Opinion
Jet Airways’ liquidation wasn’t the ideal way out of insolvency
Summary
- The prolonged turbulence of its failing revival exposed troubling flaws in how cases are resolved under India’s Insolvency and Bankruptcy Code (IBC), as the Supreme Court noted, but ‘complete justice’ isn’t served by the duopoly market for aviation that the country has flown into.
The Supreme Court (SC) last week finally brought down the guillotine on Jet Airways, thereby putting a hard stop to a painfully prolonged insolvency resolution process that had kept the ailing airline on artificial respiratory support.
Jet Airways was a child of economic liberalization in the early-90s that had opened India’s aviation skies to private operators. The industry, as expected in any sector during its initial brush with competition, underwent a churn, and many airlines—East-West, Modiluft, Damania, among others—bit the dust.
Jet Airways, however, survived with overseas equity infusion, astute fleet expansion, premium service standards and a dash of political patronage that earned it lucrative overseas landing slots.
However, this failed to insulate the airline from competition mounted by new low-cost airlines, which, combined with escalating fuel costs in 2018, forced Jet to renege on its debt repayment commitments and grounded the airline in 2019.
Also read: Mint Quick Edit Jet Airways’ failed take-off: An IBC let-down
An attempt by an overseas consortium to revive the air carrier proved abortive, with gaping differences between Jet’s creditors led by State Bank of India and its would-be acquirer. The apex court’s order shines a light on India’s flawed bankruptcy process and, unwittingly, on its own constricted view of the fraught issue.
The SC judgement, apart from ordering the summary liquidation of Jet Airways, also came down hard on the flawed insolvency process and reprised its exasperation with continuing delays in resolution as well as an evident lack of capacity and domain knowledge displayed by the National Company Law Tribunal and the appellate tribunal.
The SC bench hearing this case, which included Chief Justice D.Y. Chandrachud, found that the appellate tribunal was perhaps too lenient in granting numerous extensions to the acquirer consortium, which kept dragging its feet in making payments as per an agreed schedule, instead of invoking the penal provisions of the insolvency code.
The apex court ruling is explicit in stating that the code in its current form affords too much latitude for interpretation, and by implication suggests that, when combined with a capacity deficit, leads invariably to suboptimal outcomes.
As the bench views it, the code needs amendments to codify processes while allowing enough flexibility to customize resolution plans for the state of stressed assets.
On the flip side, it is hoped that the apex court will also use the opportunity for some introspection. The bench, in ordering liquidation, invoked Article 142 of the Constitution, which grants the SC inherent and broad powers to achieve “complete justice."
Also read: Jet Airways liquidation: A wake-up call for India’s insolvency code
An aerial view of the case raises the question of whether this has actually been achieved. The liquidation of the airline will, as an unintentional consequence, strengthen the aviation oligopoly that currently holds air travellers hostage to seemingly random and unexplained fare hikes.
The bench, in its defence, may have been constrained by the appellants’ plea on Jet Airways. It is relevant to note here that the top court can—and does on occasion—take a broader interpretation of the issues at hand.
Take the example of the nine-judge constitutional bench which re-interpreted Article 39(b) of the Constitution (with dissents), reversing a historical and expansive view of its provisions.
The apex court must recognize that the phrase “complete justice" empowers it with moral responsibilities unbounded by exact details of the case history.
