Introduction
In this case, SBI & Ors. v. Consortium of Murari Lal Jalan and Florian Fritsch & Anr.[i], the appeals before the Hon’ble Supreme Court (‘SC’) revolve around the Resolution Plan (‘Plan’) for Jet Airways Limited (‘JAL’). A dispute had arisen between the Successful Resolution Applicant (‘SRA’) and lenders regarding compliance with the Plan. The National Company Law Tribunal (‘NCLT’) found the SRA to be compliant, which led to an appeal by the State Bank of India (‘SBI’) on behalf of the lenders, before the National Company Law Appellate Tribunal (‘NCLAT’) and subsequently before the SC. The decision highlights the interim arrangement without reaching a final determination on the merits of the case, emphasizing adherence to the original terms while awaiting the NCLAT’s decision in the pending appeal.
Facts
The appeals before the SC stem from three orders of the NCLAT concerning the Plan for JAL, the corporate debtor (‘CD’) under the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The Plan submitted by a consortium for JAL was approved by the Committee of Creditors (‘CoC’) on 17.10.2020 and the NCLT on 22.06.2021. Clause 7.6 of the Plan outlined certain conditions for implementation, including conditions precedent (‘CPs’) and automatic withdrawal provisions. The date of completion of CPs was defined as the ‘Effective Date’, with an outer limit of 270 days for fulfilment, failing which the Plan would automatically stand withdrawn.
A disagreement arose between the SRA and lenders represented by SBI regarding the fulfilment of the CPs. The NCLT, in an order dated 13.01.2023, deemed the SRA to be compliant, allowing it to take control and management of JAL. SBI challenged this decision, and the NCLAT affirmed NCLT’s decision on 21.10.2022 and 20.12.2022.
Subsequently, an affidavit dated 16.08.2023 was filed by SBI that set out three conditions for the SRA in order to avoid liquidation, including an infusion of Rs. 350 crores by 31.08.2023. The SRA thereafter, sought permission from the NCLAT to pay Rs. 350 crores in three tranches, two of Rs. 100 crores each and the third tranche was proposed to be adjusted against the performance bank guarantee (‘PBG’) issued by the SRA in favour of the lenders.
The NCLAT allowed the SRA for the adjustment of Rs. 150 crores from the PBG as its last tranche, a decision that SBI considered unjustified and which constituted the primary issue in this matter. SBI also contested that the SRA failed to fulfil the CPs as set out in the Plan, including payment of workmen dues, airport dues, and other aspects.
Held
The SC partially modified the NCLAT’s order and noted that the appeal regarding the compliance of the SRA with the CPs was pending before the NCLAT. Therefore, the SC limited its observations in this judgment to the interim arrangement between the parties and did not express a final view on the merits of the matter.
The SC found that it was unjustified to adjust the PBG at this stage and that the SRA had to fulfil its remaining obligation of depositing Rs. 150 crores according to the original terms, failing which the consequences under the Plan would follow.
The SC set a deadline of 31.01.2024, for this deposit by the SRA. The PBG of Rs. 150 crores would remain in effect until the outcome of the appeal, wherein the SRA’s compliance with the CPs would be decided by the NCLAT. The SC further urged the NCLAT to expedite the disposal of the appeal by the end of March 2024. Hence, the NCLAT’s permission to adjust the last tranche against the PBG was modified to this extent by these directions.
Analysis
The judgment illustrates the SC’s commitment to ensuring the expeditious and effective resolution of insolvency cases, a cornerstone of the IBC’s framework. By emphasizing strict adherence to the agreed terms of the Plan and setting specific directives for compliance, the SC seeks to uphold the integrity of the insolvency resolution process. The decision to expedite the appeal’s resolution by March 2024 reflects an acute awareness of the economic stakes involved and the broader implications for the efficacy of India’s insolvency resolution regime. This case thus serves as a pivotal reference point for future insolvency proceedings, highlighting the critical balance between the flexibility needed to achieve viable resolutions and the rigidity required to ensure compliance and fairness in the process.
End Note:
[i] 2024 SCC OnLine SC 61
Authored by Pranav Dabas, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.