Case Note & Summary
The appeal was filed by Central Transmission Utility of India Ltd. (CTUIL) against an order of the National Company Law Tribunal (NCLT), Hyderabad, dated 09.10.2020, which restrained CTUIL from terminating the Transmission Service Agreement (TSA) with KSK Mahanadi Power Company Limited (Corporate Debtor) during the Corporate Insolvency Resolution Process (CIRP). The Corporate Debtor was admitted into CIRP on 03.10.2019. Prior to the CIRP, on 01.08.2018, CTUIL had issued a termination notice to the Corporate Debtor for non-opening of a letter of credit, which was challenged before the Central Electricity Regulatory Commission (CERC). The CERC, by order dated 30.10.2018, directed the parties to maintain status quo. The CIRP commenced on 03.10.2019, and the Resolution Professional (RP) filed an application before the NCLT seeking a direction to CTUIL to continue the TSA, claiming that the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) prevented termination. The NCLT allowed the RP's application, restraining CTUIL from terminating the TSA. CTUIL appealed to the NCLAT. The NCLAT held that the moratorium under Section 14 IBC does not apply to termination of a contract for pre-CIRP defaults, as the termination notice was issued before the CIRP. The RP cannot compel CTUIL to continue a contract that has been validly terminated. The NCLAT set aside the NCLT order and allowed the appeal, holding that the termination of the TSA was valid and the moratorium cannot revive it.
Headnote
A) Insolvency and Bankruptcy Code - Moratorium under Section 14 - Scope - The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 does not apply to termination of a contract for pre-CIRP defaults that occurred before the moratorium came into effect. The moratorium only prohibits the initiation or continuation of proceedings against the corporate debtor, not the enforcement of contractual rights validly exercised prior to the CIRP. (Paras 10-15) B) Insolvency and Bankruptcy Code - Resolution Professional - Powers - The Resolution Professional cannot compel a party to continue a contract that has been validly terminated prior to the CIRP. The RP's role is to manage the affairs of the corporate debtor, not to revive contracts that have been lawfully terminated. (Paras 16-20) C) Contract Law - Termination of Contract - Pre-CIRP Defaults - A contract terminated for pre-CIRP defaults cannot be revived by the moratorium under Section 14 of the IBC. The termination notice issued before the CIRP is valid and binding, and the corporate debtor cannot use the moratorium to escape the consequences of its own defaults. (Paras 21-25)
Issue of Consideration
Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 prevents the termination of a Transmission Service Agreement by the appellant for pre-CIRP defaults, and whether the Resolution Professional can compel the appellant to continue the contract despite its termination prior to the CIRP.
Final Decision
The appeal is allowed. The impugned order dated 09.10.2020 passed by NCLT Hyderabad is set aside. The termination of the Transmission Service Agreement by the appellant is held to be valid and not barred by the moratorium under Section 14 of the IBC.
Law Points
- Moratorium under Section 14 IBC does not apply to pre-CIRP termination of contract
- Resolution Professional cannot revive terminated contract
- Section 14 IBC does not bar termination for pre-CIRP defaults
- CIRP does not override contractual rights validly exercised before moratorium
