Turbulence in Insolvency Process of Jet Airways

Turbulence in Insolvency Process of Jet Airways

Satvik Varma

The ongoing insolvency proceedings against Jet Airways in India and Netherlands bring to fore the lacunae in the Insolvency and Bankruptcy Code, 2016 (IBC) to deal with cross-border insolvencies. Cross-border insolvency involves the handling of distressed debtors who have assets and/or creditors in several countries, and become subject to insolvency proceedings in multiple jurisdictions. If these companies were to flounder, and insolvency proceedings get initiated, it is imperative that these diversely located assets be protected and the claims of creditors from the various jurisdictions be collated and resolved.

In the Netherlands, an Administrator has been appointed by a Dutch Court, to takes charge of the assets of debt-ridden Jet Airways and has confiscated a Boeing 777 owned by Jet, which this Administrator undertook before the Indian Company Law Tribunal, not to dispose-of. Owing to the non-cooperation of the Indian Resolution Professional (RP) and the Committee of Creditors (COC), the Administrator seeks to withdraw its undertaking and proceed independent of the Indian proceedings.

One reason for this withdrawal is payment of fees to the Dutch Administrator by the Indian RP. The matter now stands before the National Company Law Appellate Tribunal (“NCLAT”), where the Administrator has filed an appeal. At a time when India is the preferred foreign investment destination, becoming the stomping ground for the world’s leading multinational corporations, it is startling that the IBC enacted just a few years ago chose to give a miss to the United Nations Commission on International Trade Law, Model Law on Cross-Border Insolvency (Model Law) which many other jurisdictions like the United States, United Kingdom, Singapore and Japan, adopted into their domestic legislation. 

The IBC has only two provisions, Section 234, which relates to Agreements with foreign countries, and Section 235, pertaining to letter of request to a country outside India, which envisage cross-border insolvency cases. In November 2017, an Insolvency Law Committee was appointed to suggest amendments to the IBC, which submitted its reports in 2018 and opined that the “the existing provisions in the Code do not provide a comprehensive framework for cross border insolvency matters.” The Committee attempted a comprehensive framework based on the Model Law and contemplated inserting a separate chapter in the IBC. The Committee also noted that the cross-border insolvency network needed immediate attention and suggested the IBC be brought in harmony with the Model Law. 

With this in mind, the Committee identified the four basic principles on which the Model Law is based that need to be incorporated into our domestic framework, i.e. (i) Access, to allow foreign insolvency professionals and foreign creditors direct access to domestic courts and enable them to participate in and commence domestic insolvency proceedings; (ii) Recognition, of foreign proceedings and provision of remedies by domestic courts based on such recognition. Further, granting relief on the basis of whether the foreign proceeding is a main or a non-main proceeding on the basis of the concept of ‘centre of main interests’ (iii) Cooperation, between domestic and foreign courts, and; (iv) Coordination, when multiple proceeding have been initiated in several jurisdictions. These would have allowed a greater degree of streamlining and efficacy in complex cross-border insolvencies like in the case of Jet Airways.

Regrettably, nothing came out of these reports.  Independently, the Supreme Court back in 2017 ruled that foreign creditors shall stand on equal footing as domestic creditors to initiate corporate resolution insolvency process, however, several practical difficulties exist. Illustratively, the IBC provides for a moratorium which operates upon admission of corporate insolvency and restricts fresh cases or continuation of existing suits against the debtor. It also prohibits the debtor’s assets from being encumbered or transferred. However, the moratorium operates only in India and is only applicable to assets of the debtor located in India. Indian creditors do not have access to the debtor’s foreign assets. Owing to this, the NCLAT, observed in its latest hearing that the COC can only advise the RP on offshore claims and otherwise has no role to play.

Consequently, the appeal before NCLAT by the Dutch Court-appointed Administrator highlights how immediate attention indeed is required to decide on the priority of claims of foreign creditors and foreign insolvency proceedings vis-a-vis domestic creditors and domestic insolvency proceedings. This harmonization will have to be done in a manner that it protects the alienation of assets belonging to the domestic entity, which are located in a foreign jurisdiction, to the detriment of domestic creditors, whilst also balancing the claims of the foreign creditors and administrators. Jet Airways may be the test case, but many others could potentially follow. After all, it’s only fair that if one is eating in a group with others, the bill is split by going Dutch!  

The piece was first published in ToI.

Satvik Varma is a litigation counsel and corporate attorney based in New Delhi. A graduate of Harvard Law School, he’s licensed to practice both in India and New York. 

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