Pay $135 million to Diageo, UK Court orders Mallya

Last Updated: Sat, May 25, 2019 18:24 hrs
Vijay Mallya

A UK High Court on Friday has directed Vijay Mallya, the embattled liquor tycoon to pay $135 million (approximately Rs 945 crores) as part of a collateral arrangement to Diageo.

The case refers to Diageo seeking $175 million (approximately Rs 1,225 crores) from Mallya, his son Siddhartha and two other companies towards liability of repayment of funds to a controlling stake in USL that the company purchased from Mallya three years ago.

The court is expected to hear the case for recovery of $40 million from Mallya at a later date.

The court also ordered Mallya to bear legal charges of 200,000 pounds besides interest at a commercial rate to be paid to Diageo.

"I have reached the conclusion that at this stage, it is clear the second claimant (Diageo Holdings Netherlands) is entitled to succeed," Justice Knowles said, dismissing Mallya's defence that an oral promise over-rides any claim of such a payment.

The PTI reported the development and quoted Dominic Redfearn, a spokesperson for Diageo as saying, "We are pleased to have won in a clear vindication of our position."

"We are suing Dr Mallya for repayment and damages amounting to approximately $175 million. This is money Dr Mallya and some of his affiliate companies owe Diageo. We have always been clear that we are entitled to exercise our right to recover the sum in full," explained Redfearn, in reference to the wider case being brought by Diageo, one of the world's largest distillers behind brands like Johnnie Walker and Smirnoff," added Redfearn.

Diageo helped USL get a loan refinanced. A collateral associated with that loan was to help USL at a later stage. Mallya's legal team argued that an oral promise with Diageo meant that the amount was not enforceable until certain orders were executed.

In 2015, Diageo officials claimed that they may noot be able to recover a $135 million loan given to Mallya affiliated Watson Ltd by Standard Chartered Bank. It had acted as a guarantor in the case. Diageo, the world's largest spirits maker, which acquired control of United Spirits (USL) in 2012, had issued a guarantee to Standard Chartered for the loan to Watson to release certain USL shares that were to be acquired as part of the deal.

The company said the risk had arisen due to a default by Watson in May and the Debt Recovery Tribunal (DRT) in Bengaluru preventing sale or any other transfer of such UBL shares in June as part of the enforcement process, pending further orders following a petition by a consortium of banks, led by State Bank of India (SBI). "Standard Chartered is required to take certain pre-agreed steps to recover from Watson, prior to calling on the Diageo Holdings Netherlands BV (DHN) guarantee... In the event that DHN makes any payment under the guarantee, DHN would intend to pursue claims under these indemnities to seek to recover any outstanding amount," Diageo had said in its annual report of 2015.

Daniel Toledano, barrister for Diageo was quoted in the story as explaining that from the transcripts of communication it was clear that no such oral promises from DHN were made. Judge Knowles agreed with Toledano's arguments, saying that transcripts when "properly and closely understood" were clear that Diageo had made no oral promise to not pursue the funds.

Mallya's stay in the UK has been riddled with court cases and extradition orders. The UK Home secretary Sajid Javid ordered his extradition to India in February. That, after banks and law enforcement officials mounted a water-tight case. Mallya has been wanted by banks over non-payment of loans amounting to an approximate of Rs 9,000 crores.

His extradition case is expected to be heard in the month of July at the UK High court.