NCLT: Lessor’s Cannot Claim Physical Possession of Aircraft/ Engines During CIRP of Go First

NCLT: Lessor’s Cannot Claim Physical Possession of Aircraft/ Engines During CIRP of Go First

The National Company Law Tribunal (NCLT), New Delhi bench held that physical possession of the aircraft/engines would be ‘indisputably’ with Go First and lessors cannot claim possession during the Corporate Insolvency Resolution Process (CIRP) of the carrier.

The bench comprising of two-members Mahendra Khandelwal (Judicial Member) and Rahul Bhatnagar (Technical Member) observed that aircraft and its engines are the sole essence of Go First’s business and if taken away, it would result in its ‘corporate death’ leaving no scope for its resolution.

The six lessors/applicants - Bluesky 31 Leasing Company, Bluesky 19 Leasing Company, Jackson Square Aviation Ireland, SMBC Aero Engine Lease BV and Engine Lease Finance BV - had sought to protect their planes from unauthorized access and prevent the airline from using them for commercial purposes, however, the NCLT found their claims to be unsubstantiated. Moreover, the lessors had filed pleas requesting or inspection of their leased aero planes and engines.

Additionally, the Applicants sought to direct the Corporate Debtor/Respondent to refrain from operating or flying the Subject Aircraft.

The NCLT bench upon perusal of definition of ‘property’ and relevant provision of moratorium given under Section 3(27) and Section 14(1)(d) respectively of the Insolvency and Bankruptcy Code, 2016, (IBC) observed that:

“…it is evident that these aircrafts which were provided by the Lessor on Lease to the Corporate Debtor, come within the definition of the ‘property’ as per the IB Code, 2016, and as per Section 14 (1) (d), the moratorium has been imposed upon the property.”

While referring to the decision passed by the Supreme Court in Rajendra K. Bhuta vs. Mahrashtra Housing and Area Development Authority (2020), the NCLT held that the term ‘occupied by’ would mean actual physical possession. The physical possession of the aircrafts/engines is indisputably with the Corporate Debtor. Therefore, in terms of Section 14(1) (d) the Applicants would not be within their rights to claim possession of these aircrafts/engines.

The NCLT asserted that the moratorium prohibits the recovery of the Aircraft/Engines by the Lessors (Applicants) from the Corporate Debtor. Section 14(1)(d) contains the mandatory provision about the imposition of the moratorium which triggers after the commencement of CIRP whereas, Section 18 only specifies the duties of the Interim Resolution Professional, opined the bench.

Besides, the NCLT noted that it is a settled position of law that no party ought to be allowed to act in a manner that defeats the provisions of a statute.

The NCLT remarked that in the aviation industry, the prevailing practice is that most airlines lease the aircraft for their operation rather than own them. In other words, the aircraft are not as such the property of the airlines.

“Therefore, the application of the provision of the IBC and the process of insolvency would have no meaning in respect of airlines as corporate debtors, if the sole essence of the corporate debtor's business is taken away. It would result in corporate death of the corporate debtor, leaving no scope for resolution of the corporate debtor,” stated the order.

The NCLT highlighted that as per the provisions of the IBC, the moratorium starts after the commencement of CIRP.

In that respect, several judgments of the Higher Courts have time and again reiterated that where there exists a debt and default, then the application to initiate CIRP shall be admitted.

Such being the common and well understood provisions of the Code, the NCLT held that it would not be an exaggeration to say that once the Application under Section 10 was filed, and being aware of the debt and default status of the Corporate Debtor, the present Applicants were inclined to believe that the Section 10 Application of the Corporate Debtor would be admitted and moratorium would be imposed.

The bench opined that there is a significance to the period of one year before commencement of CIRP under the IBC in the cases of Preferential Transactions, Under Valued Transactions, Fraudulent Transactions and Extortionate Credit Transactions committed by the Corporate Debtor as stated in Sections 43 to Section 51 of the IBC, 2016.

However, the said provisions were not applicable in the present case since they apply to the transactions done by the Corporate Debtor, while in the instant case, it was done by the lessors, held the NCLT.

However, the NCLT of the considered view that it manifests the legislative intent that any such dubious actions or events which occurred within a year prior to the commencement of CIRP and which appear to be detrimental to the interest of the other creditors, need to be scrutinized.

Rejecting their pleas, NCLT observed that the Directorate General of Civil Aviation (DGCA) has not deregistered the aircraft, which means that they are available to Go First for use to resume operations. Therefore, as long as the aircrafts/engines are registered, they can be used for operating or flying to keep Go First as a going concern, however, within the safeguards/safety norms prescribed by the regulators.

The Tribunal also declined the lessors’ pleas for inspection of their leased aero planes and engines, and strongly reiterated that it was the responsibility of the Resolution Professional to maintain them at the highest levels of efficiency/safety.

The NCLT stated that while allowing the CIRP of Go First on May 10, it had ordered to keep Go First as a going concern.

In this regard, the bench observed that, “In order to keep the corporate debtor as a going concern, the aircraft have to be flown and hence, the aircraft shall be with the corporate debtor and shall be operated by the corporate debtor.”

Therefore, the bench was not inclined to allow the interim reliefs claimed by the applicants/lessors and accordingly disposed of the applications.