Indian businessman Mallya granted bail in London extradition hearing

* Pursued over unpaid loans tied to defunct airline

* Attends police station "voluntarily" - source

* Mallya calls news of arrest "media hype" (Updates throughout, adds background)

By Devidutta Tripathy and Douglas Busvine

MUMBAI/NEW DELHI, April 18 (Reuters) - Flamboyant businessman Vijay Mallya, pursued by Indian authorities over unpaid loans tied to his defunct Kingfisher Airlines (BSE: KFA.BO - news) , was arrested in London on Tuesday and appeared in court for an extradition hearing.

A source close to Mallya said he attended a police station voluntarily and the arrest was a technical procedure. Mallya, 61, was arrested on behalf of the Indian authorities over accusations of fraud and appeared in Westminster Magistrates' Court, British police said.

Indian television channels said he was granted bail at the hearing.

Mallya, in a message on Twitter (Frankfurt: A1W6XZ - news) , called the news of his arrest "usual Indian media hype".

India had asked Britain to extradite Mallya to face trial after the liquor and aviation tycoon fled there last March after banks sued to recover about $1.4 billion that Indian authorities say Kingfisher (Frankfurt: 812861 - news) owes.

Mallya has repeatedly dismissed the charges against him and defended himself in messages on Twitter. On Jan. 28 he said that "not one rupee was misused".

A spokesman for India's foreign ministry said "the two governments are in touch" over India's extradition request.

India and Britain have a mixed record on extradition, say legal experts. Some cases have collapsed when evidence fell short of the standard of "dual criminality", or actions that amount to a crime in both countries.

"The court usually focuses on whether there is sufficient evidence of criminality to extradite someone," said Andrew Smith, a partner at London law firm Corker Binning.

"India needs to show a prima facie evidential case against this man."

Television channel CNN News18 said a team of Indian law enforcement officials would visit London to begin work on the extradition. India's Central Bureau of Investigation did not immediately comment.

Mallya co-owns the Force India Formula One team. He has a base in London and a country home bought from the father of triple Formula One world champion Lewis Hamilton.

India's top brewer, United Breweries (BSE: UBL.BO - news) , part-owned by global giant Heineken (LSE: 0O26.L - news) , this year asked Mallya, its non-executive chairman, to step down from the board, following a regulatory order. United Breweries was not immediately available to comment after Tuesday's development.

India's capital markets regulator has barred Mallya from participating in the securities market for having allegedly diverted funds from whisky maker United Spirits (BSE: UNITDSPR.BO - news) . (Additional reporting by Swati Bhat and Sudipto Ganguly in Mumbai, Alan Baldwin in London and Sanjeev Miglani in New Delhi; Editing by Andrew Roche)