Lenders, tax sleuths vie for first right of recovery from Vijay Mallya

Maulik Vyas, ET Bureau | 16 Sep, 2014, 11.32AM IST
Consortium of fourteen banks has challenged revenue dept's attachment notice before Karnataka HC A consortium of 14 banks fighting to recover money they have lent to Vijay Mallya-promotedKingfisher Airlineshas challenged an attachment notice the service tax department issued against the liquor baron in the Karnataka High Court to recover tax dues. Now it's for the court to decide the first right of recovery between secured lenders and sovereign dues. 

The revenue department, a couple of months ago, claimed the first right to recover dues by attaching the Kingfisher House in Mumbai, six aircraft and two helicopters, besides freezing bank accounts of the defunct airline. 

It filed a petition with the Debt Recovery Tribunal (DRT) in Mumbai and in Bangalore where banks, led by the State Bank of India, are fighting to recover their dues from Kingfisher Airlines. While 17 banks have lent more than . 

Rs 7,000 crore to the firm, a senior tax official in the know of the development said the department has laid a claim to the tune of Rs 100 crore. 

"The avenues to get money from the company are evaporating fast and everybody wants to recover as much as they can get," the official said. Early this month, United Bank of India had declared Mallya a 'wilful defaulter' and last week SBI said it too has sent a wilful defaulter notice to him. 

Once a company is declared a wilful defaulter, criminal proceedings can be initiated against its promoters and directors, who will also not be allowed to raise fresh funds from banks and set up new ventures for five years. As per RBI guidelines, it will have to be proved that the borrower diverted funds taken from a bank and did not repay the loan despite having the ability to pay it. 

Advait Sethna, special counsel appearing for the service tax department in the case, said that the banks' challenge is an important development. "The decision in this case would be a landmark judgement and is being closely watched by the banking and finance sector, as the battle for recovery of the state dues and the bank debts intensifies," he said, adding that the decision will have "far-reaching implications". 

Prakash Mirpuri, vice-president of corporate communications at Mallya's United Breweries Group, in an email response to ET query, said, "We cannot comment on matters that are sub judice please." An email query to State Bank of India (SBI) did not elicit any response till the time of going to press. 

The consortium of banks fighting to recover money from Kingfisher includes Axis Bank Bank of Baroda, Bank of India, Central Bank of India and Corporation Bank. 

According to a revenue department official, the carrier, which stopped operations in October 2012, allegedly did not deposit the service tax collected on ticket sales with the department and diverted the money for other purposes.