23 November 2021 | Tata Consultancy Services Limited v. Vishal Ghisulal Jain | Civil Appeal No. 3045 of 2020 | Supreme Court of India | DY Chandrachud & AS Bopanna JJ | 2021 SCC OnLine SC 1113

The Corporate Insolvency Resolution Process was initiated against  SK Wheels Private Limited (“Corporate debtor”) under IBC, 2016. The Corporate Debtor had a Facilities Agreement with the appellant Tata under which the former had to provide premises and facilities to the appellant for conducting examinations for educational institutions. This agreement had an arbitration clause.

Alleging several breaches, Tata terminated the agreement. The Corporate Debtor applied under Section 60(5)(c) IBC for quashing the notice. The NCLT stayed the termination by an interim order, and the appellate tribunal upheld that order.

The Supreme Court had several questions before it on the powers of the NCLT under Section 60 IBC and the effect of Section 238 IBC--"Provisions of this Code to override other laws.” It set aside the impugned orders as lacking jurisdiction.

One of the appellant’s arguments was that the arbitration agreement should be enforced. Related to this point, the court decided:

1. Section 238 IBC provides that the IBC override any other law for the time being in force or any instrument having effect by virtue of any such law.
2. In Indus Biotech (2021) 6 SCC 436 a 3-judge bench of the Supreme Court had concluded--in the context of Section 8 ACA filed in proceedings under Section 7 IBC--that if there is default and the debt is payable, the bogey of arbitration to delay the process would not arise.
3. In Gujarat Urja (2021) 7 SCC 209 too, though a power purchase agreement that had an arbitration clause was involved, it was decided that the NCLT had jurisdiction over those disputes which arose in the context of insolvency proceedings.
4. So,given Section 238 IBC and the decisions, the existence of an arbitration clause does not oust the jurisdiction of the NCLT to exercise its residuary powers under Section 60(5)(c) IBC. NCLT has very wide jurisdiction to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. The NCLT and NCLAT are vested with the responsibility of preserving the Corporate Debtor's survival and can intervene if an action by a third party can cut the legs out from under the CIRP.
5. But the NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC.
6. But here, there is nothing to indicate that the termination was motivated by the insolvency of the Corporate Debtor. The appellant had time and again informed the Corporate Debtor that its services were deficient, and it was falling foul of its contractual obligations. The termination was not a smokescreen because of the insolvency.
7. So, the NCLT did not have any residuary jurisdiction to entertain the contractual dispute.

Read the judgment here.