Tata Consultancy Services Limited vs Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(SC) 847

SUPREME COURT OF INDIA
(From the National Company Law Apellate Tribunal)
DHANANJAYA Y. CHANDRACHUD, A.S. BOPANNA, JJ.
Tata Consultancy Services Limited - Appellant
Versus
Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited - Respondent
Civil Appeal No. 3045 of 2020
Decided on : 23-11-2021

Advocates appeared:
For the Appellant(s) :Fereshte D. Sethna, Anuradha Dutt, Aniket Nimbalkar, Suman Yadav, Abhishek Tilak, Aboli Mandlik, Ameya Pant, B. Vijayalakshmi Menon, Advocates
For the Respondent(s):Udita Singh, Advocate

Headnote:
Insolvency and Bankruptcy Code 2016 – Section 14 – Specific Relief Act 1963 – Section 14 –Insolvency & Bankruptcy Code, 2016 – Section 60(5), 25, 238, – Moratorium – Termination for Material Breach – Corporate Debtor had two main sources of income – Corporate Insolvency Resolution Process – Whether termination is good or bad in law, is a matter of inquiry, which requires examination of fact and circumstances – Held, Narrow exception crafted by this Court in Gujarat (supra) must be borne in mind by NCLT and NCLAT even while examining prayers for interim relief – Order of NCLT does not indicate that NCLT has applied its mind to centrality of Facilities Agreement to success of CIRP and Corporate Debtor’s survival as a going concern – NCLT has merely relied upon procedural infirmity on part of appellant in issuance of termination notice, i.e., it did not give thirty days’ notice period to Corporate Debtor to cure deficiency in service – NCLAT, in its impugned judgment, has averred that decision of NCLT preserves ‘going concern’ status of Corporate Debtor but there is no factual analysis on how termination of Facilities Agreement would put survival of Corporate Debtor in jeopardy – Admittedly, this Court has clarified law on present subject matter in Gujarat (supra) after pronouncements of NCLT and NCLAT – Going forward, exercise of NCLT’s residuary powers should be governed by above decision – Appeal disposed of.

JUDGMENT :

Dr. Dhananjaya Y. Chandrachud, J.

1. This appeal arises from a judgment dated 24 June 2020 of the National Company Law Appellate Tribunal¹[“NCLAT”]. The NCLAT upheld the interim order dated 18 December 2019 of the National Company Law Tribunal²[“NCLT” or “Adjudicating Authority”] which stayed the termination by the appellant of its Facilities Agreement dated 1 December 2016 with SK Wheels Private Limited³[“Corporate Debtor” or “Respondent”].

Factual Background

2. The appellant and the Corporate Debtor entered into a Build Phase Agreement on 24 August 2015 followed by a Facilities Agreement on 1 December 2016. The Facilities Agreement obligated the Corporate Debtor to provide premises with certain specifications and facilities to the appellant for conducting examinations for educational institutions.

3. Clause 11(b) of the Facilities Agreement states that either party is entitled to terminate the agreement immediately by written notice to the other party provided that a material breach committed by the latter is not cured within thirty days of the receipt of the notice. Clause 11(b) reads as follows:

….

(b) Termination for Material Breach. Either party may terminate this Agreement immediately by a written notice to the other Party in the event of a material breach which is not cured within thirty days of the receipt of the said notice period.”

4. A termination notice was issued by the appellant to the Corporate Debtor on 10 June 2019 which came into effect immediately. The parties have contested the facts leading up to the issuance of the notice.

5. It has been submitted on behalf of the appellant that there were multiple lapses by the Corporate Debtor in fulfilling its contractual obligations, which it failed to remedy satisfactorily. The appellant notified the Corporate Debtor in its email dated 1 August 2018 that it intended to invoke the penalty clause of the Facilities Agreement for the alleged contractual breaches. Another email dated 17 September 2018 was sent to the Corporate Debtor regarding non-compliance with the agreement. Following a site visit, the appellant in its email dated 1 October 2018 directed the Corporate Debtor to take urgent steps to remedy the breaches. On 11 October 2018, the appellant put the Corporate Debtor on notice that it would be constrained to invoke the penalty and termination clauses of the Facilities Agreement for the alleged non-compliance. On 13 October 2018, the appellant addressed an email to the Corporate Debtor highlighting its concerns regarding the insufficiency of housekeeping staff and their malpractices in respect of entering attendance. Eventually on 19 November 2018, the appellant intimated to the Corporate Debtor that it will deploy its housekeeping staff and deduct the costs from the invoice. On 3 February 2019, the appellant wrote an email to the Corporate Debtor raising issues of power supply and shortage of housekeeping staff, among other deficiencies.

6. The Corporate Insolvency Resolution Process⁴[“CIRP”] was initiated against the Corporate Debtor on 29 March 2019. The appellant has alleged that it came to know about the CIRP against the Corporate Debtor when the Electricity Board disconnected the supply of electricity to the Corporate Debtor on 24 April 2019.

7. On 29 May 2019, the Corporate Debtor in its email alleged that the appellant had failed to make the requisite payments and the electricity was disconnected as a result. In its response dated 30 May 2019, the appellant stated that:

(ii) There were no amounts due to the Corporate Debtor; and

(iii) It made the payments for periods before March 2019. There was a delay in making payments for March 2019 because the Corporate Debtor requested a change in bank account details. No invoice was raised for April 2019.

8. The appellant claims that the material breaches by the Corporate Debtor have r

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