 "Vijay Mallya")
The early signs of the crisis at Kingfisher Airlines were felt in 2009, although the final blow came only in 2012. In November 2009, the now-defunct airline laid off nearly 100 pilots. At the same time, it also reported a net loss for the second quarter, indicating all was not well with the carrier that had set out to create new benchmarks for service standards in India.
By the middle of 2012, it was clear the airline was in deep trouble. Its shares had tumbled to an all-time low, its aircraft had been repossessed for non-payment of lease rentals and a consortium of banks, led by the State Bank of India, had turned down its request for a Rs 200-crore working capital loan.
As the airline's dues for user charges to airport authorities mounted, by October its journey was all but over; it was grounded and its permit cancelled.
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In a bid to recover its money, SBI, the lead banker in a consortium of 17 banks that extended loans worth Rs 9,000 crore to the airline, said the bank was trying to do everything possible to find a solution.
Yet, SBI has been in the process of recovering the dues for over four years now, with little success. To top it all, the consortium has been accused of going easy on Kingfisher Airlines and its promoter, Vijay Mallya.
Anil Sinha, the chief of the Central Bureau of Investigation, has accused the banks of not acting promptly in filing a complaint against Mallya to stop him from leaving the country. Mallya left the country on March 2 and is currently in London.
"Despite our repeated requests, the banks did not file a complaint with CBI," Sinha said. He added that CBI had to register the case on its own initiative. "The question is that the undue delay in identifying and reporting such a fraud has jeopardised the cause of justice to the offender's benefits, giving him the opportunity to divert funds and destroy evidence," he said.
Settlement offer
This perception that banks lacked the courage to take on Mallya is at the heart of their refusal to accept an offer from him early this month to partially settle the outstanding amount. They are now demanding that the liquor baron appear in person for further negotiations.
So far Mallya has offered Rs 4,000 crore and an additional Rs 2,000 crore on the settlement of a legal case after negotiating through a video-conference from London. Of course, this amount is way short of the total outstanding. An SBI executive involved in the case says the settlement offer does not even include the principal amount which is pegged at over Rs 5,000 crore.
There are also other factors behind banks rejecting the offer. "It is not just about making an offer with a better amount. Mallya has to disclose what assets are on the table, how liquid they are and the time line of the repayment," says the SBI executive on condition on anonymity. Both the banks and Mallya have been tight-lipped about the details.
A sticking point in the deal is the Rs 2,000 crore that Mallya has promised to the banks. It relates to a lawsuit filed by Kingfisher Airlines in 2013 before a court in Bangalore against a company for allegedly supplying defective engines for its aircraft. As the outcome of the case is still to be decided, bankers say this is money is not assured.
As far as defaults go, the Kingfisher-Mallya case stands out for many reasons. Normally, banks do not move against promoters as their companies are seen as separate legal entities. As of today, the number of cases filed by banks against defaulters has crossed 12,000 and the sum due has reached over Rs 1.86 lakh crore, according to data from credit rating agency Cibil. Mallya, unlike others, had given a personal guarantee for a part of the loans. Further, there are allegations of loan money having been routed through tax havens abroad for purchase of personal assets.
The Enforcement Directorate told a prevention of money laundering court in Mumbai that close to half of the Rs 900 crore loan from IDBI bank was diverted to purchase properties abroad. The court issued an arrest warrant against Mallya on Monday.
An United Breweries group spokesperson has vehemently denied any wrongdoing. "We are shocked at the allegations made by the Enforcement Department. Multiple investigations have been going on since July 2015 and this allegation has never been made. In order to explain foreign exchange remittances, all of which have been fully accounted for, we will provide full details in the next few days," he said.
Lawyers expect Mallya to challenge this warrant and more details about what happened to the loan would emerge during the course of these proceedings.
| THE STORY SO FAR |
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* United Bank of India declares Kingfisher Airline a ‘wilful defaulter’
State Bank of India and Punjab National Bank declare the airline and its promoter, Vijay Mallya, as ‘wilful defaulters’
* Approach the Supreme Court with a plea to restrain Vijay Mallya
Still a rich man
Mallya still has a formidable personal fortune. However, the ownership of these assets are entangled in multiple corporate entities and trust structures, which are difficult to comprehend. It is also believed his personal properties are jointly owned by the companies he floated overseas. Media reports have talked about houses on both coasts of America, South Africa, London and even an island in the Mediterranean. He is also said to have owned luxury yachts and jets. Some of which have been sold off since.
The Supreme Court has asked for a list of assets owned by Mallya and his immediate relatives. This list is likely to give a clearer picture.
According to BSE data, Mallya owns about 8.08 per cent stake in United Breweries. But, most of these shares are pledged with lenders. Companies controlled by him hold another 22.6 per cent in United Breweries. This stake itself is worth about Rs 6,000 crore. Even accounting for about half of this, which is pledged to lenders, he would still be left with Rs 3,000 crore worth of unencumbered United Breweries shares.
To an extent, it is his personal fortune that has crystallised the opinion of banks against him, with many of them, including SBI, rushing to tag him and two of his companies, United Breweries and Kingfisher Airlines, as 'wilful defaulters' in recent months.
The case is also unique because a host of other investigative agencies, such as the Enforcement Directorate, the Income Tax authorities, the Central Bureau of Investigation and the Serious Fraud Investigations Office have now got involved in the investigations. From bumping up valuation of the airline for more loans to diverting money meant for the airline for other purposes, new angles have emerged in the Kingfisher saga.
Protecting public money
By refusing the offer made by Mallya, SBI and others not only stand a chance to drive a hard bargain on the settlement terms, but also make amends for being "lax" in dealing with him earlier.
Although SBI has refuted any charges of laxity, its progress so far has been lacklustre in recovering the dues. While it has sold Mallya's shares in United Breweries, there has been no meaningful recovery from other assets pledged by him.
Last year, SBI put Kingfisher Airlines's headquarters in Mumbai on the block, but the auction failed to get even a single bid. The airline's brands and trademarks have also not found any takers so far.
Banks have now filed an application before the Goa bench of the Bombay High Court for permission to seize the Kingfisher Villa in Candolim. The Kingfisher Villa, named after United Breweries's popular beer brand, is part of the collaterals pledged by Mallya.
While banks are in favour of a negotiated settlement, they don't want to take Mallya at his word. As he faces a huge trust deficit with shareholders, employees and courts, they want him to be present in person during meetings to make sure he is making "bonafide gestures."
"There should be face-to-face communication between the airline and lenders and banks should be cautious not to allow delay tactics from Mallya," says the SBI official.
The public interest in the case has put banks under pressure too. "This settlement is being dealt in the most transparent manner due to pressure from the public. So we have a stake in getting the maximum amount in dues through negotiations," says an IDBI Bank official.
