National Company Law Tribunal, New Delhi: While admitting S. 10 application, a Division bench comprising of Ramalingam Sudhakar, J., and L. N. Gupta, (Technical Member) held that a creditor has limited grounds to object to S. 10 application, (1) if the debt is not due and is not payable in law or in fact or (2) the applicant is not eligible to make an application in view of its ineligibility under S. 11 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Brief Facts
In the instant matter, an application under S. 10 of the IBC is preferred before the NCLT by the Corporate Debtor (‘Applicant'), M/s Go Airlines (India) Ltd. to initiate the Corporate Insolvency Resolution Process (CIRP) against it. The corporate debtor, in alternative, prayed for a grant of an interim moratorium for the applicant.
Contentions
The applicant submitted that there is a default towards payments to vendors and aircraft lessors from the year 2022 onwards due to financial distress caused by inherently defective engines supplied by Pratt & Whitney (P&W) resulting in grounding off aircraft.
The applicant contended that despite being directed by Emergency Arbitrator to supply 10 serviceable engines by 27-04-2023 and 10 serviceable engines each month till December 2023, vide order dated 03-02-2023 and 15-04-2023, P&W has failed to comply with the aforesaid orders. The applicant further contended that the applicant has already initiated enforcement proceedings against P&W in Delaware, US as well as other relevant jurisdictions where engines are located.
The applicant also submitted that the applicant has received notices from the lessors seeking default payments and DGCA has issued a Show Cause Notice dated 02-05-2023 due to the cancellation of scheduled flights.
The applicant further contended that if on an immediate basis, protection under the moratorium under S. 14(1) of IBC is not granted to the applicant then the applicant will lose all its assets. The applicant also contended that there is a financial debt subsisting of more than Rs. 01 Crore and all the ingredients required under S. 10 IBC are fulfilled by the applicant, therefore the applicant can pray for the initiation of CIRP against it.
The creditors opposed the present application and contended that notice needs to be issued to the creditors giving them an opportunity to object to the present application before adjudicating the same and that they wish to file an application under S. 65 of IBC. The creditors further contended that as per S. 424 of the Companies Act 2013, the NCLT is to be guided by the Principles of Natural Justice and therefore, is bound to afford an opportunity of being heard to the creditors.
Moot Point
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Whether there is any mandatory requirement of issuing notice to the creditors before admitting an application filed under S. 10 of IBC?
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To whom is a copy of S.10 application mandatory and required to be served?
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Whether an application under S. 65 IBC can be entertained even after the commencement of CIRP?
Observations
Relying on Vekas Kumar Garg v. DMI Finance (P) Ltd., 2021 SCC OnLine NCLAT 72 and SREI Infrastructure Finance Ltd. v. Alstrong Enterprises India (P) Ltd., 2021 SCC OnLine NCLT 322, NCLT observed that the Adjudicating Authority had prohibited the intervention of other parties/creditors in application filed under Ss. 7 or 9 IBC on the ground that they are not necessary parties to the application. NCLT stated 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. Usually, there are no other parties as Respondent other than the Corporate Debtor in Section 7 and 9 applications.”
The NCLT observed that when an application is filed under S. 10 IBC, the applicant itself approaches the Adjudicating Authority for initiating its own CIRP and the default in such cases may or may not be limited to just one creditor.
The NCLT relied on Unigreen Global (P) Ltd. v. PNB, 2017 SCC OnLine NCLAT 566, where it was held that “in an application under Section 10, the ‘financial creditor' or ‘operational creditor', may dispute that there is no default or that debt is not due and is not payable in law or in fact. They may also oppose admission on the ground that the Corporate Applicant is not eligible to make application in view of ineligibility under Section 11 of the I & B Code.” and observed that a creditor has limited grounds to object to S. 10 application, (1) if the debt is not due and is not payable in law or in fact or (2) the applicant is not eligible to make an application in view of its ineligibility under S. 11 IBC.
The NCLT observed that in the present application no respondent was impleaded and even if there was no representation is made at all on behalf of the creditors, it is clearly be seen that there is default in payment by the applicant which running in thousands of crores. NCLT further observed that R. 7 of the Application to Adjudicating Authority Rules, 2016 which deals with the filing of an application by applicant under S. 10, does not stipulate that the application is required to be served to the creditor(s) and therefore, “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).”
Negating the contentions of the creditors that NCLT is guided by the Principles of Natural Justice and therefore is bound to afford an opportunity of being heard to the Creditors, the NCLT relied on Amit Kumar Nag v. Indian Oil Corpn. Ltd., (2005) 7 SCC 764, where Supreme Court held that “…principles of natural justice are not rigid or immutable and hence they cannot be imprisoned in a straight-jacket. They must yield to and change with exigencies of situations. They must be confined within their limits and cannot be allowed to run wild.”
The NCLT further observed that S. 65 IBC only uses the word “initiates” and does not make any distinction like the stage of pre-admission or post-admission of CIRP, therefore, there is no bar on the creditors to file an application under S. 65 IBC even after the commencement of the CIRP and hearing thereof.
While examining S. 10 application on merits, the NCLT observed that (a) there is a debt, (b) default has occurred, (c) the application is complete in terms of Ss. 10(2) and 10(3), and (d) the applicant is not disqualified under S. 11, and therefore, there is no ground, not to admit the present application under S. 10 of IBC.
Verdict
The NCLT admitted the S. 10 application filed by the applicant and appointed Abhilash Lal as the Interim Resolution Professional (IRP) of the applicant company. The NCLT further directed the Suspended Management of the applicant to deposit Rs. 5 crores with the IRP to meet the immediate expenses. The NCLT also declared the moratorium in terms of S. 14(1) (a), (b), (c) & (d) with some prohibitions.
[Go Airlines (India) Ltd., Company Petition No. (IB)-264/(PB)/2023, order dated 10-05-2023]
Advocates who appeared in this case :
Mr. Neeraj Kishan Kaul, Mr. P. Nagesh, Mr. Diwakar Maheshwari (Senior Advocate) with Mr. Pranjal Kishore, Mr. Roohan Kelkan, Mr. Deepak Joshi, Mr. Akshay Sharma and Mr. Lalit Mohan, Counsel for the Applicant
Mr. Arun Kathpalia (Senior Advocate) with Mr. Pranay Gogal, Mr. Chiranjivi Sharma, Mr. Kshitij Wadhwa, Mr. Aditya Dhupar, Mr. Arvinder Nath and Mr. Ankit Garg, Counsel for the Lessor
Mr. Ritesh Singh, Mr. Ajay Kumar and Ms. Gurnoor Kaur, Counsel for the Unsecured Creditors ELFC, Jackdon Square Aviation, Minshing Finance Leasing Co. Ltd., Bank of China Aviation