Go First Insolvency Conundrum: A Set up for Failure?

Go First Insolvency Conundrum: A Set up for Failure?

By Aparna Ravi (Samvad Partners Advocates) and Neeti Shikha (University of Bradford)


The judiciary has often been seen as the weak link in any analysis of the successes and failures of the Indian Insolvency and Bankruptcy Code of 2016 (IBC). In 2022, the Supreme Court of India came under much criticism for two IBC judgments – Vidarbha Industries (Axis Bank Limited v. Vidarbha Industries Power Limited) and Rainbow Papers (State Tax Officer v. Rainbow Papers Limited) where the Court exercised its discretion to read into the IBC terms that were contrary to its stated purpose. Now in May 2023, the order of the National Company Law Tribunal’s (NCLT) admitting the insolvency application filed by Go Airlines (India) Limited (Go First) and the judgment of the appellate tribunal (NCLAT) in upholding the NCLT’s order have similarly drawn the ire of many stakeholders, particularly the airline’s international lessors. The lessors alleged that Go First’s insolvency filing was made with mala fide intentions and the international aviation community has called out India as a high-risk jurisdiction after Go First was admitted to insolvency without any regard for the Cape Town Convention on International Interests in Mobile Equipment (Cape Town Convention) that, among other things, sets out the rights of aircraft lessors in case of an airline’s insolvency.   

In this case, however, in contrast to Vidarbha and Rainbow Papers, the NCLT did not use any discretion, but simply admitted Go First into insolvency as the airline’s application met all the requirements for commencing voluntary insolvency proceedings under Section 10 of the IBC. Could the NCLT and NCLAT have acted any differently or was there no choice but to admit Go First’s section 10 application? In this article, we explore if the NCLT and NCLAT could have engaged in a more purposive interpretation, keeping in mind the broader purpose of the IBC as well as the economic and international context of this precedent setting case.


Go First Airlines filed for voluntary insolvency under Section 10 of the IBC on May 2, 2023 and, a few days later, became the second Indian airline after Jet Airways to be admitted to insolvency under the IBC. Go First had defaulted on its payments to its aircraft lessors to the tune of INR 2,660 crores.

The airline claimed it had been facing financial problems due to defective engines supplied by Pratt & Whitney (P&W), as a result of which nearly 34% of its aircrafts were grounded in the year 2022. When P&W allegedly failed to honour its contractual obligation towards Go First by failing to repair or provide replacement engines, Go First filed an emergency arbitration application against P&W before the Singapore International Arbitration Centre (SIAC). The Emergency Arbitrator passed an award directing P&W to supply 10 serviceable engines by April 2023 and 10 serviceable engines each month till December 2023.  However, P&W did not comply with the award arguing that it was the airline's years-long failure to pay maintenance and lease charges that led to the necessary suspension of services.

The parties are now also locked in a battle in the Delaware court, where P&W vehemently opposes Go First’s push to enforce the award of the Emergency Arbitrator in Singapore. Indeed, P&W’s counsel have argued before the Delaware court that P&W has no obligation to supply engines to Go First as it has already terminated its engine lease with the beleaguered airline. Go First, on the other hand, contends that the Indian insolvency proceeding means that P&W has no right to repossess the engines during the moratorium period.  

The NCLT’s and NCLAT’s Ruling

When Go First’s Section 10 application was being heard for admission, some of the airline’s lessors, led by SMBC Aviation Capital Ltd., appeared before the NCLT and opposed admission of the petition. The lessors also requested the tribunal to allow them to file an application under Section 65 of the IBC, which provides for stringent action for initiating insolvency proceedings with fraudulent or malicious intent. The NCLT, however, quickly admitted the section 10 application, without giving the lessors an opportunity to file objections. The tribunal also stated that the lessors were free to file an application under Section 65 post-admission as well.

The NCLAT went on to uphold the order of the NCLT in an appeal filed by SMBC and three other lessors. The lessors made three primary arguments. First, that the tribunal’s order admitting the Section 10 application violated principles of natural justice as SMBC had not been granted time to file objections or an application under Section 65. Second, the lessors alleged that the section 10 application had been filed with fraudulent and malicious intent and that the tribunal should not have admitted the application without first hearing the objections that were to be filed under the Section 65 application. Third, the lessors pointed out that they had terminated their lease agreements with Go First prior to admission of the insolvency application, and, as a consequence, the aircrafts were no longer in the lawful possession of the airline.  

The NCLAT rejected the lessors’ contentions, pointing out that the scheme of the IBC did not require notice to be provided to the corporate debtor’s creditors in a section 10 application and it was, therefore, up to the tribunal to decide on the extent to which objectors needed to be heard. The NCLAT also further pointed out that the lessors had not, to date, provided any evidence of fraud on the part of Go First and that the NCLT had, in any event, left it open to the lessors to file a Section 65 application post-admission. Finally, on the last contention, the NCLAT did not decide on the issue, stating that it did not have a bearing on admission of the section 10 application. It further stated that the lessors were at liberty to file an application before the NCLAT on whether aircrafts could be repossessed during the moratorium period.

Natural Justice and Claims of Fraudulent Intent

While the NCLT might have followed the strict letter of the law in admitting Go First’s section 10 application, questions of natural justice and allegations of fraudulent intent of the corporate debtor are worth examining further.  In contrast to the majority of IBC cases, Go First’s section 10 application was admitted in less than the statutorily prescribed time period of 14 days and without providing an opportunity for the lessors to file objections. In a case with such widespread ramifications for an entire industry, the tribunal should have at least considered the views of all stakeholders before deciding to admit the application. While section 10 of the IBC does not require the airlines to give notice to the creditors, the principle of natural justice would certainly warrant one.

Similarly, neither the NCLT nor the NCLAT dug deeper into the contentions regarding fraudulent intent and bad faith, despite there being several indications to the contrary. Unlike Chapter II of the U.S. Bankruptcy Code, there is no specific mention of bad faith in the IBC; however, an obligation on all parties to approach the tribunal with clean hands is nevertheless implied. For starters, under the terms of the aircraft leases, Go First had an obligation to inform its lessors before filing for insolvency which it failed to do. Failure to inform its creditors of such a significant event in breach of its contractual obligations suggests prima facie bad faith on the part of the airline, which should have led the tribunal to look further.   

There have generally been very few applications under Section 10 as most promoters know that the IBC option would mean that they cannot regain control over the business in light of Section 29A. However, in Go First's case, as the accounts were not NPA  (its defaults were primarily related to lease payments to lessors rather than defaults to financial creditors), the promoters may not be barred under Section 29A from submitting a resolution plan. The airline can hence take advantage of the situation by isolating the aircrafts from the reach of its lessors without fear of loosing ultimate control of the business.

Against this backdrop, it would have definitely been worth evaluating if Go First’s failure to inform its lessors and creditors of the proposed filing suggests bad faith, which is not mere noncompliance of a legal duty but neglect of fair dealing standards. One way in which the tribunal could have evaluated Go First’s seriousness regarding resolution would have been to ask the corporate debtor and its promoter on the plans for resolution and perhaps to submit a draft resolution plan. Instead, the tribunal appears to have been in a great rush to admit the application without giving due consideration to the lessors’ concerns of mala fide intent and the consequences of admitting the insolvency application when creditors were not on board.  

The Cape Town Convention

Curiously, the lessors do not appear to have brought up the Cape Town Convention in their arguments before the NCLT or NCLAT. However, lurking in the background is the larger question of whether the tribunal could have had any room to consider the terms of the Cape Town Convention and the Protocol to the Convention on Matters Specific to Aircraft Equipment (collectively, Cape Town Convention/Protocol), which provide stakeholders, including lessors, with various rights in case of an airline’s insolvency. This also raises the larger question of whether courts and tribunals, when rendering judgments in area of economic laws, should take into account the broader purpose of the relevant legislation as well as the economic and international context of the case.  

The Cape Town Convention/ Protocol aims to create a legal regime for aircraft leasing and financing that is universally applicable across countries and, as a consequence, reduce the level of risks for prospective creditors and lessors, which in turn would lead to a reduction in the costs of aircraft financing and leasing and eventually to a reduction in operational costs. Specifically, the Cape Town Convention/Protocol provides a structure for dealing with defaults and airline insolvencies that addresses the unique challenges applicable to the airline industry. For example, it provides for basic default remedies for the creditor or lessor, such as deregistration and export of aircraft, as a measure of speedy interim relief. The Cape Town Convention/Protocol also provides that, upon the occurrence of an insolvency-related event, the insolvency administrator or debtor should give possession of the aircraft object to the creditor. In this respect, the provisions of the Cape Town Convention/Protocol differ from those under the IBC in terms of a lessor's rights to repossess the aircraft. Under Section 14(1)(d) of the IBC, assets that are in the possession of the corporate debtor (even if not owned by the corporate debtor) cannot be retrieved from the debtor during the moratorium that could last for up to 330 days. On the other hand, under the Cape Town Convention/Protocol, a lessor could repossess the aircraft within 60 days if certain conditions are not met.

While India acceded to the Cape Town Convention/Protocol in 2008, it does not have the force of law as legislation implementing the convention is yet to be enacted. In 2018, the Cape Town Convention Bill was tabled in Parliament to give effect to the Cape Town Convention/Protocol through domestic legislation. The government clarified in the proposed Bill that there was a need for separate legislation as there were certain provisions of the Cape Town Convention/Protocol that were in conflict with the provisions of some other laws, which were outside the jurisdiction of Civil Aviation Ministry, such as, the Civil Procedure Code, 2008, the Specific Relief Act, 1963, the Companies Act, 2013 and the IBC. Had the legislation been enacted, there would have been a carve out in the IBC for airline insolvencies to ensure there is no conflict between the IBC and the Cape Town Convention/Protocol.

Could the NCLT have considered the Cape Town Convention/Protocol or attempted a harmonious interpretation between the convention and the IBC, given that the Cape Town Convention Bill is yet to be passed by Parliament? The easy answer to this question will be in the negative as the Cape Town Convention/Protocol does not have the force of law in India. However, in our view, there was scope for the tribunal to consider the terms of the Cape Town Convention/Protocol had it adopted a purposive interpretation of the IBC and considered the critical commercial issues at stake.

The primary objective of the IBC is to maximize value of assets for all stakeholders, particularly creditors.  Had the NCLT and NCLAT viewed Go First’s application from the perspective of furthering this objective, two things would have quickly become apparent. First, keeping the aircrafts grounded is in no one’s interest as their value depletes rapidly with time. Second, as the case of Jet Airways demonstrates, it is next to impossible to run the airline as a going concern during the insolvency resolution process, if lessors terminate their leases and ask to repossess their aircrafts. In light of these two features, insolvency resolution for an airline can work only if it is significantly fast tracked and the IBC alone might not be equipped to deal with the specific challenge posed by airlines insolvencies. Using the Cape Town Convention/Protocol could come in handy here, particularly when the Government has demonstrated clear legislative intent to enact implementing legislation.

While the Cape Town Convention/Protocol is yet to be implemented through domestic legislation, courts and tribunals are nevertheless permitted to consider international treaty obligations while passing judgments, especially when there is no direct conflict with existing laws. The principle of pacta sunt servanda enshrined in Article 26 of the Vienna Convention on the Law of Treaties states that: "Every treaty in force is binding upon the parties to it and must be performed by them in good faith."

Various judicial pronouncements have made it clear that the provision of international treaties might be read into existing Indian law to expand their protections. The Indian courts regularly cite treaties and other provisions of international law for constitutional interpretation. The Supreme Court’s decision in Visakha v. State of Rajasthan is testimony to this effect. In this respect, the Indian judiciary has played a proactive role in implementing international law under treaty law, especially human rights and environmental law.  It is probably the time that the judiciary steps up to show similar pragmatism in case of economic laws as well.  


The hasty admission of Go First into insolvency seems to be a successful attempt to set up the airline for failure. The case required a purposive and harmonious approach to reading insolvency laws in light of the legislative objective under both the Cape Town Convention/Protocol that aims at securing interest of creditors and lessors in a time bound manner and providing for quicker insolvency resolution, and that of the IBC that aims to maximise value of assets for all stakeholders. As insolvency jurisprudence is still evolving in India, it is important that the judiciary adopts a pragmatic approach in reading laws, giving due consideration to international laws, and prevents misuse of the law. Courts and tribunals have become the new battlefield for economic disputes and hence judicial prudence plays a key role in deciding the future of the country’s economy. Lack of confidence in the judiciary will result in diffidence among investors who see India as an attractive destination for commerce.