Supreme Court Ends Jet Airways Revival Hopes, Orders Liquidation Amidst NCLAT Judgment Dispute

In a defining judgment, the Supreme Court of India on Thursday ruled in favor of liquidating Jet Airways, formerly one of India’s largest private airlines, determining that the National Company Law Appellate Tribunal (NCLAT) had violated a prior Supreme Court decision from January 2023. This decision comes after multiple appeals, including one from the airline’s major lenders, challenged the NCLAT’s approval of the airline’s takeover by the Jalan-Kalrock Consortium (JKC), comprising Kalrock Capital from the UK and UAE-based entrepreneur Murari Lal Jalan. The Supreme Court concluded that liquidation serves the best interests of Jet Airways’ creditors and employees who have waited for a resolution since the airline’s financial collapse.

Supreme Court’s Critique of NCLAT Judgment

• The Court criticized NCLAT for disregarding the Supreme Court’s previous judgment, specifically by allowing the Jalan-Kalrock Consortium to adjust a Rs 150 crore performance bank guarantee (PBG) against a required infusion of Rs 350 crore.
• Justice JB Pardiwala, delivering the verdict, emphasized that the performance bank guarantee should have been maintained throughout the insolvency process. The failure of JKC to meet this condition, along with its insufficient fund infusion, warranted liquidation, the Court ruled.

Failed Revival Conditions and Consortium’s Shortcomings

• The Court highlighted that the Jalan-Kalrock Consortium failed to meet essential revival conditions, leaving liquidation as the only feasible option.
• Lenders, including the State Bank of India (SBI), argued that JKC’s failure to inject the necessary capital left no realistic prospect of reviving the airline. This failure set a critical precedent in the application of India’s Insolvency and Bankruptcy Code (IBC) to the aviation sector.

Jet Airways’ Financial Crisis and Insolvency Journey

• Jet Airways, a major player in India’s aviation industry, halted operations in 2019 after facing substantial financial issues.
• SBI, as Jet Airways’ largest lender, initiated insolvency proceedings before the National Company Law Tribunal (NCLT) in Mumbai. Subsequently, Jet Airways was admitted into a formal resolution process under the IBC.
• In 2021, a consortium led by Murari Lal Jalan and Kalrock Capital was approved as the winning bidder, raising hopes of reviving Jet Airways. Despite their bid, however, the consortium struggled to assume ownership and clashed with lenders over required fund infusions.

Dispute Over Ownership Transfer

• A significant aspect of the case involved disputes between JKC and Jet Airways’ creditors over the transfer of ownership.
• JKC claimed that lenders had failed to initiate the ownership transfer, while the lenders contended that JKC had not fulfilled its financial obligations for the takeover.
• In February 2023, the lenders sought intervention from the NCLAT on the matter, but the NCLAT denied their appeal, refusing to grant an injunction in favor of the lenders.

Sale of Jet Airways Aircraft Under Resolution Process

• As part of the resolution strategy, the Committee of Creditors (CoC) and JKC aimed to sell three Boeing 777-300 aircraft that were formerly operated by Jet Airways.
• The Malta-based Challenge Group successfully bid on these aircraft and formalized the purchase through Ace Aviation, a special purpose vehicle. Letters of Intent were signed in October 2022 to complete the transaction.

Implications of the Supreme Court’s Decision

• This landmark ruling has wide-reaching implications for India’s insolvency framework, particularly within the aviation sector, underscoring the necessity of meeting strict financial commitments for successful resolution.
• The Court’s decision upholds lender rights and highlights the importance of adhering to financial commitments in corporate revival cases, signaling that insufficient compliance with legal and financial terms will lead to liquidation.