Don't disburse $75 mn to Mallya, DRT orders Diageo

ED launches money laundering probe

Trouble mounted for UB Group Chairman Vijay Mallya on Monday after the Enforcement Directorate (ED) charged him with laundering money and a debt recovery tribunal froze Diageo’s payment for his exiting the liquor business.

The ED’s charges are based on a case filed in December 2015 by the Central Bureau of Investigation, which is investigating IDBI Bank’s sanction of Rs 900 crore to the defunct Kingfisher Airlines, overlooking an internal report.

“Kingfisher Airlines was not eligible for the loan sanctioned by IDBI Bank. The loan was not used by the airline for the purpose it was taken,” said the case report filed by the ED.

THE TIGHTENING NOOSE

• DRT: Directs Diageo not to pay $75 million to Mallya till it closes the SBI petition. To hear next plea on March 28
   
• ED: Files case under the Prevention of Money Laundering Act for alleged bank fraud by Kingfisher Airlines
   
• CBI: Probing Rs 900-crore loan from IDBI to long-defunct Kingfisher Airlines
   
• SEBI: Probing his settlement with Diageo; looking at trading patterns in United Spirits’ stock
   
• Karnataka HC: Admitted SBI petition seeking his arrest, impounding of passport, and disclosure of family’s assets

The case filed under Sections 3 and 4 of the Prevention of Money Laundering Act also charges A Raghunathan, chief financial officer of Kingfisher Airlines, and four unnamed executives of IDBI Bank.

The airline had transferred Rs 300 crore of the Rs 900 crore it took from the bank, said an official who did not want to be named. Kingfisher Airlines also transferred Rs 336 crore from the money received from IDBI Bank to an account held with another bank.

ED officials have summoned Mallya, Raghunathan and the IDBI executives for questioning this week.

The screws began to tighten after CBI investigators met ED Director Karnal Singh a fortnight ago and shared details of their findings on Kingfisher Airlines.

CBI found the executive committee of IDBI Bank set up to process Kingfisher Airlines’ loan application had issued a favourable report despite the company’s credit rating being BB, or moderately risky. According to banking norms, the minimum credit score required is BBB.

As the CBI and ED pursue their cases, State Bank of India, which leads a consortium of banks that lent to Kingfisher Airlines, has sought legal help to recover Rs 7,200 crore due to them. The Bengaluru debt recovery tribunal directed Diageo and United Spirits on Monday not to disburse $75 million to Mallya for signing a non-compete agreement on a plea by SBI last week.

The tribunal has set March 28 for hearing the plea by banks seeking Mallya’s arrest, impounding of his passport and disclosure of all his assets, including those of his family members.

Separately, the Karnataka High Court will hear arguments on a plea from banks on the same grounds later this month. SBI had accused Kingfisher Airlines of paying excess rental on aircraft leased from two Mauritius-based entities whose senior executives were earlier associated with companies controlled by Mallya’s UB Group.

SBI had issued a notice in August 2014 to the airline which had highlighted these discrepancies. The finance ministry, which took note of SBI’s forensic audit, has instructed investigating agencies to initiate a probe.

The Director General of Civil Aviation (DGCA) had suspended Kingfisher Airlines’ licence in 2012.

“My group invested over Rs 4,000 crore in Kingfisher Airlines, which stands fully impaired. The banks will recover a substantial part of their debt, my group’s loss is permanent. The concept of corporate limited liability cannot be ignored,” Mallya said in a note.

Mallya claimed that banks had since April 2013 recovered Rs 1,244 crore in pledged shares and United  Breweries (Holdings) had deposited Rs 1,250 crore in the Karnataka High Court. “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 a considerable cost,” Mallya said in a statement on Sunday evening.

SBI declared Mallya a wilful defaulter in October 2015. United Bank of India, against which Mallya has a stay from the Calcutta High Court, and Punjab National Bank have also declared him a wilful defaulter.

WHY MALLYA’S ARREST IS UNLIKELY ANYTIME SOON

• SBI and the consortium of banks primarily interested in recovery of Rs 7,200 crore dues, not Mallya’s arrest
   
• With DRT freezing the money committed by Diageo to Mallya, the banks would focus on other such means to recover money
   
• So far, Mallya has used legal methods to delay proceedings, but has always attended court hearings through his lawyers
   
• Legal experts say as long as Mallya responds to queries by ED, CBI and Sebi, his arrest is not imminent
   
• Moreover, being a Rajya Sabha MP, he can only be arrested with the permission of Deputy Chairman of the Upper House of Parliament