Mallya flies high despite Kingfisher

P sainath /The Hindu /Mumbai /7 july 2012

Can a defaulter owing a public sector bank Rs. 40 crore persuade that bank to sanction him Rs. 150 crore in further loans before paying back a rupee? Can he get that bank to lower his debt to less than half of what he owed them? Can he have the terms of sanction amended repeatedly so that the personal guarantee demanded of him disappears? And can he get the bank to change the very purpose for which the loan was given?

Yes, if the defaulter is part of the United Breweries (UB) group headed by Vijay Mallya and the institution is Bank of Maharashtra (BoM). And it shouldn’t take more than two months. You can even get the first pay-out of your loan — before you have shown compliance with even its greatly weakened terms and conditions.

“There are fears within the bank that this Rs. 150 crore from BoM to a UB group company may really be about raising money for the group’s struggling airline, Kingfisher,” a whistleblower within the bank told The Hindu. “The changes in terms, conditions and purpose of the loan are worrying. And BoM might well sanction further amounts. This fund-raising drive is surely on in other banks, too. Which would explain the limited amounts from each of them.” Kingfisher has a debt of over Rs.7,000 crore and has not paid employees’ salaries for months. It has defaulted on tax payments and vendors complain of unpaid bills. BoM’s Rs. 150 crore (so far) will not dent a debt that size. But it could help raise desperately needed short-term working capital of Rs. 700-800 crore. A UB Group spokesperson, however, asserted that there was no “practice of inter-company funds diversion.”

On March 29 this year, BoM sanctioned a new loan of Rs. 100 crore to United Spirits, a UB group company. Aware that another UB Group concern, UB Engineering, still owed the bank money, BoM’s Credit Approval Committee (CAC) was initially cautious. The new loan could happen only “after repayment of full recompense amount of Rs. 40.60 crore to the satisfaction of the bank along with up to date interest in respect of dues of M/s UB Engineering Ltd ...”

By April 21, barely three weeks later, a new sanction letter had dropped mention of the Rs. 40.60 crore. Now, it was up to the bank's Recovery Department to “inform the amount of dues to be recovered from M/S UB Engineering” in line with the bank's recovery policy. By May 22, the amount sought to be recovered from UBE was down to Rs. 19.9 crore.

On March 29, the CAC had mandated that the loan to United Spirits be “utilized solely for future purchase (emphasis added) of casks (approx 1.28 lakhs) for maturation of spirits.” Also, “the bank would make payment directly to suppliers and vendors.” And no reimbursement would be allowed “in respect of assets already purchased.” This firmness, the BoM whistleblower told The Hindu, “arose from fears of the UB group diverting the money to Kingfisher.” Yet, by May 11, the firmness vanished. “Amount already spent on procurement of casks shall be allowed as margin towards promoter’s contribution,” said an amendment to the sanction. Nor would the bank deal directly with suppliers and vendors. “Necessary details such as original bills, present value of casks etc. in respect of casks already procured (emphasis added) should be obtained and held on record.” That, scoffs a banker, “means bills for stuff purchased ages ago might be used to show compliance with the loan terms and conditions. Perhaps no actual rule is broken. But the bank changing its own condition to ‘already procured,’ raises worries.”

The Hindu sent an email to BoM Chairman & Managing Director Narendra Singh, raising some of these issues. To which the Bank’s Chief Law Officer responded: “We cannot divulge any information relating to the affairs of any of our constituents.” This was “in view of the Bank’s legal obligation to maintain confidentiality and secrecy of its constituents accounts.” As required under “Section 13 of the Banking Companies (Acquisition & Transfer of Undertakings) Act 1970.” Given that one of the queries was simply whether all RBI directives had been followed in making the loans, the secrecy argument appears redundant.

By June 21, the amended purpose of the loan read: “For CAPEX (capital expenditure) requirement of the company for ongoing expansion (total project cost Rs. 1078 crores).” The strict original purpose had been drowned in a broader project. The loans have so far seen one sanction letter cancelled and a second one amended four times.

On March 29, the bank called for a ‘Personal Guarantee’ from Mr. Mallya as part of the deal. It also sought a ‘Corporate Guarantee’ from Four Seasons Wines Ltd (a UB Group company) and from United Breweries Holdings itself. It required the “latest net worth details of Mr Mallya be obtained before disbursement and it should be satisfactory.” By April 21, the ‘personal guarantee’ condition had vanished. Nor was one required from UB Holdings Ltd any longer. A guarantee from just Four Seasons Wines would be enough.

The Bank of Maharashtra grew more generous by the week. The March 29 sanction had required Credit Reports (CRs) from all other banks dealing with the borrower company/group. (The 18-bank consortium of lenders to Kingfisher Airlines includes 14 public sector banks). This was to certify “satisfactory dealings with respective banks prior to disbursement” of the loan. By April 21, the CR was to certify “satisfactory dealings” of group companies “other than Kingfisher Airlines” with the banks, prior to loan disbursement. The new letter sanctioned a further Rs. 50 crore loan beyond the original one of Rs. 100 crore.

On May 11, the bank further amended the sanction terms. Now the borrower was only required to obtain the credit report “within 90 days from 1st disbursement.” Likewise, the borrower was given 90 days after first disbursement to produce No-Objection Certificates (NOCs) from all other banks dealing with the Group “in respect of existing working capital and Term Loan lenders.”

In other words, alleged a BoM whistleblower: “We give them money before they fulfil any loan conditions. And the Rs. 50 crore looks like a hand-out to pay off the money earlier owed. This may not end at Rs. 150 crore. There might be further loans soon.”

The April 21 sanction letter stressed that the Rs. 150 crore “should not be utilised for extending loans to subsidiary companies / associates or for making inter-corporate deposits.” It sought a ‘suitable undertaking’ from the company to this effect. “They were still worrying about diversions to Kingfisher,” says a bank official. They soon stopped worrying. By May 11, this condition was: “Waived.”

In April, the borrower was forbidden from effecting “any change in their capital structure” without “prior approval of the bank in writing.” They were not to undertake mergers, new projects or expansion without the bank’s consent. By May 11, the company was merely required to “keep the bank informed in writing” of any such changes. The Bank’s consent was no longer needed.

Replying to a questionnaire from The Hindu, a UB Group spokesperson said that “BoM sanctioned a loan of Rs 150 crores on terms and conditions comparable to loans taken by United Spirits Ltd from other nationalised banks after due negotiations.” The reply confirms that the drive involves other banks, too, (see box). Such as the Punjab National Bank. The spokesperson claimed the “sacrifice amount” made by the Bank of Maharashtra was no more than Rs. 17.43 crores and part of a legitimate one-time settlement.

Most importantly, the UB Group Spokesperson asserted that: “USL does not follow any practice of inter-company funds diversion. In particular, USL has not lent any funds whatsoever to Kingfisher Airlines.” Why, then, has Bank of Maharashtra exempted Kingfisher airlines while seeking proof of “satisfactory dealings” of group companies? The Bank’s Law Officer pleads “confidentiality and secrecy.”

“This isn’t about just one but many public sector banks, involving hundreds of crores — more public money than we know about,” says the Bank of Maharashtra whistleblower. “On the one hand, media reports speak of lenders turning the screws on Kingfisher. On the other, UB Group companies seem to be able to get money, perhaps even from the same lenders, on terms defaulters can’t get. The total amount could be startlingly large - as also the risks involved for the banks.”

“The Bank of Maharashtra has lakhs of farmers, working people and retired employees amongst its depositors,” the whistleblower added. “We are called the common man’s bank. The farmers — routinely blamed for our NPAs — today struggle to get tiny amounts as loans. But big corporations like UB get hundreds of crores in weeks in a manner most risky to the bank. And these kinds of deals won’t figure in our discussions of NPAs.”

HC can names arbitrator to avoid tie

M J Antony / BS /New Delhi Jul 02, 2012, 00:51 IST

The Supreme Court has ruled that a high court has the power to appoint an arbitrator in a dispute between two parties if one of them refuses to name an arbitrator according to the contract. If a party is aggrieved by the refusal of the other party to nominate the arbitrator, he can move the court and then the other party cannot object to the court appointing an arbitrator under the Arbitration and Conciliation Act. In this case, Hindustan Petroleum Corporation vs Vijay HP Filling Centre, the oil company terminated its contract with the dealer. The latter invoked the arbitration clause and asked HP to name the arbitrator. It did not. So the dealer moved the Punjab and Haryana High Court. It appointed a district judge as arbitrator. HP appealed against that order to the Supreme Court. It upheld the view of the high court and named one of the retired judge of the Supreme Court as the arbitrator.

Interest on solatium
The land owner whose property has been acquired under the Land Acquisition Act is entitled to interest on the solatium granted, the Supreme Court has held in the judgment, Chhanga Singh vs Union of India. Compensation was awarded in 1986, after assessing the market value of the land. When the owner moved the executing court for higher compensation, it raised the value of the land and also awarded solatium. But interest on it was not awarded. The owner moved the court again, but his plea was rejected. The high court also dismissed his appeal. But on further appeal to the Supreme Court, it allowed interest on solatium, following earlier constitution bench judgments on this question.

Order to remove drug trade mark
The Delhi High Court has dismissed the appeal of United Biotech Ltd against the order of the Intellectual Property Appellate Board in its trade mark dispute with Orchid Chemicals and Pharmaceuticals Ltd. United Biotech had a medicine called Forzid while Orchid had one named Orzid.The latter company moved the board complaining that the names were similar and likely to confuse the public. The board allowed the rectification application and directed the Registrar of Trade Marks to remove the trade mark Forzid from the register. It held that Forzid was deceptively similar to the earlier trade mark Orzid in respect of some pharmaceutical products. Further, it ruled that a trade mark cannot be registered if it is of such nature as to deceive the public or cause confusion or it is similar to an earlier trade mark and goods covered by the trade mark. The division bench of the high court upheld this view.

DRT can regulate own procedure
The Bombay High Court has stated that the Debt Recovery Tribunal is not bound by the procedure laid down in the Code of Civil Procedure (CPC) and has the power to regulate its own procedure. The tribunal, under the scheme of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, has the power under the CPC and it can even travel beyond it, provided natural justice is observed, the high court stated in its judgment in the case, Manik Engineering Ltd vs State Bank of India. The bank started recovery proceedings in 1986 in the high court. Later the tribunal was set up and the suit was transferred to it. The debtors argued that they were not aware of it as they were not served notice by the tribunal and the newspaper publication by the bank was not known to them. Therefore, it was argued that the tribunal did not follow the CPC provisions. Rejecting this argument, the high court emphasized that the Act was meant to speed up recovery of debts and therefore the tribunal was conferred special powers. If the tribunal is not able to conclude proceedings expeditiously, the purpose of the law itself will be defeated, the court emphasized while dismissing the petition.

Patent on water filter revoked
The Intellectual Property Appellate Board has revoked the patent granted by the Controller of Patents and Designs to Hindustan Unilever Ltd for a filter device for cleaning water, claiming to improve the performance of “filter cartridges in achieving controlled constant flow rate with effective filtration even after extended application.” The board passed the order on an application by Tata Chemicals Ltd. The latter company intervened claiming that the product of Unilever was not novel. Tata Chemicals stated that it has an Innovation Centre in Pune which is working on water purification methods. The company has recently released in the market a unique and cheap water purifier which requires no energy or running water to operate. The board ruled that “the invention is not new, nor is there any inventive step.”

Banks give Kingfisher 15 days to come up with revival plan

Bankers have decided to sell non-core assets of Kingfisher Airlines that include Kingfisher House in Mumbai and a villa in Goa belonging to Mr Vijay Mallya.

BL :Nivedita ganguly :MUMBAI, JULY 5: 2012

Banks have told Kingfisher Airlines to come up with a concrete action plan to improve its 

operations within a fortnight. Currently, the private carrier’s operations are hobbled. Its fleet 

strength has dropped to 13 from 64 last November.

Bankers say that given its current fleet strength and truncated operations schedule, the 

beleaguered airline cannot be turned around.With the debt-laden airline reportedly defaulting 

on lease rentals of over Rs 1,000 crore, lessors recently repossessed 34 aircraft.

While the airline promoter is banking on the proposed liberalisation in foreign direct investment 

in the aviation sector, bankers’ patience appears to be wearing thin. Debtor-creditor meetings 

held so far have not yielded any result.

SMALL DENT IN DEBT

The airline has been asked to put non-core assets — Kingfisher House in Mumbai and the 

promoter’s villa in Goa — on the block. This will lighten its debt burden, but only a tad.

Pointing out that the airline’s assets will barely cover 10 per cent of the Rs 7,000 crore,it owes 

a consortium of 17 banks, a senior public sector bank official said if banks precipitate action 

then the corporate guarantee and promoter guarantee for loans taken could be invoked.

However, the cash-strapped airline, in a statement, said the meeting with the consortium of 

bankers was scheduled as an “update meeting” and there was “no discussion on 

commencement of recovery proceedings”.

“Kingfisher House has been lying vacant after the staff moved to our new offices at The Qube in 

Mumbai, and even at that time, on our own accord, we approached the banks with a proposal 

to liquidate this unutilised asset. At today’s meeting, we raised the issue of this pending 

approval,” the KFA spokesperson said.

Kingfisher House was the airline’s corporate headquarters till it decided to put the building on 

the block to raise funds. The airline is planning to raise between Rs 90-100 crore selling this 

building.

MARKET SHARE

In late-September last year, Mr Vijay Mallya, Chairman of UB Group, said the company had 

moved into a new building in Mumbai and that Kingfisher House was redundant. “So, we will 

obviously look to sell it. Any initiative that we can take to reduce our debt is going to be 

pursued,” he had said then.

KFA saw its domestic market share fall from second to the last in just six months.

Global airline consultancy firm Centre for Asia Pacific Aviation (CAPA) estimates that 

Kingfisher Airlines has a funding requirement of close to $1 billion, of which $500-600 million is

 needed immediately. CAPA estimates an additional funding requirement of $300-400 million 

in the next fiscal.

ICICI Bank sells Rs 430-cr Kingfisher debt to Srei Infra

 

With the turnaround plans for Kingfisher Airlines yet to take off, ICICI Bank has bailed out, selling its entire Rs 430-crore debt exposure in the airline.

The buyer is a debt fund managed by Srei Venture Capital Limited (SVCL), the fund management arm of Kolkata-based Srei Infrastructure Finance Ltd (SIFL).

In a statement, ICICI Bank said it has ‘recovered’ the entire debt exposure of Rs 430 crore to Kingfisher Airlines. India’s largest private sector bank, however, owns 2.07 per cent stake in the airline.

Adequate collateral

Bankers say when a debt fund or an asset reconstruction company buys a non-performing loan from a bank, the transaction is usually at a discount to the face value. In a statement, Srei Infrastructure said a debt fund managed by Srei Venture Capital has invested in Kingfisher Airlines’ debt.

“It (SVCL) has invested against good security with adequate collateral. The fund saw an opportunity in the securities and commensurate returns being offered by this proposal,” said Srei Infrastructure.

The airline, which has been impacted by rising cost of fuel and competition, has struggled to repay loans and interest to banks.

All efforts to recast the airline’s debt have come to a nought so far. The cash-strapped airline has not cleared all its dues to oil companies and airports and defaulted on payment of service tax and TDS to the government.

Banks, including State Bank of India, Punjab National Bank, Bank of Baroda, ICICI Bank, IDBI Bank, and Bank of India, have been grappling with a debt exposure aggregating Rs 7,000 crore.

SBI is the biggest stakeholder in KFA, holding 3.49 per cent. IDBI Bank has a 2.16 per cent stake and Bank of India 1.08 per cent. They acquired ownership in the airline following conversion of a part of their loan into equity. Bankers will meet tomorrow to take stock of the KFA recast proposal. Banks want the promoter and promoter group, who collectively own 35.86 per cent stake in the airline, to pump in fresh equity before seeking a loan lifeline.

KFA shares closed 0.75 per cent down at Rs 11.96 per share on the BSE against the previous close of Rs 12.05.

Dr.A.S.Pragasam V/S Indian Bank and ors -2055 days delay

IA 1586/2008 (Delay):

1.         This Interlocutory Application is filed seeking to condone the delay of 2055 days in filing the above appeal.

2.         The facts of the case may be stated in brief as follows:

The petitioner had availed a loan of Rs.32,00,000/- from the respondent bank for the production of a Tamil film titled “Mukkulathor”.  The said loan was sanctioned with an understanding that the loan would be repaid in one lump sum at the time of the release of the picture. Knowing fully well that in the matter of lending for cinema projects, repayment of the loan amount is not possible before the release of the picture, the respondent bank introduced a covenant that the loan should be repaid in one lump sum before the release of the picture or before six months from the date of the loan, whichever was earlier stating that the norms did require such a covenant.  The picture negatives of the said film are with Vijaya Color Laboratory and a charge had been created in favour of the respondent bank over the picture negatives of the said film and the same is entered in the Laboratories records as per trade practice.  The petitioner executed all the loan documents on 3.11.1995 but the respondent bank did not release the entire amount as agreed to and this had caused loss, hardship and mental agony to the petitioner.  Apart from the picture negatives of the film, the loan was further secured by equitable mortgage of the property of an extent of 5.28 acres situated at No.52, Allathur, Madura Pallathur Village, Saidapet Taluk, Chengalpet District.  The respondent bank which was keen on proceeding against the petitioner filed OA No.1132/2001 for the recovery of a sum of Rs.53,78,144/- on the file of DRT-II Chennai. The petitioner filed his written statement setting out the facts and raising various defences and had also requested for the statement of accounts, which were not furnished to him.  In the meanwhile the petitioner had to undergo a bye pass surgery and therefore he could not attend the court proceedings and was fully dependant on his counsel.  The Tribunal below without properly appreciating the facts of the case had allowed the OA as prayed for by order dated 4.10.2002.  The passing of the final order was not intimated by the erstwhile counsel to the petitioner and whenever he asked his counsel he was informed that the matter is being contested by other defendants and that the OA is pending and no damage would be caused to the petitioner’s interest.  While so, to the shock and surprise of the petitioner the petitioner received an order of attachment dated 27.6.2008 in DRC No.68/2008 from the Recovery Officer, DRT-I Chennai claiming a sum of Rs.1,20,93,722.24 and that in the event of default the house property would be brought for sale.  Therefore the petitioner contacted his erstwhile counsel who still maintained to say that the OA was pending.  The petitioner therefore appointed a new counsel and arranged for obtaining of the certified copies of the relevant documents and came to know of the passing of final orders in the OA.  The petitioner came to know about the passing of final orders in the OA only after engaging the present counsel and that in the said process a delay of 2055 days has been occasioned in filing the appeal.  It is stated that the petitioner is a heart patient having undergone a bye pass surgery and that he was fully dependant on his counsel for the court proceedings and the delay in filing the appeal in the said circumstances is neither willful nor wanton but due to the reasons stated above.  The petitioner has prayed that the delay of 2055 days in filing the above appeal be condoned.

3.         The petitioner has set out his contentions in detail in the affidavit filed in support of his contentions and the same forms part of record.

4.         The respondent bank filed its counter stating that the appellant availed secured overdraft facility by executing the necessary documents and also hypothecated the negative rights of his film “Mukkulathor”.  The facility was also secured by the personal guarantee of Mr. Lakshmana Reddiar and mortgage of immovable property at 44, Alathur, Madura Pallathur village, Saidapet Taluk, Chengalpet District belonging to him.  The appellant accepted the terms and conditions of the sanction and executed the loan documents and therefore he now cannot say that the bank insisted for a new covenant to be included in the agreement and that the amounts were released as per the terms of the agreement.  The petitioner defaulted in repayment and the bank was constrained to recall the advance and also had to file the OA for the recovery of its dues.  The bank has charged interest as per the terms of the sanction and as per the guidelines of Reserve Bank of India.  The bank had furnished the statement of accounts as and when the same were required by the appellant and the appellant had also been provided with a copy of the documents including the statement of accounts filed before the tribunal.  It is stated that the affidavit is silent with regard to the dates on which the petitioner suffered a heart ailment and the date of bye pass surgery and the date of recovery.  The petitioner being a litigant and a prudent man ought to have been more vigilant in conducting his case and he cannot blame his counsel.  It is stated that the petitioner would have received the copy of the final order dispatched by the tribunal and it is not true that he came to know of the proceedings only when he received the attachment order dated 27.6.2008 in DRC No.68/2007 and that the petitioner with an ulterior motive has not chosen to contest the matter and has not participated in the DRC proceedings.  It is stated that the petitioner was under the impression that the bank will proceed only against the mortgaged property for the realization of its dues and the same would be sufficient to liquidate the dues of the bank.  It is stated that the mortgaged property could fetch only Rs.15,30,000/- against the recovery initiated for a sum of Rs.1,20,92,722.24 and as the petitioner’s property was identified and attached he is now making all sorts of allegations and has now come before this Tribunal with this application. The petitioner has not explained the delay and the application of the petitioner lacks bonafides and is liable to be dismissed.

5.         The respondent bank has set out its contentions in detail in the counter filed by it and the same forms part of record.

6.         Ld Counsel appearing on behalf of the petitioner stated that the petitioner has approached the bank for a loan for taking a movie and that due to circumstances beyond the petitioner’s control the movie could not be completed.  Ld. Counsel further stated that the petitioner got into difficulties as the bank did not release the full amount and further that the bank failed to release the funds as per the requirement.  Ld. Counsel further stated that the reason for the delay has been properly explained in the affidavit filed in support of the petition and added that no prejudice would be caused to the bank if the delay is condoned and that on the other hand if the delay is not condoned the petitioner would be put to great hardship and suffering and prayed that the IA filed for the condonation of delay may be allowed.

7.         Ld. Counsel appearing on behalf of the respondent bank took this tribunal through the factual matrix of the case and also drew the attention of this tribunal to paragraphs 8, 9 and 10 of the affidavit filed in support of the petition and stated that the petitioner has simply blamed his counsel and that merely blaming the counsel would not be a satisfactory reason for the explanation of the delay that had occurred in filing the appeal.  Ld. Counsel further stated that the petition is misconceived and that it has been filed only for the purpose of dragging on the case.  Ld. Counsel further stated that neither the reason for not filing the appeal within the time has been explained nor the delay of 2055 days that had occurred in filing the appeal has also been explained. Ld. Counsel further stated that the petitioner failed to file the appeal within the time limit and chose not to challenge any of the actions of the Ld. Recovery officer but sprung to action the moment when he came to know about the attachment of his property.  Ld. Counsel added that the petitioner has filed this petition only to delay the recovery process through attachment and that there are no boanfides in the petition and prayed that this IA should be dismissed with exemplary costs.  Ld. Counsel added the non production of the medical certificate would clearly show that the petitioner’s illness has not been proved.  The Ld. Counsel stated that the IA warrants only a dismissal.

8.         Heard the Ld. Counsel for the Petitioner and the Ld. Counsel for the respondent bank.

9.         A reading of paragraph 9 and 10 of the affidavit filed in support of the petition reveals that the petitioner’s counsel who appeared for him in the OA proceedings did not inform about the development of the case more particularly about the disposal of the OA itself.  It is also revealed that only when the petitioner received the order of attachment passed by the Recovery Officer he had come to know that the OA filed by the bank had been allowed against him and that his erstwhile counsel did not inform him and that he had to engage another counsel for the present proceedings.  It can be seen that the failure on the part of the Advocate to inform the petitioner about the development of the case and ultimately the allowing of the OA cannot at all be a reason for the condonation of the delay of 2055 days.  The plea of the petitioner that he was unwell and that he had undergone bye pass surgery cannot explain the delay of 2055 days i.e., nearly a period of 5½ years.

10.       Therefore from the fact that the failure on the part of the petitioner’s counsel to inform the petitioner about the OA proceedings and the petitioner’s heart ailment cannot explain the delay of a period of more than 5½ years this Tribunal is driven to conclude that the petitioner has failed to show that he was prevented by sufficient cause from filing this appeal within the time prescribed under law and that the delay of 2055 days thereafter has also not been properly explained and such being the case this Tribunal is drive to pass the following order:

“This petition is dismissed”

This Odrer was delivered by THE HON'BLE CHAIRPERSON of DRAT, Chennai ON 02/07/2012