United Bank declares Vijay Mallya a wilful defaulter4 min read . Updated: 02 Sep 2014, 05:09 PM IST
Three other directors, A.K. Ganguly, Subhash Gupte and Ravi Nedungadi, were also declared wilful defaulters
Mumbai/Bangalore: The wilful defaulter tag stamped on Vijay Mallya by United Bank of India on Monday will potentially cut off bank finance for UB Group companies, empower banks to change managements at defaulting firms and initiate criminal proceedings against Mallya and force him to quit company boards.
The Kolkata-based bank has declared Mallya and three Kingfisher Airlines Ltd directors—A.K. Ganguly, Subhash Gupte and Ravi Nedungadi— as wilful defaulters. According to Reserve Bank of India (RBI) guidelines, once a wilful defaulter notice is issued, the borrower has 15 days to defend himself in front of the bank.
“The wilful defaulter tag ensures that the borrower and any firm on the board of which he is a director, will not get a loan from any financial institution henceforth. Banks can also initiate loan recovery options aggressively," said an official at a state-run bank seeking anonymity, since his bank has an exposure to Kingfisher Airlines.
According to Mint research, Mallya is on the board of Bayer CropScience Ltd, Kingfisher Airlines, Mangalore Chemicals and Fertilizers Ltd, Sanofi India Ltd, United Breweries Ltd, United Breweries (Holdings) Ltd and United Spirits Ltd.
“Creditors and shareholders of these companies should ask the board to remove him from these companies, as the business prospects of the companies in which he is a director are likely to get affected as funding sources could get affected," said Shriram Subramanian, founder, InGovern Research Services, a proxy advisory firm.
A United Breweries executive said the move would not have any immediate impact on the company or Mallya’s position. “It is too premature to say that it’ll have any effect (on the United Breweries board). The wilful default hasn’t even been established. The board is not affected currently," the executive said, on condition of anonymity.
There are other potential problems as well.
After Pune-based Deepak Fertilisers and Petrochemicals Corp. Ltd launched a hostile bid for Mangalore Chemicals controlled by Mallya on 22 April, the latter had countered with an open offer jointly with Kolkata-based industrialist Saroj Kumar Poddar. Capital markets regulator Securities and Exchange Board of India (Sebi) has cleared the bid.
Requesting anonymity, a person close to the development said Mallya will have to step down as Mangalore Chemicals chairman.
“As per norms, we have informed Sebi about the wilful defaulter announcement. Now, it is their call to take; we do not have anything to say regarding the open offer. Once a borrower has been tagged as wilful defaulter, he will not be allowed to access bank funding and will be asked to step down from any company’s board where he is a director," said Deepak Narang, executive director at United Bank. The bank has an exposure of ₹ 350 crore to the airline.
Narang said the bank declared the four as wilful defaulters after the Calcutta high court last week directed Mallya to appear before the bank in person or through a company official.
In a late-evening statement, Kingfisher Airlines vowed to pursue “all available legal remedies" to secure its interests.
Kingfisher Airlines has been demanding that United Bank permit it to have legal representation of its choice at the hearing to be held before the grievance redressal committee set up by the lender, the airline said.
“The basis for KFA’s (Kingfisher Airlines’) demand is that being declared a wilful defaulter entails serious consequences, including penal consequences. Hence, depriving KFA of an opportunity to be represented by a trained legal professional is a miscarriage of justice, a denial of real and reasonable opportunity of defending itself and a violation of the principles of natural justice," the airline said.
“Both the learned single judge and the division bench of the Calcutta high court by orders dated 10.7.2014 and 28.8.2014 dismissed a writ petition and an appeal respectively filed by KFA against the arbitrary, unreasonable, untenable and unlawful denial of the right of KFA to be represented by advocates of its choice at the hearing to be held before the grievance redressal committee set up by UBI," it said in a statement.
The statement alleged that the bank took the step even though the airline’s special leave petition against the Calcutta high court order is pending in the Supreme Court.
A wilful default occurs when either 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 of the loan without the bank’s knowledge.
Kingfisher owes ₹ 6,521 crore to a lender consortium led by State Bank of India and an additional ₹ 403 crore to United Bank, according to the finance ministry.