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

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.