Mallya imbroglio

Liquor baron Vijay Mallya’s admission that he met Finance Minister Arun Jaitley before he left for London in 2016 raises doubts about the Narendra Modi government’s sincerity in bringing him to justice.

Published : Sep 26, 2018 12:30 IST

 Outside Westminster Magistrates’ Court in London on September 12, Vijay Mallya speaks to the media during a break in the hearing of the extradition case against him.

Outside Westminster Magistrates’ Court in London on September 12, Vijay Mallya speaks to the media during a break in the hearing of the extradition case against him.

SEPTEMBER saw yet another instanceof the Narendra Modi government’s penchant to cosy up with crony capitalists. The fugitive liquor baron Vijay Mallya, who was “allowed” by the Modi government to fly to the United Kingdom in March 2016 and is now facing extradition charges, dropped a political bombshell when, cigar in hand, he nonchalantly announced on September 12 outside the Westminster Magistrates’ Court in London, where his case was being heard, that he had met Finance Minister Arun Jaitley just before he fled India. Asked by reporters whether he had been tipped off about a possible arrest, Mallya said: “I left because I had a scheduled meeting in Geneva. I met the Finance Minister before I left, repeated my offer to settle with the banks.”

Vijay Mallya’s statement elicited an immediate response from Arun Jaitley in a Facebook post. It said “[Mallya’s] statement is factually false inasmuch as it does not reflect the truth”, and that Mallya had “misused” his privilege of being a member of the Rajya Sabha and “paced to catch up” with him while he was walking out of the Rajya Sabha.

The Congress pulled out all the stops as party president Rahul Gandhi accused Arun Jaitley of colluding with Vijay Mallya and stressed that there was CCTV footage of the two meeting first in the corridor and then at Central Hall of Parliament for over 15 minutes. Rahul Gandhi demanded Arun Jaitley’s resignation and asked: “He [Jaitley] had not informed ED [Enforcement Directorate], CBI [Central Bureau of Investigation]. What does it mean? He has to explain why when a criminal has told him he is running away to London, he has done nothing.” He added: “The Finance Minister is responsible to take action against economic offenders. Finance Minister himself is meeting them. Finance Minister has admitted that Mallya told him he is going to London. Yet the Finance Minister took no action. Did not inform CBI, ED or other arms of the govt. Why? What was the deal? There is a notice to restrain Mr Mallya. That notice is changed from a restrain notice to an inform notice. Who did it? There are only two people—Prime Minister and Finance Minister.”

The Bharatiya Janata Party (BJP) hit back, accusing the erstwhile Congress-led United Progressive Alliance (UPA) government of exhibiting a “bias and flouting norms to give a sweet deal to Kingfisher Airlines.” BJP spokesperson Sambit Patra alleged that Vijay Mallya got loans after “friend, father and philosopher of black money—P. Chidambaram” had called up bank officials. Asking “how much share does the Congress have in the ‘good times’ of Mallya”, Patra added that at times it appeared as if “Kingfisher Airlines wasn’t owned by Mallya but by the Gandhi family in the proxy”. The BJP has been alleging that the Manmohan Singh government provided sweetheart deals to Mallya and in return had taken “undue advantage” from Mallya, including such benefits for the “Gandhi family as business class upgradation, free tickets, etc”.

Capt G.R. Gopinath (retd), who sold his low-cost airline Air Deccan to Mallya, said the exact nature of what was discussed and transpired between Vijay Mallya and Arun Jaitley was still unknown. Said Gopinath: “It’s complicated. In India, there exists a quid pro quo between the polity and business houses. In some instances the understanding gets too brazen and crosses all boundaries. At most times, the funding that the company gets is based on the promoter’s connections, political and otherwise!”

If Vijay Mallya’s meeting with Arun Jaitley was not embarrassing enough for the Modi government, the CBI did not cover itself in glory either. It emerged that the CBI for reasons that are still in the realm of speculation downgraded its own October 16, 2015, Lookout Circular (LOC) against Vijay Mallya from “Detain” to “Inform”. This prompted Rahul Gandhi to allege that the CBI aided “Mallya’s Great Escape”. This was done, alleged Gandhi, with the “approval of Prime Minister Narendra Modi”. Tweeted Rahul Gandhi: “The CBI reports directly to the prime minister. It is inconceivable that the CBI, in such a high profile, controversial case, would change a lookout notice without the approval of the prime minister.”

“Lookout notice” fiasco

While the LOC form filled out by the CBI on October 16 had the box “prevent subject from leaving India” ticked, the LOC of November 24 (the night Mallya landed back in India after one of his trips abroad) had the box “inform originator of arrival/departure of subject” ticked. Sources in the CBI were tight-lipped, and the then CBI chief was even quoted as saying he was not aware of the downgrading! The CBI has given a number of reasons, each more bizarre than the other, for the change. Initially it said a low-level officer had mistakenly ticked the wrong box, then a few days later it called it “an error in judgment” and then explained that the decision to change was taken because “at the time there wasn’t sufficient ground for the CBI to detain and arrest him”.

Once Vijay Mallya was the “king of good times” who lived the high life with an enviable nonchalance. Alternatively, he was a liar, a fugitive, an ace manipulator who used his carefully cultivated connections with politicians, bureaucrats and bankers to betray his company’s shareholders by diverting funds to other group companies and to defraud Indian banks of billions of rupees.

What has emerged is that an intricate web of machinations between politicians, bureaucrats and bankers, all of whom benefited, ensured that Vijay Mallya stayed afloat years longer than he should have. And it is now increasingly becoming evident that bankers did not even act on the legal advice they got to restrain Mallya even when he flew the coop and sought refuge in the United Kingdom on March 2, 2016. What else would explain why State Bank of India (SBI), one of the defrauded banks, after seeking legal advice from the Supreme Court advocate Dushyant Dave, failed to turn up in court two days before Mallya fled? Although Dave himself when contacted by Frontline was reluctant to speak on what transpired, informed sources said SBI had consulted Dave on February 28, 2016, a Sunday, voicing the apprehension that Mallya was about to leave the country. Dave is said to have advised SBI to move the Supreme Court so that a restraining order could be obtained against the fugitive. But the bank delayed moving the court—SBI failed to show up in court—and Vijay Mallya flew.

Now India’s investigative agencies, chiefly the CBI, the ED, the Debt Recovery Tribunal (DRT) and the Serious Fraud Investigation Office (SFIO), are working towards calcifying the plethora of charges against him into die-hard convictions, while the government seeks to extradite him so that he can face trial on financial fraud, round tripping and money laundering. Vijay Mallya, who has been arrested twice, is currently on a £650,000 bail. A U.K. court will pronounce its judgment on India’s extradition request on December 10.

Though Vijay Mallya was able to take a sizeable portion of his wealth out of the country, he was slapped with a Worldwide Freezing Order (WFO) in the U.K. in November 2017. This, paradoxically, came not after action by either the CBI or Indian banks but by the British government’s UK Financial Intelligence Unit (UKFIU) in London. In June 2017 it red-flagged a £17.86-million transfer Vijay Mallya was trying to execute to a bank in Switzerland. It converted the transaction into an SAR (Suspicious Activity Report) and marked it out for information to the CBI and the ED. This not only gave the CBI probe some traction but also allowed bankers to apply for an extension to the U.K. of the order passed against Vijay Mallya by the DRT, Bengaluru, in February 2017. Though the Indian banks were not able to prevent Vijay Mallya from transferring the £17.86 million to Switzerland, their legal challenge was instrumental in preventing the liquor baron from accessing his U.K. assets, valued at £1.14 billion.

Vijay Mallya’s Kingfisher Airlines commenced operations in 2005 amidst much fanfare, but flawed business decisions meant that its losses mounted to the point where it operated its last flight in September 2012. The Directorate General of Civil Aviation (DGCA) cancelled its licence in the next month and by March 2013 the company’s net worth fell to a negative of nearly Rs.13,000 crore. By the end of 2013, a consortium of banks led by SBI approached United Breweries Holdings Limited (UBHL), Kingfisher Airlines’ holding company, for repayment of nearly Rs.6,500 crore in loans taken to keep Kingfisher Airlines competitive.

The banks had helped Vijay Mallya secure loan after loan on the basis of corporate guarantees filed by the UBHL on behalf of its subsidiaries and associate companies that were far in excess of their tangible net worth and market capitalisation. The CBI has termed these corporate guarantees, executed to borrow money to repay outstanding loans of Kingfisher Airlines, as nothing “but an ornamental security which was grossly inadequate to repay loans availed by Kingfisher Airlines”. According to the CBI, the UBHL furnished corporate guarantees of Rs.6,036 crore on November 29, 2008, when the adjusted tangible net worth of the company on March 31, 2008, was Rs.505.71 crore. The company’s market capitalisation on April 9, 2009, was Rs.770.75 crore.

The CBI also criticised the way banks dealt with Kingfisher Airlines’ debts, with its officials publicly stating that the banks did not file a complaint, rather it was the CBI that suo motu registered cases against Vijay Mallya. In August 2014, the CBI registered a preliminary inquiry into a loan of Rs.950 crore secured by Kingfisher from IDBI Bank. The loan had been sanctioned by IDBI despite the fact that earlier funding by the banks’ consortium to the company had turned sour. In July 2015, the CBI suo motu registered a case against Vijay Mallya; A. Raghunathan, the airline’s CFO; and unnamed officials of IDBI. The CBI conducted searches at a number of places, including Vijay Mallya’s residences and office premises, in October in connection with the case.

These raids resulted in the seizure of the main server of the airline. The server enabled sleuths of the SFIO, which functions under the Ministry of Corporate Affairs, to analyse email communications between Mallya and top officials of the airline, bankers, politicians and bureaucrats, which have become a part of the SFIO’s findings of wrongdoings in Kingfisher Airlines.

According to the SFIO’s 157-page report submitted to the Ministry of Corporate Affairs in August 2017, Ministry of Finance (MoF) “officials advised banks like SBI, Bank of India, Bank of Baroda and Bank of India to sanction loans to Kingfisher Airlines”. The report also stated that “outside pressure and intervention” was used in the “sanction and disbursement of corporate loans of Rs.2,000 crore”. The SFIO report also talks of corporate espionage with Vijay Mallya obtaining “information or data on the number of passengers, market share, etc., from officials of DGCA even before the data were placed before” the Director General of the DGCA, and then using this data “to undercut the prices/fare and to capture and dent the market share of competitors”.

Further, the SFIO report stated that Mallya entertained requests from officials of the MoF for travel outside the country by issuing “first-class/business-class tickets free of cost”, and on several occasions even agreed to requests of officials closely related to the operations of Kingfisher to discount ticket prices by half. All the losses on account of free/discounted tickets had to be borne by the airline itself. While many of these shenanigans aided Kingfisher in getting, on priority, the necessary approvals required for its running, it also “adversely affect[ed] the viability of operations”.

The SFIO also launched a probe into the alleged diversion of funds by Kingfisher Airlines and Vijay Mallya’s other companies, mainly his liquor business. Emails also indicated how he was strategising to restrict to Rs.248 crore (the figure declared by him in his affidavit filed while contesting the Rajya Sabha elections in 2010) the liability that arose on account of personal guarantees given by him to secure loans from the banks.

Although the banks had approached the UBHL in late 2013 and were increasingly losing faith in Mallya’s assurances that a large portion of the Rs.6,500 crore loan would be settled soon, it was not until a year later that they started to view the Kingfisher debt as something more than just a non-performing asset (NPA). In August-September 2014, United Bank of India and SBI started the process of declaring Vijay Mallya a “wilful defaulter”—a classification of borrower that potentially implies wrongdoing, where money could have been paid back but was not, or that the borrowed funds were used for other purposes. The SBI notice of August 19, 2014, alleged diversion of funds by Kingfisher Airlines to the UB group of companies and other firms. Although Vijay Mallya dragged the banks to court, he was finally declared a wilful defaulter in November 2015.

The banks continued to flounder and saw red when the British drinks giant Diageo, which had by then become the majority shareholder of United Spirits Limited, announced on February 25, 2016, that it would be paying Vijay Mallya $75 million as severance pay, by which among other things, it would end his USL-related appointments (chairman and non-executive director). When $40 million of this sweetheart deal was paid, the banks were egged into action.

The SBI-led consortium moved the DRT, Bengaluru, asking that the severance payment be kept in escrow until Vijay Mallya cleared his dues and that his passport be attached. When the DRT and the Karnataka High Court refused, the banks approached the Supreme Court. By the time the banks got relief, the $40 million had been distributed into bank accounts in trusts whose beneficiaries were Vijay Mallya’s three children. However, it helped the banks in prohibiting the dissipation of some of his assets in the U.K.—three large properties, shares in the Sahara Force India Formula One team, two yachts, the Tipu Sultan sword and funds in bank accounts.

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