Top Court directs Jalan-Fristch consortium to deposit Rs 150 crore into designated account of SBI in respect of Corporate Debtor-Jet Airways Ltd
Chief Justice D.Y. Chandrachud, Justices J.B. Pardiwala& Manoj Misra [18-01-2024]

Read Order: State Bank of India and Ors v. The Consortium of Mr Murari Lal Jalan and Mr Florian Fritsch and Anr [SC-Civil Appeal Nos 3736-3737 of 2023]

Tulip Kanth

New Delhi, January 25, 2024: In a case where a Resolution Plan was submitted under the Insolvency and Bankruptcy Code, 2016 (IBC) by a consortium of Murari Lal Jalan and Florian Fristch in respect of the Corporate Debtor (Jet Airways Limited) with an intent to settle the total outstanding claims, the Supreme Court has asked the consortium to pay Rs 150 crore failing which the consequences under the Resolution Plan would follow.

The batch of appeals, before the 3-Judge Bench of Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala and Justice Manoj Misra arose from three orders of the National Company Law Appellate Tribunal (NCLAT). A Resolution Plan was submitted under the Insolvency and Bankruptcy Code, 2016 (IBC) by a consortium of Murari Lal Jalan and Florian Fristch in respect of the Corporate Debtor (Jet Airways Limited).

The Plan was voted upon and approved by the Committee of Creditors. The Resolution Professional then filed an application before the Adjudicating Authority to seek approval of the Resolution Plan. The Plan received the imprimatur of the Adjudicating Authority – the National Company Law Tribunal (NCLT) - (Plan Approval Order).Given the uncertainty surrounding the Effective Date, the NCLT, in its Plan Approval Order, mandated the completion of Conditions Precedent and the attainment of the Effective Date within the first 90 days from the Approval Date. The Order also granted the flexibility to request an extension of the 180-day timeline, allowing for an outer limit of 270 days, in accordance with the provisions outlined in the Resolution Plan.

The Successful Resolution Applicant (SRA) and the consortium of lenders represented by the State Bank of India (SBI) were not ad idem on whether the conditions precedent were fulfilled. The SRA took the position that all conditions precedent had been duly fulfilled. Consequently, the DGCA reissued an Air Operation Certificate, confirming the authorization for the Corporate Debtor to engage in commercial air operations. The SRA communicated via email to the Lenders, affirming compliance with all prerequisites and proposing that May 20 2022, should be recognized as the effective date under the Resolution Plan. However, the lenders took a position to the contrary. The SRA filed an Implementation Application and Exclusion Applicationbefore the NCLT seeking a determination in accord with its position.

By an order the NCLT came to the conclusion that the SRA was compliant with the conditions precedent. It allowed the Implementation Application, thereby inter alia permitting the SRA to take control and management of the Corporate Debtor. The order of the NCLT had been challenged by SBI in appeal. The appeal was pending before the NCLAT.TheNCLAT declined to stay the order of the NCLT, which had given rise to the sets of appeals. By a subsequent order, the NCLAT allowed an extension.

The Resolution Plan was envisaged that with an intent to settle the total outstanding claims made by domestic banks, foreign banks and financial institutions, the assenting financial creditors would be entitled to the benefit of payments and securities. This was described as Summary of payments and security package.

In an effort to resolve the imbroglio, an affidavit was filed on behalf of SBI, by its Chief Manager. The affidavit stated that the lenders were agreeable to a certain course of action. However, the inability to meet the conditions necessitates directing the Corporate Debtor into liquidation.Thereafter, an  application was moved by the SRA seeking liberty to pay the amount of Rs 350 crore.Permission to do so was granted by the NCLAT extending time until August 31, 2023 for the payment of the amount.

It was the case of the appellant that there had been a default on the part of the SRA in complying with the conditions precedent spelt out in the clauses and on various other aspects, including the payment of workmen’s dues, airport dues and other matters.

The Bench noted that the occasion for an extension of time to the SRA for the deposit of Rs 350 crores arose as a consequence of the affidavit which was filed by SBI before the NCLAT on August 16, 2023. SBIs affidavit envisaged that the lenders would not contest the issues pertaining to the grant or exclusion of time; or extension in terms of the orders which were passed by the NCLT and compliance of the conditions precedent by the SRA. SBIs offer was, however, subject to the fulfillment of three conditions. These conditions were:

• The SRA must infuse an amount of Rs 350 crores by 31 August 2023 (the date by which the payment was to be made in terms of the Resolution Plan read with the order dated 26 May 2023 of NCLT)
• The SRA must undertake to scrupulously follow the other terms and conditions of the Resolution Plan; and
• The SRA must comply with the liabilities in regard to the payment to the employees in terms of the order of the NCLAT dated 21 October 2022 which has been upheld by this Court on 30 January 2023.
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The Bench was of the opinion that the NCLAT was not justified in holding, in its order that the last tranche of Rs 150 crorewhich was to be paid would be adjusted against the PBG. The SRA having deposited the first two tranches each of Rs 100 crores must comply with the remaining obligation of depositing Rs 150 crores (to make up a total payment of Rs 350 crores). Having by its conduct accepted the terms set up by SBI it must be obligated to comply with the entirety of its obligations. It must do so in strict compliance with the time schedule set out hereafter, the Bench noted.

SBI had stated that the lenders had been saddled with huge recurring expenditure every month to maintain the remaining airline assets of the Corporate Debtor. The lenders had been embroiled in litigation before the NCLT and NCLAT with little progress on this ground towards implementing the resolution plan.

“Such a state of affairs cannot be permitted to continue interminably as it defeats the very object and purpose of the provisions of and timelines under the IBC. The timely resolution of insolvency cases is vital for sustaining the effectiveness and credibility of the insolvency framework. Therefore, concerted efforts and decisive actions are imperative to break the deadlock and ensure the expeditious implementation of the resolution plan”, the Bench observed.

The lenders had argued in the appeals that there had been a failure on the part of the SRA to comply with the conditions precedent. If the SRA were to comply with the terms as envisaged in SBI’s affidavit evidently issues pertaining to compliance with the conditions precedent were not to be pressed thereafter. In order to furnish this SRA a final opportunity to comply with the earlier position, the Bench issued the following directions:

• The SRA shall peremptorily on or before 31 January 2024, deposit an amount of Rs 150 crores into the designated account of SBI, failing which the consequences under the Resolution Plan shall follow;
• The PBG of Rs 150 crores shall continue to remain in operation and effect, pending the final disposal of the appeal before NCLAT, and shall abide by the final outcome of the appeal and the directions that may be issued by NCLAT; and
• Whether or not the SRA has been compliant with all the conditions of the Resolution Plan as well as of the conditions set out in paragraph 8 of the affidavit dated 16 August 2023 shall be decided by the NCLAT in the pending appeal.

Thus, the Bench held that the order of the NCLAT would be modified in part in terms of the above directions and, hence, the permission which was granted to the SRA to adjust the last tranche of Rs 150 crores against the PBG would stand substituted by these directions. The NCLAT was also requested to endeavour an expeditious disposal of the appeal by the end of March 2024.