State Bank of India vs. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch
Citation: [2024] 1 S.C.R. 1045 : 2024 INSC 51
Bench: Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, Justice Manoj Misra
Background
This case arose from the corporate insolvency resolution process (CIRP) of Jet Airways (India) Ltd., where the Committee of Creditors (CoC) approved a resolution plan submitted by the consortium of Murari Lal Jalan and Florian Fritsch. The plan required the consortium (Successful Resolution Applicant, SRA) to infuse ₹350 crore as the first tranche of payment and furnish a Performance Bank Guarantee (PBG) of ₹150 crore. The SRA sought to adjust the PBG amount towards the upfront payment, a move contested by State Bank of India (SBI), the lead creditor, which argued that such adjustment was not permitted under the resolution plan or the Insolvency and Bankruptcy Code (IBC).
Supreme Court’s Analysis
Performance Bank Guarantee (PBG) Adjustment:
The Supreme Court held that the PBG, furnished as a security for the performance of the resolution plan, could not be adjusted towards the first tranche of the payment. The Court emphasized that the PBG serves as a safeguard for creditors to ensure the SRA fulfills its obligations. Allowing its adjustment would undermine the security mechanism and the sanctity of the resolution process under the IBC.
Strict Adherence to Resolution Plan:
The Court reiterated that resolution plans must be implemented strictly according to their terms and the IBC framework. Any deviation, especially regarding financial commitments and securities, would set a dangerous precedent and erode creditor confidence in the insolvency regime.
Consequences of Non-Compliance:
The Court noted that the SRA’s failure to infuse the required funds and its attempt to offset the PBG signaled a lack of genuine intent and capacity to revive Jet Airways. The Court stressed that endless extensions and non-compliance defeat the IBC’s objective of timely resolution.
Order for Liquidation:
Given the SRA’s non-compliance and the prolonged delay, the Supreme Court directed the liquidation of Jet Airways, marking the end of efforts to revive the airline. The Court held that “timely liquidation” is preferable to an “endless resolution process” that jeopardizes stakeholder interests.
Decision
The Supreme Court set aside the orders of the NCLT and NCLAT that had permitted adjustment of the PBG and directed the liquidation of Jet Airways. The judgment reinforced the need for strict compliance with the IBC and resolution plan terms to protect creditor interests and ensure fair insolvency practices.
Significance
This judgment sets a precedent on the non-adjustability of performance bank guarantees in insolvency proceedings, underscores the importance of timely resolution or liquidation, and strengthens the integrity and predictability of the IBC framework.
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