The Bombay high court on Monday dismissed cross petitions against the enforcement of an arbitral tribunal’s settlement on the dispute between Jet Airways and the Sahara group.
The four-year legal battle between Jet Airways (India) Ltd and Sahara IndiaCommercial Corp. Ltd concerns the former’s acquisition of Air Sahara.
The case is already pending before the Supreme Court.
The high court’s order was, as the judges noted, not on “the merits of the controversy”, but on the applicability of an earlier order by a single judge of the court.
The delay that this entails may be bad news for Jet, said an analyst; worse, the order also means the high court’s earlier order asking Jet to pay a certain amount will now be enforceable. This person, who did not want to be identified, added that, at the least, the court’s order could mean it will take more time for Jet Airways to resolve the issue.
On Monday, shares of Jet Airways lost 2.94% to close at Rs. 235.80 each on BSE. The exchange’s benchmark index, the Sensex, lost 0.34% to close at 17,025.09 points. The verdict came during market hours.
At the heart of the matter is money related to Jet’s acquisition of Air Sahara (since branded JetLite) in April 2007. The deal was originally struck at Rs. 2,000 crore and then, after the companies fought over it, renegotiated down to Rs.1,450 crore after arbitration. Jet agreed to pay Rs. 900 crore by March 2008 and the remaining Rs. 550 crore in four equal annual instalments starting that month and ending in March 2011. Under the terms of the arbitration, any violation would mean a return to the original terms of the deal.
In March 2008, the income-tax department demanded pending taxes of Rs. 107 crore from Air Sahara, now owned by Jet.
Jet Airways argued that since the tax liability predated the acquisition, it was not responsible for paying it. It then deducted Rs. 37 crore from its March 2008 payment to Sahara, triggering the legal battle. Sahara, in response, said Jet owed it Rs. 2,000 crore, the original price at which the deal was struck.
In March 2009, it filed an application with the Bombay high court, claiming that Jet Airways had defaulted on payments for the purchase of Air Sahara, and sought the court’s permission to seize Jet Airways’ assets.
On 4 May 2011, in the order on the enforcement of the arbitral tribunal’s settlement, the court had asked Jet Airways to immediately pay Rs. 478 crore, including interest, relating to its purchase of Air Sahara.
Sahara India appealed against the order, demanding more money. Jet Airways also appealed against Sahara India’s demand for interest on the amount it was owed.
The high court division bench on Monday dismissed the appeals saying that they were maintainable under law.
The Sahara group has already moved India’s top court in a special leave petition challenging the main issues in the case, immediately after the Bombay high court order of 4 May—the execution of the consent terms signed by the two firms during the arbitration.
Janak Dwarkadas, senior counsel for Jet Airways, said the airline will soon file a petition in the Supreme Court.
Although the 4 May order asked Jet to pay up, it also freed the company’s hands to undertake significant business transactions that it was asked not to. Jet even had to go through the court to sell and lease back planes in the normal course of business. A real estate development project in association with Godrej group’s real estate arm, Godrej Properties Ltd (GPL), also got delayed.
Now, Jet will not able to sell any property till the apex court decides on the matter.
After the May order of the high court, Jet Airways went ahead and signed an agreement with GPL in August to jointly develop a plot of land in the Bandra-Kurla Complex business district in Mumbai.
Jet Airways, which has around Rs. 13,000 crore debt on its books, received Rs.500 crore upfront cash from Godrej in a deal where the latter takes on the Rs.360 crore debt obligation Jet Airways has on the property, and also pays the airline Rs. 135 crore to compensate it for expenses that have been incurred.
Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s disputes with Sebi. Mint is contesting the case.