BANGALORE: Troubled tycoon Vijay Mallya is defying a boardroom decision to remove him as chairman of United Spirits Ltd, as India's largest distiller said it has lost faith in him after a PricewaterhouseCoopers (PwC) inquiry into the company's books found "improprieties and violations".

USL, now controlled by drinks giant Diageo, will report the matter to relevant government authorities as applicable under law which could embroil Mallya and some of his key executives in regulatory investigations.

TOI online broke the story in the morning that Diageo and Mallya are engaged in an endgame as the nine-member board began meeting on Saturday morning.

READ ALSO: Diageo, Mallya set for endgame?

Mallya, 59, reeling under the setbacks of the grounded Kingfisher Airlines agreed to sell majority shares and management control to Diageo more little over two years ago. Diageo, which paid $3 billion, has faced huge write offs and corporate governance issues post the expensive takeover.

"I have refused to step down. The so called PwC investigation is full of half-truths and twisted facts. I have asked for a hearing to robustly reject whatever the investigation report says," Mallya told this newspaper emerging from the nearly 7 hour boarding meeting in Mumbai.

At the heart of the dispute are loans extended by USL to Mallya group companies and outstanding receivables totaling around Rs 2000 crore, allegedly used to fund the debt laden Kingfisher Airlines.

"What can be amicably resolved will be amicably resolved. What cannot be amicably resolved will have other recourse," Mallya added when asked if he was readying to move the court to stall his removal. A media statement issued by Mallya's office later said he would pursue his contractual obligations with Diageo Plc .

PwC inquiry suggests that the manner in which certain transactions were conducled indicates various improprieties and legal violation, USL informed stock exchanges in the evening. "ln light of the above, and without making any determination as to fault or culpability, the board of directors noted that they had lost confidence in Vijay Mallya continuing in his role as a director and as chairman and called upon him to resign immediately," the company statement added.

READ ALSO: Mallya's chairmanship of USL subject to caveats, Diageo says

If Mallya refuses to step down, the board has resolved that it would recommend his removal to the shareholders of the company. Mallya said he cannot be ousted unless the shareholders vote on it. "As things stand today, Diageo has a contractual obligation to vote for me when shareholders meet," Mallya explained. The USL board said it would ask Diageo to review its contractual obligations in the context of the PwC report.

Mallya said the present USL board has no continuity and little understanding of what happened in the past. "The books of the company were duly audited and passed by the shareholders in the past. Diageo conducted 16 weeks of intense due diligence before agreeing to the deal with me. PwC made no effort to contact the then USL board members or auditors to seek clarity," he added.

PwC said it stood by the work done and believe it to be of the highest professional standards.

Mallya and Diageo have had testy ties ever since he agreed to sell USL two years ago. He owns less than 5% stake and is seen isolated in a 9 member boardroom with five independent directors, TOI had reported last year. Diageo controls 54% stake in the Bangalore headquartered company, which has about 40% market share in the branded liquor market.

READ ALSO: Diageo takes full control of USL

USL said the board has directed MD and CEO Anand Kripalu to initiate necessary action against other employees of the company who appear to have been involved in certain transactions covered by the inquiry. On Thursday, the company's CFO and executive director, PA Murali, resigned suddenly triggering speculation about bigger troubles brewing within.

Mallya said Murali was one of the finest finance officers who had to resign without been given a proper hearing.

USL was Mallya's crown jewel and cash spewing engine which he surrendered in the wake of his sinking fortunes after Kingfisher Airlines was grounded under massive debt and lenders initiated action against him and his UB Holdings Ltd.

READ ALSO: Did Diageo help Mallya move out Rs 4,000 crore?

TIMELINE:

Nov 2012: Vijay Mallya agrees to sell his flagship company USL to Diageo. He's left with 11% but lenders of grounded Kingfisher sells pledged shares bringing his stake to just under 5%

June 2014: USL says it is delaying audited financial results as it has no clarity on loans advanced to Mallya companies. Ties with Mallya turns sour.

July 2014: Diageo pays a hefty premium to get majority shares after an initial offer to buy shares from public failed. It now owns 54% and ready to take on Mallya

Oct 2014: USL board appoints PwC to investigate the company's loans and other receivables based on the remarks of auditor KPMG

April 2014: PwC reports indicate legal violations and improprieties. PA Murali, CFO, resigns suddenly; two days later, board meets to ask Mallya to step down

Mallya quote:

"What can be amicably resolved will be amicably resolved. What cannot be amicably resolved will have other recourse. USL board cannot remove me under Diageo's current contractual obligations."

USL quote:

"Without determining any culpability, the board noted that it has lost confidence in Vijay Mallya continuing as a director and chairman of the company"