United Spirits, the Indian liquor maker controlled by Diageo Plc, asked Chairman Vijay Mallya to resign, after an internal enquiry found company funds were diverted to other entities under his control. Mallya refused to quit.
United Spirits Ltd.’s board passed the resolution calling for the tycoon’s resignation on Saturday, after concluding an internal inquiry into loans and deposits made by the company over a three-year period, India’s biggest spirits maker said in an e-mailed statement. In response, Mallya said he intends to continue as chairman, and that the board’s decision relied on a report based on “half truths and twisted facts.”
United Spirits’ move to eject Mallya, its former owner, marks the culmination of a rocky two years since it was acquired by Diageo. The company delayed fiscal year earnings three times, and said in September it had begun a “detailed and expeditious enquiry” into transactions including a loan of 13 billion rupees ($204 million) to Mallya’s UB Group Holdings entities.
Saturday’s action may also mark the end of the reign of the flamboyant tycoon, who regularly hosts beach parties and controls a Formula 1 racing team, even after banks declared him a so-called “wilful defaulter” when mounting debts forced the shutdown of his Kingfisher Airlines Ltd.
’Contractual Agreement’
“I intend to continue as chairman of USL in the normal manner,” Mallya said in an e-mailed statement. “I have a valid contractual agreement with Diageo Plc which directly addresses my position as director and chairman of USL.”
Foreseeing Mallya’s decision to hold on to his position, the board resolved that it would recommend to shareholders to remove him as a director and chairman, the company’s statement showed. In light of the enquiry’s findings, the board would also request parent Diageo to review its contractual obligations to support Mallya’s chairmanship.
These terms, which were part of Diageo’s deal to acquire a controlling stake in United Spirits, have been seen by analysts as the main reason behind Mallya retaining the top position despite his legal troubles.
United Spirits’ board has authorised the company to “‘pursue all rights and claims against, and expeditiously recover its dues from, the relevant parties to the extent possible,’’ the company said in its statement. The company’s investigation, headed by Managing Director Anand Kripalu, at first glance appears to indicate ‘‘various improprieties and legal violations,’’ it said.
Due Diligence
Mallya, in his response, brought up a report submitted by accounting firm PricewaterhouseCoopers Plc, which he said was the basis of the board’s decision. The report was ‘‘severely flawed’’ and he intends to mount a challenge against its findings, he said.
‘‘PwC made no effort to contact the then USL board members or auditors to verify the position and seek clarity,’’ Mallya said in his statement. ‘‘The inferences and allegations are unjustified and false.’’
Diageo had conducted a due diligence process prior to its acquisition of United Spirits, and all these transactions were reported to the London-based company at the time, Mallya said.
News by Bloomberg, edited by ESM
