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Proxy advisory firm Stakeholders Empowerment Services (SES) has said the UK-based liquor company, Diageo Plc, need not honour the shareholders’ agreement if it is convinced about the findings of a United Spirits probe report, which found diversion of funds to other companies owned by its Chairman, Vijay Mallya.
It also pointed out that Mallya can be removed as chairman by the board itself as board members have the right to elect another person as their chairman. To remove him from the directorship, it requires an extra general meeting.
In a report, SES said enough indications are available to conclude that “all is not well between two promoters, Diageo and Mallya. This does not augur well for the company and its shareholders.”
This is perhaps for the first time an independent proxy advisory agency has asked Diageo to renege on the shareholders agreement as it believes shareholders’ interest should be paramount. If what Diageo has pointed out is to be believed, then it certainly points to improper and illegal transactions, which in other words can be called fraud, SES said. If this is the case, then it is much more serious than two fighting promoters and needs investigation by regulatory organisations as per applicable laws.
In case what Diageo has pointed out is correct, there would be need to probe further as Diageo investigations might not have covered everything. It assumes significance if one also takes into account massive write-offs.
SES report said investigation must cover transactions with subsidiaries and final trail of money transferred must be established. If indeed fraud is established, it will be first big fraud to come to the knowledge of the public after Satyam. It will also reflect that steps taken after Satyam fiasco have not been really full-proof.
The blame equally rests with auditors. However, in case fraud is not proved, it will lead to a prolonged fight between promoters.
It pointed out that Mallya can be dislodged from the position of chairman in a board meeting, which can be convened at the request of any board member. For his removal as a director on the board of USL, an EGM has to be called by way of special notice and proposed an ordinary resolution in accordance with section 169 of The Companies Act 2013.
Mallya would be given an opportunity to explain his position.
SES said the Ministry of Corporate Affairs as well as the regulator, SEBI should institute a probe immediately.
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