Vijay Mallya, Serious Fraud Investigation Office (SFIO) has revealed that all corporate ethics were compromised in the merger between Vijay Mallya-controlled Kingfisher Airlines Ltd (KFAL) and Deccan Aviation Ltd (DAL). It has been learnt that new divisions were created by Kingfisher Airlines with backdated book entries to avoid taxes.
The seclusive businessman Vijay Mallya, Serious Fraud Investigation Office (SFIO) has revealed that all corporate ethics were compromised in the merger between Vijay Mallya-controlled Kingfisher Airlines Ltd (KFAL) and Deccan Aviation Ltd (DAL).
The SFIO has also recommended to the Ministry of Corporate Affairs that several people directly involved in the transaction be charged for offenses such as criminal conspiracy, cheating, and forgery under the Indian Penal Code, according to Indian Express report.It had even paid a Rs 30 crore non-compete fee to DAL founder Captain G R Gopinath without disclosing it to stakeholders or the High Court. Besides this, it had allegedly also carried out “circular transactions” worth Rs 70 crore.
A probe into the matter shows that Kingfisher created three business segments — commercial airlines, ground handling, and training — to avoid paying capital gains tax. Notably, these were created on paper after announcing its merger with DAL. According to tax norms, the distinct divisions should exist in a “demerged” and resulting entity prior to the demerger in order to be exempt from capital gains tax. But in this case, Kingfisher’s airlines’ operation was to be demerged into DAL, which was subsequently renamed as Kingfisher Airlines Ltd. Captain Gopinath has, however, has defended himself saying that he was a minority shareholder in DAL. The merger had gone through with the requisite regulatory approvals.
“Documents were backdated and fabricated to show that there existed three business divisions/ segments,” the SFIO has said. The agency has recommended that the investigation details of the merger be shared with the Income Tax department for possible violation of the Income Tax Act and to recover tax payable if any. The SFIO has also said that Kingfisher paid a Rs 30 crore non-compete fee to Gopinath without disclosing it to shareholders or the high court when the scheme of arrangement for the merger was filed.
According to the SFIO, Gopinath used this money to purchase one crore shares in Kingfisher Airlines Ltd through a company he owned. Subsequent to the merger, Gopinath’s one crore shares (like all other shareholders) were converted to around 42 lakh shares of the merged entity. At the time of the merger, these shares were valued at around Rs 87 crore. SFIO terms this as “windfall gains” accruing to Gopinath.
“All corporate ethics were compromised in this transaction as payment of a non-compete fee to GRG (Gopinath) and allotment of shares in erstwhile KFAL (Kingfisher Airlines) were never disclosed to the stakeholders at the time of seeking consent for the merger of DAL with erstwhile KFAL. GRG and JVM (Vijay Mallya) conspired for their individual gains and in the process, material facts were concealed. This transaction is an integral part of the demerger process should have also been made part of the scheme of arrangement filed before the High Court of Karnataka,” said the SFIO report.
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