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Karnataka HC Rules Vijay Mallya’s Personal Guarantee Does Not Give Banks Claim Over UBL Shares
- •The Karnataka High Court ruled in favor of Diageo Holdings Netherlands B.V. regarding a dispute over approximately 2.09 crore United Breweries Ltd shares linked to Vijay Mallya.
- •The court held that Mallya’s personal guarantee for Kingfisher Airlines’ debt did not create a charge over the disputed shares or bind shares jointly held with his son, Sidhartha Mallya.
- •A valid pledge created a specific security interest in the shares through Standard Chartered Bank and took priority over the Kingfisher consortium’s unsecured claim.
- •The judgment noted that assets worth over 14,131.6 crore rupees had already been recovered by the consortium against its original loan exposure of 6,203 crore rupees.
- •The ruling reinforces that a personal guarantee creates liability for a debt but does not automatically convert a guarantor's assets into secured collateral without a specific pledge.
Key Questions Answered
The Karnataka High Court ruled that Vijay Mallya's personal guarantee for Kingfisher Airlines' debt created personal liability but did not automatically give the lender consortium a security interest or charge over the disputed United Breweries Ltd. shares. The court noted that a valid pledge had instead been created under a separate financing arrangement with Standard Chartered Bank, which took priority over the banks' unsecured claims.
Diageo Holdings Netherlands B.V. became involved after Watson Ltd., a Mallya-group company, obtained a $135 million facility from Standard Chartered Bank to refinance earlier borrowings, with Mallya and his son pledging the UBL shares as security. When Watson defaulted, Diageo paid approximately $140.97 million under a guarantee arrangement, thereby stepping into the bank's shoes through subrogation and acquiring its rights over the pledged shares.
Referring to a parliamentary statement made by the Finance Minister, the court noted that assets worth ₹14,131.6 crore had been restored to the bank consortium against its original loan claim of ₹6,203 crore. The court observed that given these extensive recoveries, there was no justification for the banks to continue pursuing claims over the disputed UBL shares.
