When the Karnataka High Court annulled the sale of shares by United Breweries (Holdings) Ltd to British company Diageo last week, it had also observed that the Vijay Mallya-led company's transaction was not “bona fide” on several counts. One of the reasons, the court noted, was that UBHL kept its creditors and the company court in the dark about its correspondences with the consortium of nationalised banks, led by State Bank of India (SBI), to which it owed Rs 6,493.29 crore.
The December 20 ruling of a division bench had come in response to winding-up petitions by the creditors of UBHL. The bench had overturned a May 24 order by the company court, which approved UBHL's sale of 6.96% stake, or 10.14 million shares, in United Spirits Ltd (USL).
Both UBHL and Diageo have said they intend to move the Supreme Court in appeal.
The division bench's judgment, made available on the court website on Thursday, noted that it was clear from the correspondences that UBHL had dues to the consortium. But these facts were not brought to the notice of the company court, which had approved the share sale.
“The transaction is not a bonafide transaction and, as material facts are suppressed and the learned company judge was misled, the order passed by him is vitiated and is liable to be set aside on that ground alone,” the judgment said.
The division bench had set aside the sale primarily on the grounds that the company court had no jurisdiction to pass an order for the sale of shares because the winding-up petition against UBHL had not been admitted at the time. The bench also considered the question of whether it was a bonafide transaction in the interest of the company or the creditors because Section 536(2) of the Companies Act gave jurisdiction to the court to make appropriate orders in bona fide cases.
During the appeal, the consortium had produced the terms of the Master Debt Recast Agreement in 2010 to show that UBHL had agreed not to part with any of its assets without the consortium's permission. Kingfisher Airlines had implemented a R5,598-crore debt recast in 2010 and UBHL had stood guarantor to Kingfisher.