2 weeks Ago By Bhadra Sinha
New Delhi: Invoking its extraordinary powers under Article 142 of the Constitution, the Supreme Court Thursday directed the liquidation of Jet Airways. The plenary powers were put to use in view of the “peculiar and alarming” circumstance that the resolution plan to revive the airline company had not taken off more than five years after it went under insolvency. The three-judge bench, led by Chief Justice of India D.
Y. Chandrachud, said that the inordinate delay in implementing the resolution plan by the Successful Resolution Applicant (SRA) was prompting the court to utilise its powers under Article 142, which empowers the Supreme Court to pass any decree or order necessary for doing complete justice in any case or matter pending before it. In this case, the court ordered the liquidation even though the said issue was not before it.
The other two judges on the bench were Justices J.B. Pardiwala and Manoj Mishra.
Justice Pardiwala authored the order on behalf of the bench. The delay in the matter had led to multiplication of the dues that the grounded airline owed to multiple creditors. This, the court observed, frustrated the underlying objective of the Insolvency and Bankruptcy Code (IBC) of 2016, which was to ensure expeditious resolution of cases under the law.
The court’s fundamental concern is not just to do complete justice, but also to ensure the said objective is met, the bench said, while ordering the liquidation. Thursday’s decision set aside National Company Law Appellate Tribunal’s (NCLAT) order for transfer of the cash-strapped airline’s ownership to the SRA—Jalan Kalrock Consortium (JKC). This transfer had been ordered despite the SRA failing to abide by the resolution plan and a previous Supreme Court order that required JKC to pay Rs 350 crore as the first tranche of payment.
“We have no doubt in our mind that the NCLAT acted contrary to the settled legal principles and went to the extent of drawing wrong inferences from proved facts while deciding the matter,” the bench ordered, directing National Company Law Tribunal (NCLT) to appoint a liquidator immediately. The court permitted the lenders to forfeit Rs 200 crore, including Performance Bank Guarantee (PBG) of Rs 150 crore, the only amount infused by the SRA subsequent to the clearance of the resolution plan in 2021. Also Read: Jet Airways’ smooth takeoff, turbulence & crash landing.
Key events leading to SC-ordered liquidation Instead of referring the matter back to NCLT to decide whether liquidation should be ordered in the matter, the bench assessed it on its own. It held that the SRA’s inability to infuse the first tranche of payment had failed the implementation of the resolution plan that included payment of airport dues and clearing provident fund and gratuity dues of the workmen of Jet Airways. “We hasten to add that any delay in arriving at the conclusion that the company is to be liquidated is also detrimental to a company, especially when the company has long awaited timely and positive action from the successful resolution applicant as regards to the implementation of the approved resolution plan,” the bench said.
“This litigation is an eyeopener, has taught us many lessons about the IBC and functioning of NCLAT,” Justice Pardiwala observed before he read out some portions of the judgment in open court Thursday morning. This observation by the judge was on account of the slow pace at which the insolvency proceedings have progressed in the last five years. Before Thursday, it had already been litigated in the apex court twice—once to include Jet’s former employees in the resolution plan so that their dues could be settled and, the second time, it was on whether the first tranche of payment of Rs 350 crore can be adjusted against the PBG.
In January last year, the top court had upheld NCLAT’s decision, directing the SRA to pay provident fund and gratuity dues of Jet’s former employees. Then, in January this year, it set aside NCLAT’s direction that allowed the SRA to adjust the first tranche of payment of Rs 350 crore against the PBG that was given as security by the lenders. In its order, the court had directed the SRA to deposit Rs 150 crore on or before 31 January, 2024 with State Bank of India’s escrow account, failing which, it said, it would be declared as non-compliant with the resolution plan.
Besides, it had allowed the PBG of Rs 150 crore to continue to be in operation and remain in effect until the final disposal of the matter in NCLAT. Subsequently, in March this year, NCLAT ordered the monitoring committee, set-up under the Insolvency & Bankruptcy Code (IBC), to complete the transfer of ownership of the airlines to JKC within 90 days. But in doing so, it once again allowed adjustment of the PBG of Rs 150 crore towards the pending tranche payment of Rs 350 crore by JKC.
This direction was apparently in the teeth of the Supreme Court order in January. The SBI-led consortium moved the top court, calling the NCLAT order “legally incorrect”. It was in violation of Supreme Court’s 18 January order, besides being completely opposite to the resolution plan, it argued.
The resolution plan, the lenders submitted, prioritised the creation of securities before prioritising the PBG. Moreover, the upfront payment of airport dues of Rs 473 crore, as envisaged in the resolution plan, was not made. In terms of the final resolution plan, the SRA had to pay Rs 4,783 crore.
However, it has been struggling to pay the first tranche of Rs 350 crore and the lenders had till now received only Rs 200 crore, the court was informed. Furthermore, JKC had failed to clear workmen dues, as was ordered by the top court. The lenders, it was submitted in court, were losing out on Rs 22 crore every month to maintain the operations of the airline.
The SRA, on the other hand, objected to the lenders’ arguments for seeking to liquidate the airline. On its part, JKC argued that the PBG of Rs 150 crore could have been adjusted against the payment of the first tranche. In its judgment, the Supreme Court noted that NCLT gave its imprimatur to the resolution plan submitted by the SRA on 22 June, 2021.
According to the implementation schedule, the SRA had to fulfil five conditions within a period of 90 days, which was extendable to an additional 180 days. The total period of 270 days expired on 22 March, 2022. But the NCLT extended the deadline by two months.
Through an order on 13 January, 2023, the NCLT held that the SRA had met all the conditions and that 20 May, 2022 would be considered as the effective date for the purposes of implementing the resolution plan. An appeal was filed against the NCLT decision, claiming that the SRA had not fulfilled all the conditions laid out in the resolution plan. According to the Supreme Court verdict, since 20 May, 2022 was fixed as the effective date to commence the resolution process, the first tranche of payment Rs 350 crore had to be made by the SRA, upfront within a period of 180 days.
Several extensions were granted to the SRA to infuse this amount, at different stages of the litigation. The final deadline was fixed in January this year, when the top court directed the SRA to pay the money by 31 January. The CJI-led bench gave multiple reasons to reject the SRA’s contention on the adjustment of PBG towards payment of the first tranche.
The resolution plan, it noted, spoke of an unconditional and irrevocable PBG of Rs 150 crore in favour of the SBI within seven days of being declared the SRA. The plan empowered SBI to appropriate the PBG in case of a breach in the conditions outlined in the resolution plan. The PBG was to be returned to the SRA within seven days, upon 100 percent completion of the implementation of the resolution plan by it.
The bench strongly disapproved of the SRA’s defence that the resolution plan was “merely a wish list” of the Committee of Creditors (CoC) and was informed about it at the time of inviting plans. On the SRA’s stand about adjustment of the PBG, court said, would be against the 2016 regulations under the IBC. The regulations say that the performance security will be forfeited if the SRA fails to implement or contribute to the failure of implementation of the resolution plan.
This means, the PBG had to be kept alive until the complete implementation of the resolution plan. The Supreme Court judgment highlighted an NCLAT order by which the tribunal had restrained the lenders from invoking the PBG. A careful reading of this order, the court said, confirms that the PBG cannot be adjusted against the SRA’s payment obligations.
JKC’s argument that the resolution plan stipulated payment of Rs 200 crore in cash and Rs 150 crore through adjusting the PBG also stood rejected. Supreme Court’s January 2024 order was unequivocal and binding, the court declared. “There was no escape for the NCLAT in this regard,” the bench said, adding: “There was no option which was given to the SRA to deviate from this direction.
” The court said that its January order had given two directions to NCLAT. While the first was to keep the PBG of Rs 150 crore in operation until the tribunal decided the appeal related to the resolution plan, the second was to ensure the SRA fulfilled all conditions of the resolution plan before the ownership was transferred. (Edited by Mannat Chugh) Also Read: Supreme Court’s ‘summer vacation’ renamed ‘partial working days’ amid criticism over breaks var ytflag = 0;var myListener = function() {document.
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