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CASE TITLE – State Bank of India and Ors. v. The Consortium of Mr Murari Lal Jalan and Mr Florian Fritsch and Anr.

CASE NUMBER – 2024 INSC 51 (Neutral Citation)

DATED ON – 18.01.2024

QUORUM – CJI Dr. Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala & Justice Manoj Misra

FACTS OF THE CASE

A Resolution Plan was submitted under the Insolvency and Bankruptcy Code, 2016 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. In terms of Clause 7.6.1 of the Resolution Plan, the SRA is obligated to re-commence 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 of Demerger of ground handling business into a company, namely AGSL. The date of completion of the Conditions Precedent was defined as the ‘Effective Date’. Given the uncertainty surrounding the Effective Date, the NCLT, in its Plan Approval Order, mandated the completion of Conditions Precedent and the attainment of the Effective Date within the first 90 days from the Approval Date. The Order also granted the flexibility to request an extension of the 180-day timeline, allowing for an outer limit of 270 days, in accordance with the provisions outlined in the Resolution Plan. Following the Effective Date, the SRA is then required to infuse funds and fulfil specified payments to stakeholders, including disbursements to Employees, Workmen, and other Operational Creditors, within 180 days from the Effective Date. The Successful Resolution Applicant and the consortium of lenders represented by the State Bank of India were not ad idem on whether the conditions precedent were fulfilled. The SRA took the position that all conditions precedent had been duly fulfilled. Consequently, on May 20 2022, the DGCA reissued an Air Operation Certificate, confirming the authorization for the Corporate Debtor to engage in commercial air operations. The SRA communicated via email to the Lenders, affirming compliance with all prerequisites and proposing that May 20 2022, should be recognized as the effective date under the Resolution Plan. However, the lenders took a position to the contrary. By an order dated 13 January 2023, the NCLT came to the conclusion that the SRA was compliant with the conditions precedent. It allowed the Implementation Application, thereby inter alia permitting the SRA to take control and management of the Corporate Debtor. The period of six months for implementation would commence from 16 November 2022. The order of the NCLT has been challenged by SBI in appeal, and on 3 March 2023, the NCLAT declined to stay the order of the NCLT, which has given rise to three sets of appeals.

ISSUE

Whether the conditions precedent to the Resolution Plan were fulfilled by the SRA.

CONTENTIONS BY THE APPELLANTS

The Additional Solicitor General appearing on behalf of SBI, submitted that by its affidavit dated 16 August 2023, SBI had clearly stipulated three conditions, among them being that the SRA must infuse Rs 350 crores by 31 August 2023, and that the plain meaning of the expression “infuse” is that the SRA was liable to pay three tranches of a total amount of Rs 350 crores and the NCLAT was not justified at the interim stage in permitting an adjustment of the PBG of Rs 150 crores against the obligation to deposit the last tranche. He also stated that the SRA had to undertake to comply with the other terms and conditions of the Resolution Plan besides complying with the liabilities relating to the payment to the employees. As regards the payment to the employees, an appeal filed by the SRA before the Supreme Court against the order of the NCLAT dated 21 October 2022 was dismissed on 30 January 2023, and yet there is no compliance towards the employees and staff. The SBI had stated that the lenders have been saddled with huge recurring expenditure every month to maintain the remaining airline assets of the Corporate Debtor, and that 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.

CONTENTIONS BY THE RESPONDENTS

The Senior Counsel on behalf of the SRA, has been submitted that The Resolution Plan specifically contemplates the adjustment of the PBG (originally of Rs 47.5 crores, subsequently enhanced to Rs 150 crores), and also supported this by placing reliance on the summary of payments and security package forming a part of clause 6.4.4 of the Resolution Plan. He also contended that no specific date for the release of the security in relation to the PBG had been mentioned and 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.

The lenders have submitted that the admitted claim of the Financial Creditors is Rs 7800 crores, while the package offered by the SRA in the Resolution Plan is Rs 4783 crores payable in tranches in five years and instead of infusing Rs 350 crores, being the first tranche of payment, which was to be paid in 180 days, the SRA had infused a sum of Rs 187 crores after two years, in addition to Rs 13 crores paid by a third party. The lenders had argued in the appeals that there has been a failure on the part of the SRA to comply with the conditions precedent, and that If the SRA were to comply with the terms as envisaged in SBI’s affidavit dated 16 August 2023, evidently issues pertaining to compliance with the conditions precedent would not to be pressed thereafter.

COURT ANALYSIS AND JUDGEMENT

The Hon’ble Supreme Court stated that in the circumstances the 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, and 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 and it must do so in strict compliance with the time schedule set out hereafter. The Court in order to furnish the SRA a final opportunity to comply and consistent with the above position, issued the following directions: (i) 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 Resolution Plan shall follow. (ii) The PBG of Rs 150 crores shall continue to remain in operation and effect, pending the final disposal of the appeal before NCLAT, and shall abide by the final outcome of the appeal and the directions that may be issued by NCLAT. The Hon’ble Supreme Court stated that the order dated 28 August 2023 of the NCLAT is to be modified in part in terms of the above directions and, hence, the permission which was granted to the SRA to adjust the last tranche of Rs 150 crores against the PBG shall stand substituted by the same, following which, all three of the appeals were disposed of, and requested that the NCLAT endeavour an expeditious disposal of the appeal by the end of March 2024.

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Judgement Reviewed by – Gnaneswarran Beemarao

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