A PROBE by the Serious Fraud Investigation Office (SFIO) has alleged that Kingfisher Airlines Ltd (KFAL) paid excess sponsorship money to Force India Formula One Team Ltd (FIFOTL), a related party of UB Group, without disclosing the transaction to its lenders and the board of Kingfisher Airlines. The probe report has concluded that this was in violation of the Companies Act, 1956 and corporate governance norms.
The report states that KFAL owner Vijay Mallya was the director of the racing team company since 2009 according to filings with the Company Registry in UK. Further, Watson Ltd, a promoter and shareholder of United Breweries Holdings Ltd, was also a major shareholder in Force India, the report said.
Kingfisher did not inform its board about the sponsorship agreement despite it being a related party transaction, which is a violation of Accounting Standards, said the report. It alleged that the audited financials of Kingfisher failed to show the dealings with Force India as related party transactions in the airline company’s annual reports.
When contacted by The Indian Express, Mallya’s spokesperson said they did not have any comment to offer.
The government probe agency has charged Mallya and the chief financial officer of the airlines for violation of section 211(3A) read with AS18 of the Companies Act, 1956 which pertains to disclosure of related party transactions by companies.
The SFIO report has also alleged that for at least two years, Kingfisher paid an excess amount of around Rs 30 crore in sponsorship to Force India over and above the amount required to be paid under the agreement. This payment was made in 2008-09, even as the airline company’s debt increased and it was facing a “liquidity crunch”.
“The majority payments to FIFOTL were made out of collections received in the HSBC, London accounts of KFAL (Combined) and these were clear diversions as no records were produced to show that KFAL (Combined) took permission to make payments from the consortium banks led by SBI in India,” said the SFIO report. KFAL (Combined) refers to the company post its merger with Deccan Aviation.
“VJM (Vijay Mallya), KFAL (Combined) and the key management personnel did not spell out the reasons for excess payment to FIFOTL (Force India Formula One Team) during the year 2008 and 2009 at a time when KFAL was facing a liquidity crunch and was barely able to meet the operational expenses,” said the SFIO report.
Apart from this, the SFIO has alleged lacunae in the sponsorship agreement. According to the agreement, Force India would display the logo of “Kingfisher” on its racing cars. However, the report said, the pictures displayed only the name “Kingfisher” on the cars.
“In the absence of the word, “Airlines”, on the display logo, the status of the sponsorship on behalf of KFAL (Combined) was not correct as the “Kingfisher” in general represents the popular beer brand of UBL / UB Group,” said the report.