Home / Companies / People /  Mallya case: Sebi probing allegations of round-tripping of USL shares

The Securities And Exchange Board of India (Sebi) is probing allegations of round-tripping in six accounts that belong to business tycoon Vijay Mallya, according to two people aware of the developments.

The investigation is one of many probes underway looking into the dealings of Mallya, former chairman of the UB Group. Mallya himself is in an undisclosed foreign location and has sought more time to appear before the enforcement directorate (ED), which had sought a personal appearance on Friday.

Mallya, who was ranked the 45th-richest Indian with a net worth of $1 billion by Forbes in March 2012, left for London on 2 March, days before a group of 17 banks to whom Mallya owes around 9,000 crore approached the Supreme Court to bar him from leaving the country.

While ED is investigating allegations of money laundering against Mallya, Sebi is investigating possible round-tripping of shares of United Spirits Ltd (USL), the company that is now controlled by Diageo Plc.

Round-tripping, in the context of the financial markets, is when money leaves the country through channels such as inflated invoices and payments to shell companies overseas but returns to the country through an investment in listed securities. This artificially boosts the stock price of the listed entity.

Sebi was first tipped off about possible round-tripping in USL shares eight years ago, when the UK’s financial regulator, Financial Conduct Authority (FCA) shared intelligence with the Indian capital markets regulator. FCA was formerly known as the Financial Services Authority (FSA).

“FSA has shared information regarding six foreign institutional investor (FII) accounts that belong to Vijay Mallya registered with UBS, which is currently being investigated by Sebi," said the first person cited above.

FCA shared information related to transactions in six accounts that are currently being examined by Sebi, namely Highland Trading, FG personal account, Birchwood Hills PLC, Suncoast Valley PLC, Bayside Inn and Venture New Holding. The accounts are held by FII custodian UBS.

Through these accounts, Mallya has allegedly made a profit of $5.5 million from the purchase of over 600,000 shares and sale of over 400,000 shares of USL in May 2007.

In an email response to a query, FCA stated that they will not be able to comment on the issue. A UBS spokesperson said that they are not aware of the matter.

Emails to Sebi, UB Group and USL on Wednesday did not elicit a response.

“The probe is in initial stages of investigation, yet to arrive at a conclusion," said the second person cited above.

This information has also been shared with the ED but since the case relates to alleged round-tripping, Sebi is taking the lead in this investigation, said the first person cited above.

On 12 August 2013, The Economic Times reported that Sebi is conducting a wide-ranging investigation into the use of funds parked in undisclosed overseas bank accounts allegedly owned by several prominent promoters and CEOs, based on a tip-off from overseas regulators.

However, in an affidavit in the Bombay high court dated 30 January 2014, Sebi denied having received any such information. The affidavit was in reply to a public interest litigation (PIL) filed by the Indian Council of Investors, an investor association.

The PIL was disposed of in February 2015, when Sebi admitted that it has started an investigation into the matter.

In response to a right to information query filed by an investor earlier this year, Sebi said that it not reached a logical conclusion on the matter and that the investigation is still underway.

Experts say that such probes take time.

“An investigation into allegations of round-tripping is generally tedious and long, as it requires cooperation from overseas jurisdiction. Before Sebi comes out with any substantial findings it will reach out to all the parties involved, including the overseas regulator. Sebi would not have anything concrete to say till all the money trails are established," said Tejesh Chitlangi, partner, IC Legal.

Meanwhile, Mallya has sought time till early April to make a personal appearance before ED, said an official familiar with the matter.

“Mallya has said that he would not be able to come tomorrow and needs time till early April," said the official.

ED had earlier issued summons to Mallya for a “personal appearance" on 18 March under the provisions of the Prevention of Money Laundering Act.

In spite of efforts, banks continued to struggle to recover their dues from the Mallya-controlled Kingfisher Airlines Ltd, which has pending dues of over 9,000 crore.

An auction for Kingfisher House, the headquarters of the defunct airline, failed to draw any bids on Thursday, two people familiar with the development confirmed.

A real estate consultant said the asking price was too high.

The property was put up for auction through an electronic process conducted by SBICAP Trustee Co. Ltd on Thursday afternoon.

The base price for this multi-storey building, with a built up area of over 17,000 sq. ft,was set at 150 crore.

“Today’s market is a distressed market. Land has become unproductive and these land prices are not saleable; 17,000 sq. ft. for 150 crore comes close to 88,000 per sq. ft on land area, which is way too high, and I fail to understand the calculation and logic behind how they come up to that value," said Pankaj Kapoor, managing director, Liases Foras, a real estate consultant.

According to property consultants, the average commercial property price in the Ville Parle area where Kingfisher House is located is around 28,000 per sq. ft.

“We’ll have to conduct another auction for the property now. However, it is not decided when we will do it," said a senior official at State Bank of India (SBI), speaking on condition of anonymity.

In February 2015, a consortium of 17 banks led by the country’s largest state-owned lender SBI, took possession of Kingfisher House in a bid to recover loans granted to the airline.

“What is the rationale behind this price? There will be no takers for this; even at half the price, there may be no takers in the current market scenario," Kapoor of Liases Foras added.

“The next step has to be rationalization of the prices. This should be a precursor for a new price setting in the market," he said.

Kingfisher House also comes with an outstanding property tax of 67 lakh.

Kingfisher Airlines, founded by Mallya and once India’s second-biggest airline, stopped flying in 2012 after it ran out of cash. In November, lenders sought expression of interest in movable assets—primarily vehicles and assets related to airline businesses—from prospective buyers.

News agency PTI reported that Royal Challengers Bangalore (RCB), an Indian Premier League franchise, has informed the Board Of Control For Cricket In India that Mallya has stepped down as director of Royal Challengers Sports Pvt. Ltd.

According to a statement issued by USL on Thursday, its president and chief marketing officer Amrit Thomas has been appointed chairman of RCB.


Jayshree P Upadhyay

Jayshree heads a team of reporters focussing on legal, regulatory, investigative stories. She has worked for over a decade, reporting on financial scams, legal stories and the intersection of corporate and regulatory issues. She is based in Mumbai and has previously worked with Business Standard, Mint, The Morning Context and Bloomberg TV India.
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