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Business News/ Companies / People/  Sebi notice to USL for not disclosing deal to shareholders
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Sebi notice to USL for not disclosing deal to shareholders

The market regulator is examining suspected violations of corporate governance and insider trading norms and possible price manipulation ahead of deal

A USL spokesperson confirmed the receipt of a request from Sebi, which moved two weeks after the deal between USL’s owner Diageo Plc. and Mallya, under which the businessman was absolved of responsibility for any irregularities that may have taken place at the Indian spirits maker under his watch. Photo: Aniruddha Chowdhury/MintPremium
A USL spokesperson confirmed the receipt of a request from Sebi, which moved two weeks after the deal between USL’s owner Diageo Plc. and Mallya, under which the businessman was absolved of responsibility for any irregularities that may have taken place at the Indian spirits maker under his watch. Photo: Aniruddha Chowdhury/Mint

Mumbai: The capital market regulator has sent a notice to United Spirits Ltd (USL) seeking an explanation for not informing its Indian shareholders about the $75 million deal that led to the exit of its chairman Vijay Mallya, two persons familiar with the development said.

The Securities and Exchange Board of India (Sebi) is examining suspected violations of corporate governance and insider trading norms and possible price manipulation ahead of the deal, they said.

“The notice has been issued by Sebi on non-disclosure of the deal to shareholders and share price movement of USL ahead of the deal," said one of the two persons, both of whom spoke on condition of anonymity.

A USL spokesperson confirmed the receipt of a request from Sebi, which moved two weeks after the deal between USL’s owner Diageo Plc. and Mallya, under which the businessman was absolved of responsibility for any irregularities that may have taken place at the Indian spirits maker under his watch.

“We have received a request for information from Sebi and will of course cooperate with them, as we would with any government agency," the USL spokesperson said.

A Sebi spokesperson declined to comment.

On 27 February, Mint reported that the market watchdog was examining the deal struck between Diageo and Mallya, which the former duly reported to the London Stock Exchange.

“Sebi is examining possible violations of corporate governance and insider trading norms and possible price manipulation ahead of the settlement announced on 25 February," said the second person cited above.

Shares of USL had risen for five consecutive days till 25 February before the deal between the company and Mallya was announced late in the evening that day.

In these five sessions, the stock rose 17.5%, while the benchmark BSE Sensex declined 2.8%.

On 26 February, after the announcement, shares of USL gained 2.45% to close at 2,729.85 apiece. The Sensex rose 0.8% to 23,154.30 points on 26 February.

“Non-disclosure of the deal to domestic shareholders is a gross violation of the corporate governance and listing regulations," said J.N. Gupta, co-founder and managing director of Stakeholder Empowerment Services, a proxy advisory firm.

“The deal between USL and Diageo pertained to an alleged fraud, which should have been disclosed to the shareholders. USL has been consistently violating listing regulations and corporate governance by not making adequate disclosures to all the shareholders," said Gupta.

The deal has already prompted pursuit of Mallya by creditors owed an estimated 9,000 crore by his grounded airline Kingfisher Airlines Ltd.

The lenders led by State Bank of India have moved the debt recovery tribunal in Bengaluru and the Supreme Court against Mallya.

They have asked for the Diageo payout to be withheld, claiming first right to it, but on 2 March, the businessman left India for an overseas destination. Diageo said it has already paid the $40 million first instalment of the payout, spread over five years.

The ministry of corporate affairs and the Enforcement Directorate (ED) are also probing suspected financial violations and money laundering.

There have been corporate governance issues all along with Mallya’s UB Group companies, said Mahesh Singhi, founder and managing director at Mumbai-based investment bank Singhi Advisors.

“But it has become fashionable now to single out Mallya and go after his blood," he added.

Sebi’s moves came on the day ED issued summons to Mallya, asking him to be personally present before it on 18 March.

The summons is part of ED’s probe into a money laundering case against the former liquor baron.

According to a senior ED official, Mallya has been informed about the summons and told that he has to appear before the agency. The official added that the agency has started examining all transactions between the defunct Kingfisher Airlines and IDBI Bank Ltd.

On Friday, ED questioned A. Raghunathan, chief financial officer of Kingfisher Airlines.

On Monday, the agency registered a case under the Prevention of Money Laundering Act to trace the diversion of a 950 crore loan granted to the airline by IDBI Bank.

A UB Group spokesperson declined to comment.

The summons came hours after Mallya took to microblogging site Twitter to counter allegations that he had fled the country.

In a series of tweets, Mallya said, “I’m an international businessman. I travel to and from India frequently. I did not flee from India and neither am I an absconder. Rubbish."

Mallya also dismissed media reports suggesting that he hadn’t disclosed his assets. “News reports say that I must declare my assets. Does that mean that banks did not know my assets or look at my parliamentary disclosures?," he asked in a tweet.

“As an Indian MP, I fully respect and will comply with the law of the land. Our judicial system is sound and respected," said Mallya, who is a member of the Rajya Sabha.

USL shares rose 1.61% to 2,387.50 apiece on Friday while the Sensex gained 0.38% to 24,717.99 points.

jayshree.p@livemint.com

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ABOUT THE AUTHOR
Jayshree P Upadhyay
Jayshree heads a team of reporters focussing on legal, regulatory, investigative stories. She has worked for over a decade, reporting on financial scams, legal stories and the intersection of corporate and regulatory issues. She is based in Mumbai and has previously worked with Business Standard, Mint, The Morning Context and Bloomberg TV India.
Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
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Published: 12 Mar 2016, 01:01 AM IST
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