Go First insolvency: NCLT seeks suspended management’s view on liquidation plea

New Delhi: The National Company Law Tribunal (NCLT) on Tuesday sought a response from the suspended management of bankrupt airline Go First regarding the liquidation plea filed by the resolution professional.

The NCLT has not yet issued an order on the liquidation plea and issued a notice to the management seeking their response. The case will be next heard on 4 October.

During the hearing, senior advocate Ritin Rai, representing resolution professional (RP) Shailendra Ajmera, informed the court that the decision to liquidate the company was unanimously passed by the Committee of Creditors (CoC), which includes the Central Bank of India, Bank of Baroda, and IDBI Bank, after bids from prospective resolution applicants were below expectations.

Rai also informed the tribunal that the company is engaged in ongoing arbitration proceedings in Singapore against US-based engine maker Pratt & Whitney (P&W). Go First is seeking $1 billion from P&W, which, if awarded, will be used to distribute funds to the creditors and facilitate the liquidation process.

However, the NCLT asked the RP about the course of action if the arbitration case fails. The tribunal also asked the RP to clarify how and where the funds from the arbitration case would be distributed among all parties involved.

“Suppose you get $100 million, where will that money go, and who will get it?” the tribunal remarked.

The resolution professional said the lenders had already spent about ₹200 crore to fund litigation since the company filed for insolvency, and were unwilling to release additional funds for further litigation in the Singapore arbitration case. 

Consequently, the lenders have hired a US-based litigation finance firm, Burford Capital, to finance the arbitration. Burford will provide $20 million in the first tranche to support the case.

The tribunal expressed reservations about third-party funding, stating that it has not been permitted in India thus far and, prima facie, such funding cannot be allowed.

The RP's senior counsel argued that third-party funding should be permissible and that he would provide evidence to the court, citing a Supreme Court judgment on the matter.

Litigation finance is a well-established practice in countries like Australia, the UK, and the US. In these regions, financiers cover the legal fees and costs associated with commercial lawsuits, arbitration, or shareholder disputes in exchange for a portion of the settlement or award from a successful case. However, in India, this concept is still relatively unfamiliar, with only a handful of cases reported so far.

₹6,200 crore owed to creditors

This follows a plea for liquidation filed by the resolution professional after the airline had no assets. The Delhi high court had earlier ordered the deregistration of all 54 aircraft leased by Go First. The airline had also exhausted all moratorium limits under the Insolvency and Bankruptcy Code (IBC).

On 12 June, the NCLT granted Go First a final 60-day extension to complete its corporate insolvency resolution process (CIRP). The extension ended on 3 August, with the airline failing to make significant progress.

During the moratorium period, Go First struggled to advance negotiations with potential bidders. Proposals from a consortium led by EaseMyTrip CEO Nishant Pitti and SpiceJet chairman Ajay Singh, as well as a bid from Sharjah-based Sky One Aviation, did not meet expectations. On May 25, more than three months after initially bidding for Go First, EaseMyTrip CEO Nishant Pitti withdrew his bid.

Despite the end of the insolvency process, media reports indicate that lenders were hopeful for a better recovery through ongoing arbitration proceedings in Singapore against US-based engine maker Pratt & Whitney (P&W). 

Banks led by the Central Bank of India have sought over $1 billion from P&W, accusing it of supplying faulty engines that were not replaced on time. This issue led to the grounding of half the airline's fleet and contributed to its bankruptcy.

According to reports, banks are pursuing recovery from land collateral separately, as it was pledged with them. Additionally, some residual assets of the airline, such as plane parts and machinery, could provide some recovery for lenders in the near future. 

Go First owes creditors approximately ₹6,200 crore, with Central Bank of India, Bank of Baroda, and IDBI Bank holding admitted claims of ₹1,934 crore, ₹1,744 crore, and ₹75 crore, respectively.

The airline has been grounded since 3 May, 2023, after its former promoter, the Wadia Group, filed for voluntary bankruptcy, citing prolonged delays in obtaining aircraft engines from P&W. 

Voluntary insolvency

NCLT accepted the airline's plea for voluntary insolvency on 10 May, 2023, initiating the moratorium period. Concerns about the moratorium impeding lessors’ ability to repossess aircraft led several lessors, including Pembroke Aircraft Leasing 11 Ltd and SMBC Aviation Capital Ltd, to approach the Delhi high court in May last year, seeking deregistration of the aircraft to facilitate retrieval.

A government notification on 3 October declared that the provision of Section 14(1) of the Insolvency and Bankruptcy Code, which imposes a moratorium upon the admission of an insolvency plea, would not apply to transactions, arrangements, or agreements related to aircraft, aircraft engines, airframes, and helicopters. This notification bolstered the lessors' case against the airline.

Also Read | The Go First case: India's insolvency court needs an understanding of aviation

In April, the high court ordered the Directorate General of Civil Aviation (DGCA) to deregister and return all 54 Go First planes to their lessors. It also directed the resolution professional to provide all necessary information to the lessors while restraining the airline from removing any documents or spare parts from the aircraft. 

With no planes left, the airline's remaining value has been effectively extinguished, forcing Go First to pursue liquidation as a last resort to settle its debts.

Also Read | Reviving Go First won’t be easy. Here’s why