads/2019/05/IBC_Thejourneysofarandtheroadahead_Dec18.pdf> accessed on 18 February 2021.

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Astay on the operation of ipso facto clauses, beginning from the insolvencycommencement date, since “a complete stay on the operation of ipsofacto clauses would constitute a serious restraint on the freedom ofcontract and would effectively compel suppliers to perform contractseven when such an action is against their commercial interests”. Inrelation to the implementation of this solution, the report suggests theBinsertion of a new provision to the IBC.

133. More recently, however, the IBC was amended by theInsolvency and Bankruptcy Code (Amendment) Act, 2020 which, interalia, introduced an Explanation to Section 14(1). The Explanation toSection 14(1) reads thus:C

“14. Moratorium.—

…

Explanation.—For the purposes of this sub-section, it is herebyclarified that notwithstanding anything contained in any other lawDfor the time being in force, a license, permit, registration, quota,concession, clearances or a similar grant or right given by theCentral Government, State Government, local authority, sectoralregulator or any other authority constituted under any other lawfor the time being in force, shall not be suspended or terminatedon the grounds of insolvency, subject to the condition that there isEno default in payment of current dues arising for the use orcontinuation of the license, permit, registration, quota, concession,clearances or a similar grant or right during the moratorium period.”

134. The legislative intent behind this amendment was discussedin the Report of the Insolvency Law Committee dated 20 February 2020.FThe Report noted the importance of keeping the Corporate Debtor as a‘going concern’ during the moratorium period imposed under Section 14,and how it was being affected by the termination of certain Governmentlicenses, permits, et al, based on ipso facto clauses which allowedtermination upon commencement of insolvency. Noting that the legislativeGintent underlying Section 14 would be to invalidate such terminations,the Report recommended the addition of the Explanation to Section 14(1)of the IBC. The relevant portion, in relation to the Explanation to Section14(1), reads thus[122]:

122 Available at <https://ibbi.gov.in/uploads/resources/c6cb71c9f69f66858830630Hda08e45b4.pdf> accessed on 18 February 2021.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

“Prohibition on Termination on Grounds of Insolvency …

8.3. It was brought to the Committee that in some casesgovernment authorities that have granted licenses, permits andquotas, concessions, registrations, or other rights (collectivelyreferred to as “grants”) to the corporate debtor attempt toterminate or suspend them even during the CIRP period. Thiscould be attempted in two ways: one, by relying on ipso factoclauses, by virtue of which these grants may be terminated on theadvent of insolvency proceedings themselves, and second, byinitiating termination on account of non-payment of dues.

8.4. The Committee discussed that by and large, the grants thatthe corporate debtor enjoys form the substratum of its business.Without these, the business of the corporate debtor would lose itsvalue and it would not be possible to keep the corporate debtorrunning as a going concern during the CIRP period, or to resolvethe corporate debtor as a going concern. Consequently, theirtermination during the CIRP by relying on ipso facto clausesor on non-payment of dues would be contrary to the purposeof introducing the provision for moratorium itself. Thus,the Committee concluded that the legislative intent behindintroducing the provision for moratorium was to bar suchtermination.

8.5. In this regard, the Committee noted that depending on thenature of rights conferred by them, these grants may constitutethe “property” of the corporate debtor. Section 3(27) of the Codeprovides an inclusive definition of property which includes “money,goods, actionable claims, land and every description ofproperty situated in India or outside India and everydescription of interestincluding present or future or vestedor contingent interest arising out of, or incidental to,property.” This definition is substantially the same as the definitionof “property” under Section 436 of the Insolvency Act, 1986 (UK),which has been considered the widest possible definition ofproperty. In India too, it is accepted that certain licenses andconcessions can convey permission to use property, or may embodya lease, permit, etc. granting rights in the property. Thus, theirtermination in certain circumstances, could have been considered A

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Acontrary to an order of moratorium barring actions under Section14(1)(d) or preventing alienation of property by any person.

8.6. Similarly, in many circumstances, termination or suspensionof grants, particularly registrations, would be through proceedingsthat follow due process of law. Such proceedings may be a formBof enforcement that would deprive the corporate debtor of itsassets. In this regard, The Committee noted that the Section14(1)(a) prevents “the institution of suits or continuation ofpending suits or proceedingsagainst the corporate debtorincluding execution of any judgement, decree or order in any”court of law, tribunal, arbitration panel or other authority.C(Emphasis supplied). This provision has been given an expansivereading by the Appellate Authority and the Adjudicating Authority,that had passed orders preventing recovery by stock exchangesand regulators, as well as the de-registration of aircrafts.

8.7. Relying on this, the Committee was of the view thatDtermination or suspension of such grants during themoratorium period would be prevented by Section 14.However, to avoid any scope for ambiguity and in exerciseof abundant caution, the Committee recommended that thelegislative intent may be made explicit by introducing anEExplanation by way of an amendment to Section 14(1).”

135. The position of law in India today invalidates ipso factoclauses in:

(i) Government licenses, permits, registrations, quotas,concessions, clearances or a similar grant or right given byFthe Central Government, State Government, local authority,sectoral regulator or any other authority constituted underany other law for the time being in force, in accordancewith the Explanation to Section 14(1); and

(ii) Contracts where the counter-party supplies essential/criticalGgoods and services to the Corporate Debtor, within themeaning of Sections 14(2) and 14(2A).

However, no clear position emerges in relation to the validity ofipso facto clauses in other contracts, from the bare text of the IBC.Hence, this task is now left to this Court in the present case.H

136. In order to fully appreciate the weight of this task upon us, itis important to understand that one of the key principles enshrined withinour Constitution is separation of powers between our three main organs:the legislature, the executive and the judiciary. In Rai Sahib Ram JawayaKapur vs State of Punjab[123], speaking for a Constitution Bench, ChiefJustice Bijan Kumar Mukherjea, spoke about the ‘separation of powers’doctrine in the following terms:

“12…The Indian Constitution has not indeed recognised thedoctrine of separation of powers in its absolute rigidity but thefunctions of the different parts or branches of the Governmenthave been sufficiently differentiated and consequently it can verywell be said that our Constitution does not contemplate assumption,by one organ or part of the State, of functions that essentiallybelong to another…”

137. In Kesavananda Bharati vs State of Kerala[124], ChiefJustice S.M. Sikri noted that the ‘separation of powers’ doctrine is partof the basic structure of the Constitution:

“292. The learned Attorney-General said that every provision ofthe Constitution is essential; otherwise it would not have been putin the Constitution. This is true. But this does not place everyprovision of the Constitution in the same position. The true positionis that every provision of the Constitution can be amended providedin the result the basic foundation and structure of the constitutionremains the same. The basic structure may be said to consistof the following features:

(1) Supremacy of the Constitution;

(2) Republican and Democratic form of Government;

(3) Secular character of the Constitution;

(4) Separation of powers between the legislature, theexecutive and the judiciary;

(5) Federal character of the Constitution.”

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A138. In performing our duties as members of the judicial branch inthis case, we must tread a fine line between providing a just decisionwhile not entering into the domain of the legislature.

139. We have already noted above in our analysis of the laws ofvarious other national jurisdictions that the invalidation of ipso factoBclauses seems to have occurred through legislative intervention. Although,in certain jurisdictions, there have been a few judicial decisions whichhave given an expansive interpretation to the legislative text, in order toinvalidate ipso facto clauses (and their variations) which have not beenexplicitly barred by the legislature, these decisions have often been issuedin order to give effect to legislative policy, intent and purpose of theCinsolvency regime. In countries like the Republic of Korea, where it isyet to happen legislatively, it is recommended. In others like the UK,Lord Mance in his concurring opinion in Belmont Park (supra) hasnoted that it should happen only legislatively, and not through theintervention of the court.

D140. Further, we also acknowledge the myriad complex questionswhich will arise while deciding on the issue of the validity/invalidity ofipso facto clauses, such as:

(i) The extent of invalidation of ipso facto clauses, i.e.,termination solely based on an ‘insolvency event’ (filing ofEan application for commencement of CIRP, commencementof CIRP, appointment of RP, et al) within the IBC will beinvalid;

(ii) Whether the invalidation is absolute or conditional duringthe insolvency process;F

(iii) What kinds of contracts should be exempt from thisinvalidation;

(iv) What should be the nature of the exceptions to theinvalidation of ipso facto clauses to preserve the interestsof the terminating party;G

(v) Whether the invalidation should happen prospectively orretrospectively; and

(vi) What safeguard will be required to ensure that parties donot circumvent the invalidation.

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141. The issues which we have delineated above are notexhaustive. The enumeration only seeks to highlight the complexity ofthe task at hand, which will require consideration of a variety of principles,which have to be balanced. The tension between the rights of a corporatedebtor during the insolvency process as against the contractual rights ofa terminating party, which is central to the task at hand, is one which hasbeen acknowledged even by the UNCITRAL in its UNCITRAL Guide.There is a public interest underlying each of these balancingconsiderations. The law confronts the judge with the greatest challengesof adjudication when a balance has to made between what is right andwhat is right.

142. There are limitations of the judicial process in providingabsolute answers to these questions. Judgments are rendered in casesinvolving specific fact situations. While they immediately bind the partiesbefore the court, the impact of the pronouncement of principle will havea bearing on others whose contracts may contain similar provisions. InNorthern Securities Company vs United States[125], Justice OliverWendell Holmes Jr. acknowledged a similar judicial conundrum in thefollowing terms in his dissenting opinion:

“356. Great cases, like hard cases, make bad law. For great casesare called great, not by reason of their real importance in shapingthe law of the future, but because of some accident of immediateoverwhelming interest which appeals to the feelings and distortsthe judgment…”

143. Consequently, we hold that question of the validity/invalidityof ipso facto clauses is one which the court ought not to resolveexhaustively in the present case. Rather, what we can do is appeal inearnest to the legislature to provide concrete guidance on this issue,since the lack of a legislative voice on the issue will lead to confusionand reduced commercial clarity.

K Appellant’s right to terminate the PPA in the present case K.1 Analysis of the PPA

144. We now turn to a consideration of the text, structure andsalient features of the PPA. As the PPA records in its recitals:

125 1904 SCC OnLine US SC 63 : 24 S.Ct. 436

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A“[T]he Government of Gujarat through letter dated 1st August2009 has allocated 25 MW capacity to power producer fordeveloping and setting up Solar Photovoltaic based power projectin the State of Gujarat. The power Producer desires to set up aSolar Photovoltaic Grid Interactive Power Plant of 10 MW capacityat village Loria, Taluka-Bhuj, District Kutchh using new SolarBPhotovoltaic Grid Interactive power plants to produce the ElectricEnergy.”

145. The preambular portion of the PPA also clarifies that thePower Producer (the Corporate Debtor) includes its respectivesuccessors and permitted assignees. Article 1, containing the definitions,Cclarifies that the term ‘Commission’ refers to the GERC.

146. The PPA defines the term ‘law’ in the following terms:

“Law” means any valid legislation, statute, rule, regulation,notification, directive or order, issued or promulgated by anyDGovernmental Instrumentality.”

147. Article 4.1(iii) provides that the Corporate Debtor shall sellthe power produced by it to the appellant on first priority basis and is notallowed to sell to any third party. Article 4.1(x) states that the CorporateDebtor shall continue to hold at least 51% equity stake for the first twoEyears after the Commercial Operation Date and at least 26% for 3 yearsthereafter. Article 5.2 of the PPA, as we have noted previously, clarifiesthat, in case the commissioning of the Plant is delayed beyond 31December 2011, the appellant shall pay the tariff as determined by theGERC for Solar Projects effective on the date of commissioning of theplant or the tariff provided under the clause, whichever is lower.F

148. Article 9.1 of the PPA clarifies that the PPA shall becomeeffective upon the execution and delivery thereof by the parties andshall remain in operation for a period of 25 years. Article 9.2.1 enumeratesthe Events of Default by the Corporate Debtor, within which Article9.2.1(e) states that the Corporate Debtor becoming voluntarily orGinvoluntarily, the subject of a proceeding in any bankruptcy or insolvencylaws, constitutes an Event of Default. The exception to this clause istriggered where dissolution of the Corporate Debtor is for the purposeof a merger, consolidation or reorganization and where the resulting entityhas the financial standing to perform its obligations under PPA andcreditworthiness. Article 9.2.1(e) of the PPA is quoted below:H

“9.2. 1 Power Producer’s Default: The occurrence of any of thefollowing events at any time during the Tariff [sic term] of this Agreement shall constitute an Event of Default by PowerProducer:

xxx

e. If the Power Producer becomes voluntarily or involuntarily thesubject of proceeding under any bankruptcy or insolvency lawsor goes into liquidation of [sic or] dissolution or has a receiverappointed over it or liquidator is appointed, pursuant to law, exceptwhere such dissolution of the Power producer is for the purposeof a merger, consolidated [sic consolidation] or reorganization andwhere the resulting entity has the financial standing to perform itsobligations under this Agreement and creditworthiness similar tothe Power Producer and expressly assumes all obligations underthis agreement and is in a position to perform them.”

149. In accordance with Article 9.3.1, the appellant, on theoccurrence of an Event of Default under Article 9.2.1, can issue a DefaultNotice which shall specify in reasonable detail the Event of Defaultgiving rise to the default notice, and call upon the Corporate Debtor toremedy it. At the expiry of 30 days from such notice, unless otherwiseagreed, if the default has not been remedied, the appellant can terminatethe PPA. Further, the Corporate Debtor shall have the liability to makepayments towards compensation to the appellant which is equivalent tothree years’ billing based on the first-year tariff considered on normativePLF while determining the tariff by GERC, within 30 days from thetermination notice. In accordance with Article 10.4, when differencesor disputes between the parties are not settled through mutual negotiationwithin 60 days of the dispute arising, it shall be adjudicated by the StateCommission, in accordance with Law.

150. In accordance with Article 12.9, assignment of the CorporateDebtor’s rights under the PPA is permissible, with the prior written consentof the other party. The proviso to this Article makes it clear that anyassignee shall expressly assume the Corporate Debtor’s obligationsthereafter arising under the PPA, on the furnishing of satisfactorydocumentation.

151. At this juncture, it is important, at the risk of repetition, tonote the concurrent findings of fact returned by the NCLT and the A

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ANCLAT as to the PPA being the sole basis for the Corporate Debtor’sexistence. In its judgment dated 29 August 2019, the NCLT held asfollows:

“6. That the Corporate Debtor is reportedly a Special PurposeVehicle (SPV) set up only for generation of solar power in theBState of Gujarat. The Respondent is the only purchaser of powergenerated by the Corporate Debtor’s Plant, therefore, the PPA isvery critical to the “going concern” status of the Corporate Debtor.

…

30... That termination of PPA at this stage may have adverseCconsequences on the status of the Corporate Debtor as “goingconcern” 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 ofDelectricity generated by ‘Astonfield Solar (Gujrat) Pvt. Ltd.’(Corporate Debtor). [T]he electricity line have been given only tothe ‘Gujarat Urja Vikas Nigam Ltd.’ and in terms of an agreement,they are supposed to supply electricity to ‘Gujarat Urja VikasNigam Ltd.’”

E152. As the above excerpts indicate, but for the subsistence ofthe PPA, the Corporate Debtor would no longer remain as a ‘goingconcern’. Differently stated, by virtue of the PPA with the appellantbeing the sheet-anchor of the Corporate Debtor’s business andconsequently of the CIRP, its continuation assumes enormous significanceFfor the successful completion of the CIRP. The termination of the PPAwill have the consequence of cutting the legs out from under the CIRP.

K.2 Validity of the termination of PPA

K.2 Validity of the termination of PPA

153. As discussed in Section “J.3” of this judgement, the broaderquestion of the validity of ipso facto clauses has been the subject matterGof sustained legislative intervention in many jurisdictions. This is anintricate policy determination, for it raises a series of questions aboutstriking the appropriate balance between contractual freedom on theone hand and corporate rescue on the other. We are cognizant that anyrule that we might craft, howsoever narrow, could have a series ofHunintended second order effects, in terms of opening the floodgates for intervention from the NCLT that might impinge upon contractual freedomof the terminating party. Further, the comparative experience also teachesus that, given that the invalidation of ipso facto clauses can unsettle theinterests that contractual relationships are founded upon, some jurisdictionsthat have invalidated such clauses have done so in a cautious, prospectivefashion. This ensures that while the policy of the insolvency law is broughtinto tandem with the global regimes, it does not affect the contractualrights of those parties who could not have reasonably accounted for thischange in position while negotiating their contractual terms. Such anapproach is an evidence and recognition of the harmful effects oncommercial stability that such encroachment into contractual freedomcan generate, even when done legislatively after careful deliberation.

154. The question of the validity/invalidity of ipso facto clauseshas been discussed in a variety of documents over the years, such as:(a) UNCITRAL Guide of 2004; (b) J.J. Irani Committee Report of 2005;(c) Vidhi’s Report of 2018 critiquing the IBC; and (d) IBBI’s Report of2020, which acknowledges the issue of ipso facto clauses in relation togovernment grants. All these materials were available to the membersof the various committees which discussed the IBC. Further, suspensionof contracts during insolvency was specifically allowed under Section22(3) of SICA, which was the erstwhile statutory regime.Section 22 ofthe SICA provided for the suspension of legal proceedings and contracts,of which sub-Section (3) was in the following terms:

“(3) Where an inquiry under section 16 is pending or any schemereferred to in section 17 is under preparation or during the period]of consideration of any scheme under section 18 or where anysuch scheme is sanctioned thereunder, for due implementation ofthe scheme, the Board may by order declare with respect to thesick industrial company concerned that the operation of all or anyof the contracts, assurances of property, agreements, settlements,awards, standing orders or other instruments in force, to whichsuch sick industrial company is a party or which may be applicableto such sick industrial company immediately before the date ofsuch order, shall remain suspended or that all or any of the rights,privileges, obligations and liabilities accruing or arising thereunderbefore the said date, shall remain suspended or shall be enforceablewith such adaptations and in such manner as may be specified bythe Board:

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AProvided that such declaration shall not be made for a periodexceeding two years which may be extended by one year at atime so, however, that the total period shall not exceed sevenyears in the aggregate.”

Parliament would have been conscious of the provision whichBwas adopted in the SICA. Yet, no concrete position has been adopted inrelation to the termination of ipso facto clauses by the legislature underthe IBC. In the absence of an express prohibition by the legislature, itcan be argued that there is no general embargo on the operation of suchclauses if they are part of a valid contract under the Contract Act.

C155. At the same time, we cannot lose sight of the fact that thisCourtis apprised with a novel situation where the ‘going concern’ statusof a corporate debtor will be negated by a termination of its sole contract,on the basis of an ipso facto clause. It is pertinent to note that the IBChas been in effect from 5 August 2016, and has also been amendedmultiple times. Hence, if the ‘going concern’ status of corporate debtorsDwas being affected on a regular basis due to ipso facto clauses (whichare in vogue even in the present contracts similar to the current PPA),then the legislature may, if it considered necessary, have proceeded tolegislate on an explicit position with regard to the operation of ipso factoclauses. However, this Court in the present case is not required to resolveEthe broad question of whether the invalidation/stay of ipso facto clausesin India, generally, is legally permissible. This is a matter which raisescomplex issues of legal policy and a balancing between distinct andconflicting values. Reform will have to take place through the legislativeprocess. The stages through which legislative reform must take place -absolute or incremental – is a matter for legislative change. Our task isFlimited to the issue of deciding whether the NCLT correctly exercisedthe jurisdiction vested in it, in the facts of this case, to stay the terminationof the PPA. In the absence of an explicit stand taken by the legislature,this Court’s intervention in this matter would be guided by ascertainingthe legislative intention from the provisions of the IBC.G156. Section 14 of the IBC reads as follows:

“Moratorium.—(1) Subject to provisions of Sub-sections (2) and(3), on the insolvency commencement date, the AdjudicatingAuthority shall by order declare moratorium for prohibiting all ofthe following, namely—H

(a) the institution of suits or continuation of pending suits orproceedings against the corporate debtor including execution ofany judgment, decree or order in any court of law, tribunal,arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by thecorporate debtor any of its assets or any legal right or beneficialinterest therein;

(c) any action to foreclose, recover or enforce any security interestcreated by the corporate debtor in respect of its property includingany action under the Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002 (54 of2002); (d) the recovery of any property by an owner or lessor wheresuch property is occupied by or in the possession of the corporatedebtor.

Explanation.—For the purposes of this Sub-section, it is herebyclarified that notwithstanding anything contained in any other lawfor the time being in force, a license, permit, registration, quota,concession, clearances or a similar grant or right given by theCentral Government, State Government, local authority, sectoralregulator or any other authority constituted under any other lawfor the time being in force, shall not be suspended or terminatedon the grounds of insolvency, subject to the condition that there isno default in payment of current dues arising for the use orcontinuation 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 corporatedebtor as may be specified shall not be terminated or suspendedor interrupted during moratorium period.

(2-A) Where the interim resolution professional or resolutionprofessional, as the case may be, considers the supply of goods orservices critical to protect and preserve the value of the corporatedebtor and manage the operations of such corporate debtor as agoing concern, then the supply of such goods or services shall notbe terminated, suspended or interrupted during the period ofmoratorium, except where such corporate debtor has not paid A

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Adues arising from such supply during the moratorium period or insuch circumstances as may be specified.

(3) The provisions of Sub-section (1) shall not apply to—

(a) such transactions, agreements or other arrangements as maybe notified by the Central Government in consultation with anyBfinancial sector regulator or any other authority; (b) a surety in a contract of guarantee to a corporate debtor.

(4) The order of moratorium shall have effect from the date ofsuch order till the completion of the corporate insolvency resolutionCprocess:

Provided that where at any time during the corporate insolvencyresolution process period, if the Adjudicating Authority approvesthe resolution plan Under Sub-section (1) of Section 31 or passesan order for liquidation of corporate debtor Under Section 33, theDmoratorium shall cease to have effect from the date of suchapproval or liquidation order, as the case may be.”

157. Section 14 of the IBC lists the conditions under which amoratorium can be imposed by the NCLT in terms of sub-sections (a) to(d). It further clarifies that a license, permit, quota, concession, grant orEright given by a government cannot be suspended or terminated on thegrounds of insolvency, subject to certain exceptions. This clarificationwas added by way of an Explanation to Section 14(1) with effect from28 December 2019. The Report of the Insolvency Law Committee dated20 February 2020, as discussed above, noted that without suchFgovernment grants “the business of the corporate debtor would lose itsvalue and it would not be possible to keep the corporate debtor runningas a going concern during the CIRP period, or to resolve the corporatedebtor as a going concern”[126]. The Report further stated that thetermination of such grants during CIRP on account of ipso facto clausesor non-payment of dues is in contravention of the purpose behindGimposition of moratorium itself.

158. While recommending the inclusion of an explanation, theReport of the Insolvency Law Committee stated that while it was of theview that termination or suspension of such grants is prevented by Section 14, it recommended adding the Explanation “to avoid any scope forambiguity and in exercise of abundant caution”[127], and to ensure that thelegislative intent should be made explicit by introduction of the explanationby way of an amendment to Section 14(1). The Insolvency LawCommittee (in its discussion in the February 2020 Report) took the positionthat Section 14 even in its unamended form, contained an interdict onthe invalidation of government grants, though the language of Section 14did 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 withinthe ambit of Section 14. The Explanation to Section 14(1) was added byParliament to make the position clear, on whether the moratorium underSection 14 included government licenses, grants, permits, quotas andconcessions.

160. Section 14(2) provides that supply of essential goods orservices, as may be specified, cannot be terminated, suspended orinterrupted during the moratorium. Section 14(2A) was added with effectfrom 28 December 2019. It provides that, where the IRP or RP considersthe supply of goods or services critical to protect and preserve the valueof the corporate debtor and manage its operations as a going concern,then the supply of such goods or servicesshall not be terminated, suspendedor interrupted during the period of moratorium, except where suchcorporate debtor has not paid dues arising from suchsupply during themoratorium period or in such circumstances as may be specified. Theorder of moratorium has effect till the culmination of insolvency resolutionprocess.

161. The inclusion of the Explanation to Section 14(1) and Section14(2A) indicates that Parliament has been amending the IBC to ensurethat the status of acorporate debtor as a ‘going concern’ is not hamperedon account of varied situations, which may not have been in contemplationat the time of enacting the IBC. It will be relevant to note that in a recentthree judge Bench decision of this Court in P Mohanraj vs ShahBrothers Ispat Pvt. Ltd.[128], Justice Rohinton Fali Nariman, speakingfor the Court, expounded upon the object of Section 14 in the followingterms:

127 Para 8.7128 Civil Appeal No. 10355 of 2018 decided on 1 March 2021

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A“...the object of a moratorium provision such as Section 14 is tosee that there is no depletion of a corporate debtor’s assets duringthe insolvency resolution process so that it can be kept runningas a going concern during this time, thus maximising value forall stakeholders. The idea is that it facilitates the continued operationof the business of the corporate debtor to allow it breathing spaceBto organise its affairs so that a new management may ultimatelytake over and bring the corporate debtor out of financial sickness,thus benefitting all stakeholders, which would include workmenof the corporate debtor.”

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162. Further, the scheme of the IBC, inter alia, in terms of Sections20(2)(e), 25(1) and definition of resolution plan shows that it aims topreserve the corporate debtor as a ‘going concern’. The relevant portionof Section 20 is extracted below:

“20. Management of operations of corporate debtor as a goingDconcern(1) The interim resolution professional shall make every endeavourto protect and preserve the value of the property of the corporatedebtor and manage the operations of the corporate debtor as agoing concern.

E(2) For the purposes of sub-section (1), the interim resolutionprofessional shall have the authority—

…….to take all such actions as are necessary to keep the corporatedebtor as a going concern.”FIt 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 topreserve and protect the assets of the corporate debtor, includingGthe continued business operations of the corporate debtor.”Resolution plan is defined under Section 5(26) of the IBC asfollows:

“(26) “resolution plan” means a plan proposed by 3[resolutionapplicant] for insolvency resolution of the corporate debtor as aHgoing concern in accordance with Part II; Explanation.—For the removal of doubts, it is hereby clarifiedthat a resolution plan may include provisions for the restructuringof the corporate debtor, including by way of merger, amalgamationand demerger;”

163. Although various provisions of the IBC indicate that theobjective of the statute is to ensure that the corporate debtor remains a‘going concern’, there must be a specific textual hook for the NCLT toexercise its jurisdiction. The NCLT cannot derive its powers from the‘spirit’ or ‘object’ of the IBC. Section 60(5)(c) of the IBC vests theNCLT with wide powers since it can entertain and dispose of any questionof fact or law arising out or in relation to the insolvency resolution process.We hasten to add, however, that the NCLT’s residuary jurisdiction, thoughwide, is nonetheless defined by the text of the IBC. Specifically, theNCLT cannot do what the IBC consciously did not provide it the powerto do.

164. In this case, the PPA has been terminated solely on the groundof insolvency, which gives the NCLT jurisdiction under Section 60(5)(c)to adjudicate this matter and invalidate the termination of the PPA as it isthe forum vested with the responsibility of ensuring the continuation ofthe insolvency resolution process, which requires preservation of theCorporate Debtor as a going concern. In view of the centrality of thePPA to the CIRP in the unique factual matrix of this case, this Courtmust adopt an interpretation of the NCLT’s residuary jurisdiction whichcomports with the broader goals of the IBC. Sir P.B. Maxwell in hiscommentary, On Interpretation of Statutes[129], has emphasized that aprovision should be given an harmonious interpretation which comportswith the intention of the Legislature. The commentary provides:

“The rule of strict construction, however, whenever invoked,comes attended with qualifications and other rules no less important,and it is by the light which each contributes that the meaning mustbe determined. Among them is the rule that that sense of thewords is to be adopted which best harmonises with thecontext and promotes in the fullest manner the policy andobject of the legislature. The paramount object, inconstruing penal as well as other statutes, is to ascertain A

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165. Given that the terms used in Section 60(5)(c) are of wideimport, as recognized in a consistent line of authority, we hold that theCNCLT was empowered to restrain the appellant from terminating thePPA. However, our decision is premised upon a recognition of thecentrality of the PPA in the present case to the success of the CIRP, inthe factual matrix of this case, since it is the sole contract for the sale ofelectricity which was entered into by the Corporate Debtor. In doing so,Dwe reiterate that the NCLT would have been empowered to set asidethe termination of the PPA in this case because the termination tookplace solely on the ground of insolvency. The jurisdiction of the NCLTunder Section 60(5)(c) of the IBC cannot be invoked in matters where atermination may take place on grounds unrelated to the insolvency ofthe corporate debtor. Even more crucially, it cannot even be invoked inEthe event of a legitimate termination of a contract based on an ipsofacto clause like Article 9.2.1(e) herein, if such termination will not havethe effect of making certain the death of the corporate debtor. As such,in all future cases, NCLT would have to be wary of setting aside validcontractual terminations which would merely dilute the value of theFcorporate debtor, and not push it to its corporate death by virtue of itbeing the corporate debtor’s sole contract (as was the case in this matter’sunique factual matrix).

166. The terms of our intervention in the present case are limited.Judicial intervention should not create a fertile ground for the revival ofGthe regime under section 22 of SICA which provided for suspension ofwide-ranging contracts. Section 22 of the SICA cannot be brought inthrough the back door. The basis of our intervention in this case arisesfrom the fact that if we allow the termination of the PPA which is thesole contract of the Corporate Debtor, governing the supply of electricitywhich it generates, it will pull the rug out from under the CIRP, makingHthe corporate death of the Corporate Debtor a foregone conclusion.

K.3 Dialogical Remedies

167. As indicated above in section “J.3” of this judgment, wewould like to take this opportunity to note the desirability of Parliamentproviding its legislative vision on the broader validity of ipso facto clauses.We have outlined some of the complex considerations in paragraph 138.

168. In the past, this Court has adopted such dialogical remedies– where the Court engages in a dialogue in its judgments with the othertwo organs of government so that each organ can best perform itsconstitutionally assigned role. To illustrate, in its judgement in S. Sukumarvs The Secretary, Institute of Chartered Accountants of India[130],a two judge Bench of this Court, speaking through Justice Adarsh KumarGoel, held as follows:

“53.1.The Union of India may constitute a three memberCommittee of experts to look into the question whether and towhat extent the statutory framework to enforce the letter andspirit of Sections 25 and 29 of the CA Act and the statutory Codeof Conduct for the CAs requires revisit so as to appropriatelydiscipline and regulate MAFs. The Committee may also considerthe need for an appropriate legislation on the pattern of SarbanesOxley Act, 2002 and Dodd Frank Wall Street Reform andConsumer Protection Act, 2010 in US or any other appropriatemechanism for oversight of profession of the auditors. Questionwhether on account of conflict of interest of auditors withconsultants, the auditors’ profession may need an exclusiveoversight body may be examined. The Committee may examinethe Study Group and the Expert Group Reports referred to above,apart from any other material. It may also consider steps foreffective enforcement of the provisions of the FDI policy and theFEMA Regulations referred to above. It may identify the remedialmeasures which may then be considered by appropriate authorities.The Committee may call for suggestions from all concerned. SuchCommittee may be constituted within two months. Report of theCommittee may be submitted within three months thereafter. TheUOI may take further action after due consideration of suchreport.”

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A169. Conscious as we are of the fact that this case is aboutstatutory and not constitutional interpretation, we think it would be appositeto quote the following observations by Anne Meuwese and MarnixSnel[131]:

“The core of constitutional dialogue between the judiciary and theBlegislature is that they engage in a conversation about constitutionalmeaning, in which both actors (should) listen in order to learnfrom each other’s perspectives, which can then lead to modifyingtheir own views accordingly... In this way, ‘dialogue’ representsthe ‘middle way between judicial supremacy on the one hand,and legislative supremacy on the other’.C170. The Court is at its heart, an institution which responds toconcrete cases brought before it. It is not within its province to engraftinto law its views as to what constitutes good policy. This is a matterfalling within the legislature’s remit. Equally, when presented with a novelquestion on which the legislature has not yet made up its mind, we do notDthink this Court can sit with folded hands and simply pass the buck ontothe Legislature. In such an event, the Court can adopt an interpretation– a workable formula – that furthers the broad goals of the concernedlegislation, while leaving it up to the legislature to formulate acomprehensive and well-considered solution to the underlying problem.ETo aid the legislature in this exercise, this Court can put forth its bestthinking as to the relevant considerations at play, the position of lawobtaining in other relevant jurisdictions and the possible pitfalls that mayhave to be avoided. It is through the instrumentality of an inter-institutionaldialogue that the doctrine of separation of powers can be operationalizedin a nuanced fashion. It is in this way that the Court can tread the middleFpath between abdication and usurpation[132].

L NCLAT’s decision on the issue of liquidation

171. NCLT in paragraph 35 of its order dated 29 August 2019upheld the right of the appellant to terminate the PPA, in case a liquidation G

131 Anne Meuwese and Marnix Snel, ‘Constitutional Dialogue’: An Overview, UtrechtLaw Review, vol. 9, issue 2, p. 128 [March, 2013].

132 This phrase is taken from - O Ferraz, ‘Between Usurpation and Abdication? TheRight to Health in the Courts of Brazil and South Africa’ in Oscar Vilhena Vieira,Upendra Baxi, Frans Viljoen (eds), Transformative Constitutionalism: Comparing theHApex Courts of Brazil, India and South Africa (PULP, Pretoria 2013) 375, 393.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.[DR. DHANANJAYA Y CHANDRACHUD, J.]

process is initiated against the Corporate Debtor. The appellant hadneither challenged this issue in its appeal before NCLAT nor was itraised by any other party. However, the NCLAT deleted the observationsmade by the NCLT in paragraph 35, thereby holding that the appellantcannot terminate the PPA even if the Corporate Debtor goes intoliquidation. Since no pleadings or prayers were made in relation toparagraph 35 of NCLT’s order, NCLAT could not have considered thisissue as a subject matter of the appeal. We hold that the NCLAT exceededits jurisdiction by considering the issue of liquidation. In the absence ofany liquidation proceedings initiated against the Corporate Debtor, weare not required to consider the issue of whether the appellant would beentitled to terminate the contract in such a context. Such a discussionwould be academic in nature, and beyond the scope of this appeal.

M Appellant’s liability to pay for the electricity injected bythe Corporate Debtor

172. The appellant had served a notice of termination to theCorporate Debtor with effect from 7 June 2019, though the terminationcould not be carried out due to the operation of interim protection whichhad been granted to the respondents by the NCLT. It was contended onbehalf of the appellant that it cannot be made to suffer on the ground oferroneous injunctions granted by the NCLT and NCLAT, due to which ithad to pay a higher tariff because it could not terminate the PPA withthe Corporate Debtor and procure electricity at a cheaper tariff fromanother power producer. Since we have set aside the termination of thePPA based on the reasons discussed above, the appellant is liable to payfor the electricity procured after 7 June 2019. Consequently, theappellant’s claim in respect of compensation for the termination of thePPA in terms of Article 9.3.1 of the PPA does not arise because it isrestrained from terminating the PPA. Hence, this contention of theappellant has been rendered otiose.

N Conclusion

173. In conclusion, we hold that:

(i) The NCLT/NCLAT could have exercised jurisdiction undersection 60(5)(c) of the IBC to stay the termination of thePPA by the appellant, since the appellant sought to terminatethe PPA under Article 9.2.1(e) onlyon account of the CIRPbeing initiated against the Corporate Debtor; A

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A(ii)The NCLT/NCLAT correctly stayed the termination of thePPA by the appellant, since allowing it to terminate the PPAwould certainly result in the corporate death of theCorporate Debtor due to the PPA being its sole contract;and B(iii)We leave open the broader question of the validity/invalidityof ipso facto clauses in contracts for legislative intervention.

Consequently, for the above reasons we find no merit in this appealand it is accordingly dismissed.

174. Pending application(s), if any, stand disposed of.C

Ankit Gyan

Appeal dismissed.

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