United Spirits says it has found fund diversions by Mallya entities

Firm makes disclosures of improper transactions worth Rs 1,225.3 crore with entities linked to beleaguered businessman

United Spirits Limited (USL), owned by British beverage giant Diageo, on Saturday said it found evidence of funds diversion worth Rs 1,225 crore from the company when it was managed by Vijay Mallya.

In a statement to the stock exchanges, United Spirits said a follow-up investigation by E&Y found that Mallya diverted funds to Kingfisher Airlines, Force India Ltd and Watson Ltd. The E&Y report will now be shared with Indian law enforcement authorities and regulators for further action.

An earlier investigation by PricewaterhouseCoopers (PwC) UK was placed before the USL board in April 2015 which had asked Mallya to step down.

Mallya, however, refused to do so and had trashed the investigation by PwC saying Price Waterhouse (PW) India cannot sign the accounts and later conduct an “independent” investigation. Mallya also questioned the due diligence conducted by Diageo before taking over the company.

Diageo later signed a peace deal with Mallya and paid him an additional $75 million. Diageo had taken over the company in November 2012.

USL officials along with Mallya are currently under investigation of the Enforcement Directorate (ED) for funds diversion from India to tax havens abroad.

USL shared the outcome of the board meeting held on Saturday in relation to the additional inquiry into certain matters referred to in the company’s financial statements for the years ended March 31, 2015, and 2016.

“The findings relate to historical matters before Diageo consolidated the USL business in July 2014. Based on our understanding as of today, we believe there will be no further material financial implications to USL,” USL said.

The USL board has directed the management to pursue recovery from the relevant companies and individuals and undertake any action including legal and regulatory as deemed necessary.

“It should be noted that the February 2016 agreement did not release the former chairman (Mallya) from any claims arising out of the Additional Inquiry,” it said. Diageo had signed an agreement with Mallya in February this year that it will not pursue any cases against Mallya. It had also agreed to pay an additional sum of $75 million to Mallya which is now under investigation by market regulator Sebi.

“USL will share the report with the appropriate authorities and will cooperate with them fully in any action they may take,” USL said.

There were no immediate comments from Mallya.

USL said the overseas beneficiary or recipients of the diverted funds include entities such as Force India Formula One, Watson Ltd, Continental Administrative Services, Modall Securities Ltd, Ultra Dynamics Ltd and Lombard Wall Corporate Service Inc. “in each of which Dr Mallya appears to have a material, direct and indirect interests”.

Mallya is currently living in London and has evaded summons from the ED, which is investigating fund diversion by Kingfisher Airlines. Several banks have declared him “wilful defaulter” for failing to pay back loans amounting to thousands of crores.

Mallya is wanted in India and is facing charges of money laundering. A consortium of 17 banks lead by the SBI has been trying unsuccessfully to recover dues of over Rs 9,000 crore (Rs 90 billion) from the now defunct Kingfisher Airlines, which was promoted by him.

Last month, the Enforcement Directorate had attached assets worth Rs 1,411 crore (Rs 14.11 billion) belonging to Mallya and one of his companies in connection with its money laundering probe in the alleged IDBI Bank loan default case.

Mallya’s passport has been revoked by the Indian government. He has been showing no signs of returning to India soon in the wake of various legal and regulatory troubles.

Photograph: Reuters