In re Go Airlines (India) Limited (NCLT New Delhi)
Summary: The National Company Law Tribunal (NCLT), New Delhi Special Bench, admitted the voluntary insolvency application filed by Go Airlines (India) Limited, operating under the brand name Go First, under Section 10 of the Insolvency and Bankruptcy Code, 2016. In its order dated 10 May 2023, the Tribunal examined the airline’s financial distress, substantial defaults towards aircraft lessors and vendors, objections raised by creditors, and the statutory requirements for commencement of the Corporate Insolvency Resolution Process (CIRP). The principal legal questions were whether creditors must receive prior notice before admission of a corporate debtor’s own insolvency application and whether a proposed challenge under Section 65 alleging fraudulent or malicious initiation could prevent admission. The Tribunal held that prior notice to creditors is not mandatory in every Section 10 proceeding and that a Section 65 application can be entertained even after commencement of CIRP.
Go Airlines, incorporated on 29 April 2004, had operated a low-cost airline since November 2005 and was subsequently rebranded as Go First. The company submitted that its operations had been severely disrupted by allegedly defective engines supplied by Pratt & Whitney, resulting in the grounding of a substantial portion of its fleet. According to the airline, nearly 34% of its aircraft were grounded in 2022, while 28 out of its 54 aircraft were grounded by the time of the insolvency application. The company referred to emergency arbitral awards dated 3 February 2023 and 15 April 2023 issued in proceedings before the Singapore International Arbitration Centre, directing the supply of serviceable engines. It alleged non-compliance with those directions and stated that 4,118 flights involving 77,500 passengers had been cancelled during the preceding 30 days. The airline maintained that immediate insolvency protection was necessary to prevent deterioration of its assets and preserve the possibility of continuing operations.
The corporate applicant disclosed substantial financial liabilities and defaults. Its application referred to outstanding financial debt of approximately Rs.6,521 crore as on 28 April 2023, although it stated that no default towards financial creditors had occurred when the application was filed. During the hearing, it reported a subsequent default of Rs.11.03 crore towards interest payable to financial creditors on 4 May 2023. It also disclosed defaults of approximately Rs.2,660 crore towards aircraft lessors and Rs.1,202 crore towards vendors. The company placed before the Tribunal creditor notices, audited financial statements, a board resolution, shareholders’ special resolution and the written consent of the proposed Interim Resolution Professional. It argued that the statutory threshold and other requirements under Section 10 had been satisfied and that CIRP was necessary to protect the airline as a going concern.
Certain aircraft lessors and other creditors opposed immediate admission of the application. They contended that creditors should be given notice and an opportunity to object before the Tribunal initiated CIRP. Relying on Krrish Realtech Private Limited and Wave Megacity Centre Private Limited Vs Rakesh Taneja & Ors., the objectors argued that they intended to challenge the proceedings under Section 65 of the IBC on the ground of fraudulent or malicious initiation. They further questioned whether the airline could realistically continue as a going concern when numerous aircraft were grounded and continuing lease rentals could increase CIRP costs. Go Airlines disputed these objections, maintaining that the existence of debt and default was not denied, that creditor participation was not an automatic precondition for admission, and that a future Section 65 application should not delay the proceedings. It also argued that enforcement of the arbitral awards could facilitate the resumption of flight operations.
Examining Rules 4, 6 and 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the Tribunal distinguished applications initiated by financial and operational creditors under Sections 7 and 9 from applications initiated by corporate debtors under Section 10. It observed that Rule 7 does not expressly require a corporate applicant to serve its Section 10 application upon every creditor. Referring to Unigreen Global Private Limited Vs Punjab National Bank & Ors., the Tribunal recognised that creditors may raise limited objections concerning the existence or enforceability of debt, occurrence of default, or the applicant’s eligibility under Section 11. However, it concluded that issuance of notice to creditors at the pre-admission stage is discretionary rather than mandatory and must be considered according to the circumstances of each case. The Tribunal emphasised that indiscriminate hearings could delay insolvency proceedings, diminish asset values and undermine the objective of timely resolution. It further interpreted Section 65 as permitting proceedings alleging fraudulent or malicious initiation at either the pre-admission or post-admission stage. Since no Section 65 application was pending before it and the alleged defaults were not disputed, the Tribunal declined to postpone consideration of the Section 10 application.
On examining the application, the Tribunal found that the corporate debtor had established outstanding debt exceeding Rs.1 crore, the occurrence of default, compliance with the documentary and procedural requirements under Section 10, and the absence of disqualification under Section 11. Accordingly, it admitted the application and commenced CIRP, declaring a moratorium under Section 14(1)(a) to (d) of the IBC, including restrictions on proceedings against the corporate debtor, disposal of assets, enforcement of security interests and recovery of property held by the debtor. Abhilash Lal was appointed Interim Resolution Professional and directed to take charge immediately, preserve the airline as a going concern and take necessary steps concerning enforcement of the arbitral awards. The Tribunal directed the suspended board and former management to cooperate with the IRP and ordered the suspended management to deposit Rs.5 crore towards immediate expenses, subject to adjustment. In the connected IA No. 2560(PB)/2023, the Tribunal dismissed the request for interim protection as infructuous because the main Section 10 application had already been admitted and the statutory moratorium had commenced.
Cases Discussed
- Krrish Realtech Private Limited — Company Appeal (AT) (Insolvency) No. 1008 of 2021 (NCLAT). Considered regarding natural justice, participation of objectors and the distinction between pre-packaged insolvency proceedings and ordinary Section 10 applications.
- In re Power Max (India) Private Limited — CP (IB) No. 104/KB/2022, order dated 01.05.2023 (NCLT Kolkata). Referred to concerning creditors’ applications and admission of a corporate debtor’s Section 10 application.
- Wave Megacity Centre Private Limited Vs Rakesh Taneja & Ors. — Company Appeal (AT) (Insolvency) No. 918 of 2022 (NCLAT). Cited concerning objections under Section 65 alleging fraudulent or malicious initiation of insolvency proceedings.
- Vekas Kumar Garg Vs DMI Finance Pvt. Ltd. & Anr. — Company Appeal (AT) (Insolvency) No. 113 of 2021, order dated 18.02.2021 (NCLAT). Relied upon regarding third-party intervention before admission of a Section 7 application.
- SREI Infrastructure Finance Limited Vs Alstrong Enterprises India Private Limited — IA No. 1615/2021, order dated 02.07.2021 (NCLT Delhi). Considered regarding the limited participation of third parties in proceedings under Section 7.
- Unigreen Global Private Limited Vs Punjab National Bank & Ors. — Company Appeal (AT) (Insolvency) No. 81 of 2017, order dated 01.12.2017 (NCLAT). Relied upon regarding the limited grounds on which creditors may oppose a Section 10 application.
- Kumar Nag Vs G.M. (P.J.) India Oil — Civil Appeal No. 4544 of 2005, judgment dated 19.09.2005 (Supreme Court). Referred to regarding the flexible application of principles of natural justice.
- Charan Lal Sahu Vs Union of India — (1990) 1 SCC 613 (Supreme Court). Referred to in the quoted discussion concerning the practical application of natural justice.
