You can’t use property without paying rent: Delhi HC rebukes SpiceJet, Ajay Singh

The Delhi High Court on Friday issued a stern rebuke to SpiceJet, criticizing the cash-strapped airline for continuing to operate leased engines without paying rental dues. The court’s pointed remarks highlighted the airline's precarious financial situation and its inability to honour commitments, casting doubt on the assurances made by SpiceJet's chairman and managing director, Ajay Singh.

“You are using someone else’s property, and you can’t use it without paying the rent. He’s (lessor) in the business of letting out that property, whether it’s an engine today or a house. Which court allows you to use property without paying?” justice Rajiv Shakdher remarked.

Justice Shakdher further expressed scepticism about the airline's assurances to lessors, pointing out that if Singh had the financial means to fulfill these commitments, the airline wouldn’t be defending itself in court. The judge also highlighted the airline’s broader financial struggles, including its failure to pay employee salaries.

In response, senior counsel Amit Sibal, representing SpiceJet, argued that the airline is making efforts to meet its obligations. He detailed a bona fide offer made by SpiceJet, which included securities and a pledge of shares from the directors to cover the outstanding dues. 

Sibal noted that SpiceJet had proposed securing the payments with encumbered aircraft or shares listed on the stock exchange, with an obligation to top up in case of a decline in share prices. The airline also committed to continuing its weekly payments of $160,000 and monthly instalments of $1.2 million, backed by additional security.

Sibal also pleaded with the court, stressing that SpiceJet is one of the few remaining airlines in the country, aside from IndiGo and Air India, and that the airline is struggling to stay operational amid a challenging environment.

SpiceJet's legal disputes and financial woes

The high court's division bench hearing on Friday was part of SpiceJet’s appeal to overturn a single-bench order from 16 August, which mandated the grounding of three leased engines from French companies Team France 01 SAS and Sunbird France 02 SAS. 

The original order, issued on 14 August, also required SpiceJet to return the engines within 15 days and facilitate their inspection. SpiceJet had argued that grounding these engines would effectively ground two of its planes, as each aircraft uses two engines, causing considerable public inconvenience given the airline's already limited fleet of 21 aircraft.

This 14 August order followed the lessors' rejection of Singh's offer to pledge his shares as collateral, citing concerns over the airline’s financial stability.

SpiceJet's legal troubles are mounting, with previous court orders demanding personal guarantees from its directors due to ongoing financial difficulties. In an attempt to alleviate these pressures, SpiceJet announced plans to raise ₹3,000 crore through a qualified institutional placement (QIP) by 30 September. The airline pledged to use ₹4.9 crore from this equity infusion to settle outstanding dues by the end of September. 

Read this | Delhi HC demands personal guarantees from SpiceJet directors over unpaid engine dues

However, lessors have shown little interest in further negotiations.

The court filings revealed that Team France 01 SAS and Sunbird France 02 SAS initiated legal action against SpiceJet in December 2023, citing unpaid dues exceeding $20 million. While SpiceJet has managed to pay $8.36 million towards these claims, as of 12 August, the outstanding amount remains at $9.41 million.

SpiceJet’s financial situation remains dire. For the quarter ended 30 June, the airline reported a consolidated net profit of ₹158.2 crore, a 20% decline from the ₹197.6 crore reported in the same quarter the previous year. Total income fell by 8.3% to ₹2,077.8 crore, while expenses decreased by over 7% to ₹1,919.6 crore. 

As of end of June, SpiceJet’s total liabilities stood at approximately ₹11,252 crore, down from ₹11,690.7 crore at the end of March and ₹12,420.2 crore at the end of December 2023.

Also read | Mint Explainer: Why SpiceJet repeatedly struggles to announce earnings on time

In light of these financial challenges, Singh is planning to reduce his stake in the airline by over 10% to raise around ₹3,000 crore. Despite this dilution, Singh is expected to remain the largest shareholder, with his holding anticipated to drop to approximately 30-35% following the fundraising by September.