Diageo’s pledge over United Breweries shares comes first, and Vijay Mallya’s Flamboyant Lifestyle stands in the way of settling the banks’ claims, the Karnataka High Court has said in a ruling that goes against the bank consortium.
Bengaluru: In a contest over United Breweries Limited (UBL) shares, the Karnataka High Court has held that the pledge in favour of Standard Chartered Bank, for which Diageo stepped in as guarantor, ranks ahead of the claim of the SBI-led consortium of banks. The Court also remarked that Vijay Mallya’s flamboyant lifestyle, excessive personal indulgence and personal vanity were blocking a settlement of the banks’ claims [Diageo Holdings Netherlands B.V. and Others v. State Bank of India and Others].
Justice D.K. Singh and Justice T.M. Nadaf, sitting as a Division Bench, allowed Diageo’s challenge and set aside the orders of the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal, which had gone against it.
Priority of the 2013 pledge
The Bench found Diageo’s claim to rank higher than the banks’ entitlement to the shares, since the 2013 pledge in favour of Standard Chartered Bank has priority over the consortium’s claim under the 2010 agreement. Sidhartha Mallya, it noted, was not a party to the Master Debt Recast Agreement, and Mallya’s personal guarantee did not, by itself, create a proprietary charge over the jointly held shares.
The Court also pointed out that the banks have already recovered assets worth Rs 14,131.6 crore against a loan of Rs 6,203 crore, and were therefore not justified in claiming the UBL shares as well.
A loan, a guarantee and a default
Standard Chartered Bank gave a loan of USD 135 million in July 2013 to Watson Ltd, an overseas company of Mallya. It was secured by a pledge of UBL shares held by Mallya individually and jointly with his son, Sidhartha Mallya, and Diageo guaranteed it. Watson defaulted, and in January 2016 Diageo paid the bank USD 140.97 million and claimed to have stepped into its position as pledgee.
The consortium, which is chasing dues from the collapsed Kingfisher Airlines, had obtained interim orders in its recovery proceedings that froze the shares. It argued that the shares could be used to satisfy Rs 6,203 crore in Kingfisher dues and that the Diageo pledge was ineffective against its claim, relying on a Master Debt Recast Agreement of December 21, 2010 under which Mallya and UBL had given guarantees. Both Tribunals ruled against Diageo, which then approached the High Court.
The remarks on Mallya
The Court said that his “flamboyant lifestyle, excessive personal indulgence and his personal vanity” were standing in the way of a settlement, and that the consortium and the Government of India should close the recovery proceedings. It linked his fall to personal vanity and a debt-fuelled gamble on Kingfisher Airlines, and noted that he is a fugitive economic offender.
These are the Court’s observations in the course of the ruling; Mallya was not heard on them in this appeal.
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What the ruling settles
At least at this stage, the ruling decides a priority contest between a creditor holding an earlier pledge and a consortium relying on a later recast agreement. It underlines that a personal guarantee does not by itself carry a charge over jointly held assets.
It also signals that where recoveries already exceed the principal dues, banks may find it hard to hold on to further assets in the same recovery proceedings. The decision is open to challenge by the banks.
Case Title: Diageo Holdings Netherlands B.V. and Others v. State Bank of India and Others (case number not available)
Bench: Justice D.K. Singh and Justice T.M. Nadaf, Karnataka High Court
Date of Judgment: October 14, 2026
Appearances: Senior Advocate Aditya Sondhi, briefed by Poornima Hatti, for Diageo Holdings Netherlands; Senior Advocate Vikram Huilgol with Kumar M.N., Veerendra Patil, Ganapathi Hegde, Krutika Raghavan and Perikal K. Arjun for the consortium of banks led by SBI