Forfeited Resolution Plan Amounts Not CIRP Costs: NCLT Mumbai Ruling in State Bank of India Vs JET Airways India Limited

Introduction

The National Company Law Tribunal, Mumbai Bench, in State Bank of India Vs JET Airways India Limited, has delivered an important order clarifying whether funds forfeited or encashed due to failure of a resolution plan can be recharacterised as Corporate Insolvency Resolution Process (CIRP) costs in the liquidation phase.

A consortium of the Successful Resolution Applicant (SRA) approached the Tribunal under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), after the Supreme Court ordered liquidation of the corporate debtor and forfeiture/encashment of substantial sums earlier infused by the SRA. The SRA attempted to have these amounts treated as CIRP costs and also sought recognition as a stakeholder in the liquidation proceedings.

The NCLT Mumbai categorically rejected these claims, relying heavily on the binding directions of the Hon’ble Supreme Court and the statutory definition of CIRP costs under Section 5(13) of the IBC.

Factual Background

Role of the SRA and Amounts Infused

During the CIRP of Jet Airways (India) Ltd., the consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch was approved as the Successful Resolution Applicant. In that capacity, the SRA infused an aggregate amount of Rs. 370,76,32,031/- into or for the benefit of the corporate debtor. The breakup was as follows:

  • Rs. 150,00,00,000/- furnished as a performance bank guarantee (PBG)
  • Rs. 200,00,00,000/- deposited as share capital money, forming part of the first tranche payment under the resolution plan
  • Rs. 20,76,32,031/- infused directly into the corporate debtor’s account to keep it as a going concern and to meet operational and regulatory requirements

The SRA claimed that these infusions were made to support the CIRP and ensure continuity of the corporate debtor’s operations.

Supreme Court’s Intervention and Order of Liquidation

Despite approval of the resolution plan by the NCLT on 22.06.2021, the SRA failed to inject the full first tranche amount of Rs. 350 Crore within the stipulated timeline, even after the “Effective Date” had been identified as 20.05.2022.

In its judgment dated 07.11.2024 in Civil Appeal Nos. 5023-5024 of 2024, the Hon’ble Supreme Court noted at para 147 that:

“The SRA herein has failed to infuse the first tranche payment of Rs. 350 Crore as envisaged in the Resolution Plan despite the Effective Date being fixed on 20.05.2022. As a consequence, the payment of CIRP costs, workmen and employees’ dues etc. which must be made in priority over the dues of the other creditors have also not been made. More than 5 years have passed and the implementation of the Resolution Plan still seems to be a dim light at the far end of a long tunnel…”

Given the extraordinary delay and non-implementation, the Supreme Court, invoking Article 142 of the Constitution, ordered liquidation of the corporate debtor. At para 187, it directed that the corporate debtor be taken into liquidation. At para 188, it further ordered:

“The amount of Rs 200 Crore already infused by the SRA stands forfeited. The Lenders/ Creditors are further permitted to encash the Performance Bank Guarantee of Rs. 150 Crore furnished by the SRA.”

In effect:

  • Rs. 200 Crore infused as part of the first tranche stood forfeited
  • Lenders were expressly authorised to encash the Rs. 150 Crore PBG furnished by the SRA

These directions were clear, specific, and issued after the Supreme Court had conclusively held that the SRA failed to implement the resolution plan.

Application Before NCLT Mumbai

Reliefs Sought by the SRA

Following the Supreme Court’s judgment and commencement of liquidation, the SRA consortium moved an application under Section 60(5) of the IBC read with Rule 11 of the NCLT Rules, 2016. The key reliefs requested were:

  1. Recognition of forfeited/encashed amounts as CIRP costs

    • Declare the Rs. 150 Crore performance bank guarantee as CIRP cost
    • Declare the Rs. 200 Crore share capital money (part of first tranche) as CIRP cost
    • Declare Rs. 20.76 Crore infused to keep the corporate debtor as a going concern as CIRP cost

  2. Stakeholder status in liquidation

    • Declare the SRA, having infused Rs. 370,76,32,031/-, as a stakeholder in the ongoing liquidation proceedings

  3. Challenge to forfeiture and encashment

    • Declare the forfeiture and adjustment of Rs. 350 Crore by the Committee of Creditors (CoC) as illegal and contrary to the Supreme Court’s order dated 07.11.2024