5 mins read . 09 Jun 2023
In the last few weeks, two diverse events have raised critical questions about the way India handles international contracts. One of the underlying tenets of any global collaboration is the way legal disputes would be handled and the relevant jurisdiction for the same. In the case of Byju’s, it pertains to a loan taken by Byju’s worth $1.2 billion from global lenders. In a twist of events, Byju’s had decided to repudiate the payment of interest on these loans due to the loan being bought in the market by a distressed fund. In the case of Go First, the airline virtually pre-empted the claim of aircraft lessors by filing for voluntary liquidation with the NCLT. Both the cases could have larger implications but we come back to that later.
Byju’s was a rather curious case. It had taken loans worth $1.2 billion from global lenders and an interest tranche was due earlier this week. Over the last few months, Byju’s had been working closely with its lenders to restructure its loans and extend the tenure, albeit at a higher rate of interest. However, the lenders wanted more skin in the game. They had asked Byju’s to repay half the loan with the equity funds raised before the restructuring. Once the talks fell through, Byju’s came under pressure and it filed a case in a US court against predatory tactics by lenders. According to Byju’s, their loans (which were trading at a 70% discount) were acquired by distressed assets funds and then using predatory tactics to recover loans. According to the case filed by Byju’s , the distressed assets funds were never the target lenders.
Like Byju’s case, even the Go First case appears to be an attempt to pre-empt any immediate action by lenders. In this case, as Go First saw its finances dipping, there was pressure from the aircraft lessors to repossess the aircraft. As per international laws, they have the first right to repossess the aircraft in the event of leasing dues. However, in this case, Go First has pre-empted such a possibility by filing for voluntary liquidation with NCLT and the NCLT has accepted this filing. Clearly, the aircraft lessors are far from happy, but not much can be done till there is a final legal solution to this problem.
There is common theme running through the cases of Go First and Byju’s. In both cases, the companies were under a lot of stress. Obviously, both companies have tried to leverage a legal covenant to get some temporary relief from creditors. We are not too sure as to what turn the legal cases will take in both instances, but one thing is certain it will delay the entire process. There is also the grey area in both cases of domestic legal framework interfacing with a global legal framework. This is never simple and always open to multiple interpretations. However, a solid mechanism to resolve such issues quickly lies at the core of handling multiple legal frameworks.
There are bigger implications for India Inc. Cases like Byju’s could make it tougher for Indian companies to raise funds abroad. No lender wants to get embroiled in prolonged litigation over grey areas in legislation. Secondly, the problem could get a lot more compounded for digital plays, especially at a time when the entire story of digital funding finally appears to be looking up all over again. The Go First story could create more of an operational issue. All the leading airline companies lease aircraft from professional lessors abroad. While the Go First case may not impact larger airlines like Indigo or Tatas, it is bound to have an impact on smaller airlines. We have to wait and watch.
Content Source: Multiple Sources