SC order in Mallya 'wilful default' case cannot but cheer crony capitalists

Crony capitalists, whose unwholesome activities have brought the public sector banking system to its knees, will probably cheer the Supreme Court for yet another indulgence shown to Vijay Mallya, the Kingfisher Airlines promoter who has been cocking a snook at banks despite owing them more than Rs 7,000 crore. Some 17 banks led by the State Bank of India (SBI) have been unsuccessful in recovering their dues from Mallya even though he is no pauper or bankrupt businessman. If he is, he hasn’t said so.

The Supreme Court yesterday (18 September) allowed Mallya and his failed airline to be represented by lawyers instead of being present in person when the SBI conducts a hearing and asks him to explain why he should not be declared a wilful defaulter. Declaring someone as “wilful” defaulter has major consequences for a promoter as it can cut off further bank finance for him and his companies.

Last year, the Reserve Bank of India (RBI) extended the ambit of the term "wilful" defaulter to include not only the primary defaulting entity, but also the guarantors of its loans, and individuals on the boards of companies declared to be in wilful default.

On the face of it, the Supreme Court’s decision to allow Mallya to stay away from personally appearing before the SBI and instead be represented by lawyers may sound like a minor technical victory, but it has to be seen in context. Kingfisher went bust in 2012, and Mallya has neither paid his employees nor his banks since then. But this is the third quarter of 2015, and he still needs lawyers to explain why he is not a wilful defaulter.

According to a report in The Economic Times, the Supreme Court’s move was strongly opposed by Attorney General Mukul Rohatgi, who argued, quite logically, that this would set a precedent since banks are in the process of recovering dues from over 5,000 defaulters. Getting lawyers in even at bank hearings would end up delaying the process further.

The Supreme Court, however, did not agree, and allowed Mallya and Kingfisher to have the benefit of lawyers at the SBI hearing even though SBI itself will not have lawyers of its own. The court upheld an earlier Bombay High Court order that similarly favoured Mallya, saying this should not be seen as a precedent.

It is one thing to say something should not be a precedent, and quite another to ensure this is so. Which lower court will not consider this a precedent?

The fact is Mallya has been using the court system to endlessly delay the process of repaying his loans.

The United Bank of India, which was owed Rs 400 crore by Kingfisher, first declared Mallya a wilful defaulter as far back as May last year, but, strangely, Mallya’s lawyers managed to convince the Calcutta High Court in December 2014 that the process of declaring him so was faulty.

The court order, delivered by Judge Debangsu Basak, gave technical reasons for striking down the wilful defaulter tag. Justice Basak struck the UBI decision down because the panel declaring Mallya a wilful defaulter had four members on it instead of three!

Technicality scored over commonsense. This is what order said, according to a report in Business Standard at that time: “The (UBI) identification committee held a meeting on May 22, 2014, to identify constituents as wilful defaulters. It was constituted by four members - one executive chairman, a chief general manager and two general managers. This is in excess of the number of three personnel prescribed in regulation 3(i) of the master circular on wilful defaulters issued by the Reserve Bank of India (RBI). In such circumstances, the decision arrived at by the identification committee is a nullity. Consequently, all steps taken by United Bank of India subsequent to such so-called identification are also a nullity. Significantly, the grievance redressal committee also comprised four members. This is also in violation of regulation 3(iii) of the master circular issued by RBI.”

The bank may have not been in conformance with the letter of the law, but commonsense suggests that having four people judge a borrower as defaulter may be better than three, and less likely to result in a miscarriage of justice. The court, by striking down the UBI’s order, thus prevented the bank from taking the next steps on Mallya. UBI has since not mustered up the courage to declare Mallya a wilful defaulter once more, and it was left to the lead banker, SBI, to attempt the same. Now, the Bombay High Court and the Supreme Court have stepped in, and they just may have delayed the case further by allowing lawyers to combat the bank in its own office. Lawyers are likely to use any technicality to argue in court that the hearing itself was not good enough, and the courts may again have to hear the matter.

With Narendra Modi at the centre, cronies have generally been banished from the corridors of power, but the courts have continued to show indulgence to businessmen who are playing ducks and drakes with the law and the banking system.

In the case of Subrata Roy Sahara, the Supreme Court took a year-and-a-half to throw him into jail after repeated non-compliance with its orders of August 2012. He is still in jail, but the apex court, while taking cognisance of his defiance, has been unable to take the more decisive action of putting his dubious financial empire under an official administrator. If any businessmen can be clearly called a crony capitalist, it is Subrata Roy, whose investors are shadowy and under cover.

Vijay Mallya is not in the same league as Roy, but surely the sheer amount of rope he has been given in the Kingfisher loan default is enough to raise the suspicion that the system is helping him avoid his responsibility to repay.

The courts cannot continue showing such indulgence to businessmen who have the ability to repay but still avoid doing so. In delaying the obvious, the courts are indirectly helping cronyism.




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Updated Date: Sep 19, 2015 15:00:33 IST