The Supreme Court, invoking its extraordinary powers under Article 142, has ordered the liquidation of Jet Airways following a prolonged and stalled resolution process.
The decision overturns an earlier order by the National Company Law Appellate Tribunal (NCLAT) that had approved the transfer of ownership to the Jalan-KalRock Consortium (JKC) without full payment as stipulated in the resolution plan.
The bench, led by Chief Justice DY Chandrachud, with Justices JB Pardiwala and Manoj Misra, found the NCLAT’s decision to adjust the Performance Bank Guarantee (PBG) against the first tranche of payment as “perverse” and “flagrant disregard” for its prior ruling from January 2023.
In light of the JKC’s inability to meet its financial obligations, the Court directed the National Company Law Tribunal (NCLT) in Mumbai to appoint a liquidator immediately and ruled that Rs 200 crores deposited by the consortium would be forfeited.
The order followed a protracted legal challenge raised by the State Bank of India-led lenders against the NCLAT’s 2023 approval for the JKC’s ownership transfer without full adherence to the financial stipulations.
The ruling has been described by Justice Pardiwala as “an eye-opener” and as providing critical insights into the functioning of insolvency procedures under the Insolvency and Bankruptcy Code (IBC) and the NCLAT’s interpretation of it.
In its ruling, the Court underscored that the PBG, provided as security, was to remain effective until the completion of the resolution plan.
The JKC’s failure to infuse Rs 350 crore in the initial tranche, as required, was deemed a substantial breach of the resolution agreement.
Consequently, the court held that liquidation was necessary to protect the interests of the creditors and expedite the settlement.
Background of the legal dispute
The present challenge emerged after the NCLAT, in March 2024, had directed Jet Airways’ monitoring committee to finalise the ownership transfer to the JKC and allowed for an adjustment of the PBG against the Rs 350 crore payment due from the JKC under the plan.
The NCLAT’s ruling directly contravened a prior Supreme Court directive, which stipulated that JKC would maintain a Rs 150 crore PBG and deposit Rs 150 crore to the SBI escrow account by January 2023.
Arguments from lenders and the consortium
Additional Solicitor General N Venkataraman, representing the SBI-led lender consortium, contended that the NCLAT’s order violated the Supreme Court’s directive by allowing the Rs 150 crore PBG to offset the outstanding tranche.
He noted that under the approved plan, the JKC was required to make a full payment of Rs 4,783 crore, but to date, it had only deposited Rs 200 crore.
Additionally, the lender consortium expressed concerns over unpaid workmen’s dues of Rs 289 crore and the operational costs of Rs 22 crore per month borne by creditors to maintain the airline.
Meanwhile, Senior Advocate Mukul Rohatgi, representing the JKC, countered that the January 2023 Supreme Court order should be interpreted holistically.
He raised concerns over the potential liquidation, particularly regarding the fate of Rs 200 crore invested by the consortium thus far, as well as its broader impact on the airline’s prospects.
In an editorial stance on the case, Justice Pardiwala remarked that the litigation had exposed systemic challenges in implementing the IBC and underscored the need for greater precision in handling corporate insolvency resolutions.
Follow us
