UK Court Orders Vijay Mallya To Pay $135 Million to Diageo

Of the $175 million compensation that Diageo is demanding, the UK court has given order for Mallya to repay $135 dollars within 28 days as part of the summary judgement.

London: Liquor tycoon Vijay Mallya was ordered to pay $135 million to the British beverage company Diageo by the UK High Court on Friday.

The case was initiated by Diageo Plc, Diageo Holdings Netherlands BV and Diageo Finance Plc, who claim that Mallya, his son Siddharth, their company Watson Limited and a company held in a family trust called the Continental Administration Services Limited (CASL), owed them $175 million to be repaid to Standard Chartered Bank.

Justice Robin Knowles of the Business and Property division of the High Court heard that Mallya’s Watson and CASL had taken a loan from ICICI bank which they then refinanced by Standard Chartered Bank for which Diageo stepped in as a backstop on August 5, 2015.

In a February 2016 agreement between Diageo and Mallya, Diageo acquired the controlling stake in United Spirits and Mallya had stepped down after taking financial compensation.

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This was taken against shares that Mallya had transferred to Diageo, which the company has not been able to access. and hence they approached the court for repayment from Mallya.

“We are suing Dr Mallya for repayment and damages amounting to approximately US$175 million. This is money Dr Mallya and some of his affiliate companies owe Diageo and we have always been clear that we are entitled to exercise our right to recover the sum in full,” said Diageo spokesperson Dominic Redfearn.

Of the $175 million compensation that Diageo is demanding, the UK court has given order for Mallya to repay $135 dollars within 28 days as part of the summary judgement. Add to this £200,000 that Mallya has to pay towards costs of litigation so far. The fate of the remaining $40 million will be decided during the long trial which will take place later this year.  

The oral promise

Mallya’s main argument was that before entering into the Deed of Disengagement, Diageo had promised that it would not enforce its claims until certain orders granted in India are lifted. This oral promise was the basis on which Mallya relied.

During the course of the day-long hearing, Diageo counsel Daniel Toledano discussed in detail the transcripts of the conversation between Mallya and Diageo on February 23-24, 2016.

This is a “hopeless argument” said Toledano in reply to the defence’s assertation of the oral promise and pointed out that “these transcripts show no where did Diageo promise non-enforceability”.

Toledano told the court that “Mallya realised that if not him, then others in his empire could be charged” for repayment. Quoting verbatim from the transcript, he pointed out that at one stage Mallya said, ‘I trust Diageo, I’m living with that risk’ which shows that he was aware that British drinks giant could ask for repayment.

Mallya’s distrust of Diageo is fairly visible in the transcripts read out in court. In one such conversation, Mallya was heard repeatedly telling Diageo not to “screw” him as the negotiations progressed.

The missing transcripts

Mallya’s Barrister Daniel Margolin challenged Diageo by insisting that an oral promise had been agreed between Mallya and Diageo CEO Ivan Menezes and other officials of the company but “there has been no evidence from Ivan Menezes provided to the court (by Diageo).” He also insisted that Diageo should have made available transcripts of conversations between Menezes and another businessman Sunil Mittal and between Diageo chairman and Mallya.

Mallya’s team challenged Diageo’s attempt at seeking a summary judgment from the High Court instead of presenting detailed evidence in a trial. “The claims which remain subject of this application involve more than a straightforward application. It is a complex issue of facts and has areas of law which are less straightforward”, said Margolin urging the court to give consideration to the fact that negotiations and discussions have taken place over a long period of time.

“The subsequent two transcripts can be and should be understood as conveying on both sides an appreciation that there was no promise not to enforce rights,” said Justice Knowles discounting the defence’s argument on the missing transcripts.

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“We are pleased to have won in a clear vindication of our position. The court was clear in rejecting Dr Mallya’s claim that there was a deal other than the one we signed. Diageo has consistently rejected those assertions. At all times through the protracted acquisition of USL, Diageo acted appropriately and in accordance with all legal obligations. All arrangements with Dr Mallya have been fully disclosed and accounted for,” said Redfearn.  

In the summary judgement, Knowles ordered Mallya to pay Diageo $135 million against their claim plus £200,000 as legal costs within 28 days. He also refused Mallya’s right to appeal.

Earlier this month, Mallya had managed to get a one-year reprieve in his to pay Swiss bank UBS Rs 200 crore against the loan against his London house. He is also facing the consortium of Indian banks who have initiated bankruptcy proceedings against him to get access to his assets and bank accounts.

The Westminster Magistrates Court had sanctioned India’s request for his extradition for the Rs 9,000 crore Kingfisher Airlines scam in December following which the Home Secretary had signed the order paving way for Mallya return to India. With his appeal against the district court’s order of extradition scheduled for July in the High Court, Mallya faces the uphill battle of fighting for his freedom, even as his creditors close in on him.