Delhi High Court upholds order directing SpiceJet to ground three aircraft engines, return those to lessors

New Delhi: The Delhi High Court on Wednesday upheld an order asking low-cost airline SpiceJet to ground three aircraft engines for defaulting on payments to engine lessors, saying the carrier has violated an agreed interim arrangement for payment of dues.

A bench of Justices Rajiv Shakdher and Amit Bansal refused to interfere with an August 14 order of a single-judge bench to ground the three aircraft engines and hand those over to the lessors, and disposed of the SpiceJet's appeals against it.

"Thus, for the foregoing reasons, we are not inclined to disturb the operative directions issued by the single judge," the bench said.

SpiceJet had challenged the August 14 order directing it to ground the three engines by August 16 and hand those over to their lessors -- Team France 01 SAS and Sunbird France 02 SAS -- within 15 days.

The judge had directed the airline to offer prior inspection of the engines to the lessors through their authorised representatives at the Delhi airport within seven days.

The division bench, in its judgment, said, "The appeals are emblematic of the adage that fools create assets and wise men use them. The use of a lessor's assets without recompense, on agreed terms, by the lessee often leads to consequences which disrupt the interests of both sides."

After the verdict, a SpiceJet spokesperson said, "Our operations continue as normal and remain completely unaffected. We are currently reviewing the court order."

The court said the record revealed that SpiceJet is in default and past and current outstanding dues remain unpaid.

"At the risk of repetition, it must be stressed that SpiceJet has violated an agreed interim arrangement for payment of dues, which included a term that upon breach, it would ground the engines that Team France and Sunbird France could then repossess," it said.

The bench said the second condition also stood fulfilled as the engines being depreciable assets would be of little use to the lessors if they are used without recompense.

"The fact that the financial condition of SpiceJet is weak is evident from its conduct and the stand taken on its behalf in court, which is that it is attempting to infuse funds through loans and/or equity.

"The position in which SpiceJet is at this juncture, Team France and Sunbird France could well end up both without its engines or the monies due under the engine-lease agreements. Therefore, compensation in terms of money does not seem probable from the point of view of Team France and Sunbird France," it said.

Regarding the balance of convenience, the bench said it was undoubtedly in favour of the lessors.

It said if the lessors are prevented from exercising their contractual rights at this stage, they could possibly lose both their assets, that is, the engines and the money.

"Clearly, in the facts and circumstances of the case, there has been no failure of justice. In any event, given that SpiceJet would have a second shot at raising these objections via its written statement, the impugned judgment and order, in our opinion, need no interference," the division bench said.

Regarding the airline's objections concerning the court's jurisdiction and the governing law that was rejected by the single judge, the division bench modified the single judge's order and said SpiceJet can take all this defence in the main suit.

Giving a prima facie view, the bench said there was nothing before it to conclude, at least at this juncture, that under the applicable Indian law, there is any impediment in the court directing repossession and export of the engines in issue.

The single judge had passed the order on pleas moved by the lessors seeking a direction to SpiceJet to hand over the possession of the three engines on the termination of the lease agreements.

It was stated in the pleas that following the termination, the plaintiffs had directed the airline to ground and re-deliver the engines and pay all outstanding dues, but the carrier had failed to do so.

"It is, however, clarified that the defendant will remain liable for making payments, which it undertook in an order dated May 29, 2024, towards the admitted outstanding of $4.8 million and towards the weekly payments arising on account of the use of the engines under the aegis of this court.

"The return of the engines does not absolve the defendant from its liability for the payments, which have admittedly fallen due, and to that extent, the plaintiff is entitled to recover the said amount from the defendant through execution of the order dated May 29, 2024," the court had said.

It had said SpiceJet is a "defaulter and has no legal and contractual right to continue the use of the engines".

In its response to the applications, the airline's counsel had submitted that after filing the suit, the defendant made a payment of $7.18 million between December 14, 2023 and May 24, 2024.

The counsel had said after the settlement terms were recorded before the court in May, the airline made a payment of $1.48 million and as of August 12, there was an admitted default to the extent of $2.67 million towards the outstanding amount.

He had said while the defendant admits that there has been a default, it is making its best endeavour to regularise these defaults and sought an extension of time until September 30 to clear the dues.