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Mallya has to get HC relief to hang on to UB post: Experts

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MUMBAI: Vijay Mallya could find himself ousted as chairman of United Breweries if he does not secure a stay from the Bombay High Court against the Securities and Exchange Board of India’s order barring him from accessing capital markets and holding any position as director, securities lawyers and experts said.

Leading securities lawyers ET spoke to said the capital markets regulator has special powers that override general law (that is Companies Act) when it comes to regulation of listed companies.

“Sebi has in the past restrained persons from holding position as directors or key managerial personnel (KMP) of any listed company, say in minimum public shareholding cases or insider trading or fraud. Section 11(1) and 11B of Sebi Act empowers the same,” said Sumit Agrawal, partner, Suvan Law Advisors. The former Sebi legal officer is also the author of a book on the Sebi Act.

Sebi on January 25 barred Vijay Mallya and six former senior officials of United Spirits (USL) from buying, selling or dealing in securities either directly or indirectly for allegedly indulging in fraudulent activities. The regulator also restrained Mallya and Ashok Capoor, former managing director of United Spirits, from holding position as directors or key managerial persons of any listed company.

Sebi directed United Spirits to provide information on steps taken to recover Rs 1,880.8 crore from Mallya and the companies to which funds were wrongly diverted.

United Spirits will have to inform the regulator within 21 days of action taken in this regard. This means that Mallya’s position as director and chairman of United Breweries is in trouble unless a higher court gives him a stay.

Mallya is also director and chairman of some other UB group companies such as UB Holdings and UB Engineering.

Mallya is now expected to move the Securities Appellate Tribunal (SAT) for a stay and a reversal of the Sebi order. Legal professionals said he will challenge Sebi’s role as the articles of association nominate him as chairman for life at UB.

Mallya is said to have consulted Sandeep Parekh, ex-Sebi legal chief and founder of Finsec Law Advisors, and Bombay High Court stalwart Darius Khambata.

Dutch beer major Heineken, which holds 43% in UB, is consulting with Janak Dwarkadas. RS Loona, partner, Dhaval Vussonji Alliance, said that Sebi’s special powers could mean that non-compliance by the director concerned may attract consequences.

He added that under Section 164, read with Section 167, of the Companies Act, 2013, the office of a director becomes vacant after an order passed by any court disqualifying a person for appointment as a director. This is unless an appeal is filed within 30 days.

Mallya tweeted that the allegations of fund diversion concerning now-defunct Kingfisher Airlines a “joke” and said he is getting used to “witch-hunts coming from all directions with no legal basis whatsoever.”

“CBI alleges diversion of funds out of Kingfisher Airline, which was shut down. Sebi allegations of fund diversion out of USL are baseless. USL accounts were approved by top auditors, an eminent board of directors and shareholders,” another official said.


Agrawal said that Sebi’s powers were found to be correctly exercised by the Supreme Court in at least two cases of proven fraud. But it is uncertain if the same can be done when investigation is on, years have passed by, and the order is ex-parte,” he added.

A UB official wondered whether Sebi has the authority to pass such an order. “It is not a company notification, it is a personal notification and they are barring some people to participate in the securities market,” a senior company official said. “Only the company affairs ministry can pass such an order as it comes under the Company Law Board and not Sebi.” UB is yet to get a copy of the order.

Top legal officials close to the development said that Sebi may not have the legal powers to enforce such a move. “It is not a company notification, it is a personal notification and they are barring some people from participating in the securities market,” the official said.


In United Breweries, Heineken has hiked its stake to 43%, but the articles of association (AoA) states that Mallya is chairman for life and a non-retiring director unless he voluntarily steps down and nominates another chairman. To change the AoA, an interested party would need 75% of shareholder approval in a company.

Mallya too is determined that he will not step down from the board until he is proven guilty in an Indian court. Heineken has the first right of refusal to the liquor baron’s shares with whom it enjoys a cordial equation.

Mallya holds 32.45% in United Breweries, nearly half of which is pledged with banks as his personal surety for loans taken to run the defunct Kingfisher Airlines. Mallya’s Kingfisher Airlines owes over Rs 9,000 crore to 17 banks. He has been declared a proclaimed offender by a special PMLA (Prevention of Money Laundering Act) court in Mumbai in connection with a money laundering probe against him. He left the country last year to settle down in the UK.