The Malaise Within

In its report in which the CAG has held the Ministry of Civil Aviation responsible for the financial loss, the government auditor has finally managed to bell the cat!

Issue: 4 / 2017By B.K. PandeyIllustration(s): By Anoop Kamath

A report in the Indian media in the recent past indicated that the Comptroller and Auditor General of India (CAG), has pulled up the Ministry of Civil Aviation for failure on its part to adopt appropriate measures to recover dues of 9.19 crore from Kingfisher Airlines when it was still operating. The figure of 9.19 is indeed paltry when viewed in the context of the sum the former Chairman of Kingfisher Airlines owes to the consortium of Indian banks which is $1.4 billion or in the region of 9,000 crore. This is nearly a thousand times the amount the defunct Kingfisher Airlines set up by the now fugitive business tycoon Vijay Mallya owes to Indian banks and the government. And with the passage of time, the dues will only grow on account of interest that will continue to accumulate on the original amount owed to the two agencies. In fact the sum owed to the Ministry of Civil Aviation (MoCA) has grown to 17.44 crore as of end March 2016.

Vijay Mallya, son of Vittal Mallya took over as Chairman of United Breweries Group in 1983 after the demise of his father. Since then, the Group has grown into a multinational conglomerate of over 60 companies. In 2005, when there was a boom in the Indian civil aviation industry, Vijay Mallya launched the glamorous Kingfisher Airlines, named after the major alcoholic drink produced by the company. Unfortunately, owing fundamentally to flawed financial management and somewhat unwarranted extravagance, this new business venture collapsed and the Airline had to be closed down in September 2012 leaving a huge financial liability on the company and on Vijay Mallya personally. As a result of this mess, Vijay Mallya has landed up on the wrong side of the law. He has been accused of being a “wilful defaulter” under the Indian legal system and is facing charges of money laundering and misappropriation.

Despite being armed with a huge legal machinery, the government appears to be at a loss as to what would be an effective road map for recovering the humongous sums owed by Vijay Mallya to the banks in India. In the case of sum owed by Kingfisher Airlines to MoCA, even if the amount involved is relatively much less, there has been complete laxity in control and management of the system of collecting dues from private operators. This case in point pertains to three agencies that were involved in this exercise namely Kingfisher Airlines who was the operator of air services, the Bangalore International Airport Limited (BIAL), the company responsible for running the International Airport at Devanhalli, Bengaluru, now renamed as Kempegowda International Airport (KIA) and MoCA representing the government.

It was the responsibility of Kingfisher Airlines to collect Passenger Service Fee (PSF) as part of the ticket sold to the passenger. Thereafter, it was the responsibility of BIAL to collect the PSF periodically from the Kingfisher Airlines and deposit it with the concerned department of MoCA. Owing to the total financial mess, Kingfisher Airlines had landed in, it had discontinued transferring PSF to BIAL. The latter in turn failed to take any steps to ensure that Kingfisher Airlines fulfilled its obligation. The net result was that the financial liability on Kingfisher Airlines continued to mount and BIAL failed to take appropriate measures to recover dues from the airline, possibly on account of the high profile of its owner. As a result, the MoCA was the loser. Instead of taking steps to recover the dues from Kingfisher Airlines, in March 2014, BIAL approached the MoCA with a proposal to write off the dues recoverable from the airline. MoCA was obviously in no position to accede to this request as it would be an undue favour to the defaulter and condoning of failure of BIAL to fulfil their financial responsibility. What is even more strange is the fact that MoCA was fully aware of the fact that Kingfisher Airlines was in default of timely remittance of PSF, but did not direct the airport operating agency to collect or remit the dues or initiate any other action in the matter.

In its latest report on the subject in which the CAG has held MoCA responsible for the financial loss, the government auditor has finally managed to bell the cat!