A long corporate battle may be brewing with United Spirits Ltd and Vijay Mallya hardening their respective positions.
On Saturday, United Spirits, now controlled by London-based Diageo plc, asked Mallya to step down after a probe report revealed that up to ₹2,000 crore had been diverted from the company to other UB Group entities, especially the now defunct Kingfisher Airlines, when Mallya was its owner.
Diageo owns 54 per cent of USL, which it bought for about $3 billion from Mallya and other shareholders.
In September 2014, the USL board had asked PriceWaterhouse Coopers to conduct a probe. According to the PwC report, submitted to the board on April 24, between 2010 and 2013, about ₹1,337 crore was diverted from USL to certain UB Group companies, particularly Kingfisher Airlines.
According to the report, the manner in which certain transactions were conducted prima facie indicated improprieties and legal violations.
At its meeting on Saturday chaired by Mallya, the USL board said it had lost confidence in Mallya and wanted him to resign immediately.
Trashing the PwC report, Mallya told BusinessLine : “I obviously have legal recourse. At the end of the day, there is the justice system. If things can be resolved amicably, well and good. (Else) I will obviously deploy my legal options.”
However, Shriram Subramanian of proxy advisory firm InGovern said it is almost a fait accompli that Mallya will be out of the board. “As per the Company’s Act, it is just a 30-day process to get Mallya out of the board. The entire strength is in Diageo’s favour and it is just paper work,” he said.
Subramanian added that Mallya should bow out gracefully as he has lost the company anyway. Mallya holds about 5 per cent in USL and almost all the shares are pledged with lenders.
It is unlikely that any of the non-Diageo shareholders would want Mallya to continue on the board, he pointed out. For the removal of a director, an ordinary shareholder can call for an EGM and pass an ordinary resolution.
Indian entrepreneurs believe that everything can be resolved in the court, but Diageo must have worked out its chances, said Subramanian.
Insiders say that if Mallya does drag Diageo to court, then it could be a long drawn affair, similar to his several other cases that are still nowhere near conclusion.
Business impact If such a thing does happen, it could impact USL’s business. For the third quarter of 2014-15, volumes for the company stood at 30.9 million cases compared with 31.5 million for the same period last year. Year to date, volumes were down to 87.7 million cases compared with 90.9 million cases during the previous period.
Though a dip in volume is no cause for immediate worry, competitor Pernod Ricard is slowly extending its lead over USL.