Fugitive billionaire Vijay Mallya’s extradition case begins this week, with his appeal against extradition set to be heard at the London High Court for an expected three days from Tuesday.
The endgame in the Vijay Mallya extradition case begins this week. His appeal against extradition will be heard at the London High Court for an expected three days from Tuesday. The verdict of this court will be decisive, no effective appeal lies beyond its decision expected next month. Either then Mallya is brought back to India within 28 days of the Secretary of State ordering extradition if the appeal is upheld, or Mallya stays on in Britain, with the right to travel beyond England Wales that he is currently confined to.
The final order will come more than three years after India began proceedings. An extradition request was submitted on Feb 9, 2017; Mallya was arrested on April 18, 2017. He has since been on bail.
The appeal was allowed on the fundamental question whether Mallya defaulted on loans due to genuine business losses, or whether he defaulted wilfully. He was not allowed to appeal on other grounds he had raised in his defence through the course of the hearings at the Westminster magistrates court through most of 2018. In addition to contesting the fundamental case, he had argued through those hearings that the extradition move was politically motivated, that he could not expect a fair trial in India, that prison conditions in India do not meet basic human rights standards. The Westminster court had ruled against Mallya on all of these, and so did the High Court while granting leave to appeal. So the appeal will rest on the fundamental question whether there is a prima facie case of fraud or not.
Prima facie is important. Under Section 84 of the Extradition Act in the UK, the threshold of evidence required is “evidence which would be sufficient to make a case requiring an answer.” So the court is not tasked with deciding whether Mallya is guilty or not, but with deciding whether he has a case to answer in India for a trial to be held there. The hearings in London are not themselves a trial, though they often have looked that way given the voluminous extent of evidence presented from both sides and the lengthy arguments over it.
Now at the appeal hearing, Mallya will attempt to overturn the ruling of Chief Magistrate Emma Arbuthnot who had ordered his extradition – or recommended extradition to the Secretary of State, to be procedurally precise. The Secretary of State only rubber-stamps the order of the court, with no discretion to reverse its order other than on a few grounds that would here not be applicable. The Westminster magistrate’s 74-page judgment came after hearing evidence over the course of a year through which Mallya produced six witnesses in his defence; the Indian government did not bring any witness. And, as the magistrate observed, Mallya himself did not offer any evidence at the hearings, though he sat through all of them.
The Indian government’s case was threefold. One, a conspiracy to defraud, secondly the related matter of making false representations to make a gain for himself, and the third, brought by the Enforcement Directorate rather than by the CBI, of money laundering. The magistrate set out how the case would be decided. “The case will come down to his explanation of what he knew at the time the loans were being applied for, what his and the bank’s intention was when they granted the loans, what then Dr Mallya did with the money and what he did or did not repay.”
What the court
So just what did the Westminster court rule over these that the appeals court is now being asked to overturn? Some of the court’s findings are as below:
The magistrate ruled that “in terms of the prima facie case, I am particularly concerned with the emails which are exchanged at various times in 2009 where the financial predicament of KFA is discussed between the KFA executives.” That correspondence, she observed, “builds up a clear picture of their view of the financial situation of KFA (Kingfisher Airlines).”
The judgment points out that in May 2009 Mr Nedungadi from Mr Mallya’s company drew his attention to a bounced cheque with apprehensions of penal proceedings to be brought against them as a result of that. In September 2009 Mr Nedungadi wrote that “chances are that actual loss for the current year will far exceed the projections.” He speaks of a Rs 2,250 crore loss at the end of the financial year 2009 with at least a Rs 1,000 crore loss expected in the current financial year (then).
“The importance of this evidence is that it shows the concerns about KFA in the weeks leading up to the application for loans from IDBI,” the magistrate notes. The true position of KFA, she says, is not set out in the letter dated October 1, 2009, where KFA applied for the IDBI loan, and “this is a misrepresentation on the face of it of the loss” and it showed that KFA “used information that was out of date.”
KFA was valued at Rs 3,406 crores by the company Grant Thornton with a date of valuation of April 1, 2008, in its report dated November 2008. “It made it clear it was based on amongst other things forecasts which were provided by the management in October 2008. Grant Thornton did not take into account any changes since the projections were provided in October 2008.” Another company, Brand Finance valued KFA at Rs 1,911 crores. “Its conclusions were based on annual reports, projected profit and loss statements for the period from 2008-9 to 2014-15 and a business plan.” Clearly, the magistrate noted, “this was much lower than the Grant Thornton brand valuation. This was not provided to IDBI in the letter of 1st October 2009 where a reference was made to the brand value and it was said to be 3,400 crores.”
The Kingfisher Airlines angle
The magistrate notes: “The question is what was KFA doing offering this worthless security for the loan in the first place. The bank may have been able to find out it was worthless but KFA knew this was the case, yet put it forward as a security, with an implication that it had value.” And on what the banks did not find out, the magistrate had this to say: “It is either a case that the various continuing failures were by design and with a motive (possibly financial) which is not clear from the evidence that has been put in front of me, or it is a case of a bank who were in the thrall of this glamorous, flashy, famous, bejewelled, bodyguarded, ostensibly billionaire playboy who charmed and cajoled these bankers into losing their common sense and persuading them to put their own rules and regulations to one side.”
Once it defaulted on loans obtained through misrepresentations, KFA and Mallya himself found ways of not repaying creditors, the judgment notes. In one email Mr Mallya speaks of playing “round robins” with the funds obtained. The judgment notes that instead of repaying creditors the funds were used to pay for Mallya’s private jet and diverted to his F1 team then, Force India.
“When they were trying to ensure their continuation as a business, KFA were investing in Force India which was owned, as I understand it, by Dr Mallya at the time,” the judgment reads. “There is a prima facie case that the funds were misused. Mentions of ‘round robins’ in the documentation show what KFA was capable of doing. There is a prima facie case of making false representations to make a gain for himself or a loss to another.” Magistrate Arbuthnot adds: “There is clear evidence of dispersal and misapplication of the loan funds and I find a prima facie case the Dr Mallya was involved in a conspiracy to launder money.”
London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.
Read his columns here.
First Published: IST