United Bank of India on 1 September 2014 declared debt-ridden Kingfisher Airlines and its owner Vijay Mallya as wilful defaulters. Three Kingfisher Airlines Ltd directors A.K. Ganguly, Subhash Gupte and Ravi Nedungadi were also declared as wilful defaulters.
This declaration would cut off further bank finance for UB Group companies by empowering banks to change course for managing firms who fail to pay. Banks will now initiate criminal proceedings against Mallya and force him to quit company boards.
Impact of wilful defaulter tag on Vijay Mallya's position
Mallya may have to quit as non-executive chairman of United Spirits Ltd. in which a British company Diageo Plc holds nearly 55 percent of the shares.
Mallya will have to step down as Mangalore Chemicals chairman. On 22 April 2014, Pune-based Deepak Fertilisers and Petrochemicals Corp. Ltd launched a bid for Mangalore Chemicals.
The banks had an exposure of Rs.350 crore to the Kingfisher Airlines. Kingfisher owed 6521 crore rupees to a lender consortium led by State Bank of India and an additional 403 crore rupees to United Bank. As per the RBI guidelines, banks can take every possible step to recover their funds.
To recover the funds, banks in February 2013 decided to sell a portion of the security with them which includes shares of UB group companies- United Spirits Ltd and Mangalore Chemicals & Fertilizers Ltd, Mallya's Goa villa, Kingfisher House in Mumbai and the Kingfisher brand. All these valued at over 4000 crore rupees at the time.
A wilful default occurs when either a borrower has not repaid when he can do so, or when sanctioned funds have been used for other purposes or when the borrower disposes off the assets assured for availing of the loan without the bank’s knowledge.
According to the guidelines of Reserve Bank of India (RBI), once a wilful defaulter notice is issued, the borrower has 15 days to defend himself in front of the bank. The wilful defaulter tag gives surety that the borrower and any firm on the board of which he is a director will not get a loan from any financial institution in future.
The tag wilful defaulter entails serious consequences including penal consequences. Thus, Kingfisher Airlines (KFA) and Vijay Mallya were deprived of an opportunity to be represented by a trained legal professional.
Even learned single judge and the division bench of the Calcutta high court by orders dated 10 July 2014 and 28 August 2014 dismissed a writ petition and an appeal filed by KFA against the arbitrary, unreasonable, untenable and unlawful denial of the right to be represented by advocates of its choice at the hearing to be held before the Grievance Redressal Committee set up by UBI.
Who: United Bank of India
When: 1 September 2014