USL finds Rs 1,225.3 cr fund diversion, holds Mallya liable

In fresh troubles for Vijay Mallya, Diageo-controlled United Spirits today disclosed fund diversion and improper transactions worth Rs 1,225.3 crore involving entities linked to the embattled former Chairman, including Kingfisher Airlines and his Formula One team.
The company, acquired by the British liquor giant from Mallya's UB Group in 2013 in a multi-billion dollar deal, made it clear that the earlier settlement reached with the Indian businessman would not absolve him of the claims arising out of the latest findings of an internal 'Additional Inquiry'.
Mallya, who has been in UK for months evading an arrest warrant in India while several banks have declared him 'wilful defaulter' for non-payment of dues worth over Rs 9,000 crore by his now-defunct Kingfisher, had struck a settlement with USL in February. Under the 'sweetheart deal', he was promised an over Rs 500-crore payout to leave the company and was also absolved of any 'personal liability' at that time.

At a meeting today, USL Board discussed findings of the 'additional inquiry' it had ordered to plug gaps found in an initial probe launched in April 2015 that showed improprieties in loans worth Rs 1,337 crore given by USL to the entities linked to its erstwhile promoters, the Mallya-led UB Group.
"The additional inquiry prima facie reveals further instances of actual or potential fund diversions amounting to approximately Rs 913.5 crore (using exchange rate as on March 31, 2015) as well as other potentially improper transaction involved USL and its Indian and overseas subsidiaries amounting approximately Rs 311.8 crore," USL said in a BSE filing.

The transactions occurred during the review period covered by the additional inquiry -- from October 2010 to July 2014 -- although certain transactions appear to have been initiated in years prior to the review period, it added.

"These improper transactions identified in the additional inquiry involved, in most cases, the diversion of fund to overseas and Indian entities that appear to be affiliated or associated with USL's former non-executive Chairman, Dr Vijay Mallya," the USL filing said.
The company said its mutual release agreement with Mallya in February this year, under which Diageo agreed to pay him USD 75 million dollars, will not cover the matters arising out of the 'additional inquiry'.

While the matter is already being probed by markets regulator Sebi and Corporate Affairs Ministry among others, the latest findings of the internal probe are also being reported to the concerned regulators for any further action.
"The USL Board has directed the management to pursue recovery from the relevant companies and individuals and undertake any action, including legal and regulatory as deemed necessary. It should be noted that the February 2016 agreement did not release the former Chairman from any claims arising out of the additional inquiry," a company spokesperson said in an e-mailed statement.
There were no immediate comments from Mallya.

USL said the overseas beneficiary or recipients of the diverted funds include entities such as Force India Formula One, Watson Ltd, Continental Administrative Services, Modall Securities Ltd, Ultra Dynamics Ltd and Lombard Wall Corporate Service Inc "in each of which Dr Mallya appears to have a material, direct and indirect interests".
USL said it will be reporting the findings of its
additional inquiry spearheaded by its Managing Director and CEO Anand Kripalu to concerned authorities for further action.
"In light of these findings, and based on the expert advice received, including from senior counsel in India, the board directed that copies of the MD and CEO's report (including the additional inquiry report) be provided to concerned authorities," the company said.

The company said it would cooperate with all relevant authorities in relation to these matters.
USL spokesperson said the findings of the additional inquiry relate to "historical matters before Diageo consolidated the USL business in July 2014" and ruled out any further financial burden to the company.
"Based on our understanding as of today, we believe there will be no further material financial implications to USL," the spokesperson added.
In the BSE filing, USL said almost all of the amounts identified in the Additional Inquiry have been previously provided for of expressed in the financial statements of the company or its subsidiaries for prior periods (including by way of provisions made in relation to impairment in the value of or loss on sale of USL's overseas subsidiaries).

"USL's management has recommended to the Board that a further provision of Rs 21.7 crore should be made, for the value of certain improper transactions identified in the Additional Inquiry, which have not been previously expensed or provided," it said.
"Based on the information currently available, the company believes that no further provisions are required at this stage," USL added.
The Board has also directed its MD and CEO to take appropriate action in relating to the employees named in the Additional Inquiry, while a further review would be conducted of the "ongoing relationships with the counter-parties involved in the improper transactions indemnified by the Additional Inquiry".

Mallya is currently wanted in India and is facing charges of money laundering. A consortium of 17 banks lead by SBI has been trying unsuccessfully to recover dues of over Rs 9,000 crore from now defunct Kingfisher Airlines, which was promoted by him.
Last month the Enforcement Directorate had attached assets worth Rs 1,411 crore belonging to Mallya and one of his companies in connection with its money laundering probe in the the alleged IDBI bank loan default case.
Mallya is currently staying in the UK after leaving India in March this year. His passport has been revoked by the Indian government. He has been indicating against any imminent return to India in the wake of various legal and regulatory troubles.