NCLT admits Go First’s plea for insolvency, puts moratorium

Go First has sought voluntary insolvency resolution proceedings and interim moratorium.

The tribunal also ordered a moratorium on Go First's assets and leases. (File image)

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The National Company Law Tribunal (NCLT), on Wednesday, admitted Go First’s voluntary insolvency plea, resulting in a moratorium on the airline’s financial obligations, and even lessors will not be able to take possession of the aircraft which are on lease.

While the tribunal’s order is a significant relief for the airline, its flight path is still beset with legal hurdles. The first hurdle appeared within hours of the order, with aircraft lessor SMBC Aviation Capital moving the National Company Law Appellate Tribunal (NCLAT) against the ruling. The matter is listed for hearing on Thursday.

Also Read | Lessors seek repossession of 20 Go First planes; NCLT reserves insolvency plea order

Other lessors, like Narmada Aviation Leasing, Yamuna Aviation Leasing, GAL MSN, and GY Aviation Lease, have also opposed Go First’s plea and submitted in the NCLT that they wish to file an application under Section 65 of IBC, which deals with fraudulent or malicious initiation of proceedings.

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In its 41-page order, the NCLT said that since the airline had filed the insolvency plea under Section 10 of the Insolvency and Bankruptcy Code, the petition could be admitted without first issuing notices to creditors/lessors and hearing them out.

However, parties having objections to its insolvency plea and moratorium can file separate applications in the tribunal.

Legal experts said that while lessors can file objections in the NCLT or NCLAT, they will not be able to take repossession of the aircraft immediately. “Lessors have no choice now but to seek relief from the NCLT or NCLAT,” Diljit Titus, managing partner, Titus and Company, said.

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Section 10 is different from Sections 7 and 9. Under the latter, financial and operational creditors take the corporate debtor to the NCLT upon default in payment of dues. Section 10 of the IBC allows a debtor to initiate an insolvency resolution process against itself if it has committed any default.

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Go First defaulted in payments to banks on May 3. The company filed its insolvency plea on May 2. According to the NCLT order, on May 4, Go First committed a default of Rs 11.03 crore towards interest dues of the financial creditors.

The total liabilities of Go First are Rs 11,463 crore, of which bank dues are Rs 6,521 crore. Of this, Rs 1,300 has been drawn under the government’s emergency credit line guarantee scheme (ECLGS). It has defaulted Rs 2,660 crore toward aircraft lessors and Rs 1,202 crore towards its vendors.

Go First has 7,000 employees on its payroll and a total fleet strength of 54. Of these, 28 aircraft are grounded due to engine issues with Pratt & Whitney, and 26 are operational. Lessors have moved the Directorate General of Civil Aviation, demanding the deregistration of 45 planes.

On Wednesday, while admitting the company’s insolvency plea, the NCLT appointed Abhilash Lal as the interim resolution professional (IRP), who will be in charge of the airline’s affairs as the board has been suspended. The tribunal also directed that no employees be retrenched.

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It also directed the suspended management to deposit Rs 5 crore with the IRP to meet immediate expenses.

Go First CEO Kaushik Khona described the NCLT’s decision to admit the airline’s plea as a “landmark judgement” that is timely and effective for its revival. He said that this is a perfect example in the context of the revival of a viable business before it becomes unviable and is very timely and effective. —FE