Fresh Troubles Brewing For Mallya

Beleaguered billionaire Vijay Mallya may have escaped legal proceedings against his corporate loan defaults in India by fleeing to the UK, but he may shortly find a legal trap in UK too on a different ground. If legal experts are to be believed, Mallya’s warring partner and UK-based distiller Diageo — which owns majority stake in United Spirits (USL) — is likely to file a case against him in a UK court for diverting funds from the company’s Indian subsidiary.

Diageo’s investigations around alleged fund diversion at USL involving former promoter and chairman Mallya, which concluded last week, revealed that between 2010 and 2014, funds worth at least Rs 1,225 crore were diverted to several companies owned by or associated with Mallya, including the defunct Kingfisher Airlines.

For Diageo, the legal ground for initiating a case against Mallya in the UK is very strong. After all, fund diversion at the Indian subsidiary ultimately harms the parent company that is based in the UK.

Diageo’s argument for dragging the fund diversion case to UK can include India’s difficulties in getting Mallya back into the country for trials. Besides, it can also cite that it has seen very little progress in regulatory proceedings in India on complaints made against Mallya after initial investigations on financial irregularities in USL’s books.

Diageo’s case, if initiated in UK, could prove devastating for Mallya. The British-drinks major can either get the verdict in UK itself as the defendant is available for trials there, or it can get the case transferred to India along with the defendant. If transferred to India, it could strengthen the case for invoking the India-UK Mutual Legal Assistance Treaty (MLAT) by the UK legal system.

India’s Enforcement Directorate (ED) has already requested for Mallya’s extradition from the UK under MLAT in connection with its money-laundering probe against the liquor baron. Mallya’s troubled airline’s unpaid loan liability with various Indian banks, including the State Bank of India, currently amounts to over
Rs 9,000 crore.

In 2015, Diageo-controlled USL had initiated an internal investigation to look into some doubtful transactions in the company when Mallya was chairing the board. Following this, it had forced Mallya to step down as chairman with a $75-million settlement. Although Mallya denies any wrongdoing and claims that all transactions during his time were in order, Diageo’s likely move to drag the case to a UK court will be his worst challenge at this juncture.