Memo To Mallya: First Write A Cheque For Rs 5,000 Crore To Banks, Then Talk

Vijay Mallya, India’s absconding tycoon with thousands of crores of bank dues to his name, thinks he is being made a “poster boy of bank defaults” even when banks are taking significant haircuts under the Insolvency and Bankruptcy Code (IBC) with other defaulters. In a press statement on Tuesday (26 June), he claimed that he has “become a lightning rod of public anger”, and that he continues to make efforts to repay his dues in “good faith to public sector banks”.

Clearly, the heat is getting to Mallya, against whom the Indian government has launched extradition proceedings in the UK, and whose assets may well be attached under the Fugitive Economic Offenders Ordinance promulgated in April.

Even if there is some truth to Mallya’s assertions, the problem is largely of his own making. His dues, running into more than Rs 7,000 crore on the Kingfisher Airlines default, are not the problem, his attitude is.

It is more than likely that the Modi government wants to make an example of him in the context of its promise to not let wilful defaulters get away lightly. Politically, Mallya made it almost impossible for the government to offer him a lifeline to settle his dues amicably when he fled the coop in early 2016. If Mallya had stayed and fought his cases in court in India, there is more than an even chance that he would have got away lightly, with little more than a few days of custodial questioning. And he could have settled a large part of his dues, with banks taking a middling haircut.

The other problem with Mallya is that he made it a point to cock a snook at the authorities by continuing to live a flamboyant lifestyle when his business was in trouble. If you have shut down your airline and not paid your employees, does it make sense to be cavorting with minimally-clad models and holding lavish parties?

Former Reserve Bank of India governor Raghuram Rajan, in a thinly-veiled reference to Mallya’s lifestyle, had this to say some time ago: “If you flaunt your birthday bashes even while owing the system a lot of money, it does seem to suggest to the public that you don't care. I think that is the wrong message to send. If you are in trouble, you should be cutting down your expenses.”

As for his efforts to settle, even now it may not be too late to prove his bonafides. In his statement, Mallya said he had told the Karnataka High Court that he had available assets of around Rs 14,000 crore. “We have requested the court’s permission to allow us to sell these assets under judicial supervision and repay creditors, including the public sector banks, such amounts as may be directed and determined by the court (but) if the criminal agencies such as ED or CBI object to my proposal, and object to the sale of assets, it will clearly demonstrate that there is an agenda against me beyond recovery of dues to the banks”.

He has a point here. The government needs to be clear on what its objectives are: get back the dues of the public sector banks and Kingfisher’s employees and taxmen, or humiliate Mallya publicly, never mind if not much is recovered.

Logically, Mallya cannot expect to be treated with kid gloves anymore, especially after he chose to abscond and fight his cases in London. As long as he does not make peace with the Indian justice system, he has no reason to complain that Central Bureau of Investigation and the Enforcement Directorate have an agenda. If you mock the law, the law’s keepers have a right to go after you. Remember former McKinsey boss Rajat Gupta, who went to prison for arrogantly claiming he did no wrong in the US SEC insider trading case? A little contrition would have helped him too.

The sensible course for Mallya to follow is very simple.

First, return to India without waiting for the UK courts to send him back in handcuffs, assuming India gets the UK courts to see things its way.

Second, and most important, write out a cheque that is roughly equal to the principal amount owned to banks and pay his former employees their dues till the day they lost their jobs (complete with severance pay). With interest. After that, negotiate the rest of the dues with the banks and other creditors. The principal amount in his dues to banks are said to be around Rs 5,000-and-odd crore. Banks have, in the past, rejected settlement amounts of Rs 4,000 crore.

Third, in the case of offences which involve prison sentences, including non-payment of workers’ provident fund dues, offer to pay the dues with penalties and seek the court’s indulgence on the prison term.

If Mallya does these three things, he is unlikely to be scapegoated any further, for the political payoff will be that he was forced to come back home and is repaying its dues.

So, go ahead Mr Mallya. Write that Rs 5,000 crore cheque to your lenders. The settlement talk can come later.