SC modifies NCLAT order on Rs 150 crore Performance Bank Guarantee adjustment disallowing substitution for resolution plan infusion

The SC modified the NCLAT order dated 28 August 2023, disallowing the adjustment of Rs 150 crores against the Performance Bank Guarantee (PBG) at the interlocutory stage. The Court held that infusion of Rs 350 crores as per the resolution plan could not be substituted with PBG adjustment, emphasizing that the third tranche must be paid in the same manner as previous tranches. The matter of PBG adjustment was remanded to NCLAT for final adjudication, with directions for expeditious disposal by March 2024 to prevent indefinite delays that defeat the IBC's objectives.

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Issues Involved:
1. Compliance with Conditions Precedent under the Resolution Plan.
2. Dispute over the Effective Date.
3. Implementation of the Resolution Plan.
4. Payment Obligations and Adjustment of Performance Bank Guarantee (PBG).

Issue-wise Summary:

1. Compliance with Conditions Precedent under the Resolution Plan:
The Resolution Plan for Jet Airways Limited required the Successful Resolution Applicant (SRA) to fulfill five conditions precedent, including validation of the Airline Operator Permit, submission and approval of the Business Plan, slot allotment approval, international traffic rights clearance, and approval of the demerger of the ground handling business. The NCLT determined that the SRA had complied with these conditions, allowing the SRA to take control of the Corporate Debtor from 16 November 2022. However, the lenders, represented by SBI, disputed this compliance, leading to ongoing appeals.

2. Dispute over the Effective Date:
The SRA and the consortium of lenders, led by SBI, disagreed on whether the conditions precedent were fulfilled, with the SRA claiming compliance and proposing 20 May 2022 as the effective date. The NCLT supported the SRA's position, but the lenders contested this, resulting in further legal proceedings.

3. Implementation of the Resolution Plan:
The NCLT's order on 13 January 2023, which allowed the SRA to implement the Resolution Plan, was challenged by SBI. The NCLAT declined to stay this order and extended the implementation timeline until 31 August 2023. The lenders agreed to a course of action if the SRA infused Rs. 350 crores by 31 October 2023 and adhered to the plan's terms, including employee payments.

4. Payment Obligations and Adjustment of Performance Bank Guarantee (PBG):
The Resolution Plan required the SRA to pay Rs. 350 crores in three tranches, with the last tranche of Rs. 150 crores being disputed. The NCLAT allowed the SRA to adjust this amount against the PBG, but SBI contested this, arguing that "infuse" meant actual payment, not adjustment. The Supreme Court held that the NCLAT erred in permitting the adjustment and directed the SRA to deposit the remaining Rs. 150 crores by 31 January 2024, keeping the PBG in effect pending the final appeal outcome.

Conclusion:
The Supreme Court modified the NCLAT's order, requiring the SRA to deposit Rs. 150 crores without adjusting the PBG and directed an expeditious disposal of the appeal by the NCLAT by March 2024. Pending applications were disposed of accordingly.

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