Jet Airways Crash Lands into Liquidation

Last Updated on February 3, 2025 by Administrator

Introduction

After 5 long years of Trials and Tribulations, Jet Airways (India) Limited, once a leading airline, has crash landed into Liquidation. The Hon’ble Supreme Court Of India, on 7 November, 2024, by invoking its power under Article 142 of the Constitution, directed the aviation giant Jet Airways to go into liquidation, highlighting the importance of adhering to a time-bound process, the binding nature of a resolution plan, and the shared responsibilities of all stakeholders, including the Successful Resolution Applicant (SRA), Committee of Creditors (CoC), and the Adjudicating Authorities. This blog delves into the facts, legal matrics and broader implications of the judgement that not only ended a prolonged resolution process marred by delays but also established a precedent of non-tolerance for any disrespect to the time and integrity of the Code.  

Background

Jet Airways (India) Limited is the second airline after Go Air which went into liquidation. The company ceased operations in 2019 owing to financial distress and commenced Corporate Insolvency Resolution Process (CIRP) on June 20, 2019, following an application under Section 7 of the IBC by the State Bank of India (SBI). The Financial Creditors admitted a total claim of approximately Rs. 7.800 cr. Further, a consortium led by Murari Lal Jalan and Florian Fritsch submitted a resolution plan on September 21, 2020 which was then, approved by the NCLT on June 22, 2021. Despite the approvals, the resolution process was plagues by delays in fulfilling condition precedent and the payment obligations, leading to a protracted litigation. However, the Consortium was unable to make the full payment of the first transche of Rs. 350 cr, raising concerns over the commercial wisdom of the lenders.

Key Issues and Supreme Court’s Observations:

1. Adjustment of Performance Bank Guarantee (PBG)

The central issue revolved around the Consortium’s failure to implement the resolution plan, primarily their attempt to adjust the PBG against the first tranche of payments. The SC observed that allowing the adjustment violated the terms of the plan, prior directives and Regulation 36B(4A) of the CIRP Regulations. This Regulation was introduced to safeguard against plan implementation failures, mandates that the performance security provided by a resolution applicant must be forfeited if the applicant fails to implement the plan or contribute to it’s failure. The Court observed that the PBG must remain active until the resolution plan’s complete implementation. It ruled that the National Company Law Appellate Tribunal (NCLAT) erred in permitting the adjustment, as it contravened the Supreme Court’s earlier directions from January 18, 2024, and did not align with the provisions of the plan, the terms of the Request for Resolution Plan (RFRP), or the IBC regulations.

• Non-Implementation of Resolution Plan

The court emphasised the mandatory nature of adhering to an approved resolution plan, while asserting that any failure warranted liquidation under Section 33(3) of the IBC. The court held that the Consortium’s repeated delays undermined the resolution process itself, thus, necessitating liquidation to preserve creditor interests.

• Timelines and Shareholder Accountability

The judgment underscored the importance of the IBC’s time-bound framework, criticizing the repeated extensions granted by the NCLT and NCLAT. Such delays undermined the Code’s objectives and highlighted the need for accountability among all stakeholders, including the Resolution Professional (RP), CoC, and adjudicating authorities, to ensure timely implementation.

• Systemic Inefficiencies

This judgement pointed out various lacunae within the system which happen to defeat the very purpose of the Code, 2016.

• The NCLT and NCLAT’s repeated discretionary extensions diluted the very essence of the Code, creating ambiguity and delayed resolutions.
• There is an absence of statutory guidelines for monitoring committees contributes significantly to implementation failures.
• Further, there is a shortage of tribunal members and inadequate case management.

Implication and Supreme Court’s suggestions:

The Jet Airways case serves as a pivotal precedent for India’s insolvency regime. By reaffirming the binding nature of resolution plans and emphasizing stakeholder accountability, the Supreme Court’s judgment seeks to restore confidence in the IBC process. The decision has broader implications:

1. Reinforcing Time-Bound Resolution: It underscores the necessity of adhering to IBC timelines to prevent prolonged litigation and value erosion.
2. Ensuring Stakeholder Accountability: By mandating strict compliance with resolution plans, the judgment holds all parties accountable for their roles in the process.
3. Policy and Legislative Reforms: The observations provide a roadmap for addressing systemic inefficiencies, such as improving tribunal capacity and introducing statutory guidelines for monitoring committees.

The Court’s suggestions aim to enhance the IBC’s efficacy, ensuring timely and equitable resolutions while maintaining the integrity of the insolvency process.

Conclusion

The liquidation of Jet Airways highlights the urgent need to address the protracted resolution processes and member shortages to reduce delays. While the decision underscores the challenges in implementing the IBC, it also offers valuable lessons for stakeholders and policymakers. By addressing systemic inefficiencies and enforcing accountability, India can create a more robust and efficient insolvency regime that upholds the IBC’s objectives of value maximization and timely resolution.

REFERENCES

1. Mondaq. (2024). “Analysis of the Jet Airways Insolvency Case and the Shortcomings of the IBC 2016.” Link
2. Cyril Amarchand Mangaldas. (2024). “Jet Set and Grounded: Supreme Court Orders Liquidation of Jet Airways.” Link
3. S&R Associates. (2024). “From Rescue to Ruin: The Supreme Court’s Judgment in Jet Airways and the Future of Airline Insolvencies.” Link
4. Livemint. (2024). “Supreme Court Overturns NCLAT Ruling, Orders Liquidation of Jet Airways.” Link
5. Economic Times. (2024). “Why Did the Supreme Court Choose Liquidation Over Resolution for Jet Airways?” Link
6. Business Today. (2024). “End of Lifeline: Supreme Court Orders Liquidation of Jet Airways.” Link
7. Indian Express. (2024). “Supreme Court Ends Jet Airways Revival Hopes, Orders Liquidation Amidst NCLAT Judgment Dispute.” Link
8. Legal Wires. (2024). “Supreme Court Ends Jet Airways Revival Hopes, Orders Liquidation.” Link

Written By – Saumya Juneja, a Final-year Law Student at Vivekananda Institute of Professional Studies (VIPS)