NCLT's Landmark Ruling: Admittance of S. 10 Application under IBC - A Detailed Analysis

Introduction

In a recent case before the National Company Law Tribunal (NCLT) in New Delhi, a Division bench comprising Ramalingam Sudhakar, J., and L. N. Gupta, (Technical Member), made a significant ruling regarding the admission of a Section 10 (S. 10) application under the Insolvency and Bankruptcy Code, 2016 (IBC). The case involved M/s Go Airlines (India) Ltd., the Corporate Debtor (Applicant), seeking to initiate the Corporate Insolvency Resolution Process (CIRP) due to financial distress caused by defective engines supplied by Pratt & Whitney (P&W), leading to defaults in payments to vendors and aircraft lessors.

Facts of the Case

M/s Go Airlines (India) Ltd., facing financial distress due to faulty engines from P&W, filed an S. 10 application before the NCLT to initiate the CIRP against itself. The applicant also sought an interim moratorium to protect its assets. The applicant had already initiated enforcement proceedings against P&W in various jurisdictions. The creditors opposed the application, requesting a notice to be issued to them before adjudicating the case and expressed their intention to file an S. 65 application under the IBC.

Contentions

The applicant contended that there is a default in payments to vendors and aircraft lessors due to defective engines supplied by P&W. Despite directions from the Emergency Arbitrator, P&W failed to comply, leading to further financial problems for the applicant. The applicant argued that immediate protection under S. 14(1) of the IBC is necessary to prevent asset loss. Additionally, the applicant stated that it fulfills all the requirements under S. 10 IBC and can pray for the initiation of CIRP. The creditors contended that they should be given an opportunity to object to the application before its admission and invoked S. 424 of the Companies Act 2013, highlighting the Principles of Natural Justice.

Moot Points

The primary moot point in this case was whether the NCLT is required to issue notice to the creditors before admitting an S. 10 application under IBC. Moreover, the NCLT needed to determine if an S. 65 application can be entertained even after the commencement of CIRP.

Observations and Rulings

Notice Requirement for Creditors: The NCLT observed that S. 10 applications are in personam, involving litigation between two parties, with the respondent being the Corporate Debtor. Thus, unlike Ss. 7 or 9 applications, there are usually no other parties involved as respondents in S. 10 applications. The NCLT relied on previous cases and found no express provision requiring the application to be served to creditors.

Principles of Natural Justice: The NCLT negated the creditors' contentions regarding the Principles of Natural Justice and referred to Amit Kumar Nag v. Indian Oil Corporation Ltd., (2005), where the Supreme Court emphasized the flexible nature of these principles.

Entertainment of S. 65 Application: The NCLT observed that S. 65 IBC uses the word "initiates" and does not distinguish between pre-admission or post-admission of CIRP. Therefore, the creditors can file an S. 65 application even after the commencement of the CIRP.

Detailed Observations on S. 10 Application

The NCLT thoroughly examined the S. 10 application on merits and found that all the essential elements required under S. 10 IBC were fulfilled. There was a debt, a default had occurred, and the applicant was not disqualified under S. 11. Consequently, the NCLT admitted the S. 10 application and appointed Abhilash Lal as the Interim Resolution Professional (IRP) of the applicant company.

Tabular Summary:

Conclusion

The NCLT, in the case of M/s Go Airlines (India) Ltd., made crucial rulings concerning the admission of an S. 10 application under the IBC. It clarified that there is no mandatory requirement to issue notice to creditors before admitting such an application. Moreover, the Principles of Natural Justice can be flexible in their application. The NCLT also clarified that creditors can file an S. 65 application even after the commencement of CIRP. The ruling enabled the initiation of the CIRP process for M/s Go Airlines (India) Ltd., and appointed an Interim Resolution Professional to handle the case. Additionally, the NCLT declared a moratorium with specific prohibitions under S. 14(1) of the IBC to protect the applicant's assets during the resolution process.

Refer the Judment issued by NCLT: 

https://ibbi.gov.in/uploads/order/7a647877153b2bd186a1eb8e92474a4a.pdf

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Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

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