The National Company Law Appellate Tribunal (“NCLAT”), collectively in the matters of:

SMBC Aviation Capital Limited v. Interim Resolution Professional of Go Airlines (India) Limited, Abhilash Lal [Company Appeal (AT) (Insolvency) No. 593 of 2023],

SFV Aircraft Holdings IRE 9 DAC v. Interim Resolution Professional of Go Airlines (India) Limited, Abhilash Lal [Company Appeal (AT) (Insolvency) No. 603 of 2023],

GY Aviation Lease 1731 Company Limited and Others v. Interim Resolution Professional of Go Airlines (India) Limited, Abhilash Lal [Company Appeal (AT) (Insolvency) No. 604 of 2023],

Engine Leasing Finance B.V. v. Interim Resolution Professional of Go Airlines (India) Limited, Abhilash Lal [Company Appeal (AT) (Insolvency) No. 615 of 2023],

upheld the initiation of Corporate Insolvency Resolution Process (“CIRP”) of Go Airlines (India) Limited (“Corporate Applicant/ Respondent”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Facts

Pratt & Whitney (“P&W”) supplied faulty engines to the Corporate Applicant, owing to which the Corporate Applicant suffered losses and had to cancel several flights. After multiple attempts to resolve the issue amicably with P&W, an emergency arbitration was filed before the Singapore International Arbitration Centre against P&W, wherein the arbitrator passed arbitration awards requiring P&W to provide replacement engines which were not complied by P&W. Consequently, Corporate Applicant initiated enforcement proceedings against P&W in Delaware, U.S. and other relevant jurisdictions where engines were located.

The Corporate Applicant had committed a default of INR 2,660 Crores toward aircraft lessors, INR 1,202 Crores towards operational creditors (including dues towards its vendors) and default of INR 11.03 Crores (towards interest dues of the Financial Creditors, which did not exist on the date of filing the application). SMBC Aviation Capital Limited, GY Aviation, SFV Aircraft Holdings and Engine Leasing Finance B.V. (“Lessors/ Appellants”) had leased aircraft(s) to the Corporate Applicant.

Consequently, the Corporate Applicant sought for initiation of CIRP against itself and filed an application under Section 10 (Initiation of corporate insolvency resolution process by corporate applicant) of the IBC (“Application”). The New Delhi Special Bench of the National Company Law Tribunal (“NCLT”) admitted the Application by its order dated May 10, 2023 and initiated CIRP against the Corporate Applicant which resulted in a moratorium (“Impugned Order”) owing to which, the possession of the aircraft could not be taken by the lessors. NCLT also passed an order for suspension of the Corporate Applicant’s board of directors and ex-management. Mr. Abhilash Lal was appointed as an Interim Resolution Professional (“IRP”) by NCLT to keep the Corporate Applicant as a going concern and run its services smoothly and to check that retrenchment of employees is not resorted to.

Aggrieved by the Impugned Order, Appellants filed the present appeal before the NCLAT.

Issues

• Whether issuance of a notice to the creditors is necessary for granting hearing or opportunity of hearing, before admission of Application.
• Whether the adjudicating authority is required to give an opportunity to the creditor to file an application under Section 65 (Fraudulent or malicious initiation of proceedings) of the IBC before admitting the application under Section 10 of the IBC, where the creditors have an objection to the said application for being filed fraudulently with malicious intent.
• Whether moratorium will be applicable to the assets in case where the Lessors have terminated the lease agreement prior to the admission of Application.
• Whether the Appellants are entitled to claim possession of the aircraft(s) and export the aircraft(s) as per the lease agreement where the Appellants have terminated the lease agreement prior to admission of the CIRP.

Arguments

Contentions of the Appellants:

The Appellants contended that the Impugned Order violates the principles of natural justice, since NCLT did not take into consideration the time period sought by the Appellants for filing an application under Section 65 of the IBC. Additionally, the Impugned Order has been passed without serving the copy of Application on the Appellants.

The Appellants also contended that there were objections raised against the Corporate Applicant’s fraudulent and malicious intent and it should have been taken into consideration and an opportunity to file an application under Section 65 of the IBC ought to have been granted before the admission of the Application.

The Appellants placed reliance on judgment of the NCLAT in Wave Megacity Centre Private Limited v. Rakesh Taneja and Others [Company Appeal (AT) (INS.) No. 918 of 2022], wherein the order of the adjudicating authority was challenged by the corporate applicant, as a result of which the application under Section 10 of the IBC was rejected and the application under Section 65 of the IBC was allowed.

Additionally, the Appellants contended that the lease agreement executed in favour of the Corporate Applicant was terminated prior to the admission of the Application. Therefore, the Corporate Applicant has no legal right in respect to the aircraft’s possession, therefore moratorium under Section 14 (Moratorium) of the IBC is not applicable on the assets of the Appellants.

Contentions of the Respondent:

The Respondent contended that the moratorium has been imposed under Section 14 of the IBC by which the Appellants are prohibited from recovering the assets. Consequently, the Appellants cannot recover any property, which is in possession of the Corporate Applicant. As the Corporate Applicant has the possession of the aircraft(s), it is also registered in their name and the said registration has not yet been cancelled, the Corporate Applicant is entitled to retain the possession.

The Respondent contended that the termination of lease took place after the Application. It was also contended by the Respondent that the principles of natural justice are not violated by the Impugned Order as there exists no requirement that the creditors should be heard before admission of an application under Section 10 of the IBC.

The Respondent submitted that there is no mandatory requirement to issue a notice to the creditors at the pre-admission stage under Section 10 of the IBC. It is a discretion which is exercised on a case-to-case basis on valid grounds. Here, in this case, the Application was accepted by the NCLT. Further, no application under Section 65 of the IBC was filed or put forth before the NCLT for consideration. Filing and decision of an application under Section 65 of the IBC can take place even after the admission of application under Section 10 of the IBC.

Observations of the NCLAT

It was observed by the NCLAT that there is no obligation on the Corporate Applicant to issue a prior notice to the creditors for initiation of the CIRP under IBC. However, during the admission proceedings NCLT must hear the objectors and accordingly take an appropriate decision. Further, NCLAT observed that the Corporate Applicant has not violated the principles of natural justice in the present case by merely not issuing a notice to the creditors, more so when objectors were heard by NCLT. Furthermore, NCLAT held that the application by the Corporate Applicant was not fraudulent with malicious intent and Appellants have the liberty to file an application under Section 65 of the IBC even after Application has been admitted.

NCLAT also granted liberty to the IRP and the Appellants for advancing appropriate application before NCLT for the purpose of declaring the applicability of the moratorium on the aircraft(s) regarding which leases in favour of the Corporate Applicant were terminated prior to admission of Application and it would to be decided by NCLT as per the provisions of law.

Decision of the NCLAT

The NCLAT disposed of the appeal filed by the Lessors and upheld the Impugned Order. Further, the NCLAT ordered the Lessors to file applications before the NCLT for the purpose of declaration on the moratorium’s applicability and make claims regarding the leased aircraft(s).

VA View:

It can be observed that this is a landmark case where a creditor did not file the application for insolvency, rather the CIRP commenced due to an application of the Corporate Applicant filed directly with the NCLT. The Application was a move to prevent the lessors from seizing the aircraft’s possession from the hands of the Corporate Applicant and an attempt by the Corporate Applicant to safeguard itself from further financial distress thereby resulting in a breach of its obligations towards the creditors.

This case may establish a new trend for further insolvency cases against the legislative intent wherein the Corporate Applicant may follow the similar shorter roadmap for obtaining a temporary monetary ease by directly approaching NCLT and filing an application for its insolvency to dispose of its liabilities in the event of business downturns.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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