Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021)

Embassy Property keeps the Tribunal out of public law. This case does the harder job: it fixes how far the Tribunal may go into an ordinary contract when the contract is being terminated because of the insolvency itself. Counterparties commonly reserve a right to walk away the moment insolvency begins — the clause usually called an ipso facto clause — and whether such a clause can be defeated decides whether a business can be kept alive at all. The decision is also the clearest statement in the whole paper of the self-restraint that the Code requires of its adjudicator.

The corporate debtor's counterparty sought to terminate a contract, relying on a clause triggered by the commencement of insolvency. The corporate debtor's survival depended on that contract. The resolution professional invoked s. 60(5)(c) to restrain the termination, and the question was whether the Adjudicating Authority had jurisdiction to do so.

• Under s. 60(5)(c), the Adjudicating Authority has jurisdiction to adjudicate disputes which arise solely from or which relate to the insolvency of the corporate debtor; but in doing so, the Adjudicating Authority and the Appellate Tribunal must ensure that they do not usurp the legitimate jurisdiction of other courts and tribunals.
• The Adjudicating Authority cannot do what the Code consciously did not provide it the power to do.
• The jurisdiction of the Tribunal cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor.
• It cannot be invoked in the event of a legitimate termination of a contract based on an ipso facto clause, if such termination will not have the effect of making certain the death of the corporate debtor.
• The Adjudicating Authority is to be cautious in setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death.

The formula is one of causation plus consequence. Causation asks where the dispute comes from: a termination triggered by grounds unconnected with the insolvency — non-performance, expiry, a breach that would have occurred anyway — is an ordinary contractual dispute belonging to the ordinary forum, and the debtor's insolvency does not draw it into the Tribunal. Consequence asks what the termination does: even where the trigger is the insolvency itself, intervention is justified only where termination would make the corporate debtor's death certain, not merely where it would reduce the debtor's value.

That second limb is the disciplined part of the judgment. The object of the Code is to keep the enterprise alive as a going concern, and a clause that kills it at the very moment the statute is trying to save it strikes at that object. But a rule that any loss of value justifies rewriting a contract would convert the Tribunal into a general commercial court and make every counterparty of an insolvent company a conscript. Confining intervention to the case of corporate death gives effect to the object while leaving contract law otherwise intact.

The Court's other propositions are the general warning. Both the Tribunal and the Appellate Tribunal work under the Code, where there is no equity jurisdiction, and are bound by its provisions; the residuary jurisdiction cannot be invoked where the termination rests on grounds unrelated to the insolvency; and it is not an all-pervasive power to determine any question of priorities or any question of law or fact concerning the debtor.

1. On any contract-termination problem, apply the two limbs in order: is the termination on grounds related to the insolvency, and would it make the debtor's death certain?
2. Quote the self-restraint propositions. They are what distinguish a good answer: do not usurp other forums; the Authority cannot do what the Code did not empower it to do; be cautious about setting aside valid terminations.
3. Pair with Embassy Property to give the full map of s. 60(5): public law decisions out; unrelated contractual disputes out; disputes arising solely from the insolvency in, subject to the death test.
4. What it does not decide. It does not hold that ipso facto clauses are void. It does not give the Tribunal power to compel performance of a resolution plan by an unwilling applicant, a power the Code does not confer.