NCLT can’t adjudicate a contractual dispute between parties if it is unrelated to corporate debtor’s insolvency: SC

Case Details: TATA Consultancy Services Ltd v. Vishal Ghisulal Jain, Resolution Professional, SK Wheels (P.) Ltd. - [2021] 132 taxmann.com 232 (SC)

Judiciary and Counsel Details

• • Dr. Dhananjaya Y. Chandrachud and A.S. Bopanna, JJ.

Facts of the Case

In the instant case, the Corporate Debtor initiated a miscellaneous application before the NCLT under Section 60(5)(c) of the IBC for quashing of a contract termination notice.

The NCLT passed an order granting an ad-interim stay on the termination notice issued by the appellant and directed the appellant to comply with the terms of the Facilities Agreement. The NCLT observed that prima facie it appeared that the contract was terminated without serving the requisite notice of 30 days. The NCLAT dismissed the appeal filed against NCLT’s order.

On further appeal, the issues that arose for consideration before the Apex Court were as under:

(a) Whether the NCLT can exercise its residuary jurisdiction under Section 60(5)(c) of the IBC to adjudicate upon the contractual dispute between the parties; and

(b) Whether in the exercise of such a residuary jurisdiction, it can impose an ad-interim stay on the termination of the Facilities Agreement?

Supreme Court Held

Setting aside the NCLAT order, the Supreme Court observed that the residuary jurisdiction of the NCLT under section 60(5)(c) of IBC cannot be invoked to adjudicate contractual dispute between the parties.

Supreme Court viewed that the NCLT does not have any residuary jurisdiction to entertain the present contractual dispute which has arisen dehors the insolvency of the Corporate Debtor. In the absence of jurisdiction over the dispute, the NCLT could not have imposed an ad-interim stay on the termination notice. The NCLAT has incorrectly upheld the interim order of the NCLT.