USL fund diversion case: SAT upholds Sebi order on Vijay Mallya, six others

The Securities Appellate Tribunal (SAT) on Friday, upheld an ex-parte interim order issued by the Securities and Exchange Board of India (Sebi) that barred Vijay Mallya, chairman of the now-defunct Kingfisher Airlines Limited and six others from the securities market in a case related to alleged fund diversions from United Spirits Limited (USL). The tribunal has asked Sebi to “expeditiously” pass its final order in the case within four months. “... keeping in view the gravity of the matter, Sebi was not unjustified in invoking such extra-ordinary power (to pass an ex-parte order),” said the SAT order passed by its members Jog Singh and CKG Nair. Mallya in his appeal has contended that the Sebi order violates the principles of natural justice as he was not given a hearing. SAT has directed Mallya to appear in person or through his legal representative before the market watchdog within 21 days and submit his replies to the regulator. The tribunal has also asked the regulator to consider Mallya’s pleas to allow him “to continue as a Chairman of UBL (United Breweries Limited ”. “We make it clear that after receiving Mr. Vijay Mallya’s reply, if SEBI considers it appropriate to relax any of the conditionalities prescribed in the impugned ad-interim ex-parte order it shall be free to do so as early as possible and according to law,” said SAT order. SAT also said that Sebi’s ex-parte order has been passed on prima-facie view and Mallya “instead of rushing to the tribunal, should have defended himself before Sebi by availing of the opportunity granted to him”. In January, Sebi had restrained Mallya and six others from the securities market and also from “buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly” till further directions. Sebi interim order has alleged that funds from USL were diverted to some group companies of UBL, including Kingfisher Airlines. The regulator also observed that Mallya exerted pressure on USL employees to arrange funds for Kingfisher Airlines. The observations of Sebi were based on the two forensic audits conducted by PwC and EY for transactions between 2010-2014. While the audit by PwC has alleged that Rs 6550000000 was diverted and misappropriated, EY found that Rs 1,2250000000 was allegedly mis-utilised. Sebi’s order said that by diverting substantial funds from USL to companies of the UB Group, Mallya and other management personnel have engaged in an act of fraud or deceit on the public shareholder/investors of USL. Mallya and Kingfisher have come under the scanner of multiple investigating agencies in the country. Kingfisher owes over Rs 9,0000000000 to 17 lenders, including the SBI, IDBI Bank, Punjab National Bank, Bank of India, Bank of Baroda, United Bank of India, Central Bank, UCO Bank, Corporation Bank, IOB, Federal Bank, Punjab and Sind Bank, and Axis Bank among others.