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SBI, others have the last laugh in Kingfisher-Vijay Mallya saga

Why didn't banks go ahead and sell the shares before? That's because there was a court stay that prohibited banks from selling the securities in Mallya's name. Also, there was ED attachment on these assets.

June 23, 2021 / 07:34 PM IST
Malla owed around Rs 10,000 crore to a clutch of Indian banks led by State Bank of India (SBI), if one takes into account the accrued interest component, or even higher.

Malla owed around Rs 10,000 crore to a clutch of Indian banks led by State Bank of India (SBI), if one takes into account the accrued interest component, or even higher.

Five years after liquor king Vijay Mallya flew to United Kingdom and approximately seven years after Rs 9,000 crore of loans given to his grounded Kingfisher Airlines was tagged NPA (non-performing asset), banks have finally managed to make some meaningful recovery from the elusive baron. That's a major victory for the SBI-led bank consortium against a powerful corporate promoter.

On 23 June, as first reported by Moneycontrol, banks recovered Rs 5,800 crore by selling Vijay Mallya's shares in United Breweries to Heineken international. Banks sold 15 percent stake in the company to Heineken. Earlier, banks had sold Rs 1,357 crore worth of shares and are planning to sell Rs 800 crore worth of shares by June 25, according to reports. So far, banks have recovered Rs 7,1 82 crore from Vijay Mallya through the share sales, which is a little over 70 percent of the amount what the liquor King owes to the lenders.

Malla owed around Rs 10,000 crore to a clutch of Indian banks led by State Bank of India (SBI), if one takes into account the accrued interest component, or even higher. Heineken got an open offer exemption from the Securities and Exchange Board of India (SEBI) to buy the additional stake. The development comes after the Competition Commission of India (CCI) on June 21 said it has approved Heineken International BV's proposed acquisition of an additional equity stake in United Breweries (UBL).

As mentioned above, this recovery marks a major turning point in the case.

Ever since Mallya flew to UK, banks are locked in a long legal battle in multiple courts to get their money back.  Most bankers who signed the cheque to Kingfisher have retired from service. Others had lost hope of any meaningful recovery. For them, there is a sense of victory now in the case. With the Government cancelling Mallya's passport in April 2016 and India pushing for an extradition of the businessman, the case had grown beyond a banker-corporate defaulter case. The intense media scrutiny and political comments made the Vijay Mallya case a battle of egos and a political issue.

Close

Mallya's tweets on the case, his vague promises of full repayment to banks and portrayal of himself as a victim of witch-hunt by Indian investigative agencies added to the high drama. “By taking my passport or arresting me, they are not getting any money,” Mallya had told the Financial Times in April 2016 in his first interview after leaving the country on March 2, with seven bags and an unidentified woman to UK and shortly after receiving a Rs 500 crore parting pay from Diageo, after stepping down as the chairman of United Spirits.

Why banks took so long?

Besides SBI, lenders to Kingfisher Airlines include Punjab National Bank, IDBI Bank, Bank of Baroda, Allahabad Bank, Federal Bank, and Axis Bank, among others. These lenders gave loans to Mallya over a period of few years against intangibles like company brand and goodwill and Mallya’s personal guarantee.  Mallya's personal guarantee enabled banks claim the personal assets including equities. But, why didn't banks go ahead and sell the shares before? That's because there was a court stay that prohibited banks from selling the securities in Mallya's name. Also, there was ED attachment on these assets, which made it tough for banks to act.

Since the shares were attached by the ED, banks were not free to sell. However, after a special court designated under the Prevention of Money Laundering Act (PMLA) granted the bank consortium the rights of United Breweries Holdings Ltd (UBHL), which were earlier attached by the ED, banks moved to sell UBHL shares. Also, on June 8, with the Competition Commission of India clearing the proposal of additional stake buy by Heineken in United Breweries, the path became clear.

Prior to this, banks have made repeated attempts to sell the real estate properties and other personal belongings of Mallya to recover money. But, these attempts have not been very successful. In 2017, after three failed auctions, banks have finally managed to sell the Kingfisher Villa in Goa to an actor for Rs 73 crore through a private treaty. In 2019, banks tried to auction ‘Kingfisher House’, the headquarters of Kingfisher Airlines, for the ninth time, unsuccessfully. The reserve price for the property has dropped by about 60 percent. Till now, there has not been success on this. Even if banks manage to sell real estate assets of Mallya, that wouldn't be big considering the low valuation of these assets.

Mallya's extradition still important

Even though banks have managed to sell Mallya's shares and recover a substantial chunk, Mallya's extradition is still key as the baron is being investigated for allegedly defrauding banks using the loan amount. CBI has alleged that Mallya has diverted funds for other activities.

Their probe revealed that after availing loans from IDBI Bank, State Bank of India and other consortium of banks, the accused (Mallya) diverted the sanctioned amounts for purposes other than those avowed to the banks. Giving a specific example, the CBI said an aggregate amount of Rs 263.08 crore, out of loans availed from IDBI Bank in 2009, was diverted for purposes like payment of TDS overdues, lease rentals of corporate jet used by Mallya privately, payment of salaries and others.

Citing another instance, the probe agency said a diversion of Rs 15.90 crore to Royal Challengers Sports Private Limited, a Bengaluru-based based IPL Team, from proceeds of SBI loan in May 2009 has also surfaced. Similarly, there are significant diversions to related parties, associates and entities like Force India Formula One team, it said.

Hence, getting Mallya back to India is not only in connection with banks' loan recovery but also for investigations into the alleged fraud.

But as far as banks are concerned, there is a sense of victory now.. "At least, the money is recovered. Banks couldn't do it because of court stays and ED attachment. This is certainly a victory," said one banker on condition of anonymity.

There is no clarity on when Mallya will get extradited to India yet. Last month, a UK Court upheld an application by a lender-consortium led by SBI to amend their bankruptcy petition, in favour of waiving their security over Mallya’s assets in India. Chief Insolvencies and Companies Court (ICC) Judge Michael Briggs handed down his judgment in favour of the banks to declare there is no public policy that prevents a waiver of security rights, as argued by Mallya’s lawyers.

While extradition is still uncertain, at the end of a long wait, banks have had last laugh in the Vijay Mallya case.
Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Jun 23, 2021 07:22 pm

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