The Karnataka High Court has held that the company court was wrong in permitting UB (Holdings) Ltd (UBHL) to sell the shares of United Spirits Ltd. (USL) without an investigation into serious allegation about diversion of Rs.4,000 crore to a British Virgin Island by USL for acquiring a Scottish distillery.
In its December 20 verdict of declaring as ‘void’ the permission granted by a single judge bench (acting as a company court) for selling 1.36 crore shares, a Division Bench has said that “…when such serious allegations are made, without investigation of the facts, he [company judge] could not have granted the permission.”
“If the aforesaid facts [allegations] are true, it shows that the company [UBHL] has not come to the Court with clean hands, and the transaction in question is not a bonafide one. ” the Bench, comprising Justice N. Kumar and Justice Rathnakala, said.
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The Bench pointed out that the company judge, while dealing with the allegation, had observed that USL was not a party to the proceedings and that monies invested in the acquisition of Scottish Distillery, ‘WHYTE’ and ‘MACKAY’, a wholly-owned subsidiary of USL, was through financial assistance obtained from City Bank, London, in full compliance with the foreign exchange regulations, and, hence, the judge was of the opinion that “an investigation into the aforesaid allegations at this stage of the proceedings in the company petition is neither desirable nor called for.”
It has been claimed by BNP Paribas, a French bank and one of the creditors of UBHL, that diversion of Rs.4,000 crore was contrary to the interest of the creditors as such a diversion was bound to have an indirect impact on UBHL as well as its creditors by virtue of a 27.72 per cent stake held at the material time by UBHL in USL. It had raised question on such valuable assets being parked in a ‘tax heaven’ [a British Virgin Island] “without proper explanation or supporting document.”
The Bench also took note of the other allegation made by BNP Paribas that the UBHL had ‘suppressed’ details on other financial transactions, worth around Rs.1,000 crore, which were undertaken with Diageo on November 9, 2012, the same day on which UBHL entered into an agreement to sell USL shares.
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Paribas had told the Bench that Diageo had informed the London Stock Exchange of two other transactions: First one, on payment of $35 million (about Rs.219 crore) relating to a joint venture brewery in South Africa to UB Group’s Vijay Mallya.
And the second one, a conditional back-stock guarantee for $135 million (about Rs.823 crore) being arranged by Diageo Holdings, Netherlands, for paying to Standard Chartered Bank in respect of liabilities of Watson Ltd., an overseas company through which Vijay Mallya, inter alia, controls his interests in a Formula One Racing team. It has been claimed that Watson reported to be 20.19 per cent shareholding in UBHL.