The Board of United Spirits said it lost confidence in Vijay Mallya continuing as chairman. Mallya, insists he would continue while blaming others of character-bashing
The Board of United Spirits Ltd (USL), in which Diageo holds majority share, asked Vijay Mallya to resign as director and chairman of the company following certain irregularities related with doubtful loans given to United Breweries (UB) group. However, after the Board showed him door, Mallya, the once-upon-a-time 'King of good times' took out his frustration on Twitter.
The Company, in its regulatory filing had stated, "...without making any determination as to fault or culpability, the directors noted that they had lost confidence in Dr Vijay Mallya continuing in his role as a director and as chairman and therefore, the Board called upon Dr Mallya to resign forthwith as a director and as the Chairman of the Board and step down from his positions in the company's subsidiaries."
"ln the event Dr Mallya declines to step down, the Board also resolved that it would recommend to the shareholders of the Company, the removal of Dr Mallya as a director and as the Chairman of the Board," the filing says.
However, Mallya, in a tweet said, "People and media revel in speculation sensationalisation and character bashing. Unfortunately for you I intend to continue as USL Chairman."
The Board of USL stated that Diageo, the majority stakeholder in the company, had certain contractual obligations to support Mallya continuing as non-executive director and chairman, subject to certain conditions. "Therefore, in the event Dr Mallya declines to step down, the Board resolved to request Diageo to expeditiously review the position in relation to its contractual obligations and authorised sharing with Diageo a copy of the inquiry report and all the materials relating to the company's inquiry," USL said.
On 9 November 2012, Diageo, the world's largest spirits maker announced that it would buy 53.4% stake in United Spirits for Rs11,166.5 crore in a multi-structured deal.
In September 2014, after reporting a full year net loss of Rs4,488.8 crore for FY2014 mainly on higher provisions due to certains loans given to UB Group companies, the Board of USL had ordered a probe in to matter. USL had made provisions of Rs1,012.75 crore for FY2014, due to ‘doubtful loans’ and exceptional items of Rs3,235.73 crore on the sale of Scottish subsidiary Whyte and Mackay.
The probe came after Mallya, the UB Group Chairman was declared a wilful defaulter by State-owned United Bank of India. However, Mallya disagreed with the action of the lender and said he would pursue legal action.
“We were not given a hearing, we have not appeared before them, we disagree with their action and we shall pursue legal action,” Mallya told reporters after the annual general meeting of United Breweries.
Last year in December, minority shareholders of USL defeated a majority of the special resolutions during the company's extraordinary general meeting on 28th November at Bengaluru. This was seen as a major setback to the integration between the company and its new owner Diageo Plc. Out of the 12 special resolutions, shareholders rejected nine resolutions connected with entities related with USL chairman Mallya.
In a regulatory filing, USL said, a key resolution regarding approval of a loan agreement between USL and UB Holdings Ltd has not been approved by the shareholders. Another resolution regarding sale of immovable properties to USL by UB Holdings also did not find favour with the shareholders. These resolutions required approval from at least 75% of shareholders. During the voting, only 127 public shareholders participated, suggesting that institutions had a major role to play in the defeat of the majority of the resolutions.
Separately, in a report, proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) has raised questions about the role of auditors in discerning the alleged financial irregularities and Diageo's management of the acquisition.
IiAS said it believes that Vijay Mallya must step down from the board of USL and allow an independent and unbiased investigation into the allegations. While Dr Mallya claims to be a victim of false allegation, IiAS questions whether there are any victims in this saga. Can Diageo claim to have not known about intragroup transactions?
Here are question IiAS has asked to Diageo...
What compelled Diageo to not run a thorough due diligence, and miss asking the obvious questions?
Why did Diageo vote its shares in favour of reappointing Dr Mallya at a time when he was named as a wilful defaulter?
What prompted Diageo to nominate PA Murali (USL's CFO who resigned earlier this month) to the board as their epresentative? If PA Murali was Diageo's representative, can Diageo claim they were not in the know?
Asking the company auditors to justify their audit quality, the proxy advisory firm, said, "Auditor rotation typically brings fresh oversight thereby enhancing the quality and objectivity of the audit process. However, in USL's case, the two changes in auditors yielded no results. Moreover, the audit firm that conducted the forensic audit was the auditor for the period within which the alleged irregularities occurred! Do shareholders rely on PwC's statutory audit or PwC's forensic audit?