business news

Vijay Mallya extradition case will unravel problem of bank NPAs, loan disbursement to tycoons

On successful extradition of the fugitive Vijay Mallya, the promoter of the grounded Kingfisher Airlines, hangs the successful unraveling of the festering problem of non-performing assets (NPA) of banks and financial institutions in India.

It is widely known that post-bank nationalisation, public sector banks (PSBs) have lent themselves to two abuses---behest lending, i.e. loans and evergreening of loans to the high and mighty with strong political connections with the ruling dispensation and loan melas i.e. mindless disbursement of loans for social causes often on altruistic considerations, casting prudential bank lending norms to winds in the process. The first one harks back to bank nationalization but the second is attributed to Janardhan Pujari, the Congress minister of state for finance in the Indira Gandhi government. Both have wrought havoc to the fortunes of the PSBs in the country though their relative contribution to the NPA problem is unknown.

The nation’s attention is riveted on two judicial proceedings---the first one being the contempt of court proceedings going on in the Supreme Court against Subratra Roy the feisty promoter of Sahara group of companies, suspected to be more in money laundering business for corrupt politicians and industrialists and the second being the extradition proceedings against Vijay Mallya. The two cases epitomise two festering financial problems the nation faces---black money and NPA respectively.

The Narendra Modi government which is spearheading the extradition process in the London court would be waiting with bated breath the results to be pronounced early 2018 because should the extradition request be turned down, it would be left red-faced with the Opposition conveniently baying for its blood for having allowed the flamboyant tycoon flee the country. That loans were sanctioned by the banking system to Kingfisher Airlines during the UPA regime would be the Modi government’s counter but the nation would not be amused by this blame game.

The Rs 9,000 crore outstanding from Kingfisher raises a number of troubling questions answers to which might result in a paradigm change in the lending norms in the country. Chief among them are:

a) How could loans be sanctioned by banks practically without collaterals with aircrafts offered as collaterals themselves being procured/leased on credit?

b) How could loans be sanctioned on the basis of brand value produced out of thin air, so to speak, when prudential accounting norms mandate that such self-generated goodwill should be banished from a company’s balance sheet?

c) How could personal guarantee of Vijay Mallya have given comfort to the banks when they too were sans collaterals offered by him?

d) How could a borrower be allowed to pull wool over the lenders’ eyes by presenting rosy projections in the loan application while internal communications, reflecting realities, screamed gloom and doom?

e) How could banks naively convert a part of the outstandings into shares of a nose-diving airline at a premium with reference to the then prevailing market quotations?

Raising eyebrows more are the allegations of diversion of funds. As recently as on 9 May 2017, the Supreme Court was constrained to pull up Vijay Mallya on contempt charges for merrily transferring $40 million from out of the money received from Diageo of the UK to his children in violation of its order. The fugitive has been thumbing his nose at the Supreme Court as well by not presenting himself before it as ordered. There are allegations of diversion of funds to motor racing teams and foreign affiliates ostensibly for formula one logo design.

It is widely known that diversion of funds has been the bane of the banks in India. Even if loans are strictly sanctioned on merits and with adequate collaterals, there is no guarantee that they would be used for the stated purposes despite the much-vaunted utilization report demanded from the banks from time to time.

One wonders if in the wake of the revelations of the Kingfisher case, the rule book for sanctioning of loans is formally codified and publicized because at the end of the day prevention is better than cure. True, the Insolvency and Bankruptcy Code 2015 has empowered the lenders but its prolific invocation soon after its legislation shows that the sanctioning process itself was often to blame. Nipping the mischief in the bud is also possible by banks jettisoning general purpose loans and embracing asset-based financing, the cornerstone of Islamic banking. Home loans by and large have been a happy experience for home loan financiers precisely because of this reason---the loan amount is released to the builder. One wonders if asset-based financing would be mandated if only to prevent diversion of funds.

One also wonders if political accountability would also be fixed because loans to Kingfisher Airlines is a classic case of behest lending with bank officials’ hands being tied. Ironically, so far only heads in banks have rolled. When will political heads roll?

Vijay Mallya to return to UK Court tomorrow as extradition trial gets underway

London: Embattled liquor baron Vijay Mallya, out on a 6,50,000-pound bail bond following his arrest by Scotland Yard over fraud and money laundering charges earlier in 2017, will return to Westminster Magistrates' Court in London on Monday as his extradition trial begins.

The 61-year-old businessman, who has been in self-imposed exile in the UK since March 2016 when he left India, is wanted in India on charges relating to his defunct Kingfisher Airlines defaulting on loans from various Indian banks amounting to Rs 9,000 crore.

The former Rajya Sabha member has told PTI during his numerous court appearances in London over the last few months that he has "done nothing wrong" and described the allegations against him as "fabricated".

His defence team, led by barrister Clare Montgomery known as an expert in criminal and fraud law with the UK’s Matrix Chambers, will now present his case in court.

"We are keen to draw a line under all the material – evidential and non-evidential," she had said during the last case management hearing on 20 November, when Mallya's defence team presented a running order of expert witnesses to be deposed in the case.

The trial is set to open with opening arguments, followed by the witness statement of Dr B Humphreys, who is an aviation expert.

Others expected to give their statements for the defence include Margaret Sweeney, chief accountant at Force India Formula One racing team, Professor Lau as an expert on the Indian legal system, and Dr Alan Mitchell, a licensed medical practitioner and a former medical officer with the Scottish prison system.

It was Dr Mitchell’s testimony that had a major impact on another Indian extradition request in October, that of alleged bookie Sanjeev Chawla – a key accused in the cricket match -fixing scandal involving former South African captain Hanse Cronje in 2000.

That request was rejected after a trial at Westminster Magistrates' Court on the grounds that Chawla's human rights would be violated in Delhi's Tihar Jail under Section 87, Article 3 relating to "prohibition of torture, or inhuman or degrading treatment". The Indian government has sought permission to appeal against the decision in the UK High Court.

At a previous hearing in the Mallya case, Chief Magistrate Emma Louise Arbuthnot had also highlighted prison conditions as a concern that has been "raised in extraditions to India before".

The Crown Prosecution Service (CPS), arguing on behalf of the Indian government, had told her that the Indian authorities have foreseen this as an issue and have been "engaged on the matter".

The CPS team, led by barrister Mark Summers who specialises in extradition cases, highlighted "excellent cooperation with the Indian authorities", who had provided detailed assurances and photographs by email relating to prison conditions where Mallya is to be held if he were to be extradited to India.

The extradition trial itself, to be presided over by Judge Arbuthnot, is listed for hearings until 14 December, with 6 and 8 December so far marked as non-sitting days. A judgement in the case is not expected until early 2018.

If the judge rules in favour of extradition at the end of the trial, UK home secretary Amber Rudd must order Mallya's extradition within two months. However, the case can go through a series of court appeals before the actual extradition order can be issued.

"The Crown Prosecution Service, acting on behalf of the Indian authorities, will need to demonstrate a prima facie case, ie produce some evidence to show that the criminal charges against Mallya, for which his extradition is sought, are justified," explains Jasvinder Nakhwal, partner at Peters and Peters Solicitors LLP.

India and the UK have an Extradition Treaty dating back to 1992 but so far only one extradition has taken place from the UK to India under the arrangement — that of Samirbhai Vinubhai Patel wanted in connection with the post-Godhra riots of 2002. But, unlike Mallya, he had submitted to the extradition order without a legal challenge.

Mallya, who has been based at his Hertfordshire estate called Ladywalk in the village of Tewin, around 30 miles from London, had responded with a firm "no" on being formally asked in court if he consented to being extradited to India on the charges relating to his collapsed Kingfisher Airlines.

His extradition trial will now determine whether he can be legally forced to go back to face the Indian courts.