Of good and bad times

The cause and meaning of Vijay Mallya's likely exit

There is no end in sight for the troubles of Vijay Mallya, once "the king of good times" and India's answer to Richard Branson. A few days ago, United Spirits asked him to step down as the chairman after an emergency meeting of the board was held to discuss a report by PricewaterhouseCoopers on allegations of funds being diverted by the earlier management led by Mr Mallya. It is unlikely that he will exit without putting up a fight. It has been reported that Mr Mallya left the board meeting in a huff and said categorically that he would not step down. The alleged related-party transactions pertain to a period between 2010 and 2012, the accounts of which were audited without qualification and were approved by the then directors and shareholders of United Spirits, Mr Mallya said in defence. The PwC report, according to Mr Mallya, was based on "half-truths" and he would submit a "robust challenge" to it.
 

These are all matters on which there will hopefully be more clarity in the days to come. Coming after the business reverses he has seen in the last few years, it will take a lot for Mr Mallya to bounce back from here. His ambitious foray into the aviation business came crashing when Kingfisher Airlines got grounded a few years ago. The crunch that followed saw him cede control of United Spirits to Diageo. Another company, Mangalore Chemicals & Fertilisers, was raided by Deepak Fertilisers. Then Saroj Poddar marched in as the white knight - he is now all set to take control of the company.

It is a fact that people often take the wrong call in business, for which they have to pay dearly. That's the nature of the beast. It may be unwise, but it is not illegal. In Mr Mallya's case, the wrong call may have been the purchase of budget carrier Air Deccan, which made Kingfisher Airlines lose focus and finally go bankrupt. It is possible for business leaders to rebound after failures. But the job becomes extremely difficult if there are charges of financial impropriety. Noting hurts more than loss of trust. This is the risk Vijay Mallya runs if the allegations against him are proven.

The recent controversy has also brought into question Diageo's due diligence when it acquired United Spirits from Mallya. Deloitte provided the financial and tax due diligence services, while Slaughter and May and Platinum Partners acted as legal advisers. Why did Diageo wait for almost two-and-a-half years to raise the issue? It has also been pointed out that PwC was the auditor of United Spirits during the period under question, while the same professional services firm was tasked to conduct a forensic audit of the transactions. But a Diageo spokesperson told Business Standard that the accounts were audited by Price Waterhouse in India, the last of which was for March 31, 2011, while the forensic audit was conducted by PwC UK with help from PwC India, and therefore these were two separate teams. The transactions, the spokesperson added, were not disclosed to Diageo at the time of the acquisition, and were highlighted by KPMG, the auditor, when it was finalising the accounts for 2013-14. It is worth noting that Institutional Investors Advisory Services, another proxy advisory firm, had said in September 2014 that United Spirits' shareholders should vote against Mr Mallya's reappointment, but Diageo had supported his reappointment.

Perhaps even Diageo struggled to imagine a liquor business without Vijay Mallya. Mr Mallya's "good times" image is perhaps gone forever. In his larger-than-life persona, he reflected a cheerier, more optimistic period, the India prior to the global crisis and economic slowdown. If Mr Mallya leaves centrestage now, it is because India itself has changed.