Jet Airways an erstwhile premium airline operating primarily in Indian air space has been suffering financial distress for almost a decade now. After being relegated to insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), the Company and its lenders had finally seen some hope of being airborne again when a resolution plan was approved under the IBC regime. However, the approval of the resolution plan has till date not resulted in ultimate resolution of the Company. Recently the Hon'ble Supreme in its judgment dated 07.11.2024 directed for liquidation of the Company. The Hon'ble Supreme Court while rejecting the request of the erstwhile Successful Resolution Applicant (SRA) of Jet Airways for grant of extension of time, emphasized on strict compliance of the terms of the Resolution Plan by all concerned including the statutory authority.
At the core of the decision of the Hon'ble Supreme Court in the matter of Jet Airways, lies the issue of timely resolution which is one of the object and purpose of IBC. The IBC since its inception in 2016, has evolved over the years under the guidance of the Hon'ble Supreme Court and such evolution clearly has a watershed moment in terms of the latest decision of the Hon'ble Supreme Court. The insolvency resolution process of Jet Airways opens up the complexities of resolving a large airline company which at the time of approval of resolution plan had grounded aircrafts and expired licenses and approvals mandatory for running an airline company. Further, since the approval of the plan in the year 2020, there have been numerous instances of not only evolution of law by the legislature but also by the judiciary having direct impact on the cost of the approved resolution plan as well as on the implementation of the terms of the approved resolution plan. Interestingly, the statutory authorities i.e., the NCLT and NCLAT while passing their respective orders were guided by the principle of resolution over liquidation as enshrined in IBC which in view of the Hon'ble Supreme Court was overreaching the dictum of timely resolution and finality and binding nature of an approved scheme.
The judgment of the Hon'ble Supreme Court is a much needed respite for stakeholders in case of an approved resolution plan who in complex matters are more often than not left at mercy of the SRA to implement the terms of the plan in a timely manner. The terms of the plan being binding on all including the proposer of the plan as a settled legal position will going forward eliminate all non-serious Proposers.
To briefly put, the judgment of the Hon'ble Supreme Court in the matter of Jet Airways on the factual aspects held as follows:
- Adjustment of PBG: The Court found that allowing the SRA to adjust the Performance Bank Guarantee (PBG) against its first tranche payment contravened prior directives and violated both the resolution plan's terms and IBC regulations. The judgment emphasized that once a resolution plan is approved, strict adherence is mandatory.
- Consequences of Non-Implementation: The SRA's repeated failures to fulfill its obligations—including non-payment of airport dues and employee benefits—justified invoking liquidation under Section 33(3) of the IBC. The Court noted that despite numerous opportunities for compliance, non-action warranted ending the resolution process.
- Timely Implementation of Resolution Plans: Highlighting timely execution as a core objective of the IBC, the Court held that delays hinder asset value preservation and stakeholder protection. When progress stagnates, liquidation becomes a preferable option.
The Supreme Court in the above background invoked its powers under Article 142 of the Constitution to direct Jet Airways' liquidation, emphasizing that exceptional circumstances justified this decision. The ruling further allowed the lenders to encash the PBG and declared that previous funds infused by the SRA would be forfeited.
The Supreme Court's judgment in the Jet Airways case highlights an urgent need for strict compliance with resolution plans under the IBC framework. By rejecting adjustments to performance bank guarantees despite significant delays, the Court reinforced that deviations undermine the IBC's intent to facilitate timely corporate debt resolutions. This ruling serves as a critical reminder that while some flexibility is necessary in complex insolvencies, it should not compromise agreed-upon terms. The Court in the said judgment not only dealt with the case specific findings but also provided recommendations aimed to address inefficiencies within India's insolvency system. Few suggestions of the Hon'ble Supreme Court briefly stated are as follows:
- Documentation: The Committee of Creditors (CoC) should record reasons for approving or rejecting resolution plans to aid NCLT/NCLAT in understanding decisions better.
- Oversight Committees: Establishing oversight committees could ensure better enforcement of guidelines governing CoC functioning.
- Implementation Steps: NCLTs should document subsequent steps for implementing approved plans to hold parties accountable and prevent delays.
- Timely Adjudication: NCLTs and NCLAT must adjudicate applications within prescribed timelines to address urgent requests effectively.
- Infrastructure Improvement: Increasing NCLT membership could bolster support for insolvency reforms.
- Regular Evaluations: Conducting regular assessments of the IBC can help address practical shortcomings.
- Strict Adherence: Emphasizing minimal flexibility in adhering to resolution plan terms can prevent non-compliance.
- Monitoring Committees: Enhancing self-regulation within CoCs can promote greater transparency and accountability.
While the judgment of the Hon'ble Supreme clearly reinforces the aspect of timely resolution, however, for the ultimate success of IBC the primacy of resolution over liquidation also needs to be adequately safeguarded. The matter of Jet Airways brings to the forefront the delicate balance which needs to be exercised by all stakeholders in any resolution process. The CoC to say the least needs to be pragmatic at the time of discussing and approving any resolution plan and after approval of the plan, the role of the Monitoring Committee is critical in ensuring timely implementation.
Overall, the success of IBC which is clear reflection of our ever evolving and growing economy requires constant evolution and tailoring to meet its avowed objective.
This article is for information purpose only. It is not intended to constitute, and should not be taken as legal advice, or a communication intended to solicit or establish commercial motives with any. The firm shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained herein. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.
