Alleging fund diversion to Kingfisher and other UB group entities, United Spirits’ 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 controlling stake in United Spirits from UB Group, asked Mallya to step down following “various improprieties and legal violations” were found after a probe it conducted into loans given by USL to various UB Group companies.
However, Vijay Mallya refused to resign and said the inferences and allegations are unjustified and false.
USL, the erstwhile flagship firm of 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,” 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 crores 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 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 USD 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 today, Mallya said said 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, pursuant to the Board’s directions, a copy of the inquiry report, including the inputs and expert advice of the independent advisers and specialists, as well as the communications received from concerned directors are being provided to the Company’s auditors.”
Report further said: “In connection with the recovery of the Company’s funds that were diverted from the Company, the Board passed a resolution that the Company should take the necessary steps to pursue all rights and claims against, and expeditiously recover its dues from, the relevant parties to the extent possible.”
It further said: “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.”
Mallya said the decision of the USL Board was based on a report of PwC while Diageo-appointed Managing Director of USL has prepared his inquiry report “parroting the PwC report”.
“The PwC report essentially deals with past transactions entered into by USL between 2010 to 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 further said: “PwC 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 further said: “The PwC Report is based on half truths and twisted facts against the previous Management and a robust challenge to the report will be submitted. The inferences and allegations are unjustified and false and we were deprived of the opportunity to place correct and complete facts before the new Board of USL.”
PwC in a statement said “the report being referred to has been done by our forensic team for Diageo. We stand by the work done and believe it to be of the highest professional standards”.
Mallya said he does not intend to resign as a Director of USL and shall pursue the contractual obligations with Diageo.
While ordering the a for a “detailed and expeditious enquiry on doubtful loans”, the company said, “The Board has directed the Managing Director to engage independent advisors and specialists as required for the enquiry.
“Certain pre-existing loans/deposits/advances due to the company and its wholly owned subsidiaries from United Breweries (Holdings) Ltd which were in existence as on March 31, 2013, has been taken into consider in the consolidated annual accounts of the company drawn up as of that date.”
Pursuant to a previous resolution passed by the Board on October 11, 2012, such dues (together with interest) aggregating to Rs 1337.40 crore were consolidated into, and recorded as, an unsecured loan by way of an agreement between the company and UBHL,” the company had said.
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.
ln respect of the other employees of the company who appear to have been involved in certain transactions covered by the inquiry, the Board directed the MD& CEO to initiate necessary internal proceedings.