Mumbai: The Bombay high court has asked India’s largest airline by passengers flown, Jet Airways (India) Ltd, to immediately pay Rs 478 crore, including interest, to Sahara India Commercial Corp. Ltd, putting an end to a messy legal battle that has its origins in the former’s April 2007 purchase of Sahara Airlines Ltd.
The Bombay high court has given Jet Airways two weeks to make the payment.
Jet Airways bought Sahara Airlines—which operated Air Sahara—in April 2007, and later rebranded it JetLite.
Although Jet Airways, promoted by non-resident Indian Naresh Goyal, will have to shell out Rs 478 crore—the court set 30 April as the base date and said the airline would have to pay Sahara an interest of Rs 9 lakh a day after this—it will be free to carry out several business transactions, including developing land, selling and leasing back planes and rebranding JetLite, all of which had come under a cloud because of the litigation.
To be sure, Jet and Sahara can appeal the order. A Jet Airways executive indicated that his company was happy with the verdict, but Sahara’s spokesperson didn’t respond to requests seeking comment.
Jet Airways was prevented from undertaking any significant business transactions due to the legal battle and it had to go through the court to even sell and lease back planes in the normal course of business. According to Jet Airways executives, the total liability for the airline is about Rs 100 crore out of Rs 478 crore as it has already deposited Rs 275 crore in the court, some interest has accrued to that, and it has a Rs 87 crore tax refund from the tax department.
Sahara India had on 26 March 2009 filed an application with the Bombay high court claiming that Jet Airways had defaulted on payments towards the purchase of Air Sahara, and sought the court’s permission to seize Jet Airways’ assets.
Sahara India was demanding the original price of Rs 2,000 crore for the airline, instead of the renegotiated price of Rs 1,450 crore.
In its buyout agreement dated 17 April 2007, Jet Airways had agreed to pay Rs 550 crore each in four equal instalments beginning March 2008 through March 2011. Jet had paid Rs 900 crore by 20 April 2008. In March 2008, the income-tax department demanded pending taxes of Rs 107 crore from Sahara Airlines, now owned by Jet.
For its part, Jet Airways argued that since the amount was due from before the acquisition, it was not responsible for the liability. It then deducted Rs 37 crore from its March 2008 payment to Sahara, triggering a two-year long legal battle.
According to senior analyst Mahantesh Sabarad of domestic brokerage Fortune Equity Brokers (India) Ltd, the Bombay high court order works for both airlines. “Now, Jet Airways is free to run JetLite the way it like without any encumbrances by Sahara India. Owing to the legal battle, Jet Airways could not take the outstanding deliveries of planes from Boeing (Co. of the US). Jet Airways is free to run JetLite according to its wish,” he said.
Justice D.Y. Chandrachud also struck down Sahara India’s claim of Rs 2,000 crore .
“We are very happy with the verdict and relieved to a greater extent as it sets the airline free from the undertaking of the attachment of our plot in Bandra-Kurla Complex,” said a senior Jet Airways executive, who did not want to be identified.
The high court has said that upon the payment of Rs 478 crore to Sahara India, the undertaking of the attachment of Jet Airways’ Bandra-Kurla Complex plot will stand dissolved.
Jet Airways is working on a deal with the Godrej group’s real estate arm, Godrej Properties Ltd (GPL), to develop a 1.47-acre plot in the Bandra-Kurla Complex, a business district in suburban Mumbai.
GPL was supposed to pay cash upfront to Jet Airways and absorb a certain portion of the debt that Jet Airways will raise to pay for the land.
Both companies will also share revenue on the development.
Jet Airways had bid Rs 826 crore for rights to develop the space in an auction by the Mumbai Metropolitan Region Development Authority, the apex body for planning and coordination of development activities in Mumbai, in 2008.
However, the GPL-Jet Airways deal could not progress with Sahara India approaching the high court asking it to seize Jet’s assets.
With the case resolved, Jet plans to bring JetLite under the Jet Airways Konnect brand. Konnect is the no-frills, all-economy service of Jet Airways.
JetLite currently operates as a low-fare carrier.
While pronouncing his verdict, the judge said that after the tax department passes a final order in its case and ascertains the tax liability on the airline, Sahara would have the right to challenge it.
A senior analyst with an international brokerage said the verdict is a win-win situation.
“Under this verdict, Sahara India gets money and Jet Airways will get rid of problems in unlocking value of assets. Henceforth, there will be no hassles in selling and leasing back planes, and developing plot. The interest burden is not likely to hit Jet Airways as it has already a huge debt burden and this small amount will not make any difference,” he said. The analyst did not want to be identified.
As on 31 December, Jet Airways has Rs 13,031.8 crore debt on its books.
Investors didn’t cheer the resolution of the case, though, and shares of Jet Airways dropped 4.7% to end at Rs 447.30 each on Wednesday on the Bombay Stock Exchange. The bourse’s benchmark index, Sensex, lost 0.35% to close at Rs 18,469.36 points.