Bangalore/Mumbai: Diageo Plc. has started exercising its powers as the largest shareholder in United Spirits Ltd (USL) by moving as many as 100 UB Group executives off the payrolls of India’s largest distiller—a clear indication that UB Group chairman Vijay Mallya no longer calls the shots at the company.

Diageo took 50 people, who held positions at the UB Group, off the payrolls of United Spirits last week. The executives were transferred to United Breweries Holdings Ltd (UBHL), the UB Group’s holding company.

The shift of some top executives to UBHL was first reported by TheTimes of India.

The people who were transferred included UB Group chief financial officer Ravi Nedungadi, UBHL managing director Harish Bhat, Kingfisher Airlines Ltd’s company secretary Bharath Raghavan, UB Group spokesperson Prakash Mirpuri, Kingfisher Airlines chief financial officer A. Raghunathan and R.N. Pillai, a senior executive in the UB Group’s finance division.

Some of these executives are among the highest earners at any UB Group company. According to the 2012 annual report of United Spirits, Bhat earned an annual salary of 1.31 crore, Nedungadi pulled in 3.24 crore and Raghunathan, 1.18 crore.

“There has been some realignment and inter-company transfers in the normal course of business," UB Group’s Mirpuri said in an emailed response.

A Diageo spokesperson declined to comment and suggested talking to United Spirits instead. Diageo, the world’s largest liquor company, completed its purchase of a 25.02% stake in United Spirits after the companies announced the deal in November. UBHL and other promoter firms now own 11.08% in United Spirits.

The UK-based distiller plans to finalize the transfer of another 50 executives this week, two UB Group executives familiar with the matter said, requesting anonymity.

“There may have been corporate governance issues to have so many group executives (on the payroll of an associate company) but it’s very hard to prove wrongdoing," said Shriram Subramanian, managing director at InGovern Research Services, a proxy advisory firm. “They can argue that the group executives were spending most of their time working on United Spirits. It would be very hard to quantify anything."

The potential transfer of 100 people to UBHL raises concerns on how a holding company, mired in losses and fighting several court cases, would be able to bear the additional expenses of crores in salaries.

UBHL reported a net loss of 292.3 crore on total income of 759.2 crore for the year ended March 2013.

“It may not be surprising if some of the people transferred lose their jobs. The holding company doesn’t have a significant revenue stream," said Prabal Basu Roy, chief executive at Diptish Investments and Fund Advisors Inc.

Experts also pointed out that it was highly irregular of United Spirits to pay salaries of senior Kingfisher Airlines executives. The debt-laden airline has not paid employees since August 2012. Kingfisher has not flown since October 2012.

“It was a highly irregular practice anyway. I don’t see how Kingfisher executives can be on United Spirits’ payrolls even if you can make a case for Group executives. It implies that Diageo did their due diligence after coming in and decided that 100 people were not adding value to United Spirits," said Roy, an ex-CFO at Polaris Software.

Losing control

Diageo is also putting its stamp on United Spirits in other ways. Last week the company asked executives at United Spirits’ wine division to move out of the 15th floor of the UB City building, the headquarters of the UB Group. The executives were asked to move to another office in Whitefield, a suburb in Bangalore, the two people cited above said.

United Spirits, the crown jewel of the UB Group, is the latest company of which Mallya has lost control.

Zuari Fertilisers and Chemicals Ltd and Deepak Fertilisers and Petrochemicals Corp. Ltd are in contention to be the largest shareholders in UB Group promoted Mangalore Chemicals and Fertilisers Ltd (MCFL) after a sale of pledged MCFL shares by Kingfisher’s lenders significantly reduced Mallya’s stake.

At Kingfisher, Mallya is at the mercy of lenders who have turned hostile and have filed petitions to wind up UBHL and moved the Debt Recovery Tribunal against Kingfisher.

Even at United Breweries Ltd, the maker of Kingfisher beer, Mallya owns only as much as Dutch rival Heineken, which controls the company’s finance department.

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