India: Diageo seeks first access to Mallya’s shares in United Breweries Holdings

British spirits maker Diageo, the majority owner of United Spirits, has sought first access to and restoration of attached shares of Vijay Mallya in United Breweries Holdings and Watson to recover dues from its former joint venture partner, two people with direct knowledge of the plan said. The company has written to the Enforcement Directorate with this request, they added.

ED officials confirmed the receipt of the letter but said the court will take a call on the request, The Economic Times reported on March 8. “We have given the go-ahead to secured lenders like banks… the court will decide the intervention plea by others and we will look into the matter after that,” an ED official said. “PSU banks have been given priority as the money sought to be recovered was public money.”

Diageo’s request comes less than a week before the Prevention of Money Laundering Act (PMLA) court meets on March 13.

ED had okayed the restoration of Mallya’s pledged assets and shares to a SBI-led consortium of banks after the lenders appealed to the court citing approximately Rs 6,200 crore of dues from him.

These shares were attached by the ED in 2016 along with shares owned by Mallya in United Breweries which is now majority owned by Dutch beer maker Heineken.

Following the amendment of Prevention of Money Laundering Act (PMLA), section 8 (8) allows restoration of properties even during the trial in certain cases.

Mallya has been declared a fugitive economic offender and is currently fighting extradition to India.

In 2014, Diageo purchased a 54.8% shareholding in USL from Mallya, making India one of its biggest markets. USL, which sells Diageo’s brands such as Black Dog and Smirnoff in India, had given loans to various UB Group companies and all these had been consolidated under UB Holdings.

The loan agreement had an arbitration clause and payment of interest in case of a default by the UB Group. The British spirits major filed an intervention petition in a special court in Mumbai that is currently hearing the plea of ED. The agency has sought immediate confiscation of Rs 12,500 crore assets of Mallya including the shares of United Breweries and Watson’s stake in racing team Force India Formula One under the recently promulgated Fugitive Economic Offenders Ordinance (FEOO), 2018.

In an arbitration case in Bengaluru fought between Diageo-owned USL and United Breweries Holdings, the former claimed a recovery of around Rs 1,800 crore including interest from Mallya’s holding company for defaults between 2010 and 2013. USL had loaned around Rs 1,350 crore to Mallya’s companies primarily to fund the now defunct Kingfisher Airlines.

In July 2014, Diageo had taken complete control of USL from promoter Mallya.

Diageo claimed that an “additional inquiry, following one in 2014, discovered diversion of funds” to Indian and non-Indian entities in which Mallya had an interest, including his grounded Kingfisher Airlines and Force India Formula One. In another lawsuit with the high court in London, Diageo is also seeking payment of $141million, which the group claims is owed by Watson. A top official close to Diageo said that the company was keen to quickly realise the value of the attached assets.

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