Sebi likely to look into United Spirits fund 'diversion'

With the Board of directors of liquor giant United Spirits (USL) asking chairman Vijay Mallya to step down, the Securities and Exchange Board of India (Sebi) and other regulatory agencies are likely to look into the alleged diversion of funds and disclosure-related violations.

USL, in which Mallya-controlled UB Group sold a majority stake to UK liquor giant Diageo, wants Mallya to quit as an internal investigation has alleged that funds were diverted from USL between 2010-13 to various Group firms, particularly the collapsed Kingfisher Airlines.

While Mallya has rejected the demand and the charges, USL said that its Board has decided to go to the shareholders if he refuses to step down.

Senior officials said that Sebi will investigate possible violation at USL and other UB Group entities which are listed companies and form part of the promoter Group.

The role of some individuals, including Mallya, will also be looked into.

"The alleged lapses also amount to violations of the Companies Act and are likely to be separately probed by the Serious Fraud Investigation Office (SFIO) under the corporate affairs ministry", a senior official said.

USL claims that a forensic audit of the company's accounts has thrown up various improprieties and legal violations in extending loans to the tune Rs 1,337 crore by the company to UB Group firms.

USL said that it is also providing its auditors a copy of the inquiry report, including the inputs and expert advice of the independent advisers and specialists, as well as the communications received from concerned directors.

USL said that it is also initiating necessary steps for recovery of the diverted funds while the role of individuals would be determined by authorities concerned to whom the company will report all transactions.

"Internal action would be taken against other employees found to be involved in the matter. ... without making any determination as to fault or culpability, directors noted that they had lost confidence in Vijay Mallya continuing in his role as a director and as chairman and therefore, the Board called upon Mallya to resign forthwith as a director and as the chairman of the Board and step down from his positions in the company's subsidiaries," USL said.

Once known as the 'king of good times', Mallya ran into deep financial trouble when Kingfisher Airlines piled up huge losses and bled the other Group companies as well.

The airline was eventually grounded in October 2012.

A desperate Mallya was forced to sell some of his assets, including a controlling stake in USL to Diageo to raise funds.

Last September, the USL Board had ordered a probe into the loans given to UB Group companies after it posted a whopping loss of Rs 4,488.77 crore for the financial year ended March 31, 2014.