Vijay Mallya case: Diageo's $75 mn deal off for now; DRT offers only a minor relief for SBI

The interim order of Bangalore Debt Recovery Tribunal (DRT) on Monday, preventing Vijay Mallya from withdrawing his $75 million (Rs 500 crore) from Diageo, on a case filed by State Bank of India (SBI), the largest lender in the 17-lenders consortium to Kingfisher, is a minor relief for the bank, but no way a victory.

Nor does the interim order show the intent of judiciary to act with a sense of urgency in the interest of minority shareholders (who constitutes 91.46 percent shareholders of KFA) in the country and the lenders, which have Rs 7,000 crore at stake.

Vijay Mallya (L) and Arundhati Bhattacharya

Vijay Mallya (L) and Arundhati Bhattacharya

The DRT is meant to be a special court for swiftly dealing with resolution of cases of large defaults as the name suggests.  Hence, despite having all the evidence why the court postponed the hearing of the case by another 21 days to March 28 is quite surprising — after all this delay. Another question is why banks woke up to taking tough measures against Mallya so late.

The fact is that the Kingfisher is a four-year-old NPA case for banks. There are investigations on Mallya by various agencies including the Central Bureau of Investigation and the Enforcement Directorate. At least two banks have classified Mallya as wilful defaulter. In this context, further delay in this case is against the interest of minority shareholders of the company, who have already suffered a lot.

Mallya’s lawyers’ argument (also mentioned in Mallya’s statement) that their client is a small fry among other defaulters is a joke. If someone who owes Rs 7,000 crore to 17 large banks is a small fry, then who are the big ones? Similarly, Mallya’s remarks that media has been ‘hysterical’ in targeting him too lack any sense.

After all, despite having the ability to pay back (Mallya’s personal wealth in shareholdings of various companies, as on 4 March 2016  is Rs 7,068 crore), Mallya has defied the whole system for nearly half a decade, drawing flak even from RBI governor for publicly flaunting his wealth. He is a Rajya Sabha member. The ED too has registered a money laundering case against him and SBI has sought his arrest in court. Is Media supposed to ignore this case?

As per the reports, the DRT has only postponed the Rs 500 crore pay to Mallya, not cancelled the payment. The Rs 500 crore is only a fraction of the Rs 7,000 crore Mallya owes to banks. Banks wouldn’t benefit much if they settle for a one-time payment with Mallya, who has been already classified as a wilful defaulter. A borrower is classified as wilful defaulter if lenders are convinced that the borrower doesn’t have the intent to pay back. Also, Mallya’s case includes possible diversification of funds and financial irregularities, for which the ED wants to question him.

Even at this stage, if Mallya had the intent to pay back, he would have offered Rs 500 crore to banks as a gesture. According to reports, SBI had moved for different applications to Bangalore DRT including Mallya’s arrest, impound his passport and claiming the first right on Rs 500 crore.

There is no clarity why the DRT has merely postponed the case to another date (with all evidence in place) and merely imposed a temporary ban on withdrawing the money. One of the major reasons for banks' inability to recover money from large corporate defaulters is the long, painful, archaic judicial process in this country. Remember, even in the case of United Bank, which later had to take a U-Turn after imposing wilful tag on Mallya, the industrialist had cleverly used the judiciary against the bank on technical grounds.

The short point is there is no reason why DRT’s Monday order can be seen even as a partial victory for SBI or other lenders. It’s only a small relief. The DRT’s approach only shows the poor state of preparedness of India’s judicial system to deal with cases of large defaults.

Updated Date: Mar 08, 2016 13:18 PM

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