Mallya to face the heat as MCA, I-T Dept begin probe of USL books

The Ministry of Corporate Affairs and the Income Tax Department have begun separate probes on the books of United Spirits following an admission by the company that huge sums of money was diverted from the company to other UB group entities under the previous management led by its chairman Vijay Mallya.

In its notes to the accounts for the fiscal year 2015, the company said it has received a notice from the MCA for inspection of its books and other papers of the company. The company said it has also received a notice under the Section 131 of the Income Tax Act from the I-T Department and is fully cooperating with the authorities on this matter.

These probes are in addition to an investigation conducted by the market regulator the Securities and Exchange Board of India (Sebi). An enquiry conducted by Price Waterhouse's UK office on USL books ordered by USL board in November last year for the fiscal 2010 to 2014 found widespread irregularities with funds diverted to Mallya owned UB group companies and to the Kingfisher Airlines. Many of the loan agreements were not cleared by the shareholders of the company, as per the existing related party norms, the company said. Mallya had sold USL to British spirits giant, Diageo in 2012 for $2.1 billion.

The company said it has also received letters from the erstwhile auditors, PW and Walker Chandiok & Co who served as statutory auditors during the period covered by the enquiry – seeking to understand the impact of the findings of the enquiry on their respective audit reports. "Any remedial measures proposed by the erstwhile auditors will be considered by the company as per the application legal provisions," USL said. The USL’s annual report of FY11 was signed by Usha Narayanan of Price Waterhouse (PW). PW did not seek a reappointment in FY12, and the company appointed Walker Chandiok & Co as the auditor. The roles of both auditors are under the scrutiny by the ICAI, the self regulatory body of the auditors.

The company’s board met on May 26 to take on record the yearly performance of the company for the fiscal 2015. Vijay Mallya, who was asked by the board to resign as Chairman in April 25, attended the board meeting. Mallya had declined to resign saying he has an agreement with Diageo to continue as chairman for the next five years.

When contacted on Tuesday, Mallya declined to comment on the board proceedings.