Vijay Mallya Scam

FINANCIAL
INSTITUTIONS
& MARKETS
P R E S E N T E D B Y :
S A B I N A F A T I M A
M O H A M M A D A F T A B
M O H D T A H I R K H A N
N A J E E B A S H R A F
PRESENTED TO: MR. ANI RUDDAH SAHAI

F a t h e r o f V i j a y M a l l y a , V i t t a l M a l l y a f o u n d a n o p p o rtunity back in
t h e y e a r 1 9 4 6 - 4 7 a n d s t a r t e d o b t a i n i n g t h e s h a r e s o f U n i t e d
B r e w e r i e s L i m i t e d .
L a t e r b e c a m e t h e C h a i r m a n o f U n i t e d B r e w e r i e s L i m ited.
H i s v i s i o n a n d b u s i n e s s a c u i t y l e d t h e c o m p a n y t o climb the stairs
o f s u c c e s s a n d e x p a n s i o n .
E v e r y t h i n g w a s g o i n g o n s m o o t h l y ,
A f t e r h i m , h i s o n l y s o n V i j a y M a l l y a
b u t i t c a m e t o a p a u s e w i t h t h e
s u d d e n d e m i s e o f V i t t a l M a l l y a .
w a s t h e r e t o o v e r s e e t h e g r o u p o f
U n i t e d B r e w e r i e s .
THE BEGINNING

K

At the age of 28, Vijay was appointed as Chairman of the
UB group in 1983 by the shareholders.
AS SOON AS HE JOINED THE BUSINESS, HE WORKED
HARD TO GROW THE BUSINESS AND MANAGED TO
INCREASE THE OVERALL TURNOVER BY AROUND 64%,
REACHING US $ 11 BILLION IN 1998-1999.
He was already living a lifestyle of that of kings, being
dubbed as the “King of Good Times” that eventually
became the tagline of Kingfisher.

After evolving as the chairman of the UB group, he remade a mere beverage
business into a multi-national coalition of over 60 companies.
Vijay Mallya also broadened his name into the sports industry after buying his
own cricket team 'Royal Challengers Bangalore' in the Indian Premier League
(IPL).
Very few are aware of the fact that Mallya also served in the Rajya Sabha, the
upper house of the Parliament of India, for Karnataka, his home state.
Vijay Mallya had also received an honorary degree of Doctorate of Philosophy
in Business Administration from the Southern California University for
Professional Studies in 1997.
"Officier de la Légion d'Honneur", a high award of recognition in France has
also been awarded to the Indian mogul.
Mallya also earned "Global leader for tomorrow", by the World Economic
Forum.
In 2010, he received the "Entrepreneur of the Year" award at The Asian
Awards.
ACHIEVEMENTS OF
VIJAY MALLYA

The case of Kingfisher Airlines has been known to all.
After its launch in 2005, Kingfisher Airlines soon became
This domestic airline also had a first-class department.
Although domestic flights were not allowed to serve liquor in India at that
time, Kingfisherhad free liquor service in the inns for its first-class
passengers. These were the reasons that had made Kingfisher the first
choice of business travellers and other rich passengers as well.
It was part of Vijay Mallya's vision of having a five-star
world-class airline in India.
a status symbol airline. This was all because of the newly
appointed planes, pretty flight attendants, good food, and
last but not the least in-flight entertainment in 2006.
It really was the first of its kind.
JOURNEY OF KINGFISHER AIRLINE

ACQUISITION OF DECCAN RED
Vijay Mallya was not satisfied with flying the
Kingfisher Airlines inside the Indian borders. He
planned to expand the airline internationally. But as
per the rules of India, airlines that have been in
presence for only 5 years were not allowed to fly
international routes.
Mallya decided to evade this law by acquiring an
existing airline.
In 2007, kingfisher acquired Air Deccan for Rs. 1000
Cr.
By 2008, Kingfisher Airlines was holding up 10.9
Million passengers with a fleet of 77 aircraft,
operating 412 domestic flights on a daily basis.
In 2009, with a market share of 22.9%, Kingfisher
airlines became the Indian market leader.

Kingfisher or Vijay Mallya were not able to make profits even after
flying internationally and acquiring Deccan Air. In 2010, the
company was in heavy losses as it wasn't able to keep up with its
expenses.
To run this business of aviation, Mallya kept on taking loans from
banks. He took loans of 9000 crores from 17 banks, and although
SBI has declared Mallya as bankrupt, other banks continued to lend
him loans. His company also-held service tax of passengers, PF,
IncomeTax of Employees. But he did not submit these amounts to
the PF or IT authorities.
The company did not pay the salary of its employees and eventually
ran out of cash. In 2012,Kingfisher had to shut down its operations
as no further funds were available to run the business. Also, Vijay
Mallya gave up paying the loans.
ARRANGEMENT OF FUNDS

Despite a humongous success, Kingfisher was unfailingly
In the year 2011, it was for the first time when the airline had declared openly that it
had cash flow issues.
In the year 2012 Kingfisher Airlines was declared as an NPA by SBI.
It had even languished to pay its employees which eventually led to its pilots, leaving
it for better alternatives.
Finally, in 2012, the grounding of Kingfisher Airlines took place, and the cancellation
of its license was followed in December 2012. By this time, Kingfisher company had
marked the end of its journey.
making losses since itsinauguration. For not even
once was it successful in making profits. After the year
2010, the aviation company failed to grasp markets
which proved to be a major red flag as its competitors
went on doing so.
GROUNDING OF KINGFISHER

Main reasons for the shutting down of kingfisher airlines were
economic conditions. it mainly included the recession period of 2008.
There were also issues in the acquiring of Air Deccan.
According to the experts, the acquisition of Air Deccan was never a
good decision.
This acquisition had led to grave mistakes in the business model of
Kingfisher.
The passengers first went to Kingfisher, then Kingfisher Deccan, and
then back to Kingfisher again.
This was a very cryptic situation which eventually led Kingfisher to
lose nearly all its customer base.
REASONS FOR THE SHUTTING DOWN OF
KINGFISHER AIRLINES

A controversy surfaced when it comes to the means used and collateral
by the banks or their officials to provide Mallya with these loans.
BOI had lent a loan of 300 crores to Vijay Mallya on commodities like
office stationery, boarding pass printers, and also folding chairs as
collateral.
The banks' readiness to give loans based on such current assets as
capital, created scepticism on the officials of those banks.
The loans lent by SBI of 300 crores were lent on the trademarks and
goodwill of Kingfisher airlines. These were kept as collateral. These
trademarks were worth over
Rs. 4000 crores in 2009 and have now fallen to not more than Rs. 6
crores.
IOB too faces similar problems as the 2 helicopters placed as collateral
by Mallya are not in a flying condition now and hence cannot be swapped
to recover Rs. 100 crores of debt.
ROLE OF BANKS

B y F e b r u a r y 2 8 , 2 0 1 6 , ‘ s o m e o n e ’ h a d t i p p e d o f f M a l l y a t h a t t h e
S B I h a d a p p a r e n t l y r e c e i v e d a d v i c e f r o m s e n i o r S u p r e m e C o u r t
l a w y e r D u s h y a n t D a v e t o a p p r o a c h t h e a p e x c o u r t t o r e s t r a i n
h i m f r o m l e a v i n g t h e c o u n t r y .
H e w a s t h e n a M e m b e r o f t h e R a j y a S a b h a a n d h e l d a d i p l o m a t i c
p a s s p o r t . H i s t i c k e t w a s b o o k e d o n t h e L o n d o n - b o u n d J e t
A i r w a y s f l i g h t 9 W - 1 2 2 f r o m N e w D e l h i b a r e l y a f e w h o u r s b e f o r e
h i s d e p a r t u r e . H e r e a c h e d t h e a i r p o r t a n d i s s a i d t o h a v e g o n e
t o t h e P r e m i u m P l a z a L o u n g e .
T h e p u b l i c c a m e t o k n o w a b o u t h i s e s c a p e o n M a r c h 9 , 2 0 1 6 . T h e
A t t o r n e y G e n e r a l o f I n d i a t o l d t h e S C t h a t “ t h e b i r d h a s f l o w n ” .
VILAY MALLYA ESCAPE &
FAILURE OF GOVERNMENT TO
ARREST HIM

LESSONS TO LEARN
FROM VIJAY MALLYA
SAGA
1. Assess Your Industry Well
2. Brand Your Product Right
3. Don’t live on debt
4. Overconfidence ruins
5. Acknowledge and Learn from your Failures
INTERPRETATION
T h e c a s e d e l a y o n l y p r o v e s t h e m i s u s e o f l a w s
a n d p r o c e e d i n g s b y t h e r i c h . T h e b a n k s , w h i c h
o t h e r w i s e a c t e d c a u t i o u s l y , h a d l o s t m o s t o f
t h e i r r e p u t a t i o n .
T h i s c a s e w o u l d a c t p r e c e d e n t t o t h e f u t u r e .
S o t h e g o v e r n m e n t h a s t o m a k e s u r e t h a t s u c h
e v e n t s d o n o t r e p e a t a n d s h o u l d e x t r a d i t e
M a l l y a a n d s e t a b e n c h m a r k f o r a n y f u t u r e
c a s e s .

EXTRADITION TREATY OF
NIRAV MODI AND VIJAY MALLYA
• I n 2 0 1 9 h i s e x t r a d i t i o n w a s a l s o a p p r o v e d b y t h e
t h e n H o m e S e c r e t a r y . H o w e v e r , b o t h f u g i t i v e s a r e
u s i n g a l l a v a i l a b l e l e g a l r e m e d i e s t o e s c a p e
e x t r a d i t i o n t o I n d i a .
• B i l l i o n a i r e f u g i t i v e s h i r e d e x p e n s i v e l a w y e r s t o u s e e v e r y t r i c k i n t h e b o o k o f
l a w t o e v a d e d e p o r t a t i o n t o I n d i a . T h e c o m m o n a r g u m e n t b e i n g t h a t t h e y w i l l
n o t g e t a f a i r t r i a l i n I n d i a , a n d t h e y a l s o u s e t h e a r g u m e n t o f p o o r l i v i n g
c o n d i t i o n s i n I n d i a n p r i s o n s .
• D e s p i t e I n d i a p r e s s i n g f o r e x t r a d i t i o n f o r N i r a v M o d i a n d V i j a y M a l l y a a n d
a s s u r i n g c l e a n j a i l s a n d f a i r t r i a l , i t l o o k s l i k e a l o n g a n d u n e n d i n g w a i t t o g e t
t h e s e e c o n o m i c o f f e n d e r s b a c k i n I n d i a

• Allegations of money from loans being
laundered into tax heavens.
• Transfer to shell companies with dummy
directors
• Lavish and flashy lifestyle
• Sports teams
• Money laundering through Sports teams
such as RCB
and Force India (F1 formula team)
INTENDED SCAM OR A
BUSINESS FAILURE?
VIJAY MALLYA'S
VIEWPOINT
Failure of Kingfisher Airlines were
Vijay Mallya has also given a proposal
Claims to be a victim of media
the macroeconomic factors and the
policies of the then-government.
to banks where he would pay them
Rs. 4,000 crores for resolving all his
accounts.
campaign

WAS IT ALL MALLYA’S
FAULT ?
Total loans given by banks – 7000cr.
BOI gave loan of 300cr on stationary items such as
desks, chairs as collateral.
SBI accepted goodwill and trademark of kingfisher as
collateral, which back then, were worth more
than4000cr, now only around 6cr.
India had restrictive FDI policies for aviation
businesses.

RECOMMENDATIONS OF A PARLIAMENTARY
STANDING COMMITTEE
The Standing Committee on Finance (Chair: Dr.M.Veerappa Moily) submitted its
report on ‘Strengthening of the Credit Rating Framework in the country’ on
February 13, 2019.
1. The Committee also recommended that the Ministry of Finance
should seek a factual report from the concerned regulators regarding
the enforcement of the regulations.
2. the Committee recommended a comprehensive commission of enquiry
into the crisis, which will assess:
(i) the role of credit rating agencies that had overrated the entities, and
(ii) the role of the Life Insurance Corporation of India, the largest
institutional stakeholder in IL&FS.
3. Currently, there are only seven credit rating agencies in the country.
To increase competition, the Committee recommended that the existing
threshold for registration of such agencies may also be suitably lowered
with a view to encouraging more entities,

INSTRUCTIONS FROM RBI
The regulations passed by its reserve bank give us a
glimpse into its approaches to financial governance and
shows the degree to which it prioritizes stability within its
banking sector.
Wilful defaulters (including the directors) have no access to
funding, and criminal proceedings may be initiated against
them.
The RBI recently changed the regulations to include non-
group companies under the wilful defaulter tag as non-
performing assets (NPA) are classified under 3 categories:
substandard, doubtful and loss. An asset becomes non-
performing if there have been no interest or principal
payments for more than 90 days in the case of a term loan.

The total cases of frauds (involving Rs 1 lakh and above) reported by
banks/FIs increased by 28 per cent by volume and 159 per cent by value
during 2019-20.
"RBI's report said frauds have been occurring in the loan portfolio, both in
terms of number and value.
The country’s top 100 wilful defaulters owe Rs 84,632 crore to banks as of
March 2020, with top 10 including Gitanjali Gems, Winsome Diamonds &
Jewellery and Kingfisher Airlines accounting for 32% of it, data from
Reserve Bank of India shows.
CURRENT SCENARIO
A culpable act of diversion of funds accompanied by ineffective or insufficient monitoring can
be a recipe for disaster."
Weak implementation of EWS (early warning signals) by banks, non-detection of EWS during
internal audits, non-cooperation of borrowers during forensic audits, inconclusive audit reports
and lack of decision making in joint lenders' meetings account for delay in detection of frauds

Yes, and no
Mechanisms to prevent such large defaults are already present our banking
system.
Lack of proper implementation of such mechanisms is what led to this scam
There's also an angle of political interferences to this, as Mallya had close ties to
both strongest national political parties, and had a respectable image (in business
world) before default, and was also a 2 times Rajya Sabha mp from Karnataka.
But our country has seen many such defaults by people not as influential as
Mallya, yet managed to escape
WAS IT POSSIBLE TO PREVENT
MALLYA'S DEFAULT

WHAT NEEDS TO
BE DONE
Strong culture of accountability, zero tolerance and effective enforcement is the key for
ensuring that the instances of fraud decrease the RBI's directives on increasing monitoring of
loans as well as imposing requirement of increased forensic audits seem to be a step in the
right direction.
By Banks
Moving from reacting when customers default to
proactively anticipating defaults.
Moving from reactive to proactive credit risk
management.
Monitoring clients spending habits or expenses.
Analysing clients past credit history and future profit
prospects.
Strict implementation of policies regarding collaterals.
By Government
Signing of extradition treaty with Uk and
with all such countries that provides
shelter to such defaulters
Rasing voice against such safe heaven
countries at international forums, which
are core tools of such frauds in money
laundering
Cooperating with other countries and
making the idea of global cooperate tax a
reality
Setting up special vigilance commission to
monitor such defaults

CONCLUSION
When the Vijay Mallya scam case is first looked at, it seems similar to
those of businessmen getting unlucky. But a closer look reveals the
possibility of money laundering that can only be proved once he is
extradited back to India. The ability to turn UB into a global giant had
turned him into a business superstar.
Although his fast and flashy life inspired many to strive for such wealth,
his placing himself above the greater good of all stakeholders associated
with Kingfisher took all of this away.
One only wonders where did these skills evaporate when dealing with
Kingfisher in times of crisis when his employees were not paid for 15
months. On being questioned about this he replied that “In a Public
Limited Company where is one man, who might be the chairman,
responsible for the finances of the entire Company? And what has it got
to do with all my other businesses? I have built up and run the largest
spirits company in the world in this country.”

Although he had already lost the billionaire status by the year 2013, his
wealth still stood at over $700 million. This meant that he had the
resources to provide his employees with some relief. But instead, he
chose to celebrate his Birthday by spending lavishly where international
singer Enrique Iglesias performed.
His indifferent attitude shown towards the suffering of his employees
coupled with the allegations of Rs. 4000 crore laundered made it
impossible to sympathize with which is sad as he was looked up to by
many. It is safe to compare him to a Captain of an abandoned

Vijay Mallya Scam

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