 "USL asks Mallya to quit board")
The demand was made at an emergency board meeting on Saturday. The meeting was called to discuss a Pricewater-houseCoopers (PwC) report on allegations of fund diversion worth Rs 3,000 crore from USL by the previous management, led by Mallya, who is the current chairman. According to a deal with Diageo Plc in November 2012, Mallya was to continue as USL chairman for the next five years.
USL said the PwC inquiry suggested the manner in which certain transactions were concluded prima facie indicated various improprieties and legal violations. “The board is not in a position to make any final determinations with regard to the roles of any individual involved. The board has, therefore, directed the company report such transactions to the authorities, as required under applicable laws. Further, pursuant to the board’s directions, a copy of the inquiry report, including the inputs and expert advice of the independent advisors and specialists, as well as the communication received from the directors concerned, is being provided to the company’s auditors,” USL said in a statement to the stock exchange.
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Mallya said he walked out of the meeting on Saturday after the PwC report blamed him for fund diversion, without giving him a chance to reply to the allegations. “I will not resign as a director of United Spirits and I will pursue the contractual obligations with Diageo Plc,” Mallya told Business Standard.
“Diageo did 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 action 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 chairman and, therefore, the board had asked Mallya to resign forthwith as a director and 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 it would recommend to the shareholders of the company the removal of Mallya as a director and chairman of the board,” a statement said. Diageo owns 59 per cent stake in United Spirits, according to the latest data available with stock exchanges.
In a statement issued later, Mallya said the current managing director (Anand Kripalu) “parroted the PWC report” at Saturday’s board meeting.
“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 then directors of USL and its shareholders,” the statement said.
“PwC made no effort to contact 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, 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 to alleged fund diversion to UB entities before Mallya sold the company to Diageo in 2012.
Saturday’s meeting came in the backdrop of the sudden exit of executive director and chief financial officer P A Murali, a Mallya loyalist, from the company on April 23.
In the 2014 annual report, the company’s auditor, BSR & Co, had said United Spirits had advanced certain amounts to a few UB Group entities, adding there was no clarity on its recovery. “These claims received in the current year might indicate all or some of such amounts might have been improperly advanced from the company to such parties for, in turn, being advanced to UB Group entities,” the auditor had said, seeking a detailed inquiry.
On Saturday, Diageo said the PwC inquiry prima facie revealed between 2010 and July 2013, certain transactions entered into on behalf of USL appeared to have been undertaken to show a lower exposure of USL (and its subsidiaries) to United Breweries (Holdings) Ltd, or UBHL, than that which actually existed at the relevant time — prior to July 2013.
“All the dues owing to USL and its subsidiaries from UBHL, aggregating Rs 1,337 crore on July 3, 2013, were consolidated into a single loan agreement dated July 3, 2013, entered into between the company and UBHL, according to financial statements for the year ended March 31, 2014,” the company said.
USL said Diageo had contractual obligations to support Mallya continuing as non-executive director and chairman of the company, subject to conditions. “Therefore, in the event Mallya declines to step down, the board also resolved to request Diageo to expeditiously review the position in relation to its contractual obligations and authorised sharing with Diageo a copy of the inquiry report and all the materials relating to the company’s inquiry,” it said.
For the other employees of the company who appeared to have been involved in certain transactions covered by the inquiry, the board on Saturday directed the managing director and chief executive to initiate necessary internal proceedings, in accordance with the applicable rules and policies of the company, covering the company’s dues from Mallya entities, Diageo said.