The Diageo-led United Spirits (USL) on Saturday asked Vijay Mallya to step down as chairman of the firm, after an internal inquiry report into certain doubtful receivables, advances and deposits revealed that funds were diverted from the company to UB Group companies, including Kingfisher Airlines. The inquiry, ordered by the board last September, covered transactions between 2010 and 2013 and suggested that the manner in which these transactions were conducted prima facie indicates various improprieties and legal violations, USL said.

“The board is not in a position to make any final determinations with regard to the roles of any individuals involved. The board has, therefore, directed that the company report such transactions to the authorities, as required under applicable law,” the company said.

Mallya has refused to resign, saying the inferences and allegations were ‘unjustified and false’ and that the report was based on half truths and twisted facts against the previous management. “I do not intend to resign as a director of USL and shall pursue the contractual obligations with Diageo PLC,” Mallya said in a statement on Saturday after the board meeting in which the report was discussed.

“In light of the above, and without making any determination as to fault or culpability, the directors noted that they had lost confidence in Vijay Mallya continuing in his role as a director and as chairman and, therefore, the board called upon Mallya to resign forthwith as a director and as the chairman of the board and step down from his positions in the company’s subsidiaries,” USL said. “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 chairman of the board.”

Diageo had said in September, soon after Vijay Mallya was re-elected as director at a shareholder meet, that its contractual obligations to support Mallya were subject to him holding a minimum quantity of shares, as well as the absence of certain defaults by UBHL or himself.

“Therefore, in the event Mallya declines to step down, the board resolved to request Diageo to expeditiously review the position in relation to its contractual obligations and authorised sharing with Diageo a copy of the inquiry report and all the materials relating to the company’s inquiry,” USL said.

“The decision of the Board of Directors of USL is based on a report of PriceWaterhouse Coopers, entirely on the strength of which the Diageo-appointed managing director of USL prepared his report, parroting the PwC report,” said Mallya. “The PwC report essentially deals with past transactions entered into by USL between 2010 and 2012, which have been duly reflected in the audited accounts of USL without qualification and in full compliance of law at the relevant time, and duly approved by the then directors of USL and its shareholders.” .He also said the authors made no effort to contact the then USL Board members or auditors to verify the position and seek clarity. “In addition, the current Board of USL consists of directors appointed at the behest of Diageo and who have absolutely no knowledge of the past,” Mallya said. “Prior to acquiring control of USL, Diageo conducted an extensive due diligence exercise at USL over four months in the course of which details of all transactions were disclosed to them. It is, therefore, surprising that such prior period matters have become the basis for actions today. A robust challenge to the report will be submitted,” he 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 to UBHL than that which actually existed at the relevant time,” USL said.

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