Celestial Aviation (the Lessor) leased three aircraft to Paramount Airways, an Indian airline (the Lessee). The Lessor applied to the court, claiming for sums due under the leases and for delivery up of the aircraft. The Lessee had paid a deposit by way of a letter of credit but had failed to pay rent and supplemental rent under the leases. The Lessor gave notice of events of default and then served a Notice of Termination, claiming delivery up.

The Lessee argued that: (1) its liability for rent could be set off against its entitlement to a reduction in the deposit; (2) failure to pay rent was due to an engine fault in one of the aircraft and the Lessor being in breach of contract; and (3) the letter of credit could be used to discharge the debts.

The court held that: (1) the supplemental rent under the leases was due and therefore the Lessee could not establish that all of the conditions required for a return of part of the deposit were satisfied; (2) there was no evidence that the Lessor had interfered with the Lessee’s relations with the engine supplier, and therefore was not in breach of contract; (3) the Lessor was not obliged to apply the deposit to the discharge of any particular obligation; (4) the Lessor’s application for delivery up was refused on the basis that the Lessee had a realistic prospect of establishing at trial that the court had discretion to grant relief against forfeiture. Therefore, the Lessor was only entitled to the sums claimed and not delivery up of the aircraft.