Vijay Mallya Might Be In Deeper Trouble As Fresh Govt Probes Begin

28/05/2015 10:45 AM IST | Updated 15/07/2016 8:25 AM IST
Mark Thompson via Getty Images
AUSTIN, TX - OCTOBER 31: Force India Chairman Vijay Mallya walks along the paddock during practice ahead of the United States Formula One Grand Prix at Circuit of The Americas on October 31, 2014 in Austin, United States. (Photo by Mark Thompson/Getty Images)

NEW DELHI — United Spirits Ltd., the liquor company formerly owned by Vijay Mallya, is now under twin investigations by the government of India after it said that large sums of money were diverted to other group entities without the approval of shareholders.

The corporate affairs ministry and the income tax department will probe the company's books. This could mean more trouble for Mallya, already under fire for defaulting on loans worth Rs 7,000 crore by Kingfisher Airlines.

USL is now owned by Diageo, the British spirits giant. These probes come after a PricewaterhouseCooper (PwC) investigation revealed that as much as Rs 3,000 crore was diverted to other group entities such as Kingfisher Airlines, which is now defunct and banks are struggling to recover their loans. The diversion happened between 2010-2013. Many of such diversions were not authorised by shareholders, a key step to make sure owners or promoters don't squander company funds.

Diageo realized the scale of the problem after Mallya sold the company for $2.1 billion. In September last year, the board of USL, in which Diageo has a controlling 55 percent stake, had ordered a "detailed and expeditious inquiry" into "role of individuals involved and potential non-compliance" of the Companies Act, 1956. The resulting PwC audit revealed the diversion of funds, which the report said were legal violations and improprieties.

Diageo had then asked Mallya to resign as chairman of the company, but he refused saying he has a deal to be remain in the post for five years. He attended the board meeting on Tuesday. Mallya had claimed that the PwC report contained half-truths and accused Managing Director and CEO Anand Kripalu of 'parroting' it.

Meanwhile the company's performance has gone downhill. It had a surplus in 2013-14, but since then has swung into into the red. This quarter, the company reported a net loss of Rs 1,799.28 crore for the three months ended March 2015 on account of increasing debt and liabilities. The company has made a provision of Rs 1,700 crore for doubtful loans, it said in its latest filing with the Bombay Stock Exchange.

The investigation by the government is in addition to the ongoing probe by SEBI. If Mallya is found guilty of wrongdoing, he might be liable to pay heavy fines apart from the possibility of a jail term.

The stock is down 5.5 percent since the news broke Wednesday.

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