Validity Of Ipso Facto Clauses In Employment Contracts

This 2^nd article in our 2-part series on 'Employment Contracts vis-à-vis CIRP' examines the validity of ipso facto clauses which permit employees to terminate their employment on the occurrence of an insolvency event; and acknowledges the duelling priorities of upholding contractual freedom and ensuring that the debtor remains a 'going concern'.

In Gujarat Urja Vikas Nigam v Amit Gupta,¹ the Supreme Court of India defined ipso facto clauses as "...contractual provisions which allow a party ("terminating party") to terminate the contract with its counterparty ("debtor") due to the occurrence of an "event of default". In the context of insolvency law, in some of these ipso facto clauses, the "event of default" includes applying for insolvency, commencement of insolvency proceedings, appointment of insolvency representative, et al..."