Mallya: the billion-dollar question

When he appears in London’s Westminster Magistrates Court on 4 December, Vijay Mallya, former chairman of United Spirits, the largest spirits company in India, will vehemently oppose an application by Indian authorities for him to be extradited to his home country.

He will argue, as he has done consistently since leaving the subcontinent hastily in March 2016, that the charges he faces there are “wild, baseless and deliberately fabricated”.

The charges against him centre on his ill-fated Kingfisher Airlines, which he launched in 2005 as an Asian version of Ryanair in Europe and South West in the United States. The dream was to provide cheap air travel to the masses. But after incurring the inevitable heavy launch costs, Kingfisher flew directly into the violent turbulence of the 2008 global financial crisis. It never made a profit and collapsed into bankruptcy in 2012 with aircraft impounded and staff unpaid.

Creditor banks claim that with interest Mallya owes them more them £1bn. He disputes this figure and says he wishes to come to a settlement.

The charges against Mallya are not that he lost a huge sum of money as a business collapsed but that the loans he raised seemingly to bolster it were plundered for his personal benefit. Mallya believes that the government of Narendra Modi is seeking to make him a scapegoat in its campaign against “crony capitalism and corruption” because of his flamboyant lifestyle and prominence as an entrepreneur. Consequently, he believes that although he says he can refute the charges, he would not receive a fair trial.

Mallya has declined to detail his answers to the charges, saying he cannot do so because the matter is sub judice.

The former head of United Spirits and United Breweries has been declared a “wilful defaulter” and “proclaimed offender” in his absence. He has also been found in contempt of India’s Supreme Court, which is awaiting his return to before sentencing him. In addition, many of his assets, including mansions, aircraft and shareholdings, have been the subject of confiscations and forced sales.

With an extensive detailed dossier containing a “complete money trail”, India’s Central Bureau of Investigation and the separate Enforcement Directorate are seeking to convince Britain to extradite Mallya. The Indian agencies allege that more than £600m borrowed from a consortium of banks was diverted to shell companies in various countries including Britain, Ireland and Switzerland.

The dossier alleges that Mallya used these offshoots to launder money through understating losses, false invoicing and other unauthorised diversion of funds. There are also claims that he indulged in corporate espionage and sought to corrupt bank officials and civil servants by providing upgraded travel and lavish hospitality.

It is even alleged that Mallya’s present UK home in Tewin, Hertfordshire, was bought using plundered funds. Land Registry data shows the property last changing hands for £3m in 2008. Some sources suggest that previously it was owned by Lewis Hamilton, the Formula 1 world champion.

In addition, the dossier alleges that considerable sums were diverted to the Sahara Force India F1 team, of which Mallya remains a co-owner. It is based at Silverstone, not far from Mallya’s Hertfordshire home.

For Mallya to be extradited, the evidence against him has to satisfy the “dual criminality clause” in the treaty between Britain and India. Effectively, that means that the case against him would need to show that the alleged offences committed in India would also violate UK law. Britain’s Serious Fraud Office is investigating the allegations that Mallya laundered some of the funds through British-based companies. If proven, that would mean he had committed a criminal offence in the UK.

A far from disinterested observer of the court proceedings will be Diageo, which now holds a 55% stake in United Spirits. The British giant alleges that under Mallya’s chairmanship “improper transactions” took place between 2010 and 2014 at the company, and it is seeking restitution through the Indian courts.

In addition, in February 2016, Diageo agreed to pay Mallya US$75m (£53m) in stages in return for him severing all connections with United Spirits, where he remained non-executive chairman. A first tranche of £28m was paid early the next month, where upon Mallya fled to the UK.

Part of the case against him was that this money was diverted via trust funds to his three children (who are US citizens) rather than being used to offset some of his debts.

Subsequently, Diageo says that Mallya has broken the terms of the agreement and that it will not make further payments to him. It is also seeking repayment of the initial £28m.

Whatever the outcome of the hearing that starts on 4 December, it is unlikely that a clear line will be drawn in the process.

Many Indian commentators point out the country’s weak record in achieving successful extraditions – there has only ever been one from Britain. They also warn that so desperate are the authorities to succeed against Mallya that they may have over-egged their case. Whether that is true or not will be a significant part of the hearing.

One thing is certain, however – whichever side loses at Westminster magistrates, the case will continue through appeals to higher courts. Mallya is likely to remain in the UK for some time.

Mallya timeline

• 2012 – Mallya’s Kingfisher airline (named after the Indian beer brand produced by United Breweries, now controlled by Heineken) collapses into administration

• A consortium of Indian banks seek repayment of £1.1bn in loans and interest stemming from the failure of Kingfisher. They claim that Mallya misappropriated the funds, diverting some of the loans into buying properties abroad.

• July 2014 – Diageo takes control of United Spirits.

• September 2014 – Mallya is declared a “willful defaulter” by an Indian court for failing to pay debts.

• February 2016 – Diageo strikes deal with Mallya to pay him US$75m to step down as United Spirits’ non-executive chairman.

• March 2016 – Mallya flees to the UK on the day court orders were issued in India to seize his diplomatic passport, a document held by all members of India’s Senate.

• Novermber 2016 – An Indian court rules he dishonestly diverted the first US$40m of his Diageo payout to family in America when it should have been declared as part of his assets being assessed for debt repayment.

• May 2017 – Mallya arrested in London to face an extradition warrant to India, after he is found guilty of contempt of court. He was released on bail on condition that he surrendered his remaining passport, continued to live at his Hertfordshire mansion and kept his mobile phone on him and fully charged at all times.

• July 2017 – Indian court postpones sentencing of Mallya on contempt of court verdict until Mallya is brought before it in India.

• July 2017 – Diageo takes action to recover part of the £53m payout handed to Mallya to cut ties from United Spirits, and withholds further payments.

• September 2017 – India presents new evidence against Mallya, who is rearrested and bailed.

• November 2017 – Diageo filed a lawsuit against Vijay Mallya in the UK over a $75 million agreement it struck with the tycoon for him to step down as chair of United Spirits in 2016.

• 4 December 2017 – Extradition hearing set to open at Westminster Magistrates Court.

Mallya and United Breweries

It has been reported that Mallya has stepped down from the board of United Breweries and is to name a successor.

Mallya has been clinging on as a member of the board despite the Securities and Exchange Board of India barring him from holding any such positions due to his huge outstanding debts and accusations of money laundering.

It is thought United Breweries, which is now part-owned by Heineken, has persuaded Mallya to step down, especially as the chance of him returning to India voluntarily is now so remote.

Mallya must now choose a successor, something that is likely to happen before the end of the year, while the company has nominated CY Paul, one of its directors, as acting chairman in the interim.

Mallya may also be hoping that by stepping down voluntarily he will receive a compensation package but Heineken will no doubt be extremely wary of such a move as it will potentially expose the brewer to regulatory scrutiny, as happened with Diageo when it took over United Spirits before the full extent of Mallya’s fiscal problems became clear.