The expression of interest (EoI) put in by Naresh Goyal to regain control of Jet Airways cannot be stopped legally, according to experts. However, lenders do have a right to decide against his bid on technical or financial basis.

Goyal, the promoter and former Chairman of the debt-strapped airline, held 51 per cent of the stake in the airline. Jet Airways’ lenders are seeking a legal opinion on Goyal’s bid to re-take control. Goyal was the last to put in his EoI, minutes before the deadline ended on Friday.

“The final call will be taken after consideration from the lawyers and lenders mutually. Goyal has to comply with the laws of the land, if he does that, then no one can stop him from putting an EoI. The lenders cannot do much about it if his bid is legal,” said a source close to the lenders.

While the rules under the Insolvency and Bankruptcy Code (IBC) section 29A clearly bars defaulting promoters from bidding for the assets on sale, ‘the bidding process for Jet Airways is not being done under the IBC code’.

Restructuring bid

Sources close to the lenders indicated that legally there is no bar on Goyal from bidding. “As per rules, a defaulting promoter can be stopped only if the default is for over 12 months. In the case of Jet Airways, the default is only for three months, so Goyal’s EoI is valid. However, the lenders can still disqualify him on technical grounds,” said another source.

“In my view, a promoter can be allowed to bid. Ideally, it will be considered as a restructuring bid,” and not a strategic or a financial bid because Goyal is still the promoter of the company, said the first source.

Daizy Chawla, Managing Partner, Singh and Associates, pointed out, “The lenders have not gone to the IBC, it is out of court, and thus, it is the lenders’ decision whether to accept Goyal’s bid or not. But it’s a smart move from him as if he had told the lenders that he had the finances to bid, then he would have had to settle the entire debt. Now, as it is a restructuring bid, he can bid as much or as less as he wants.”

Meanwhile, SBI in a statement said the proposed equity conversion by banks, if any, will be undertaken as a transitory mechanism to facilitate the bidding-cum-sale process.

RBI and stressed assets

But with the Supreme Court quashing the Reserve Bank of India’s February 12, 2018, circular on revised framework for resolution of stressed assets, banks may have to seek the central bank’s guidance on the conversion of debt into equity.

Under the defunct circular, the RBI had spelt out elaborate steps on conversion of principal into debt/equity and unpaid interest into ‘Funded Interest Term Loan’ (FITL), debt or equity instruments; continuation of credit facilities of the concerned borrowing entities; and exemption from regulatory ceilings/restrictions on capital market exposures on acquisition of shares due to conversion of debt to equity during a restructuring process.

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