In a double-whammy for flamboyant businessman Vijay Mallya, the government has annulled his re- appointment as Managing Director of Kingfisher Airlines while he also had to quit from board of another group company MCFL.
This comes close on the heels of minority shareholders of United Spirits, once a prized entity of Mallya-led UB group, rejecting proposals regarding proposed financial dealings of the company with entities connected to him. Kingfisher, which had to be grounded in October 2012 due to severe financial crunch and mounting debt, had sought the Corporate Affairs Ministry’s approval for Mallya’s re-appointment for a period of five-year beginning October 16, 2013 “without remuneration”.
The airline said in a regulatory filing on Monday that its application has been rejected, but did not disclose any specific reason. Government sources, however, said that the decision was taken because Kingfisher failed to get necessary approvals from its lenders and shareholders for the re-appointment. The disclosure came on a day, when another UB Group firm Mangalore Chemicals and Fertilizers Ltd (MCFL) announced Mallya’s resignation as a director without giving any reason.
Trading in shares of Kingfisher and another group firm UB Engineering also got suspended with effect from Monday because of the companies’ non-compliance to listing norms. Kingfisher, which once prided itself as the most luxurious airline with Mallya being known as the ‘King of Good Times’, alone used to command a market value of over Rs 10,000 crore once, but now stands at just about Rs 100 crore.
The overall UB group market value has tanked by over half in the past one year, while excluding United Spirits.
The penal action by stock exchanges followed the companies’ inability to prepare and publish financial results in time, which the firms have attributed to lack of staff. Kingfisher has previously faced strong staff protests for non-payment of salaries, while it is also under regulatory scanner for various accounting lapses. As per the latest disclosures made to the stock exchanges, Mallya was serving as Chairman and Managing Director of Kingfisher, which has been without a full-time CEO ever since Sanjay Agarwal left the company early this year.
As per the norms, a company which is in the red or has inadequate profits, needs to approach the Corporate Affairs Ministry to get approval for appointment of key managerial personnel and directors and get no-objection certificates from shareholders and lenders. The Ministry rejected the proposal in this case as it was already turned down by shareholders and lenders, sources said, while adding this particular decision was not directly linked to Mallya being declared a wilful defaulter.
The UB group, which once commanded huge market values for all its entities in businesses ranging from liquor to fertilisers to aviation, has been facing financial troubles for past couple of years and a severe cash crunch led to Kingfisher Airlines being grounded over two years ago. There are also pending service tax default cases against Kingfisher. Default on loan payments has already seen a number of banks resorting to legal options to reclaim their funds, while some of them have also declared Mallya as a wilful defaulter.
Among various key assets, UB Group sold controlling stake in United Spirits Ltd (USL) to UK-based global liquor giant Diageo, while Mangalore Chemicals and Fertilisers (MCFL) recently saw two rival bidders slugging it out in the marketplace for getting a control of the company.
Without giving any specific reason, MCFL said in a regulatory filing on Monday that “Vijay Mallya, a Director on the Board of Directors of the company, has resigned with immediate effect.” 58-year old and Kolkata-born Mallya’s resignation at MCFL followed an intense takeover battle between West Bengal-based Zuari group and Pune-based Deepak Fertilisers for wresting control of MCFL, whichhas a urea plant at Mangalore.
The plant has been shut since October this year due to expiry of permission given by the government for production of farm nutrient from high cost feedstock naptha. Bangalore-headquartered UB Group Chairman Mallya had sided with Zuari group and launched the counter open offer to ward off the takeover bid of Deepak Fertilizers. Deepak Fertilisers has raised its stake in MCFL to about 32 per cent, as against Zuari-UB group’s combined stake of 38.4 per cent. The latest developments at Kingfisher and MCFL follows decisions by USL shareholders at a November 28 meeting to reject nine out of 12 resolutions, including some pertaining to proposed pacts with entities connected to Mallya.