BMT5121 CORPORATE GOVERANCE AND ETHICS

DIGITAL ASSIGNMENT 3

A CASE STUDY ON DOWNFALL OF KINGFISHER AIRLINES

SUBMITTED TO

DR.BHANU SREE REDDY D

PROFESSOR HIGHER ACADEMIC GRADE (GENERAL MANAGEMENT)

SUBMITTED BY

A SRI SNIGDHA 20MBA0003

CHITTESH ANTON 20MBA0031

JEFFREY A 20MBA0038

BARANIKUMAR N 20MBA0067

KAAVYAA R 20MBA0131
 TOO BIG TO FAIL , TOO BIG TO SAVE

The Cases against Vijay Mallaya and Kingfisher

Airlines

Enforcement Directorate CBI case on IDBI Bank loan to Kingfisher

case on money
laundering Airlines:- Prevention of Corruption Act, 1988

GMR Case
Service Debt
Provident Hyderabad regarding
tax recovery
fund Airport AAI case non
evasion tribunal
investigation cheque payment case
case
bounce case of TDS

Figure 1: The Cases against Vijay Mallaya and Kingfisher Airlines

Enforcement Directorate case on money laundering

What happened?
 Fugitive liquor baron Vijay Mallya used Kingfisher Airlines to launder as
much as Rs 9,990Cr , the Enforcement Directorate's (ED) latest charge sheet
against the embattled tycoon has claimed.

 In its prosecution complaint filed , the ED has named Vijay Mallya as the
prime accused in the case, with Kingfisher Airlines Ltd (KAL) and United
Group 4 Page 1
 Breweries Holdings Ltd (UBHL) being parties to the crime. The agency has
constituted charges against them under sections of the Prevention of
Money Laundering Act (PMLA), 2002.

 In the chargesheet, Mallya has been accused of generating the proceeds of

crime (POC), laundering same, and then concealing and using it. The money
laundering law defines POC as any property obtained directly or indirectly
via a criminal activity.

Who were affected?

Bank Loan Exposure to Kingfisher Airlines

2000 (In Crores)
1600
1500

1000 800 800

650 603
550
430 410
500 320 310
150 140 90 60 50
0
SBI PNB IDBI
Bank of India Bank of Baroda United Bank of India
Central Bank UCO Bank Corporation Bank
State Bank of Mysore Indian Overseae Bank Federal Bank
Punjab and Sind Axis Bank Other 3 banks

Figure 2 : Bank loan Exposure to Kingfisher Airline (Red arrow Indicating the CBI
Case between IDBI & KAP)

What did ED conclude?

The ED has said that Mallya is liable for three to seven years of rigorous
imprisonment and up to Rs five lakh in fines for cheating over Rs 9,990 crore and
laundering the proceeds of crime.

Group 4 Page 2
 “If you owe the bank $100, that’s your problem. If you owe the bank $100
million, that’s the bank’s problem,” --- J Paul Getty

2) CBI case on IDBI Bank loan to Kingfisher

Who were involved?
 Yogesh Aggarwal (former chairman of IDBI Bank), BK Batra, OV Bundellu,
SKV Srinivasan and RS Sridhar (all IDBI Bank officials)
 From Kingfisher Airlines - A Raghunathan (former chief finance officer),
Shailesh Borkar, AC Shah and Amit Nadkar

What happened ?

• In July 2015, FIR filed by the CBI against Mallya revealed that officers of IDBI
Bank had showed undue favour to Kingfisher Airlines in sanctioning Rs 900
1 crore loan
• CBI had exposed how bank officials and KFA colluded and Mallya misused
the loan amount & diverted all to abroad on false claims.

• Raghunathan referred to a meeting between Mallya and Aggarwal in a

letter dated October 6,'09, and requested the bank to lend the airline
Rs 150 crore for six months to pay overseas vendor.
2 • A memorandum was put up to the credit committee and the loan was
sanctioned despite the company having a negative net worth and not
satisfying the corporate loan policy of the bank. The credit committee
comprising Batra and Bundellu sanctioned the loan on October 7, '09

• Raghunathan, again referring to Mallya's meeting with Agarwal, also sought

an ad hoc release of Rs 200 crore. The proposal was put up to the corporate
banking head, Batra, who recommended that the bank's CMD could
approve it. A few days later, on November 4,'09 - IDBI Bank sanctioned a
3 short-term loan of Rs 200 crore, subsumed in the total loan.
• As per the CBI report, these loans were disbursed while
the original proposal for a corporate loan of Rs 950 crore
was pending.

Group 4 Page 3
What did CBI Conclude?
 The CBI observed that the loans were approved by accepting as security the
hypothecation and assignment of the Kingfisher brand, aircraft finance
lease, a corporate guarantee from United Breweries Holdings and a
personal guarantee from Mallya.

 The report concluded saying, "A major chunk of the funds transferred to
Axis Bank were used for foreign remittances towards lease rentals,
purchase of aircraft parts, etc. Since these remittances have gone outside
the country, further inquiry can only be made by sending Letter Rogatory
(LR) for foreign investigation."

 In connection with Vijay Mallya's Rs 900 crore Kingfisher Airlines (KFA) loan
case, the Central Bureau of Investigation (CBI) has arrested nine individuals
on charges pertaining to criminal breach of trust, criminal conspiracy and
criminal misconduct.

3) Service tax evasion case

What happened?

 Prosecution is definitely a provision there in the Act. And that decision of

taking action on Kingfisher owner for not paying service tax arrears will be
taken by the concerned commissioner," - Central Board of Excise and
Customs

 There were several show-cause notices which are in the process of

adjudication," after Finance Minister P Chidambaram released a booklet on
FAQ’s on a voluntary compliance encouragement scheme for service tax.

Details about the Pending Tax amount

 The grounded airline owes about Rs 190 crore to the service tax department,
of which Rs 127 crore is under litigation as of December 2012 .

Group 4 Page 4
What did Service Tax Department conclude?

Section 91, which was incorporated in this year's Finance Bill, provides power to
arrest a person for non-payment of collected service tax by an officer not below
the rank of Superintendent of Central Excise .

 The Bill, which was passed on May 10, imposes a penalty on a person or
company liable to pay service tax and fails to take a registration number
from the government.

 The service tax department had seized three aircraft of Kingfisher Airlines,
including a 62-seater ATR, for non-payment of dues.

4) Provident fund Investigation Issues

What happened?
 An open letter written by women employees of KFA recently alleged that
the company did not pay salaries, but kept depositing PF due to fear of
action from the authorities.

Employees Opinion
 Former Kingfisher Airlines (KFA) pilot Captain Kedar Wagh said the defunct
company owes him Rs 45 lakh towards his salary dues.

 We are trying to form a group and approach the Supreme Court seeking
justice. We have received positive responses from over 900 former
employees. We are in the process of gathering more (employees on the
platform)," Wagh said

Group 4 Page 5
Government Spending
 We (EPFO) have invested approximately ₹ 5,000 crore in exchange-traded
funds. For the first six or seven months, returns appeared to be better.
After that, for two or three months, we don't see it as encouraging

Figure 3 : Salary Scam

5) GMR Hyderabad Airport cheque bounce case

What happened?
 The court was hearing the petition against liquor baron Vijay Mallya, who
was convicted in two cheque bounce cases filed against him by the GMR
Hyderabad International Airport Ltd.

 On April 20, the Special Magistrate Court in Hyderabad had convicted

Mallya and others in connection with bouncing of two cheques of Rs. 50
lakh each under relevant Sections of Negotiable Instruments Act and

Group 4 Page 6
 adjourned for May 9 the matter to pronounce the quantum of punishment
as Mallya, who left the country, was not present in the court.

Figure 4 : Cheque Bounce (GMR)

6) AAI case
What happened?

 The Airports Authority of India (AAI) has moved a Mumbai court seeking a
proclamation against Vijay Mallya, chairman of UB Group, in connection
with two cases of cheque bouncing of over Rs 100 crore.

Section 138 of Negotiable Instruments Act 1881

"Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any
cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned by the bank
unpaid, either because of the amount of money standing to the credit of that account
is insufficient to honour the cheque or that it exceeds the amount arranged to be paid
from that account by an agreement made with that bank, such person shall be
deemed to have committed an offence and shall, without prejudice to any other
provision
Group 4 of this Act, be punished with imprisonment for Page 7
  According to the AAI statement, the NBWs issued were not executed on
account of remark “received back unexecuted as the accused is not residing
at the address mentioned in the warrant and it was further reported to
have fled to United Kingdom”. Mallya, according to AAI, owes over Rs 250
crore to the authority.

7) Case regarding Non payment of TDS

What happened?
 A seven-month backlog in unpaid salaries is not the only menace Kingfisher
Airlines staff is grappling with these days. In a double whammy to
Kingfisher's employees, the income-tax department has begun sending out
notices directing them to clear tax liabilities, which run into several lakhs.

 While the bankrupt airline, by not depositing the TDS, or tax deducted at
source, still owes over Rs 60Cr in taxes to the government, the employees,
who are already grappling with a cash crunch due to unpaid salaries for the
past seven months.
Section 205 of the Income Tax Act, 1961

Provides a safeguard to employees/deductees, when employers don't deposit

the TDS to the central government. The Section bars direct demand on the
employee and reads, "Where tax is deductible at the source, under the
foregoing provisions of this Chapter, the assessee shall not be called upon to
pay the tax himself to the extent to which tax has been deducted from that
income."

 Kingfisher had deducted TDS from employees account but failed to transfer
the same to the government. In June 2011, the last TDS was received from
KFA. The I-T department has served them notice as the arrears were over
300 crore for the last two years. The department tried reaching KFA
management on the same. But the management did not respond to the tax
department's

Group 4 Page 8
Interestingly, the airline owner Vijay Mallya, who is said to be abroad, has not
been heard of since October 2, when the airline got grounded due to a protest by
Employees for non payment of salaries.

8) Debt recovery tribunal case

What happened?
 Vijay Mallya-controlled Kingfisher Airlines Ltd and United Breweries
(Holdings) Ltd on Thursday filed objections against allegations made by the
State Bank of India (SBI) before a Debt Recovery Tribunal (DRT), where
India’s largest lender is trying to recover ₹ 9,000 crore from the indebted
businessman.

 The case gathered steam after Mallya’s $75 million deal in February. SBI
filed four interlocutory applications on 2 March seeking Mallya’s arrest,
impounding of his passport, disclosure of all assets and liabilities and
stopping the $75 million payout by Diageo.

What did they conclude?

 Later, Diageo settled the guarantee with Standard Chartered and fully
provided for the $135 million principal amount outstanding under the
facility in its results for the six-month period ended 31 December 2015.

 In aggregate, Diageo paid Standard Chartered approximately $141 million

under this guarantee, including the $135 million principal amount, as well
as payments of default interest and various expenses.

Group 4 Page 9
 Figure 5: Funds Siphoning Off Nexus In The Mallya Loan Case

10000
Analysis of Balance sheet 7651.81
8000 5289.34
5822.37
4747.51 6314.96 5823.91
5868.07
6000
4734.62
4000 1781.46

2000 1569.9

0
FY 08 FY 09 FY 10 FY 11 FY 12
-188.14
-2000 -1027.4
-1609.83 -1647.22
-2328.01
-4000
Income Expenditure Profit

Figure 6: Analysis of Balance sheet ( Source: Moneycontrol)

Note : Values are displayed in Crores (Figure 6)

Group 4 Page 10
Could Mr Mallya or anyone else allegedly pull off such a heist
without the connivance of the famous ABC: auditors, bankers,
consultants?
Funds diversion of Rs2,100 crore during 2010 and 2013 from United
Spirits Ltd (USL), the flagship company of UB group owned by Mr
Mallya, was detected as far back as in 2014 by a forensic team of
PricewaterhouseCoopers (PwC), UK.
Apparently, the alleged diversion
Interestingly, PwC were the Rs2,100 crore was not was not
auditors of USL till 2010-11. significant enough to catch the
Thereafter the audit was attention of the ministry of
done for some time by corporate affairs (MCA)
Walker, Chandiok & Co, a
member firm of Grant MCA alone is not the indulgent
Thornton and then by BSR one. The Institute of Chartered
Raut & Co who finally Accountants (ICAI) will beat it
raised some red flags hands down any day.

Dr Kirit Somaiya, member of ICAI’s bluff to the MP was

Parliament (MP), wrote a letter on
21 March 2016 insisting that ICAI,
MCA, Securities and Exchange
Board of India (SEBI), Reserve Bank
of India (RBI), Enforcement
Directorate (ED), Central Bureau of
Investigation (CBI) and bankers
exposed by an RTI query .
Three months later, ICAI did
not even know the names
of the auditors of USL, let
alone investigate their role.

ICAI’s response also exposed

that Joint Parliamentary
Committee (JPC)’s
recommendations for action
against PwC in the GTB scam
had been pending for
implementation for the last
fourteen years.
GTB, and USL are not the
only cases languishing with
ICAI whose top
management is deemed to
be public servants within
the meaning of section 21
of the Indian Penal Code
(IPC)

Group 4 Page 11
The measures taken by the Indian Government in these
fraudulent cases against the management of Kingfisher and
united breweries

CASE 1 : Enforcement Directorate case on money laundering

 The ED has said that Mallya is liable for three to seven years of rigorous
imprisonment and up to Rs five lakh in fines for cheating over Rs 9,990
crore and laundering the proceeds of crime

CASE 2 : CBI case on IDBI Bank loan to Kingfisher

 In connection with Vijay Mallya's Rs 900 crore Kingfisher Airlines (KFA) loan
case, the Central Bureau of Investigation (CBI) has arrested nine individuals
on charges pertaining to criminal breach of trust, criminal conspiracy and
criminal misconduct

CASE 3 : Service tax evasion case

Section 91, which was incorporated in this year's Finance Bill, provides power to
arrest a person for non-payment of collected service tax by an officer not below
the rank of Superintendent of Central Excise

 The service tax department had seized three aircraft of Kingfisher Airlines,
including a 62-seater ATR, for non-payment of dues.

CASE 4 : Case regarding Non payment of TDS

 An FIR was thus registered against Mallya, against whom a non-bailable
warrant has been registered on two separate counts of check bounce,
fraud, and non-payment of loan.

Group 4 Page 12
  The Indian authorities are trying to get Mallya deported to India from the
United Kingdom, where he went on 2 March. His passport is under
temporary suspension and the Ministry of External Affairs is roping in
multiple agencies to bring him back to the country.

CASE 5 : Debt recovery tribunal case

 In March last year, SBI moved DRT for a second time to seek an arrest
warrant against Mallya, revocation of his passport, details of his assets and
liabilities as well as an order to seize a $75 million payout made to him by
spirits maker Diageo Plc. The money, $40 million of which has already been
paid to Mallya, was in return for him stepping down as chairman of United
Spirits Ltd, which the UK-based company acquired from the businessman.

Group 4 Page 13
Conclusion
 Indian airline business has seen ideal growth and revolution which will go
on in coming years. Many airlines come and go while the others have
gained a strong ground in this business. The grand and ambitious Kingfisher
Airline’s project suffered huge downtime due to improper strategic
decisions and mismanagement by the group. Instead of trying to utilize this
grand airline project opportunity, Vijay

 Mallya focused to achieve a glamorous status. The airline became for the
luxurious design, food and ambience including big goals for settling in
international market but neglected the basic economic class. The strategy
practiced by Vijay Mallya could not sustain for long and proved to be a
great threat at a large scale to both, sustainability and stabilization of the
aviation sector. Mallya is now the only board member left holding on to the
brand.

 For a business to be successful the main focus should be on creating an

efficient work-frame, taking appropriate decisions, establishing healthy
competitive environment, improving quality of service and standing in
unity to find best solutions to problems.

Group 4 Page 14
Reference
 https://economictimes.indiatimes.com/blogs/Myth-n-Reality/kingfisher-
airlines-too-big-to-fail-too-big-to-save/

 https://www.businesstoday.in/current/economy-politics/exclusive-vijay-
mallya-used-kingfisher-airlines-to-launder-rs-9990-crore-ed-
chargesheet/story/279389.html

 http://www.cbi.gov.in/pressreleases/pr_2020-04-20-1.php

 https://www.indiatoday.in/india/story/vijay-mallya-kfa-idbi-bank-cbi-
arrests-956722-2017-01-24

 https://economictimes.indiatimes.com/industry/transportation/airlines-/-
aviation/vijay-mallya-may-face-prosecution-for-not-paying-service-tax-
arrears/articleshow/21711639.cms

 https://www.ndtv.com/india-news/kingfisher-airlines-provident-fund-
contributions-to-be-probed-labour-minister-1286732

 https://www.cartoonstock.com/directory/b/bouncing_check.asp

 https://www.freepressjournal.in/cmcm/hyderabad-court-to-hear-
kingfisher-cheque-bounce-case

 https://indianexpress.com/article/business/companies/vijay-mallya-
cheque-bounce-case-airports-authority-of-india-kingfisher-airlines-debt-
4887642/

 https://indianexpress.com/article/business/companies/vijay-mallya-
cheque-bounce-case-airports-authority-of-india-kingfisher-airlines-debt-
4887642/

 https://xedknowledge.com/Coverstory_Demo.aspx?id=0NRHZkXXN5NxZLld
InOjLA%3D%3D

Group 4 Page 15
  https://www.livemint.com/Companies/RPONCTtSvBnietlRa86p5H/Vijay-
Mallya-case-Debt-recovery-tribunal-to-hear-SBI-plea-t.html

 https://www2.slideshare.net/manish_022/kingfisher-airlines-financial-crisis

 https://www.moneylife.in/article/auditors-and-bankers-as-guilty-as-vijay-
mallya/55309.html

 https://www.thehindu.com/business/companies/the-rise-andfall-of-a-
castle-in-the-air/article2622215.ece.

 Panigrahi A, Sinha A, Garg A, Mehta A. A case study on the downfall of

kingfisher airlines. J Manag Res Anal 2019;6(2):81-4.

 Air Deccan is now Kingfisher Red - Times of India

 Strategic Mistakes That Led To The Failure Of Kingfisher Airlines

Group 4 Page 16