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

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A “30. …the CIR process in the instant case was triggered on 20.11.2018, which was further extended by 90 days on 16.05.2019 and the default notices were issued by the Respondent Company on 01.05.2019. That termination of PPA at this stage may have adverse consequences on the status of the Corporate Debtor as “going concern” and eventually, may jeopardise the entire CIR B Process. While elaborating on the objectives of IBC as enshrined in the Preamble, the Hon’ble Supreme Court, had held in the matter of Swiss Ribbons Pvt. Ltd. v Union of India, 2019 SCC Online SC 73: “ ....... What is interesting to note is that Preamble does not, C in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plan submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern”.”

46Copy pinpoint46. 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 the view that to keep the ‘Corporate Debtor’ a going concern, which is generating electricity and supplying only to ‘Gujarat Urja Vikas E Nigam Ltd.’, the Adjudicating Authority rightly asked ‘Gujarat Urja Vikas Nigam Ltd.’ not to terminate the ‘Power Purchase Agreement’ dated 30th April, 2010. We may make it clear that the ‘Gujarat Urja Vikas Nigam Limited’, being purchaser of the electricity cannot terminate the ‘Power F Purchase Agreement’ solely on the ground that the ‘Corporate Insolvency Resolution Process’ has been initiated against ‘Astonfield Solar (Gujrat) Pvt. Ltd.’ (Corporate Debtor) which is generating electricity and supplying it and there is no default in supplying electricity and during the ‘Corporate Insolvency G Resolution Process’...” However, like the NCLT, the NCLAT did not give any specific finding on whether it or the NCLT can exercise its jurisdiction under section 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 of the jurisdiction that can be exercised under Section 60(5)(c) of the IBC. H

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 659 [DR. DHANANJAYA Y CHANDRACHUD, J.]

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

47Copy pinpoint47. It has been submitted before us on behalf of the appellant that the NCLT does not have any inherent powers, and its exercise of jurisdiction is circumscribed by the provisions of the IBC. As such, it does not have the jurisdiction to entertain all disputes or all issues related to the Corporate Debtor. On the other hand, the respondents have made B a limited submission that while the NCLT may not have jurisdiction to adjudicate upon contractual disputes that arise independent of the insolvency of the Corporate Debtor, it has the sole jurisdiction to decide a dispute that arises from or relates to the insolvency of the Corporate Debtor or where the property of the Corporate Debtor (in this case its rights under the PPA) is sought to be taken away on the ground of insolvency. For their argument, the respondents have relied on Section 60(5)(c) to submit that NCLT is vested with a wide jurisdiction to consider questions of law or fact “arising out of” or “in relation to” insolvency resolution proceedings.

48Copy pinpoint48. In varying contexts, this Court has expansively construed the expressions “relating to” and “arising out of” in its previous decisions. The respondents have relied on some of these judgments to buttress their submissions in regard to the width of Section 60(5)(c). In Renusagar Power Co. Ltd. vs General Electric Company39, a two judge Bench while interpreting the words “arising out of” or “related to” in an arbitration clause held as follows, speaking through Justice V.D. Tulzapurkar “25…(2) Expressions such as “arising out of” or “in respect of” or “in connection with” or “in relation to” or “in consequence of” or “concerning” or “relating to” the contract are of the widest amplitude and content..”

49Copy pinpoint49. In Mansukhlal Dhanraj Jain vs Eknath Vithal Ogale40, another two judge Bench of this Court emphasized the comprehensive nature and wide sweep of the term “relating to” in the context of the Small Causes Courts Act, 1887. Justice SB Majumdar held: G “16. It is, therefore obvious that the phrase “relating to recovery of possession” as found in Section 41(1) of the Small Cause Courts

39 (1984) 4 SCC 679 40 (1995) 2 SCC 665 H

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A Act is comprehensive in nature and takes in its sweep all types of suits and proceedings which are concerned with the recovery of possession of suit property from the licensee and, therefore, suits for permanent injunction restraining the defendant from effecting forcible recovery of such possession from the licensee-plaintiff would squarely be covered by the wide sweep of the said phrase. B Consequently in the light of the averments in plaints under consideration and the prayers sought for therein, on the clear language of Section 41(1), the conclusion is inevitable that these suits could lie within the exclusive jurisdiction of Small Cause Court, Bombay and City Civil Court would have no jurisdiction to entertain such suits.”

50Copy pinpoint50. In Doypack System (P) Ltd. vs Union of India41,a two judge Bench held that the expression “in relation to” is broad and is equivalent to the expressions “concerning with” and “pertaining to”, with the latter also being expansive in ambit. Justice Sabyasachi Mukharji (as the learned Chief Justice of India then was) observed: “50. The expression “in relation to” (so also “pertaining to”), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both direct significance as well as indirect significance depending on the context [internal citation omitted]. Assuming that the investments in shares and in lands do not form part of the undertaking but are different subject matters, even then these would be brought within the purview of the vesting by reason of the above expressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 F where it is stated that the term “relate” is also defined as meaning to bring into association or connection with. It has been clearly mentioned that “relating to” has been held to be equivalent to or synonymous with as to “concerning with” and “pertaining to”. The expression “pertaining to” is an G expression of expansion and not of contraction.” (emphasis supplied)

51Copy pinpoint51. While the phrases “arising out of” and “relating to” have been given an expansive interpretation in the above cases, words can have 41 H (1988) 2 SCC 299

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 661 [DR. DHANANJAYA Y CHANDRACHUD, J.]

different meanings depending on the subject or context. Words are after all, a vehicle for communicating ideas, thoughts and concepts. A one- size-fits-all analogy may not always hold good when we construe similar words in entirely distinct settings. Justice G.P. Singh in his authoritative commentary on the interpretation of statutes, Principles of Statutory Interpretation, has noted that the same words used in different sections of the same statute or used at different places in the same clause or section can have different meanings42. Therefore, it is necessary to bear in mind the context in which the phrases have been used. Justice G.P. Singh has stated in his commentary that43: “When the question arises as to the meaning of a certain provision in a statute, it is not only legitimate but proper to read that provision in its context. The context here means, the statute as a whole, the previous state of the law, other statutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy.”

52Copy pinpoint52. Bearing in mind the above caution, it may be of relevance to discuss the interpretation of similar provisions in other insolvency laws. Textually, the provisions of Section 60(5) bear a flavor of resemblance to the provisions which were contained in sub-Section 2 of Section 446 44 of the CA 1956, which correspond now to Section 28045 of CA 2013. E 42 st G.P. Singh, Principles of Statutory Interpretation (1 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 contained in 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 against the company (including claims by or against any of its branches in India); (c) any F application made under section 391 by or in respect of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) G Act, 1960.” 45 Section 280 of the CA 2013 provides as follows: “280. Jurisdiction of Tribunal.— The Tribunal shall, notwithstanding anything contained in 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 against the company, including claims by or against any of its branches in India; (c) any application made under section 233; (d) any scheme submitted under section 262; (e) H

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53Copy pinpoint53. A textual comparison of the provisions of Section 60(5) of the IBC with Section 446(2) of CA 1956 would reveal some similarities of expression, with textual variations. For the purposes of the present proceedings, it suffices to note that clause (c) of Section 60(5) confers jurisdiction on the NCLT to entertain or dispose of “any question of priorities or any question of law or facts arising out of or in relation to B the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the Code”. Section 446(2)(d) of CA 1956 and section 280(d) of CA 2013 use the expression any question of priorities or any other question whatsoever whether of law or fact. These words bear a striking resemblance to the provisions of section 60(5) (c) of the C IBC. But textually similar language in different enactments has to be construed in the context and scheme of the statue in which the words appear. The meaning and content attributed to statutory language in one enactment cannot in all circumstances be transplanted into a distinct, if not, alien soil. For, it is trite law that the words of a statute have to be construed in a manner which would give them a sensible meaning which accords with the overall scheme of the statute, the context in which the words are used and the purpose of the underlying provision. Therefore, while construing of section 60(5), a starting point for the analysis must be to decipher Parliamentary intent based on the object underlying the enactment of the IBC. The Statement of Objects and Reasons leading up to the enactment to the IBC conveys a strong sense of the intent of the legislature. According to it: “There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special F Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial G any question of priorities or any other question whatsoever, whether of law or facts, including those relating to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations or in any matter arising out of, or in relation to winding up of the company, whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made or such scheme has been submitted, or is submitted, before or after the H order for the winding up of the company is made.”

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 663 [DR. DHANANJAYA Y CHANDRACHUD, J.]

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

2. The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. E

3. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The F Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector G regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. H

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A The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code.”

54Copy pinpoint54. The salient aspects which emerge from the state of the law prior to the enactment to the IBC can be formulated thus: B (i) There was a multiplicity of legislation dealing with insolvency and bankruptcy; (ii) Multiplicity of statutes led to the creation of multiplicity of fora; (iii) Provisions relating to insolvency and bankruptcy of C companies were embodied in the SICA, the Recovery of Debt Due to Banks and Financial Institutions Act, 199346, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 200247 and the CA 2013; D (iv) The above statutes provided for the establishment of multiplicity of adjudicating bodies including the BIFR, Debt Recovery Tribunal48, NCLT and the Appellate Tribunal; (v) While the liquidation of companies was adjudicated upon by the High Courts exercising company jurisdiction, individual insolvency was governed by the Presidency- Towns Insolvency Act, 1909 and the PIA; (vi) The multiplicity of statute and fora in the regime prior to the IBC led to a framework for insolvency and bankruptcy which was inadequate and ineffective, and resulted in undue delay; (vii) The underlying purpose and object of enacting the IBC was to ensure a timely resolution of insolvency and bankruptcy which would: (a) Maximize of the value of assets; G (b) Promote entrepreneurship; (c) Facilitate the availability of credit; 46 “RDDB” 47 “SARFAESI” 48 H “DRT”

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

(d) Support the development of credit markets; and A (e) Balance interests of all stake-holders. (viii) Bearing the above aspects in mind, the IBC, which is a consolidating and amending statute, came to be enacted; and B (ix) The IBC, in a clear departure from the past, separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects.

55Copy pinpoint55. In the decision of this Court in Swiss Ribbons (supra), where the challenge was to the constitutional validity of some provisions of the C IBC, the judgment by Justice RF Nariman contains a section titled “Prologue: the pre-existing state of the law”. The problems which arise from multiplicities of statutes and fora in the erstwhile regime were noticed in the report of the Bankruptcy Law Reforms Committee (2015) (“BLRC”): D “14. …The current state of the bankruptcy process for firms is a highly fragmented framework. Powers of the creditor and the debtor under insolvency are provided for under different Acts… It is problematic that these different laws are implemented in different judicial fora. Cases that are decided at the tribunal/BIFR E often come for review to the High Courts. This gives rise to two types of problems in implementation of the resolution framework. The first is the lack of clarity of jurisdiction. In a situation where one forum decides on matters relating to the rights of the creditor, while another decides on those relating to the rights of the debtor, the decisions are readily appealed against and either stayed or overturned in a higher court. Ideally, if economic value is indeed to be preserved, there must be a single forum that hears both sides of the case and makes a judgment based on both. A second problem exacerbates the problems of multiple judicial fora. The fora entrusted with adjudicating on matters relating to insolvency and bankruptcy may not have the business or financial expertise, information or bandwidth to decide on such matters. This leads to delays and extensions in arriving at an outcome, and increases the vulnerability to appeals of the outcome…a matrix of fragmented and contrary outcomes,…” H

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

56Copy pinpoint56. The BLRC noted that speed is of the essence for the working of a bankruptcy code. From the point of the view of creditors, a good realization can be obtained when a firm is sold as a going concern. The decisions of this Court in Madras Petrochem 49 , Innoventive Industries 50 and Arcelor Mittal (India) (Private) Limited 51 emphatically advert to the failure of the statutory resolution machinery in the regime prior to the IBC. It was in this backdrop that the IBC was enacted to provide for a timely resolution of the CIRP. The primary focus of the IBC is to ensure the revival and continuation of the corporate debtor. The interests of the corporate debtor have been bifurcated and separated from the interests of persons in management. The timelines which are prescribed in the IBC are intended to ensure the resuscitation of the corporate debtor.

57Copy pinpoint57. The enactment of the IBC is in significant senses a break from the past. While interpreting the provisions of the IBC, care must be taken to ensure that the regime which Parliament found deficient and which was the basic reason for the enactment of the new legislation is not brought in through the backdoor by a process of disingenuous legal interpretation. However, this is not to say that the interpretation given to the statutory provisions that existed prior to the enactment IBC is to be rejected in toto. The interpretation given to such statutory provisions that are textually similar to Section 60(5)(c) may be relevant, provided that such interpretation is in tandem with the objective of enacting the IBC, that is, inter alia, avoidance of multiplicity of fora and a timely resolution of the insolvency process.

58Copy pinpoint58. In Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar52, a three judge Bench of this Court held that the object of Section 446(2) of CA 1956 was to enlarge the jurisdiction of the Company Court to avoid a multiplicity of proceedings, delay and expensive litigation. The Court G was 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” H 52 (1984) 4 SCC 657

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 667 [DR. DHANANJAYA Y CHANDRACHUD, J.]

“8..Sub-Section (2) was introduced to enlarge the jurisdiction of the court winding up the company so as to facilitate the disposal of winding-up proceedings…To save the Company which is ordered to be wound up from this prolix and expensive litigation and to accelerate the disposal of winding-up proceedings, the Parliament devised a cheap and summary remedy conferring jurisdiction on the court winding up the company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2) and therefore, it must receive such construction at the hands of the court as would advance the object and at any rate not thwart it”

59Copy pinpoint59. Section 4(1) of the PIA used similar words in relation to the jurisdiction of the insolvency court as Section 60(5) of the IBC. Section 4(1) of the PIA provided: “Section 4 - Power of Court to decide all questions arising in insolvency D (1) Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.” (emphasis supplied)

60Copy pinpoint60. Another threejudge Bench of this Court, in Thampanoor Ravi vs Charupara Ravi53, held that a High Court does not have the jurisdiction to determine whether a person is an undischarged insolvent in an election petition filed under the Representation of People Act, 1951, in view of the exclusive jurisdiction conferred upon an insolvency court constituted under the PIA. Justice S. Rajendra Babu, held: “11…..The Insolvency Act is a complete code and determination of all questions regarding insolvency including a question as to whether (1) a person is an insolvent or not, or (2) an insolvent be discharged or not and subject to what conditions, can be decided by the court constituted under that Act alone….. 53 (1999) 8 SCC 74 H

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A 13. In the present case, as we have explained earlier the scheme of the provisions of the Insolvency Act, the exclusive jurisdiction to deal with any question relating to insolvency could be adjudicated upon only by the court constituted under that Act. In such a situation, it would not be possible to hold that the High Court had, while dealing with an election petition, jurisdiction to B decide a question as to whether a person is an undischarged insolvent or not. Admittedly, in this case, there is no such adjudication. Hence the High Court could not declare the appellant to be an ‘undischarged insolvent’.”

61Copy pinpoint61. Section 45-B of the BRA uses language similar to Section C 60(5) of the IBC. Section 45-B of the BRA provides: “Section 45B - Power of High Court to decide all claims in respect of banking companies The High Court shall, save as otherwise expressly provided in section 45C, have exclusive jurisdiction to entertain and decide any claim made by or against a banking company which is being wound up (including claims by or against any of its branches in India) or any application made under section 39of the Companies Act, 1956 by or in respect of a banking company or any question of priorities or any other question whatsoever, whether of law or fad [sic fact]which may relate to or arise in the course of the winding up of a banking company, whether such claim or question has arisen or arises or such application has been made or is made before or after the date of the order for the winding up of the banking company or before or after the commencement of the Banking Companies (Amendment) Act, 1953 (52 of 1953).” (emphasis supplied)

62Copy pinpoint62. In Dhirendra Chandra Pal vs Associated Bank of Tripura Ltd.54, a four judge Bench of this Court examined the scope of Section 45-B.Justice B. Jagannadhas observed: G “4. It is to be remembered that section 45-B is not confined to claims for recovery of money or recovery of property, movable or immovable, but comprehends all sorts of claims which relate to or arise in the course of winding up.”

54 H AIR 1955 SC 213

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 669 [DR. DHANANJAYA Y CHANDRACHUD, J.]

63Copy pinpoint63. The above judgements were undoubtedly in relation to the A jurisdiction of courts in relation to winding up and insolvency proceedings under distinct statutes. But considerations such as avoiding multiplicity of fora, speedy disposal and litigation costs would also be germane to the establishment of an exclusive body under the IBC to adjudicate matters arising from or in relation to the insolvency resolution process. B

64Copy pinpoint64. In this context, it would be useful to trace the history of the NCLT and NCLAT, which are empowered to deal with all issues relating to insolvency, specifically with the aim of avoiding a multiplicity of fora. The Justice Eradi Committee was constituted by the Department of Company Affairs to make recommendations on reforming the existing law on winding up of companies to increase transparency and reduce delays in the liquidation of companies. The Report of the High Level Committee on Law relating to Insolvency and Winding Up of Companies (2000) stated that: “…there is a need for establishing a National Tribunal as a specialized agency to deal with matters relating to rehabilitation, revival and winding up of companies. With a view to avoiding multiplicity of fora, the National Tribunal. should be conferred with jurisdiction and powers to deal with matters under Companies Act, 1956 presently exercised by the Company Law Board; jurisdiction, power and authority relating to winding up of companies vested with High Courts and power to consider rehabilitation and revival of companies presently vested in the BIFR. This suggestion of the Committee will involve amending the provisions of Part VU of Companies Act, 1956 besides repeal of Sick Industrial Companies (Special Provisions) Act, 1985 and amending section F 10E of the Companies Act relating to the present Company Law Board. All the existing cases pending with the High Courts and the Company Law Board may be transferred to the Tribunal and the pending references before BIFR/ AAFIR shall abate.” (emphasis supplied) G

65Copy pinpoint65. The above report was discussed in the decision of this Court in Union of India vs R. Gandhi, President, Madras Bar Association55. A Constitution Bench noted that the recommendations of the Committee 55 (2010) 11 SCC 1 H

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A were accepted by the Government, which established the NCLT and NCLAT to transfer the functions being performed by High Courts, Company Law Board, BIFR and Appellate Authority for Industrial and Financial Reconstruction to a single forum to avoid long drawn litigation before multiple fora. Justice R.V. Raveendran observed: B “3. (…) The Committee found that multiplicity of court proceedings is the main reason for the abnormal delay in dissolution of companies. It also found that different agencies dealt with different areas relating to companies, that Board for Industrial & Financial Reconstruction (BIFR) and Appellate Authority for Industrial & Financial C Reconstruction (AAIFR) dealt with references relating to rehabilitation and revival of companies, High Courts dealt with winding-up of companies and Company Law Board (CLB) dealt with matters relating to prevention of oppression and mismanagement etc. Considering the laws on corporate insolvency prevailing in industrially advanced countries, the Committee recommended various amendments in regard to the provisions of Companies Act, 1956 for setting-up of a National Company Law Tribunal which will combine the powers of the CLB under the Companies Act, 1956, BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as also the jurisdiction and powers relating to winding-up presently vested in the High Courts.

4. It is stated that the recommendations of the Eradi Committee were accepted by the Government and Company (Second Amendment) Act, 2002 was passed providing for establishment of NCLT and NCLAT to take-over the functions which are being performed by CLB, BIFR, AAIFR and the High Courts. It is submitted that the establishment of NCLT and NCLAT will have the following beneficial effects: (i) reduce the pendency of cases and reduce the period of winding-up process from 20 to 25 years to about two years; (ii) avoid multiplicity of litigation before various fora (High Courts and quasi-judicial Authorities like CLB, BIFR and AAIFR) as all can be heard and decided by NCLT; (iii) the appeals will be streamlined with an appeal provided against the order of the NCLT to an appellate Tribunal (NCLAT) exclusively dedicated to matters arising from NCLT, with a further appeal to H

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

66Copy pinpoint66. The IBC was a reform which was distilled through many committee reports, most importantly the Report of the BLRC, which recommended that the earlier institutional framework relating to the winding up and liquidation of the companies should continue under the IBC. The Report stated: C “4.2.2 Territorial jurisdiction … Further, following from current law, once a liquidation or bankruptcy order has been made, leave of the NCLT or DRT would be necessary to proceed with any pending suit or proceeding or to file any fresh suit or proceeding by or against the debtor firm or individual. This will ensure the sanctity of the liquidation or bankruptcy process. The NCLT or DRT should also have jurisdiction to entertain and dispose of any pending or fresh suit or legal proceeding by or against the debtor company or individual; question of priorities or any other question, whether of law or facts, in relation to the liquidation or bankruptcy. By bringing all litigations that may have a monetary impact on the economic value of debtor firm or individual’s assets within the jurisdiction of the NCLT, the liquidation or bankruptcy process will be made streamlined and efficient… 4.21 Tribunals Jurisdiction on firm insolvency and liquidation Under Companies Act, 2013, the National Company Law Tribunal G (NCLT) has jurisdiction over the winding up and liquidation of companies. NCLAT has been vested with the appellate jurisdiction over NCLT. Similarly, the Limited Liability Partnership Act, 2008 also confers jurisdiction to NCLT for dissolution and winding up of limited liability partnerships, while appellate jurisdiction is vested H

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A with NCLAT. The Committee recommends continuing with this existing institutional arrangement. NCLT should have jurisdiction over adjudications arising out of firm insolvency and liquidation, while NCLAT will have appellate jurisdiction on the same.” B (emphasis supplied)

67Copy pinpoint67. The institutional framework under the IBC contemplated the establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora. In the absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the corporate debtor would have to file and/or defend multiple proceedings in different fora. These proceedings may cause undue delay in the insolvency resolution process due to multiple proceedings in trial courts and courts of appeal. A delay in completion of the insolvency proceedings would diminish the value of the debtor’s assets and hamper the prospects of a successful reorganization or liquidation. For the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner. Pursuing this theme in Innoventive (supra) this court observed that “one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process”. The principle was reiterated in Arcelor Mittal (supra) where this court held that “the non-obstante Clause in Section 60(5) is designed for a different purpose: to ensure that the NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings”. Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor. However, in doing do, we issue a note of caution to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 673 [DR. DHANANJAYA Y CHANDRACHUD, J.]

68Copy pinpoint68. It is appropriate to refer to the observations in the Report of A the BLRC, wherein it noted the role of the NCLT, as the Adjudicating Authority 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 with all applicable laws is controlled by the adjudicating authority. The B adjudicating authority gives powers to the insolvency professional to take appropriate action against the directors and management of the entity, with recommendations from the creditors committee. All material actions and events during the process are recorded at the adjudicating authority. The adjudicating authority can assess C and penalise frivolous applications. The adjudicator hears allegations of violations and fraud while the process is on. The adjudicating authority will adjudicate on fraud, particularly during the process resolving bankruptcy. Appeals/actions against the behaviour of the insolvency professional are directed to the Regulator/Adjudicator.” D As such, it is important to remember that the NCLT’s jurisdiction shall always be circumscribed by the supervisory role envisaged for it under the IBC, which sought to make the process driven by trained resolution professionals.

69Copy pinpoint69. In the present case, the PPA was terminated solely on the ground of insolvency, since the event of default contemplated under Article 9.2.1(e) was the commencement of insolvency proceedings against the Corporate Debtor. In the absence of the insolvency of the Corporate Debtor, there would be no ground to terminate the PPA. The termination is not on a ground independent of the insolvency. The present dispute solely arises out of and relates to the insolvency of the Corporate Debtor.

70Copy pinpoint70. Ms Ramachandran and Mr Diwan have contended that CA 1956, PIA and BRA do not contain any provisions equivalent to Sections 25(2)(b) and 18(f)(vi) of the IBC which empower the RP to exercise rights for the benefit of the Corporate Debtor in certain adjudicatory proceedings. They submit that Section 60(5)(c) of the IBC must be read in consonance with Sections 25(2)(b) and 18(f)(iv), which would be rendered nugatory if NCLT becomes the exclusive forum for the enforcement of all the Corporate Debtor’s rights. Section 25(2)(b) of the IBC provides: H

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A “Section 25 - Duties of resolution professional (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:— …. B (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;” Section 18(f)(vi) provides: “Section 18 - Duties of interim resolution professional C The interim resolution professional shall perform the following duties, namely:- …… (f) take control and custody of any asset over which the corporate D debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including— ……. E (vi) assets subject to the determination of ownership by a court or authority;”

71Copy pinpoint71. We are inclined to agree with the submission made by Mr Singh that merely because a duty has been imposed on the IRP or the RP, it does not mean that the jurisdiction of the NCLT is circumscribed under section 60(5)(c) of the IBC. In Embassy Property (supra), it was argued that the term “property” under Section 3(27) of the IBC includes a mining lease granted by government and the lRP is duty bound under Section 20(1) of the IBC to preserve the value of the property of the Corporate Debtor. Hence, the submission was that the RP can invoke the jurisdiction of the NCLT to adjudicate upon a dispute relating to non- extension of the lease. However, Justice V. Ramasubramanian, speaking for this Court, observed that “the said argument cannot be sustained for the simple reason that the duties of a resolution professional are entirely different from the jurisdiction and powers of NCLT”56. 56 H Embassy Property (supra), para 39.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 675 [DR. DHANANJAYA Y CHANDRACHUD, J.]

72Copy pinpoint72. Therefore, we hold that the RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jurisdiction of the NCLT under the IBC. However, since the dispute in the present case has arisen solely on the ground of the insolvency of the Corporate Debtor, NCLT is empowered to adjudicate this dispute under Section 60(5)(c) of the IBC. I.2 Jurisdiction of NCLT and GERC C

73Copy pinpoint73. It has been urged on behalf of the appellant that in terms of Article 10.4 of the PPA, GERC is entitled to entertain the disputes relating to the PPA.

74Copy pinpoint74. Our attention has also been drawn to Section 86(1)(f) of the Electricity Act, which provides that GERC shall discharge the function D of adjudicating “the disputes between the licensees, and generating companies and to refer any dispute for arbitration”. It has been submitted that, therefore, any issue in relation to the PPA must be raised before the GERC and not the NCLT.

75Copy pinpoint75. Reliance has also been placed on the judgement of this Court E in Embassy Property (supra), where this Court held that the NCLT and NCLAT did not have jurisdiction over a dispute arising under the Mines and Minerals (Development and Regulation) Act, 1957, in relation to the refusal of the State of Karnataka to extend a mining lease. The primary consideration which weighed with this Court while coming to its decision was that NCLT cannot have jurisdiction on matters of public law. This Court held: “37….Clause (c) of Sub-section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase “arising out of or in relation to the insolvency resolution” appearing in Clause (c) of Sub-section (5)...” H

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A In the present case the decision to terminate the PPA has not been taken by any governmental or statutory authority acting within the domain of its public law functions. The decision has been simply taken by a contracting party solely on account of the initiation of insolvency proceedings against the Corporate Debtor in terms of an agreement between the parties. B

76Copy pinpoint76. Ms Ramachandran and Mr Diwan have also relied on the judgment of this Court in Abhilash Lal (supra), which concerned taking the approval of the Municipal Corporation of Greater Mumbai (“MCGM”) for implementing a resolution plan. The Corporate Debtor in that case had committed defaults prior to the initiation of the CIRP, in C relation to its obligation to construct a hospital on a land owned by the MCGM, subsequent to which a lease deed was to be executed. It had also apparently failed to pay annual lease rentals. In this context, Justice S. Ravindra Bhat, speaking for this Court held that: “47….. Section 238 cannot be read as overriding the MCGM’s D right – indeed its public duty to control and regulate how its properties are to be dealt with.” Further, this Hon’ble Court held that “in the absence of approval in terms of Section 92 and 92A of the MMC Act, the adjudicating authority could not have overridden MCGM’s objections and enabled the creation of a fresh interest in respect of its properties and lands….Nevertheless, the authorities under the Code could not have precluded the control that MCGM undoubtedly has, under law, to deal with properties and land in question, which undeniably are public properties. The resolution plan, therefore, would be a serious impediment to MCGM’s independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM)” In other words, the statutory powers entrusted to the Municipal Corporation to exercise control over its own properties are not overridden by Section 238 of the IBC. Once again, the present situation is distinguishable. The contract in question in Abhilash Lal (supra) was terminated due to defaults unrelated to the insolvency of the corporate debtor. In the present case, the sole default attributed by the appellant to the Corporate Debtor was that it was undergoing an insolvency resolution process, which makes the present dispute amenable to the jurisdiction of the NCLT under Section 60(5)(c) of the IBC.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 677 [DR. DHANANJAYA Y CHANDRACHUD, J.]

77Copy pinpoint77. Section 238 of the IBC stipulates that IBC would override other laws, including an instrument having effect by virtue of any such law. The NCLT in its decision dated 29 August 2019 gave detailed findings on the issue of whether the PPA is an instrument within the meaning of section 238 of the IBC. Section 238 of the IBC provides: “Section 238 - Provisions of this Code to override other laws The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” C The findings of the NCLT are extracted below: “19. That from the plain reading of Section 238, it is evident that the aforesaid Section is applicable to an ‘instrument’ too. However, we find that the term ‘instrument’ has not been defined anywhere under IBC 2016. D

20. To know, whether the Power Purchase Agreement (PPA) is an ‘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 in this Code but defined in the Indian Contract Act, 1872, the Indian E Partnership Act, 1932, the Securities Contract (Regulation) Act, 1956, the Securities Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Limited Liability Partnership Act, 2008 and the Companies Act, 2013, shall have the meanings respectively assigned to them in those Acts.”

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

22. For interpretation of the term ‘instrument’, we, therefore, thought it proper to check how the Legislature has defined the term ‘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: H

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A “Section 2(14): “Instrument” - “instrument” includes every document 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 provided under Section 2(b) of Notaries Act, 1952 : B “Section 2(b): “instrument” includes every document by which any 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 C ‘instrument’ in Section 2(1) as follows : “Section 2(1): instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, D policy of insurance, transfer of share, debenture, proxy and receipt;”

26. That the Merriam-Webster Dictionary defines the word ‘instrument’, inter alia, as: “a formal legal document (such as a deed, bond or agreement)” E

27. Since, the rights and liabilities of parties have been created in the Power Purchase Agreement and such an agreement is enforceable by law and the word ‘instrument’ inter alia, includes an ‘agreement’, we are of the view, that the Power Purchase Agreement i.e., PPA is an ‘Instrument’ for the purpose of Section F 238 of IBC 2016.”

78Copy pinpoint78. It has been urged on behalf of the appellant that Section 238 does not apply to a bilateral commercial contract between a Corporate Debtor and a third party and only applies to statutory contracts or instruments entered into by operation of law. The basis of this submission is that the word “instrument” should be given a meaning ejusdem generis to the provision “contained in any other law”. We do not find force in this argument. Section 238 does not state that the “instrument” must be entered into by operation of law; rather it states that the instrument has effect by virtue of any such law. In other words, the instrument need not be a creation of a statute; it becomes enforceable by virtue of a law.

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 679 [DR. DHANANJAYA Y CHANDRACHUD, J.]

Therefore, we are inclined to agree with the view taken by the NCLT. A Section 238 is prefaced by a non-obstante clause. NCLT’s jurisdiction could be invoked in the present case because the termination of the PPA was sought solely on the ground that the Corporate Debtor had become subject to an insolvency resolution process under the IBC.

79Copy pinpoint79. Section 63 of the IBC provides that “no civil court or authority B shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribuna lhas jurisdiction under this Code”. I.³ Residuary jurisdiction of the NCLT under section 60(5)(c) C

80Copy pinpoint80. The respondents have relied upon the decision of this Court in Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta57, where this Court held that section 60(5)(c) of the IBC “is in the nature of residuary jurisdiction vested in the NCLT so that NCLT may decide all questions of law or fact arising out of or in relation D to insolvency or liquidation under the Code”58.

81Copy pinpoint81. At this stage we may visit some of the precedents emanating from this court where a statutory conferment of residuary powers has been analyzed. A two-judge Bench of this Court discussed the contours of the residuary power in Remdeo Chauhan vs Bani Kant Das59, E while interpreting sub-Section (j) of Section 12 of the National Human Rights Commission Act, 1993 which confers NHRC with “such other functions as it may consider necessary for the promotion of human rights”. While construing the provision, this Court held that: “45….It is not necessary that each and every case relating to the violation of human rights will fit squarely within the four corners of Section 12 of the 1993 Act for invoking the jurisdiction of the NHRC. One must accept that human rights are not edicts inscribed on a rock. They are made and unmade on the crucible of experience and through reversible process of human struggle for freedom. They admit of a certain degree of fluidity. Categories of human rights, being of infinite variety, are never really closed. That is why the residuary clause in Sub-section (j) has been 57 (2020) 8 SCC 531; hereinafter referred to as “Satish Kumar Gupta” 58 Ibid, para 69 59 (2010) 14 SCC 209 H

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A so widely worded to take care of situations not covered by Sub-sections (a) to (i) of Section 12 of the 1993 Act. 46.The jurisdiction of NHRC thus stands enlarged by Section 12(j) of the 1993 Act, to take necessary action for the protection of human rights. Such action would include inquiring into cases where B a party has been denied the protection of any law to which he is entitled, whether by a private party, a public institution, the government or even the Courts of law. We are of the opinion that if a person is entitled to benefit under a particular law, and benefits under that law have been denied to him, it will amount to a violation of his human rights.” C (emphasis supplied)

82Copy pinpoint82. In D.R. Kohli vs Atul Products Ltd.60, a three judge Bench of this Court differentiated between the power of Central Excise authorities for recovery of monies due to the Government under two provisions, one of them being a residuary provision: “14. The next question relates to the appropriate provision of law under which action could have been taken in this case by the Central Excise authorities. This question was not decided by the High Court in view of its finding on the liability of the respondent to pay excise duty on the products manufactured by it. Since we have not agreed with the decision of the High Court on this point, it has become necessary for us to decide this question in this appeal. While the Department asserts that it was open to it to proceed under Rule 10-A of the Rules, the respondent contends that even if there was any short levy, the proper Rule applicable to 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 :

10. Recovery of duties or charges short-levied, or erroneously refunded: When duties or charges have been short-levied through inadvertence, error, collusion or misconstruction on the part of an officer, or through misstatement as to the quantity, description or value of such goods on the part of the owner, or when any such duty or charge, after having been levied/has been owing to any such cause, erroneously refunded, the person chargeable with

60 H (1985) 2 SCC 77

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 681 [DR. DHANANJAYA Y CHANDRACHUD, J.]

the duty or charge, so short-levied, or to whom such refund has A been erroneously made, shall pay the deficiency or pay the amount paid to him in excess, as the case may be, on written demand by the proper officer being made within three months from the date, on which the duty or charge was paid or adjusted in the owner’s account-current, if any, or from the date of making the refund. B 10-A. Residuary powers for recovery of sums due to Government: Where these Rules do not make any specific provision for the collection of any duty, or of any deficiency in duty if the duty has for any reason been short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, such duty, deficiency in duty or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify.

15. The points of difference between the above two Rules were that (i) whereas Rule 10 applied to cases of short levy through inadvertence, error, collusion or misconstruction on the part of an officer, or through misstatement as to the quantity, description or value of the excisable goods-on the part of the owner Rule 10-A which was a residuary clause applied to those cases which were not covered by Rule 10 and that (ii) whereas under Rule E 10, the deficit amount could not be collected after the expiry of three months from the date on which the duty or charge was paid or adjusted in the owners account-current or from the date of making the refund, Rule 10-A did not contain any such period of limitation.” F (emphasis supplied)

83Copy pinpoint83. Hence, the residuary jurisdiction conferred by statute may extend to matters which are not specifically enumerated under a legislation. While a residuary jurisdiction of a court confers it wide powers, its jurisdiction cannot be in contravention of the provisions of the concerned G statute. In A. Deivendran vs State of T.N.61, a two judge Bench of this Court, while determining the limitations of the residuary jurisdiction under Section 465 of the Code of Criminal Procedure, 197362, held that

61 (1997) 11 SCC 720 62 “CrPC” H

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A a residuary jurisdiction cannot be invoked when there is a patent defect of jurisdiction or an order is passed in contravention of any mandatory provision of the CrPC. Speaking through Justice G.B. Pattanaik, this Court observed that a competent court is vested with the power to exercise residuary jurisdiction under section 465 of the CrPC in the following terms: B “15. We may notice also the arguments advanced by Mr Mohan, learned counsel appearing for the State, that the conviction and sentence against the appellants should not be interfered with in view of the provisions of Section 465 of the Code, inasmuch as there has been no failure of justice. We are unable to accept this contention. Section 465 of the Code is the residuary section intended to cure any error, omission or irregularity committed by a Court of competent jurisdiction in course of trial through accident or inadvertence, or even an illegality consisting in the infraction of any provisions of law. The sole object of the Section is to secure justice by preventing the invalidation of a trial already held, on the ground of technical breaches of any provisions in the Code causing no prejudice to the accused. But by no stretch of imagination the aforesaid provisions can be attracted to a situation where a Court having no jurisdiction under the Code does something or passes an order in contravention of the mandatory provisions of the Code. In view of our interpretation already made, that after a criminal proceeding is committed to a Court of Sessions it is only the Court of Sessions which has the jurisdiction to tender pardon to an accused and the Chief Judicial Magistrate does not possess any such jurisdiction, it would be impossible to hold that such tender of pardon by the Chief Judicial Magistrate can be accepted and the evidence of the approver thereafter can be considered by attracting the provisions of Section 465 of the Code. The aforesaid provision cannot be applied to a patent defect of jurisdiction. Then again it is not a case of reversing the sentence or order passed by a Court of competent jurisdiction but is a case where only a particular item of evidence has been taken out of consideration as that evidence of the so- called approver has been held by us to be not a legal evidence since pardon had been tendered by a Court of incompetent jurisdiction. In our opinion, to such a situation the provisions of H Section 465 cannot be attracted at all. It is true, that procedures

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 683 [DR. DHANANJAYA Y CHANDRACHUD, J.]

are intended to subserve the ends of justice and undue emphasis on mere technicalities which are not vital or important may frustrate the ends of justice. The Courts, therefore, are required to consider the gravity of irregularity and whether the same has caused a failure of justice. To tender pardon by a Chief Judicial Magistrate cannot be held to be a mere case of irregularity nor can it be said that there has been no failure of justice. It is a case of total lack of jurisdiction, and consequently the follow up action on account of such an order of a Magistrate without jurisdiction cannot be taken into consideration at all. In this view of the matter the contention of Mr Mohan, learned Counsel appearing for the State in this regard has to be rejected.” C (emphasis supplied) 63

84Copy pinpoint84. In Johri Lal Soni vs Bhanwari Bai (“Johri Lal Soni”),a two judge Bench of this Court had to determine whether an insolvency court can scrutinize the validity of a transfer made seven years before the transferor was adjudged as insolvent, when Section 53 of the PIA D classified only those transfers as voidable against the receiver, where the transferor was adjudged insolvent on a petition presented within two years after the date of transfer. This Court, in view of the wide discretion granted in terms of Section 4, held that the insolvency court will have the jurisdiction to determine the validity of void transfers undertaken at any E point of time. While Section 53 was applicable only to voidable transactions, this Court was of the view that Section 4 provides a discretion to an insolvency court to decide all questions which arise in a case of insolvency and an interpretation which allowed the court to examine void transfers undertaken at any point of time would be in consonance with the object of the provision. The Court held: F

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

4. (1) Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of G any nature whatsoever and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete 63 (1977) 4 SCC 59 : hereinafter, referred to as “Johri Lal Soni” H

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A justice or making a complete distribution of property in any such case.

5. It would be seen that the section has been couched in the widest possible terms and confers complete and full powers on the Insolvency Court to decide all questions of title or priority, or of B any 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 the Act contains a provision which either runs counter to Section 4 or expressly excludes the application of Section 4, to that extent C Section 4 would become inapplicable. Counsel for the respondent strongly relied on the provisions of Section 53 which runs thus:

53. Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall, D if the transferor is adjudged insolvent on a petition presented within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court.” (emphasis supplied)

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

85Copy pinpoint85. In respect of the interplay between Sections 53 and 4 of the F PIA, in Johri Lal Soni (supra), this Court further held: “6. It was submitted that the effect of Section 53 of the Act clearly is that it bars the jurisdiction of the Insolvency Court to determine the validity of any transfer made beyond two years of the transferor being adjudged insolvent. It is no doubt true that the words “within two years after the date G of the transfer” being voidable as against the receiver does fix a time-limit within which the transfer could be annulled by the Court. But a plain construction of Section 53 would manifestly/indicate that the words “within two years after the date, be voidable as against the receiver and shall be H

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 685 [DR. DHANANJAYA Y CHANDRACHUD, J.]

annulled by the Court” clearly connote that only those A transfers are excepted from the jurisdiction of the Court which are voidable. The section has, therefore, made a clear distinction between void and voidable transfers-a distinction which is well-known to law. A void transfer is no transfer at all and is completely destitute of any legal effect: it is a B nullity and does not pass any title at all. For instance, where a transfer is nominal, sham or fictitious, the title remains with the transferor and so does the possession and nothing passes to the transferee. It is manifest, therefore, that such a transfer is no transfer in the eye of the law. Such transfers, therefore, clearly fall beyond the purview of Section 53 of the Act which refers C only to transfers which are voidable. It is well settled that a voidable transfer is otherwise a valid transaction and continues to be good until it is avoided by the party aggrieved. For instance, transfers executed by the transferor to delay or defraud his creditors may be avoided under Section 53 of the Transfer of D Property Act. Similarly transfers made under coercion, fraud or undue influence may be avoided by the party defrauded. It is only such transfers which, if they take place beyond two years of the date of transfer, cannot be enquired into by the Court by virtue of Section 53 of the Act. This appears to us to be the plain and simple interpretation of the combined reading of Sections E 4 and 53 of the Act. Indeed, if a different interpretation is given, it will render the entire object of the section [4] nugatory, because the Court would be powerless to set at naught transfers which are patently void, merely because they had been made at a particular point of time.” F (emphasis supplied)

86Copy pinpoint86. The decision in Johri Lal Soni (supra) gave an expansive interpretation to the powers of an insolvency court under Section 4 of the PIA, which is similar to Section 60(5)(c) of the IBC. This Courtheld that an insolvency court was empowered to consider the validity of void G transfers under Section 4 of the PIA, which did not explicitly fall under Section 53 of the PIA. However, this Court’s decision was premised on the finding that Section 53 of the PIA only dealt with voidable transfers. This Court noted that the jurisdiction of an insolvency court will be restricted in matters where a voidable transfer has taken place beyond H

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

87Copy pinpoint87. The residuary jurisdiction of the NCLT under Section 60(5)(c) C of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of the NCLTwere to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the IBC in matters of preserving the value of the corporate debtor and its status as a ‘going concern’. We hasten to add that our finding on the validity of the exercise of residuary power by the NCLT is premised on the facts of this case. We are not laying down a general principle on the contours of the exercise of residuary power by the NCLT. However, it is pertinent to mention that the NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta (supra). F J Validity of ipso facto clauses

88Copy pinpoint88. Before we proceed to analyze the validity of the termination of the PPA by the appellant under Articles 9.2.1(e) and 9.³.1 in the present case, it is important to contextualize it within the larger debate on this issue. Globally, ipso facto clauses arise in a variety of contracts. G Ipso 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 context of insolvency law, in some of these ipso facto clauses, the ‘event of default’ includes applying for insolvency, commencement of insolvency H proceedings, appointment of insolvency representative, et al. The United

GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS. 687 [DR. DHANANJAYA Y CHANDRACHUD, J.]

Nations Commission on International Trade Law64 released its Legislative A Guide on Insolvency Law in 200465. This guide defines ipso facto clauses in the following terms: “114. Many contracts include a clause that defines events of default giving the counterparty an unconditional right, for example, of termination or acceleration of the contract (sometimes referred B to as “ipso facto” clauses). These events of default commonly include the making of an application for commencement, or commencement, of insolvency proceedings; the appointment of an insolvency representative; the fact that the debtor satisfies the criteria for commencement of insolvency proceedings; and even indications that the debtor is in a weakened financial position…” C

The validity of such ipso facto clauses has been considered in a global perspective by international organizations and in the domestic jurisdictions of nation-states in their national insolvency laws. In order for us to assess their validity in India, we must first understand the global trends in contemporary jurisprudence. We can attempt to extrapolate D our experiential learning from comparative law. As India develops into a responsive member of the international community, our laws cannot afford to be inward-looking. J.1 Position of international and multilateral organizations E

89Copy pinpoint89. The UNCITRAL Guide notes that insolvency laws across various jurisdictions either uphold ipso facto clauses or invalidate them. It notes the arguments of both sides thus: “115. The approach of upholding these types of clauses may be supported by a number of factors, including the desirability of F respecting commercial bargains; the need to prevent the debtor from selectively performing contracts that are profitable and rejecting others (an advantage that is not available to the counterparty); the effect on financial contract netting of not upholding an automatic termination provision; the belief that, since G 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. The UNITRAL Guide was created with the intent that it would be used “as a reference by national authorities and legislative bodies when preparing new laws and regulations or reviewing the adequacy of existing laws and regulations” H

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A an insolvent business will generally be unable to pay, delaying the termination of contracts potentially only increases existing levels of debt; the need for creators of intellectual property to be able to control the use of that property; and the effect on the counterparty’s business of termination of a contract, especially one with respect to an intangible. B

116. Under a different approach, the insolvency law overrides those clauses, making them unenforceable. Where the clause provides, for example, for termination on the occurrence of the defined event, the contract can be continued over the objection of the counterparty. Although the approach of overriding such clauses can be regarded as interfering with general principles of contract law, such interference may be crucial to the success of the proceedings. In reorganization, for example, where the contract is a critical lease or involves the use of intellectual property embedded in a key product, continued performance of the contract may enhance the earnings potential of the business; reduce the bargaining power of an essential supplier; capture the value of the debtor’s contracts for the benefit of all creditors; and assist in locking all creditors into a reorganization.”

90Copy pinpoint90. In finding a pragmatic solution to a vexed issue such as the validity of ipso facto clauses, the law acknowledges the inherent tension between the primary arguments on both sides of the debate. One the one hand there is a need of ensuring that the debtor remains as a ‘going concern’ throughout the insolvency process. On the other hand, the law has to respect the freedom to enter upon contracts and the sanctity of enforcing contractual remedies. Controlling the ambit of ipso facto clauses does give rise to arguments of infringing upon the parties’ freedom to enter into and enforce their contracts. The UNCITRAL Guide offers guidance to national authorities by concluding that it is desirable that their national insolvency laws override such ipso facto clauses, subject to limited exceptions, since the continued performance of the terminated contracts is often crucial to the success of the insolvency process. The UNCITRAL Guide states this in the following terms: “118. Although some insolvency laws do permit these types of clause to be overridden if insolvency proceedings are commenced, this approach has not yet become a general feature of insolvency laws. There is an inherent tension between promoting the debtor’s

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survival, which may require the preservation of contracts, and injecting unpredictability and extra cost into commercial dealings by creating a variety of exceptions to general contract rules. While this issue is clearly one that may require a careful weighing of the advantages and disadvantages, there are, nevertheless, circumstances where the ability of the insolvency representative to ensure that a contract continues to be performed will be crucial to the success of reorganization and also, but perhaps to a lesser extent, liquidation where the business is to be sold as a going concern. For these reasons, it is desirable that an insolvency law permit such clauses to be overridden. Any negative impact of a policy of overriding these types of clauses can be balanced by providing compensation to creditors who can demonstrate that they have suffered damage or loss as a result of the contract continuing to be performed after commencement of insolvency proceedings, or including exceptions to a general override of these clauses for certain types of contracts, such as contracts to lend money and, in particular, financial contracts (see below, paras. 208-215).” (emphasis supplied)

91Copy pinpoint91. The World Bank, in its Principles for Effective Insolvency E and Creditor/Debtor Regimes published in 201666, notes that ipso facto clauses should be overridden, subject to limited exceptions. It states thus: “C10 Treatment of Contractual Obligations … F C10.2 To gain the benefit of contracts that have value, the insolvency representative should have the option of performing and assuming the obligations under those contracts. Contract provisions that provide for termination of a contract upon either an application for commencement or the commencement of G insolvency proceedings should be unenforceable subject to special exceptions.”

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

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92Copy pinpoint92. While assessing the position adopted by supranational organizations, we note that the European Parliament issued Directive (EU) 2019/1023 on 20 June 201967 in relation to the restructuring and insolvency framework in the European Union, thereby amending the previous Directive. The EU Directive notes in its Recitals the issues which can arise for a Corporate Debtor undergoing restructuring when its suppliers terminate contracts based on ipso facto clauses. The Recitals state as follows: “(40) When a debtor enters an insolvency procedure, some suppliers can have contractual rights, provided for in so called ipso facto clauses, entitling them to terminate the supply contract solely on account of the insolvency, even if the debtor has duly met its obligations. Ipso facto clauses could also be triggered when a debtor applies for preventive restructuring measures. Where such clauses are invoked when the debtor is merely negotiating a restructuring plan or requesting a stay of individual enforcement actions or invoked in connection with any event connected with the stay, early termination can have a negative impact on the debtor’s business and the successful rescue of the business. Therefore, in such cases, it is necessary to provide that creditors are not allowed to invoke ipso facto clauses which make reference to negotiations on a restructuring plan or a stay or any similar event connected to the stay. (41) Early termination can endanger the ability of a business to continue operating during restructuring negotiations, especially when contracts for essential supplies such as gas, electricity, water, telecommunication and card payment services are concerned. Member States should provide that creditors to which a stay of individual enforcement actions applies, and whose claims came into existence prior to the stay and have not been paid by a debtor, are not allowed to withhold performance of, terminate, accelerate or, in any other way, modify essential executory contracts during the stay period, provided that the debtor complies with its obligations under such contracts which fall due during the stay. Executory contracts are, for example, lease and

67 H “EU Directive”

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licence agreements, long term supply contracts and franchise agreements.” (emphasis supplied)

93Copy pinpoint93. Thereafter, the EU Directive recommends that the member States of the European Union shall ensure that creditors are not allowed to terminate contracts based on ipso facto clauses when the ‘event of default’ is a Corporate Debtor undergoing restructuring. Article 7 of the Directive states as follows: “Article 7 Consequences of the stay of individual enforcement actions C …

5. Member States shall ensure that creditors are not allowed to withhold performance or terminate, accelerate or, in any other way, modify executory contracts to the detriment of the debtor by virtue of a contractual clause providing for such measures, solely D by reason of: (a) a request for the opening of preventive restructuring proceedings; (b) a request for a stay of individual enforcement actions; E (c) the opening of preventive restructuring proceedings; or (d) the granting of a stay of individual enforcement actions as such.” J.2 National jurisdictions F

94Copy pinpoint94. As we begin assessing the positions of national jurisdictions, it is apposite that we begin by analyzing the contradictory positions adopted by the United States and the United Kingdom before looking at European and other nations with civil law traditions, and thereafter at nations with common law roots. G J.2.1 United States

95Copy pinpoint95. In the US, Section 365(e) of the United States Bankruptcy Code, 1979 (“US Bankruptcy Code”) renders ipso facto clauses unenforceable when they are present in an executory contract or an unexpired lease. Section 365(e) stipulates: H

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A “(1) Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease B that is conditioned on- (A) the insolvency or financial condition of the debtor at any time before 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 case under this title or a custodian before such commencement”

96Copy pinpoint96. A related provision, Section 541(c)(1)(B) of the US Bankruptcy Code provides that “an interest of the debtor in property becomes property D of the estate” in spite of any “agreement, transfer instrument, or applicable non-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 in certain contracts (swap agreements, securities, forwarding, et al) to be enforceable. E

97Copy pinpoint97. Further, there have been instances where District Bankruptcy Courts in United States have invalidated ipso facto clauses in contracts other than executory contracts or unexpired leases based on broad considerations relating to the purpose of the US Bankruptcy Code. The ipso facto provisions in such contracts may not be per se invalid, but they may be set aside where “any such default would deprive the debtor of the advantages of the Code’s liquidation procedures”68. For instance, the District Court for the District of Delaware has noted “the general trend of the federal courts that the prohibition against ipso facto clauses is not limited to actions [involving executory contracts or unexpired leases]”, while invalidating an ipso facto clause premised on bankruptcy filing⁶⁹. Similarly, in another case, an ipso facto clause in a non-executory

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contract was held to be invalid because “it would defeat the purposes of the [US] Bankruptcy Code” and “cannot be enforced by a court of equity”70. The Bankruptcy Court reasoned that: “Under the Bankruptcy Code, there is no statutory mandate that bankruptcy-default clauses are valid and enforceable. The only Congressional statement is clear that in most, if not all, instances, such clauses are not enforceable. Also, cf. Sections 363(l) and 541(c)(1)(B) of the Bankruptcy Code, where bankruptcy-default clauses are not given effect. Thus, there is simply no reason to assume that Congress intended to make these clauses enforceable only in non-executory contracts. Such an assumption would be directly contrary to the spirit and purposes of the Bankruptcy Code. C One of the objectives of bankruptcy laws is to enable debtors to make a fresh start.”71 However, it is important to note that District Court of New York has taken a contrary position, holding that the text of Section 365(e) of the US Bankruptcy Code is clear and limits its prohibition only to executory contracts and unexpired leases72. Hence, the position in relation to this issue seems to be unsettled even in the US. J.2.2 United Kingdom

98Copy pinpoint98. Coming to the position of law in the UK, we must first acknowledge that the insolvency regime there is governed not just by legislation but also through common law doctrine. The important common law doctrine is the ‘anti-deprivation rule’, which seeks to prevent the improper removal of an asset from the debtor’s estate, which would reduce the debtor’s overall net asset value, which would in turn reduce the size of the pie. Hence, the rule seeks to prevent the debtor’s assets from being reduced before they can become subject to the insolvency process. As such, it has been argued that ipso facto clauses could be in violation of the anti-deprivation rule since they allow a party to terminate a contract upon commencement on insolvency, which then takes away the debtor’s valuable asset (i.e., the contract). G 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) (United States Bankruptcy Court, S.D. New York). H

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99Copy pinpoint99. The scope of the anti-deprivation rule was clarified by the UK Supreme Court73 in the case of Belmont Park Investments Pty Ltd and others vs BNY Corporate Trustee Services Ltd and another (Revenue and Customs Comrs and another intervening)74. The facts of this case have been succinctly summarized in an article by Adrienne Ho in the McGill Law Journal: the reproduction below is from B the 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”) C while simultaneously entering into credit default swap agreements (“Agreements”) with Lehman Brothers Special Financing (“LBSF”). LBSF agreed to pay the Issuer premiums in exchange for the latter’s credit protection on loans owned by Lehman Brothers. The premiums the Issuer D received from LBSF were then paid to the Noteholders. The Agreement was governed by English law; (ii) On the basis that Lehman Brothers’ and LBSF’s Chapter 11 filings (i.e., for bankruptcy in the US) in 2008 were ‘Events of Default’ as outlined in the Agreements, the E Noteholders directed the Trustee to terminate the Agreements. The Collateral, which was held by the Trustee, provided security for the Issuer’s obligations to the Noteholders and LBSF. Although the latter had priority to the Collateral, the Agreements contained a provision (“flip clause”) that would reverse the priorities in favour of the F Noteholders 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 been otherwise entitled to in its bankruptcy; and second, the clause offended the anti-deprivation rule by reversing LBSF’s and G the Noteholders’ respective priorities on the basis of LBSF’s bankruptcy.

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100Copy pinpoint100. The UKSC in this case was considering the contours of the anti-deprivation rule, which protects against the dilution of the debtor’s value. This is quite distinct from a situation where the effect of the concerned clause would be the failure of the insolvency resolution process in its entirety. Writing the majority opinion, Lord Collins upheld the flip clause on the basis that it was “a complex commercial transaction entered into in good faith” and that the provisions were not used deliberately to evade the application of insolvency law, which was a key requirement for the application of the anti-deprivation rule. The learned judge held thus: “102 It would go well beyond the proper province of the judicial function to discard 200 years of authority, and to attempt to re- C write the case law in the light of modern statutory developments. The anti-deprivation rule is too well-established to be discarded despite the detailed provisions set out in modern insolvency legislation, all of which must be taken to have been enacted against the background of the rule. D 103 As has been seen, commercial sense and absence of intention to evade insolvency laws have been highly relevant factors in the application of the anti-deprivation rule. Despite statutory inroads, party autonomy is at the heart of English commercial law. Plainly there are limits to party autonomy in the field with which this appeal is concerned, not least because the interests of third party creditors will be involved. But, as Lord Neuberger stressed [2010] Ch 347, para 58, it is desirable that, so far as possible, the courts give effect to contractual terms which parties have agreed. And there is a particularly strong case for autonomy in cases of complex financial instruments such as those involved in this appeal. 104 No doubt that is why, except in the case of a blatant attempt to deprive a party of property in the event of liquidation (Folgate London Market Ltd v Chaucer Insurance plc [2011] EWCA Civ 328; The Times, 13 April 2011), the modern tendency has been to uphold commercially justifiable contractual provisions which have been said to offend the anti-deprivation rule: Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150; Lomas v JFB Firth Rixson Inc [2011] 2 BCLC 120; and the H

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A judgments of Sir Andrew Morritt C and the Court of Appeal in these proceedings. The policy behind the anti-deprivation rule is clear, that the parties cannot, on bankruptcy, deprive the bankrupt of property which would otherwise be available for creditors. It is possible to give that policy a common sense application which prevents its application to bona fide commercial B transactions which do not have as their predominant purpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy.” (emphasis supplied)

101Copy pinpoint101. Lord Mance in his concurring opinion, expressed a similar view: “177 However, Mr Snowden advanced propositions which would mean that any provision for termination on bankruptcy, which would deprive the trustee or liquidator of the opportunity of continuing D the contract and so the bankrupt estate of future potential advantage, would infringe the principle. There is in my opinion no basis for any such rule. Where a contract provides for the performance in the future of reciprocal obligations, the performance of each of which is the quid pro quo of the other, I see nothing objectionable or evasive about a E provision entitling one party to terminate if the other becomes bankrupt.” (emphasis supplied) As such, it was understood that bona fide commercial contracts F entered into by parties which contained ipso facto clauses would not violate the anti-deprivation rule.

102Copy pinpoint102. Lord Mance also discussed the parallel proceedings in the US and the legislative invalidation of ipso facto clauses there. Noting the difference between the position in the UK and the US, he concluded by holding that a similar invalidation of ipso facto clauses in the UK G should be done legislatively, and not through a common law development. He held thus: “173 It is relevant to note that the American bankruptcy rule invalidating ipso facto termination clauses is a product of legislation: section 365(e) of the Bankruptcy Code 1978… H

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174 The anti-deprivation principle recognised in English A case law finds a parallel in section 541. But the English case law has to date focused on deprivation of property, and has not recognised any equivalent principle to that enacted in section 365(e). Further, section 365(e) is itself qualified by the “safe harbour” provisions of section 560, which specifically protect a non-defaulting swap participant’s contractual rights to liquidate, terminate or accelerate a swap agreement because of a condition of the kind specified in section 365(e)(1), that is the insolvency or financial condition of the debtor and the commencement of a bankruptcy case... What it does suggest is that any general rule invalidating ipso facto termination clauses ought to be a matter for legislative attention, rather than novel common law development.” (emphasis supplied)

103Copy pinpoint103. The decision in Belmont Park (supra) has been followed by the Chancery Division in Fibria Celulose S/A v Pan Ocean Co D Ltd vs Fibria Celulose S/A Chancery Division, dated 30 June 201476.Morgan J held thus: “12 In some jurisdictions, a clause which allows a party to a contract to terminate the contract by reason of the insolvency of the counterparty is called an ipso facto clause. In certain jurisdictions E in the United States of America such clauses are automatically invalid. In Canada, the court has power to stay the exercise of rights under such clauses. Later in this judgment, I will consider how such clauses are treated under Korean insolvency law. 13 There was no dispute before me as to the efficacy in F English law of the provisions in clause 28.1 of the contract which allow termination by reason of an insolvency event. It was accepted that those provisions are valid in English law. In particular, it was accepted that the rule of insolvency law, known as the anti-deprivation rule, does not strike G down those provisions. 14 Although there was no argument as to the approach of an English court to the insolvency provisions in clause 28.1 of the

76 [2014] Bus. L.R. 1041; hereinafter referred to as “Pan Ocean Co Ltd” H

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A contract, it is helpful for present purposes to understand why those provisions do not infringe the anti-deprivation rule or any other rule of English insolvency law. The scope of the anti-deprivation rule has been considered recently by the Supreme Court in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd (Revenue and Customs Comrs intervening) [2011] Bus LR B 1266; [2012] 1 AC 383…” (emphasis supplied)

104Copy pinpoint104. In his treatise, Principles of Corporate Insolvency Law77, Professor Roy Goode has discussed the effect of the decision in Belmont C Park (supra) on the validity of ipso facto clauses. Professor Goode does so in the following terms: “As explained above, the validity of provisions for the termination of contracts by reason of one party’s entry into insolvency proceedings has long been assumed, and D appears to have been accepted by Lord Mance in Belmont. Such provisions do not escape the rule because they effect no deprivation of property (in substance, they do), but because they are commercially sensible or (in Lord Mance’s language) have a legitimate commercial basis.

E … The statute law of some jurisdictions prohibits counterparties from relying on clauses in contracts that permit termination on another party’s entry into insolvency proceedings (so-called ipso facto clauses). Absent statutory control, such clauses allow a F counterparty to terminate even in circumstances where the debtor is ready, willing and able to perform their part of the bargain so that creditors can enjoy the benefit of performance by the counterparty. Such clauses can also be wielded as leverage to extract concessions from the debtor, as where the counterparty agrees to keep the contract on foot on the proviso that any G outstanding debts owing by the company to it are discharged. English law has traditionally taken a generous approach to such clauses. The common law anti-deprivation rule does not invalidate termination clauses, there being “nothing

77 H 5th ed (London: Sweet & Maxwell, 2018), paras 7-24 and 7-29

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objectionable or evasive about a provision entitling one party to terminate it [a bilateral contract] if the other becomes bankrupt”. As David Richards J explained in the Football Creditors case: “In the absence of specific statutory provision, insolvency law does not compel a party to continue to deal with a company in administration or liquidation, nor does it prohibit a party from stipulating that all future dealings shall be on terms that not only future debts but also existing debts are paid in full. It is then for the administrator or liquidator to decide whether to accept these terms.”” C (emphasis supplied)

105Copy pinpoint105. On the legislative side, the insolvency regime in the UK is governed by the Insolvency Act, 198678, which does not invalidate ipso facto clauses. However, the UK Act was recently amended by the Corporate Insolvency and Governance Act 202079, which came into force D on 26 June 2020. Amongst other changes, it introduced Section 233B into the UK Act. Section 233B reads thus: “Protection of supplies of goods and services (1)This section applies where a company becomes subject to a relevant insolvency procedure. E (2) … (3)A provision of a contract for the supply of goods or services to the company ceases to have effect when the company becomes subject to the relevant insolvency procedure if and to the extent that, under the provision— (a)the contract or the supply would terminate, or any other thing would take place, because the company becomes subject to the relevant insolvency procedure, or (b)the supplier would be entitled to terminate the contract or the supply, or to do any other thing, because the company becomes subject to the relevant insolvency procedure.

78 “UK Act” 79 “CIGA” H

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A (4)Where— (a)under a provision of a contract for the supply of goods or services to the company the supplier is entitled to terminate the contract or the supply because of an event occurring before the start of the insolvency period, and B (b)the entitlement arises before the start of that period, the entitlement may not be exercised during that period. (5)Where a provision of a contract ceases to have effect under subsection (3) or an entitlement under a provision of a contract is not exercisable under subsection (4), the C supplier may terminate the contract if— (a)in a case where the company has become subject to a relevant insolvency procedure as specified in subsection (2)(b), (c), (e) or (f), the office-holder consents to the termination of the contract,

D (b)in any other case, the company consents to the termination of the contract, or (c)the court is satisfied that the continuation of the contract would cause the supplier hardship and grants permission for the termination of the contract. E (6)Where a provision of a contract ceases to have effect under subsection (3) and the company becomes subject to a further relevant insolvency procedure, the supplier may terminate the contract in accordance with subsection (5)(a) to (c). F (7)The supplier shall not make it a condition of any supply of goods and services after the time when the company becomes subject to the relevant insolvency procedure, or do anything which has the effect of making it a condition of such a supply, that any outstanding charges in respect of a supply made to the company before that time are paid. G (8) … (9) … (10) …” (emphasis supplied) H

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106Copy pinpoint106. The Legislative Comment to the introduction of Section 233B A reads as follows: “Ipso facto (termination) clauses permanent change to the use of termination clauses in supply contracts is introduced by the Bill. In circumstances where a company has entered an insolvency or restructuring procedure, or obtains a moratorium, the company’s suppliers will not be able to rely on contractual terms to stop supplying the company or vary the contract terms (e.g. by increasing the price of supplies). The customer is required to pay for any supplies made once the company is in the insolvency process, but is not required to pay outstanding amounts due for past supplies while it is arranging its rescue plan. Safeguards are contained in the Bill to ensure that suppliers can be relieved of the requirement to supply if it causes hardship to their business, and a temporary exemption will operate for small companies during the Coronavirus emergency.” (emphasis supplied)

107Copy pinpoint107. We can therefore conclude that while Section 233B invalidates ipso facto clauses, it does so only in relation to contracts where the terminating party is supplying goods and services to the Corporate Debtor, and does not cover those contracts where the Corporate Debtor was supplying to the terminating party. Further, Section 233B(5)(c) allows an exception even in relation to supplier contracts when it causes “financial hardship” to the terminating party, and Section 233B(6) allows a termination if once after the terminating party is prevented from terminating, the Corporate Debtor goes through another insolvency proceeding. It has also been noted by certain commentators that, given the narrow scope of Section 233B, the decision in Belmont Park (supra) would still have been decided in the same way even under this new regime80. Finally, discussing the legislative process behind CIGA, G Felicity Toube QC and Joanne Rumley have noted that the UK Parliament did not intend to use CIGA to bring UK in line with the US position on

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. H