SpiceJet in the Dock

In the first week of December last year, in response to a petition filed by Credit Suisse AG, a stock corporation registered under the laws of Switzerland, pertaining to the dues of around $24.01 million that had not been paid by SpiceJet Limited, the Madras High Court issued an order to wind up of the leading low-cost carrier in the private sector of the Indian airline industry. In its order, the Madras High Court also directed the official liquidator attached to the court to take over the assets of the private carrier as well. Apparently, SpiceJet had availed of the services of SRT Technics, a company based in Switzerland, for the maintenance, repair and overhaul (MRO) of aircraft engines, modules, components and assemblies that are mandatory for operations of its aircraft by the airline.

On November 24, 2011, an agreement which included the terms of payment by the airline for the necessary services related to MRO for a period of ten years, was entered into between the Indian carrier SpiceJet and the Swiss company SRT Technics. The agreement between the two companies also included the terms of payment to be made by the airline. Nearly a year later, on August 24, 2012, a supplemental agreement between the two companies was signed which provided for a few alterations in the terms and conditions that had been agreed upon earlier. The changes in the revised agreement included extension of time for payment of the dues under different invoices and also included a scheme for deferred payment. As there had been a significant increase in the cost of MRO services, the supplemental agreement included provisions for escalation of cost.

In September 2012, Credit Suisse AG, the petitioner in the case in Madras High Court, had entered into a financing agreement with SRT Technics which entitled it to receive payments on their behalf for MRO services provided by the company to the airline. Unfortunately, for some reason, the airline failed to honour its commitment made under the agreements with SRT Technics and did not meet its financial obligations in respect of payments that were due to SRT Technics for the MRO services rendered by the company to the airline over the last nearly a decade. Despite repeated reminders and requests to the airline by SRT Technics to make payments that were due under various invoices, the airline did not honour its commitment under the agreement with SRT Technics for the provision of MRO services. Not only did the airline fail to honour its commitment under the agreement with SRT Technics, it even chose not to respond to repeated requests and reminders by the MRO services provider pertaining to outstanding dues since the commencement of the contract. As for some reason not known to SRT Technics, the airline was apparently not in a position to meet its financial obligations, the MRO company was left with no other option but to resort to the legal option. The petitioner had been making repeated requests to the airline to make payments under various invoices. Since it did not honour its commitment under the agreements with SRT Technics and that SpiceJet was not meeting with its financial obligations, the petitioner issued a statutory notice. As there was no response, it preferred to adopt the legal option to resolve the issue. Thus it was that Credit Suisse AG moved the petition before the Madras High Court with a plea to wind up SpiceJet.

On its part, the airline put forth the argument that the alleged unpaid dues were not legally enforceable as SRT Technics did not have a valid authorisation from the Directorate General of Civil Aviation (DGCA), the regulatory agency in the domain of the civil aviation industry in India to carry out engine maintenance during the currency of the Agreement in the period between 2009 and early 2015. The airline claimed that there was no liability on it to make payments against any debt it is alleged to owe to the MRO service provider SRT Technics. As such, there cannot be a winding up order under Section 433 of the Companies Act.

Finding a total lack of bona fide defence for the airline, the Madras High Court turned down the appeal by SpiceJet against its order passed in December last year by a single-judge bench to wind up its operations after the airline failed to make payment of over $24 million to the Swiss MRO service provider SRT Technics. The ball now is finally back in the court of the Indian carrier SpiceJet to clear its dues or face the consequences of failure to do so.