Mumbai: The Securities and Exchange Board of India (Sebi) on Wednesday barred former United Spirits Ltd (USL) chairman Vijay Mallya and six former executives of the company from accessing the securities market for alleged violations of the listing agreement, diversion of funds and fraud.
Mallya and the others have also been barred from holding directorships in any listed company. The six other former USL officials are Ashok Capoor, a former managing director; Sowminarayanan, a former assistant vice president; P.A. Murali, a former chief financial officer; S.N. Prasad, a former senior vice-president finance and accounts; Paramjit Singh Gill, a former president of India operations; and Ainapur S.R., a former divisional vice president.
“I’m surprised by these media reports. Neither have I had any communication with Sebi nor have I ever been afforded a hearing before this purported action has been taken,” said Mallya in response to the developments on Wednesday. “I have always strongly denied all allegations made by USL (United Spirits Ltd,” he added.
In a thirty-page order, Sebi whole-time member S. Raman said that funds from USL were diverted to some group companies of United Breweries Ltd, including the now defunct Kingfisher Airlines Ltd.
“Investors (of USL) might have based their investment decisions on the manipulated books of accounts prepared and presented by these persons,” said Sebi.
The capital market watchdog’s order comes at a time when the Central Bureau of Investigation (CBI) has charged Mallya with fraud and criminal conspiracy in connection with the grounded airline’s unpaid loans of over Rs950 crore that it owed to IDBI Bank.
Sebi considered two forensic audits conducted by PwC and EY for transactions between 2010-2014.
While the audit by PwC observed that Rs 655 crore was diverted and misappropriated, EY found that Rs 1,225 crore was mis-utilised.
The diverted amounts were included as provisions in the financial statements, according to the Sebi order.
“Certain transactions were conducted in a manner that violated provisions of Companies Act, 1956, and listing agreement,” said Sebi.
The regulator observed that Mallya exerted pressure on USL employees to arrange funds for Kingfisher Airlines.
When officials of USL protested that it would impact the companies’ books, Mallya wrote to them saying that refusal to sanction these funds would have consequences.
“I know the USL position exactly. It is my final call. If you cannot accept my instructions, you are free to decide your further steps.... but let me repeat, my call is final and an instruction,” the Sebi order quoted Mallya as as saying in an email to employees.
Mallya stepped down from USL in February 2016 after striking a sweetheart deal with Diageo Plc, which now controls the Indian liquor maker. Diageo had agreed to drop all charges of irregularities under his watch, and pay him $75 million over five years in return for getting him to leave.
Diageo had completed purchase of a majority stake (54.7%) in United Spirits in July 2014.
In April 2015, the board of United Spirits had asked Mallya to resign after an internal probe allegedly found financial irregularities at India’s largest liquor company.
“The individuals holding key managerial positions in such listed companies have to follow high standards of integrity and ensure good governance” said Sebi.
The regulator is of the view that by diverting substantial funds from USL to companies of the UB Group, Mallya and other management personnel have engaged in an act of fraud or deceit on the public shareholder/investors of USL.
“When the fund diversions were happening, what were the auditors and audit committees doing? Not just the auditors but also the board has failed the investors as most of these related-party transactions were happening in the knowledge of the independent directors,” said J.N. Gupta, a former executive director of Sebi and co-founder of Stakeholder Empowerment Services (SES).
Additionally, Sebi is examining the role of auditors in the fund diversion and also probing the sweetheart deal with Diageo in 2016.
Sebi is examining whether USL needs to make a fresh open offer to investors considering the additional money that Mallya received in lieu of stepping down from USL.