On August 29, 2014, the Central Bureau of Investigation (CBI) filed its case against the Chennai-headquartered Sun Group in what would come to be known as the 2G scam. As soon as the case was filed, all hell broke loose for the Chennai-based media giant.

When this happened, one of the businesses the group was already struggling with was SpiceJet, the airline they had boarded in 2010. Oil prices at the time were at a record high ($126 a barrel), creditors were hounding the airline and the Sun group found itself in no shape to cope.

Prior to August, the group had two serious investors ready to pump in close to $200 million into the airline but as soon as the CBI investigation became public, the investors became wary. As the airline reached the brink, government restrictions on sale of future tickets spelled its death knell. Sale of tickets - the cash lifeline for any airline - was restricted first to 90 days and then to just 30 days.

Sources close to Kalanithi Maran advised him that he should let the airline wind up. But having seen the past precedent set by Kingfisher and other airlines that had gone belly-up, the Sun Group decided it was better not to leave the airline with unsettled dues and a long list of creditors. Further, if jobs could be saved, they should be. Moreover, the Sun group was of the opinion that fundamentally the business had potential; it was just that an unusual set of circumstances had combined to make it unviable for them to manage at the time. Company sources say that at the time it seemed better to bow out and leave matters to someone who had the skills to "navigate New Delhi's choppy waters".

This individual turned out to be present chairman and managing director Ajay Singh. It was therefore with his back against the wall in 2015 that Kalanithi Maran first approached the man who had been associated with the airline in its early avatar. Singh agreed to take charge and ownership of the airline was transferred for a token ₹2 but he also asked the Marans to put in some amount of money to keep the rocky boat afloat.

According to a SpiceJet spokesperson, at the time of transfer, the company had debt and liabilities outstanding of over ₹3,500 crore with immediate payables of around ₹2,200 crore and its Boeing fleet was reduced from 41 to 17 aircraft. Creditors including lessors were hounding them. Tax and other government related payments had mounted. Salaries were pending.

So even as the transfer of ownership happened for almost nothing, Singh asked the Marans to put in a substantial amount of money to clear up dues including tax liabilities and also provided some liquidity to keep the company running. It is this ₹578 crore - invested by the Sun Group at the time - which is now the main bone of contention, under consideration of the Supreme court. At the time of handing control to Singh, the Marans felt that the business had potential, so an agreement was reached whereby SpiceJet would issue cumulative redeemable preference shares (CRPS) that would help them keep one foot in the door but did not offer them any voting rights.

Breach of Trust And Bad Faith

Marans allege that once Singh was firmly in the saddle, he renege on the agreements they had reached in 2014. It is alleged that Singh "acted in bad faith" and "breached their trust" and this compelled them to move the courts, a charge Singh and SpiceJet hotly deny.

According to Marans, this amount of ₹578 crore is an "admitted liability" and legitimately owed to the Marans by SpiceJet. Further, the Sun group argues that had the CRPS been allotted as negotiated and settled in the SPA, KAL Airways -- the Maran company that held the stake in SpiceJet -- would own 18.91 crore shares valued at ₹1,200 crore. Had the shares been issued as promised, they would also have been free to sell as and when they wished : read when the market price of the scrip was at its peak. This has resulted in a severe notional loss to them. The failure to issue the CRPS was "conveniently" blamed on BSE.

According to S.L. Narayanan, chief financial officer (CFO) of Sun Group and managing director of KAL Airways, there are allegedly three matters on which Singh failed to keep his word. One, SpiceJet did not settle the pending issues with the income tax authorities as promised. Second, they argue that Maran used his personal funds to place a fixed deposit of ₹100 crore with City Union Bank in February 2015 as collateral for an overdraft facility availed by SpiceJet. As per the share purchase agreement, SpiceJet was supposed to replace the security within 90 days but despite seven years passing, this was not done. Further, he also alleges that till date, not one rupee has been invested by Singh and that had it not been for the investments made by KAL Airways in 2014/15, the airline would have perished.

But the Marans are also of the view that Singh's takeover and their troubles may not have been just a coincidence but more a "well orchestrated" turn of events that allowed him to take over the reins. It is argued that the "so-called turnaround" is more thanks to Singh’s ability to manage New Delhi and the environment than anything else. "Mr Singh was better than us at managing the environment and hence we entered into a deal that gave him a majority stake. This was fundamentally a decision rooted in pragmatism. Even at the time of our exit, we were very clear that the aviation sector will turn around with the cyclicality of crude prices. That is the reason why we structured our exit with a continuing minority stake in the airline. Never did we imagine that all promises made would get so brazenly violated," says Narayanan.

Further, they say that the massive fall in crude prices from $120 a barrel in early 2014 to as low as $26 in mid 2016 helped every airline make "bumper profits" in those years. They point out that when the crude oil prices started going up in mid 2018 to $80 a barrel – nowhere near the levels of $ 120 per barrel that we had encountered in 2014 - the same airline suffered a massive loss of ₹389 crore in just three months. "Clearly, the managerial brilliance of Mr. Singh doesn't work when the crude price shoots up" says Narayanan.

Bruised egos, greed and control of company

Spicejet rubbishes Maran's claims and argues that it is "sheer ignorance of the other side to attribute this historical turnaround only to luck" and that it is an "intemperate outburst" to cover what could not be achieved by them during their tenure.

In a detailed response to an email sent, a SpiceJet spokesperson said that there were multiple winding up and aircraft repossession petitions at the time Singh took charge. The situation was such that the airline was unable to pay fuel companies and airport operations and therefore even halted its operations for ten hours on one day in December 2014, on the brink of shut down with the livelihood of nearly 10,000 people at stake. All these dues were settled without any financial assistance or waivers provided by the government, adding that "you cannot settle and pay millions of dollars only because of luck".

SpiceJet alleges that Maran changed his tune radically once the company started to do well. At the time of transfer, they argue, he primarily wanted to get out of his liabilities since if the company had shut down, the "blowback" would have come on him, be it employee agitations or creditors hounding them in various jurisdictions. But once it became evident that the airline was out of the woods, they started to make "demands" and even wanted "control of the company back". This was soon after the company had registered profits for 18 quarters, a turnaround had been successfully managed. "It was more a matter of bruised egos than anything else," argues a source on condition of anonymity.

The company says that it would have been happy to settle the matter as per the arbitration decision of 2018 but the Marans decided to stretch it by appealing. It also claims that when it became clear that the requisite approvals were not received from BSE, they tried continuously to resolve the matter amicably out of court but the Marans always "insisted on walking the litigious route". "The Delhi High court tried to facilitate settlement way back in 2019 between the parties but the same was undertaken by them in bad faith as a tick-in-the-box exercise while there were hardly any commercial issues left to be agreed. Even then SpiceJet offered a "good faith settlement" which was far more than what was allowed by the tribunal. "It is wrong to suggest that we have forced their hands into litigation and it is actually the other side which is continuing to do the same for reasons best known to them," according to a company spokesperson.

They further argue that the arbitral tribunal has held that SpiceJet and Ajay Singh were not in "breach of any provisions of the agreement" and any issuance of shares were subject to regulatory approvals, which were not received by them despite making all efforts.

The Final Word

After the usual and lengthy legal process of judgments and appeals that carried on through 2019-2022, finally in February this year SpiceJet offered a settlement of ₹600 crore - ₹578 crore as the principal and ₹22 crore as interest - an offer the Sun group flatly refused calling it "a joke".

Both sides refused to comment on the possible financial settlement as it is sub-judice but sources say that the matter has now been reduced to how much SpiceJet is asked to pay over and above the ₹578 crore. Sources say that the Marans are unwilling to settle for anything less than ₹900-odd crore but the matter is now in the hands of the court. Industry sources also argue that SpiceJet in its present "Covid battered" shape is in no state to pay up much more than it already has and this could be the "final blow on the camel's back". This, however, remains in the realm of conjecture as the obituary of SpiceJet has been written many times over since the start of the pandemic.

Even as the allegations and counter allegations fly back and forth, court hearings on the matter have been delayed and postponed. Sources in the Maran camp again attribute these delays to Singh's ability to influence New Delhi and other authorities, another charge the latter hotly denies.

With plenty of bad blood, allegations and counter allegations continuing to flow, the Maran-Singh spat remains very much alive on the battlefront for now, one that is being keenly watched by the sector. Like many trivial and weighty matters in India, the final verdict will eventually be pronounced by the highest court of the country.

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