Ace Aviation Viii Limited vs Monitoring Committee of Jet Airways (India) Limited

Prabhat Kumar, Member (Technical)

The Application IA 3747/2022 is filed by Ace Aviation VIII Limited, Ace Aviation IX Limited and Ace Aviation X Limited (“Applicants” or “Applicant”) seeking conduct of the sale process of the Air Craft which has presently been kept in abeyance pursuant to Monitoring Committee communication dated 11.11.2022. The Applicant has impleaded the Monitoring Committee of Jet Airways India Limited (Corporate Debtor) as the Respondent.

It is the case of the Applicant that Monitoring Committee commenced the process of auction and sale of the assets of the Corporate Debtor (specifically, Boeing 777-300 ER Aircraft and engine bearing MSN 35157, 35158, 35159, 35160 and 35162, collectively referred to as "Assets"), and the Applicants were declared the successful bidders in respect of some of the Assets of the Corporate Debtor and consequently letters of intent were issued to the Applicants putting in place binding arrangements between the parties. Pursuant thereto, the Applicants deposited USD 5.6 million towards the acquisition of the aircraft with the Respondents. However, the sale process in respect of the Assets was kept in abeyance, vide such decision communicated to the Applicants by letter dated 11 November 2022.

The facts of the case are summarized as below:

3.1. On 20 June 2019, the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 (the "Code") commenced in respect of Jet Airways (India) Limited vide an order  of  the  National  Company  Law  Tribunal,  Mumbai ("NCLT).  As  per  the  process  defined  under  the  Code,  a resolution plan dated 21 September 2020 ("Resolution Plan"), submitted by the consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch ("Successful Resolution Applicant") was approved by the Committee of Creditors on 17 October 2020, and such Resolution Plan came to be approved by the Hon'ble NCLT vide an order dated 22 June 2021 ("Plan Approval Order")

3.2. The Plan Approval Order, in line with the proposals under the Resolution Plan, noted that a monitoring committee would be formed for managing and supervising the implementation of the Resolution Plan ("Monitoring Committee). The approved Resolution Plan contemplated the sale of the Corporate Debtor's assets and required the Monitoring Committee to manage and supervise the process of sale.

3.3. The Plan Approval Order was appealed by various employees and employee associations, assailing the Plan Approval order on similar grounds. These appeals being Company Appeal (AT) (Insolvency) No. 752 of 2021, Company Appeal (AT) (Insolvency)  No.  643  of  2021,  Company  Appeal  (AT) (Insolvency)  No. 915 of  2021 and  Company Appeal (AT) (Insolvency) No. 771of 2022 (together the "Appeals") were heard together by the Hon'ble National Company Law Appellate Tribunal, New Delhi ("NCLAT").

3.4. In the said Appeals, the Hon'ble NCLAT passed an interim order dated 16 November 2021 noting the Successful Resolution Applicant's undertaking that it would not sell any assets of the Corporate Debtor till the Effective Date (as defined in the Resolution Plan).

3.5. The Applicants were declared the successful bidders in respect of certain aircraft bearing MSN. 35158, 35159 and 35162 ("specified assets") and executed letters of intent in respect of the Assets on 19 October, 2022. The said letters of intent puts in place binding arrangements between the parties. It is claimed by the Applicant that the terms of the Letters of Intent clearly evidenced that such letters were intended to bind both parties, including terms as to the timelines within which the sale was to be concluded (i.e. 16 December 2022), subject to further orders of the Hon'ble NCLAT vacating / modifying the restrictions on the sale and transfer of the assets of the Corporate Debtor.

3.6. By its order dated 21 October 2022, the Hon'ble NCLAT disposed off the Appeals and upheld the Plan Approval Order, subject to certain directions.

It is submitted by the Applicant that the sale of these assets was kept in abeyance for a period of 60-90 days through a communication to the Applicant on 11 November 2022. However, despite expiry of 60-90 days since then, no fresh decision has been taken to extend the period for which the sale was to be further kept in abeyance.

4.1. The assets of the Corporate Debtor for which the Applicants have placed bids have been on the ground starting November 2018 and continue to depreciate in value for the duration that they   remain   unused.   Detailed   inspections   have   been undertaken of these assets at the cost of the Applicants so as to determine the value of the bids to be placed (accounting for the investment required in rendering the assets airworthy).

4.2. It is also submitted that the monitoring committee / lenders appear to have no difficulty with going ahead with the sale, which  is  inevitable.  The  successful  resolution  applicant ("SRA") clearly has stated in its resolution plan that it does not intend to utilize the aircraft and that they would be sold per terms of the resolution plan. The averment made in the Plan reads as "The Corporate Debtor has a fleet of aircrafts. As stated in the Business Plan, the Resolution Applicant does not propose to utilize the existing  fleet  of  aircrafts  and  the  RESOLUTION  APPLICANT CONFIRMS THAT ITS PROPOSAL IS NOT DEPENDENT ON THE SALE OF AIRCRAFT ASSETS..." An expeditious sale today will only help ensure that the aircraft in the current condition still obtain the maximum value that the Corporate Debtor will receive in such a sale. The SRA, who seeks to implement the plan, cannot be heard to oppose the sale of aircraft as per the plan submitted by the SRA. The opposition by the SRA is clearly malafide.

4.3. It was also pleaded by the Applicant that the disputes, if any exist, with respect to the sale of the aircraft are in respect of priority and manner of disbursement of funds brought in through such sale. To the extent that the sale is delayed, there is an inevitable decrease in sale value and as such, the value of these disputes will also be lower.

4.4. The Bankruptcy Law Reform Committee Report, Nov 2015 in the executive summary notes the need for speed for resolution process.

“Speed is of essence Speed is of essence for the working of the bankruptcy code, for two reasons.....

From the viewpoint of creditors, a good realisation can generally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realisation is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay."

4.5. The Applicant has relied upon the decision in Ebix Singapore

(P) Ltd. v. Committee of Creditors of Educomp Solutions Limited (2022) 2 SCC 401 to contend that delays are also a cause of concern because the liquidation value depletes rapidly.

4.6. It has been submitted by the Respondents that there appears to be a deadlock in the Monitoring Committee, with the members representing lenders and the SRA differing in opinion. It is undisputed that the Monitoring Committee is responsible for the implementation of the resolution plan, including the sale of these Assets. Yet, at this juncture, the SRA is objecting to the sale instead of implementing the resolution plan. This is all the more ironic given that the sale of these assets was proposed by the SRA itself in the resolution plan.

4.7. It was finally pleaded that where the auction process will need to be conducted again, all parties will need to incur costs which have already incurred by them in the process conducted (including costs of the inspection).

The Applicant filed another IA 262/2023 seeking order restraining Tehsildar and Executive Magistrate Office of Kurla Mulund from attaching the specified assets of the Corporate Debtor and to set aside the order dated 17.01.2023 passed by their office in this connection. Since, the subject matter of this IA is connected with the specified assets, the sale of which is under consideration in IA 3747, this Bench considers it appropriate to deal this case in this order.

An Intervention Application 35/2023 is filed by the SRA i.e. Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch, seeking intervention in this application. The SRA submits that the Respondent to IA 3747 is the Monitoring Committee ("MC"/ "Monitoring Committee") of the Corporate Debtor, which comprises of seven members, with three members appointed by the Successful RA, three members appointed by the Financial Creditors having the highest share in the CoC and the erstwhile Resolution Professional of the Corporate Debtor.

6.1. The facts relevant for the adjudication of the present Intervention Application are such that, as per the resolution plan of the Successful RA ("Resolution Plan"), the Successful RA was permitted to initiate sale of certain assets of the Corporate Debtor ("Identified Assets), including the Aircrafts, after the approval of its Resolution Plan by this Hon'ble Adjudicating Authority ("Approval Date"). Further, the MC was authorised to review and analyse the letters of intent/ sale proposals tabled by the Successful RA for the sale of such assets, in terms of the Resolution Plan.

6.2. To Applicant's understanding. Ace Aviation has filed IA 3747 seeking, inter alia, a direction against the MC to conduct/ complete the sale process of certain aircrafts of the Corporate Debtor ("Aircrafts"), for which it was a bidder, in an expeditious and time bound manner in accordance with the timelines set forth in the Asset Sale Process Document (along with its accompanying addendum) ("ASPD) issued on 5 August 2022 by the MC of the Corporate Debtor.

6.3. After the Approval Date, several interested parties approached the erstwhile RP of the Corporate Debtor, expressing an interest in purchasing the Identified Assets. It may be noted that as per an undertaking of the Successful RA recorded by the Hon'ble NCLAT in order dated 16 November 2021 in Company Appeal (AT) (Ins) No. 752 of 2021, no actual sale of the assets of the Corporate Debtor was to be effected before the Effective Date under the Resolution Plan (as defined in Clause 7.6.2 of the Resolution Plan). It may further be noted that presently, proceedings are ongoing before this Hon'ble Adjudicating Authority, with respect to the dispute pertaining to reaching of the Effective Date as per the Resolution Plan.

6.4. From February 2022 to November 2022, the process of sale of the Identified Assets of the Corporate Debtor, to the extent of due diligence, inspection, submission of bids, issuance of letters of intent and intimation of decision on the requisite earnest money deposit and reserve price, was conducted by the MC. Notably, the ASPD issued to the prospective bidders provided for the right of the MC to terminate the sale process at any stage.

6.5. During the pendency of the sale process, certain material contingencies/ issues involved in the process of sale arose. In light of these contingencies and the SRA's undertaking before the Hon'ble NCLAT, the MC decided to exercise its right under the ASPD and decided to keep the sale process in abeyance. The same was communicated to the bidders of the Identified Assets vide letter dated 11 November 2022 ("Letter"). The Letter provided the bidders with an option to either withdraw their deposits, or to wait for resumption of the sale process, with an option to resume the process from where it was paused.

6.6. The intervener Applicant in INVP 35/2023 concedes that the MC Lenders are of the view that the sale process should be continued as it is, with Ace Aviation being the highest bidder for some of the Aircrafts (in respect of which Ace Aviation was issued letters of intent). However, the Successful RA is of the view that keeping in mind the myriad contingencies and issues, the ongoing sale process should be scrapped, the deposits made by all the bidders without any exception should be refunded, and the process of sale of assets of the Corporate Debtor should be started afresh only after the dispute around the Effective Date between the SRA and MC Lenders is reconciled.

6.7. In light of the above, there is a difference of opinion amongst the MC members and as a result there is no unanimous conclusion about the sale process of the Identified Assets including the Aircrafts. It may be noted that that IA 3747 directly affects the business and modus operandi of the Successful RA.

We heard the Learned Counsels and perused the materials available on records.

7.1. We find that letter dated 11.11.2022 had communicated to the Applicant that the monitoring committee has decided to keep the sale process in abeyance until further notice, and informed the Applicant that they can either seek refund or if they do not seek refund they may continue with the process from the present state/status, as and when the process is resumed. After consideration of the material, we find that the MC comprising three nominees of SRA and three nominees of the CoC is equally divided on the resumption of the process from the point it was left earlier. In view of this, we feel that the terms of ASPD may indicate the terms on which initial bids were called.

7.2. On perusal of ASPD version 1.4 dated 05.08.2022, it is noted that it sets out terms for sale process of three aircrafts bearing MSN  No.  35158,  35159,  and  35162.  The  sale  was  to  be concluded either under Swiss E Auction or Standard E Auction and the base bidder was to be declared by 26.09.2022 and bid of the base bidder was to be communicated to the other bidders by 3rd October and the whole process was to conclude by 17.10.2022. Thereafter, the declaration of successful bidder was to be made, and within five days therefrom LOI was to be accepted and the money was to be deposited in Escrow Account within 15 days from the declaration as successful bidder. The sale and purchase agreement were to be executed within two days from the date of completed back to birth documents, and verification of back to birth documents was to be completed within one month in Escrow Account.

7.3. We find that LOI was issued on 12.10.2022 which was accepted by the Applicant unconditionally on 19.10.2022. Pursuant thereto applicant deposited USD 4,600,000 as total of Earnest Money Deposit (EMD) alongwith Token Money Deposit. There is no dispute that money was deposited in the Escrow Account within the stipulated time lines and process came to be halted on account of decision of the MC communicated vide email dated 11.11.2022. We find that clause 5 of the LOI states that “It is contemplated under the approved Resolution Plan that post the Closing Date, the Board of Directors of the Company shall be reconstituted, and the MC will be dissolved. Therefore, if the sale is not consummated until the Closing Date (as defined in the approved Resolution Plan) then the reconstituted board of the Company and the Company shall be bound by this Letter of Intent and all references to the MC herein shall be construed to refer to the assets sales committee (as defined in the Resolution Plan).” Clause 8 further provides that “Your attention is drawn to footnote 2 of the ASPM pertaining to the order of the National Company Law Appellate Tribunal in the matter of Jet Aircraft Maintenance Engineers Welfare Association vs RP of Jet Airways (India) Limited (Company Appeal (AT) (Ins) No.752 of 2021) dated 16th November 2021 ("NCLAT Order"). Accordingly, the sale/ transfer of the Assets or any legal right and/ or beneficial Interest therein shall only be effective once the NCLAT Order is modified or vacated or the Company Appeal (AT) (Ins) No.752 of 2021 has been disposed-off, in such a manner which permits the Company (either via the MC or the reconstituted board) to sell, dispose-off, alienate, transfer the Assets or any legal right or beneficial interest therein in accordance with the approved Resolution Plan.”

7.4. We find from the clause 5 of the LOI that the sale in respect of aircrafts bearing MSN No. 35158, 35159, and 35162 can be set to have concluded in view of performance of the obligations on the part of the Applicant and the payment of balance sale consideration becomes due and verification of back to birth documents which came to be halted on account of communication dated 11.11.2022. We do not find any substance in the plea of SRA for re-bidding in so far as these three aircrafts are concerned, considering that MC which had issued LOI to the Applicant comprised of three nominees of the SRA also. Accordingly, we direct MC to resume the process from the point it got halted and conclude the execution of sale agreement in relation to aircrafts bearing MSN No. 35158, 35159, and 35162 and realisation of remaining proceeds.

7.5. As regards other two aircrafts bearing MSN No. 35157 & 35160 wherein the LOI has so far not been issued and the process, which was to conclude after 25.11.2022 as per ASPD version 6.0, came to halt on 11.11.2022 in the middle on account of MC decision, we direct the MC to reinitiate the process and conclude the sale of the aircrafts after taking into consideration the applicant as one of the eligible bidder.

An Application IA 883/2023 has been filed by All India Jet Airway Officers and Staff Association impleading the Resolution Professional as a Respondent. The Applicant therein has sought the stay/alienation of the aircrafts to Applicant in IA 3747/2022, besides seeking affidavit on calculation of provident fund and gratuity dues and payment of wages from the Resolution Professional. We feel that the proceeds of the sale of aircrafts is to be deposited in the Escrow Account and dealt with in accordance with the approved Resolution Plan, which considers the claim of workman/staff, including gratuity and PF dues, in accordance with the law, accordingly, we do not find merit in the prayer for stay of sale and alienation of assets of the Corporate Debtor in the manner set out in the approved Resolution Plan. However, we direct the Resolution Applicant to ensure that the provident fund and gratuity dues of workman and employee in accordance with the judgment of Hon’ble NCLAT dated 21.10.2022, as modified by the Hon’ble Superior Court, if any. Further, the unpaid wages shall also be dealt accordingly.

The IA No. 883/2023 is partly allowed. The INVP No. 35/2023 is dismissed for the reasons stated in the above paras.

Since, the claims of the workmen and employees have been admitted in the Plan and are required to be dealt with and settled in accordance with the approved plan, and no action lie against the property of the Corporate Debtor where such property is covered under Resolution Plan approved by the AA u/s 31 of the Code as provided in Section 32A of the Code, we are of the considered view that no order of attachment from any authority survives in so far as such order mandates attachment of the assets of the Corporate Debtor forming part of the approved Resolution Plan. Accordingly, we direct Tehsildar and Executive Magistrate Office of Kurla Mulund, to withdraw order dated 17.01.2023 and issue appropriate order so as to de attach the assets of the Corporate Debtor. With the aforesaid directions, IA 262/2023 is allowed.

IA 3747/2022 is allowed in terms of aforesaid directions.