NCLT Admits Go Airlines Insolvency: Issuance of Notice to Creditors is Not Mandatory in Pre-Admission Stage under Section 10 IBC

NCLT Admits Go Airlines Insolvency: Issuance of Notice to Creditors is Not Mandatory in Pre-Admission Stage under Section 10 IBC

The National Company Law Tribunal (NCLT), Delhi comprising of Justice Ramalingam Sudhakar (President) and Shri L.N. Gupta (Technical Member), while adjudicating a petition filed by Go Airlines (India) Limited, has admitted Go Airlines (India) Limited into Corporate Insolvency Resolution Process (“CIRP”).

The bench has significantly observed that under Section 10 proceedings of the Insolvency and bankruptcy Code, 2016 (for short IBC), though there is no mandatory requirement of issuing notice to the Creditor(s) at the pre-admission stage, rather giving notice to the Creditor(s) is a matter of discretion to be exercised on a case-to-case basis on valid grounds. Wherever there is a clear apprehension of deterioration of assets of the Corporate Applicant/Debtor and larger public interest is involved, issuance of notice at the pre-admission stage cannot be claimed as a matter of right.

In the present case, M/s Go Airlines (India) Ltd. (Corporate Applicant/Corporate Debtor) filed an application under Section 10 of the IBC with a prayer to initiate the CIRP against it.

From the year 2022 onwards, the Corporate Debtor started defaulting toward payments to vendors, and aircraft lessors and received notices from the lessor’s seeking payment. The Corporate Debtor submitted that as on date it has a total of 54 Air Crafts, which are its main assets. Out of these, 28 were grounded due to the non-supply of engines by P&W, and the remaining 26 are operational. The Corporate Debtor claimed that it would lose all its assets, if protection under the moratorium under Section 14(1) of IBC, 2016 was not granted on an immediate basis.

Thus, as per its Application, the Corporate Debtor claimed to have committed a default of Rs. 2660 crores toward Aircraft Lessors and Rs. 1202 Crores towards its Vendors.

During the course of the hearing, Ld. Sr. Counsel for the Corporate Debtor stated that as on the date of filing of the application, the Corporate Applicant did not default towards payment of dues to the Financial Creditors; however, on 4 May, 2023, it had committed default of Rs. 11.03 crores towards interest dues of the Financial Creditors.

Following were the various issues that were considered by the bench.

Firstly, whether is there any mandatory requirement of issuing notice to the Creditors before admitting an Application filed under Section 10 of IBC 2016?

The NCLT noted that there was no Respondent impleaded in the application, unlike the Section 7 and 9 Applications, which are preferred by a Creditor against a specific Corporate Debtor. Further, though an application, if admitted, under either of Sections 7 or 9, or 10 leads to one and the same outcome i.e., initiation of CIRP of the corporate debtor, however, each of these routes is different from the other in terms of criteria and eligibility, stated the bench.

The bench remarked that before the commencement of CIRP, an Application under Sections 7 and 9 are in personam i.e., a litigation between two parties, where notice to the Respondent/Corporate Debtor is a matter of right.

However, the NCLT stated that under Section 10 of IBC 2016, the Corporate Applicant/Corporate Debtor itself approaches the Adjudicating Authority for initiating its own CIRP and the default in such cases may or may not be limited to just 1 Creditor. The bench noted that in the instant case, there are numerous Creditors of the Corporate Applicant, the default to whom is running into thousands of Crores.

Reliance was placed on the judgement passed by the National Company Law Appellate Tribunal (NCLAT) in M/s. Unigreen Global Private Limited vs. Punjab National Bank & Ors. (2017).

The NCLT observed, “a Creditor has limited grounds to object to an application preferred under Section 10 i.e., if the debt is not due and is not payable in law or in fact or Corporate Applicant is not eligible to make an application in view of its ineligibility under Section 11. In the instant case, it is not the case of the Lessors/Objectors/Creditors and Others that there is no debt due and payable or the Corporate Applicant herein is ineligible under Section 11 of IBC, 2016. Even if there was no representation at all on behalf of the Creditors, then also, it is evident from the notices of the Operational Creditors annexed to the present Application that the amount of default of the Corporate Applicant is running in thousands of crores.”

Secondly, whom a copy of Section 7, 9, and 10 applications are mandatory and required to be served?

The NCLT on perusal of the Rules 4, 6, and 7 of the Application to Adjudicating Authority Rules, 2016, observed, Rule 4 of the Application to Adjudicating Authority Rules, 2016 prescribes an Application filed under Section 7 by a Financial Creditor to be served to the Corporate Debtor. Similarly, Rule 6 prescribes that an Application filed by an Operational Creditor under Section 9 of IBC, 2016 be served to the Corporate Debtor. However, Rule 7 which deals with the filing of an Application by a Corporate Applicant under Section 10, does not stipulate that the application is required to be served to the Creditor(s).

Therefore, the bench found that there is no express provision in the law, which necessitates the issue of notice or service of a copy of the Section 10 Application to the Creditor(s).

The Ld. Sr. Counsel for the Lessors/Objectors/Creditors further contended that as per Section 424 of the Companies Act 2013, this Adjudicating Authority is to be guided by the Principles of Natural Justice and therefore, is bound to afford an opportunity of being heard to the Creditors.

The NCLAT clarified that there is no straight-jacket formula for applying the Principles of Natural Justice. The proceedings under Sections 7 & 9 of IBC 2016, where only 2 parties are involved, no 3rd party can interfere and notice of hearing is issued, cannot be compared with the proceedings under Section 10, where a Corporate Debtor is having multiple Creditors and each of the Creditors will plead for a hearing. This is so because the timelines, that are specified in the IBC 2016, have also to be adhered to. In any event, the Creditors do not lose their rights, which they will have, eventually in the course of proceedings.

Thirdly, whether an Application under Section 65 can be entertained even after the commencement of CIRP?

On reading the contents of Section 65(1), the NCLT opined that Section 65 of IBC could be resorted by an aggrieved party at any stage, be it pre-admission or post-admission. Accordingly, it concluded that there is no bar in entertaining/considering/adjudicating a Section 65 Application after the initiation of the CIRP.

In view of the foregoing, the bench ruled, “In view of the unpaid debt subsisting above Rs. 1 crore and default committed towards the same, and Go Airlines being not disqualified under section 11 of IBC, we have no other option but to admit the present application.”

The NCLT appointed Mr. Abhilash Lal as IRP and directed him to ensure that retrenchment of employees is not resorted to as a matter of course.

It further ordered that the Suspended Board of Directors and Ex-Management of the Corporate Applicant/Corporate Debtor shall extend all necessary support and cooperation to the IRP and his team in keeping the Corporate Applicant/Corporate Debtor as “a going concern” and must deposit Rs. 5 crores with the IRP to meet the immediate expenses.