Supreme Court Orders Jet Airways' Liquidation

In a landmark judgment on October 10, 2024, the Supreme Court of India ordered the liquidation of Jet Airways after the airline's resolution plan remained unfulfilled for over five years. Citing "peculiar and alarming" circumstances, the Court utilized its extraordinary powers under Article 142 of the Constitution, deciding in favor of the airline's creditors. The ruling overturns a previous order by the National Company Law Appellate Tribunal (NCLAT), which had allowed Jet Airways' ownership transfer to the Jalan-Kalrock Consortium (JKC) despite incomplete payment. This move to liquidate Jet Airways marks the end of its prolonged insolvency journey, initially aimed at reviving India’s once-thriving airline.

Supreme Court's Decision and Reversal of NCLAT's Order

The decision came from a bench led by Chief Justice DY Chandrachud, along with Justices JB Pardiwala and Manoj Misra, who found the NCLAT’s handling of the case flawed. The Supreme Court expressed disappointment over the NCLAT’s January 2023 decision, which allowed the adjustment of the first tranche payment of ₹350 crore against a Performance Bank Guarantee (PBG). The Court ruled that this adjustment, along with JKC’s request for ownership transfer, violated the original resolution plan terms and disregarded the Court’s previous orders.

Justice Pardiwala remarked that the case served as an "eye-opener" for the need to refine how bankruptcy and insolvency cases are handled within the framework of the Insolvency and Bankruptcy Code (IBC). The bench stressed that liquidation, while a last resort, was necessary in light of JKC’s failure to meet financial obligations.

Road to Liquidation: Why the Resolution Plan Failed

The Supreme Court's judgment revealed multiple unresolved issues that ultimately led to this decision. Approved in 2021, JKC’s resolution plan outlined a ₹4,783 crore payment to settle Jet Airways’ debts, with an initial ₹350 crore payment due as part of the deal. However, by March 2024, JKC had failed to deposit the required amount, sparking frustration among the airline's creditors. The consortium had infused ₹200 crore into Jet Airways but did not meet the full payment obligations specified in the resolution plan.

The resolution plan’s delays affected not only the creditors but also the employees, airport authorities, and other stakeholders of Jet Airways, who were left without compensation. This failure prompted lenders, led by the State Bank of India (SBI), to file a challenge against NCLAT’s decision, arguing that JKC's default had compromised the resolution process's integrity.

Key Aspects of the Supreme Court Judgment

1. Forfeiture of Payments and Guarantees

The Court ordered that the ₹200 crore infused by JKC would be forfeited due to non-compliance with the payment structure. Additionally, the Supreme Court granted lenders permission to cash in the PBG of ₹150 crore as a result of JKC’s default. This decision reinforces the importance of timely payments in insolvency cases and serves as a cautionary precedent for future resolution applicants.

2. Directive for Immediate Liquidation

The Supreme Court instructed the National Company Law Tribunal (NCLT) in Mumbai to appoint a liquidator promptly. By moving Jet Airways into liquidation, the Court aims to protect creditors' interests and ensure a fair distribution of the airline’s remaining assets.

3. Emphasis on Creditor Interests

Emphasizing the need for "substantial justice," the Court highlighted the prolonged financial burden that lenders have faced. Monthly maintenance costs, totaling ₹22 crore, were shouldered by the creditors to keep Jet Airways operational despite no active income. In addition to creditor dues, over ₹289 crore in employee dues also remain unsettled.

The Supreme Court's Criticism of NCLAT and NCLT's Conduct

Justice Chandrachud's bench did not shy away from pointing out faults in the NCLAT’s interpretation of the case, noting that it ignored previous Supreme Court instructions on January 18, 2024. The Supreme Court clarified that under the resolution plan, the PBG was intended only as security, to be forfeited if JKC defaulted, not to be treated as a replacement for the tranche payment. The judgment underscored the need for improved oversight and consistency in tribunal proceedings to avoid such prolonged litigations.

Stakeholder Reactions and Legal Representations

The SBI-led creditors were represented by Additional Solicitor General N Venkataraman, who argued that JKC’s inability to meet payment obligations justified their move to seek liquidation. Venkataraman’s stance emphasized that, under the IBC, protecting creditor rights was paramount, especially when a resolution plan fails due to financial non-compliance.

On the other hand, JKC’s counsel raised concerns about the impact of liquidation on the consortium's initial ₹200 crore investment, seeking an alternative solution to liquidation. However, the Supreme Court’s decision to prioritize creditor and stakeholder interests in this scenario reflects a firm commitment to uphold the foundational principles of the IBC.

Broader Implications of the Jet Airways Liquidation

This judgment marks a critical precedent for insolvency cases under the IBC, emphasizing that failure to implement resolution plans within agreed-upon timelines can lead to stringent consequences, including liquidation. For potential bidders in future IBC cases, the Jet Airways liquidation reinforces the importance of meeting financial commitments promptly.

The case also sheds light on the need for judicial and regulatory reforms within the IBC framework, as observed by Justice Pardiwala, to prevent similar instances of prolonged resolution delays. This verdict not only highlights the Supreme Court’s stance on prioritizing creditor rights but also serves as a cautionary message to resolution applicants about adhering to IBC’s financial requirements.

What's Next for Jet Airways?

As Jet Airways enters liquidation, the NCLT will now oversee the sale of its remaining assets to repay creditors and settle dues. This process is expected to be challenging, given the airline's deteriorated financial condition. For lenders and stakeholders, liquidation provides a measure of closure, while employees await potential compensation from asset distribution.

Future Industry Outlook

The liquidation of Jet Airways has broader implications for the Indian aviation industry, where other carriers may face similar struggles due to financial pressures. This judgment underscores the critical role of timely funding and financial stability in sustaining airlines, a lesson of particular importance in the post-pandemic era where many airlines grapple with profitability issues.