Author: Aiswini R Pillai, student of Lloyd Law College, Greater Noida.
Abstract
‘The King of Good Times’ also known as Vijay Mallya was one of the biggest business tycoon that India witnessed. He sent reverberations through Indian financial system. This is one of the famous scandalous case of money laundering. He is accused for financial crimes and is wanted by Indian government. He was the chairman of United Breweries and established Kingfisher Airlines in 2005. Due to mismanagement and high cost, the airline faced several financial difficulties. In order to expand his airline management he borrowed a huge amount on an average above Rs.7000 crores from different banks. Unfortunately, he failed to repay these loans. Despite efforts, Kingfisher Airlines couldn’t overcome its financial woes and ceased operations in 2012. In order to avoid arrest he fled to UK. In summary, Mallya’s extravagant airline venture led to financial turmoil, legal battles, and eventual closure. His extradition remains a contentious issue.
Keywords
Financial Scam, Vijay Mallya, Kingfisher Airlines , fraud, debt, business
Introduction
The infamous Vijay Mallya scam was the financial scam which had a drastic impact on Indian economy. Money Laundering can be described as illegally making obtained funds. Money laundering is the process of making illegal funds look legitimate by moving them through a series of complex banking transfers or transactions. Vijay Mallya was a fugitive business man and a strong entrepreneur. He was interested in multiple businesses and had keen interest in aviation and alcohol business. He is one of the most known marketing genius. Kingfisher Beer and Airlines were very prominent and gained wide recognition. He had a flamboyant and luxurious lifestyle. He had a very peak time and was an established businessman. Apart from all his success life, contributions, good names he is known to Indians as a business magnet who borrowed a massive amount and fled to UK without repaying making him as the ‘biggest corporate fraud’.
The King of Good Times
Vijay Mallya was born in 1955 in Mangalore, Karnataka was bought up in a wealthy and luxury family. In the year 1915, there were several small beer companies in India. Thomas Leishman decided to unite these beer companies into single company and named it as ‘United Breweries Group’. His father Vittal Mallya was an established business man , he started his career by working in United Breweries Ltd , later in around 1940s he purchased certain shares of that company and had a good tie up with the company, he becomes a major share holder. By 1948, Vittal Mallya became the Chairman of UB ltd. In 1976, he graduated from Calcutta as a B.Com graduate , he gained experience from UB ltd and observed operations of UB group on daily basis. He found gaining profit in liquor, his breweries got wide acceptance and was exported to various countries. In order to remove the liquor tag they decided to invest in various domains, Vijay Mallya found that UB group had acquired a company named ‘The Castle Breweries’ it had a logo of a kingfisher bird. The company was shut down by UB group but he inspires from the logo and decided to relaunch the logo with some modifications as he wanted to launch a beer company which would beat Mohan Meakin Golden brand .
Business tricks and Scams
After the demise of Vittal Mallya in 1983, he took up the charge and became the Chairman at a very young age. Due to his immense dedication and talent in business the valuation of the company increased from 40 crores to 6000 crores. He diversified his company in various fields. Kingfisher had a wide acceptance in India. In 2005 UB became the second largest liquor manufacturer in the World . By reviewing the record he founded that, they were having profit in liquor. The main sales of the UB group were generated from Crew Phipson. a sub unit of UB group which produced GIN due to lack of sale in off season, he changed his field to whiskeys which ran all seasons. After some losses he re enters in Kingfisher and made alterations in production of beer. For a liquor company ,their huge investments goes to production of bottles, to have a solution Vijay Mallya introduced Beer Can, he further increased the alcohol percentage. In India , advertisement of alcohol was banned so he found a way by advertising the brand via , surrogate ads by ads for kingfisher soda, kingfisher water and he started several events and widely publicised it’s logo. Since alcohol business need a huge support from government, Vijaya Mallya enters into politics and become Member of Parliament twice.
Kingfisher Airlines Case
The scam started when Vijay Mallya at the age of 50, launched Kingfisher Airlines in the year 2005. He enters into the world of Aviation. The motto of the airlines was ‘to provide king’s treatment to passengers’. The brand was established and gained wide recognition even though it was less profitable . In 2006, he decides to buy more airlines.
In 2007 he thought of entering into International Operations. As per the Indian Law, an Airline must have at least 5 years of domestic experience to get International Operations. He was restless and wanted to establish International Operations very soon. He found a way for that by acquiring an economic ,budget friendly premium brand called ‘Air Deccan’, this carrier already had four years of experience. Thus he acquired this carrier to fulfil the five year qualification. Kingfisher was a luxury brand while Air Deccan was a budget friendly premium brand. Mallya converted Air Deccan into a new brand called ‘Kingfisher Red’ and the motto was ‘cheap tickets without compromising with facilities’ . In order to provide the best service he decided to provide somewhat similar services but at two different rates, one at affordable price and other at a more luxury price. It showed a sudden shift in the number of passengers as people began to use Kingfisher Red than Kingfisher. Thus he decided to hike the range of Kingfisher Red also.
In 2008, he turns towards bank to take loan via consortium. SBI makes consortium of 17 banks and passes loan. He further takes loan from IDBI . In 2008 itself he started his first international operation and entered in IPL. The next year witnesses global recession, every industry faced some losses. In 2010, he again becomes the MP and later takes loan from SBI via consortium of Rs 1600 crore by personal guarantee. At this time their profit decreased and costing was more , company was unable to pay the due to many oil companies. HP and Bharat Oil banned Kingfisher and airports started to take advance payments for landing as it was also due. They were not repaying loans. Vendors were getting bounced cheque and they approached court for the same. By records in 2009 kingfishers suffered Rs 400 crore loss and the airline never turned a profit. Yet he again took money as loans and bought several new airlines, he never repayed loan instalments but never failed to do parties and other engagements. He made several shell companies and bought several estates abroad.
However , while expanding heavily they didn’t notice the profitability, the financial numbers were decreasing. The level of profit was decreasing and the level of debt was increasing. Within a span of seven years of establishment, they ended up in a stage where they were not able to buy fuels and did not had the money to give to fuel companies and give salaries to employees. For 15 months their employees worked without salaries.
To save the airline from insolvency, he had a meeting with Etihad Airlines to have an investment deal with Kingfisher. Sadly, FDI was not permitted in civil aviation at that time, due to that Etihad Airlines was not able to invest in Kingfisher Airlines. The account of the company was frozen. By mid of 2012 , Kingfisher Airlines ceased to operate and by end of 2012 the license of the airlines was also ceased. All operations were shut down. With this he was overburdened with debt. But his parties and enjoyment was going smoothly.
Collapse of Airlines was mainly due to high cost in operating as they offered very high facilities it costed them very huge amount. Secondly, when they started they started poaching the employees of other airlines by offering 75%hike in salary. Thirdly. Financial mismanagement and huge ticket price were other reasons for the downfall of Kingfisher Airlines.
Scam that trembled Indian Financial System
Vijay Mallya and Kingfisher owed a massive amount to 17 public sector banks. Vijay Mallya gave personal guarantee to these loans. This made the bank to receive the money even if the company gets bankrupted. The four years after the disband of Kingfisher Airlines were very crucial, several negotiations were also held. Finally, he negotiated with banks to repay the principle amount only not the interest. Bank refused this offer and told him to pay on an average above Rs.7000 crore. CBI in his report mention his shell companies, cheque bounces and so on.
In 2011 ,Union minister highlights that the company has not paid taxes worth more 150 crore. When banks got to know , some of them declared him as ‘non performing asset’ while some others like SBI declared as ‘wilful defaulter’. Later, SBI, RBI and Vijay Mallya had a meeting an they make a Master Debt Recast Agreement and signed by all banks in the year 2010. This agreement was to end the loans by taking kingfisher’s shares , there was some discrepancies and this was applicable to public banks. Private banks made a safer side , HDFC recovered their money by selling the shares of United Spirits, another company of Vijay Mallya.
In 2015, CBI sent look out notice to immigration department to stop him going abroad. Later the wordings were changed to ask him where he is going and not to restrict his movement. This was done by his money power and influence. In 2016, all banks reach attorney general debt recovery , and request to seize his passport.
The hon’ble supreme court intervenes and sent notice to UB Group, reached out UK High Commissioner and sought a reply to fix next hearing for March 30 but all were of no use. By March 2016, due to circumstances he fled to UK without paying the money to Banks. He was having a luxurious life in abroad also, several negotiations, discussions are also existing even now. In 2017, sent extradition request and on that he was arrested in Scotland, and he was released with bail. Even UK high court approved his extradition.
Data of Loan taken by Vijay Mallay
SBI
1,600 Cr
PNB
800 Cr
IDBI
800 Cr
BANK OF INDIA
650 Cr
BANK OF BARODA
550 Cr
UNITED BANK OF INDIA
430 Cr
CENTRAL BANK OF INDIA
410 Cr
UCO BANK
320 Cr
CORPORATION BANK
310 Cr
STATE BANK OF MYSORE
150 Cr
INDIAN OVERSEAS BANK
140 Cr
FEDERAL BANK
90 Cr
PUNJAB & SINDH BANK
60 Cr
AXIS BANK
50 Cr
Extradition Law – India and UK
Extradition is the formal process where one country surrenders a fugitive to another based on treaties or bilateral agreements. In India, the Extradition Act of 1962 governs this process, and treaties like the one signed with the UK in December 1993 provide the framework for extradition between these countries.
Key Principles of Extradition in India:
1. Double Criminality: The act must be a crime in both countries.
2. Speciality: The accused can only be tried for the specific crime extradited for.
3. Political Exception: Political crimes are generally excluded from extradition.
The extradition treaty with the UK specifies:
Article 1: Treaties apply retrospectively for recognized offenses.
Article 2: Offenses punishable by at least one year in both countries are extraditable, including monetary crimes.
Legal Framework in Vijay Mallya’s Case:
- Indian Penal Code (IPC) Section 120B : Criminal conspiracy, involving an agreement between two or more persons to commit an illegal act.
- Section 420 IPC: Cheating and dishonestly inducing delivery of property, punishable by up to 7 years in prison and a fine.
- Prevention of Corruption Act (PCA) Section 13(1)(d) and 13(2): Criminal misconduct by a public servant, obtaining pecuniary advantage through abuse of position, punishable by 1-7 years in prison and a fine.
Offenses under PCA are also covered by the Prevention of Money-Laundering Act (PMLA), with:
- PMLA Section 3: Defines money laundering.
- PMLA Section 4: Punishment for money laundering includes 3-7 years of rigorous imprisonment and fines. The act aims to confiscate property obtained through illegal means.
Conclusion
Currently he offers to pay the principle amount or the adjusted amounts to repay loan. Even he tweets to get back to India. This scam serves as an alert to entrepreneurs and gives a lesson to manage their businesses and also an eye opening to public as well as private banks. This scam also shows how money and power influences the law of the country and how a corporate fraud is roaming freely.
FAQs
1. What is the Vijay Mallya scam case?
The Vijay Mallya scam case involves allegations of financial fraud and money laundering against Vijay Mallya. He is accused of defaulting on loans worth approximately above ₹7,000 crore (around $1.3 billion) taken from various Indian banks for his now-defunct Kingfisher Airlines.
2. How did the scam come to light?
The scam came to light when Kingfisher Airlines defaulted on its loan repayments. Investigations revealed that Mallya had diverted significant portions of the loan money to various personal accounts and other entities.
3. What actions have been taken against Vijay Mallya?
Several actions have been taken, including:
Legal Proceedings: Multiple lawsuits have been filed against Mallya in India.
Arrest Warrants: Non-bailable arrest warrants have been issued.
Extradition Request: The Indian government has requested his extradition from the UK.
Assets Seizure: Indian authorities have seized and auctioned several of Mallya’s assets to recover the debt.
