AUTHOR : Rimsha Wagle, a first year student at Dharmashastra National Law University
TO THE POINT
Vijay Mallya, once the king of good times and the poster child of flamboyance, Founder and Former Owner of Kingfisher Airlines which emblemized opulence and customer supremacy but hid behind a fragile financial house of cards and when it collapsed, left over 9000 Cr in outstanding debt, exposed regulatory lapses and sparked nationwide discourse in the realm of corporate fraud resulting in deep rooting financial stigmas in the minds of many and created turbulence in the financial sector. Indian agencies allege that he criminally conspired with Kingfisher/UB Group to defraud banks and cheated them which caused wrongful losses to them.
Under the PMLA, the Enforcement Directorate (ED) investigated the loans as a money-laundering scheme. A special court in Feb 2017 ratified the interim attachment with respect to properties worth 4,200cr of the assets of Mallya, as ordered by ED terming them as ones which are involved in money laundering. ED claimed that Mallya has criminally conspired to obtain funds of the banks worth 4,930cr was outstanding.
Mallya, in Jan 2019, was declared a Fugitive Economic Offender (FEO) under the Fugitive Economic Offenders Act, 2018 pronounced by a special PMLA court in Mumbai. This implementation (Section 2(1)(F) of the FEOA) enables him to forfeit his global assets, which are not linked to any particular cases.Following his 2016 exit out of India on pending fraud or corruption charges.
The UK extradition proceedings led to some courts concluding it as a prima facie case of fraud, conspiracy and money laundering. Case of Extradition was upheld by the UK Supreme Court, it identified and observed that there was clear evidence of dispersal and misapplication of the loan funds and that there exists a prima facie case that the money was laundered, and case of misrepresentation or conspiracy. Earlier in the UK, the judges had responded to the arguments of Mallya on unfair trial and prison conditions but eventually turned down his plea and paved the way for his extradition.
In India, investigative and judicial developments encompass a 2017 Debt Recovery Tribunal order in which KFA, UB Group and Mallya are jointly held liable to repay 6,963 Cr (plus interest) of loans. The Central Bureau of Investigation (CBI) has filed chargesheets invoking Sec 120B (conspiracy), 420 (cheating) of the IPC, 1860 and of the Prevention of Corruption Act, sec 13(1)(D) and 13(2) . Mallya was also originally sentenced to 4 months in jail by the Supreme Court of India who directed authorities to enforce his attendance.
Banks have obtained around 14000 Cr from sale of Mallya’s seized assets and the Finance Minister reported ED had recovered 14,131.6 Cr and continues to attach and auction properties and is recovering debt through legal channels.
USE OF LEGAL JARGON
Criminal Conspiracy (IPC 120B) -A joint agreement by either two or more individuals to engage in some unlawful act. There is a charge against Mallya that he had managed to conspire with bank officials and group companies to avail loans fraudulently.
Cheating (IPC 420) -Falsely putting someone into the state of delivering property. Mallya was supposed to have misrepresented the finances of Kingfisher to banks.
Criminal Breach of Trust (IPC 406) Dishonest misappropriation by a person of property which came in his possession due to trust.
Money Laundering (PMLA Sec 3,5) – Hiding or obtaining crimes proceeds. ED alleges that Kingfisher misused loan money. Such proceeds can be confiscated on an eventual basis as well as provisionally attached under PMLA by ED. An adjudicator under PMLA had also approved the attachment of the assets of Mallya because of them being the proceeds of a criminal activity.
Fugitive Economic Offender (FEOA Sec 2(1) (f)) — any individual who, on committing an economic offence, absconds with the intention to evade criminal prosecution. All his assets after having been declared FEO by a Special Court become subject to confiscation.
Extradition (Extradition Act, 1962) -Means of handing over an escaping criminal to another nation. In extradition, there must be double criminality. Mallya had made a futile appeal that he would be given an unfair trial or inhumane treatment
THE PROOF
Investigations had unfolded methodically. The enquiries carried out by CBI (assisted by SFIO, RBI and banks) gathered documentary evidence and bank evidence as to the process of sanctioning and utilization of Kingfisher loans. For instance, in the year 2009 -10 IDBI loans, CBI discovered that loan applications (150 cr, 200 cr, 950 cr) indicated that Mallya had met with the CMD of IDBI despite non-viable KFA finances; these loans turned out to be NPAs causing an “illegal loss of exceeding Rs 900 crore” to IDBI. In the chargesheet filed by CBI, it was recorded how the money was shifted: about 260 cr had been transferred to accounts unrelated, sums were used to pay salaries or taxes, and other expenditures. This evidence justified the IPC Sec 420 (cheating) and IPC 120 B (conspiracy) charges against him. The transfer of money of the consortium of 17 banks to different group companies was detected by the ED. It detected purported laundering deals – such as over-charging on leasing rentals and payments to Kingfisher’s parent UBHL and Mallya F1/IPL teams. A special PMLA Court in Feb 2017, confirmed the order of ED attaching 4,200 plus cr of Mallya linked assets. The court reiterated that these assets were considered the proceeds of a crime. The Adjudicating Authority (PMLA) also upheld the attachments with the express observation that the properties were deemed to be involved in money laundering. The FEOA case was also fed with evidence found during the probe by ED. On Jan 5, 2019, Mumbai Special PMLA Court handed out a verdict that Mallya was an FEO observing that he had defrauded a group consortium of banks to the tune of 9,000 crores.
Upon being proclaimed FEO, all of Mallya’s assets were subject to seizure. In the meantime, civil recovery by the banks was advancing: an order of DRT in Jan 2017 held KFA,UBHL and Mallya as jointly liable to pay 6,963cr (plus 11.5 percent interest). These orders are what the government bases claims as a means of recovering dues on assets that can be liquidated.
The Government of India had to prove a prima facie case on every alleged offence in the courts in the UK. In Westminster Magistrates Court (2018) and the subsequent appeal, judges took a keen interest in the material. The District Judge found evidence for misrepresentations and diversion of loan funds. The justices of the High Court of the UK (Irwin and Laing J) later observed that they had come upon evidence of dispersal and misapplications of the loan funds, thus leading to a case of the money laundering crime. Finally, by the Supreme Court of the UK, it was concluded that there existed a prima facie case of a misrepresentation and other matters, as well as of the conspiracy and consequently of the laundering, out of which Mallya lost his case of appeal. The judges consequently certified that a UK jury, duly instructed, would be able to convict on the evidence provided.
ABSTRACT
Vijay Mallya who was the former owner and founder of the Kingfisher Airlines is accused of having masterminded one of the biggest bank-fraud frauds in India. He is also accused of obtaining 9000 crore rupees worth of consortium loans in conspiracy (IPC 120B) and cheating (IPC 420) as a result of which he defaulted. CBI and ED investigating agencies accuse that the proceeds of the loans were diverted and laundered through shell transactions. On legal grounds, Mallya has been charged under the IPC along with PMLA; in 2019 he was designated and declared a fugitive economic offender under the FEO Act expediting the recovery of his assets. India has successfully extradited individuals from the UK because legitimate evidence of fraud and money laundering was found in court. In the meantime, Indian courts, as well as tribunals, have issued attachment of assets, recovery of dues. This paper is a survey of the statute (IPC, PMLA, FEOA), case law and the current position and UK court decisions and explains the route the law enforcement is taking with trials and seizure of assets.
CASE LAWS
Mallya v. GOI – In the Supreme Court of UK, Mallya was denied an appeal against the judgment. It ruled that the extradition evidence had created prima facie misrepresentation and conspiracy and consequently money laundering had occurred. The Court observed (“clear signs of dispersion and wrong use of the loan funds”) which made out the case of laundering. Complaints on unfair trial/conditions were not accepted.
Bombay HC / Supreme Court – Mallya had indicated that he wanted to quash PMLA proceedings but the courts denied a stay of proceedings. On Dec 7, 2018 the Supreme Court had rejected the petition of ED to pronounce him as a fugitive. On Jan 5, 2019 a special PMLA court (Mumbai) made him a fugitive economic offender as defined in the Fugitive Economic Offenders Act, 2018. In March 2023 the Supreme Court rejected a fresh attempt by Mallya to resist these proceedings.
Debt Recovery Tribunal, Mumbai (Jan 2017) – President-ordered the Personal Guarantees taken by KF, UB Group and Mallya jointly and separately liable to make 6963 cr (KF loan principal) plus interests on consortium debts. On the basis of this order, several suits and sales of assets were created.
CONCLUSION
Vijay Mallya saga highlights the changing legal instruments used to fight financial crime in India. Where bank frauds and misappropriation of funds is involved, there are a number of IPC and PMLA provisions which will come into operation. Fugitive Economic offenders Act (2018) gave the officials the authority to declare Mallya a fugitive and pursue the seizure of his worldwide assets. On the basis of prolonged hearings by UK courts, the case of India has been justified. Through aggressive attachment and auctions, enforcement agencies have recovered to the tune of over 14,000 cr.. However, guilt is not to be determined until trial (assuming extradited). One thing is certain that, the Indian judiciary and investigating agencies are diligently carrying out all civil procedures (including recovery tribunals) as well as criminal procedures to make sure that such economic crimes are discouraged by statutory liabilities, and they preserve the interest of the people at large.
FAQs
Who is Vijay Mallya and what is the scandal in Kingfisher Airlines?
Vijay Mallya is a business person who used to operate Kingfisher Airlines (KFA). As a result of hefty losses, KFA fell. It borrowed huge amounts ( 9,000 cr) of money between 2009-12, with 17 banks advancing loans to it. According to inquirers, these loans have been obtained through concealing the actual finances of KFA and the funds misappropriated, so much so that loans defaulted. The banks say that Mallya and his companies criminally conspired to defraud the consortium
What is money laundering/ PMLA?
The Enforcement Directorate (ED) investigates the proceeds of loans suspected to be laundered. ED accuses Kingfisher under the Prevention of Money Laundering Act that the loan funds were used to transfer the money to other entities that had nothing to do with the transactions.
What is a Fugitive Economic Offender?
The Fugitive Economic Offenders Act, 2018 (FEOA) refers to any individual who commits an economic crime and escapes as a fugitive economic offender. On Jan 5, 2019, a special PMLA court had declared Mallya an FEO. This translates to the fact that in the eyes of the law, he can be deprived of all his property, because he went to the UK to evade trial. Such offenders are defined in FEOA Sec 2(1)(f).
What is the status of asset attachment and debt collection?
Most of the assets belonging to Mallya have been tentatively held by PMLA and FEOA. ED has conducted auctions of properties and has recovered an estimated 14,131.6cr so far. Banks have been credited with such recoveries. Mallya approached the Karnataka High Court to seek proper clarification regarding the loan recovery process of the banks
