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Of Kingfisher and Mallya's Pot of Gold

There is tremendous outrage that Vijay Mallya, the flamboyant chief of the ailing Kingfisher Airlines has donated 3 kilograms of gold to a temple, while the airline has not paid salaries to its employees for nearly a year and owes over 8,000 cr. ($1.5 bn) to various creditors.

I don’t defend Mallya – while his surname and mine might suggest a relationship, let me state unequivocally that it is limited to beer – my liking and his manufacturing of it. But I’d like to take the discourse to a different level – away from knee-jerk outrage and to a more deeper and constructive debate about the real issues this situation throws up.

But First, Misplaced Outrage

The outrage is about why Mallya is donating gold while his airline’s employees or lenders suffer. See a particularly vitriolic take by Swaminathan Aiyar:

How can a man who owes enormous sums to employees and creditors be free to throw gold around like small change? If there were any justice, surely the gold and golden doors should be seized from the temples and handed over to the employees and creditors. Surely they should have first right to Mallya’s assets.

Surely they should not. First, Mallya doesn’t owe employees anything. Kingfisher Airlines does. Mallya is at best a partial owner, and is also possibly an employee of the airline. Anyone with a share is an owner of the company – does that mean they all should fish into their own pockets and pay all employees their salaries? Obviously not. The company is different from the individual; this is the basic concept of limited liability, that individual owners of shares are not liable for the debt of the company as a whole. That means that any individual shareholder has no liability for debts that the company has – if this was not so, none of us would be buying any shares in stock markets.

That Mallya was a "controlling shareholder" has no impact on limited liability. You might think, he runs the company, shouldn’t he be responsible for the debt? The answer is: no. If there are profits made, the profits are shared across all shareholders (dividend, or valuation or whatever). Mallya will draw a salary and a bonus (if he’s an employee). So why should he take the responsibility for the downside when he has to share the upside with shareholders? (If you think that he will embezzle money or siphon out any profits, please go to the "Fraud" section of this post) Same with employee salaries; the company is responsible, not Mallya. HT Atul Karmarkar for excellent links on both Indian law and the earliest UK judgement on the topic. 

Let’s also take a look at the ownership pattern of KFA. Promoters own just 36% of shares, almost all of which are pledged against loans taken. This itself is strange but normal in India – taking promoter shares as collateral for loans given to the company. If you consider the "Company is not Mallya" premise, then all collateral should have been owned by the company; but Mallya’s shares are not company property. However, let this go. Promoter shareholding has come down from 60%+ in March 2011, due to exercise of pledges by lenders.

Promoters in KFA’s case is again, not just Mallya. The 32% owned by them are like this:



% of co

United Breweries (Holding) Ltd



Kingfisher Finvest India Ltd



Dr Vijay Mallya



UB Overseas Ltd






The biggest owner is UB Holdings, which is a listed company and has only 50% owned by the Mallya gang. Financial institutions own 15% of KFA already, and if they convert the promoter shareholding into their name, will own about 45% of it. They can do that and take ownership of the company – what will we do then, go to the SBI chairman and demand that he sells his car to pay airline employee salaries?

This kind of moral outrage is silly. Mallya’s gold is Mallya’s gold, not an entitlement of shareholders or employees. It might be a property of the lenders, who for some strange reason, have chosen not to exercise their rights.   

Fraud or not?

Seething in anger are those that think that Mallya obtained his gold fraudulently by using KFA money. While I can’t comment about how he obtained gold, let’s be a little practical. Mallya runs a very successful liquor business, selling beer and whiskey and lots of other forms of alcohol. This is a ridiculously profitable business. This is also a very cash-generating business – as in, it can easily generate "black" money. If he is the sort, then the airline would be pretty much last on his list of businesses to get such money from – liquor is far easier to take money from. So if people are angry, it should be shareholders of the liquor businesses, not the airlines.

Secondly, there isn’t a single "suit filed" case in CIBIL with the name of Mallya or Kingfisher Airlines, which now reports all suit-filed cases for defaulters of Rs. 1 crore and above. Does this mean banks don’t consider that Mallya has frauded them? Does this mean they won’t even file a case – forget getting a judgement – just put the darn papers that cobble together even a coherent case of fraudulent behaviou
r by Mallya?

I’m hoping the answer is that banks are to blame. (Read the next section) If there is fraud, and Mallya is responsible, then he should be booked. And that gold taken away. But someone affected must at least file a case, otherwise it leaves us wondering if there was provable fraud at all.

Remember that Mallya will still be in trouble for not paying employee taxes (TDS), not paying into their retirement/provision fund accounts, for a bounced cheque, and for any tax violations. These are not covered in limited liability. And there may be civil penalties if they are found, for instance, that Mallya didn’t pay taxes to cover for private travel, as it seems the promoters of Sintex are now accused of.

If there’s fraud, and Mallya perpetrated it, we have to prove it. "I am sure he did it" is not an answer. The accusations that Mallya is a Rajya Sabha MP and used his influence to limit cases is, after a point, not believable. Or that he used it to destroy Air India – that airline would have died even if people did normal business (it gets ridiculous benefits from the government/AAI, who have attempted to even out the game).  

The Fault of the Bankers

Bankers have supposedly demanded a personal guarantee from Vijay Mallya. And not just the public sector banks, this includes big private sector lenders as well. Why are they not invoking this guarantee? Why are they not seizing properties that he owns? After all, letting it linger any further will make Mallya sell his assets and take away the money, no?

I’m beginning to feel there is no personal guarantee at all. Certain assets that Mallya owns were mortgaged, like his house in Goa, or the office in Mumbai. But he’s not been personally held liable – it goes to show, even from the shareholding patterns of his companies, where none of his personal shares are pledged to a financial institution.

If there is a personal guarantee, we must blame the bankers for not invoking it. We must be seriously outraged that the banks – which include SBI, Bank of Baroda, Bank of India and IDBI bank among others – are not seizing and selling any assets that exist, a right they have through the SARFAESI act.

And was this not evident? Auditors have noted that KFA can’t really claim deferred taxes as an asset (which is near 4,000 crores!), and they have not provisioned for a tax claim where the primary ruling is against them (500 cr.). Further, some elements they call "loans" are essentially payments for leases where there is some dispute with the counterparty – money they can’t expect to come back. Given this the realizable net worth of the company is substantially below the loan balances banks have, which should have triggered alarm bells nearly a year ago.

We don’t see any outrage against bankers, and let us not have them get away with inane statements like "political influence". Bankers that take our deposits and whose shares we own are answerable to us, not only to their political bosses. We should even be furious with the RBI who have not come down heavily on the lack of legwork of the bankers.  

The Need for a Bankruptcy Law

India needs a corporate bankruptcy law. Corporates today can’t declare insolvency. There is no bankruptcy protection like there is in the US. A company can’t just die. If it owns a factory license and has lived for five years, it can apply to the Board of Industrial and Financial Reconstruction (BIFR). Or, any company can apply to get their debt restructured, a method that Kingfisher took in 2010 (when lenders converted some of their debt to shares at nearly 64 rupees per share)

But a company can’t demand protection from creditors. There is only "winding up" which means a full liquidation, and that is not desirable because it leaves a lot of things in limbo (distressed asset sales are usually at a big discount). A better option is to partially liquidate, and free the company from the rest of the debt, with enough to help it revive itself. This is how many US airlines have come back from what seemed like certain death.

Let’s look at what others have to say

Banks may oppose such a law because they will fear that everyone will just declare bankruptcy instead of paying back loans. However they should realize that the time and cost of an insolvency (sometimes upto 10 years) is a huge problem as it slows things down for everyone without any real hope for recovery of any money. The best thing would be to provide for a write-off of debt – after whatever can be recovered without completely killing the company. This may be subject to abuse but there needs to be proper investigation for any attempt to defraud banks by falsely declaring bankruptcy (including putting directors in jail). Followed up with proper enforcement.

The lack of a bankruptcy law now means that airport authorities are refusing to let plane leasing companies repossess their planes, on the pretext that KFA hasn’t paid up airport dues. This has then resulted in such plane leasing companies refusing to lease planes to other Indian companies. At least in a situation of insolvency, such liabilities become clear, even if disadvantageous to some.

Was Bad Management to blame?

Being a bad manager, or losing business, is not illegal. If you were to believe the kaipullai story, everything Mallya did was sinister, including breathing. But get this:

  • We all loved the TVs and the great service the airline gave us, for a fraction of what it used to cost. Salaries, fuel costs, airport charges etc. were all up, but these guys competed at the 1K-BLR-TO-BOM rates. To be the last man standing was perhaps the goal, but this strategy inevitably requires at least one man to not stand.
  • They have nearly no assets. They lease their airlines. They rent their offices. They have huge salary costs. This means there’s really nothing they own. So what, if anything, can banks own as collateral? Soft items like "landing rights" and "parking bays" are stuff that can easily go away. Contrary to popular thinking, they don’t own the Formula1 team or the football team or anything else (and didn’t pay for it either). They are technically insolvent, but we have seen "technically insolvent" being fixed with more liquidity – think of AIG or much of the US banking system.
  • Asking money from SBI doesn’t mean he’s stealing taxpayer money. Even a debt restructure, with a partial write-off, is not stealing. This happens all the time, and I’m sure the sum total of other write-offs – including businessmen, personal loans and other stuff – will substantially outnumber anything Mallya has done. Yet, this is not stealing. (Unless it’s something called a "wilful" default – that is, not repaying when you really can. Kingfisher doesn’t qualify)
  • Costs were too high to even meet revenues. If you’re going to be all uppity about that, please also note that the Bansals of Flipkart are going through this
    right now. Don’t give me jazz that they’re not the same thing – everyone’s flying on easily flowing money (equity or debt).
  • Only Air India’s mismanagement is responsible for the failure of Air India. Not Mallya or Kingfisher. If you hate their influence, please save your outrage for political bosses.
  • Did Mallya abuse his position as Kingfisher chief and use planes for personal use, or divert the money elsewhere? If so, let’s indict him for fraud. But as I’ve said earlier, I doubt this is a significant amount.

I’m sure if you investigate you will find both management mistakes and bad luck. But that’s not a big deal.

Channeling Outrage

We love our sound bites, but just because something fits well in a few characters, it doesn’t mean it is correct. Outraging against Mallya because he donated Gold is the wrong thing to do, and we should know better. To attempt to defend this outrage by saying "one should take responsibility for his actions" is hiding behind a weak understanding of how businesses need to work. Your company’s managers are simply that – managers. Unless you can prove fraud, it is outrageous to assume that your manager’s wealth belongs to the company.

Our outrage should be at the lack of a proper bankruptcy law, and at the lack of investigation and enforcement of existing laws.

This has been a long post. I’ve been writing for two days. But I don’t feel like copy editing it down to 1000 words. Because this requires a long, detailed rant. I repeat myself often and to some of you, this might sound disrespectful of your time and intelligence. For that I am sorry.

By the way, I do not support the donating of gold to any temple. It is, for the most part, a waste of good money, and I would be quite happy if the government introduced a temple-gold tax. But I also support the right of any human being to do something that is not illegal, however stupid it might seem.

So let Mallya donate his gold, and let’s focus on changing the playing field.

  • Raghavendra Shenoy says:

    Without defending or opposing either your story or Mallya, here’s my take:
    – While i agree with your central argument that the company is a PLC and that the promoter’s liability is limited, if there is enough proof that the independent directors and the other ‘luminaries’ on the board of the company are merely ‘rubber stamps’, then the promoter should be fully held liable. If there is no law to this effect, the GoI needs to bring this to force ASAP. Most of the family owned listed cos in India have ‘decorative’ boards, where the composition of Independent Directors has not at all changed, unless the person expired.
    – Look at KFA’s board composition after the likes of Vijay Amritraj etc retired, at Except for an ex-Chairman of a PSU bank, the rest are employees of the parent – Clearly, the decisions that this board is taking will be in favour of the promoter director, and not minority shareholders.
    – Also, if you google for ‘UB Group’, the first link headline reads ” Dr Vijay Mallya’s UB Group is Worlds no 3 Spirits Company”. Going by your argument ( which is fair, i must admit), can the group be called ‘his’? If you watch any of his interviews on CNBC ( available on the youtube channel) or his newspaper interviews…his typical line is ” My businesses are available for sale at the right price”, “I have not sold my family jewels, only embellished them” .
    Isn’t it unfair that he now claims all his businesses to be PLC’s, while he took full credit during the good times?

    • There’s no law like promoters being liable because that is against the basic principle of limited liability. They’re giving their shares as collateral for the company to borrow – that is itself a big thing.
      The board is not an issue. Boards are representatives of shareholders, and if shareholders don’t want to nominate independent members, then that is their problem. In any case, things like debt limits etc are not determined by boards, but by shareholder voting in an AGM/EGM. Why care if shareholders won’t vote?
      UB group being called “his” are figures of speech. You can call a business yours also, if you are a shareholder. In fact, in their annual report they will call it “your company”. I’ve called a company “us” and “I can’t do this” when I wasn’t even an owner (just a manager) so I can’t hold this against Mallya, sorry.
      He takes credit as a manager, as any manager does. These is really sweating the small stuff, don’t you think?

  • vinay says:

    Good article it changed my perspective which i had after reading the TOI views, But my only question is that if KF as bad management or other mis management how bad can it be i understand the loss are in thousand of crores comparison to other who are in profit or near less loss. What is ur analysis saying why it got into such huge loss

  • Krish says:

    Interesting discussion. Let’s answer some simple questions. We appreciate some one has started the business, provided the employment, services rendered to customers and paid taxes to the government. Ultimately the business could not sustain and succeed.
    As an Indian citizen, I have no problem had some invested his/her own money and failed. Every one takes the loss in business world as there is no guarantee for success. It does not mean that borrower/business liability ends. As like personal case,if one borrowed money from the bank and invested in stocks. Imagine stock price crashes and made person made heavy losses. Is it not that we can’t get away not paying to the bank. I don’t think even in business world, the rules are any different.
    We don’t mind donating anything anywhere. However let some one pay his/her debts to banks, fuel suppliers, leasing companies, airport authorities and government that are rightfully due.
    Now let’s discuss the employees. The employees worked hard and salaries are not paid. Even these payment should be treated as ‘debt’. Employees are not demanding the pay that they have not worked. They want the dues to be settled which is the rightful demand. There is no free service anywhere and every time the promises made by the management turned hallow. When the critical time such as formula one race, license expiry or prospective deal comes, management rushed to the employees to get back to the work and made every last ditch effort to functionalize the airline so that it can be sold on profit to wash off everything. Unfortunately articles do appear or written supporting such businesses who deceive everyone in the chain.

    • Borrower liability ends at the company. It does not trickle down to the promoter or the manager by default. Business rules *are* different. That’s what I have tried to explain.
      Mallya does not owe the money to banks or fuel suppliers. Kingfisher Airlines does. Not the same thing.
      Employees who haven’t been paid are second in line (after taxes) to be paid. They are unlikely to be paid anything if the co goes bust. In a bankruptcy they might get a % of what is owed to them, but that’s about it. Formula one team isn’t owned by Kingfisher Airlines. Employees should have stopped working after not getting paid a month!
      I don’t get this “deceiving” business. I haven’t attempted to mislead you.

  • Alok says:

    While your legal analysis is correct, I think you’re attacking a strawman there. The bulk of the responses to Mallya’s donation of gold has to do with the moral wrongness of his acts rather than the illegality of his acts. As legal positivists never tire of saying, not all acts that are morally wrong are necessarily (or need necessarily be) criminal acts. Gandhi agreed and added a further proposition – not all criminal acts need necessarily be morally wrong.
    The problem people have with Mallya’s donation of gold is that *he* (though not solely perhaps) is responsible for much of the mess that Kingfisher is in. From the start, KFA was a vanity project and not a business for Mallya in that he never ran the Airline with anything approaching professional management or even a glance at the bottom line. I am only summarizing these articles of course.
    While *legally* Mallya can and will claim the shield of corporate personality of KFA, morally he cannot. I do not dispute that others were also responsible for KFA’s mess, but KFA’s problems are not *just* a reflection of India’s aviation sector. They were aggravated by Mallya’s decisions primarily.
    It’s not as if the damage from Mallya’s actions is limited to the bottomline of KFA. It has affected all the employees and their families, and so far, cost one life as well. The trouble is, we’re not entirely convinced Mallya understands that he has a moral responsibility to these people. They were not paid even when KFA was running so you can’t even use the “but they just worked for pay” argument here.
    We would understand if he was just as broke as most of them, but this gold donation shows that that is clearly not so.
    The man has the morals of a psychopath and he’s just exhibited that by donating money to a temple instead of helping a single employee of KFA. If he fears that someone may use that to impose greater liabilities on KFA, then more shame on him.

    • Moral action has to have reasons. Proper reasons. Richard Branson’s Virgin stores just declared bankruptcy in france ( after he said he’d never allow a co to do that. Yet, no one’s asking for Branson to pay up?
      I don’t think there’s a moral reason for Mallya to pay out of his pocket. If he did it would indeed be great, but he’s not obligated to.
      About employees – I have seen scores of employees work without pay in other places. I have seen them lose their rightful income when the companies went bust. I’ve even counselled a few to leave after a month of no-pay. It’s not like this is new stuff; you don’t get paid, you don’t work, period. Who cares if an employer demands it. The moral responsibility of employers ended when employees went mercenary and left jobs for even small pay raises; Employee loyalty is an 80s phenomenon, sir.

      • Alok says:

        “Moral action has to have reasons. Proper reasons. Richard Branson’s Virgin stores just declared bankruptcy in france ( after he said he’d never allow a co to do that. Yet, no one’s asking for Branson to pay up?”
        But you contradict yourself. Merely because no one (I assume no one because I can’t read French and didn’t know this until you pointed it out) points out in public the wrongness of an act, doesn’t mean it ceases to be wrong if it has not been done for the right reasons. Richard Branson is probably in the wrong too, morally (I won’t commit to that because I’m not fully aware of his situation) but comparing Branson and Mallya may not be entirely accurate or helpful. The reason is something you haven’t dealt with and something I mentioned – Mallya was primarily (though not solely) responsible for Kingfisher’s downward spiral. Of course if KFA collapsed for reasons out of human control we can’t pin the blame on someone, but here we can.
        Why he should pay employees first (if he has money to spare because clearly he’s not giving up on his needs to donate to the temple) is not *only* for employee loyalty but also because he has damaged their lives and careers. In addition, merely because some employees upped and left when they could does not mean *all* employees no longer deserve consideration for *their* loyalty.
        Since when did it become morally acceptable to not pay employees for work done? The mere fact that it happens and might be condoned doesn’t make it any more morally acceptable than the molestation of women happens in public places and is not reported by the police or even actively prevented by observers.
        (I just realized I might have used India’s newest equivalent of Godwin’s Law with the last paragraph :))

        • Oh I think the comparison to molestation is way off base mate. There are degrees, and anyone will admit that the degree of what is unfair about not paying salaries is a magnitude lower than public molestation.
          I also disagree that you can pin the blame primarily on Mallya. You can’t, and there’s been no investigation that proves it. Would you have any facts that aren’t fabricated because one thinks so? He is responsible as the CMD of the company for it’s failure under his watch, but that means nothing. No one asks Richard Fuld to pay back Lehman’s liabilities from his own pocket, just because he was CEO. Same here.
          The blame of his failure is not on the bankers or the regulators. They share the blame of why they didn’t do something after they knew he failed. So not paying taxes? Have a mechanism to stop him. Not paying salaries? There are civil penalties that can be imposed, if the law is enforced. Not paying back loans? Cash personal guarantee. That is “morally” the right thing to do if you are answerable to your shareholders (I speak of the banks here).
          This loyalty thing – it’s really not a virtue anymore. We don’t owe employers our lives. We can up and quit anytime, and not getting paid is a good enough reason. And mallya hasn’t “damaged their lives and careers” in any way – it is perfectly okay to be part of an organization that failed. IT folks have seen that in 2000 and those were tough times for them as well. But that doesn’t mean an owner – in a limited liability situation – should sell what he owns to pay back any dues. I disagree with this moral line of argument because someone else will come and say morally Mallya has no right to be that fat when his ex-employees aren’t getting salaries. His donation provides for bad optics, however, but I’m appealing to our mature side.

  • Apoorv says:

    While I completely agree that from a legal perspective, Mallya doesn’t owe anybody anything and the public shouldn’t take it personally. But you are forgetting that it was Mallya who himself made it personal by putting up his videos welcoming everyone aboard. He made himself the face of the airline and that is why the public anger is being directed at him. Constant news of his parties (IPL, Formula One, Calender shoots etc) while employees suffer doesn’t help either. What else would you expect from an emotial country like ours? I recommed that you read this article:

  • Apoorv says:

    People expecting him to pay out of his own pocket is nonsensical. I completely agree with you on that part. But his in-the-face attitude where he parties across the world and arrogantly tweets about them whereas his employees suffer is discomforting for the Indian public. He could surely be a little more respectful towards their woes.
    And this is what Richard Branson had to say about Vijay Mallya “flamboyance is dangerous. If you show your wealth too much, that’s dangerous for any business person. You’ve got to get the balance right, especially in a country like India where there are poor people.”

  • DJ says:

    I don’t know about KFA and don’t care. Limited liability is a good thing, but in India where laws and implementations are so screwed up, its tough to believe in limited liability.
    What I do care about is that we have high import duties (someone said 60-100%) on booze in this country. Which forces people to drink Kingfisher instead of Corona and McDowell’s instead of Johnny Walker. So, I’ve never, ever respected Mallya as a businessman. Nor do I like his booze compared to the far better alternatives. In fact, I hold him morally responsible for the bad taste that we Indians have had to put up with. And, that is an inexcusably, monumental crime!
    Ofcourse, the argument will be that its not his fault that booze import duties are so high. But, that’s the same as the argument that Wall Street makes, when they argue that they were only following the rules that the govt laid out for them. In both cases, there must have been lobbying for those favorable rules. So, my argument stands. I hope he loses all his businesses and disappears, just so that we might get reduced import duties on booze and better quality booze for reasonable prices in the country.

    • DJ – import taxes are very high on foreign made cars as well (even today). It’s just that if you manufacture in India, duties are lesser. That’s what happens in the liquor field as well. I do however like his beer much more than the regular beers I’ve had outside (other than of course some of the pale ales, hefeweizens and guinesses!) Still I’m all for lowering duties, since in the non-beer area there’s stuff far better than anything in Mallya’s stable 🙂

      • DJ says:

        Oh, right, I forgot that argument or else I would have preempted it. This argument of doing it to protect manufacturing jobs in India does not hold any water when the govt does everything else to discourage manufacturing within the country (specifically in electronics and computer hardware) and secondly, foreign car makers (and by extension foreign booze makers) will be more than happy to manufacture in India, as many are doing now. So, don’t give me that crap argument. 😛
        High import duties on both cars and booze don’t make any sense. They are both wrong and one does not justify the other.
        And, you were not forced to have the preference that you have. Most Indians are, due to monetary reasons. I didn’t say everyone will not prefer his booze given the choice, but I’m sure many will and they should have that choice.

        • Actually why do you say they discourage comp hardware manufacturing? Interesting point.
          Getting foreign manufacturers to manufacture in India is retrograde, I agree. I don’t like it at all. Am a more of a free market, no import duty kind of guy, with the only exception being when other countries provide artificial barriers to their goods. However this doesn’t apply in booze or cigarettes or alcohol, I agree, and my feeling is that we should open all borders even to immigration (i.e. if I can get a bangladeshi IT worker who’ll come to bangalore and work cheap for me, we should not disallow it!)

        • DJ says:

          OK, discourage in the sense that they don’t invest in infrastructure needed for the industry. And, they don’t have a manufacturing policy. Shouldn’t they use the import taxes from electronics directly into manufacturing investment, so that they can then do away with import taxes? What is the point of endless import taxation, without the other piece?

        • DJ says:

          I can’t talk intelligently about the hardware manufacturing policy, but here is a link that does:

      • DJ says:

        Yet another issue with high import duties. All that high import duties do is make the better quality stuff accessible to the rich, but not to the middle class and poor. That should be frikking illegal as it perpetuates class differences.
        You want to protect manufacturing jobs, ok then ban foreign booze imports. Make Mallya, Ambani, et al not have any scotch, champagne, Johnny Walker, etc themselves, because their spending sends local jobs overseas. And, anyway the rich as a whole probably spend close to as much as the rest of the country. So, why penalize only the middle class? How about that for fair rules and protecting manufacturing jobs? Everyone from the top to bottom should drink only Kingfisher and McDowells.

        • Oh I agree, but duties are a structure meant for two things, no? a) get revenue for govt and b) discourage imports…banning doesn’t solve the a) problem. (All it does is increase smuggling)

        • DJ says:

          Really? So, you think the govt should go about thinking how to raise revenue by adding improper taxes? Revenue is a side effect of having a well producing and consuming economy. Aim for increase in production and revenue increases. To think of revenue first is backward and dumb logic. And, given the way our govt uses revenue, since when did it become such an important thing?
          And, if they have to increase revenue, why don’t they target the 96% of the economy which is not taxed today? Why are import taxes such a priority?
          Sure, it will increase smuggling. Obviously my point about banning is a stupid one. Its supposed to make the point that why are restrictions placed on one segment of society and not another. Don’t take it literally now.

  • Atul says:

    I have been a long time reader of your blog.. and i must say you bring a clarity to the topic and a fresh perspective. This post was so good that i was bound to write a comment and congratulate for the good work. Atul

  • Raghavendra Shenoy says:

    Mallya’s donation of gold or money to a temple cannot be linked to the mounting losses/non payment of salaries to staff – legally, morally or otherwise – agree 100% on this.
    BUT, when a public ltd company has to be run like one – it can’t be run like a private partnership by the chief promoter and then when the going is tough, he can’t declare that it is a PLC. There is enough material on the internet that talks about the dissent note/opinion of the current CFO and most board members when he proposed to start an airline and incubate the same thru’ USL/UBL funds. Thanks to lax laws in India, we will never see those notes being made public. Nevertheless, my point is – if the promoter can single handedly use his veto to stem the dissent of other board members and go ahead with his dream venture, he needs to take full responsibility for the crash as well. Hence, it is his duty to arrange for funds to pay off the employees first – since there have been empty promises, and the fact that employees have stayed on, hoping that he would honor the same.
    I am not drawing parallel’s here, but understand that the BoD of Satyam too had quitely passed off and vetted the proposed merger of two real estate firms’ majority owned by the Raju’s into the IT firm – Given the board composition – a dean of ISB, a Harvard Prof. and a co creator of the Intel chip, this proposal itself should not have been passed in my view. What is worse is that they are all roaming scot free now.
    The larger problem lies in our legal system – leaves more loopholes than it covers, and is open to WIDE interpretation.
    How else will you even explain the fact that banks converted a part of their KFA exposure to equity?? WTF – How can a bank that has lent money to a venture, convert a part of its exposure to equity, and become an owner in the venture, that too without a say i.e since they still do not even have a single board seat – not a single bank, mind you.
    What is worse, the SBI chief was on record once saying that some amount was sanctioned to KFA on humanitarian grounds, to enable them to pay employees – This again, beats me. A bank has to evaluate its exposure carefully and lend money – rather than being in the business of managing emotions and being humanitarian. You and me will pay for this magnanimous humanitarian concern of all the banks Deepak, nobody else will!!
    Have you ever heard of a bank taking up equity in a venture that it has lent money to? What role are the banks playing – that of a shareholder, or that of a bank? In either cases, there are conflicts of interest – As a shareholder, i want my cost price to be on the screen so that i can sell off the shares atleast on cost basis. But as a banker if i press for liquidation, the stock will tank. What is worse, the conversion happened at a price close to INR 60.
    We can go on discussing this topic and ideally the bankers who funded this encore too should be behind bars – but unfortunately that will not happen. A couple will be on the board of his companies once they retire, and the rest will be routinely invited to parties at the KF Villa, Goa.
    The shit will never hit the fan in cases like this my friend.

  • Manish J. says:

    How do you become a millionaire? Start with a billion and launch an airline…so true in this case.
    Overall great blog post.

  • Raghavendra Shenoy says:

    In between all this turmoil in the industry, one man wants another license and will either kill the industry further by launching fares at INR 1, absolutely unmindful of the fact that this is no way to make money, or will sell off stake to a foreign entity and make a quick buck, like what telecom firms did when ‘Spectrum Raja’ was at helm.
    Thankfully, the civil aviation ministry does not find any merit in GR Gopinath’s new application for a license..Read on..

  • Abhi 2.0 says:

    Lower right hand side of … VM says that he’s “taking thing personally” which means he could be very upset with any insinuations 😀
    Terrific post ….

  • Gaurav Raizada says:

    I wonder how do the Bank justify their decision to convert equity at 63 rupees when market price was what 32 or something?
    Last month, SBI released some 60 crores which Pratip Chaudhari said was “a loan in good fatih” and “being human”.
    When did bankers do all of this?

  • Kaushik says:

    Simplistically saying everything was taken out on rent and Mr Mallya could not balance the cashflow and airline went bust. Now as a business entrepreneur I can believe in whatever ideas I like, but its the financial institutions who should look into the merit of such proposals and fund it.
    In this case SBI, ICICI, BOB, BoI all saw merit in a cashflow negetive business idea and still gave money. I would hold these banks responsible and audit what calculations they made before giving money to Mallya’s concern. Either the castle was made on flowers or a cashback mechanism was in place.
    I have decided not to put money in these banks as a result and withdrawn whatever amount was there. Lets teach them lesson with your wallet.

  • Bhushan says:

    Warren Buffett said “If you buy things you don’t need, you’ll soon sell things you need”. Mallya didn’t need Kingfisher. But his ego forced him start it and then buy Air deccan as well. Now, not only his airline is getting junked, he is selling his beer business also.
    By the way, I agree with your view. I was also surprised when I saw the article in TOI.

  • Ameya says:

    This is a great article giving the correct perspective on KFA and VM.
    Even though banks maybe part of the blame, end of the day banks are businesses too and they assess risk and decide whether to extend loans on the basis of ability to pay and credit worthiness. Given that before KFA, I hadn’t heard of VM having major business failures, the call to lend may not have been completely off the mark.
    Maybe once the early signs of deterioration were seen, in the hindsight bankers should have taken stricter measures. But then given that restructuring took place only in 2010, maybe the view was that KFA was still savable. It was possibly a choice between given some additional loans, breathing space and making lesser provisions for restructuring and hoping for a revival against providing a larger provision by declaring default with no chance of revival. Unfortunately for banks the latter came true.
    Also a look at the balance sheet says that the loans are guaranteed by the directors. Maybe the difficulty in imposing this could be a reason why it has not been invoked
    Also I am unable to understand your point about being surprised that banks take pledge of owners shares as collateral. I dont see a fault in it. In normal cases, it would prevent the promoter from mismanaging the company as his own share is at stake too

  • Ramamurthy says:

    I totally agree with you.I dont know when he made this Gold donation.If he has made during the last year the timing was bad.Also,he should not have announced this.

  • Visalakshi Srinivasan says:

    Dear Mr.Deepak,
    I am a common person not understanding the technicalities,but I want to know:
    If instead of donating the GOLD to temple,if he had taken steps to pay some money to the employees will not the wishes and blessing of their family members give him more “PUNYA”than GOD. GOD has always advocated CHARITY and GIVING TO THE NEEDY.
    IF he wanted he could have taken the media with him to report this to the people.
    Other thing ,you had told that the employees “Employees should have stopped working after not getting paid a month!”.In India it is difficult to get employed easily,person does not leave her/his job within one month of not getting paid a he/she has a family to support and he is optimistic that their will be some settlement. I personally has faced this problem,(“i do not know about you”) and not everyone is prudent to have enough money to leave job .This is easily said than done.
    Even though Mallya as you say is not responsible for any of the problems ,he can atleast take steps as a wealthy person to help those Kingfisher Employees who were working in a company where he has some stakes and the Co. which was synonymous to his Flamboyant Style.
    And lastly why you defended him ???

    • Instead of donating gold he can give it to me also. Such demands are easy to make, of other people. I don’t support giving money to temples, but I endorse people’s right to do any stupid thing they want to, as long as it’s not illegal.
      Employees need to understand that a company can be in trouble, even if one of the managers has a lot of money. They have a right to recover their money but they have to resign and refuse to work, otherwise they will be taken for a ride. And when you say “not everyone is prudent to have enough money to leave job” – what is the point then of having a job that doesn’t pay you? Might as well not get paid and look for a job, no?

  • SH says:

    I feel sorry for the educated Indians who are making all kind of moral responsibility arguments. We still don’t quite understand capitalism and corporate structure. The proper way to deal with employee rights is to have labor unions, or at least proper labor contracts, but within a capitalistic framework, not socialistic labor unions like we used to have. If KFA has a labor union and has not been able to prioritize employer payments in their agreements with the company, they have themselves to blame.
    What is interesting to consider, is how does this affect the fund raising capability of VM. As well as, what does this do to labor unions in other airlines, or other businesses of VM? Creditors will be loathe to invest in him, so that may be the moral punishment that the market ends up giving him. Although, there are so many ways that rich businessmen can overcome that. And, maybe his companies will have to pony up more on labor perks, so maybe that would hurt him. Perhaps, this could be explored further.

  • Hi Deepak
    Very detailed and resourceful post…..
    I was wondering that recently AirAsia in association with Tata has also ventured into the airlines industry and that too at a time when all Airlines are in losses… Infact internationally as well, there are few airlines in profits…
    So in an industry wherein very few are making profits, why would someone like AirAsia and Tata enter into this Industry… I sense something fishy here…
    Your views on the same ?