Note: This is for general awareness, not legal advice.

We all know Kingfisher Airlines and Jet Airways. Both were big names in Indian aviation, and both collapsed. But their fall was not just about business losses. It also became a legal story especially under the Prevention of Money Laundering Act (PMLA) and the Insolvency and Bankruptcy Code (IBC).

What is PMLA?

PMLA is a law made in 2002 to stop money laundering. In simple words, money laundering means taking money earned from crime and making it look clean.

The law gives the Enforcement Directorate (ED) power to:

  • Investigate financial crimes.
  • Freeze or attach properties if they believe those are bought with illegal money.
  • Arrest people and make bail very tough.

What is IBC?

IBC is a law made in 2016 to deal with companies that can’t repay loans. It:

  • Lets creditors take the company to insolvency.
  • Aims to revive the company by bringing in a new owner.
  • If revival fails, the company’s assets are sold to pay lenders.

Why did business failures trigger PMLA and IBC?

Normally, if a business fails because of market reasons, it’s just a business loss. But in these cases:

  • Kingfisher: Banks said the promoter diverted loan money for personal use. This made it not just business failure but also possible fraud, which triggered PMLA.
  • Jet Airways: Apart from business issues, lenders wanted their money back. That’s where IBC came for recvoery of the lenders money. At the same time, ED suspected wrongdoing in loan transactions, so PMLA also entered the picture.

And most importantly: whether loans were misused, whether properties are proceeds of crime, and whether assets should go to banks or the government—all these points has to be decided by Indian courts.

Why PMLA Came Into Picture for Kingfisher and Jet Airways

Normally, when a company fails, banks try to recover money through civil laws like the Insolvency and Bankruptcy Code (IBC). But if banks or investigators believe that loan money was diverted, siphoned off, or misused for personal gains, then it becomes not just a business loss, but a financial crime. That’s where PMLA (Prevention of Money Laundering Act, 2002) comes in.

Kingfisher Airlines (Vijay Mallya case)

  • Kingfisher borrowed over ₹9,000 crore from a consortium of banks.
  • Banks alleged that instead of using the money for the airline, a big chunk was diverted abroad or used for personal luxuries (like property and lifestyle expenses).
  • This was treated as “proceeds of crime” under PMLA.
  • The Enforcement Directorate (ED) attached assets of Vijay Mallya in India and abroad.

👉 So in Kingfisher, misuse and diversion of loan money triggered PMLA.

Current Situation as claimed by Vijay Mallya through the Writ Petition filed before Karnataka High Court seeking clarity on banks’ loan recovery process. According to him, nearly ₹6,200 crore was to be repaid, but ₹14,000 crore has already been recovered. Despite recovering the entire loan amount, the process is still ongoing. Claiming that the banks have already recovered ₹14,000 crore, Mallya has requested the banks to provide a statement detailing the total recovered amount.

Jet Airways (Naresh Goyal case)

  • Jet Airways collapsed in 2019 with over ₹8,000 crore in unpaid loans.
  • Initially, the case went into IBC for insolvency resolution.
  • But later, ED alleged that Naresh Goyal and associates diverted funds meant for running the airline into personal investments and related companies.
  • ED conducted searches, attached assets, and even arrested Naresh Goyal in 2023 under PMLA charges.

👉 So in Jet Airways, allegations of siphoning loan money and financial irregularities led to PMLA action.

The Core Idea

  • IBC = handles genuine business failure (revive or liquidate).
  • PMLA = comes in when there are allegations of fraud, money diversion, or laundering.
  • Courts has to finally decide whether the loan default was just business failure (IBC) or involved criminal activity (PMLA).

Other airline failures in India

Kingfisher and Jet are not the only cases. Other airlines have also failed:

  • Air Deccan – Once famous for cheap tickets, it merged with Kingfisher and later shut down.
  • SpiceJet – Faced a near shutdown in 2014 due to heavy losses but managed to recover with new investment.
  • Go First (earlier GoAir) – Recently filed for insolvency under IBC in 2023, blaming engine failures, rising costs, and debt.
  • Air India – Struggled for decades with debt and losses until it was finally sold to the Tata Group in 2022.

Why does this keep happening?

  • High fuel costs: Aviation turbine fuel (ATF) is very expensive in India compared to global markets.
  • Tough competition: Price wars between airlines make tickets cheap, but profits vanish.
  • Weak financial planning: Heavy borrowing without proper repayment plans.
  • External shocks: COVID-19, global oil prices, and currency changes hit airlines hard.
  • Poor governance: In some cases, promoters diverted money or ignored financial discipline, which led to legal trouble.

Why it matters to everyone

  1. Bank moneyi is public money. If loans are misused, we all lose.
  2. Promoters can’t escape. Their personal assets can be taken if they misuse funds.
  3. New investors are protected. Thanks to Section 32A, they can revive a failed company without old baggage.
  4. Courts balance interests. They decide between bank recovery and government confiscation.

Suggestions for the Industry and Government

  • For airlines:
    • Focus on sustainable growth instead of reckless expansion.
    • Maintain strong governance, no diversion of loan money.
    • Keep transparent accounts so lenders and regulators can trust operations.
  • For lenders:
    • Strengthen early warning systems to detect stress before collapse.
    • Ensure strict monitoring of how loans are used.
  • For the government:
    • Support the aviation sector as its capital intensive industry.
    • Create a fair playing field to avoid unhealthy price wars.
    • Speed up coordination between ED, banks, and insolvency courts so recovery is faster and less confusing.

Simple Takeaways

  • Promoters: Use loan money honestly.
  • Banks: Keep a close watch on how loans are used.
  • Investors: Check if Section 32A protection applies before buying a stressed company.
  • Passengers: Airline failures are not just business stories—they show how weak governance and legal battles affect everyday fliers too.

Conclusion

The fall of Kingfisher and Jet Airways is not just about business failure, it’s also about how law steps in when money is misused. PMLA makes sure promoters are held responsible, while IBC gives new owners a fair chance to bring companies back to life.

In short: business failure alone doesn’t bring PMLA or IBC but if loans are unpaid or misused, both laws come into play. And in the end, Indian courts decide how these laws apply in each case.

Looking at other airlines, we see a clear pattern: high costs, weak finances, and poor governance make Indian aviation very risky. Unless the industry and government act together with discipline, more failures may follow.