Jet Airways saga: Why promoter Naresh Goyal must not just step down but exit the airline he founded

In 1983, Swraj Paul, the NRI billionaire from the United Kingdom stirred the pot with his bid for two staid Delhi-based companies DCM and Escorts. Endowed with deep pockets and a strong currency vis-à-vis the Indian rupee, he stormed Corporate India like a bull in the proverbial china shop and nearly ousted the promoters of these two companies from their perch and presented shares he had bought from a clutch of brokers from the Delhi stock exchange to the respective boards for registration. But the Guptas of the Shriram group controlling DCM and Nandas of Escorts—both Congress loyalists, cried on the shoulders of Indira Gandhi, the then prime minister and parried off the incipient mutiny. There is a sense of déjà vu now. Naresh Goyal, the promoter of the down-in-the-dumps Jet Airways has at last agreed to quit as the chairman of the board of directors kicking and screaming , but has not agreed to exit completely as demanded by Etihad Airways as a precondition for upping its equity stake up to a maximum of 49 percent as permitted by the government’s FDI policy in the civil aviation sector. Currently, Etihad has a 24 percent stake in the company Etihad has been insisting that Jet’s founder and Chairman Naresh Goyal must step down from the company’s board and his stake should be slashed to 22 percent from 51 percent as a precondition for its heightened stakes.

To be sure, Naresh Goyal is not facing mounting and relentless charges of corruption like his now-grounded Kingfisher Airlines counterpart Vijay Mallya, the fugitive economic offender. A company can be ruined, especially the one witnessing fierce competition and belonging to a capital intensive industry, by corruption and inefficiency. If Mallya belongs to the first genre, Goyal seems to belong to the second. But both deserved to be ousted from their perch.

[caption id=“attachment_2045049” align=“alignleft” width=“380”]  File image of Naresh Goyal. Reuters[/caption] Promoters do not have the birthright to stay put come what may especially when their companies have courted public or taxpayers’ money. A clutch of banks led by State Bank of India (SBI) are nursing an unpaid loan of Rs 8,000 crore in part repayment of which they are driven to accepting equity stakes in the beleaguered airline. SBI should prevail upon Goyal not to cling onto Jet Airways like a leech. It should not repeat the mistake the late Indira Gandhi did in 1983 with regard to DCM and Escorts. A promoter does not have the divine right to stay in the saddle come what may. A hostile takeover is all about fluttering the dovecots of the somnolent promoters who allow grass to grow under their feet. A lot of water has flown down the bridge since DCM and Escorts promoters were coddled by former prime minister Indira Gandhi. First, the SEBI takeover code allows anyone to mount a hostile or negotiated takeover, subject to buying out minority stakes to the prescribed extent at the same attractive price the promoters got. Second, the Narendra Modi government-enacted Insolvency and Bankruptcy Code (IBC) permits ousting of bank defaulters from their promoter cocoon by a Johnny-come-lately even if he is a foreigner. SBI should be on the side of Etihad and demand complete vacation of space by Naresh Goyal and not make it merely into an ornamental post but arguably the commanding post of chairman of the board of directors. That alone would ensure that its dues are paid off sooner or later. For incorrigible defaulters, IBC is the ultimate reform weapon. If Goyal remains defiant, he should be hauled to the National Company Law Tribunal (NCLT) under IBC where he would get far less favorable terms than the ones offered by SBI and Etihad for a decent exit. Non-performing assets (NPAs) are frowned upon and rightly so. Likewise non-performing promoters should also not be countenanced. They should be shown the door. Cloying sentimentality and nostalgia should not come in the way. (The writer is a senior columnist and tweets @smurlidharan)