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UK judge rules appeals petitions by Vijay Mallya, banks to be heard together

Whatever be the outcome, the matter will likely be appealed again by the losing party.

June 28, 2022 / 02:51 PM IST
Vijay Mallya is seeking permission to appeal the bankruptcy order, claiming, among other things, that the ‘Restoration Orders’ were not conditional payments, and must be treated as payment towards the petition debt. (File image)

Vijay Mallya is seeking permission to appeal the bankruptcy order, claiming, among other things, that the ‘Restoration Orders’ were not conditional payments, and must be treated as payment towards the petition debt. (File image)

On the morning of June 27, the proceedings before Justice Thomas Leech of the high court in London provided a glimpse of the extraordinary complexity that surrounds fugitive Indian businessman Vijay Mallya’s bankruptcy case.

Twelve Indian state-owned banks and an asset restructuring company led by State Bank of India have been pursuing Mallya in England since 2017 to recover debt of over £1 billion (about Rs 9,662 crore), including interest, as of July 2021. The five-year journey has been a tug-of-war, with every possible arguable point challenged by the aggrieved party.

Mallya, one of the guarantors to loans advanced to his now-defunct Kingfisher Airlines, left for the UK on March 2, 2016, hours before banks went to the Supreme Court to seek his detention and immediate repayment of outstanding loans. In 2020, he lost appeals against his extradition to India to face fraud and money laundering charges. The UK government later said Mallya could not be sent back to India until a confidential legal matter is resolved.

The matter before Justice Leech was to decide the order in which the court should hear three appeals arising from Mallya’s bankruptcy proceedings – two by Mallya and one by the banks.

Richard Hill, representing Mallya, asked the court to hear all the three appeals together, while Marcia Shekerdemian, representing the banks, proposed that the court should hear each appeal separately, with a 35-day lag. In a short ruling soon after the arguments got over, Justice Leech concluded that the banks’ approach was not cost-effective, and ordered that the three appeals should be heard together, as proposed by Mallya.

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During the arguments, Hill had characterised the banks’ approach as going into “Alice in Wonderland territory” and had said that it amounted to “overcomplicating,” which would cause more delays. The court was told that Mallya is eager to “undo the reputation harm” due to the bankruptcy order.

However, Shekerdemian had earlier told the court that the hearing was originally scheduled in March, which was adjourned by consent because Mallya had funding issues and hence it was listed in June.

To understand what these three appeals are, it is pertinent to give a brief background to the bankruptcy proceedings. In November 2017, the banks managed to get a worldwide freeze order against Mallya following the successful registration of the January 2017 judgment of the Debt Recovery Tribunal (DRT), Bangalore, in the UK.

Very soon, Mallya was set a monthly living expense limit of £22,500 and was unsuccessful in striking down the freeze order. However, he continued to successfully thwart attempts to have him declared bankrupt due to a variety of issues. In between, he continued to approach the courts seeking release of funds with the court receiver to meet legal and living expenses with mixed results.

On July 26, 2021, Chief Insolvency and Companies Court Judge Michael Briggs finally declared Mallya bankrupt. The multiplicity of issues and several points that emerged through the proceedings have now converged around three appeals. The first one is the banks’ appeal, while the last two are appeals sought by Mallya.

Security issue appeal

After the first substantive hearing related to the bankruptcy proceedings in December 2019, Judge Briggs ruled that the banks are secured creditors and hence Mallya cannot be declared bankrupt.

The judge noted: “A bankruptcy order should not ordinarily be made where the petition is defective as a result of such a breach. The breach is capable of cure by amendment.”

But the judge did not agree with Mallya that the bankruptcy petition be dismissed because the banks were not completely secured. At that time, there was a possibility of a compromise (sanctioned by an Indian court) and hence the bankruptcy petition was adjourned for six months so that the banks could make the amendment and also allow time to see whether the debt could be paid.

The banks, however, appealed against the judge’s conclusion that they are to be treated as secured creditors and that the petition requires amendment.

Petition amendment appeal

In May 2021, Judge Briggs ruled that the banks could amend their petition, stating that they would give up security over Mallya’s Indian assets in the event of the bankruptcy petition succeeding. Mallya countered that the court should not allow the amendment to be made. But Judge Briggs held that the banks cannot be barred from relinquishing security if it is in their commercial interest to do so.

Accordingly, the banks were allowed to amend their petition: “The petitioners having the right to enforce any security held are willing, in the event of a bankruptcy order being made, to give up any such security for the benefit of all the bankrupt’s creditors.”

Two retired Supreme Court judges, Justice Deepak Verma (on behalf of Vijay Mallya), and Justice Gopala Gowda, (on behalf of banks) gave evidence.

Mallya has applied for permission to appeal against the decision allowing the banks to amend their petition.

Bankruptcy order appeal

In an extempore judgment, Judge Briggs declared Mallya bankrupt on July 26, 2021, and also declined to stay the order. Mallya had asked that the petition be dismissed or adjourned because the principal debt has been paid due to realisation of assets and because the banks had obtained “Restoration Orders” in relation to assets over which they had security interests but were previously attached by the Enforcement Directorate.

Mallya is seeking permission to appeal the bankruptcy order claiming, among other factors, that the “Restoration Orders” were not conditional payments and must be treated towards the payment of the petition debt.

Now that the three appeals will be heard together before a single judge, it means that whatever be the outcome, the matter will again be appealed by the losing party. Thousands of documents and perhaps a couple more retired Supreme Court judges could give evidence in this legal saga that refuses to end and has racked up a small fortune in legal bills.
Danish Khan is a London-based independent journalist and author of 'Escaped: True Stories of Indian fugitives in London'. He is researching Indian capitalism at University of Oxford.
first published: Jun 28, 2022 07:28 am
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