Did Kingfisher use Indian bank loans to pay F1 team's foreign loans?

The Kingfisher Airlines saga and how Vijay Mallya's now-defunct airline cost Indian banks Rs 7,000 crore seems to be getting murkier by the day.

It has now emerged that Kingfisher paid almost Rs 130 crore (at the current pound-rupee exchange rate) to Force India Formula One Team – jointly owned by Mallya and the now-incarcerated Sahara India Pariwar boss Subrata Roy.

This, even as Kingfisher was bleeding, piling up loans from Indian banks, leaving staff with unpaid salaries, sacking pilots and grounding aircraft, causing turmoil in the domestic aviation industry, leading to a spike in airfares.

That is not all. Documents suggest that after Roy bought half of Mallya's stake in the F1 team for $100 million, most of the loans of the F1 team to foreign banks were paid. But Indian banks are still struggling to recover even a fraction of the Rs 7,000 crore from Mallya. Roy is in jail after failing to pay thousands of small depositors (many of them fictitious) Rs 24,000 crore.

The series of payments from the embattled Kingfisher began a few months after Mallya bought a stake in the Spyker F1 team, along with Dutch businessman Michiel Mol, in 2007. By 2009, when Kingfisher's bank loans were mounting and its losses had touched Rs 1,600 crore, 6.4 million GBP was paid from the accounts of Kingfisher to the F1 team. The amount was labelled as 'sponsorship money' from Kingfisher.

In late 2010, when Kingfisher started delaying salaries to its staff and sacked pilots, the amount of sponsorship money to Mallya's F1 team almost doubled. In 2010 alone, more than 6 million GBP were paid as sponsorship money by the airline to the F1 team.

Not surprisingly, the very next year, there was an imminent lockdown in the airline, with many staff members not receiving their salaries for months. During the same period, when the payments from the airline to the F1 team doubled, Kingfisher's debts to Indian banks climbed to almost Rs 4,000 crore.

The payments do not include the money paid by United Breweries (Holdings) Ltd, which was the owner of Kingfisher and other Mallya-owned companies like Whyte & Mackay Ltd and United Spirits Ltd (now acquired by Diageo).

Payments worth several million pounds were also made by UB (Holdings) Ltd and Whyte & Mackay Ltd to the F1 team. It is unclear whether money was diverted from Kingfisher to these companies and further used to make these payments to the F1 team.

Although these transactions are recorded in the books of Force One India Formula One Team, none of these have been shown in the accounts of Kingfisher, from where the money was 'diverted' in the first place. UB group spokesperson did not comment on a questionnaire sent to him.

In 2012, when the Director General of Civil Aviation (DGCA) cancelled the airline's licence, 13 million pounds or roughly Rs 130 crore (at current exchange rate) had been paid. The unpaid bank loans had climbed to almost Rs 7,000 crore.

But the foreign banks which lent money to Mallya's F1 team were luckier than their Indian counterparts which lent money to Kingfisher. In 2011, a few months before Kingfisher was grounded, an interesting sequence of events was unfolding at Force India F1 team. The bank loans availed by the F1 team after Mallya took over had climbed steadily to almost 11 million GBP by 2011.

All these loans were personally guaranteed by Mallya. In India, too, all banks which lent to Kingfisher were given a personal guarantee by Mallya of his various assets, most of which Indian banks are struggling to dispose of.

But the bank loans of the F1 team declined dramatically from 11 million GBP in 2011 to 49,000 GBP in 2014.

So how did Mallya repay his F1 debts to foreign banks when banks in India were struggling to recover money from his airline, which, in turn, paid millions of pounds to his own F1 team?

Mallya owns the Force India F1 team through a Luxembourg-based company named Orange India Holdings. Given Luxembourg's banking laws and penchant for attracting illicit money from across the world, very little is known about this company.

In October 2011, a year before Kingfisher was shut down, Roy bought about half of Mallya's stake in the Luxembourg-based company. With this, Mallya and Roy had a 42% stake each in Orange India Holdings, through which they became co-owners of the F1 team. It was subsequently rechristened Sahara Force One India.

Till Roy's entry in October 2011, all bank loans were personally guaranteed by Mallya and Watson Ltd, a company owned by him. However, a year after Roy took over, Mallya's personal guarantee completely vanished. In 2013, Roy gave a letter of credit worth 5.5 million GBP. The letter of credit was issued in the name of Sahara Adventure Sports Ltd. In 2014, when Roy was sent to jail, the 11 million GBP loan declined to 49,000 GBP.

Sahara Adventure Sports Ltd ran an IPL franchisee (Pune) and partners Indian cricket captain MS Dhoni to own a Ranchi-based hockey team. This particular company made a loss of almost Rs 52 crore in 2012. So how could it guarantee 5.5 million GBP and potentially play a part in settling the bank loans of the F1 team, now jointly owned by Mallya and Roy?

The devil is in the details of the shareholding pattern of Sahara Adventure Sports Ltd. Although Roy is a majority shareholder, a minority stake is held by Sahara India Commercial Corporation Ltd, in addition to preferential shareholding by Aamby Valley Ltd.

dna has access to Foreign Intelligence Unit (FIU) and Enforcement Directorate (ED) documents indicating that both companies were used to launder billions of dollars across the world, especially in offshore tax havens. The ED has, in the past, alleged that funds from two Sahara companies in the dock - Sahara India Real Estate Corporation and Sahara India Housing Corporation Ltd – were diverted to Sahara India Commercial Corporation Ltd.

Sahara spokesperson did not respond to questions on whether funds from this company were used to pay the debts owed by Mallya and Roy's F1 team to foreign banks.