Remarkable judgments often set a benchmark for future decisions. The decision of the Supreme Court of India in State Bank of India v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr, is one such beacon of a judgment.
Justice Pardiwala authoring the opinion for the Bench of Chief Justice D.Y. Chandrachud and Justice Manoj Mishra rightly notes, “this litigation is an eye opener also as regards the manner in which implementation of plans are handled by the Successful Resolution Applicants and the lenders involved in the process”.
Backstory of the Jet Airways insolvency process
The litigation at hand relates to the corporate insolvency proceedings of Jet Airways (India) Ltd. initiated by the State Bank of India. The financial creditors had a total claim of over Rs 7,800 crore.
While the NCLT had approved the Resolution Plan vide on June 22, 2021, the path to the implementation was riddled with a litany of legal challenges. It reached the Supreme Court twice, culminating in the decision dated November 07, 2024, to liquidate Jet Airways.
It is a telling tale of what ails the corporate insolvency resolution process in India. The previous judgment of the Supreme Court on January 18, 2024, had attempted to resolve some fundamental issues about how the Resolution Plan (RA) ought to operate.
The Resolution Plan involved the Successful Resolution Applicant (SRA’s) infusing the first tranche of Rs 350 crore upfront within 180 days and the second tranche to the extent of Rs 250 crore to be paid thereafter between 181- 365 days.
Instead of the SRA Consortium paying the two tranches in full, they sought and the NCLAT allowed them to adjust the Performance Bank Guarantee (PBG) of Rs. 150 crore towards the first tranche payment of Rs. 350 Crores. This order ran counter to the earlier judgment of the Supreme Court of India of January 18, 2024, which had settled the modus and method of the infusion of funds.
The NCLAT limited the dues of the Airport to Rs. 25 crore when the Resolution Plan obligated an upfront payment of Rs. 475 crore on this account. The NCLAT, further, reduced the workmen’s dues from Rs. 289.2 crore to a measly Rs. 12 crore which again was contrary to an earlier decision of the Supreme Court delivered on January 30, 2023.
Supreme Court pulls up NCLAT
The Supreme Court in no uncertain terms held that the NCLAT had erred in allowing the adjustment of Performance Bank Guarantee (PBG) of Rs. 150 crore.
Besides the Supreme Court held that the NCLAT, having allowed an adjustment of the PBG of Rs. 150 crore against the first tranche payment violated Regulation 36B(4A) of the IBBI Regulations, 2016. The Regulation provided for forfeiting the performance security on the failure of the SRA to implement the Resolution Plan in terms of its schedule.
The Adjudicating Authority did not have the power to allow withdrawal or modification of the Resolution Plan by an SRA. The Approval of the Adjudicating Authority under section 31(1) IBC, 2016 makes the Resolution Plan binding on all the stakeholders. The section does not and cannot be read to mean that a Resolution Plan is ‘indeterminate or open to withdrawal or modification until it is approved by the adjudicating authority’. The Court came down harshly, holding that non-compliance of the SRA with the order of the Supreme Court had led to a dereliction of its obligations to implement the Resolution Plan.
There was a complete failure on the part of the SRA, having committed the breach of the terms of the Resolution Plan by failing to pay the minimum liquidation value of Rs. 113 crore to be paid towards Workmen and Employees Dues. Besides there was a failure to pay both Provident Fund and Gratuity Dues amounting to Rs. 226 crore.
“Timely liquidation” versus “endless resolution”
Supreme Court found “peculiar and alarming circumstances, also keeping in mind the fact that almost five years have elapsed since the Resolution Plan was duly approved by the NCLAT and there being no progress worth the name,” it was left with no other option but to invoke its jurisdiction under Article 142 of the Constitution and direct that the corporate debtor be taken into liquidation. The power under Article 142 is an extra-ordinary power vested in the Supreme Court to “pass such decree or order as is necessary for doing complete justice in any cause or matter pending before it”.
More than five years had passed and the Supreme Court observed that ‘the implementation of the Resolution Plan still seems to be a dim light at the far end of a long tunnel’. The raison d’etre of the judgment of the Supreme Court, therefore, was that in scenarios such as the present, “timely liquidation” is indeed preferred over an “endless resolution process”.
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