Vijay Mallya's 'sweetheart deal' with Diageo, United Spirits faces SEBI scrutiny

New Delhi: Vijay Mallya's Rs 515-crore 'golden parachute' to exit United Spirits faces an extensive scrutiny by markets regulator SEBI, which has begun looking into possible violations of corporate governance and other norms because of this deal.

SEBI is looking into the role of United Spirits and its main promoter UK-based Diageo Plc, as also that of Mallya and his group firms that are or have been shareholders in India's leading liquor maker, a senior official said.

SEBI is scrutinising intricacies of the deal and may soon seek further details from USL, Diageo, Mallya and others. Besides, the regulator is also looking into the trading data for USL shares to check whether there have been any violation of insider trading norms or other irregularities.

He further said that the Corporate Affairs Ministry and other agencies may also join in as the deal, struck yesterday between Mallya and Diageo, has raised "serious doubts" about whether the corporate governance norms have been followed in "letter and spirit" in this matter.

A new scrutiny has been launched even as an earlier probe is continuing against Mallya and his UB Group, as also others, with regard to alleged financial irregularities at United Spirits Ltd (USL) relating to loans advanced to UB firms including for long-defunct Kingfisher Airlines.

Besides, various UB Group firms are already facing probes by SEBI relating to listing rule violations, while Corporate Affairs Ministry is also looking into alleged violations of certain provisions of the Companies Act. The role of previous auditors is also under the scanner.

The Corporate Affairs Ministry may also look at the fresh developments that have taken place because of Mallya deciding to quit as Chairman and Non-Executive Director at USL after Diageo agreeing to pay USD 75 million (over Rs 515 crore) and to absolve him of all liabilities with regard to alleged financial regularities in the past.

Also under the scanner are financial transactions entered into by USL, Mallya and various UB Group firms with entities abroad, including those before Diageo buying into the company. Some of these deals relate to various sporting ventures floated by Mallya including for cricket and Formula One race. Recently, also he ventured into Caribbean Premier League.

Mallya, who has been known for his flamboyance and used to be referred to as 'King of Good Times' before his empire ran into troubles beginning with collapse of Kingfisher Airlines, managed a good deal yesterday to end a year-long boardroom battle at USL, wherein he had sold controlling stake to Diageo in a multi-billion dollar deal.

Such an exit arrangement is commonly known in the business parlance as 'golden parachute' or 'sweetheart deal'.

Mallya, who along with his group firms is fighting 'wilful defaulter' tags given by various lenders in relation to loans taken by long-defunct Kingfisher Airlines, said he would now "spend more time in England" closer to his children.

For son Sidhharth also, Mallya has managed a good deal,

with Diageo agreeing to retain him as Director of the USL Group firm that runs the RCB cricket team of IPL cricket tournament for at least two years.

Mallya himself has agreed to resign from boards of all USL group firms, including as Chairman and non-executive director of United Spirits Ltd (USL). He would become 'founder emeritus' of USL and Chief Mentor of RCB.

Diageo said Mallya will have no "personal liability" to the UK-based company in relation to the findings of the alleged financial irregularities at the company that had triggered an acrimonious fight between them.

Last year, Diageo had asked Mallya to step down as Chairman and Director of USL alleging fund diversion to Kingfisher and other UB group entities, a demand he had outrightly rejected.

USL had said in a report by PWC "various improprieties and legal violations" were found in a probe into loans worth Rs 1,337 crore given to UB Group firms.

Diageo is the majority shareholder of USL with a 54.78 percent holding, excluding the 2.38 percent owned by the USL Benefit Trust.

Mallya personally held a small stake of 0.01 percent in USL at the end of December 2015, while his group firms owned further 3.99 percent stake. However, more than half of these shares are pledged with banks.

Diageo said an earlier agreement put obligations on the company to support Mallya continuing as Chairman and non-executive director of USL in the absence of certain default events.

Diageo has also agreed to "release Mallya from his personal obligation to indemnify" certain entities against their liabilities.

The company further said that the new pact ends Diageo's prior agreement with Mallya regarding his position at USL and "therefore brings to an end the uncertainty relating to the governance of USL".

Regarding USD 75 million payment to Mallya, Diageo said it will be charged to exceptional items in the year ending June 30, 2016.

Later in the night, a USL spokesperson in a statement said, "We have not received a request from SEBI to date. Clearly if we do, we will of course provide any information required."

Sources said SEBI is also looking into the arrangement between Mallya and Diageo that the businessman personally has been absolved of any personal liability, but the UK-based liquor major will take all steps to recover its dues from UB Holdings Ltd as this will result in UBHL shareholders paying for the liabilities of its main promoter.