10 June 2019: The Mumbai bench of the bankruptcy court is scheduled to hear on Monday insolvency petitions filed against Jet Airways by two of its suppliers, a development that could hurt the efforts of banks to cobble together a deal with investors to revive the grounded airline.
Banks have so far tried to keep Jet out of court-monitored insolvency proceedings, as sought now by the two operational creditors, as they wanted to maximise the money they could recover from the debt-ridden airline. If the National Company Law Tribunal (NCLT) accepts the pleas of Shaman Wheels and Gaggar Enterprises under the Insolvency and Bankruptcy Code (IBC), these financial creditors would also have to become party to the case to recover their money.
“We have to see what the Mumbai NCLT decides. If the petition is admitted, it’s the end of the road for the airline,” said a banker aware of the development. “We are not very hopeful of recovering our dues in bankruptcy as the other liabilities are much bigger than bank loans. We will have to see if other creditors will be treated on par with financial creditors.”
The government and banks have been trying to find a resolution to the debt crisis since Jet started defaulting on payments five months ago, but have so far failed to come up with any concrete proposals.
ET in its May 22 edition reported that the Hinduja Group might partner with UAE’s Etihad Airways to rescue the Indian airline. But, there haven’t been any announcements yet.
Convertible Securities Against Debt
Potential investors including the Hindujas and Etihad are insisting on wiping out the equity holdings of existing investors, including minority owners, people in the know said. Under those offers, lenders may have to let go of about 60% of their arrears from the airline and take convertible securities for the remaining.
While getting convertible securities against debt could provide banks with an upside in a revival, liquidation of the airline would leave them at a huge loss as Jet doesn’t hold much assets. Most of the aircraft it operated, for instance, were on lease.
The case is listed for hearing before the NCLT’s Mumbai bench, presided over by VP Singh and Ravikumar Duraisamy.
Rishabh Seth of Shaman Wheels, one of the operational creditors that has approached the NCLT, said his company had moved the tribunal after Jet defaulted on dues of around Rs 6.82 crore. Mumbai-based Shaman Wheels sells new and used passenger vehicles trucks, trailers and semi-trailers.
Gaggar Enterprises is an Ahmedabad-based company that supplied packaged drinking water to the airline. It has engaged advocate Prateek Gupta to argue the case. The company couldn’t be reached for comment.
“Several operational creditors have already sent the company notice under the Insolvency & Bankruptcy Code and once these pleas gets heard, many more are expected (to join in),” said a person close to developments.
On April 15, Rajan Rakesh & Bros, a service provider to Jet Airways, sent a notice to the airline, threatening to commence insolvency proceedings against it. The company, claiming Rs 25.68 lakh of arrears, said it received no payments from the airline since January 2.
Typically, if a company fails to repay within 10 days of a notice for recovery under IBC, the creditor can file a suit under the Corporate Insolvency Resolution Process. But, it wasn’t immediately known what action Rajan Rakesh & Bros took after sending the notice.
A consortium of domestic lenders led by State Bank of India had engaged SBI Caps for the sale of the carrier, which has more than Rs 8,000 crore of debt. In March this year, founder Naresh Goyal and wife Anita Goyal stepped down from the board of the airline, in what was seen as a condition set by potential investors.
Goyal and his wife were recently stopped from flying to Dubai by the immigration authorities in Mumbai, after a lookout circular was issued against them by the ministry of corporate affairs that is examining Jet’s books for any fund diversions.