United Spirits8217; share sale to Diageo void: Karnataka HC

The order was in response to a winding-up petition by the creditors of the holding company United Breweries Holdings or UBHL.

UBHL had given a corporate guarantee to the creditors of Kingfisher Airlines,which has ceased operations.

The division bench ruling has now put a question over Diageos stake purchase in USL from UBHL and the matter is now dependent on winding-up petitions filed in the court against UBHL by creditors of Kingfisher Airlines.

The development comes nearly five months after Diageo completed the transaction,acquiring a majority stake in USL.

The division bench comprising Justices N Kumar and Rathnakala stated in its order on Friday that the court which allowed the stake sale in May did not have jurisdiction to pass its order as the winding- up petitions had not been admitted at that time. The share transaction was not valid as a result,the bench ruled.

A single judge of the high court had on May 24 given UBHL permission to sell the 1.35 crore shares to Diageo on the condition that it deposit Rs 250 crore in court as a guarantee to Kingfisher Airlines creditors.

Following the court clearance,Diageo picked up a 26 per cent stake in United Spirits including a 7 per cent share held by UBHL at a total cost of Rs 5,707 crore.

The division bench also asked for Rs 379 crore to be deposited with the court as guarantee along with the Rs 250 crore already deposited.

Kingfisher Airlines creditors,who moved the appeal before the high court,included BNP Paribas,Rolls Royce and Partners Finance,RRPF Engine Leasing Ltd and IAE International Aero Engines AG.

A court had in November admitted two winding-up petitions and allowed newspaper advertisements to be published.

We will take all necessary steps to protect Diageos interests as well as our own, chairman of the UB Group Vijay Mallya said in a statement.

We are awaiting the detailed written order. We do not believe that there are any grounds for declaring the sale of the 10,141,437 shares in USL 6.9 per cent of USL purchased by Diageo on 4 July 2013 from United Breweries Holdings Limited UBHL as void, a Diageo spokesperson said Friday.

We are disappointed to hear that the court has over-ruled the previous order of the High Court of Karnataka granting leave to UBHL under Sections 536 and 537 of the Indian Companies Act in respect of the five winding up petitions then pending against UBHL to enable the sale of the USL shares by UBHL to take place, the spokesperson said.

Analysts maintained that the deal would not come apart as some arrangement is likely to be worked out between Mallya and Diageo.

At its worst this will result in Diageo8217;s stake coming down in USL. We feel something will be worked out and don8217;t see any threat to the deal,8221; said V Srinivasan,research analyst at Angel Broking.