SRA defaults on Rs 350 crore payment despite fulfilled conditions precedent, corporate debtor ordered into liquidation under Article 142

The SC set aside the NCLAT order in a corporate insolvency case involving non-implementation of a resolution plan. The successful resolution applicant (SRA) failed to make the first tranche payment of Rs. 350 crore within 180 days of the effective date (20.05.2022) and defaulted on airport dues and workmen payments. The SC held that conditions precedent were fulfilled and the effective date was achieved, rejecting the SRA's contention that pending litigation excused non-performance. The court ruled that the Performance Bank Guarantee could not be adjusted against the first tranche payment and directed the corporate debtor into liquidation under Article 142, emphasizing that timely implementation is crucial under the IBC framework.

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Issues Involved:

1. Adjustment of Performance Bank Guarantee (PBG) towards the first tranche payment.
2. Non-payment of Airport dues.
3. Non-payment of Workmen and Employees' dues.
4. Achievement of Effective Date.
5. Non-fulfilment of Conditions Precedent.

Issue-wise Detailed Analysis:

1. Adjustment of PBG towards the first tranche payment:

The Supreme Court addressed whether the PBG of Rs. 150 Crore could be adjusted against the first tranche payment of Rs. 350 Crore. The Court emphasized that the Resolution Plan required the infusion of Rs. 350 Crore in cash, as per Clause 6.3.1(g) and Clause 7.7 of the Plan. The RFRP and the Resolution Plan, through Clauses 7.3 and 9.4, incorporated terms that prohibited the adjustment of PBG against any payment obligation. The Court found that the NCLAT's order allowing such adjustment was contrary to the terms of the Resolution Plan and the Court's own order dated 18.01.2024, which mandated cash payment of Rs. 150 Crore. The Court concluded that the PBG could not be adjusted against the first tranche payment, and the SRA's failure to comply with this requirement led to a breach of the Resolution Plan.

2. Non-payment of Airport dues:

The Court examined whether the SRA failed to implement the Resolution Plan due to non-payment of Airport Dues. The NCLAT had concluded that Airport Charges were part of the CIRP costs, which the SRA was obligated to pay as per the Resolution Plan. The Court clarified that Clause 6.4.1(h) of the Resolution Plan included Airport Charges as part of CIRP costs, and these had to be paid in full, in priority, within 180 days from the Effective Date. The SRA's failure to infuse the first tranche payment of Rs. 350 Crore resulted in a breach of its obligation to pay the CIRP costs, including Airport Dues.

3. Non-payment of Workmen and Employees' dues:

The Court addressed the SRA's obligation to pay workmen and employees' dues, including Provident Fund and Gratuity, as per the NCLAT's order dated 21.10.2022. The Resolution Plan initially provided for Rs. 52 Crore, but the NCLAT increased this to Rs. 113 Crore, with additional obligations for Provident Fund and Gratuity. The SRA's failure to pay these dues constituted a breach of the Resolution Plan. The Court emphasized that the NCLAT's impugned order failed to address the full extent of the SRA's obligations, particularly regarding Gratuity dues.

4. Achievement of Effective Date:

The Court analyzed whether the Effective Date was achieved on 20.05.2022, as claimed by the SRA. The NCLT and NCLAT had concurred that the Conditions Precedent were fulfilled, fixing the Effective Date as 20.05.2022. The Court rejected the SRA's contention that the Effective Date was not achieved due to ongoing litigation. The Court emphasized that the Effective Date was fixed, and the SRA was obligated to implement the Resolution Plan from that date.

5. Non-fulfilment of Conditions Precedent:

The Court examined whether the SRA fulfilled the Conditions Precedent, particularly regarding the Validation of AOC, Slot Allotment Approval, and International Traffic Rights Clearance. The NCLT and NCLAT found these conditions to be fulfilled. However, the Court noted that the SRA's failure to renew the AOC and pay Airport Dues indicated non-compliance. The Court emphasized that the SRA's obligations under the Resolution Plan were not conditional on the resolution of litigation and that the SRA had failed to implement the Plan within the stipulated timelines.

Conclusion:

The Supreme Court found that the SRA had failed to implement the Resolution Plan, leading to contraventions of its terms. The Court directed that the Corporate Debtor be taken into liquidation under Section 33(3) of the IBC, 2016. The Court emphasized the importance of timely implementation of Resolution Plans under the IBC, 2016, and highlighted deficiencies in the insolvency framework, suggesting improvements for better enforcement and efficiency.

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