NCLAT New Delhi: Termination Of Contract For Persistent Defaults During CIRP Not Barred By Moratorium Under Section 14 Of IBC
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that the termination of a contract based on long-standing performance defaults does not violate the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC). A Bench comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) dismissed an appeal filed by Mr. Pradeep Upadhyay, Liquidator of M/s Dugal Associates Pvt. Ltd., against the Bhadohi Industrial Development Authority (BIDA), thereby upholding the order of the NCLT, New Delhi Bench (Court-II) dated June 6, 2025.
Background
M/s Dugal Associates Pvt. Ltd., the corporate debtor, was awarded a civil construction contract by Bhadohi Industrial Development Authority (BIDA) for execution of building works. The project was repeatedly delayed due to performance deficiencies, and despite several extensions granted by BIDA, the corporate debtor failed to meet its contractual milestones. Subsequently, the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor. During the subsistence of the moratorium period under Section 14 of the IBC, BIDA terminated the contract, forfeited the earnest money and retention amounts, and blacklisted the corporate debtor from participating in future tenders. Aggrieved, the Liquidator filed an application before the NCLT contending that the termination and blacklisting were direct consequences of insolvency, and thus barred by the moratorium. However, the NCLT dismissed the application, leading to the present appeal before the NCLAT.
Appellant’s Submissions
The Liquidator argued that the termination and blacklisting were intrinsically linked to the initiation of CIRP and therefore violated the protection afforded under Section 14 of the IBC. It was contended that the District Collector had constituted a committee to assess the cause of delay, but BIDA acted prematurely by terminating the contract before the committee’s report was finalized. The appellant further asserted that the termination adversely affected the CIRP, as it discouraged potential Resolution Applicants and eventually led to the liquidation of the corporate debtor. Relying on the Supreme Court’s ruling in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta & Ors. [(2021) 7 SCC 209], the appellant argued that the NCLT has jurisdiction to interfere with termination if the contract is central to the revival of the corporate debtor.
Respondent’s Submissions
On the other hand, BIDA contended that the termination was solely based on prolonged performance failures, unrelated to the insolvency process. It emphasized that multiple show cause notices had been issued to the corporate debtor before termination, but there was consistent non-performance even after several extensions. BIDA further submitted that forfeiture of earnest money and blacklisting were contractual consequences flowing from default and were not in the nature of recovery actions, and hence, were not barred by the moratorium. It was also argued that the CIRP proceedings did not render the contract “essential” to the survival of the corporate debtor, and therefore, the protection under Section 14 was inapplicable.
Findings of the NCLAT
After hearing both parties and perusing the record, the Appellate Tribunal found that the termination was a result of persistent contractual breaches, and not a consequence of insolvency. The Bench noted that the NCLT had correctly observed that the corporate debtor was engaged in providing construction services to BIDA and was not receiving any goods or supplies from the authority. Therefore, the moratorium protection under Section 14 could not be extended to such a situation. “The Adjudicating Authority has rightly noted that the corporate debtor was not obtaining any goods or supplies from the Respondent but was providing construction services. Since the work was not progressing as per schedule, the Respondent was within its contractual rights to terminate the agreement. The termination had nothing to do with the initiation of CIRP,” the Bench held.
The NCLAT also referred to the Supreme Court’s judgment in Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain, Resolution Professional, SK Wheels Pvt. Ltd. [(2021) 9 SCC 449], which held that termination of a contract due to performance default does not attract the moratorium unless it is shown that the termination is solely on account of insolvency or that the contract is vital to the corporate debtor’s survival. “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 Tribunal reiterated.
The Bench clarified that the NCLT has no residual or overarching jurisdiction to adjudicate contractual disputes arising independently of insolvency, and that the moratorium under Section 14 cannot be invoked to restrain termination of contracts for legitimate performance defaults. “The Adjudicating Authority does not possess any residual or overarching jurisdiction to adjudicate contractual disputes arising independently of insolvency. In the absence of such jurisdiction over the dispute, the protective ambit of Section 14 is inapplicable,” the order stated.
No Essentiality To CIRP
The Tribunal further held that the contract in question was not essential for the continuation or success of the CIRP. Consequently, the limited exception recognized in Gujarat Urja Vikas Nigam Ltd.—where termination may be stayed if it directly affects the CIRP—was not applicable in the present case. Since there was no evidence to suggest that continuation of the BIDA contract was crucial to the corporate debtor’s revival, the Tribunal declined to interfere with the termination.
Concluding that the termination was based purely on performance defaults and not triggered by insolvency, the NCLAT upheld the order of the NCLT and dismissed the appeal. “There is nothing on record to demonstrate that the contract was essential to the success of the CIRP. The termination was justified on account of consistent performance failures and is not hit by the moratorium under Section 14,” the Bench concluded.
Appearance
For Appellant: Mr. Sanjeev Panda, Mr. Sumit Shukla, Advocates with Mr. Pradeep Upadhyay, Liquidator.
For Respondent: Mr. Shivam Kumar, Ms. Upasana Singh, Advocates.
Cause Title: Pradeep Upadhyay Liquidator M/s Dugal Associates Private Limited Versus Bhadohi Industrial Development Authority (BIDA)
Case No: Company Appeal (AT) (Insolvency) No. 1152 of 2025
Coram: Justice Ashok Bhushan (Chairperson), Arun Baroka (Technical Member)
