The Union government and the banks’ consortium have terrific comic timing. They were waiting for Vijay Mallya to fly out of the country to approach the Supreme Court to get back the Rs 9,000 crore the liquor baron owed the banks.
Mallya has not repaid more than Rs 7,000 crore he had borrowed from 17 banks, including the State Bank of India. In case you were wondering what prevents the banks from attaching the collateral for the loans, the answer is, there was never any collateral.
A letter written by a group of women employees of Kingfisher Airlines throws some light on the company’s strategy. As the company started feeling the pinch, Mallya had told them everything will be alright. He even told the employees that the banks cannot reclaim more than ten percent of the company’s dues. The employees say Mallya’s evil designs were evident even at that stage.
Kingfisher Airlines was started in 2005. When the loans started to sour, the banks’ consortium decided to lend more to bail out the company. Mallya presented several rehabilitation packages for the company and managed to secure more loans without pledging any of his other businesses. The banks, it is learnt, differed among themselves on the rationale of lending more to ensure the repayment of initial loans.
Kingfisher Airlines suffered from financial mismanagement even when fuel prices soared. Even as costs skyrocketed, expenses were not kept under the lid. The company made a name as a luxury airline but it never reported a profit in eight years. However, it expanded its fleet and offered more facilities to passengers on borrowed money.
Many of the company’s moves were reckless, like the ambitious acquisition of Air Deccan to make it eligible to operate international flights. Kingfisher could not apply for international licenses as it had not completed five years of domestic operations.
Strangely, the lenders decided to convert part of its debt to equity in the company in 2011. The banks bought the company’s shares at a 60 percent premium. The shares nosedived within a few months. A private bank sold the loans to another financial institution to save its face. The others stayed put.
By 2012, it was public knowledge that Kingfisher Airlines was in soup. It started with the cancellation of several services and delays in payment of salaries. By year-end, employees were not getting paid at all. Aircraft were grounded. The company suspended its operations within a few months.
In the four years that followed, the lenders could not get their money back from Mallya. They could not even get him to face the legal proceedings. Mallya remained a Member of Parliament. His luxurious lifestyle was not interrupted. He continued to work on the glamorous Kingfisher calendars even as his unpaid employees faced eviction from their houses.
The banks saw a glimmer of hope when Mallya was tipped to receive more than Rs 500 crore through a sale of stake in his liquor business. They were slow to act though. In the meantime, Mallya received 40 percent of the money and left the country. He even paid a visit to the Rajya Sabha the day before his flight.
The banks may not have acted on the news of the windfall. They were stung by RBI governor Raghuram Rajan’s remarks about Mallya’s 60th birthday celebration in Goa. Reports suggested that Mallya spent anywhere between Rs 100 crore and Rs 300 crore on the birthday bash.
"If you flaunt your birthday bashes even while owing the system a lot of money, it does seem to suggest to the public that you don't care. I think that is the wrong message to send. If you are in trouble, you should be cutting down your expenses," Rajan had said in an interview.
The lenders may have approached the court against the defaulter, but they cannot wash their hands of the fiasco.
Age of irregularities
While Kingfisher Airlines was manoeuvring the banks into lending it crores of rupees, Satyam Computers was fudging its account books. The deals that finally led to the imprisonment of Subrata Roy of the Sahara Group also happened around the time. The Saradha chit fund scam in West Bengal also had its origin at the time.
The four scams were entirely different. But they were all examples of big players manipulating regulators, financial institutions and the political establishment.
The Satyam scam came to light on January7, 2009 when founder chairman Ramalinga Raju confessed to leading financial irregularities in the IT company. The revelation came as a shocker to the system as auditors and chartered accountants failed to detect the irregularities in a company listed on the stock exchange. Satyam was cheating investors and regulators by inflating its balance sheet.
Raju revealed that the management had inflated the books by as much as Rs 7,136 crore. The fraud was too big to hide. A CBI probe followed and Raju and the other accused were jailed and fined.
The CBI estimated the loss to Satyam investors at Rs 14,000 crore. The promoters of the company sold off their shares after a rally fuelled by false information on the company’s health. The Satyam case proved that investors were still at the mercy of companies that rarely cared about transparency. The stock markets are still susceptible to manipulation as in the initial days after liberalisation.
Sahara Group chief Subrata Roy was accused of illegally raising Rs 24,000 crore from 3 crore investors in 2009 and 2010. Many companies within the group issued corporate bonds without the permission of the Securities and Exchange Board of India.
The Sebi found that many of the investors were fake. The names and address given were wrong. The Sahara Group was providing a channel for money launderers, the Sebi found. Roy was ordered to return the money collected. He did not. He was jailed on February 28, 2014. Curiously, very few people came out demanding the money they invested in Sahara companies, proving that the thousands of investors never actually existed.
Sebi director K M Abraham played a major role in detecting the economic offence and trapping the big players. The Sahara case proved that law was not toothless after all.