The court in Karnataka has ruled Diageos stake purchase in United Spirits as being null and void

The court in Karnataka has ruled Diageo's stake purchase in United Spirits as being null and void

Diageo has expressed its disappointment after an Indian court ruling has put its purchase of shares in United Spirits in jeopardy.

Local reports today (20 December) said that the Karnataka High Court has declared UB Group's sale of a 14.98% stake in United Spirits to Diageo in July as being null and void. The court has been presiding over a winding-up order against Kingfisher Airlines, the heavily-indebted aviation unit of UB Group's parent company, UB Holdings Ltd (UBHL).

UB Group has been named in the winding-up order because the company was named as a guarantor in a loan secured by Kingfisher from BNP Paribas, which filed the order when Kingfisher defaulted on the loan.

Diageo started buying shares in United Spirits earlier this year, when it acquired a 10% stake. The UK-headquartered company, which announced its plan to take majority control of United Spirits last year, added a further 14.98% stake to its holding in July, although it is the tranche of 10.1m shares - representing 6.9% of United Spirits - that Diageo bought from UBHL in this transaction that has been challenged by the division bench of the Court of Appeal in Karnataka.

When contacted by just-drinks today, a spokesperson for Diageo said: “We do not believe that there are any grounds for declaring the sale … on 4 July 2013 … as void.

“We are also disappointed, as a bona fide purchaser for value of the USL shares, that we have been brought into the private dispute between Kingfisher Airlines and its creditors. Once we receive the full written order of the Court of Appeal, we will review the detail of that order.”

The spokesperson added that Diageo would appeal the matter further.

As of today, Diageo owns 26.5% of United Spirits and is the unit's largest shareholder.