 "Vijay Mallya")
British liquor giant, Diageo and Vijay Mallya, Chairman of UB group, on Thursday signed a settlement agreement that absolves Mallya of claims over diversion of funds from United Spirits to other UB group firms, including Kingfisher Airlines. But the transaction comes at a huge cost to USL’s minority shareholders as the Indian company will no longer take any action on the recovery of Rs 2,100 crore from various UB group entities.
The USL board in April last year had asked Mallya to step down as chairman but a defiant Mallya had refused to do so. In an announcement to the stock markets, United Spirits leveled serious charges of lack of corporate governance and fund diversion against Mallya based on an investigation by PriceWaterhouse UK.
Mallya hit back saying that the accounts were certified by Price Waterhouse’s Indian entity before Diageo took over, and that the same auditing firm could not later blame its own entity of cooked books.
The Securities and Exchange Board of India (Sebi), Ministry of Corporate Affairs (MCA) and the stock exchanges then started their own investigation into USL’s books.
However, the transaction signed between Diageo and USL on Thursday leaves many questions unanswered. These are the major issues that the deal must now address:
1) What happens to United Spirits’ claims worth Rs 2,100 crore on Mallya/UB entities?
2) Can British firm Diageo – which owns 59% stake in USL -- sign a deal with Mallya at the cost of United Spirits minority shareholders?
3) Why should small shareholders of United Spirits pay for a Mallya and Diageo agreement?
4) Will stock exchanges, Sebi and MCA take action against United Spirits on the accusation of cooked account books made by United Spirits in April last year?
5) Can the USL board first make a serious accusation against Mallya, and then have the majority shareholder Diageo step in to give a clean chit to Mallya?
6) What happens to complaints against PriceWaterhouse that it helped cook USL accounts? Will ICAI – self regulator of Indian auditors -- take action against it on the transgressions made public earlier?
7) Does the Diageo-Mallya transaction cross the limits of acceptable corporate governance?
8) What happens to CBI probe against IDBI Bank and Vijay Mallya for a Rs 950 crore loan?
9) What happens to the Rs 7,200 crore bank debt owned by Kingfisher Airlines to Indian banks?
10) United Spirits is a party in a suit filed by State Bank of India in Karnataka High Court for default by UB group. Can USL now claim that it has nothing to do with Mallya or related entities?
Diageo’s takeover of United Spirits has come at a huge cost to the British company with a dent on its corporate governance practices and, of course, a lots of cash. The British giant signed the deal with Mallya in 2012 after a long courtship that began in 2008. Diageo spent months conducting due diligence before buying a controlling stake in USL in July 2013. It also had access to details of all related-party transactions made by Mallya’s companies. As it tries to clear its India mess, Diageo has more questions to answer than it has tried to answer.
