Home / Companies / People /  DRT freezes Vijay Mallya’s sweetheart deal with Diageo

Bengaluru: UB Group chairman Vijay Mallya received a setback on Monday when the debt recovery tribunal (DRT) in Bengaluru blocked him from getting his hands on a $75 million payout by Diageo Plc., responding to an application by creditors led by State Bank of India (SBI).

The tribunal said Mallya cannot access the money until a case filed against him by SBI is settled. The order came in response to one of the four so-called interlocutory applications filed last week by SBI, which also demanded the arrest of Mallya, the impounding of his passport and a full disclosure of his assets and liabilities.

SBI has also moved the Karnakata high court for similar directives.

Banks owed money by Mallya’s grounded Kingfisher Airlines have the “first right" to the Diageo money, according to SBI.

The tribunal on Monday also directed London-based Diageo and its Indian unit United Spirits Ltd (USL) not to disburse any money to Mallya before the case is disposed of. It set the next hearing for 28 March.

The order comes at a time when multiple agencies including banks and government authorities are building pressure on Mallya to repay 7,600 crore in loans to secured and unsecured creditors owed by his failed carrier Kingfisher Airlines Ltd.

SBI has the biggest exposure to Kingfisher at 1,600 crore.

SBI chairperson Arundhati Bhattacharya welcomed the decision by the DRT, adding she will pursue the loan recovery process, a spokesperson for the bank said.

Meanwhile, the Enforcement Directorate has filed a case against Mallya under the Prevention of Money Laundering Act, two persons close to the development said on Monday.

The directorate will question Mallya based on the evidence in its possession and supporting details, the persons said on condition of anonymity.

The service tax department has also moved the Bombay high court requesting that proceedings earlier initiated against Mallya under the Code of Criminal Procedure be speeded up. It also sought the impounding of Mallya’s passport.

The Central Bureau of Investigation had earlier moved against some Kingfisher Airlines executives and IDBI Bank Ltd officials for breach of credit limits.

Creditors and enforcement agencies swooped on Mallya days after he and Diageo on 26 February announced a sweetheart deal under which he resigned as chairman of USL and agreed to a non-compete agreement in return for the $75 million payout spread over five years, with $40 million to be paid in the first year.

The deal also absolved Mallya of all liabilities stemming from alleged financial irregularities under his watch at USL, India’s biggest spirits maker.

Mallya, in a statement to the media on Sunday, said he had been making efforts to reach a one-time settlement with creditors. “Personally I am not a borrower or a judgement defaulter," he said, adding that banks had so far recovered an aggregate of cash and securities to the tune of 2,494 crore since 2013.

He said he had already held three meetings and had follow-up calls with the banks.

Mallya can now approach the Debt Recovery Appellate Tribunal or the Karnataka high court to challenge the DRT order, lawyers specializing in litigation said.

DRT’s orders can have penal consequences for Mallya if he goes ahead and draws the money, but it is unclear if Diageo is bound by the orders of the tribunal.

“However, the issue is very complex, as the DRT—an Indian tribunal—has no right to dictate terms to Diageo, a foreign entity," said Alok Dhir, founder and managing partner at New Delhi-based legal firm Dhir & Dhir Associates.

“We understand that the debt recovery tribunal is in the process of issuing an interim order which we will review once the full details are available," a Diageo spokesperson said on Monday.

Mallya, once dubbed by Indian media as the “King of Good Times" for his extravagant lifestyle, sold most of his stake in USL to Diageo when his Kingfisher Airlines was grounded by debt and safety concerns, with staff left unpaid.

After stepping down from United Spirits’ board, Mallya had said he would spend more time in England, closer to his children.

That raised concerns among the banks, left with a mountain of bad loans after years of profligate lending and struggling to reclaim their cash even from high-profile clients such as Mallya.

Mallya said he had become a “poster boy" for the bad loans crisis, when others owed much more than Kingfisher.

Mint’s P.R. Sanjai in Mumbai and Reuters contributed to this story.

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