Diageo asks king of good times Mallya to abdicate
Alleging fund diversion to Kingfisher and other UB group entities, United Spirits Ltd’s (USL) new owner Diageo has asked Vijay Mallya to step down as Chairman and Director of the Indian liquor firm, a demand he outrightly rejected. Diageo, which has bought a controlling stake in USL from the UB Group, asked Mallya to step down as “various improprieties and legal violations” were found after a probe it conducted into loans given by USL to various UB Group companies.
However, Mallya refused to resign and said the inferences and allegations are unjustified and false. USL, the erstwhile flagship company of the Mallya-led UB Group, has already seen a number of exits from its board and top management since the probe was launched by UK-based Diageo.
“At its meeting held on April 25, the Board discussed and considered in detail the report submitted by the MD and CEO in relation to the inquiry... The inquiry revealed that between 2010 and 2013, funds involved in many of these transactions were diverted from the company and/or its subsidiaries to certain UB Group companies, including in particular, Kingfisher Airlines Ltd,” the USL Board said in its inquiry report.
It further said, “The inquiry prima facie revealed that between 2010 and July 2013, certain transactions entered into on behalf of the company appear to have been undertaken to show a lower exposure of the company (and its subsidiaries) to United Breweries Holdings (UBHL) than that which actually existed at the relevant time, that is prior to July 2013.”
“All of the dues owing to the company and its subsidiaries from UBHL aggregating Rs 1,337 crore on July 3, 2013, were consolidated into a single loan agreement dated 3 July 2013 entered into between the Company and UBHL,” it added. The inquiry also suggests that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and legal violations.
“In the event Mallya declines to step down, the Board also resolved that it would recommend to the shareholders of the Company, the removal of Mallya as a director and as the Chairman of the Board,” Diageo said.
The global liquor giant also said that it would initiate necessary step for recovery of the diverted funds while the role of individuals would be determined by the concerned authorities to whom the company will report all transactions.
Diageo had asked PwC to conduct a forensic inquiry into the matter. Mallya has been in the dock even since his ambitious airline venture Kingfisher landed in financial troubles and got eventually grounded in October 2012. Thereafter, Mallya had to sell some of his assets including controlling stake in USL to Diageo, which is estimated to have paid close $3 billion for the same.
In September last year, the board of United Spirits however ordered a probe into the loans given to UB Group companies as it posted a whopping net loss of Rs 4,488.77 crore for the financial year ended March 31, 2014.
Reacting to Diageo’s charges, announced on Saturday, Mallya said that prior to acquiring control of USL, Diageo conducted an extensive due diligence exercise at USL over 4 months in the course of which details of all transactions were disclosed to them.
The Board said it is not in a position to make any final determinations with regard to the roles of any individual involved, it has directed that the company “report such transactions to the authorities as required under applicable law”. Further, a copy of the inquiry report and communications received from concerned directors are being provided to the Company’s auditors.