Karnataka HC annuls United Spirits’ stake sale to Diageo

The Karnataka high court has annulled the sale of stake in United Spirits Ltd (USL) by its holding company United Breweries (Holdings) Ltd (UBHL) to UK's Diageo Plc, ruling that USL's stock cannot be transferred without the consent of its creditors.

A division bench of the high court comprising Justice N Kumar and Justice Rathnakala held that the share sale of United Spirits Ltd (USL) to Diageo by United Breweries Holding Ltd (UBHL) is null and void.

The court ruling comes on a winding-up petition filed by the creditors of UBHL against the USL-Diageo deal.

The bench held that the deal was not ''bona fide'' and that Diageo will have to return the shares purchased from UB Holdings as the company is embroiled in a clutch of winding-up petitions.

Besides the Rs600-crore that creditors are seeking in unpaid dues from UBHL, creditors to Kingfisher Airlines who are part of the appeal against the deal, are invoking UB Holdings' corporate guarantees for loans of over Rs6,000 crore to Mallya's Kingfisher Airlines.

UB Holdings is the corporate guarantor for the liabilities of Kingfisher Airlines and creditors, including BNP Paribas had dragged UBHL to court and had filed a winding-up petition.

''We were not privy to the negotiations and that we should have been consulted at the time of the deal as a large sum of our funds is involved,'' a lawyer representing one of the creditors to UB Holdings said.

The court also said that the application under Section 536 and 537 to protect the deal would also be not permitted since the winding up process is on.

Diageo had picked up a 53.4-per cent stake in Vijay Mallya-promoted United Spirits for about Rs11,150 crore last year.

Diageo completed the takeover in July, nearly eight months after the companies announced the transaction.

Diageo had then warned that if the courts passed winding-up orders against UBHL, the sale of shares by the holding company in United Spirits may be deemed void.

''It is possible that if a winding-up order were to be passed in respect of UBHL, Diageo could lose title to the 10.14 million USL shares acquired today from UBHL,'' it had said.

UBHL and other promoter companies sold a 14.98 per cent stake in United Spirits for £344.19 million to Diageo in July.

Diageo will still be the largest shareholder in United Spirits with a 25.02 per cent stake, much lower than the 53.4 per cent it sought, while UBHL and other promoter firms will own 11.08 per cent.

It is now up to the companies to find ways of saving the deal.

The court ruling against the USL-Diageo deal comes as a fresh blow for Vijay Mallya who is embroiled in the winding up petition filed by creditors to the grounded Kingfisher Airlines.

UBHL lawyers are reported to have stated that they would approach the Supreme Court against this order.

United Breweries closed at Rs769.20, down Rs15, or 1.91 per cent.