According to the sources, the National Company Law Tribunal (NCLT) has just set the next hearing of aircraft lessor Wilmington’s appeal against SpiceJet on June 16, 2023. Wilmington had asked that the NCLT initiate insolvency proceedings against SpiceJet.

Wilmington Trust SP Services and SpiceJet’s two other lessors, Sabarmati Aviation Leasing and Falgu Aviation Leasing, approached aviation regulator DGCA in May to ask for the deregistration of three of the airline’s planes. In May, the NCLT notified the Ajay Singh-promoted private carrier in response to an aircraft lessor’s plea asking for the beginning of insolvency resolution proceedings.

SpiceJet has 67 aircraft in its fleet, including Boeing 737, B737 Max, and Bombardier-Q400 regional jets. According to sources quoting data from an aircraft tracking website, 37 of them were in service, and 30 were not as of early May.

Potential heads of defence.

Illegality.

SpiceJet argued that at trial, it would be able to argue that it was not required to make the applicable payments to the Claimant for Aircraft 1 because operations of the Aircraft would have been illegal due to the Indian Government’s restrictions on aircraft operations during the COVID-19 pandemic. The court determined that this defence would not be available to SpiceJet because, while Aircraft 1 was operational during the pandemic, even if it had not been capable of operation, the hell or high water provisions of the applicable lease deal that demanded to be paid irrespective of Aircraft 1’s availability or eligibility for respective use of trade.

Furthermore, it was evident from the provisions of the applicable lease agreement that the Lessee bore the risk of loss of use, ownership, or enjoyment of Aircraft 1.

Claim for security deposit restoration.

SpiceJet gave a letter of credit in lieu of a cash deposit revolving around the leasing agreement for Aircraft 1. The terms of that lease agreement allowed the Claimant for Aircraft 1 to draw on the letter of credit in the case of a breach of that lease agreement or the lease agreements for Aircraft 2 and Aircraft 3.

Ruling in SpiceJet’s favour, the court found that SpiceJet would have an arguable lawsuit, based on the October 2019 letter, that as the Claimant for Aircraft 1 was not the lessor for Aircraft 2 or Aircraft 3, the Claimant for Aircraft 1 should not have drawn on the letter of credit as it could not suffer losses under the lease agreements for Aircraft 2 and Aircraft 3, and, accordingly, SpiceJet would have no obligation to restore a deposit on the basis that it had been wrongfully drawn down by the Claimant for Aircraft 1.

Calculation of maintenance reserves.

In relation to the claims for unpaid maintenance reserves, SpiceJet made a defence that the claim by claiming that none were payable because the Aircraft had not been operated due to the COVID-19 pandemic (for all Aircraft) and the grounding of MAX aircraft (for Aircraft 2 and Aircraft 3). However, the judge dismissed this argument to be “misconceived” because only some elements of the due amount were calculated using flying hours rather than calendar time, and those amounts that were calculated using flying hours emerged to have been properly calculated by the Claimants.

SOGSA’s decided criteria of wow quality.

Given the design flaw which led to the grounding of all MAX aircraft, the question arose as to whether Aircraft 2 and Aircraft 3 were of “good quality” for the purpose of SOGSA or if the conditions of the lease agreements, which attempted to disclaim the assurances or warranties about the condition of Aircraft 2 and Aircraft 3, indicating that the SpiceJet could claim for the loss of use of Aircraft 2 and Aircraft 3.

Unless its provisions are excluded, SOGSA operates to imply into contracts for the supply of goods and services conditions like the supplied goods being of satisfactory quality, which means that they must meet the standard that a reasonable folk would regard as satisfactory, taking into the account any description of the goods, the price (if applicable), and all other relevant circumstances.

The Court of Appeal determined that the implied condition of “satisfactory quality” under SOGSA would apply despite disclaimer language that purported to exclude “guarantees, warranties, or representations, express or implied, merchantability, fitness, or suitability for any particular purpose or otherwise,” and that clear language covering “conditions” themselves was required.

All other stated or implicit legal responsibilities or liabilities were enough to exclude SOGSA. The lack of generic language like “obligation” or “liability” meant that there was an arguable matter that the statutory implicit requirements were not excluded, according to the judge.

Frustration.

According to SpiceJet, the grounding of the MAX aircraft invalidated the leases for Aircraft 2 and Aircraft 3, providing further grounds for a defence. In determining if this would be an arguable defence, the court used the “radically different” test to determine if the performance of the contract had been rendered “radically different” from the obligation committed through no fault of either party.

The judge took the decision in SpiceJet’s favour in order to analyse if they had an arguable defence that there had been an intention for Aircraft 2 and Aircraft 3 to be operated for commercial use rather than, because the Claimants for Aircraft 2 and Aircraft 3 claimed, just for SpiceJet to hire Aircraft 2 and Aircraft 3 in exchange for rent.

However, the court determined that the hell or high water provisions assigned to SpiceJet have the risk of Aircraft 2 and 3 being grounded because of limitations on use or impairment in airworthiness. The court determined that the relatively short period of time that the DGCA grounded the Aircraft 2 and Aircraft 3 was not a violation of the lease agreements for Aircraft 2 and Aircraft 3. The “radical difference” threshold prerequisite was not reached.

Conclusion.

It should be emphasised that the court was analysing whether or not summary judgement could be entered against SpiceJet for unpaid lease rentals and maintenance reserves, and interests and costs, so while SpiceJet may have succeeded on some of the potential defences it raised, its success was limited to the capacity that there was a real prospect of a successful defence, not that the Claimants’ claims were invalid.

Proofread & Published By Naveenika Chauhan