A failing airline run by an Indian tycoon wanted over fraud convinced banks to authorise vast loans by claiming it would soon be profitable, a court has heard.
Entrepreneur Vijay Mallya, chairman of the UB Group and co-owner of Silverstone-based Sahara Force India F1 team, is facing extradition to his home country after being arrested in the UK.
At the start of two weeks of hearings at Westminster Magistrates’ Court, it was heard loans were being sought by now-defunct airline Kingfisher, of which Mr Mallya was managing director, to pay off debts.
In 2009 the group had set about hunting corporate loans totalling 2,000 crore rupees (equivalent to almost £230 million) from a selection of banks, including two loans worth 900 crore rupee from the country’s IDBI bank.
Mark Summers, representing the Indian government, told the court that Kingfisher had assured the banks that it had expected to be profitable by 2011.
The loans would be used to pay off “critical obligations” to creditors, which the Central Bank of India had determined “urgently required repayment”, the court was told.
A letter sent to IDBI in October 2009 disclosed it was making “huge losses”, but offered security by pointing to the brand value of parent company UB Group – 3,500 crore rupees (around £402 million) – alongside the ability to sell aircraft and promises there would be additional investment.
Mr Summers said: “It (Kingfisher) was an airline in trouble at this stage, seeking financial assistance from a large number of banks and a large amount of money.
“It was making losses, as we have seen in the letter, it was foreseeing that it would emerge as profitable in the relatively near future.”
He added: “The bank is in a position to sanction loans knowing it (Kingfisher) is going to start making profit from 2011.”
Mr Summers told the court that Kingfisher Airlines attempted later to allay concern by saying its failure to meet growth forecasts was down to the “high cost of operations” including engine failures.
Force India Formula 1 racing car
The Indian drinks and aviation magnate was arrested in April by the Metropolitan Police’s extradition unit on behalf of authorities in India, where he is wanted in connection with money laundering and high value bank demands.
India’s Enforcement Directorate has been gathering evidence as part of its investigation into the tycoon’s debts, totalling £977 million, linked to Mr Mallya’s now-defunct airline Kingfisher.
He sold off his drinks firm United Spirits to Diageo in 2013 in order to prop up the airline, which went bust shortly after.
Indian investigators said last year that Mr Mallya had not been co-operating and had ignored their summons to give evidence three times.
The start of extradition proceedings were scuppered earlier by a fire alarm – forcing Mr Mallya to come face to face with the press pack outside.
He told reporters: “The allegations are baseless, unfounded, deliberate and you will see our submissions in court.”
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