Four questions of law addressed by NCLAT in Go Air order

In upholding the 10th May 2023 order of the New Delhi bench of the NCLT, allowing admission of insolvency petition filed by Go Air under Section 10 of the IBC, the National Company Law Appellate Tribunal (NCLAT) addressed four important questions pertaining to the statute of IBC.

Whether in a Section 10 Application filed by a Corporate Applicant, it is necessary to issue notice to the creditors to give a hearing or opportunity of hearing to the creditors before admission of Section 10 Application?

NCLAT observation: Since the statutory Scheme does not contain any obligation of issuing notice to the creditors by the Section 10 Corporate Applicant, any objector appearing at the time of hearing has to be heard and the objection may be noted by the Adjudicating Authority and thereafter the appropriate decision can be taken. We, thus, conclude that the mere fact that no notice was issued to the creditors or any opportunity was given to the objectors before proceeding to hear, the Corporate Applicant, cannot be held to vitiate any procedure or violating the principles of natural justice, more so when objectors were heard by the Adjudicating Authority.

(2) Whether at the time of hearing of Section 10 Application, if some of the creditors appear and object admission of Section 10 Application alleging that Application has been filed fraudulently with malicious intent, Adjudicating Authority is required to first give opportunity to the creditor to file Section 65 Application and decide the said Application before proceeding to admit Section 10 Application?

NCLAT observation: Adjudicating Authority has given liberty to the Appellant to file an application under Section 65. It is open for the Appellant to file Section 65 Application with appropriate pleadings and materials and in the event of such Application has been filed, the Adjudicating Authority shall consider the Application in accordance with law without being influenced by any observations made in this order.

The NCLAT, however, noted: “On the strength of the oral objections which were raised before the Adjudicating Authority on behalf of the Appellant as well as other, which has also been raised in this Appeal, no conclusion can be derived at this stage that Application filed by the Corporate Applicant was fraudulent with malicious intent.”

(3) Whether Lessors having terminated Lease Agreement in favour of the Corporate Applicant prior to admission of Section 10 Application, the moratorium as directed by order dated 10 May, 2023 cannot be said to be applicable to the assets, which were earlier leased by the Lessor to the Corporate Applicant?

NCLAT Observation: The Appellant(s) as well as IRP are at liberty to make appropriate Application before the Adjudicating Authority for declaration with regard to applicability of the moratorium on the aircrafts with regard to which Leases in favour of the Corporate Applicant were terminated prior to admission of Section 10 Application, which Application need to be considered and decided by the Adjudicating Authority in accordance with law.

(4) Whether the Appellant having terminated the Lease Agreement in favour of the Corporate Applicant prior to admission, is entitled to claim possession of the aircrafts and export the aircrafts as per the Lease Agreement?

NCLAT Observation: The Appellant(s) and the IRP are also at liberty to make an appropriate Application under Section 60, sub-section (5) with regard to claim of possession and other respective claims of both the parties relating to the aircrafts in question, which need to be decided by the Adjudicating Authority in accordance with law.

Brief of the case

Appellants in the case — SMBC Aviation Capital Ltd, SFV Aircraft Holdings IRE 9 DAC and GY Aviation Lease 1731 Co. Ltd. & Ors – had leased air planes to Go Air, and they had moved the appellate tribunal against the initiation of corporate insolvency resolution process against Go Air.

The appellants had submitted that Go Air committed default in payment of lease rentals. The appellant’s case is that as per the provisions of lease agreement, once the event of default occurred, each Lessor was entitled to enforce all its rights under the Convention on International Interests in Mobile Equipment.

It also submitted that Go Air had executed the Irrevocable Deregistration and Export Request Authorization (IDERA) in favour of authorized party listed therein, which authorized party the exclusive right to effect deregistration of the aircraft and its export from India. Therefore, once Go Air filed for insolvency, the lessors under the applicable IDERA applied for deregistration of the aircraft in accordance with the Aircraft Rules.

The Appellant opposed the Application on the ground that such admission had not to be allowed without giving an opportunity to the appellants to place its objections on record and to file an Application under Section 65 of the Code. It is the case of the Appellant that the Adjudicating Authority in complete violation of the natural justice has passed the impugned order.

Also read: NCLT admits Go First insolvency application; gets protection against recovery from lessors