Between banks and Diageo, Vijay Mallya is between a rock and a hard place

The Calcutta High Court has stayed the United Bank of India’s decision to declare Vijay Mallya and Kingfisher Airlines as “wilful defaulters” but this respite is likely to buy Mallya little more than a few weeks of time. The declaration of someone as “wilful” defaulter means he can be barred from holding board positions and boards that still retain Mallya may face a blackball from banks. No board would ultimately want to harbour a loan fugitive.

In fact, even as the court effectively gave UBI time till early November to prove its case of “wilful” default and Kingfisher a week more to file its reply, events are overtaking Mallya. His partner Diageo, now majority shareholder in United Spirits, has now put him on notice, warning him that if he remains a defaulter he could lose his chairmanship of the company.

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Diageo said in a statement that his low shareholding (around 4 percent) will now disable Mallya from nominating his own independent director, and his continuance as chairman would depend on “the absence of certain defaults by UBHL or Mallya.”

UBHL (United Breweries Holdings Ltd) is Mallya’s holding company with around 4 percent in United Spirits. Diageo has nearly 55 percent in the company and is humouring Mallya as chairman only because a shareholder agreement binds Diageo to give him chairmanship and one director nominee as long as Mallya retains 13 million shares in United Spirits and continues to be boss of UBHL.

But with over Rs 7,000 crore owed to banks, it is only a matter of time before Mallya will be called upon to start delivering on his guarantees, possibly by selling his remaining stakes in UBHL.

While the Calcutta High Court has given Mallya breathing room, the fact is the difference between being called a “wilful” defaulter and merely a defaulter is not all that material here. The plain and simple fact is Mallya has not repaid his loans and this means his collateral is at stake no matter what the court does. Mallya can only delay the inevitable.

And with Diageo applying the squeeze, not least because it would not like to be stuck with a chairman whom the entire banking system is going after, Mallya’s days as chairman of United Spirits are numbered.

The wilfulness of Mallya’s default is no longer relevant to his comeuppance.