State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
Tools
- Court
- Supreme Court of India
- Decided
- Bench
- Dr. Dhananjaya Y. Chandrachud (CJI), J.B. Pardiwala (author) and Manoj Misra
- Citation
- [2024] 11 S.C.R. 2039 : 2024 INSC 852
Source PDF (original scan)
Contains information from the Indian High Court / Supreme Court Judgments dataset, licensed under CC-BY-4.0
Headnote — Supreme Court Reports (editorial summary, not part of the judgment)
Issue for consideration
Whether the Performance Bank Guarantee (PBG) could have been adjusted against the first tranche payment which was to be made under the Resolution Plan, within 180 days from the Effective Date, in contravention of the order of this Court dated 18.01.2024, the terms of the Resolution Plan and the provisions of law; In other words, whether the impugned order of the NCLAT allowing the adjustment of the PBG in lieu of payment of the first tranche could be said to be perverse; Whether the non-implementation of the Resolution Plan by the Respondent No.1-Successful Resolution Applicant (SRA) necessarily leads to the consequence of liquidation as provided under Section 33(3) of the IBC, 2016; Whether the timely implementation of the Resolution Plan is also one of the objectives of the IBC, 2016.
Catchwords
Insolvency and Bankruptcy Code, 2016 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Constitution of India – Article 142 – Inordinate delay in due implementation of the Resolution Plan; several dues including the CIRP costs of the Corporate Debtor-Jet Airways (India) Limited multiplied; appellants incurring huge expenditure and costs every month towards maintenance of the Corporate Debtor – Whether the Performance Bank Guarantee (PBG) of Rs. 150 Crore could be adjusted against the first tranche payment of Rs. 350 Crore which was to be made under the Resolution Plan, within 180 days from the Effective Date – NCLAT allowed the adjustment of the PBG in lieu of payment of the first tranche – Sustainability:
Held
1.1 NCLAT order is unsustainable in law and perverse as it did not consider several material and relevant facts and misread the evidence as well – The non-infusion and payment of funds in compliance with the applicable laws and the terms of the Resolution Plan led to a failure of the Resolution Plan. [Paras 186, 90] 1.2 Impugned order directing the SRA to adjust the PBG of Rs. 150 Crore against the first tranche payment of Rs. 350 Crore was in flagrant disregard of the 18th January order of this Court, the terms of the Resolution Plan and established law – In the peculiar and alarming circumstances and in view of the fact that almost five years have elapsed since the Resolution Plan was duly approved however, there being no progress, jurisdiction under Article 142 of the Constitution is invoked and it is directed that the Corporate Debtor be taken in liquidation – The NCLT, Mumbai shall take appropriate steps for appointment of liquidator and all other necessary formalities for commencement of liquidation of the Corporate Debtor – Rs. 200 Crore already infused by the SRA, forfeited – The Lenders/Creditors can encash the Performance Bank Guarantee of Rs. 150 Crore furnished by the SRA – Impugned order set aside. [Paras 90, 186, 187, 188]
Catchwords
Insolvency and Bankruptcy Code, 2016 – ss.33(3), 31(1) – Whether there were sufficient grounds before the NCLAT to hold that Respondent No.1-SRA had contravened the terms of the approved Resolution Plan and that the Corporate Debtor must be directed to be liquidated u/s.33(3) – Whether SRA failed to implement the Resolution Plan on non-payment of the Airport Dues as per the terms of the Resolution Plan – Whether SRA could be said to have failed to implement the Resolution Plan on account of the non-payment of workmen and employees’ dues as per the terms of the Resolution Plan and the order of the NCLT dated 21.10.2022 which was confirmed by the order dated 31.01.2023 of this Court – Need for “timely liquidation” over “endless resolution process” emphasised:
Held
1.1 The Resolution Plan contemplated that the Airport Charges be subsumed within the CIRP Dues and since all of the different CIRP dues cannot be satisfied through the bank balance which stands to the credit of the Corporate Debtor, a separate sum of Rs. 25 Crore was demarcated towards the remaining CIRP payments – Hence, NCLAT was right in arriving at the conclusion that Airport Dues were indeed a part of the CIRP costs. [Para 129] 1.2 The impugned order of the NCLAT nowhere caps the Airport Dues to a maximum of Rs. 25 Crore – Moreover, such a mention of Rs. 25 Crore is plainly absent in its observations regarding Airport Dues – The Resolution Plan, too, does not contemplate the CIRP costs to be strictly subject to a maximum of Rs. 25 Crore – To accept such a contention of the Appellants would be to misinterpret the observations made in the impugned order. [Paras 129, 130] 1.3 The SRA not having infused the first tranche payment of Rs. 350 Crore as per Clause 6.3.1(g) and S. No. 11 of the Implementation Schedule under Clause 7.7 within a period of 180 days from the Effective Date and within the multiple extensions granted therefrom, defaulted on its obligation towards the payment of CIRP costs (which include airport dues) under Clause 6.4.1 as well. [Para 132]
Catchwords
Constitution of India – Article 142 – Insolvency and Bankruptcy Code, 2016 – Plenary powers u/Article 142 – When to be exercised, discussed – Inordinate delay in due implementation of the Resolution Plan, several dues including the CIRP costs of the Corporate Debtor multiplied; appellants have to incur huge expenditure and costs every month towards maintenance of the Corporate Debtor – Corporate Debtor, if to be directed to be taken in liquidation exercising power u/Article 142:
Held
Yes – The fundamental concern of this Court must not only be of doing substantial and complete justice but also to ensure expeditious resolution of the issues in the interests of the underlying objective of the IBC, 2016 and all the stakeholders involved – The terms of the Resolution Plan have been contravened and that there has been a failure to implement on part of the SRA – Resolution Plan is no longer capable of being implemented – In exercise of plenary powers u/Article 142, the Corporate Debtor is directed to be taken in liquidation – NCLT Rules, 2016 – r.11. [Paras 163-165]
Catchwords
Insolvency and Bankruptcy Code, 2016 – Deficiencies/ Shortcomings – Suggestions – Functioning of the NCLTs and NCLAT – The Guidelines for Committee of Creditors (CoC) issued by the IBBI on 06.08.2024, enumerated – Suggestions made to CoC – Role, duty and responsibility of Successful Resolution Applicant; lenders and also that of creditors:
Held
1. The Guidelines for Committee of Creditors issued by the IBBI may go a long way in streamlining the functions of the CoC – Adding to the aforesaid guidelines, it is suggested that the CoC exercise their commercial wisdom and approve/reject the Resolution Plans placed before them exhibiting fairness and with good reasons – Such a reasoned decision making on their part will only serve to further enable the other key players like the Adjudicating Authorities to understand the rationale behind their decision and to uphold the correctness of the same – Furthermore, it is also suggested that the Central Government or the IBBI explore the possibilities of better enforcement of the standards and practices enumerated in the guidelines through an independent mechanism under the auspices of an oversight committee instead of making them self-regulatory. [Para 172] 2.1 Once a resolution plan is approved under the IBC, 2016, the Successful Resolution Applicant undertakes a profound responsibility to implement the plan in both letter and spirit – This obligation is not merely an empty formality but an enduring commitment to restore the corporate debtor to viability and ensure a meaningful turnaround – The role of a Successful Resolution Applicant is far more than a transactional duty towards the creditors or stakeholders; it embodies a pivotal responsibility to the distressed entity itself, which must be approached with utmost dedication and an earnest sense of duty – Regardless of the challenges that may arise, the Successful Resolution Applicant cannot treat its obligations as optional or conditional, nor can it abdicate its responsibility in the face of unforeseen obstacles – Its efforts must reflect a determination to implement the plan fully and to rejuvenate the debtor company, as this is integral to the success of the IBC framework and the spirit of economic revival it seeks to foster – The approach, therefore, must not be frugal or narrowly profit-driven, limited to viewing the transaction through a purely commercial lens – Instead, it must recognize that rescuing a distressed company is a responsibility of significant social and economic value, demanding a holistic and responsible strategy. [Para 173] 2.2 In this collaborative effort, the duty to implement the plan does not fall on the Successful Resolution Applicant alone; lenders and creditors are equally obligated to support the process by offering constructive and continuous cooperation – They must not impede the implementation process through unnecessary demands beyond the pale of the resolution plan or with delays in implementation plan but rather should facilitate the Successful Resolution Applicant’s efforts to revive the corporate debtor – Given their vested interest in the corporate debtor’s successful revival, lenders have a fundamental duty to act in good faith and with transparency, recognizing that their cooperative stance is essential for overcoming the inevitable challenges of the resolution process – The lender's role is not merely passive; it requires active support that aligns with the ultimate goal of the IBC, 2016- to provide a fair and equitable resolution that maximizes asset value while enabling the debtor’s recovery – Therefore, the lenders must balance their financial interests with the broader objective of rehabilitation – They should not take an obstructive approach or seek to leverage the resolution process solely for individual benefit, as such actions would risk destabilizing the corporate debtor’s recovery trajectory – Instead, they must be prepared to collaborate fully, sharing the responsibility to make the resolution process work in practice. [Paras 174, 175]
Reporter's headnote (continued) and case details
(Civil Appeal No(s). 5023-5024 of 2024)
* Author
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2. The nature of the Conditions Precedent laid out under the Resolution Plan were such that several of them could not be fulfilled before the operationalization of the Corporate Debtor – The assertion that the Effective Date would kick in only upon fulfilment of all the Conditions Precedent and since the Appellants had challenged the fulfilment of the Conditions Precedent, such a date could not be said to have yet arrived not accepted – It was repeatedly declared by different fora that the Effective Date was frozen on 20.05.2022 and the obligation of the SRA to implement the Resolution Plan was absolute – All steps necessary should have been undertaken by the SRA, at least post the impugned order of the NCLAT dated 12.03.2024 – To contend that its hands were tied since the Conditions Precedent were still being challenged before this Court is nothing but a reflection of the mala fide intention on the part of the SRA to not fulfil its obligations in accordance with the Resolution Plan under the garb of pendency of litigation. [Paras 97, 98]
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3. The Effective Date was frozen on 20.05.2022 – As per Clause 6.3.1(g) on the “Infusion of Funds and Timelines”, and Serial No.11 under Clause 7.7, the first tranche payment of Rs. 350 Crore had to be made by the SRA, upfront, within a period of 180 days from the Effective Date – As per the Resolution Plan, this 180-day timeline otherwise would have expired on 16.11.2022 – Several extensions were granted to the SRA to infuse this amount, at different stages of this litigation, by the NCLT, the NCLAT and this Court (vide order dtd.18.01.2024, 180 days time for infusion was extended up to 31.01.2024) as well. [Para 98]
4. Further, an adjustment of the PBG against the first tranche payment was also in violation of Regulation 36B(4A) of the 2016 Regulations – The PBG had to be kept alive until the complete implementation of the Resolution Plan as per Regulation 36B(4A) – This was also provided under Clauses 3.13.2 and 3.13.8 of the RFRP (Request for Resolution Plan) respectively wherein the PBG was required to be kept alive and was to be returned to the SRA only upon 100% completion of the implementation of the Resolution Plan – This binding nature of the RFRP was transferred onto the Resolution Plan through Clauses 7.3 and 9.4 respectively of the Resolution Plan – Even in light of the NCLAT’s own order dated 26.05.2023, it does not follow that the PBG could have been adjusted by the SRA, mid-implementation, against its payment obligation. [Paras 104, 105, 107] 5.1 Once the Adjudicating Authority has approved the plan u/s.31(1) of the IBC, 2016, the Resolution Plan is binding on all the stakeholders including those stakeholders who are not direct participants of the CIRP – Therefore, there is absolutely no scope for modification of the terms of a Resolution Plan which has received the imprimatur of the Adjudicating Authority, be it by the Adjudicating Authority itself, the CoC or the SRA. [Para 116] 5.2 The NCLT had approved the present Resolution Plan vide order dated 22.06.2021, the Resolution Plan was immune to any modification or alteration whatsoever – The submission of the SRA that the Lender’s Affidavit required an infusion of Rs. 350 Crore in cash, while the Resolution Plan allowed for the payment of Rs. 200 Crore in cash and Rs.150 Crore through adjustment of the PBG, rejected – The conditions imposed on the SRA under the Lender’s Affidavit and the Resolution Plan were one and the same, the only difference being that the Appellants had offered not to press issues relating to the compliance of the Conditions Precedent and grant of extensions/exclusions along with offering to withdraw the Company Appeal and the Appeals pending before this Court – In view of clear order dated 18.01.2024, the PBG of Rs.150 Crore could not have been allowed to be adjusted with the first tranche payment of Rs. 350 Crore – Non-compliance of the SRA with the order of this Court has led to a dereliction of its obligations to implement the Resolution Plan – SRA failed to implement the Resolution Plan by not infusing the first tranche payment of Rs. 350 Crore in cash, as required by Clause 6.3.1(g) and the Implementation Schedule under Clause 7.7 of the Resolution Plan. [Paras 117, 121 124, 125]
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2. By not infusing the first tranche payment of Rs. 350 Crore as per the Implementation Schedule of the Resolution Plan, the SRA breached the terms of the Resolution Plan which required a minimum liquidation value of Rs.113 Crore to be paid towards the Workmen and Employees’ Dues as well – Moreover, both the Provident Fund and Gratuity Dues amounting to Rs. 226 Crore should also have been paid by the SRA as per the order dated 21.10.2022 of the NCLAT in fulfillment of its obligations, which it failed to do. [Para 140] 3.1 The NCLAT declined to accept the submission of the Appellant that on account of non-deposit of Rs.150 Crore as directed by this Court, the Corporate Debtor should be liquidated – This was based on the incorrect assumption that the direction of this Court to infuse to Rs.150 Crore in cash was only confined to the terms of the Lenders Affidavit dated 16.08.2023 – The Lender’s Affidavit could not have provided for conditions incompatible with the terms of the Resolution Plan – Such an affidavit would have been in direct contravention with s.31(1) of the IBC, 2016 – Therefore, the direction of this Court in its order dated 18.01.2024 was w.r.t both the Lenders Affidavit and the underlying terms of the Resolution Plan – The same was so understood by all the parties involved. [Para 142] 3.2 The Lender’s Affidavit in precise terms stated that “Failing to comply with the conditions mentioned in Para 8(a) to (c) above, the Corporate Debtor should be directed to go into liquidation” – It was in this context that this Court stated that, “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 will follow” – Therefore, it is incorrect to contend that this Court neither considered nor expressed any opinion on the question of liquidation of the Corporate
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Debtor – The consequence of non-implementation of the Resolution Plan by the SRA must necessarily be liquidation of the Corporate Debtor in accordance with s.33(3) of the IBC, 2016. [Para 143] 3.3 The SRA failed to infuse the first tranche payment of Rs. 350 Crore as envisaged in the Resolution Plan despite the Effective Date being fixed on 20.05.2022 – Consequently, the payment of CIRP costs, workmen and employees’ dues etc. which must be made in priority over the dues of the other creditors were also not made – More than 5 years have passed and the implementation of the Resolution Plan still seems to be a dim light at the far end of a long tunnel – Over this period of 5 years, several dues such as the Airport dues to be paid by the Corporate Debtor have increased multi-fold due to the fault of the SRA and this Court must ensure that such debts stop running at some point in time. [Para 147] 3.4 Although one of the key objectives of the IBC, 2016 is to ensure the survival of the corporate debtor as a going concern, yet the same must not come at the cost of efficiency – In scenarios such as the present, “timely liquidation” is indeed preferred over an “endless resolution process” – Such a view will prevent the likelihood of adversely affecting the interests of all the creditors who have been suffering due to no fault of their own and also securing the maximization of value of the remaining assets. [Para 148] 3.5 The consequence of the failure to implement the Resolution Plan in terms of Clause 9.4 of the Resolution Plan and Clause 3.13.7(iii) of the RFRP is that the Appellants are entitled to invoke the PBG automatically without any reference to the SRA – The PBG may be invoked by the Appellants in accordance with the terms of the Resolution Plan. [Para 149] Insolvency and Bankruptcy Code, 2016 – Preamble – Timely implementation of the Resolution Plan is also one of the objectives of the IBC, 2016 – Report of the Bankruptcy Law Reforms Committee, 2015, time-bound working of the Code emphasised; time and speed are of the essence under the Code – NCLT Rules, 2016 – NCLAT Rules, 2016 – r.15 – Power of NCLT and NCLAT to extend the time limits not be exercised mechanically without any application of mind. [Paras 150, 151, 152, 154, 157, 158]
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2.3 The IBC, 2016 is silent as regards the phase of implementation of the Resolution Plan by the Successful Resolution Applicant – This is mostly due to the fact that each Resolution Plan might be unique and customized to the specific needs of the Corporate Debtor and an excessive amount of statutory control over the implementation of the Plan may prove to be counterproductive to the cause of the Corporate Debtor – However, this has unfortunately led to the consequence of giving excessive leeway to the Successful Resolution Applicants to act in flagrant violation of the terms of the Resolution Plan in a lackadaisical manner – The SRAs repeatedly approach the Adjudicating Authority or the NCLAT for the grant of reliefs in relation to relaxation of the strict compliance to the terms of the Plan, including the timelines imposed therein – The NCLT and NCLAT more often than not, accede to such requests in exercise of their inherent powers under Rule 11 or their power to extend time under Rule 15 of the NCLT and NCLAT Rules, 2016 respectively – The NCLT and NCLAT must not entertain such repeated attempts at violating the integrity of a CoC approved Resolution Plan by accommodating the incessant requests of the Successful Resolution Applicants – The exercise of discretion as regards altering the binding terms of the Resolution Plan, including the timelines imposed, must be kept at a minimum, at best – The NCLTs/NCLATs need to be sensitised of not exercising their judicial discretion in extending the timelines fixed under IBC, 2016 or the Resolution Plan, in such a way that it may make the Code lose its effectiveness thereby rendering it obsolete. [Para 176] 2.4 Section 30(2)(d) of the IBC, 2016 states that the resolution professional shall mandatorily examine each resolution plan that is received to confirm that it provides for the implementation and supervision of the resolution plan – Regulation 38 of the 2016 Regulations provides for the mandatory contents of a Resolution Plan – Regulation 38(2) specifically states that the Resolution Plan shall provide for the term of the plan and its implementation schedule, along with adequate means for supervising its implementation – Further, under Regulation 38(3), a resolution plan must demonstrate that it addresses the cause of default, is feasible and viable, has provisions for its effective implementation, has provisions for approvals required and the timelines for the same and, that the resolution applicant has the capability to implement the resolution plan – Therefore, in light of these provisions of the IBC, 2016 and the 2016 Regulations, it can be seen that the resolution plan must be impermeable to any shortcuts that prevent its implementation, including timely implementation, by the successful resolution applicant – A consideration of these provisions reinforces the idea that timely implementation and strict adherence to the terms of the resolution plan is crucial. [Para 177] 2.5 Section 74(3) of the IBC, 2016 provides for the punishment for contravention of the resolution plan – The Code comes down heavily on any knowing and willful contravention of the terms of the Resolution Plan, committed by any person, on whom the approved Resolution Plan has been made binding under Section 31 of the IBC, 2016 – A punishment of minimum one year which may extend up to five years or minimum fine of one Lakh which may be up to one Crore rupees, or both, has been prescribed for such a contravention – In light of such strict consequence provided for the contravention of the resolution plan envisaged under the scheme of the Code itself, there is good reason for us to ensure that the successful resolution applicants abide by their commitments made under the Resolution Plan – Therefore, it is suggested that the authorities including the NCLT and NCLAT must not aid the Successful Resolution Applicants in circumventing the strict mandates of the law by acceding to their requests to relax the terms of the plan itself. [Paras 178, 179] 2.6 One another suggestion that may aid in a coordinated and non-adversarial implementation of the Resolution Plan by all the stakeholders is that the Adjudicating Authority while approving a Resolution Plan under Section 31 of the IBC, 2016, should record the next steps which are to be taken by the respective parties for commencement of implementation of the approved Resolution Plan – This will ensure that the parties are ad idem about the next round of their obligations that each of them is required to discharge under the approved Resolution Plan and that they do not delay the implementation by initiating any further litigation on this aspect. [Para 180] 2.7 As regards the implementation of the approved Resolution Plan, it is suggested that the IBC, 2016 statutorily provide for the constitution of a Monitoring Committee, once the plan has been approved, for a smooth handover of the Corporate Debtor to the Successful Resolution Applicant – Presently, such a provision is
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absent in the Code and it is the Adjudicating Authority that orders for the constitution of a Monitoring Committee to ensure smooth implementation of the Plan – The CoC must be empowered to constitute the Monitoring Committee which may, by default, include the Resolution Professional and also include other nominees from the CoC and the Resolution Applicant respectively – Such a Monitoring Committee would be entrusted with the powers of monitoring and supervising the resolution plan till the expiry of the term of the Resolution Plan – The Committee shall also be required to ensure all statutory compliances during the implementation of the plan along with updating the Adjudicating Authorities, Financial and other Creditors about the status of implementation of the Resolution Plan, on a quarterly basis. [Para 181] 3.1 As regards certain efficiency issues within the NCLTs and NCLAT, it has been noticed over a period of time that there is a serious lack of timely admission and disposal of the applications filed as regards the initiation of CIRP, approval of the resolution plan and liquidation – This only adds to the uncertainty of the process and prolongs the dispute thereby jeopardizing the interest of all the stakeholders involved – Adjudication in a time-bound manner would help prevent any further deterioration of the value of the corporate entity – The integrity of the original timelines laid down by the Code and the Resolution Plan must not be allowed to be violated since it would dilute the objective of the Code in its entirety, erode investor confidence and hinder all corporate restructuring efforts. [Para 182] 3.2 The Members often lack the domain knowledge required to appreciate the nuanced complexities involved in high-stake insolvency matters in order to properly adjudicate such matters – One of the salutary objects of the Code, 2016 is to protect the assets of the corporate entity in a timely manner and take prompt decisions, however, it has become a practice of the NCLT(s) and NCLAT to ignore the urgent mentionings and listings of time-sensitive matters and show no deference to long-pending matters resulting in value erosion of the assets of the Corporate Debtor and rendering their insolvency resolution process a foregone conclusion – Over a period of time, this Court has noticed the growing tendency amongst Members of the NCLT(s) and NCLAT to ignore the orders of this Court or act in its defiance – Any act of contravention of this Court’s order and the larger rubric of judicial propriety will not be tolerated –
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The NCLT(s) and the NCLAT must seriously rethink their approach towards admission and disposal of insolvency matters, they should not act as a mere rubberstamping authority and must take their roles seriously in ensuring time-bound hearings and resolutions – Proper and effective hearings, both virtually and in-court, must be given to insolvency matters of public importance, and the NCLT(s) and NCLAT(s) must earnestly work towards ensuring that the IBC, 2016 achieves its avowed object. [Para 183] 3.3 One another serious issue pertaining to the functioning of the NCLTs and NCLAT is that there is often a shortage of members in the Tribunals and inadequate infrastructure to support their functioning – These vacancies heavily impact the insolvency reform initiative undertaken by the government since they lead to operational inefficiencies – Consequently, the strict timelines provided in Section 12 of the IBC, 2016 are not complied with – Filling such vacancies with experts having adequate domain knowledge in the field must be prioritized along with addressing the infrastructure needs of the Tribunals to prevent any adverse effect on the resolution process – There must be strict mandates regarding the functioning of the Tribunals within its normal working hours – The appointment of new members must be done in a manner such that it coincides with the date of retirement of the sitting members in a seamless manner to avoid such operational inefficiencies – Persons with high ideals & impeccable integrity should be appointed as Members in the NCLT as well as NCLAT – There should be no political appointment. [Para 184] Insolvency and Bankruptcy Code, 2016 – s.62 – Exercise of the jurisdiction under – Code of Civil Procedure, 1908 – s.100 – “substantial question of law”, when arises – Discussed. [Paras 87-90]
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Karnataka Electricity Board and Others [2007] 12 SCR 389 : (2007) 14 SCC 138; Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another [2021] 14 SCR 321 : (2022) 2 SCC 401; Kridhan Infrastructure Private Limited v. Venkatesan Sankaranarayan and Others [2021] 2 SCR 520 : (2021) 6 SCC 94; Innoventive Industries Limited v. ICICI Bank and Another [2017] 8 SCR 33 : (2018) 1 SCC 407; Glas Trust Company LLC v. Byju Raveendran and Others, 2024 SCC OnLine SC 3032; K Shashidhar v. Indian Overseas Bank and Ors. [2019] 3 SCR 845 : (2019) 12 SCC 150 – referred to.
Books and Periodicals Cited Report of the Bankruptcy Law Reforms Committee, 2015.
List of Acts Insolvency and Bankruptcy Code, 2016; Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; Constitution of India; NCLT Rules, 2016; NCLAT Rules, 2016; Code of Civil Procedure, 1908; Employees’ Provident Fund and Miscellaneous Provisions Act, 1952; Payment of Gratuity Act, 1972.
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- Cases cited
- IFCI Ltd. v. Sutanu Sinha and Others [2023] 15 SCR 280 : 2023 SCC OnLine SC 1529; Chandrabhan (Deceased) Through Lrs. And Others v. Saraswati and Others [2022] 7 SCR 295 : 2022 SCC OnLine SC 1273; Maria Colaco and Another v. Alba Flora Herminda D’souza and Others (2008) 5 SCC 268; Abdul Raheem v.
- Keywords
- Jet Airways liquidation; Aviation sector; Adjustment of Performance Bank Guarantee (PBG); In lieu of payment of the First tranche payment; Within 180 days from the Effective Date; Successful Resolution Applicant (SRA); Non-implementation of the Resolution Plan by SRA; Inordinate delay in due implementation of the Resolution Plan; CIRP costs; Non-infusion and payment of funds; Failure of the Resolution Plan; Failure to implement the Resolution Plan; Jurisdiction under Article 142 of the Constitution of India; Plenary powers under Article 142 of the Constitution of India; Inherent powers; Corporate Debtor to be liquidated; Non- fulfilment of Conditions Precedent; Encash the Performance Bank Guarantee; Extension of the timeline; Multiple extensions granted; Maximum extension; Implementation extension; Lender’s Affidavit; Request for Resolution Plan (RFRP); Binding nature of the RFRP; Air Operation Certificate (AOC); Slots Allotment Approval; Dereliction of obligations to implement the Resolution Plan; Non- payment of the Airport Dues/Charges; Non-payment of workmen and employees’ dues; “timely liquidation”; “endless resolution process”; CIRP dues; Implementation Schedule; Survival of the corporate debtor as a going concern; Timely implementation of the Resolution Plan; Objectives of the IBC; Time-bound working of the Insolvency and Bankruptcy Code, 2016; Time and speed essence under the Insolvency and Bankruptcy Code, 2016; “substantial question of law”; Shortcomings in Insolvency and Bankruptcy Code, 2016; Suggestions made to Committee of Creditors (CoC); “commercial wisdom” of the CoC; Role, duty and responsibility of Successful Resolution Applicant; Lenders and creditors; Functioning of the NCLTs and NCLAT.
- Arising from
- CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 5023-5024 of 2024 From the Judgment and Order dated 12.03.2024 of the National Company Law Apellate Tribunal in Company Appeal (AT) (Insolvency) Nos. 129 and 130 of 2023 With Civil Appeal Nos. 12220-12221 of 2024
- Appearances
- N. Venkataraman, A.S.G., Mukul Rohatgi, Gopal Sankaranarayanan, S. Niranjan Reddy, Amar Dave, Sr. Advs., Vikas Mehta, Mayan Prasad, Ms. Anshula Vijay Kumar Grover, Lenpithang Sithlou, Ms. Nitika Grover, Nishant Anshul, Sanjay Kapur, Devesh Dubey, Ms. Divya Singh Pundir, Arjun Bhatia, Pawanshree Agrawal, Debmalya Banerjee, Pooja Mahajan, Kartik Bhatnagar, Rohan Sharma, Ashish Vats, Ms. Apurva, Agastya Shelat, Ms. Arveena Sharma, Ms. Shruti Pandey, Ms. Trisha Chandran, Ms. Tanya Srivastava, Tushar Srivastava, Ms. Aastha Prasad, M/S. Karanjawala & Co., Surya Prakash, Ms. Mahima Kapur, Ms. Isha Virmani, Mrs. Shubhra Kapur, Dhirajkumar Totala, Nishant Upadhyay, Navneet R., Ankit Pal, Ajay Raj, Ms. Vasudha Jain, Ms. Palak Arora, Ms. Alankrita Sinha, Ms. Petrushka Dasgupta, Mridul Yadav, Raghav Bhatia, Ms. Pallavi Pratap, Pawanshree Agrawal, Advs. for appearing parties.
Judgment
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For convenience of exposition, this judgment is divided into the following parts: - INDEX*
Footnotes
* Ed. Note: Pagination as per the original Judgment.
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a. Whether the Conditions Precedent were fulfilled by Respondent No.1/SRA and the Effective Date was fixed at 20.05.2022? ................................. 85
b. Whether the NCLAT could have directed the Performance Bank Guarantee (PBG) to be adjusted against the first tranche payment which was to be made within 180 days of the Effective Date? ............................................................... 93
I. The adjustment of the PBG was impermissible under the terms of the Resolution Plan read with Regulation 36B(4A) of the 2016 Regulations. ........... 94
II. The Lender’s Affidavit dated 16.08.2023 did not impose conditions which were different from the terms of the Resolution Plan. .......................................................... 106
ii. Whether the non-implementation of the Resolution Plan by the SRA necessarily leads to the consequence of liquidation as under Section 33(3) of the IBC, 2016? .......................................... 117
a. Whether Respondent No.1/SRA had failed to implement the Resolution Plan on non-payment of the Airport Dues as per the terms of the Resolution Plan? ................................................ 118
b. Whether Respondent No.1/SRA could be said to have failed to implement the Resolution Plan on account of the non-payment of workmen and employees’ dues as per the terms of the Resolution Plan and the order of the NCLT dated 21.10.2022 which was confirmed by the order dated 31.01.2023 of this Court? ..................................................... 124
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
c. Whether there were sufficient grounds before the NCLAT to hold that Respondent No.1/SRA had contravened the terms of the approved Resolution Plan and that the Corporate Debtor must be directed to be liquidated under Section 33(3) of the IBC, 2016? .................................... 131
iii. Whether the timely implementation of the Resolution Plan is also one of the objectives of the IBC, 2016? ........................................................ 139
F. SHORTCOMINGS AND SUGGESTIONS TO THE IBC,
G. CONCLUSION ................................................................. 167
11. These appeals arise from the judgment and order dated 12.03.2024 passed by the National Company Law Appellate Tribunal (hereinafter, the “NCLAT”) in Company Appeal (AT) (INS) 129-130 of 2023 filed by the Appellant herein by which the NCLAT dismissed the appeal and upheld the order dated 13.01.2023 passed by the National Company Law Tribunal (hereinafter, the “NCLT”). The order of the NCLT held that Respondent No.1 had fulfilled all the Conditions Precedent as stipulated in the Resolution Plan. The NCLAT further issued several directions including a direction that the Performance Bank Guarantee of Rs. 150 Crore (hereinafter, the “PBG”) could be adjusted towards the first tranche payment of Rs. 350 Crore which was to be made by Respondent No.1.
A. FACTUAL MATRIX
22. The NCLT vide its order dated 20.06.2019 in C.P. 2205 (IB)/ (MB)/ 2019 admitted the application for initiation of Corporate Insolvency Resolution Process (hereinafter, the “CIRP”) filed by State Bank of India (hereinafter, “SBI”) in respect of Jet Airways (India) Limited (hereinafter, the “Corporate Debtor”) in accordance with Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter, the “IBC,
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2016”). The total admitted claim of the Financial Creditors was Rs. 7800 Crore (approx.). Pursuant to the aforesaid Order, Mr. Ashish Chhawchharia, was appointed as the Interim Resolution Professional and was appointed as the Resolution Professional (hereinafter, the “RP”) as well.
33. On 02.06.2020, the RP issued the 4th Round of the Request for Resolution Plan (hereinafter, the “RFRP”) as approved by the Committee of Creditors (hereinafter, “CoC”) which invited submissions of Resolution Plans for the Corporate Debtor from potential Resolution Applicants. The relevant clauses of the RFRP are reproduced hereinbelow: “3.13 Performance Security 3.13.1 The Successful Resolution Applicant shall furnish or cause to be furnished, an unconditional and irrevocable performance bank guarantee or a demand draft, issued by any scheduled commercial bank in India or a foreign bank which is regulated by the central bank of a jurisdiction outside India which is compliant with the Financial Action Task force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding, provided that it is acceptable to the Resolution Professional (acting for the CoC) (“PBG Bank”), of an amount of INR 150 Crores (Indian Rupees Hundred and Fifty Crores only) or 10% of upfront amount (payable as per the resolution plan by the Successful Resolution Applicant), whichever is higher in favour of “State bank of India, (that is, SBI) (in its capacity as an agent of the CoC (and acting on behalf of the Company), within 7 (seven) days of declaration of the Successful Resolution Applicant, or by way of a direct deposit by way of the real time gross settlement system into a bank account held by the SBI Bank, the details of which shall be shared separately with the Successful Resolution Applicant (“Performance Security”) 3.13.2 If the Performance Security is being provided as a performance bank guarantee, it shall be in accordance
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
with Format VIII-A of this RFRP (“PBG”). The PBG shall be valid, till the later of (i) a period of 180 days from the date of the PBG; and (ii) the date of completion of the implementation of the Resolution Plan (as determined by the RP and the (CoC) and shall be subject to re-issuance or extension by the Successful Resolution Applicant as may be required by the CoC (as assisted by the Resolution Professional) (“PBG Validity”).
xxx xxx xxx
3.13.7 SBI, in its capacity as an agent of the CoC (and acting on behalf of the Company), shall have the right to invoke the Performance Security on behalf of the CoC (and upon receiving approval from the CoC), (by issuance of a written demand to the Bank to invoke the Performance Security, if provided as a PBG). The Performance Security can be invoked and appropriated at any time, upon occurrence of any of the following conditions, without any reference to the Resolution Applicant. i. any of the condition under the Letter of Intent or the Successful Resolution Plan are breached; ii. if the Resolution Applicant fails to re-issue or extend the Performance Security (if provided as a PBG), in accordance with the terms of this RFRP; or iii. failure of the Successful Resolution Applicant to implement the Approved Resolution Plan to the satisfaction of the CoC, and in accordance with the terms of the Approved Resolution Plan. 3.13.8 The Performance Security shall be returned to the Successful Resolution Applicant within a period 7 (seven) Business Days (based on the request received from the Successful Resolution Applicant) upon 100% (one hundred percent) of the completion of the implementation of the Approved Resolution Plan by the Successful Resolution Applicant.
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3.13.9 The Performance Security shall not be set-off against or used as part of the consideration that the Successful Resolution Applicant proposes to offer in relation to the Company, even if expressly indicated as such by the Successful Resolution Applicant in the Successful Resolution Plan.” (emphasis supplied)
44. On 21.09.2020, the Consortium of Murari Lal Jalan and Florian Fritsch (hereinafter, the “Respondent No.1 / SRA”) submitted its Resolution Plan. It was amended by the version dated 30.09.2020 and further supplemented and amended by the addendum dated 02.10.2020. At the 17th meeting of the CoC held on 03.10.2020, the Resolution Plan was placed before the CoC by the RP and was voted upon by the CoC from 05.10.2020 to 17.10.2020 in accordance with Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter, the “2016 Regulations”). The CoC, in its commercial wisdom, approved the Resolution Plan proposed by Respondent No. 1 with a majority of 99.22% votes. The relevant clauses of the Resolution Plan are reproduced hereinbelow: “2. INTRODUCTION OF THE RESOLUTION APPLICANT 2.1.4. The resolution applicant (“Resolution Applicant”) is defined to mean a Consortium of: a) Mr. Murari Lal Jalan who is the Lead Partner of the Consortium; b) Mr. Florian Fritsch is the Other Partner of the Consortium; and 2.1.5. Mr. Murari Lal Jalan will hold shares in the Corporate Debtor in his personal capacity. xxx xxx xxx
6.3.1(c) Summary of Financial Proposal THE RESOLUTION PLAN SUBMITTED BY THE RESOLUTION APPLICANT IS UNCONDITIONAL AND NOT SUBJECT TO SALE OF THE ASSETS OF THE CORPORATE DEBTOR.
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
HEADS PACKAGE OF AMOUNT PAYMENT TERMS ~RS. 4,783 (In Rs.) CRORES COMPRISING OF
● ~RS. 1,090.1 CR COMMITTED CASH ● ~Rs. 3,668 Crores – estimated value of 10% Equity Stake Within After in Jet 2.0 at 180 days 180 from Year 5 from the Effective ● 7.5% Equity Effective Date stake in JPPL Date for Assenting FCs. ● Airport Savings ● Additional Upside on Aircraft + ATR + Spares + BKC ● ~ Rs. 25 Crores for acquisition of additional 50.1% stake in JPPL from Etihad CIRP Cost CIRP COST 25 Cr 100% ASSENTING ● Rs. 195 Cr 380 Cr 185 Cr 195 Cr + up to Rs. (Incl. 10 Cr in Yr. 2 FCS 185 Cr + for BKC) Guaranteed NPV of Guaranteed Rs. 391 Cr 9.5% NPV of 391 (using the Equity in Cr (using discount rate Jet 2.0 the discount specified in rate the Evaluation specified 7.5% in the Matrix) equity in Evaluation JPPL Matrix) in Yr. 3, 4, 5
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● Rs. 40 Cr of Additional Upside Positive Cash Upside on on BKC Balance Aircrafts Savings on Sales + Airport ● 9.5% equity ATR Sales in Jet 2.0 (5th + Spares Yr Value ~Rs. 3,485 Crore) ● 7.5% equity in Savings JPPL on CIRP Costs ● Upside on Aircrafts + ATR Inventory Positive + Spares + Cash BKC Property Balance (if given) ● Savings on CIRP Costs ● Savings on airport and parking charges ● Savings on Contingency Fund ● All payments are secured against tangible security ● Dissenting FCs will be paid in priority as per IBC Workmen & Rs. 52 Crores 52 Cr 100% Employees OCs ● Rs. 15,000 to each of the Operational Creditors, 10 Cr 100% - irrespective of their claim
OC (Dutch Admin) 10,000 100% -
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
Other Creditors (other than 10,000 100% - FCs and OCs) Shareholders (promoters, 10,000 100% - Etihad and PNB) Contingency 100% 8 Cr Fund Established JPPL Offer from RA to acquire 50.01% shareholding in JPPL from Etihad.
25 Cr - 100% The said sum of Rs. 25 Crores will be infused by the RA in addition to the abovementioned amounts. 475 Cr TOTAL + 25 Cr
*THIS IS A SUMMARY OF THE FINANCIAL PROPOSAL. PLEASE REFER TO THE DETAILED PROVISION UNDER THE RESPECTIVE HEAD.
xxx xxx xxx
(d) PROPOSAL FOR RESOLUTION OF OUTSTANDING AIRPORT AND PARKING DUES (RS. 240 CRORES AS OF AUGUST 31, 2020) […] BKC Property not part of resolution - If CoC decides to retain the BKC Property as a non-core asset and not offer it as part of this resolution process as proposed above, then the Resolution Applicant will not pay the upfront sum of Rs. 10 Crores to the Assenting Financial
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Creditors as envisaged in the above Clause for BKC Property. Further, then the airport dues and parking charges after the ICD (approx. Rs. 240 Crores as of August 31, 2020) will be paid by the Resolution Applicant upfront in priority over any other payments to the creditors of the Corporate Debtor, subject to a maximum of Rs. 475 Crores. As per the general aviation practice in respect to parking and airport space, as and when the Corporate Debtor will intend to use/ move the aircrafts or use the airport space, such claimants will seek their past dues. Therefore, their payments need to be resolved upfront by pro rata reduction of amounts payable to other creditors, to enable the Corporate Debtor to re-commence its operation, which is why the Resolution Applicant has suggested that their payments be made upfront against the BKC Property. SUCH PAYMENTS WILL BE SETTLED UPFRONT IN FULL IN FIRST 180 DAYS FROM THE EFFECTIVE DATE AND WITHOUT ANY CONDITIONS (INCLUDING NOT BEING STAGGERED PAYMENTS SPREAD ACROSS A PERIOD OF TIME) SO THAT FLYING CAN START IMMEDIATELY WITHOUT ANY FUTURE DISPUTES AND CONCERNS WITH SUCH CLAIMANTS FOR PAST DUES. Alternatively, the Resolution Professional can provide the Resolution Applicant with a no-dues certificate from such contingent creditors, in which case, these creditors will be treated in compliance with the provisions of the IBC. The Resolution Applicant states and confirms that this “Proposal for Resolution of outstanding airport and parking dues (approx. Rs. 240 Crores as of August 31, 2020)” which deals with the appropriation of the BKC Property is merely a proposal and not a condition to the implementation of this Resolution Plan and the CoC has the discretion to accept/ reject such proposal. If the above-mentioned proposal is acceptable to the CoC, then it is acceptable to the Resolution Applicant in the manner stated hereinabove.
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(g) Infusion of funds and timelines Infusion Amount (In Rs.) Purpose/Utilization Timelines (In As Equity As ECB Days) Upfront (within 350,00,00,000 - CIRP Cost; 180 days) Contingency Fund; Payment to FCs, OCs, Other Creditors, and other stakeholders; working capital for business; Misc. Admin Expenses 181-365 days 250,00,00,000 - Working capital for business; Portion of funds can be used for acquiring Etihad’s stake in JPPL; making payments to creditors if RA is inclined in advancing any payment timelines Year 2 - 175, 00,00,000 Remaining payment to FCs.; Misc. expenses for general corporate and day-to-day operations, in compliance with the extant ECB Regulations. After Year 2 - 600,00,00,000 Working capital for business Sub-Total 600,00,00,000 775,00,00,000
TOTAL 1,375,00,00,000
xxx xxx xxx
6.4. Treatment of Stakeholders 6.4.1. Treatment of outstanding CIRP Costs (a) In terms of Section 30(2)(a) of the IBC, the CIRP Costs are to be paid in priority to any other creditor of the Corporate Debtor.
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(b) As per the information disclosed by the Resolution Professional on August 14, 2020, the CIRP Costs includes: i. Operating and Process Costs (Rs. 27.16 Crores, as of August 31, 2020) which includes fees, charges, salaries of Asset Protection Team (APT) of the Corporate Debtor and other costs incurred by the Resolution Professional in running the operations of the Corporate Debtor as a going concern; ii. Interim Finance Cost (Rs. 54.4 Crores, as of August 31, 2020). […] (d) The Resolution Professional has also disclosed to the Resolution Applicant that the Corporate Debtor has a positive bank balance of approx. Rs. 92 Crores and estimates to collect a further sum of Rs. 40 Crores in the next 2-3 months. […] (f) The Resolution Professional has estimated an approx. sum of Rs. 240 Crores (as of August 31, 2020) towards parking charges for aircrafts and airport space lease charges. Such amounts are good faith estimates of the Resolution Professional based on previous invoices as it has not received any invoice/ demand from any of the lessors/ owners for such amounts. The Resolution Applicant shall endeavour to negotiate the parking fee and rental fee for the Corporate Debtor with the various airports and will endeavour that the cost for such heads is kept to the minimum. […] (h) Based on the information provided, the Resolution Applicant have assumed that the amounts standing to the credit of the bank account of the Corporate Debtor (including amounts estimated to be received subsequently) are sufficient to cover for the CIRP Costs of the Corporate Debtor (excluding parking charges, rental charges, employee dues, taxes etc). Accordingly, the Resolution
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
Applicant has set aside a sum of Rs. 25 Crores as CIRP Costs towards payment of any such costs until the Approval Date. Any expenses incurred by the Corporate Debtor from the Approval Date until the Effective Date will be incurred out of the positive bank balance of the Corporate Debtor. (i) As stated in Clause 6.3.1(d) above, if the CoC agrees to offer a clear and marketable title in the BKC Property (one floor) to the Resolution Applicant, then the Resolution Applicant shall settle the airport and parking charges (estimated at approx. Rs. 240 Crores, as of August 31, 2020). Savings from such charges will be distributed to the Assenting Financial Creditors. If the airport and parking charges over are over Rs. 245 Crores, then amounts over and above Rs. 245 Crores will be first paid out of Rs. 25 Crores reserved as CIRP Costs (if there are no outstanding CIRP Costs) and then out of the positive cash flows of the Corporate Debtor. Any amounts over and above such amounts will be shared between the Resolution Applicant and the Assenting Financial Creditors in equal proportion. (j) The Resolution Applicant states that if the CIRP Cost is less than the estimated amounts and the airport dues are less than Rs. 245 Crores, then the differential amounts will be paid by the Resolution Applicant to the Assenting Financial Creditors, which amounts are over and above the amounts reserved for them this Resolution Plan. However, if the CIRP Cost exceeds the current estimates, then the CIRP Costs will be paid by the Resolution Applicant as per actuals in compliance with the provisions of the IBC and commercial proposal for other creditors of the Corporate Debtor will be adjusted accordingly, subject however to a maximum of Rs. 475 Crores. It is clarified that on account of such payments from the amounts infused by the Resolution Applicant in the Corporate Debtor, the pay-outs towards other claimants as currently stated will be reduced proportionately to account for such additional CIRP Costs, subject to a minimum payment of liquidation value to the Operational Creditors and Dissenting Financial Creditors of the Corporate Debtor and subject to a maximum of Rs. 475 Crores. (k) The outstanding CIRP Costs shall be paid by the Resolution Applicant out of funds infused by the
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Resolution Applicant in the Corporate Debtor and as per the Implementation Schedule set out in Clause 7.7 below. […] (m) Priority of Payment CIRP Cost shall be fully paid and discharged after the Effective Date before payment is made to any of the Creditors as per the Resolution Plan. The Resolution Applicant will be entitled and will use funds available with the Corporate Debtor on the Effective Date for making any portion of CIRP payments. (n) The Resolution Applicant has sufficient funds and do not envisage any challenge in terms of source for making such payments. The net worth and financial capabilities of the Resolution Applicant are evident from its financial statements submitted at the time of submitting its EOI. Regarding the Source of Funds, the CIRP Costs shall be met out of funds infused by the Resolution Applicant in the Corporate Debtor. xxx xxx xxx 6.4.2. Treatment of Employees/Workmen dues, including dues of Authorized Representatives of Employees/ Workmen (a) The Resolution Applicant proposes to pay a fixed sum of Rs. 52 Crores to the Workmen/ Employees towards settlement of all the claims made by the Employees and Workmen of the Corporate Debtor, including to the Authorized Representatives of Employees and Workmen as set out in the List of Creditors (“Admitted Workmen and Employees Dues”). (b) The payments towards Admitted Workmen and Employees Dues shall be made out of funds infused by the Resolution Applicant in the Corporate Debtor and as per the Implementation Schedule set out in Clause 7.7 below. The said payment is also being made in priority to the payment to the financial creditors. (c) In any case, if the Liquidation Value due to Operational Creditors (Employees/ Workmen dues, including dues of the Authorized Representatives of Employees/ Workmen)
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is not “NIL”, then the Resolution Applicant undertakes that the Liquidation Value due to such Operational Creditors (Employees/ Workmen dues including dues of Authorized Representatives of Employees/ Workmen) shall be paid and shall be given priority in payment over Financial Creditors as is already reflected in the Implementation Schedule in Clause 7.7 below. The entire payment to the Employees/ Workmen dues including dues of Authorized Representatives of Employees/ Workmen is being made in priority within 175 (one hundred seventy five) days from the Effective Date. […] (g) Other than Admitted Workmen and Employees Dues which the Resolution Applicant proposed to pay, all other potential obligations and workmen dues including any dues towards Provident Fund (Contribution of Employees / Company), Gratuity, Employees State Insurance Scheme, Professional Tax or any other taxes in nature of employment owed or payable to, (including any demand for any penalty, penal interest already accrued/ accruing or in connection with any claims) and all rights and entitlements of present or past, direct or indirect, permanent or temporary, employees and/or workmen of the Corporate Debtor, whether admitted or not, due or contingent, asserted or unasserted, crystalized or uncrystallized, known or unknown, secured or unsecured, disputed or undisputed, present or future, whether or not set out in the balance sheet of the Corporate Debtor or the profit and loss account statements of the Corporate Debtor or the List of Creditors, claim submitted or not submitted, claim admitted or not admitted, in relation to any period prior to the ICD will be written off in full and shall be deemed to be permanently extinguished and waived off subject to Clause 9.9 of this Resolution Plan by virtue of the order of Adjudicating Authority approving the Resolution Plan and neither the Corporate Debtor nor the Resolution Applicant shall, at no point of time be, directly or indirectly, held responsible or liable in relation thereto. […]
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(i)(xi) For the avoidance of doubt it is hereby clarified that notwithstanding the acceptance or rejection of the terms of the proposed demerger by the employees and/or workmen, the Resolution Applicant shall ensure the payment of (i) minimum value due and payable to such employees and workmen (under Section 30(2) of the IBC); and (ii) the CIRP costs admitted by the Resolution Professional, subject to a maximum of Rs. 475 Crores. xxx xxx xxx 6.4.4. Treatment of Financial Creditors […] Summary of payments and security package Head Amount Security Value of Date of Date of Payable Offered Security Creation Release of of Security Security Cash Up to Rs. PBG of Rs. Rs. 393.5 Effective PBG Payment 185 Crores 47.5 Crores Cr (with Date adjusted BKC) BKC Property To be (if given) released on sale of BKC Or Mortgage over Year 5 or Dubai on complete payment, Property No. Rs. 147.5 whichever 1 valued at Cr is earlier more than Rs. (without 100 Crores BKC) Cash Rs. 195 BKC Property Rs. 445 Effective To be Payment Crores (if given) Cr Date released on sale of BKC (with Mortgage over BKC) Effective Year 5 or Dubai Date on complete payment, Property No. whichever 1 valued at Or is earlier more than Rs. 100 Crores Mortgage over Rs. 200 Effective Dubai Cr Date Property No. (without 2 valued at BKC) more than Rs. 100 Crores
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
Footnotes
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Footnotes
(a) COMMITTED CASH PAYMENTS (i) The Resolution Applicant will pay the Assenting Financial Creditors a total sum of Rs. 185 Crores on 180th day from the Effective Date. If the BKC Property is not provided to the Resolution Applicant as per the proposal stated in Clause 6.3.1(d), then the Resolution Applicant will pay the Assenting Financial Creditors, a total sum of Rs. 175 Crores on 180th day from the Effective Date. The said amounts shall be paid on the following principal terms:
Amount Payable Up to Rs. 185 Crores/ up to Rs. 175 Crores
Payable By Jet Airways (India) Limited
Payable To Financial Creditors against conversion of admitted claims of equivalent amount.
Date of Payment 180th day from the Effective Date.
Security ● Performance bank guarantee of Rs. 47.5 Crores ● Mortgage over BKC Property (if given to the RA). ● Mortgage over Dubai Property No. 1 valued at more than Rs. 100 Crores.
Date of creation of Effective Date security
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
Date of release of ● BKC Property - On sale of BKC Property (if Security given to the RA) or on the date of payment, whichever is earlier.
● Charge over Dubai Property No. 1 with respect to this payment will be released on the date of payment.
Security Related RBI approval required for creating charge Terms over Dubai Property No. 1 will be applied after the CoC approves this Resolution Plan. If the RBI approval for creating such charge is not received by the Effective Date, then alternate security will be provided in India of equivalent value on the Effective Date.
Event of Default Corporate Debtor’s failure to make such committed payment
Consequences of Enforcement of security for recover the Event of Default outstanding amounts.
Governing Law and Indian Law and courts of Mumbai will have Jurisdiction exclusive jurisdiction.
xxx xxx xxx 6.4.12. Request for the consideration of the CoC - As required under the RFRP, the Resolution Applicant shall provide the performance security bank guarantee (“PBG”) for a total sum of Rs. 150 Crores. The PBG will be provided in two parts, with the first PBG of Rs. 47.5 Crores provided within 7 (seven) days from the date of receipt of LOI; and PBG for the remaining sum of Rs. 102.5 Crores provided on the Effective Date. 7.3. Compliance with respect of Regulation 36B (4A) The Resolution Applicant undertakes to provide the performance security bank guarantee as per the terms of the RFRP in favour of “State Bank of India” (in its capacity as an agent of the CoC (and acting on behalf of the Corporate Debtor)), within 7 (seven) days of it being declared the “Successful Resolution Applicant”, or by way of a direct deposit by way of the real time gross settlement system into a bank account held by the SBI Bank, as per the terms of the RFRP. xxx xxx xxx
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7.1. Term of the Resolution Plan 7.1.2. The effectiveness and implementation of the Resolution Plan by the Resolution Applicant shall be subject to the approval of the NCLT. Notwithstanding anything set out in this Resolution Plan, the implementation of this Resolution Plan by the Resolution Applicant shall not be conditional upon satisfaction of any conditions, other than approval of the NCLT. 7.6. Conditions to the Implementation of the Resolution Plan 7.6.1. Conditions Precedent - The obligation of the Resolution Applicant to re-commence operations as an aviation company, being the business proposed to be acquired is subject to the fulfilment of the following conditions after the Approval Date (“Conditions Precedent”): (a) Validation of AOP of the Corporate Debtor by DGCA & MoCA - The AOP of the Corporate Debtor shall have been validated by the DGCA, the MoCA and any other relevant Government Authority and grant of all other mandatory approvals to the Corporate Debtor to enable it to re-commence flying operations (including commercial/ cargo operations) and related on-ground services. (b) Submission and approval of the Business Plan to DGCA & MoCA - The Business Plan of the Resolution Applicant shall have been submitted after the Approval Date to the DGCA and MoCA for their review, and approval. The Resolution Applicant agrees to modify its business plan to incorporate all reasonable changes required by the DGCA/ MoCA, which otherwise does not make the business unviable for the Resolution Applicant. (c) Slots Allotment Approval - The DGCA and MoCA shall have approved the reinstatement of all the suspended slots (including the bilateral rights and traffic rights) back to Jet Airways/ Corporate Debtor. The slots (along with related bilateral rights and
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
traffic rights) can be allotted to the Corporate Debtor gradually as per its Business Plan with immediate slots allotment approval (along with related bilateral rights and traffic rights) for sectors on which Jet 2.0 proposes to recommence operations after the Effective Date. (d) International Traffic Rights Clearance - The Corporate Debtor shall have received the International Traffic Rights Clearance in compliance with Applicable Laws. (e) Demerger - The Scheme filed as part of this Resolution Plan shall have been approved under Applicable Laws and the Demerged Employees shall have demerged from the Corporate Debtor to AGSL along with all their past dues, liabilities and outstanding’s with effect from the Approval Date, without the requirement of any further consent or approval of any other stakeholder of AGSL (since we understand that AGSL currently does not have any creditor) or any stakeholder of the Corporate Debtor (including existing or past employee or workmen or employees’ unions of the Corporate Debtor). 7.6.2. Fulfilment of Conditions Precedent - The date of fulfilment of all the Conditions Precedent as stated in Clause 7.6.1 above shall be the effective date for the purposes of this Resolution Plan (“Effective Date”). 7.6.4. Automatic Withdrawal - The Resolution Applicant is confident of completing all the Conditions Precedent (as set out in Clause 7.6.1 above) within 90 (ninety) days from the Approval Date. In the unlikely event that all the Conditions Precedent cannot be fulfilled within 90 (ninety) days, the Resolution Applicant takes the responsibility of completing the outstanding Conditions Precedent at the earliest and seeks to extend the Conditions Precedent fulfilment period by another term of maximum 180 (one hundred and eighty) days. If all the Conditions Precedent are not fulfilled within such period (i.e. 270 (two hundred and seventy) days from the Approval Date), then this Resolution Plan shall automatically stand withdrawn without
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any further acts, deeds, or things. On such withdrawal, the members of the Resolution Applicant in the Monitoring Committee shall resign, and the remaining members of the Monitoring Committee shall assume absolute control of the Corporate Debtor. 7.7. Implementation Schedule - 7.7.1. The Resolution Applicant shall take the following steps in the order of sequence (except otherwise mentioned in any step for any part of the step) as an integral part of the Resolution Plan. It is provided that the procedure, timelines and the sequence of steps listed below are only indicative and that they may be re-arranged/ changed as may be required or directed based on discussions with the necessary Governmental Authorities/ stock exchange (on account of past non-compliances of the Corporate Debtor or otherwise) or for the purposes of advancing any payments to the stakeholders, and at all times in compliance with Applicable Laws: Step Activity Days
1. Receipt of approval from the Competition Before Commission of India under the provisions of the approval of Competition Act, 2002 read with the provisions Resolution of the IBC. Plan by CoC
2. Declaration of the Successful Resolution Applicant X and Receipt of LoI from the CoC
3. Unconditional acceptance of the LoI X+3
4. Issuance of Performance Security Bank Guarantee X+7
55. Finalization of the members of the Monitoring Between X Committee and Approval Date
77. Monitoring Committee to take control as per Y Clause 7.8.2.
88. Fulfilment of Conditions Precedent as per After Y Clause 7.6.1
99. Filings of the certified copy of the Order of Approval Y + 10 received from Adjudicating Authority sanctioning the Resolution Plan with the relevant Government Authorities/ Stock Exchange/ Departments.
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1111. Infusion of Rs. 350 Crores in the Corporate Z + 150 Debtor
1212. Setting up the Contingency Fund Z + 170
1313. Cancellation of Shares (excluding Public Shares) Z + 170 as per Clause 7.4.1(c).
1414. Reconstitution of Share Capital as per Clause Z + 170 7.4.2 above.
1515. Steps towards issuance of equity shares as per Z + 170 Clause 7.4.3 above.
1616. Payment of CIRP Costs as per Clause 6.4.1. Z + 170
1717. Payment to the Operational Creditors (Workmen and Z + 175 Employees, including Authorized Representatives of Workmen and Employees) as per Clause 6.4.2.
1818. Payment to all the Operational Creditor (other Z + 175 than Workmen and Employees) as per Clause 6.4.3 above.
1919. Payment to Other Creditors and Stakeholders as Z + 175 per Clause 6.4.5, Clause 6.4.6, 6.4.7, and 6.4.8
2020. Payment to Dissenting Financing Creditors as per Z + 176 Clause 6.4.4(m)(i).
2121. 1st Tranche payment to Financial Creditors as per Z + 180 Clause 6.4.4.
2222. Monitoring Committee to be released and Z + 180 Reconstituted Board of Directors to take over the management of the Corporate Debtor.
2424. Redemption of Series B, Series C; and Series Z + 365 D ZCBs
2525. Necessary statutory approvals Y + 365 (in accordance with Sec 31(4) of the IBC)
2626. Redemption of Series A ZCB Z + 730
2727. Release of charge (if any) over assets of the Z + 730 Corporate Debtor (which have not been previously released).
2828. Redemption of NCDs and release of any charge Z + 5 Years (if any)
xxx xxx xxx
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9.4. Implementation - The performance guarantee provided by the Resolution Applicant can be invoked in accordance with the terms of the RFRP.”
5. The RP preferred an application under Section 30(6) read with Section 31 of the IBC, 2016 before the NCLT seeking approval of the Resolution Plan submitted by Respondent No.1 and vide order dated 22.06.2021, the NCLT approved the Resolution Plan. In view of the uncertainty regarding the achievement of the “Effective Date” under Clauses 7.6.2 and 7.6.4 of the Resolution Plan, it was clarified that the same would be fixed on the 90th day from the Plan Approval Order dated 22.06.2021. Respondent No.1 was also given liberty to approach the NCLT for appropriate orders with respect to an extension of the timeline, subject to a maximum of another 180 days, in case they fail to fulfill all the Conditions Precedent within 90 days. The relevant observations are reproduced hereinbelow: “33. During the hearing, the uncertainty of the time frame for implementation of the Resolution Plan was discussed. It is stated by the SRA in clause no. 7.6.2 (pdf 276) of the Resolution Plan that the effective date would mean the date of the fulfilment of all the conditions precedent as stated in clause 7.6.1 thereof. The SRA, at clause no. 7.6.4, has gone on to add that the consortium would make all endeavor to ensure all the compliances are done for the fulfillment of the conditions precedent within a period of 90 days. In the unlikely event that the conditions precedent are not complied within this period, SRA would require a maximum of 180 days more to fulfil the conditions. Failing which the Resolution Plan would stand automatically withdrawn without any further act, deed or thing. In view of such uncertainty in the ‘effective date’ the Bench suggested that let the effective date be the 90th day from the Approval Date (clause 3.1 at pdf page 201). The SRA as well as the Applicant (RP of the Corporate Debtor) had agreed to the suggestion. This in our opinion is not in the nature of a substitution or addition to the decision, commercial or otherwise, of the CoC. The suggestion is made only to give finality and certainty to the effective date, which the SRA has otherwise committed in the Resolution Plan to endeavor to do. It could accordingly be ordered so. Failing
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
which the SRA / Corporate Debtor would be at liberty to approach this Authority for appropriate orders with regard to extension of the timeline, as would be deemed proper. That would help prevent the SRA from the frustration of ‘automatic withdrawal’ referred to in clause 7.6.4 of the Resolution Plan.” (emphasis supplied)
6. Since the initial period of 90 days for fulfilment of the Conditions Precedent expired on 22.09.2021, an extension of another 90 days was granted by the NCLT vide order dated 29.09.2021 (1st extension). The 1st extension of 90 days expired on 22.12.2021. The NCLT vide order dated 20.01.2022, again, granted an extension of another 90 days (2nd extension). The 2nd extension of 90 days expired on 22.03.2022. The maximum extension that could have been provided under Clause 7.6.4 of the Resolution Plan i.e., an additional 180 days, had now come to an end. However, vide order dated 11.04.2022, the NCLT granted exclusion of a period of 65 days from 17.01.2022 to 22.03.2022, which was spent in moving the application for grant of time. This finally extended the time for achieving the Effective Date from 22.03.2022 to 25.05.2022 (3rd extension).
7. On 20.05.2022, Respondent No.1 obtained the Air Operation Certificate (hereinafter, the “AOC”) and asserted that all the Conditions Precedent required under Clause 7.6.1 of the Resolution Plan had been met and that the Effective Date in accordance with Clause 7.6.2 had been achieved. As a consequence, Respondent No.1 had 180 days from 20.05.2022 i.e., until 16.11.2022 to infuse an amount of Rs. 350 Crore in the Corporate Debtor as per Clause 6.3.1(g) and the Implementation Schedule under Clause 7.7.1 of the Resolution Plan.
8. The workmen and employees of the Corporate Debtor and several Operational Creditors challenged the order of the NCLT dated 22.06.2021 by which the Resolution Plan was approved before the NCLAT. Vide order dated 21.10.2022, the NCLAT upheld the order of the NCLT dated 22.06.2021. However, it was observed that the workmen and employees are entitled to the payment of their full provident fund and gratuity which was unpaid as on the insolvency commencement date and that the balance of the above dues should be paid by the Successful Resolution Applicant i.e., Respondent No.1, in order to satisfy its statutory obligations. It was further stated that
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“Non-payment of full PF and Gratuity shall lead to violation of Section 30(2)(e) and hence, to save the plan, the above payments have to be made”. On 20.12.2022, Respondent No.1 preferred Civil Appeal Nos. 465-469 of 2023 against the aforesaid order dated 21.10.2022 passed by the NCLAT, before this Court.
9. It is the case of Respondent No.1 that between May 2022 and October 2022, the Appellants disputed the fulfilment of the Conditions Precedent by Respondent No.1 on one ground or another. Therefore, on 18.10.2022, Respondent No.1 filed two Interim Applications – First, IA No. 3398 of 2022 (hereinafter, “Implementation Application”) before the NCLT seeking necessary directions for the implementation of the Resolution Plan and a declaration that all the Conditions Precedent have been fulfilled; Second, IA No. 3508 of 2022 requesting that the period from 20.05.2022 till the date on which the Implementation Application would be decided by the NCLT be excluded for the purpose of calculating 180 days from the Effective Date, for the purpose of making the first tranche payment of Rs. 350 Crore.
10. The NCLT allowed both the aforesaid IAs and vide its common order dated 13.01.2023 held that all the Conditions Precedent have been duly complied with and therefore, 20.05.2022 would be the Effective Date. Further, it excluded the period from 20.05.2022 to 16.11.2022 (180 days) from the period of 180 days within which the first tranche payment had to be made, in the interests of justice and to achieve the primary objective of maximization of assets and resolution of the Corporate Debtor. As a consequence, the deadline to meet with the first tranche payment obligation of Rs. 350 Crore was extended till 15.05.2023 (hereinafter, “1st implementation extension”). The appellants challenged this common order dated 13.01.2023 passed by the NCLT before the NCLAT by way of Company Appeal (AT) (INS) Nos. 129-130 of 2023 (hereinafter, “Company Appeal”) and also sought a stay on the same.
11. On 30.01.2023, this Court dismissed Civil Appeal Nos. 465-469 of 2023 filed by Respondent No.1 and upheld the order dated 21.10.2022 passed by the NCLAT. In such circumstances, Respondent No.1 was obliged to pay the full provident fund and gratuity that the workmen and employees were entitled to within 180 days from the Effective Date.
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
12. The NCLAT vide its order dated 03.03.2023, declined to stay the order dated 13.01.2023 passed by the NCLT while observing that the steps regarding the implementation of the Resolution Plan have to be taken by the SRA which needs to be overseen by the Monitoring Committee. On 17.04.2023, the Appellants filed Civil Appeal Nos. 3736-3737 of 2023 before this Court against the order of the NCLAT declining the grant of stay.
13. Since 15.05.2023 was fixed as the deadline to make the first tranche payment of Rs. 350 crore, Respondent No.1, on 11.05.2023, filed IA Nos. 2028-2029 of 2023 respectively before the NCLAT in the Company Appeal for the purpose of seeking exclusion of the period from 16.11.2022 till the time the Company Appeal is decided from the calculation of 180 days stipulated for the infusion of first tranche of funds under the Resolution Plan. Immediately thereafter, on 17.05.2023, IA Nos. 2059-2060 of 2023 in the Company Appeal were also filed by Respondent No.1 seeking to restrain the Appellants from encashing or appropriating the Performance Bank Guarantee and Earnest Money deposited by Respondent No.1 in favor of the Appellants under the Resolution Plan.
14. The NCLAT vide its common order dated 26.05.2023, stated that the period between 16.11.2022 and 03.03.2023 (107 days) be excluded from the calculation of 180 days for the infusion of first tranche of funds under the Resolution Plan and also held that the Appellants could invoke the PBG only with the leave of the NCLT. This, effectively, extended the period to infuse Rs. 350 Crore under the first tranche till 31.08.2023 (2nd implementation extension). Soon thereafter, on 13.06.2023, the Appellants filed Civil Appeal Nos. 4131-4134 of 2023 against the common order dated 26.05.2023 passed by the NCLAT.
15. On 16.06.2023, Respondent No. 1 filed two other IA Nos. 3789-3790 of 2023 (hereinafter, “Gratuity Application”) in the Company Appeal requesting that they be allowed to discharge the gratuity claims of the employees and workmen of the Corporate Debtor in three tranches and also allow them to approach the EPFO authorities in order to reduce or waive off the claim towards damages amounting to Rs. 24.4 Cr imposed on the Corporate Debtor or grant permission to challenge the imposition of damages in an appeal before the appropriate authority.
16. In the meantime, vide letter dated 27.07.2023, the Office of the Director General of Civil Aviation, Government of India (hereinafter,
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“DGCA”) extended the validity of the AOC issued to the Corporate Debtor until 03.09.2023 subject to certain conditions. The relevant extracts from the letter are reproduced hereinbelow: “Sir, Reference is invited to Jet Airways Letter dated 16.05.2023 followed by email dated 12.06.2023 and discussions with Sh Ankit Jalan, representative of Jalan-Kalrock Consortium (SRA) on 14.07.2023 and 27.07.2023 regarding extension of validity of AOC.
2. In view of the fact that Jet Airways is still undergoing CIRP under IBC, 2016, NCLT and NCLAT having the jurisdiction in respect of the insolvency of the Company have granted extension(s)/exclusion(s) of time for implementation of the approved Resolution Plan upto 03.09.2023, the AOC No. 6A in respect of Jet Airways (India) Ltd. shall be considered as valid until 03.09.2023, subject to the following conditions:- i. This extension shall be applicable only for the limited purpose of completing the ongoing CIRP. ii. Jet Airways shall be required to undergo re-certification in accordance with the procedure contained in CAP 3100, as applicable for issuance of AOC and demonstrate compliance of all the applicable regulatory requirements afresh before commencement of flight operations. iii. Fee as applicable for issuance of AOC, shall be payable for such re-certification. iv. Jet Airways shall submit a firm action plan for revival of operations after the company is taken over by the SRA in accordance with the NCLT approved resolution plan. This issues with the approval of the Director General.”.
17. While the Company Appeal was pending before the NCLAT, the Appellants filed an Affidavit dated 16.08.2023 (hereinafter, “Lender’s Affidavit”) before the NCLAT. The Lender’s Affidavit provided that, if Respondent No.1, firstly, infuses Rs. 350 Crore by 31.08.2023; secondly, complies with the payment obligations to the workmen and
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
employees, and; thirdly, scrupulously follows the other terms and conditions of the Resolution Plan - the Appellants would not contest the issues relating to the grant of exclusion/extension of time as well as the issue relating to the compliance of all Conditions Precedent by the Respondent and would withdraw the Company Appeal pending before the NCLAT along with the Civil Appeals filed before this Court. The Lender’s Affidavit also provided that, upon failure to comply with the aforesaid conditions, the Corporate Debtor should be directed to go into liquidation. This opportunity was given to Respondent No.1/ SRA as a one-time measure. Para 8 of the Lender’s Affidavit which stipulates these conditions is reproduced hereinbelow: “8. In the present appeal, the lenders are agreeable that in case; a) SRA infuses Rs. 350 Crores by 31.08.2023, the date by which said payment is to be made as per the Resolution Plan, read with Order dated 26.05.2023 passed by this Hon’ble Tribunal; and b) SRA Undertakes to scrupulously follow the other terms and conditions of the resolution plan and c) SRA complies with the liabilities relating to payment to the employees as per order of NCLAT dated 21.10.2022 which has been upheld by the Hon’ble Supreme Court in its order dated 30.01.2023, the Lenders would not contest the issues relating to granting of exclusion/extension of time (in terms of the orders dt. 13.01.2023 passed by NCLT and order dt. 26.05.2023 passed by this Hon’ble Tribunal) as well as on the issue relating to compliance of condition precedent by the SRA and accordingly undertakes to withdraw the present Company Appeal (AT) Ins 129-130 of 2023 which is pending adjudication before this Hon’ble Tribunal along with Civil Appeal Nos. 4131-34 of 2023 & 3736-37 of 2023 filed before the Hon’ble Supreme Court, on the said two issues. In other words, lenders would not contest the granting of exclusions as well as on the issue regarding the compliance of Conditions Precedent, in case the aforesaid steps are taken by SRA without any further
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delay. Failing to comply with the conditions mentioned in Para 8(a) to (c) above, the Corporate Debtor should be directed to go into liquidation.”
18. In response to the aforesaid Lender’s Affidavit, Respondent No.1 on 18.08.2023 filed IA Nos. 3801 and 3802 of 2023 (hereinafter, “Adjustment application”) in the Company Appeal seeking inter alia – First, a direction to the Appellants to adjust the PBG of Rs. 150 Crore towards part payment of the first tranche under the Resolution Plan; second, to allow Respondent No.1 to infuse Rs. 100 Crore as share application money on or by 31.08.2023 and; thirdly, to allow Respondent No.1 to infuse the remaining Rs. 100 Crore as share application money on or before 30.09.2023. Through these applications, Respondent No.1 further urged that, in the event the Gratuity Application was not allowed, the Resolution Plan would not be implemented and in such eventuality, the Appellants and the Corporate Debtor may be directed to refund all the amounts infused or deposited by Respondent No.1. including the share application money and the PBG.
19. The NCLAT, vide its order dated 28.08.2023, partly allowed the Adjustment Application so far as the payment of the first tranche of Rs. 350 Crore was concerned and stated that as regards the prayer with respect to the Gratuity Application, the submissions required further consideration. The PBG of Rs. 150 was allowed to be adjusted against the first tranche payment and the remaining Rs. 200 Crore was allowed to be infused on or by 31.08.2023 and 30.09.2023 respectively. Therefore, the deadline to infuse the aforesaid amount and implement the Resolution Plan was further extended to 30.09.2023 (3rd implementation extension). Immediately thereafter, the Appellants filed Civil Appeal Nos. 6427-6428 of 2023 before this Court against the aforesaid order dated 28.08.2023 passed by the NCLAT.
20. Meanwhile, on 03.09.2023, the conditional AOC issued by the DGCA came to an end. Before the expiry of the 3rd implementation extension i.e., 30.09.2023, Respondent No. 1 had deposited an amount of Rs. 200 Crore. However, it is the case of the Appellants that the manner of infusion of the same was in contravention of the Resolution Plan, specifically Clause 2.1.5, since Respondent No.1 infused a portion of the funds through a third party, thereby inducting them into the Resolution Plan as a shareholder.
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
21. Before this Court, the following three Interim Orders passed by the NCLAT came to be challenged by the Appellants over a period of time: i) Civil Appeal Nos. 3736-3737 of 2023 challenging the Interim Order dated 03.03.2023 passed by the NCLAT by which it declined to stay the NCLT Order dated 13.01.2023 which held that all the Conditions Precedent had been fulfilled; ii) Civil Appeal Nos. 4131-4134 of 2023 challenging the Interim Order dated 26.05.2023 passed by the NCLAT through which the NCLAT restrained the Appellants from invoking the PBG and extended the time for infusion of first tranche payment of Rs. 350 Crore up to 31.08.2023; and iii) Civil Appeal Nos. 6427-6428 of 2023 challenging the Interim Order dated 28.08.2023 passed by the NCLAT allowing the PBG of Rs. 150 Crore to be adjusted against the first tranche payment and allowing the remaining amount of Rs. 200 Crore to be infused by 30.09.2023.
22. All the aforementioned appeals were heard together and vide common judgment and order dated 18.01.2024, this Court held that the PBG cannot be permitted to be adjusted against the first tranche payment and therefore, directed that the amount of Rs. 150 Crore be infused in cash on or before 31.01.2024 (4th implementation extension). In the event of failure by Respondent No.1 to infuse the said amount within the said date, this Court held that the consequences under the Resolution Plan would follow. It disposed of the appeals as thus: “25. The lenders have argued in the appeals that there has been a failure on the part of the successful resolution applicant to comply with the conditions precedent. If the successful resolution applicant were to comply with the terms as envisaged in SBI's affidavit dated August 16, 2023, evidently issues pertaining to compliance with the conditions precedent were not to be pressed thereafter. In order to furnish this successful resolution applicant a final opportunity to comply and consistent with the above position, we issue the following directions: (i) The successful resolution applicant shall peremptorily on or before January 31, 2024, deposit an amount of Rs. 150 crores into the designated account of SBI, failing
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which the consequences under the resolution plan shall follow; (ii) The performance bank guarantee of Rs. 150 crores shall continue to remain in operation and effect, pending the final disposal of the appeal before the National Company Law Appellate Tribunal, and shall abide by the final outcome of the appeal and the directions that may be issued by the National Company Law Appellate Tribunal; and (iii) Whether or not the successful resolution applicant 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 August 16, 2023 shall be decided by the National Company Law Appellate Tribunal in the pending appeal.” (emphasis supplied)
23. Respondent No.1 failed to deposit Rs. 150 Crore in cash by 31.01.2024 as directed by this Court. Therefore, on 27.01.2024, Respondent No.1 filed Misc. Application Nos. 216-217 of 2024 in the Civil Appeal Nos. 6427-6428 of 2023 seeking an extension of time for making the deposit of Rs. 150 Crore. The same was dismissed by us vide order dated 02.02.2024 as being misconceived in view of our previous order dated 18.01.2024. This order is reproduced hereunder: “ORDER
1. The Miscellaneous Application is misconceived in view of the final order passed by this Court on 18 January 2024.
2. The Miscellaneous Application is accordingly dismissed. 3 Pending applications, if any, stand disposed of.”
24. Later, the NCLAT, vide its impugned order dated 12.03.2024, dismissed the Company Appeal filed by the Appellants against the order of the NCLT dated 13.01.2023 while holding that Respondent No.1 had fulfilled all the Conditions Precedent and had also complied with all the other terms of the Resolution Plan. The following were the concluding observations in the impugned order of the NCLAT:
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
“129. In view of our foregoing discussions and conclusions, we dispose of these Appeals in the following manner:
1. The impugned order passed by the Adjudicating Authority dated 13.01.2023 is upheld.
2. The Monitoring Committee and MC Lenders as well as SRA are directed to take steps for creation of charge over the Dubai Property No. 1, Dubai Property No. 2, and Dubai Property No.3 within a period of 30 days from today. The SRA to bear all necessary expenses for creation of necessary charge.
3. The Performance Bank Guarantee of INR 150 Crores, which is lying with the Monitoring Committee/MC Lenders, shall be adjusted towards the first tranche payment of INR 350 crores as INR 200 crores have already been paid by the SRA. By adjustment of PBG as per the Resolution Plan, the first tranche of payment of INR 350 crores shall be completed.
4. Steps shall be taken for re-constitution of the shares as per the Resolution Plan forthwith.
5. Out of the first tranche payment of INR 350 crores, payments shall be made to the workmen and employees and the creditors as per the Resolution Plan, including the payment of CIRP cost as per the Resolution Plan, which payment shall be completed within 60 days from the date of this judgment.
6. The SRA shall submit an Application for re-issue of Air Operation Certificate which may be obtained within 90 days from the date of this judgment.
7. The closing date shall be 90th day from the date of this judgment, on which date, handing over of the Corporate Debtor to the SRA by the Monitoring Committee shall be completed.
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8. Towards the payment of provident fund dues, as per the order dated 21.10.2022 passed by this Tribunal in Company Appeal (AT) (Insolvency) Nos. 643 of 2021, SRA has undertaken to make payment of provident fund upfront along with payment of dues of workmen and employees as per the Resolution Plan, which payment of INR 12 Crores as undertaken, shall be made in addition to the payments as directed above.” (emphasis supplied)
25. The aforesaid judgment and order of the NCLAT once again extended the time limit for implementation of the Resolution Plan and satisfaction of the first tranche payment obligation of Rs. 350 Crore to 11.04.2024 i.e., the date within which the creation of charge over the various Dubai properties was to be completed (5th implementation extension). The same charge has, admittedly, not been created as on date.
26. In light of the above, the Appellants have challenged the aforesaid impugned order of the NCLAT dated 12.03.2024 by way of the present Civil Appeals filed under Section 62 of the IBC, 2016.
B. SUBMISSIONS ON BEHALF OF THE APPELLANTS
27. Mr. N. Venkataraman, learned ASG appearing for the Appellants broadly classified his submissions into the following issues: i. That the direction of the NCLAT in the impugned order dated 12.03.2024 allowing Respondent No.1 to adjust the PBG of Rs. 150 Crore towards the first tranche payment of Rs. 350 Crore, runs counter to the judgement of this Court dated 18.01.2024. The Resolution plan mandates a cash infusion and the question of PBG adjustment would arise only when the three Dubai properties valued at Rs.250 crores are mortgaged by Respondent No.1. ii. That the NCLAT, through its impugned order dated 12.03.2024 erroneously limited the Airport Dues to Rs. 25 Crore and further categorising it as a part of the CIRP costs especially when the Resolution Plan obligates an upfront payment of Rs. 475 Crore towards Airport Dues. Such an error is glaring since the
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State Bank of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.
Resolution Plan clearly excludes the Airport Dues from the ambit of CIRP costs. iii. That the NCLAT while approving the Resolution Plan vide its Order dated 21.10.2022 increased the workmen’s dues from Rs. 52 Crore to Rs. 289.2 Crore (which according to the appeals filed by the workmen would be reduced to Rs. 226 Crore post the demerger of the ground handling business). An appeal against the order stood dismissed by this Court on 30.01.2023. Therefore, it is a matter of concern that the impugned order of the NCLAT limited the workmen’s compensation to a mere Rs. 12 Crore which is contrary to its earlier order dated 21.10.2022 as upheld by this Court on 30.01.2023. iv. Clause 7.6.1 of the Resolution Plan deals with the five Conditions Precedent and imposes an obligation on the SRA to fulfil the same in order to recommence the operations of the Corporate Debtor as an aviation company. The SRA could be said to have breached three of these conditions i.e. Condition (a) on obtaining the AOC; Condition (c) on obtaining the Slots Allotment Approval, and; Condition (d) on obtaining the International Traffic Rights Clearance. The NCLT, vide its order dated 13.01.2023 had held that the Conditions (a) and (c) stood fulfilled and amended Condition (d) which effectively transformed it from a condition precedent to a condition subsequent. Such erroneous findings came to be wrongly affirmed by the NCLAT through its impugned order dated 12.03.2024.
i. Issue No.1: Adjustment of PBG of Rs. 150 Crore towards the first tranche payment
28. As far as the first tranche payment of Rs. 350 Crore is concerned, it was submitted that a payment of only Rs. 200 Crore in cash has been made and the SRA has failed to infuse the remaining Rs. 150 Crore in cash.
2929. The learned ASG submitted that Clause 6.3.1(g) relating to the “Infusion of Funds and Timelines” provides that the timeline for the infusion of the upfront first tranche payment of Rs. 350 Crore was within 180 days from the Effective Date. The clause also indicates the manner in which the first tranche would be utilized and obligates a distribution pattern towards the CIRP costs, contingent fund, payments
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to FCs, OCs, other creditors and other stakeholders, working capital for business and miscellaneous administrative expenses.
3030. The learned ASG then elaborated on the scope of Clause 7.7 of the Resolution Plan which provides the “Implementation Schedule” and requires that the Resolution Plan be completed within 5 years from the Effective Date. According to this clause, the performance of different obligations was to be completed within the said corresponding timelines. S.No. 11 under this table specifically requires the infusion of Rs.350 Crore in the Corporate Debtor by the SRA within “Z+150 days” where “Z” represents the Effective Date. The expression “infusion” has been interpreted by this Court vide its judgement dated 18.01.2024 to mean “payment in cash”.
3131. Reference was made by the learned ASG to the RFRP, more particularly to Clauses 3.13.1, 3.13.2, 3.13.7(iii) and 3.13.9 which mandate the execution of a PBG for an amount of Rs. 150 Crore and also provide that the PBG cannot be set-off against or used as a part of the consideration which the SRA proposes to offer in relation to the company even if expressly indicated as such in the successful Resolution Plan. It also provides for an automatic right to invoke the PBG without any reference to the SRA, should the SRA fail to implement the approved Resolution Plan in accordance with the terms of the Resolution Plan and to the satisfaction of the CoC. It was also submitted that vide Clauses 7.3 and 9.4 of the Resolution Plan respectively the spirit and intention of the RFRP stood translated into the Resolution Plan. Under Clause 7.3 of the Resolution Plan, the SRA undertook to provide the PBG as per the RFRP and in compliance with Regulation 36B(4A) of the 2016 Regulations. Clause 9.4 of the Resolution Plan authorizes the invocation of the PBG in terms of the RFRP.
3232. The learned ASG submitted that Clause 6.4.4 of the Resolution Plan on “Treatment of Financial Creditors - Summary of payments and Security package” under its tabular column evidently conveys the mandate that the SRA is under an obligation to execute a mortgage over the three Dubai properties i.e., Property No. 1 valued at Rs. 100 Crore, Property No.2 valued at Rs. 100 Crore and Property No.3 valued at Rs. 50 Crore. The table provides that the date of creation of such security would be the Effective Date. This security had to be created at the cost of the SRA. Therefore, the SRA was obliged to
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