NCLT Issues Notice to SpiceJet Over $12 Million Insolvency Plea by Engine Lease Finance

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NCLT Issues Notice to SpiceJet in $12 Million Insolvency Plea by Engine Lease Finance

Team FS

13/Jun/2024

Key Points:

NCLT issues notice to SpiceJet in a $12 million insolvency plea by Engine Lease Finance.
SpiceJet is directed to respond to the plea with a hearing scheduled for August 2.
The dispute involves non-payment for eight leased engines and ongoing litigation in the Delhi High Court.

In a significant development, the National Company Law Tribunal (NCLT) on June 13 issued a notice to SpiceJet, a prominent budget airline in India, in response to an insolvency plea filed by Engine Lease Finance BV. The plea revolves around the non-payment of over $12 million for eight engines leased to SpiceJet. The tribunal has instructed SpiceJet to file a formal response to the plea and has scheduled the case for a hearing on August 2.

Background of the Dispute

The dispute between SpiceJet and Engine Lease Finance BV has a lengthy history. In 2023, Engine Lease Finance approached the Delhi High Court, alleging that SpiceJet continued to use two engines even after the lease had been terminated. According to the lease agreement, the airline was not permitted to use the engines once the lease was terminated. The lessor sought an order from the court to prevent SpiceJet from using the engines.

Despite arriving at an interim settlement in October 2023, where Engine Lease Finance agreed not to pursue the stay application against SpiceJet, the budget carrier failed to make the payments as agreed. Consequently, the lessor moved the court in December, asserting that SpiceJet had not fulfilled its payment obligations. While the engines have since been grounded and returned to the lessor, the case remains pending in the Delhi High Court.

Recent Developments

During the last hearing, SpiceJet raised objections to certain technical defects in the plea filed by Engine Lease Finance. The NCLT granted the lessor an opportunity to rectify these errors, which they subsequently did. Following the rectification, the tribunal issued a formal notice to SpiceJet. The airline has also raised objections regarding the maintainability of the plea.

Representing Engine Lease Finance BV, lawyer Anandh Venkatramani, instructed by Saket Satapathy, partner at the law firm Tuli & Co., appeared before the tribunal. On behalf of SpiceJet, lawyer Sanjay Gupta presented the airline's case.

Broader Implications and Ongoing Litigations

This case is not an isolated incident for SpiceJet. Over the past year, the airline has faced multiple lawsuits from various lessors concerning unpaid dues. While SpiceJet has managed to settle disputes with nearly 15 lessors, it continues to be embroiled in a series of litigations both in the NCLT and the Delhi High Court.

Engine Lease Finance BV is also engaged in a legal battle with the now-grounded airline Go First over similar issues related to leased engines. This highlights the broader challenges faced by airlines in managing financial obligations, especially in the wake of economic disruptions caused by the global pandemic.

Legal and Financial Repercussions

The outcome of this case could have significant financial and operational implications for SpiceJet. A ruling in favor of Engine Lease Finance could lead to further financial strain on the airline, which is already grappling with multiple litigations and financial obligations. Conversely, if SpiceJet successfully challenges the maintainability of the plea, it could provide some temporary relief.

The NCLT's directive for SpiceJet to respond to the plea by August 2 sets the stage for a crucial hearing that could determine the future course of the dispute. Both parties are expected to present detailed arguments and evidence to support their respective positions.

Industry Context

The aviation industry has been particularly vulnerable to financial instability, exacerbated by the COVID-19 pandemic. Airlines worldwide have faced unprecedented challenges, including plummeting passenger numbers, rising operational costs, and mounting debt. In this context, disputes over leased aircraft and engines have become more frequent, as airlines struggle to meet their financial commitments.

For lessors like Engine Lease Finance BV, ensuring timely payments and adherence to lease agreements is crucial for maintaining financial stability and operational continuity. Legal actions, such as the one against SpiceJet, are often a necessary step to enforce contractual obligations and safeguard financial interests.

Conclusion

The notice issued by the NCLT to SpiceJet in the $12 million insolvency plea filed by Engine Lease Finance BV marks a critical juncture in this ongoing dispute. As the case progresses, it will be closely watched by stakeholders within the aviation industry, financial institutions, and legal observers. The resolution of this case will not only impact SpiceJet and Engine Lease Finance but could also set a precedent for similar disputes in the future.

As the hearing on August 2 approaches, both parties are expected to intensify their preparations, with potential ramifications for their respective legal and financial strategies. For SpiceJet, navigating this legal challenge will be essential in its efforts to stabilize its financial position and ensure continued operations in a highly competitive and volatile market.

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