Long legal battle ahead for Go First's aircraft lessors to reclaim their planes

The NCLAT effectively held that the objections regarding fraudulent ‘initiation’ of the insolvency process need not be necessarily heard prior to the commencement of the insolvency resolution process.

On Monday, May 22, the National Company Law Appellate Tribunal (NCLAT), the appellate court for insolvency matters in India, gave its decision in the appeals filed by the lessors of the aircraft of the now insolvent Go Airlines (India) Ltd (also known as Go First) challenging the commencement of insolvency proceedings against the airline. The NCLAT effectively held that the objections regarding fraudulent ‘initiation’ of the insolvency process need not be necessarily heard prior to the commencement of the insolvency resolution process and granted liberty to the lessors to approach the court below, being the National Company Law Tribunal (NCLT).

No Relief For Lessors

This decision of NCLAT is not only violative of a fundamental right of hearing an interested party, which includes the right of hearing at the “appropriate stage”, but also violates the statutory provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). The NCLAT failed to appreciate that the IBC enables objections on “initiation” of the insolvency proceedings which is defined as the “date of filing of the petition” as opposed to “commencement” of the insolvency process which is separately defined as the date on which the petition is allowed by the NCLT under the IBC.

Further, sending lessors back to the NCLT will not serve any effective purpose. Even if the NCLT concludes that the insolvency process was initiated fraudulently, it does not have the power of recalling its own order. Thus, on such findings, though certain penal action may be taken against Go First, the insolvency process by which the lessors are aggrieved would still continue. The lessors had filed the appeals before the NCLAT on two broad grounds. Firstly, the lessors contended that the insolvency resolution process was initiated fraudulently by the airlines with the sole motive of frustrating the ownership rights of the lessors over the aircraft. The lessors primarily relied upon a press statement of the chief executive officer of Go First categorically admitting that the process was initiated mainly to safeguard the aircraft and ensure they are not repossessed by the lessors. The lessors are apprehensive that though they have terminated the respective lease arrangements with Go First, the “moratorium” under the insolvency process would deprive them of their aircraft. Secondly, though the lessors are acknowledged stakeholders, they were not provided with an opportunity of being heard by the NCLT. The lessors contended that the stage of placing objection with regard to fraudulent initiation of the insolvency process is prior to the commencement of the insolvency resolution process by the NCLT and not thereafter.

While the NCLAT did make an attempt to balance the interest of lessors by allowing them to approach the NCLT to agitate for their rights, the NCLAT order fails to address the submissions of the lessors.

Legal Remedies

The lessors now effectively have only two legal remedies. Since the order of the NCLAT expressly allows them to do so, the lessors may approach the NCLT to agitate for their right of possession and ownership over the aircraft. In the alternative, the lessors may prefer an appeal before the Supreme Court against the order of the NCLAT. The second option may be the most viable option for the lessors, who could have the order of the NCLT admitting Go First into insolvency struck down on the ground that no opportunity for a hearing was provided to the stakeholders. Even if the Supreme Court is not inclined to interfere with the order of the NCLAT (thereby upholding the insolvency order of the NCLT by necessary implication), the lessors would still be able to agitate their rights to possession and ownership over the aircraft before the NCLT.

Anuj Tiwari is a Delhi-based advocate specialising in white-collar crime defence and corporate insolvency. Views are personal, and do not represent the stand of this publication.