Diageo is the single largest shareholder in United Spirits Ltd after acquiring a 26.37% stake in the company. While hearing winding-up petitions against United Breweries (Holdings) Ltd, the Karnataka High Court on December 20 had ruled that a 6.96% stake sold by UBHL to Diageo was void.
United Breweries had sold the stake to Diageo in May 2013 after getting permission from the company court of the Karnataka High Court. A two-judge division Bench, while hearing an appeal filed by United Breweries's creditors against the sale, said the company court did not have the jurisdiction to permit sale of assets when the winding-up petitions were pending in the court. The Bench also ruled the sale of shares by United Breweries was not a bona fide one.
Creditors such as BNP Paribas, Rolls Royce & Partners Finance, ATR, International Aero Engines and a consortium of banks led by State Bank of India, had objected to the stake sale.
In its judgment, the high court Bench had observed that United Breweries suppressed material facts relating to its dues to the SBI consortium from the company court. The court also noted the price of R1,440 per share at which Diageo agreed to buy United Spirits (USL) shares does not represent the true market value and the transaction needed to be properly valued.
The judgment also said the sale should not have been allowed by the company court without an investigation into serious allegations by the petitioners United Spirits had allegedly diverted Rs 4,000 crore to an overseas subsidiary, which United Breweries had argued, was a payment related to the acquisition of Scottish distiller Whyte & Mackay in 2007.
Diageo had earlier in a statement it believed the decision was based on erroneous facts. Diageo continues to believe its purchase of USL shares is genuine and bona fide. All allegations in respect of parallel transactions are unfounded. The price of R1,440 per share is fair and reasonable, it had said.