In a sad ending for Indias largest carrier, Jet Airways will be heading to the National Company Law Tribunal (NCLT) to begin insolvency proceedings. Lenders and investors could not agree on how best to proceed with Jet Airways’ revival. The airlines co-founder and ex CEO Naresh Goyal is also being questioned for alleged fraud and tax evasion by the Income Tax department.
In a statement, majority lender State Bank of India (SBI) said, After due deliberations, the lenders have decided to seek resolution for Jet Airways under the bankruptcy code since only a conditional bid was received.
Business Today says that the lenders will file for insolvency proceedings against Jet by June 20. The aim of taking the airline to the NCLT is to find a new owner under the Insolvency and Bankruptcy Code (IBC).
The move comes after the Hinduja Group said the only way it would help takeover the airline is if the lenders took a haircut on their loans. Etihad Airways, a minority partner in Jet, also resisted investing more money into the airline.
Moreover, two of Jets creditorsShaman Wheels and Gaggar Enterprises petitioned the NCLT to recover their dues from Jet Airways. If the NCLT accepted their petition, all its lenders, led by SBI, would have to join the suit.
Jet Airways founder and ex-CEO Naresh Goyal also found himself in hot water with the IT department.
All this unsavoury news has caused the airlines shares to fall sharply by 14.44% to an all-time low of 69.75. Over the past week, Jets shares have lost 43% of their value.
IT Department summons Naresh Goyal for tax evasion
The Income Tax department has summoned Jet’s founder, Naresh Goyal, for questioning over tax evasion charges. The Indian government was already looking into Jets accounts after officials found suspicious transactions.
In April, the Ministry of Corporate Affairs (MCA) had also issued a circular barring the Goyals from travelling overseas because they were suspected of being wilful defaulters who may try to abscond.
And, a month later in May, Goyal and his co-founder and wife, Anita, were asked to de-board Emirates flight EK-507 to Dubai, even as it was already on the taxiway. This flight was en route to London, a popular refugee for financial fraudsters like Nirav Modi and Vijay Mallya, who are both embroiled in extradition proceedings.
The Economic Times (ET) reports that the IT departments investigation wing found irregularities in transactions to the tune of Rs 650 crore between Jet Airways and Dubai-based companies. These payments from Jet to the Dubai firms were in excess of legal business transactions under the Income Tax Act.
An official told ET, These are excessive payments made with the intent to divert funds abroad, so as to evade taxes
The assessment wing is now carrying out the inquiry, and based on the findings, had summoned Goyal to explain the case.
Business Today says that documents detailing these allegedly fraudulent transactions were seized at the airlines Mumbai offices in September 2018.
The MCAs investigation into the Goyals will be also handed over to the Serious Fraud Investigation Office (SFIO).
Alliance to rescue Jet Airways
Prior to these developments, the business community had hope that Jet Airways would be rescued by a four-party consortium. The Hinduja Group and AdiGro Aviation, along with minority partners, Naresh Goyal and Etihad Airways, joined together in an alliance to revive the cash-strapped airline.
Etithad has already told the lenders that it will not invest more money than is required to retain its 24% minority stake. The company added that the lenders were responsible for finding a majority partner for Jet.
However, the consortium was asking for a 60% reduction on the loan repayment amount. Sources reported that the government allowed the lenders to go ahead with the loan haircut, on the condition that Jet Airways was not in legal trouble for fraud.
Lenders have decided to seek resolution under IBC since only a conditional bid was received and requirement of the investor for Sebi (Securities and Exchange Board of India) exemptions and resolution of all creditors is possible under IBC, said the SBI.
Some experts who spoke to Mint said that Jet finding a bidder was unlikely and the airline will likely be liquidated and its assets would be sold to recover funds to pay back lenders. Others said that the IBC process will erode the loans present value for a quicker resolution process and to keep Jet Airways and its assets intact.
How did Jet go bankrupt?
In February, Jet Airways began defaulting on loan repayments and employees salaries worth thousands of crores. The airline then began talks of restructuring when it started getting downgraded by credit rating institutions like ICRA.
Later in April, Jet needed interim funding from the lenders but failed to secure it.
Some lenders wanted more concrete assurances from the companies that submitted bids for the airline. However, they did not reach a consensus on whether or not to fund the airline while they were still looking for bidders.
In the end, the lenders non-decision resulted in the airline being suspended because it did not get the Rs 1,500 crore it needed to keep functioning.
After the airline temporarily shut down, around 22,000 employees found themselves staring at the face of unemployment. While the laid-off pilots and staff tried scrambling for other jobs, the Jet unions appealed to PM Modi as well as the finance and aviation ministries for help.
The unions also offered to buy-out the airline by putting together employees salaries and using the employee stock option programmethis would provide Rs 7,000 crore to be paid over five years. However, this amount was too low for even interim funding.
Amidst this chaos, Naresh and Anita Goyal stepped down from their positions on the board, while Naresh resigned as CEO. Since then, the lending banks have been going back and forth between bidders who are either not serious or whose conditions dont align with the lenders.
Now, the country will have to wait to see how the lenders resolve Jets debt in the NCLTwill they sell the airline for parts or find a bidder and keep the airline intact?
Rhea Arora is a Staff Writer at Qrius