Go Airlines | NCLAT Upholds Initiation Of Insolvency Proceedings, Aircrafts To Remain In Possession Of Go Airlines

The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), while adjudicating an appeal filed in SMBC Aviation Capital Ltd. Vs. Interim Resolution Professional of Go Airlines (India) Ltd., has upheld the NCLT order whereby Corporate Insolvency Resolution Process (“CIRP”) was initiated against Go Airlines (India) Limited. The Bench has rejected an appeal filed by the Lessors challenging the NCLT’s direction to keep the leased aircrafts intact in the possession of Go Airlines. Since the Lessors had challenged the imposition of moratorium on leased aircrafts (third party assets) when the lease agreement stood terminated prior to CIRP, the NCLAT has granted liberty to IRP and the Lessors to file application(s) before the NCLT with respect to their claims relating to the leased aircrafts. Background Facts M/s Go Airlines (India) Limited (“Corporate Applicant/Corporate Debtor”) is engaged in the business of Airlines and is the third largest airline operator in India. It has been running a low-cost Airline service under the brand name ‘Go Air’ for the past 17 years and holds license issued by the Directorate General of Civil Aviation (DGCA) for carrying out commercial air operations in India. In May 2021, GoAir was renamed as ‘GoFirst’. The Corporate Debtor has an employee strength of about 7000 direct and 10,000 indirect employees. Moreover, it serves critical airports such as Leh & Port Blair and is the largest operator in Jammu & Kashmir. Pratt & Whitney (“P&W”) had supplied defective engines to the Corporate Debtor due to which the latter’s several aircrafts were grounded and could not take off. &W declined to provide any repair or replacement to the Corporate Debtor. The matter was referred to an emergency arbitration before the Singapore International Arbitration Centre (SIAC), wherein the Emergency Arbitrator passed Awards dated 03.02.2023 and 15.04.2023, directing P&W to supply 10 serviceable engines by 27.04.2023 and 10 serviceable engines each month till December 2023. However, the Awards were not complied with by P&W and enforcement proceedings are pending adjudication. For this reason, the Corporate Debtor was constrained to cancel 4,118 flights with 77,500 passengers in the last thirty days. The Corporate Debtor filed a petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), voluntarily seeking initiation of the Corporate Insolvency Resolution Process (“CIRP”) against itself. On 02.05.2023, the DGCA issued a Show Cause Notice to the Corporate Debtor on the issue of cancellation of flights scheduled on 03.05.2023 and 04.05.2023. Proceedings before NCLT The NCLT Bench observed that the existence of debt and default being proved; the petition being complete in terms of Sections 10(2) and 10(3) of IBC; and the Corporate Debtor/Corporate Applicant not being ineligible under Section 11 of IBC, the petition is liable to be admitted. Accordingly, on 10.05.2023 the petition under Section 10 of IBC got admitted and CIRP was initiated against the Corporate Debtor. Mr. Abhilash Lal has been appointed as the Interim Resolution Professional (“IRP”). While imposing Moratorium under Section 14 of IBC, the NCLT specifically stayed the recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the Corporate Debtor. Further, the Bench gave the following directions on the issue of retrenchment of employees: “(c) The IRP also shall ensure that retrenchment of employees is not resorted to as a matter of course. In any event, any such decision/event should be brought to the attention of this Adjudicating Authority.” The Suspended Board of Directors and Ex-Management of the Corporate Debtor were also directed to extend all necessary cooperation to the IRP to maintain the status of Corporate Debtor as a “a going concern” and running its operations/services smoothly. NCLAT Verdict SMBC Aviation Capital Ltd, GY Aviation and SFV Aircraft Holdings (“Lessors”) had leased out aircrafts to the Corporate Debtor. The Lessors filed an appeal before the NCLAT challenging the NCLT order dated 10.05.2023, since the Order restricted the Lessors from recovering their assets (aircrafts) which are in possession of the Corporate Debtor. The Lessors submitted that they had terminated the Lease Agreement of aircrafts prior to initiation of CIRP and imposition of moratorium. The assets belonging to third parties could not be covered under moratorium and must be reverted to the Lessors. The NCLAT upheld the NCLT order initiating CIRP against the Corporate Debtor. However, liberty has been granted to the IRP and the Lessors to file application(s) before the NCLT with respect to their claims relating to the leased aircrafts. The following liberties have been...

Go Airlines | NCLAT Upholds Initiation Of Insolvency Proceedings, Aircrafts To Remain In Possession Of Go Airlines

Pallavi Mishra

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