India’s financial authorities turn up heat on former United Spirits chairman

India’s legal and financial authorities are turning the screw ever tighter on VJ Mallya, the former chairman of United Spirits.

Having been declared a “wilful defaulter” more than a year ago in suits by banks attempting to recoup almost £1bn in debts amassed by his failed Kingfisher Airlines, he has now been declared a “proclaimed offender” in the associated case of alleged money laundering and bank loan fraud.

Being declared a proclaimed offender means that the court believes the person concerned is absconding or concealing himself so that a warrant for his arrest cannot be served. That can trigger a formal request for extradition under a warrant from Interpol.

Mallya left India for the UK on March 2 only days after concluding a £53m deal with Diageo for him to stand down as chairman of Diageo-controlled United Spirits, India’s largest liquor group. A non-bailable warrant for his arrest was issued in Hyderabad on March 13. Mallya claims that he is in “forced exile” while Britain’s official line is that no legal request for extradition of Mallya has yet been received.

While Mallya consistently denies all the charges and claims that the Indian authorities have made it impossible for him to be given a fair hearing if he returned voluntarily, being declared both a wilful defaulter (i.e. having the means to meet debts but declining to do so) and a proclaimed offender has heavy implications for the companies in which he remains a director, even in absentia.

It is standard practice for the Securities and Exchange Board of India (Sebi) to ask companies to remove a wilful defaulter from the board. At the same time, the Enforcement Directorate (ED) can be permitted by a court to seize assets of an offender to repay outstanding creditors, in this case the banks who lent to Kingfisher.

Sebi is already investigating UB Group, Mallya’s umbrella company, on suspicion of violating various stock market regulations about disclosure and related party transaction. Now the ED is seeking to take control of Mallya’s 32.8% in United Breweries (India’s biggest beer company) worth some £600m. Half of these shares were pledged to banks as security for loans to prop up Kingfisher before it collapsed into bankruptcy in 2012.

That move has prompted Dutch beer giant Heineken, to which Mallya sold a 43% stake, making it the biggest shareholder in the Indian brewer, to register a claim with the courts that if Mallya’s stake is seized, it should be granted pre-emptory rights to buy the shares from the banks. That would give Heineken full management control of the company and the ability to vote Mallya off the board.

Until now Heineken has declined to comment on Mallya’s legal and financial problems but there have been unconfirmed reports that it has already demanded that he step down as chairman of United Breweries. The fact that it is seeking court approval for being given first refusal of Mallya’s shares suggests that he has long lost the Dutch giant’s support.