Prior Notice to Creditors Not Mandatory Before Admission of Section 10 IBC Application: NCLT New Delhi Rules in Go Airlines Case
1. Background and Context
The National Company Law Tribunal (NCLT), New Delhi Special Bench, through its order dated 10 May 2023 in Company Petition No. (IB)-264(PB)/2023, admitted the voluntary insolvency application filed by Go Airlines (India) Limited — the entity behind the Go First brand — under Section 10 of the Insolvency and Bankruptcy Code, 2016. The proceedings raised two pivotal legal questions that have significant bearing on the conduct of Corporate Insolvency Resolution Processes (CIRP) initiated by corporate debtors themselves: first, whether creditors are entitled to receive prior notice before such an application is admitted; and second, whether a contemplated challenge under Section 65 of the IBC alleging fraudulent or malicious initiation can stall the admission process.
The Tribunal's ruling settled both questions firmly — pre-admission notice to creditors is not a universal requirement under Section 10, and a Section 65 challenge can be raised and entertained even after commencement of CIRP.
2. Corporate Profile and Circumstances Leading to Insolvency
Go Airlines (India) Limited was incorporated on 29 April 2004 and commenced low-cost airline operations in November 2005, later operating under the Go First brand. By the time the insolvency application was presented before the Tribunal, the airline had accumulated substantial operational and financial difficulties, the root cause of which it attributed to defective engines supplied by Pratt & Whitney.
The company placed on record that approximately 34% of its aircraft were grounded during 2022 as a direct consequence of the engine failures. By the date of the insolvency application, 28 out of 54 aircraft in its fleet stood grounded. The airline further disclosed that 4,118 flights had been cancelled in the preceding 30 days, affecting approximately 77,500 passengers. Emergency arbitral awards had been secured from the Singapore International Arbitration Centre on 3 February 2023 and 15 April 2023, directing the supply of serviceable engines, but the airline alleged that these directions had not been complied with.
3. Financial Defaults Disclosed Before the Tribunal
The corporate applicant made detailed disclosures regarding its financial position and defaults. As on 28 April 2023, outstanding financial debt stood at approximately Rs. 6,521 crore, though the company stated that no default towards financial creditors had occurred at the time of filing. However, during the course of the hearing, it reported a subsequent default of Rs. 11.03 crore towards interest payable to financial creditors on 4 May 2023.
In addition, defaults of approximately Rs. 2,660 crore towards aircraft lessors and Rs. 1,202 crore towards vendors were disclosed. The airline maintained that it had crossed the statutory threshold under Section 10 and that the commencement of CIRP was essential to protect the airline as a going concern and prevent further deterioration of its assets.
To support its application, the company placed before the Tribunal creditor notices, audited financial statements, a board resolution, a shareholders' special resolution, and the written consent of the proposed Interim Resolution Professional — thereby demonstrating compliance with the procedural and documentary requirements prescribed under Section 10.