This article is written by Monesh Mehndiratta, a law student at Graphic Era Hill University, Dehradun. This article gives an overview of the Vijay Mallya Scam and explains the legal provisions attached with this scam.
It has been published by Rachit Garg.
Table of Contents
Introduction
In the past decades, there have been many unethical conducts in the businesses of various professions which affected the public at large. Most of the scams and frauds are done by influential people of the society and hence, have a great impact. These scams and frauds by influential people form a part of white-collar crimes. The term ‘white collar crimes’ and its concept were for the first time given by Sutherland. He pointed out that there are certain crimes besides the traditional crimes (also called blue collar crimes) and were seen as a part of usual unethical business tactics adopted by men to gain success. This is the reason that such crimes were not punished until the concept was not explained by Sutherland.
He along with other writers tried to shift the focus of the society to much-needed dangers from the crimes committed by upper socio-economic groups in society. He defined white collar crimes as ‘crimes committed by persons of high social status in the course of their occupation or employment.’ These crimes include frauds, infringement of patents, copyrights, trademarks, money laundering etc. The country has witnessed the largest scams of the decade, one of them is the Vijay Mallya Scam of Rs 9000 crores. Even after many efforts, he has not been sent to the country for completion of the trial. A recent study in 2016 showed that there is a relation between increasing fraud and NPA (non-performing assets). NPAs are loans where the sum is not paid for more than 90 days and is overdue. This is exploited by the ones who intend to do fraud. The scam done by Vijay Mallya is further discussed in detail in the article.
History of Vijay Mallya and his company
The former Member of Parliament (Rajya Sabha) and a famous businessman, named Vijay Mallya, is the ex-chairman of United Spirits and the chairman of United Breweries Group indulged in beverage alcohol, fertilisers and real estate business. He became the chairman of the company at the age of 28 and focussed on the growth of his family business and company since then. He is also known to own a famous IPL team RCB i.e. Royal Challenger Bangalore for a long period of time. With his hard work, the company was able to take a big leap in turnover making it 64% in 1999. He also expanded his business outside the country in many foreign countries and also acquired Berger paints in his name. He has also been elected as the Member of Parliament two times from Karnataka.
He once decided to expand his business of liquor and Airlines but was advised by the members of the company. Without paying any heed to the advice, he sold one of his companies to collect funds for his business of Airlines. He invested all the collected funds in the Airlines, as a result of which his Kingfisher Airlines became the popular domestic airlines in the country. He also wanted to expand the airlines but the government imposed various restrictions and did not allow it to carry on with international flights. As a consequence of this, he manipulated his own United Breweries company to buy another company going in loss i.e. Deccan Airlines and merged it with his own airlines but could not make profits as desired and indeed suffered a great loss.
How did the Vijay Mallya scam take place
In order to continue his business, he took heavy loans from various banks but was not paying it back. Many banks declared him bankrupt and did not provide further loans but he continued to take it from different banks using his influential position. Another unethical practice done by his airlines was that they were not paying any PF and salaries to their employees and taxes to the government. With such great losses continuously, he refused to pay the salaries of his employees and shut down his business.
Details of various loans taken by Vijay Mallya throughout the scam
He took loans from 17 banks in the country (total Rs. 9000 crores) and refused to repay the principal amount as a result of which they filed a court case against him. The details of major loans and the amount taken by him is given below:
| S. no. | Name of Bank | Loan amount |
| Axis bank | 50 crores | |
| Punjab and Sind bank | 60 crores | |
| Federal bank | 90 crores | |
| Indian overseas bank | 140 crores | |
| United bank of India | 430 crores | |
| Bank of baroda | 550 crores | |
| IDBI | 800 crores | |
| PNB | 800 crores | |
| SBI | 1600 crores |
Failure to repay the loan and to avoid criminal liability, he ran to another country with all the money he took as loan in 2016 and has not returned yet. The various reasons for the failure of airlines could be:
- Bad business strategy
- Failure on the part of management
- High fuel prices
- Recession of 2008
- High cost of operation.
- High ticket prices.
Response of Vijay Mallya to the allegations
After the scam in 2016, he ran to the United Kingdom and has not returned back since then. He denied all the allegations of scam and fraud alleged by the banks and his employees and wrote a letter promising to pay all the money back with proper interest. But he is not acting upon his words and his conduct reveals that he has not paid the principal amount. The Supreme Court in 2017 ordered him multiple times to appear before the court but he ignored the order. As a result, the court charged him with Contempt of court and fraud and ordered the government to seek his extradition. The Supreme Court in a recent hearing also found him guilty of contempt for withholding information from the court and gave him the last opportunity to appear before the court either through his advocate or himself.
On the other hand, the Government of India appealed in the court in London to send Vijay Mallya back to his own country for completion of trial. They made extradition requests to the court in London as a result, he was arrested but bailed every time due to his political and influential position.
Judgement of Royal Courts of Justice
In this case, the government of India requested a court in London for the extradition of Vijay Mallya from their country to India. It was argued that he ran from the country after doing a scam with the intention to defraud the banks and people and took all the money illegally with him and was engaged in money laundering and for this reason, they want to take him back into the country. They again filed an extradition request in 2017 in the court on the basis of which he was arrested and granted bail again. This happened every time such a request was made in court.
Vijay Mallya, on the other hand, contended the opposite of what the government of India argued. The court opined that the appellant will not get a fair trial in India due to political influence and pressure, and will be miserably tortured. They applied human rights in a strict sense and denied the request of the Indian Government. They found the request of extradition by the Indian Government opposing and against the European Convention on human rights because of poor prison conditions in India and ordered to improve the conditions and facilities in prisons.
Legal provisions applied in the case
The various charges on Vijay Mallya and the legal provisions are explained below:
Criminal conspiracy
The earlier conspiracy was a civil wrong but later it was made a criminal wrong on the basis of the gravity and nature of the cases. Section 120A of Indian Penal Code, 1860 deals with the offence of criminal conspiracy. Originally, it was punishable in 2 forms:
- By way of abetment.
- Conspiracy in certain offences.
An illegal act or omission was necessary to convict a person in the former but in later if a person is a member of the conspiracy, it was seen as sufficient ground to convict a person for criminal conspiracy.
However, with the amendment in the Code, Section 120A and Section 120B were inserted. It now deals with the offence of criminal conspiracy as:
- Substantive offence
- Form of abetment under Section 107 of Chapter V.
- Wage or attempt to wage war against the Government of India (Section 121A).
In the case of State (C.B.I/S.I.T) v. Nalini (1971), it was held by the Apex Court that an agreement between two or more persons for commission of illegal acts amounts to criminal conspiracy. It is not necessary to prove that all the people accused of such crime gave their explicit consent in the conspiracy and participated in it.
Ingredients of Section 120A
- Agreement between two or more persons for a conspiracy;
- The agreement should be made for the purpose of:
- Illegal act
- A legal act to be done by illegal means.
Section 120B of the code gives the punishment for the offence of criminal conspiracy. If the conspiracy was done for the commission of serious offence, the person would be punished with death penalty, life imprisonment or rigourous imprisonment for 2 years or more, which is decide from case to case. If they conspired to commit an offence which is punishable with fine then the punishment would be 6 months imprisonment or fine or both. Vijay Mallya has been accused of conspiring to defraud the members of the company and his employees along with various banks in the country.
Cheating
Section 420 of Indian Penal Code, 1860 deals with the offence of cheating and delivering property with dishonest intention. The established principle for the offence of cheating is that in order to convict a person for the offence of cheating, it is not necessary to show that he had dishonest intention when he made a promise to do something. But if he is not able to fulfil the promise, it does not merely mean that he committed the offence of cheating as dishonest intention must be there to prove the offence. The Section provides that the punishment for the offence of cheating is imprisonment upto 7 years and fine. Vijay Mallya in the present case had the dishonest intention to defraud and thus, is accused of cheating.
Ingredients for the offence of Cheating
- False representation made by the accused.
- Knowledge that the representation was false.
- Dishonest intention to deceive the person
- Induced a person to do something or omit to do something, which he would not have done.
In the case of Bakshish Singh Dhaliwal v. State of Punjab (1967), the appellant submitted various false claims to the government of Burma in Simla in 1942 for the works he executed and for the supply of materials as per the instructions of the Army. The Supreme Court held that the claims were not true and this led to the inference that he knew that all the representations were false and was held liable for the offence of cheating.
Criminal misconduct and money laundering
If a public servant commits the offence of criminal misconduct in order to gain any monetary advantage or valuable thing by using his influential position and abuses his powers, he will be held liable under Section 13 of The Prevention of Corruption Act, 1988. He will be punished with imprisonment upto 7 years or fine or both. In the present case, Vijay Mallya used his position of Member of Parliament (Rajya Sabha) to obtain loans from the banks even when he was declared bankrupt by various banks. This shows that he used his influential nature and abused his power to gain monetary advantages and was thus charged under this Section.
He was also charged under Section 3 and 4 of Prevention of Money Laundering Act, 2002 for the fraud of money. Section 4 provides the punishment for the offence which is rigorous imprisonment extending upto 7 years and minimum 3 years along with fine.
SARFAESI ACT, 2002
This Act enables the lenders of the loan to recover their amount and interest by selling off the property and assets of the person who has taken the loan. In the present case, the lenders in various banks were permitted to recover the principal amount and interest by selling the assets and properties of Vijay Mallya’s company Kingfisher. The auction was done through electronic mode but the recovery could not be done due to no buyers for the assets. The real estate market was already struggling and thus, the lenders could not find any buyer who could buy any asset or property of the company because of higher prices.
Extradition laws
Extradition is a process through which a country requests another country where the fugitive offender is hiding, to send him back to his own country. The laws are usually governed by treaties and relations between the countries. It is governed by the Extradition Act of 1962. The concept is based on 3 other principles namely, Dual criminality, Speciality and Political influence. However, these laws are not applied in certain cases. These are:
- If the principle of dual criminality cannot be applied or requirements cannot be fulfilled.
- If the crime is a political crime, extradition of such offenders is generally refused.
- If the country has strict human rights, then it can refuse the extraditionj on the ground og violation of these rights and torture to the offender in his country’s prison, as seen in the present scam.
- If there is no extradition treaty between the two countries, the foreign country where the offender escaped, can refuse his extradition.
Conclusion
White collar crimes are the most dangerous crimes in the present era as they not only affect people at large but also impacts the economy of a nation to a great extent. India has witnessed many such scams, some of these are fodder scam, satyam scam, hawala scam etc. Vijay Mallya scam is another example of such scams. It was done by a person who was also a Member of Parliament and knows how to escape the criminal liability. This is the reason that he has not been convicted yet despite many efforts of the Indian Government. This is the same as “justice delayed is justice denied” and shows the incapacity of the system to deal with such situations.
As per the reports of Times of India, the courts in UK accepted the request of extradition of Vijay Mallya to India in 2019, but has not been sent back yet as he is trying his best to stay in the country by any means. The country, especially the banking sector witnessed a drop in the economy after the scam by Vijay Mallya. The real estate was struggling and this was the reason that no one came forward to buy the assets of the company for recovery of loans. The Central Vigilance Committee (CVC), as a result, told the banks to have a second layer of verification process for evaluation of loan requests by influential people and businessmen and to have their own consulting agency. Another such recent scam that India faced was done by Nirav Modi in 2018. He defrauded Rs. 11400 crores using fake bank guarantees and fled to London. The case is pending in the court in London.
Frequently asked questions (FAQs)
Who is Vijay Mallya?
Vijay Malllya, is the ex-chairman of United Spirits and the chairman of United Breweries Group indulged in beverage alcohol, fertilisers and real estate business. He was also elected as a member of Parliament two times which shows that he had an influential political background. He became the chairman of the company at the age of 28 and focussed on the growth of his family business and company since then. He is also famous for being the owner of a famous IPL team RCB i.e. Royal Challenger Bangalore.
What is extradition?
Extradition is a process through which a country requests another country where the fugitive offender is hiding, to send him back to his own country. The laws are usually governed by treaties and relations between the countries. It is governed by the Extradition Act of 1962. The concept is based on 3 other principles namely, Dual criminality, Speciality and Political influence.
What is the response of Vijay Mallya to all the allegations?
After the scam in 2016, he ran to the United Kingdoms and has not returned back since then. He denied all the allegations of scam and fraud alleged by the banks and his employees and wrote a letter promising to pay all the money back with proper interest. But he is not acting upon his words and his conduct of not appearing in the court and ignorance towards judicial notices reveals that he has not paid the principal amount.
What is the status of Vijay Mallya’s extradition?
As per the reports of Times of India, the courts in UK accepted the request of extradition of Vijay Mallya to India in 2019, but has not been sent back yet as he is trying his best to stay in the country by any means.
References
- https://economictimes.indiatimes.com/news/india/rs-19111-cr-assets-attached-out-of-total-fraud-of-over-rs-22500-cr-by-vijay-mallya-nirav-modi-mehul-choksi-sc-told/articleshow/89801993.cms
- https://www.business-standard.com/about/who-is-vijay-mallya
- https://indianexpress.com/article/explained/vijay-mallya-case-uk-bankrupt-7425118/
- https://timesofindia.indiatimes.com/business/india-business/where-are-vijay-mallya-and-nirav-modi-status-of-extradition-cases-before-uk-pms-india-visit/articleshow/90950706.cms
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