Go Airlines | NCLT Delhi Imposes Moratorium On Leased Aircrafts, Categorize Them As ‘Property’ U/S 3(27) Of IBC

The Bench observed that leasing aircrafts in aviation industry is a prevalent practice. When a Corporate Debtor under IBC is in Airlines business, the act of taking way aircrafts from the such Corporate Debtor would lead to corporate death.

Background Facts

M/s Go Airlines (India) Limited (“Corporate Debtor/Go Airlines”) is engaged in the business of Airlines and is the third largest airline operator in India.

Go Airlines filed a petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), voluntarily seeking initiation of the Corporate Insolvency Resolution Process (“CIRP”) against itself. On 10.05.2023, the NCLT admitted the petition and initiated CIRP against Go Air.

While imposing Moratorium under Section 14 of IBC, the NCLT had specifically stayed the recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the Corporate Debtor.

SMBC Aviation Capital Ltd, GY Aviation and SFV Aircraft Holdings (“Lessors”) had leased out aircrafts to Go Airlines. The Lessors contended that they had terminated the Lease Agreement of aircrafts prior to initiation of CIRP and imposition of moratorium. The assets belonging to third parties could not be covered under moratorium and must be reverted to the Lessors. Further, the aircraft engines are highly delicate and complex machines, therefore, require timely servicing and maintenance.

Accordingly, the Lessors filed an application under Section 60(5) of IBC before the NCLT seeking the following reliefs:

• To direct Go Airlines to refrain from operating or flying the Aircraft for commercial use;
• To permit to depute an agency or an inspector to conduct inspection of the Four Engines; and
• To direct the Resolution Professional of Go Airlines to protect and maintain the Subject Aircraft, and ensure that the Aircraft, engines and other parts are duly protected from any unauthorized access, removal, replacement, operation or use by the personnel of Go Airlines and/or any other person.

NCLT Verdict

Aircrafts leased by lessor are Property as per S. 3(27) and subject to imposition of moratorium

Section 14 of IBC states that post commencement of CIRP, the NCLT is empowered to declare moratorium. Further, Section 14(1)(d) of IBC empowers the NCLT to prohibit recovery of any ‘property’ by an owner or lessor, where such property is occupied by or in the possession of the Corporate Debtor.

The Bench observed that Section 3(27) of IBC defines ‘Property’ as “money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property;”

Based on these provisions, the Bench took the view that the aircrafts leased to Go Airlines by Lessors come within the definition of ‘Property’ and thus moratorium can be imposed over leased aircrafts.

“From the above definitions, it is evident that these aircrafts which were provided by the Lessor on Lease to the Corporate Debtor, come within the definition of the ‘property’ as per the IB Code, 2016, and as per Section 14 (1) (d), the moratorium has been imposed upon the property. It has been held by the Hon’ble Supreme Court in Rajendra K. Bhuta V. Mahrashtra Housing and Area Development Authority (AIR 2020 SC 3274) and another that the term ‘occupied by’ would mean actual physical possession. The physical possession of the aircrafts/engines is indisputably with the Corporate Debtor. Therefore, in terms of Section 14(1) (d) the Applicants would not be within their rights to claim possession of these aircrafts/engines.”

The Bench further observed that leasing aircrafts in aviation industry is a prevalent practice. When a Corporate Debtor under IBC is in Airlines business, the act of taking way aircrafts from the such Corporate Debtor would lead to corporate death.

“In the aviation industry, the prevailing practice is that most Airlines lease the aircrafts for their operation rather than own them. In other words, the aircrafts are not as such the property of the airlines. Therefore, the application of the provision of the IBC and the process of insolvency would have no meaning in respect of Airlines as Corporate Debtors, if the sole essence of the Corporate Debtor’s business is taken away. It would result in corporate death of the Corporate Debtor, leaving no scope for resolution of the Corporate Debtor.”

Additionally, the Bench observed that the Directorate-General of Civil Aviation (“DGCA”) has not deregistered the aircrafts. Therefore, it is open for Go Airlines to resume flight operations. In order to maintain Go Airlines as a going concern, the Bench has permitted it to operate the aircrafts. However, the safety norms prescribed by the Regulators have to be adhered.

The Bench has rejected the prayers of the Lessors and has granted interim relief only to the extent of protection and maintenance of subject aircraft/engines by the Resolution Professional.

Case Title: Go Airlines (India) Limited

Case No.: Company Petition No. (IB)-264(PB)/2023

Counsel for Applicant: Mr. Anandh Venkataramani, Mr. Saket Satapathy, Mr. Anubhav Dutta, Mr. Priyal Shah, Mr. Sashank Mehta in IA/3048/2023

Mr. Ameya Gokhale, Ms. Meghna, Mr. Vaijayant Paliwal, Mr. Rishabh Jaisani, Mr. Harit Lakhani, Ms. Megha Khandelwal, Advs. in IA/3277/2023 & IA/3280/2023

Mr. Arun Kathpalia, Sr. Adv. with Ms. Meghna Rajadhyaksha, Mr. Vaijayant Paliwal, Mr. Rishabh Jaisani, Mr. Harit Lakhani, Ms. Megha Khandelwal, Advs. in IA/2944/2023

Mr. Chinmoy Pradip Sharma, Mr. Ritesh Singh, Mr. Ajay Kumar, Ms. Anchal Nanda, Mr. Hetram Bishnoi, Mr. Navneet Singh, Mr. Irfan Haseib, Mr. Babul, Mr. Krishnajyoti Deka, Advs. in IA/2850/2023

Mr. Arvind Nayar, Sr. Adv. with Mr. Prayaya Goyal, Amit Tiwari 06.07.2023 Mr. Chiranjivi Sharma, Ms. Apoorva Kaushik, Ms. Neetika Gharma, Mr. Girish Shankar, Mr. Shubham Pandey, Mr. Akshay Joshi, Advs. in IA/3254/2023

Counsel for CoC: Mr. Varghese Thomas, Mr. Fatena Chawla, Ms. Aditi, Mr Dheeraj Nair, Ms. Ridhima Sharma, Mr. Akhil, Mr. Angad Baxi, Ms. Vishrutyi Sahai, Advs.

Counsel for RP: Mr. Ramji Sriniwasan, Sr. Adv. with Mr. Vishnu Sriram, Adv.

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