Supreme Court orders liquidation of Jet Airways; sets aside transfer of ownership to JKC

In a judgment of significant import on Indian aviation sector, the Supreme Court on Wednesday ordered the liquidation of defunct airline Jet Airways as per the Insolvency and Bankruptcy Code (IBC) [State Bank of India and ors v Consortium of Mr Murali Lal Jalan and Mr Florian Fritsch and anr].

A Bench of Chief Justice of India (CJI) DY Chandrachud and Justices JB Pardiwala and Manoj Misra set aside the order of the National Company Law Appellate Tribunal (NCLAT) which had upheld the transfer of ownership of the airline to Jalan Kalrock Consortium (JKC) as part of the Corporate Insolvency Resolution Process (CIRP).

The Court said that NCLAT order was perverse as it misled evidence on record since the performance bank guarantee of ₹150 crores could not have been adjusted against the payment of ₹350 crores.

"Non-payment and non compliance led to failure of resolution. NCLAT acted against settled legal principles," the Bench observed.

The Court further said that JKC, the successful resolution applicant (SRA), contravened the terms of resolution plan and the same cannot be implemented.

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

In view of the above, it directed the National Company Law Tribunal in Mumbai (NCLT) to appoint a liquidator immediately to carry out the liquidation.

"Thus we exercise plenary powers and direct that corporate debtor is taken into liquidation. Appeals succeed. NCLAT order set aside. In peculiar and alarming circumstance since 5 years passed since NCLAT cleared resolution plan, thus under Article 142, we direct corporate debtor is taken into liquidation and ₹200 crore stands forfeited. Lenders are permitted to encash the performance bank guarantee. NLCT Mumbai to appoint liquidator forthwith," the Court said in its order.

Thus, it allowed appeals filed by airlines' lenders led by State Bank of India (SBI) against the NCLAT order.

The verdict came in the case regarding the dispute over the ownership of Jet Airways between JKC and a number of the airline's lenders led by the State Bank of India (SBI).

The lenders had moved the apex court against an order the NCLAT upholding the transfer of ownership of the airline to JKC, a consortium led by UAE-based entrepreneur Murari Lal Jalan and UK-based Kalrock Capital.

For over a year, JKC and the lenders of Jet Airways have been involved in a legal battle regarding the airline's ownership transfer.

Jet Airways was grounded in 2019 due to severe financial troubles. State Bank of India (SBI), its largest lender, initiated insolvency proceedings against the company before the NCLT in Mumbai, leading to the CIRP.

In 2021, JKC emerged as the successful bidder for the airline's revival.

The NCLT approved its resolution plan and granted approval for the ownership transfer to JKC subject to certain conditions (conditions precedent), particularly the acquisition of an air operator's certificate. JKC was required to pay over ₹8,000 crore to the lenders over time from the revenue generated by operating Jet Airways.

However, disputes arose between the lenders and JKC over the fulfilment of the conditions precedent, as a result of which the airline’s ownership was not transferred to the latter.

In January 2023, the NCLT dismissed the objections allowed JKC to take ownership of Jet Airways. The following month, the lenders appealed to the NCLAT against the NCLT's ownership transfer order, but the NCLAT declined to grant any injunction in their favour.

On March 12 that year, the NCLAT confirmed the transfer of ownership of the grounded airline to JKC. The appellate tribunal also instructed the lenders to complete the transfer within 90 days and directed JKC to secure an air operator's certificate within that time frame.

The NCLAT also permitted JKC to use the ₹150 crore from its bank guarantee as part of the initial payment of ₹350 crore to the lenders.

The lenders and former employees of the airline moved the Supreme Court against this order.

The Supreme Court reserved its verdict in the case on October 16. While JKC has staked its claim in the ownership of the airline, the creditors urged the Supreme Court to use its inherent powers under Article 142 to liquidate the company.

During the hearing before the apex court, Senior Advocate Gopal Sankaranarayanan, appearing for JKC, contended that the NCLAT had rendered a detailed judgment on all the issues and the lenders raised no substantial question of law in the appeal before the apex court.

Further, he argued that the lenders were put in a tight spot because of SBI's decision to grant thousands of crores in loans to the previous management of Jet Airways.

Sankaranarayanan contended that it is because of the decision of the lenders to prolong the litigation that the airport dues of the airline have piled up.

Responding to these arguments, Additional Solicitor General N Venkataraman contended that JKC has no intention to implement the resolution plan.

"The Committee of Creditors, which has over 30 banks will have to bear the airport dues of ₹1,100 crore, going by their contention. Neither the CoC nor the employees will get anything. The resolution plan will become unworkable."

Venkataraman urged the apex court to use its inherent powers under Article 142 of the Constitution to liquidate the company to avoid another round of litigation.

The ASG also clarified that it was not the government's intention to bring down the airline. However, they have been left with no other option in the case.

Venkataraman reiterated that the lenders are spending more money in the case of Jet Airways rather than recovering it. According to the ASG, the lenders are spending over ₹20 crore a month and have so far spent over ₹300 crore.