The National Company Law Appellate Tribunal ("NCLAT") has ruled that a contract termination notice sent by Tata Consultancy Services Limited ("Appellant") to S.K. Wheels Private Limited ("Corporate Debtor"), a company going through the Corporate Insolvency Resolution Process ("CIRP") under the Insolvency and Bankruptcy Code, 2016 ("IBC"), should stay. The case was decided in Tata Consultancy Services Limited v. Vishal Ghisul
On December 1st, 2016, the Appellant and the Corporate Debtor entered into an arrangement (the "Facilities Agreement") to use the Corporate Debtor's services in order to conduct exams using the National Technology Infrastructure for the Appellant's clients. The National Company Law Tribunal in Mumbai ("NCLT") commenced CIRP proceedings against the Corporate Debtor by order dated March 29, 2019.
The Appellant subsequently terminated the Facilities Agreement by means of a termination notice dated June 10, 2019, as a result of the Corporate Debtor failing to address claimed breaches. In accordance with this, the Corporate Debtor initiated legal action before the NCLT and asked for a stay of the termination notice sent by the Appellant, among other things.
The same displeased the appellant on the grounds that the NCLT had failed to understand the arbitration clause found in Clause 12(d) of the Facilities Agreement and had overlooked the fact that the appellant had issued a valid notice of termination, neither of which, in the appellant's opinion, violated Section 14 of the IBC.
In the instant case titled Tata Consultancy Services Limited v. Vishal Ghisulal Jain the issue raised for clarification before the NCLAT was:
Whether the Facilities Agreement can be terminated in accordance with Section 14 of the IBC?
With regard to this issue, the NCLAT noted that under the termination provision, notice of a serious breach must be given to the other party, and if such breach is not remedied, the aggrieved party may terminate the contract. According to Section 14 of the IBC, the Interim Resolution Professional will be in charge of the company's operations once a moratorium has been imposed by the adjudicating authority and after the Interim Resolution Professional has been appointed in light of the suspension of the Corporate Debtor's board of directors. Additionally, the IBC outlines the Resolution Professional's responsibility to safeguard and maintain the assets of the Corporate Debtor and specifies the roles he may play in the same.
It was noted that the Corporate Debtor must continue to operate and conduct business in accordance with the IBC once the CIRP is launched. Maintaining the Corporate Debtor as a continuing concern is the responsibility of the Interim Resolution Professional or Resolution Professional, as the case may be.
The NCLAT categorically stated that,
"The Adjudicating Authority after hearing the parties stayed the termination of notice and directed the Appellant herein to adhere to the terms of contract without fail. In view of the law, after initiation of the CIRP the 'Corporate Debtor' shall function and continue its business activities. It is the duty of the Resolution Professional to keep the Corporate Debtor as a going concern. It is the main objective of the Code to keep the Corporate Debtor as a going concern. The Adjudicating Authority rightly stayed the termination of notice and there is no illegality in the Order passed by the Adjudicating Authority dated 18.12.2019."