More trouble for Mallya: Will a probe unravel mysterious money transfer?

FP Jan 1,2014

The Karnataka High Court order that annulled the sale of United Breweries Holdings' United Spirits stake to Diageo may be opening up a Pandora's box for Vijay Mallya.

According to a report in the Business Standard today, the order that was passed on 20 December has also sought an investigation into a murky transfer of Rs 4000 crore to tax haven British Virgin Islands before the stake deal happened

The company judge had approved the sale of UBHL's nearly 7 percent stake in United Spirits without investigating the serious allegations raised by lenders to grounded Kingfisher Airlines, the high court has said.

The lenders had submitted to the high court that the diversion of funds was not in their interest. The UB group has told the company judge that the transfer was done as part of the acquisition of Whyte & Mackay, but lenders have contested this claim saying there is no supporting documents for this, the report said.

The high court, however, has come down heavily on the company saying that it has not approached the court "with clean hands and the transaction in question is not bona fide". It has sought an investigation into the money transfer.

According to the article, UBHL had earlier promised the banks to pay back debt from the proceeds of the stake sale but instead of following through, the company went ahead and sued the banks in various courts.

Apart from the investigation into the diversion of funds, the Karnatake HC also set aside a share pledge made by UB with brokerage and finance companies last year, in the run up to the Diageo deal.

In a recent press release, the All India Bank Employees Association had said Kinfisher Airlines owes Rs 2673 crore to public sector banks and had ranked it the top defaulter.

Court says UBHL's sale of shares to Diageo is void

Antonita Madonna  |  Bangalore  

December 21, 2013 Last Updated at 00:57 IST

Mallya, Diageo to move Supreme Court

The Karnataka High Court on Friday ruled as void a part of the sale of share of United Spirits Ltd (USL), by United Breweries Holdings Ltd, to Diageo.

On Friday, the court overturned an order, passed in March by a single-judge Bench in the company court, allowing Vijay Mallya’s UB Holdings to sell a significant part of its stake in USL to Diageo . As part of the agreement between UB Group and Diageo, signed in early November 2012, United Breweries Holdings Limited (UBHL) sold 6.9 per cent of its 14.16 per cent holdings (as of May 2013) in USL for Rs 1,460 crore.

The order said the company court, which had allowed UBHL to sell its stake in USL to Diageo in March, did not have the jurisdiction to do so while the company was still facing winding-up petitions. Unsecured creditors had filed winding-up petitions after failing to get back Rs 600 crore from UBHL. It had given corporate guarantees to the creditors of Kingfisher Airlines, now grounded and unable to repay debts.

Friday’s ruling, which negates the sale of about 10 million shares the global spirits behemoth acquired from Mallya-led UB Holdings in July, has prompted a strong response from UB Group and Diageo, which now holds a 26.4-per cent controlling stake in India’s largest spirits company.  

Mallya, chairman, UB Group, said, “We will take all necessary steps to protect Diageo’s interests, as well as our own.” The company would appeal in the Supreme Court, when it reopens in January.

Diageo said: “We are also disappointed, as a bona fide purchaser for value of the USL shares, that we have been brought into the private dispute between Kingfisher Airlines and its creditors. We are disappointed to hear that the court has overruled the previous high court order granting leave to UBHL under sections 536 and 537 of the Companies Act. We confirm that we intend to appeal the matter further.”

The order marked the first time an Indian court has maintained the provision of Section 536 in the Companies Act, 1956, even before the admission of a winding-up petition.

In the case of a winding-up by or subject to the supervision of the court, it said, any disposition of the property of the company and any transfer of shares in the company or alteration in the status of its members made after the commencement of the winding-up would be void. The “commencement of the winding-up” refers to the date on which the petition was filed, and in this case, BNP Paribas had filed the petition before the deal was announced.  

Five winding-up petitions have been filed against UB Holdings by BNP Paribas, Avions de Transport Régional, International Aero Engines, Rolls Royce & Partners and RRPF Engine Leasing for dues of about Rs 600 crore from UB Holdings. Two petitions have already been admitted against UB Holdings. A consortium of banks led by State Bank of India are invoking corporate guarantees furnished by UB Holdings for loans of about Rs 6,000 crore to UB Group’s Kingfisher Airlines Ltd.

As part of the move to secure the court’s nod to go ahead with the transaction with Diageo, UB Holdings had in March placed Rs 250 crore as security with the court. The court said a decision on the disbursement of the amount, including a fixed deposit of about Rs 380 crore placed with a bank in Karnataka, would be taken after the winding-up petitions were decided.

Shares of UB Holdings closed at Rs 24.70 apiece, down 0.6 per cent on the BSE.

THE DEAL THAT SOURED

* Nov 9, 2012 - UBHL and USL announce an agreement to sell 27.4% stake in USL to Diageo Plc at Rs 1,440 a share. Diageo aims for 53.4% in USL; to buy remaining from the open market

* Mar 24, 2013 - Company court allows UBHL to sell its shares in USL. The permission was granted in lieu of a deposit of Rs 250 crore made with the court to take care of the winding-up petitions

* Apr 10 - Open offer triggered for additional 26% as Diageo aims for 53.4% of USL

* Apr 26 - Open offer closes with less than 1% being tendered in

* Jul 4 - Diageo announces completion of stake purchase from UBHL, USL with 25.02 % as two banks refuse to part with 2.38% encumbered shares

* Nov 26 - Diageo picks up additional 1.4% at Rs 2,440 a share from the market, taking total stake to 26.4%

The Mehta who surprised Mallya

 BE :Dev Chatterjee  |  Mumbai  July 6, 2013 Last Updated at 00:56 IST

Untill early this week, not many outside the Indian fertiliser sector had heard of Sailesh C Mehta, 52, chairman and managing director of Pune-based Deepak Fertilisers and Petrochemicals. 

Like the company, Mehta also kept a low profile. 

In fact, he is known among peers as "overcautious". 

So his move to take on UB Group ChairmanVijay Mallya for control of Mangalore Chemicals & Fertilizer (MCF) has taken everyone by surprise.

"We wanted to make some noise about this acquisition," says a group insider about the 24.46 per cent acquisition, worth Rs 180 crore, in MCF. "We had first made a friendly gesture to take over the company but the UB group was not interested."

The acquisition bid has taken UB Group by surprise, as it was planning to sell MCF to Saroj Poddar of Zuari Agro. Poddar already owns a 10 per cent stake in MCF. Of Mallya's 22 per cent stake, 11 per cent is pledged with banks and financial institutions. MCF became a target after UB Group began facing liquidity issues after the collapse of its Kingfisher Airlines.

This is when Mehta, who took over as chairman of Deepak from his father last October, saw an opportunity and decided to take the plunge.

 An offer was made to UB. Mehta's company has presence in Gujarat, Haryana, Madhya Pradesh, Punjab, Uttar Pradesh and Maharashtra.

 A takeover of MCF would give it access to urea and non-urea capacities of 380 billion tonnes and 26o billion tonnes, respectively, and access to the Andhra Pradesh, Karnataka, Kerala and Tamil Nadu markets.

A Deepak Fertilisers insider said: "Our offer was a win-win deal for both companies and we think this is a good fit with our business."

But by taking on Mallya, who has fought many a 

corporate battle and won many, has Mehta bitten off 

more than he can chew?

"There has to be some understanding between Mallya and Mehta on Deepak Fertilisers," said a banker who worked closely with Mehta.

 "Mehta is not the sort of person who will go for a hostile takeover bid. I am expecting a lot of negotiations in the next six months between Mallya and Mehta over MCF."

Here, the banker said, the experience of JM Financial's Nimesh Kampani would come handy, as he is close to both Mallya and Mehta.

 JM is the advisor to Deepak Fertilisers and was also advisor to UB's Diageo for its United Spirits' deal. Kampani is also on the board of Deepak Nitrate and shares a close bond with Mehta's father, the founder of the group

Deepak Fertilisers declined to comment but insiders said the company was ready to negotiate. Deepak would make an open offer soon to other shareholders, the sources said, as they were close to the threshold limit of 25 per cent shareholding, which triggers a compulsory open offer.

Mehta, who has a management degree from Texas, took over as managing director in 2002, and chairman in October 2012, after his father, C K Mehta, decided to devote more time to social work. The Mehtas own 43.32 per cent Deepak Fertilisers.

But it's not MCF alone that is occupying Mehta's time these days. He is also busy developing new businesses, including constructing a mall in Pune and exporting fruit and vegetables across the world. His brother, D C Mehta, runs Deepak Nitrate, another group company. The next six months will decide whether a hitherto cautious Mehta was right about making a grab for MCF or not.

WHO IS SAILESH MEHTA

• 1991 Joined family-owned Deepak Fertilisers, Pune
• 2002 Took over as managing director
• 2005 Elevated to vice-chairman and managing director
• 2012 Became chairman and managing director