Mallya Case: Fight Against Crony Capitalism Begins But At Cost Of Rule Of Law

Beware the Ides of March. Indians should mark 9 March 2016 in their memory calendar, for it has huge significance for two ideas that should be dear to every liberal democrat: the fight against crony capitalism, and the fight to establish the rule of law.

On Tuesday (9 March), 17 banks, most of them state-owned, moved the Supreme Court of India to seek the arrest of Vijay Mallya, who owes them over Rs 7,000 crore (plus accrued interest) for crony loans made to Kingfisher Airlines during the United Progressive Alliance (UPA) regime. The fact that state-owned banks are going after a powerful and well-connected businessman sends a strong political message that the Narendra Modi government is against cronyism. State-owned banks could not have done this without political backing just as they could not have lent Mallya unholy sums without the same political pressure.

But Tuesday was also a troubling day for the rule of law – even though it may be no one’s case that Mallya did not flout the law. Reason: you do not seek the arrest of a businessman for a business failure. A joint stock company like Kingfisher is, by definition, a limited liability company, and this means Mallya’s liability should end with the loss on his shareholding, since it was the company that took the loan.

To be sure, one can also argue that Mallya gave personal guarantees for the loans, and hence keeping him in the country and seizing his passport is vital to enforce the personal guarantee. However, the limits to what personal guarantees cover are yet to be tested in law. I may have guaranteed my nephew’s home loan, but if he disappears can the bank turf me out of my home to recover dues?

Assuming the crony loan to an airline that looked manifestly unable to repay it by 2010-11 is by itself unlawful, it is equally logical to go after those who made the loans (the bankers concerned) and the hidden political hand that forced them to bail out Mallya. It is not only Mallya who is the crony here – but also the bankers and babus and netas of the UPA regime who facilitated the loans.

We are essentially combating one evil with another and one can’t be sure we have chosen the lesser evil.

It is clear why the fight against crony capitalism also involves skirting around the rule of law. When normal laws and a sclerotic system are unable to catch crooks, the people demand more rough and ready remedies – whether it is through preventive detentions or other extra-judicial processes. To show justice is seen to be done, the weak state has to breach the rule of law itself.

Pressure from voters to deliver justice is the reason why we have seen so many encounter killings by the police in almost every state, why news channels have become holier than thou, why Comptrollers and Auditors General have started throwing big loss numbers in your face, why state governments allow angry mobs to run riot, and why even the courts push the frontiers of the law.

Nothing illustrates this conflict between the need to be seen to deliver justice and upholding the rule of law  more than the way the courts have managed to insert themselves into law-making, and even what I would call law-breaking.

Consider how the Calcutta High Court prevented United Bank of India from declaring Vijay Mallya a wilful defaulter two years ago. Consider how the Supreme Court itself gave rulings that went against banks trying to recover legitimate dues against legitimate collateral. Consider how the Supreme Court decided which cars can be registered in Delhi and which cannot. The courts are not always upholding the law. Sometimes they break it in spirit, sometimes the letter.

The most egregious damage to the rule of law probably occurred when the Supreme Court demanded bail of Rs 10,000 crore from Subrata Roy of the Sahara group and then kept him in jail for two years – and counting – when he did not pay up. Roy is still in Tihar.

The Supreme Court was, of course, right to hold Roy in contempt of its brilliant judgment of 31 August 2012 under which Roy had to pay Sebi, the market regulator, Rs 24,000-and-odd crore for illegally collecting even more money in two Sahara group companies. The payment was to be made to Sebi since the court had reasonable grounds to suspect that not all of Sahara’s investors were real. Many, if not most, may have been benamdars. Roy may also have been helping launder black money hoards.

The problem is the remedy the court sought for Roy’s defiance of this verdict for nearly 18 months despite being given a long rope. The court set a very high bail amount and Roy did not pay it – possibly lending credence to the suspicion that the money was not his. So he remains in Tihar.

The court was right to call out his contempt, but the logical thing to do was to put his companies under a court liquidator and collect the money due to investors and not send him to jail for an indeterminate period. Roy should have been out on bail and his passport impounded. It was his wealth that needed sequestering.

This brings us to Mallya. Demands for his arrest are overblown if the crime is merely business failure. But if the crime is cheating, bribery of politicians and bankers, docking workers’ provident fund dues or wages, he can surely go to jail. But only if those crimes are proven in a court of law.

In the meantime, it is not unreasonable for the banks and the Supreme Court to freeze his bank accounts and ban Mallya from leaving the country without the permission of the courts. If unconfirmed reports are to be believed, Mallya has already left the country, in which case his passport can be impounded and he can brought back. But he does not, as yet, deserve to go to jail.

The problem for both Mallya and Roy is that they chose to cock a snook at the law and courts when public anger against crony capitalism is high. To make matters worse, Mallya showed no conscience or sensitivity to the plight of his jobless Kingfisher staff by lavishly celebrating his 60th birthday.

When capitalists show no common sense or pay attention to what people around them are thinking, they are essentially digging their own graves. In poverty-ridden India, it is still a social crime to flaunt your wealth when you have diddled banks funded by the taxpayer of hundreds of crores of rupees.