2023 (5) TMI 900 - AT - Insolvency and Bankruptcy

Tribunal upholds Section 10 Application, no notice to creditors pre-admission, defers lease asset decisions

SMBC Aviation Capital Ltd. Versus Interim Resolution Professional of Go Airlines (India) Ltd., Abhilash Lal, SFV Aircraft Holdings IRE 9 DAC Versus Interim Resolution Professional of Go Airlines (India) Ltd., Abhilash Lal, GY Aviation Lease 1731 Co. Ltd. & Ors. Versus Interim Resolution Professional of Go Airlines (India) Ltd., Abhilash Lal And Engine Leasing Finance B.V. Versus Interim Resolution Professional of Go Airlines (India) Ltd., Abhilash Lal & Anr.

The Tribunal upheld the order admitting the Section 10 Application, finding no violation of natural justice in not issuing notice to creditors ... Initiation of CIRP - Admission of application u/s 10 - issuance of notice to the creditors to give a hearing or opportunity of hearing to the creditors before admission of Section 10 Application - opportunity to the creditor to file Section 65 Application (if section 10 application filed with fraudulent intent) - termination of Lease Agreement in favour of the Corporate Applicant prior to admission of Section 10 Application - effect of moratorium to assets, which were earlier leased by the Lessor to the Corporate Applicant - entitlement to claim possession of the aircrafts and export the aircrafts as per the Lease Agreement on termination of lease agreement. 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? - HELD THAT:- The present is a case where Application under Section 10 was filed on 02.05.2022 and on 04.05.2022 it came for hearing. The learned Counsel for the Appellant had appeared and was head by the Adjudicating Authority. The Adjudicating Authority however took a view that it was open for the objector to file an Application under Section 65 even after admission of Section 10 Application. Since the statutory Scheme does not contain any obligation of issuing notice to the creditors by the 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 - 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. 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? - HELD THAT:- here was sufficient material before the Adjudicating Authority to come to the conclusion that Application under Section 10 filed by the Corporate Applicant was fraudulent and with malicious intent. The Adjudicating Authority in its impugned order has captured the particulars of financial debt and operational debt - It is not the case of the Appellant that Corporate Applicant has not defaulted any payment of lease rentals to the Appellant(s). Non-payment of lease rentals is admitted fact and has been made basis of cancellation of Lease Agreement by the Lessors, which took place immediately after presentation of the Application under Section 10 on 02.05.2023. 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 - 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. 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? - 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? - HELD THAT:- These Appeal(s) have been filed against the order admitting Application under Section 10 and the issues which are sought to be raised in this Appeal have not yet been considered by the Adjudicating Authority. When the Adjudicating Authority has not adverted to the aforesaid issues, where the CIRP is pending, the ends of justice will be served by granting liberty to the Appellant(s) or to the IRP to make appropriate Application before the Adjudicating Authority under Section 60, sub-section (5) of the Code. In event any such Application is filed under Section 60, sub-section (5), the Adjudicating Authority shall take appropriate decision in accordance with law - the issues, which have been raised and noted in this paragraph need no consideration at this stage. The order dated 10.05.2023 admitting Section 10 Application is upheld - appeal disposed off. Legal Judgment SummaryIssues Involved:1. Necessity of issuing notice to creditors in a Section 10 Application.2. Requirement to decide objections alleging fraudulent and malicious intent before admitting a Section 10 Application.3. Applicability of moratorium on assets leased to the Corporate Applicant after lease termination.4. Entitlement of lessors to claim possession and export aircrafts post-lease termination.Issue 1: Notice to Creditors in Section 10 ApplicationThe statutory scheme under the Insolvency and Bankruptcy Code (IBC) does not mandate issuing notice to creditors before admitting a Section 10 Application. The Tribunal noted that the Code and related rules do not require creditors to be heard at the pre-admission stage, and the Adjudicating Authority has discretion to decide on a case-to-case basis. The Tribunal concluded that the absence of notice or opportunity to creditors does not violate principles of natural justice, especially when objectors were heard.Issue 2: Objections Alleging Fraudulent and Malicious IntentThe Tribunal emphasized that if objections alleging fraudulent and malicious intent are raised, the Adjudicating Authority can consider them even after admitting a Section 10 Application. The Tribunal cited precedents where it was held that Section 65 Applications (alleging fraudulent intent) can be decided post-admission. The Tribunal found no sufficient material before the Adjudicating Authority to conclude that the Section 10 Application was fraudulent or malicious. However, it granted liberty to the appellants to file a Section 65 Application with appropriate pleadings and materials.Issue 3: Applicability of Moratorium on Leased AssetsThe Tribunal did not decide on the applicability of the moratorium under Section 14(1)(d) on assets leased to the Corporate Applicant, as the issue was not considered by the Adjudicating Authority. The Tribunal granted liberty to the appellants and the Interim Resolution Professional (IRP) to make appropriate applications before the Adjudicating Authority under Section 60(5) of the Code for a decision on this matter.Issue 4: Entitlement to Claim Possession and Export AircraftsThe Tribunal deferred the decision on whether lessors are entitled to claim possession and export aircrafts post-lease termination, as this issue was also not considered by the Adjudicating Authority. The Tribunal granted liberty to the parties to make appropriate applications under Section 60(5) for the Adjudicating Authority to decide.Conclusion:1. The order admitting the Section 10 Application is upheld.2. Appellants can file a Section 65 Application, and the Adjudicating Authority should consider it without being influenced by this order.3. Appellants and IRP may apply to the Adjudicating Authority regarding the applicability of the moratorium on leased assets.4. Appellants and IRP may also apply under Section 60(5) concerning possession and other claims related to the aircrafts.Costs:Parties shall bear their own costs.