Tata Consultancy Services Ltd vs Vishal Ghisulal Jain Resolution ...

(Arising out of Order dated 18th December, 2019 passed by National Company Law Tribunal, Mumbai Bench in M.A. No. 2954/2019 in Company Petition (IB) 4301 (MB)/ 2018)

In the matter of:

Tata Consultancy Services Limited With its Corporate Office at TCS House, Raveline Street, 21 D.S. Marg, Fort, Mumbai- 400001. ....Appellant

Vs.

Vishal Ghisulal Jain Resolution Professional, S.K. Wheels Private Limited, Office No. 502, G Square Business Park, Opp. Sanpada Station, Sector 30-A, Vashi, Navi Mumbai- 400703 ...Respondent

Present

For Appellant: Ms. Foreshte D. Sethana, Mr. Suman Yadav and Ms. Aditya Sareen, Advocates.

For Respondent: Ms. Soumya Salkumar, Advocate.

(24th June, 2020)

KANTHI NARAHARI, MEMBER (T):

1. The present Appeal arises against the Order dated 18th

December, 2019 passed by the Adjudicating Authority (National

Company Law Tribunal, Mumbai Bench) in Miscellaneous

Application No. 2954 of 2019 in C.P. (IB) 4301(MB) of 2018. 2

2. The Learned Counsel appearing for the Appellant submitted

that the Adjudicating Authority (National Company Law Tribunal,

Mumbai Bench) admitted the company petition bearing CP (IB) 4301

(MB) 2018 and vide Order dated 29th March, 2019 whereby, the CIRP

proceedings initiated against the 'Corporate Debtor', namely, S.K.

Wheels Private Limited. It is submitted that the Appellant is a

leading Global Information Technology Company. Whilst, a facilities

agreement dated 1st December, 2016 (Facilities Agreement) was

entered into with 'Corporate Debtor' i.e. S.K. Wheels Private Limited,

to avail services from the 'Corporate Debtor', in the nature of

facilities, namely premises, computers, internet, broadband

connection, air conditioners, furniture, staff for invigilation,

housekeeping, maintenance, etc. to enable conduct of examinations

deploying National Technology Infrastructure for the Appellant's

clients.

3. It is submitted that the 'Corporate Debtor' failed to remedy

contractual breaches, thereby, a notice of termination dated 10th

June, 2019 issued by the Appellant in terms of Clause 11(b) of the

Facilities Agreement.

4. It is submitted that the Respondent, herein, the 'Resolution

Professional' filed an M.A. No. 2954 of 2019 dated 28th August, 2019,

before the Adjudicating Authority (NCLT- Mumbai) seeking inter-alia

to stay of the termination notice issued by the Appellant. The

Adjudicating Authority by an Order dated 18th December, 2019 in the

Company Appeal (AT) (Insolvency) No. 237 of 2020 3

above M.A. was pleased to grant interim stay of the termination

notice issued by the Appellant.

5. The Learned Counsel for the Appellant submitted that the

Appellant is aggrieved by the Order of the Adjudicating Authority

dated 18th December, 2019 on the ground that the Adjudicating

Authority failed to appreciate the arbitration agreement contained in

Clause 12(d) of the Facilities Agreement, and failed to appreciate that

a valid notice of termination was issued by the Appellant. The

Adjudicating Authority failed to appreciate that the notice of

termination was not in contravention of Section 14 of the Insolvency

& Bankruptcy Code (in short I&B Code). In view of the submissions

as made above the Learned Counsel for the Appellant sought

direction to set aside the Impugned Order dated 18th December, 2019

passed in M.A. No. 2954 of 2019.

6. The Learned Counsel for the Respondent filed a detailed reply

and submitted that the Corporate Debtor i.e. the S.K. Wheels Private

Limited had entered into a build phase agreement dated 24th August,

2015. Consequently, the parties entered into a Facilities Agreement

dated 1st December, 2016. The Learned Counsel submitted that in

terms of the agreement the 'Corporate Debtor' was under the

obligation to inter-alia fit the premises with the materials as per

specification mentioned in the agreement and provide certain

facilities. There were certain routine operational requirements which

were pointed out from time to time by the Appellant to the 'Corporate

Company Appeal (AT) (Insolvency) No. 237 of 2020 4

Debtor". Those requirements were rectified within a reasonable time

frame. It is not out of place to mention that the Appellant addressed

a letter dated 11.10.2018 alleging certain deficiencies in services. A

meeting between parties was held whereby all the issues were taken

note of and remedied by end of October, 2018. Further, the

Appellant on 19.11.2018 intimated the 'Corporate Debtor' that due to

inefficient number of housekeeping staff, the Appellant was keeping

the housekeeping staff from their end and the amount incurred

would be deducted from the invoice of the Appellant. It is submitted

that all the deficiencies were cured at the cost of the Corporate

Debtor. It is submitted that the Corporate Insolvency Resolution

Process (in short CIRP) against the Corporate Debtor was initiated on

29th March, 2019, the Appellant itself states that it allegedly became

aware when the electricity was disconnected sometime in April 2019,

which was due to non-payment of electricity charges during CIRP

and was eventually restored. It is submitted that certain meetings

were held in April and May, 2019, whereby, the Interim Resolution

Professional intimated the Appellant that no prejudice would be

caused to the Appellant and all the services and facilities would be

provided as contained in the agreement. The Learned Counsel

further submitted that the Appellant issued termination notice as per

the Clause 11(b) of the Agreement, however, the same is not in

accordance with the said clause. As per the above Clause, a 30 days'

notice needs to be given in the event of any material breach by either

party. However, no notice was received by the 'Corporate Debtor'

Company Appeal (AT) (Insolvency) No. 237 of 2020 5

except the termination notice dated 11.06.2019. The Learned

Counsel submitted that they have filed an application before the

Adjudicating Authority seeking directions to the Appellant to

continue the Facilities Agreement dated 01.12.2016, and staying of

termination of Facilities Agreement dated 01.12.2016 till the expiry of

Corporate Insolvency Resolution Process. After hearing the parties,

the Adjudicating Authority by Order dated 18th December, 2019

stayed the termination notice and directed the Appellant to adhere to

the terms of contract without fail.

7. Heard the Learned Counsel appeared for the respective parities

perused the pleadings documents filed in their support. This

Tribunal by Order dated 07.02.2020 when this appeal was filed and

after hearing the parties passed the following order: -

"Resolution Professional will provide the same

facilities to the Appellant-Tata Consultancy Services

Limited in terms of the Agreement to keep the

'Corporate Debtor' as a going concern.

In mean time it will be open to the Resolution

Professional to proceed with the Corporate

Insolvency Resolution Process in accordance with

law and any action shall be subject to the decision

of this Appeal."

Company Appeal (AT) (Insolvency) No. 237 of 2020 6

8. It is not in dispute with the appellant and the 'Corporate

Debtor' entered the build phase agreement dated 24.08.2015

(Annexure- A-2, Page- 30) and the Parties have signed the said

agreement. In continuation of the said agreement, the Appellant

and the Corporate Debtor had entered Facilities Agreement dated 1st

December, 2016 signed by both the parties. Clause 11 stipulates

the termination of the Facilities Agreement which is reproduce

herein.

11(b): Termination for material breach:- Either

party may terminate this agreement immediately

by a written notice to the other party in the event

of a material breach which is not cured within 30

days of the receipt of the said notice period.

As per the termination clause it is mandatory to issue notice to

the party in the event of a material breach and if the same is not

cured.

9. The Learned Counsel for the Respondent submitted that they

had not received any notice asking to cure the material breach and

the notice was without complying the said clause the notice for

termination was issued. On the other hand, the Learned Counsel for

the Appellant submitted that the Appellant noticed the material

breaches of obligations by the Corporate Debtor including deployment

of personal lacking requisite level of scale, non-adherence of design

guidelines, non-replacement of furniture and air conditioners etc.

The Learned Counsel contended that the Appellant issued multiple

Company Appeal (AT) (Insolvency) No. 237 of 2020 7

notices seeking remedying of such breaches, however, the Corporate

Debtor failed to remedy the contractual breaches which led to issue

and serve termination notice. Prima-facie as sated (Supra) the

Learned Counsel for the Respondent submitted that they have cured

all the deficiencies and the termination notice after the initiation CIRP

(Corporate Insolvency Resolution Process) is against the main object

of the Code.

10. Admittedly, the CIRP process was initiated on 29th March, 2019

against the 'Corporate Debtor". The termination notice is subsequent

to the admission of the initiation of the CIRP. In this Appeal the

limited question is whether the order passed by the Adjudicating

Authority staying the termination notice is legal or not. Therefore, we

are confined to the limited question whether the order passed by the

Adjudicating Authority staying the termination notice is legal or not.

Before deciding the said issue, we have to look into the legal position.

In the present case admittedly, moratorium was imposed as per

Section 14(1) of the I&B Code 2016. Sub Section (1) reads thus:-

....

"14(1):- Subject to provisions of sub-sections (2) and

(3) on the insolvency commencement date, the

Adjudicating Authority shall by order declare

moratorium for prohibiting all of the following,

namely:-

Company Appeal (AT) (Insolvency) No. 237 of 2020 8

(a) The institution of suits or continuation of

pending suits or proceedings against the

corporate debtor including execution of any

judgement, decree or order in any Court of

law, tribunal, arbitration panel or other

authority;

(b) Transferring, encumbering, alienating or

disposing of by the corporate debtor any of its

assets or any legal right or beneficial interest

therein'

(c) Any action to foreclose, recover or enforce any

security interest created by the corporate

debtor in respect of its property including any

action under the Securitisation and

Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (54

of 2002);

(d) The recovery of any property by an owner or

lessor where such property is occupied by or

in the possession of the corporate debtor.

...

It is evident from the Order dated 29th March, 2019 of the

Adjudicating Authority the application under Section 7 IBC was

admitted and prohibited the transactions as contemplated under

Company Appeal (AT) (Insolvency) No. 237 of 2020 9

above Provision. Following is the operative portion of the Impugned

Order which reads under:

...

"7. This Adjudicating Authority, on perusal of

the documents filed by the Creditor, is of the view that

the Corporate Debtor defaulted in repaying the loans

availed and also placed the name of the Insolvency

Resolution Professional to act as Interim Resolution

Professional to act as Interim Resolution Professional

and there being no disciplinary proceedings pending

against the proposed resolution professional, therefore

the Application under sub-section (2) of Section 7 is

taken as complete, accordingly this Bench hereby

admits this Petition prohibiting all of the following of

item-I, namely:

(I) (a) the institution of suits or continuation of

pending suits or proceedings against the

Corporate Debtor including execution of any

judgment, decree or order in any court of

law, tribunal, arbitration panel or other

authority;

(b) transferring, encumbering, alienating or

disposing of by the Corporate Debtor any of

Company Appeal (AT) (Insolvency) No. 237 of 2020 10

its assets or any legal right or beneficial

interest therein;

(c) any action to foreclose, recover or enforce

any security interest created by the

Corporate Debtor in respect of its property

including any action under the

Securitisation and Reconstruction of

Financial Assets and Enforcement of

Security Interest Act, 2002 (SARFAESI Act);

(d) the recovery of any property by an

owner or lessor where such property is

occupied by or in the possession of the

Corporate Debtor.

(II) That the supply of essential goods or

services to the Corporate Debtor, if

continuing, shall not be terminated or

suspended or interrupted during

moratorium period.

(III) That the provisions of sub-section (1) of

Section 14 shall not apply to such

transactions as may be notified by the

Central Government in consultation with

any financial section regulator.

(IV) That the order of moratorium shall have

effect from 29.03.2019 till the completion of

Company Appeal (AT) (Insolvency) No. 237 of 2020 11

the corporate insolvency resolution process

or until this Bench approves the resolution

plan under sub-section (1) of section 31 or

passes an order for liquidation of Corporate

Debtor under section 33, as the case may

be.

(V) That the public announcement of the

corporate insolvency resolution process

shall be made immediately as specified

under section 13 of the Code.

(VI) That this Bench hereby appoints Mr. Vishal

Ghisulal Jain, B03/7/1-2, Section- 15,

Vashi, Navi Mumbai- 400703, Email:-

vishal@cavishaljain.com, having

Registration No. IBBI/IPA-001/IP-

P00419/2017-18/1072 as Interim

Resolution Professional to carry the

functions as mentioned under Insolvency &

Bankruptcy Code."

...

From the order it is seen that the Respondent herein was

appointed as Interim Resolution Professional (in short IRP) to carry

out the functions as per law. In view of Section 14 once a moratorium

was imposed by the Adjudicating Authority and on appointment of

Interim Resolution Professional the Interim Resolution Professional

Company Appeal (AT) (Insolvency) No. 237 of 2020 12

will be at the helm of affairs of the company in view of the suspension

of the Board of Directors of the 'Corporate Debtor'. As on the date of

the imposition of moratorium the business and activities of the

'Corporate Debtor' will have to be carried out for smooth functioning

of the company and the company shall remain as a going concern.

Apart from that the Resolution Professional shall ensure for smooth

running of the company as a going concern and the Resolution

Professional shall perform the duties as per Section 25 of the I&B

Code. Sub- Section (2)(a) of Section 25, the Resolution Professional

take immediate custody and control of all the assets of the Corporate

Debtor, including the business records of the Corporate Debtor.

Further sub-section 2 (b) of Section 25 of the I & B Code states that

...

"(b) represent and act on behalf of the corporate debtor

with third parties, exercise rights for the benefit of the

corporate debtor in judicial, quasi- judicial or

arbitration proceedings;"

...

Further, the said provision sets out the duty of Resolution

Professional to preserve and protect the assets of the 'Corporate

Debtor' and lays down the functions he may perform the same. In

view of the duties cast upon the Resolution Professional, the

Resolution Professional to keep the Corporate Debtor as a going

concern and filed an application being C.A. (M.B.)- 2954 of 2019

before the Adjudicating Authority seeking stay of termination of notice

Company Appeal (AT) (Insolvency) No. 237 of 2020 13

and sought direction to the Appellant to continue the Facilities

Agreement dated 01.12.2016.

11. 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.

12. We find there is no substance in the Appeal. Accordingly, the

Appeal is disposed of. No orders as to costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Justice Anant Bijay Singh] Member (Judicial)

[Kanthi Narahari] Member (Technical) NEW DELHI Sim

Company Appeal (AT) (Insolvency) No. 237 of 2020