A Division Bench of the Karnataka High Court, on Friday, set aside the permission granted by a single judge bench to UB (Holdings) Ltd. (UBHL) to sell 1.36 crore shares of United Spirits Ltd. (USL) to British liquor major Diageo Plc. Terming the transaction of Diageo in purchase of these shares as ‘void’, the Bench said that the single judge, who was acting as a company court judge, had no jurisdiction to permit sale of shares prior to admitting the company petition filed by BNP Paribas, a French bank, for winding up of UBHL, issuance of public notice, and hearing all other creditors of UBHL as per the provisions of the Companies Act. UBHL had sold 1.01 crore shares to Diageo.
Reacting to the verdict, UB Group Chairman Vijay Mallya, in a statement, said, “We will take all necessary steps to protect Diageo’s interests as well as our own.”
The Bench, comprising Justice N. Kumar and Justice Rathnakala, delivered the verdict on an appeal filed by BNP Paribas and other creditors of UBHL, questioning the single judge’s May 24 order of granting permission for selling shares. BNP Paribas is seeking liquidation of UBHL, promoters of Kingfisher Airlines Ltd, to recover its dues.
Observing that Diageo purchased these shares being well aware of the pendency of company petition and without the leave of the Court, the Bench said the right of the purchaser [Diageo] would be subject to petition, and Diageo will have to wait the outcome of the winding up petitions.
Observing that the sale of these shares cannot be viewed as an isolated transaction and part of ordinary course of business as quantum of shares were substantial, giving the controlling power to the purchaser over USL, the Bench said that the price of Rs.1,440 fixed per share did not represent true market value in such a situation. “The price quoted at the National Stock Exchange on the date of the share purchase agreement, November 9, 2012, is a factor which should be taken note of at the time of valuation of share, and it is not decisive and conclusive. In a transaction of this nature, valuation by an approved valuer should have been insisted upon,” the Bench observed.
Meanwhile, the Bench directed UBHL to deposit the remaining Rs.394.50 crore from the total Rs.1,460 crore received from sale of shares to Diageo with the High Court. UBHL had already deposited Rs.250 crore from the sale proceeds with the High Court and the remaining amount was permitted to be paid to some creditors by the single judge.