A) ABSTRACT / HEADNOTE

This case revolves around the resolution plan approval for Jet Airways Limited under the Insolvency and Bankruptcy Code, 2016. The State Bank of India (SBI), representing the creditors’ consortium, opposed the National Company Law Appellate Tribunal’s (NCLAT) order allowing the Successful Resolution Applicant (SRA) to adjust the final tranche of ₹150 crores against the Performance Bank Guarantee (PBG). The core issue involved whether such an adjustment aligned with the resolution plan’s stipulated terms. The Supreme Court, led by Chief Justice D.Y. Chandrachud, overturned the NCLAT’s interim adjustment, emphasizing strict compliance with the resolution terms. The Court ordered the SRA to deposit the final amount by January 2024, maintaining the PBG’s operation until the appeal’s resolution. This judgment highlights the judiciary’s insistence on ensuring timely adherence to insolvency frameworks.

Keywords: Jet Airways, Performance Bank Guarantee, Successful Resolution Applicant, Insolvency and Bankruptcy Code, Creditor’s Rights

B) CASE DETAILS

• Judgement Cause Title: State Bank of India and Ors v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch
• Case Number: Civil Appeal Nos. 3736-3737 of 2023
• Judgement Date: 18 January 2024
• Court: Supreme Court of India
• Quorum: Dr. Dhananjaya Y Chandrachud (Chief Justice of India), J.B. Pardiwala, Manoj Misra, JJ.
• Author: Dr. Dhananjaya Y Chandrachud, CJI
• Citation: [2024] 1 S.C.R. 1045 : 2024 INSC 51
• Legal Provisions Involved: Insolvency and Bankruptcy Code, 2016
• Judgments overruled by the Case: None
• Case Related to Law Subjects: Corporate Insolvency Law, Banking Law, Corporate Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The SBI, representing the consortium of lenders, filed an affidavit before the NCLAT affirming its conditional acceptance for granting time extensions to Jet Airways if the SRA satisfied financial obligations, including infusion of ₹350 crores by August 31, 2023. The SRA later sought to fulfill part of this payment through adjustment against the PBG, which NCLAT permitted. SBI challenged this interim order, contending that the adjustment contravened the terms of the resolution plan. The Supreme Court scrutinized the NCLAT’s reasoning in light of the affidavit’s stipulated conditions and the resolution plan requirements.

D) FACTS OF THE CASE

1. Resolution Plan Approval: Jet Airways Limited, undergoing corporate insolvency, had a resolution plan submitted by a consortium comprising Mr. Murari Lal Jalan and Mr. Florian Fritsch, which the Committee of Creditors (CoC) approved on October 17, 2020.

2. Conditional Affidavit by SBI: SBI, on behalf of creditors, filed an affidavit permitting time extensions only if the SRA complied with infusing ₹350 crores, adhering to the resolution plan, and meeting employee obligations.

3. Performance Bank Guarantee (PBG) Dispute: The SRA sought to use the PBG to offset ₹150 crores of the required infusion, arguing it was within the resolution plan’s terms, an interpretation contested by SBI.

4. NCLAT’s Interim Order: NCLAT allowed the adjustment of ₹150 crores against the PBG, extending time for deposit and partially releasing the PBG, prompting SBI to appeal to the Supreme Court.

5. Supreme Court’s Inquiry: The Supreme Court reviewed the appropriateness of NCLAT’s interim adjustment, particularly whether it upheld the resolution plan’s financial structuring and the SBI’s stipulated conditions in its affidavit.

E) LEGAL ISSUES RAISED

• Was the NCLAT justified in allowing adjustment of the final tranche of ₹150 crores against the PBG?
• Did the SRA fulfill the conditions precedent as per the affidavit filed by SBI?
• Is the release of PBG permissible under the Insolvency and Bankruptcy Code (IBC) in this context?

F) PETITIONER/ APPELLANT’S ARGUMENTS

1. Requirement of “Infusion”: The counsels for SBI argued that the affidavit’s stipulation of “infusion” implies a direct payment rather than an adjustment against PBG. This condition required the SRA to deposit the full ₹350 crores independently of any PBG adjustments.

2. Non-Compliance with Employee Obligations: The appellant’s counsels highlighted that SRA’s compliance with employee payments, as per prior orders, was still pending, challenging the NCLAT’s decision to release the PBG without resolving this liability.

3. Inconsistency with Resolution Plan Terms: SBI maintained that the terms of the resolution plan did not contemplate using the PBG for tranche payments, especially given the clear framework in Clause 6.4.4 of the plan. This clause explicitly mandated separate fund infusions and independent security provisions.

G) RESPONDENT’S ARGUMENTS

1. Permissible Adjustment of PBG: The counsels for the SRA argued that the resolution plan allowed flexibility in security arrangements, including using PBG for the final tranche. They claimed that previous installments paid sufficed as a guarantee for continued compliance.

2. Compliance with Conditions Precedent: The SRA contended that it had met all necessary operational and regulatory prerequisites, including approvals from DGCA and MoCA, justifying the partial release of the PBG.

3. Alignment with Business Viability: The respondent argued that the adjustment was essential for sustainable cash flow management, a priority for effectively implementing the approved business plan under the IBC.

H) RELATED LEGAL PROVISIONS

• Insolvency and Bankruptcy Code, 2016: Governs the corporate insolvency resolution process and mandates adherence to approved resolution plans.
• IBC’s Clauses on Conditional Approval and Performance Guarantees: Ensures that SRAs maintain strict compliance with performance conditions without undermining creditor security.

I) JUDGEMENT

a. Ratio Decidendi

1. Strict Compliance with Affidavit Conditions: The Court held that SBI’s affidavit, approved by the NCLAT, obligated the SRA to infuse funds per the schedule, ruling out any substitution with PBG adjustments unless expressly stated in the resolution plan.

2. Non-Adjustment of PBG as Compliance Mechanism: The Supreme Court emphasized that the PBG served as security and was not an installment substitute, aligning with the principles in Clauses 3.13 and 6.4.4 of the resolution plan and preserving the creditors’ security interest.

b. Obiter Dicta

1. Timeliness in Resolution Implementation: The Court underscored the importance of expediting insolvency processes to uphold the IBC’s intent, noting that any delay in infusion affects creditor expectations and debtor reorganization.

2. Binding Nature of Plan Terms on SRAs and Creditors: The Court remarked on the sanctity of resolution terms, discouraging interim arrangements that could compromise creditor rights.

c. Guidelines

The Court issued the following directives:

• Full Deposit by January 2024: The SRA must deposit ₹150 crores by this deadline to comply with the affidavit.
• Continued Validity of PBG: The PBG remains effective pending the NCLAT’s final decision, preserving the creditors’ security.
• Timely Disposal: The NCLAT is encouraged to resolve the pending appeal by March 2024 to avoid further delay in the resolution process.

J) CONCLUSION & COMMENTS

The Supreme Court’s decision reiterates the commitment to uphold creditor rights under the IBC, safeguarding strict adherence to approved resolution plans. This judgment strengthens the regulatory framework, emphasizing that SRAs must not unilaterally reinterpret conditions that potentially dilute creditor security. By holding that SBI’s conditions were binding and non-negotiable, the Court reinforced the judiciary’s role in enforcing corporate insolvency rules, promoting efficient resolution processes and consistent application of the IBC framework.

K) REFERENCES

1. Insolvency and Bankruptcy Code, 2016
2. State Bank of India v. Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch [2024] 1 S.C.R. 1045