An Indian tycoon secured hundreds of millions of pounds in bank loans for Kingfisher Airlines that he knew to be in financial trouble, a court was told yesterday.

He then laundered the cash to fund his Formula One motor racing team, it was claimed.

Vijay Mallya, chairman of UB Group and co-owner of the Silverstone-based Sahara Force India Formula One team, is fighting extradition to his own country over allegations of fraud, The Times reported.

UB Group was founded as United Breweries in 1857. At 22, Mallya became its first Indian director in 1977.

Its interests expanded to cover beverages, aviation – through Kingfisher Airlines, which lost its flying licence in 2013 – and other sectors.

It was claimed at Westminster magistrates’ court yesterday that Mallya, 61, who was once an MP in India, chose to inflict losses on the banks rather than give up his lavish lifestyle when he applied for corporate loans.

Exaggerated projections were given to the largely state-owned banks, Mark Summers, QC, representing the Indian government, said.

Rather than paying off Kingfisher’s debts, some of the cash, equivalent to hundreds of millions of pounds, ended up in his racing team.

Summers told the court: “The [Indian] government says that there are three reasons why the court could conclude this was a loan that the defendant never intended to repay.

“His company was in intensive care. The market was in intensive care. It was heading in only one direction and as it went down it was going to sustain huge losses. The defendant had a choice: either you take those losses on yourself and impinge on your own lifestyle, or you try and palm it off on a bank.”

In 2009 Mallya went looking for corporate loans worth 2,000 crore rupees (£230 million), including two loans worth 900 crore rupee from the state-backed IDBI Bank.

Kingfisher Airlines had assured the banks that it had expected to be profitable by 2011 and said that the loans were to pay off “critical obligations” to suppliers, the court was told.

Summers said that this was “unrealistic and wrong”. The borrowed money was sent all over the world and “eventually . . . ended up in the defendant’s motor racing team.”

He added: “The government suggest that the funds were not used in some manner for the purposes that they were sanctioned.”

Mallya was arrested in April by the Metropolitan Police’s extradition unit on behalf of authorities in India, where the Directorate of Enforcement has been gathering evidence as part of its investigation into the businessman’s debts, totalling £977 million, linked to the airline.

The Indian government alleges that Mallya had not been co-operating and had ignored its summonses to give evidence.

Mallya told reporters that the allegations were “baseless” and “unfounded”.

The extradition hearing is due to resume today.