 "Delhi High Court hears SpiceJet appeal against order to deposit Rs 579 crore")
The July 29 order to deposit the Rs 579 crore sum in five installments beginning on August 7 arose out of a Section 9 (interim measures) application under the Arbitration and Conciliation Act 1996 (the Act), filed by Kalanithi Maran and his airline KAL Airways against the alleged non-fulfillment of a 2015 share purchase agreement by SpiceJet.
The court also froze Spicejet's shares till the time the deposits were made and directed the parties to undergo arbitration proceedings to reach a final determination in the matter.
Maran and KAL were to receive 189 million convertible equity share warrants and preference shares worth Rs 370 crore from SpiceJet, against loans earlier issued to the airline amounting to Rs 679 crore, the liability of which was to remain with Spicejet after the transfer of Maran's 58.46% (350 million equity shares) to Shah for a price of Rs 2.
SpiceJet has now challenged the single judge order on the grounds that the direction issued ipso facto entails a final determination of the dispute, which goes beyond the jurisdiction of the court under Section 9 of the Act.
Senior advocate, Aryama Sundaram began today's arguments by reminding the court of the liabilities of Spicejet while under the control of Maran, which amounted to around Rs 2180 crore (Rs 1580 crore in debts and Rs. 600 crore in forward booking dues).
According to Sundaram the share purchase agreement sought to absolve Maran from this gargantuan financial burden, at a time when the airline was facing a severe crisis and under the process of winding up its operations.
"After the takeover, Spicejet has discharged over Rs 1600 crore in dues and has not even issued dividends to its shareholders. Even the managing director of the company has not taken a salary to reach the position they are in now. This decree puts the company back to square one" submitted Sundaram before a bench of Justice Indira Banerjee and Justice V Kameswar Rao.
The counsel for Shah also highlighted the timeline of events leading to the share purchase agreement, which involved Maran (and KAL) issuing the convertible equity warrants and preference shares to themselves in 2014, while in control of the company. At that time, the price of each equity share was at Rs 16.20.
After the transfer of ownership, when the warrants were sought to be issued, the price of each share had risen to Rs 66. As a result the Bombay Stock Exchange rejected the transfer at previously determined rates. Even the Securities and Exchange Board of India refused the issuance citing Section 9(2)(m) of the Securities Contract Regulation Act 1956.
Sundaram also made a plea against the proceedings leading up to the July 29 order, which he argued had noted the statutory hurdles, yet made a final determination against Spicejet even though the transfer was supposed to be subject to regulatory approvals, by citing impossibilities and ordering restitution.
"The issue was not impossible at all, it just required them (Maran and KAL) to accept the equivalent amount of shares at the present market price which they refused to do, instead of claiming damages worth the difference" said Sundaram
In his view, the single judge had gone squarely beyond the jurisdiction of the court under Section 9 of the Act by passing such a money decree when the dispute had not even been along monetary terms, but instead sought enforcement of the warrants and shares alone.
"The court had already passed an order freezing shares of Spicejet worth over Rs 3000 crores. Now with this decree, what is left to arbitrate? An order of restitution such as this cannot be made at an interim stage" said Sundaram. According to the counsel, Section 9 of the Act only allows for securing of assets to meet the ends of justice but does not allow the court to provide relief at an interim stage, even if there exists a prima-facie case otherwise.
The division bench has listed the matter again for further arguments on September 1.
