In a significant ruling, the Supreme Court invoked its extraordinary powers under Article 142 of the Constitution to order the liquidation of Jet Airways in the circumstance that the resolution plan has not been implemented for five years.
Additional Solicitor General (ASG) N Venkataraman appeared for the SBI- the lead lender of Jet Airways, while Senior Advocates Mukul Rohatgi and Gopal Sankaranarayanan represented the Successful Resolution Applicant (SRA) Jalan KalRock Consortium (JKC).
The main issue before the Court was the challenge to the decision of the NCLAT which allowed the completion of the transfer of ownership of the airlines to the SRA without paying the complete 350 crores as per the approved Resolution Plan. As per the resolution plan, the SRA was to pay a sum of Rs 4783 Crores, and infuse 350 crores in the first tranche of the payment as agreed.
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In the January 18 order, the Supreme Court set aside the NCLAT’s August 8, 2023 decision to allow the SRA to adjust the first tranche of payment of 350 crores against a Performance Bank Guarantee (PBG) which was given as security by the lenders. The bench had directed that (1) the SRA on or before 31 January 2023 deposit Rs 150 crores to the SBI escrow account, failing which the SRA shall be treated as non-compliant with the RP;(2) The PBG of 150 crores shall continue to remain in operation and effect until the final disposal of the appeal before the NCLAT and shall be subject to the outcome of the same;
The NCLAT in March 2024 directed the monitoring committee of Jet Airways to complete the pending transfer of ownership of the airlines to JKC within a period of 90 days and allowed the adjustment of the PBG of Rs 150 Crores towards the pending tranche payment of Rs 350 crores by the SRA.
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The ASG explained that the SRA, as per the resolution plan has to pay Rs. 4,783 crores. However it has been struggling to pay the first tranche of Rs 350 crores. So far lenders have only received 200 crores Additionally, workmen dues of Rs. 289 crores were also pending to be cleared. On a monthly basis, the lenders are shedding Rs 22 crore for maintaining the operations of the Airlines.
The SRA on the other hand objected to the lenders’ arguments for seeking to liquidate the Airlines. He added that the Top Court’s January 18 order should be considered in full, not in parts. Concerns were also raised about the potential liquidation of Jet Airways, asking what would happen to the 200 crore rupees invested and if the SRA would get it back.
The PBG had to be kept alive until the completion of the resolution plan as it could only be forfeited in breach of the plan. The SRA by not infusing the 1st tranche has defaulted in giving the payment costs. The contention of SRA that adjustment of payment was permissible under resolution plan must be rejected. The SRA has failed to implement the resolution plan by not being able to infuse the first tranche payment.
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The Court set aside the NCLAT Order which allowed the cash-strapped Jet Airways’ ownership transfer to the Successful Resolution Applicant (SRA) without complete payment in accordance with the resolution plan.
The Court directed the NCLT Mumbai Bench to appoint a liquidator forthwith and commence proceedings for the liquidation of the corporate debtor. The amount of Rs 200 crores already infused by the SRA, Jalan KalRock Consortium (JKC), stands forfeited. The lenders and creditors are entitled to encash the Performance Bank Guarantee of Rs 150 crores furnished by the SRA.
The two judge bench of CJI DY Chandrachud and Justices JB Pardiwala and Manoj Misra had reserved the judgment on October 16. The NCLAT order was challenged by SBI-led lenders of the cash-strapped Airlines.
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