India: Heineken’s shareholder agreement with Vijay Mallya at odds with regulatory order

Dutch beer maker Heineken International is in a bind. Its shareholder agreement with Vijay Mallya for United Breweries Ltd entitles the Indian businessman to remain the local company's chairman for life, but a regulatory order makes him ineligible to be a director of any listed company, the Economic Times reported on April 20.

UBL has been forced to hold board meetings without a regular chairman, since the Securities and Exchange Board of India barred Mallya from the securities market as well as from holding any board or key managerial positions at companies.

The regulator's decision came after lenders declared him a "wilful defaulter".

Mallya is still listed on the company's website as its chairman, though an executive said he is no longer a director. He last chaired a UBL board meeting in November 2016, through videoconferencing from London.

Mallya, chased by banks seeking thousands of crores from him and authorities probing money laundering allegations, left India in March 2016 and never returned. He was arrested by British police on Tuesday on India's request but was soon released on bail.

UBL, in which Heineken owns a 42.4% stake, more than what Mallya holds, is slated to hold its next board meeting in May. Until Mallya gets a stay on the Sebi order, the board will have to be chaired by someone else. UBL has nominated CY Pal, one of the directors, as the acting chairman.

UBL said its board has already stopped sharing confidential information with Mallya and that he is no longer privy to any strategic developments.

"In order to comply with the Sebi order and in the absence of any stay or vacation of the said order, the board is compelled to request you to step down from the board of United Breweries with immediate effect," UBL wrote to Mallya in February this year, soon after Sebi slapped the ban on him.

"None of our official disclosures now mention Vijay Mallya as the chairman and he is no longer a director on board," the executive cited earlier said.

"The current dealings between Vijay Mallya and the relevant Indian authorities are a matter entirely between Vijay Mallya and the Indian government," said John-Paul Schuirink, director of global communication at Heineken. "We are following the situation, but expect no negative consequences from it for our business in India."

He did not comment on the Articles of Association between the joint venture partners that entitles Mallya to be UBL's chairman for life and remain a nonretiring director, unless he nominates someone to replace him or voluntarily steps down.

Mallya did not respond to an email seeking comment. UBL's board is passing on the responsibility to Heineken.

"It is no longer the concern of the board which is focused on ensuring that the future of UBL is taken care of by focusing on its operations and growth plans," a board member said, speaking on the condition of anonymity. "None of us know what Mallya is thinking … that (his role in the company) is a shareholder issue and Heineken has to tackle it."

Shailesh Haribhakti, chairman of Haribhakti & Co, a regulatory audit firm, said there was no problem legally for a company to hold board meetings in absence of its chairman.

"But in terms of the normal natural process of providing leadership to the board and company, a vast majority of companies have a named chairman who is the face of the company and provides leadership," he said.

20 April, 2017