In the matter of Go Airlines (India) Ltd. Vs. Sovika Aviation Services Pvt. Ltd. Company Appeal(AT) (Ins) No. 1118 of 2019

1. The present appeal has been filed by the ‘Appellant' – ‘Go Airlines (India) Limited.,’ (Appellant/Operational Creditor) under Section 61 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’) against the impugned order dated 26.08.2019 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, Mumbai bench), in CP (IB) No. 44(MB) /2018 vide which the Petition filed by the Appellant under Section 9 of the Code for initiating ‘Corporate Insolvency Resolution Process’ (CIRP) against the Respondent/Corporate Debtor - Sovika Aviation Services Pvt. Ltd, has been dismissed.

2. The Appellant has sought reliefs for setting aside and quashing the order dated 26.08.2019 passed by the Adjudicating Authority in CP(IB) No. 44(MB)/2018 and admit the petition under Section 9 of the Code for initiation of CIRP.

3. The Adjudicating Authority while passing the ‘Impugned order’ dated 26.08.2019 in CP(IB) No. 44(MB)/2018 had, inter alia, observed the following:

“On due consideration of the several evidences on record as placed by both the sides a conclusion can be drawn that the liability in question of Operational Debt was not a clean and clear liability, what to say, an “admitted” liability on the part of the Debtor Company. The alleged liability in question was contentious as well as disputed. The Insolvency Code is not incorporated to resolve the dispute about the correctness of the amount of a liability if it is contentious. Under the I&B Code a petition is not in the nature of a Civil Suit for settling a dispute erupted among the parties. Neither this Code is to be used for recovery purposes. The mandate as enshrined in the Preamble is to re-structure the finances and business of a debt-ridden Debtor by maximizing the value of its assets. In this case, it is doubtful whether the liability in question is payable or not. This issue can only be decided on long drawn discussion based upon thorough investigation of evidences. Witnesses are to be examined to affirm the reasons for downloading of cargo by Go-Air. Although this bench is not suggesting anything to any party but for the purpose of drawing a conclusion it is hereby observed that a petition having civil nature of dispute is out of the ambits of this Code while dealing a Section 9 IBC Application. Respectfully following the precedents cited supra we find no force in this petition on account of the preliminary reason that there was undisputedly pre-existence of dispute among the Petitioner and the Respondent, therefore, Petition is not maintainable u/s.9 of the Insolvency Code. Resultantly, the Petition is hereby ‘Dismissed.

4. The Appellant is a passenger airline operator having ‘Domestic’ and ‘International’ flights. The Appellant’s route network spans across prominent business metros as well as key leisure destinations across the Indian subcontinent.

5. The Appellant and Respondent has entered into a ‘Cargo Agreement’ (for short ‘Agreement’) dated 09th July, 2016 vide which the Appellant has agreed to provide to the Respondent, cargo belly space in its fleet of aircraft to carry out cargo services for such consideration and on such terms as specified in the Agreement.

As per the Agreement, the Respondent was required to pay to the Appellant as consideration (i) an amount of Rs.3,50,00,000/- as signing amount payable in 4(four) equal instalments within one year of signing the Agreement; (ii) fortnightly charges plus service tax and other applicable charges for the use of cargo belly space on Appellant’s fleet on per aircraft per month basis; (iii) cargo sales earnings in excess of Net Tonnage Cap (in Net) within one month from the completion of the financial year; (iv) reimbursement to the Appellant within thirty days from the submission of the documents for expenses incurred by the Appellant on cargo related ground support equipment, vehicle(s) and parking charges; (v) reimbursement to Appellant on the 5th day of each month in advance made to Appellant of a lump sum of Rs. 4,00,000/- alongwith applicable taxes for cargo security services provided by the Appellant from the execution of the Agreement for Financial Year 2016- 17.

In addition, the Respondent was also required to pay and irrevocable and unconditional bank guarantee in favour of appellant equivalent to two months revenue for three consecutive Financial Years. The due dates specified were on or before 15th July, 2016 for Financial Year 2016-17, on or before 25th March, 2017 for Financial Year 2017-18 and on or before 25th March, 2018 for Financial Year 2018-19.

6. The details of all invoices raised by the Operational Creditor on the Corporate Debtor are reproduced hereunder:

7. The email correspondence during the month of June, 2017 is reproduced below which reflects strained relationship cropped up between the Appellant & Respondent:

8. The Appellant has also submitted that to wriggle out of the liability for the various dues of the Corporate Debtor started raising debit notes which were refuted by the Appellant vide its letter dated 22.06.2017 as depicted below:

The Appellant has also submitted that the Corporate Debtor/Respondent has never disputed the Appellant’s rejection of debit notes.

9. The Appellant has also submitted that vide email dated 07.08.2017 & 01.09.2017 as depicted below:

The Respondent shown keen interest to restart the business of the Appellant and further modalities to settle the outstanding amounts of the Appellant which also confirmed that the Respondent/Corporate Debtor has accepted the past dues as on July, 2017 approx. Rs.14.72 Crore and also statement that they will clear the past dues at the earliest.

10. However, the Appellant/ Operational Creditor served notice of termination of Agreement dated 09.07.2016 due to non-clearance of outstanding amount of Rs.13.46 Crore.

11. The Appellant/Operational Creditor also issued a ‘Demand Notice’ demanding payment in respect of ‘unpaid operational debt’ from Corporate Debtor for an amount of Rs.17,60,80,625 crore providing the details of invoices outstanding for payments.

12. The Corporate Debtor has ‘responded’ to the demand notice on 28.12.2017. In the reply, the Corporate Debtor has raised the issue of non-availability of appropriate belly space on Aircrafts of Appellant, loss of revenue to the Corporate Debtor and other issues.

13. The Respondent/Corporate Debtor has stated that in July, 2012 both the parties wherein carrying out the business of cargo sales, transportation and handling services on the aircrafts belonging to the Appellant (the same is at page 787 of the Appeal Paper Book). The first agreement was successfully performed by the Respondent as a result of which tonnage of cargo carried on the appellant’s aircraft increased from approx.1800 tonnes per month to approx. 5000 tonnes per month during the terms of the first agreement, this increased the profit of the Appellant.

The Second agreement is the result of the first agreement and the Respondent has commenced operation under the said agreement in July 2016 but it started facing several operational issues which were largely attributable to the Appellant like unlawful loading of cargo which resulted into a loss of over Rs.20 Crore for the period August 2016 to April, 2017 to the Respondent. It has also referred to the meeting in the Appellant office on December, 21st 2016, January 12th, 2017, 14th February, 2017 to sort out the operational issues which improved the Corporate Debtor’s misery and also the Appellant’s issue internal instructions for increasing the cargo load on the aircraft to its employees. It has also stated that there was a steep increase in not only the number of passengers boarding in the Appellant’s aircraft but also in their passenger’s baggage which deprived cargo belly space to the Respondent as the airlines was making higher profit on the excess baggage of passengers then what they will get from cargo belly space rental. It has also stated that changes in government policy started from November, 2016 demonetisation led to a certain slow down market condition owing to which the cargo industry was severely impacted and the Respondent’s business also took a hit resulting in an unaccepted dip in cargo transportation. In January, 2017 the Appellant’s aircraft were carrying only 4200 tonnes per month of cargo as opposed to 4900 tonnes per month during the period of first agreement.

14. It has also stated that it made several requests to the Appellant to reduce the loss of Respondent including the changes in the business terms. It has also stated that the debit notes submitted by Respondent from 15th June to 19th June, 2017 amounting to Rs.27,74,71,081/ were returned by the Appellant on June 22nd, 2017. The Appellant has also on June 27, 2017 invoked the Bank guarantee of the Respondent for a sum of Rs.39,91,00,000/- in view of alleged non-payments of amounts by the Respondent to the Appellant under the said agreement. However, the Respondent had accepted that it has again circulated the revised commercials on 21.07.2017 vide its email appearing at page 122 of the Appeal Paper Book (Annexure -I to the Appeal). However, the Appellant didn’t agree to the revised commercials and at a letter date issued termination notice and, thereafter, demand notice. It is also reiterated that between them there exists a genuine and serious dispute, particularly, due to the Appellant failure to provide cargo belly space on its aircrafts and offloading of respondent cargo. The Appellant failed to abide by primary obligations under the said agreement. It has also raised the cross claim of Rs. 27,74,71,081/- resulting from various debit notes which were returned by the Appellant.

15. The Respondent has given a lot of stress on not providing minimum cargo belly space to the Respondent for loading cargo and as a result of which the Appellant was supposed to accept the debit notes termination of the agreement by the Appellant was nothing but a coercion to the Respondent being a petty business unit and thereby wriggle out of the liability which the Appellant was supposed to bear in respect of various elements of expenditure. Repeated internal circular dated 13.02.2017 and 15.02.2017 by the Appellant on the issue of cargo load to its employees itself reflect that they were violating the terms of the agreement for minimum belly space to the Respondent. Different emails and meetings between the parties cited by the Respondent to prove that the Appellant’s claim is false or frivolous.

16. The Respondent has also submitted that CIRP initiated against it vide CP(IB) No.4663(MB)/2018 was withdrawn under Section 12A in terms of the Resolution of the Committee of Creditors (CoC) in its 7th meeting held on 19.03.2021 vide Adjudicating Authority order dated 23rd September, 2021 in the IA No.805/2021.

17. All this suggests that the financial condition of the Corporate Debtor is not healthy. CIRP was already initiated against it and the same has been closed by the Adjudicating Authority on 23rd September, 2021 after settlement with the ‘Union Bank of India’ who has entered into ‘OTS Agreement’ for release of payments in different instalments till 31.03.2023 and the Corporate Debtor has already paid two instalments in terms of the Settlement Agreement. The Resolution Professional (RP) associated with the CIRP also confirmed that the Original Applicant- Operational Creditor under the Code also recommended for withdrawal of Application. The RP received only two claims from two operational creditors ‘Air India Sats Airports Services Pvt Ltd. of Rs.24.40 lakhs and another claim of ‘Transport India’ to the tune of Rs.18.02 lakh. This reflects that the present Appellant’s claim was not appearing in that list. In the current application also, the Appellant has encashed the bank guarantee of Rs.39,91,00,000/- towards the dues from the Respondent. The Adjudicating Authority has drawn the inference of ‘pre-existence of dispute’ which cannot be ruled out. It is also very much clear that the Appellant is chasing for payments which is also not the purpose of the Code. The Hon’ble Supreme Court in Civil Appeal No.9597 of 2018, “Transmission Corporation of Andhra Pradesh Limited Vs. Equipment Conductors and Cables Limited” vide para 15 has already held that IBC is not intended to be a substitute to a recovery forum and also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked.

18. In view of this, we do not find any infirmity in the impugned order. The Appeal deserves to be dismissed and is dismissed. No order as to costs.

Pending application, if any, stands disposed of. Interim order, if any, passed by this Tribunal stands vacated.

[Justice Ashok Bhushan]

Chairperson

[Justice Jarat Kumar Jain]

Member (Judicial)

(Dr. Ashok Kumar Mishra)

Member(Technical)

10th December, 2021