Jet Airways revival hits turbulence: Supreme Court bars bank guarantee adjustment

The consortium trying to revive Jet Airways thought they could use a Rs 150 crore bank guarantee as payment. The Supreme Court just told them—no.

For nearly five years, the Jalan-Fritsch consortium had promised to bring Jet Airways back into the sky. They won approval from 99.22% of creditors. They secured a resolution plan that demanded Rs 350 crore within 180 days of an 'Effective Date'. They obtained multiple extensions from three different tribunals. Then they tried one last gambit—use a performance bank guarantee, a security deposit meant to ensure they kept their promises, as actual payment for the airline. On November 6, 2024, a bench led by Justice J.B. Pardiwala shut that door completely, in State Bank of India & Ors v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr (2024 INSC 852).

When the airline fell from the sky

Jet Airways, once India's second-largest carrier, collapsed in 2019. The State Bank of India (SBI) pushed it into insolvency under Section 7 of the IBC (the provision that lets a financial creditor start revival or liquidation proceedings). On June 20, 2019, the National Company Law Tribunal (NCLT) in Mumbai admitted the case. The file landed on the registrar's desk with a soft thud—the beginning of a Corporate Insolvency Resolution Process (CIRP) that would drag on for years. The air in the NCLT courtroom was thick with the smell of old paper and the quiet murmur of lawyers shuffling documents. The bench's voice was crisp as it read the order: the airline was now under the control of the resolution professional.

Two years later, on June 22, 2021, the NCLT approved the consortium's plan. The terms were clear: pay Rs 350 crore within 180 days of the 'Effective Date'—the day all conditions for the plan to take effect were met. Obtain an Air Operator Certificate. Pay airport dues. Settle workmen dues.

The consortium never met a single deadline on time.

The long road of extensions

Over three years, the consortium asked for extensions. The NCLT granted some. The National Company Law Appellate Tribunal (NCLAT) granted others. The Supreme Court itself granted extensions. Each time, the consortium said it was close. Each time, it failed.

On January 13, 2023, the NCLT declared the 'Conditions Precedent' fulfilled—the pre-conditions required before the plan could take effect—and fixed the Effective Date as May 20, 2022. But the consortium still did not pay the first tranche of Rs 350 crore. Instead, it asked the NCLAT to allow it to adjust a Rs 150 crore Performance Bank Guarantee (PBG)—a bank guarantee furnished as security for performance—against the payment amount. The NCLAT agreed on August 28, 2023.

SBI challenged this. On January 18, 2024, the Supreme Court disallowed the PBG adjustment and directed the consortium to deposit Rs 150 crore in cash by January 31, 2024. The consortium did not comply. It went back to the NCLAT, which on March 12, 2024, again allowed the PBG adjustment. SBI appealed again.

What each side argued

The core question was simple: could a performance bank guarantee—a security deposit meant to ensure the consortium performed its obligations—be used as payment for the purchase price itself?

The consortium argued that the PBG was part of the funds available to the resolution plan. Since they had furnished the guarantee, they said, it should count toward the Rs 350 crore payment.

SBI argued the opposite: a performance guarantee is not cash. It is a promise. If the consortium failed to perform, the bank would pay. But using it as payment before any failure defeated the entire purpose of the guarantee.

The court also examined two other issues. First, whether the consortium had breached the resolution plan by not paying airport dues and workmen dues. Second, whether the persistent failure to implement the plan should lead to liquidation under Section 33(3) of the IBC (the provision that allows the court to order liquidation if a resolution plan is not implemented).

Why the guarantee was not cash

Justice J.B. Pardiwala, writing for the bench, held that a Performance Bank Guarantee furnished under Clause 3.13.9 of the Request for Resolution Plan (RFRP) and Regulation 36B(4A) of the IBBI Regulations (the rules governing how resolution plans are submitted and evaluated) cannot be set off against or adjusted toward the consideration payable under a resolution plan.

The reasoning was straightforward: a PBG is security for performance. It exists to ensure the consortium does what it promised. If the consortium could use the guarantee as payment, the guarantee would lose its character as security. It would become a deferred payment mechanism—exactly what the regulations were designed to prevent. The court held that "the term 'infusion' of funds under a Resolution Plan means payment in cash and cannot be substituted by adjustment of performance guarantees or other non-cash instruments." The words hung in the air of the courtroom, the bench's tone firm, the lawyers on both sides still as the weight of the statement settled.

You cannot substitute cash with a bank guarantee. The distinction matters because the entire insolvency process depends on actual money flowing into the company to pay creditors. A guarantee is not money until it is invoked. The physical document—the bank guarantee itself, a crisp sheet of paper stamped with the bank's seal—was never meant to be a cheque. It was a promise, a security, a bond. The court treated it as such.

When the court ran out of patience

The judgment did not stop at the PBG issue. The court found that the consortium had persistently failed to implement the approved resolution plan. It had not paid the stipulated amounts within extended timelines. It had not paid airport dues or workmen dues. It had violated court orders.

Justice Pardiwala observed that timely implementation of a resolution plan is a core objective of the IBC. Indefinite extensions undermine the statutory scheme and prejudice stakeholders—creditors, employees, and the public who depend on the airline's revival. The court noted that the consortium had been given multiple opportunities over several years and had failed each time. The bench's voice carried an edge of finality as it read the operative order: the appeals were allowed, the NCLAT order set aside, and consequences under the resolution plan were to follow.

The court also clarified that airport dues and parking charges are excluded from CIRP costs under the resolution plan and must be paid upfront as a separate obligation. Conflating them with CIRP costs was an error.

What this means for future resolution plans

For practitioners, the judgment sends a clear message: performance guarantees are not payment instruments. If a resolution plan requires cash infusion, you must bring cash. You cannot repurpose a security deposit to meet your payment obligations. The distinction between security and payment is not a technicality—it is the foundation of the entire insolvency framework.

The court also made it clear that the power to grant extensions is not unlimited. The IBC is designed for speed. A resolution plan that takes five years to implement—and still fails—defeats the purpose of the Code. Creditors, employees, and the public cannot wait indefinitely.

THE PLAY: When drafting or evaluating a resolution plan, treat performance bank guarantees strictly as security—never as a substitute for cash payment, and ensure all payment obligations are met in the form specified in the plan.

The consortium's attempt to revive Jet Airways is not yet over—the court allowed consequences under the resolution plan to follow, including potential liquidation under Section 33(3) IBC. But the legal principle is now settled: a guarantee is a promise, not payment.

The airline that once flew to 66 destinations remains grounded. And the consortium that promised to bring it back has learned that in insolvency law, a promise is not the same as cash.