India Court Orders Mallya Arrest as Pressure Builds on Loans

  • Special court issues non-bailable warrant against tycoon
  • India had suspended Mallya's diplomatic passport for 4 weeks

Vijay Mallya.

Photographer: Rafiq Maqbool/AP Photo

A special court in Mumbai ordered the arrest of Vijay Mallya, the tycoon at the center of India’s battle to recover soured debt, adding to the pressure on him to repay dues after the government last week suspended his passport in a bid to force his return from abroad.

The court issued a non-bailable arrest warrant against him on Monday, said Karnal Singh, director of the Enforcement Directorate, a specialized financial investigation agency focused on foreign exchange and anti-money laundering laws. The move followed an application by Singh’s office.

Sumanto Bhattacharya, a spokesman for Mallya and his UB Group, didn’t answer three calls to his mobile phone. A statement from the UB Group late Sunday “strenuously denied” charges made by the Enforcement Directorate that 4.3 billion rupees ($65 million) were transferred overseas to acquire property and termed the agency’s call for his arrest “erroneous and unjustified.” 

“We are shocked at the allegation,” the group said in the statement. “Multiple investigations have been going on since July 2015 and this allegation has never been made.” All foreign-exchange transactions, including borrowed funds, were used for “legitimate business purposes only,” it said.

Noose Tightening

The order is the latest turn in the efforts by banks and the government to claw back money lent to the collapsed Kingfisher Airlines Ltd., the carrier its founder Mallya says was an “unfortunate commercial failure” due to macroeconomic factors and government policies. The indebted ex-billionaire, who has sparred with local media for portraying him as the poster boy for the nation’s bad loans, owes about $1.4 billion, according to the government.

“The government is tightening the noose on Mallya for a debt cleanup,” said Nilesh Dedhia, director at NTD Trading Ltd. in Mumbai.

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India’s foreign ministry said April 15 that Mallya had a week to respond to why his diplomatic passport shouldn’t be impounded or revoked, after suspending it for four weeks. Vikas Swarup, a spokesman at the foreign ministry, said the ministry acted on the advice of the Enforcement Directorate.

Mallya has diplomatic papers because he’s a member of the Indian parliament’s upper house. Earlier this year he said he planned to spend more time in England to be closer to his children, and the Attorney General told India’s Supreme Court in March that the tycoon had left the country. A group of creditors had sought to prevent his departure. 

Supreme Court

Mallya has said he didn’t flee the country and he isn’t an “absconder.” The UB Group’s Bhattacharya said Sunday he didn’t immediately know the whereabouts of the tycoon. United Breweries Holdings Ltd. is the parent of Kingfisher Airlines.

India’s Supreme Court has told Mallya to declare all his assets by April 21 after a group of lenders turned down his proposal to repay as much as $900 million. The banks have sought the entire amount due, including interest.

Opposition parties have attacked Prime Minister Narendra Modi’s government over the case, given that officials are trying to clean up India’s worst bad-debt pile up in more than a decade. The government may face renewed criticism when parliament convenes again starting April 25. Disruptions in the legislature have made it challenging for Modi to pass a landmark tax reform in recent months.

Airline Grounded

Earlier this month, the besieged beer baron offered to settle his dues with a 40 billion-rupee payment by the end of September. He also promised a further 20 billion rupees if United Breweries wins a lawsuit alleging defective engines from International Aero Engines AG contributed to the carrier’s collapse. The banks rejected the offer.

After five straight years of losses and mounting debt, Kingfisher was grounded in October 2012 as workers protested unpaid wages and lenders unsuccessfully attempted to revive the carrier, which ran up high costs in a bid to redefine luxury travel in India. The banks then named Mallya a wilful defaulter.

“In order to explain foreign-exchange remittances, all of which have been fully accounted for, we will provide full details in the next few days,” according to the Sunday statement from UB Group. “Suffice it to say that the basis of seeking a non-bailable warrant against our chairman is erroneous and unjustified.”

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