CORPORATE GOVERNANCE

Ankita Sinha
DM21C10
Marketing+Operations
 facts
Kingfisher Airlines was an Indian airline company founded by Vijay Mallya in 2005. The airline was grounded in 2012 due
to financial troubles, and Mallya left the country in 2016 to avoid prosecution for various financial crimes, including the
Kingfisher Airlines fraud case. Here are some key facts about the case:

1.The Kingfisher Airlines fraud case is a loan default case, where the airline company took loans from various banks and
failed to repay them. The total amount of loans taken by Kingfisher Airlines was around Rs. 9,000 crore (approx. $1.2 billion
USD) from various banks in India.
2.The loans were taken between 2005 and 2010, and the airline started defaulting on payments in 2011. The banks declared
Kingfisher Airlines as a non-performing asset (NPA) in 2012.
3.The Central Bureau of Investigation (CBI) registered a case against Vijay Mallya and other Kingfisher Airlines officials in
2015 for cheating and criminal conspiracy. The Enforcement Directorate (ED) also registered a case against Mallya for
money laundering.
4.In 2016, Vijay Mallya left India and moved to the UK to avoid prosecution. The Indian government has been trying to
extradite him from the UK ever since.
5.In 2018, a UK court ruled that Vijay Mallya could be extradited to India to face charges of fraud and money laundering.
However, Mallya has appealed the decision and is currently fighting his extradition in the UK courts.
6.In 2020, a special court in Mumbai declared Vijay Mallya a fugitive economic offender under the Fugitive Economic
Offenders Act, which allows the government to confiscate his assets in India.
7.The Kingfisher Airlines fraud case is one of the biggest financial frauds in Indian history and has been a major
embarrassment for the Indian banking system. The case has also highlighted the need for stricter regulations and oversight of
the banking sector in India.
 Issues
The Kingfisher Airlines fraud case raised several issues and concerns related to corporate governance,
banking practices, and the legal system in India. Here are some of the major issues highlighted by the case:

1.Corporate governance: The case raised questions about the role of corporate governance in ensuring the
proper functioning of companies. Kingfisher Airlines' management was accused of misusing funds, falsifying
accounts, and not disclosing crucial information to stakeholders.

2.Banking practices: The case exposed the lax lending practices of Indian banks, which gave loans to
Kingfisher Airlines despite the company's poor financial condition. The banks were also accused of not taking
appropriate measures to recover the loans, which resulted in a huge loss to the Indian banking system.

3.Regulatory oversight: The case highlighted the need for better regulatory oversight of the airline industry and
the banking sector. The Indian government was criticized for not taking appropriate measures to prevent fraud
and financial irregularities in these sectors.

4.Legal system: The case brought to the forefront the challenges faced by the Indian legal system in dealing
with white-collar crimes. The slow pace of trials, the lack of adequate laws to deal with financial frauds, and the
difficulties in extraditing accused persons from foreign countries were some of the issues highlighted by the
case.
 Judgements
Kingfisher Airlines was an Indian airline that operated from 2005 to 2012. In 2012, the airline was grounded due to
financial difficulties, and its founder, Vijay Mallya, was accused of fraud and money laundering.

In January 2021, a UK court ordered Vijay Mallya's extradition to India to face charges of fraud and money
laundering related to Kingfisher Airlines. Mallya was accused of fraudulently obtaining loans from Indian banks and
using the funds for purposes other than those for which the loans were sanctioned. The loans amounted to around $1.4
billion, and Mallya was alleged to have diverted a significant portion of the funds to other companies he owned.

In May 2021, the Indian government received a boost in its efforts to recover the money owed by Mallya to the banks
when the UK High Court dismissed his appeal against the extradition order. The High Court ruled that there were no
legal grounds for Mallya to challenge his extradition and that he should be sent back to India to face the charges
against him.

Therefore, as of my knowledge cutoff date of September 2021, Vijay Mallya's extradition to India was upheld by the
UK High Court, and he was set to face charges of fraud and money laundering related to Kingfisher Airlines.
 Learnings
The Kingfisher Airlines fraud case has several important learnings for businesses, regulators, and the wider public.
Some of these are:

1.Importance of transparency and accountability: The Kingfisher Airlines case highlights the importance of
transparency and accountability in business operations. The airline's founder, Vijay Mallya, allegedly obtained loans
from banks and diverted them for other purposes, which led to the airline's financial collapse. This case underscores
the need for businesses to be transparent about their operations, finances, and intentions, and for regulators to ensure
that businesses are held accountable for any violations.

2.Need for effective corporate governance: The Kingfisher Airlines case also highlights the importance of effective
corporate governance in preventing fraud and malpractices. It is important for companies to have robust internal
controls, independent audits, and a culture of ethical conduct to prevent fraudulent practices.

3.Responsibility of banks and lending institutions: The Kingfisher Airlines case also highlights the responsibility of
banks and lending institutions to conduct proper due diligence before extending loans. In this case, the banks
allegedly failed to conduct adequate due diligence, leading to the loan defaults and subsequent fraud. This case
underscores the need for banks and lending institutions to exercise prudence in lending and to ensure that borrowers
are creditworthy and have the capacity to repay.
 Interpretation
• The Kingfisher Airlines fraud case was a complex case that involved
allegations of fraud and money laundering by the airline's founder, Vijay
Mallya, and several banks that had extended loans to the airline. The
case highlights the need for transparency, accountability, and effective
corporate governance in business operations.
• From one interpretation, it appears that Vijay Mallya allegedly obtained
loans from banks by providing false information and using the funds for
purposes other than those for which the loans were sanctioned, resulting
in significant losses to the banks and the public. Mallya also allegedly
diverted a significant portion of the loan funds to other companies he
owned, which contributed to the airline's financial collapse.