Market regulator Securities and Exchange Board of India (SEBI) has barred Vijay Mallya and Ashok Capoor, the former president and managing director of United Spirits Ltd. (USL), from holding any board position or the role of a key managerial person (KMP) in a listed company. Mallya is currently the chairman on the board of United Breweries Ltd.
The regulator also barred Mallya, along with six other individuals, from accessing the securities market either directly or indirectly, according to an order on its website.
Apart from Mallya and Capoor, the five other former USL executives who have been barred were from the finance and operation departments of the company.
- PA Murali, Chief Financial Officer
- Sowmiyanaraynan, Assistant Vice President – Accounts
- SN Prasad, Senior Vice President – Finance and Accounts
- Paramjit Singh Gill, President – All India Operations
- Ainapur SR, Divisional Vice President – Accounts
All seven people named in the SEBI order have been given seven days to respond.
SEBI said it took cognizance of a public announcement made by United Spirits to the Bombay Stock Exchange on February 26, 2016 with regard to Mallya’s resignation from the board of USL. SEBI then wrote to USL on March 9, seeking information on the financial settlement between Mallya and Diageo Plc. Mallya had stepped down as chairman and director of USL following the settlement.
Under one of the provisions of the settlement, Diageo-controlled USL allowed Mallya or a party nominated by him to acquire up to 13 properties from the company at fair market value. Of the 13, Mallya had the option to buy three residential properties in Mumbai, Goa and New Delhi at a 10 percent discount.
The market regulator also sought an explanation from USL on whether it complied with Regulation 23 of SEBI’s Listing Regulations before entering into the agreement with Mallya. Regulation 23 pertains to related party transactions. SEBI also sought the audit committee’s report on these transactions.
As part of its investigation, the regulator looked at financial irregularities, fund diversions and subsequent provisions made by the company. The regulator also sought the modus operandi for these funds diversions, based on the reports submitted by PwC-U.K. and EY. Both these firms were appointed by USL to look into the alleged irregularities in the company.
The company later released the details of the internal report, which stated:
USL funds were initially provided by USL to its TMUs (Tie-up Manufacturing Units) and these amounts were shown to be payments made for operational reasons -- e.g. advances or security deposits. The TMUs then forwarded the funds to certain intermediary companies who were part of or associated with the UB Group. These intermediary companies then forwarded the funds onto KFA. The close proximity regarding the dates of each of the fund transfers as well as e-mail messages indicating that the transfers from USL were intended for onward transfer to the intermediaries and then onto KFA, indicated diversion.
PwC-U.K. Report
USL provided UB Group companies funds to the tune of Rs 655.55 crore, directly or indirectly, through four subsidiaries and Persons Acting in Concert of United Breweries (Holding) Ltd. The funds were transferred to these companies under instructions from Mallya and other KMPs, including Ashok Capoor, the PwC-U.K. report said.
The report said Mallya exerted pressure and influence over USL employees to arrange funds for KFA. In an email dated July 4, 2012, Mallya asked Capoor to follow his instructions or step down.
I know the USL position exactly. It is my final call. If you cannot accept my instructions, you are free to decide your further steps.... but let me repeat, my call is final and an instruction.Vijay Mallya In His E-mail Dated July 18, 2012
EY Report
The 2016 report by EY observed that there was a diversion of funds and potentially improper transactions amounting to Rs 1,225.24 crore.
Further Investigation
SEBI said in its order that it is further investigating USL for...
- The role of auditors inter alia in the non-detection of diversion of funds.
- Diageo’s Settlement Agreement with Mallya vis-a-vis USL’s agreement with Mallya.
- Change in control of USL after Diageo and USL agreed with UBHL and Kingfisher Finvest India Ltd. to terminate the shareholder’s agreement between the parties.
- The issue of bank guarantee amounting to $135 million to Standard Chartered Bank Plc. in July 4, 2013 with respect to liability of Watson and subsequent default by the company. SEBI had directed Diageo to pay shareholders who tendered in the open offer net value recovered from the collaterals after payment of guarantee. Diageo has contested this at the Securities Appellate tribunal.
In an emailed statement, Mallya said he is “surprised by these media reports”.
Neither have I had any communication with SEBI nor have I ever been afforded a hearing before this purported action has been taken. I have always strongly denied all allegations made by USL.Vijay Mallya, Chairman, United Breweries
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