GoFirst’s Insolvency Enigma: Untangling Complex Issues and Examining Future Ramifications

[By Biprojeet Talapatra]

The author is a student of Campus Law Centre, University of Delhi.



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.


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 and Bankruptcy Code 2016 (Code). The lessors requested the deregistration of 45 aircraft out of the 57 in the corporate debtor’s fleet. This potential deregistration poses a significant challenge to the successful resolution of the corporate debtor’s insolvency proceedings. However, it’s important to consider that the moratorium, which restricts certain actions during the insolvency process, does not apply to assets that the lessors do not legitimately possess. This complex situation now requires the National Company Law Tribunal (NCLT) to address and resolve this intricate conundrum in the best interest of all parties involved.

This case has led to the erosion of trust among international lessors and may have far-reaching consequences on lease pricing in the future. As lessors grow cautious about the risks linked to aircraft leasing in India, they might seek elevated lease rates and impose more stringent contractual terms. Such a scenario could present challenges for Indian airlines to obtain cost-effective leasing arrangements, impeding their expansion efforts and potentially leading to increased travel costs for passengers.


The central concern regarding GoFirst’s insolvency pertains to aircraft possession, and the verdict will significantly influence the aircraft leasing industry. Ideally, the NCLT should have adopted a more balanced approach that safeguards the rights of both lessors and lessees. For instance, exploring solutions where leased aircraft are jointly possessed, with half retained by the lessors to lease to other airlines, while the other half remains with the corporate debtor (CD), could have been considered. The NCLT’s decisions in insolvency cases can set crucial precedents for handling similar situations in the future. Striking the right balance between the interests of lessors and lessees is essential to ensure the stability and attractiveness of the aircraft leasing market in India. By exploring innovative arrangements for shared aircraft possession, the industry can maintain its momentum and offer sustainable leasing options for airlines operating in the country.


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