Understanding Jurisdiction in Corporate Insolvency: (NCLT Section 60(5) IBC vs. High Court -Article 226) – Go Air Case Analysis – (Accipiter Investments Aircraft 2 Ltd. v. Union of India[1])
Harsh Vardhan Jaiswal
3rd Year, B.com LL.B.(Hons.), Tamil Nadu National Law University
Introduction
The downfall of Go Air, once a prominent budget carrier, was the result of a complex interplay of factors. The onset of the COVID-19 pandemic dealt a crippling blow to the global airline industry, and Go Air was no exception. Passenger numbers plummeted, revenues dwindled, and financial pressures intensified. At the same time the airline struggle with persistent Pratt & Whitney engine issues that grounded a significant portion of its fleet, disrupting operations and eroding customer confidence coupled with escalating fuel costs and fierce competition. Go Air found itself caught in a relentless downward spiral. These factors collectively, created an insurmountable hurdle, forcing the airline to cease operations and opt for the voluntary insolvency application under section 10 of IBC 2016.
Go Air was admitted to insolvency by the NCLT on May 10, 2023. Since the inception of the insolvency proceedings, the company has undergone various hearings in the NCLT. However, the point that has garnered significant attention was the separate proceedings in the Delhi High Court concerning the deregistration of aircraft that Go Air possesses under a lease agreement with Accipiter Investments Aircraft 2 Ltd.
The Delhi High Court judgment in the present case is noteworthy. This judgment provides valuable clarity on the jurisdictional boundaries between NCLT and the High Court. It clarifies that the NCLT has jurisdiction over matters related to corporate debtors who are under CIRP under Section 60(5) of the IBC, but only when such matters arise out of insolvency proceedings. The judgment also draws a crucial distinction between two scenarios i.e.
- Matters connected to corporate debtors arising out of insolvency proceedings.
- Matters connected to corporate debtors under CIRP that are not a result of insolvency proceedings.
And explains why the NCLT has jurisdiction over the first scenario and the High Court can exercise writ jurisdiction over the second scenario.
This case comment aims to critically analyse the judgement, evaluating the interpretation of courts on jurisdictional boundaries between NCLT and the High Court in the matters of Corporate Insolvency.
Factual Background
Between 2013 and 2022, GoAir signed 14 lease agreements totaling over 54 aircraft. Following the signing, GoAir (the respondent) executed Irrevocable De-Registration and Export Authorizations (IDERA) for all aircraft under Rule 30(7) of the Aircraft Rules and the Cape Town Convention, to which India acceded in 2008. When GoAir missed lease payments, the lessors (the petitioners) served default notices, terminated the lease agreements, and attempted to deregister and export the aircraft.
While the lessors began deregistering, GoAir filed for voluntary insolvency under Section 10 of the Insolvency and Bankruptcy Code (IBC) with the NCLT. The NCLT accepted the insolvency petition and imposed a moratorium under Section 14(1) of the IBC, which halted all claims and legal actions against GoAir. The petitioners challenged this order before the NCLAT, which upheld the moratorium and directed the NCLT to investigate whether the moratorium applied to the aircraft.
In the meantime, the deregistration applications by the lessors (the petitioners) were denied by DGCA on the grounds of the ongoing insolvency proceedings. In order to prevent GoAir from accessing or removing parts without authorization the petitioner moved Delhi high court , the Delhi high court granted an interim application that gave lessors permission to maintain and inspect the aircraft. GoAir appealed this decision, but the division bench maintained the ruling, rewording it to focus only on maintenance. GoAir’s additional appeal was denied by the Supreme Court due to jurisdictional issues. GoAir continued to own which prompted several appeals against the NCLT and NCLAT rulings.
Key Issue
Jurisdictional boundaries between the National Company Law Tribunal (NCLT) and the High Court concerning corporate debtors undergoing the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016
Submissions of the Petitioners
- Termination not arising out of or as a consequence of Insolvency, hence not barred by the provisions of the IBC
The Petitioners/Lessors contested that the termination of the Lease Agreements with Go Air was due to continuous defaults in lease rental payments, not due to Go Air’s insolvency proceedings. This termination occurred before the moratorium under section 14 of the (IBC), that was imposed Hon’ble NCLT. Go Air’s Resolution Professional (RP) has not challenged the termination of the Lease Agreements, and the termination was completed prior to the moratorium period. Therefore, the moratorium under the section 14 of IBC does not apply to these terminations.
- B – NCLT has no powers to Deregister an Aircraft – Powers can only be exercised by a High Court
The petitioners contested that they seek a writ of mandamus from the High Court under Article 226 of the Constitution, for judicial review of the DGCA’s failure to perform its statutory duty. The NCLT lacks jurisdiction to adjudicate deregistration of aircraft as it is a statutory body with limited powers defined by the Companies Act, 2013. The petitioners relied on Embassy Property Developments (P) Ltd. v. State of Karnataka[2],where the Supreme court held that despite the broad jurisdiction conferred by the IBC on NCLT under section 60(5) of IBC, disputes involving decisions of statutory or quasi-judicial authorities must be resolved through judicial review.
The petitioners argued that they approached the high court for deregistration under the Aircraft Act and Rules, not for recovery of money from the corporate debtor and put forth that section 238 of IBC is only applicable in the case of an inconsistency and thus, while analysing the overriding effect of the IBC under section 238, the Court should not hinder the enforcement of provisions under the Aircraft Act and Rules. The petitioners based their argument on Municipal Corporation of Greater Mumbai (MCGM) v. Abhilash Lal & Ors[3] where the Supreme court emphasized that Section 238 of the IBC does not affect rights vested to parties by other legislations.
The petitioners further argued that Section 63 of the IBC provides that the Suits or proceedings in which NCLT or NCLAT have jurisdiction cannot be entertained by Civil Courts. However, this Court is exercising its jurisdiction not as a Civil Court but under its writ jurisdiction under Article 226 of the Constitution.
Submissions of the Respondent
- Delhi high Court lacks jurisdiction to adjudicate – Only NCLT has the power/Issue of maintainability/Jurisdiction to be decided by this Court.
Sections 13 and 14 of the Insolvency and Bankruptcy Code (IBC) grant the National Company Law Tribunal (NCLT) the authority to enforce a moratorium during Corporate Insolvency Resolution Process (CIRP). As a result, all issues related to insolvency must be addressed by the NCLT. In this case, the petitioners, having already raised the same issues before the NCLT/NCLAT and failed, cannot now approach the High Court under Article 226. Since the NCLT passed the Insolvency Commencement Order relied upon by the Directorate General of Civil Aviation (DGCA), it retains exclusive jurisdiction over any related disputes, including the present matter.
- The DGCA did not deregister the Aircraft in view of the moratorium imposed by NCLT’s order of 10.05.2023. Not a ministerial Act and only NCLT has jurisdiction to decide this issue.
The respondent contended that due to the moratorium imposed by the Insolvency Commencement Order, the Directorate General of Civil Aviation (DGCA) did not process the Deregistration Applications, and this action was not merely a ministerial act but an exercise of quasi-judicial powers. The Deregistration Notices and the related applications are considered null since they were motivated by the insolvency of Go Air. The Petitioners/Lessors are using the Termination Notices improperly, which is not legally permissible, as supported by the Supreme Court’s judgment in TATA Consultancy Services Ltd. v. SK Wheels Pvt. Ltd [4].
The DGCA has acted within its jurisdiction by keeping the Deregistration Applications on hold, in compliance with the Insolvency Commencement Order. The petitioners cannot compel the Court to issue a mandamus that directs a government body to act against the law or its rules. The precedent laid down in the Life Insurance Corporation of India v. Asha Ramchhandra Ambekar[5], State of West Bengal v. Subhash Kumar Chatterjee[6], and M.I. Builders Pvt. Ltd. v. Radhey Shyam Sahu[7], were cited to support this argument
- Nexus between Insolvency and Deregistration Notices – The Pratt & Whitney engine failure Issue.
The respondent claimed that there is a clear connection between Go Air’s insolvency and the deregistration notices filed by the Petitioners/Lessors. Go Air defaulted on lease payments due to defects in Pratt & Whitney engines, which led to legal disputes and arbitration awards in Go Air’s favour, though they yielded no meaningful outcome. For three years, the Petitioners/Lessors issued no default notices, but after Go Air filed for voluntary insolvency, they sent Termination Notices. These facts were presented before the NCLT, which initiated the insolvency process. The NCLAT upheld this decision on 22.05.2023, dismissing the Lessors’ challenge, which they did not appeal further. This sequence of events shows that the Termination Notices are tied to the insolvency proceedings, and therefore, must be addressed by the NCLT.
- Section 60(5) of the IBC cannot be given a narrow interpretation. The IBC has the widest amplitude to deal with all types of matters and the forum for adjudication is the NCLT and NCLAT
The Court’s attention was drawn to the Termination Notices the respondent argued that by 11 out of 14 Termination Notices sent by Petitioners/Lessors to Go Air the reason for termination was linked to Go Air’s insolvency. Section 60(5) of the Insolvency and Bankruptcy Code (IBC) mandates that all claims related to or arising from insolvency must be adjudicated exclusively by the NCLT. The Petitioners/Lessors, having submitted their applications to the NCLT, have acknowledged its jurisdiction. The Bankruptcy Law Reforms Committee’s report emphasized the need for IBC to unify insolvency processes under one forum, which is the NCLT.
Judicial precedents, including Essar Steel India Ltd v. Satish Kumar Gupta[8], Gujarat Urja Vikas Nigam Ltd v. Amit Gupta[9], and Tata Steel BSL Ltd v. Venus Recruiters Pvt Ltd[10], were cited to support the argument that the NCLT has exclusive jurisdiction over matters arising out of insolvency, including deregistration requests. Additionally, deregistering the Aircraft, which are Go Air’s only assets, would effectively destroy the corporate debtor, as noted in the Gujarat Urja case.
The Aircraft, classified as assets as per the definition Income Tax Act, cannot be taken away during the Corporate Insolvency Resolution Process (CIRP). Even if the terminations were valid, the Aircraft were in Go Air’s possession on the insolvency commencement date, and under Section 14(1)(d) of IBC, this possession cannot be disturbed. The Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority[11] case clarified that “occupied” means actual physical possession, which Go Air holds over the Aircraft. Furthermore, Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta[12] established that antecedent facts relevant to the insolvency process should be considered by courts to prevent parties from evading their obligations under a resolution plan.
- IBC is a Special Statute and a complete code – Its provisions will prevail over other statutes
The respondent contended that the IBC is a comprehensive code, and its principles are to be regarded as sacrosanct, as reaffirmed by the Supreme Court in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd.[13] Sections 18(f) and 14 of the IBC must be interpreted together to reflect the legislature’s intent, which is to revive and preserve the corporate debtor and maximize its assets. The moratorium under Section 14 provides a “calm period” for the distressed entity’s recovery, with asset sales being a last resort.
Additionally, Section 238 of the IBC establishes its supremacy over other statutes, including the Aircraft Act and Aircraft Rules, as the IBC, being a more recent special legislation, prevails over earlier laws.
Rejoinder Submissions of the Petitioners /Lessors:
- Only the High Court has power to deregister
The Petitioners/Lessors held that their case on Rule 30(7) of the Aircraft Act, which aligns with the Cape Town Convention, and seek to enforce a statutory duty under this Act through a writ of mandamus under Article 226 of the Constitution. They argue that the NCLT, being a tribunal created under a specific statute (IBC) for a specific purpose, cannot assume jurisdiction over matters like the decision of the DGCA, which falls under public law. According to the petitioners, the DGCA’s actions are not related to insolvency and cannot be adjudicated under Section 60(5) of the IBC.
The NCLAT’s order dated 24.05.2023, which allowed parties to apply regarding the moratorium, did not address IDERA (International Interests in Mobile Equipment Registry), as the NCLT and NCLAT, being entities governed by the IBC, cannot adjudicate on matters arising from the Cape Town Convention or the Aircraft Act.
Additionally, since the NCLT had dismissed the interim moratorium application filed by Go Air’s Resolution Professional (RP), the DGCA was not legally restrained from deregistering the Aircraft within 5 days of the IDERA filing under the statutory mandate.
- Judgments relied on by Respondent/RP of Go Air cannot be applicable
The Petitioners/Lessors argue that they are seeking the deregistration of the Aircraft, not the recovery of property, and that Section 14 of the IBC does not restrict the Court from deregistering the Aircraft. They distinguish the Gujarat Urja [14]case, which emphasized that the NCLT’s jurisdiction is limited to issues “solely arising out of insolvency.” In this case, the termination of the lease agreements by the Petitioners/Lessors was based not only on insolvency but also on non-payment of lease rentals and grounding of Aircraft, meaning the termination was not solely due to insolvency.
Additionally, unlike Gujarat Urja, where the termination occurred after the insolvency proceedings began, the Petitioners/Lessors in this case terminated the lease agreements and filed for deregistration before the insolvency commencement date (10.05.2023). Since the termination happened before the CIRP was initiated, the moratorium under Section 14 of the IBC does not apply, as confirmed by the Neesa Leisure case.
The Rajendra K. Bhutta [15]and Gujarat Urja cases are distinguishable since in both those cases, the termination occurred after the moratorium. Here, the Petitioners terminated the agreements before the moratorium, so Section 14 does not apply retroactively.
The Arcelor Mittal [16]case is also inapplicable because it deals with the ineligibility of resolution applicants under Section 29A of the IBC, which is irrelevant to this case.
Court Ruling
The court, after analysing the arguments from both the parties, concluded stating that the NCLT does not have the authority to assume the jurisdiction exclusively conferred on the High Courts and the Supreme Court, and the same cannot be curtailed by any other statute. Relying on the cases of Embassy Property Developments (P) Ltd. v. State of Karnataka[17] and Canara Bank v. Deccan Chronicle Holdings Limited[18], the court determined that the Petitioners/Lessors sought action against a statutory body, i.e., the DGCA, for their incompetence and lack of action in deregistering the aircrafts. The power to review the actions and decision of a statutory body can only be exercised through judicial review under Article 226 by a High Court or under Article 32 by the Supreme Court.
Furthermore, the court held that there was no nexus between the insolvency proceedings and the actions that were supposed to be taken by the DGCA. The court opined that although the matter was connected to the corporate debtor, it did not arise as a consequence of insolvency and, therefore, the NCLT does not have jurisdiction over the matter under Section 60(5) of the IBC.
The court directed the DGCA to complete the deregistration process of the aircrafts within the next five working days.
Analysis
In discussing the jurisdiction of the High Court under Article 226 of the Constitution vis-à-vis the NCLT/NCLAT, it is important to distinguish between the powers of judicial review and the statutory limitations of tribunals like the NCLT and NCLAT. The NCLT and NCLAT, being creations of specific statutes like the Insolvency and Bankruptcy Code (IBC), lack the constitutional authority to conduct judicial reviews—a function reserved for the High Courts and the Supreme Court under Articles 226 and 32, respectively.
In the case of Go Air, the petitioners (aircraft lessors) approached the High Court claiming non-compliance by the Directorate General of Civil Aviation (DGCA) with the Aircraft Act and Rules. The petitioners sought relief for deregistration of their aircrafts, invoking Article 226 to challenge the public law decision made by the DGCA. On the other hand, the respondent, representing Go Air, argued that after the commencement of the Corporate Insolvency Resolution Process (CIRP), only the NCLT has jurisdiction over such matters, as per Section 60(5) of the IBC. This section confers the NCLT with exclusive authority over all issues “arising out of or in relation to” insolvency proceedings.
However, the Supreme Court’s ruling in Embassy Property Developments v. State of Karnataka [19]clarified that while the NCLT has broad powers under Section 60(5), these powers do not extend to decisions made by government or statutory authorities that fall within the realm of public law. The NCLT cannot override the jurisdiction of higher courts when it comes to judicial review. In essence, while the NCLT handles insolvency-related disputes, its jurisdiction is not unlimited and does not encroach on the constitutional powers of the High Court under Article 226.
References:
[1] Accipiter Investments Aircraft 2 Ltd. v. Union of India, (2024) ibclaw.in 362 HC.
[2] Embassy Property Developments (P) Ltd. v. State of Karnataka, (2020) ibclaw.in 12 SC.
[3] Municipal Corporation of Greater Mumbai (MCGM) v. Abhilash Lal & Ors (2019) ibclaw.in 28 SC.
[4] TATA Consultancy Services Ltd. v. SK Wheels Pvt. Ltd (2021) ibclaw.in 167 SC.
[5] Life Insurance Corporation of India v. Asha Ramchhandra Ambekar ( 1994 ) 2 SCC 718.
[6] State of West Bengal v. Subhash Kumar Chatterjee ( 2010 ) 11 SCC 694.
[7] M.I. Builders Pvt. Ltd. v. Radhey Shyam Sahu (1999)6 SCC 464
[8] Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2019) ibclaw.in 07 SC.
[9] Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) ibclaw.in 44 SC.
[10] Tata Steel BSL Ltd v. Venus Recruiters Pvt Ltd and Ors (2023) ibclaw.in 09 HC.
[11] Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority and Anr (2020) ibclaw.in 27 SC.
[12] Arcelor Mittal India private Limited v. Satish Kumar Gupta and Ors. (2018) ibclaw.in 31 SC.
[13] Ghanashyam Mishra & Sons Pvt Ltd v. Edelweiss Asset Reconstruction Company Ltd through the director and Ors (2021) ibclaw.in 54 SC.
[14] Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) ibclaw.in 44 SC.
[15] Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority and Anr 2023) ibclaw.in 09 HC.
[16] Arcelor Mittal India private Limited v. Satish Kumar Gupta and Ors. (2018) ibclaw.in 31 SC.
[17] Embassy Property Developments (P) Ltd. v. State of Karnataka , (2020) ibclaw.in 12 SC.
[18] Canara Bank v. Deccan Chronicle Holdings Limited (2017) ibclaw.in 25 NCLAT.
[19] Embassy Property Developments (P) Ltd. v. State of Karnataka , (2020) ibclaw.in 12 SC.
