Sebi lens on now-defunct Kingfisher Airlines' directors

Move comes after SFIO alleges independent directors of the airline didn't follow proper rules

The Securities and Exchange Board of India (Sebi) is considering examining the role of independent directors and the potential conflict of interest at the now defunct Kingfisher Airlines. 

The move follows a report by the Serious Fraud Investigation Office (SFIO) where it has alleged that the independent directors of Kingfisher Airlines didn’t follow proper rules. The SFIO, an enforcement agency for probing financial frauds, has submitted its report on a loan default by the Vijay Mallya-promoted airline.

Sources said the SFIO had shared its probe findings with all the regulators concerned, enforcement agencies and recommended the course of action.

“We are looking into the allegations against individuals and related entities under the listing norms. The report talks about serious lapses on the disclosure and transparency front by the independent directors,” said a person in the know. We are conscious that the role of independent directors in such cases is important, the person said. 

The report said most of the directors were in the dark about the key business decisions such as mergers and acquisitions, change in accounting policies, purchases of aircraft and the economic viability of the operations, among others. It alleged that the directors were mere ‘mute spectators’ and were used as ‘rubber stamps’ to certify the unilateral decisions of Mallya. 

“To give a semblance of credibility to various stakeholders, Mallya managed to bring persons of eminence on the board of Kingfisher Airlines,” said the report. These included G N Bajpai, former chairman of Sebi, Arun Nanda, founder of rediff.com, former India tennis star Vijay Amritraj, former finance secretary Piyush Mankad, leading cardiologist Naresh Trehan, and Subhash Raghunath Gupte. 

The report alleges that Bajpai, Nanda and Gupte were found to be having a commercial relationship with their respective entities with UB Group companies.

An email sent to Sebi did not elicit any response. A text message sent to Bajpai went unanswered.

“The presence of these personalities served the ulterior motive of Mallya” to the stakeholders believe that “nothing can go wrong in the airlines’ operations”, the SFIO noted. “The investigation revealed that some of the key decisions impacting the working of the company were either not brought before the board for approval or were only brought as information,” the fraud office said. 

Explaining the relationship of some of the directors, it said, Gupte, who served as a chairman of United Helicharters, “used to charter the helicopters of UB Air regularly” and “used to hire the hangar of UB Air at the Juhu Airport”. UB Air, a subsidiary of a UB Group company, had a stake of 26 per cent in United Helicharters.

The 157-page summary of the report, submitted to the Ministry of Corporate Affairs on August 27, had talked about email trails among top bankers, freebies to top bureaucrats, politicians and commercial relationships with the UB Group of companies. It revealed the kickbacks received by high-profile individuals from various sections of society and their motive behind sanctioning and disbursing a corporate loan of Rs 2,000 crore to Kingfisher Airlines.

Earlier this year, Sebi had barred Mallya from any board position or acting as a key managerial person in listed entities, and from accessing the securities market, citing allegations of diverting funds of Rs 1,880 crore from United Spirits. UB is now 43 per cent owned by Heineken and 30 per cent by Mallya and his holding companies. In February this year, when the BSE asked for the status of compliance with the Sebi order, UB said it had urged Mallya to step down as chairman. Mallya had refused to do so and has challenged the order at the Securities Appellate Tribunal.

Strict Vigil

• SFIO red-flagged corporate governance breach in Kingfisher Airlines
• Alleged conflict of interest of at least 3 independent directors who were on board in 2010
• Said directors were mere “mute spectators” on board decisions
• Persons of eminence were brought on the board to ensure no wrongdoing in airlines’ operations
• Evidence of having commercial relationship of directors’ private firms with UB group firms