Karnataka High Court Quashes SBI-led Banks' Claim Over UBL Shares, Cites Rs 14,131 Crore Recovery From Vijay Mallya

Bengaluru: The Karnataka High Court on Wednesday set aside the claim of a consortium of banks led by the State Bank of India (SBI) over shares of United Breweries Limited (UBL) pledged by businessman Vijay Mallya, holding that the banks had already recovered assets worth more than twice the original loan amount extended to his now-defunct Kingfisher Airlines.

The court referred to information provided by the Union Finance Minister in the Lok Sabha that assets worth Rs 14,131.6 crore had been recovered from Mallya. Against this, the consortium had originally lent Rs 6,203 crore to Kingfisher Airlines.

 

A division bench comprising Justice D.K. Singh and Justice T.M. Nadaf passed the order while hearing petitions filed by Netherlands-based Diageo Holdings challenging earlier orders of the Debt Recovery Tribunal (DRT) and the Debt Recovery Appellate Tribunal (DRAT).

The bench observed that the banks had already recovered assets exceeding the amount of the loans extended. In these circumstances, it found no justification for the consortium to assert further claims over the UBL shares.

The court noted that the banks had recovered more than Rs 14,131.6 crore against the original loan of Rs 6,203 crore, which had to be considered while examining the banks’ claim. As the recovery exceeded double the principal, the bench held that the banks could not reasonably seek additional rights over the shares.

Responding to the court order, Vijay Mallya, taking to social media platform X, wrote: " I lived life Kingsize with my own money and that was my biggest crime for which I am being punished. There is a God above for all of us. Someday Justice will prevail."

 

The dispute also involved shares pledged to Standard Chartered Bank (SCB) in connection with a loan taken by Watson Limited, a company associated with Mallya.

Diageo Holdings had acted as guarantor for Watson Limited’s debt to SCB. After Watson defaulted on the loan, Diageo paid USD 140.97 million to the bank and consequently acquired the legally enforceable first priority rights over the pledged shares.

 

The bench observed that an alleged oral assurance given by Mallya’s counsel before the Debt Recovery Tribunal that certain land or assets would not be transferred could not override the legally created share pledge unless the assurance had been incorporated into a written judicial order.

The court also ruled that the banks could not claim 1,04,64,288 UBL shares jointly held by Vijay Mallya and his son, Siddharth Mallya, solely based on Vijay Mallya’s personal guarantee. It noted that Siddharth Mallya had not signed the Master Debt Restructuring Agreement with the banks.

Accordingly, the High Court quashed the orders passed by the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal.

 

In 2013, Watson Limited borrowed USD 135 million from Standard Chartered Bank to repay an existing loan from ICICI Bank.

As security for the loan, Mallya pledged more than 2.15 crore shares in United Breweries Limited, representing a 7.92 per cent stake, jointly held by him and his son, Siddharth Mallya.

 

Subsequently, when Kingfisher Airlines defaulted on its loans to the consortium of banks, the SBI-led consortium approached the Debt Recovery Tribunal and obtained an order to attach the UBL shares.

Diageo Holdings challenged the tribunal’s decision before the Karnataka High Court, arguing that its priority rights over the pledged shares had to be recognised. The High Court has now set aside the earlier tribunal orders, ruling against the banks’ claim over the disputed shares.