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NCLT accepts Go First Airlines plea seeking insolvency proceedings, orders no sacking of employees

The National Company Law Tribunal (NCLT) on Wednesday admitted the application filed by Go First Airlines seeking initiation of voluntary insolvency proceedings, while directing the company’s suspended board of directors to ensure that none of its 7,000 employees were sacked by the airlines.

The Principal Bench of NCLT at New Delhi, comprising its President Justice Ramalingam Sudhakar and technical member L.N. Gupta, declared a full moratorium for the company.

It appointed Abhishek Lal, backed by Alvarez and Marsel, as the interim resolution professional (IRP) till the Committee of Creditors (CoC) appointed the resolution professional.

While putting the company under the protection of a moratorium, the Tribunal ordered the management to deposit Rs five crore for immediate expenses. It also directed the suspended board of directors to assist the IRP in running the company during insolvency proceedings.

The company had moved the NCLT earlier this month to initiate a corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). This is the first time that an Indian airline has voluntarily sought bankruptcy protection to renegotiate its contracts and debts.

As per the application filed by Go First Airlines, due to faulty engines supplied by American company Pratt & Whitney (P&W), the grounding of its aircraft increased from 31 percent in 2020 to more than 50 percent in April 2023. The company claimed that this cost Go First a loss of over Rs 10,800 crore.

The petition filed by Advocate Pranjal Kishore contended that as on date, Go First has paid Rs 19,980 crore to its creditors. It added that a sum of Rs 11,463 crore was owed to its creditors, which included banks, financial institutions, vendors and aircraft lessors.

As per the plea, on April 28, 2023, the company had defaulted on payment of Rs 1,202 crore to its creditors and Rs 2,660 crore to the airport lessors.

Representing the airlines, Senior Advocate Neeraj Kishan Kaul sought for imposition of an interim moratorium to prevent lessors from taking possession of its 26 aircraft. 

The Senior Counsel submitted that if the company lost possession of its aircraft and the legal right to operate them, the continuance of its business would be at stake. This would impact the employment of 7,000 direct and 10,000 indirect employees as well as debt repayment to the creditors, he added.

Earlier on May 4, the Principal Bench had reserved its verdict on the plea after hearing the parties. Gor Airlines then approached the NCLT on May 7, seeking an urgent decision on its application asking for a temporary moratorium.

Senior Advocate P. Nagesh told the Tribunal that aircraft lessors had initiated steps with the Directorate General of Civil Aviation (DGCA) to take possession of their aircraft. 

The Directorate General of Civil Aviation (DGCA) had issued a showcause notice to the carrier owned by the Wadia group for their ‘failure to continue’ the operation of the service in a ‘safe, efficient and reliable manner,’ and directed it to immediately stop bookings and sale of tickets directly or indirectly till further orders.

The aviation regulator told Go First to submit its reply within 15 days of the receipt of this notice, based on which a decision on the continuation of its Air Operators Certificate (AOC) will be taken. The budget airline had earlier suspended sale of tickets till May 15 and cancelled flights till May 19.

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