Case title:
SMBC Aviation Capital Ltd. Vs. Interim Resolution Professional of Go Airlines (India) Ltd., Abhilash Lal
Date of Order:
22nd May, 2023
Bench:
Hon’ble Justice Ashok Bhushan
Parties:
Appellant: SMBC Aviation Capital Ltd.
Respondent: Interim Resolution Professional of Go Airlines (India) Ltd., Abhilash Lal
SUBJECT
This appeal is filed by the appellants to challenge the order passed by the National Company Law Tribunal, New Delhi, admitting an Application filed under Section 10 of the Insolvency and Bankruptcy Code, 2016 by Go Airlines (India) Limited. The appellants in these appeals are aircraft lessors who had granted operating leases of aircraft to Go Airlines (India) Ltd.
IMPORTANT PROVISIONS
The Contract Act, 1872
- Section 17
The Companies Act, 2013
- Section 424
Insolvency and Bankruptcy Code, 2016
- Section 18(1)(f)
- Section 30(2)(a)
- Section 10
- Section 65
- Section 14(1)(d)
- Section 60(5)
- Section 7
- Section 9
- Section 8
- Section 11
- Section 54(C)
- Section 54(A)
BRIEF FACTS
- Go Airlines (India) Ltd., a 2004-founded airline firm, has been running low-cost flights under the "Go Air" brand for the previous 17 years. The business has a sizable workforce and was profitable from 2009 to 2019.
- A considerable number of airplanes were grounded in 2022 as a result of Pratt & Whitney's faulty engines, which put the corporation in financial trouble. Go Airlines tried to work things out with Pratt & Whitney, but they were unsuccessful.
- Pratt & Whitney was the target of an urgent arbitration filed by Go Airlines with the Singapore International Arbitration Centre (SIAC). Pratt & Whitney was ordered by the emergency arbiter to provide operable engines, but the company disobeyed the requirements.
- Pratt & Whitney's default forced Go Airlines to cancel a number of flights in 2023. In order to protect its assets and carry on as a going concern, Go Airlines approved a resolution on April 30, 2023, to submit an application under Section 10 of the Insolvency and Bankruptcy Code.
ISSUES RAISED
- Whether is it required to notify the creditors in a Section 10 Application filed by a Corporate Applicant so that they can have a hearing or chance to have a hearing before the Section 10 Application is admitted?
- Whether it is necessary for the adjudicating authority to first give the creditor the opportunity to file a Section 65 Application and decide the said Application before proceeding to admit Section 10 Application if some creditors show up and object admission of Section 10 Application on the grounds that Application has been filed fraudulently and with malicious intent?
- Is it true that the moratorium mandated by the order passed by the NCLT cannot be said to apply to the assets that the Lessor previously leased to the Corporate Applicant because the Lessor terminated the Lease Agreement in the Corporate Applicant's favour prior to the admission of Section 10 Application?
- Whether the Appellant have the right to take ownership of the aircraft and export them in accordance with the lease agreement notwithstanding terminating the lease in the Corporate Applicant's favour prior to admission?
ARGUMENTS ADVANCED BY THE APPELLANT
- The learned Counsel on the behalf of appellant cited a case and mentioned that the objectors should be given an opportunity to file objections before admitting the application. In the same case it was held that, that the adjudicating body is not prohibited from hearing objections or intervenors in petitions for pre-packaged insolvency resolution processes. It did stress that allowing time for objections should only be used in extreme circumstances and for legitimate reasons. The Tribunal also stated that as the IBC processes are time-limited, it is important to minimise irrational delays.
- The Learned Counsel also cited a case where the appeals court ruled that before allowing the application under Section 10 to be admitted, opponents should have had the opportunity to file an application under Section 65. This was significant since the corporate applicant's fraudulent and nefarious intentions were brought up by the objections. Another instance where the Tribunal rejected a Section 10 application for failing to provide a valid reason for filing was highlighted. The appellant stated that not all Section 10 objections result in the application being rejected.
- It was also argued that the aeroplanes are no longer assets of the Corporate Debtor since the leases were terminated by the Appellant prior to the acceptance of the Section 10 Application. The Appellant is permitted to possess and export the aircrafts under the provisions of the Lease Agreement; hence the IRP is not permitted to take custody of these assets. The Senior Counsel for the Appellant relies on Section 18(1)(f) and the Explanation to argue that the aircraft cannot be seized by the IRP since it is not an asset owned by the Corporate Debtor. The Lessors are permitted to export the aircraft under the Act when the IRP is not permitted to take possession.
ARGUMENTS ADVANCED BY THE RESPONDENT
- The Learned Counsel on the behalf of the respondent mentioned that because of the moratorium, the Appellant(s) are not permitted to recover assets; as a result, the Lessors (the respondents) are not permitted to recover any property that is in the ownership of the Corporate Debtor.
- It was also argued that the corporate debtor has the right to keep possession because the aircraft were registered in their name and was in their possession.
- The Learned Counsel emphasizes that any type of possession is protected by Section 14(1)(d), and Section 14(1)(b) does not need "legal possession." The legal representative further contends that the Appellant(s) cannot be permitted to seize the assets once a Corporate Debtor is admitted into the Corporate Insolvency Resolution Process (CIRP).
JUDGEMENT ANALYSIS
- The Insolvency and Bankruptcy Code's (IBC) Section 10 application admission ruling was maintained by the court. The court did point out that the Adjudicating Authority had not yet given some of the points presented in the appeal its full attention. The appellant(s) or the Insolvency Resolution Professional (IRP) are thus free to submit the proper petitions in accordance with Section 60(5) of the IBC, as the court has permitted.
- However, the Adjudicating Authority shall independently assess the application that the court allowed the appellant(s) to submit in accordance with Section 65 of the IBC. The Appellant(s) and the IRP may also submit an application to ascertain whether the moratorium is applicable to the individual aircraft in issue, in particular those whose leases were terminated prior to the Section 10 application. In relation to the claim of possession and other relevant claims, they may also submit an application under Section 60(5). The costs should be borne by each Party.
CONCLUSION
In this case, Go Airlines filed a Section 10 application under the Insolvency and Bankruptcy Code to protect its assets after facing financial trouble caused by faulty engines. The court upheld the application but allowed the appellant(s) or the IRP to file additional petitions under Section 60(5) of the IBC. The court directed the Adjudicating Authority to independently assess the Section 65 application and determine the applicability of the moratorium on specific aircraft. Each party was responsible for its own costs.
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