Mallya scores edge in legal battle with Chhabria

Last Updated: Fri, Nov 25, 2011 19:31 hrs

Vijay Mallya may be strugling with his Kingfisher Airlines, but the flamboyant billionaire is poised to score a first when it comes to finding a slot as the boss of India’s largest alcohol beverages business. The 55-year-old liquor baron may soon score over his arch-rival Kishore Chhabria in a fresh legal battle that is nearing its final leg.

Chhabria runs Allied Blenders & Distilleries (ABD) the distillers of whisky brand Officer’s Choice, which looked like within striking distance of being the country’s largest selling whisky brand. For it had almost dislodging McDowell No1 whisky brand owned by Mallya-led United Spirits Limited.

On Friday, that set of dynamics seems set to reverse. For, the Calcutta High Court issued an interim order restraining ABD from increasing paid-up capital, a step prior to Chhabria’s 1986-founded company raising fresh funds to pump into expansion. The Mumbai-based firm has been in the market to raise around Rs 250 crore to expand its operations from a few private equity players. This had led United Spirits, Bangalore-headquartered UB Group’s flagship arm, to move the Calcutta High Court in June this year — to restrain Chhabria.

On Friday’s order was issued by a single-judge bench. Justice I P Mukherjee delivered it, according to Deepak Roy, vice-chairman & CEO of ABD. “We got the interim order,” Roy told Business Standard. “The entire pleadings have not been heard. The next hearing is on December 22.”

It is also learnt that the judge has stayed the operation of this interim order for a week. Legal professionals say this will give ABD time to appeal in the division bench.

United Spirits had, in view of the subsidiary’s merger with Shaw Wallace & Company Limited, filed an application in the Calcutta High Court. That, Lawyers associated with UB Group say, was to substitute itself in place and stead of Shaw Wallace in a suit filed in 1992 when Shaw Wallace was under the stewardship of Manu Chhabria, the (late) brother of Kishore Chhabria.

“The principal allegation in the suit,” says one of the lawyers, “is that Kishore Chhabria, in breach of his fiduciary duty, had caused the assets of Shaw Wallace and its subsidiaries to be dealt with in a manner prejudicial to the interests of Shaw Wallace and its subsidiaries, to make personal gain.” This, “in particular,” was the matter when it came to the valuable ownership and control of BDA limited, the manufacturer of Officer’s Choice Whisky.

United Spirits is also actively prosecuting another suit in the Delhi High Court (originally filed by Shaw Wallace) seeking return of the “Officer’s Choice” trademark.

This fresh legal battle succeeds some of the protracted high-profile battles between two well-known business families running large alcohol beverages business in India. Nearly six years after UB Group took over arch-rival Shaw Wallace for Rs 1,200 crore to stub out its competitor, Mallya is mounting this battle to stem the growth of Chhabria’s second innings to take on the might of UB Group.

Kishore Chhabria, since exiting Shaw Wallace, has been building ABD. He has built the company with a gross sales of Rs 1,500 crore by selling 16.5 million cases of spirits during the last fiscal. Of this 16.5 million cases, 15.8 million cases comes from ABD’s flagship whisky brand — Officer’s Choice, which the country’s second largest-selling whisky.

According to ABD estimates, the sales of this brand is expected to cross the 20-million mark during FY12. This growth of 27 per cent will face a stiff threat to United Spirits’ whisky brands. The rapid CAGR growth of 32 per cent over the last four years and further expansion of ABD, is the crux of the new legal battle between Mallya and Chhabria.

The latest development comes close on the heels of ABD losing a trademark dispute in Supreme Court relating to the right of Bangalore-based John Distilleries to continue to use the trademark “Original Choice”.

More from Sify: