The recent judgment regarding the insolvency of Jet Airways has significant implications for corporate governance and the insolvency resolution process in India. The case, which has been closely followed since the airline's insolvency proceedings began in 2019, culminated in a Supreme Court decision, that not only addressed the immediate issues surrounding Jet Airways but also raised broader questions about the effectiveness of the Insolvency and Bankruptcy Code, 2016 (“IBC 2016”) and its implementation.

Brief background of the case:
The saga began when the State Bank of India (“SBI”) filed an application before the National Company Law Tribunal (“NCLT”) for commencement of Corporate Insolvency Resolution Process (“CIRP”) of Jet Airways on June 20, 2019. After a lengthy process, a resolution plan proposed by a consortium led by Murari Lal Jalan and Florian Fritsch was approved by the NCLT on October 17, 2022. This plan included provisions for a cash payment of INR 350 crores, which was to be made in tranches. However, compliance with these terms became contentious, leading to multiple legal challenges. An appeal was also filed before the National Company Law Appellate Tribunal (“NCLAT”) challenging the approval of the resolution plan by the NCLT.

The Apex Court in the present case heard three appeals together which included the appeal from the NCLAT’s order that affirmed that all the conditions precedent were fulfilled by the resolution applicant, the NCLAT’s order which restrained the appellants from invoking a Performance Bank Guarantee (“PBG”) and the NCLAT’s order which allowed adjustment of INR 150 crores through the PBG.

Key Features of the Supreme Court Judgment and its implications on IBC

1. Performance Bank Guarantee (PBG) Controversy: One of the central issues in the judgment was the use of a PBG for fulfilling financial obligations. The NCLAT had allowed the consortium to use INR 150 crores from the PBG instead of cash, which was contested by the creditors. The Supreme Court ruled that this adjustment was impermissible and mandated that all payments be made in cash as per the original agreement. This ruling emphasized the importance of adhering strictly to financial commitments in resolution plans, highlighting that any deviations could undermine creditor confidence and the integrity of the insolvency process.
    
2. Non-Payment of Dues: The judgment also addressed significant unpaid dues, particularly those owed to workmen and employees. The court found that Jet Airways had failed to pay INR 226 crores owed to its employees, which included provident fund and gratuity payments, which were to be made as per the approved resolution plan. The Supreme Court's insistence on prioritizing these payments highlights a critical aspect of corporate responsibility even during insolvency proceedings and is a significant step towards enforcing fair corporate governance.
    
3. Effective Date and Conditions Precedent: Another pivotal aspect was the determination of when the "Effective Date" of the resolution plan was achieved. The NCLT had previously ruled that this date was reached on May 20, 2022, based on claims by the consortium regarding fulfilled conditions precedent. However, the Supreme Court found that many conditions precedent could only be fulfilled post-operationalization of Jet Airways, indicating that merely claiming compliance without actual operational readiness is insufficient. This distinction is crucial as it sets a precedent for future cases where companies may attempt to claim mere “on paper compliance” without genuine readiness to resume operations. Relying on Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another [(2022) 2 SCC 401], the Apex Court observed that the existing insolvency framework does not provide any avenue for withdrawal and modification of the Resolution Plan which had been approved by the CoC and submitted to the adjudicating authority, and therefore the completion of all conditions provided in the resolution plan, as approved, was crucial.
    
4. Liquidation as a last resort: The Apex Court ultimately directed that Jet Airways should enter liquidation due to repeated failures to comply with the resolution plan despite multiple extensions granted to the consortium. This decision signifies the key principle of IBC: while its primary objective is to facilitate corporate revival, it must not come at the expense of efficiency or creditor rights. The ruling serves as a reminder that prolonged non-compliance can lead to dire consequences for corporate debtors.

Conclusion
The Supreme Court also provided recommendations aimed at enhancing the IBC framework. It suggested the establishment of monitoring committees post-approval of resolution plans to ensure compliance and smooth transitions. Additionally, it called for improvements in tribunal efficiencies and emphasized filling vacancies with experts who have technical knowledge relevant to insolvency matters.

This judgment sets a significant precedent for future insolvency cases in India and acts as a potential deterrent to resolution applicants from attempting to circumvent their obligations under approved plans. The corporate governance related findings also encourage better scrutiny of how companies manage their obligations towards employees and workmen during crises.

By - Sayjal Deshpande & Rahul Ranjan