Vijay Mallya extradition order: UK court notes ‘failure’ of bank before, after loans but not enough evidence

The order stated, “The Supreme Court held that the diversion of funds was in flagrant breach of injunction orders which prevented him from alienating, disposing or creating third party rights in respect of this. Dr Mallya was held in contempt by the Supreme Court. There is clear evidence of dispersal and misapplication of the loan funds and I find a prima facie case (that) Dr Mallya was involved in a conspiracy to launder money.”

On whether IDBI Bank, the primary complainant in the case, and its officials were part of the conspiracy, Chief Magistrate Judge Emma Arbuthnot said, “It is either a case that the various continuing failures were by design and with a motive (possibly financial) which is not clear from the evidence that has been put in front of me, or it is a case of a bank who were in the thrall of this glamorous, flashy, famous, bejewelled, body-guarded, ostensibly billionaire playboy who charmed and cajoled these bankers into losing their common sense and persuading them to put their own rules and regulations to one side.”

It, however, did not hold bank officials prima facie guilty. “On the one hand there is no doubt, as can be seen from the chronology set out above, that there has been a catalogue of failures of the bank at different levels. The failings were before the loans were sanctioned and afterwards. On the other hand, there is not a great deal of evidence from which I could draw inferences that various bank executives were involved in a fraud to defraud their own bank and that when they sanctioned the loans they intended KFA not to repay the loans as agreed and required.”

The order noted that the bank’s failings include the failure to abide by its own rules when it came to a new client, and an example of this was that despite the low rating the loan was cleared. The court noted: “In fact, the first loan was granted even before the risk-rating had been carried out. There was a failure to ensure that the guarantees were formally taken when they should have been and a failure to investigate the representations that KFA made at various stages to obtain the loans…. With a bit of care, the worthless negative lien…would have been exposed.”

The court observed that there was a failure to obtain credit reports from other banks involved with Kingfisher Airlines and that there was a failure to give proper consideration to the past failures involving loans granted to associated companies.

“IDBI (Bank), if it had looked more carefully at the loan account, would have been able to see where the money was going,” it said.

“The evidence as currently before me is not as strong as the evidence in relation to the other allegations being made, nevertheless I find a prima facie case of a conspiracy to defraud which involves not just the KFA executives but also the named bankers in IDBI,” the order said.

On charges of money laundering, the order states Mallya diverted loan funds to his Formula-1 racing team, Force 1, and his private jet. “He had been teetering on the edge of being grounded for a number of months before the loans were granted. Once he had obtained them, (he) was not above playing ‘round robin’ as he himself described, to keep the company afloat. At the same time, he was using the KFA loans to fund anything that became due to be paid,” the order said.

These payments, the court said, included “what some might say were two vanity projects, the Formula-1 racing team and a corporate jet for his own use”.

Detailing the diversions, the order said, in the case of Force India, IDBI’s loan proceeds were used to clear a bill discounting facility with the Bank of Baroda and to release credit facilities which were later used to fund sponsorship payments to Mallya’s F1 racing team in July 2010.

“The timing of the payments were significant, in 2009 and 2010, payments were made by KFA to Force India at a time it was struggling to remain in business. Money from the loans was transferred to Axis Bank then went to HSBC in London, they were said to be payments for operating expenses in relation to flights but the funds were transferred to the racing team. Essentially it appears as if KFA was funding Dr. Mallya’s team,” the court observed.

It also lists out an email to show that Mallya’s intentions may not have been noble after all. “To give but one example, the GOI relies on the email sent by Dr Mallya where he says: “I have been receiving mails from IDBI regarding the KFA a/c becoming NPA. They may suddenly do something. Take the 10 crd out of my account into USL tomorrow itself. VJM”. He is trying to avoid his responsibilities under the guarantee.