Diageo’s battle with Mallya boils over

A battle has erupted between Diageo and Vijay Mallya over his position as chairman of United Spirits, after a report has alleged past financial irregularities in the company’s accounts.

United Spirits chairman Vijay Mallya (Photo: Wiki)

An emergency meeting of the United Spirits (USL) board took place on Saturday, during which company executives called for Mallya to resign. This prompted him to storm out of the building, according to reports.

The board of United Spirits, which is majority-owned by Diageo after its £1.8 billion takeover last year, cited allegations of financial violations and improprieties in their call for Mallya’s resignation – violations that were revealed by a probe into the company’s accounts by PricewaterhouseCooper.

It accuses Mallya over his handling of his now defunct Kingfisher Airlines business between 2010 and 2012, and suggests that money could have been “improperly advanced” to Mallya’s holding company or Kingfisher Airlines to keep it flying before Diageo’s takeover, according to the Wall Street Journal.

Anand Kripalu, United Spirits’ managing director, said in a letter to the Bombay Stock Exchange, “The inquiry suggests that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and legal violations”.

The letter called for Mallya to “resign forthwith” as he had lost the confidence of the board, although they were not prepared to “make any determination as to fault or culpability”, the FT reports.

Mallya has ferociously defended his position, saying he plans to continue as United Spirits’ chairman as agreed in his contract with Diageo. He said the PWC report was “full of half-truths and twisted facts.”

He announced on twitter that he would submit himself “to a trial by media”. He told his 3.5m followers, “I know the facts and so do all with fiduciary responsibilities. I have legal rights too.”

Diageo will now move to set up a vote among the company’s shareholders to force Mallya out.

UK-based Diageo, the world’s largest spirits producer, began its move into India when it acquired a 25% stake in United Spirits in 2012. It more-than doubled its holding last year, taking its control to 55%, and since then ordered a PwC investigation into the company’s accounts in order to make the business profitable.

In April, Diageo chose the opening of the annual Indian Premier League cricket tournament to further distance itself from Mallya, removing United Spirits’ sponsorship of his Royal Challengers Bangalore cricket team.

Billionaire Vijay Mallya has courted plenty of controversy over the years. In September, having failed to repay loans of about £1.7bn to a series of Indian banks, Mallya was declared a “wilful defaulter” by the courts, barring him from engaging in some areas of finance and company operation.