Vijay Mallya is a perfect example of the government scoring a self-goal in its attempt to showcase the power of its newly minted Insolvency and Bankruptcy Code (IBC) of 2016. The flamboyant ‘King of Good Times’, who bought political clout with a Rajya Sabha seat, an honorary doctorate and connections across the political spectrum was to be jailed so that the government could claim that nobody was above the law.
At that time the action seemed well deserved. But nine years after the collapse of Kingfisher Airlines and his flight to London, Mr Mallya appears to have turned the tables with a curated podcast with influencer Raj Shamani released in early June. The flamboyant liquor baron recast himself as a victim of political vendetta to the young interviewer who is as disarmingly clueless about Mr Mallya’s many failed businesses as he is about bank loans, guarantees and recovery proceedings. This allowed the savvy industrialist to showcase his extravagances as a serious effort to build the Kingfisher brands—whether it is liquor or the airline.
Mr Mallya points out that the government has admitted the recovery of Rs14,100 crore by selling his assets and shares, which is over twice the Rs6,200 crore he owes. This is, indeed, higher than any recovery under the bankruptcy law and statements about how he still owes over Rs7,000 crore in interest to banks are churlish and only underscore his charge that he is being selectively targeted.
On the charge of being a fugitive businessman, he says he had informed then finance minister Arun Jaitley about leaving the country and cannot return since his passport has been revoked. But this is only one part of the picture.
Mr Mallya turned into a poster boy for financial misdeeds because he assumed that he could arm-twist a weak, coalition government, under the United Progressive Alliance (UPA2) to bailout the bleeding Kingfisher Airlines over and over again. His further immaturity in flaunting an obscenely opulent lifestyle, even as a tottering airline caused distress and losses on passengers while the airline staff remained unpaid, led to huge public anger.
Mr Mallya casts himself as a misunderstood entrepreneur and blames Kingfisher’s collapse on high aviation fuel taxes, rupee depreciation and the government’s refusal to allow investment by Etihad Airways. Indeed, India’s aviation sector has long suffered from over-regulation and punitive taxation. But other airlines, like IndiGo and SpiceJet, were profitable at the time Kingfisher was losing money.
As early as in 2011, a report by Veritas, a Canadian research firm, had already sounded the alarm saying the airline was ‘teetering on the verge of bankruptcy’. With its equity wiped out, it was surviving on State largesse; but India’s nationalised banks not only ignored the warning but had scandalously converted debt to equity at inflated prices and was getting preparing to bail it out again.
It said, he was using ‘scare tactics’ (such as large-scale flight cancellation and non-payment of salaries) to extract concessions for a company with losses of Rs7,000 crore after an expensive acquisition of Air Deccan —all funded by nationalised banks. Meanwhile, the airline had defaulted on employee provident fund contributions and tax deducted at source (TDS), prompting the tax authorities to freeze its accounts. Service taxes, vendor payments and staff salaries were also delayed.
The letter demanded that any bailout to Kingfisher should be contingent on Mr Mallya injecting at least Rs4,000 crore from personal assets and a complete change in management. It also called for an urgent overhaul of India’s aviation policy, including tighter licensing and safety norms. At that time, Vijay Mallya was not a story of regulatory persecution but one of regulatory capture. For the record, Mr Mallya did offer to pay Rs4,000 crore upfront, after relocating to London, but it was too little and too late.
What Explains Mr Mallya’s Hubris?
Perhaps his own words offer a clue. In 2000, he told a reporter that politicians wanted "liquor money, liquor planes, liquor helicopters and liquor itself during elections,", yet denied him a place in Parliament (https://m.rediff.com/money/2000/apr/18dalal.htm). He soon secured a Rajya Sabha seat which may have helped his liquor business battling fragmented State policies and the airline business as well. His private aircraft, nicknamed the Kingfisher Express, ferried netas to Parliament. State-owned carriers, Air India and Indian Airlines, bore the brunt of Kingfisher’s political leverage.
In 2016, Mr Mallya had asked, “Why am I being made the poster boy for bad loans?”— seemingly oblivious to the bad optics of donating several kilos of gold to two temples and throwing himself a lavish 60th birthday bash in Goa, while defaulting on employee salaries and taxes. This is a man who fought a legal battle to pay himself Rs50 crore for issuing a personal guarantee for Kingfisher loans which is how banks had the documentation to act on them. The guarantees (including a Rs1,600 crore by UB Holdings) included significant pledge of shares and real estate that soared in value post-2020 and allowed banks to make significant recoveries -- not due to any voluntary repayment by Mr Mallya.
Mr Mallya claimed in the podcast that every expense, including the money splurged on the IPL franchise and Formula One team, promoted the Kingfisher brand. The fact is that he even claimed a tax deduction for payments to his socialite wives as business commissions (it was disallowed by the Chandigarh tax tribunal).
But this, again, is only one part of the story of a man, who inherited a business empire in his twenties, went on a mad expansion spree and escaped bankruptcy only because India’s economic liberalisation led to a massive rerating of his companies, brands and real estate (https://www.moneylife.in).
His high-stakes dealings mask a pattern of recklessness that accompany his legal acumen and ability to create brands.
The Near-bankruptcy
Mr Mallya inherited United Breweries group in 1983, along with Kissan Products, UB Petrochemicals, a clutch of other companies and a lot of real estate. He soon embarked on a spree of acquisitions, most of which ended in distress. Berger Paints, bought in 1988, was sold in 1996 to Kansai Paints for Rs250 crore. Best & Crompton, a blue-chip company that he bought in 1989, was mismanaged into decline and, eventually, sold in 1995. Mangalore Chemicals and Fertilisers, acquired in 1990, was declared sick by 1994 and, ultimately, sold to Zuari Industries in 2004 after a one-time settlement and Rs135 crore interest write-off. Kissan was sold to Unilever. The story repeated itself in business after business. In between, he also dabbled in and shut down a pizza company, carbonated water company, telecom and healthcare, among many others.
A bitter takeover battle for Shaw Wallace (with Dubai-based corporate raider Manu Chhabria), had led to his brief arrest in 1986 on charges of foreign exchange violations. It finally came under his control in 2005, after Mr Chhabria’s death. That same year, he ended another prolonged and nasty legal dispute with his brother, Kishore Chhabria and gained control of Herbertsons Ltd.
Kingfisher Airlines, set up in 2003, began operations in 2005. Modelled after Virgin Atlantic, with Mr Mallya as brand ambassador, it exuded glamour. Perhaps the thrill of owning an airline was bigger than that of owning prime property around the world, a fleet of vintage cars, race horses, yachts and private jets. Whatever it was, the glamour quickly became disconnected from financial reality. He made a series of bad business decisions from which he did not recover. The ill-advised acquisition of Air Deccan to gain international flying rights added to the financial burden - oil prices rose, revenue stagnated and debt ballooned.
Mr Mallya’s attempt to spin this failure into martyrdom seems audacious but is understandable. India’s regulatory system has been selective about bankruptcy. The politically-connected and extravagant Anil Ambani who had told the UK courts that his networth is zero is treated very differently. His Reliance Communications alone had defaulted on a debt of Rs47,000 crore and several companies have seen massive write-offs. Meanwhile he has gone on to sign a deal with Dassault to manufacture Falcon 2000 Jets. Aircel, owned by C Sivasankaran, fared no better. Many other fugitive industrialists, including the Sandesara brothers with a thriving oil business in Nigeria, have not faced similar scrutiny or legal pursuit.
Indeed, India’s bankruptcy law has recovered more from Mr Mallya than from many other larger defaulters. By targeting him disproportionately, the government has enabled him to portray himself as a victim. “I’m not a criminal,” he said in the podcast. “I created jobs, built brands, and offered to pay back every penny I could.”
That may not be entirely true, but when the rule of law is applied unevenly, even the most implausible narratives begin to resonate. Mr Mallya may never return to India, but his latest reinvention—as misunderstood patriot rather than rogue industrialist may succeed. And for that, the State’s ham-handed actions are responsible.
Sucheta Dalal has brought the incongruence of Indian law to the forefront.
There needs to be an active change if this country has to be made in the likes of Singapore or the 3rd Largest economy of the world.
I still have not understood if such are happening what is our ranking in the reality index of the world.
Industrialist in capitalists countries goes hand in hand with Politicians. In India major bank's who had given loan to Mallya are public sector banks which are controlled by central government. Influenced politicians can pressureise management of PSU banks to sanction loans to favorites industrialist. Vijay had good relationship with many influenced politicians. Western countries also government favour influenced industrial houses. Those support political parties get benifit.
It is question of public money that kept in PSU banks get vanished. Many companies got money from public issues and vanished after some years goes liquidation. Common people are helpless according to present civil laws and lengthy court proceedings.
Mallya's esoteric story was the creation of Indian banking and political system. Indian banks are notoriously inept and careless in terms of risk management and
observance to due diligence. IBC is a secret weapon to the high ups of the banks echelon to loot money in the name of haircuts. A haircut upto 90% is considered only upon internal understanding between banks higher authorities and the defaulter borrower. The whole system is messy and rotten.
The indian polity and system selectiveky treats defaulters and offenders is a fact and Mallyah had bad connections. But good that the recovery is done ! Atleast s precedence is established
https://youtube.com/shorts/sEI-9igbg9I?feature=shared
Link of podcast about wilful default of Mr Mallya .my book "Empowering the Banker " gives in detail the whole story
Hello
what a detailed explanation from the Podcast re phrased by you . I have seen , read since 1989 and saw him grow from 30 cr to 300 crores to 3000 crores and in 2008, he took 8000 crores from Diageo . So the fact is he was , is and a good business tycoon. he has never ever defaulted in UB only when KF collapsed he was blamed while many such corporates have collapsed but now have been pursed so vhemently as he is . If you see Voda phone - kumar mangalam is struggling but he gets bailed out. ClearlyMallyay is a cross fire target - which is unfortunate. However, he seems to be coming back as per his podcast
An even-handed article highlighting both the profligacies of Mallya and the selective treatment of defaulters by the eco system, thanks to the inflated ego of Mallya and his penchant to gloat in public. He did run down most of the inheritance from his simple father but is far better than many more industrialists who actively connived/schemed to loot the PSU banks.
I didn't even bother to listen to the podcast becaus why give criminals a platform? I guess social media influencers are shrewd capitalists, so I'll give them credit where it is due. I have no sympathy for Mallya. He deserves the belt treatment.
Thanks a lot for a fact filled incisive article. I agree that the defaulters are handled differently. These are the folks who can manage the ecosystem well. Anil Ambani at least went through the ignominy of his PG being invoked. But he got away since there was nothing in his name. And there are many big defaulters who get away with a gentle rap on the knuckle.
His King Fisher Airlines also is my debtor> I had booked an Air ticket worth about 3K about 3-4 onths in advance .Just a forthnight before my flight date ,Kind Fisher was grounded. The Air line had promised me refund soon. There might be hundreds of other flyers who might have booked tickets before it got grounded. And that is not accounted as a part of his debts.
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In 2016, Mr Mallya had asked, “Why am I being made the poster boy for bad loans?”— seemingly oblivious to the bad optics of donating several kilos of gold to two temples and throwing himself a lavish 60th birthday bash in Goa, while defaulting on employee salaries and taxes. This is a man who fought a legal battle to pay himself Rs50 crore for issuing a personal guarantee for Kingfisher loans which is how banks had the documentation to act on them. The guarantees (including a Rs1,600 crore by UB Holdings) included significant pledge of shares and real estate that soared in value post-2020 and allowed banks to make significant recoveries -- not due to any voluntary repayment by Mr Mallya.
There needs to be an active change if this country has to be made in the likes of Singapore or the 3rd Largest economy of the world.
I still have not understood if such are happening what is our ranking in the reality index of the world.
It is question of public money that kept in PSU banks get vanished. Many companies got money from public issues and vanished after some years goes liquidation. Common people are helpless according to present civil laws and lengthy court proceedings.
observance to due diligence. IBC is a secret weapon to the high ups of the banks echelon to loot money in the name of haircuts. A haircut upto 90% is considered only upon internal understanding between banks higher authorities and the defaulter borrower. The whole system is messy and rotten.
Link of podcast about wilful default of Mr Mallya .my book "Empowering the Banker " gives in detail the whole story
what a detailed explanation from the Podcast re phrased by you . I have seen , read since 1989 and saw him grow from 30 cr to 300 crores to 3000 crores and in 2008, he took 8000 crores from Diageo . So the fact is he was , is and a good business tycoon. he has never ever defaulted in UB only when KF collapsed he was blamed while many such corporates have collapsed but now have been pursed so vhemently as he is . If you see Voda phone - kumar mangalam is struggling but he gets bailed out. ClearlyMallyay is a cross fire target - which is unfortunate. However, he seems to be coming back as per his podcast