'No choice': Supreme Court orders liquidation of grounded Jet Airways

Says Jalan-Kalrock Consortium, successful bidder for the airline, failed to implement the resolution plan five years since its approval

The Supreme Court on Thursday ordered the liquidation of grounded Indian carrier Jet Airways, saying it “had no choice” but to do so.

 

The bench of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra said that liquidation is the best route as Jalan-Kalrock Consortium (JKC), the successful bidder for the airline, failed to implement the resolution plan five years after its approval.

 

"We hold that the successful resolution applicant (SRA, that is JKC) has contravened the terms of the resolution plan, and the corporate debtor is directed to be taken into liquidation. The fundamental concern is not only to do substantial justice but also to ensure speedy disposal of disputes. The resolution plan has been contravened. Since the resolution plan cannot be implemented, liquidation remains an option for the corporate creditor," the judgment said.

 

 

Before pronouncing the order, Justice Pardiwala orally noted that this case had taught “many lessons.” “This litigation is an eye-opener and has taught us many lessons about the Insolvency and Bankruptcy Code (IBC) and the functioning of the National Company Law Appellate Tribunal (NCLAT),” he said.

 

The court exercised its extraordinary powers under Article 142 to set aside an NCLAT decision that upheld a resolution plan and transferred ownership to JKC without full payment to lenders.

 

“We have no doubt that the NCLAT acted contrary to settled legal principles. NCLAT incorrectly interpreted our order,” the Court observed.

 

The National Company Law Tribunal in Mumbai (NCLT) is tasked with appointing a liquidator immediately to carry out the liquidation.

 

The SC held that the Rs 200 crore infused by JKC stands forfeited and directed lenders to invoke a Performance Bank Guarantee of Rs 150 crore.

“Thus, we exercise plenary powers and direct that the corporate debtor (that is Jet Airways) be taken into liquidation. Appeals succeed. NCLAT order set aside. In these peculiar and alarming circumstances, five years have passed since NCLAT cleared the resolution plan. Thus, under Article 142, we direct that the corporate debtor be taken into liquidation, and Rs 200 crore stands forfeited. Lenders are permitted to encash the Performance Bank Guarantee. NCLT Mumbai to appoint a liquidator forthwith,” the court said.

 

NCLAT had, on March 12, upheld the resolution plan of the grounded airline and approved the transfer of its ownership to JKC. NCLAT had told JKC to obtain an Air Operator’s Certificate within 90 days. It had also given it more time to pay Rs 175 crore to SBI, as 107 days had passed since NCLAT’s order allowing the transfer of ownership.

 

The lenders, led by State Bank of India (SBI) and including Punjab National Bank and JC Flowers Asset Reconstruction Private Limited, challenged the NCLAT verdict.

 

During the hearing in the apex court, JKC alleged that SBI had previously given loans to companies without security, leading to the current situation.

 

SBI, meanwhile, argued that the Performance Bank Guarantee (PBG) of Rs 150 crore should not be used, even if expressly mentioned in the resolution plan.

 

“Respondents can adjust the PBG upon execution of the mortgage of all three Dubai properties, which the respondents have failed to do even today,” Additional Solicitor General N Venkataraman said.

 

NCLAT had also directed Jet Airways’ lenders to adjust the Rs 150 crore paid by JKC as PBG.

 

The bank noted that out of the Rs 350 crore payment, which is the first tranche, only Rs 200 crore has been paid. It added that the Air Operator Certificate (AOC) expired in September 2023 and was not extended.

 

SBI requested the court to order the liquidation of the airline, saying it was unclear what steps to take when the resolution plan was not working.

 

“Beyond the confines of the aviation industry, this judgment is expected to engender a climate of circumspection and diligence among future investors, particularly within asset-intensive sectors where revival efforts are fraught with regulatory and financial complexities. The Supreme Court’s stern stance sent an unequivocal message: non-compliance with insolvency resolutions, particularly by successful resolution applicants, will be met with the full force of the law, including liquidation,” Tushar Kumar, Advocate, Supreme Court of India, said.

 

SC flags shortcomings in NCLT, NCLAT

 

The bench observed a growing tendency among Members of the NCLT(s) and NCLAT to ignore or defy Supreme Court orders. “We put the NCLT(s) and the NCLAT on notice that any act of contravention of this Court’s orders and the broader principle of judicial propriety will not be tolerated," the Court said.

 

The Court also remarked that there should not be political appointments to these tribunals.

 

“Persons with high ideals and impeccable integrity should be appointed as Members of the NCLT and NCLAT. There should be no political appointments,” the Court said.

 

In its judgment, the Court also criticised the company and appellate tribunals for delays in handling insolvency and bankruptcy matters.

 

“Adjudication in a time-bound manner would help prevent any further deterioration of the corporate entity’s value. The original timelines established by the Code and the resolution plan must be maintained to prevent dilution of the Code’s objective, uphold investor confidence, and support corporate restructuring efforts,” the Court said. 

The story, briefly

2019 

Apr: Jet Airways halts operations, burdened by debt and unpaid dues

Jun: Jet admitted for insolvency; NCLT begins seeking resolution plans

 

2020 

Oct: Jalan-Kalrock Consortium (JKC) wins the bid to revive Jet Airways

 

2021

Jun: NCLT approves JKC’s resolution plan 

2023

Jan: NCLT allows JKC to take ownership of Jet Airways, lenders move NCLAT

 

2024 

Mar: NCLAT confirmed transfer of ownership of airline to JKC, lenders move SC

Nov: SC orders liquidation of Jet Airways