What banks have not done against Kingfisher Airlines for its outstanding loan of Rs7,000 crore turning into to non-performing assets (NPAs), has been done by realtors on whose premises the “King of Good Times” has its operational offices
What banks have not done against Kingfisher Airlines for its outstanding loan of Rs7,000 crore turning into to non-performing assets (NPA), has been done by two realtors on whose premises the “King of Good Times” has its operational offices. Samruddha Realtors and Dhruvam Realtors, the owners of the premises, have served a winding up notice to the airline for failing to pay license fee, amenities and maintenance charges since November 2011.
Kingfisher House, the famous building of 52,350 sq ft on Mumbai’s Western Express highway known as its head office, was repeatedly given reminders for its pending dues. Despite this, the airline failed to comply and hence the termination notice, dated 11th April 2012, was served. As per the clauses in the agreements, since the airline has failed to pay its dues, a notice terminating the agreements has been given. The termination will come in effect on the expiry of 30 days after the receipt of the notice.
A similar notice is been served by Dhruvam Realtors to the Kingfisher Airlines for not paying the license fee, amenities and maintenance charges since November 2011 for using the premises, of around 6,450 sq ft, at Marol, Andheri. This plot originally belongs to Dhruvam Realtors.
According to the notice by Samruddha Realtors, the airline failed to comply with three agreements. As per the leave and license agreement dated 17th October 2010, Kingfisher promised to pay Rs26.17 lakh as license fee per month, along with the service tax. In the amenities agreement, also signed on the same date, Kingfisher agreed to pay Rs25.12 lakh per month for the services and amenities. The airline is also liable to pay Rs11.51 lakh per month as maintenance as per the Maintenance Agreement. (The document is been reviewed by Moneylife)
Similarly, Dhruvam has also served the notice as the airline failed to comply the same three agreements. Kingfisher Airlines, as per the leave and license agreement dated 17th October 2010, had promised to pay Rs3.22 lakh as license fee per month, along with the service tax. In the amenities agreement, also signed on the same date, Kingfisher agreed to pay Rs3.09 lakh per month for the services and amenities. The airline is also liable to pay Rs1.41 lakh per month as maintenance as per the Maintenance Agreement.
As per both these agreements, the amount agreed to be paid on monthly basis was to be escalated by 15% after the initial period of the three years. All charges were to be paid by Kingfisher on 20th or before of each month and on for delayed payment it has to pay interest at 18% per annum.
Having failed to pay the dues since November 2011, a letter was sent of 28th February 2012, reminding the airline to pay the pending dues along with interests within 30 days of the receipt of the letter. However Kingfisher Airlines neglected the same and the dues remained unpaid.
Samruddha Realtors had warned Kingfisher Airlines that if it uses the premises in spite of termination of license and other pending dues, such use shall be “unauthorized and as party in unauthorised occupation you will be liable to pay damages…”
The realtor further said that if Kingfisher Airlines failed to comply with the notice, it will be “constrained to take such proceedings as they may be advised including the proceeding for winding up of your company at your entire risks as to costs and consequences.”
Incidentally, financial news channel CNBC TV18 reported that the Income Tax department has sent third reminder, about its show-cause notice sent on 7th March, to the top management of the airline. It has sought an explanation on why prosecution proceedings should not be initiated for the violation of Tax Deducted at Source (TDS) payments.
The cash-strapped airline has also been struggling to pay the salaries of its employees. Recently, it was reported that around 200 engineers of Kingfisher Airlines stayed off from duty as they were not paid, despite repeated assurances.
Industry experts point out that the troubled airline has pending dues on many fronts. In first week of April, it was asked to Rs60 crore as service tax. Earlier, 40 bank accounts belonging tot the carrier were frozen by the service tax department after it failed to pay dues of Rs40 crore on the given deadline of 29th February.
Mounting debt and financial crisis has taken toll on the operations of the airline as a number of its flights are been cancelled. Vijay Mallya, chairman of the airline, had requested banks for fresh working capital to run its operations. In a meeting with banks, Mr Mallya had asked for Rs200 crore. However, banks are not in a mood to lend more. The 18-bank consortium headed by the State Bank of India, together, has a total exposure of over Rs7,000 crore in Kingfisher. Most of these banks have classified their exposure to the company as a NPA (non-performing asset). SBI is the biggest lender with an exposure of around Rs1,408 crore. On 4th April, SBI chairman Pratip Chaudhuri had said that Kingfisher Airlines can be viable if it gets more equity.
The financial crunch has also taken toll of its share price. Kingfisher Airlines has touched a new record low of Rs14.25, after the government ruled out any Foreign Direct Investment proposal immediately.
IRDA has penalised Birla Sun Life Insurance Company a paltry Rs6 lakh for a slew of violations, some serious including using unlicensed entities to sell insurance
The Insurance Regulatory Development Authority (IRDA) had detected 22 irregularities in the functioning of Birla Sun Life Insurance Company (BSLI) but penalised it a paltry Rs6 lakh for two of the violations. What is most pertinent is that it took the regulator around a year and a half, from the date of its first inspection letter (22 November 2010), to pass the judgement (13 April 2012).
IRDA levied Rs5 lakh for a major violation of using unlicensed entities to solicit insurance business, thus violating an IRDA circular which states, “No insurer shall distribute the product through any person who is not licensed as per the provisions of the Insurance Act, 1938, for the purpose of the soliciting and procuring insurance business.”
BSLI admitted to this misdeed but was fined just Rs5 lakh for this. This is pocket money for the insurer and makes a mockery of the regulatory system. We had covered the issue of unlicensed entities way back in 2010, over here (http://www.moneylife.in/article/8/5371.html).
The second and last indictment accused the company for flouting guidelines on Group Insurance Policies dated 14 July 2005, wherein it is the insurer’s responsibility to ensure that claims payments go directly to the beneficiary, or insured. However, the company had apparently been sending cheques, in event of claims, in favour of the master policy holder (for instance, any firm which has taken insurance on behalf of its employees) instead of the beneficiary (the employee), thus putting the onus on the policy holder to settle the cheque, and absolving itself of the responsibilities. For this violation, the company was fined just Rs1 lakh.
Thus a total of Rs 6 lakh was fined by BSLI for two out of 22 violations. This isn’t the first time that Moneylife has written about selling through illegal intermediaries. Insurance companies are merrily using the illegal multi-level marketing (MLM) system to push insurance. When caught they promptly disown any linkage and promise to “take action.”
It is pertinent to note that it took as much as eight months to issue a show-cause notice (27 July 2011) after BSLI replied to IRDA’s initial observation. And after the insurer had replied to the show-cause notice on 30 August 2011, IRDA then took more time, till 1 February 2012 before calling for a personal hearing. Only then, after the hearing, the final order (13 April 2012) was passed.
We cite a few important transgressions and IRDA’s decision on each of them:
• Violation of Section 40A of Insurance Act, 1938
(IRDA) Inspection Observation 30(d): Commission being paid to agents even when premiums are being funded by the company under premium waiver benefit.
(IRDA) Decision: Insurer has submitted that there could be policy servicing requests during the term of the policy to agent and the practice of payment of commission in such cases may motivate agents to continue promoting such waiver benefits wherever applicable which again is in the interest of policy holders. On examining the reply of the Insurer charges are not pressed. However insurer is hereby directed to stop paying the commission to agents in all such cases where premium is funded by the company as part of premium waiver benefit.
So, for the last two years, the company has been ‘motivating’ agents by paying commissions to them even though when it shouldn’t have. BSLI claims that this is in “the interest of the policy holders”. Really? Well, motivating agents to ram policies down consumers’ throats is most definitely NOT in consumers’ interests.
• Violation of Regulation 2(CC) of IRDA (Investment Regulations, 4th Amendment) 2008
Inspection Observation 2: Insurer has categorized the investments in mutual funds as “Money Market Instruments” for the purpose of public information. (Product Brochure of Titanium plus Plan)
Decision: The insurer states that BSLI invests in liquid mutual funds and they have included the mutual fund in the ‘Money Market and Cash’ segment in the product brochure to represent investments in short-term investment. The insurer has also submitted that now an alteration was made in the product brochures to show mutual fund separately.
This is a classic case of mis-selling by misrepresenting a product in flyers and brochures. Companies will window-dress their product to make it look ‘safe’.
• Violation of Section 5 of IRDA (Investment Regulations, Fourth Amendment), 2008
IRDA Inspection observation 1(d): Insurer has breached the prescribed limit of 5% of fund size while investing in Mutual Funds and categorizing them as “Approved Investments”.
IRDA Decision: The insurer has submitted that he has acted as per the directions of the authority issued vide Regulation 3 (Investments) point 3, Investment Regulation 5 and The Asset Liability and Solvency Margin of Insurers Regulations, 2000, Schedule IIA 1(c). Insurer has also confirmed that in view of the IRDA Circular IRDA/F&I/CIR/INV/173/08/2011 dated 20th July, 2011, realigned its portfolio to come in compliance with the issued circular effective 1st October, 2011. Taking into account the submissions made by the insurer, the charges are not pressed.
• Violation of note 4 to Regulation 5 of IRDA (Investment Regulations, 4th Amendment) 2008
Inspection Observation 1(g): The company has taken blanket approval for raising the limit up to 15% in respect of industry/group exposure.
Decision: The insurer has submitted that the investment committee, as per the authority given to it by the board of directors, reviewed the exposure norms at group and industry level in its 41st meeting held on 28 January 2011 and has restricted the increased exposure to limited sectors only. The submissions of the insurer are taken into account. However, the delegation of authority, given to it by the board, by investment committee of the insurer is not proper and the insurer is advised to strictly follow henceforth the prescription of Note 4 to Regulation 5 of IRDA Investment Regulations.
IRDA is being too lenient, especially concerning investments which are a crucial part of an insurance company’s functional model.
• Violation of 4(6) of IRDA (Protection of policyholders’ interests) Regulations, 2002
Inspection Observation 16: Proper follow up is not done with the proposers to obtain pending requirements.
Decision: The insurer submitted that auto generated communication on pending requirements dispatched to proposers on the 10th, 20th, 30th and 38th day from the application receipt date with documentary proof. The insurer also informed the house that follow-up is being done through SMSs for all the pending proposals The submissions made by the insurer that proper follow up is indeed being done to obtain pending requirements from proposers is considered and the charges are not pressed.
• Violation of F&U Procedure
Inspection Observation 32: Top-up premium remitted along with the first premium was being accepted without minimum mandated additional risk coverage even when the top up premium is more than 25% of the first premium.
Decision: The insurer submitted that it has happened due to a system error which has been now rectified and assured that going forward such instances would not recur. Taking into account the submissions made by the insurer the charges are not pressed.
• Violation of provisions of Clause 27 of Licensing of Corporate Agents’ Guidelines, 14/07/2005
Inspection observation 33: It is observed that the company is not carrying out due diligence at the time of appointment of “Business Mentors”. The business mentors as mentioned in the report are working in different capacities with many insurers in contravention of the business mentor model as described by the company.
Decision: The insurer has submitted that they prohibit business mentor’s association with any other insurance company by taking self declaration on the same while recruiting. If they are found to be in association with any other life insurance company action against them is initiated. The insurer has also expressed that due to lack of central repository of corporate agents, due diligence could not be carried out while recruiting business mentors. They also submitted documentary proof of action taken on business mentors who are associated with more than one insurance company. Taking into account the submissions made by the insurer the charges are not pressed.
The remaining violations were ‘spared’ by IRDA.
Earlier, IRDA had admitted to industry-wide mis-selling (http://www.moneylife.in/article/irda-chairman-admits-pension-plans-were-mis-sold/21488.html). However, if a company can violate regulations and norms and get away with a paltry fine, it would set a poor precedent.
Earlier, Sahara Life Insurance had too committed a host of violations. We had written about it here. (http://www.moneylife.in/article/sahara-life-insurance-caught-for-multiple-violations-penalised-for-a-mere-rs12-lakh/24017.html). Sahara, too, was let off by IRDA in a similar fashion. A few months ago, HDFC Standard Life Insurance was slapped with a fine of just Rs5 lakh, for delaying a settlement claim (http://www.moneylife.in/article/irda-slaps-rs5-lakh-fine-on-hdfc-standard-life/20378.html).
“The Income Tax department has made an estimation that the total tax implication in consequences of retrospective amendments introduced in Finance Bill 2012 may be to the tune of Rs35,000-Rs40,000 crore,” minister of state for finance SS Palanimanickam informed the Rajya Sabha
New Delhi: The controversial proposal to amend the Income Tax (I-T)Act with retrospective effect to bring into the tax net Vodafone-type deals is expected to yield to the exchequer Rs35,000 to Rs40,000 crore, reports PTI.
“The Income Tax department has made an estimation that the total tax implication in consequences of retrospective amendments introduced in Finance Bill 2012 may be to the tune of Rs35,000-Rs40,000 crore,” minister of state for finance SS Palanimanickam told the Rajya Sabha in a written reply.
Finance minister Pranab Mukherjee’s Budget proposal, aimed at taxing Vodafone-type merger and acquisition deals involving domestic assets has generated lot of debate, with various global bodies claiming that the move would hurt foreign investment.
Once the amendment is approved by Parliament, the British telecom giant would have to pay Rs11,000 crore as tax for its acquisition of the Hutchison's stake in Hutchison Essar in 2007.
On the overall implications of the proposed amendment, Mr Palanimanickam said, “The figure of Rs35,000-Rs40,000 crore is an estimate and the exact amount is determined only when assessing officer completes assessment proceedings. The proceeding before assessing officer is a quasi judicial proceeding and the name along with demand raised is determined only on completion of such proceedings.”
In a separate reply, minister of state for finance Namo Narain Meena said: “Foreign investors make their decisions taking into account all relevant factors and the investments are admitted into the country within the framework of the applicable laws, rules and regulations formulated to promote the country's interest.”