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Calcutta High Court rules in favour of Kingfisher

Vijay Mallya, ‘the king of good times’, has a reason to celebrate the New Year. The Calcutta High Court has dismissed United Bank of India’s (UBI) decision to declare grounded Kingfisher Airlines a wilful defaulter, three people familiar with the development told Business Standard.

The Kolkata-based lender had identified and declared the airline company, its chairman Mallya and three former directors – Subhash R Gupte, Ravi Nedungadi and Anil Kumar Ganguly – wilful defaulters for non-payment of close to Rs 400 crore loans.

“The ruling was in favour of Kingfisher on a technical ground. The Calcutta High Court observed that the grievance redressal committee (which declares a borrower wilful defaulter) was not constituted as per the regulatory guidelines. Hence, the committee’s decision to declare Kingfisher a wilful defaulter was defeated…Our legal team is exploring all options and we may move the division bench against this order,” said a senior executive of UBI requesting anonymity.

Kingfisher’s parent UB Holdings also confirmed the development. “The previous order (on declaring Kingfisher a wilful defaulter) has been set aside. But the bank can still appeal against this judgement,” a senior executive of UB Group said.

Sources said that UBI had “one extra member” in its grievance redressal committee that allowed Kingfisher to win the case.

As per the Reserve Bank of India’s (RBI) master circular released on July 1, 2014, the decision to classify a borrower as wilful defaulter should be entrusted to a committee of higher functionaries headed by the executive director and consisting of two general managers or deputy general managers as decided by the bank’s board. 

The circular further states that if a borrower is identified as wilful defaulter, he should be provided reasonable time (say 15 days) for making representation against the decision to a grievance redressal committee headed by the chairman and consisting of two other senior officials.

It is learnt that UBI had four members in its grievance redressal committee that declared Kingfisher a wilful defaulter.

Bankers said that the Calcutta High Court’s decision will dent and delay their efforts to recover loans from Kingfisher. The airline company has unpaid loans, amounting to close to Rs 6,500 crore, borrowed from a consortium of 17 banks. A few lenders, including the country’s largest State Bank of India (SBI), have identified the airline company a wilful defaulter but are yet to declare the same.

Analysts have been saying that banks should be empowered through amendment in laws to help lenders recover the money they have lent from defaulting borrowers. 

“I don’t think it (the delay in classifying a borrower as wilful defaulter) is problem with our judiciary. The problem is with the Banking Regulation Act and the RBI Act. These need to be amended to empower both banks and the regulator. It will reduce the incidence of referring such cases to the court,” Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, had told Business Standard in a recent interaction earlier this month.

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