United Spirits directors tell Vijay Mallya to resign from board4 min read . Updated: 26 Apr 2015, 07:35 PM IST
Mallya says he will not resign
Mumbai/Bengaluru: The board of directors at United Spirits Ltd has asked promoter and chairman Vijay Mallya to resign from the board after an internal probe alleged the liquor baron may have been involved in financial irregularities at India’s largest liquor company. The internal probe was led by chief executive officer Anand Kripalu, who was appointed last year by Diageo Plc., the majority shareholder in United Spirits.
Mallya hit back saying he will not resign as a director of United Spirits and criticized both Diageo and PwC, which helped with the probe.
“I have been flooded with media queries of different types, inferences and speculation," said Mallya. “All I wish to say is that I intend to continue as chairman of USL in the normal manner. This includes chairing monthly operating review meetings and board meetings."
“I have a valid contractual agreement with Diageo Plc which directly addresses my position as director and chairman of USL. I will discuss this bilaterally with Diageo Plc and not in the public domain," he added.
Diageo Plc. bought a controlling stake in United Spirits from Mallya in July 2013 and subsequently increased its holding to around 55% last year.
Soon after United Spirits finally reported its thrice-delayed fourth-quarter earnings in September, the company initiated an inquiry into its accounting practices as several cases of suspected financial impropriety surfaced.
Mallya said on Saturday that the decision of the United Spirits board of directors taken at a meeting held on 25 April is based on a report of PricewaterhouseCoopers dated 24 March “entirely on the strength of which the Diageo-appointed managing director of United Spirits prepared his report parroting the PwC report".
“The PwC report essentially deals with past transactions entered into by United Spirits between 2010 to 2012, which have been duly reflected in the audited accounts of United Spirts without qualification and in full compliance of law at the relevant time, and duly approved by then directors of United Spirits and its shareholders," Mallya said.
“I reiterate that the PwC report and subsequent opinions received are severely flawed and will be challenged," he added. “I also reiterate that the accounts of USL for the prior years have been correctly stated, audited without qualification and approved by the board of directors and shareholders."
“PwC made no effort to contact then USL board members or auditors to verify the position and seek clarity. In addition, the current board of USL consists of directors appointed at the behest of Diageo and who have absolutely no knowledge of the past," he added.
Prior to acquiring control of United Spirits, Diageo conducted an extensive due diligence at United Spirits that lasted four months, in the course of which details of all transactions were disclosed to them, Mallya said.
“It is, therefore, surprising that such prior period matters have become the basis for actions today," he said.
Mallya alleged that the PwC report is based on half truths and twisted facts against the previous management and a robust challenge to the report will be submitted.
“The inferences and allegations are unjustified and false and we were deprived of the opportunity to place correct and complete facts before the new board of United Spirits," Mallya said.
“I do not intend to resign as a director of USL and shall pursue the contractual obligations with Diageo," he added.
United Spirits said the inquiry revealed that the company may have understated the amount it was owed by Mallya’s UB Group. At the time of these transactions, United Spirits was controlled by Mallya and the UB Group.
Among other issues, the internal inquiry looked at inter-company loans between United Spirits and UB Group entities that were used to prop up the now defunct Kingfisher Airlines. The inquiry also covered some agreements allegedly entered into by United Spirits with a Kingfisher Airlines creditor and certain claims made by United Spirits debtors, some of whom later refused to repay the company.
Following the completion of the inquiry, United Spirits said the manner in which certain transactions were concluded, “prima facie, indicates various improprieties and legal violations".
“The board is not in a position to make any final determinations with regard to the roles of any individuals involved (in the alleged transactions). The board has, therefore, directed that the company report such transactions to the authorities as required under applicable law," United Spirits said.
United Spirits also named Vinod Rao, currently the finance director at Diageo’s Asia Pacific business, as its new finance chief.
Ever since it bought a stake in United Spirits, Diageo has been cleaning up the company’s finances and tightening corporate governance practices.
On 23 April, P.A. Murali resigned as executive director and chief financial officer of United Spirits. Murali was the key man of Mallya acting as bridge between Mallya and Diageo.
A chartered accountant by profession, Murali has been in the industry for more than 32 years and with the UB Group companies for 22 years.
In September 2014, another proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) had recommended that shareholders vote against the resolutions for chairman Mallya’s reappointment at United Spirits and revision in Murali’s remuneration.
IiAS also said that Murali has been part of the UB group for over two decades and, therefore, he is answerable for the intra-group transactions for which United Spirits has taken write-offs and provided for in its 2013-14 financial statement.
As many as four United Spirits board members appointed by Diageo, all of whom are among the most respected corporate professionals in India, have quit over the past six months.