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BW Businessworld

Mallya Asked To Quit USL Board Over Fund Diversion

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Alleging fund diversion to Kingfisher and other UB group entities, Diageo-owned United Spirits has asked its erstwhile promoter and current Chairman Vijay Mallya to quit the board - even as the liquor baron rejected the demand and the charge.
The board of United Spirits Limited (USL), in which Diageo has bought a controlling 55 per cent stake for about USD 3 billion, asked Mallya to step down after "various improprieties and legal violations" were found in a probe into loans worth Rs 1,337 crore given by USL to UB Group firms.
USL, the erstwhile flagship firm of the UB Group, has already seen a number of exits from its board and top management since the probe was launched by Diageo.
The UK-based liquor giant had first acquired 25 per cent in USL from Mallya-led UB Group in late 2012, while it bought further 26 per cent stake from non-promoters last year.
USL said that its board took the decision for ouster of Mallya following an "inquiry" report submitted by its MD and CEO, which revealed that between 2010 and 2013, funds involved in many transactions were diverted from the company and/or its subsidiaries to certain UB Group companies, including in particular, Kingfisher Airlines Ltd.
The company further said that "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." 
USL said it would also initiate necessary steps for recovery of the diverted funds while the role of individuals would be determined by the authorities concerned to whom the company will report all transactions. Internal action would be taken against other employees found to be involved in the matter.
Mallya has been in the dock ever 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.
In September last year, the board of United Spirits 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.
Mallya Rejects Demand
Mallya, who is already battling a number of cases including against banks over "wilful defaulter" tag related to loan defaults by Kingfisher, refused to resign and said the inferences and allegations are unjustified and false.
Mallya said he did not intend to resign as a director of USL and would pursue the contractual obligations with Diageo.
He said the USL Board has "parroted" the report submitted by PwC, whose finding itself was based on "half truths and twisted facts against the previous management".
PwC, which was asked by Diageo to conduct a forensic inquiry into the matter, said in a statement it has done its work with "the highest professional standards".
USL board 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".
Reacting to the charges, 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".