The Supreme Court of India last week delivered a landmark Judgment in the matter of State Bank of India & Ors. vs. The Consortium of Mr. Murarilal Jalan and Mr. Florian Fritsch & Anr., whereby Jet Airways (India) Ltd. has been ordered for liquidation.
In the last 5 years, the journey of Jet Airways, formerly one of the country’s largest airlines has been nothing short of tumultuous. Once a pioneer in the aviation sector, the airline would meet such a fate in such manner, no one would have imagined. Jet Airways was incorporated on April 1, 1992 and founded by Mr. Naresh Goyal, who has recently been granted bail by the Bombay High Court, on medical ground, in a money laundering case.
The saga of Jet Airways began, when the company was dragged into the Insolvency proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 (as amended) (IB Code), by one of the lead lender banks, State Bank of India, on account of default committed by Jet Airways. Pursuant thereto, on June 20, 2019, Jet Airways was admitted into Corporate Insolvency Resolution Process (CIRP). The total admitted claim of the Financial Creditors was Rs. 7800 Crore (approx.). During the CIRP, the Consortium of Murari Lal Jalan and Florian Fritsch emerged as successful resolution applicant (SRA) whose plan was approved by majority of the Committee of Creditor (CoC) and thereafter stamped by the Adjudicating Authority, National Company Law Tribunal, Mumbai (NCLT) in an order dated June 22, 2021.
The SRA came as a ray of hope for the Jet Airways to seek revival of the Company through its Resolution Plan which also meets with the object of IB Code. Clause 7.6.2 of the Resolution Plan provided that the date of fulfilment of all the Conditions Precedent as stated in Clause 7.6.1, shall be the Effective Date for the purposes of the Resolution Plan. A failure to fulfill the Conditions Precedent within 270 days of the Approval Date would lead to an automatic withdrawal of the Resolution Plan as per Clause 7.6.4. With certain extensions as recorded in the order, the NCLT considered May 20, 2022 as Effective Date. According to the Appellant, SRA had failed to make the first tranche payment of Rs. 350 Crore, airport dues of Rs. 475 Crore and the workmen’s and employees’ dues of Rs. 226 Crore within the initial 180 days from the Effective Date as well as within the multiple extensions granted by the NCLT, National Company Law Appellate Tribunal (NCLAT) and Supreme Court. The SRA deposited Rs.200 crores and failed to deposit remaining 150 crores within extended date to complete the first tranche payment of Rs.350 Crores. The NCLAT allowed adjustment of Performance Bank Guarantee (PBG) of Rs.150 crores in lieu of payment of the first tranche. This action on part of the NCLAT was challenged in the Appeal filed before the Supreme Court.
The issues which fell for consideration before the Supreme Court were:
• Whether the PBG could have been adjusted against the first tranche payment which was to be made under the Resolution Plan, within 180 days from the Effective Date in contravention of the order of this Court dated 18th January 2024, the terms of the Resolution Plan and the provisions of law? To put it in other words, whether the impugned order of the NCLAT allowing the adjustment of the PBG in lieu of payment of the first tranche could be said to be perverse?
• Whether the non-implementation of the Resolution Plan by the SRA necessarily leads to the consequence of liquidation as provided under Section 33(3) of the IBC, 2016?
• Whether the timely implementation of the Resolution Plan is also one of the objectives of the IBC, 2016?
The Supreme Court held that the PBG of Rs. 150 Crore could not have been allowed to be adjusted with the first tranche payment of Rs. 350 Crore as sought to be directed by the NCLAT, as the same was found to be in ignorance of the order dated January 18, 2024 passed by the Supreme Court i.e. that the remaining amount of Rs. 150 Crore had to be necessarily deposited in cash only. This has resulted in a perverse decision which stands contrary to law and to the terms of the Resolution Plan itself. Supreme Court emphasised on the fact that as per the IB Code and IBBI, Regulation 36B(4A), the PBG ought to have been kept alive and not adjusted towards payment of first tranche unless the entire plan is implemented. As such, the adjustment of Rs.150 crore as directed by the NCLAT towards first tranche of payment was perverse, contrary to the terms of the Plan and RFRP more particularly in violation of regulation 36B(4A) of the IBBI, Regulations.
Referring to the principles laid down in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited & Anr., (2022) 2 SCC 401(Ebix case), court held that SRA can not be permitted to modify the plan once approved by Adjudicating Authorities. The SC Judgment rejected SRA’s contention that the condition in the Lenders’ Affidavit (which stipulated that the first tranche payment of Rs. 350 crores had to be made in cash) was different from the Plan, as the terms/ conditions in the Lenders’ Affidavit could not have modified the Plan.
The Court further observed that the SRA not having infused the first tranche payment of Rs. 350 Crore as per Clause 6.3.1(g) and S. No. 11 of the Implementation Schedule under Clause 7.7 within a period of 180 days from the Effective Date and within the multiple extensions granted therefrom, has defaulted on its obligation towards the payment of CIRP costs (which include airport dues) under Clause 6.4.1 as well. Supreme Court has observed that more than 5 years have passed, and the implementation of the Resolution Plan still seems to be a dim light at the far end of a long tunnel. Consequentially, the amount deposited by SRA towards part payment of first tranche being Rs.200 crores was directed to be forfeited with further direction to Lenders / Creditor to invoke the PBG of Rs.150 crores furnished by SRA.
Although one of the key objectives of the IBC, 2016 is to ensure the survival of the corporate debtor as a going concern, yet the same must not come at the cost of efficiency. In scenarios such as the present, the supreme court found that “timely liquidation” is indeed preferred over an “endless resolution process”. Such a view will prevent the likelihood of adversely affecting the interests of all the creditors who have been suffering due to no fault of their own and also securing the maximization of value of the remaining assets. As such, invoking jurisdiction under Article 142 of the Constitution, the Supreme Court directed that Jet Airways be taken in liquidation.
Further, the Supreme Court has also directed the NCLT and NCLAT to use caution while extending the timelines for implementing the plan as the same can not be done in mechanical manner. It has also observed that while this is the obligation of the SRA to ensure strict compliance of the plan in timely manner irrespective of the any challenges, the lenders and CoC also has fundamental duty to ensure that implementation of plan is not scuttled due to their non-cooperation or unwarranted demands. This Judgment categorically and abundantly makes it clear that the SRA can not take implementation of the plan for granted.
This Judgment is an eye opener for all stakeholders which ensures that the provisions of IB Code are implemented in timely manner. The SRAs must take profound responsibility to ensure that plan is implemented in timely manner. It also highlights that the lenders/creditors have fundamental duty to render necessary cooperation to SRA. The NCLT and NCLAT should be more cautious while granting extensions. This Judgment itself is major setback for the Jalan-Kalrock Consortium which has infused atleast Rs.350 crores and still could not get hold of Jet Airways. Going forward, this will also put deterrence on proposed SRA’s as the consequences are clear that any amount infused shall be forfeited in case the plan is not implemented.
Author: Vivek Dwivedi