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The Kingfisher saga: A lesson learnt?

Soma Chakraborty, New Delhi, March 2016 


The controversial Kingfisher Airlines owner, Vijay Mallya, popularly known as the Indian version of English business tycoon Richard Branson, is today being chased by the Indian Government, banks and the judiciary for the Rs 9,000 crore he owes to the lenders. But the action of the authorities is too late now. This magazine has a solid proof of his earlier business antics. Way back in 2011, an investigative report published in Bureaucracy Today busted the nexus between HPCL, an oil PSU, and Mallya. The BT report compelled the State-run oil company to stop the supply of Aviation Turbine Fuel to the debt-ridden Kingfisher Airlines (KFA) on credit and forced the Airports Authority of India to put the beleaguered flying operator on a cash-and-carry mode. But that was that. No stringent action was taken against the man who has left the oil PSUs and the banks bleeding. In this report, Bureaucracy Today reflects on where the Government went wrong and underscores the urgent need to formulate a bankruptcy code as well as relook at its aviation policy. 

AUGUST 2011: On a bright sunny afternoon in August 2011, a man who identified himself as Ravi Srivastava, visited the Bureaucracy Today corporate office in New Delhi. Srivastava, who was removed from the position of Chief Operation Manager with the Hindustan Petroleum Corporation Limited in 2009, sought BT’s help to expose a nexus between the State-run PSU and the multi-billionaire Vijay Mallya. The man claimed that he had clinching evidence which proved that the HPCL was dishing out huge favours to Kingfisher Airlines. 
The BT Bureau of Investigation decided to take the lead and analysed the issue. After a string of meetings and an in-depth analysis of the documentary evidence provided by Srivastava, this magazine scooped a sensational report which revealed an alleged nexus between the HPCL and the flamboyant business tycoon.
The documents revealed that the KFA had defaulted on payment for an aviation turbine fuel (ATF) of about Rs 600 crore to the HPCL following which the Petroleum Ministry asked the PSU to invoke the Corporate Guarantee norm to recover overdue payments and directed it to supply ATF to the airline only on a cash-and-carry basis. However, interestingly, neglecting the orders of the Ministry, the HPCL board headed by its then Chairman, Arun Balakrishnan, continued the ATF supplies on credit to the airline till July 2010. Even a CVC complaint was filed against this unauthorised credit but no action was taken against HPCL officials in this regard. 
In March 2011 when the HPCL was closing its financial year accounts, the amount overdue by the KFA touched Rs 558 crore. Since the amount was Rs 258 crore higher than the credit limit of Rs 300 crore fixed by the HPCL, the oil company asked the Kingfisher to clear the dues of Rs 258 crore for which the KFA gave a cheque for Rs 200 crore, which was allegedly dishonoured in April 2011. During the course of its investigation, Bureaucracy Today came to know that the airline in return for getting unauthorized credit extended a host of favours to certain HPCL officials. These favours included multiple mileage points in terms of upgrading into business class, access to the lounge and free tickets for senior officials of the HPCL.
The Bureaucracy Today report created flutter in corporate and Government circles. The Oil and Civil Aviation Ministries took cognizance of the BT report following which the HPCL stopped supplying fuel to the KFA on credit. And the rest as we all know is history.
Mallya is currently facing money laundering charges and the State Bank of India, the lead lender to the now defunct Kingfisher Airlines, which declared him a ‘wilful defaulter’, has now moved court asking for his passport to be impounded. Though, of course, two days before the bankers moved the Supreme Court, the business tycoon “fled” to the UK with which the Indian Government has no extradition treaty.
The Enforcement Directorate also recently registered a money laundering case against Mallya and others based on an FIR lodged by the CBI last year. The CBI had registered a case against Mallya, Kingfisher Airlines, its Chief Financial Officer, A Raghunathan, and unknown officials of the IDBI Bank in its FIR alleging that the Rs 900-crore loan sanctioned by the bank was in violation of norms regarding credit limits.
The ED had also issued summons to over half a dozen officials of the IDBI Bank, one of the lenders, and Kingfisher Airlines under provisions of the Prevention of Money Laundering Act (PMLA) wherein all the individuals have been asked to submit details about their personal finances and Income Tax Returns (ITRs) of the last five years to the investigators.
Though it is finally the judiciary which will decide on the validity of these charges and take the final call on Mallya’s fate, the entire episode brought to light the Government’s policy paralysis which led to the bad loans crisis.
According to analysts, the Kingfisher saga is about more than just the Rs 9,000-crore debt, a 4,000-job loss and the career of a flamboyant business tycoon. It is about the policy paralysis in India, the absence of a bankruptcy code and the ugly face of the administration that can bend rules and take advantage of policy loopholes to favour its blue-eyed boys for its own vested interests. It is also about the pathetic state of affairs in the administration which allows corporates to prey on public money in a country which is one of the highest ranking nations in the world for the number of children suffering from malnutrition.
However, Mallya is considered to be a small player in the great Indian game of bad loans. The beleaguered business tycoon was right when he claimed recently in an open letter that he is “not the only corporate defaulter in town”. 
A recent report published in the national English daily Indian Express brought out the fact that 29 State-owned banks have written off a total of Rs 1.14 lakh crore of bad debts between the financial years 2013 and 2015. 
One can presume that each of these groups was politically well connected and persuaded legislators, bureaucrats and bankers to bend the rules to lend them more money to keep their business going as well as paying interest on the original sums borrowed. And when the burden became too large, the loans were written off. As a critic observes, “It is easy to be generous with other people’s money!” 
What does the Government has to learn from the Kingfisher episode? 
One really wonders why the Government had to be so benevolent to a private airline when the national carrier, Air India, is looming under abysmal losses. The awkward situation poses a big question mark on the Government’s new draft aviation policy which proposes over 50 per cent foreign direct investment. The Government would also need to look at losses to the State-run oil companies if jet fuel is allowed to be imported. It must now introspect on its policy for this industry at large.
Secondly, the Government must put in place a proper mechanism to deal with wilful defaulters. According to experts, there are many companies which are in “default mode” but no action has been taken against them by banks. Experts also opine that the Mallya lesson is that the banks should name and shame the defaulters and take all possible steps to recover their dues. 
The recent directive of the Supreme Court asking the Reserve Bank of India to submit a list of loan defaulters who collectively owe more than Rs 500 crore to the banking system is a welcome step. 
However, experts say that one of the big obstacles in recovering these sums is the absence of a bankruptcy code in India. Observers opine that a “technically sound bankruptcy law is required to improve the recovery of bad loans”. They also say that there is a need for “the development of institutional infrastructure for sound enforcement and the Ministry of Finance needs technical teams and detailed hard work on bankruptcy reforms, similar to what was done in the last decade on financial sector reforms”.
Though late, the Government has finally woken up to the necessity of bankruptcy and insolvency laws in India. Finance Minister Arun Jaitley on February 14 appealed to the Opposition to help pass bankruptcy and insolvency laws in Parliament. This is definitely a positive step towards solving the long pending issue of non-performing assets (NPAs) and wilful defaulters.
“The country needs bankruptcy and insolvency laws. That will give power to the authorities to take over management when a company is sinking,” Jaitley said in his reply to the discussion on the Budget for 2016-17 in the Lok Sabha.  
Admitting that in the past few years many defaulters have “escaped” from the country, Jaitley said that wilful defaulters have manipulated the entire governance system to prevent banks from recovering their dues. However, now the Government, the Finance Minister said will take steps to make banking more transparent. “They (the banks) cannot work on a concealed balance sheet (anymore),” he says. 
The Kingfisher crisis is the product of institutional failures. There is little doubt that it was the “vested interests at play” which prompted the oil PSUs and banks to keep lending money to Mallya even when it was clear that the airline, which flapped its wings for the last time in October 2012, cannot earn a return. 
While Bureaucracy Today is not claiming that Vijay Mallya is the only Indian businessman to make a mockery of the country’s lack of a bankruptcy code and the corrupt bureaucracy, it is no doubt a fit case for concerted action by governmental authorities. It was high time the Government resisted postponing action to tackle the issue of loan defaults. There should be a transparent multi-pronged strategy to solve the bad-debt crisis once and for all.


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