Shares of India's private carrier Jet Airways slumped nearly 12.3 percent Monday morning, after authorities last week delayed approval for Abu Dhabi-based airline Etihad to acquire a stake.
Jet shares fell as much as 12.27 percent to a low of 411.6 rupees at the Bombay Stock Exchange.
The Jet-Etihad deal, announced in April, is the first overseas investment in an existing Indian carrier since New Delhi eased restrictions to allow foreign firms to take up to a 49 percent stake in the country's airlines.
Etihad plans to pick up a 24 percent stake in Jet Airways under the agreement.
India's Economic Affairs Secretary Arvind Mayaram said the proposal was deferred as they required more details of the effective control and ownership of the new firm.
The Etihad investment will allow Jet to reduce its hefty debt and expand its global reach by using the UAE airline's network.
In March, India's foreign investment panel cleared a proposal by low cost Malaysia-based AirAsia to set up an airline in India through a joint venture with the Tata conglomerate and another partner.
Indian airlines have been under pressure to grow due to fierce competition among carriers, with India's rapidly expanding middle class starting to favour air travel over the country's main mode of transport by train.