Diageo ‘can’t play the victim’ in Mallya misconduct

The co-founder of a shareholder advisory firm has accused Diageo of putting “a lid over grave concerns” regarding United Spirits’ former chairman Vijay Mallya as it pursues US$182 million of “diverted” transactions. 

Shareholder activists have “highlighted inconsistencies” in United Spirits’ dealings with Mallya

Anil Singhvi, co-founder of shareholder activist firm Institutional Investor Advisory Services (IIAS), told Times of India: “Diageo cannot play the victim card. They put a lid over grave concerns only to gain a foothold into the world’s biggest whiskey market. We have been saying for two years that Diageo looks compromised.”

Singhvi called for the suspension of the United Spirits (USL) board of directors and advised minority shareholders to file cases with the company law tribunal.

He added: “We knew Mallya had failed small investors. But what were the independent directors on the board of USL doing? What about Diageo? This is a classic case of everyone failing public shareholders. I would recommend that the government and Sebi appoint directors to the USL board.”

According to the report published by Times of India, shareholder activists have “highlighted inconsistencies” in USL dealings with Mallya, said to be “often at the cost of minority shareholders”.

In a statement filed to the Bombay Stock Exchange last weekend, USL said an inquiry into the firm’s accounts revealed transactions amounting to 12bn rupees were “diverted” from the business to “overseas and Indian entities that appear to be affiliated or associated with USL’s former non-executive chairman, Vijay Mallya”.

The company has said it is committed to recovering the funds, and is prepared to “pursue all legal and regulatory options”.

Shriram Subramanian, MD and founder of governance research and advisory firm InGovern Research Services, told Times of India: “Diageo turned a blind eye to a lot of misgivings and concerns about Mallya’s conduct, though we are not sure if it has overstepped any laws.

“It took a practical approach to business and now wants to come clean before Indian government and regulatory authorities. Diageo and the USL board know there’s little or no chance of recovering the funds diverted.”

He referred to a Karnataka high court order in 2014, which questioned Diageo extending loan guarantees to offshore company Watson, during a period where Mallya was already facing allegations of fund diversions to tax havens.

Mallya resigned as chairman and non-executive director or USL in February this year following allegations of financial impropriety. Diageo said the move ended the “uncertainty relating to the governance of USL” and agreed a US£75m exit deal with the Indian tycoon.

Mallya was temporarily banned from accessing all of the funds, of which $40 million was paid in February, as 17 banks attempted to recover substantial loans.

However, USL added that its severance agreement with Mallya does not impact the outcome of the additional inquiry.

Diageo initially launched an investigation into USL’s books in September 2014, five months after acquiring a 55% controlling stake in the business for £1.13bn.