State Bank of India vs. Consortium of Murari Lal Jalan & Florian Fritsch: Legal Battle Over Jet Airways Resolution Plan

The legal dispute between the State Bank of India (SBI) and the Consortium of Murari Lal Jalan and Florian Fritsch revolves around the resolution plan for Jet Airways. The case primarily concerns the implementation of the resolution plan approved under the Insolvency and Bankruptcy Code, 2016 (IBC), and whether the successful resolution applicant (SRA) fulfilled its obligations.

This judgment addresses crucial issues related to the non-fulfillment of conditions precedent, payment obligations under the resolution plan, and the consequences of non-compliance.

Factual Background

The resolution process for Jet Airways commenced when the National Company Law Tribunal (NCLT) admitted SBI’s application under Section 7 of the IBC, 2016. The financial creditors’ total admitted claim amounted to Rs. 7800 crore. A consortium led by Murari Lal Jalan and Florian Fritsch submitted a resolution plan, which was approved by the Committee of Creditors (CoC) with a majority vote of 99.22%.

The resolution plan specified several payment obligations and conditions precedent that had to be met before the resolution applicant could take control of Jet Airways. However, disputes arose regarding the fulfillment of these conditions.

Key Legal Issues

Whether the SRA fulfilled the conditions precedent required under the resolution plan.
Whether the Performance Bank Guarantee (PBG) of Rs. 150 crore could be adjusted against the first tranche payment.
Whether the SRA’s non-compliance warranted liquidation under Section 33(3) of the IBC.

Arguments from the Appellants (SBI and Others)

The appellants argued that the SRA failed to fulfill key conditions precedent, including:

Validation of the Air Operator Certificate (AOC) by the Directorate General of Civil Aviation (DGCA).
Non-payment of airport dues amounting to approximately Rs. 1100 crore.
Failure to meet obligations related to workmen and employees’ dues.

The appellants contended that the PBG could not be adjusted against the first tranche payment and that the resolution plan mandated a cash infusion of Rs. 350 crore.

Arguments from the Respondents (Consortium of Murari Lal Jalan & Florian Fritsch)

The respondents argued that they had:

Fulfilled all the conditions precedent necessary for the effective date of the resolution plan.
Made significant payments towards employee dues and financial creditors.
Proposed an alternative security mechanism for the obligations under the plan.

They also contended that the Performance Bank Guarantee should be adjusted towards their payment obligations as per the resolution plan.

Court’s Observations and Judgment

On Adjustment of Performance Bank Guarantee (PBG)

The court held that the adjustment of the PBG against the first tranche payment was impermissible under the terms of the resolution plan and the provisions of the IBC. It relied on:

Regulation 36B(4A) of the 2016 Regulations, which states that a performance security should remain until the full implementation of the resolution plan.
The Resolution Plan, which explicitly stated that the PBG could not be adjusted against payment obligations.
The Lender’s Affidavit, which required a cash infusion of Rs. 350 crore, reinforcing the need for direct payment.

On the Non-Compliance with Payment Obligations

The court found that the SRA:

Failed to make the first tranche payment of Rs. 350 crore in cash, as required.
Did not fully pay the airport dues, which had escalated to Rs. 1100 crore.
Did not comply with employee dues payments, which were increased from Rs. 52 crore to Rs. 226 crore.

On Liquidation Under Section 33(3) of the IBC

The court ruled that the non-implementation of the resolution plan warranted liquidation, as per the provisions of the IBC. The court stated:

“When a resolution applicant fails to comply with the approved resolution plan, the corporate debtor must be directed into liquidation.”

Conclusion

The judgment underscores the necessity for strict compliance with resolution plans under the IBC. It clarifies that:

The Performance Bank Guarantee cannot be adjusted against payment obligations.
All financial obligations, including employee dues and airport charges, must be met in accordance with the resolution plan.
Failure to implement the resolution plan leads to liquidation.

This case sets a precedent for future insolvency proceedings, reinforcing the importance of adhering to legally binding resolution plans.

Petitioner Name: State Bank of India & Ors.
Respondent Name: Consortium of Murari Lal Jalan and Florian Fritsch & Anr.
Judgment By: Justice J.B. Pardiwala.
Place Of Incident: India.
Judgment Date: 07-11-2024.

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