NLIU NATIONAL POOL SELECTIONS MOOT PROBLEM
2020
DISCLAIMER
This Moot Problem for the Selections was authored by Mr. Rohan Kohli (NLIU Batch of 2019) and
Mr. Shounak Banerjee (NLIU Batch of 2020).
The NLIU Moot Court Association would like to express their deepest appreciation for their selfless
efforts in drafting this problem for the competition. We do hope the participants make full use of
the exciting areas of law addressed.
Participants are forbidden from making any attempt to contact the authors for the purpose of
the Selections. They have been requested to notify the NLIU Moot Court Association
(“MCA”) of any such attempt, and the MCA shall take penalizing action, extending up to
disqualification, of participants found guilty of such, which may extend up to an academic
year.
IMPORTANT DATES (TENTATIVE)
Registration: 10th July 2020 - 7th August 2020.
Memo Submission: 9th August 2020
Researcher’s Test: 13th August 2020
Oral Hearings: 15th August 2020 – 16th August 2020
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1. Shaan Bagh Protest Private Limited (“Shaan Bagh”) is a private limited company
incorporated under the Companies Act, 1956. The company is one of the oldest aviation
companies in India and operates commercial and cargo jets under the brand name “CAA Jets”.
CAA Jets had been a profitable company in a sector that has been acutely stressed since long.
The company has earned a name amongst the general public and cargo operators as
continuously providing a high quality and reliable service to its customers and business
partners.
2. From the company’s incorporation in 1985 to 2010, CAA Jets had consistently grown from
strength to strength. This is evident from the fact that in 1985 CAA Jets started with only 5
aircraft, to 2010 – when they owned 50 commercial airliners, 10 cargo jets and 5 private jets
for its private client service. This was a phenomenal rise considering it was the only private
airline company in 1985 as competition to the state-owned Boomer Junta Planes (“BJP”). By
2010, there were 10 other private market players in the aviation sector, but CAA Jets
maintained its prominence and retained the second highest market share, second only to BJP.
3. From 2010, CAA Jets planned a decade of exponential expansion. They reorganized their
business model – from owning all planes and aircraft that they operated, to shifting to “sale
and leaseback model”. Under this business model, CAA Jets would only actually own a fraction
of planes themselves and would sell the remaining planes to third parties. Then CAA Jets
would lease those planes back from these third parties (who will now be the lessor) as long–term
leases. This was a highly successful business model as it quickly gave CAA Jets a lot of capital
to expand its business. For instance, a single Airbus A380 sold by CAA Jets for INR 500 crores
would allow it to lease back that one plane for INR 25 crores per year, and would also allow
them to lease another 15 planes for same amount, and would still leave them with more than
INR 100 crores for expanding their offices, workforce, etc.
4. As a result, from 2010 to 2019, CAA Jets started selling their owned fleet, and at the same
time began adding leased planes to their fleet. By December 2019, CAA Jets owned 5
commercial airliners, 2 cargo jets and 1 private plane and operated on lease 200 commercial
airliners, 50 cargo jets and 25 private planes. This business model was highly successful at
generating exponential growth but was very risky from a balance sheet standpoint. This is
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because the aviation business was highly cyclical – based on tourism trends, seasonal changes
etc. – but the monthly lease payments were fixed and continuous. However, CAA Jets utilized
the economies of scale from such a large fleet effectively and had built up a considerable war
chest of cash by 2019.
5. In December 2019, there was an outbreak of a dangerous virus strain termed as COVID–19
in China and soon it had spread throughout the world. There were thousands of deaths
worldwide because of this infection. In the midst of this COVID-19 outbreak, the World
Health Organisation (“WHO”) declared COVID–19 as a global pandemic, on a scale never
seen before in human history. By 25 March 2020, the Indian government had declared a
nationwide lockdown to stop the spread of COVID–19. As a result of this nationwide
lockdown, all normal and economic activities and complete curbs were places on inter-state
and international travel. All planes throughout India were ordered to be grounded until further
notice.
6. This entire situation was extremely problematic for CAA Jets. They had a lot of stress on their
balance sheets because of the monthly lease payments. On top of that they had taken a long-
term loan worth INR 2500 crores from Rashtriya Samaj Sewa NBFC (“RSS NBFC”) in May
2019, which also required interest payments on a monthly basis. Till now CAA Jets had paid
for this interest out of the business proceeds it generated, along with the lease payments.
However, with their planes being grounded indefinitely, its cash reserves were fast dwindling.
7. CAA Jets had paid off their lessors and the interest payments to RSS NBFC for the month of
February, March and April 2020. But on 29 April 2020, they communicated to their lessors
and RSS NBFC that they would not be able to fulfill their obligations from 1 May 2020
onwards unless they are able to resume normal business again. On 15 May 2020, CAA Jets
defaulted on its interest payment obligations amounting to INR 15 crores to RSS NBFC and
to the demand notice sent by the lessors for an amount of INR 85 crores. On 20 May 2020,
one of its lessors – Yamia Militia Leasing Limited (“Yamia Militia”) – brought together all
the lessors and they sought to bring legal action against CAA Jets for defaulting on their
contractual obligations to pay them the fixed monthly payments. CAA Jets had a standard
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contract with all of its lessors which contained a force majeure clause (which has been extracted in
Annexure B) – which it seeks to invoke under the lease agreements.
8. Yamia Militia – on behalf of the lessors – had initiated an action in the civil courts in New
Delhi against Shaan Bagh on 24 May 2020 seeking specific performance for the monthly lease
payments and damages for breach of the contractual obligations by Shaan Bagh. In reply to
these demands, Shaan Bagh claimed excuse for its non-performance by invoking the force
majeure obligation, categorizing COVID–19 as a force majeure event.
9. In the meantime, the Central Government had issued the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2020 (“IBC Ordinance”) (which has been extracted in Annexure A),
by which they had suspended the operation of section 7, 9 and 10 of the Insolvency and
Bankruptcy Code, 2016 (“IBC”). On 30 May, RSS NBFC brought an application under
section 7 of IBC seeking to initiate corporate insolvency resolution process and appoint Mr.
Amitabh Shahi as the resolution professional to take over the affairs of Shaan Bagh. Upon
getting news of this filing, Yamia Militia also impleaded itself as a party, claiming its status as
an operational creditor under the IBC.
10. Shaan Bagh has challenged this application claiming that the IBC has already been suspended,
that this does not amount to a “default” under the IBC and hence the application cannot be
entertained. Shaan Bagh has also challenged the act of Yamia Militia claiming to be an
operational creditor when the underlying default for lease payments is subject to adjudication
due to the force majeure clause and has accordingly challenged the maintainability of this
application.
11. The Principal Bench of the Hon’ble National Company Law Tribunal has listed the matter for
hearing and has requested the parties in each petition to formulate issues as well for the ease
of the Tribunal and everyone present. The parties are each being represented by their
respective counsels.
12. In the meantime, on 15 June, the Central Government announced the “UnBlock” plan in
which it notified the gradual allowing of inter-state travel. However, certain State
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Governments continued to notify total lockdowns, including shutting airports as per their
ground situation of COVID-19 cases. Nonetheless, the “UnBlock” plan permitted airlines to
begin domestic operations with strict safety protocols amid restricted airport timings and slots.
Immediately after this announcement, executives from CAA Jets arranged for an urgent
meeting with the executives of a rival - KingShark Airlines (which commands the third highest
market share in India). In this meeting, they discussed overlapping flight routes, sharing of
landing/take-off slots, booking policies, division of some high-income routes and sectors, and
even some chartered flights to assist distressed migrant labourers. Notably, even KingShark
Airlines was plagued with problems similar to that of CAA Jets.
13. Later, through the month of June, many flyers observed that they were unable to find flights
from both airlines on various routes (where only KingShark Airlines and CAA Jets were
previously operating flights). In some sectors, flyers also reported an increase in the fare over
the usual amount and even similar brackets of pricing for flights operated by CAA Jets and
KingShark Airlines. Also, flyers complained of ‘ghost flights’ on routes which did not exist
but were indicated by websites of both these airlines. These flights were cancelled prior to
travel and the fare went into a credit shell. Meanwhile, it was widely reported in the media that
both airlines were struggling with reduced personnel and an unprecedented drop in passenger
traffic. In fact, a majority of the aircraft in their fleets were grounded due to long pending
maintenance or were under repossession on account of failure to make lease payments, all due
to COVID-19.
14. In light of the situation, a devoted NGO called All Businesses Vow Pain (“ABVP”)
immediately filed an information with the Competition Commission of India (“CCI”) against
Shaan Bagh and KingShark Airlines for collusion in the operations of domestic flights and the
consequent contravention of the provisions of The Competition Act, 2002. Finding a prima
facie case, the CCI directed the Director General (“DG”) to investigate the allegations against
the airlines. Consequently, the DG submitted its report (“DG Report”) and found
contravention on part of the airlines. The CCI forwarded a copy of the DG report to both
concerned parties and fixed a date for the final hearing.
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15. In the hearing before the CCI, only the counsel for Shaan Bagh (Opposite Party No.1) is
expected to put forth their submissions. The informant will be represented by their counsel
and submissions to be made accordingly.
16. Issues to be adjudicated before the NCLT: -
(a) Whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016
filed by “RSS NBFC” to initiate corporate insolvency resolution process is maintainable?
(b) Whether the application of Yamia Militia to become a party to the corporate insolvency
resolution process is admissible?
(c) In view of the suit pending in the civil court, whether the National Company Law Tribunal
can adjudicate upon the subject matter of the demand notice?
17. Issue to be adjudicated before the CCI: -
(d) Whether “CAA Jets” violated the provisions of section 3(3) read with section 3(1) of The
Competition Act, 2002?
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ANNEXURE A
THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ORDINANCE, 2020
An Ordinance to further amend the Insolvency and Bankruptcy Code, 2016. WHEREAS the
COVID–19 pandemic has impacted business, financial markets and economy all over the world,
including India, and created uncertainty and stress for business for reasons beyond their control.
WHEREAS a national lockdown is in force since 25 March 2020 which has added to disruption of
normal business operations. WHEREAS it is considered expedient to suspend sections 7, 9 and 10
of the Code to prevent corporate persons which are experiencing distress on account of
unprecedented situation, being pushed into insolvency proceedings under the Code for some time.
WHEREAS it is considered expedient to exclude defaults arising on account of unprecedented
situation, for the purpose of insolvency proceedings under the Code. AND WHEREAS the
Parliament is not currently in session and the President is satisfied that the circumstances exist which
render it necessary for him to take action.
1. This Ordinance may be called the Insolvency and Bankruptcy Code (Amendment) Ordinance,
2020. It shall come into force at once
2. After section 10 of the Insolvency and Bankruptcy Code, the following section shall be inserted:
"Section 10A: Suspension of initiation of corporate insolvency resolution process
10A. Notwithstanding anything contained in Sections 7, 9 and 10, no application for initiation of corporate
insolvency resolution process of a corporate debtor shall be filed for any default arising on or after 25th March,
2020, as a result of COVID–19 or any reasons connected thereto, for a period of six months or such further
period, not exceeding one year from such date, as may be notified in this behalf.
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate
debtor for the said default occurring during the said period.
Explanation: For removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any
default committed under the sections before 25th March 2020."
ANNEXURE B
“Notwithstanding anything contained in this Lease Agreement, if the performance by either Party, of any of its
obligations under this Lease Agreement is prevented, restricted or interfered with by reason of circumstances as flood, fire,
earthquake, natural calamity and other acts of God; war, military operation, blockade, acts or actions of central or state
authorities or any other circumstances beyond the parties control that have arisen after the conclusion of the present Lease
Deed, or any act or condition whatsoever beyond the reasonable control of such Party (each such event will be called as a
"Force Majeure" event), then such Party (“Affected Party”) shall be exempted from such performance to the
extent of such prevention, restriction, or interference. Provided that:
The Affected Party shall make all reasonable efforts to prevent and to minimize the effect of an event of Force Majeure
caused to the other Party.
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The Affected Party shall continue to perform such of its obligations which are not affected by the event of Force Majeure
and which are capable of being performed in accordance with this Lease Deed.”
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