The long-awaited extradition hearing of business tycoon Vijay Mallya began at the Westminster Magistrates Court in central London on Monday. The prosecution set out its evidence on a prima facie case for fraud charges against the businessman, relying less on money laundering charges that had been added in October.
The day-long open hearing was initially delayed by an evacuation of the court due to a fire alarm.
Barrister Mark Summers, leading for the Crown Prosecution Service on behalf of India, focussed on three main aspects. First he addressed what he described as the mis-representations made by Mr. Mallya and Kingfisher to the banks in loan applications, focussing on the IDBI Bank, which issued loans to Mr. Mallya of ₹750 crore, ₹250 crore and ₹150 crore. Mr. Summers then turned to the use of the loans.
The prosecution argued that Kingfisher went against the uses stipulated in the loan conditions, highlighting examples such as the use of funds for payment of rent on the corporate jet, which Mr. Mallya “used exclusively.”
The third plank of Mr Summers’ argument focussed on Mr. Mallya’s response to the recall of the loans by the bank, which relied on attempts to “squirrel away” the money owed.
“This is not the kind of thing honest people do,” the counsel told the judge at one point, as he highlighted email exchanges between Mr. Mallya and others. These mulled over the options available, following the consortium of banks’ decision to recall the loans, including suggesting that pursuing Mr. Mallya in this way somehow amounted to discrimination because he was affluent.
“The government says there are reasons why a court could conclude that this was a loan the defendant never intended to repay,” said Mr. Summers.
As it happened: Extradition hearing: Loans offered based on Vijay Mallya's guarantee, argues prosecution
“His company was in intensive care, the market was intensive care. It was heading only in one direction; as it went down, it was going to sustain huge losses and the defendant had a choice — either take those losses yourself and impinge on your own lifestyle or you try and palm them off onto a bank.”
Mr. Summers focussed on loan applications made to IDBI Bank in October and November 2009: for ₹950 crore (eventually reduced to ₹750 crore), ₹150 crore and the exchanges between officials at the bank and Kingfisher.
Among the testimonies relied upon by the prosecution was that of an IDBI official, referred to as Mr. Gupta. The defence, led by Clare Montgomery QC however, insisted that his [Gupta’s] were “general observations” and that he hadn’t been personally involved in the process. The reams of documents — covering various forms of exchanges between the bank and Kingfisher — highlight the increasingly urgent nature of the company’s difficulties.
Evaluation ignored
Mr. Summers detailed the “misrepresentations” made during the loan application process, which included its use of two separate brand value analyses carried out by two separate companies —while one by Grant Thornton valued the Kingfisher brand at over ₹3,000 crore, a separate and later evaluation based on new profit projections by Brand Finance valued it at less than ₹1,911 crore.
In its applications, however, Kingfisher relied on the former, which was “unrealistic and wrong,” the counsel said.
The optimistic picture presented by Kingfisher in its loan applications contrasted with the very gloomy picture in internal communications including one email, which pre-dated the loan application, predicting that it would take 10 years to recoup its losses. “It’s against [this] that you have to assess the final obligations given to the bank and on which the banks relied heavily,” said Mr. Summers
In the afternoon Mr. Summers said he would focus on the chronology of events, and why representations made to the bank were wrong. “I won’t be rushed on this,” he said in response to the defence’s request that he finish his opening arguments on Monday.
Diverted
Turning to the destination of the three loans, he highlighted that some went to paying off tax obligations, rent on the corporate jet and one case where part of the loan was used to clear a Bank of Baroda bill discounting limit, freeing up credit in that bank for Kingfisher to use for other purposes including funding money that ended up in his motor racing team.
“The defendant believed paying round robins between banks was legitimate,” said Mr. Summers. He highlighted how the government believed some of the funds transferred to the racing team involved overpayments (the defence say these were legitimate marketing expenses). However, Mr Summers said this angle would not be the focus of the case — suggesting that the money laundering charges only had a secondary place to fraud in the case. “It is not a desperately important issue for you to decide on,” he told the judge.
Finally he focused on efforts to thwart the consortium of banks’ attempts to retrieve the ₹ 2,000 crore worth of loans, through numerous examples, including the use of $40 million from Diageo. “Rather than honestly honour his debts he squirrelled away $40 million in trusts for his children,” Mr. Summers told the court.
When the court sits again on Tuesday, Clare Montgomery will present for the defence.
The hearings are set to take place over a seven-day period ending on the December 14. The court is yet to decide when written closing statements are to be presented: something which will determine the timeline for a decision on the case.
Appearing in court, as he did throughout the case management hearings, Mr. Mallya declined repeated press questions, calling on observers to wait for the proceedings. A small ED and CBI team have arrived in London for the case.
