Mallya circumvents banks’ move to sell pledged shares

Stage set for further confrontation over defunct Kingfisher Airlines.

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By R. Chandrasekaran

CHENNAI: Business tycoon and liquor baron Vijay Mallya has adopted a different route to irritate the public sector banks, who are engaged in recovering the dues from the grounded and defunct Kingfisher Airlines. This time he has invoked the ‘cancellation mantra’, i.e. canceling the power of attorney issued in favor of IDBI Trusteeship Services on pledged shares of United Spirits.

The consortium of about 17 banks led by State Bank of India has been selling shares pledged by Vijay Mallya against the loan given to Kingfisher Airlines. The banks could have recovered about Rs.10 billion in the last few months by selling pledged shares such as Mangalore Chemicals & Fertilizers and United Spirits. An estimated Rs.70 billion is lying as outstanding debt against Kingfisher.

The liquor baron is already annoyed with the public sector banks for selling the shares pledged by him and his companies. In fact, a report indicated that he has sued lenders for selling a part of the United Spirits that was pledged and worth about Rs.1 billion.

SBI has been more vociferous in recovering the dues from the KFA since it has huge chunk of exposure, to the tune of Rs.16 billion. Its chairman Pratip Chaudhuri had even commented earlier this month, “We are making all efforts. We have treated this loan 100 per cent provided for. It does not mean that we are not going after assets. We are going after all assets. The companies’ shareholding, the companies real estate, the personal assets, all are targeted.”

The tone and the language from the top bank were loud and clear. Therefore, the liquor baron had preferred the route of canceling the power of attorney issued to the IDBI Trusteeship. At stake is 59.15 million pledged United Spirits shares valued about Rs.0.32 billion. This effectively puts the question mark over the legality of transferring such pledged shares. This will also put the buyer in the risk of not owning the shares despite paying for it. In a nutshell, canceling power of attorney means that dealing in such shares could be termed as null and void.

However, will this prevent the lenders from going ahead of selling the pledged shares and assets? Though this will not likely stop the lenders from acting against KFA and its promoter Vijay Mallya, this could delay or postpone the selling of such pledged shares.

Meanwhile, Business Standard quoted an official from IDBI Bank as saying, “The PoA can’t be cancelled unilaterally at the instance of the party that pledged a financial instrument as security for loans and advances. Normally, the reversal (cancellation) only happens on repayment of loans. This looks to be a weak defense in this case”.

This makes it very clear that KFA and its promoter have little chance of defending themselves against the lenders’ move to sell shares and assets pledged. However, the cancellation of PoA is bound to create a rift between the lenders and Vijay Mallya with the matter likely to reach court room. In effect, this could likely delay the process and irritate the lenders.

The speed with which the lenders have gone ahead in selling pledged shares and assets have also alarmed Vijaya Mallya as the lenders could soon start selling his other pledged assets or shares. This would have also weighed in taking a cancellation of PoA.

 

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