IN THE DOCK
FROM HIRING TOP LAWYERS TO EXERTING DIPLOMATIC PRESSURE, THE GOVERNMENT IS PULLING OUT ALL THE STOPS TO EXTRADITE FUGITIVE LIQUOR BARON VIJAY MALLYA
Efforts to extradite the absconding tycoon from the UK get a shot in the arm
MMonths after the Central Bureau of Investigation (CBI)started off the extradition process for the fugitive liquor tycoon, Vijay Mallya was formally arrested by the Scotland Yard in London on April 18. But it all began in India on January 31, 2017, with the issue of an arrest warrant in a Rs 900 crore IDBI Bank loan default case.
Mallya, who owes Indian banks Rs 6,963 crore (Rs 9,000 crore with interest), fled the country on March 2 last year. He appeared before the Holborn police station in central London and was released hours later by the Westminster Magistrate’s Court on a £650,000 bail bond. Mallya will reappear before the court on May 17, the next date for the extradition process which legal experts say could last up to a year.
The CBI and Enforcement Directorate officials feel Mallya’s extradition could turn out to be a less tortuous process than expected, despite the fact that he will have three layers of the court to appeal to. Their optimism is grounded on two reasons. The Prime Minister’s Office (PMO) wants Mallya back in India to face trial without delay. The PMO has offered its unstinted support, playing a key role in kicking off the extradition process and has not been averse to mounting diplomatic pressure on the UK government to speed up the trial.
In November last year, Prime Minister Narendra Modi personally explained to visiting British PM Theresa May why getting Mallya was important for India. Modi and his finance minister, Arun Jaitley, held a meeting on the Mallya case before the latter’s visit to the UK this February. Mallya’s extradition was discussed by Jaitley when he met Chancellor of the Exchequer Philip Hammond in London on February 28, a meeting where UK PM May dropped in.
Secondly, Mallya’s case of alleged embezzlement doesn’t involve a capital punishment penalty as it did in the case of Nadeem who faced murder charges in the T-Series Gulshan Kumar case, and Hanif Tiger, who is an accused in the 1993 Surat bomb blast case (the UK courts do not take kindly to extradition cases where the accused’s life could be at risk). This is why the agency believes it can bring Mallya back to stand trial in just six months or more.
Altogether, it was a fortnight from hell for the high-flying Mallya. On April 8, a consortium of banks auctioned off his iconic Kingfisher villa in Goa for Rs 73 crore. The threeacre property was the site of a lavish two-day 60th birthday bash for Mallya in December 2015, with popstar Enrique Iglesias crooning for the guests. This, even as Mallya’s creditors circled the courts to recover dues of thousands of crores.
In his London exile, a plush home in Welwyn Garden City, Hertfordshire, 32 km from central London, the “fugitive from justice”, as the Indian authorities describe him, has led a good life. In the past few months, he has attended Formula One races and given the odd interview to the UK media where he offered to return part of the money he owed the Indian banks.
The circuitous path followed by the CBI court’s January 31, 2017 arrest warrant—from the home ministry to the foreign ministry and finally to authorities in the UK—gave the tycoon time to prepare his defence. Mallya’s lawyers, it is believed, had approached the Crown Prosecution Service
(CPS) soon after the CBI court directive, and offered to surrender. The fallen tycoon may have sought solace in the belief that the odds were against his repatriation.
Since India and the UK signed an extradition treaty in 1992, India has managed to get just one national extradited, Gujarat riot accused Samirbhai Vinubhai Patel, last October. Mallya’s case joins a list of 10 other high-profile pending requests, including that of former cricket czar Lalit Modi, also wanted for financial irregularities.
“The CBI will have to satisfy the court that there is prima facie a case against Mallya based on admissible evidence,” says Edward Grange, partner in UK law firm Corker Binning. “This is where India has struggled in the past in its extradition requests. They have not been an active participant, and when called upon to answer the court’s questions, have been slow (if at all) in responding,” Grange says.
With the government now pursuing the Mallya case with vigour, several changes are afoot. In past cases, the Indian government has relied on the CPS rather than hire a lawyer of its own. That has changed. A joint team of CBI and ED officials, most probably accompanied by the solicitor general or additional solicitor general of India, will leave for the UK within a fortnight to hire a top lawyer.
On January 24, 2017, the CBI arrested nine people in the IDBI Bank loan default case. The arrested included Kingfisher Airlines Ltd (KFA) executives and officials of the public sector IDBI Bank, including the chairman and MD Yogesh Aggarwal. The loans were given in three tranches, in October and November 2009. The case itself was based on an FIR filed by the CBI in Mumbai on July 29, 2015.
In it, the CBI charged Mallya and unknown bank of-
A JOINT TEAM OF CBI AND ED OFFICIALS WILL LEAVE FOR THE UK WITHIN A FORTNIGHT FOR FOLLOWUP ACTION, INCLUDING HIRING A TOP LAWYER
ficials with criminal conspiracy in the case from 2009. The Rs 900 crore loans, said the chargesheet, were given despite the fact that KFA did not satisfy the bank’s loan policy, had poor financials, a negative net worth and a ‘BB’ rating (moderate risk of default). Significant parts of the loan, the CBI said, were transferred by the airline to other banks to settle debt. A portion of this loan was also remitted out of the country on the pretext of payment of lease rentals and purchase of aircraft parts, while Rs 3.45 crore was paid into KFA’s bank account in London.
Formal investigations into these cases began only after CBI additional director Rakesh Asthana took over in June as the SIT chief. Mallya may have fled the country under the Modi government’s watch, but the PMO gave clear instructions to Asthana that the case for his extradition must be watertight. Rather than wait for the investigation in all the cases to conclude, which would have taken months, the investigation agency pushed for action in the IDBI case, where the investigation was complete.
Certain significant manoeuvres strengthened the government’s case against Mallya. In November 2015, the State Bank of India (SBI), the largest lender to Mallya (Rs 1,600 crore), declared him and two of his group companies, KFA and its holding company United Breweries Holdings, wilful defaulters. In March 2016, the SBI joined 16 other banks to appeal in the Karnataka High Court that the businessman be arrested and his passport impounded. In a separate development, the ED also registered a case of money laundering against Mallya in the IDBI case.
While there are strong political reasons to arrest Mallya, from a banker’s point of view, a public arrest, extradition and possible punishment will set a big example for defaulters, says a senior banker who did not wish to be named. “It is time punishment is meted out to big defaulters who feel they can take the system for a ride,” he says.
One of the cardinal mistakes the banks made is to fund Mallya’s dreams to fly even after several consecutive years of losses, resulting in good money thrown in after bad and the airline being grounded in 2012 with accumulated losses of Rs 8,200 crore. Mallya had created a product which needed more money to sustain itself than it was generating. Auditors of Diageo, which took a controlling stake in Mallya’s United Spirits Ltd (USL) in 2014, reportedly found that Mallya had diverted Rs 7,200 crore of USL’s funds to the airline, which again was diverted elsewhere. Apart from this, he faces a probe for allegedly siphoning off over Rs 1,300 crore from group firm United Breweries.
The times were to blame too, the economy was booming and public sector banks were in a high lending mode, disbursing loans to big projects—in many cases without adequate appraisal of the businesses. Net result: several big-ticket loans turned bad. Add to this a legal system which while tough on retail borrowers seemed to allow large corporates to go scot-free.
The banks are unlikely to recover all their money from Mallya. When a company goes into distress, its underlying value gets depleted very fast. “Unless swift action is taken for recovery of the assets, in such cases what you can actually encash is very little,” says a banker. The value of the airline fell to nothing in a matter of months, he points out. Apart from the Rs 73 crore from the sale of Mallya’s villa in Goa, banks have so far recovered only Rs 1,200 crore by selling Mallya’s pledged shares and collaterals. Another Rs 1,250 crore is deposited with the Karnataka HC. For Mallya’s creditors at least, his extradition could be a pyrrhic victory.
DRY DAYS Mallya outside Westminster court after getting bail