Govt excludes aircraft, aircraft engine and helicopter-related transactions from moratorium

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The Ministry of Corporate Affairs issued a notification on October 4 stating that the provisions of sub-section (1) of section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), would not be applicable to transactions, arrangements or agreements, under the Convention and the Protocol, relating to aircraft, aircraft engines, airframes and helicopters.

Section 14 of the IBC deals with the power of adjudicating authority (NCLT) to issue moratorium when admitting a company to insolvency resolution process. Once moratorium is imposed, activities such as  institution of suits, continuation of pending suits, execution of judgments, transferring/disposing off assets and recovery or enforcement of security interest are prohibited.

As a result of this notification, moratorium will not include agreements relating to aircraft, aircraft engines, airframes and helicopters. This would mean that aircraft, engine and helicopter leased and other agreements will not be bound by a moratorium.

However, the notification does not mention whether it applies to pending cases.

The government's notification to exempt transactions involving aircraft, aircraft engines, and helicopters from moratorium, coincides with the ongoing insolvency proceedings of Go First.

Go First's voluntary insolvency plea

Go First, the Wadia Group-backed airline, filed for voluntary insolvency in the National Company Law Tribunal (NCLT) on May 2 under Section 10 of the Insolvency and Bankruptcy Code, blaming engine maker Pratt and Whitney for its troubles. The airline said it was forced to ground half of its fleet because of faulty engines supplied by US manufacturer Pratt & Whitney.

On May 10, the principal bench of NCLT at Delhi admitted Go First's voluntary plea to initiate an insolvency resolution process.The tribunal appointed an IRP while suspending the board and putting a moratorium on the debt-ridden airline's financial obligations.

The airline's lessors are currently fighting an application at the NCLT asking to be exempt from the moratorium on the ground that they had terminated their leases with the airline prior to moratorium. While the NCLT passed an interim order holding that the airline can use leased aircrafts, the tribunal is expected to commence final hearing.

The potential effect of this notification on the Go First case, is dependent on NCLT's judgment.