Now, MCA, I-T to probe fund diversion at United Spirits

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Bangalore | Updated: May 28, 2015 2:14:50 AM

Move comes after company admits huge amounts were diverted by former management to group firms

Vijay Mallya DiageoThe internal report counts various improprieties and legal violations in diversion of funds to United Breweries Holdings (UBHL), the holding entity of Vijay Mallya’s UB Group and Kingfisher Airlines. (Reuters)

Liquor baron Vijay Mallya is in choppy waters yet again. United Spirits (USL), which he once chaired, will now be probed by the ministry of corporate affairs and the Income Tax Department, with the company admitting that a huge amount of money was diverted by the former management to other group companies controlled by Mallya.

The internal report counts various improprieties and legal violations in diversion of funds to United Breweries Holdings (UBHL), the holding entity of Vijay Mallya’s UB Group and Kingfisher Airlines. USL is also probing whether its exposure to  UBHL is more than what was provisioned when Diageo bought the company.

USL’s fourth quarter results has recorded exceptional items worth Rs 1,754.97 crore to cover for funds diverted to companies under Mallya. This also includes Rs 995 crore due to the company from United Breweries (Holdings), known as UBHL, the holding entity of Mallya’s UB Group.

USL admitted on Wednesday, following a probe instituted by the company’s board, that it has received notices from the ministry of corporate affairs and the I-T Department for inspection of its accounts and other books following the internal report. A Sebi probe is already on.

India’s largest maker of alcoholic beverages has also received a notice from its former auditors, who oversaw its accounts during the period under enquiry, to understand the impact of the findings of the report on the respective audit reports.  PW and Walker Chandiok & Co  had served as statutory auditors for USL during the probe period of fy12-14. PW did not seek a reappointment in FY12, and the company appointed Walker Chandiok & Co as the auditor. ICAI, the self-regulatory body of auditors, is probing the roles of both.


Further to these inspections, USL reported that it has asked MD and CEO Anand Kripalu to probe the “possible existence of any other transaction of a similar nature” with certain additional parties. USL and UBHL entered into an agreement in July 2013 when the companies agreed to convert all loans by USL into a consolidated loan of Rs 1,337 crore. USL got this agreement cleared by shareholders in January, but the company is now suggesting the amount may be higher than provisioned and assumed earlier.

“The manner in which the funds were diverted is indeed startling. For instance, loans were granted to UBHL for a tenure of 8 years, where the repayment only commenced from the sixth year. The propriety of such fund transfers and the role played by the auditors and the key management personnel is indeed suspect. The auditors in Clause 8 of the Audit Report have qualified certain transactions, which even include the write of provision in respect of loans to Whyte and Mackay Group and other related parties. Considering the nature of the transaction, the quantum involved, one could argue that the said transaction would qualify as fraud, requiring reporting from the auditors to the central government.  Hence, considering the nature of the irregularities, the government should swiftly consider the involvement of the Serious Frauds Investigation Office and an expeditious disposal in a time-framed manner,” Sherry Oommen, corporate lawyer at Nash Capital Partners, told FE.

Proxy advisory firm Stakeholders Empowerment Services (SES) is of the opinion that it is not a simple case of resignation or removal of Mallya. “The matter is far more serious and needs proper and prompt investigation leading to a logical end. If fraud was indeed perpetuated, the guilty need to be brought to books and recovery proceedings to start. All those who were aware of the fraud should be not only shown the door but legal proceedings be initiated as per prevailing and applicable laws,” a SES report states.

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