ED, RBI might probe USL's fund diversion

With the Karnataka High Court ordering a probe into the diversion of Rs 4,000 crore from United Spirits Ltd (USL) to entities based in the tax haven of British Virgin Islands, the ball is now in the court of the Reserve Bank of India (RBI) and Enforcement Directorate (ED), say corporate lawyers.

The high court said the diversion needed to be investigated and the company had not come to the court with its hands clean. The court order came after Kingfisher Airlines defaulted on loans and payments to aircraft lessors and engine makers to the tune of Rs 7,000 crore. The bankers sued the airline and its guarantor, United Breweries Holdings (UBHL), asking for their money back.

"Non-disclosures or wrong disclosures by the UB group can be investigated by RBI, while the ED can look into money laundering, if any," said a corporate lawyer, asking not to be named. Corporate lawyers say RBI needs to look into the entire fund diversion, as all foreign exchange transactions through banking channels come under its scanner. If RBI detects any wrongdoing or criminality, it then passes on the information to ED for further investigation.

RBI and ED did not reply to an email query from Business Standard seeking their comment on the high court's December 20 order. The UB group, too, did not reply to an email questionnaire.

The court said United Spirits, in which British multinational Diageo owns 20 per cent, had not given any documents to prove the money was diverted in 2007 for the acquisition of Whyte & Mackay, a Scottish company. The UB group had argued in the court the funds were diverted for buying out Whyte & Mackay.

The order has put a question mark over the Diageo-United Spirits transaction and the corporate governance practices followed by the company. While ordering the probe, the high court also set aside the sale of seven per cent stake in United Spirits by UB Holdings to Diageo.

Both Diageo and UBHL had said they would move the Supreme Court against the high court order.