STATE BANK OF INDIA & ORS. versus THE CONSORTIUM OF MR. MURARI LAL JALAN AND MR. FLORIAN FRITSCH & ANR.

Summary

In the Jet Airways insolvency, the Supreme Court set aside the NCLAT's order that let the successful resolution applicant adjust its Rs. 150 crore performance bank guarantee against the first tranche of Rs. 350 crore, holding this contrary to the Court's earlier order of 18.01.2024, the RFRP terms incorporated in the resolution plan, and Regulation 36B(4A). Finding that the SRA had failed to implement the plan despite repeated extensions, the Court used Article 142 to direct liquidation, forfeited the Rs. 200 crore infused, permitted encashment of the guarantee, and made suggestions on reform of the IBC and the tribunals.

Issues

1. Whether an appeal under Section 62 of the IBC lay, given the SRA's objection that it challenged only concurrent findings of fact.
2. Whether the conditions precedent were fulfilled and the Effective Date fixed at 20.05.2022.
3. Whether the performance bank guarantee could be adjusted against the first tranche payment under the resolution plan, the RFRP, Regulation 36B(4A) and the Court's order dated 18.01.2024.
4. Whether the lenders' affidavit of 16.08.2023 imposed conditions different from the resolution plan.
5. Whether the SRA failed to implement the plan through non-payment of the first tranche, CIRP costs including airport dues, and workmen's provident fund and gratuity dues, and whether liquidation should follow.
6. Whether timely implementation of a resolution plan is an objective of the IBC, and how the tribunals' power to extend time should be exercised.

Provisions considered

• Section 62, Insolvency and Bankruptcy Code, 2016An appeal lies on a question of law, akin to a second appeal under Section 100 CPC; a perverse finding, misreading of evidence, ignoring material facts or acting contrary to settled law raises such a question, and the NCLAT's order did so. (¶¶ 85, 86, 87, 88, 89, 90)
• Regulation 36B(4A) and Explanation I, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Performance security is forfeited if the applicant fails to implement, or contributes to the failure of, the plan; its duration is what the RFRP specifies, which here required the guarantee to stay alive until full implementation, so it could not be adjusted mid-implementation. The NCLAT misread the regulation. (¶¶ 104, 105, 107, 109, 110, 111)
• Section 31(1), Insolvency and Bankruptcy Code, 2016An approved resolution plan binds all stakeholders and cannot be modified by the tribunal, the CoC or the SRA (following Ebix); hence the lenders' affidavit could not and did not alter the plan, which already required the first tranche to be infused in cash. (¶¶ 114, 115, 116, 117, 142)
• Section 30(2)(e), Insolvency and Bankruptcy Code, 2016Relied on through the NCLAT's order of 21.10.2022, affirmed by the Supreme Court, that non-payment of full provident fund and gratuity would make the plan contravene the law; the SRA's failure to pay them was a further breach. (¶¶ 135, 136, 139, 140)
• Section 33(3), Insolvency and Bankruptcy Code, 2016Contravention of an approved plan by the SRA warrants liquidation; since the Court itself found contravention and failure of implementation, no separate application under Section 33(3) to the NCLT was needed. (¶¶ 143, 144, 165)
• Rule 15, National Company Law Tribunal Rules, 2016 and National Company Law Appellate Tribunal Rules, 2016The power to extend time must not be exercised mechanically; repeated extensions can undermine the feasibility of the plan and increase the debtor's liabilities, and call for special circumspection in the aviation sector. (¶¶ 155, 156, 157, 158, 176)
• Article 142, Constitution of IndiaEbix and Glas Trust counsel caution, but do not bar deviation from the IBC procedure in extraordinary circumstances; given the plan's failure and mounting costs, the Court directed liquidation directly. (¶¶ 159, 160, 161, 162, 163, 164, 165, 187)
• Section 74(3) (with Section 30(2)(d) and Regulation 38), Insolvency and Bankruptcy Code, 2016Cited in the suggestions part: the Code requires plans to provide for implementation and supervision and punishes wilful contravention, so tribunals should not help SRAs circumvent plan terms by relaxing them. (¶¶ 177, 178, 179)

Held

• Although Section 62 confines appeals to questions of law, the NCLAT's direction to adjust the guarantee disregarded the Court's earlier order, the plan and settled law and drew wrong inferences from proved facts; it was perverse and open to examination. (¶¶ 89, 90)
• The Effective Date stood fixed at 20.05.2022 on concurrent findings of the NCLT and NCLAT and the NCLAT's refusal to stay the NCLT order; the SRA could not avoid implementation by pointing to pending litigation over the conditions precedent, which showed a lack of bona fides. (¶¶ 95, 97, 98)
• The RFRP's performance-security clauses, including the bar on setting off the guarantee against consideration even if the plan says so, were incorporated into the plan and accepted by the SRA, and the deletion of the 'financial flexibility' wording from Clause 6.4.12 confirmed that the guarantee could not fund payments. Whatever Clause 6.4.4 implied, the guarantee could not be adjusted against the first tranche. (¶¶ 100, 101, 102, 103, 111)
• The lenders' affidavit of 16.08.2023 imposed no condition different from the plan: both required the Rs. 350 crore first tranche to be infused in cash, and the only additional element was the lenders' offer to drop their challenges. (¶¶ 117, 120, 121)
• The Court's order of 18.01.2024 that Rs. 150 crore be deposited by 31.01.2024 'failing which the consequences under the Resolution Plan shall follow' was a binding direction grounded in the plan itself; the NCLAT could not read it as confined to the affidavit, and its contrary approach was perverse. (¶¶ 122, 123, 124, 142, 143)
• Airport dues form part of CIRP costs under Clause 6.4.1, and the NCLAT did not cap them at Rs. 25 crore; but CIRP costs had to be paid in priority within the implementation schedule from the first tranche, so non-infusion was also a default on CIRP costs. (¶¶ 128, 129, 130, 131, 132)
• Workmen and employees were entitled to at least the liquidation value of Rs. 113 crore and, under the NCLAT order of 21.10.2022 affirmed by the Court, to full provident fund and gratuity; the SRA could not stagger gratuity, and the NCLAT erred in directing only Rs. 12 crore of provident fund upfront and ignoring gratuity. (¶¶ 135, 136, 138, 139, 140)
• After multiple extensions the SRA's failure to infuse the first tranche amounted to contravention and failure of the plan, whose consequence is liquidation; it could no longer invoke automatic withdrawal under Clause 7.6.4 to recover its money, and the lenders may invoke the guarantee. Timely liquidation is preferable to an endless resolution process. (¶¶ 144, 145, 146, 147, 148, 149)
• Timely implementation of an approved resolution plan is itself an objective of the IBC, since delay erodes asset value as much during implementation as during CIRP or liquidation. (¶¶ 150, 151, 152, 154)
• The Court suggested reasoned CoC decisions with independent oversight of the IBBI guidelines, recording next implementation steps in plan-approval orders, a statutory monitoring committee, restraint by tribunals in relaxing plan terms and timelines, and remedies for vacancies, domain expertise, working hours and listing practices in the NCLT and NCLAT, and warned the tribunals against disregarding the Court's orders. (¶¶ 172, 176, 180, 181, 182, 183, 184, 185)

Result

Appeals allowed; NCLAT order dated 12.03.2024 set aside; under Article 142 the corporate debtor (Jet Airways) directed to be liquidated, with the NCLT, Mumbai to appoint a liquidator; Rs. 200 crore infused by the SRA forfeited and the lenders permitted to encash the Rs. 150 crore performance bank guarantee; copies sent to the Ministry of Finance and the IBBI to consider the suggestions.