Former liquor baron Vijay Mallya suffered a serious setback after the Karnataka High Court on Tuesday ordered the winding up of United Breweries (Holding) Ltd, the 102-year-old parent company of the UB Group.
The order follows United Breweries (Holding) Ltd’s failure to pay back creditors, including banks, as per corporate guarantees extended to the now defunct Kingfisher Airlines Ltd (KFA).
Justice Vineet Kothari delivered the verdict in a sitting held through video conferencing from the Dharwad Bench, while allowing petitions filed by unsecured creditors and suppliers like IAE International Aero Engines AG and Rolls-Royce & Partners Finance Limited, as well as the secured creditors — a consortium of 14 banks led by State Bank of India.
Legal experts said the promoter, Mallya, who holds 7.91 per cent in UBHL in his personal capacity, can go on appeal and get the order overturned.
The court can also suspend the process of winding up. Mallya along with the promoter group firms control 52.34 per cent of UBHL. Most of the shares of the promoter have, however, been pledged to various lenders.
“He has lost a big gamble he made, thanks to his advisers. He will surely appeal against the court order,” a former top official close to Mallya told BusinessLine . He said Mallya had been advised even six months ago to call truce with the banks and settle all outstanding dues immediately.
“But his team involved in the case kept up the pressure, asking him to fight it out. They kept assuring him that as they had fought this case for two years, there was a good chance of a reconciliation which will be to his advantage,” the former official said.
Sources also said developments during the past one month clearly indicate that the government and the enforcement agencies are closing in on Mallya who has taken refuge in London.
Last month, the debt recovery tribunal allowed the lenders led by State Bank of India to recover ₹6,203 crore from him.
It was followed by an order from capital markets regulator SEBI, which debarred him and six others of United Spirits from the securities market. It also asked him to step down from all the boards of his group companies.
A few days later, the CBI arrested the former chairman of IDBI Bank, four other officials of the bank and four former Kingfisher Airlines executives in an alleged money laundering case.
Referring to financial reports and constant increase in the losses and complete erosion of net worth and refusal of UBHL to square up its “guarantee obligations”, the Court said, “UBHL is a commercially insolvent company and is unable to meet its admitted financial obligations and square up its admitted liability towards the petitioning creditors.”
“…on a totality of the facts and circumstances, this court is of the firm and clear opinion that the UBHL also deserves to be wound up for its failure to discharge its liability towards the petitioning creditors, which is far in excess of its net worth and the assets of the company…,” Justice Kothari said.
The court had on November 18, 2016 ordered the winding up of KFA.
Pointing out that whatever assets left now cannot be in the control, possession and active management of UBHL, the court said that “it would be necessary, safe, reasonable and expedient to takeover these assets from the company and hand over the same to the Official Liquidator to proceed further for winding up UBHL, in accordance with law”.
The court also directed the Official Liquidator to file a status report within four weeks about taking over the assets of UBHL and also about the pending cases against the company in various other legal fora.
The deposits of ₹1,280 crore made in the court based on interim orders would be utilised for distribution as per the law during the winding up process, the court said.
UBHL shares tumbled following the court order. The scrip closed 2.45 per cent lower at ₹39.80.