Bad times for the King: Seven aspects of the Karnataka HC’s United Breweries winding up order [Read judgment]

In a significant blow to beleaguered businessman Vijay Mallya, the Karnataka High Court today ordered the winding up of his company, United Breweries (Holdings) Limited (UBHL)..Justice Vineet Kothari delivered the verdict via video conferencing facility from the High Court’s Dharwad bench..The judgment was passed in a slew of winding up petitions filed by creditors of Mallya’s now defunct Kingfisher Airlines Limited, of which UBHL is the holding company..Here are six aspects of the 244-page judgment released today:.The lawyers and the firms.Several big names appeared in the matters, including Senior Advocates Udaya Holla, Sajan Poovayya, SS Naganand, and DLN Rao. The firms involved included AZB & Partners, Dua Associates, Poovayya & Co and Fox Mandal..Below is the list of the lawyers:.PartyLaw Firm involvedCounselUBHLHolla & HollaUdaya HollaPrestige Estate Projects, HDFC, Lakshmi Vilas Bank, IFIN (unsecured creditors)Poovayya & CoSajan PoovayyaWorkmen of UBHL–DLN RaoOpposing creditors–CK NandakumarObjectorsSA Partners–ObjectorFox Mandal–USLMundkur Law PartnersRamanand MundkurConsortium of Banks led by SBIDua AssociatesSS NaganandIAE International Aero EnginesAZB & PartnersShreyas JaisimhaRolls-Royce & Partners Finance LimitedArista ChambersPromod NairAvions de Transport Regional GIE–C MuralidharBNP Paribas–Fereshte Sethna, Shanthanu Singh, Prashanth GUnited Bank of India–MV KiniOriental Bank of Commerce–Mohamed IbrahimIDBI Bank–TP MuthannaHPCLMulla & Mulla & Craigie Blunt & CaroeVS Arabatti.The numbers game.It was contended that UBHL owed obscene amounts of money to the various petitioners and failed to pay the debts despite issuing Corporate Guarantees as well as personal guarantees from the Chairman of the UB Group. In fact, the Debts Recovery Tribunal, Bengaluru Bench in its judgment dated January 19 of this year, had directed a sum of 6203.35 crore to be recoverable from UBHL. However, according to the petitioners, that sum is upwards of 6900 crore..Case for the Defence.Senior Advocate Udaya Holla, appearing for the petitioners, argued that the winding up petitions filed by the banks were not permissible since they had initiated multiple recovery proceedings against UBHL, which is not permissible in law. Moreover, pending the disposal of these cases, winding up could not be directed..He also argued that there was a case pending in the Bombay High Court for declaration of the Corporate Guarantees given to the banks as void and non-est on the ground that they were obtained under duress and coercion..Other arguments include the contention that the foreign companies could not institute legal proceedings in India as per Sections 592 and 599 of the Companies Act, and that the banks did not make any attempt to make a proposal of settlement, as is required for Indian commercial banks to do..Further, the fact that the company had deposited 1280 crores with the High Court was enough to prevent its winding up..Calling for Backup.Several unsecured creditors of UBHL intervened in these petitions claiming that winding up of UBHL was not the solution to the company’s financial crisis. The organisation representing the workmen of the company expressed their fears that winding up would result in a loss of employment of thousands of UBHL workers..Et tu, USL?.It is interesting to note that United Spirits Limited, a UB Group company, had changed its stance and joined in the fight to call for the winding up of its own affiliate company. Though it initially backed UBHL, USL made a volte face when UBHL failed to discharge its loan obligations towards its own group company. When USL initiated arbitration proceedings to recover the debt, UBHL started publicly disowning any loan outstanding towards USL..This fact would play a significant role in Justice Kothari’s verdict..The Verdict.In a rather scathing verdict, the High Court agreed with the findings of the DRT, Bangalore and held,.“…this Court finds a tinge of doubt and mischief, cavalier manner, lack of bona fides and find them to be too far-fetched without any solid foundation and it is difficult to see such defences to really succeed either before this Court or at appropriate Forums…”.It went on to quote from the company’s Audit Report for the year 2012, which stated,.“No provision has been made in the accounts for the probable loss that may aside due to non -recovery of loans and advances and other receivables, decline in the value of investments and invocation of guarantees. Accumulated losses of the company are more than fifty percent of its net worth.”.A subsequent year’s report stated,.“The Company has not recognized in its financial statements, disputed liabilities amounting to Rs. 77,309 million arising out of invocation of its corporate guarantees.”.Finding that the company was insolvent, the High Court took a hard line, holding,.“…on the basis of summary of the aforesaid Financial Reports and constant increase in the losses and complete erosion of net worth and reticent refusal of the Respondent – Company, UBHL to square up its Guarantee obligations and raising sham and moonshine defences to avoid winding up of the Respondent Company, this Court comes to a fair, reasonable and firm conclusion that the Respondent – Company, UBHL is a commercially insolvent Company and is unable to meet its admitted financial obligations and square up its admitted liability towards the petitioning creditors.”.Justice Kothari also noted that no serious attempt was made to pose an offer to the consortium of banks for repayment of the debts, even though the banks expressed the fact that they were not opposed to a negotiated settlement..Thus, the court directed that UBHL be wound up, with the further direction that the Official Liquidator file a status report within a period of four weeks from today about taking over the control and possession of the assets of UBHL, and also about the litigation pending in other courts and tribunals..Trolling like a Sir.On a lighter note, Justice Kothari made a rather humourous jibe at the expense of Vijay Mallya..“Besides all serious arguments, on lighter side to a query as to what was the subject of Ph.D. of Dr. Vijay Mallya, the learned Senior Counsels appearing on defence side without being specific, only passed an intriguing smile.”.HT to @mohitsingh8 for the initial news..Read the judgment: