With liquor giant United Spirits asking its own chairman Vijay Mallya to quit, markets watchdog Sebi and other regulatory agencies have begun looking into suspected irregularities at the company, including about the alleged fund diversion and disclosure-related lapses.
United Spirits Ltd (USL), in which Mallya-led UB Group has sold controlling stake to UK-based Diageo Plc, asked Mallya to step down as Chairman and Director after an inquiry revealed fund diversion in the past to various UB Group firms including the now-defunct aviation venture Kingfisher.
While Mallya has rejected the demand and the charges, USL said its board has decided to go to the shareholders if he refuses to step down.
Irregularities have been alleged in the past transactions entered into by USL between 2010 to 2013 with UB group firms.
Top officials said Sebi will look into all possible violations at USL, as also at other UB Group entities some of which happen to be separately listed companies and others form part of the promoter groups. The role of some individuals, including Mallya's, will also be looked into.
The alleged lapses, including about fund diversion, also amount to violation of the Companies Act and the issue could also be separately probed by the corporate affairs ministry, while accounting watchdog ICAI may look into the auditors' role to ascertain whether there were any lapses on their part.
USL said that it is also providing its auditors a copy of the inquiry report, including the inputs and expert advice of the independent advisers and specialists, as well as the communications received from concerned directors.
Some of the UB group entities are already under the regulatory glare for various violations, including about the listing norms, for failing to make mandatory disclosures.
USL said last night that "various improprieties and legal violations" were found in its inquiry into loans worth Rs 1,337 crore given by the company to UB Group firms.
The inquiry, which also involved PwC conducting a forensic probe, revealed that between 2010 and 2013, funds involved in many transactions were diverted from the company and/or its subsidiaries to certain UB Group companies, including in particular, Kingfisher Airlines Ltd.
USL is also initiating necessary steps for recovery of the diverted funds while the role of individuals would be determined by the authorities concerned to whom the company will report all transactions. Internal action would be taken against other employees found to be involved in the matter.
"... without making any determination as to fault or culpability, directors noted that they had lost confidence in Vijay Mallya continuing in his role as a director and as chairman and therefore, the Board called upon 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," USL said.
Mallya has been in the dock ever since his ambitious airline venture Kingfisher landed in financial troubles and got eventually grounded in October 2012.
Thereafter, Mallya had to sell some of his assets, including controlling stake in USL to Diageo.
In September last year, the USL board ordered a probe into the loans given to UB Group companies after it posted a whopping net loss of Rs 4,488.77 crore for the financial year ended March 31, 2014.
Mallya, who is already battling a number of cases including against banks over 'wilful defaulter' tag related to loan defaults by Kingfisher, said the inferences and allegations are unjustified and false.
He said the USL Board has "parroted" the report submitted by PwC, whose finding itself was based on "half truths and twisted facts against the previous management".
PwC, which was asked by Diageo to conduct a forensic inquiry into the matter, said in a statement it has done its work with "the highest professional standards".
USL board said: "The inquiry prima facie revealed that between 2010 and July 2013, certain transactions entered into on behalf of the company appear to have been undertaken to show a lower exposure of the company (and its subsidiaries) to United Breweries Holdings (UBHL) than that which actually existed at the relevant time, that is prior to July 2013."
Reacting to the charges, Mallya said that prior to acquiring control of USL Diageo conducted an extensive due diligence exercise at USL over four months in the course of which details of all transactions were disclosed to them.
Striking a defiant note, Mallya said he 'intends' to continue as USL Chairman and asserted that only "shareholders can 'oust' a Director".
Mallya, once known as King of Good Times, said he has a "valid contractual agreement" with Diageo on his position as Director and Chairman of USL and he would discuss the matter "bilaterally" with the UK-based company.
He also took to social media platform Twitter with a series of tweets explaining his position.
Diageo now holds a controlling stake of about 55% stake in USL, which it has acquired for about $3 billion, while Mallya continues to own a small stake of 0.01% in his personal capacity. Some of his UB Group firms also continue to hold stakes totalling about 3%.
Following the latest development Diageo make seek to declassify Mallya and UB Group as promoter entities.
The UK-based liquor giant Diageo had first acquired 25% in USL from Mallya-led UB Group in late 2012, while it bought further 26% stake from non-promoters last year.