Diageo asks Mallya to return USD 40 mn, seeks compensation

British liquor giant Diageo today said it has asked beleaguered businessman Vijay Mallya to return USD 40 million paid to him as part of the USD 75 million (Rs 515 crore) sweetheart deal for his exit from United Spirits Ltd.

Diageo has stopped payment of USD 7 million a year to Mallya as part of the deal and sought compensation for the losses incurred by it.

The British firm had agreed to pay Mallya, who now lives in the UK after Indian banks approached courts to recover money lent to his now defunct airline, USD 75 million over five years as global non-compete and non-interference fee post his exit from United Spirits Ltd (USL).

Citing violation of the agreement by Mallya, Diageo has also ruled out the future instalments to him, saying "it was not liable to pay such amount."

"Diageo and other group companies have demanded from Mallya the repayment of USD 40 million which was paid by Diageo on 25 February 2016, and also sought compensation from him for various losses incurred by the relevant members of the Diageo group on account of the breaches committed by him," Diageo said in its Preliminary Results for the year ended June 30, 2017.

Diageo has paid USD 40 million of the total USD 75 million on signing of the Agreement on February 25, 2016, while the balance USD 35 million was to be paid in equal instalments of USD 7 million a year over five years.
This was subject to and conditional on Mallya’s compliance, with certain terms of the agreement, it added.

"While the first instalment of USD 7 million would have become due on 25 February 2017, owing to various reasons, including breaches of several provisions of the 25 February Agreement committed by Mallya, Diageo believes that it was not liable to pay such amount, and is very unlikely to become liable to pay future instalments, to Mallya," said Diageo.

Diageo's agreement with Mallya also provided for the five-year global non-compete, non-interference, non- solicitation and standstill commitments.

This also had clauses as Mallya's resignation from USL and the termination of his USL-related appointment and governance rights, the relinquishing of rights and benefits attached to his position at USL, and his agreement not to pursue claims against Diageo and USL.

In July 2016, United Spirits disclosed Rs 1,225.3 crore worth fund diversion and improper transactions with entities associated with Mallya, including Kingfisher Airlines and his Formula One team.

Making it clear that the settlement reached earlier with Mallya would cover the latest disclosures, USL -- now controlled by Diageo -- had said the former Chairman would be liable for claims over the amount.

Several banks have declared him wilful defaulter for failing to pay back loans amounting to thousands of crores. A consortium of 17 banks led by SBI has been trying to recover dues of over Rs 9,000 crore from the now defunct Kingfisher Airlines, which was promoted by Mallya.

-PTI