Vijay Mallya Scam: A Story of Luxury, Lifestyle and Greed

28 Oct 2020  Read 2590 Views

The mentality of the Indian masses in recent decades, with the advent of globalization and privatization, has always enticed them to stay away from risk associated courses and head towards safer options of jobs. This had been the reason why most of the Indians believed that the business (of a large extent) is not their cup of tea.

But as the mob just needs a few examples to get influenced and change their psyche, the example of Vijay Mallya was enough for them to believe that running a business is not that bad. The fascinating lifestyle of Vijay Mallya acted as a magnet which seemed to attract people towards the business sector.

However, as the saying goes, "Don't be too soon to judge", the person who seemed to be on the seventh heaven had to fall back down to earth within a very short span of time.

One of the most glamorous personalities of the country, the business tycoon, Vijay Mallya, got in trouble for his hush-hush departure from the country right during the time he was wanted by the Enforcement Directorate (ED) for a massive case of money laundering.

What is it that led to the bunco of Rs.9000 crores that too in the form of a banking loan in a country which is famous for its tedious banking norms even for a small amount of loan?

Did you know that there was another such scandal that brought the Indian banking system down on its knees? Nirav Modi was an ambitious business tycoon who... Want to read more? Then click here!

Here is everything you need to understand and about the 'mess' this liquor mogul has plummeted himself into.

The beginning and united breweries

The father of Vijay Mallya, Vittal Mallya found an opportunity back in the year 1946-47 and started obtaining the shares of United Breweries Limited. He later became the Chairman of United Breweries Limited. His vision and business acuity led the company to climb the stairs of success and expansion.

The acquisition of McDowell & Company Limited allowed the company to make its way into the wines and spirits business. The United Breweries Group later expanded their investments in brewing, distilling, real estate, real distilling, engineering, biotechnology, information technology, fertilizers, and aviation.

Everything was going on smoothly, but it came to a pause with the sudden demise of Vittal Mallya. After him, his only son Vijay Mallya was there to oversee the group of United Breweries. At the age of 28, Vijay was appointed as Chairman of the UB group in 1983 by the shareholders. 

The sales volume of the UB Spirits division was approximately 2.85 million cases in 1983, and UB's beer business lagged behind that of Golden Eagle, which was owned byMohan Meakins. Upon accepting the responsibility of the Chairman of the UB group in October 1983, Vijay Mallya instigated the process of interpreting a corporate structure with performance accountability, inducting professional management, and much more.

Achievements of Vijay Mallya

Vijay Mallya was known as 'The playboy of the East'. This title had established a misconception that Vijay Mallya was just a spoilt receiver of the millions he inherited. Although, his accomplishments speak of an entirely diverse story.

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.

Outset of Kingfisher

Despite all that he has achieved, Vijay Mallya isn't known for the list of his successes, but for that one failure of Kingfisher and the show that followed. The case of Kingfisher Airlines has been known to all. It was part of Vijay Mallya's vision of having a five-star world-class airline in India.

After its launch in 2005, Kingfisher Airlines soon became 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. This domestic airline also had a first-class department.

Although domestic flights were not allowed to serve liquor in India at that time, Kingfisher had 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.

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 2006, the first bid for Air Sahara but lost to Jet Airways. He later was successful in acquiring Air Deccan. Kingfisher eventually got permission to operate on international routes in 2008, with its first flight being from Bangalore to London.

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.

Arrangement of Funds

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, Income Tax 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.

Following is the massive list or chart of loans taken by Vijay Mallya from the different banks - 

Banks

Amount

SBI

₹ 1,600 crore

PNB

₹ 800 crore

IDBI

₹ 800 crore

Bank of India

₹ 650 crore

Bank of Baroda

₹ 550 crore

United Bank of India

₹ 430 crore

Central Bank of India 

₹ 410 crore

UCO Bank

₹ 320 crore

Corporation Bank

₹ 310 crore

State Bank of Mysore

₹ 150 crore

Indian Overseas bank

₹ 140 crore

Federal Bank

₹ 90 crore

Punjab & Sind Bank

₹ 60 crore

Axis Bank

₹ 50 crore

Negligence of Banks

A controversy also surfaces when it comes to the means used and collateral by the banks or their officials to provide Mallya with these loans. As shown above, 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.

What were the loans used for?

There have been reports claiming that the loans borrowed by Vijay Mallya were only for his personal agenda and were laundered overseas to several taxes havens. This was made possible with the assistance of shell companies. 

It was claimed that Mallya would have received the loans from banks and transferred them to these shell companies by placing dummy directors for this purpose. These companies were not effective and did not even have an autonomous source of income.

The directors who were placed here would act as per the paths described by the UB group at the command of Vijay Mallya. These companies were present in seven countries, including the United Kingdom, Ireland, the USA, and France.

Furthermore, it was also reported that Vijay Mallya had also deflected these loans just to fund his IPL cricket team, The Royal Challengers Bangalore, and an F1 racing team, Force India. This was all taking place at a time when the employees and workers of Kingfisher had not been paid their salaries as of October 2013, for a very long duration of 15 months.

Grounding of Kingfisher

Despite a humongous success, Kingfisher was unfailingly making losses since its inauguration. 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. In the year 2011, it was for the first time when the airline had declared openly that it had cash flow issues.

The year 2012 proved to be the black year for Kingfisher as 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.

What went wrong?

There were some instances where it was proved that some of the reasons that led to the shutting down of Kingfisher were the economic conditions. It mainly included the recession period of 2008. Well, according to Mallya, it was the sole reason for the grounding of Kingfisher. Apart from this, 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 it's customer base.

Mallya's escape to the UK

On 2 March 2016, Mallya exited to Britain after allegedly being warned that he was about to be arrested. However, he claims that the trip to London came out as part of a normal lifestyle and business pattern.

The authorities petitioned a warrant against Mallya for the crimes that came under the Money Laundering Prevention Act, 2002. Vijay Mallya was thereafter imprisoned by the Metropolitan Police on an international warrant and hearings on request from the side of India, for him to survive penalties of fraud and money laundering that started in December 2017.

He was given bail which was worth £650,005,40,87,856 and had to hand over his documents.

Mallya ends up being a fugitive Economic Offender

A special court in Mumbai announced absconding liquor tycoon Vijay Mallya, a fugitive economic offender (FEO) on the request of the Enforcement Directorate. Vijay Mallya has become the very first businessman to be announced as FEO under the provisions of the new Fugitive Economic Offenders Act, which came into existence recently.

Special judge MS Azmi proclaimed Mallya as an FEO under Section 12 of the Act after hearing substantial arguments from the lawyers of Mallya and the ED counsel.

The decision from the judiciary had come after five parties, including a family member of Mallya, sought court files with concern to the ED, seeking to get Mallya declared a fugitive economic offender under this new act.

What is Vijay Mallya's Viewpoint?

As per the statements of Vijay Mallya, the reason behind the failure of Kingfisher Airlines were the macroeconomic factors and the policies of the then-government. And as far as it's about his name being hauled in all NPA cases, he contends that he is a sufferer of a media campaign.

Very few know that Vijay Mallya has also given a proposal to banks where he would pay them Rs. 4,000 crores for resolving all his accounts. But as per news reports, lenders have jointly agreed that they require a minimum of Rs.4900 crores to be paid.

Conclusion

The case of Vijay Mallya is a story of ambition, luxury, lifestyle, and greed. Earlier, people used to feel pity for Mallya under the myth that his failure was just because of the economic situations and some sort of hard luck. But a deeper understanding of this case has shown that there was excessive money laundering from the side of this business magnate.

Vijay Mallya was one of the best business minds of the country, who could have taken India to the skies of big achievements in the business sector. But the indifferent attitude of Vijay Mallya towards his companies and his never-ending greed made the masses compare him to a coward; a coward who is always the first person to escape when the clouds of problems occur.

About the Author: Aditi Sagar | 34 Post(s)

Aditi is born and brought up in New Delhi. Right now she is in the 2nd year of her college. She is pursuing graduation from Deen Dayal Upadhaya College, Delhi University with Bachelor's In Management Studies degree. 

Liked What You Just Read? Share this Post:

Finology Blog / Invest / Vijay Mallya Scam: A Story of Luxury, Lifestyle and Greed

Wanna Share your Views on this? Comment here: