NCLAT order fuels Go First’s hopes of returning to skies

The airline plans to restart operations next month but has not made any official request to the authorities yet. (REUTERS)
The airline plans to restart operations next month but has not made any official request to the authorities yet. (REUTERS)

Summary

  • The appeals court upheld the NCLT order

NEW DELHI : An appeals court on Monday upheld the National Company Law Tribunal’s (NCLT) court order preventing Go Airlines (India) Ltd’s aircraft from being repossessed by lessors amid insolvency proceedings, significantly enhancing the prospects of the grounded Go First returning to the skies.

The National Company Law Appellate Tribunal (NCLAT) order will help Go First restart operations with these planes. An adverse order would have led to lessors taking back these aircraft, impacting plans to resume operations. The airline plans to restart operations next month but has not made any official request to the authorities yet.

“The airline is considering resuming operations on a small scale by next month, but there has been no official communication so far to the government on the same. The employees are yet to be paid the pending dues, but a large part of staff continues to take the exit path and look for other opportunities," a person aware of the development said.

The ruling came in response to appeals filed by four aircraft lessors of Go Airlines. The appeals were filed by SMBC Aviation Capital, SFV Aircraft Holdings, GY Aviation and Engine Leasing Finance against the NCLT order that restrained them from repossessing aircraft leased to Go Airlines.

A bench led by Justices Ashok Bhushan and Barun Mitra, however, granted the lessors and the resolution professional the right to approach NCLT to get clarity about the aircraft and how their possession would be affected due to the moratorium. “The appellant (lessors) and the interim resolution professional (IRP) are at liberty to make an appropriate application under Section 60, sub-section (5) with regard to claims of possession and other respective claims of both the parties relating to the aircraft in question, which needs to be decided by the Adjudicating Authority in accordance with law," the court said. The court clarified that NCLT should not be influenced by any observations made in the order. 

“This is not likely to bode well for the Indian aviation industry. Lessors are expected to demand as much as a 25% premium in lease rentals for Indian airlines. Some lessors almost feel cheated as they trusted the airline when it sought more time to make pending payments and did not see this coming," an industry official said.

Ramji Srinivasan, a senior counsel representing the resolution professional, argued that the moratorium had been imposed under Section 14, by which the appellant (lessors) is prohibited from recovering the assets. Hence, the lessors cannot recover any property which is in possession of the airline.

On the other hand, lawyer Arun Kathpalia, appearing for the lessors, argued that leases having been terminated by the appellant(s) before admission of Section 10 Application, the aircraft are no longer the assets of the corporate debtor, nor the said assets can be taken possession by the interim resolution professional (IRP) and under the terms of the lease agreements, appellants are entitled to the possession and exporting of the said aircraft.

He argued that since the corporate debtor does not possess ownership rights over the aircraft, the IRP cannot take possession of them. Consequently, as per the statute, if the IRP lacks the authority to take possession, the lessors are entitled to take possession and export the aircraft. “Considering the order of NCLAT, the major brunt would be faced by the lessors as they cannot reclaim the possession of the leased aircraft," said Yogendra Aldak, partner, Lakshmikumaran & Sridharan Attorneys.

Aldak added that while it is certain that lessors cannot claim possession of the leased aircraft considering the moratorium, the fate of their rental claims is dependent on the issue of eligibility of lease rent being ‘operational debt’, which is pending before the Supreme Court. “In our view, the resolution professional cannot hold assets which do not have ownership rights with the corporate debtor. Even as NCLAT, in its judgement, rejected the prayer of the lessors, they can approach the Supreme Court for further appeal. NCLT asked the resolution professional to maintain the going concern, and obviously, it will be the deciding factor as to how quickly Go First can resume operations. Resolution professionals must communicate to the lessor in this regard," said Anindya Mazumdar, a partner at law firm Singhania & Co.

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