Mumbai: The Union ministry of corporate affairs is all set to challenge the Karnataka high court’s decision to clear the merger between Kingfisher Airlines Ltd and Deccan Aviation Ltd in the Supreme Court.
The legal threat, if followed through by the ministry, will add a new headache for Kingfisher as it, along with other Indian airlines, tries to cope with mounting losses that are giving the entire industry pause even as they had mapped out major expansion plans.
Owners of India’s two major private airline groups—Kingfisher/Deccan and Jet/Sahara—have strong political connections and powerful backers that many industry observers say have often helped them in getting approvals as well as, occasionally, getting rivals’ approvals slowed or blocked. The other major airline group, Air India, is government-owned.
“We would consider it most unfortunate if the ministry of corporate affairs went in appeal to the Supreme Court on the Karnataka high court order on the merger,” Vijay Mallya, chairman and chief executive of Kingfisher Airlines, said in an email.
“However, we have taken extensive legal advice and are well prepared to argue our case in the Supreme Court.”
The UB Group-promoted Kingfisher Airlines, a Mumbai-based full-service airline, acquired a majority stake last year in Deccan Aviation, which runs the country’s largest low-fare carrier Simplifly Deccan (erstwhile Air Deccan).
An official with the ministry of corporate affairs noted the ministry had issued a show cause notice to UB Group for not complying with section 108(A) of the Indian Companies Act, which requires government approval if a takeover results in the merged entity gaining more than 25% of the market share. Business Line reported the show-cause notice on 20 June.
Kingfisher and Deccan Aviation together command a market share of 27.8%. Immediately after the merger in May 2007, the combined market share of the two firms was 30.1%. The official didn’t want to be identified given the sensitivity of the issue.
The ministry of corporate affairs is waiting for a copy of the court judgement.
“We have requested the high court to complete the process arising out of the show-cause notice that we have served. We will take further action once we receive the copy of the judgement,” a senior official with the ministry of corporate affairs said.
“The ministry may even take help from officials with the law ministry besides government counsels on this issue. This is a regular practice against any company that does not comply with rules,” he added.
Prem Chand Gupta, Union minister for corporate affairs, did not reply to calls made to his office on Friday and Saturday.
On 7 July, Deccan Aviation informed the Bombay Stock Exchange (BSE) that the Karnataka high court had sanctioned the composite scheme of arrangement between Kingfisher Airlines, Deccan Aviation and Deccan Charters Ltd by an order dated 16 June.
It also said the certified copies of the court order had been filed with the registrar of companies, Karnataka, at Bangalore on 2 July, making the scheme effective.
Kingfisher Radio Ltd owns 39.75% of Deccan Aviation while UB Overseas Ltd claims 9.98% as promoters, according to BSE data.
Anil Ambani-controlled Reliance Capital Ltd, through its various arms—Reliance Life Insurance Co. Ltd, Reliance Capital Trustee Co. Ltd and Reliance Capital Trustee Co. Ltd—owns 11.62% in Deccan Aviation.
Mallya was named chairman of Deccan Aviation in a board meeting on 22 April, while G.R. Gopinath, the founder of the low-fare airline, was appointed vice-chairman.
This is not the first legal hurdle that mergers and acquisitions in India’s aviation industry have faced. The acquisition of Air Sahara by Naresh Goyal-led Jet Airways (India) Ltd initially collapsed for want of regulatory approvals. The merger of Air India and Indian Airlines into a new company, National Aviation Co. of India Ltd, or Nacil, was also hounded by legal hurdles put forth by labour unions.