A financial settlement with Mallya will give confidence to businessmen who have had serious financial fraud charges against them that they can buy their way out of a jail term.
For the self-proclaimed "poster boy" of Indian bank default, redemption can’t come just by way of a financial settlement. Vijay Mallya should also answer to charges of financial crime and face the court of law.
The liquor baron has filed an application with the Karnataka High Court offering to sell assets – a significant portion of which have been frozen – in an effort to settle with creditors.
The liquor baron’s hand seemed to have been forced by a couple of legal setbacks. Last week, the enforcement directorate moved an application with a special court seeking to declare Mallya a fugitive economic offender under a new law.
In May, a consortium of Mallya’s lenders convinced a London court to enforce a debt recovery tribunal ruling that sought to freeze his assets worldwide. So, in a sense, he has made a virtue out of a necessity.
In his statement to the media, Mallya said that he had previously offered to settle with banks but they had rejected the offer. However, his earlier offers amounted to 80% of principal owed to banks who knew that Mallya had the wherewithal to pay back the entire loan.
Indeed, the UK lawyers appearing for Indian banks cited a 2-million-pound (around Rs 18 crore at current rates) birthday party hosted by the industrialist in exile as one of the reasons for the rejection.
Secondly, Mallya has argued that his offers to settle should be viewed in the context of one-time settlement offers made by banks previously and also the large sacrifices on dues they have taken under India’s new bankruptcy law. That comparison doesn’t really wash.
Sure, not all promoters are clean, but most of the cases which have gone to bankruptcy court are those where the business failed and the banks are trying to resolve the cases by finding new buyers.
In Kingfisher Airlines’s case too, the business took a nosedive owing to a variety of factors including rising crude prices, but forensic audits have found instances of fund diversion. That also resulted in banks classifying Mallya and his firm as willful defaulters.
Given that Mallya has assets in excess of the Rs 9,000 crore owed to banks, why should creditors take any haircut at all? In any case, the bankruptcy court resolutions don’t necessarily set a benchmark for recoveries.
It is very well for Mallya to say that his case has been politicised and he is a victim of a “witch hunt” especially since one of the focus areas of the current government is to weed out crony capitalism.
But so far, they have only been accusations and chargesheets that have been filed by the investigative agencies. Mallya is well within his rights to plead not guilty. This is an area where the courts should rule.
The point, however, is that with all these accusations, settlement or closure is not restricted to a financial transaction anymore.
As Zulfiqar Memon, founder of MLM Legal and a specialist in white-collar crime, puts it: “A person accused of financial embezzlement, fraud and money laundering cannot be let go scot-free merely by offering a financial settlement. Aspects of criminality and violation of the Indian Penal Code / PMLA will have to be taken into consideration and cannot be avoided."A financial settlement with Mallya is fraught with moral hazard. It will give confidence to businessmen who have had serious financial fraud charges against them that they can buy their way out of a jail term.