Business Today

Why Mallya must declare bankruptcy

With the Insolvency and Bankruptcy Act, 2016 becoming a law, Mallya has a momentous opportunity to clean up his slate by declaring Kingfisher bankrupt.

twitter-logo Rajeev Dubey        Last Updated: January 23, 2017  | 14:25 IST

Rajeev Dubey, Managing Editor, Business Today
In the fracas of whether Vijay Mallya is a defaulter, a wilful defaulter, or - to be charitable - a victim of circumstances, lenders and politicians have upped the ante against the UB Group chairman who fled the country with nearly Rs 9,000 crore in unpaid dues but who claims he is in "forced exile" in the UK. Even those who have shamelessly partaken his generosity in the past are hunting in packs for political mileage.

With the Insolvency and Bankruptcy Act, 2016 becoming a law, Mallya has a momentous opportunity to clean up his slate by declaring Kingfisher bankrupt. And escape the humiliation of an arrest and a jail term like Sahara group's Subroto Roy Sahara.

Now that both the Houses of Parliament have approved the Bill, it's a matter of time before the Act is notified. Mallya could make a headstart right after the insolvency regulator is set up. The Act provides for time-bound settlement, which should be swift and relatively painless.

Mallya has the option of asking the closed Kingfisher Airlines to file for bankruptcy - rather than in his individual capacity. The process may not be as simple as words go, but it is conclusive: The airline declares itself insolvent; the firm is wound up as an entity; the firm is declared bankrupt by the Court.

All he loses is the equity invested in the airline, and his reputation as an airline promoter. His personal and financial status stays intact.

That leaves him with the option of settling the debt taken against his personal guarantee separately. Or, alongside the bankruptcy proceedings, if the Courts so insist. Bankers say his personal guarantee was worth Rs 1,500 crore (including interest it would be nearly Rs 2,000 crore by now). But he is contesting that, too.

Interestingly, in his deposition before Rajya Sabha's Committee on Ethics, Mallya declared that as far back as 2013 he had petitioned Bombay High Court to declare his personal guarantee against the Kingfisher loan void.

His letter to the panel on May 2 says: "…prior to the consortium of banks which had advanced loans to Kingfisher Airlines Ltd recalling those loans, in or about March 2013, I along with others filed suit…in the Bombay High Court…seeking a declaration that the personal guarantee dated December 21, 2010 executed by me in favour of the consortium of banks was void, ab initio and non-est on the ground that it was executed by me under coercion." But as far as the personal guarantee is concerned, Mallya has enough cash in hand from the sale proceeds of USL to take care of the guarantee, including interest.

Yet, he can declare Kingfisher bankrupt without declaring himself bankrupt. Mallya did make, what I believe, was a serious offer to settle Kingfisher loans for Rs 4,000 crore. The principal he borrowed was around Rs 6,000 crore. With interest, it amounts to Rs 9,000 crore.

The foxy Mallya ensured he left headroom for hard negotiations between Rs 4,000 crore and Rs 6,000 crore - the principal. But it won't come to that at all.

Unfortunately, no one entity can settle this debt by itself any more. It's being investigated by multiple investigative agencies, including CBI and IB, state agencies and who not. Multiple banks and multiple stakeholders will have to have a say in a 'settlement', if any.

But the Insolvency and Bankruptcy Act tides over all that. Just in case pride is in the way, think of Donald Trump! His firms have declared bankruptcy four times, in 1991, 1992, 2004 and 2009. Yet, he's halfway there to becoming the President of the world's most powerful nation!

 

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