When 13 creditor banks moved the Supreme Court on 8 March to restrain Vijay Mallya from leaving India and sought an arrest warrant against the businessman, they couldn’t have guessed what was in store.
Their petition, the lenders led by State Bank of India (SBI) learned the following day, was like an attempt to shut the stable doors after the horse had bolted.
Attorney general Mukul Rohatgi informed the apex court, citing information provided by the Central Bureau of Investigation (CBI), that Mallya had flown out of India on 2 March and was probably in England.
Mallya, Indian newspapers reported, attended proceedings in the Rajya Sabha, the upper House of Parliament of which he is a member, on 1 March before catching a flight the next day, putting himself out of the reach of creditors and enforcement agencies closing in on him.
As regulators turned up the heat by moving on multiple fronts against the UB Group chairman, Mallya remained defiant from his overseas location.
“I’m an international businessman. I travel to and from India frequently. I did not flee from India and neither am I an absconder. Rubbish,” he tweeted from an undisclosed destination on 11 March.
“As an Indian MP (member of Parliament), I fully respect and will comply with the law of the land. Our judicial system is sound and respected,” he wrote in another tweet.
Mallya is being asked to pay a total of Rs.9,091 crore in principal and interest owed to banks by his Kingfisher Airlines Ltd, which was grounded in 2012 after seven years of operations, weighed down by heavy debt, accumulated losses and unrest among unpaid employees.
Creditors pounced on him after he and Diageo Plc., which now controls Mallya’s one-time flagship United Spirits Ltd (USL), announced on 25 February a sweetheart deal under which he quit as non-executive chairman of the liquor maker.
In return, Diageo agreed to pay him $75 million over five years and absolve Mallya of responsibility for any financial irregularities that may have taken place at USL under his watch.
For his part, Mallya agreed to a five-year non-compete clause.
Diageo completed the purchase of a majority stake (54.7%) in United Spirits in July 2014 and had been pushing for Mallya’s departure from the company.
“Having recently turned 60, I have decided to spend more time in England, closer to my children,” Mallya said in a 25 February statement.
“The time has now come for me to move on and end all the publicized allegations and uncertainties about my relationship with Diageo and United Spirits Limited. Accordingly, I am resigning my position with immediate effect.”
“I have agreed a mutual release with both Diageo and United Spirits from claims concerning the alleged irregularities disclosed by USL in April 2015. I am now the Founder Emeritus of United Spirits which recognises my contribution in building United Spirits to what it is today and evokes great emotions and a degree of extreme satisfaction having steered United Spirits from a sales volume of just under 3 million cases to over 120 million cases when control was passed to Diageo,” Mallya added.
If the deal won him release from a sometime acrimonious relationship with Diageo, it opened the way for creditors and enforcement agencies to swoop on another front: the debt owed by Kingfisher Airlines.
Creditors approached the debt recovery tribunal in Bengaluru claiming first right to the $75 million payout, which they wanted withheld from Mallya. The tribunal passed an order to that effect; Diageo disclosed that it had already paid the $40 million first instalment of the payout to Mallya.
Next came the petition before the Supreme Court, which, too, was too late.
A two-judge bench comprising justices Kurian Joseph and Rohinton F. Nariman was measured in its response; it issued a notice to Mallya and gave him time to respond.
The next hearing will be on 30 March.
In the days subsequent to his deal with Diageo, many arms of the government got into action.
n The Enforcement Directorate (ED), which has initiated a money laundering probe against Mallya to trace the suspected diversion of a Rs.900 crore loan given to Kingfisher Airlines by IDBI Bank Ltd, has asked the former liquor baron to appear before it on 18 March.
n The Serious Fraud Investigation Office (SFIO), ED and the CBI have started looking into the overseas assets of Mallya to determine whether bank loans had been diverted to acquiring those holdings. Mallya’s assets include some of the most expensive real estate around the world, with properties in places ranging from Sausalito in Northern California’s Napa Valley to one of the poshest suburbs of Johannesburg, South Africa, and a condo in Trump Plaza in New York.
n The SFIO is looking at alleged “diversion of funds and financial reporting frauds” at Kingfisher Airlines, corporate affairs minister Arun Jaitley told Parliament on 9 March.
n The Securities and Exchange Board of India (Sebi) has sent a notice to USL seeking an explanation for not informing its Indian shareholders about the $75 million deal with Diageo and is examining suspected violations of corporate governance and insider trading norms and possible price manipulation ahead of the deal. A spokesperson for USL confirmed receipt of the notice.
n The labour ministry will soon launch an investigation to check whether there had been any irregularities in the deposit of provident fund contributions of Kingfisher Airlines employees. The service tax department has moved the Bombay high court requesting that proceedings earlier initiated against Mallya under the Code of Criminal Procedure be speeded up.
A person close to the development said Mallya was virtually on the run as enforcement agencies seek to build a strong case against one of India’s most flamboyant businessmen, who has never hesitated to flaunt his wealth and lavish lifestyle.
“His personal legal advisers must have informed him that not depositing TDS (tax deducted as source from employees’ salaries) and service tax to the government can cost him dearly as there is criminal culpability in not depositing these taxes after they have been collected,” this person said.
In November 2015, State Bank of India declared Mallya a “wilful defaulter” for failing to repay loans advanced to Kingfisher Airlines.
A wilful defaulter is a borrower who doesn’t repay loans although he can afford to do so or has siphoned off the money into other ventures.
“He (Mallya) is between a rock and a hard place,” said Amit Tandon, founder and managing director of proxy advisory firm Institutional Investor Advisory Services India Ltd.
“Ideally he needs to sit with the banks and reach a settlement. While it may have been possible for banks to take a haircut on their loans earlier, it now looks unlikely,” Tandon said.
A haircut is banking industry parlance for the portion of debt or interest that bankers agree to forego in a settlement.
Banks, meanwhile, need to weigh the benefit of actually receiving money upfront, albeit a smaller amount than their entire claim at an uncertain date in the future, Tandon said.
Exploring a one-time settlement with lenders is something Mallya claims he has done.
“Personally, I am not a borrower or a judgement defaulter,” Mallya said in a statement on 6 March.
“Legal proceedings apart, I have been making efforts to reach a one-time settlement with the banks and, to that end, I have had three meetings and follow up calls in the recent past and my efforts will continue—this settlement would be based on additional payments to the banks,” Mallya said. “The payments from Diageo Plc to myself are towards my personal, non-compete obligations globally, except in the UK. In effect, I have given up my interests in the spirits business globally at considerable cost.”
Commenting on his airlines business, Mallya said Kingfisher Airlines was launched on the basis of a viable business plan vetted by SBI Capital Markets (a unit of State Bank of India) and renowned global aviation consultants, but despite every effort, it was “an unfortunate commercial failure caused by macroeconomic factors and then government policies”.
“The truth about Kingfisher Airlines and its financial stress” due to external factors has been reported by SBI to the Reserve Bank of India, or RBI, in a letter dated 31 January 2012, Mallya added.
A consortium of banks loaned funds to Kingfisher Airlines, a public company, but these loans were secured by blue-chip securities, Mallya said.
Mallya said despite pledging blue-chip securities and depositing significant amounts in court, “a successful disinformation campaign has ensured my becoming the poster boy of all bank NPAs (non-performing assets)”.
In fact, he said, banks have NPAs of Rs.11 trillion and have borrowers who owe much more than the amount allegedly owed by Kingfisher Airlines to the banks—a fact that he said, was “never alluded to or widely reported by the media as in my case”.
He argued that all the inquiries conducted have failed to find any evidence of misappropriation of funds by Kingfisher Airlines or himself—“for the simple reason that the allegations and the innuendo to this effect are plainly false”.
“My group directly invested over Rs.4,000 crore into Kingfisher Airlines itself which investment stands fully impaired—it is not as though it is only the bank debt that has suffered. The banks will recover a substantial part of their debt—my group’s loss is permanent. Absent any fraud, the concept of corporate limited liability cannot be ignored,” Mallya said.
What everyone wants to know, meanwhile, is where is the man himself and will he ever return to India?
The charge of money laundering and whether it’s proven is key to the case against Mallya, according to Shriram Subramanian, founder, InGovern Research Services, a proxy advisory firm.
“Unless that is proven, Mallya is not a criminal. He can return to India and settle with the banks to the extent of his personal guarantees on the loans taken by Kingfisher Airlines. Of course, if the investigating agencies find out any diversion of funds, then it will be very tough for him to return to India,” Subramanian said.
Mallya has his backers who say that he isn’t the kind of man who will abscond.
“He has a family legacy and reputation to protect. I see him back soon, though not sure of the timing,” said Kapil Kaul, chief executive officer (South Asia) at CAPA India, an aviation consulting firm, who has worked with Mallya on a couple of projects. “We need to address all issues with respect to Mallya legally and less emotionally even in this charged environment...,” Kaul added.
Even a senior official at a leading enforcement agency said, on condition of anonymity, that he does not think Mallya will abscond.
“He met us last month and has agreed to cooperate. He knew there could be some backlash on the Diageo deal. But it went out of control,” he said.
