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Trilegal Update
On November 23, 2021, a division bench of the Supreme Court in the Tata Consultancy Services Ltd. case clarified the precedent laid down in the Gujarat Urja case.
It held that the National Company Law Tribunal under section 60(5)(c) of the Insolvency and Bankruptcy Code can restrain a party from terminating a contract only if such termination arises solely from or relates to the insolvency of the corporate debtor.
Even if a contractual dispute arises in relation to the insolvency, a party can be restrained only if the contract is central to the success of the corporate insolvency resolution process i.e. only if such termination is likely to hamper the functioning of the corporate debtor as a going concern.
If the termination is on any ground unrelated to the insolvency, the NCLT cannot exercise its residuary jurisdiction to adjudicate the contractual dispute.
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