NCLAT Upholds NCLT Order Admitting Go Airlines Insolvency: No Obligation under Section 10 of IBC to Issue Notice to Creditors

NCLAT Upholds NCLT Order Admitting Go Airlines Insolvency: No Obligation under Section 10 of IBC to Issue Notice to Creditors

The National Company Law Appellate Tribunal (NCLAT), Delhi, upheld an order passed by National Company Law Tribunal (NCLT) which had admitted an application by Go First Airlines seeking initiation of voluntary insolvency proceedings.

A coram of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) of NCLAT rejected the plea filed by lessors of aircrafts of Go First Airlines to take possession of the aircrafts.

Previously, Go Airlines had moved before the NCLT to initiate the corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC).

It reasoned that due to faulty engines supplied by American company Pratt & Whitney (P&W), the grounding of its aircrafts increased from 31% in 2020 to more than 50% in April 2023.

They claimed that this cost the company a loss of over Rs. 10,800 crores.

The NCLT Delhi on May 10 admitted the plea and declared full moratorium for the company. It also directed the company's suspended board of directors to co-operate with the Insolvency Resolution Professional (IRP) to ensure there are no layoffs.

Aggrieved by the same, the lessors/Appellants- SMBC Aviation Capital Ltd, GY Aviation and SFV Aircraft Holdings, moved before the NCLAT.

The lessors had leased out 21 aircrafts to Go First airlines. The lessors informed NCLAT that they had approached aviation regulator DGCA for deregistration and repossession of Go First’s aircrafts.

The lessors also argued that aircraft lease terminated before the moratorium was granted and hence moratorium cannot be imposed to freeze on third-party assets.

Primarily the following four issues were taken up for consideration:

Firstly, whether in a Section 10 Application filed by Go Airlines (India) Ltd. (Corporate Applicant), it is necessary to issue notice to the creditors to give a hearing or opportunity of hearing to the creditors before admission of Section 10 Application?

The bench noted that in the present application under Section 10 was filed on 2 May, 2022 and on 4 May, 2022 it came for hearing. The learned Counsel for the Appellants had appeared and were heard by the Adjudicating Authority. The Adjudicating Authority however took a view that it was open for the objector to file an Application under Section 65 even after admission of Section 10 Application.

“Since the statutory Scheme does not contain any obligation of issuing notice to the creditors by the Corporate Applicant, any objector appearing at the time of hearing has to be heard and the objection may be noted by the Adjudicating Authority and thereafter the appropriate decision can be taken. We, thus, conclude that the mere fact that no notice was issued to the creditors or any opportunity was given to the objectors before proceeding to hear, the Corporate Applicant, cannot be held to vitiate any procedure or violating the principles of natural justice, more so when objectors were heard by the Adjudicating Authority,” the NCLAT observed.

Secondly, whether at the time of hearing of Section 10 Application, if some of the creditors appear and object admission of Section 10 Application alleging that Application has been filed fraudulently with malicious intent, Adjudicating Authority is required to first give opportunity to the creditor to file Section 65 Application and decide the said Application before proceeding to admit Section 10 Application?

The NCLAT while noting the sequence of event and the background of facts, which led the Corporate Applicant to file the Application, the oral submission, which was made before the Adjudicating Authority, opined that it no sufficient material was placed before the Adjudicating Authority to conclude that Application under Section 10 filed by the Corporate Applicant was fraudulent and with malicious intent.

Thus, the NCLAT was of the view that on the strength of the oral objections which were raised before the Adjudicating Authority on behalf of the Appellant as well as other, which had also been raised in the appeal, no conclusion could be derived at this stage that Application filed by the Corporate Applicant was fraudulent with malicious intent.

Thirdly, whether Lessors having terminated Lease Agreement in favor of the Corporate Applicant prior to admission of Section 10 Application, the moratorium as directed by order dated 10 May, 2023 cannot be said to be applicable to the assets, which were earlier leased by the Lessor to the Corporate Applicant?

Fourthly, whether the Appellants having terminated the Lease Agreement in favor of the Corporate Applicant prior to admission, were entitled to claim possession of the aircrafts and export the aircrafts as per the Lease Agreement?

With respect to the third and forth issue, the NCLAT, however, asked the appellants to approach the adjudicating authority for any further relief.

“The Appellant(s) as well as IRP are at liberty to make appropriate Application before the Adjudicating Authority for declaration with regard to applicability of the moratorium on the aircrafts with regard to which Leases in favor of the Corporate Applicant were terminated prior to admission of Section 10 Application, which Application need to be considered and decided by the Adjudicating Authority in accordance with law,” the NCLAT ordered.

It further added:

“The Appellant(s) and the IRP are also at liberty to make an appropriate Application under Section 60, sub-section (5) with regard to claim of possession and other respective claims of both the parties relating to the aircrafts in question, which need to be decided by the Adjudicating Authority in accordance with law.”

Accordingly, the NCLAT upheld the order of the NCLT.

Senior Advocates Arun Kathpalia, Krishnendu Datta and Sathvik Varma along with Advocates Abhijeet Sinha, Pranaya Goyal, Marylou Bilawala, Sharleen Lobo, Dhruv Khanna, Chiranjivi Sharma, Apoorva Kaushik, Neetika Sharma, Girish Shankar, Kshitij Wadhwa, Aditya dhupar, Palash Singhvi, Ankit Garg, R Taneja appeared for the aircraft lessors.

Senior Advocates Ramji Srinivasan and Ritin Rai, with Advocates Shruti Pandey, Namrata Saraogi, Ramakant Rai, Siddharth Ranate, Varun Kr Tikmani, Sumesh Srivastava, Dhristi Kaushik, Ravin Kapur appeared for the IRP.

Senior Advocate Maninder Singh and P Nagesh with Advocates Diwakar Maheshwari, Pranjal Kishore, Shreyas Edupuganti, Shouryaditya, Suhas Puthige, Pratiksha Mishra appeared for the suspended Board of Directors.