The Supreme Court's November 7 ruling to liquidate Jet Airways definitively ended a saga that once held the promise of reviving a pioneering Indian airline, which had been grounded since 2019 due to overwhelming debt. The judgment underscores the complexities and stringent requirements of corporate recovery in India’s aviation sector, where regulatory hurdles, high financial demands, and evolving legal frameworks have challenged several attempted comebacks.
Jet Airways, which was once India's largest private airline, ceased operations amid financial turmoil, leaving lenders, employees, and investors in limbo. The ruling came after the Jalan Kalrock Consortium (JKC), which won the bid for Jet in 2021, repeatedly failed to fulfill key obligations outlined in the approved resolution plan. Among these commitments were a Rs 350 crore infusion into the airline and Rs 226 crore in unpaid employee salaries. The Supreme Court found these unmet commitments critical enough to disqualify JKC’s ownership claim, reinforcing the importance of financial compliance in insolvency resolutions.Â
Justice Pardiwala’s remarks highlighted the need for greater stringency in India's corporate insolvency process, specifically under the Insolvency and Bankruptcy Code (IBC). He noted that this protracted litigation served as a cautionary tale, exposing weaknesses within the system that allowed the consortium to stretch the limits of the resolution plan without completing its obligations. "This litigation is an eye-opener and has taught us many lessons about the IBC and the functioning of NCLAT," Justice Pardiwala observed, calling for more stringent guidelines to prevent similar situations in the future. The court criticized an earlier National Company Law Appellate Tribunal (NCLAT) decision, which had allowed JKC to count a Performance Bank Guarantee (PBG) of Rs 150 crore against its financial obligations, viewing this interpretation as inconsistent with the IBC’s core principles. The judgment underscored that PBGs are intended as financial protections for creditors, not as replacements for mandatory payments.
With five years having passed since Jet’s operations ceased and no significant progress toward revival, the Supreme Court instructed the National Company Law Tribunal (NCLT) in Mumbai to oversee the immediate liquidation of the airline. This ruling directed that a liquidator be appointed to manage Jet’s assets and liabilities, including facilitating the sale of any remaining assets. As a result, the Rs 200 crore that JKC had invested to date will be forfeited, and lenders led by the State Bank of India (SBI) are now authorized to invoke the Rs 150 crore PBG to partially offset their losses.
Lenders, represented by SBI, had appealed to the Supreme Court on grounds that JKC had not upheld core aspects of its resolution plan, particularly regarding financial commitments and regulatory compliance. Their concerns were exacerbated by JKC’s failure to secure essential operational permits, including an air operator certificate and necessary security clearances. In its defense, JKC pointed to alleged delays by lenders and regulatory challenges, but the court found these arguments unconvincing, emphasizing that compliance with the resolution plan’s financial terms was non-negotiable.
This ruling not only signifies the end of Jet Airways’ revival efforts but also underscores a clear shift in the judiciary’s approach to insolvency cases, highlighting the need for absolute adherence to the IBC. The court’s emphasis on accountability signals a stern warning to future bidders: financial and regulatory compliance are essential in insolvency resolutions, and non-compliance will not be tolerated.
Jet Airways’ liquidation follows the recent liquidation of GoFirst, making it the second major Indian airline to wind down under the IBC framework. This trend sheds light on the broader difficulties faced by India’s aviation industry, which operates within a complex regulatory environment and requires significant capital infusion to maintain viability. Justice Pardiwala’s ruling highlights the need for transparency and regulatory rigor, not only to protect the interests of creditors and employees but to foster stability and confidence within the aviation sector.
The decision also raises questions about the future of airline restructurings in India. Aviation experts point out that airlines, given their capital-intensive nature, demand clear and flexible frameworks that accommodate industry-specific challenges, such as fluctuating fuel prices, currency exchange rates, and regulatory requirements. India's aviation market, which has seen robust growth, still grapples with thin profit margins and intense competition, making it especially vulnerable to financial missteps.
The Supreme Court’s ruling could signal an era of heightened judicial scrutiny over the IBC, where courts may increasingly hold bidders accountable for meeting their financial promises and timelines. Experts believe that this judicial stance could discourage casual or undercapitalized bids in high-stakes sectors like aviation. Moreover, the Supreme Court’s directive for immediate liquidation may push potential investors and stakeholders to act more prudently, ensuring they have the resources and commitment to adhere to insolvency resolutions fully.
In the end, the court’s decision not only closes the chapter on Jet Airways but also serves as a potential turning point for the aviation industry and corporate restructuring in India. The focus on rigorous adherence to the IBC could pave the way for a more predictable and secure environment for lenders, employees, and investors alike, with stricter standards that discourage inadequate financial backing in future insolvency cases. As India seeks to strengthen its aviation industry, this landmark ruling may set the foundation for more resilient and transparent corporate practices, particularly in sectors prone to financial volatility.
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