BackUnited Spirits refuses to share internal probe details with public
An internal inquiry report alleged chairman Vijay Mallya and some senior executives may have been involved in financial irregularities
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Bengaluru/Mumbai: United Spirits Ltd said it would not publicly share details of the internal inquiry report that alleged chairman Vijay Mallya and some senior executives may have been involved in financial irregularities at India’s largest liquor company.
The company’s response came after the National Stock Exchange asked it to disclose the report to its shareholders and to the public. United Spirits said the report had “sensitive commercial and operational information concerning the company and transactions and dealings involving various parties, and is confidential".
“A public disclosure of the internal report would provide the company’s competitors and other third parties with vested interests an access to such sensitive commercial and operational information of the company, and thereby provide an opportunity for such parties to use such information in a manner that is prejudicial to the interests of the company and its shareholders," United Spirits added.
The United Spirits board on 25 April asked Mallya to resign after an internal probe suggested he may have been involved in financial irregularities. The probe was led by chief executive officer Anand Kripalu, who was appointed last year by Diageo Plc, which owns close to 55% of United Spirits. Mallya hit back saying the probe, which was conducted with the help of audit firm PwC, was “severely flawed" and declined to resign.
The board then threatened to go to the shareholders to seek Mallya’s removal. Days later, Diageo said it would review its shareholder agreement with Mallya.
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. Among other issues, the internal inquiry looked at loans extended by United Spirits to UB Group entities that were used to prop up Kingfisher Airlines Ltd from 2010-2013.
United Spirits said the inquiry revealed the company may have understated the amount it was owed by United Breweries (Holdings) Ltd (UBHL), the parent company of the UB Group. United Spirits and UBHL entered into an agreement in July 2013 when the companies agreed to convert all loans by United Spirits into a consolidated loan of ₹ 1,337 crore. United Spirits got this agreement cleared by shareholders in January, but the company is now suggesting the amount may be higher.
United Spirits said on 25 April that it would report the transactions covered by the probe to the authorities as required under applicable law, without specifying names of the regulators.
Diageo, which is listed in the UK and the US, has run into regulatory trouble before. In 2011, the company paid more than $16 million to the US stock markets regulator to settle charges that its employees paid bribes in India and two other Asian countries. That penalty was related to bribery payments, not financial irregularities.
According to the United Spirits probe, the transactions involving alleged irregularities took place between 2010 and July 2013, the month Diageo finished buying a controlling 25.02% stake in United Spirits (it later increased this to 54.78%).
United Spirits said on Wednesday, “A public disclosure of the internal report would potentially prejudice, and interfere with, the investigations by the relevant authorities and could also potentially lead to misuse of the evidence contained in the internal report.
“In the event of a public disclosure of the internal report, the company and its directors would stand exposed to the risk of allegations of having caused reputational damage to the persons against whom adverse findings have been reported in the internal report, and therefore risk potential claims or criminal charges of defamation being made by such persons, all of which would also be adverse to the interests of the company and its shareholders," the company added.
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