Mumbai: Diageo Plc-controlled United Spirits Ltd (USL) on Saturday said its additional inquiry against business tycoon Vijay Mallya and his associate companies has revealed instances of actual fund diversions amounting Rs.1,225.30 crore.
The USL board, that met on 9 July, said that while only a court or concerned regulatory authority would be in a position to make final determinations as to fault or culpability, the additional inquiry prima facie reveals further instances of actual or potential fund diversions amounting to approximately Rs.913.50 crore as well as other potentially improper transactions involving USL and its overseas subsidiaries amounting to approximately Rs.311.80 crore.
“These improper transactions indentified in the additional inquiry involved, in most cases, the diversion of funds to overseas and Indian entities that appear to be affiliated or associated with USL’s former non executive chairman Vijay Mallya,” USL informed stock exchanges.
Diageo bought a controlling stake in United Spirits from Mallya in July 2013 and subsequently increased its holding to around 55% last year.
Soon after United Spirits finally reported its thrice-delayed fourth-quarter earnings in September, the company initiated an inquiry into its accounting practices as several cases of suspected financial impropriety surfaced.
In April 2015, United Spirits had said the preliminary inquiry revealed that the company may have understated the amount it was owed by Mallya’s UB Group. At the time of these transactions, United Spirits was controlled by Mallya and the UB Group.
Among other issues, the internal inquiry looked at inter-company loans between United Spirits and UB Group entities that were used to prop up the now defunct Kingfisher Airlines. The inquiry also covered some agreements allegedly entered into by United Spirits with a Kingfisher Airlines creditor and certain claims made by United Spirits debtors, some of whom later refused to repay the company.
The additional inquiry by USL board has revealed that the overseas beneficiaries or recipients of these funds include entities such as Force India Formula One, Watson Ltd, Continental Administrative Services, Modall Securities Ltd, Ultra Dynamix Ltd and Lombard Wall Corporate Services Inc., in each of which Mallya appears to have a material, or indirect, interest.
“The Indian beneficiaries or recipients of the funds identified by the additional inquiry included, in most cases, Kingfisher Airlines Ltd,” USL said.
In April 2015, the board of directors at USL had asked then promoter and chairman Mallya to resign from the board after the initial internal probe, led by USL chief executive officer Anand Kripalu, alleged the liquor baron may have been involved in financial irregularities. at India’s largest liquor company.
Mallya had countered that argument saying he will not resign as a director of USL and criticized both Diageo and audit firm PricewaterhouseCoopers, which helped with the probe. But later in February, Mallya struck a sweet heart deal where Diageo agreed to pay him $75 million for stepping down as USL chairman.
Mallya left for the UK on 2 March as Kingfisher creditors, which claim they are owed Rs.9,000 crore by the grounded airline, closed in on him.
So, how will it impact Diageo?
A USL spokesperson said the fresh findings are related to historical matters before Diageo consolidated the USL business in July 2014.
“Based on our understanding as of today, we believe there will be no further material financial implications to USL. 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,” USL spokesperson clarified.
The spokesperson said the company will share the report with the appropriate authorities and will cooperate with them fully in any action they may take in relation to these matters.
“USL is committed to ensuring the highest standards of corporate governance, compliance and ethical conduct. We have significantly dealt with historical issues and have put appropriate systems, controls and governance mechanisms in place to minimize future occurrence,” the spokesperson added.
According to stock exchange filing, 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 by the additional inquiry, which have not been previously expensed or provided.
“Based on the information currently available, the company believes that no further provision are required at this stage,” USL said.
The board also directed managing director and chief executive officer to take appropriate action in relation to employees named in the additional inquiry. In relation to ongoing relationships with counter parties involved in the improper transactions identified by the additional inquiry, the board directed a further review of such relationships.
These transactions occurred during the review period covered by the additional inquiry i.e., from October 2010 to July 2014, although certain transactions appear to have been initiated in years prior to the review period.
USL’s latest inquiry will trigger another legal battle for Mallya who presided over a liquor empire until a few years ago and was ranked the 45th richest Indian by Forbes in March 2012 with a net worth of $1 billion.
Demanding his return are at least five law enforcement and judicial bodies in India—the Supreme Court, the Enforcement Directorate, the service tax department, the Serious Fraud Investigation Office and the Income Tax department.