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Diageo's Indian hangover gets worse

SeongJoon Cho | Bloomberg | Getty Images

Barely a year after U.K. drinks giant Diageo won its long-coveted majority stake in India's United Spirits, a boardroom battle with the company's chairman, Vijay Mallya, is giving the company a sore head.

Over the weekend, United Spirits asked for Mallya's resignation as chairman, after an internal investigation found "various improprieties and legal violations" in Mallya's dealings between struggling airline Kingfisher, one part of his vast business empire, and its other parts.

Mallya has rejected the allegations as "half truths and twisted facts" in a statement Saturday and said his transactions in "full compliance of law at the relevant time".

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Diageo, which has a the majority shareholder in United Spirits with 55 percent of the shares, now has the decisive vote between the rest of the board and Mallya.

The U.K. company acquired the company two separate deals in November 2012 and April 2014. The board needs Diageo's support to oust Mallya – but Diageo agreed to support Mallya as part of the earlier deal.

However, Diageo is only obliged to maintain this position in the "absence of certain defaults" according to their statement – and if Mallya's actions over Kingfisher constitute such defaults, their support may also change.

"Diageo will review the inquiry report and its related materials. Diageo will then review its position in relation to its contractual obligations under its arrangements with UBHL and Dr Mallya. Those arrangements are subject to confidentiality provisions so while we are unable to comment further, you can expect that we will be treating the matter seriously," a spokesperson for Diageo told CNBC.

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