Audit finds irregularities in MCFL advances to Mallya firm
07 May 2016
In fresh troubles for embattled businessman Vijay Mallya, a forensic audit has found possible 'irregularities and mismanagement' in advances and investments made by Mangalore Chemicals and Fertilizers to his other group companies.
The board of Mangalore Chemicals and Fertilizers Ltd (MCFL), of which Zuari Fertilizer & Chemicals last year wrested control from Mallya, had appointed Ernst & Young LLP to conduct a forensic investigation of the Rs200-crore investment by MCFL in Bangalore Beverages Ltd, a step-down subsidiary of UBHL.
The audit was also asked to look into various advances made by MCFL to Mallya's flagship United Breweries (Holdings) Ltd (UBHL) of which a sum of Rs16.68 crore was outstanding as of 31 March 2016.
Upon completion of its investigations, Ernst & Young made a presentation to the board of directors of MCFL on Friday.
The audit concluded that these "transactions may have involved irregularities and elements of mismanagement in the company," MCFL said in a stock exchange filing. It, however, did not elaborate.
Mallya till 2014 controlled MCFL, for which he had to ward off a hostile takeover by Deepak Fertilizer by joining hands with Saroj Poddar-led Zuari Group (See: Deepak Fertilisers to make open offer for 26% stake of Mangalore Chemicals).
This collaboration led to Zuari gaining complete control of MCFL with 53-per cent shareholding even though Mallya's UB Group continues to hold 21.97 per cent in the fertilizer maker.
MCFL did not say when the investment and the advances were made.
The company said it is taking necessary legal advice in connection with the findings of Ernst & Young.
Meanwhile, in its financial results announced today, MCFL made provision of Rs200 crore for potential diminution in the value of investments in Bangalore Beverages Ltd. It has also provided for Rs16.68 crore advances receivable from UBHL in its books of account for 2015-16 financial year.
According to UBHL'a annual report, its subsidiary Bangalore Beverages is a facing a liquidity crunch.
Earlier, alleged financial irregularities had come to fore at United Spirits Ltd (USL) relating to loans advanced to UB Group firms including for long-defunct Kingfisher Airlines.
However, Mallya later inked a Rs500-crore deal with Diageo, to whom he had sold controlling stake in USL in a multi-billion dollar deal (Diageo may have to write off loan to Mallya firm).
Besides, various UB Group firms are already facing probes by the Securities and Exchange Board of India relating to listing rule violations, while the corporate affairs ministry is also looking into alleged violations of certain provisions of the Companies Act. The role of previous auditors is also under the scanner.
Mallya recently had to resign from the Rajya Sabha amid tightening of the noose by various enforcement agencies and lenders who are trying to recover over Rs9,000 crore in dues from Kingfisher and its guarantors.
