Note of caution

Note of caution

Mallya must be brought to justice. But a narrative of ‘stigmatised capitalism’ will do more harm than good.

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The Mallya-promoted Kingfisher Airlines is a failed company owing over Rs 9,000 crore to banks. 

Union minister Nitin Gadkari has faced flak for his remark, subsequently retracted, that it isn’t fair to call the fugitive tycoon Vijay Mallya a “chor” (fraud). Mallya, he said, had a four-decade-long track record of making regular payments to banks and started defaulting only after entering the aviation sector which was itself beset by turbulence. There is a grain of truth to the minister’s statement.

Yes, the Mallya-promoted Kingfisher Airlines is a failed company owing over Rs 9,000 crore to banks. But in terms of corporate loan defaults, it ranks way below the likes of Bhushan Steel, Essar Steel, Lanco Infratech, Jaypee Infratech, Amtek Auto, Ruchi Soya or Alok Industries. In many of these cases, banks have recovered part of their dues through resolutions under the Insolvency and Bankruptcy Code (IBC). While Mallya’s claim that he has been willing to settle — selling assets to pay off banks, employees and other creditors —might lack credibility, the government and its enforcement agencies, too, seem to have shown more interest in bringing him to book than recovering the money.

There can be no two opinions that Mallya should be extradited from the United Kingdom to face charges of defrauding banks and siphoning off funds abroad. A London court’s order last week enabling this is, no doubt, a major boost politically as well to the Narendra Modi government. But what is to be avoided — which appears to be the point Gadkari is making — is collateral damage. Any business entails risk and possibility of loan default not wilful, but simply due to losses from developments in the industry or the broader economy on which the firm has little control. If an environment gets created, wherein every defaulting businessman is labelled a “chor”, it would create a situation where banks are afraid to lend, leave alone restructure loans, even when it is in their own interest. If the political narrative degenerates to a point where capitalism becomes “stigmatised” — former chief economic advisor, Arvind Subramanian warned of the dangers of “stigmatised capitalism” — the ultimate loser is the economy or, more specifically, investments, incomes and jobs.

The one consolation today is the IBC, under which India has a robust framework and a court — the National Company Law Tribunal — for handling resolutions through a time-bound process. With a modern bankruptcy law, creditors have the power to take any defaulting firm to this special court and invite resolution plans-cum-bids from new promoters wanting to take it over in return for discharging dues to the fullest extent. When such economic mechanisms for loan recovery exist, making a public spectacle out of businessmen — not all of whom would be wilful defaulters — can do more harm than good for investor sentiment. Mallya should be brought to justice, but not indicted without due process.