Whether an exclusive jurisdiction clause in a commercial contract covers insolvency proceedings initiated under the Insolvency and Bankruptcy Code, 2016 (IBC)?

The National Company Law Appellate Tribunal (NCLAT) in Excel Metal Processors Limited v. Benteler Trading International GMBH and Anr  decided that exclusive jurisdictional clauses do not cover proceedings under the IBC.Exclusive jurisdictional Clauses are contractual terms that explicitly state the mutual intent of the parties.

Facts of the Case

The applicant (a German Company) filed an application under section 9 of the IBC for default in paying .The Corporate Debtor stated that the case was not maintainable in the Indian Court as the agreement between the parties stated   “any suit or case is maintainable only in the Court at Germany.”

Since, NCLT has jurisdiction to entertain an application under I&B Code, the Parties cannot derive advantage of the terms of the Agreement where Parties agreed that any suit or case being maintainable only in the Court outside India. NCLAT rejected the appeal and   upheld the decision of NCLT.

NCLAT relied on NCLTs decision in Binani Industries Limited vs Bank of Baroda  and held   insolvency proceeding is neither a ‘suit’ nor a ‘litigation’ and is not a recovery proceeding.

‘Corporate Insolvency Resolution Process’/ Insolvency Proceedings is not a ‘suit’ or a ‘litigation’ or a ‘money claim’ for any litigation; No one is selling or buying the ‘Corporate Debtor’ a ‘Resolution Plan’; It is not an auction; it is not a recovery, which is an individual effort by the creditor to recover the dues through a process that had debtor and creditor on opposite sides; and it is not liquidation. The object is mere to get resolution brought about, so that the Company do not default on dues.

Conclusion

Section 408 of the Companies Act, 2013, the National Company Law Tribunal has been constituted in different States. In terms of the said provision, the Central Government has notified and vested the power on respective National Company Law Tribunals to deal with the matter within its territory, where the registered Offices of the Companies are situated.

As per Section 60(1) of the I&B Code, “The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located”.

As admittedly, the Registered Office of the ‘Corporate Debtor’ namely – Excel Metal Processors Private Limited was situated in Mumbai-, it was held that the National Company Law Tribunal, Mumbai Bench has the jurisdiction to entertain an application under Section 9 of the I&B Code and the Appellant cannot derive advantage of the terms of the Agreement reached between the parties.

NCLAT held that exclusive jurisdiction clauses do not cover insolvency proceedings and the NCLT and the NCLAT both have jurisdiction over such matters.

The tribunal decided that exclusive jurisdictional clauses do not cover proceedings under the IBC.