The long-awaited extradition hearing for Vijay Mallya kicked off in central London on Monday, as 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. During the day-long opening hearing, 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 aspect. Firstly he addressed what he described as the mis-representations made by Mr Mallya and Kingfisher to the banks in loan applications made to them, focussing on IDBI Bank, which issued loans to Mr. Mallya totalling Rs. 750 crore, Rs 250 crore and Rs. 150 crore. He then turned to the use of the loans, which he argued 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 his 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,” he told the judge at one point, as he highlighted email exchanges between Mr. Mallya and others which mulled over the options, 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. “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 Rs 950 crore (eventually reduced to Rs. 750 crore), Rs 150 crore and Rs. 200 crore and the exchanges between officials at the bank and Kingfisher. Among the testimonies relied upon by the prosecution was an IDBI official, referred to as Mr. Gupta – though the defence, led by Clare Montgomery QC insisted that his 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.
Mr. Summers detailed the “misrepresentations” made during the loan application process, which included on its use of two separate brand value analysis carried out by two separate companies – while one by Grant Thornton valued the Kingfisher brand at over Rs. 3,000 crore, a separate and later one based on new profit projections by Brand Finance valued it at less than Rs. 1,911 crore. In its applications, however, Kingfisher relied on the former, which was “unrealistic and wrong.” The optimistic picture presented by Kingfisher in its loan applications contrasted with the very gloomy picture in internal communications including one email which predated the loan application which predicted that it would take 10 years to recoup its losses. “Its against that you have to assess the final obligations given to the bank and on which the banks relied heavily,” said Mr. Summers
Turning to the destination of the three loans – he highlighted how some went to paying off tax obligations, rent on the corporate jet and in one case where part of the loan was used to clear a Bank of Baroda bill discounting limit, it freed up credit in that bank for Kingfisher to use for other purposes including 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) , though said that 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,” Summers told the judge.
Finally he focused on the efforts to thwart the consortium of banks’ attempts to retrieve the Rs. 2,000 crore worth of loans, through numerous examples, including the use of $40 million from Diageo,. “Rather than honestly honour his debts he squirreled away $40 million in trusts for his children,” Summers told the court.
When the court sits again on Tuesday, Clare Montgomery will present for the defence.