Mallya: USL submits evidence of £151m ‘improper fund diversions’

Diageo-controlled United Spirits (USL), India’s biggest spirits group, has sent to the financial authorities findings of an internal inquiry showing prima facie evidence of improper fund diversions of approximately £151m to companies controlled by Vijay Mallya when he was chairman and controlling shareholder of USL.

The embattled Mallya, from whom Indian banks are seeking to recoup £1bn in loans to his Kingfisher Airlines, which collapsed into bankruptcy in 2012, is believed to be in Britain. Indian courts and financial authorities are seeking his extradition to India, where he has been declared a wilful defaulter and a proclaimed offender.

Mallya has been ordered by a court to appear in person later this month or it will seize whatever of his assets it can to repay his creditors and issue an international warrant for his arrest. He has already been convicted in his absence of cheque fraud relating to Kingfisher.

USL says that only a court or financial regulator can make a finding on guilt or culpability over the potentially unwarranted and improper fund diversions to Mallya companies such as Kingfisher, Force India (the Formula 1 Grand Prix team), and Watson Ltd.

However, it has passed the findings of its forensic investigation to the financial authorities and the USL board says it will seek recovery of the £151m from the companies and individuals concerned and “undertake any action including legal and regulatory as deemed necessary.”

Mallya resigned from the chair of USL in February as part of a £53m deal with Diageo to remove him from the business. That deal is itself the subject of a regulatory inquiry with which Diageo is cooperating fully. However, although that agreement provided that Diageo would waive any claims against Mallya, it did not include actions that may arise out of the findings of this internal investigation.

The alleged improper transfer of funds took place between 2010 and 2014, before Diageo consolidated USL into its global accounting procedures and at times when Mallya was chairman and chief executive.

In a statement this weekend Mallya said: “I can only reiterate that all transactions were legal, above board and approved by USL Auditors, the USL Board and shareholders.”

USL said that the funds concerned had already been provided for in previous accounts “and we believe there will be no further material financial implications to USL”. In reality, the probability of restitution from Mallya or his companies is low.

Mallya is now being pursued by at least five law enforcement bodies and courts in India – the Supreme Court, the Enforcement Directorate, the service tax department, the Serious Fraud Investigation Office and the Income Tax Office.