Author name: CBCL

[By Mohak Agarwal & Hemang Mankar] The authors are students at National Law University, Jodhpur.   GoFirst Insolvency: A tug of war with the lessors The recent case of GoFirst Airlines’ Insolvency has highlighted certain significant issues in the Indian Insolvency law regime. The tug of war between the airline and the lessors commenced on May 2, 2023, when GoFirst filed for voluntary insolvency proceedings under Section 10 of the Insolvency and Bankruptcy Code [“Code”]. As soon as the insolvency application was filed, certain aircraft lessors terminated the lease agreement in order to seek repossession of the leased aircrafts. Subsequently, on May 5, the lessors invoked the Irrevocable Deregistration and Export Request Authorization [“IDERA”] and applied to Directorate General of Civil Aviation [“DGCA”] for deregistration and repossession of the leased aircrafts. IDERA confers an exclusive right on the lessors to effect deregistration of the aircraft and its export from India. It is a part of the Cape Town Convention [“CTC”], to which India is a signatory. The entire process has to be completed within 5 working days. However, before the elapse of 5 working days, the Adjudicating Authority [“AA”], on May 10, admitted the application and declared a moratorium under Section 14 of the Code. This led to a situation wherein though the lease agreement was terminated before the declaration of moratorium, the possession of the planes remained with GoFirst since the deregistration process could not be completed. The question of whether the possession of the leased planes would rest with the Corporate Debtor [“CD”] or with the lessors is still a debatable proposition and largely depends on the interpretation of Section 14(1)(d) of the Code that prohibits the recovery of property by the lessor which is in the possession of the CD. Nevertheless, it cannot be denied that had the AA been late even by a couple of days, the lessors would have succeeded in securing repossession of the aircrafts and would have severely impacted the revival prospects of GoFirst. This threat has been averted, at least for now. However, this incident raises serious concerns over the present Insolvency regime and the possibility of the creditors rushing to secure their assets in the period between the date of filing and the date of admission, thus potentially trapping the CD in an irrecoverable state. Absence of Interim Moratorium: An Achilles Heel? The absence of an Interim Moratorium in the Indian insolvency regime raises significant concerns and poses a troubling scenario akin to an impending storm that threatens to disrupt the insolvency process of distressed companies. Although the Code stipulates that the AA should admit a Corporate Insolvency Resolution Process [“CIRP”] application within 14 days of its filing (Section 7(4), 9(5), and 10(4) of the Code), the pre-admission stage is often plagued by substantial delays. According to the 2021 IBBI Survey on CIRP Timelines, the AA took an average of 133 days to make a decision from the filing date of a CIRP application. This protracted delay is troubling as it incentivizes syphoning off assets by promoters and/or encourages creditors to rush and enforce their debts, undermining the collective and value-maximising insolvency resolution process envisioned by the Code. In cases such as NUI Pulp and Paper Industries, and F.M. Hammerle Textiles, the Appellate Tribunal granted an interim moratorium when there was a reasonable apprehension of asset misappropriation. This underscores the pressing need for the incorporation of an interim moratorium into the Code through an amendment. Such an amendment is crucial to prevent a scenario where a distressed company’s assets are syphoned off even before the commencement of a moratorium, which would ultimately defeat the fundamental objectives of the Code. Therefore, it is imperative to address this gap in the Indian insolvency regime promptly to safeguard the integrity and effectiveness of the insolvency resolution process. Fixing the loophole: A global perspective The GoFirst case has highlighted a prominent issue in the Indian Insolvency regime that warrants attention. If the leading foreign jurisdictions are perused, majority of them provide for an interim moratorium at the time of filing the insolvency application. For instance, in Singapore, Section 64(14) of the Insolvency, Restructuring and Dissolution Act 2018 [“IRDA”] imposes an automatic 30-day moratorium as soon as an application for Judicial Management is filed. Within these 30 days, the Court schedules a first hearing in order to review the status of the moratorium. Even before the passing of IRDA, Section 227C of the Companies Act, Singapore provided for a moratorium beginning from the date of filing of the application. In the UK, Section 44(1) of Schedule B1 of the Insolvency Act, 1986 provides for an interim moratorium from the time of making the administration application till the time a decision is made with regards to the appointment of an administrator. Similarly, in the USA, Section 362 of the US Bankruptcy Code provides for an automatic moratorium upon the filing of a Chapter 11 petition. The purpose behind these provisions is twofold: (i) to prevent individual creditors from taking action against the CD and hampering its prospects of revival; (ii) to prevent the CD’s management from siphoning off its assets. Thus, the existence of an interim moratorium ensures that none of the stakeholders maliciously work towards securing their own welfare and protects their collective well-being by keeping the restructuring and revival prospects of the CD alive. These regimes have also taken the interests of creditors into consideration. This is important because during the pre-admission stage, the control is still vested in the CD’s erstwhile management which creates an exorbitant room for misuse. In the USA, the automatic moratorium could be lifted upon the application by secured creditors for appropriate cause, including the case wherein the debtor company has not ‘adequately protected’ the property interests of the creditor during the moratorium period. Even in the UK, sufficient power has been granted to the court to lift the moratorium in order to check the misuse. The Saga of Interim Moratorium: Tracing the history Let’s look back at the

[By Biprojeet Talapatra] The author is a student of Campus Law Centre, University of Delhi.   Introduction Leasing-in of aircrafts by aviation businesses is extremely prevalent across the world, and according to projections, about half of the commercial aircrafts that fly the world’s skies are leased by the companies. Aviation companies enjoy considerable operational flexibility and financial advantages through aircraft leasing. In India, approximately 80% of the commercial fleet is obtained through leasing, a significantly higher percentage compared to the global average of 53%. According to a February 2021 report on ‘Aircraft leasing in India: Ready to take off,’ auditing major PwC said the size of the global aircraft leasing industry was estimated to be $290.07 billion in 2019. Aircraft lessors have seen their share in the total commercial fleet grow globally from 25 percent in 2000 to 48.9 percent in 2020. In light of this context, the recent decision of the National Company Law Appellate Tribunal (NCLAT) has triggered alarm signals among international lessors. In the case of SMBC Aviation Capital v. Interim Resolution Professional of Go Airlines (India), Abhilash Lal, the NCLAT rendered its verdict, affirming the National Company Law Tribunal’s (NCLT) decision to admit the application under Section 10 of the Insolvency and Bankruptcy Code 2016 (Code), granting defaulters the ability to initiate voluntary insolvency proceedings. As part of this ruling, the NCLT also imposed a moratorium, marking a critical turning point with far-reaching consequences for the aircraft leasing landscape in India. Background Go Airlines (India) Limited, which has since been rebranded as GoFirst, operated as a low-cost airline. However, the company faced significant financial challenges, resulting in defaults in payments to aircraft lessors, amounting to a staggering INR 2,660 crores. In response to the mounting financial strain, the corporate debtor (CD), GoFirst, opted to file for voluntary insolvency under Section 10 of the Code with the National Company Law Tribunal (NCLT). Operational creditors, representing the aircraft lessors, opposed the insolvency application, asserting that it was driven by fraudulent and malicious intent. Moreover, the creditors expressed concern over the absence of prior notice, depriving them of the opportunity to object to the application. The NCLT held that no specific law requires creditors to be notified when filing an application for voluntary insolvency. Furthermore, when ruling on the matter of opposing the application under Section 65 of the Code, which deals with fraudulent insolvency initiation, the NCLT found that the same may be dealt with once the Corporate Insolvency Resolution Process (CIRP) was initiated. As a result, the CD was subject to the moratorium established by Section 14 of the Code. In response to the lessors’ appeal, the appellate body NCLAT issued held that there is an established legal precedent and legislative provisions that the NCLT is obligated to allow the application if the NCLT is persuaded that there is a debt and default and if the Corporate Applicant has completed the conditions stipulated in Section 10(3). Before the application is approved, the Corporate Applicant is not required to issue notice to creditors and allow them to express their concerns with the NCLT. As a result, the NCLAT correctly affirmed the NCLT’s ruling. Exploring the Dynamics of Aircraft Leasing in the Context of Insolvency Aircraft leasing is characterized by a significant volume of cross-border transactions, necessitating the implementation of principles that safeguard the rights of lessors. The Cape Town Convention (CTC), officially titled the Convention on International Interests in Mobile Equipment, stands as a pivotal international agreement specifically focused on regulating aircraft leasing and related matters. Its provisions are designed to ensure the protection and interests of lessors in such transactions. Within the Aircraft Protocol of the Cape Town Convention (CTC), Article XI introduces essential provisions that offer creditors two viable options. Firstly, they may reclaim possession of the aircraft after the waiting period expires. Alternatively, the insolvency administrator can decide to either surrender the aircraft or continue utilizing it while fulfilling lease payments as per the existing lease agreement. Moreover, both the debtor and the administrator are obligated to uphold the equipment’s value. These measures have been established to ensure the protection of creditors’ rights without imposing any orders or actions that could hinder the creditors’ exercise of remedies. The two alternatives presented to creditors under Article XI enhance the flexibility and efficiency of dealing with leased aircraft during insolvency proceedings. This allows for a balanced approach that safeguards both creditors’ interests and the continued operation of aircraft assets. Analysis of the Verdict The moratorium was imposed, which is intended to protect the assets of the debtor and maintain the status quo while the insolvency proceedings are underway. The imposition of a moratorium implies that aircraft lessors are prohibited from repossessing the leased aircraft for a minimum period of six months, which may potentially extend further. Unfortunately, such delays in resolving debt-ridden companies can lead to a depreciation in the value of the aircraft. Moreover, during this period, the aircraft will remain grounded and unused, preventing them from being leased to more financially robust airlines. This delay in resolution has a well-established impact on diminishing the value of the corporate debtor’s (CD) assets and obstructing successful resolution efforts. Additionally, creditors, aside from the lessors, may also seize the aircraft to recover their outstanding dues. In the case of Gujarat Urja Vikas Nigam Limited v. Mr. Amit Gupta & Ors., the Supreme Court has established a significant precedent. The court ruled that terminating a contract solely due to a company entering insolvency proceedings, which could potentially lead to the demise of the corporate debtor, should not be allowed. It emphasized that such terminations must be prohibited to safeguard the interests of the corporate debtor during insolvency. It is important to note a distinguishing aspect in the current case where lease agreements were terminated before the initiation of the CIRP against the Corporate Applicant. These terminations were made in anticipation of the probable initiation of insolvency proceedings and the subsequent enforcement of the moratorium under Section 14 of the Insolvency

[By Yash Arjariya] The author is a student at Hidayatullah National Law University.   Introduction In a series of cases like Chitra Sharma v. Union of India, Bikram Chatterji v. Union of India, etc., the Supreme Court (“SC”) has been tasked with adjudicating the claims and rights of house owners in the real estate sector as against the processes of the Insolvency and Bankruptcy Code (“IBC”). The adjudications have been favourable to the house owners, with their rights elevated to a safer pedestal, providing representation of their interests in the Committee of Creditors (“CoC”) formed for the Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor. However, the introduction of the concept of reverse CIRP, now moulded in the form of project-wise CIRP after the decision of the SC in Indiabulls Assest Reconstruction Company Limited vs. Ram Kishore (“Supertech Ltd.”), has added a new nuance to the insolvency processes in the real estate sector. Reverse CIRP, as propounded by the National Company Law Appellate Tribunal (“NCLAT”) in Flat Buyers Association Winter Hills-77 v. Umang realtech Private Limited (“Umang Realtech”), accords an opportunity to the promoter of a real estate entity to revive the entity and act as lender or financial creditor by fusion of finances. The SC in Supertech Ltd. has furthered the reverse CIRP as a project-wise CIRP, i.e., there is fundamental participation of the promoter in the CIRP, but such a CIRP does not operate over all the projects of the corporate debtor but only a specific project. This first part of this article identifies the basis of the judgement given in Supertech Ltd. and then goes on to comment on the utility of such a process in insolvency in the real estate sector. Furthermore, the legality of reverse CIRP is then tested on the statutory principles laid out by the IBC. This piece then concludes as a critical note on the processes of reverse CIRP and project-wise CIRP while remaining speculative about the future jurisprudence on this issue. Factual Underpinnings in the Insolvency Regime: The Vidarbha Effect? The recent judgement of the SC in Supertech Ltd., upholding the NCLAT’s rationale, has nuanced the reverse corporate insolvency resolution process, in effect turning the corporate insolvency resolution process into a project-wise insolvency process. The constitution of the committee of creditors was restricted only to a single project of the corporate debtor, precluding any impact on the several ongoing projects of the real estate entity. It may be argued that the concept of project-wise insolvency is alien to the IBC; however, the court fortified the tenability of the scheme by balancing convenience and practical viability. Visualising a contrary landscape, the court opined that allowing the CIRP against the corporate debtor as a whole will compromise and prejudice other ongoing projects of the debtor, and more importantly, greater inconvenience would be weighed upon the homebuyers as the efforts of the debtor to ensure continuous flow of funds into the project through personal undertaking would cease. This creative culmination of practical utility and viability into a new beginning of project-wise insolvency schemes in the Indian Insolvency landscape can be said to be a corollary effect of the Vidarbha Industries v. Axis Bank Limited (“Vidarbha’) judgement. Though the judgement related to the discretionary power of the adjudicating authority to admit applications by financial creditors under Sec. 7 of the IBC, it necessarily opened a new epoch of factual underpinnings in the Indian insolvency landscape. The judgement vacated enough room as an example for the courts to mould the insolvency process to ensure that parties are not prejudiced if the factual matrix warrants otherwise. The SC in Vidarbha fathomed the factors of feasibility of initiation of CIRP,  financial health of the stakeholders, viability of the corporate debtor, etc. with respect to CIRP. Much akin to the same understanding, the SC in its recent judgement devised a new scheme, not contemplated by the IBC but on account of facts warranting the same. The test of circumstances: Utility of Reverse CIRP The NCLAT, in its ruling in Umang Realtech, appropriately acknowledged that homebuyers, in contrast to other financial creditors, lack the commercial acumen to make informed judgments about which resolution plan would be most advantageous to them. The Reverse CIRP effectively addresses this concern by maintaining the existing management structure of the company while guaranteeing that the promoter mobilizes financial resources to successfully complete the project. Even the SC in Supertech Ltd. explained that reverse CIRP does not create any additional rights in favour of ex-management. Reverse CIRP involves oversight by the Insolvency Resolution Professional (“IRP”) coupled with efforts made for the infusion of funds with the active assistance of the ex-management, as in Supertech Ltd. Hence, the reverse CIRP offers an opportunity for real estate company promoters to revive a project without automatically removing them from the operational aspects of the company. Moreover, the project-focused approach ensures that only the assets associated with that particular project are brought into resolution, thereby preventing any undue burden on the company and averting potential uncertainties surrounding other projects. Further, the Reverse CIRP process, or project-wise CIRP, propounded by the SC is one that is shaped by the facts of the case. As a result, it cannot be considered an ideal model for all other instances of real estate insolvency. The decision of whether or not to employ the Reverse CIRP will hinge on the factual circumstances surrounding the case. The Reverse CIRP can be likened to a trial-like resolution process. Even in Supertech Ltd., the NCLAT in the impugned order was experimental, suggesting that project-wise resolution may be started as a test to find out the success of such resolution. Thus, as a logical conclusion, on failure of resolution by the Reverse CIRP, the NCLAT would proceed with the normal CIRP process. Testing Waters: The Legality of Reverse CIRP Section 29A of the IBC bars the promoter of the entity (the corporate debtor) from being the resolution applicant. The purport of this provision is to forbid the

[By Ashutosh Anand & Shalini Puri] The author are students at National University of Study and Research in Law, Ranchi.   Introduction The National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) have transformed the Indian insolvency regime by affording a single platform for resolution, specialised expertise, a creditor-friendly approach, efficient resolution mechanisms such as Corporate Insolvency Resolution Process, time-bound resolution, and an appellate body for review. However, there is persistence of a grey area regarding the powers of the NCLT and NCLAT in recalling their judgment. The concept of ‘Recall’ refers to a process by which the court, legislature, or administrative organisations withdraw or cancel their previous judgments or actions. On the other hand, ‘Review’ involves the court, legislature, or any other body re-examining their decisions. By using the method of review, the aforementioned bodies try to rectify the error in an act, judgement, or legislation. The NCLAT’s three-member bench in 2019, in the matter of Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited & Anr.[1] laid down a strong proposition of law of absence of any power or express provision of review and recall vested with the ‘Adjudicating Authority,’ i.e., the NCLT, and the ‘Appellate Authority’, i.e., the NCLAT, in the Insolvency and Bankruptcy Code, 2016 (“the Code”). Hence, a judgment or an order passed by the same shall neither be reviewed nor recalled. Subsequently, another three-member bench of the NCLAT in Rajendra Mulchand Varma & Ors. v. K.L.J Resources Ltd. & Anr.[2] vehemently adhered to the ratio in the Agarwal Coal Corporation case. Therefore, it became binding on the NCLT and NCLAT not to recall their judgments or orders.[3] However, the landmark case called UBI v. Dinkar T. Venkatasubramanian & Ors.[4] was heard by a three-member bench of the NCLAT in 2023. The case raised an important legal question about whether the NCLT and NCLAT, despite lacking the power to review judgments under the Code, could consider an application for recalling a judgment if sufficient grounds were presented. To address this issue, the three-member bench referred the matter to a five-member bench for further deliberation. After thorough consideration, the NCLAT ruled in the affirmative. In light of the same, this piece tries to highlight the rudimentary jurisprudential difference between the definitions of review and recall. Furthermore, by navigating through the legal standing under the scheme of the Code of Criminal Procedure, 1973, (“CrPC”) and a plethora of precedents, the piece tries to find the conceptual distinction between review and recall. Further, it discusses the inherent powers of the Tribunal in relation to Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 (“NCLAT Rules”), and how that inherent power is to be utilised by the Tribunal to recall a decision. The piece also lists out the practical aspects of non-deliverance of justice in case a Court or a Tribunal is not able to recall its decisions. An Underlined Distinction between Review and Recall According to Black’s Law Dictionary, the phrase ‘recall a judgment’ means to revoke or reverse a judgment for matters of fact or when a judgment is annulled because of errors of law.[5] On the contrary, the Dictionary says that the word ‘review’ means to examine judicially, a reconsideration, second view or examination, revision, or consideration for purposes of correction. Review is used especially for the examination of a cause by an appellate court and for a second investigation.[6] In Vijaya Sri v. State of Andhra Pradesh,[7] the Court, after analysing the combined definitions of review and recall from various authoritative dictionaries, concluded that recall necessitates the complete abrogation of a judgment or final order. In contrast, review refers to the continuation of the initial judgment or order with specific modifications, along with a re-examination and reconsideration of the said decision. As a result, the power to recall a judgment differs from the power to review it.[8] The contentions related to review and recalling have also been persistently seen in the CrPC. Section 362 of the CrPC has been held to be mandatory and puts a complete bar on review, except only to correct arithmetic or clerical errors. Additionally, it has been held that Section 482 of the CrPC cannot be invoked for the purposes of reviewing or altering the judgment. Nevertheless, it is important to note that recalling is different from reviewing and altering a judgment. Section 482 permits wide enough powers to the court to cover any type of case for the purpose of it being recalled or re-heard, if three conditions mentioned therein so warrant, viz. (a) to implement any order issued under the CrPC; (b) to safeguard against the misuse of the judicial process; and (c) to ensure the achievement of justice.[9] However, a difficult and complex situation arises when there is  no express provision regarding the recalling of a judgment in the statute. This question was answered by the Apex Court in Grindlays Bank Ltd. vs. Central Government Industrial Tribunal & Ors.,[10] wherein an application was filed to set aside an award given by the Industrial Tribunal. There was no express provision in the Industrial Disputes Act, 1947 or the Rules framed thereunder that provided for setting aside an ex-parte order. However, the Court held that even though there was an absence of an express provision to set aside the award, the Tribunal has jurisdiction to pass the order, which is an ancillary and incidental power to discharge its functions effectively.[11] The Tussle of Interpretation Nevertheless, the ratio given in the Agarwal Coal Corporation case and the Rajendra Mulchand Varma case, as mentioned in the introduction, made it impossible for the NCLT or NCLAT to recall their decisions which posed a grave jurisprudential flaw in the justice system. Numerous cases have emerged where the Tribunal discovered that its decisions were influenced by fraudulent practices by the parties involved, or the Tribunal itself made mistakes that unfairly affected one party. Additionally, instances were found where the parties deceived the Tribunal, leading to unjust outcomes.