USL, now owned by the British beverage company Diageo, is the largest shareholder in RCSPL. The new owner has been conducting investigations into financial irregularities at USL before its acquisition. USL was owned by Vijay Mallya until Diageo acquired it in 2014. The potential Rs 1.15-billion financial irregularities at the RCB holding company pertain to transactions conducted between October 2010 and July 2014, a period when Mallya’s companies had the ownership of RCSPL.
Responding to specific queries from Business Standard, a Diageo India spokesperson confirmed that these transactions had been carried out between 2010 and 2014, but “certain transactions appear to have been initiated in years prior to the review period”.
This is how the sequence of events leading up to the detection of a fraud at RCB’s holding company unfolded.
After Diageo took a majority stake in USL, it started an ‘initial inquiry’ into potential financial irregularities at the company. This initial inquiry was launched by Diageo in September 2014, a couple of months after acquiring a majority stake in USL. The initial inquiry looked into transactions conducted between 2010 and 2013 and found that USL funds were diverted to Kingfisher Airlines and some of the other companies related to Mallya’s United Breweries group.
According to the company’s filings, “between 2010 and 2013, funds involved in many of the transactions that were analysed had been diverted from USL and/or its subsidiaries to certain companies in the United Breweries Group, including in particular, Kingfisher Airlines Limited”.
However, USL found that further investigations were necessary to unravel the magnitude of the fraud. So, an ‘additional inquiry’ was initiated to further study the “propriety of the underlying transactions that could not be fully analysed during the initial inquiry”.
Vijay Mallya resigned from the board of USL on February 25, 2016. The additional inquiry, meanwhile, was concluded in July 2016. The inquiry found that almost Rs 12 billion (Rs 1,200 crore) had been diverted from USL as a result of improper transactions. According to the company, “The improper transactions identified in the additional inquiry involved, in most cases, diversion of funds to overseas and Indian entities that appear to be affiliated or associated with USL’s former non-executive chairman, Vijay Mallya.” The same additional inquiry also found that Rs 1.15 billion had been diverted from RCSPL.
An intriguing sequence of events unfolded soon after the additional inquiry was completed in July 2016. Vijay Mallya’s son Siddharth, a non-executive director at RCSPL, resigned from his position on May 24, 2017, ahead of the expiry of his tenure. According to the terms of the deal with Diageo, under which Vijay Mallya had resigned, Siddharth Mallya could have held his position as a non-executive director until February 2018. A copy of the deal, which has been reviewed by Business Standard, states: “Mr Siddharth Mallya, Dr Mallya’s son, will be a director of RCSPL which holds the franchise for the IPL team Royal Challengers Bangalore (RCB), for a period of two years or while RCB remains part of the USL Group, whichever is earlier. Dr Mallya will have the honorary title of Chief Mentor while Mr Siddharth Mallya remains on the board of RCSPL. The members of the board of RCSPL will be able, if they wish, to consult with Dr Mallya.”
With Siddharth Mallya resigning almost nine months before his tenure would expire, Vijay Mallya also ceased to be the chief mentor of RCSPL. Siddharth Mallya, in his position as a non-executive director at RCSPL, did not attend any board meeting or committee meeting between 2015 and 2017. Also, he also did not furnish a declaration stating that he was not disqualified in any way to be appointed as a director in the company. It could not be established if Siddharth Mallya's premature exit from the board was triggered by the damaging findings of fraudulent transactions to the tune of more than Rs 1 billion at RCSPL. The Diageo India spokesperson said Siddharth Mallya “did not attend board meetings of RCSPL. He vacated his position as a director of RCSPL due to continuous absence from board meetings."
Siddharth Mallya was actively involved in the company’s management in the past, when USL was owned by Mallya’s UB group. He was regularly spotted at most of RCB’s matches at stadiums across India.
Business Standard’s queries on the issue, sent via emails to both Vijay Mallya and Siddharth Mallya, had elicited no response as of the time of publishing of this post. Meanwhile, Business Standard approached an old hand of the UB group but could not get her to respond to specific queries regarding Siddharth Mallya.
The changes in RCSPL did not stop with Siddharth Mallya’s resignation. Three months after junior Mallya’s exit, UB group’s old-time auditor also resigned from RCSPL on September 12, 2017, and was replaced by PricewaterhouseCoopers. The Diageo India spokesperson confirmed that USL was pursuing legal action to recover the money from all entities, including Vijay Mallya.
The current season of IPL (IPL 2018) has so far not been great for RCB, which had earlier retained Indian national
cricket captain Virat Kohli as its skipper in the player auctions by shelling out Rs 170 million. The performance of RCSPL of late, by comparison, has been quite good. The company, which had in 2015-16, reported a loss of almost Rs 440 million, earned a profit of Rs 31 million in 2016-17 and increased its operational revenues by a similar amount.