For the past few years, Mr. Vijay Mallya’s escapades and his free use of public funds in the Indian banking sector have become regular news in the Indian press.
Yet the recent revelation of Paradise Papers that Mr. Mallya used off-shore shell companies to siphon off $1.5 billion – nearly Rs. 10,000 crore – from his own company United Spirits Limited India (USL), has shed more light on Mr. Mallya’s modus-operandi.
According to the Paradise Papers, Mr. Mallya has created four off-shore shell companies – one based in the British Virgin Islands, and three in the UK, as subsidiaries of the parent Indian company USL.
The parent company had given loans worth $1.5 billion to these four companies, for purposes unknown. This diversion of funds took place between October 2010 and July 2014.
Then in 2014, British multinational beverage company, Diageo, acquired Mallya’s stake in United Spirits (USL) for Rs. 1,225 crore.
After acquiring USL, Diageo waived off the $1.5 billion loan that USL had given to the four off-shore subsidiaries.
Now, the question is, why did Diageo waive these loans?
According to Diageo, these subsidiaries did not have enough worth to justify the loan of $1.5 billion. This basically implies that the money has flown off elsewhere, and it is not coming back to India any time soon.
Diageo says that this $1.5 billion was diverted to entities affiliated or associated with Mr. Mallya. It is very likely that Mr. Mallya has stashed this money somewhere, away from the reach of Indian revenue authorities.
How does this action affect Indians, particularly the Indian banking sector?
All of us know that Mr. Mallya has defaulted on loans worth more than Rs. 9,000 crore that he owes to more than a dozen Indian banks. Mr. Mallya’s diversion of the Rs. 10,000 crore funds to off-shore entities indicates that he has diverted a large chunk of these loans off-shore.
In essence, banks were defrauded to line Mr. Mallya’s personal pockets.
It is said that Diageo waived of the $1.5 billion in loans given to the 4 subsidiaries, which were subsequently diverted elsewhere – according to a deal made with Mr. Mallya at the time of USL’s acquisition by Diageo.
If this is true, then it raises the question of complicity of corporates in each other’s misdeeds.
Apart from Mr. Mallya, the name of another bank defaulter – the Essar group – also figures in the Paradise Papers.
Previously, Directorate of Revenue Intelligence (DRI) accused the Essar group along with the Adani group and few other corporates of over-invoicing coal imports, and siphoning off the resulting windfall to off-shore tax havens. The information from Paradise Papers strengthens these allegations.
The fact that Mr. Mallya’s company could lend foreign currency worth $1.5 billion to its offshore subsidiaries and then further divert it to who-knows-where – without raising a flag with the financial regulators or enforcement agencies – highlights the consequences of giving unfettered freedom to Indian corporates for operating across international borders.
These are the perils of the so-called integration with the global economy and freedom of movement to capital.
While Mr. Mallya and other corporate rich of his ilk can take their ill-gotten gains to wherever they want, the Indian law cannot be enforced beyond its borders. The country is forced to be at the mercy of foreign governments and their laws, in order to bring such financial criminals to justice and to bring back the money that rightfully belongs to its citizens.