New Delhi: In a significant development in the Jet Airways insolvency case, the Supreme Court on Thursday ordered the liquidation of the grounded airline, forfeiting Rs 200 crore invested by the successful bidder, Jalan Kalrock Consortium (JKC), and allowing the lenders led by SBI to encash a Rs 150 crore performance bank guarantee (PBG).
Exercising its extraordinary powers under Article 142 of the Constitution, a bench comprising Chief Justice D Y Chandrachud and Justices J B Pardiwala and Manoj Misra concluded the insolvency proceedings of the airline by overturning the decision of the National Company Law Appellate Tribunal (NCLAT). The bench criticised the NCLAT for permitting the adjustment of the performance bank guarantee (PBG) in light of JKC’s payment of the first tranche, PTI reported.
The NCLAT had previously allowed JKC to take control of Jet Airways without fulfilling its complete payment obligations. The Supreme Court noted that the NCLAT’s decision to allow the adjustment of the PBG against the first tranche payment of Rs 350 crore violated the orders of the Supreme Court and the resolution plan terms.
Justice Pardiwala, delivering the judgment for the bench, upheld the appeal filed by SBI and other creditors, rejecting the NCLAT’s approval of JKC’s resolution plan. The Supreme Court observed that, given the nearly five years since the resolution plan was approved by the National Company Law Tribunal (NCLT), and the lack of meaningful progress, the only viable course of action was to invoke its constitutional jurisdiction and order the liquidation of the airline.
Article 142 of the Constitution allows the Supreme Court to pass any decree or order it deems necessary to do complete justice in a case. Consequently, the bench directed that steps be taken to begin the liquidation process of Jet Airways and ordered the forfeiture of the Rs 200 crore already invested by JKC. The creditors were also permitted to encash the Rs 150 crore PBG provided by JKC.
The court emphasized that the NCLAT’s decision to treat the PBG as partial payment was in blatant disregard of both the Supreme Court’s prior ruling and the Insolvency and Bankruptcy Code (IBC). The bench noted that JKC had failed to make the required payments, including the first tranche, and had also not cleared other significant dues such as corporate insolvency resolution costs and employee payments.
Justice Pardiwala described the litigation as an “eye-opener,” particularly regarding NCLAT’s functioning, and stressed that JKC’s failure to implement the resolution plan triggered provisions under the IBC that mandate liquidation. He pointed out that timely adherence to resolution plans is crucial for the effective functioning of the IBC, which aims for swift resolutions of distressed companies.
The bench found that the NCLAT had made incorrect inferences from the facts and had acted contrary to established legal principles. It concluded that the Rs 150 crore performance bank guarantee could not be adjusted against the first tranche payment of Rs 350 crore, as required under the resolution plan.
The IBC explicitly states that the PBG should not be set off or counted as part of the payment to be made by the successful resolution applicant. The court confirmed that JKC had failed to meet its payment obligations, including the first tranche of Rs 350 crore.
On March 12, 2023, the NCLAT had upheld the resolution plan for Jet Airways, approving the transfer of ownership to JKC. This decision was challenged by SBI, Punjab National Bank, and JC Flowers Asset Reconstruction Company, who argued that JKC had failed to fulfill its financial obligations, including the Rs 350 crore infusion within the stipulated 180-day period.
Jet Airways, grounded since April 2019 due to a severe liquidity crisis, had hoped to relaunch operations in 2024 after JKC, the successful bidder in 2021, infused an additional Rs 100 crore into the airline in September 2023. However, the dispute with the lenders persisted, ultimately leading to the Supreme Court’s decision to order liquidation.