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No evidence to support Govt’s case against Mallya, submits defence

Vidya Ram London | Updated on January 09, 2018 Published on December 05, 2017

Vijay Mallya

The second day of Vijay Mallya’s extradition hearing kicked off with the lead barrister for the defence, Clare Montgomery, seeking to take apart the three-plank case of the prosecution.

The prosecution has built its case around the alleged mis-representations — ranging from brand valuation to the financial health of the company — made to the banks; the misappropriation of, and the attempts by, Kingfisher and Mallya to “squirrel” away the money when the loans were recalled.

Concluding her opening remarks in the afternoon Montgomery was sharply critical Of the evidence presented, particularly in the prosecutions response to the defence, suggesting the lack of evidence and use ‘template affirmations’ pointed to the involvement of political motivations.

‘She says ‘the cbi has a long and inglorious history of being politically motivated in the prosecutions it brings....that may sound like hyperbole but there is research that shows direct correlation between allegations of corruption and election years.’ The same Could be said of the ED she said. ‘The whole case has been politicized by the Bjp, the Congress, The shiv sena...they all treat it as an opportunity to make political capital on the assumption there was fraud,’ ms Montgomery said on Tuesday afternoon.

She also highlighted another issue that would emerge later in the defence case around prison conditions in India and what she called the serious cases involving a breach of court orders on conditions, and the lack of a mechanism to enforce this by courts. ‘Russia is a lot better than India,’ she told the judge in response to a question around the access experts had to prison conditions in India.

In another detailed session, Montgomery sought to convince Chief Magistrate Emma Arbuthnot why there was “no evidence from the government to support the case they advance,” suggesting it was a case of balancing up competing narratives — that of fraud versus business failure.

‘A business failure’


“The critical prima facie question is could a reasonable jury reach a safe conclusion that this was a deliberate plan to go to IDBI with the intention to default on that loan…or was it a business failure,” Montgomery said at the start of the morning’s proceedings.

The government’s case, she added, involved a number of allegations — big and small — many of which had not been mentioned by barrister Mark Summers because they were likely “unsustainable.”

She raised the question of whether there had been political interference in the prosecution process that had been “improper”. She blamed government policy for adding to the financial difficulties of Kingfisher Airways by highlighting the length of time it had taken to allow foreign investments in the sector.

The government case around fraud perpetuated by Kingfisher executives was “financially incoherent”, she said. “The idea that an individual investor or a company can palm losses onto a bank by taking out loans reveals a shocking lack of appreciation of the effect of incorporation and the rights of shareholders,” she told the court.

“It is simply economically and legally impossible to palm off losses onto banks or by borrowing to pass on the costs of failure,” she said. “All that borrowing does, particularly when supported by personal guarantees, is increase the personal liabilities due to failure.” Among the aspects of the case presented were supposed “mis-representations” around the picture of profitability in 2011 presented to the banks in 2009. “That is extraordinary,” Montgomery said… “the reality is that the profitability of an airline depends on economic factors that are largely cyclical and out of control of the airline,” she said, adding that the Indian market had particular vulnerabilities.

She cited other airlines that had been in tough financial conditions in 2009 but expected 2010 to be better and the possibility of profits in 2011.

She noted the “irony” of the government’s attack on the failure to pledge shares in Kingfisher Airlines to the banks, given that their contention was also that the stock was worthless. “The reality is that this was a company that had a negative net worth. This was a company in dire straits. That is why it was going cap in hand to the bankers. None of this supports the proposition that this was a deliberate and fraudulent borrowing of the sort the government contends.”

Brand valuation



Montgomery also sought to poke holes in the differences between the two brand valuation reports — cited by the government in its case as an example of misrepresentation — suggesting that the bank did indeed have all the information it needed to make its assessment. She questioned the evidence of one witness, involved in the recovery process, who had alleged that the second report that had valued the Kingfisher brand at a much lower level had been “suppressed.”

On the second plank — around the use of funds — she described the government’s case as “farcical”. “Companies use their cash flow as they see appropriate... The case on improper disbursement fails but fails for a more fundamental reason: there is no single disbursement that can be shown for other than for the benefit of Kingfisher Airlines.”

Turning to the third aspect of the government’s case, Montgomery suggested the picture of payments made was contrary to that described by the government, and was not the result of “deliberate dishonesty but instead a desire to fight his own corner in circumstances where he had made very substantial offers to the banks.”

“I will say this of the third leg. It has no life. If in the end you conclude there is simply no basis on which you can safely discount the possibility that the default was caused by corporate failure rather than deliberately fraudulent behaviour, then no amount of bad behaviour in 2013 onwards will help the government in its case.”

Concluding her opening arguments, Ms. Montgomery pointed to evidence presented in the response documents by the prosecution, insisting they were not supported by underlying material. some were " obviously false and at most we have assertions made by the relevant officers they say are true in non judicial format.” In addition, she said there were 12 statements, which were materially identical to one or more other statements. “There is no evidence these are based on free recall...they seem to be template affirmations reflecting word for word identical answers.”

Concluding she then suggested political motivations were involved in the case. “The CBI has a long and inglorious history of being politically motivated in the prosecutions it brings. This may sound like hyperbole but there is research that shows direct correlation between the allegations of corruption and election years…the same can be said of the enforcement directorate…the whole case has been politicised by the BJP, Congress, and Shiv Sena. They all treat it as an opportunity to make political capital on the assumption there was fraud. “

In the afternoon she concluded with evidence from dr Barry Humphreys, an aviation consultant, who highlighted some of the challenges that faced airlines operating in India and beyond, including the excess capacity in the industry in 2009 and how in all probability one or more significant airline would go bankrupt. The expectation of recovery by kingfisher by 2011 - cited by the prosecution as an instance of misrepresentations to the bank- was shared by others in the industry. He also noted the fact that other airlines globally were involved in the sponsorship of motor racing, as a marketing device, as was the case with kingfisher and force India (an issue raised but not delved into yet By the prosecution.) ‘there is a close association’ between airlines and motor racing in marketing terms he said as they were both ‘sexy businesses’ .

Published on December 05, 2017
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