Indian low-cost carrier SpiceJet is battling a court order directing it to wind up operations for failing to pay millions in dues to its MRO service provider. While both parties involved are sticking to their version of the story, the court has sided with the Swiss-based MRO company and ordered the liquidation of the airline’s assets. SpiceJet is expected to take remedial steps, including appealing against the order before a higher bench.
Ordered to wind up
On December 6th, India’s Madras High Court ordered winding up SpiceJet and asked the official Liquidator attached to the court to take over the carrier’s assets. This was in reaction to a petition filed by Credit Suisse AG, a stock corporation registered under the laws of Switzerland.
Swiss-based MRO company SR Technics entered into a 10-year agreement with SpiceJet in 2011 to provide services such as maintenance, repair, and overhauling of aircraft engines, modules, components, assemblies, and parts. It now claims that SpiceJet owes a little over $24 million for the services it availed over the years.
In 2012, SR Technics had assigned Credit Suisse AG the right to receive payments on its behalf. The company claims that it had made repeated requests to the airline to make the payments, but the carrier did not meet its financial obligations. Credit Suisse AG then raised a statutory notice but still failed to get a response from SpiceJet. This is when it decided to move the court.
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SpiceJet questions claims
The LCC claims that the petitioner is not a creditor of SpiceJet, and as such, there is no contractual relationship of a debtor and creditor. Therefore, SpiceJet argues that the alleged debts are not legally enforceable, and the order for winding up has no basis.
The airline has also questioned the MRO company’s validity in providing services in India, claiming that SR Technics didn’t have the necessary approvals from India’s aviation regulator, the Director-General of Civil Aviation (DGCA), from 2009 to 2015.
However, the court noted that SpiceJet continued to take services of SR Technic and that the termination by itself would not relieve the carrier of the obligations that arose under the contract.
Citing a Supreme Court judgment of another case, the judge announced,
“The respondent company (SpiceJet) has miserably failed to satisfy the three pronged test suggested by the Supreme Court in Mathusudan Govardhandas & Co. v. Madhu Woollen Industries (P) Ltd., and hence had rendered itself liable to be wound up for its inability to pay its debts under Section 433 (e) of the Companies Act 1956.”
Stay for three weeks
Thankfully, for SpiceJet, the Madras High Court issued another order on the same day, staying the previous order for three weeks subject to the condition that the carrier deposits $5 million within two weeks.
SpiceJet is confident that it has a good case and is looking for further remedial actions. A statement issued by the airline said,
“The Company is examining the order and shall initiate appropriate remedial steps including preferring an appeal before the appellate jurisdiction within the time frame allowed by the Madras High Court.”
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