Supreme Court Orders Jalan-Fristch Consortium To Pay Rs.150 Crore To Jet Airways In Its Designated SBI Account

Supreme Court Orders Jalan-Fristch Consortium To Pay Rs.150 Crore To Jet Airways In Its Designated SBI Account

The batch of appeals were filed from the three orders of the National Company Law Appellate Tribunal

The Supreme Court has ordered the consortium of Murari Lal Jalan and Florian Fristch to pay Rs.150 crores to Jet Airways Limited to settle the total outstanding claims.

In a case where the Resolution Plan (RP) was submitted under the Insolvency and Bankruptcy Code (IBC), 2016 by the consortium, the bench held that failing that, the consequences under the RP would follow.

The batch of appeals arose before the three-judge bench comprising Chief Justice DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra from the three orders of the National Company Law Appellate Tribunal (NCLAT).

An RP was submitted under the IBC by the consortium of Murari Lal Jalan and Florian Fristch in respect of Jet Airways (corporate debtor).

The RP was approved by the Committee of Creditors. Thereafter, the Resolution Professional filed an application before the Adjudicating Authority (AA) to seek approval of the RP. It received the imprimatur of the AA - the National Company Law Tribunal (NCLT).

However, due to the uncertainty of the effective date, the NCLT, in its approval order, mandated the completion of the conditions and the attainment of the effective date within 90 days. Under the RP provisions, the order also granted the flexibility to request an extension of the 180-day timeline, allowing a limit of 270 days.

The Successful Resolution Applicant (SRA) and the consortium of lenders represented by the State Bank of India (SBI) were not ad idem on whether the condition’s precedent was fulfilled. However, the SRA stated that all conditions were fulfilled.

As a result, the Director General of Civil Aviation (DGCA) re-issued an Air Operation Certificate, confirming the authorization for Jet Airways to engage in commercial operations.

The SRA, via e-mail, communicated to the lenders, affirming compliance with all prerequisites. It proposed that 20 May 2022 be considered as the effective date under the RP.

However, the lenders took a contrary position. Thereafter, the SRA filed an Implementation Application and an Exclusion Application before the NCLT seeking a determination in its position.

The NCLT held that the SRA complied with the condition’s precedent. It allowed the Implementation Application, permitting it to take control of Jet Airways’ management.

The NCLT order was challenged by the SBI and was pending before the NCLAT, which declined to stay the NCLT order, which gave rise to the sets of appeals. The NCLAT allowed an extension through its subsequent order,

The RP envisaged that with an intent to settle the total outstanding claims made by domestic and foreign banks and financial institutions, the assenting financial creditors would be entitled to the benefit of payments and securities. This was described as a summary of payments and a security package.

To resolve the imbroglio, the chief manager of SBI filed an affidavit stating that the lenders agreed to a certain course of action. However, the inability to meet the conditions necessitates directing the corporate debtor into liquidation. Subsequently, the SRA filed an application seeking liberty to pay Rs.350 crores. The NCLAT granted the permission by extending the time until 31 August 2023.

The appellant stated that the SRA defaulted in complying with the condition’s precedent in the clauses and on various other aspects, including the payment of workmen’s and airport dues.

The apex court noted that the time extension given to the SRA to deposit Rs.350 crores arose because of the 16 August 2023 affidavit filed by SBI before the NCLAT. The affidavit believed that the lenders would not contest the issues of time extension of the NCLT orders.

However, SBI’s offer was subject to the fulfillment of the following three conditions:

• The SRA must infuse an amount of Rs.350 crores by 31 August 2023 (the date by which the payment was to be made in terms of the RP read with the 26 May 2023 order of the NCLT).

• It must undertake to scrupulously follow the other terms and conditions of the RP.

• It must comply with the liabilities on payment to the employees regards the 21 October 2022 order of the NCLAT, which was upheld by the top court’s 30 January 2023 order.

The bench held that the NCLAT was not justified in stating that the last tranche of Rs.150 crores would be adjusted against the performance bank guarantee (PBG). The SRA had deposited the first two tranches of Rs.100 crores each, thus, it must comply with the obligation of depositing the balance of Rs.150 crores. As per the SBI terms, it was obligated to comply with the schedule.

The bank stated that the lenders were saddled with a huge monthly expenditure to maintain the remaining Jet Airways assets. They were embroiled in litigation before the NCLT and NCLAT. However, there was little progress towards implementing the RP.

The judges thus held, “Such a situation cannot be permitted to continue interminably, as it defeats the purpose of the provisions and the timelines under IBC. The timely resolution of insolvency cases is vital for sustaining the effectiveness and credibility of the framework. Therefore, concerted efforts and decisive actions are imperative to break the deadlock and ensure the expeditious implementation of the resolution plan.”

In the appeals, the lenders argued that the part of the SRA failed to comply with the condition’s precedent. The bench issued the following directions:

• 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 RP shall follow.

• The PBG of Rs.150 crores shall remain in operation and effect, pending the final disposal of the appeal before the NCLAT, and shall abide by the outcome of the appeal and the directions that may be issued by the tribunal.

• Whether the SRA complied with the conditions of the RP and those in paragraph 8 of the 16 August 2023 affidavit, shall be decided by the NCLAT in the pending appeal.

Thus, the bench held that the NCLAT order would be modified. The permission granted to the SRA to adjust the last tranche of Rs.150 crores would be substituted with the directions. It directed the NCLAT to dispose of the appeal by the end of March.