Delhi High Court in Go First Case: Court Cannot Interfere Even on Grounds of Equity Due to Protection of Private Business Transaction Law in India

Delhi High Court in Go First Case: Court Cannot Interfere Even on Grounds of Equity Due to Protection of Private Business Transaction Law in India

The Delhi High Court has permitted various lessors to carry out inspection and interim maintenance tasks of their aircrafts, which are currently on lease with crisis-hit Go First airline, twice a month until final disposal of their pleas to de-register their planes from the airline.

The singe judge Justice Tara Vitasta Ganju passed the interim order and also restrained Go First's resolution professionals and employees from removing, replacing and taking out any part or component of the leased aircraft without the express permission of the lessors.

The court said that the lessors and its employees or agents shall be permitted by the Directorate General of Civil Aviation (DGCA) and appropriate airport authorities to access the airport where their aircrafts, which are 30 in number, are parked and to inspect them within three days.

The petitioners/lessors in the case include Pembroke Aircraft Leasing 11, Eos Aviation 12 (Ireland), DAE SY 13 Ireland, SFV Aircraft Holdings Ire 9 DAC Limited, Accipiter Investments Aircraft 2, ACG Aircraft leasing Ireland Limited, GY Aviation Lease 1722 Co Limited, and SMBC Aviation Capital.

It was the case of the lessors that the airline in question has no right to use their aircrafts as the leases concerning them have been terminated. The respondents in the petitions include Union of India and Director General of Civil Aviation.

On 22 May, the National Company Law Appellate Tribunal (NCLAT) upheld the order passed by National Company Law Tribunal (NCLT) whereby Corporate Insolvency Resolution Process was initiated against Go Airlines (India) Limited. Go First airlines stopped flying from 3 May.

NCLAT had rejected an appeal filed by the lessors challenging NCLT’s direction to keep the leased aircrafts intact in the possession of Go Airlines.

Since the lessors had challenged the imposition of moratorium on leased aircrafts when the lease agreement stood terminated prior to Corporate Insolvency Resolution Process (CIRP), the NCLAT granted liberty to IRP and the lessors to file applications before the NCLT with respect to their claims relating to the leased aircrafts.

The Counsels for the lessors argued that the relationship between an airline and the aircraft lessor is contractual and that tinkering with the terms of the contract would have consequences for the Indian aviation sector. They further argued that the settled principles of the relationship between the aircraft lessor and the airline cannot be modified without legal sanction.

Go First's Interim Resolution Professional (IRP) argued that the aircraft lessors initiated ‘parallel proceedings’ despite a clear directive from the NCLAT to approach the National Company Law Tribunal NCLT regarding the status of aircraft leases terminated before the moratorium.

The Court noted that once an event of default has occurred and the Petitioners had terminated the Lease Agreement(s) and commenced the process of deregistration of the Aircraft, such Aircraft cannot be flown.

Moreover, the Court observed that once the Lease was terminated, the lessors are in de facto possession of the Aircraft and as such, the Aircraft is not operational in terms of the Aircraft Rules. However, the Court also noted that there then is an imminent danger to the very valuable asset of the Petitioners being irreparably damaged on account of non-conduct of the maintenance activities.

The Court referred to the case of Awas 39423 Ireland Ltd. & Ors. vs. Directorate General of Civil Aviation & Anr., where the purport of Rule 30 (7) of the Aircraft Rules had been dealt with by a Coordinate Bench.

The Court held that, “that the Respondent/DGCA has to proceed in accordance with Rule 30 (7) of the Aircraft Rules and the Court cannot interfere even on grounds of equity; keeping in mind, the protection of private business transaction law in India, international conventions such as Cape Town Convention must be followed; the disputes qua validity of the termination of the lease are not relevant for the purposes of deregistration and the contention that public interest will be impinged if the deregistration is granted is not a valid ground for refusal.”

The Court affirmed that the NCLT and the NCLAT are statutory bodies constituted under the provisions of Sections 408 and 410 respectively of the Companies Act, 2013 and have the powers to adjudicate upon matters which relate to the Insolvency and Bankruptcy Code, 2016 (IBC).

“This Court agrees with the submissions of the Petitioners that the NCLT does not have the power of judicial review over administrative action,” added the Court.

Accordingly, the Court passed the following orders:

(i) The Petitioners, their employees, agents, officers and/or representatives shall be permitted by the Respondent/DGCA and the appropriate Airport Authorities to access the Airport(s) where the 30 Aircrafts are parked inter alia to inspect their respective Aircrafts, within the next 3 days.

(ii) The Petitioners, their employees, agents, officers and/or representatives shall be permitted to carry out inspection and all maintenance tasks of the Aircraft, its engines and other parts and components, of all 30 Aircrafts at least twice every month, until the final disposal of the Writ Petitions.

(iii) Respondent/GoAir, its directors, employees, agents, officers and or representatives or the IRP/RP(s) or any person acting on their behalf, are hereby restrained from removing, replacing, taking out any accessories, parts, components or spares, etc. or any relevant operational or other Manuals /records, documentation from any of the 30 Aircraft, except with prior written approval of the Lessor of such Aircraft.

Senior Advocates Rajiv Nayar and Amit Sibal, briefed by Advocates Marylou Bilawala, Pranaya Goyal, Dhruv Khanna, Sharleen Lobo, Chiranjivi Sharma, Apoorva Kaushik, Priya Desai, Saakshi Malpekar, Neetika Sharma, Vasu Gupta and Girish Shanker from Wadia Ghandy & Co., represented Aircraft Lessors SMBC Aviation Capital, SFV Aircraft Holdings and GY Aviation.