Kingfisher Airlines Ltd. (KAIR), the Indian carrier shut down after a payment default, and its founder Vijay Mallya vowed to “vigorously” challenge a bank that named them as ‘‘willful defaulters’’ amid a loan recovery effort by lenders.
State-owned United Bank of India yesterday declared Mallya, 58, and three directors of the carrier as defaulters. That restricts him and his companies from seeking future loans and also imposes conditions on him personally to step down from directorships, according to Mumbai-based lawyer Sandeep Parekh.
Kingfisher had debt of 91.4 billion rupees ($1.5 billion) as of Dec. 31, according to data compiled by Bloomberg. United Bank’s action may hamper any efforts by Mallya to revive the airline, which stopped flights in 2012 after losses widened amid mounting debt and the carrier defaulted on payments to lessors, creditors and airports.
“The bank can now seize his personal assets wherever such guarantees were given,” said Parekh, explaining the implications of someone named as a willful defaulter. “Other banks too might follow suit now that one of them has gone ahead,” said Parekh, who is the founder of Finsec Law Advisors Ltd. and a former executive director at capital market regulator Securities and Exchange Board of India.
Shares of the carrier, which halted flights in 2012, dropped 1.9 percent to 2.6 rupees in Mumbai today, extending their losses this year to 39 percent, after slumping in each of the past three years.
Mallya is the chairman of United Spirits Ltd. (UNSP), now controlled by Diageo Plc. (DGE) He is also the chairman of United Breweries Ltd. (UBBL), producer of India’s best-selling beer brand Kingfisher.
India’s Supreme Court, in a setback to Mallya today, rejected a procedural motion by him related to United Bank’s moves and told him to take his challenge of being declared a willful defaulter to the regional high court in Kolkata, formerly Calcutta.
Attorney General Mukul Rohatgi, who appeared for United Bank, argued that the airline diverted funds and hasn’t paid its workers.
Kingfisher and its directors “strongly deny the allegations of willful default,” and the bank moved in “great haste when the question of legal representation was under challenge,” Prakash Mirpuri, a spokesman for the carrier based in Bengaluru, formerly Bangalore, said in an e-mail.
IDBI Bank Ltd. (IDBI), another lender to Kingfisher, said the company is serving out its 15-day notice period on non-payment of dues. The bank may be close to declaring it a defaulter, Chairman M.S. Raghavan said in a telephone interview today.
The company owes about 7.5 billion rupees ($124 million) to IDBI, and 4.5 billion rupees to United Bank, according to the two lenders.
Punjab National Bank’s Chairman and Managing Director K.R. Kamath and Central Bank of India’s Rajeev Rishi, didn’t respond to three calls each made to their mobile phones today. SBI’s spokesman M. R. Rekhi did not respond to two calls.
The carrier lost its flying permit after it ceased operations in 2012. Kingfisher said in January it aimed to restart operations, though its license will expire at the end of this year if flights don’t begin by then.
Kingfisher hasn’t filed financial reports since December. Efforts are underway to try to publish the results, the company said in a statement to the stock exchange last month.
In July, Kingfisher withdrew a notice challenging an order by State Bank of India Ltd., the country’s biggest bank, to take over Kingfisher House in Mumbai. State Bank’s lawyer said at the time that the property was mortgaged with a group of banks, led by the state-owned lender, against a loan of about 45 billion rupees. A two-judge Supreme Court panel allowed the company to withdraw the plea.
Last year, SBI sent a willful defaulter notice to Kingfisher after attempts to recover dues from the airline failed, the Financial Express reported, citing the bank’s chairman at the time.
Airbus Group NV (AIR) said in June it’ll keep an 82-plane order from Kingfisher Airlines on its books while there’s still a chance that the Indian carrier might find a buyer which would require new aircraft.
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