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The Karnataka High Court today declared sale of United Spirits Ltd's 1.9 million shares by United Breweries Holding Ltd (UBHL) to British spirits major Diageo Plc null and void.
By setting aside the permission granted by a single judge bench to UB Holdings Ltd (UBHL), the holding company of the UB Group, to sell United Spirits shares to the British liquor giant, the Division Bench decision dealt a big blow to the USL-Diageo deal.
The UB Group reacted quickly to the judgment stating that it might consider an appeal against the order in the Supreme Court when it reopens in January. Chairman Vijay Mallya said his group will take “all necessary steps to protect Diageo’s interests as well as our own”.
Terming Diageo’s purchase of 1.01 crore shares “void”, the Bench said the single judge, who was acting as a company court judge, had no jurisdiction to permit the sale of these shares prior to admitting the company petition filed by BNP Paribas, a French Bank, for winding up UBHL, and issuance of public notice and hearing all other creditors of UBHL as per the provisions of the Companies Act.
The High Court Bench said the right of the purchaser (Diageo) would be subject to the outcome of the company petitions while observing that Diageo had bought the shares being well aware of the winding-up petitions and without the leave of the Court.
The Bench, comprising Justice N. Kumar and Justice Rathnakala, delivered the verdict on an appeal filed by BNP Paribas and UBHL’s creditors, including a consortium of 14 banks, questioning the single judge’s May 24, 2013 order granting permission for selling shares.
Observing that the sale of these shares cannot be viewed as an isolated transaction and part of an ordinary course of business when the quantum of the shares was substantial giving the controlling power to the purchaser over USL, the Bench said the price of Rs 1,440 fixed per share does not represent the true market value in such a situation.
Noticing that the price of a USL share was around Rs 900 prior to UBHL’s agreement with Diageo, the Bench pointed out that on the date of agreement, the share price on National Stock Exchange was Rs 1,360.50. It rose to Rs 2,210 on the date UBHL filed the application before the court seeking permission to sell and touched Rs 2,324.10 on May 24 when the Court granted permission.
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