The Supreme Court’s Judgment in the Jet Airways Insolvency Case

Introduction

The Supreme Court’s judgment in the Jet Airways insolvency case is a landmark decision that highlights critical aspects of the Insolvency and Bankruptcy Code (IBC), 2016. It underscores the importance of adhering to a time-bound process, the binding nature of a resolution plan, and the shared responsibilities of all stakeholders, including the Successful Resolution Applicant (SRA), Committee of Creditors (CoC), and the Adjudicating Authorities. This judgment also addresses systemic inefficiencies in the implementation of the IBC, offering key insights into the roles of financial creditors, resolution professionals, and tribunals. The judgment provides a valuable blueprint for strengthening the insolvency ecosystem in India.

On 7th November 2024, the Supreme Court invoked its powers under Article 142 of the Constitution to direct the liquidation of Jet Airways, marking the end of a protracted resolution process. The Court highlighted the failure of all stakeholders, including the SRA, CoC, and tribunals, in ensuring timely implementation.

Facts and Timeline of the Case

1. Corporate Debtor: Jet Airways (India) Limited, a once-thriving airline, ceased operations in 2019 due to financial distress.
2. CIRP Initiation: Date: 20 June 2019. Application filed under Section 7 of the IBC by State Bank of India (SBI). Total admitted claims of ?7,800 crore by financial creditors.
3. Submission of Resolution Plan: Consortium of Murari Lal Jalan and Florian Fritsch (SRA) submitted the Resolution Plan on 21 September 2020.
4. CoC Approval: The CoC approved the Resolution Plan with 99.22% majority on 17 October 2020.
5. NCLT Approval: The NCLT approved the Resolution Plan on 22 June 2021, setting timelines for implementation and fulfillment of conditions precedent.

Key Timelines and Landmarks in the Resolution Plan

1. Conditions Precedent: Included regulatory approvals, Air Operator Certificate (AOC) validation, and slot allotments. Fulfillment within 90 days of the NCLT approval, with an extension allowed up to 180 days. Effective Date fixed as 20 May 2022 after multiple extensions.
2. Financial Proposal: Total infusion: ?1,375 crore. First tranche: ?350 crore within 180 days of the Effective Date. Allocation for dues: ?185 crore for financial creditors. ?52 crore for workmen and employees. ?150 crore as Performance Bank Guarantee (PBG).
3. Implementation Failures: Non-payment of the first tranche within timelines. Repeated delays in fulfilling conditions precedent. Non-compliance with payment obligations to employees and operational creditors.

Orders by NCLT and NCLAT Post-Approval

1. Extensions Granted: Multiple extensions were granted by NCLT to fulfill the conditions precedent and implement the plan. The NCLAT upheld the adjustments of timelines despite protests from financial creditors.
2. Controversial Adjustments: The NCLAT allowed the SRA to adjust the PBG against payment obligations, contrary to regulatory provisions and earlier judicial orders.
3. Litigation Outcomes: Prolonged litigation led to erosion of asset value, increasing doubts about the feasibility of the resolution plan.

Issues Before the Supreme Court

1. Whether the adjustment of the PBG against the first tranche payment was permissible.
2. Whether the non-implementation of the Resolution Plan necessitated liquidation.
3. Whether the NCLT and NCLAT acted contrary to the IBC’s objectives by granting repeated extensions.
4. Responsibilities of stakeholders in facilitating the implementation of the Resolution Plan.
5. Role of Adjudicating Authorities in ensuring timely implementation of the Resolution Plan.
6. Binding nature of the Resolution Plan on all stakeholders.

Brief of Submissions by Parties

Appellants (SBI and CoC)

1. PBG Adjustment: Violates Regulation 36B(4A) of CIRP Regulations. Prohibited under Clause 3.13.9 of the RFRP.
2. Failure to Meet Obligations: Non-payment of first tranche and other dues breached the Resolution Plan. Advocated liquidation under Section 33(3) of IBC due to non-compliance.
3. Judgments Cited: Ebix Singapore Pvt. Ltd. v. CoC of Educomp Solutions Ltd.: Prohibits modifications to approved plans.

Respondents (SRA)

1. PBG Adjustment Justification: Claimed the Resolution Plan permitted adjustment under Clause 6.4.4.
2. Delays Attributed to Creditors: Alleged lack of cooperation by CoC and financial creditors.
3. Opposed Liquidation: Argued that liquidation contradicted the IBC’s objective of maximizing value.

Supreme Court Observations

1. Adjustment of PBG

• The Court held: "Adjustment of the PBG against the first tranche payment contravenes Regulation 36B(4A) and the binding terms of the Resolution Plan."
• Referencing Ebix Singapore, the Court reiterated: "Resolution Plans are irrevocable once approved and cannot be altered mid-implementation."

2. Liquidation

• Liquidation was deemed necessary due to non-compliance: "Timely liquidation, though a last resort, is essential to preserve creditor interests and asset value."

3. Timeliness in IBC

• Highlighted as a cornerstone of the IBC: "Delays undermine the Code’s objective of resolution within prescribed timelines."

4. Role of Stakeholders

• Resolution Professional (RP): "Must ensure strict adherence to the plan and timelines."
• CoC and Financial Creditors: "Obligated to cooperate with the SRA in implementing the plan."
• Tribunals: "Should avoid excessive discretionary extensions that dilute the IBC’s essence."

5. Binding Nature of Resolution Plan

• Reaffirmed under Section 31(1) of IBC: "The plan binds all stakeholders and must be implemented in both letter and spirit."

Legal Positions Laid Down

1. Non-Compliance with Plan Terms: Leads to liquidation under Section 33(3).
2. Judicial Review: Commercial wisdom of CoC remains sacrosanct.
3. Stakeholder Accountability: Shared responsibility for plan implementation is critical.

The Apex Court suggested reforms to improve the IBC’s implementation and reduce delays:

• Statutory Guidelines for Monitoring Committees: To oversee plan implementation and ensure compliance.
• Strengthening Tribunal Capacity: Addressing member shortages and improving case management.
• Recording Next Steps in Approval Orders: To clarify stakeholder responsibilities and prevent disputes.

Supreme Court Suggestion: "The NCLT, while approving a Resolution Plan, should record detailed next steps to avoid ambiguity and expedite implementation

To Sum-up

The Supreme Court’s judgment in the Jet Airways case serves as a critical precedent for addressing systemic issues within India’s insolvency framework. By emphasizing timely resolution, stakeholder accountability, and strict adherence to approved plans, the judgment reaffirms the IBC’s objective of maximizing value while minimizing delays. The Court’s observations offer valuable lessons for stakeholders and policymakers to strengthen the insolvency regime and ensure its effective implementation.

[Disclaimer: The views and opinions expressed in this post/article are my own and do not represent those of any organization, firm, or institution I am currently associated with or have been associated with in the past.]