Four issues between lenders and Jalan-Kalrock delay Jet Airways take-off

• Who will pocket rent coming from the leased plane of Jet Airways?
• Who will pay provident fund (PF) and gratuity dues to previous employees?
• Can State Bank of India-led lenders ask Jalan-Kalrock Consortium (JKC) to give an undertaking that modifies the National Company Law Tribunal (NCLT)-approved resolution plan?
• Has JKC fulfilled the conditions precedent (CPs), such as owning domestic airport slots and international traffic rights, mentioned in the resolution plan?

These are the four primary issues that have soured the relationship between SBI-led lenders and JKC and delayed the resumption of commercial flights by Jet Airways, once India’s largest private airline, which went bankrupt in 2019. Over the past three years, the airline went through an insolvency process under which JKC’s resolution plan was approved by a committee of creditors (lenders) and the National Company Law Tribunal (NCLT) in October 2020 and June 2021, respectively.

But this didn’t mean an end to the problems.

“The issue of collection of aircraft lease rent was the first bone of contention that rose between the lenders and JKC,” said a source privy to the development. SBI and JKC did not respond to queries sent by <Business Standard>.

Under its original promoter Naresh Goyal, Jet Airways had bought an A330 aircraft (MSN 885) by securing a loan from Barclays Bank. This plane was then leased to Etihad Airways, which subsequently leased it to Air Serbia. Under the resolution plan, Jet Airways asked Etihad Airways to use the monthly lease rent to repay the Barclays Bank loan. This repayment was completed by December 2020, according to sources.

Over and above this, between January 2021 and August 2022 about Rs 180 crore of lease rent was deposited with Jet Airways, which, under the resolution plan, was to be utilised by the airline as working capital, primarily to refurbish its ground support equipment at airports in India. “The entire variable portion of rent received by the corporate debtor (Jet Airways) and the fixed rent (after repayment of loan to Barclays Bank) will be utilised by the corporate debtor for working capital purposes, with preferential deployment towards acquiring/maintaining/refurnishing/replacing the existing ground support equipment and consumables at airports in India to help support its domestic operations,” the resolution plan stated. The lenders, however, have repeatedly told JKC that the lease rent must be distributed among them.

Meanwhile, the NCLT is hearing an application by JKC in which it has stated that since it has fulfilled the five CPs mentioned in the resolution plan, the lenders should hand over the airline to JKC so that it can infuse funds according to the plan. According to sources, once the NCLT announces its judgment on this application, JKC is likely to file a separate case with it to resolve the issue of lease rent usage.

On the issue of payment of PF and gratuity dues to Jet Airways’ previous employees, five of the airline’s employee unions moved the National Company Law Appellate Tribunal (NCLAT), immediately after the NCLT approved JKC’s resolution plan. That’s because under the resolution plan, only Rs 52 crore (out of total Rs 475 crore classified for settlements to all stakeholders) has been classified for payment of employees’ dues, but the PF and gratuity dues are significantly higher than that.

During the NCLAT hearings, both lenders and JKC made the same point. The lenders’ lawyer opposed the employees’ plea stating that the “resolution plan satisfies all the checks and balances in place” under the Insolvency and Bankruptcy Code. The lenders’ lawyer said that the resolution plan provides for a fixed sum of Rs 52 crore to be paid to employees to settle all the claims made by them. JKC’s lawyer said the same thing.

But this turned out to be an outward show of amity. On June 4 this year, outside the NCLAT hearings, the lenders shared with JKC a draft of an undertaking that essentially “indemnified” the former against future adverse legal proceedings and stated that all claims and liabilities arising due to the “outcome of any pending litigation” will be paid by JKC. These claims and liabilities will be “over and above the amount proposed” under the resolution plan.

The draft also stated that the lease rents from the A330 plane will be “appropriated” by the lenders and JKC will meet “any shortfall in meeting financial obligations towards the stakeholders”. Moreover, according to JKC, the draft said that if there is any conflict between the provisions of the resolution plan and the undertaking, the contents of the undertaking will prevail.

JKC declined to sign this undertaking, not least because it would amount to indirectly modifying the resolution plan that NCLT had approved a year ago. In the NCLT hearing last week, JKC’s lawyer stated that “the lenders had the ‘cheek’ to try to enforce the undertaking which modifies the resolution plan that was in fact passed by your lordships”.

Meanwhile, on October 21, NCLAT pronounced its order stating that JKC had to pay the full amount of PF and gratuity dues of Rs 203 crore. A monitoring committee meeting took place on November 2 in which the lenders, according to JKC, insisted that the consortium should make this “additional payment” of Rs 203 crore and in return, the lenders would acknowledge the fulfilment of the CPs. JKC called such steps “arm-twisting”. Now, sources say, JKC is likely to move to the Supreme Court against the NCLAT order.

So, what were the five approved CPs? They were: submission of business plan to Directorate General of Civil Aviation (DGCA) and the Ministry of Civil Aviation; allotment of domestic slots; international traffic rights clearance; approval of demerger of ground handling business; revalidation of Jet Airways’ air operator certificate by DGCA.

JKC said that it fulfilled all five CPs on May 20, and informed the lenders and NCLT about it on the next day. Last month, the lenders told NCLT that the first three CPs have not been fulfilled.

This contention by the lenders was confusing because the NCLAT order of October 21 stated that JKC has “completed all necessary CPs to the satisfaction of the monitoring committee”. Both lenders and JKC are part of the monitoring committee. In fact, JKC raised NCLAT’s statement in the ongoing NCLT case. “The finding of the NCLAT order has not been challenged by any party including lenders as on date,” JKC noted.

After observing that this two-month order of NCLAT is being quoted in the ongoing NCLT case, the lenders have now decided to move a clarification application at NCLAT. According to sources, the lenders have stated in their application that the point about all CPs being fulfilled to the satisfaction of the monitoring committee has been incorrectly recorded and should be deleted from NCLAT’s October 21 order.

The clarification application has been listed for hearing on December 20 at NCLAT.

Meanwhile, in this complex game of claims and counter-claims, Jet Airways, which was supposed to take to the skies again by October this year, remains firmly on the ground.

Manifest differences

• The resolution plan says Jet Airways will use proceeds from aircraft lease rentals as working capital; lenders want the proceeds shared with them
• The resolution plan earmarks Rs 52 crore as PF and gratuity dues for former Jet Airways employees; the airline’s unions moved the appellate tribunal (NCLAT) for payment of full dues of Rs 203 crore, which was upheld
• Lenders ask JKC to indemnify them from future liabilities; JKC declines, stating that this would amount to modifying the approved resolution plan
• Lenders say JKC has not approved three of the five CPs; JKC says the NCLAT stated that they had; the lenders now plan to move the NCLAT for a clarification