Tribunal halts Diageo's $75 million payment to liquor baron Vijay Mallya

By Derek Francis and Sudarshan Varadhan

BENGALURU, India (Reuters) - An Indian tribunal, heeding a call from a group of creditor banks, has blocked a $75 million settlement agreed between Diageo Plc and liquor baron Vijay Mallya, after he was ousted from the spirits giant's local unit last month.

Banks owed money by Mallya's now defunct Kingfisher Airlines had demanded "first right" to the Diageo cash, arguing they had been left with hefty unpaid debts - $1.4 billion as of September 2013 - when the airline collapsed more than three years ago.

Mallya, a household name in India and the face of one of the country's most high profile collapses, agreed the settlement with Diageo after stepping down as chairman of Diageo-controlled United Spirits following months of wrangling.

Mallya had been due to receive $40 million of the settlement immediately and the remainder over five years.

The Debt Recovery Tribunal in the southern Indian city of Bengaluru will hear the case next on March 28, it said on Monday, asking Mallya, Diageo and United Spirits to make public the details of their agreement.

Until then at least, the payment is blocked.

Mallya said over the weekend he had no plans to run from his creditors and was in talks over a one-time settlement to resolve Kingfisher's debts.

He did not disclose how much debt was under discussion, but said the settlement would be based on additional payments to the banks, which he said had already recovered 24.94 billion rupees ($372 million).

He said he had already held three meetings and follow up calls with the banks.

State Bank of India Chairman Arundhati Bhattacharya, whose bank is leading the group of creditors, did not immediately respond to a request seeking comment.

'POSTER BOY'

Mallya, once dubbed by Indian media as the "King of Good Times" for his extravagant lifestyle, sold most of his stake in United Spirits to Diageo when his Kingfisher Airlines was grounded by debt and safety concerns, with staff left unpaid.

After stepping down from United Spirits' board, Mallya had said he would spend more time in England, closer to his children. That raised concerns among the banks, left with a mountain of bad loans after years of profligate lending and struggling to reclaim their cash even from high profile cases such as Mallya's.

Mallya said he had become a "poster boy" for the bad loans crisis, when others owed much more than Kingfisher.

Kingfisher's creditor banks are set to auction a company property in India's financial capital Mumbai this month. But it is expected to fetch just a fraction of what they are owed.

($1 = 67.0465 Indian rupees)

(Additional reporting by Zeba Siddiqui; Writing by Devidutta Tripathy; Editing by Clara Ferreira-Marques and Mark Potter)