Former SpiceJet owner Kalanithi Maran’s claim is based on losses incurred because of the airline’s alleged failure to issue convertible warrants to him and his KAL Airways in exchange for Rs690 crore injected in then ailing airline. Photo: Aniruddha Chowdhury/Mint
Former SpiceJet owner Kalanithi Maran’s claim is based on losses incurred because of the airline’s alleged failure to issue convertible warrants to him and his KAL Airways in exchange for Rs690 crore injected in then ailing airline. Photo: Aniruddha Chowdhury/Mint

SpiceJet denies Kalanithi Maran’s breach of contract charge

Ajay Singh-controlled SpiceJet says it repeatedly tried to get Sebi, BSE nod to issue warrants to Kalanithi Maran, KAL Airways

Ajay Singh-controlled SpiceJet Ltd on Tuesday denied breaching a share purchase agreement with the airline’s former owner Kalanithi Maran and his firm KAL Airways. SpiceJet said that it had repeatedly tried to get approval from regulators to issue warrants to Maran and KAL.

According to a 11 July report in The Economic Times, Maran, who runs the Sun group, has sought Rs2,000 crore in compensation from Singh and the airline for allegedly causing losses by failing to honour the agreement.

Maran’s claim was based on losses incurred because of SpiceJet’s alleged failure to issue convertible warrants and preference shares to him and his KAL Airways in exchange for the Rs690 crore injected in the then ailing airline, the report said, citing unnamed people.

They said if compensation was not forthcoming, Maran would seek to annul the agreement signed when SpiceJet’s ownership changed hands in 2015.

A SpiceJet spokesperson said in an emailed statement that the low-fare airline had approached the Securities and Exchange Board of India (Sebi) and stock exchange BSE Ltd on at least two occasions for approval to issue warrants to Maran in return for the money he infused in the firm.

A Sun group spokesperson declined to comment. BSE declined to comment. An email sent to Sebi remained unanswered. Its spokesperson did not respond to calls.

The Rs350 crore SpiceJet received from Maran and KAL Airways was used to pay off statutory liabilities (such as income and service taxes) which had accrued when these entities were in the latter’s control, the spokesperson said. This amount was to be returned by SpiceJet to Maran after eight years or warrants were to be issued subject to the approval of regulatory authorities.

BSE and Sebi denied approval, the spokesperson added.

A person familiar with the matter who declined to be identified said approvals were denied as they (Sebi and BSE) went by the nature of the allotment.

“The warrants were to be given to the promoters to benefit the company. Secondly, it had to be done through the validity of the board resolution, which lapsed. Also, it was to be given to the existing promoter and not to a third party, which Maran had become after selling his stake," the person said.

Maran wanted to issue warrants after infusing some money into the firm back in 2014 before Singh took over, said this person. This too was refused because the firm could not get a no-objection certificate from its lenders.

Yogesh Chande, a partner at law firm Shardul Amarchand Mangaldas, said, “Being the front-line regulators under the listing regulations, stock exchanges are obliged to monitor any lapses on the part of the listed company."

“Stock exchanges cannot adjudicate rights and obligations of parties to a contract. Under the listing regulations or the erstwhile equity listing agreement, a listed company is required to approach a stock exchange for obtaining an ‘in-principle’ approval for listing before issuing securities," added Chande.

Maran’s fundamental plea to the arbitrator is for restitution, said another person with direct knowledge of the share purchase agreement.

“He is saying restore the position, we are happy to pay back Rs2 to Ajay Singh. If the restitution is not possible pay the compensation. The compensation amount has been arrived at by a world renowned expert," said this person. Ajay Singh had paid Maran Rs2 for 58.64% of the company’s equity.

Under the Companies Act, if securities cannot be allotted, they have to be returned with 12% interest. That itself will come to Rs800 to Rs900 crore, this person added.

In January 2015, when Maran passed on control to Singh, the terms of the deal were not made public. The details only emerged from the court filings.

On 3 July, the Delhi high court directed SpiceJet to set aside Rs250 crore as cash and another Rs329 crore as bank guarantee on or before 31 August even as the matter undergoes resolution.

The airline currently has about Rs350 crore of cash on its books. Singh’s nearly 60% stake is worth Rs4,000 crore.

On Tuesday, SpiceJet shares closed at Rs121.10 on BSE, down 3.31%. The benchmark Sensex rose 0.1% to close at 31,747.09 points.

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