Diageo wants Mallya out of USL board over alleged `improprieties’

25 Apr 2015


Trouble seems to never end for liquor baron Vijay Mallya who is under fire by the new owners of United Spirits Ltd (USL), Diageo of the UK, for alleged improprieties committed under his chairmanship. Mallay, however, is holding fort defying a boardroom decision to remove him as chairman of USL, India's largest distiller.

Vijay MallyaDiageo controls 54 per cent stake in the Bangalore headquartered company, which has about 40 per cent market share in the branded liquor market.

The demand was made at an emergency board meeting, called to discuss a report prepared by PriceWaterhouse Coopers (PWC) on allegations of fund diversion of Rs3,000 crore from USL by the previous management led by Mallya, who is the current chairman. 

The USL board said it has lost faith in Mallya after a PricewaterhouseCoopers (PwC) inquiry into the company's books found "improprieties and violations".

Mallya, 59, troubled by the grounding of Kingfisher Airlines agreed to sell majority shares and management control to Diageo for around $3 billion to raise funds to redeem debt, but continued to face huge write-offs and corporate governance issues after the sale.

Under the November 2012 deal with Diageo Plc, Mallya was to continue as chairman of USL for the next five years.

Diageo said the PwC inquiry suggests that the manner in which certain transactions were concluded, prima facie, indicates various improprieties and legal violations. ''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. 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 communication received from concerned directors are being provided to the company's auditors,'' Diageo said in a statement to the stock exchange.

Mallya walked out of the meeting today after the PWC report blamed him for fund diversion without giving him a chance to reply on the allegations. ''I will not resign as a director of United Spirits and I will pursue the contractual obligations with Diageo Plc,'' Business Standard quoted Mallya as saying.

''Diageo did a due diligence for four months before they bought the company from me. All the papers were given to the auditors when they did the due diligence. What were they doing during due diligence?'' Mallya asked. ''It is, therefore, surprising that such prior period matters have become the basis for actions today. Were they sleeping for two years?,'' asked an agitated Mallya.

In a statement, United Spirits said its board lost confidence in Mallya continuing in his role as a director and as chairman and therefore, the board asked 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.

''In the event Mallya declines to step down, the board 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,'' a statement said. Diageo owns 59 per cent stake in United Spirits, as per latest data available with the stock exchanges.

In a statement issued later, Mallya said the current managing director (Anand Kripalu) basically ''parroted the PWC report'' in the board meeting today. ''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,'' the statement 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 USL board consists of directors appointed at the behest of Diageo and who have absolutely no knowledge of the past," Mallya 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," the statement by Mallya said.

PWC was asked to prepare a report on the status of various loans and advances to UB group entities after auditors pointed out alleged fund diversion to UB entities before Mallya sold the company to Diageo in 2012.

Today's meeting came in the backdrop of the sudden exit of Executive Director & CFO P A Murali, a Mallya loyalist, from the company on April 23. 

In the 2014 annual report, the company's auditor BSR & Co said United Spirits had advanced certain amounts to few UB Group entities and there is no clarity on its recovery.  ''These claims received in the current year may indicate that all or some of such amounts may have been improperly advanced from the company to such parties for, in turn, being advanced to the UB Group entities,'' the auditor had said asking for an detailed enquiry.

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