Jet Airways (Mumbai International) has enjoyed a significant legal victory over its most bellicose creditor after the National Company Law Appellate Tribunal (NCLAT) rejected its bid to encash an INR1.5 billion rupee (USD18.1 million) bank guarantee.

The State Bank of India (SBI) wanted to encash the guarantees provided by the Jalan Kalrock Consortium (JKC) after alleging that the consortium had failed to make good on their payment obligations. In November 2022, the National Company Law Tribunal (NCLT) gave the JKC six months to pay USD22.4 million to out-of-pocket creditors following the 2019 collapse of the airline. That period expired on May 14 with no monies paid, leading to the encashment attempt.

In the wake of the collapse, administrators admitted INR77.08 billion (USD942 million) in claims against Jet Airways, with the SBI among the biggest claimants. Since then, the bank has led a group of creditors who have resisted the smooth transfer of ownership to the JKC. In late 2020, the consortium won the right to acquire Jet Airways. An NCLT-approved resolution plan later ratified this. In exchange, the JKC agreed to recapitalise Jet Airways and pay creditors, including the SBI, a total of INR4.75 billion (USD57.3 million). In turn, creditors agreed to facilitate the ownership transfer.

However, a deteriorating relationship between the consortium and the creditors has led to a series of legal challenges, demands outside the ambit of the resolution plan, and unmet payment deadlines. Attempting to prevent the SBI from converting the bank guarantees into cash, counsel for the consortium argued that the bank had deliberately obstructed the ownership transfer, causing the JKC to run out of time to make the agreed payments.

As reported by the LiveMint outlet, Justices Ashok Bhushan and Barun Mitra said on May 26 when dismissing SBI's bid, that while the bank had the right to encash the guarantees, it also had a responsibility to uphold the resolution plan and facilitate the ownership transfer.

"There is no doubt that performance bank guarantee can be invoked," the ruling said. "But the said invocation can only take place when successful resolution applicant (the consortium) has failed to implement the plan... Instead of threatening to invoke the performance bank guarantee, (lenders) should take steps, which may help implementation of the plan and to achieve the objective of resolution plan."

In a small concession to the bank, counsel for the consortium said it would put INR500 million (USD6.05 million) into an escrow account but asked for an order preventing the SBI from further attempts to encash JKC generated bank guarantees.