UK & India: Diageo challenges Karnataka High Court decision to declare United Breweries stake sale void

United Breweries Limited (UB) and Diageo have challenged the decision of a Division Bench of the Karnataka High Court (HC) setting aside the sale of 6.96% stake in United Spirits Limited (USL) held by UB to Diageo, Bar & Bench reported on January 22.

When the matter was heard on January 20 by a Division Bench of Justices AK Patnaik and Ibrahim Kalifulla, Senior Advocate Mukul Rohatgi represented Diageo while Senior Counsel Harish Salve appeared for UB. Senior Advocate TR Andhyarujina appeared for a consortium of creditors.

The sale of equity shares by UB to Diageo was initially approved by a single judge Bench of the HC. Subsequently, in a plea by the creditors of the UB, the sale was declared void by a Division Bench of the HC on the ground of improper valuation of shares and lack of bona fides as winding up petition against UB was pending admission.

Both Diageo and UB have claimed that the permission of sale of assets by the single judge pending admission of a winding up suit is the correct law and the Division Bench has erred in holding that the same was without jurisdiction.

Diageo has contended that as per Section 536 (2) of the Companies Act, 1956, the powers of the court could be exercised at any stage including when a winding up petition is pending admission. Relying on the decision in Pankaj Mehra & Ors. v. State of Maharashtra, it has assailed the Division Bench judgment which holds that the single judge Bench could not have exercised its jurisdiction when a winding up petition was pending and not admitted.

It has also claimed that even if the court did not have jurisdiction to entertain the matter, a mere admission of the winding up petition will not invalidate the sale of shares as there would be no certainty that the court would wind up UB.

During the hearing on January 20, Rohatgi, acting as Diageo’s counsel submitted that “I have brought this in separate tranches in a transparent way after seeking FEMA permissions from the RBI, SEBI and Competition Commission of India (CCI). I can't purchase at the risk of being void. I have all the permissions but the High Court says no.”

Citing the complexity of the issue, Senior Counsel Andhyarujina proceeded to seek a detailed hearing of the matter. The Court allowed the same and posted the matter for January 31.

24 January, 2014