The Karnataka High Court has ruled that a pledge of United Breweries Ltd (UBL) shares by Vijay Mallya and his son, Sidhartha Mallya, in favour of Standard Chartered Bank (SCB) takes precedence over claims by a consortium of banks seeking to recover dues from the defunct Kingfisher Airlines. According to reports from Business Standard, a division bench of Justices D K Singh and T M Nadaf held that the pledge created in July 2013 was enforceable against the UBL shares, as the consortium relied on a personal guarantee from Vijay Mallya and a contractual restriction on creating encumbrances, neither of which independently established a proprietary interest in the shares. The ruling came on petitions filed by Diageo Holdings Netherlands BV, a wholly owned subsidiary of Diageo UK Plc, in a dispute over security for a $135 million loan extended by SCB to Watson, a Mauritius-based company associated with Mallya. The court made the observation that Vijay Mallya's flamboyant lifestyle appeared to be hindering the closure of loan recovery proceedings, noting that his personal vanity and excessive indulgence were coming in the way of settling the banks' claims.
The ruling came on petitions filed by Diageo Holdings Netherlands BV, a wholly owned subsidiary of Diageo UK Plc, in a dispute over security for a $135 million loan extended by SCB to Watson, a Mauritius-based company associated with Mallya. As reported by Business Standard, under an agreement dated July 29, 2013, Mallya and his son pledged their UBL shares in favour of UTI, SCB's onshore security trustee. Diageo subsequently furnished a guarantee to SCB on August 5, 2013, undertaking to meet the liability if Watson defaulted. After Watson failed to repay the loan in May 2015, Diageo paid $140.97 million under the guarantee and sought to enforce SCB's rights over the pledged shares. The case concerned UBL shares held by Mallya individually, as well as shares jointly held by him and his son, Sidhartha Mallya, in United Breweries.
The consortium's competing claim arose from loans of around ₹6,203 crore extended to Kingfisher Airlines under a Master Debt Recast Agreement executed on December 21, 2010. According to Business Standard, the banks relied on Mallya's personal guarantee and a negative covenant restricting the creation of encumbrances to assert their rights over the shares. The court rejected this position, distinguishing between a contractual promise to repay a debt and a legally enforceable security interest over a specific asset. As reported by The Times of India, the bench held that a personal guarantee does not, by itself, create a charge over a guarantor's property, and a restriction on encumbering unspecified assets would not override a subsequent pledge identifying the assets concerned unless the earlier agreement had itself created an enforceable proprietary interest. The court also noted that the SCB loan was distinct from an earlier facility extended by ICICI Bank UK to Watson, with the earlier agreements and pledge having been discharged before the fresh pledge was created in favour of UTI. The court further held that Sidhartha Mallya was not a party to the Master Debt Recast Agreement with the banks, and that Mallya's personal guarantee did not, by itself, create a proprietary charge over the jointly held shares.
The court noted that the consortium had recovered assets worth ₹14,131.6 crore against its claim of ₹6,203 crore plus interest, excluding the UBL shares. As reported by Business Standard, referring to a statement made by the finance minister in the Lok Sabha on December 17, 2024, it observed that the recovery had substantially addressed the banks' claims and found no justification for pursuing the UBL shares. The court also criticised Mallya's lifestyle and personal conduct, observing that his extravagance and vanity were impeding the closure of proceedings relating to the Kingfisher Airlines loans. According to The Times of India, the bench said the consortium and the Union government should work towards bringing the dispute to an end in light of the assets already recovered, noting that Mallya's personal guarantee could not create a charge over shares jointly held with his son, who was neither a party to the Master Debt Recast Agreement nor a guarantor under it. The court held that the banks were not justified in staking a claim over the UBL shares and that it was now up to the consortium of banks and the government to close the loan recovery proceedings.
Responding to the court's remarks, Mallya said in a post on X that he was being punished for living a "Kingsize" life with his own money. "Am I still a Chor or Cheat?" he said, adding that he lived life Kingsize with his own money and that was his biggest crime for which he is being punished. "There is a God above for all of us. Someday Justice will prevail," Mallya stated. The High Court allowed the writ petitions and set aside the orders under challenge. According to Business Standard, the court held that the transactions involving SCB, Watson, Diageo and the Mallyas were bona fide commercial arrangements. It found that the consortium had not challenged Diageo's claim as suspicious before the DRT and said the Debt Recovery Appellate Tribunal's contrary finding was inconsistent with the record. The court also noted that SCB had paid Diageo a guarantee fee of $5 million. As reported by The Times of India, the bench further ruled that an alleged oral undertaking given on Mallya's behalf before the Debt Recovery Tribunal (DRT) on July 26, 2013, not to encumber the assets could not invalidate the subsequent pledge when the undertaking had not been recorded in the tribunal's order.
