Mallya case: ED could face challenges in implementation

K Giriprakash Bengaluru | Updated on June 22, 2018 Published on June 22, 2018

Vijay Mallya

The Enforcement Directorate move to file an application before a court against former liquor baron Vijay Mallya seeking to declare him a fugitive under the new Fugitive Economic Offenders’ Ordinance (FEO) could come with several riders and may be difficult to implement as well as dispose of the assets at a later stage.

On Friday, the ED moved a Mumbai court under the recently promulgated ordinance that empowers it to confiscate Mallya’s assets worth ₹12,500 crore and declare him a “fugitive offender.’’

‘Not easy to attach assets’

Rajesh Begur from the law firm, ARA Law, said that this move was more of a test case of challenge and litigation. “It is not going to be that easy for the agency to attach the assets. There is a priority of payments under the Company’s Act and separately with the Insolvency and Bankruptcy Code. Ultimately, in a normal situation, IBC would have prevailed. It remains to be seen which will take precedence. But it will take time. Any of the new laws are part of an evolutionary process,” Begur said.

The ED has already furnished evidence filed under the Prevention of Money Laundering Act and has in the past issued an attachment order for assets worth ₹6,330 crore against Mallya. As per the provisional attachment order, ED has ordered the seizure of a farmhouse in Mandwa in Alibaugh, multiple apartments in Bengaluru, fixed deposits with a private bank and a few other properties. All this takes the total attachment to over ₹8,000 crore. The ED has alleged that these assets were “proceeds generated out of criminal activities.”

According to another law firm, the new ordinance may face a few challenges. Given that the FEO will lose its right to address any civil cases in any court, foreign extradition authorities may sympathies with the offender. Businesses in which the offender is a promoter or has shares can be impacted by this provisions in the ordinance. At the same time, property in which the offender is not the sole owner could also be tied up in this litigation.

“While detrimental to offenders, these provisions may have an undesired impact on innocent associates and businesses linked to the individual,” a partner with a law firm who did not want to be quoted said.

‘Limiting the legal rights’

However, the ordinance provides strong deterrents to offenders whose foreign assets are also open for attachment to address their defaults. “The FEO classification limiting the legal rights of offenders to address civil litigation makes it of greater importance to adhere to the law of the land. The ordinance calls for an appointed insolvency professional to address the claims of all creditors who have a legal claim, thus providing a framework for default resolution.”

Begur said the context of the ordinance was valid and the government needs to be lauded in its efforts to bring to book habitual offenders. The ordinance allows constitutional safeguards that allow the offender to file a reply through a counsel and an appeal before the High Court. “Therefore, the case will be long drawn but at the same time, the commitment of the government cannot be questioned. While the ED may get to eventually attach several properties of Mallya, it will be difficult to dispose of them off as can be seen in the case of the Kingfisher House which in spite of the bidding price being lowered, has found no takers so far. Those who showed initial interest in buying some of the properties later kept away as they feared that they might be subjected to legal cases at a later stage. In some cases, the ED itself is learnt to have classified them as those “acquired out of criminal activities” making it much harder for any prospective buyer.

In a related case, some of the lenders are learnt to be finding it difficult to get the ED to release certain shares owned by Mallya so that they can be sold and part of the money owed to them squared off.

Published on June 22, 2018

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