Mallya's game is up: Throwing him out of USL will be a cakewalk for Diageo

The drill prescribed for removal of a director is fairly simple and straightforward - simple resolution at a general meeting to convene which a special notice was given. A simple resolution posits a more than 50% majority voting in favour of his removal which should be a child’s play for Diageo of the UK controlling 55% in United Spirits Ltd (USL). Of course, Vijay Mallya can present his version which too must be attached with the notice to the shareholders about the meeting unless it is found that the material contained therein is defamatory and the Company Law Board agrees. Mallya should not go kicking and screaming. The more honorable thing for him to do is to leave with whatever little grace is still left. No amount of defence is going to sway the 55% shareholder, the one that feels shortchanged. To be sure, Diageo bought pig in a poke by paying an extravagant sum of $3 billion for the controlling interest in USL. Its merchant bankers did a shoddy due diligence when a huge amount - Rs 1330 crore - was allegedly diverted by USL under Mallya control to a clutch of group companies belonging to the buccaneer baron. [caption id=“attachment_1384283” align=“alignleft” width=“380”]  Vijay Mallya’s game is up: Throwing him out of USL will be a cakewalk for Diageo AFP[/caption] All that money either has been lost in the maze of subsidiary of subsidiaries which is all too common in India or gone down the bottomless coffers of the grounded Kingfisher Airlines. But past mistakes do not mean Diageo cannot take rearguard action to salvage at least something even if that proves to be only some prestige. Why should it suffer an alleged crook at the helm both at the board meetings and general meetings? Mallya flaunts the shareholders’ agreement with Diageo to support his defiance and continued occupation as chairman-cum-director of USL. Diageo not only bought pig in a poke but also indulged Mallya in several ways including with chairman’s role and directorship. In India, shareholders’ agreement that travel beyond company’s charter - memorandum and articles — has come to be viewed with scepticism with the Supreme Court in VB Rangaraj’s case way back in early 1990s saying in so many words that it cannot be enforced unless it is part of the company’s charter. In other words, the company itself would have nothing to do with it unless it is dovetailed with its charter which simply cannot be done given their repugnant provisions - veto power to the foreign collaborator not permitted by the company law etc that normally characterise such agreements. Of course, he can flex his muscles with Diageo by taking it to court without involving USL but its outcome cannot be gratifying to Mallya in any case. He has but a toehold on USL with his personal stakes at a pitiable 0.01% and his group companies’ at 3%. In any case, Diageo could make life difficult for Mallya by taking him to court on charges of diversion of funds and less than honest dealings in transferring the controlling interest in USL. Incidentally, their painstaking work could salvage something for our banking system that is wringing its hands helplessly with more than Rs 5,000 crore blocked in outstandings to grounded Kingfisher Airlines. A chairperson’s office is ex-officio in the sense that it springs from his directorship in the company. Table F of the Companies Act 2013 which is in pari materia with the erstwhile Table A of the predecessor law i.e. Companies Act 1956 says the chairman of the board would automatically be the chairman of general meetings as well. And as far as chairman of the board is concerned, it is for the directors to appoint one among themselves and fix the duration of his office. There is nothing in law to stop the board of directors to throw out Mallya from chairman’s office preparatory to this throwing out of the board of directors by the shareholders. In any case, he will have to recuse himself from the board meeting when the discussion turns on the matter of his removal for the simple reason he is interested in the matter. Conflict of interest is sought to be eschewed by completely eliminating the interested director - he is not counted for quorum, he cannot speak and he cannot vote. Mallya’s game is up, at least in USL.