The National Company Law Tribunal (NCLT) was set to pronounce orders on eight insolvency petitions against SpiceJet Limited when the airline dropped a bombshell—it had reached an overnight settlement with aircraft lessor Aviator ML 29641 Limited. The timing couldn't have been worse. The bench, comprising Judicial Member Mahendra Khandelwal and Technical Member Anu Jagmohan Singh, had extensively argued these cases since 2024 and was ready to deliver judgment. Instead, SpiceJet and Aviator ML informed the tribunal that a settlement agreement had been executed, with the airline admitting a debt of ₹58.64 crore and making an initial payment of $500,000.
The NCLT did not mince words. "We do not appreciate the conduct of the parties for coming out with the settlement at this stage when the judgment is to be pronounce...Precious judicial time has been wasted in the arguments by both the sides," the bench observed. The tribunal had repeatedly asked during hearings whether a settlement was likely. SpiceJet had initially indicated one was possible, but Aviator ML had consistently maintained that no settlement would take place. This contradictory positioning meant the bench spent considerable time hearing arguments and preparing its order, only to have the parties reveal at the eleventh hour that they had resolved their dispute overnight.
The strategic calculus behind waiting until the pronouncement stage becomes clearer when examining SpiceJet's financial position. The airline was under severe liquidity pressure. In Q1 FY26, SpiceJet reported a net loss of ₹238 crore, with revenue dropping 34% year-on-year to ₹1,120 crore. More critically, only 21 of its 56 aircraft were operational as of June 2025, with 35 aircraft grounded for 5-6 years.
Beyond operational woes, SpiceJet faced mounting legal obligations. The Delhi High Court had ordered the airline to deposit ₹144.5 crore in a long-running arbitration dispute with Kalanithi Maran, with ₹50 crore due within 45 days. ICBC Financial Leasing was also seeking deregistration of four Boeing 737 MAX aircraft. Against this backdrop, admitting ₹58.64 crore in debt and making an immediate $500,000 payment to Aviator ML was a strategic necessity—it prevented the initiation of Corporate Insolvency Resolution Process (CIRP) that would trigger a moratorium and potentially freeze all creditor actions.
The Aviator ML settlement created immediate complications for seven connected insolvency petitions filed by AWAS 36698 Ireland Limited, AWAS 36694 Ireland Limited, AWAS 36695 Ireland Limited, Falgu Aviation Leasing Limited, Sabarmati Aviation Leasing Limited, JetAir 17 Limited, and Alterna Aircraft V B Limited. The NCLT deferred orders in these matters to August 20, 2026, reasoning that the decision in Aviator ML's case could have a bearing on them.
Senior Advocate Kevic Setalvad, representing creditors in connected petitions, strongly opposed this deferment.
The creditors had incurred substantial costs pursuing these cases for nearly two years and should not be forced to argue them afresh before another bench. Setalvad maintained that the settlement, coming at the "18th hour," should have no bearing on the other matters.
The concern was valid.
By settling with Aviator ML, SpiceJet established a precedent of debt admission and partial payment that other creditors would likely demand. The "buy one, get eight free" scenario encapsulates the risk that corporate debtors could strategically settle with smaller creditors to delay proceedings with larger ones, externalizing litigation costs onto those who hold out.
The NCLT's decision to defer orders despite expressing strong disapproval was influenced by several factors. First, the settlement agreement was already executed with an initial payment made—the deal was done, not merely proposed. Second, while the bench was not opposed to settlements in principle, it emphasized they must be disclosed at an appropriate stage. Third, the decision in Aviator ML's case could indeed have precedential value for the connected matters, particularly regarding legal interpretations of default and operational creditor status under Section 9 of the Insolvency and Bankruptcy Code (IBC).
The tribunal made its position clear, however.
This creates a hard deadline for SpiceJet to negotiate settlements with the seven remaining creditors before August 19-20, 2026. The airline can no longer use last-minute settlements as a tactical tool—any further delays will result in adverse orders.
The SpiceJet case exposes fundamental tensions in the IBC framework between individual creditor rights and collective resolution efficiency. The Code contains several structural features that enable bilateral settlements to affect multiple proceedings. Section 9 requires operational creditors to file individual petitions without coordination mechanisms. There are no collective action provisions or creditor committees before CIRP initiation. Limited connection rules and procedural autonomy allow each petition to proceed independently until judicial intervention creates connections.
For the aviation sector specifically, these challenges are compounded by the international nature of aircraft leasing, asset mobility, and fragmented creditor base. While the recent Protection of Interests in Aircraft Objects Act, 2025 provides some relief through Cape Town Convention implementation, it does not address the underlying coordination challenges in the IBC framework.
The NCLT's recorded disapproval establishes important precedents for aviation sector insolvency cases. Future proceedings will likely face stricter requirements for early settlement disclosure, more frequent cost awards against parties who engage in last-minute disclosures, and enhanced procedural scrutiny given the high-value, internationally mobile nature of aviation assets.
For SpiceJet, the path forward is clear but challenging. The airline must negotiate settlements with seven remaining creditors before hard deadlines, with reduced negotiating leverage given the NCLT's warning. The Aviator ML settlement provides immediate relief and a template for dispute resolution, but sustainable recovery depends on addressing underlying operational issues—particularly fleet restoration and market share recovery. Only 21 of 56 aircraft are currently operational, and market share has collapsed to ~3%.
The August 19-20 deadlines represent a critical juncture. Successful settlements could provide breathing space for operational restoration, while adverse NCLT orders could trigger cross-default provisions and accelerate financial decline. Either way, the SpiceJet case will likely influence how aircraft lessors approach insolvency proceedings against Indian airlines and how the NCLT manages settlement disclosures in aviation sector cases going forward.
