 "Mallya flouting company law in seeking USL board seat")
USL is moving a resolution seeking Mallya’s reappointment as a director at its annual general meeting scheduled on Tuesday. Corporate governance experts have cited new company law provisions on directorships and conflict of interest, and recommended minority shareholders vote against the resolution.
Their opposition is on two counts, other than his declaration as wilful defaulter by United Bank of India. One is the number of directorships the Bangalore-based liquor baron holds. Mallya, being on the board of 11 public companies at present, cannot be elected unless he resigns from at least one, as provided in Section 165(1) of the revised Companies Act, which restricts appointment to a maximum of 10 boards. In addition, the new corporate governance norms of the Securities and Exchange Board of India come into force on Wednesday. These restrict the maximum number of directorships to seven.
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Mallya’s directorships in some other firms and committee memberships
Source: Corporate affairs ministry/SES |
Further, USL (where Mallya and his companies are now minority equity holders) has ordered an investigation into inter-company transactions between it and various UB Group companies. Mallya being chairman of the company and of the UB Group presents a potential conflict situation. A USL spokesperson acknowledged the receipt of Business Standard’s emailed queries, sent on Saturday, but did not offer comments.
On September 5, USL, now controlled by Diageo, said its board had ordered a probe into pre-existing loans. “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 consideration 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 1,337.40 crore were consolidated into, and recorded as, an unsecured loan by way of an agreement between the company and UBHL,” the company said then.
Stakeholders Empowerment Services, a proxy advisory firm, said in a note: “As a good governance measure and to provide credibility to probes, Mallya should not offer himself for re-selection till the probe is over and the board comes to the conclusion that there was nothing wrong with any of the transactions. SES is of the opinion that continuance of Mallya on the board might not do any good to the firm. So, in the larger interest of the company and its shareholders, Mr Mallya should not seek re-election,” it said.
The auditors of USL, in a note to the accounts, have referred to this entry of unsecured loan by saying the company had made a provision of Rs 330 crore, in addition to not recognising interest of Rs 96 crore. “Given the various uncertainties involved with respect to the litigation involving UBHL and the extended period for repayment of the loan, we are unable to comment on the level of provision established,” the auditors said in their qualification.
In response, the company said, “The management believes that it should be able to recover, and no further provision is required for the balance amount of Rs 9,957 million (Rs 995.7 crore), though the company will attempt to recover the entire amount of Rs 14,223 million (Rs 1,422.3 crore). However, the management will continue to assess the recoverability of the said loan on an ongoing basis.”
Even here, there is an unexplained difference of around Rs 11 crore between what the auditor said and the company explained. While the amount due (Rs 1,337.4 crore) and unrecognised interest (Rs 96.3 crore) add to Rs 1,433.7 crore, the company said it would recover the “entire amount” of Rs 1,422.3 crore.
Further explaining the terms of the board-ordered “review”, the management said it was reviewing loan agreements to explore “(i) whether any event of default(s) under the loan documents has occurred on the part of UBHL; (ii) the legal rights and remedies which the company has under the loan documents; (iii) whether the company should invoke any of the remedies available to it under the loan documents (including recalling of the entire loan); and (iv) whether there is any scope of renegotiating the terms and conditions under the loan documents.”