From Bang to Bust : The Kingfisher Debt Crisis

Introduction:
Vijay Mallya once called the "King of Good Times" owned India’s biggest liquor company, a
private jet, an Airbus and many other riches. Due to his extravagant lifestyle, Mallya and his
companies have been embroiled in financial scandals, and controversies since 2012.
Business Insight:
Mallya became the Chairman of United Breweries Group in 1983 at the age of 28, following
his father's death. Since then, the group has grown into a multi-national conglomerate of over
60 companies. Over the years, he has diversified and acquired Berger Paints, Best and
Crompton in 1988; Mangalore Chemicals and Fertilisers in 1990.
United's Kingfisher beer has more than a 50% market share in India's beer market. The beer
is available in 52 countries outside India and leads among Indian beers in the international
market United Spirits Ltd, the flagship company of the UB Group, achieved the historic
milestone of selling 10 crore (100 million) cases, becoming the second-largest spirits
company in the world by volume under Vijay Mallya's chairmanship.
Kingfisher Airlines, established in 2005, was a major business venture launched by Mallya. It
eventually became insolvent and had to be closed down. As of October 2013, it had not paid
salaries to its employees for 15 months, had lost its license to operate as an airline, and owed
more than US$1 billion in bank loans.
The Legal Action:
In February 2015 Mallya was forced to resign as Chairman of United Spirits, and he
contracted to receive a $75 million severance payment as part of that deal, but the courts in
India have blocked that payment.
By November 2015 the amount owed to the banks had grown to at least $1.35 billion, and
there were other debts owed for taxes and to numerous small creditors. As part of the
Kingfisher collapse, Mallya is accused of being a "willful defaulter" under Indian law,
including accusations of money laundering, misappropriation, etc.
In March 2016, a consortium of banks approached the Supreme Court of India to stop Mallya
from going abroad due to the pending money his companies owed them. As per media
reports, he had already left India. On March 13, 2016 a court in Hyderabad issued a non-
bailable warrant for Mallya's arrest, but it appears he is remaining at his country estate near
London, England, while his lawyer contests the warrant with a higher court. On 18 April
2016, a special court in Mumbai also issued an undated non-bailable Arrest warrant against
the businessman.
This was issued in response to a plea by the Enforcement Directorate on April 15 before the
special court hearing cases under the Prevention of Money Laundering Act, 2002. There were
allegations on him that he transferred ₹4,000 crore Indian rupees to tax havens.
The enforcement directorate’s (ED) argument that it has found a huge sum of money was
salted away to abroad from the Rs 900 crore IDBI loan, strong enough to stand in the court of
law? There have been several cases in which the ED makes tall claims that fall flat in the
court of law. This is the precise reason why the success rate of the ED is very low.
Till March 2, 2016 when Mallya took flight abroad, the CBI had been deliberately keeping
the case at a very low profile. Mallya was returning to India quite frequently and appearing
before the agency to assist in the investigation. The case is learnt to have become high-profile
when a top official of the PMO started getting routine briefings from chiefs of the CBI and
ED regularly and gave directions to launch a vigorous campaign.
Proposal of Vijay Mallya
Kingfisher Airlines Chairman Vijay Mallya has offered to pay banks Rs. 4,000 crore as
partial settlement of the carrier’s debts and indicated to the Supreme Court that the
atmosphere in India was too vitiated for him to immediately return.
The proposal, submitted to the court in a sealed cover on behalf of Mr. Mallya and Kingfisher
Airlines, includes an assurance to pay Rs. 4,000 crore by September to a consortium of banks
led by the State Bank of India.
The lender consortium’s lawyers later said that the proposal also mentioned further payment
of more than Rs. 2,000 crore, subject to the outcome of a pending suit filed by Mr. Mallya’s
businesses.
Questions for Consideration:
i) Did the government act in haste by revoking Mallya’s passport even before
gathering foolproof evidence in this case?
ii) Does the ED have strong evidences against Mallya that would stand in the court of
law?
iii) On What basis did the RBI even clear the restructuring of Kingfisher?
iv) How will the banks recover their money?
Conclusion
Mallya’s case is unique in the Indian banking industry in many ways. Arguably, in the history
of Indian banks, there has not been an individual who managed to take some 17 banks for a
ride for almost half a decade, challenging them publicly by throwing lavish parties and
dragging lenders to court rooms and delay repayments on technical grounds.
Banks were clearly generous to Mallya in extending loans and have equally clearly failed to
monitor the end-use of money in the initial stage. The role of bankers involved in the credit
appraisal process should be investigated and those violated the rules should be punished.

It’s a good sign that banking system, neck deep in bad debt (Rs 400,000 crore at last count),
has finally woken up to take on the ‘rich and powerful’ . This is even more critical given that
the RBI has set a March, 2017 deadline for banks to disclose all bad assets that will result in
substantial capital burden on state exchequer (70 per cent of banking industry is controlled by
government banks.
An all out battle against wilful defaulters by the RBI, banks and government can end the
season of daylight bank-robbery by crony promoters. Taking down Mallya is only the
beginning.