UK Court ruling on Vijay Mallya: Why game is far from over for the fugitive liquor baron

A UK court ruling that technically enables Indian lenders to attach Vijay Mallya’s assets in England and Wales isn’t an end-game for the fugitive liquor  king who owes over Rs 9,000 crore to a clutch of Indian banks. Mallya still has many legal loopholes available including moving the Court of Appeals or approaching the local ministry for relief, according to senior bankers. They said winning the Rs 10,000 crore lawsuit can, at best, be termed as another step against the corporate loan defaulter. “The game isn’t over for him. That’s for sure,” said one banker. “Even in India, there have been court orders to attach his assets but how much has been achieved so far?,” asked the banker on condition of anonymity. The banker is right. Ever since Mallya packed his bags and flew out of the country on 2 March, 2016, there have been multiple court orders to proceed with the liquidation of Kingfisher assets in India including real estate properties in Mumbai but banks have so far failed to make a good bargain and do some meaningful recovery. Even in the UK, Mallya had minor setbacks including two instances of arrest and payment of penalties but the fugitive baron, with his army of lawyers, has managed to escape unhurt on each occasion locking the banks in prolonged court battles. This time also the story is unlikely to be different. [caption id=“attachment_4256005” align=“alignleft” width=“380”]  File image of fugitive liquor tycoon, Vijay Mallya. AFP[/caption] In his judgment, a sentence from the UK high court judge Andrew Henshaw summarises the most important risk banks face in this case—sharp deterioration in value of assets that can be claimed to recover money owed to them by Mallya. “There is a risk of the value of Dr Mallya’s assets deteriorating, and, or, being subject to claims by other creditors, and a risk of Dr Mallya being declared bankrupt. Dr Mallya’s departure from India, to where he has never since returned, and his resistance to India’s application to extradite him to face trial on serious criminal charges, provide some grounds for regarding him as a fugitive from justice,” the judgment said . Banks acted too late Kingfisher Airlines is a classic example of how Indian banks are ill-prepared to deal with politically connected powerful corporate loan defaulters. The loan became a non-performing asset for most banks in 2012 but long before that the writing was on the wall for Kingfisher Airlines. Despite clear indications of financial ill-health and continuing deterioration in earnings profile, banks competed with each other to offer large loans to the airline looking at its flamboyant promoter rather than the assets which could be liquidated in the event of a default. A loan was given to Kingfisher on Mallya’s personal guarantee. Yet again banks committed a major mistake when they agreed to convert a significant part of the loan to equity in 2010-11 at a rate of Rs 64.4 per share. Subsequently, the share price fell sharply. Right now, shares of Kingfisher Airlines are not traded on the Indian bourses. Going by a Hindu Business Line report, banks have brought down the reserve price to Rs 75 crore, half of what they were demanding at the first auction in March, 2016. The Kingfisher Villa in Goa was sold to actor Sachiin Joshi in April last year. That apart, there has been not much progress in the recovery process and all that banks have got so far is a pittance compared with what is at stake. Mallya’s extradition The Indian government has been trying hard through diplomatic and legal channels to push for Mallya’s extradition but with no success so far. This has become a political issue for the Narendra Modi government. In April this year, Prime Minister Modi took up the issue of Mallya’s extradition with British prime minister Theresa May during the interaction between the two prime ministers. The Central Bureau of Investigation (CBI) too is a party to the legal fight in UK courts against Mallya. Early this year, the CBI reportedly told the UK court that a prison cell is ready in India for Mallya according to European standards. With Mallya’s lawyers decisively fighting Indian authorities in local courts, the extradition of the fugitive tycoon is unlikely to be a cakewalk for India. Mallya, a small fish in the loan default pond For Indian banks sitting on a pile of Rs 9 lakh crore declared NPAs (the undeclared portion can make the figure even bigger), Mallya is a small fish. There are at least 40 top corporate defaulters that have been pushed to the insolvency and bankruptcy court for resolution or liquidation, where the quantum of money owed to banks is much bigger. As an earlier Firstpost column  said, ever since Modi took over, in mid-2014 to the end of December 2017, India’s public sector banks (PSBs) have written-off loans worth Rs 2,72,558 crore. Of the amount, a meagre Rs 29,343 crore has been recovered, according to data available with the Reserve Bank of India (RBI). PSBs recovered a total of Rs 15,786 crore over a 21-month period ended 31 December, 2017 (the first nine months of FY18 and all of FY17 put together). A decisive victory against Mallya is a distant possibility for Indian banks even now. It has been two years since Mallya left the country. Even at this point, banks don’t seem to be anywhere closer to recovering their money. The biggest concern for bankers would be the ballooning of the bad debt including the losses on account of notional accumulated interest amount and deterioration in the value of assets that can be recovered.