Mumbai: State Bank of India (SBI), the country’s largest lender, has accused Kingfisher Airlines Ltd of diverting funds by paying excess rental on aircraft leased from two Mauritius-based entities whose top executives were earlier associated with companies controlled by Vijay Mallya’s UB Group, according to a 19 August notice of the bank issued to the airline.
The SBI notice is part of submissions made by the grounded airline in the Bombay high court. The court is hearing Mallya-controlled Kingfisher Airlines’ plea against the lender’s notice alleging the company had wilfully defaulted on payment of dues to the bank.
The average monthly lease rental of two ATR aircraft leased by Kingfisher Airlines from Mauritius-based Veling Narain Ltd and Veling Sacheedanand Ltd was around $199,000 and $198,000, respectively, “inflated by approximately 70%" compared to the lease rental of ATR aircraft for the same period, according to the SBI notice that has been reviewed by Mint. ATR planes are European-made smaller planes with 42-72 seats used to connect smaller cities.
The SBI notice also said that in July 2013, Hitesh Patel, a former director of Kingfisher Airlines, took over as chief executive of Veling Ltd, the holding company of Veling Narain and Veling Sacheedanand.
Kingfisher Airlines, which hasn’t flown since October 2012, owes more than ₹ 7,500 crore to lenders led by SBI. The airline had accumulated losses of ₹ 16,023.46 crore as of 31 March 2013. In December, the Calcutta high court rejected on technical grounds state-owned lender United Bank of India’s decision to tag directors at Kingfisher Airlines as wilful defaulters. United Bank of India was the first lender to have tagged Kingfisher Airlines’ directors as wilful defaulters. SBI has also sent a notice to tag them as wilful defaulters, but the airline has challenged the same in the Bombay high court.
A default is considered to be wilful when a borrower has not repaid when he can do so; when sanctioned funds have been diverted for other purposes; when the borrower has siphoned off funds; or when the borrower disposes of the assets pledged for availing the loan without the bank’s knowledge.
Kingfisher Airlines said it has filed a detailed reply to the allegations in the court, without giving details.
“It would be inappropriate for Kingfisher Airlines Ltd to make any comment since the matter is sub judice before the Hon’ble Bombay High Court in Writ Petition No. 2951 (L) of 2014. Suffice it to say that Kingfisher Airlines has filed a detailed and comprehensive reply to all the allegations in the notice alleging wilful default issued by SBI," a Kingfisher Airlines spokesperson said.
A comparative study revealed that the average monthly rental for leasing ATR aircraft for the same period was in the range of $115,000 and $117,000, the SBI notice said.
“Excess lease rental paid to Veling Narain is in the range of $81,000 ( ₹ 48.93 lakh) per month. Similarly, the excess rental paid to Veling Sacheedanand is in the range of $80,000 ( ₹ 48.86 lakh)," the notice added.
The notice also named other executives of Veling who were previously associated with UB Group companies.
“Hitesh Patel was a director of KAL (Kingfisher Airlines Ltd) during the period December 2007 to July 2008. He was also the executive vice-president, engineering and operations, of KAL from August 2011 to July 2013. Apart from Mr Hitesh Patel, Mr Uday Narain Nayak and Mr Surojit Walawalkar who were directors of other UB Group companies in the past were directors of Veling," said the SBI default notice. “In view of the above, it is apparent that KAL has involved in wilful default by diversion and siphoning of funds by paying excess lease rental to other corporations in series of transactions which are apparently intentional, deliberate and calculated."
An email sent to Veling and SBI did not elicit any response.
The SBI notice said Kingfisher Airlines has transferred funds to certain companies such as Force India Formula One Team Ltd ( ₹ 53.69 crore, June 2010), Meenakshi Tea Co. Ltd ( ₹ 5 crore, November 2007-December 2008), ASA Holdings Pvt. Ltd ( ₹ 1 crore, October 2008), Shrimant Holdings Pvt. Ltd ( ₹ 4 crore), Anchor Investments Pvt. Ltd ( ₹ 5.3 crore, December 2007-February 2009) and Suraksha Realty Ltd ( ₹ 51.35 crore, October 2010), among others.
“In so far as transfer of funds to Force India Formula One Team Ltd, Meenakshi Tea Co. Ltd, ASA Holdings Pvt. Ltd, Shrimant Holdings Pvt. Ltd, Anchor Investments Pvt. Ltd and Suraksha Realty Ltd, prima facie these appear to be unrelated transfer of funds and hence falls within the purview of siphoning of funds under paragraph 2.1…2.2.2 "
The particular para and section refer to the wilful defaulter norms of the Reserve Bank of India that define siphoning of funds to have occurred “if any funds borrowed from banks/FIs (financial institutions) are utilized for purposes unrelated to the operations of the borrower, to the detriment of the financial health of the entity or of the lender".
It further added that whether a particular instance amounts to siphoning of funds would have to be a judgement of the lenders.
The 19 August SBI notice also alleged that the airline violated the terms of a trust and retention account (TRA) agreement of 2010 between the consortium of lenders and Kingfisher. According to the agreement, Kingfisher was supposed to transfer all its domestic and international collections to the TRA maintained by SBI. The airline was required to close all other accounts maintained by it with banks, other institutions “other than accounts meant for domestic, international collections".
“In violation of agreement, KAL maintained domestic collection account with ICICI Bank and Axis Bank (consortium bank)… but did not transfer the entire money received into those accounts to the TRA account," the notice said.
It further alleged that Kingfisher had also maintained accounts with Yes Bank (non-consortium bank) without taking permission from the consortium, thus violating the terms of TRA agreement.
“The account with Yes Bank was closed on August 2012 upon the insistence of the consortium. Therefore, the company routed sales receipts unauthorised through Yes Bank which is further substantiated by the transactions in the TRA maintained with SBI in which the percentage of credit summation to KAL is a meagre 36% in 2012 and 24% in 2013. All of the above actions of KAL tantamount to diversion of funds by series of transactions which are deliberate and intentional," said the notice.
The banks mentioned in the story declined to comment or didn’t respond to emails. “As a matter of policy, the bank does not disclose names or details about its customers," said an Axis Bank spokesperson.
An email sent to ICICI Bank did not elicit any response.
“Yes Bank has no exposure to Kingfisher Airlines," said a Yes Bank spokesperson to a detailed query, without disclosing details.
Note: This article was based on the filings in court proceedings by the State Bank of India that named Veling Ltd. The objective of the story was to report the court filings and not to defame Veling Ltd or its promoters and officers or cause any disrepute to them. If such has been the case, it is sincerely regretted