Explained | What Vijay Mallya's bankruptcy declaration means for him and the lenders

A consortium of Indian banks led by the State Bank of India (SBI) can now pursue a worldwide freezing order to seek repayment of debt owed by Vijay Mallya's Kingfisher Airlines.

A British court on Monday granted a bankruptcy order against Mallya, who is wanted in India on fraud and money laundering charges.

Indian lenders, represented by the law firm TLT LLP and barrister Marcia Shekerdemian, had argued for the bankruptcy order to be granted in favour of the Indian banks who are owed over £1 billion. The debt in question comprises principal and interest, plus compound interest at a rate of 11.5 per cent per annum from 25 June 2013.

The petitioners were made up of SBI-led consortium of 13 Indian banks, including Bank of Baroda, Corporation Bank, Federal Bank Ltd, IDBI Bank, Indian Overseas Bank, Jammu & Kashmir Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of Mysore, UCO Bank, United Bank of India and JM Financial Asset Reconstruction Co. Pvt Ltd.

Read | UK High Court declares Vijay Mallya bankrupt for Indian banks to realise debt

What happens next?

Once a bankruptcy order is made in the UK, there is automatic vesting of all of the bankrupt’s assets in a Trustee in Bankruptcy, whose role is to investigate their affairs and establish their true assets and liabilities, with a view to selling relevant assets and paying back the bankrupt’s creditors. Under UK law, a bankrupt person must cooperate with the Trustee in Bankruptcy.

Such a person is prohibited from obtaining credit for more than £500 without disclosing their bankrupt status or acting as the director of a company without the court’s permission. A bankrupt person is also automatically discharged from their bankruptcy after one year unless an order is made suspending this discharge.

“The obvious consequence is the likelihood of freezing of bank accounts and attachment of assets. Mallya would be required to hand over his assets. A further assessment of such assets against documented liabilities appears to be the natural and immediate consequence,” Faisal Sherwani, partner at law firm, L&L Partners told Business Standard.

However, Mallya’s counsel, who has indicated plans to pursue an appeal against the bankruptcy order in the higher appellate court, had argued that the Indian banks were pursuing the same debt against him both in India and the UK.

(With PTI inputs)