The Insolvency and Bankruptcy Code at Play: Jet Airways’ Legal Battle for Survival

Jet Airways, once India’s premier full-service airline, was a symbol of success in the aviation industry. However, by 2019, financial distress caused by mounting debts, increasing competition, and mismanagement had pushed the airline to the brink of collapse. This financial turmoil led to the grounding of Jet Airways, leaving thousands of employees, creditors, and passengers stranded, both literally and figuratively. In June 2019, insolvency proceedings were initiated under India’s Insolvency and Bankruptcy Code (IBC), 2016, marking the beginning of a long legal battle aimed at reviving the airline.

While Jet Airways’ insolvency case gained widespread attention due to its high-profile nature, it also underscored a significant issue—the challenge of cross-border insolvency in India. With assets and creditors spread across multiple jurisdictions, the case brought to light the gaps in Indian insolvency framework, particularly in dealing with international aspects of corporate distress. The airline’s assets in the Netherlands, for instance, became a focal point of parallel insolvency proceedings in both India and Dutch courts. These developments highlighted the limitations of the existing legal framework under the IBC, particularly the provisions of Sections 234 and 235, which govern cross-border insolvency matters.

This article explores how Jet Airways’ legal battle unfolded under the IBC, examining the existing cross-border insolvency provisions and their inadequacies. It also delves into the potential solutions that India can adopt to address these challenges, particularly by looking at international best practices such as the UNCITRAL Model Law on Cross-Border Insolvency. Through this case study, we aim to understand the pressing need for reform in India’s cross-border insolvency regime to better align it with global standards and ensure the smooth resolution of multinational insolvencies in the future.

Facts of the Jet Airways Case

The insolvency of Jet Airways resulted in the initiation of Corporate Insolvency Resolution Proceedings (CIRP) under the IBC, 2016. The proceedings spanned multiple jurisdictions, culminating in a landmark resolution plan approved by the National Company Law Tribunal (NCLT), Mumbai, in 2021. The case highlighted key issues in India’s cross-border insolvency regime and involved three significant court orders over two years.

Initiation of Insolvency Proceedings in India

The corporate insolvency proceedings against Jet Airways began with three petitions filed by creditors seeking the initiation of the CIRP due to the airline’s substantial outstanding debts. This led to the filing of Company Petition No. 2205 (IB)/MB/2019 before the NCLT, Mumbai Bench. During the first hearing, it was brought to the tribunal’s attention that a month earlier, insolvency proceedings had already been initiated against Jet Airways by a District Court in the Netherlands.

The NCLT faced the challenge of addressing the issue of parallel insolvency proceedings in two different jurisdictions. The tribunal expressed concerns that allowing concurrent proceedings would cause delays and complicate the insolvency process. While Sections 234 and 235 of the IBC allow for recognition of foreign court orders, these provisions require reciprocal agreements between the Indian government and foreign countries—no such arrangement existed between India and the Netherlands in this case.

Taking into account that Jet Airways’ registered office and primary assets were in India, the NCLT asserted its jurisdiction over the matter. On 20th June 2019, the tribunal ruled that the Dutch insolvency proceedings were null and void concerning Indian assets, and it formally admitted the corporate insolvency resolution process against Jet Airways under Indian law.

Appeal Before NCLAT

The NCLT’s decision not to recognize the Dutch proceedings was challenged by the Dutch bankruptcy trustee in Company Appeal (AT) (Insolvency) No. 707 of 2019 before the NCLAT, Delhi. The trustee requested that the Indian courts consider coordinating with the Dutch insolvency process to ensure a smoother resolution for all creditors.

Upon hearing the appeal, the NCLAT directed the Resolution Professional (RP) managing Jet Airways’ insolvency in India to explore the feasibility of a joint resolution process in collaboration with the Dutch trustee. After negotiations, the RP and the Dutch trustee reached an agreement for a Proposed Cooperation Model, allowing for coordinated efforts in resolving the airline’s debts across both jurisdictions.

The NCLAT, in its order dated 26th September 2019, approved the cooperation model, allowing the Dutch trustee to participate in meetings of Jet Airways’ creditors in India. This decision marked an important step toward resolving India’s first major cross-border insolvency case under the IBC.

Final Approval of the Resolution Plan

Following the agreement on the cooperation model, a resolution plan for Jet Airways was submitted by a consortium led by Kalrock Capital and Murari Lal Jalan. The resolution plan proposed restructuring Jet Airways’ debt and reviving the airline’s operations.

In Interlocutory Application No. 2081 of 2020, the NCLT, Mumbai Bench, reviewed the proposed resolution plan and on 22nd June 2021, gave its final approval. The tribunal accepted the resolution plan on most points and granted the consortium a 90-day window to obtain the necessary regulatory approvals from the Directorate General of Civil Aviation and other authorities. Additionally, the NCLT ordered the creation of a Monitoring Committee to oversee the implementation of the resolution plan.

While the approval of the resolution plan marked the formal conclusion of India’s first cross-border insolvency case under the IBC, it also raised significant questions about the adequacy of India’s legal framework for dealing with cross-border insolvencies. The case underscored the need for reforms, particularly in addressing the shortcomings of Sections 234 and 235 in facilitating international cooperation.

Inadequacy of the Cross-Border Insolvency Framework in India

The Jet Airways insolvency case vividly highlighted the limitations of the IBC’s provisions, especially in cases involving foreign assets and creditors. The two key provisions related to cross-border insolvency under the IBC, Section 234 and Section 235, though intended to facilitate international cooperation, are largely ineffective due to the lack of reciprocal agreements and established procedural mechanisms.

Section 234: The Reciprocal Arrangement Requirement

Section 234 of the IBC addresses cross-border insolvency by allowing India to enter into bilateral agreements with foreign countries for cooperation in insolvency matters. The provision theoretically permits the Indian insolvency regime to extend its reach to assets or proceedings located in foreign jurisdictions. However, the effectiveness of this section is contingent on the existence of a reciprocal arrangement between India and the concerned foreign country. In practice, India has not entered into any such reciprocal agreements under the IBC, making this provision largely inoperative.

Without these agreements, India lacks a formal legal framework to recognize and enforce foreign insolvency proceedings within its borders, and vice versa. In the case of Jet Airways, for example, insolvency proceedings were initiated in both India and the Netherlands. The absence of a reciprocal arrangement between the two countries under Section 234 led to a legal impasse, requiring a more complex negotiation process to establish cooperation between Indian and Dutch courts. The reliance on ad hoc solutions, such as the Proposed Cooperation Model in Jet Airways’ case, demonstrates the inadequacy of Section 234 in its current form.

Section 235: The Letter of Request Mechanism

Section 235 of the IBC allows Indian courts to request assistance from foreign courts in cross-border insolvency matters. If a corporate debtor has assets abroad, the Indian tribunal can issue a letter of request to the appropriate foreign court or authority, seeking cooperation for actions concerning the debtor’s assets located outside India.

However, the effectiveness of Section 235 is limited by the same issue as Section 234—the absence of reciprocal arrangements. Without formal agreements, there is no obligation for foreign courts to act on these letters of request, making the mechanism weak and unreliable. Additionally, even when foreign courts are willing to cooperate, the procedural delays and legal uncertainties associated with this method often hinder the swift resolution of cross-border insolvency cases. In the Jet Airways case, while cooperation between Indian and Dutch authorities was eventually achieved, it was not through the formal letter of request process but through an ad hoc agreement.

Resort to Other Civil Remedies

In the absence of an effective cross-border insolvency regime under the IBC, litigants and courts often have to rely on general civil remedies under other statutes, such as the Code of Civil Procedure, 1908 (CPC). Section 13 of the CPC provides conditions under which a foreign judgment can be recognized as conclusive in India. However, this provision is primarily geared toward the recognition of foreign judgments in general civil disputes and is not specifically tailored to insolvency matters.

Moreover, Section 44A of the CPC provides the procedure for enforcing foreign judgments only if they are money decrees and if the foreign court is located in a reciprocal territory. As with the IBC’s reciprocal arrangements, the list of reciprocal territories under the CPC is limited, leaving many foreign judgments unenforceable in India. This further complicates the enforcement of foreign insolvency proceedings, forcing parties to seek enforcement under common law remedies, which may not always provide clear or effective solutions.

The Need to Implement the UNCITRAL Model Law on Cross-Border Insolvency in India

The limitations of Sections 234 and 235 of the IBC—particularly their reliance on reciprocal agreements—highlight the need for a more effective international solutions such as the UNCITRAL Model Law on Cross-Border Insolvency (Model Law), which offers a comprehensive framework for international cooperation in insolvency matters.

The Model Law was developed to address the growing need for cooperation between jurisdictions when dealing with insolvency cases involving multinational corporations. The Model Law’s main objectives include:

1. Access to Foreign Courts: It allows foreign creditors and insolvency representatives to access domestic courts, ensuring their participation in the insolvency process of another jurisdiction. This avoids the need for duplicative proceedings and gives foreign creditors a platform to protect their rights.
2. Recognition of Foreign Proceedings: The Model Law provides a system for recognizing foreign insolvency proceedings, whether they are main (where the debtor’s center of main interests, or COMI, is located) or non-main proceedings. This recognition simplifies the administration of assets spread across multiple countries and prevents conflicting court orders.
3. Cooperation and Coordination: One of the most significant features of the Model Law is its promotion of cooperation between domestic and foreign courts and insolvency practitioners. It establishes procedures for cross-border cooperation and communication, which helps prevent delays and conflicting rulings.
4. Relief for Foreign Representatives: The Model Law allows foreign representatives to seek relief from domestic courts, including stays on asset transfers and protection against creditor claims while foreign insolvency proceedings are ongoing.

By providing a uniform framework for cross-border insolvency, the Model Law ensures that insolvency cases are handled consistently and efficiently across jurisdictions. It creates legal certainty, reduces litigation, and allows for a better allocation of assets and resolution of creditor claims.

Practice in Other Jurisdictions

The effectiveness of the UNCITRAL Model Law has been demonstrated in several jurisdictions that have adopted it. These include the United States, the United Kingdom, Singapore, Japan, and Australia, among others. The practical benefits seen in these countries underscore the advantages of a uniform cross-border insolvency regime.

• The United States incorporated the Model Law into its legal system through Chapter 15 of the U.S. Bankruptcy Code. Chapter 15 allows U.S. courts to recognize foreign insolvency proceedings and cooperate with foreign courts. It has been widely used in cases where multinational corporations have filed for bankruptcy in the U.S. and abroad. One key example is the Lehman Brothers insolvency (2008), where cross-border cooperation was vital in managing the firm’s global assets.

• The UK adopted the UNCITRAL Model Law through the Cross-Border Insolvency Regulations 2006. British courts have applied the Model Law to ensure that foreign insolvency proceedings are recognized and coordinated effectively with domestic processes. In the Nortel Networks case, for example, the UK worked with courts in Canada and the U.S. to resolve one of the largest multinational insolvency cases.

• Singapore has become a regional hub for cross-border insolvency proceedings after adopting the Model Law in 2017. The country’s courts have consistently recognized foreign insolvency proceedings and have coordinated with foreign jurisdictions in restructuring and liquidation cases. This has bolstered Singapore’s reputation as a creditor-friendly jurisdiction and a preferred venue for insolvency cases in the Asia-Pacific region.

• Australia incorporated the Model Law into its Cross-Border Insolvency Act 2008, allowing Australian courts to recognize foreign proceedings and work closely with other jurisdictions. The Model Law has been applied in several cases involving multinational companies, ensuring efficient resolution of insolvency cases involving assets in Australia and abroad.

• Japan implemented the UNCITRAL Model Law in 2000, with courts recognizing and assisting foreign insolvency proceedings to ensure better protection of creditor rights across borders. Japan’s adoption of the Model Law has facilitated smoother cross-border restructurings, especially in complex cases like Takata Corporation’s bankruptcy.

Conclusion

The Jet Airways case highlighted the limitations of India’s current cross-border insolvency framework and underscored the need for reform. Sections 234 and 235 of the IBC are not equipped to handle the complexities of multinational insolvencies due to the absence of reciprocal arrangements with foreign countries and the procedural uncertainty involved in cross-border cooperation.

The adoption of the UNCITRAL Model Law on Cross-Border Insolvency would provide India with a robust framework to address these issues. The Model Law has proven effective in many jurisdictions, enabling cooperation between domestic and foreign courts, simplifying the recognition of foreign insolvency proceedings, and ensuring the fair treatment of creditors across borders. By adopting this Model Law, India can enhance the efficiency and predictability of its cross-border insolvency regime, attract international investment, and provide better protection for creditors in global insolvency cases.

References

1. Navigating the labyrinth: Cross-border insolvency regime in India,
2. Dealing with Cross-Border Insolvencies: An Analysis of the Jet Airways saga
3. The Jet Airways’ Cross Border Insolvency Protocol: A Success Story,
4. NCLT clears Kalrock-Jalan resolution plan for Jet Airways with riders,
5. UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation