Headwinds whipping up for Kingfisher – Deccan acquisition under scrutiny
21 Jun 2008
New Delhi: In a surprising development the acquisition of a majority stake in Deccan Aviation by the UB Group, which owns Kingfisher Airlines, has come under the scanner, with the ministry for corporate affairs (MCA) issuing a show-cause notice.
The notice charges the UB Group with non-compliance with provisions of the Companies Act.
Under the provisions of the Act if, post-acquisition, the market share of the two entities combined exceeds 25 per cent then the corporates concerned need prior approval of the Union government. According to industry estimates, post-acquisition Kingfisher Airlines and Air Deccan together have a market share of about 32 per cent, converting the combined entity into one of the top two airlines in the domestic aviation industry.
In May last year, the UB Group through Kingfisher Radio Ltd and UB Overseas Ltd had acquired a 26 per cent stake stake in Deccan Aviation, the holding company that ran the low-cost airline, Air Deccan.
Subsequently, UB Group acquired another 20 per cent. As of March 2008, Kingfisher Radio held 42.57 per cent stake and UB Overseas held 7.19 per cent stake in Deccan Aviation.
The notice, issued by the southern region field office of the ministry, charges Kingfisher with violation of provisions under Section 108A of the Companies Act. Provisions of the Section are applicable in cases were the acquisition of shares leads to a dominant position in the market.
As for violations under the Act, under the provisions of Section 9 of the Companies Act, any agreement in violation of the Act becomes void.
A statement issued by Vijay Mallya, chairman, UB Group, said, ''The Regional Director had issued a notice to UB Holding Ltd (UBHL) asking for a confirmation that UBHL has sought prior approval of the Central Government before taking 26 per cent initial stake in Deccan.
''UBHL has contested this saying that Section 108A does not apply, as such it is not required to seek the approval under the section. It is also clarified that this is the matter between UBHL and the Company Law Board and does not in any way affect the merger, which was approved by the Karnataka High Court.''