The Enforcement Directorate (ED) suspects that liquor baron Vijay Mallya’s now-defunct Kingfisher Airlines Limited’s brand valuation by private experts was allegedly inflated and could have helped in getting loans sanctioned from various public sector banks over the years.
“The firm cited its brand’s worth and other assets as collaterals during 2004 to 2012 while seeking loans from public sector banks and it indicates their high valuation then. It raises the question if the firm’s worth was authentic or over-valued and played a role in loan negotiations,” an ED source said.
“For instance, the firm had applied for a loan of Rs 950 crore from IDBI in November 2009 at a time it suffered from acute eligibility-related deficiencies,” the source added.
Yet, the bank sanctioned the loan request against questionable security cited by the firm, according to the source.
“The IDBI bank’s credit committee sanctioned the loan request against security such as hypothecation or assignment of Kingfisher’s brand,” he said. Apart from the brand, the firm had given other collaterals, such “Mallya’s personal guarantee and corporate guarantee his business group.”
According to reports, Serious Fraud Investigation Office (SFIO) is also looking at how a multinational tax and advisory firm arrived at the Rs 4,100 crore valuation in 2011.
SFIO, which comes under the ministry of corporate affairs, is probing whether the valuation was deliberately inflated to get more funds from banks and siphon off money for purposes other than proposed investment in the airline, reports said.
Since March, the ED is conducting a money-laundering probe into Kingfisher’s alleged default on a Rs 900 crore loan by public sector IDBI bank in 2009. The probe was later widened to look into the firm’s default on loans worth Rs 9,200 crore from a consortium of 17 state-run banks during 2004-12.
On ED’s request, a Mumbai court on Monday issued a non-bailable warrant against Mallya after he failed to appear before its Mumbai office for questioning in the IDBI case after three summons issued by the agency. Mallya, 60, left India on March 2 as the creditor banks closed in on him to recover dues owed by his defunct firm.
Kingfisher’s alleged loan defaults are also being investigated by the Central Bureau of Investigation (CBI) in a separate probe after the agency registered a case last July. The CBI is scanning the aspect of the firm’s valuations as well.
According to CBI’s First Information Report, which became the basis of ED’s money-laundering probe against Kingfisher, the accused firm suffered from alleged “deficiencies” including “negative financials, negative net worth and not satisfying the conditions/norms stipulated in the corporate loan policy” of the IDBI Bank.
Besides, “the bank’s memorandum had mentioned that the accused firm’s auditors had observed that funds worth Rs 4,360 crore raised on short-term basis were used for long-term purposes,” the FIR said.