Jet Airways: The Final Descent Into Liquidation

Introduction

The liquidation of Jet Airways (India) Limited, once India’s premier private airline, signals the culmination of a protracted and challenging insolvency process under the Insolvency and Bankruptcy Code, 2016 (IBC). The Supreme Court of India, in its judgment on November 7, 2024, ordered the liquidation after a five-year-long battle that highlighted systemic issues in the insolvency framework. The decision underscores the critical importance of timely resolutions, transparency, and accountability in the insolvency process to avoid value erosion.

A Prolonged Insolvency Journey

Jet Airways, grounded since April 2019, entered the Corporate Insolvency Resolution Process (CIRP) on June 20, 2019, after failing to meet its financial obligations. Initiated by its largest creditor, State Bank of India (SBI), the CIRP attracted bids to revive the airline. The Jalan-Kalrock Consortium (JKC) emerged as the successful resolution applicant (SRA), with its resolution plan approved by the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT) in June 2021.

The plan envisioned a revival of the airline, contingent upon the fulfillment of strict Conditions Precedent (CPs) within 90 days of the approval date, extendable by another 180 days. JKC committed to infusing ₹350 crores as the first tranche payment and submitted a Performance Bank Guarantee (PBG) of ₹150 crores as security under Regulation 36B(4A) of the 2016 CIRP Regulations. However, delays in meeting obligations, coupled with disputes over the fulfillment of CPs, stalled the implementation of the plan. Despite repeated extensions granted by the NCLT, National Company Law Appellate Tribunal (NCLAT), and even the Supreme Court, JKC failed to deliver on its commitments, ultimately leading to the liquidation order.

Supreme Court’s Observations and Key Rulings

In its judgment authored by Justice Pardiwala, the Supreme Court addressed crucial legal and procedural issues surrounding the insolvency process of Jet Airways. The court highlighted that the Jalan-Kalrock Consortium (JKC) failed to fulfill essential Conditions Precedent (CPs) critical to operationalizing the airline. Although the NCLT and NCLAT accepted JKC’s argument that these conditions were substantially met, the Supreme Court found otherwise. It noted that several CPs were impossible to fulfill without the airline resuming operations and criticized JKC’s repeated delays and non-compliance, reflecting mala fide intentions to evade its obligations. The court also examined JKC’s attempt to adjust the Performance Bank Guarantee (PBG) against its payment obligations, ruling that Regulation 36B(4A) mandates the PBG to remain intact as security until the full execution of the resolution plan. This breach of trust further highlighted JKC’s failure to adhere to the plan’s terms.

The court emphasized the IBC’s core objective of timely resolution, underscoring how prolonged delays undermine the framework and lead to significant value erosion. In this case, over five years of delays necessitated liquidation to preserve whatever residual value remained. While the IBC treats liquidation as a last resort, the Supreme Court invoked its extraordinary powers under Article 142 of the Constitution to order liquidation, balancing justice with the systemic need for efficient resolution.

Impact on Creditors and Recovery Prospects

The liquidation of Jet Airways offers creditors a chance to recover approximately ₹1,000 crores through the sale of its assets. These include prime real estate, such as a 15,000 square meter property in Mumbai’s Bandra Kurla Complex valued at ₹683 crores, an aircraft fleet comprising 11 planes, and international properties, including trade receivables and a Boeing 777 aircraft in Amsterdam. The process, overseen by an NCLT-appointed liquidator, will involve asset valuation and sales. However, delays in initiating liquidation could adversely affect recovery prospects, further complicating the already prolonged insolvency process.

Supreme Court’s Recommendations for Reform

The Jet Airways case shed light on systemic shortcomings in India’s insolvency framework, prompting the Supreme Court to suggest reforms aimed at increasing efficiency and accountability. The court emphasized the need for greater transparency in the decision-making process of the Committee of Creditors (CoC), suggesting that reasons for approving or rejecting resolution plans should be documented to reduce disputes and enhance judicial review. It recommended establishing an oversight committee to monitor adherence to IBBI guidelines, ensuring best practices are followed during insolvency resolutions.

The Supreme Court also reiterated the importance of adhering to statutory timelines for insolvency proceedings to avoid value erosion. It called on NCLTs to specify clear steps for implementing resolution plans and hold stakeholders accountable for delays. Further, the court highlighted the urgent need to enhance the capacity of the NCLTs by appointing additional members and improving infrastructure to address the backlog of cases effectively.

Lessons for Stakeholders

The liquidation of Jet Airways serves as a cautionary tale, offering valuable lessons for all stakeholders in the insolvency process. First, resolution plans must be precise and devoid of ambiguities to prevent disputes and delays. Timely implementation is essential for preserving asset value and achieving the objectives of the IBC. Stakeholders must recognize liquidation as a viable option when revival efforts fail, rather than delaying the process and exacerbating value erosion. Lastly, collaboration among creditors, resolution professionals, and adjudicating authorities is crucial for ensuring effective and efficient resolutions. These lessons underscore the importance of collective responsibility in achieving the IBC’s overarching goal of balancing recovery with systemic efficiency.

Conclusion: A New Direction for Insolvency in India

The liquidation of Jet Airways marks the end of a storied legacy in Indian aviation and underscores the challenges within the insolvency framework. The Supreme Court’s judgment reinforces the importance of time-bound resolutions, transparency, and accountability to achieve the IBC’s objectives of value maximization and recovery.

As India seeks to strengthen its insolvency ecosystem and attract foreign investment, the lessons from Jet Airways’ insolvency journey must drive systemic reforms. Only through collaboration, adherence to timelines, and commitment to fairness can the IBC fulfill its potential as a transformative tool for corporate recovery and resolution.