It was a partial victory for Jet Airways before the Bombay High Court yesterday. Justice D Y Chandrachud came to the conclusion that "Jet Airways is liable to pay a consideration of Rs 1,450 crore and not Rs 2,000 crore" to Sahara Group , for the 2007 takeover deal of Sahara Airline. The court however sought to strike a balance. It held that Sahara had breached its obligation by not disclosing its pre-deal tax liability to Jet and also that Jet had been wrong in deducting the tax amount from its instalments to Sahara.
The judge imposed a 9% interest on Jet Airways for its remaining pending amount of Rs 402 crore to Sahara and directed payment of Rs 478 crore within two weeks. Jet had paid Rs 900crore up front to Sahara after the deal was made and had to pay the rest in four equal instalments since 2008.
After the judgment, the Sahara counsel sought a continuation of the undertaking given by Jet in March 2009 to not sell its assets except in the ordinary course of business. He said Sahara will appeal against this order.
But Jet counsel Janak Dwarkadas opposed the Sahara request saying: "We are in a position to pay Rs 478 crore in two weeks as directed. This demonstrates the company’s financial viability .Thus, there is no need to continue with the undertaking particularly since they (Sahara) have been held to be in default of performing their indemnity obligation." Justice Chandrachud said since the court had concluded that Jet’s liability was Rs 1,450 crore, the 2009 undertaking shall be dissolved after two weeks.
The2007 takeover bid of Sahara Airline was worth Rs 2,000crore but after renegotiation, a concession was given to Jet that the final price would be accepted as Rs 1,450 crore if paid in installments by March 31, 2011, without deduction and set-offs.
The problem arose when Jet began deducting Sahara’s tax liability in March 2008 after the income tax department pointed to pending taxes of Rs 107 crore due from Sahara Airline. Sahara argued in HC in 2009, said the deductions were impermissible and amounted to default, thus disentitling Jet to the concessional price of Rs 1,450 crore . Sahara raised the demand for additional Rs 550crore from Jet. Jet had refuted Sahara’s charge and argued that Sahara was legally obliged to reimburse Jet for any undisclosed pre-deal tax liability. Hence the current mess.
The bottom line is that Jet got its timing all wrong on this deal and the value of Sahara was far higher than it would be today, in fairness though Jet was not able to consult a crystal ball at the time. The deal ultimately may still prove to be worth its weight as the Indian market recovers and grows and slots increase in value.