The Securities and Exchange Board of India (SEBI) has asked the UB Group chairman and United Breweries Holding Ltd (UBHL) to give information on the recent share sale by three of Mallya's companies that led to a reduction of promoter holding in UBHL from 51.5 per cent to 43.09 per cent.
Mallya had sold 8.41 per cent stake in UBHL from June to September - a period when the the company's scrip was enjoying a dream run.
However, no disclosure of share sale was made to the exchanges, in violation of SEBI's Takeover Regulations and Prohibition of Insider Trading Regulations.
Under these rules, promoters have to disclose within two working days to the regulator and exchanges any change in shareholding pattern, if they are involved in buying or selling of shares.
SEBI sources said the regulator might issue a showcause notice to UBHL promoters, if their response was not satisfactory.
UBHL is a holding company of Mallya's other firms United Spirits Ltd (USL) and Kingfisher Airlines (KFA).
An emailed questionnaire and SMSes sent to the UB Group spokesperson on November 1 did not elicit any response.
The UBHL scrip had seen a three-fold rise from its 52-week low of Rs 53 in June to touch a high of Rs 155 in September on the Bombay Stock Exchange (BSE).
From July to September, Mallya sold stake in UBHL through three of his firms - Mallya Pvt Ltd, Kamsco Industries and Gem Investment and Trading Pvt Ltd - making around Rs 55 crore (based on the company's average stock price during the September quarter).
"Sale of any substantial holding must be followed by public disclosures under the takeover and insider trading regulations. Non-disclosure can have serious consequences, specially if it is deliberate," said Sandeep Parekh, founder, Finsec Law Advisors.
According to JN Gupta, founder of Stakeholder Empowerment Services, a proxy advisory firm, SEBI can issue a showcause notice and impose heavy penalty.
"Now, the action should be at SEBI's end. This (non-disclosure of stake sale by promoter) is a serious matter and should not be allowed to pass without appropriate legal action or prosecution," said Gupta.
Both Gupta and Parekh are former executive directors of SEBI.