In a significant recent judgment, the Supreme Court of India ordered the liquidation of Jet Airways (India) Limited,1 under the Insolvency and Bankruptcy Code, 2016 (IBC/Code). This decision highlights that the timelines set forth under the Code aim to achieve swift outcomes for a Corporate Debtor (CD), either through the restoration of its viability via a resolution plan or, through an efficient liquidation process.
This judgment highlights critical aspects of the insolvency ecosystem, emphasizing that extended delays in liquidation contravene the legislative intent and diminish value of the CDs assets for creditors and other stakeholders. While resolution is generally the preferred outcome, this case reinforces that liquidation must be carried out promptly when necessary, to maximize asset value of the CD.
The decision follows a protracted legal battle over Jet Airways, which had been grounded since 2019 due to financial distress. The Supreme Court ruled that the failure of the successful resolution applicant to meet its obligations under the approved resolution plan necessitated the airline's liquidation, prioritizing value preservation over endless delay.
Jet Airways, once a leading airline in India, entered insolvency in 2019 due to overwhelming financial challenges. State Bank of India (SBI), the lead creditor, initiated the Corporate Insolvency Resolution Process (CIRP) under the provision of the Code. The consortium of Jalan-Kalrock (JKC), comprising UAE-based Murari Lal Jalan and UK-based Kalrock Capital, emerged as the successful resolution applicant. Accordingly, the NCLT approved the resolution plan submitted by JKC, contingent upon several conditions precedent, including providing a performance bank guarantee (PBG) of INR 150 crore, making a first tranche payment of INR 350 crore, and maintaining an Air Operator's Certificate.
Initially, as per the terms of the approved resolution plan, the Effective Date was set as 90 days from the resolution plan approval date, extendable by another 180 days, if conditions precedent were not met. After the initial 90 days ended on September 22, 2021, the NCLT granted a 90-day extension on September 29, 2021, followed by another extension on January 20, 2022. Additionally, on April 11, 2022, the NCLT allowed a 65-day exclusion to account for the time spent in filing extension applications, ultimately extending the Effective Date to May 25, 2022. However, various disputes arose between JKC and the creditors regarding non-fulfilment of the conditions precedent, leading JKC to file two Interim Applications (IAs) before the NCLT. In these applications, JKC sought a declaration that all conditions precedent were fulfilled and requested an exclusion of time until the date of disposal of the IAs. Accordingly, the NCLT extended the first tranche payment deadline to May 15, 2023, which was later contested by the creditors before the NCLAT. Over time, the creditors challenged multiple interim orders passed by the NCLAT before the Supreme Court, including the order declaring JKC's compliance with all conditions precedent, the order restraining creditors from invoking PBG, the order extending the deadline for first tranche payment to August 31, 2023, and the order permitting JKC to adjust the PBG against the first payment tranche, with the remaining ₹200 crore due by September 30, 2023.
Hearing these appeals together, the Supreme Court vide its order dated January 18, 2024 ruled against the PBG adjustment, requiring JKC to deposit INR 150 crore in cash by January 31, 2024. However, JKC's failure to comply with the same, led to a rejection of extension request made by the JKC on February 2, 2024. Subsequently, on March 12, 2024, the NCLAT extended the timeline once again, setting a new deadline of April 11, 2024, contingent upon the creation of a charge over Dubai properties.
Over time, the Supreme Court has addressed several aspects of this matter and recently emphasized the critical importance of adhering to timelines under the IBC, stressing on strict compliance during both, the resolution as well as the liquidation phases. The Court held that the NCLAT had seriously erred in allowing JKC to adjust the PBG against its payment obligations, noting that such an adjustment contradicted the conditions under Regulation 36B(4A) of the CIRP Regulations. The Court highlighted that the performance security shall stand forfeited if the resolution applicant fails to implement or contributes to the failure of implementation of the plan, in accordance with the terms of the Resolution Plan and its implementation Schedule. The Court emphasized the purpose of keeping the PBG alive as security in case the successful resolution applicant fails to implement the plan, thereby stressing the requirement for the PBG to be kept intact until full implementation of the Resolution Plan.
The Supreme Court further clarified that an approved resolution plan, once sanctioned by the Committee of Creditors (CoC) and NCLT, is final and binding on all parties and cannot be altered post-approval. Referring to its ruling in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another,2 the Court reiterated that the existing insolvency framework does not provide any scope for effecting further modifications or withdrawals of an approved resolution plan at the behest of the successful resolution applicant. The submitted resolution plan is binding and irrevocable between the CoC and the successful resolution applicant, as per the provisions of the IBC and the regulations framed thereunder. The Court also clarified that once a CoC approved resolution plan is submitted to the Adjudicating Authority, i.e., NCLT, it immediately becomes binding on the CoC and the SRA, even if the Adjudicating Authority has not yet granted formal approval.
Additionally, the Court held that timely implementation of a resolution plan is foundational to the IBC. The Court reiterated that the purpose of the Code extends beyond merely resolving insolvency; it aims to achieve resolution within a definitive timeframe to prevent value erosion. Delayed implementation is counterproductive to creditor recovery and CD viability. The Court found that JKC's actions, including its failure to meet financial commitments, undermined the intent of timely recovery within the IBC framework. Accordingly, the Court held that when a resolution plan fails to materialize, liquidation is not only a viable option but a necessary one to preserve asset value for all stakeholders including creditors.
Invoking its powers under Article 142 of the Constitution of India, the Supreme Court ordered liquidation of Jet Airways, emphasising the urgency and gravity of the situation. The Court reasoned that the "exceptional circumstances" justified the exercise of this inherent power to avoid further asset depreciation of the CD and to deliver substantial and complete justice to all the stakeholders involved. Recognizing the "peculiar and alarming" circumstances, i.e., the five-year delay since Jet Airways entered CIRP, the Court exercised its plenary authority to achieve a just and expedient outcome, stating that liquidation was the "only feasible solution." This ruling exemplifies how the Supreme Court can leverage Article 142 to resolve protracted insolvency disputes by ordering liquidation, reinforcing judicial intervention to maintain the integrity of the IBC process.
This landmark ruling reinforces the importance of timeliness within the IBC framework, mandating that liquidation be pursued promptly when resolution efforts fail to materialize. The judgment not only safeguards interest of all stakeholders involved but also reinforces the IBC's overarching goal of economic efficiency. By prioritizing a streamlined and transparent insolvency process, the Supreme Court has sent a clear message: resolution or liquidation must be achieved within prescribed timelines to uphold the IBC's purpose of value maximization for stakeholders.
This judgment also serves as a caution to stakeholders that liquidation processes must be carried out with the same rigor, accountability, and urgency as applied in CIRP. It prompts Insolvency Resolution Professionals, CoCs, and Adjudicating Authorities to avoid procedural delays that hinder the maximization of value of the CD and adversely affect the interests of stakeholders.
Footnotes
1. Civil Appeal Nos. 5023-5024 OF 2024. Order dated November 7,2024
2. (2022) 2 SCC 401
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