TMI Blog2023 (5) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination of lease agreement. Whether in a Section 10 Application filed by a Corporate Applicant, it is necessary to issue notice to the creditors to give a hearing or opportunity of hearing to the creditors before admission of Section 10 Application? - HELD THAT:- The present is a case where Application under Section 10 was filed on 02.05.2022 and on 04.05.2022 it came for hearing. The learned Counsel for the Appellant had appeared and was head by the Adjudicating Authority. The Adjudicating Authority however took a view that it was open for the objector to file an Application under Section 65 even after admission of Section 10 Application. Since the statutory Scheme does not contain any obligation of issuing notice to the creditors by the Corporate Applicant, any objector appearing at the time of hearing has to be heard and the objection may be noted by the Adjudicating Authority and thereafter the appropriate decision can be taken - the mere fact that no notice was issued to the creditors or any opportunity was given to the objectors before proceeding to hear, the Corporate Applicant, cannot be held to vitiate any procedure or violating the principles of natural justic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - HELD THAT:- These Appeal(s) have been filed against the order admitting Application under Section 10 and the issues which are sought to be raised in this Appeal have not yet been considered by the Adjudicating Authority. When the Adjudicating Authority has not adverted to the aforesaid issues, where the CIRP is pending, the ends of justice will be served by granting liberty to the Appellant(s) or to the IRP to make appropriate Application before the Adjudicating Authority under Section 60, sub-section (5) of the Code. In event any such Application is filed under Section 60, sub-section (5), the Adjudicating Authority shall take appropriate decision in accordance with law - the issues, which have been raised and noted in this paragraph need no consideration at this stage. The order dated 10.05.2023 admitting Section 10 Application is upheld - appeal disposed off. - Company Appeal (AT) (Insolvency) No. 593 of 2023 Company Appeal (AT) (Insolvency) No. 603 of 2023 With Company Appeal (AT) (Insolvency) No. 604 of 2023 Company Appeal (AT) (Insolvency) No. 615 of 2023 - - - Dated:- 22-5-2023 - [ Justice Ashok Bhushan ] Chairperson And [ Mr. Barun Mitra ] Member ( Technical ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Applicant was incorporated on 29.04.2004 under the provisions of the Companies Act, 1956 and is engaged in the airline business and has been running a low-cost airlines under the brand name of Go Air from the last 17 years. The Corporate Applicant was a profitable airlines from 2009 to 2010 to 2018-2019. The Corporate Applicant has the strength of 7000 direct and 10,000 indirect employees. (ii) The Company had been facing financial problems due to defective engines supplied by Pratt Whitney, as a result of which nearly 34% aircrafts were grounded in the year 2022. The Corporate Applicant made various attempts to resolve the issue amicably with Pratt Whitney ( P W ), however, P W did not honour its contractual obligation towards the Corporate Applicant by repairing/ providing replacement engine. (iii) The Corporate Applicant filed an emergency Arbitration against P W before the Singapore International Arbitration Centre (SIAC) wherein the Emergency Arbitrator passed Award on 03.02.2023 and 15.04.2023 directing P W to supply 10 serviceable engines by 27.04.2023 and 10 serviceable engines each month till December 2023. However, P W failed to comply with the aforesaid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the Appellant is that the Corporate Applicant committed default in payment of lease rentals. The Appellant s case is that as per the provisions of Lease Agreement, once the event of default occurred, each Lessor was entitled to enforce all its rights under the Convention on International Interests in Mobile Equipment, which was concluded in Cape Town in 2001 and to which India acceded in 2008. Pursuant to the execution of the Lease Agreement, the aircraft were delivered by the Lessor to the Corporate Applicant in India. The Corporate Applicant had executed the Irrevocable Deregistration and Export Request Authorization ( IDERA ) in favour of authorized party listed therein, which authorized party the exclusive right to effect deregistration of the aircraft and its export from India. Due to occurrence of events of default by the Corporate Applicant, each Lessor terminated the respective Lease Agreement on 02.05.2023 and thereafter, but prior to admission of Section 10 Application. The Lessors of the Authorised Party under the applicable IDERA applied for deregistration of the aircraft in accordance with the Aircraft Rules. The Appellant had addressed letters dated 05.05.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are no longer the assets of the Corporate Applicant, nor the IRP is entitled to claim possession of aircrafts, which are not the assets of the Corporate Debtor. The termination of Lease having taken place prior to admission of Section 10 Application, the Corporate Applicant has no legal right to claim possession and moratorium under Section 14(1)(d) is not applicable with regard to assets pertaining to the Appellant. 6. The learned Senior Counsel for the Interim Resolution Professional ( IRP ) refuting the submission of learned Senior Counsel for the Appellant(s) submits that termination of Lease was motivated by filing of the Application under Section 10 of the Code as the termination of Lease was effected in point of time after Application was filed on 02.05.2023, the filing of the Application was widely circulated and thereafter the Lessors in hurried manner issued order terminating the Lease. The order does not amount to violation of principles of natural justice inasmuch as the Application under Section 10 of the Code does not require creditors to be heard before admission of the Application. There is no mandatory requirement in Section 10 to issue notice to the creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Application on 22nd May, 2023 at 08:41 am IST and all termination were subsequent in time. It is submitted that default committed by the Corporate Applicant is an admitted fact and filing of the Application under Section 10 is neither fraudulent nor malicious. The Corporate Applicant being faced with a genuine difficulty in servicing the lease rentals due to defective engine supplied by the P W, which has not been replaced inspite of emergency Award in favour of the Corporate Applicant, the Corporate Applicant had voluntarily proceeded to file the Application under Section 10. The statement which was made by the CEO of Corporate Applicant, which has been relied by the Counsel for the Appellant, does not lead to any conclusion that filing of Section 10 Application was fraudulent or malicious. 8. We have considered the submissions of learned Counsel for the parties and have perused the record. 9. From the submissions, which have been made before us in these Appeal(s), following are the issues, which arise for consideration in these Appeal(s): (1) Whether in a Section 10 Application filed by a Corporate Applicant, it is necessary to issue notice to the creditors to give a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prior to amendment of Rule 7 by Amendment Rule 2020, with effect from 24.09.2020, sub-rule (2) was as follows: (2) The applicant under sub-rule (1) shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the Corporate Debtor. 13. The Applicant under sub-rule (1) shall dispatch forthwith a copy of the Application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the Corporate Debtor. Now, after amendment, the Application is required to be sent to the Board. The Rule 7, does not contemplate giving the Application to the creditors of the Corporate Applicant. Thus under the statutory Scheme, Section 10 Application can be filed and Adjudicating Authority within a period of 14 days is required to either admit the Application or reject the Application. Section 10 of the Code is as follows: 10. Initiation of corporate insolvency resolution process by corporate applicant. - (1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiating pre-packaged insolvency resolution process. When the Application came before the Adjudicating Authority, several objectors appeared, who opposed the Application. The Adjudicating Authority granted time to objectors to file their objections. The order of the Adjudicating Authority came to be challenged in Appeal before this Tribunal. This Tribunal noted Section 424 of the Companies Act, 2013, which requires that Tribunal and the Appellate Tribunal shall be guided by the principles of natural justice. After noticing Section 424 in the above judgment, following was laid down in paragraph 15: 15. The statutory scheme delineated by Chapter III-A of I B Code as well as the Regulations, 2021 as observed above does not indicate any prohibition on the Adjudicating Authority to hear any objector or intervener before admitting an Application of pre-packaged insolvency resolution process. When there is no prohibition in hearing an objector or interveners by the Adjudicating Authority, the orders passed by the Adjudicating Authority giving time to the objectors to file objection cannot be said to be in breach of any statutory provisions. We may hasten to add that hearing of ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a case where Application under Section 10 was filed on 02.05.2022 and on 04.05.2022 it came for hearing. The learned Counsel for the Appellant had appeared and was head by the Adjudicating Authority. The Adjudicating Authority however took a view that it was open for the objector to file an Application under Section 65 even after admission of Section 10 Application. 19. As noted above, since the statutory Scheme does not contain any obligation of issuing notice to the creditors by the Corporate Applicant, any objector appearing at the time of hearing has to be heard and the objection may be noted by the Adjudicating Authority and thereafter the appropriate decision can be taken. We, thus, conclude that the mere fact that no notice was issued to the creditors or any opportunity was given to the objectors before proceeding to hear, the Corporate Applicant, cannot be held to vitiate any procedure or violating the principles of natural justice, more so when objectors were heard by the Adjudicating Authority. Question No.(2) 20. The submission which has been pressed by the learned Counsel for the Appellant is that objectors having raised objection of fraudulent and mali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alicious, the Adjudicating Authority is fully entitled to reject the said Application. 22. The next judgment relied by the learned Senior Counsel for the Appellant is M/s.Neesa Infrastructure Ltd. vs. State Bank of India Ors. Company Appeal (AT) (INS.) No.946 of 2020 decided on 23.12.2020. In the above case Secton 10 Application filed by a Corporate Applicant was rejected against which order, the Appeal was filed. The Adjudicating Authority has rejected the Application on the ground that the Corporate Applicant has not approached the Adjudicating Authority with bonafide intention. The said finding was confirmed by this Appellate Tribunal. In paragraph 12, following observations were made: 12. Further, it is on record that the SIDBI and IOB, the Financial Creditors have strenuously opposed the admission of Section 10 Application by filing their Counter Affidavits. We add and express that the intention of Promotors is only to get admission and followed by imposition of Moratorium to stall all further proceedings. The IBC being a special legislation cannot be used as a tool to one s advantage and other s disadvantage. 23. The observation made in paragraph 12 are obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection is raised, the Adjudicating Authority had to deal with it in accordance with law. 27. Now we need to notice the impugned order to find out as to what was the allegations raised before the Adjudicating Authority and how the Adjudicating Authority has noted the said submission. In paragraph 37, following observation has been made by the Adjudicating Authority: 37. During the course of the hearing, this Bench raised a specific query to Mr. Arun Kathpalia, Ld. Sr. Counsel representing the Lessors/ Objectors whether the Corporate Applicant has committed default tin respect to the Lessor/ objectors he is representing and what is the malicious element in the present Application? 28. The submissions made by the objector, that is, learned Sr. Counsel for the Appellant has been noted in paragraph 38 and the reply given by the Corporate Applicant in paragraph 39. Paragraphs 38 and 39 of the judgment of the Adjudicating Authority is relevant to notice, which are as follows: 38. In response to the same, the Ld. Sr. Counsel Mr. Arun Kathpalia representing the Lessors/ Objectors did not dispute the fact that the Corporate Applicant herein has defaulted to the Lessors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Corporate Applicant as was captured in Article published in a website. It is useful to extract the entire article as has been brought on record as Annexure-F to the Appeal. The Article reads as follows: Go Airlines to evaluate legal option to attach Pratt Whitney India assets, insolvency plea not for loan waiver: CEO The Wadia group s low cost airline Go Airlines (India) Limited will look at all legal option including that of freezing/ attaching the Indian assets of the US-based aircraft engine Pratt Whitney, said a top airline Official. The Wadia group s low cost airline Go Airlines (India) Limited will look at all legal options, including that of freezing/ attaching the Indian assets of the US-based aircraft engine maker Pratt Whitney, said a top airline official. He also categorically said the airline filing an insolvency petition with the National Company Law Tribunal (NCLT) is not a ruse to get loan write offs but mainly to safeguard/ retain the aircrafts so that the lessors do not repose them. We have started the steps for the execution of the award. We have filed a case in the US, Kaushik Khona, Chief Executive Officer told IANS in an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re or less working capital and non funded. The company has to pay only the interest and the interest rates are also not so high. In the last six months the banks have sanctioned Emergency Credit Line Guarantee Scheme (ECLGS) which have a two year moratorium and there is no repayment pressure except for Rs 50 lakh which the company got in 2021 where payment has started, Khona said. Adding further he said, all the assets are charged to the bank and on the top of it, the promoters have given 94 acre land in Bombay and Thane as security the value of which two years back was about Rs 3,000 crore. The filing of the NCLT petition is not aimed at the bankers. Terming a news report in a leading financial daily that the airline has asked the bankers to write off a portion of the loan as wrong, Khona said the airline has not approached any bank to write off the loan and we have no such intention . He said the bankers are being updated on the situation and in the last one year there had been more than 12 consortium meetings and the company promoters also met the bank Managing Directors several times in the last three months. The decision to file the petition with NCLT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the Appellant by April 27, 2023 and a further 10 spare leased engines per month until December 2023., with the objective of Go First returning to full operations an achieving its financial rehabilitation and survival. Thus, operation and achieving its financial rehabilitation and survival was the object, which was shared by the CEO. The intent of Corporate Applicant was to retain the assets, so as to continue its operations and making the airlines as a going concern. From the above submission, it cannot be held that intent of filing the Application under Section 10 was fraudulent or malicious. 32. The word fraudulent has been defined by Advanced Law Lexicon in following words: Person does a thing fraudulently if he does it with an intent to defraud, and so to constitute fraud two elements are necessary--- deceit, and injury and loss to some person. 33. The Hon ble Supreme Court in (2011) 8 SCC 613 Ramesh Kumar and Anr. Vs. Furu Ram and Anr. had occasion to consider the definition of fraud . In paragraph 17 and 19, following has been observed: 17. Section 17 of the Contract Act, 1872 defines fraud thus: 17. Fraud defined. Fraud means a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulting in injury, loss or damage to someone. Deceit has also been explained by the Hon ble Supreme Court in (2013) 1 SCC 562 Ram Chandra Bhagat vs. State of Jharkhand. The Hon ble Supreme Court explaining the deceit following has been stated in paragraph 17 and 18: 17. Stroud's Judicial Dictionary (5th Edn.) explains deceit as follows: Deceit. Deceit , deceptio, fraus, dolus, is a subtle, wily shift or device, having no other name; hereto may be drawn all manner of craft, subtilly, guile, fraud, wilinesse, slight, cunning, covin, collusion, practice, and offence used to deceive another man by any means, which hath none other proper or particular name but offence . Black's Law Dictionary (8th Edn.) explains deceit thus: Deceit, n. (1) The act of intentionally giving a false impression the juror's deceit led the lawyer to believe that she was not biased . (2) A false statement of fact made by a person knowingly or recklessly (i.e. not caring whether it is true or false) with the intent that someone else will act upon it. In The Law Lexicon by P. Ramanatha Aiyar (2nd Edn., Reprint 2000), deceit is described as follows: Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Applicant is provided under Annexure A19 (colly) . 5. Particulars of security held, if any, the date of its creation, its estimated value as per the creditor. Attach a copy of a certificate of registration of charge issued by the Registrar of Companies (if the Corporate Debtor is a Company) Not Applicable. 4. Date when the operational debt was incurred The details of the operational debt with respect to the vendors and the lessors are set out in Annexure A18 and Annexure A19 (Colly) respectively. 5. Details of retention of title arrangements (if any) in respect of goods to which the operational debt refers Not Applicable 6. Record of default with the information utility, if any Not Applicable 7. List of documents attached to this application in order to prove the existence of operational debt and the amount in default (i) The details of the amount due to the vendors of the Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the IRP and under the terms of Lease Agreement, Appellant(s) are entitled for the possession and exporting of the said aircrafts. It is submitted by learned Senior Counsel for the Appellant that assets required regular maintenance and Lease having been terminated, it cannot be now operated by the Corporate Applicant. Reliance on provisions of Section 18(1)(f) and the Explanation has been placed by learned Senior Counsel for the Appellant. It is submitted that aircraft being not assets over which Corporate Debtor has ownership rights, cannot be taken possession by the IRP, hence, when under the statute the possession cannot be taken by the IRP, the Lessors are entitled to take possession and export the aircrafts. The learned Senior Counsel for the Appellant further stated that after termination of the lease, they have already made an application to the DGCA for deregistration of the aircrafts. The Appellant have also submitted that DGCA has sent an intimation that in view of the order dated 10.05.2023, further steps regarding deregistration have been withheld. 39. Shri Ramji Srinivasan, learned Senior Counsel for the IRP on the other hand contends that the moratorium has been i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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