Go First case: NCLAT judgment reposes faith in India's insolvency process, lawyers say

“The NCLAT confirmed the NCLT order, which had granted liberty to the lessors to file their objections at the NCLT. Hence, it is still open for the lessors to seek redressal of their grievances before the NCLT. Needless to say, such grievances must fall within the scope of the code,” Sharma said.

Need for balance

The NCLAT's decision can be seen as a measure taken to maintain the integrity and validity of the insolvency process, according to Anindya Mazumdar, a partner at Singhania & Co.

“Insolvency proceedings are designed to address the financial distress caused and provide a legal and clear framework for the resolution of a company's debt and liabilities,” he said.

Mazumder noted that allowing a reversal of the order without proper grounds could undermine the credibility and effectiveness of the insolvency regime, which is a highly timebound process to solve disputes.

However, on the plight of the aircraft lessors who might face a long court battle, he said, “Instances like the compelled court battle for aircraft lessors can highlight the need for more efficient and timebound resolution processes within the insolvency regime. The Indian government and relevant authorities should continue to evaluate and refine the existing framework to strike a balance between protecting the interests of all stakeholders and ensuring a timely and effective resolution of insolvency cases.”

Utsav Trivedi, a partner at TAS Law, said the decision was coherent with India’s insolvency laws on the process of disbursement of assets of such companies.

“India’s insolvency regime is structured to avoid multiplicity of proceedings. The order of the NCLAT is an example of upholding the legislative intent of the code, which means that the endless cycle of delay and debt can only end if the accountability of each stakeholder is increased, as opposed to value deterioration and larger pay-outs,” he said.

Yogendra Aldak, a partner at Lakshmikumaran & Sridharan Attorneys, agreed that the NCLAT order is a step in accordance with the Insolvency and Bankruptcy Code and strengthens India’s insolvency jurisprudence.

“In any dispute, there can always be an affected party or group. However, the  law keeps everyone on the same pedestal. Tribunals (NCLT and NCLAT) are the creatures of statute and are bound to follow the provisions of the code and the rules and regulations framed thereunder. The consequences or economic fallout of the tribunals’ decisions on industry should not be a factor to be countenanced by the tribunals,” he said.

According to Sandeep Bajaj, managing partner at PSL Advocates & Solicitors, the NCLT is not bound to decide questions that may be raised in a separate application such as the objections of aircraft lessors. Bajaj said dealing with such applications or contentions at the admission stage would delay the process and would be contrary to the intent of the IBC.

Under moratorium

“Thus, the judgment passed by the NCLAT in the Go First matter is a reiteration of the settled laws on India's insolvency regime and it further strengthens the same,” Bajaj said.

The principal bench of the NCLT in New Delhi admitted Go First's plea to initiate voluntary insolvency resolution on May 10. The tribunal appointed an interim resolution professional while suspending the board and placing a moratorium on the debt-ridden airline's financial obligations.

Founded by billionaire Nusli Wadia, Go First, earlier known as GoAir, filed for bankruptcy on May 2, blaming US company Pratt & Whitney for supplying faulty engines and grounding half of its fleet. The airline has liabilities of about Rs 11,000 crore.

At the NCLAT, the lessors, most of them based overseas, argued that they had terminated their leases before the airline was admitted to the corporate insolvency resolution process (CIRP) and urged the tribunal to clarify that the moratorium would not apply to them. It was their case that the airline was using the insolvency process to hold on to assets that it does not own.

The lessors argued that Go First had no right to hold on to or operate their aircraft once the leases were terminated. They urged the appellate tribunal to bring Go First out of moratorium so that they could put forth their case at the NCLT and it could take a fresh call on the airline's plea for insolvency.

However, the NCLAT asked the lessors to approach the NCLT to address these issues. The NCLAT held that the appeals raised certain points that had not yet been considered by the NCLT.

“When the Adjudicating Authority (NCLT) has not adverted to the aforesaid issues, where the CIRP is pending, we are of the view that ends of justice will be served by granting liberty to the Appellant (lessors) or to the IRP to make appropriate application at NCLT," the NCLAT said in the order.