Expert Speak India Matters
Published on Mar 18, 2016
Mallya case: Collusive connivance and cronyism

The scene at a posh Goa resort sometime in late October last year was intriguing. Holidaying with the family at the same resort, this writer suddenly found frenetic activity at sleepy hollow. An advanced team arrived at the hotel, all corporate types as they got down to negotiating with the hotel management to secure a bulk of the plush resort's rooms. They got down to hammering out details of the number of rooms, charters from different places, airport transfers, food and beverage menus, song and dance routines including acts by Enrique Iglesias. The team was brusque as it sneered down on the hotel management team. The event was Vijay Mallya's 60th birthday celebrations in December. It was clearly business as usual for VJM as he is popularly called. Media had no clue of the impending storm. For that matter, I doubt even if Mallya sensed what was to come in the new year. Then in early February at the IPL auction in Bangalore, the liquor baron was very much present representing Royal Challengers, sporting a Mohawk haircut and bidding for players. Nothing seemed to matter to the King of Splurge even long years after his pet hobby horse -- Kingfisher Airlines -- had gone bust and shareholders, banks, employees, media had raged against his abominable style of conducting business. Mallya's hedonistic lifestyle remained as large as ever.

A day after the IPL auction, Mallya confirmed that he had bought the Barbados franchise (Tridents) for $two million in the Caribbean Premier League earlier in January. Adding salt to the open wounds of his detractors, he then went on to sponsor the Kingfisher Ultra Indian Derby at Mumbai's Mahalaxmi race course for its highest ever prize money of Rs 3.5 crore. For good measure, Mallya himself gave away the winner's trophy on February 8, two days after the IPL auction. And the Derby winner - Desert God was bred at Kunigal stud farm, owned by none other than sponsor Vijay Mallya himself. On March 1, Mallya, unperturbed, attended parliament as a second time Rajya Sabha member. The very next day he turned to vapour, leaving for London with a lady friend and seven large bags. He had been forewarned and hence was forearmed.

Fade to black

In its existence, Kingfisher Airlines (KFA) never ever made a quarterly profit. Mallya's obsessive dream of running a spiffy airline which would rival Richard Branson's Virgin Atlantic and would be better than India's premier airline of the time - Jet Airways - helped him lose it all. Veritas Investment Research in its report on the airline in September 2011 had said: “The convoluted logic of debt restructuring, via acquisition of CCPS (compulsorily convertible preference shares) of an organisation that doesn’t have the cash to meet its obligations, which were subsequently converted into ordinary shares of Kingfisher at a premium of 61.6 per cent speaks eloquently to the financial shenanigans underway at the banks and Kingfisher Airlines.” Here in lies the rub, while Mallya may well be a wilful defaulter and has had to flee the country, what were the nation's administrators and investigative agencies doing all these years? This history of default is well documented and this writer took the lead in India Today of writing stories which threw into stark relief this shining monument of cronyism. But nobody cared and life went on. From F1 to IPL, Mallya was present in India, from parliament to his birthday bashes, he was very much available for one and all to catch. Smear campaigns notwithstanding, it is pointless hyperventilating now, 'Chidiya Chug gayee khet'.

Imagine, lenders first gave loans, then converted ₹650 crore ($96 million) debt into preference shares on the assurance from the airline that it will list on the Luxembourg Stock Exchange by selling global depository receipts. And pigs would fly. Mint Street based regulator RBI green lit a remarkable bail out package which forced the banks to convert debt amounting to Rs 1355 crore into share capital at a premium of 61.6 per cent at ₹64.68 (prevailing price was at ₹39.40), the closing price of the underlying common share. This translated into the hapless bank already saddled with KFA debt being awarded dud shares in the airline. The 17 bank consortium ended up owning 23.2 per cent stake in the stressed carrier.This was the theatre of the absurd. Lenders had now become shareholders and creditors.

Toronto based Veritas Investment Research in its 2011 report on Kingfisher Airlines also red flagged the unpaid statutory dues amounting to Rs 425 crore for 2010-11 at that point in time. According to the auditors, undisputed amounts payable in respect of employees state insurance were Rs 75 lakh, towards provident fund Rs 43.80 lakh, tax deducted at source of Rs 422,97 crore, service tax was Rs 1.04 crore and professional tax was Rs 2.46 lakh. He escaped the dragnet despite this being a criminal offence. Between 2008 and 2011, he failed to pay these statutory dues and even fringe benefit tax of Rs 4.5 crore remained unpaid for 2008-09. Veritas report of September 12, 2011 went onto say, “Kingfisher’s disclosure is poor, accounting policies capricious, balance sheet is in duress, free cash flows are absent, collateral provided to financial institutions by its holding company insufficient and the actual liabilities on Kingfisher’s books are understated.” Duped and defrauded wilfully by Mallya yes, but what about the bank chairman and their political masters in the finance ministry? Who were present in the ALCOs (asset-liability committees when these loans were first given and then recast) is what needs to be investigated?

Vijay Mallya finally tripped because he became a victim of his own hype, in your face imagery, diminishing whatever trust one had for him. If he had lied low and allowed this drama to subside, then he too would have melted into history like so many others. Rogue stockbroker Harshad Mehta fell prey to his red Toyota Lexus just as Mallya's partying and love for ostentation and bling brought him into disrepute. What is playing out five years later is nothing but a sham, for all the players involved kept a lid on the case and this collusive connivance allowed Mallya a ticket on Jet Airways to the UK on March 2. Ironical, that Mallya had to flee using an airline which he had sworn to destroy.

The author is a senior journalist and commentator based in New Delhi.

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Ritika Prasad

Ritika Prasad

Ritika Prasad Student Tata Institute of Social Sciences (TISS)

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