Authority: High Court of Karnataka, Bengaluru

Order Date: 14 October 2026

Case Overview

  • Petitioners: Diageo Holdings Netherlands B.V. (represented by Mr. Abhiroop Mukherjee) and a second petition (Diageo Holdings Netherlands B.V. represented by Mr. Nischal Hindia).
  • Respondents: A consortium of 24 banks and financial institutions including State Bank of India, Axis Bank, Bank of Baroda, Bank of India, Central Bank of India, Corporation Bank, Federal Bank, IDBI Bank, Indian Overseas Bank, Jammu & Kashmir Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of Mysore, UCO Bank, United Bank of India, JM Financial Asset Reconstruction Company Pvt. Ltd., Kingfisher Airlines Ltd., United Breweries (Holdings) Ltd (in liquidation), Dr. Vijay Mallya, Kingfisher Finvest (India) Ltd., SBICAP Trustee Company Ltd., the Commissioner of Sales Tax‑I, Standard Chartered Bank, Unit Trust of India Investment Advisory Services Ltd., among others.
  • The writ petitions (WP No. 50695/2018 and WP No. 43105/2017) challenged:
  • The DRAT order dated 09‑Oct‑2018 (RA No.150/2017) and the DRT order dated 19‑Jan‑2017 in O.A. 766/2013, which had affirmed attachment of 1,04,86,666 UBL shares solely owned by Dr. Mallya and 1,04,64,288 shares jointly owned with his son, and had required the petitioner to make a pre‑deposit of INR 3,000 crore.
  • Background facts:
  • Dr. Vijay Mallya obtained working‑capital and term‑loan facilities from a consortium of banks for Kingfisher Airlines Ltd. (KFA).
  • The loan amount under the Master Debt Re‑cast Agreement (MDRA) dated 21‑Dec‑2010 was INR 6,203 crores.
  • The MDRA created a single term‑loan facility and a working‑capital facility, secured by various securities, and required UBL and Dr. Mallya to act as guarantors.
  • Multiple security documents were executed: Security Trustee Agreement, Inter‑Creditor Agreement, Pledge Agreement (21‑Dec‑2010), and a Non‑Disposal & Safety Net Arrangement (31‑Mar‑2009).
  • Watson Ltd., an overseas company of Dr. Mallya, borrowed from ICICI Bank UK PLC under several facility agreements (2006‑2007) secured by UBL shares (total 1,04,86,666 shares owned solely by Dr. Mallya and 27,07,134 jointly held).
  • After default, a Share Pledge Deed dated 12‑Apr‑2013 pledged the above shares to ICICI UK PLC.
  • In 2013, Watson refinanced the ICICI debt with Standard Chartered Bank (SCB) for USD 135 million. Diageo executed a Back‑stop Guarantee Agreement with SCB on 05‑Aug‑2013, agreeing to pay SCB if Watson defaulted.
  • The refinancing required a fresh pledge of the same UBL shares to UTI (on‑shore security trustee of SCB) on 29‑Jul‑2013, terminating the earlier ICICI pledge.
  • Watson defaulted on 01‑May‑2015; SCB could not sell the pledged shares due to interim DRT orders. Diageo paid USD 140,970,650.95 to SCB on 29‑Jan‑2016 under the back‑stop guarantee and obtained a Subrogation Acknowledgement Agreement on 01‑Feb‑2016, stepping into SCB’s rights over the pledged shares.
  • Parallel litigation in the UK: UK High Court (Commercial Division) awarded summary judgment on 24‑May‑2019 holding Watson liable for USD 135 million and CAS liable for 50 % of any shortfall. The UK Court also declared Dr. Mallya bankrupt on 26‑Jul‑2021 and upheld the consortium’s security over his assets on 09‑Apr‑2020 and 18‑May‑2021.
  • The Enforcement Directorate attached the UBL shares under PMLA (Case No. 16/2016). The PMLA Special Court restored the assets to the banks on 24‑May‑2021 and transferred them on 09‑Jul‑2021.
  • The Finance Minister, on 17‑Dec‑2024, stated that assets worth INR 14,131.6 crore have been restored from Dr. Mallya to the consortium, far exceeding the INR 6,203 crore loan.
  • Submissions:
  • Petitioner's counsel (Dr. Aditya Sondhi) argued that the 29‑Jul‑2013 pledge to SCB/UTI is a fresh, senior security, that the back‑stop guarantee and subrogation give Diageo first‑ranking rights, and that personal guarantees do not create a charge over the UBL shares.
  • Consortium’s counsel (Mr. Vikram Huilgol) contended that the pledge is merely a continuation of the earlier ICICI pledge, that the 26‑Jul‑2013 Facility Agreement is a refinancing/assignment, and that the oral undertaking (26‑Jul‑2013) prevents the pledge.
  • Both sides cited extensive case law on the nature of pledges, personal guarantees, negative covenants, and the effect of unrecorded oral undertakings.
  • Points for consideration (issues i‑vi) examined the validity of the Non‑Disposal Agreement, the character of the SCB facility, the effect of the MDRA personal guarantee, the enforceability of the oral undertaking, the ability to charge jointly‑held shares, and the relevance of the restored assets.

Final Outcome

  • The Court, after detailed analysis, held that:

1. The 29‑Jul‑2013 share pledge to UTI (SCB’s security trustee) is a valid, independent security that enjoys priority over the consortium’s personal guarantees and negative covenants.

2. The oral undertaking not recorded in the DRT order does not nullify the later pledge.

3. The personal guarantee under the MDRA does not create a charge over the UBL shares, whether owned solely or jointly.

4. Given that assets worth INR 14,131.6 crore have already been restored to the banks, their claim over the UBL shares is unjustified.

  • Accordingly, the writ petitions are allowed; the impugned orders of the DRAT (09‑Oct‑2018) and the DRT (19‑Jan‑2017) are set aside.
  • All pending interim applications are disposed of.
  • Diageo is entitled to enforce its pledge rights and recover the amount it paid under the back‑stop guarantee.

Topics: Legal Dispute, Debt Recovery, Share Pledge