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TMI Blog2023 (5) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... anna, Mr. Chiranjivi Sharma, Ms. Apoorva Kaushik, Ms. Neetika Sharma, Mr. Girish Shankar, Mr. Kshitij Wadhwa, Mr. Aditya dhupar, Mr. Palash Singhvi, Mr. Ankit Garg, Mr. R. Taneja, Advocates. For the Respondents: Mr. Ramji Srinivasan & Mr. Ritin Rai, Sr. Advocates with Ms. Shruti Pandey, Ms. Namrata Saraogi, Mr. Ramakant Rai, Mr. Siddharth Ranate, Mr. Varun Kr. Tikmani, Mr. Sumesh Srivastava, Ms. Dhristi Kaushik, Mr. Ravin Kapur, Advocates for IRP. Mr. Maninder Singh & Mr. P. Nagesh, Sr. Advocates, Mr. Diwakar Maheshwari, Mr. Pranjal Kishore, Mr. Shreyas Edupuganti, Mr. Shouryaditya, Mr. Suhas Puthige, Ms. Pratiksha Mishra, Advocates for suspended BOD. For the Appellant : Mr. Rajshekhar Rao, Sr. Advocate with Mr. Anandh Venkataramani, Mr. Saket Satapathy, Mr. Anubhav Dutta, Mr. Zashank Mehta, Mr. J. Shivam Kumar and Mr. Siddhant Kumar Singh, Advocates. For the Respondents : Mr. Ramji Srinivasan, Sr. Advocate with Ms. Shruti Pandey, Ms. Namrata Sarogi, Mr. Ramakant Rai, Mr. Somesh Srivastava, Ms. Drishti Kaushik and Mr. Varun Tikmani, Advocates for IRP. Mr. P. Nagesh, Sr. Advocate with Mr. Diwakar Maheshwari, Mr. Pranjal Kishor and Mr. Shreyas Edupuganti, Advocates for Suspended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Applicant had to cancel several flights in the year 2023. (iv) On 30.04.2023, Corporate Applicant passed a Resolution to file an Application under Section 10 of the Code and on 02.05.2023, the same was filed praying that Adjudicating Authority be pleased to grant interim moratorium to preserve the assets and keep the company as a going concern. In the Application it was pleaded that the Corporate Applicant is in default towards Operational Creditors (which includes dues towards its vendors) is INR 1,202 Crores and default towards aircraft lessors is INR 2,660 Crores. In the Application, it has been submitted that default of Rs.11.03 Crores towards interest dues of the Financial Creditors, however on the date of filing of Application, there was no default. (v) The Adjudicating Authority heard the Application on 04.05.2023. During hearing of the Application, the learned Senior Counsel appearing for the Appellant SMBC Aviation Capital Ltd. and certain other Lessors appeared before the Adjudicating Authority and opposed the admission of the Application. The learned Counsel for the Appellant also prayed to the Adjudicating Authority to provide opportunity to file an Application un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which date the Counsel for the Appellant (SMBC Aviation Capital Ltd. was present through Advocate). Several statements and submissions were advanced on behalf of the Corporate Applicant, whereas the Appellant inter alia requested the Adjudicating Authority to direct the Corporate Applicant to share a copy of the Application. The Appellant further opposed the Application on the ground that such admission had not to be allowed without giving an opportunity to the Appellant to place its objections on record and to file an Application under Section 65 of the Code. It is the case of the Appellant that the Adjudicating Authority in complete violation of the natural justice has passed the impugned order. 4. We have heard Shri Arun Kathpalia, Shri Krishnendu Datta, Shri Abhijeet Sinha and Shri Rajshekhar Rao, learned Senior Counsel for the Appellant(s). We have heard Shri Ramji Srinivasan and Shri Ritin Rai, learned Senior Counsel appeared for the IRP and Shri Maninder Singh and Shri P. Nagesh, learned Counsel for suspended Management of the Corporate Applicant. 5. The learned Senior Counsel for the Appellant in support of the Appeal has raised following submissions: (i) The impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and objectors has admitted the Section 10 Application. No Application under Section 65 was filed nor any such Application was before the Adjudicating Authority for consideration. Section 65 Application can be filed and decided even after admission of Section 10 Application and the Adjudicating Authority has also taken the view that after Admission of Application under Section 10, Section 65 Application can be filed and considered. It is always open for the Appellant to file Section 65 Application with appropriate pleadings and materials. Any aspects regarding termination of lease and possession of aircrafts are extraneous to the limited scope of the present Appeal, which is to test the correctness of the impugned order. The IRP has a duty to protect the assets of the Corporate Applicant during Corporate Insolvency Resolution Process ("CIRP"). The possession of the subject aircrafts is with the Corporate Applicant. 7. Learned Counsel for the Suspended Management has also opposed the submissions of learned Counsel for the Appellant. It is submitted by learned Counsel for the Suspended Management that default in payment of dues to the aircraft Lessors had occurred due to the defec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication has been filed fraudulently with malicious intent, Adjudicating Authority is required to first give opportunity to the creditor to file Section 65 Application and decide the said Application before proceeding to admit Section 10 Application? (3) Whether Lessors having terminated Lease Agreement in favour of the Corporate Applicant prior to admission of Section 10 Application, the moratorium as directed by order dated 10 May, 2023 cannot be said to be applicable to the assets, which were earlier leased by the Lessor to the Corporate Applicant? (4) Whether the Appellant having terminated the Lease Agreement in favour of the Corporate Applicant prior to admission, is entitled to claim possession of the aircrafts and export the aircrafts as per the Lease Agreement? Question No.(1) 10. The Code contains a separate statutory Scheme for Application under Section 7, 9 and 10. Section 9 Application, requires a demand notice as contemplated under Section 8. The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, contains manner and procedure of filing an Application by a Financial Creditor, Operational Creditor as well as Corporate Applicant. In Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) the information relating to its books of account and such other documents for such period as may be specified; (b) the information relating to the resolution proposed to be appointed as an interim resolution professional; and (c) the special resolution passed by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total number of partners of the corporate debtor, as the case may be, approving filing of the application. (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order- (a) admit the application, if it is complete and no disciplinary proceeding is pending against the proposed resolution professional]; or (b) reject the application, if it is incomplete or any disciplinary proceeding is pending against the proposed resolution professional: Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority. (5) The corporate insolvency resolution process shall commence from the date of adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Authority and giving time to objections which are meritless and giving time to objectors and interveners has to be exercised on sound discretion on valid grounds." 16. This Tribunal took the view that there is no prohibition in hearing an objector in proceedings under Chapter III-A of the Code. However, it was further observed that granting time for objection is not a matter of course and has to be limited to exceptional cases. This Tribunal further in paragraph 16 held follows: "16. When we look into the provisions of Section 54A read with Section 54C, it is clear that certain statutory requirements have to be met before the Corporate Debtor can file an Application. If an Application filed under Section 54C does not meet the statutory requirements, it is always open for a person, who has a claim in pre-packaged insolvency resolution process, to point out that Application does not follow the statutory provisions. We have noticed the substance of the objections made by one of the objectors above, which indicate that it has been mentioned that certain Financial Creditors have been treated to be unrelated and their votes have been counted for finding out requisite majority who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntre Pvt. Ltd. vs. Rakesh Taneja & Ors. - Company Appeal (AT) (INS.) No.918 of 2022. In the above Appeal, the Corporate Applicant has challenged the order of the Adjudicating Authority by which Application under Section 65 was allowed and Section 10 Application was rejected. It was contended by the Appellant that if debt and default is proved in Section 10 Application, the Adjudicating Authority has to admit the said Application. Repelling to said submission, the following was laid down in paragraph 15: "15. When finding recorded by the Adjudicating Authority is that Section 10 Application has been initiated fraudulently and maliciously, even if there is debt and default, the Adjudicating Authority is not obliged to admit Section 10 Application. Section 10 and Section 65, which are part of the same statutory scheme needs to be read together to give effect to the legislative scheme of the Code. In event CIRP is initiated by a corporate applicant fraudulently with malicious intent for any purpose other than the resolution of insolvency, holding it that it is obligatory for the Adjudicating Authority to admit Section 10 Application, will be contrary to the statutory scheme under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10 Application. 24. The next judgment, which has been relied by the learned Senior Counsel for the Appellant is judgment of Hon'ble Supreme Court in Beacon Trusteeship Limited vs. Earthcon Infracon Pvt. Ltd. & Anr. (Civil Appeal No.7641/2019) decided on 18.02.2019. In the above case, Section 9 Application filed by the Operational Creditor was admitted by the Adjudicating Authority. The Appellant Beacon Trusteeship Ltd. has filed Section 7 Application against the corporate guarantors. Aggrieved by the admission of Section 7 Application, Financial Creditor has filed Appeal. One of the submissions raised was that under the Agreement Financial Creditor was required a notice before initiating proceedings. Allegations within the meaning of Section 65 of the Code was raised. Hon'ble Supreme Court in paragraph 7 made following observation: "7. Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt with in accordance with law. The plea of collusion could not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l only be unproductive assets and will burden the Corporate Debtor further with the CIRP cost in the form of continued lease rentals of the aircraft. 39. Ld. Sr. Counsel Mr. Neeraj Kishan Kaul, appearing for the Applicant replied to the contentions of the objectors and stated that the aircraft are grounded due to the defective engines supplied by P&W against which it has an Arbitral Award in its favor which directs P&W to supply 10 serviceable engines by 27.04.2023 and thereafter, 10 serviceable engines each month till December 2023. Further, the proposed IRP backed by a professional agency Alvarez and Marsel will take steps to enforce the arbitral award. It was further added if these engines are supplied by P&W, the flights could be resumed and the Corporate Applicant/Debtor could continue to function as a going concern. As regards the CIRP cost, he added that the same shall be absorbed by the Successful Resolution Applicant as per the Scheme laid down in Section 30(2)(a) of IBC 2016. The Ld. Sr. Counsel further stated that in any case, the aforesaid grounds do not make the present Application malicious. He vehemently opposed any proposition regarding the malicious intent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India against Pratt & Whitney to attach its properties here, Khona said company will evaluate that option as well. He said the airline is to get the engines for the 27 aircrafts that are now grounded due to engine faults and legal action will be taken in the jurisdictions where Pratt & Whitney has the engines. According to Khona, we need the engines and for that the arbitration award has to be enforced and Pratt & Whitney does not have an MRO (maintenance, repair, overhaul) set up in India. Go Airlines has filed a case in a court in Delaware in the US against Pratt & Whitney to enforce the arbitration award, and Khona said the case will be decided soon. "That order (arbitration award) directed Pratt & Whitney to take all the reasonable steps to release and dispatch without delay to Go First at least 10 serviceable spare leased engines 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 and achieving its financial rehabilitation and survival," Go Airlines said. Dismissing the Pratt & Whitney's charge that Go Airlines has a lengthy history of missing its financial obligations to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sors and others. As regards the bankers, interest to be debited on May 2 became overdue. However, the account is not an NPA, Khona said. On the question of low cost airline a viable business proposition as several airlines have crash landed, Khona said Go Airlines has been profitable since 2009-10 till 2019-20. Only from January 2020 the Pratt & Whitney engine problem aggravated and the company faced problems as an airline has a huge fixed cost. According to him, only low cost airline business could be profitable and Go Airlines has the lowest cost structure till December 2022. Our costs were either at par or better than the industry leader. Go Airlines have been operating our aircrafts for 14 hours a day." 30. The submission of the Appellant that even the submission of the CEO was that the purpose of filing the insolvency petition was to safeguard the aircrafts so that the Lessors do not repossess them. It is submitted that from the statement it is clear that the purpose of filing the Application was not for insolvency resolution, but was with the object to retain the aircrafts from the Lessors. 31. When we look into the entire article as quoted above, the statement of CEO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent. Explanation.-Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech." 19. Differently nuanced contextual meanings of the word "fraud" are collected in P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn., Vol. 2, pp. 1914-15). We may extract two of them: "Fraud, is deceit in grants and conveyances of lands, and bargains and sales of goods, etc. to the damage of another person which may be either by suppression of the truth, or suggestion of a falsehood. (Tomlin) * * * The colour of fraud in public law or administrative law, as it is developing, is assuming different shade. It arises from a deception committed by disclosure of incorrect facts knowingly and deliberately to invoke exercise of power and procure an order from an authority or tribunal. It must result in exercise of jurisdiction which otherwise would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral submission, which was made before the Adjudicating Authority by the learned Senior Counsel for the Appellant does not reflect that there was sufficient material before the Adjudicating Authority to come to the conclusion that Application under Section 10 filed by the Corporate Applicant was fraudulent and with malicious intent. The Adjudicating Authority in its impugned order has captured the particulars of financial debt and operational debt. The Adjudicating Authority has extracted part-IV of the Application, which is to the following effect: PARTICULARS OF OPERATIONAL DEBT 1. Name(s) of Operational Creditor(s) The names of the vendors of the Corporate Applicant is annexed and marked as Annexure "A18". Name of the lessors of the Corporate Applicant is annexed and marked as Annexure "A19 (colly)". The Corporate Applicant craves leave to refer to and rely upon any information left out, at the time of hearing. 2. Address of correspondence of the Operational Creditor(s) The details for address correspondence of the (a) vendors of the Corporate Applicant is marked as annexed and marked as Annexure "A18" and (b) of the lessors of the Corporate Applicant is annexed and marked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rentals to the Appellant(s). Non-payment of lease rentals is admitted fact and has been made basis of cancellation of Lease Agreement by the Lessors, which took place immediately after presentation of the Application under Section 10 on 02.05.2023. 37. We, thus, are of the view that on the strength of the oral objections which were raised before the Adjudicating Authority on behalf of the Appellant as well as other, which has also been raised in this Appeal, no conclusion can be derived at this stage that Application filed by the Corporate Applicant was fraudulent with malicious intent. We, however, hasten to add that Adjudicating Authority has given liberty to the Appellant to file an application under Section 65. It is open for the Appellant to file Section 65 Application with appropriate pleadings and materials and in the event of such Application has been filed, the Adjudicating Authority shall consider the Application in accordance with law without being influenced by any observations made in this order. Issue Nos.(3) and (4) 38. The learned Senior Counsel for the Appellant as noted above has contended that Leases having been terminated by the Appellant(s) before admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicating Authority has not adverted to the aforesaid issues, where the CIRP is pending, we are of the view that 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. We, thus, are of the view that the issues, which have been raised and noted with regard to Question Nos.(3) and (4) need no consideration at this stage. It is the Adjudicating Authority, which need to consider the said question first. 41. In view of the foregoing discussions, ends of justice will be served in disposing of these Appeal(s) in following manner: (1) The order dated 10.05.2023 admitting Section 10 Application is upheld. (2) The Appellant(s) are at liberty to file an appropriate Application under Section 65 of the Code with appropriate pleadings and material and Adjudicating Authority while considering the said Application shall not be influenced by any observations made in this order. (3) The Appellant( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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