London Eye: Banks find breakthrough against Vijay Mallya

Following Monday’s order, Mallya stands prohibited from obtaining credit for more than 500 GBP without disclosing his bankrupt status. He cannot also act as the director of a company without the court’s permission.

The order is effective already and was declared to be effective at 3.42 pm local time by Judge Michael Briggs for a year. Following that it lapses unless an order is made suspending his discharge.

Philip Marshall representing Mallya at the hearings at the Insolvency & Companies Court confronted Judge Briggs immediately after the order was read out. Marshall put it to Judge Briggs that he had “pre-judged” the matter. Judge Briggs said he had read out his ruling and given his verdict. Marshall then followed up with a demand for a stay of the order and for permission to appeal. Judge Briggs denied both.

Mallya’s team has the option now to seek leave to appeal against the order from a bigger bench. Any such bench would have to deliver a ruling against a lengthy and closely considered judgment. Whatever the likelihood of that, it does not change the fact that the bankruptcy order has been made and has taken effect. That is quite a change from Marshall’s opening argument for the banks’ petition to be dismissed altogether.

The banks are preparing for immediate follow-up action.

Marshall argued that the value of the assets the petitioners had sought had been more than exceeded through recent sales of Mallya’s assets. On June 23, he said, Rs 5,766.18 crore had been realised, followed soon by the sale of assets worth Rs 770 crore. A further Rs 5,706.59 crore was realised earlier this month through the sale mostly of shares. All this, he said, already exceeded the Rs 11,000 crore claimed by the banks.

“So the net position is that the banks have realised a substantial process of the assets, and also have in their control enough to cover all the petition debt and more,” Marshall argued. He challenged the banks’ argument that the payments received did not amount to repayment to the banks. “In effect, they are paid,” he said. “The court has ordered, and the money has gone to the banks and the assets have been realised.”

The Indian banks are represented by the law firm TLT LLP. Marcia Shekerdemian who appeared for the banks said the bulk of the payments received into the banks relate to third parties. And those orders for those payments are being challenged by many of the concerned parties in India, and by Mallya himself. “What matters is cash received, not assets that may be available,” she said.

Mallya still owes the banks a billion dollars, and even if his argument on interest were to be accepted, half a billion dollars she argued, while insisting that the banks’ position on interest is valid.

She said that about 40 creditors have made claims to the monies in question and that the banks have no priority over other creditors. “Recoveries are being made but when we get the money I don’t know.”

The extradition order against Mallya—and that he is still here—arose several times as a factor through the course of the arguments and in observations by the judge.

Shekerdemian pointed out that Mallya is not going back to face trial. “Everything is in the air and in abeyance,” she said. The right thing would be for Mallya to go back to India to face trial, she said. But he is in the UK “despite unsuccessfully challenging extradition,” she said. “Quite bizarrely, his own lawyers are asking when he is coming back.”

Judge Briggs noted that an extradition order had been passed against Mallya but that he is “still here”. He asked Mallya’s lawyer whether he knew of any plans by Vijay Mallya to return to India. “I have no indication whether Dr Mallya is planning to return,” Marshall replied.

Through the course of an earlier hearing, Marshall had said that an extradition order had been passed against Mallya but that there were “other routes” for staying on. Mallya is staying on in Britain after claiming asylum, after losing the extradition case.

The immediate change (effective from 3.42 pm local time on Monday) is the legal authorisation to the banks to seek out the true value of Mallya’s assets. Mallya already faces a worldwide freezing order on his assets, but the banks’ case is that not all his assets abroad have been disclosed.

The SBI-led consortium of 13 Indian banks includes Bank of Baroda, Corporation Bank, Federal Bank Ltd, IDBI Bank, Indian Overseas Bank, Jammu & Kashmir Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of Mysore, UCO Bank, United Bank of India and JM Financial Asset Reconstruction Co. Pvt Ltd. They have argued that Mallya has not disclosed his assets fully and honestly.

“There have been serious non-disclosures in the worldwide freezing order proceedings,” Shekerdemian said. One report had shown 346 million dollars worth of assets outside India, she said. Another inquiry in August 2017 had pointed to 435 million dollars worth of assets outside India, she said. Mallya is now legally bound by law to make full disclosures over his assets under the new bankruptcy order passed Monday.

Few will be surprised, however, if the law goes one way, and Mallya continues to go another.