The Securities Appellate Tribunal has asked Sebi to expeditiously pass a fresh order in the matter relating to Diageo Plc requiring to make additional payments to the minority shareholders of United Spirits Ltd.
Diageo became a controlling shareholder of USL -- whose erstwhile promoter was now fugitive liquor baron Vijay Mallya -- in May 2013 with 25.02 per cent stake after completion of a Rs 3,134.56 crore open offer.
Later in June 2016, markets regulator Sebi through a notice told Diageo that the company might have to make additional payments to the minority shareholders of USL on the basis of Diageo's Watson backstop guarantee agreements for Watson Ltd, a company affiliated to Mallya.
Sebi's decision was challenged before the Securities Appellate Tribunal (SAT) with Diageo contesting that the notice was misconceived and wrong in law.
"... we direct that the impugned communication dated June 16, 2016 be treated as a supplementary show cause notice issued to the appellant and direct Sebi to pass a fresh order after giving an opportunity of hearing to the appellant," the tribunal said in an order dated November 1.
While stating that Diageo can file any additional reply within four weeks, the SAT has also asked Sebi to pass a fresh order as expeditiously as possible.
According to Sebi's notice, dated June 16, 2016, if there is any net liability incurred by Diageo on account of the Watson backstop guarantee, such liability would be considered to be part of the price paid for the acquisition of USL shares to Mallya's UB Group under their share purchase agreement.
In that case, additional equivalent payments would be required to be made to those shareholders (though representing only 0.04 per cent of the shares in USL) who tendered in the open offer made as part of the original USL Transaction, Sebi had informed Diageo.
According to SAT's order, prior to the communication dated June 16, 2016, the same Assistant General Manager (AGM) at Sebi had issued a show cause notice to the company on March 23 that year.
By way of its reply dated April 20, 2016, Diageo requested that the proceedings be dropped and also that in case of pursuing the matter further, it sought personal hearing, the tribunal said.
However, the SAT noted that the "AGM has neither considered the cause shown by the appellant in its reply dated April 20, 2016 nor the AGM has given an opportunity of hearing to the appellant even though specifically asked by the appellant (Diageo)".
Moreover, the amount directed to be paid by Diageo to the shareholders who had tendered the shares of USL in the open offer has also not been crystallised in the impugned communication, the tribunal said.
The UK-based brewer had mentioned about the appeal before the SAT against the Sebi notice in its latest annual report.
"Diageo is clear that the Watson backstop guarantee arrangements were not part of the price paid or agreed to be paid for any USL shares under the original USL transaction.
"... therefore believes the decision in the Sebi notice to be misconceived and wrong in law and has appealed against it before the SAT on July 29, 2016," the company's 2017 annual report had said.
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