Share transfer dispute: SpiceJet must deposit Rs 579 cr, Delhi HC rules

Directed it to deposit Rs 250 crore in cash and Rs 329 crore as bank guarantee by Aug 31 and July 31

The Delhi High Court on Monday dismissed budget carrier SpiceJet and its co-founder Ajay Singh’s appeals against an earlier single-judge order asking them to pay Rs 579 crore to Sun Group chief Kalanithi Maran and his KAL Airways as interim relief in a share transfer dispute. The court also directed the two sides to initiate arbitration.

The two-judge bench, however, modified the single-judge order of July 29, 2016, and directed SpiceJet to deposit Rs 250 crore in cash and Rs 329 crore as bank guarantee by August 31 and July 31, respectively. The court concluded that the modification of the earlier order — requiring SpiceJet to provide the entire Rs 579 crore in equal installments over a 12-month period — was essential in the light of the unpredictable nature of the injury that could be caused to the airline’s commercial operations if the entire amount was secured through a deposit.    

Reacting to the court’s decision, SpiceJet shares fell by more than 10 per cent during the day and closed 2.61 per cent lower on Monday.

The ongoing share transfer dispute between the two sides relates to a 2015 sale purchase agreement that led to the change in ownership of the budget carrier from Maran to Singh. In line with the terms of the agreement, Maran had transferred his 58.46 per cent stake in the airline for a total sum of Rs 2. In return for the transfer, Maran and KAL Airways were to receive stock warrants and convertible redeemable preference shares from the budget carrier. 

After SpiceJet failed to issue warrants or allot tranches of the preference shares, the Maran and his airline filed a civil suit before a single-judge of the high court to enforce the terms of the agreement. In its plea, Maran and KAL Airways had also informed the court that the budget carrier had not utilised any of the amounts due towards the payment of statutory dues that had been imposed on it.  

On the directions of the single judge, SpiceJet eventually passed a board resolution in line with the understanding. However, the market regulator Securities and Exchange Board of India informed the court that the resolution could not be approved according to law. This lead to the July 29 order directing the payment of Rs 579 crore, while directing the parties to settle the dispute through arbitration. 

Aggrieved by the decision, SpiceJet and Singh filed a division bench appeal where they had maintained that the airline has incurred a cost of around Rs 2,000 crore during the transfer of ownership. 

Sources close to SpiceJet say that Monday’s two-judge decision refusing to overturn the single-judge order and instead directing them to make the payments in cash and band guarantee is likely to be challenged before the Supreme Court.

Timeline:
 

January 2015: Sale Purchase Agreement between Ajay Singh and Kalanithi Maran for the transfer of 58.46 percent shares from Maran to Singh
 

July 2016: Single judge directs SpiceJet to deposit Rs 579 crore as interim relief in share transfer dispute filed by Maran and KAL Airways
 

May 2017: Division bench reserves judgment on SpiceJet and Ajay Singh appeals against single judge order
 

July 2017: Two-judge bench dismisses appeals and directs SpiceJet to deposit Rs 250 crore in cash and Rs 329 crore as bank guarantee by August 31 and July 31 respectively