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Business News/ Politics / Policy/  No relief for Kingfisher Airlines
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No relief for Kingfisher Airlines

Supreme Court bench says a special leave petition filed by the airline to block United Bank's decision had become ineffective in the eyes of the law

Kingfisher Airlines and its promoter Vijay Mallya were declared wilful defaulters by United Bank of India on Monday. Photo: MintPremium
Kingfisher Airlines and its promoter Vijay Mallya were declared wilful defaulters by United Bank of India on Monday. Photo: Mint

New Delhi:

New Delhi:Kingfisher Airlines Ltd was denied relief by the Supreme Court on Tuesday after the airline and its promoter Vijay Mallya were declared wilful defaulters by United Bank of India on Monday.

A bench comprising justices Anil R. Dave and U.U. Lalit said a special leave petition filed by the airline seeking to block the decision by United Bank’s grievance redressal committee had become “infructuous", or ineffective in the eyes of the law.

“Your grievance has been that the grievance redressal committee should not decide the matter but they have already decided it; therefore your plea is infructuous," the bench said.

The airline’s petition, a copy of which has been reviewed by Mint, specifically asked the court to restrain United Bank from proceeding against it as interim relief.

Kolkata-based United Bank declared Kingfisher Airlines, Mallya and three other directors of the company wilful defaulters—entities that don’t repay loans although they are capable of doing so—on Monday in a move that will potentially cut off bank finance for UB Group companies and other companies on whose boards the four individuals named wilful defaulters are directors, empower banks to change management at defaulting firms, and initiate criminal proceedings against Mallya.

“Challenge the order," the Supreme Court told the airline.

Kingfisher Airlines, represented by lawyers Abhishek Manu Singhvi and Parag Tripathi, argued that the decision by United Bank’s grievance committee was not legal because it had not heard the airline’s case.

The court said it was not inclined to decide on this issue.

“It is not possible for a bank to simply declare anybody as a wilful defaulter without following due process. The Reserve Bank of India circular is clear in this regard. We have robust and comprehensive answers backed by documentation to challenge any such move," said a Kingfisher spokesperson.

Kingfisher is likely to move the courts against United Bank’s decision, which could also make things difficult for Mallya who is on the board of United Spirits Ltd and United Breweries, both of which are controlled by multinationals, Diageo and Heineken, respectively, according to a person familiar with happenings at the UB Group who asked not to be identified.

Attorney general Mukul Rohatgi said Kingfisher had failed to appear before the grievance redressal committee on 1 September, when United Bank of India declared three of the defunct airline’s directors—A.K. Ganguly, Subhash Gupte and Ravi Nedungadi—along with Mallya as “wilful defaulters".

Kingfisher Airlines was grounded in October 2012 under the weight of heavy debt and accumulated losses, although the trigger was concern over safety after employees who had not been paid salaries for several months protested. It owed a lenders’ consortium led by State Bank of India (SBI) 6,521 crore and an additional 403 crore to United Bank, according to the finance ministry.

The airline’s petition seeking a legal representative’s assistance before United Bank’s grievance redressal committee was rejected by a single judge of the Calcutta high court on 10 July. On 28 August, an appeal against the July order was scrapped by a two-judge bench of the same court.

United Bank served a wilful defaulter notice on Mallya on 28 May this year. The bank then provided evidence to Mallya in June on how the bank had arrived at the conclusion that he is a wilful defaulter. It provided evidence that Kingfisher had opened a current account with a private bank that had adequate cash flows but had not bothered to pay back loans taken from other banks.

The airline has a current account with a private sector bank that has a cash balance of 7.5 crore, according to the finance ministry.

“KFA (Kingfisher Airlines) and its directors strongly deny the allegations of wilful default for alleged nonpayment of 7.5 crore to UBI (United Bank). KFA and its directors have not been given any opportunity to present their case through lawyers of their choice before UBI, who have come to a wrongful ex-parte decision in great haste...," said Prakash Mirpuri, a spokesman for the UB Group.

Creditor banks may now go ahead with the loan recovery process through the sale of fixed assets and other assets.

Still, finance ministry officials concede that banks will likely face another prolonged legal battle to sell off the firm’s assets and other mortgaged assets to recover the loans.

Kingfisher had debt of 9,140 crore as of 31 December, according to data compiled by Bloomberg. It ceased operations in 2012 and lost its flying permit after defaulting on payments to lenders, staff, airports and lessors.

“The company and the promoter has done everything possible to stall the process initiated by banks to declare them as wilful defaulters. Now banks will face an uphill task of trying to recover the loans through sale of assets in the face of legal challenges that the company is expected to pose," said a senior finance ministry official, who did not want to be identified.

Mint’s Tarun Shukla and PTI contributed to this story.

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Published: 02 Sep 2014, 04:16 PM IST
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