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%
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