2024 (1) TMI 1021 - SC - Insolvency and Bankruptcy

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 ... Conditions precedent - Effective Date - Resolution Plan implementation - Infusion of funds - Performance Bank Guarantee (PBG) - Adjustment/Invocation of performance security - Extension of time / exclusion - Monitoring CommitteeAdjustment/Invocation of performance security - Performance Bank Guarantee (PBG) - Infusion of funds - Permissibility of adjusting the last tranche of the agreed infusion against the PBG at the interlocutory stage - HELD THAT: - The Court examined the affidavit filed by SBI which conditioned lenders' forbearance on the SRA infusing a specified sum by stipulated dates and on compliance with the Resolution Plan and employee-payment obligations. The affidavit used the expression 'infuse' to describe the obligation to make cash payments in three tranches. The NCLAT's interlocutory order permitting adjustment of the last tranche against the PBG substituted cash infusion with invocation/adjustment of the PBG contrary to the tenor of SBI's affidavit. The Court held that ''infuse'' in the context of the affidavit and the Resolution Plan required actual deposit of the last tranche and could not be replaced, at the interlocutory stage, by adjustment of the PBG. Consequently, the NCLAT was not justified in allowing the SRA to meet its obligation by adjusting the PBG instead of making the cash payment as agreed. [Paras 21, 22]NCLAT's order permitting adjustment of the last tranche of the infusion against the PBG is set aside; the SRA must make the cash payment of the last tranche.Interim arrangement during pendency - Performance Bank Guarantee (PBG) - Extension of time / exclusion - Interim directions governing payment timeline and status of the PBG pending final adjudication - HELD THAT: - Recognising the need to preserve the parties' positions while the pending appeals are decided, the Court fashioned interim measures. The SRA, having accepted the terms in SBI's affidavit and already deposited the first two tranches, was given a final opportunity to complete the agreed infusion by a peremptory deadline. Simultaneously, to protect the lenders' contractual security rights, the PBG is to remain in full force and effect until final disposal of the appeal, and shall abide by the outcome and any directions issued by the NCLAT. These directions substitute the interlocutory permission previously granted by NCLAT to adjust the PBG for the last tranche. [Paras 25, 26]SRA shall deposit the outstanding amount by the specified date; the PBG shall continue in operation pending the appeal.Conditions precedent - Resolution Plan implementation - Monitoring Committee - Whether the SRA has complied with all conditions of the Resolution Plan - HELD THAT: - The Supreme Court confined itself to interim relief and expressly refrained from finally adjudicating compliance with the conditions precedent. The Court noted that the contention whether the SRA satisfied the conditions in clause 7.6 and paragraph 8 of SBI's affidavit falls to be determined by the NCLAT in the pending appeal. The observations in this order are therefore limited to what must operate during the pendency of that appeal and do not preclude the NCLAT from deciding compliance on merits. [Paras 19, 25, 26]Determination of compliance with the conditions precedent is remitted to the NCLAT for decision in the pending appeal.Final Conclusion: The NCLAT's interim permission to adjust the outstanding tranche against the PBG is set aside; the SRA is directed to deposit the remaining amount by the time fixed by this Court, the PBG shall remain in force pending the appeal, and the question of compliance with the Resolution Plan's conditions precedent is left for determination by the NCLAT. 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.