Contract Termination for Pre-CIRP Breaches Not Barred by Section 14 Moratorium | NCLAT
- 13 minutes ago
- 3 min read
REEDLAW Legal News Network reports: In a significant ruling on the limits of moratorium protection under the Insolvency and Bankruptcy Code, 2016, the Appellate Tribunal held that termination of a contract founded on pre-CIRP contractual breaches and performance deficiencies, and not triggered solely by insolvency, is not barred by Section 14 of the Code. The Tribunal further clarified that such disputes do not fall within the residuary jurisdiction of the Adjudicating Authority under Section 60(5)(c), where the termination is independent of insolvency and based on legitimate contractual remedies.
The appeal was decided by a Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), affirming the order of the Adjudicating Authority, which rejected the Liquidator’s challenge to termination, blacklisting, and forfeiture actions taken by the development authority. The Tribunal found that the construction contract had been terminated after repeated notices, inspections, extensions, and continued performance deficiencies, all preceding the commencement of CIRP. Relying upon settled Supreme Court jurisprudence, the Tribunal held that neither the moratorium under Section 14 nor the residuary jurisdiction under Section 60(5)(c) could be invoked in cases where contractual termination was unrelated to insolvency.
The appeal was filed by the Liquidator under Section 61 of the Insolvency and Bankruptcy Code, 2016, assailing the order of the Adjudicating Authority rejecting the application seeking removal of blacklisting and release of retention money and other contractual dues. The Appellant contended that the termination of the construction contract and blacklisting of the Corporate Debtor during the subsistence of the moratorium under Section 14 of the Code were impermissible, as such actions were allegedly triggered by the initiation of CIRP.
It was argued that the Corporate Debtor had substantially completed the project and that delays were attributable to factors beyond its control. The Appellant further contended that the Adjudicating Authority failed to exercise residuary jurisdiction under Section 60(5)(c) of the Code and passed a non-speaking order, ignoring the objective of value maximisation and the going concern principle.
The Tribunal, after examining the factual chronology, held that the termination of the contract
was the culmination of prolonged contractual defaults, repeated notices, inspections, extensions, and failure to meet performance benchmarks well before the commencement of CIRP. It was found that the Respondent had consistently raised issues regarding delay and deficiencies and had exercised contractual remedies independent of insolvency.
Relying on the settled law laid down by the Hon’ble Supreme Court in Gujarat Urja Vikas Nigam Limited v. Amit Gupta and Others, REEDLAW 2021 SC 03533 and TATA Consultancy Services Limited v. Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited, REEDLAW 2021 SC 11546, the Tribunal reiterated that the jurisdiction under Section 60(5)(c) can be invoked only when the termination is solely on account of insolvency and is central to the survival of the Corporate Debtor. Since the termination in the present case was unrelated to insolvency and based on contractual breaches, the moratorium under Section 14 was held to be inapplicable. Consequently, the appeal was dismissed.
Mr. Sanjeev Panda, Mr. Sumit Shukla, Advocates, represented the Appellant with Mr. Pradeep Upadhyay, Liquidator.
Mr. Shivam Kumar, Ms. Upasana Singh, Advocates, appeared for the Respondent.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Â
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
REEDLAW Legal Intelligence & Research is India’s most trusted legal publishing and research platform, empowering professionals with structured judicial insights and authoritative legal intelligence since 1985.
The platform offers comprehensive resources spanning Corporate Insolvency, Bankruptcy, Company Law, SARFAESI, Debt Recovery, Contract, MSMEs, Arbitration, Banking, and Commercial Laws. Through curated journals like IBC Reporter and Bank CLR, and an advanced Online Legal Research Database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.