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How strong is the evidence against Mallya?

K Giriprakash Bengaluru | Updated on January 10, 2018 Published on September 27, 2017

Vijay Mallya

CBI, ED need watertight case to prove money laundering claim for the UK to extradite him

The CBI and the Enforcement Directorate will need a watertight case to prove their recent claim that former liquor baron Vijay Mallya’s companies did divert a large part of the ₹6,000 crore he received from lenders for his Kingfisher Airlines. Else, any chance of extradition will go up in smoke.

Early this week, there were reports that both the agencies are preparing a chargesheet alleging Mallya and his companies laundered a major part of the ₹6,000-crore bank loans taken for Kingfisher Airlines. The money apparently was diverted to several shell companies in seven countries, including the US, the UK, France and Ireland.

“It all depends on whether the agencies are able to establish the money laundering trail. Everything depends on the evidence they can come up with,” Ramesh Vaidyanathan, Managing Partner of Mumbai-based Advaya Legal, told BusinessLine.

The agencies should be able to show funds in a particular bank account overseas, that the money was actually diverted to that bank account from a bank here, and that funds intended for the airline were actually diverted for other purposes, he added.

This will involve a lot of work, documentation which should result in watertight evidence. “Only then a money laundering case can be established, which will be a serious offence both for local laws and for the purpose of extradition,” he said.

A former top official in the UB Group said the CBI and the ED have left the exact amount laundered rather vague.

“They have said it was most of the amount and not the entire amount. This can be interpreted in several ways,” he pointed out. He further said there is a possibility that a large part of the amount of a single vendor could have been laundered.

Modus operandi

If indeed a large amount of the loan was diverted, then how were the operations of Kingfisher Airlines carried out? According to sources, the money came from liquor distributors, United Spirits Ltd (USL) and other group companies.

“This was used to run the daily operations of the airline with the promise that it will be returned once the bank loan was released. But once the loans were disbursed, the money were never returned.

According to reports, forensic audits carried out by PwC and later by EY showed payments made to Kingfisher Airlines by USL. These loans were later regularised.

The former UB Group official also said that as Kingfisher Airlines ran its operations mostly on leased aircraft, an overseas entity (vendor) would be created, which would in turn create fictitious invoices with inflated bills and the money would be transferred to it through legal means.

Whatever the money the airline owed to the leasing company would be disbursed and the rest parked with the entity.

For example, if the lease rental was ₹100, the vendor would be transferred ₹100 plus X. An amount of ₹100 would be given to the leasing company while the rest would remain with the vendor.

“It may look as if the entire transaction carried out was legal as it was done through proper banking channels. What the vendor did after receiving the funds was illegal. They were piling up invoices and creating intermediaries which have nothing to do with the leasing of aircraft,” he explained.

He also said it was untrue that some of the companies named in a certain report were shell companies meant only for laundering. For example, H Parsons was nearly a century old and was a distribution company based out of Mumbai. It was acquired by Mallya and his associates later. Another company, Watson, was not a shell company either. It has been in existence for several years now.

Level of proof

Vaidyanathan said the money laundering charges have already been levelled against Mallya but the cause of action is new because of fresh “evidence” as claimed by the CBI and the ED. “The level of proof that the court expects is much higher. Today, the UK court wants to know whether Mallya has committed an office in India and hence needs to be tried in India. Therefore, he would be extradited to India to face trial,” he said.

Hence, it is all the more necessary for the agencies to see that the proof is robust and they have clear documentary evidence to support diversion of funds, Vaidyanathan added.

Published on September 27, 2017
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