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Vijay Mallya rejects allegations he redirected funds

Amy Kazmin
Vijay Mallya, chairman of UB Group.
Mark Thompson | Getty Images

Indian liquor baron Vijay Mallya has rejected investigators' allegations that $64 million loaned to his defunct Kingfisher Airlines was redirected into the purchase of foreign assets abroad, before the carrier's collapse.

Officials from India's financial crimes unit urged judges to issue a warrant for Mr Mallya's arrest during a special court hearing on Saturday, where they accused the once high-flying businessman of improperly using half of a 2009 loan granted by India's state-owned IDBI Bank to the airline.

A spokesperson for Mr Mallya last night "strenuously denied" the charges by India's Enforcement Directorate, which alleged he had used the funds to purchase properties abroad.

"We are shocked at the allegation," Sumanto Bhattacharya, a spokesman for Mr Mallya's private holding company, the UB Group, said. "The audited accounts of Kingfisher Airlines . . . show all foreign exchange transactions, which includes funds borrowed from IDBI Bank used for legitimate business purposes only."

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The statement said the UB Group would provide "full details" of foreign exchange remittances in the coming days. It also said the demand for a warrant for the arrest of Mr Mallya — whose precise whereabouts have not been publicly disclosed — was "erroneous and unjustified".

Mr Mallya, once known as the "king of good times", is locked in a bitter battle with a consortium of Indian banks, led by the State Bank of India, over the repayment of $1.3 billion in unpaid debts, and accumulated interest, left by the 2012 collapse of his Kingfisher Airlines.

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Last month, Mr Mallya left India for the UK, just as Kingfisher Airlines' creditors were appealing to the courts to bar him from travelling abroad in an attempt to step up the pressure on him to reach a settlement with the banks.

India's foreign ministry on Friday announced it was suspending his diplomatic passport immediately, on the request of the Enforcement Directorate, which has been investigating whether loans extended to Kingfisher Airlines had been misused and contributed to the carrier's collapse.

Vijay Mallya, chairman of UB Group.
UB Group's Vijay Mallya tweets he did not flee from India under debt pressure

The Enforcement Directorate said Mr Mallya had failed to heed three separate summons to appear in New Delhi for questioning in connection with the loans.

The investigators have been particularly focused on one $134 million loan issued by the IDBI Bank in 2009, probing why the bank loaned the money when the carrier was already struggling financially and had a low credit rating.

In court on Saturday, the Enforcement Directorate claimed that the money — recorded on the airline's books as funds for aircraft lease rent, importing spare parts and aircraft maintenance — had been siphoned off to buy foreign assets, though it said it was still studying exactly how the money was spent.

Founded in 2005, Kingfisher Airlines was once one of India's most popular airlines, known for its upmarket service. But the carrier never achieved a profit in a highly price-sensitive market, which has seen bitter fare wars, often led by the state-owned carrier Air India.