The liquidation proceedings for Go First Airlines have been delayed due to concerns over the legitimacy of securing third-party funding for arbitration. The National Company Law Tribunal (NCLT) in India has postponed its decision regarding the appointment of a liquidator, raising critical questions about the approval of external funding for the airline’s case at the Singapore International Arbitration Centre (SIAC).
During a hearing today, a tribunal panel, consisting of Judicial Member Mahendra Khandelwal and Technical Member Dr. Sanjeev Ranjan, questioned the legality of a liquidating company obtaining third-party financial support. The panel requested Senior Advocate Ritin Rai, representing Go First Airlines, to provide legal precedents from the National Company Law Appellate Tribunal (NCLAT) or the Supreme Court to support the airline's request.
Creditors Decline Funding Support
In his response, Rai mentioned that the Committee of Creditors (CoC) had opted against funding the arbitration, having already invested INR 1.6 billion (USD 19 million) into the airline's operations. This decision left Go First with limited options for securing alternative funding. Rai also noted that the funding source was based outside India, but did not disclose the identity of the firm involved.
Liquidator Appointment Dispute
The liquidation application was filed under Section 33(1) of the Insolvency and Bankruptcy Code (IBC), requesting the appointment of Shailendra Ajmera, a partner at EY New Delhi, as the liquidator. However, the tribunal expressed dissatisfaction, citing a circular issued by the Insolvency and Bankruptcy Board of India (IBBI) in July 2023. The circular advised that a person other than the Resolution Professional (RP) should be appointed as the liquidator. The bench clarified that the RP may participate in the liquidation process in another capacity but not as the liquidator.
Atypical Liquidation Process
The tribunal noted that the situation involving Go First Airlines was unusual, as the airline sought liquidation before completing the full Corporate Insolvency Resolution Process (CIRP), a crucial phase in Indian insolvency law. In light of the tribunal's inquiries, Rai requested additional time to seek further instructions. The case is scheduled for review on 8 November 2024.
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Background on Go First's Insolvency
Go First Airlines filed for voluntary insolvency under Section 10 of the IBC on 2 May 2023. The NCLT granted the request on 10 May 2023, appointing a Resolution Professional to oversee the airline's operations. Following this, Go First’s aircraft lessors appealed to the NCLAT, arguing that their assets were unlawfully retained despite lease terminations prior to the imposition of a moratorium on aircraft deregistration.
On 22 May 2023, the NCLAT upheld the NCLT’s ruling, instructing the lessors to file a clarification request with the NCLT regarding the moratorium's application to their aircraft. The lessors later approached the Delhi High Court, seeking an order for the Director General of Civil Aviation (DGCA) to deregister their aircraft.
Initially, the DGCA opposed the deregistration, citing the ongoing moratorium. However, a notification issued by the Ministry of Corporate Affairs on 4 October 2023 clarified that Section 14(1) of the IBC would not apply to transactions involving aircraft, engines, airframes, and helicopters. Following this, the DGCA recognized the exemption but awaited court instructions as the Go First matter remained under judicial review.
On 26 April 2024, the Delhi High Court ordered the deregistration of Go First’s aircraft, which led the DGCA to proceed with the deregistration of all 54 aircraft operated by the airline. The court also appointed the lessors to manage the maintenance of the deregistered aircraft until their export, per Rule 32A of the aircraft rules.
CoC’s Decision to Liquidate Go First
The Committee of Creditors ultimately decided to liquidate Go First after exhausting all efforts to restore the airline and fully depleting its aircraft resources. The formal application for liquidation was filed last month, leading to the hearing held this morning.
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