Go First’s insolvency petition before the National Company Law Tribunal (NCLT) will be closely watched. All eyes will be on whether the IBC mechanism can deliver a quick resolution, making a break from its track record of taking over 400 days to resolve a case. More often than not, its rulings result in liquidation rather than revival; the sheer time lost is a reason. Go First — which remained a ‘going concern’ till the very day (May 2) the company submitted its insolvency resolution application before the NCLT — is tailor-made for a quick resolution of its over ₹11,000 crore debt, of which over half is due to the financial creditors.
Notably, Go First turned itself over to the NCLT even before its debts were labelled as NPAs. In most such cases, companies are dragged to IBC by their creditors when they are in an advanced state of disrepair. While the cynics and the lessors of Go First’s aircraft charge that the company might have entered the IBC to pre-empt a claim on its debts (a moratorium on claims having come into force after NCLT accepted its application), that is beside the point. What matters here is that an early IBC entry and solution with a moderate haircut for creditors is a better option than a downward spiral towards bankruptcy where no one benefits. Generally speaking, when the debtor applies for resolution and pre-empts a claim on its debts, the entity can also arrive at an out-of-court deal with all creditors, which could then lead to withdrawal of the application under Section 12A of IBC.
The Go First case puts the spotlight on a key clause in IBC law — Section 29A, which essentially prevents an existing promoter regaining control over the entity by applying for a resolution plan. However, Go First has expressed interest in keeping the company running and claimed that its finances and operations were thrown out of gear basically because of the defective Pratt and Whitney engines supplied by US-based Raytheon Engineering, even though it has been in difficulties for a while. This evidently forced it to ground half of its 54 aircraft. What bolsters its case is that Lufthansa has flagged issues with P&W engines. Arbitration proceedings by Go First against the engine makers have intensified.
Further, Section 29A (c) seems to work in Go First’s favour. It says that the existing promoter is still eligible to apply for resolution if the time between the dues being declared NPA and the commencement of the resolution process is less than a year. The first has not happened. However, the existing promoter cannot expect his bids to be privileged over the rest. Nor should he use his clout within the industry to block other bidders, as has been seen before. The NCLT would be faced with the issue of whether it should interpret Section 29A more flexibly if the blame for the company’s finances cannot entirely be laid at the doorstep of the promoters. Go First indeed is a first in many respects.