L’Affaire SpiceJet, The Curious Case of SpiceJet Sale – Smell a Scam!


Brief Background

Modi-Luft, which was launched as a collaboration between Indian Industrialist S K Modi and Lufthansa the German carrier in 1993, ceased operations in 1996. In 2004, Ajay Singh raised funds & restarted operations as SpiceJet following the low-cost model. Spice Jet leased 3 Boeing 737-800 aircraft and started operations. In 2005, the Airports Authority of India approved three overnight parking slots to SpiceJet, with two in Delhi and one in Mumbai. The first flight was flagged off by then Union Minister of Civil Aviation, Praful Patel. By 2008, it was India’s second-largest low-cost carrier in terms of market share.

Kalanidhi Maran, the media baron based in South, acquired 37.7% stake in SpiceJet in June 2010. In 2012, SpiceJet suffered losses of over ₹390 million (approx. US$6 million) owing to increase in global crude prices. On 9 January 2012, the Directorate General of Civil Aviation reported that several airlines in India, including SpiceJet, have not maintained crucial data for the flight operations quality assurance or the FOQA.

The Bombay stock exchange announced that ever since June 2011, SpiceJet had been suffering losses. In 2012, Despite the losses, Kalanidhi Maran increased his stake in SpiceJet by investing ₹1billion (US$16 million) in the airline.

The airline returned to profitability at the end of the year. For a detailed time line of events, see the list below:

  • In 2013, SpiceJet launched its first inter-line pact with Tiger Air in 2013. In July 2014, SpiceJet announced up to 50 per cent discounts due to competition.
  • In December 2014, SpiceJet cancelled many domestic flights across the country. Directorate General of Civil Aviation (DGCA) issued warning over non-payment of salaries and dues, while the airport operators moved to put the carrier on cash-and-carry mode, which means the airline could use the facilities of an airport only upon immediate payment.
  • On December 17, all flights were grounded after oil companies refused to refuel its planes.
  • In January 2015, the board of directors of SpiceJet transferred control of the airline to Ajay Singh, the founder of SpiceJet who as we saw earlier, used to run the airlines earlier. At this time Ajay Singh had 4.5% stake in the Airlines. Subsequently Kalanidhi Maran transfers SpiceJet stake to Ajay Singh via ‘Scheme of Reconstruction and Revival for the takeover of ownership, management and control of SpiceJet Limited’.

The secretive process

But there are too many questions about this “bailout” or sale. SpiceJet is owned by the public and begs an important question – Can a public listed company be acquired without disclosing the acquisition scheme or the purchase price?

Three issues of public importance were kept secret –

  • Scheme Details were not disclosed,
  • Acquisition price not disclosed and
  • Open Offer was exempted without valid reason.

Takeover Regulations clearly state that Exemptions From Open Offer 10 (1) (d) acquisition pursuant to a scheme (ii) of arrangement involving the target company as a transferor company or as a transferee company, or reconstruction of the target company, including amalgamation, merger or demerger, pursuant to an order of a court or a competent authority under any law or regulation, Indian or foreign:

It is extra-ordinary that the exemptions from open offer as well as non-disclosure of prices are making one feel about the emergence of a scam of massive magnitude which will haunt this government. Not only that the Form B and D filings made by both the Maran’s and Ajay Singh where they speak of this off-market transaction in the column which asks for buy value, they have put the face value of shares and not the actual transaction price. In the filing made by Ajay Singh under regulation 10(6) of the substantial acquisition and takeover regulations, when asked to disclose the price at which the shares are proposed to be acquired, he said that in terms of the share sale and purchase agreement the consideration paid by the acquirer for the acquisition of these shares is confidential.

Confidentiality is being claimed for a mandatory public disclosure and it is atrocious to say the least. Both in letter and spirit it is not tenable. Let us be clear that this is a private transaction in a public company. It is not some private deal.

Every provision that requires disclosure needs to be met when the acquisition is close to 60 percent of a listed company. To begin with if there is an exemption being availed of at the minimum, the form says spell out the price. I think fundamentally whether the exemption is even available to them is questionable. SEBI has a lot to answer in this case –

  • SEBI Act section 12A says a contrivance or a device to circumvent provision of the regulation is itself a violation. This is a classic case of contrivance and structured essentially to force fit within the exemption. This secret price is what is termed as a “dud” price in the market, grossly under-valued is supposedly by Goldman Sachs, a US based Consulting Company. The accounting procedure adopted as well as the process of price discovery –in the absence of open offer- is not known.
  • The officials in Civil Aviation Ministry were also complicit in this process to enable the sale of nearly 60 per cent shares of Spice Jet at a secret and reportedly dud price of a Stock Exchange listed company, by underwriting the source of the Rs. 1,300 crores of infusion of funds by a defacto bankrupt Ajai Singh. The Ministry ought to have found out the source of the fund.

To quote legal expert Sunderesan from an interview in CNBC TV

“Here what is happening is, that a private owner of a public company gets an exit at an undisclosed price, terms not disclosed to the public shareholders, it would otherwise trigger an open offer, you call that takeover a scheme of takeover of management and ownership and reconstruction, call the Ministry of Civil Aviation a competent authority and then say this force fits within the exemption. In my view the letter of the law too is not met.

There are judgments where schemes approved by a court of law have been held to be a contrivance and an open offer has been forced which has been even upheld all the way in appellate processes. In that light to have a share purchase agreement masquerading as a scheme is extraordinary.”


Further, on Jan 30th: Spicejet Board approves [BSE filing] ‘To create, offer, issue and allot up to 3,750,000  non-convertible Cumulative Redeemable Preference Shares of Rs.1,000 each to Mr. Kalanidhi Maran and / or Kal Airways Private Limited on preferential basis.’ But even this needs shareholders’ approval since preference shares are quasi-equity.

Marans and power of politics

SpiceJet is a fit case for quick action in shareholder interest because of the track record of the Marans. The Central Bureau of Investigation (CBI) has booked Dayanidhi Maran for diverting 323 high-speed phone lines to his home and connecting them through a dedicated underground cable to the SunTV network, to avoid paying fat telecom charges.

In August 2014, CBI also booked Dayanidhi Maran and his brother Kalanithi on charges of receiving a bribe of Rs742 crore in the Aircel-Maxis case and of coercing entrepreneur C Sivasankaran to sell Aircel to Maxis.

The astute observer of the financial scene and its entire underbelly – Ms. Sucheta Dalal of Harshad Mehta scam buster fame- asks a pertinent question

“Finally, will Minister [Civil Aviation] Ashok Gajapati Raju tell us why the Rs600-crore bailout will not be a futile when SpiceJet’s outstanding’s are in excess of Rs2, 000 crore? What other steps has he taken to ensure that he is not asking banks, who have already lent over Rs1,500 crore to SpiceJet, to throw good money after bad, if the management fails to secure the long-term investment that it hopes to get?”

Sucheta Dalal

But of course Marans are not the run of the mill business barons. They are the nephews of ex-Chief Minister of Tamil Nadu M.Karunanidhi who at one time announced the cabinet ministers’ name and portfolio from his Chennai residence which was meekly accepted by UPA1 headed by the then Prime Mininster Manmohan Singh.

About Ajay Singh who is supposed to run the future show at SpiceJet, the less said the better. Ajay Singh is presumbaly Director of 40 or so companies. Some are allegedly bankrupt. Normally Ashish Singh, Shivani Singh, Anupriya Singh are the common Directors in his companies. Seems brother, sister in law and kids…their address of most companies are:

D-32, Kalinidy Colony,
New Delhi – 110065.

One great finding is that he also owned Allianz Infratech, which got two telecom licences and merged with Balwa’s Swan Telecom in months… he is actively involved in telecom. He was very close to the then telecom minister Pramod Mahajan—who is no more.

So where are we today? SpiceJet is flying again and everyone involved is hoping that it will be “business as usual”.

Recently RBI governor Raghuram Rajan in an important lecture in memory of Dr. Kurien, gave a brilliant analysis of the “crony capital’ scenario:

“The firm and its many workers, as well as past bank loans, are the hostages in this game of chicken – the promoter threatens to run the enterprise into the ground unless the government, banks, and regulators make the concessions that are necessary to keep it alive. And if the enterprise regains health, the promoter retains all the upside, forgetting the help he got from the government or the banks – after all, banks should be happy they got some of their money back!

No wonder government ministers worry about a country where we have many sick companies but no “sick” promoters!”

Raghuram Rajan

This L’Affaire SpiceJet has all the spice to become the first known major scam of this NDA Government. It has all ingredients of violations of several sections of PCA/ FEMA/ PMLA/ IPC/ SEBI Act/ Companies act. The sooner Government wakes up and ACTS to comply with all these acts better for it. Otherwise the government will have egg on its face.

The author Prof. R Vaidyanathan is Professor of Finance at IIM-B. Views are personal.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: