State Bank of India and Ors Vs Consortium of Mr Murari Lal Jalan and Mr Florian Fritsch and Anr (Supreme Court of India)
Supreme Court rejected the NCLAT order allowing adjustment of last tranche against the Performance Bank Guarantee issued by Successful Resolution Applicant as accordingly to condition of State Bank of India the same was required to be paid by Successful Resolution Applicant.
Facts- This batch of appeals arises from three orders of the National Company Law Appellate Tribunal. A Resolution Plan was submitted under the Insolvency and Bankruptcy Code, 2016 by a consortium of Murari Lal Jalan and Florian Fristch in respect of the Corporate Debtor (Jet Airways Limited). The Plan was voted upon and approved by the Committee of Creditors on 17 October 2020. The Resolution Professional then filed an application before the Adjudicating Authority to seek approval of the Resolution Plan. The Plan received the imprimatur of the Adjudicating Authority – the National Company Law Tribunal – on 22 June 2021.
The Successful Resolution Applicant and the consortium of lenders represented by the State Bank of India were not ad idem on whether the conditions precedent were fulfilled. The SRA took the position that all conditions precedent had been duly fulfilled.
Notably, clause 9.4 of the Resolution Plan specifically contemplates that the performance guarantee provided by the Resolution Applicant can be invoked in terms of RFRP. NCLAT has permitted the SRA to adjust the last tranche of Rs 150 crores by adjusting the PBG of Rs 150 crores. This forms the subject matter of appeal in this Court.
Conclusion- The impugned order of the NCLAT allowed the plea of the SRA for adjustment and consequential release of the PBG at the interlocutory stage. This prima facie would not be in accordance with the tenor of paragraph 8 of the affidavit which was filed by SBI in which it stated that the lenders would not contest the issues in the pending appeal conditional on compliance with the three conditions which were set out in the affidavit. Infusion of Rs 350 crores, as envisaged in the affidavit, could not have been substituted with a direction for adjustment of the PBG, at that stage. Infusion meant that the third tranche has to be paid in the same manner. Adjustment of the PBG was not permissible.
Held that the order dated 28 August 2023 of the NCLAT is modified in part in terms of the above directions and, hence, the permission which was granted to the SRA to adjust the last tranche of Rs 150 crores against the PBG shall stand substituted by the above directions.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
This batch of appeals arises from three orders of the National Company Law Appellate Tribunal1. A Resolution Plan was submitted under the Insolvency and Bankruptcy Code, 20162 by a consortium of Murari Lal Jalan and Florian Fristch in respect of the Corporate Debtor (Jet Airways Limited). The Plan was voted upon and approved by the Committee of Creditors on 17 October 2020. The Resolution Professional then filed an application before the Adjudicating Authority to seek approval of the Resolution Plan. The Plan received the imprimatur of the Adjudicating Authority – the National Company Law Tribunal3 – on 22 June 20214.
2. Clause 7.6 of the Resolution Plan stipulates conditions for implementation. Clause 7.6.1 spells out the “conditions precedent”:
“7.6.1. Conditions Precedent – The obligation of the Resolution Applicant to re-commence operations as an aviation company, being the business proposed to be acquired is subject to the fulfilment of the following conditions after the Approval Date (“Conditions Precedent”):
(a) Validation of AOP of the Corporate Debtor by DGCA & MoCA – The AOP of the Corporate Debtor shall have been validated by the DGCA, the MoCA and any other relevant Government Authority and grant of all other mandatory approvals to the Corporate Debtor to enable it to re-commence flying operations (including commercial/ cargo operations) and related on-ground services.
(b) Submission and approval of the Business Plan to DGCA & MoCA The Business Plan of the Resolution Applicant shall have been submitted after the Approval Date to the DGCA and MoCA for their review, and approval. The Resolution Applicant agrees to modify its business plan to incorporate all reasonable changes required by the DGCA/ MoCA, which otherwise does not make the business unviable for the Resolution Applicant.
(c) Slots Allotment Approval The DGCA and MoCA shall have approved the reinstatement of all the suspended slots (including the bilateral rights and traffic rights) back to Jet Airways/ Corporate Debtor. The slots (along with related bilateral rights and traffic rights) can be allotted to the Corporate Debtor gradually as per its Business Plan with immediate slots allotment approval (along with related bilateral rights and traffic rights) for sectors on which Jet 2.0 proposes to recommence operations after the Effective Date.
(d) International Traffic Rights Clearance The Corporate Debtor shall have received the International Traffic Rights Clearance in compliance with Applicable Laws.
(e) Demerger – The Scheme filed as part of this Resolution Plan shall have been approved under Applicable Laws and the Demerged Employees shall have demerged from the Corporate Debtor to AGSL along with all their past dues, liabilities and outstanding’s with effect from the Approval Date, without the requirement of any further consent or approval of any other stakeholder of AGSL (since we understand that AGSL currently does not have any creditor) or any stakeholder of the Corporate Debtor (including existing or past employee or workmen or employees’ unions of the Corporate Debtor).”
3. Clause 7.6.4 contains a stipulation for “automatic withdrawal”:
“Automatic Withdrawal – The Resolution Applicant is confident of completing all the Conditions Precedent (as set out in Clause 7.6.1 above) within 90 (ninety) days from the Approval Date. In the unlikely event that all the Conditions Precedent cannot be fulfilled within 90 (ninety) days, the Resolution Applicant takes the responsibility of completing the outstanding Conditions Precedent at the earliest and seeks to extend the Conditions Precedent fulfilment period by another term of maximum 180 (one hundred and eighty) days. If all the Conditions Precedent are not fulfilled within such period (i.e. 270 (two hundred and seventy) days from the Approval Date), then this Resolution Plan shall automatically stand withdrawn without any further acts, deeds, or things. On such withdrawal, the members of the Resolution Applicant in the Monitoring Committee shall resign, and the remaining members of the Monitoring Committee shall assume absolute control of the Corporate Debtor.”
4. In terms of Clause 7.6.1 of the Resolution Plan, the SRA is obligated to re-commence operations as an aviation company subject to the fulfilment of five conditions precedent, namely- (i) Validation of Airline Operator Permit of the Corporate Debtor by the Director General of Civil Aviation (DGCA) and Ministry of Civil Aviation (MoCA); (ii) Submission and Approval of Business Plan by DGCA and MoCA, (iii) Slot Allotment Approval, (iv) International Traffic Rights’ Clearance; and (v) Approval of Demerger of ground handling business into a company, namely AGSL. The date of completion of the Conditions Precedent was defined as the ‘Effective Date’. Given the uncertainty surrounding the Effective Date, the NCLT, in its Plan Approval Order, mandated the completion of Conditions Precedent and the attainment of the Effective Date within the first 90 days from the Approval Date. The Order also granted the flexibility to request an extension of the 180-day timeline, allowing for an outer limit of 270 days, in accordance with the provisions outlined in the Resolution Plan.
5. These conditions precedent had to be fulfilled, in any event, within an outer limit of 270 days failing which the Resolution Plan would automatically stand withdrawn. Upon this eventuality taking place, the members of the Resolution Applicant in the Monitoring Committee are to resign, and the remaining members of the committee are to assume absolute control over the Corporate Debtor. Following the Effective Date, the SRA is then required to infuse funds and fulfil specified payments to stakeholders, including disbursements to Employees, Workmen, and other Operational Creditors, within 180 days from the Effective Date.
6. The Successful Resolution Applicant5 and the consortium of lenders represented by the State Bank of India6 were not ad idem on whether the conditions precedent were fulfilled. The SRA took the position that all conditions precedent had been duly fulfilled. Consequently, on May 20 2022, the DGCA reissued an Air Operation Certificate, confirming the authorization for the Corporate Debtor to engage in commercial air operations. The SRA communicated via email to the Lenders, affirming compliance with all prerequisites and proposing that May 20 2022, should be recognized as the effective date under the Resolution Plan. However, the lenders took a position to the contrary. On 15th November 2022, the SRA filed I.A. No. 3398 of 2022 (Implementation Application) and I.A. No. 3508 of 2022 (Exclusion Application) before the NCLT seeking a determination in accord with its position.
7. By an order dated 13 January 2023, the NCLT came to the conclusion that the SRA was compliant with the conditions precedent. It allowed the Implementation Application, thereby inter alia permitting the SRA to take control and management of the Corporate Debtor. The period of six months for implementation would commence from 16 November 2022. The tribunal reasoned that:
(i) On 21 October 2022, the NCLAT confirmed SRA’s compliance with necessary conditions precedent (CPs) to the satisfaction of MC. Despite the lenders seeking clarification through IA 4771 of 2022, the NCLAT’s findings were reaffirmed on 20 December 2022;
(ii) There is no dispute regarding compliance with CPs at serial no. (i) and (v) as per the approved plan, including the validation of the Air Operator Certificate by DGCA and MoCA, and the approval of the demerger of the ground handling business into AGSL;
(iii) Concerning CP at serial no. (ii), the business plan’s submission and approval to DGCA and MoCA were deemed as complete, with the issuance of the Air Operator Certificate (AOC), considered as implicit approval;
(iv) Regarding slot allotment approval, aligned with the plan approval order, confirming slots were granted as per the plan;
(v) For International Traffic Right Clearance, the requirement was deemed satisfied after successfully recommencing operations, adhering to applicable laws, and plan approval order conditions. Consequently, all Conditions Precedent were duly complied with; and
(vii) Regarding the Exclusion Application, it was deemed appropriate to grant an exclusion for 180 days until November 16, 2022, in the interest of justice and to achieve the primary objective of maximizing assets and resolving the insolvency of the Corporate Debtor.
The order of the NCLT has been challenged by SBI in appeal. The appeal is pending before the NCLAT.
8. On 3 March 2023, the NCLAT declined to stay the order of the NCLT, which has given rise to the first in the three sets of appeals being Civil Appeal Nos 37363737 of 2023. By a subsequent order dated 26 May 2023, the NCLAT allowed an extension commencing from 3 March 2023 until 31 August 2023. This order has given rise to the second in the batch of appeals being Civil Appeal Nos 41314134 of 2023.
9. The Resolution Plan envisaged that with an intent to settle the total outstanding claims made by domestic banks, foreign banks and financial institutions, the assenting financial creditors would be entitled to the benefit of payments and securities. This is described as “Summary of payments and security package”. Clause 6.4.4 of the Resolution Plan is titled as “Treatment of Financial Creditors” and is reproduced below, insofar as it is relevant:
