Vijay Mallya-led UB Group has refuted allegations of fund diversion of Rs 4,000 crore allegedly carried out through its subsidiary in the British Virgin Islands and a bank guarantee for $135 million said to have been arranged for Mallya’s Formula One racing team by Diageo Holdings Netherlands BV through Watson Ltd, an affiliate of Diageo Plc.
The information has surfaced in the full judgment of the Karnataka High Court delivered on December 20 last year which administered a stay on UB Group holding company UB Holdings Ltd (UBHL)’s plans to sell 1.36 crore shares in liquor subsidiary United Spirits Ltd (USL) to UK-based UK-based Diageo.
Following the court’s negative observations on the transactions, UB Group Vijay Mallya’s plans to raise cash for the group, whose debt-strapped aviation venture Kingfisher Airlines is facing turbulent times, has hit a new stumbling block.
UB Group’s spokesperson told Deccan Herald on Wednesday that the company is appealing the judgment by filing special leave petitions in the Supreme Court shortly. “It would be premature to comment at this point,” he said.
However, terming the allegations made by BNP Paribas in the Karnataka High Court as “entirely baseless and untenable”, the spokesperson said in a subsequent statement that UBHL has not been a party to the transactions. “It (Rs 4,000 crore) was a legitimate remittance made through normal banking channels by USL to its subsidiary to repay a loan taken from Citibank for the acquisition of (Scottish distillery) Whyte & Mackay,” he said.
“As for the transaction relating to Watson, once again, UBHL admittedly is not a party to the transaction. However, a loan has been legitimately advanced by Standared Chartered Bank to Watson on the strength of its creditworthiness. In respect of this loan a backstop guarantee, should the need ever arise, has been issued by Diageo in favour of Stanchart — all legitimate transactions carried out after appropriate disclosure,” the spokesperson said.
In its 173-page judgment, the Karnataka High Court noted that there was a lack of transparency in the transactions of UBHL, which had not placed important documents relating to these transactions before it for consideration.
Rejecting the contention of UBHL that the Rs 4,000 crore was remitted for the purchase of Scottish distillery Whyte & Mackay, the judgment said that this was an attempt to divert liability for the action to Citibank “without any proper explanation or supporting documentation with regard to such a valuable asset being parked in a tax haven jurisdiction”.
The court observed that UB Group should not be permitted to go ahead with USL stake sale to Diageo without the transaction being fully investigated in a situation when the creditors had no faith in the company.