Case study of Jet Airways Insolvency Case

Submitted to: Ms. Priyanki Dutta Gupta

Submitted by: Anshul Rao (20llb004)

About the company and its downfall

Jet airways is an international airline which was founded by Naresh Goyal in the year 1992
and its headquarter is situated in Delhi NCR. In the year 2015 the company went public and
its IPO was oversubscribed by 1.8 times and nearly 1,900 crores were raised and in the year
2016 Jet airways became one of the largest airline of India with 21.2% market shares. In the
year 2019 the company was running into losses and they decided to shut down their
operations temporarily and later in the same year the company went bankrupt. The
suspension of operation made it clear that the operating cashflow was low and the company
was not able to secure creditors and was not in a state to get funds on credit basis. Earlier the
leading company was having nearly 119 aircrafts but later when the company was running
into losses they were reduced to 5 aircrafts and nearly 16,000 jobs were at stake. There are
various reasons for downfall of the company like since the year 1992 the company was solely
managed by the founder itself because of which many wrong decisions were taken by the
company as they purchased Air Sahara. Airlines such as Indigo and Spicejet entered into the
market which gave tough competition to Jet airways. One of the main reason for downfall is
fluctuation of fuel prices as it affected the airline most. Jet airways is the first Indian airline to
go under insolvency proceedings under cross border insolvency protocol along with
Insolvency and bankruptcy code of India.

Facts of the case

State bank of India was a Financial creditor of Jet airways and it filed petition in National
Company Tribunal, Mumbai against Jet airways as in the year 2019 State bank India saw
downfall of Jet airways. Company Petition was filed under section 30(6) read with section 31
of the Insolvency and Bankruptcy act 2016. Mr. Ashish Chawchharia was a Resolution
Professional for Jet airways Ltd. Who filed and application for seeking approval of the
resolution plan submitted by Jalan Fritsch consortium which consists of Mr. Murari Lal Jalan
who is a non-resident Indian and situated in United Arab Emirates and Mr. Florian Fritsch
who owns Kalrock Capital Partners Ltd, Cayman also known as KPCL. The committee of
creditors along with NCLT, Mumbai approved the Insolvency Resolution Plan via order
dated 22nd June 2021.
Journey of Resolution

In the year 2020

The COC approved the Jalan- Kalrock consortium’s resolution Plan which proposed to invest
600 crores in the first two years to be paid to creditors and acquire an 89.79 stake in the
carrier. The resolution Plan also proposes for selling out non-core assets such as high-end
cars and real estate and by the end of first year Financial Creditors will be paid Rs. 131 crore,
Rs. 193 and Rs 259 in third fourth and fifth year. The company decides to pay Rs. 1183cr. in
total to the creditorsby the end of 5th year.

After two years when the petition was filed by the State Bank Of India the National Company
Tribunal came with decision in the year 2021 and the procedure for Insolvency began.
National Company Tribunal cleared the resolution plan which was submitted by Jalan Fritsch
in order to revive Jet Airways and directed Jalan-Kalrock consortium to do the formalities
that is approval and licenses to restart the airlines and in the instant application no. 3398/2022
and 3508/20223 in C.P. (IB) No. 2205/MB/C-1/2-19 the respondents are the top three lenders
of the corporate debtor and form part of monitoring committee constituted in terms of the
Resolution Plan. For re-commence of operation there were 5 conditions which were required
that is validation of Air Operator Certificate of the corporate debtor by Directorate General of
Civil Aviation and Ministry of Civil Aviation, Submission of business Plan to DGCA and
MoCA, International Traffic Rights Clearance and approval of demerger of ground handling
business into AGSL.

According to the law the conditions were required to be fulfilled by 90 days from date of
approval and according to the resolution plan 180 th day from the effective date the Financial
creditors should be paid up to 175 crores and from such date the monitoring committee shall
be dissolved and entire management should be handed over to SRA. In January 2022
application was filed by the applicant I.A No. 125/2022 for seeking directions to the
respondent towards speedy implementation of the resolution plan which was rejected by the
tribunal on march 2022 but the tribunal directed the COC to continue to meet the expenses of
corporate Debtor till the effective date. On 21 May 2022 application was filed with the
tribunal regarding status which stated that the conditions precedents are fulfilled and all the
necessary documents were submitted with the Tribunal.

The applicant on 21 may 2022 stated that they will be submitting a performance bank
guarantee of RS. 87.5 Crores as it was stated in the resolution Plan and the applicant
submitted the copy of the same on 27 May 2022. Despite achieving the effective date on 20
may 2022 multiple requests were made by the SRA, the MC lenders are not taking steps to
enable the SRA to infuse first tranche of payment to the CD and thereby not allowing the
SRA to implement the resolution Plan. It was submitted that the SRA has completed all
necessary CPs and the completion of all necessary CPs has also been confirmed in the
NCLAT order where SRA explained compliance of each of the CPs to the Hon’ble NCLAT
also there is no provision under the resolution plan. It was stated that Cps are conditions for
recommencement of the operation as an aviation company and not condition for
implementation of the Resolution Plan. As per the Resolution plan the conditions Precedent
were required to be fulfilled by the applicant within a maximum period of 270 days from the
date of the plan Approval order. The applicant having exceeded the originally stipulated time-
limit of 90 days from the resolution plan approval date for fulfilling the conditions precedent.
According to the given non fulfilments of the CPs by the applicant and the direct impact that
such non fulfillment of cps has on the commercial feasibility and viability as well as the
operational revivability of the Resolution Plan as also upheld by NCLT in its order dated 22
December 2021 in IA 2906/21 the financial creditors in a JLM conducted on 27 th June 2022
and 30th June 2022 agreed on obtaining the opinion of the Ld. Solicitor General of India, Mr.
Tushar Mehta in respect of the safeguard that may be adopted by the lenders on account of
the adverse effects on the resolution plan arising of such non- compliances. It was observed
that the compliance of the CPs by the Applicant was doubtful and the deviation in relation to
compliance of such CPs could affect the generation of revenue that may result in the
applicant not being able to fulfill its obligation towards the revival of the operation.

The Financial creditors/ lenders thereafter continued to deliberate on CP compliance as well

as as the way forward in the implementation of Resolution Plan on a number of Occasions.
The JLMs and MC meetings have consistently maintained the position that since the
unfulfilled cps within 270 days alter the commercial consideration basis which COC had
approved the Resolution Plan, as well as the differing stance in relation to the treatment of
cash balance of the corporate Debtor including the lease rentals from Etihad Airways each of
which had the effect of leaving the corporate Debtor’s resolution high and dry

Despite constant requests to the Applicant by the MC lenders to fulfill its CP related
obligations the applicant continued in its negligent and aberrant ways to fulfil the pre-
requisites required in law and per the direction of the relevant authorities to procure the
Delhi, Mumbai slots. This is despite the MC lenders assuring the applicant in good faith and
larger interest of the resolution of Corporate Debtor that any payment that the applicant
would have made towards the Mumbai and New Delhi airport dues and could later be
reduced from the dues payable to the Financial Creditors after the effective date.

It is further stated that the approval an directions of NCLT regarding implementation of the
Resolution Plan implementation including continuation thereof, with or without the Proposed
Undertaking, shall, in accordance with law, have to be subject to the approval of the financial
creditors/erstwhile CoC members for re-assessment, in the business wisdom, of the viability
and feasibility of the Resolution Plan and the implementation of the Resolution Plan on
account of non-fulfilment of all the CPs by the Applicant within a period of 270 days from
the date of Plan Approval Order.

According to the terms of the Resolution Plan, the SRA is to infuse certain funds into the CD
within 170 days from the Effective Date, make payments as per the terms of the Resolution
Plan and take control of the CD within the first 180 days from the Effective Date. Such
infusion of funds by the SRA is to be in the form of equity against fresh issuance of shares by
the CD to the SRA. To enable such infusion, the CD is required to take certain steps- for
instance, take secretarial steps for making CD active compliant in the records of Registrar of
Companies and Ministry of Corporate Affairs, Government of India, appointment of directors
for passing mandatory resolutions, applying to stock exchanges for taking in principle
approval for issuance of shares to SRA and suspension of ongoing trading, providing bank
account details of CD to enable the SRA to infuse funds and issuance of shares by CD to the
SRA.

According to the order given by Hon’ble NCLAT in its order dated 21.10.2022, in an appeal
filed by JAMEWA and after hearing the parties and considering the JAMEWA’s objections
on completion of CPs has already held that the SRA has complied all the necessary CPs to
the satisfaction of MC. It would not be out of place to reiterate that the MC lenders took out
IA 4771 of 2022 seeking clarification of the Hon’ble NCLAT’s order observing completion
of all necessary CPs to the satisfaction of the MC which was rejected vide order dated
20.12.2022.

As such the findings of Hon’ble NCLAT in order dated 20.12.2022 is reinforced by the said
authority. The business plan was submitted to above Authorities to fulfil compliance of
DGCA’s Show Cause Notice (SCN) to CD of April 2019. SCN states that Air Operator
Certificate will be issued after MoCA approves the business plan. Thus, with issuance of Air
Operator Certificate, it is implied that the business plan has been approved. Even otherwise,
guidelines for issuance of Air Operator Certificate being CAP 3100 clearly states that the
DGCA will review the detailed business plan of the Applicant before issuance of Air
Operator Certificate and with issuance of Air Operator Certificate there is implied approval
of MoCA. In the background of above we find that this CP is satisfactorily complied with the
issuance of AOC.

It is noted that plan approval order of NCLT dated 22nd June, 2021 stipulates that no historic
slots will be granted to Corporate Debtor or SRA. So there is no challenge to this order
thereby accepting the fact that old slot cannot be reinstated. Accordingly, this CP needs to be
read with plan approval order, where Corporate Debtor shall be provided with such slots for
which it applies. There is no dispute that slots for which SRA applied were granted to them
by the concerned Competent Authority including the slots in Delhi and Mumbai, on settling
the old dues and as such it cannot be considered as non-allotment of slots, as SRA has
received the slots it requested for in compliance with plan approval order. The SRA cannot
get all previous slots as this condition needs to be read with plan approval order of this
Tribunal.

Present Status

The State Bank of India-led lenders on the monitoring committee of debt laden airline Jet
Airways on Monday told the Supreme Court that the Jalan Fritsch consortium’s approved
resolution plan has been rendered “unviable” and “unworkable” as nothing has been paid to it
so far and even no money has been infused for the revival of the grounded carrier.

Additional Solicitor General N Venkataraman, appearing for the lenders, told a Bench led by
Chief Justice DY Chandrachud that the Jalan-Kalrock consortium’s resolution plan for the
takeover of the airline was approved by the National Company Law Tribunal on June 22,
2021 and since then it had spent “public money of around Rs 400 crore including airport
dues” and the consortium had neither paid a “single penny” to it nor had “infused” any funds
in the airline. The total claim of the financial creditors is Rs 7,453.62 crore.

After brief arguments, the apex court sought response from the Jalan Fritsch consortium, the
successful bidder, and Ashish Chhawchharia, the authorised representative of the monitoring
committee, on two appeals filed by the SBI-led lenders and the Jet Aircraft Maintenance
Engineers Welfare Association. While lenders want the consortium to deposit some amount
to prove bonafide, the employees body want their dues to be cleared