By : Garima Bothra
INTRODUCTION :
IOn November 7, 2024, the Supreme Court of India ordered the liquidation of Jet Airways following a five-year delay in implementing its resolution plan, initially approved in 2019. The Court remarked that it had “no option” but to direct liquidation of the company. While the Insolvency and Bankruptcy Code, 2016 (“IBC”), does not expressly emphasize the necessity of timely implementation of resolution plans, the Supreme Court underscored this objective, highlighting the importance of expeditious implementation by the resolution applicant, JKC, as a fundamental aim of the IBC.
It is notable that even the preliminary steps toward implementing the resolution plan were embroiled in litigation, impacting the plan’s success. According to the resolution plan, an “effective date” was set 90 days from the approval, within which all conditions precedent were to be satisfied. However, completing these conditions became subject to prolonged litigation. Ultimately, on March 12, 2024, the National Company Law Appellate Tribunal (“NCLAT”) ordered JKC to implement the resolution plan within 90 days of its order. The applicant, however, failed to meet this deadline, citing pending litigation as a reason. The Supreme Court observed that, JKC should have pursued compliance with the NCLAT order expeditiously—a failure that contributed significantly to the Court’s decision to order liquidation.
The SC took into account the Report of the Bankruptcy Law Reforms Committee, 2015 (“2015 Report”). According to the Report:
“Speed is of essence for the working of the bankruptcy code, for two reasons. First, while the “calm period” can help keep an organisation afloat, without the full clarity of ownership and control, significant decisions cannot be made. Without effective leadership, the firm will tend to atrophy and fail. The longer the delay, the more likely it is that liquidation will be the only answer. Second, the liquidation value tends to go down with time as many assets suffer from a high economic rate of depreciation.
From the viewpoint of creditors, a good realisation can generally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realisation is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay.”
The Report recognizes the destructive impact of delays, noting that prolonged resolution processes frequently lead to liquidation, ultimately diminishing a company’s value. The Supreme Court highlighted that, especially when a positive outcome is anticipated, delays can severely impair a company’s recovery potential. In previous judgments, the Court has consistently emphasized the need for a swift resolution process under the IBC, reinforcing the “speed is of essence” principle inherent in the statute. Although the NCLT and NCLAT have the authority to extend time limits for completing certain acts, the Court observed that this power should be exercised judiciously, with consideration of the consequences of repeated extensions. While extensions can sometimes aid in a company’s revival, excessive delays undermine its economic viability and inflate costs.
The Supreme Court further emphasized that the responsibility to implement a resolution plan is a collaborative one, not solely resting on the Successful Resolution Applicant. Lenders and creditors are equally obligated to facilitate the process, offering constructive and ongoing cooperation. They must avoid hindering implementation by making unnecessary demands beyond the agreed resolution plan or by delaying its steps. Rather than taking a passive role, lenders are expected to balance their financial interests with the broader goal of corporate rehabilitation.
The Supreme Court also observed that while tribunals have the authority to extend timelines, it is crucial that the NCLT and NCLAT avoid aiding resolution applicants in circumventing the legal mandates by approving requests to modify or relax plan terms. Additionally, it suggested that for smoother implementation, the Adjudicating Authority, upon approving a resolution plan under Section 31 of the IBC, should outline the next steps each party must undertake to initiate implementation. It further recommended that the IBC consider including statutory provisions for forming a Monitoring Committee upon plan approval, to ensure a seamless handover of the Corporate Debtor to the Successful Resolution Applicant. Another significant issue raised by the Supreme Court concerns the functional challenges faced by the NCLT and NCLAT, including member shortages and inadequate infrastructure. These vacancies severely impact the government’s insolvency reform initiatives, leading to operational inefficiencies.
Ultimately, the case serves as a cautionary example, emphasizing that the effectiveness of the IBC hinges not only on resolving insolvency but on doing so within a timeframe that preserves value and fosters business continuity.
A copy of the judgement of the Supreme Court can be found here.
By: Garima Bothra, Associate
