New Delhi, Dec. 23: Tax sleuths who have been investigating the sale of Shaw Wallace’s breweries to South African Breweries have said in a report that the “assets and core business” of the Calcutta-based major have been “siphoned off to the detriment of revenue, creditors and shareholders.”
The report says the business has been “hijacked” without any of the Rs 641.71 crore that SAB paid for the 50 per cent stake in the breweries business flowing to Shaw Wallace & Co Ltd (SWC), one of the largest liquor companies in India.
The indictment made in the report has been painstakingly prepared by income tax sleuths in Calcutta and submitted to New Delhi’s finance ministry.
The tax sleuths want the department of company affairs, Securities and Exchange Board of India (Sebi) and Foreign Investment Promotion Board (FIPB) to join the probe as it feels the deal could circumvent various rules. Top officials said the “enlargement of the probe is likely”.
The report states Shaw Wallace first transferred its entire breweries business, including brands, to two companies — Shaw Wallace Breweries (SWBL), which looks after marketing, and Skol Breweries, which looks after manufacturing.
At the same time it transferred its entire liquor business to two other firms — Maharashtra Distilleries Ltd and Shaw Wallace Distillers Ltd — in the same manner.
The net result, according to the income tax department report, was that “the assessee company SWC has now become a shell company because all assets and brands of Shaw Wallace have been hived off.”
The ownership pattern of SWBL, which now holds the brands, is revealing. While 50 per cent of the firm was left with SWC, the remaining 50 per cent was spilt between two investment firms — Ramanretti Investments & Trading Pvt Ltd and Primo Investments.
Ramanretti Investments & Trading Pvt Ltd picked up 24 per cent “without any consideration” being paid. Primo acquired a 26 per cent stake.
Ramanretti is owned by Shaw Wallace Financial Services Ltd, which, in turn, is 50 per cent owned by SWC. But Primo is owned by Jumbo World Holdings, a firm owned by the Chabbria family directly which is also SWC’s parent firm. The Chabbria family owns about 54 per cent of SWC, while the rest is held by institutions and small shareholders.
Primo picked up the stake after Jumbo World Holdings renounced its rights to warrants issued in its favour and gave it to the investment firm. Later, the warrants were converted into shares at par value.
The report states “the reason for such a dilution appears to be nothing but a machination to enrich the Chhabria family.”
The report also added that “the transfer of interest ... to these two companies has been made while tax demand of about Rs 900 crore was outstanding in the case of SWC.”
At the same time, special rights were granted to Bermuda-based Jumbo International Holdings in SWBL & SWDL which allow it to appoint and remove chairman and managing directors, appoint a third of all directors, and permit resolutions in general body meetings only with its consent.
Then on May 21 this year, Shaw Wallace struck what was described by the media as a 50:50 joint venture with SAB Miller involving combination of the two companies’ breweries in India.
As SWBL is an unlisted company, the sale of stakes in it does not attract Sebi’s takeover code. The tax probe report states the deal was concluded by selling 26 per cent stake in SWBL held by Primo Enterprises Pvt Ltd for Rs 296.98 crore and notes “there is a good chance of the consideration flowing out of the country”.
The second part of the deal involved selling Ramanretti and the 24 per cent it held to SAB for Rs 274.13 crore. The third part of the deal saw new shares numbering 705 lakh being issued to SAB directly for Rs 70.59 crore through a preferential issue.
“As a natural consequence, Shaw Wallace & Co became a minority shareholder, that too indirectly in Shaw Wallace Breweries Ltd,” the report said.
As the sale was to Mysore Breweries, a subsidiary of SAB, no specific permission was needed from the FIPB for the transfers. This, the report also contends, circumvented the government’s policy of the liquor business not being opened up to foreign investors directly or indirectly without approval.