Vijay Mallya's Shady Financial Dealings with UBS Lead to SEBI Ban
Background
The Securities Board of India (SEBI) on 26th July, 2024 had initiated an inquiry into Mr. Vijay Mallya, the chairman of UB Group and the controlling shareholder of United Spirits Limited (USL). The Financial Conduct Authority (FCA) has informed SEBI to verify whether Mr. Vijay Mallya is involved in the routing of funds to the Indian Securities Market. The inquiry is to confirm whether Mr. Mallya is involved in routing of funds to the Indian Stock Market through his UBS AG bank account in London. This routing of funds by Mr. Mallya to the Indian Stock Market is a violation of SEBI’s regulations between January,2006 and March, 2008.
Investigation Findings
SEBI’s inquiry on this matter revealed that Mr. Mallya has used his sub-account in Matterhorn Ventures, a Foreign Institutional Investor (FII) to trade in his group stocks traded in Indian Stock Market. Mr. Mallya has routed his funds through various beneficiary accounts maintained with UBS AG. Mr. Mallya has concealed his real identity in his stock investments in the Indian Stock Market. His sub accounts in Matterhorn Ventures were represented inappropriately as a non-promoter public shareholder in Herbertsons. Herbertsons was an entity involved as a promoter.
Allegations
SEBIs allegation on Mr. Mallya was his indirect dealings in Indian Securities Market through his group companies, which is alleged by SEBI as ‘fraudulent’ and ‘manipulative’. This act is a violation of Specific provisions of SEBI Act , 1992 and PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) Regulations,2003. Further, the Misrepresentation of Matterhorn Ventures' shareholding also constituted a violation.
Show Cause Notice, Replies, and Personal Hearing
Show Cause Notice
On 13th April,2023 , SEBI issued a Show Cause Notice (SCN) to Mr. Mallya, ordering him to explain why no action should be taken against him for the alleged violations. The Show Cause Notice was delivered to his UK addresses. Mallya acknowledged the Show Cause Notice receipt on 15th June, 2023. Mr. Mallya raised preliminary objections on SEBI allegations and requested for relevant documents.
Preliminary Objections by Mallya
Delay in Investigation: Mallya argued that the Show Cause Notice related to the transactions of the year 2006-2007, was an inquiry by SEBI delayed for 15 years .
Lack of Market Disruption Evidence: Mr. Mallya claimed that the Show Cause Notice did not reveal any disruption in Indian Stock Market transactions or any investors confidence being affected.
Legal Precedents on Timeliness: Mr. Mallya cited the Supreme Court’s decisions that ‘ powers or actions must be taken within a reasonable time frame’.
Document Inspection and Hearing
SEBI coordinated with FCA to share the related documents needed for inspection. Mr. Mallya was granted opportunities to inspect the documents and file replies. Despite multiple extensions, Mallya reiterated his objections, questioning the relevance of old transactions and the sufficiency of documents provided.
SEBI's Response
SEBI provided the requested bank statements and emails, granting additional time for Mr. Mallya's response. Mallya continued to request extensions, ultimately filing his reply on 27th May, 2024.
Mallya's Submissions
Delay and Record Maintenance: Mr. Mallya highlighted that SEBIs regulations and related laws mandate maintaining records for a maximum of 8 years. Whereas the alleged transactions were made 15 years before which makes it difficult to verify old transactions.
Regulatory Time Limits: Mr. Mallya cited various SEBI and corporate laws requiring record preservation for shorter periods than the time elapsed since the SEBI’s alleged transactions were made before a long period of 15 years.
Procedural Fairness: Mr. Mallya argued that the proceedings seemed to maintain the earlier SEBI order from March, 2008, which barred him from holding key positions in listed companies.
Conclusion
SEBI's investigation and subsequent proceedings against Mr. Mallya focused on the alleged fraudulent routing of funds to the Indian securities market via overseas bank accounts. Mr. Mallya's defence centered around procedural delays, the difficulty in verifying old transactions and the relevance of the documents provided. Mr. Mallya’s case highlights the complexities and challenges in enforcing financial regulations over extended periods, particularly when significant time has elapsed since the alleged violations.
Frequently Asked Questions
What led to SEBI's inquiry into Vijay Mallya?
SEBI initiated an inquiry based on information from the FCA about possible fund routing by Vijay Mallya to the Indian Securities Market.
What was the main finding of SEBI’s investigation?
SEBI found that Vijay Mallya used Matterhorn Ventures, a Foreign Institutional Investor, to trade in his group's stocks while hiding his identity.
What regulations did Mr. Mallya allegedly violate?
Mr. Mallya allegedly violated the SEBI Act of 1992 and PFUTP Regulations, 2003, by engaging in fraudulent and manipulative trade practices.
What was Mr. Mallya's response to the Show Cause Notice?
Mr. Mallya acknowledged the show cause notice. Raised objections regarding the delay in investigation, and requested relevant documents for inspection.
What were Mr. Mallya's main arguments in his defence?
Mr. Mallya argued that the transactions were older than 15 years to verify, claimed no market disruption, and cited Supreme Court rulings on timeliness of actions.
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