Go Airlines (India) Limited vs Sovika Aviation Services Private Ltd

Corporate Office: C-1, Wadia International Centre Pandurang Budhkar Marg, Worli, Mumbai - 400 025 ...Appellant

Versus Sovika Aviation Services Pvt. Ltd. A-101-104, Dynasty Business Park, J B Nagar, Andheri Kurla Road, Mumbai - 400 059

Corporate Office: B-2, Parekh Mahal, 80 VN Road, Church gate, Mumbai - 400 020 ...Respondent Present: For Appellant: Mr. K.Datta, Sr. Advocate, Mr. Amish Tandon, Mr. Ayush Beotra, Advocates. For Respondent: Mr. Ritin Rai, Sr. Advocate, Ms. Chandni Dewani, Mr. Lsafeer Ahmad BF, Ms. Anusha Jegadeesh, Advocates.

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

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

1 Company Appeal (AT)(Ins) No.1118 of 2019 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

2 Company Appeal (AT)(Ins) No.1118 of 2019 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

3 Company Appeal (AT)(Ins) No.1118 of 2019 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.

4 Company Appeal (AT)(Ins) No.1118 of 2019

6. The details of all invoices raised by the Operational Creditor on the

Corporate Debtor are reproduced hereunder:

5

Company Appeal (AT)(Ins) No.1118 of 2019 6 Company Appeal (AT)(Ins) No.1118 of 2019

7. The email correspondence during the month of June, 2017 is reproduced

below which reflects strained relationship cropped up between the

Appellant & Respondent:

7

Company Appeal (AT)(Ins) No.1118 of 2019 8 Company Appeal (AT)(Ins) No.1118 of 2019 9 Company Appeal (AT)(Ins) No.1118 of 2019

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:

10

Company Appeal (AT)(Ins) No.1118 of 2019 11 Company Appeal (AT)(Ins) No.1118 of 2019 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:

12

Company Appeal (AT)(Ins) No.1118 of 2019 13 Company Appeal (AT)(Ins) No.1118 of 2019 14 Company Appeal (AT)(Ins) No.1118 of 2019 15 Company Appeal (AT)(Ins) No.1118 of 2019 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

16 Company Appeal (AT)(Ins) No.1118 of 2019 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.

17 Company Appeal (AT)(Ins) No.1118 of 2019

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

18 Company Appeal (AT)(Ins) No.1118 of 2019 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.

19 Company Appeal (AT)(Ins) No.1118 of 2019 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 New Delhi

Raushan.K

20 Company Appeal (AT)(Ins) No.1118 of 2019