IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342/MB/C-I/2021
In
C.P (IB) No.2205/MB/C-I/2019
An application under Section 60(5) of the Insolvency and Bankruptcy
Code, 2016
Filed by
Mr. Ashish Chhawchharia
Resolution Professional of
Jet Airways (India) Limited …Applicant
Versus
TWC Aviation Capital Limited and Ors.
…Respondents
In the matter of
State Bank of India
…Financial Creditor
Versus
Jet Airways (India) Ltd
… Corporate Debtor
Order Pronounced on: 24.06.2024
Coram:
Hon’ble Member (Judicial) : Justice V.G. Bisht (Retd.)
Hon’ble Member (Technical) : Mr. Prabhat Kumar
Appearances:
For the Applicant : Mr. Malhar Zatakia, Advocate
For the Respondent : Though the Ld. Counsel for the
Respondent is present and argued the
matter; he has not marked the attendance
sheet.
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
ORDER
Per: Prabhat Kumar, Member (Technical)
1. The Applicant Resolution Professional of Jet Airways (India) Limited (hereinafter
referred to the Corporate Debtor has filed the present Application. The Respondents
herein are TWC Aviation Capital Limited (Respondent No.1), Spice Jet Limited
(Respondent No.2), Director General of Civil Aviation (Respondent No.3) and
Commissioner of Customs (Respondent No.4). The reliefs sought by the Applicant
as are follows:
a. Direct Respondent No.1 and 2 to forthwith return the engine to the Corporate
Debtor.
b. Direct Respondent No.1 and 2 to forthwith pay a sum of Rs.13,31,46,453/-
to the Corporate Debtor towards fixed lease rental for use of Engine during the
period of 24th April 2019 to 21st January 2021 plus USD 220 per hour and
USD 180 per cycle for which the engine was used during the aforementioned
period.
c. Direct Respondent No.1 and 2 to pay a sum of Rs.2,08,693/- per day, towards
fixed lease rentals plus USD 220 per hour and USD 180 per cycle for the
engine to the Corporate Debtor towards the lease rental for the use of the
engine, pending hearing and disposal of this Application.
d. Grant ad interim reliefs in terms of prayer clause (c) and (d) above.
e. Pass such further and other orders as this Tribunal may deem fit and proper
in the facts and circumstances of the case.
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
2. The dispute before us in a nutshell pertains to title and possession of Engine
No. 890506 of an aircraft originally belonging to the Corporate Debtor. The
issue emanates out of a Lease Agreement dated 1st December 2017, ("Lease
Agreement") entered into between Respondent No. 1 and Jet Lite (India)
Limited ("Jet Lite") for lease of an aircraft fitted with 2 engines, bearing
numbers 895134 (“Engine 1") and 894147 ("Engine 2"), belonging to
Respondent No. 1. The Corporate Debtor herein guaranteed the dues of Jet
Lite to the Respondent No.1 under the Lease Agreement vide Deed of
guarantee dated 22nd December 2017.
3. The Applicant/Resolution Professional has sought the return of the
aforestated engine 890506 and certain sums as lease rentals have been claimed
from Respondent No.1 and 2 which are more particularly detailed in the
prayer clause reproduced hereinabove. Per contra, the Respondent No.1 has
vehemently opposed the present Application on the broad ground that the said
Engine No. 890506 was replaced in the aircraft in lieu of engine No. 894147
belonging to the Respondent No.1. The replacement took place as engine no.
894147 was sent for repairs to ST Aerospace Engines Private Limited. It is
argued by the Respondent No.1 that under the lease agreement the lessee i.e
Jet Lite was under an obligation to service, repair, overhaul and maintain the
aircraft. Further, until the original engine no. 894147 is attached back into the
aircraft, the said replacement engine would be deemed to be a part of the
aircraft. It is contended that the said original engine was to be attached to the
aircraft within 120 days. The Respondent No.1 submits that failure to
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
maintain and repair the engine constitutes an Event of Default under the Lease
Agreement.
4. The Respondent No.1 relies on Article 8.7 of the Lease Agreement:
“8.7 Title to Parts and Engines:
All Parts and Engines which are at any time during the Term removed from
the Aircraft shall remain the property of Lessor, no matter where located, until
such time as: (i) such Parts shall be replaced by Replacement Parts which have
been incorporated or reinstalled in or attached to the Aircraft, free and clear of
all Liens, and which meet the requirements specified in Article 8.6; and (ii) title
hereto shall have passed to Lessor according to the lex situs free and clear of all
Liens, immediately upon any Replacement Part is incorporated or installed in
or attached in or to the Aircraft, and without further act (a) title to the removed
Part shall vest in Lessee, free and clear of all rights of Lessor, and (b) such
Replacement Part shall be subject to this Agreement and shall be deemed a Part
of the Aircraft for all purposes hereof to the same extent as any Part originally
incorporated and installed in or attached to the Aircraft.”
5. The position canvassed by the Respondent No.1 under aforesaid Article 8.7 is
that the replacement engine would be deemed to be a part of the aircraft and
Respondent No. 1 would be entitled to take possession of the same. To bolster
this stance reliance is placed on Article 10 of Cape Town Convention. India is
a signatory to the said convention. Article 10 is reproduced herein below for
the sake of convenience:
“Article 10 - Remedies of conditional seller or lessor
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
In the event of default under a title reservation agreement or under a leasing
agreement as provided in Article 11, the conditional seller or the lessor, as the case
may be, may: (a) subject to any declaration that may be made by a Contracting
State under Article 54, terminate the agreement and take possession or control of
any object to which the agreement relates; or
(b) apply for a court order authorising or directing either of these acts.”
6. It is stated that the lessee failed in retrieving the engine no. 894147 back from
ST Aerospace Engines Private Limited. It is stated that the second engine
bearing no. 895134 was also sent to ST Aerospace Engines Private Limited for
overhaul. It is submitted that Respondent No.1 has incurred an expenditure
of USD 15,951,520.05 to retrieve the two engines and exercises lien over the
Engine 890506 until dues are paid.
7. To buttress the argument advanced by the Respondent No.1, the Applicant
submits that the Corporate Debtor's title to the engine is inter alia evidenced
by the extract of the software used by the Corporate Debtor. Further, when
Respondent No. 1 repossessed its aircrafts from Jet Lite, the Corporate
Debtor's Engine remained attached to it. Subsequently, Respondent No.1
leased the aircraft to Respondent No.2 with Corporate Debtor’s engine
attached to it.
8. The Applicant submits that the Respondent No.1 terminated the lease
agreement and took repossession of the Aircraft. It also took possession of the
Engine No. 894147 from ST Aerospace Engines PTE Limited. Thus, it is the
Applicant’s case that both the Engines bearing no. 894147 (owned by the
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
Respondent No.1) and Engine No. 890506 (owned by the Corporate Debtor)
are in the custody of the Respondent No.1.
9. The Applicant states that it is bound under Section 18 (1)(f) of the Code to take
control of the assets of the Corporate Debtor. In furtherance of this, the
Applicant wrote to Respondent No.1 and 2 vide letter dated 21st August 2019
requesting the return of the aforesaid Engine to the Corporate Debtor. Since,
the engine was being utilized by Respondent No.2, the Applicant sent an
Invoice detailing the outstanding amounts more particularly therein.
10. The Respondent No.1 replied to the Applicant vide letter dated 2nd September
2019 informing that they were under no obligation to return the engine as it
had been installed in the aircraft under swap mechanism and as per provisions
of the Lease Agreement the same formed part of the aircraft.
11. It is the Applicant’s case that Respondent No. 1, ceding to the jurisdiction of
this Tribunal filed its proof of claim, in Form B, claiming a sum of USD
23,771,905.71 in July 2019. The Applicant verified the said claim in
accordance with the Code and admitted a sum of USD 4,529,889 (being INR
315,119,447) which is included in the approved resolution plan of the
Corporate Debtor. The said claim has not been challenged by the Respondent
No.1.
12. Further, the aircraft leased to Respondent No. 2, has been monetized since
May 2019, and is being used by Respondent Nos. 1 and 2 even today. It is
urged that at the time of filing Form B, while claiming costs for inter alia the
repossession of the Engine, Respondent No. 1 suppressed the fact that it (i)
was monetizing the Corporate Debtor's engine since May 2019 and
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
Respondent No. 1 was earning substantial profits pursuant to its use and (ii)
had obtained Respondent No. 1's original engine, i.e., Engine 2 from ST
Aerospace by June - August 2019.
13. The Applicant submits that Respondent No. 1 has further exercised its remedy
against the Corporate Debtor by filing Form B and is now estopped from
claiming any lien or bailment against the Corporate Debtor's assets.
14. We have heard the learned counsel for both sides and perused the records.
15. At the outset, it is discernible that the Engine 890506 belonging to the
Corporate Debtor was fitted in the aircraft in lieu of Engine No. 894147. The
said Engine of Respondent No.1 was sent for repairs. Respondent No.1 argues
that Jet Lite failed to meet its obligations under the Lease Agreement by
neglecting to get the original engine No. 894147 back within the time
stipulated under the Lease Agreement. The said fact along with other breaches
by Jet Lite i.e. the lessee resulted in default under the lease agreement thereby
leading to termination of the lease agreement. The Respondent No.1 submits
that the said default resulted in the replacement engine being part of the aircraft
and therefore, the possession of engine ought to vest in Respondent No.1.
Reliance is placed on Article 8.7 of the Lease Agreement and Article 10 of the
Cape Town Convention. Respondent No.1 states that it has incurred cost to
the tune of USD 15,851,520.05 to retrieve Engines 894147 and 895134 and
accordingly it exercises lien over the engine.
16. Clause 8.7 of the Lease Agreement clearly stipulates that title to the removed
Part shall vest in Lessee. Accordingly, it can be inferred at that the engine
bearing no. 894147 would vest with Jet Lite i.e. the lessee. However, in the
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
present case the Respondent No.1 has in its possession both the original
engines as well as replacement engine of the Corporate Debtor. We are of the
view that the Respondent No.1 cannot have in its possession all the three
engines. Accordingly, the Respondent No.1 ought to return the engine of the
Corporate Debtor.
17. The submission of the Respondent No.1 that the engine ought to vest in
Respondent No.1 due to the cost incurred by them is not tenable. As the
Respondent No.1 has retrieved the engines bearing nos. 894147 and 895134,
whilst they continued to monetize the engine of the Corporate Debtor, this fact
clearly demonstrates that the Respondent No.1 has unjustly enriched itself and
have been holding one engine in trust of the Corporate Debtor. It is crucial to
note that Respondent No.1 has filed its claim form on 4th July 2019 in the
Corporate Insolvency Resolution Process of the Corporate Debtor. The claim
is bifurcated into three parts i) lease rentals, ii) Repossession costs and iii) other
claims. The said fact clarifies that that the Respondent No.1 may have claimed
the charges for retrieval of two engines from ST Aerospace Engines Private
Limited. Nonetheless, the Respondent No.1 had a claim against Jet Lite for
the repair charges of these two engines. Even if the Corporate Debtor had
stood as surety for the performance of obligation of Jet Lite and such repair
charges were claimable from Jet Lite, which makes the Corporate Debtor in
turn responsible for payment of such charges, Respondent No.1 ought to have
made claim in the Resolution Process of the Corporate Debtor.
18. In the backdrop of the aforesaid facts, it is clear that the engine No. 890506
owned by the Corporate Debtor ought to be returned by the Respondent No.1
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
and 2. The contention of the Respondent No.1 that it exercises a lien over the
engine is not a relevant consideration at this stage after the filing of claim by
the Respondent No.1 in the particular class and admission thereof by the
Resolution Professional in that class. It is trite law that the assets of the
Corporate Debtor held by third party has to be released in favor of the
Resolution Professional for the resolution of Corporate Debtor even by the
charge holders, who may file their claim in appropriate class if they believe
holding any charge over the assets of the Corporate Debtor. It is not in dispute
that the repair charges claimed by Respondent No.1 were incurred in relation
to the originally fitted engine, and the usage charges claimed by the
Application are in relation to the Corporate Debtor’s engine for the period
beginning from the retrieval of originally fitted engine by the Respondent
No.1. Accordingly, the lien in terms of Cape Town Convention ceases after
retrieval of originally fitted engine. Needless to say, the Respondent No.1 has
already filed a claim form in the Corporate Insolvency Resolution Process of
the Corporate Debtor, the process has been completed and the same has
attained finality owing to approval of the Resolution Plan.
19. Moreover, the Respondent No.1 has been using the said engine 890506 of the
Corporate Debtor from 24.04.2019 till 21.01.2021. The Applicant has claimed
usage charges to the tune of USD 12,403,520 (as on the date of hearing). The
Respondent No.1 has to pay the aforesaid usage charges as the Engine bearing
No. 890506 has been utilized and monetized by the Respondent No.1 for the
relevant period. Further, the Respondent No.1 is directed to return Engine No.
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IN THE NATIONAL COMPANY LAW TRIBUNAL,
MUMBAI BENCH-I
IA No. 342 of 2021 In C.P (IB) No.2205 of 2019
890506 or an engine with equivalent specifications to the Corporate Debtor
within a period of 60 days from the date of this Order.
20. IA No. 342 of 2021 is allowed and disposed of.
Sd/- Sd/-
PRABHAT KUMAR JUSTICE V.G. BISHT
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
24.06.2024
Priyal
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