Unlike most other companies facing insolvency proceedings, Jet Airways Ltd.’s fate hinges on one key legal question. The answer will determine whether Jet comes out of Insolvency and Bankruptcy Code with a resolution plan or heads to liquidation.
The Ministry of Civil Aviation, the resolution professional and Sahara India Commercial Corp. completed their arguments in Jet Airways insolvency case earlier this week. The Mumbai bench of the National Company Law Tribunal has reserved its order.
The key question before the tribunal is- whether Jet can reclaim landing slots that have now been allotted to other airlines. A landing slot is a permission given to a particular airline to use the full range of airport infrastructure necessary for arrival and departure. The government has denied Jet any historical right over the slots allotted to it before it went into insolvency.
The tribunal’s interpretation is critical because the approved resolution plan, submitted by a consortium led by Dubai-based entrepreneur Murari Lal Jalan and Kalrock Capital, is contingent on the slot situation going Jet’s way.
Meanwhile, Sahara India has claimed that it’s a secured operational creditor with an interest in Jet’s property in Bandra Kurla Complex in Mumbai.
As the various stakeholders await the final order, here are the key arguments that took place before the NCLT.
Should Be Allowed To Retain Historicity: Jet Airways
The 2013 guidelines on airport slot allocation lay down a ‘use it or lose it’ rule.
Historic precedence is only granted if the airline can demonstrate that the slot was operated at least 80% of the time during the period allocated in the previous equivalent season. Simply put, an airline can get the same slots if it can show 80% utilisation during the previous schedule.
Jet has submitted that its utilisation was 71.69% for the slots allocated to it during Winter 2018 season. And so, it has substantially complied with the requirement of 80% utilisation before insolvency proceedings were initiated against it.
Jet’s second argument pertains to protection provided under the Insolvency and Bankruptcy Code.
Section 14 of the IBC says that during the moratorium period, any license, permit, etc. issued by the government cannot be suspended or terminated on the ground of insolvency. And the slot allocation guidelines say in case of bankruptcy the airline’s representative must inform the coordinator. Slots may be reserved for one month pending a formal takeover.
“If dialogue has not been initiated within a reasonable deadline set by the coordinator and if there is no legal protection linked to bankruptcy then the coordinator should reallocate the slots.” - 2013 Slot Allocation Guidelines
Jet has argued before the NCLT that it had informed the ministry and Directorate General of Civil Aviation of the legal protection linked to bankruptcy available to it, but got no response or objection from them.
Jet’s final argument relates to IBC’s primacy over all other laws and its objective. IBC mandates all stakeholders – including the government - to work towards resolution. As long as regulatory requirements relating to safety and security are adhered to, the intent of the insolvency law should be upheld, Jet has argued.
Slots Are Not Any Airline’s Asset: DGCA
The DGCA has stated that slots can’t be owned by any single entity. Slot allocation is done by the respective airport operators and that Jet can’t claim these slots as matter of right.
Once Jet ceased its operations, the DGCA has pointed out, the total inventory of passenger aircraft being operated in India got reduced by about 100 plus aircraft. To avoid any adverse impact on the civil aviation industry, the government invited other airlines to enhance their capacity.
“Many airlines like IndiGo, SpiceJet and GoAir, etc. responded positively and invested huge amount of money …now such entities can’t be deprived of these slots, without any valid reasons and also without any force of law.” - DGCA
Jet also can’t claim historicity on the slots which were allotted to it for Winter 2018 and Summer 2019 Season, DGCA said. This since the airline had stopped operations even before insolvency proceedings started.
Thus, on the date of imposition of moratorium, neither they had any slots nor they had the right to claim historicity on the slots allotted to them in Winter 2018 and Summer 2019 Season.DGCA
As and when as Jet Airways applies, slots would be allocated among all the airlines without any claim of historicity, the DGCA has said.
Claims ‘Mindlessly’ Rejected: Sahara India
Jet and Sahara India’s relationship dates back to 2006 when the merger between the two had failed. A legal battle ensued before the Bombay High and the Supreme Court.
In 2016, during the pendency of the case before the apex court, Jet had committed to not encumber one of the floors of its BKC property. This undertaking amounts to a claim to the said property as has been created to secure its interests. And so, the operational debt was secured by creation of charge on 75,000 square feet of the BKC property, Sahara India said in its submissions before the NCLT.
But the resolution applicant has ‘mindlessly rejected the claims’ and failed to recognize it as a secured operational creditor, Sahara India has alleged. So, either its debt must be secured in the resolution plan or the creditors’ committee must be prohibited from dealing with the property over which Sahara India has interest, it argued.
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