NCLT Mumbai: Assets Of CD Held By Third Parties Must Be Released To RP For Revival And Resolution Of CD

Background Facts:

In 2017, TWC Aviation Capital Limited (Creditor) entered into a Lease Agreement with Jet Lite (India) Limited ('Jet Lite') for two engines (Engine Nos. 895134 and 894147) owned by the creditor. Jet Airways (India) Limited (Corporate Debtor) provided a guarantee towards Jet Lite's obligations under the said lease via a Deed of Guarantee.

Another Engine No. 890506 originally owned by the Corporate Debtor was installed in an aircraft in place of Engine No. 894147 since the said engine was sent for repairs.

Mr. Ashish Chhawchharia (Applicant), RP for the Corporate Debtor claimed that the creditor terminated the Lease Agreement, repossessed the aircraft, and obtained Engine No. 894147. However, after repossessing its aircraft from Jet Lite, the Creditor leased the said aircraft to SpiceJet Limited (Respondent No. 2) with the Corporate Debtor's engine still attached and is now holding both engines (including the Corporate Debtor's Engine No. 890506).

Therefore, the RP filed the application to seek immediate return of Engine No. 890506 originally owned by the Corporate Debtor under Section 18(1)(f) of IBC, payment of Rs. 13.31 crores plus additional usage fees for the period from 24.04.2019 to 21.01.2021. The RP has also sought continued lease rental payments and usage fees until the disposal of the application.

Contentions of the Parties:

Creditor:

The Creditor contended that as per the Lease Agreement, Engine No. 890506 which replaced Engine No. 894147 was a part of the aircraft until Engine No. 894147 returned from service and repair, which Jet Lite failed to retrieve. It argued that since it incurred costs in retrieving its engine, it holds a lien over Engine No. 890506 as per Article 10 of the Cape Town Convention.

Resolution Professional:

The RP contended that the creditor's claim of USD 4,529,889 has been admitted by the RP and included in the approved resolution plan has not been contested. Therefore, the creditor is prohibited from asserting any lien or bailment against the Corporate Debtor's assets.

NCLT Verdict:

The NCLT Mumbai allowed the application and held that assets of the Corporate Debtor held by third parties must be released to the RP for the resolution and revival Corporate Debtor. It also ruled that charge holders may file their claims in the appropriate class if they believe they hold a charge over such assets.

The Tribunal, relying upon Clause 8.7 of the Lease Agreement, observed that the creditor cannot have possession of all three engines (including Engine No. 890506) as the Clause indicates that the removed part shall vest with Jet Lite. It directed the creditor to return Engine No. 890506 to the Corporate Debtor.

The Tribunal noted that the responsibility to repay the charges for retrieving the engines lies with Jet Lite. Even if the Corporate Debtor had acted as surety for Jet Lite's obligations, making it responsible for these charges, the appropriate remedy for the creditor was to submit a claim in the Corporate Debtor's resolution process. These repair costs should have been claimed directly from Jet Lite and, by extension, from the Corporate Debtor as the surety.

NCLT also rejected the creditor's claim to a lien over Engine No. 890506, noting that it has monetized the Corporate Debtor's engine and unjustly enriched itself. It further noted that the creditor has taken the benefit of the remedy by filing a claim in the Corporate Insolvency Resolution Process ('CIRP') of the Corporate Debtor, which includes lease rentals, repossession costs, and other claims and therefore, includes the charges for retrieval of two engines from the repair service. Moreover, since the CIRP has also been completed with the approval of the Resolution Plan, the claim of the creditor has attained finality.

In conclusion, NCLT Mumbai has directed the Creditor and Spice Jet to return Engine No. 890506 to the Corporate Debtor within 60 days. Further, it ruled that the creditor's lien ceases to exist post-retrieval of the original engine to the Corporate Debtor. Additionally, it has directed the creditor to pay USD 12,403,520 in usage charges for the period from April 24, 2019, to January 21, 2021.

Case Title: Mr. Ashish Chhawchharia, Resolution Professional of Jet Airways (India) Limited vs. TWC Aviation Capital Limited and Ors.

Case No.: IA No. 342/MB/C-I/2021 in C.P (IB) No.2205/MB/C-I/2019

Counsel for Applicant: Mr. Malhar Zatakia, Advocate

Date of Judgment: 24^th June, 2024

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