MC explains: One month on, what is the status of Go First insolvency case?

Go First

Go Airlines, founded by billionaire Jehangir Wadia filed for voluntary insolvency on May 2 at the National Company Law Tribunal (NCLT).

The low-cost carrier blamed US engine maker Pratt & Whitney for the grounding of half of its fleet, which led to reduced income and ultimately to insolvency.

Rechristened Go First last May, the airline, which started flying in 2005, becomes the first Wadia Group entity to declare bankruptcy in its 287-year history, and the third major airline to collapse since 2012 after Kingfisher Airlines and Jet Airways.

The ultra-low-cost airline has liabilities worth around Rs 11,000 crore.

Moneycontrol explains how the case went from the NCLT to the National Company Law Appellate Tribunal (NCLAT) and then returned the NCLT. And how a group of lessors now await a judgment from the Delhi High Court.

Insolvency plea with NCLT

The airline’s plea came up for hearing at the NCLT on May 4. The tribunal heard it for four-and-a-half hours. Go First argued that it had moved the NCLT not because of bad corporate governance but due to engine maker Pratt & Whitney's unserviceable engines, which led to the grounding of 28 of its 54 aircraft. The company argued that if the budget airline stops functioning, it will lead to a monopolistic situation in the market.

The aircraft lessors appeared in the tribunal during the hearing and objected to the plea being admitted without giving them an opportunity to be heard.

On May 10, the tribunal admitted the plea by Go First, thereby allowing the moratorium to kick in. The tribunal appointed Abilash Lal as the Interim Resolution Professional (IRP) to oversee the operations of Go First and ensure it is run as a going concern.

The NCLT’s May 10 order, which was supposed to end all the troubles for the cash-strapped airline, opened the floodgates for litigation in both the National Company Law Appellate Tribunal (NCLAT) and Delhi High Court. These cases were initiated by aircraft lessors, who sought to take back the possession of their planes, which they had leased to Go First.

Appeal at NCLAT

The aircraft lessors challenged the NCLT’s order at the NCLAT on the ground that they were not given an opportunity to put forth their case at the NCLT and also alleged that the airline was trying to hold on to assets that it did not own.

According to the lessors, the leases with the airline were terminated days before the NCLT order on May 10. They argued at the tribunal that the moratorium should therefore not apply to them.

However, on May 22, the NCLAT upheld the order of the NCLT and directed the lessors to move an appropriate application at the NCLT regarding the status of their aircraft.

The appellate tribunal also granted liberty to the Interim Resolution Professional (IRP) to move an application at the NCLT with respect to the claims of both parties relating to the aircraft in question.

While the lessors have not challenged this order at the Supreme Court as yet, Go First has filed a caveat in anticipation of the appeal.

Writs in Delhi High Court

A group of lessors simultaneously approached the Delhi High Court asking for directions to the Director General of Civil Aviation (DGCA) to repossess their aircraft as they had already terminated their leases. Some lessors had stated that the DGCA had rejected their application for repossession.

The DGCA, however, clarified that it had not rejected any application yet but had kept them all in abeyance owing to the moratorium. The authority also told the Delhi High Court that the status of applications was shown as ‘rejected’ on its website because of a ‘technical glitch’.

The lessors also argued that the relationship between an airline and the aircraft lessor is contractual and that tinkering with the terms of the contract would have consequences for the Indian aviation sector. They further argued that the settled principles of the relationship between the aircraft lessor and the airline cannot be modified without legal sanction.

The aircraft lessors contended that the DGCA's failure to process their application for repossession is an action by a regulator, and the appropriate remedy against such actions is before the writ court and not before any tribunal. The lessors also sought a court order directing the DGCA to maintain the aircraft during the proceedings.

On June 1, after hearing the arguments, the court reserved the case for judgment. The judgment is expected to be pronounced this month.

Return to NCLT

Two aircraft lessors and one engine lessor moved the NCLT pursuant to the orders of the NCLAT. The applications came up for hearing for the first time on June 5, 2023.

During the hearing, the NCLT sought a response from the cash-strapped Go First’s interim resolution professional (IRP) on applications by the lessors to exempt them from moratorium as they had terminated their leases prior to moratorium order.

The cases are now expected to be heard on June 15, and reserved for judgment.