Termination Of Contract During CIRP For Performance Default Not Covered By Moratorium: NCLAT New Delhi

The National Company Law Appellate Tribunal (NCLAT) New Delhi held that termination of a contract based on long performance defaults does not violate section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC). A Bench comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) dismissed the appeal filed by Mr. Pradeep Upadhyay, Liquidator of M/s Dugal Associates Pvt. Ltd., against Bhadohi Industrial Development Authority (BIDA), upholding the order of the NCLT, New Delhi dated June 6, 2025. M/s Dugal Associates Pvt. Ltd. was engaged by BIDA for a Civil Construction contract for execution of building works. The project faced repeated delays and performance deficiencies despite extensions given by BIDA. The Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor. During the subsistence of moratorium, BIDA terminated the contract and blacklisted the corporate debtor and forfeited its earnest money and retention amounts. The Liquidator submitted that termination and blacklisting were direct consequences of the insolvency, therefore barred by the moratorium. It was further submitted that the District Collector had formed a committee to examine delays but the BIDA acted prematurely by terminating the contract without waiting for the report. It was further submitted that termination and forfeiture affected the CIRP and discouraged the prospective resolution applicants which led to liquidation of the corporate debtor. Relying on Gujarat Urja Vikas Nigam Ltd., It was submitted that the NCLT has jurisdiction to stay termination if the contract was central to the revival of the corporate debtor. Per contra, the Respondent submitted that the termination was based solely on contractual non-performance, not on insolvency. It was further submitted that the corporate debtor was given multiple show cause notices but it failed to complete the project despite several extensions. It was further submitted that the blacklisting and forfeiture were contractual consequences for default, not recovery actions, therefore not hit by moratorium. Lastly, it was submitted that CIPR did not render the contract essential to survival of the corporate debtor, so the protection under section 14 of the IBC could not apply. The Tribunal observed that the termination was due to persistent performance defaults and prolonged correspondence between the parties, not motivated by insolvency. “Adjudicating authority has also noted that the CD was not getting any goods or supplies from the Respondent and rather it was providing service to the Respondent in the form of construction work. Moreover, the construction work was not proceeding as per the stipulated time frame and therefore, the Respondent was within its rights to terminate the contract. It has nothing to do with the initiation of the CIRP proceedings.,” the Bench held. Citing Tata Consultancy Services Ltd., the Tribunal held that the termination of a contract based on performance deficiencies does not fall within the sweep of section 14 of the IBC unless such termination is solely due to insolvency and essential to the success of the CIRP. “The National Company Law Tribunal (NCLT) does not possess any residual or overarching jurisdiction to adjudicate contractual disputes arising independently of the insolvency of the Corporate Debtor. In the absence of such jurisdiction over the dispute in question, the protective ambit of Section 14 in the form of moratorium is inapplicable to the termination of a contract.,” the Tribunal said. The Tribunal further held that the contract was not essential to the CIRP of the corporate debtor, therefore limited exception carved out in Gujarat Urja allowing judicial interference where termination affects the CIRP success, was not applicable to the facts of the present case. Accordingly, the Tribunal dismissed the present appeal holding that termination of contract during CIRP was not covered by the moratorium under section 14 of the IBC. There was nothing to demonstrate that the contract was essential to the success of the CIRP, it concluded. Case Title:Pradeep Upadhyay Liquidator M/s Dugal Associates Private Limited Versus Bhadohi Industrial Development Authority (BIDA) Case Number: Company Appeal (AT) (Insolvency) No. 1152 of 2025 Judgment Date: 07/11/2025 For Appellant :Mr. Sanjeev Panda, Mr. Sumit Shukla, Advocates with Mr. Pradeep Upadhyay, Liquidator. For Respondent : Mr. Shivam Kumar, Ms. Upasana Singh, Advocates. Click Here To Read/Download The Order

Termination Of Contract During CIRP For Performance Default Not Covered By Moratorium: NCLAT New Delhi

Mohd Malik Chauhan

Tags