Why Can't Banks Recover Vijay Mallya's Debt Through His Global Properties?

The question of whether banks can recover Vijay Mallya's massive 7,000 crore debt by pursuing his various global properties raises complex legal and practical considerations. Why do banks struggle to hold Mallya accountable, and what are the legal barriers?

Legal Barriers to Property Recovery

There are two primary reasons why banks may find it difficult to recover Vijay Mallya’s massive debt through his global properties. Let’s explore these reasons in detail.

Legally Speaking: Property Recovery Limits for Indian Banks

First and foremost, the legal framework dictates that the banks cannot seize any of Mallya’s properties, whether located within India or abroad. This is because the banks had a loan agreement with Kingfisher Airlines, not with VM personally. Unless Mallya has provided a personal guarantee for these loans, the banks cannot tap into his assets under Indian law.

Even if a personal guarantee had been provided, executing on such a guarantee would still be complicated. Any jurisdictional and procedural issues could significantly hinder the banks from recovering the debt through Mallya's assets.

Government Connections and Property Protection

Observations from media and news channels suggest another reason why Mallya is able to walk away from his debts: the protection offered by political connections. Rich and powerful individuals, like Mallya, seem to enjoy a level of impunity that allows them to evade legal and financial consequences.

Consider the following examples:

Salman Khan was acquitted by the Supreme Court in multiple cases, despite the public's belief that he is guilty. Vadra was also acquitted in several high-profile cases, including one where the Prime Minister himself has been accused of irregularities. There are numerous instances involving the current and past governments that have raised similar questions about corruption and Financial irregularities.

These examples illustrate that high-powered individuals can often avoid the legal and financial penalties that others face. The government’s inability or unwillingness to pursue these cases further bolsters this narrative.

International Legal Constraints

Even if the Indian government were to file a case against Mallya's properties in foreign courts, these courts are also constrained by the principle of Jure Temporis, meaning the laws of the time when the property was purchased. Foreign governments would need to prove that Mallya obtained these assets through criminal activity, such as drug trafficking, money laundering, or weapons dealing, in order to seize them. This is a high burden of proof that would be difficult to meet.

Moreover, even if a foreign court were to order the confiscation of Mallya's assets, the Indian government would face further challenges in recovering these funds. Mallya could simply retain full and fair use of these properties, and the government would not be able to force a sale to recover the debt.

Government Banks and Loan Valuation

A recent article in Economic Times highlighted that government banks faced significant losses due to the misvaluation of stocks during loan restructuring. Some banks, like Axis Bank, acted more prudently by selling their stocks at the right time and exiting the situation profitably. This underscores how political affiliations influenced the approval of such large loans without proper valuation.

The evidence suggests that government banks were not solely motivated by financial prudence in their lending decisions. Instead, political connections played a critical role in sanctioning these loans despite the risk involved.

Conclusion

The media has often reported that government banks are trying to seize VM’s property, but this appears to be more hype than reality. The legal and political landscape presents significant barriers to successfully recovering Mallya’s debt through his assets.

The complexity of the legal system, the protective nature of political connections, and the difficulty in proving criminal activity make it challenging for banks to recover their funds. It remains to be seen whether the situation will change, but for now, the current legal and political environment casts doubt on the possibility of a successful recovery.