Author: Tanya Mathur, Student at Gujarat National Law University
The insolvency proceedings of Jet Airways (India) Limited commenced on 26th June 2019, as per the order of the National Company Law Tribunal (NCLT), setting the stage for one of India’s most complex corporate insolvency cases. With claims amounting to ₹7,800 crores admitted against the corporate debtor, the resolution process unfolded under the provisions of the Insolvency and Bankruptcy Code, 2016. As part of the Corporate Insolvency Resolution Process (CIRP), a Request for Resolution Plan (RFRP) was issued, mandating a performance bank guarantee (PBG) or demand draft of ₹150 crore or 10% of the resolution plan’s upfront amount, whichever was higher.
The resolution plan submitted by the Murari Lal Jalan and Florian Fritsch consortium was approved by the NCLT on 22nd June 2021, with an “effective date” set 90 days from the plan’s approval. However, meeting the conditions precedent proved challenging, with the initial 90-day deadline expiring on 22nd September 2021. Extensions were granted, first by 90 days until 22nd December 2021 and later by another 90 days, culminating on 22nd March 2022. The NCLT further excluded 65 days from the timeline to address delays, revising the effective date to 25th May 2022.
The successful resolution applicant (SRA) was required to infuse ₹350 crore as part of the implementation schedule within 180 days, from 20th May 2022 to 16th November 2022. However, disputes arose regarding the fulfillment of conditions precedent. Applications were filed by the SRA seeking declarations of compliance and exclusions for the payment deadline of the first tranche, which were allowed by the NCLT on 13th January 2023, extending the deadline to 15th May 2023.
Meanwhile, on 30th January 2023, the Supreme Court upheld an order by the National Company Law Appellate Tribunal (NCLAT), holding the SRA liable to clear gratuity and provident fund dues within 180 days of the effective date. The NCLT mandated subsequent monitoring of the resolution plan’s implementation. As further disputes persisted, the NCLAT, through its order on 26th May 2023, excluded the period between 16th November 2022 and 3rd March 2023, extending the payment deadline to 31st August 2023.
In a pivotal turn, the SRA filed for adjustment of the PBG against the first tranche of ₹350 crore. The NCLAT permitted this adjustment on 28th August 2023, extending the implementation timeline to 30th September 2023. By this date, ₹200 crore was deposited by the SRA. However, the Supreme Court intervened on 18th January 2024, ruling that the PBG could not be adjusted against the first tranche. It directed the SRA to pay ₹150 crore by 31st January 2024, cautioning that non-compliance would invoke consequences outlined in the resolution plan.
On 12th March 2024, the NCLAT declared the conditions precedent fulfilled and extended the payment deadline for ₹350 crore to 11th April 2024, reiterating the allowance for PBG adjustment. The SRA’s challenges to these orders demonstrate the intricate dynamics of resolution plans and stakeholder obligations under India’s insolvency framework.
FINDINGS OF THE SUPREME COURT
The Supreme Court determined the following issues.
Whether the Performance Bank Guarantee (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 18.01.2024, the terms of the Resolution Plan and the provisions of law?
The Supreme Court criticized the SRA’s claim that pending litigation tied its hands, deeming it a mala fide excuse to evade obligations under the Resolution Plan. The Court emphasized that delays are unacceptable given the IBC’s goal of timely corporate revival. It noted that the effective date had been frozen at 20.05.2022, with multiple extensions granted for the first tranche payment, including a final deadline of 31.01.2024.
The Court further held that adjusting the PBG against the first tranche was contrary to the RFRP provisions in the Resolution Plan and Regulation 36B(4A) of the IBBI Regulations. It clarified that an approved Resolution Plan is binding and cannot be altered. In light of its prior order dated 18.01.2024, the PBG of ₹150 crore could not be adjusted with the ₹350 crore first tranche payment. The SRA’s non-compliance constituted a breach of its obligations to implement the plan.
Whether 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.
The Supreme Court observed that the SRA had defaulted on several aspects of the Resolution Plan, including failing to infuse the first tranche of ₹350 crore and the non-payment of CIRP costs, such as Airport dues. It also noted that the NCLAT’s order dated 21.10.2022 clearly required the SRA to pay Provident Fund and Gratuity dues to avoid invalidating the Resolution Plan under Section 30(2)(e) of the IBC, 2016. The SRA’s failure to comply with this further compounded the defaults.
The Court emphasized that while the IBC aims to ensure the corporate debtor’s survival, it should not come at the cost of efficiency. In such cases, “timely” liquidation is preferred over an indefinite resolution process. This approach prevents harm to creditors, who are already suffering due to the delays, and ensures maximizes the remaining assets’ value.
Whether the timely implementation of the Resolution Plan is also one of the objectives of the IBC, 2016?
The Supreme Court highlighted the importance of a timely resolution process under the IBC, 2016, referencing several decisions that emphasized the need for time-bound completion of the CIRP as per Section 12 and the avoidance of unnecessary delays during liquidation. The Court emphasized that delays during either process can lead to the depletion or depreciation of the Corporate Debtor’s assets. This principle extends to implementing the Resolution Plan, where unnecessary delay can similarly reduce the value of the assets.
The Court further observed that the discretion to extend the time limits set in the Resolution Plan should be exercised cautiously, particularly in sectors like aviation, where continuous cash flow is vital to maintaining operational status. Given the nature of the aviation industry, timely resolution and revival of the Corporate Debtor are critical to preserving the business’s value.
In light of these considerations, the Supreme Court invoked its powers under Article 142 of the Constitution and ordered the liquidation of the Corporate Debtor.
SUGGESTIONS
The Supreme Court provided several key suggestions in this case to enhance the efficiency and integrity of the insolvency process under the IBC, 2016:
Enforcement of Guidelines: While the Court acknowledged that the Commercial Wisdom of the Committee of Creditors (CoC) cannot be subjected to judicial review, it noted the self-regulating guidelines issued by IBBI on 06.08.2024. The Court suggested that the Central Government or IBBI explore the possibility of enforcing these standards through an independent oversight committee, rather than relying on self-regulation.
Minimizing Discretion in Altering Terms: The Court emphasized that the exercise of discretion regarding changes to the binding terms of the Resolution Plan, including timelines, should be minimal. It cautioned the NCLT and NCLAT against allowing successful resolution applicants to circumvent the strict mandates of the law by modifying the terms of the plan.
Documenting Next Steps: The Supreme Court recommended that the Adjudicating Authority, while approving a Resolution Plan under Section 31 of the IBC, 2016, should also record the specific next steps for implementation, ensuring clear guidance for the parties involved.
Constitution of Monitoring Committee: The Court suggested that the IBC should statutorily provide for the constitution of a Monitoring Committee once the Resolution Plan is approved. This committee would oversee the smooth handover of the Corporate Debtor to the successful Resolution Applicant.
Upholding Timelines and Objectives of the Code: The Supreme Court stressed that the integrity of the original timelines set by the Code and the Resolution Plan should not be compromised. Violations would undermine the purpose of the Code, erode investor confidence, and disrupt corporate restructuring efforts.
Expert Appointments and Infrastructure: The Court advised that the appointment of experts with domain knowledge should be prioritized, along with addressing the infrastructure needs of the Tribunals, to ensure the efficient functioning of the resolution process. It also emphasized that such appointments should not be politically motivated.
CONCLUSION
The Supreme Court’s decision underscores its commitment to protecting creditor rights under the IBC, emphasizing the need for strict compliance with approved resolution plans. This judgment strengthens the regulatory framework by reinforcing that Successful Resolution Applicants (SRAs) cannot unilaterally reinterpret conditions that could undermine creditor security. By affirming that the conditions set by the State Bank of India (SBI) were binding and non-negotiable, the Court reinforced the judiciary’s crucial role in upholding corporate insolvency rules. This decision promotes an efficient resolution process and ensures the consistent application of the IBC framework, safeguarding the integrity of the insolvency proceedings.
FAQS
What is the Jet Airways Insolvency Case about?
The Jet Airways insolvency case pertains to the corporate insolvency resolution process (CIRP) initiated under the Insolvency and Bankruptcy Code (IBC), 2016, after Jet Airways ceased operations due to financial difficulties. It involves claims amounting to ₹7,800 crores and the resolution plan approved for the airline’s revival.
Who is the Successful Resolution Applicant (SRA)?
The consortium of Murari Lal Jalan and Florian Fritsch emerged as the Successful Resolution Applicant (SRA) and was tasked with implementing the approved resolution plan.
What was the main contention regarding the Performance Bank Guarantee (PBG)?
The SRA sought to adjust the PBG of ₹150 crore against the first tranche payment of ₹350 crore, a move deemed inconsistent with the terms of the resolution plan and prior Supreme Court orders.
What was the Supreme Court’s decision on the PBG adjustment?
The Supreme Court ruled on 18th January 2024 that the PBG could not be adjusted against the first tranche payment. It directed the SRA to fulfill the payment obligations as per the resolution plan.
What are the implications of the SRA’s non-compliance with the resolution plan?
The Supreme Court emphasized that delays and non-compliance could lead to liquidation under Section 33(3) of the IBC, prioritizing timely resolution to safeguard creditors’ interests and maintain the corporate debtor’s asset value.
What role does the timeline play in insolvency cases under the IBC?
The IBC prioritizes a time-bound resolution process to ensure the efficient revival of distressed companies and prevent asset devaluation. Delays in implementing resolution plans undermine these objectives.
What suggestions did the Supreme Court provide for improving the insolvency process?
The Supreme Court suggested enforcing guidelines through an oversight committee, minimizing discretion in altering resolution plans, documenting next steps post-approval, constituting a statutory Monitoring Committee, upholding original timelines, and prioritizing expert appointments.
Why is the Jet Airways case significant for insolvency law?
This case highlights the importance of adhering to the IBC’s objectives, particularly the timely resolution of insolvency cases. It underscores the binding nature of resolution plans and establishes precedents for dealing with non-compliance by successful resolution applicants.
