Supreme Court Orders Liquidation of Jet Airways: A Landmark Decision Under IBC

Supreme Court Orders Liquidation of Jet Airways: A Landmark Decision Under IBC

IBC

In a significant and unprecedented move, the Supreme Court of India has invoked its extraordinary powers under Article 142 of the Constitution to order the liquidation of Jet Airways. This decision comes in the wake of a protracted and complex legal battle involving the airline’s resolution plan, which has been mired in controversy for over five years.

Background of the Case

The case revolves around the failed implementation of the resolution plan for Jet Airways, a process that was supposed to be facilitated by the Successful Resolution Applicant (SRA), Jalan KalRock Consortium (JKC). Despite approval from the National Company Law Tribunal (NCLT) and subsequent orders from the National Company Law Appellate Tribunal (NCLAT), the SRA failed to comply with the critical aspects of the resolution plan.

Key Issues and Rulings

  1. Non-Compliance with Resolution Plan:
    • The SRA was required to infuse Rs. 350 crores as the first tranche of payment as per the approved resolution plan. However, JKC failed to make this payment, leading to a series of legal challenges.
    • The NCLAT had allowed the adjustment of this payment against a Performance Bank Guarantee (PBG) of Rs. 150 crores, a decision that was later set aside by the Supreme Court.
  2. Supreme Court’s Intervention:
    • On January 18, 2023, the Supreme Court directed that JKC deposit Rs. 150 crores into an SBI escrow account by January 31, 2023, failing which they would be treated as non-compliant with the resolution plan.
    • The Court also mandated that the PBG of Rs. 150 crores remain in operation until the final disposal of the appeal before NCLAT.
  3. NCLAT’s Controversial Order:
    • Despite these clear directives, NCLAT in March 2024 allowed the monitoring committee of Jet Airways to complete the transfer of ownership to JKC within 90 days and permitted adjustment of the PBG towards the pending tranche payment.
    • This order was challenged by SBI-led lenders, who argued that it violated the Supreme Court’s earlier order and was legally incorrect.

Supreme Court’s Final Verdict

The Supreme Court, in its recent judgment delivered by a bench comprising Chief Justice DY Chandrachud and Justices JB Pardiwala and Manoj Misra, set aside the NCLAT order. Here are some key observations and directives from the Court:

  • Liquidation Ordered:
    • The Court directed the NCLT Mumbai Bench to appoint a liquidator forthwith and commence proceedings for the liquidation of Jet Airways due to the failure in implementing the resolution plan.
  • Forfeiture of Infused Amount:
    • The amount of Rs. 200 crores already infused by JKC stands forfeited.
  • Performance Bank Guarantee:
    • Lenders and creditors are entitled to encash the Performance Bank Guarantee of Rs. 150 crores furnished by JKC.
  • Critique of NCLAT Order:
    • The Court held that NCLAT’s order allowing adjustment of the first tranche payment against the PBG was in “flagrant disregard” of its earlier order and was “perverse.”
    • Justice Pardiwala noted that this litigation has been an “eyeopener” and has taught many lessons about the Insolvency and Bankruptcy Code (IBC) and the functioning of NCLAT.

Arguments Presented

Lenders’ Arguments

  • Additional Solicitor General N Venkataraman, representing SBI-led lenders, argued that NCLAT’s order was in violation of the Supreme Court’s January 18 order.
  • He emphasized that adjusting the PBG towards the pending tranche payment was legally incorrect and contrary to what the resolution plan envisaged.
  • The lenders also highlighted that upfront payment of airport dues and workmen dues were pending, adding to their financial burden.

SRA’s Arguments

  • Senior Advocates Mukul Rohatgi and Gopal Sankaranarayanan, representing JKC, objected to liquidation and argued that the Supreme Court’s January 18 order should be considered in its entirety.
  • They raised concerns about what would happen to the Rs. 200 crores already invested by JKC if liquidation proceeded.

Implications and Takeaways

This landmark decision underscores several critical points:

  1. Adherence to Resolution Plans:
    • The Supreme Court’s ruling emphasizes the importance of adhering strictly to approved resolution plans under IBC. Any deviations or adjustments must align with legal principles and previous court orders.
  2. Role of NCLAT:
    • The judgment highlights concerns about NCLAT’s interpretation and application of Iaw and the judgement of the Apex Court.
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