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TMI Blog2024 (1) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. The impugned order of the NCLAT, on the other hand, allowed the plea of the SRA for adjustment and consequential release of the PBG at the interlocutory stage. Infusion of Rs 350 crores, as envisaged in the affidavit, could not have been substituted with a direction for adjustment of the PBG, at that stage. Infusion meant that the third tranche has to be paid in the same manner. Adjustment of the PBG was not permissible. SBI has stated that the lenders have been saddled with huge recurring expenditure every month to maintain the remaining airline assets of the Corporate Debtor. The lenders have been embroiled in litigation before the NCLT and NCLAT with little progress on this ground towards implementing the resolution plan. Such a state of affairs cannot be permitted to continue interminably as it defeats the very object and purpose of the provisions of and timelines under the IBC. The timely resolution of insolvency cases is vital for sustaining the effectiveness and credibility of the insolvency framework. Therefore, concerted efforts and decisive actions are imperative to break the deadlock and ensure the expeditious implementation of the resolution plan. The ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. This batch of appeals arises from three orders of the National Company Law Appellate Tribunal [ NCLAT ] . A Resolution Plan was submitted under the Insolvency and Bankruptcy Code, 2016 [ IBC ] by a consortium of Murari Lal Jalan and Florian Fristch in respect of the Corporate Debtor (Jet Airways Limited). The Plan was voted upon and approved by the Committee of Creditors on 17 October 2020. The Resolution Professional then filed an application before the Adjudicating Authority to seek approval of the Resolution Plan. The Plan received the imprimatur of the Adjudicating Authority the National Company Law Tribunal [ NCLT ] - on 22 June 2021 [ Plan Approval Order ] . 2. Clause 7.6 of the Resolution Plan stipulates conditions for implementation. Clause 7.6.1 spells out the conditions precedent : 7.6.1. Conditions Precedent - The obligation of the Resolution Applicant to re-commence operations as an aviation company, being the business proposed to be acquired is subject to the fulfilment of the following conditions after the Approval Date ( Conditions Precedent ): (a) Validation of AOP of the Corporate Debtor by DGCA MoCA - The AOP of the Corporate Debtor sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t takes the responsibility of completing the outstanding Conditions Precedent at the earliest and seeks to extend the Conditions Precedent fulfilment period by another term of maximum 180 (one hundred and eighty) days. If all the Conditions Precedent are not fulfilled within such period (i.e. 270 (two hundred and seventy) days from the Approval Date), then this Resolution Plan shall automatically stand withdrawn without any further acts, deeds, or things. On such withdrawal, the members of the Resolution Applicant in the Monitoring Committee shall resign, and the remaining members of the Monitoring Committee shall assume absolute control of the Corporate Debtor. 4. In terms of Clause 7.6.1 of the Resolution Plan, the SRA is obligated to recommence operations as an aviation company subject to the fulfilment of five conditions precedent, namely- (i) Validation of Airline Operator Permit of the Corporate Debtor by the Director General of Civil Aviation (DGCA) and Ministry of Civil Aviation (MoCA); (ii) Submission and Approval of Business Plan by DGCA and MoCA, (iii) Slot Allotment Approval, (iv) International Traffic Rights Clearance; and (v) Approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. The period of six months for implementation would commence from 16 November 2022. The tribunal reasoned that: (i) On 21 October 2022, the NCLAT confirmed SRA's compliance with necessary conditions precedent (CPs) to the satisfaction of MC. Despite the lenders seeking clarification through IA 4771 of 2022, the NCLAT's findings were reaffirmed on 20 December 2022; (ii) There is no dispute regarding compliance with CPs at serial no. (i) and (v) as per the approved plan, including the validation of the Air Operator Certificate by DGCA and MoCA, and the approval of the demerger of the ground handling business into AGSL; (iii) Concerning CP at serial no. (ii), the business plan's submission and approval to DGCA and MoCA were deemed as complete, with the issuance of the Air Operator Certificate (AOC), considered as implicit approval; (iv) Regarding slot allotment approval, aligned with the plan approval order, confirming slots were granted as per the plan; (v) For International Traffic Right Clearance, the requirement was deemed satisfied after successfully recommencing operations, adhering to applicable laws, and plan approval order conditions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Rs. 100 crores Effective Date Year 5 or on complete payment, whichever is earlier Mortgage over Dubai Property No. 2 valued at more than Rs. 100 crores Effective Date Cash payment NPV of Rs. 391 Crores (using the discount rate specified in the Evaluation Matrix) Mortgage over Dubai Property No. 1 valued at more than Rs. 100 crores Rs. 600 Crores Effective Date Year 5 or on complete payment, whichever is earlier Mortgage over Dubai Property No. 2 valued at more than Rs. 100 crores Effective Date Mortgage over Dubai Property No. 1 valued at more than Rs. 50 crores Effective Date 10. In an effort to resolve the imbroglio, on 16 August 2023, an affidavit was filed on behalf of SBI, by its Chief Manager. The affidavit stated that the lenders were agreeable to a certain course of action. In other words, the lenders had agreed that if SRA satisfies particular criteria, including infusing Rs. 350 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the SRA in favour of the lenders. 12. Permission to do so was granted by the NCLAT on 28 August 2023 extending time until 31 August 2023 for the payment of Rs 100 crores; till 30 September 2023 for the payment of Rs 100 crores and for the balance of Rs 150 crores by adjusting the payment against the PBG issued by the SRA. 13. The reference to the PBG was contained in the tabulated statement in clause 6.4.4 of the Resolution Plan, which is set out above. Apart from the above stipulations, it would be material to make a reference, at this stage, to certain provisions of the Request for Resolution Plans [ RFRP ] . Clause 3.13 of the RFRP provides for performance security. It stipulates that (i) the SRA must furnish an unconditional and irrevocable PBG, either INR 150 Crores or 10% of the upfront amount, within seven days of declaration; (ii) The PBG, following Format VIII-A, remains valid for 180 days or until Resolution Plan completion, extendable by SRA as directed by the CoC; (iii) Failure to provide the Performance Security upon accepting the Letter of Intent may lead to its cancellation at the discretion of the CoC : 3.13 Performance Secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CoC (and upon receiving approval from the CoC), (by issuance of a written demand to the Bank to invoke the Performance Security, if provided as a PBG). The Performance Security can be invoked and appropriated at any time, upon occurrence of any of the following conditions, without any reference to the Resolution Applicant. i any of the condition under the Letter of Intent or the Successful Resolution Plan are breached; ii if the Resolution Applicant fails to re-issue or extend the Performance Security (if provided as a PBG), in accordance with the terms of this RFRP; or iii failure of the Successful Resolution Applicant to implement the Approved Resolution Plan to the satisfaction of the CoC, and in accordance with the terms of the Approved Resolution Plan. 15. Clause 3.13.9 specifies that the performance security shall not be set off against or used as part of the consideration which the SRA proposes to offer in relation to the company: 3.13.9 The Performance Security shall not be set-off against or used as part of the consideration that the Successful Resolution Applicant proposes to offer in relation to the Company, even if expressly indicated as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valued at over Rs 100 crores. In the last column of the table, it has been stipulated that the securities would be released, as indicated; (iii) The PBG was liable to be adjusted against the cash payment of the first tranche of Rs 185 crores; (iv) No specific date for the release of the security in relation to the PBG has been mentioned; (v) Moreover, in respect of the second tranche comprising of Rs 195 crores, there was no requirement to furnish any security in the form of a PBG; (vi) The securities, in other words, were of a revolving nature, but significantly on the release of the PBG against a cash payment of Rs 185 crores, the PBG is not required to be renewed as a fresh security for the following tranches; and (vii) As regards the creation of security in respect of the Dubai property, at all material times, the SRA has been ready and willing to effect the security and, as a matter of fact, this is evident in the 37th Meeting of the Monitoring Committee of the Corporate Debtor held on 9 October 2023. 19. While considering the rival submissions, it must be noted, at the outset, that the appeal, stemming from the NCLT's January 13 2023 ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenders would not contest the issues in the pending appeal conditional on compliance with the three conditions which were set out in the affidavit. Infusion of Rs 350 crores, as envisaged in the affidavit, could not have been substituted with a direction for adjustment of the PBG, at that stage. Infusion meant that the third tranche has to be paid in the same manner. Adjustment of the PBG was not permissible. 22. In the circumstances, we have come to the conclusion that NCLAT was not justified in holding, in its order dated 28 August 2023, that the last tranche of Rs 150 crores which was to be paid would be adjusted against the PBG. The SRA having deposited the first two tranches each of Rs 100 crores must comply with the remaining obligation of depositing Rs 150 crores (to make up a total payment of Rs 350 crores). Having by its conduct accepted the terms set up by SBI it must be obligated to comply with the entirety of its obligations. It must do so in strict compliance with the time schedule set out hereafter. 23. The lenders have submitted that: (i) The admitted claim of the Financial Creditors is Rs 7800 crores, while the package offered by the SRA in the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X
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