Tuesday, June 30, 2009

Jet, Sahara headed for settlement

Jet Airways (India) Ltd is close to reaching an agreement with Sahara India Commercial Corp. Ltd, or SICCL, based on which it can pay around Rs300 crore to the latter to end a messy legal battle that has its origins in the April 2007 purchase of Sahara Airline Ltd by Jet Airways, the country’s second largest domestic airline by passenger traffic.
This comes ahead of an important Bombay high court hearing on 2 July. The court told the warring parties on 22 June to settle their dispute, or else it would pass an order.
Jet Airways is also working on a proposal to make some advance payments instead of instalments and is willing to pay some interest to avoid litigation, according to two executives with the carrier.
“Executives from Jet Airways and Sahara India are in discussions to reach an out-of-court settlement. Though the terms and agreements are not finalized, a consensus will be arrived (at) in (the) next 30 days,” said one of the executives. Neither of them agreed to be identified.
“The discussions are progressing towards a settlement, but nothing concrete has happened,” said a senior Sahara India executive, also on condition of anonymity.
The final round of the meetings for the settlement, led by the top brass of both Jet Airways and Sahara India, was scheduled for Monday.
On 9 June, Jet Airways founder chairman Naresh Goyal said: “Our lawyers are talking to reach an out-of-court settlement,” without revealing further details.
Sahara India had on 26 March filed an application with the Bombay high court claiming Jet Airways had defaulted on payments towards the purchase of Air Sahara, and had sought the court’s permission to seize Jet’s assets. Sahara India was demanding the original price of Rs2,000 crore for the airline, instead of the renegotiated price of Rs1,450 crore.
Jet Airways bought Sahara Airline—which operated Air Sahara—in April 2007, and later rebranded it JetLite.
In its buyout agreement dated 17 April 2007, Jet Airways had agreed to pay Rs550 crore each in four equal instalments beginning March 2008 through March 2011. Jet had paid Rs900 crore by 20 April 2008.
In March 2008, the income-tax department demanded pending taxes of Rs107 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 Rs37 crore from its March 2008 instalment.
According to the other Jet Airways executive, who is also close to the development, the airline has proposed paying its instalments without deducting any tax liability and paying interest on the amount delayed.
“The terms and conditions of this proposal are yet to be finalized. We are discussing best possible ways to reach a settlement on this dispute,” he said.
Under the new proposal, Jet Airways will give one instalment in advance and pay Sahara India the deducted Rs37 crore, on account of tax liability, which was the trigger for this recent litigation.
“Though this will result in an outgo of more than Rs300 crore, there is no other way to settle this ongoing dispute,” the same Jet executive said.
A Jet Airways spokeswoman declined to comment as the matter is sub-judice and her airline will update the Bombay high court on 2 July, when the court is expected to give its judgement if an out-of-court settlement has not been reached by then.
Mint could not reach Jet Airways executive director Saroj K. Datta and chief executive officer Wolfgang Prock-Schauer despite repeated efforts.
On 22 June, the Bombay high court had asked both sides to settle the dispute by 2 July, and had said it would pass an order if they failed to do so. Justice Dhananjay Chandrachud deferred the ruling after representatives of Jet Airways and Sahara India expressed their willingness to settle the dispute. Jet Airways had asked for time till 9 July, but the court asked both sides to settle the issue before 2 July.
“The out-of-court settlement is going to take time. We will seek more time from the court on 2 July,” the Jet executive mentioned first said.
Jet Airways shares rose by 3.09% on the Bombay Stock Exchange, or BSE, on Monday, to close at Rs238.40. The benchmark Sensex rose 0.14% to 14,785.74 points.
Jet Airways posted a stand-alone net profit of Rs52.99 crore for the quarter ended 31 March. For the financial year ended March, the stand-alone net loss for Jet Airways was Rs402.34 crore, compared with Rs253.06 crore the previous year.
In an unrelated development, the Directorate General of Central Excise Intelligence, the agency responsible for monitoring evasion of excise and service tax, last week issued a show-cause notice to Jet Airways relating to a potential service tax liability of at least Rs400 crore.
A show-cause notice is not an indictment, and only seeks an explanation from a company—Jet Airways, in this case—typically within a month.

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