You are here » Home » Companies » Company Overview » United Spirits Ltd

United Spirits Ltd.

BSE: 532432 Sector: Consumer
NSE: MCDOWELL-N ISIN Code: INE854D01016
BSE LIVE 15:40 | 23 Aug 2471.60 -25.40
(-1.02%)
OPEN

2507.85

HIGH

2507.85

LOW

2452.00

NSE 15:45 | 23 Aug 2469.45 -23.15
(-0.93%)
OPEN

2504.00

HIGH

2509.70

LOW

2452.05

OPEN 2507.85
PREVIOUS CLOSE 2497.00
VOLUME 13715
52-Week high 2773.30
52-Week low 1775.05
P/E 75.24
Mkt Cap.(Rs cr) 35,920
Buy Price 0.00
Buy Qty 0.00
Sell Price 2471.60
Sell Qty 5.00
OPEN 2507.85
CLOSE 2497.00
VOLUME 13715
52-Week high 2773.30
52-Week low 1775.05
P/E 75.24
Mkt Cap.(Rs cr) 35,920
Buy Price 0.00
Buy Qty 0.00
Sell Price 2471.60
Sell Qty 5.00

United Spirits Ltd. (MCDOWELL-N) - Director Report

Company director report

Your Directors are pleased to present the 17th Annual Report of your company and theaudited financial statements for the year ended March 31 2016.

1. Financial Results

Rs Million
Standalone Consolidated
2015-16 2014-15 2015-16 2014-15
The working of your Company for the year under review resulted in
Profit / Loss from operations 5391.76 532.68 5459.96 (5732.63)
Exceptional and other non-recurring items 7362.54 (18716.68) 7909.00 (8391.56)
Less:
Depreciation 1021.04 1097.40 1577.34 2228.74
Taxation (including deferred tax) 1921.63 283.35 2102.24 520.40
Profit / (Loss) after tax 9811.64 (19564.75) 9689.37* (16873.33)*
Profit B/F from previous year (50454.52) (30835.13) (56372.04) (38852.41)
Minority Interest appropriation - - 11.93 3.82
Net impact on account of Merger (1220.51) - - -
Net impact of profit of demerged unit - 24.91 - 24.91
Transitional depreciation - (79.55) - (667.39)
Transfer between reserves - - - -
Profit / (Loss) available for appropriation (41863.39) (50454.52) (46694.60) (56372.04)
Your Directors have made the following appropriations: - - -
General Reserve - - - -
Dividend paid in respect to previous years - - -
Proposed dividend - - - -
Corporate Tax on Proposed Dividend - - - -
Corporate Tax on Dividend paid - - - -
Balance carried to the Balance sheet (41863.39) (50454.52) (46694.60) (56372.04)
EPS–Basic & Diluted(Rupees) 67.51 (134.62) 66.59 (116.13)

* Excluding minority interest

1.1 Subsidiary Companies

In accordance with section 129(3) of the Companies Act 2013 a statement containingsalient features of the financial statements of the subsidiary companies in Form AOC1 isprovided as Annexure - 1 to this report.

In accordance with third proviso to section 136(1) of the Companies Act 2013 theannual report and financial statements of each of the subsidiary companies have also beenplaced on the website of the Company www.unitedspirits.in

2. Board’s Responses to Observations Qualifications and Adverse Remarks inAuditor’s Report

The Statutory Auditors (Auditors) have qualified their opinion in relation to thefollowing matters appearing in the Financial Statements for the year ended March 31 2016.The Board’s responses to the qualifications and other observations or adverse remarksmade by the Auditors in their Report on the Standalone Financial Statements for the yearended March 31 2016 Consolidated Financial Statements for the year ended March 31 2016and in their CARO Report on these Financial Statements are given below.

The Statutory Auditors have qualified their opinion in relation to the mattersspecified in Notes 26(a) & (c) and Note 45 of the financial statements for the yearended March 31 2016 (Statements). The Board’s responses to the qualifications andother observations or adverse remarks are as follows.

2.1 Auditor’s observations under paragraph 1 ‘Basis for QualifiedOpinion’ of the Auditor’s report to the standalone financial statements:

As stated in Notes 26 (a) and (c) to the standalone financial statements during theyear ended 31 March 2014 certain parties who had previously given the required undisputedbalance confirmations for the year ended 31 March 2013 claimed in their balanceconfirmations to the Company for the year ended 31 March 2014 that they had advancedcertain amounts to certain alleged UB Group entities and that the dues owed by suchparties to the Company would to the extent of the amounts owing by such alleged UB Groupentities to such parties in respect of such advances be paid / refunded by such partiesto the Company only upon receipt of their dues from such alleged UB Group entities. Thesedues of such parties to the Company were on account of advances by the Company in theearlier years under agreements for enhancing capacity obtaining exclusivity and leasedeposits in relation to Tie-up Manufacturing Units ("TMUs"); agreements forspecific projects; or dues owing to the Company from customers. In response to theseclaims under the instruction of the Board of Directors of the Company("Board") a preliminary internal inquiry was initiated by the Management.

Based on the findings of the preliminary internal inquiry by the Management under theinstructions of the Board; and Management’s assessment of recoverability anaggregate amount of Rs 6495.48 million (including interest claimed) was provided in thefinancial statements for the year ended 31 March 2014 and was disclosed as prior perioditems. During the year ended 31 March 2015 an additional provision of Rs 216 million wasmade for interest claimed. The Company has not made provision for any unclaimed interest.During the quarter ended 30 September 2015 the Company reached a settlement with a partypursuant to which the party withdrew claims aggregating Rs 278.60 million. Accordinglyprovision aggregating Rs 278.60 million has been written back. Additionally subsequent tothe year-end the Company has signed settlement agreements with certain such parties andbased on these settlements has reversed provisions with respect to interest claimedaggregating Rs 264.60 million as at the balance sheet date. During the year ended 31 March2016 based on its assessment of recoverability the Management has written off Rs5666.00 million out of the amounts provided for with respect to the aforesaid parties.

During the year ended 31 March 2014 the Board had also directed a further detailed andexpeditious inquiry in relation to the above matter the role of individuals involved andpotential non-compliance (if any) with the provisions of the Companies Act 1956 and otherregulations applicable to the Company in relation to such transactions and the possibleexistence of any other transaction of a similar nature ("Inquiry"). While theInquiry has since been completed with regard to the possible existence of any othertransaction of a similar nature the Inquiry identified references to certain additionalparties ("Additional Parties") in various documents which documents dealt withtransactions involving the counterparties referred to above. The Inquiry also identifiedcertain additional matters ("Additional Matters") where the documents identifiedconcerns as to the propriety of the underlying transactions.

Further as stated in Note 24 (e) to the standalone financial statements the Companyunder the settlement agreement with a director inter alia agreed a mutual release inrelation to matters arising out of the initial inquiry by the Company into certain mattersreferred to in its standalone financial statements for the year ended 31 March 2014 (referNote 26 (a)). Additionally the Company undertook under the settlement agreement that itshall not bring a civil claim for money damages or specific performance against thecounterparties mentioned in the aforesaid note in relation to matters also set outtherein.

Based on its current knowledge the Management believes that the balance provisionscarried with respect to the above matters are adequate and no additional materialadjustments are likely to be required in relation thereto. In the previous year the Boardhad directed the Management to expeditiously review the Additional Matters andtransactions with the Additional Parties and report to the Board on Management’sconclusions on the transactions and any further impact on the Company’s financialstatements. As the review of the Additional Matters and transactions with AdditionalParties is in progress we are unable to comment on the nature of these transactions; theprovisions established; or any further impact on the standalone financial statementsincluding the impact on opening balances for the year. Further pending resolution of theabove disputes we are unable to comment on whether the provision established for interestis appropriate.

Above qualification is also contained in the audit report issued on the consolidatedfinancial statement.

Board’s Response to audit qualification on standalone financial statements as wellas consolidated financial statements:

Detailed information and explanations on the qualification in paragraph 1 of the auditreport are provided in Notes 26(a) and 26(c) to the Standalone Financial Statements(andnotes 35 (a) to 35 (c) of the consolidated financial statements). In particular as statedin Note 26 the Inquiry Report stated that between 2010 and 2013 funds involved in many ofthese transactions were diverted from the Company and / or its subsidiaries to certain UBGroup companies including in particular King Fisher Airlines Limited ("KFA").The diverted amounts were included in the provision made by the Company in the financialstatements for the year ended March 31 2014 and certain additional interest amounts wereincluded in the provision made by the Company in the financial statements for the yearended March 31 2015. The inquiry indicated that the manner in which certain transactionswere conducted prima facie indicates various improprieties and potential violations ofprovisions inter alia of the Companies Act 1956 and the then listing agreements signedby the Company with various stock exchanges in India on which its securities are listed.The financial impact of these non-compliance were estimated by the Management to be notmaterial.

In connection with the recovery of the funds that were diverted from the Company and /or its subsidiaries pursuant to the decision of the Board at its meeting held on April25 2015 the Company initiated steps for recovery against the relevant parties so as toseek to expeditiously recover the Company’s dues from such parties to the extentpossible. During the quarter ended September 30 2015 the Company reached a settlementwith one of the parties pursuant to which the party had withdrawn claims aggregating Rs27.86 Crores. Accordingly provision amounting to Rs 27.86 crores has been written back.Subsequent to the year end the Company has settled these claims with 3 other parties andbased on the said settlement has reversed a provision with respect to interest claimedamounting to Rs 26.46 Crores as at the balance sheet date. Settlements with the otherparties have not been reached as yet and management is continuing discussions in thisregard. During the year ended 31 March 2016 based on its assessment of recoverabilitythe Management has written off Rs 566 Crores out of the amounts provided for with respectto the aforesaid counterparties.

With regard to the possible existence of any other transaction of a similar nature the inquiry identified references to certain additional parties ("AdditionalParties") in various documents which also dealt with transactions involving thecounter parties referred to in Note 26(c) of Standalone Financial Statements and 35(c) ofthe consolidated financial statements.

As the Board determined it was necessary to assess whether the Additional Matters orthe transactions with the Additional Parties were improper the Board directed the MD& CEO to expeditiously review these aspects during the period covered by the Inquiryand report to the Board his conclusions on the transactions and any further impact on theCompany’s financial results. This review is in progress. Pending completion of thereview into Additional Parties and Additional Matters no further provision in relationthereto have been made in the financial statements for the year ended March 31 2016.

With regard to the settlement agreement between the Company and a director of theCompany the details of the settlement agreement have been disclosed in Note 24(e) to thestandalone financial statements 26 (e) to the consolidated financial statements].Furthermore as disclosed by the Company to the stock exchanges on February 25 2016 theBoard believes the settlement agreement is valuable to USL and all its shareholders. Itbrings to an end the uncertainty relating to the Company’s governance and will allowthe Company to prosper and build on the platform that has already been created.

2.2 Auditor’s observations under paragraph 2 ‘Basis for QualifiedOpinion’ of the Auditor’s report to the standalone financial statements:

As stated in [Note 45 to Standalone Financial Statements the Managerial remunerationfor the year ended 31 March 2015 aggregated Rs 64.91 million and Rs 153.09 million towardsremuneration of the Managing Director and Chief Executive Officer (MD & CEO) and theExecutive Director and Chief Financial Officer (ED & CFO) respectively. The aforesaidamounts includes remuneration in excess of the limits prescribed under the provisions ofSchedule V to the Act. Subsequent to the balance sheet date the Company has receivedcommunications from the Central Government not approving such excess remuneration. TheCompany has responded to the Central Government requesting reconsideration of itsapplication for approval of such excess remuneration.

Above qualification is also contained in the audit report issued on the consolidatedfinancial statement.

Board’s response: Information and explanation on the qualification inparagraph 2 of the audit report is provided in Note 45 to Standalone Financial Statementsand 44 of the consolidated financial statements. In particular as stated in Note 45 toStandalone Financial Statements and 44 of the consolidated financial statements theCompany applied for the requisite approval from the Central Government for such excessremuneration. Subsequent to the year end the Company has received communications from theCentral Government not approving such excess remuneration. The Company has responded tothe Central Government for requesting reconsideration of its application for approval ofsuch excess remuneration.

2.3 A. Auditor’s observations under paragraph [(i)(c)] of the Annexure to theAuditor’s report:

According to the information and explanations given to us and based on our examinationof the records of the Company the title deeds of immovable properties are held in thename of the Company except for 22 cases of freehold land having aggregate gross block ofRs 1175 million 3 cases of leasehold land having aggregate gross block of Rs 41 million;and various buildings having aggregate gross block of Rs 1869 million where the Companyis in process of collating and identifying title deeds.

Board’s response: The Company is in the process of compiling the originaltitle deeds for the 22 cases of freehold land 3 cases of leasehold land and the buildingsreferred to in paragraph [(i)(c)] of the Annexures to the Auditor’s report andbelieves that it has good title to all the immovable properties. The Board has directedthe Management to expedite the process of compiling the original title deeds.

B. Auditor’s observations under paragraphs[(iii) (iv) & (ix)] of the Annexureto the Auditor’s report:

(iii) According to information and explanations given to us the Company has grantedloans to eleven companies firms limited liability partnerships or other parties coveredin the register maintained under Section 189 of the Companies Act 2013 (‘theAct’). These loans includes loan to United Breweries (Holdings) Limited("UBHL") by way of conversion of certain pre-existing loans / advances /deposits due to the Company and its subsidiaries (refer Paragraph 1 under ‘Emphasisof Matter’).

Further as stated in Note 26 (a) to the standalone financial statements the Board haddirected a detailed and expeditious inquiry ("the Inquiry) in relation to certaintransactions identified during the year ended 31 March 2014. The Inquiry stated thatbetween 2010 and 2013 funds involved in many of these transactions were diverted from theCompany and / or its subsidiaries to certain UB Group companies including in particularKingfisher Airlines Limited ("KFA") which is a party covered in the registermaintained under Section 189 of the Act.

Additionally pending the completion of the review of the Additional Matters andtransactions with Additional Parties identified through the Inquiry as disclosed inParagraphs 1 under ‘Basis for Qualified Opinion’ we are unable to commentwhether any such arrangements represent transactions with any body corporate covered inthe register maintained under Section 189 of the Act.

(a) In our opinion the rate of interest and other terms and conditions of the abovementioned loan to UBHL are prima facie prejudicial to the interest of the Company. (b)The above mentioned loan to UBHL was voted down by the shareholders of the Company in theExtraordinary General Meeting ("EGM") held on 28 November 2014. UBHL alsodefaulted in payment of interest. Accordingly the Company raised a demand on UBHL forrepayment of the entire balance of the loan and the interest thereon. The Company is yetto receive the aforesaid amounts due. The loan has been fully provided for in thefinancial statements.

With respect to loans given to other companies firms or other parties covered in theRegister maintained under Section 189 of the Act the principle and interest are repayableeither on demand or the repayment terms are not stipulated. According to the informationand explanation given to us we understand that loans were repaid where ever demanded.

(c ) According to information and explanation provided to us the total amount overduefor more than 90 days in respect of the loan granted to UBHL aggregates Rs 16555 million(gross of tax and unpaid accrued interest). We understand from the Management that theCompany will pursue all rights and claims to recover the entire amount of the loantogether with unpaid accrued interest from UBHL and the Company raised a demand on UBHLfor repayment of the entire amount due. According to the information and explanation givento us the Company has filed affidavits in the winding up proceedings against UBHLupdating the Honourable High Court of Karnataka with information regarding UBHL’sdefault in payment of amounts due under the loan agreement.

Also refer Paragraph 2 under ‘Emphasis of Matter’ and Note 24(e) to thestandalone financial statements in relation to the settlement agreement.

(iv) In our opinion and according to the information and explanations given to us as aresult of the matters stated below we are unable to comment whether the Company hascomplied with the provisions of Sections 185 and 186 of the Act with respect to the loansand investments made:

(a) As stated in Note [26 (a)] to the standalone financial statements and Paragraph 1of the Basis for Qualified Opinion the Board had directed a detailed and expeditiousinquiry in relation to certain transactions identified during the year ended 31 March2014. The Inquiry stated that between 2010 and 2013 funds involved in many of thesetransactions were diverted from the Company and / or its subsidiaries to certain UB Groupcompanies. The Inquiry Report also indicated that the manner in which certain transactionswere conducted prima facie indicates various improprieties and legal violations.

(b) As stated in Note 26(b) to the standalone financial statements with regard to theprior transactions that were consolidated into the single loan due from UBHL on 3 July2013 the Inquiry stated that prima facie between 2010 and July 2013 certaintransactions appear to have been undertaken and certain accounting entries appear to havebeen made to show a lower exposure of the Company to UBHL than that which actually existedat that time. The inquiry also indicates that the manner in which these transactions wereconducted and these entries made prima facie indicates various improprieties and legalviolations.

Also refer note 26(c) to the standalone financial statements with respect to theongoing review of the Additional Matters and transactions with Additional Partiesidentified through the Inquiry as disclosed in Paragraphs 1 under ‘Basis forQualified Opinion’.

(ix) The Company has not raised any money by way of initial public offer or furtherpublic offer (including debt instrument). In our opinion and according to the informationand explanations given to us the term loans taken by the Company and applied during theyear were for the purpose for which they were raised.

The Inquiry referred to in Paragraph 1 of the ‘Basis for Qualified Opinion’and Paragraph 1 of the ‘Emphasis of Matter’ stated that certain funds werediverted to other UB Group entities in earlier years. Such diversions may indicateapplication of term loans for purposes other than for which they were raised.

Board’s response: Information and explanation on the observations inparagraphs [(iii) (iv) & (ix)] of the Annexure to the Auditor’s report areprovided in Notes 26(a) 26(b) 26(c) and 24(e) to the standalone financial statements.

In particular Note 24(d) provides information in connection with the non-approval bythe shareholders of the Company of the loan agreement with UBHL (and of other potentialrelated party transactions).

Furthermore as stated in Note 26(b) certain pre-existing loan / deposit / advanceswere due to the Company and its wholly-owned subsidiaries from UBHL and were in existenceas on March 31 2013. In addition the amounts owed by UBHL to the Company’swholly-owned subsidiaries had been assigned by such subsidiaries to the Company andrecorded as loans from such subsidiaries in the books of the Company. Such dues (togetherwith interest) aggregating Rs 1337.40 Crores were consolidated into and recorded as anunsecured loan by way of an agreement entered into between the Company and UBHL on July 32013. The interest rate under the above mentioned loan agreement with UBHL is 9.5% p.a.with the interest to be paid at six-monthly intervals starting at the end of 18 monthsfrom the effective date of the loan agreement. The loan has been granted for a period ofeight years and is payable in three annual instalments commencing from the end of 6thanniversary of the effective date of the loan agreement. Pursuant to the directions of theBoard the Inquiry referred to in Note 26(a) to the Statements also included a review ofdocumentation to further understand and assess elements of and background to the aboveloan arrangement and to establish the rationale / basis for the interest rate applicablein respect of the consolidated loan amount.

With regard to the prior transactions that were consolidated into the single loan onJuly 3 2013 the Inquiry Report stated that prima facie between 2010 and July 2013certain transactions appear to have been undertaken and certain accounting entries appearto have been made to show a lower exposure of the Company (and its subsidiaries) to UBHLthan the exposure that actually existed at that time. Prima facie this indicates variousimproprieties and potential violations of provisions inter alia of the Companies Act1956 and the then listing agreements signed by the Company with various stock exchangesin India on which its securities are listed. The financial impact of these non-complianceswere estimated by Management to be not material.

During the year ended March 31 2014 as a matter of prudence the Company provided forreceivables in relation to interest income of Rs 96.31 Crores and provided Rs 330.32Crores towards the principal outstanding as at March 31 2014. The notes to accounts forthe year ended March 31 2014 had recorded the Management’s belief that it should beable to recover and that no further provision is required for the balance amount of Rs995.46 Crores. The notes also mentioned that the Management would continue to assess therecoverability of the said loan on an on-going basis. As per the terms of the said loanagreement interest payable by UBHL to the Company in January 2015 amounted to Rs 191.10Crores (gross of tax) and a further interest amounting to Rs 127.05 Crores (gross of tax)was due in January 2016. However the Company is yet to receive such interest paymentsfrom UBHL.

In the financial year ended March 31 2015 and again in the financial year ended March31 2016 the Company received letters from UBHL stating that it is involved inlitigations with various creditors of Kingfisher Airlines Limited in different courts allover the country and that some of the winding up petitions filed against UBHL have beenadmitted by the High Court of Karnataka and due to Court orders passed in winding upproceedings it is unable to pay such sums without leave of the Court which it proposes toseek. Despite prior undertakings to obtain such leave from the Court to pay USL theamounts due and despite repeated follow up by the Company with UBHL in this regard theCompany has not received any update or information from UBHL indicating whether UBHL hasapplied to the Court for the requisite leave to pay USL.

As a result of the above and other relevant factors and as a matter of prudence theCompany had provided a further amount of Rs 995.46 Crores towards the entire balanceprincipal amount (i.e. the entire principal amount due under the loan agreement less theamount already provided in the accounts for the financial year ended March 31 2014) anddid not recognise interest income of Rs 120.70 Crores for the year ended March 31 2015.Accordingly the Company has also not recognised interest income of Rs 127.05 Crores forthe financial year ended March 31 2016.

The Company is pursuing all rights and claims to recover the entire amount of the loantogether with accrued interest from UBHL and has written to UBHL demanding payment of allsums. As a result of the foregoing and other relevant considerations the Company alsofiled affidavits in the winding up proceedings against UBHL updating the Court withinformation regarding UBHL’s conduct and default in payment of amounts due under theloan agreement. Additionally during the current year the Company has set-off an amountof Rs 24.93 Crores payable to UBHL under the trademark agreement against the provision forinterest receivables from UBHL and will continue to set off such payables to the extentfeasible.

With regard to the Additional Matters and transactions with Additional Parties asstated in Note 26(e) the Board has directed the MD & CEO to expeditiously furtherreview the Additional Matters and transactions with the Additional Parties during theperiod covered by the Inquiry and report to the Board his conclusions on the transactionsand any further impact on the Company’s financial statements.

C. Auditor’s observations under paragraph [(vii)(a)] of the Annexure to theAuditor’s report:

(vii) (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company amounts deducted / accrued in the books ofaccount in respect of undisputed statutory dues including Provident fund Employees’State Insurance Income-tax Sales-tax Service tax Duty of customs Duty of exciseValue added tax Cess and any other material statutory dues have not been regularlydeposited during the year by the Company with the appropriate authorities though thedelays in deposit have not been serious.

Board’s response: Management has informed the Board that there were minordelays in depositing certain undisputed statutory dues due to clerical errors and thatthese errors are being addressed so that such delays are further minimized if noteliminated altogether.

D. Auditor’s observations under paragraph [(viii)] of the Annexure to theAuditor’s report:

In our opinion and according to the information and explanations given to us theCompany has not defaulted in repayment of loans or borrowings to a financial institutionor any bank during the year. The Company does not have any dues to debenture holders oroutstanding loans or borrowings from government during the year.

Also refer the matter referred to in Paragraph 4 under ‘Emphasis of matter’and Note 25 to the standalone financial statements.

Board’s response: Management has informed the Board that as of March 31 2016there were no outstanding defaults by the Company of any dues to a bank or financialinstitution. As stated in Note 25 the Company has disputed a demand made by a bank andhas filed proceedings before the Honourable High Court of Karnataka contesting thebank’s actions including the bank’s false allegation that the Company hasdefaulted on certain loan payments.

E. Auditor’s observations under paragraph [(x)] of the Annexure to theAuditor’s report:

(a) As stated in Note 26 (a) to the standalone financial statements and Paragraph 1 ofthe ‘Basis for Qualified Opinion’ the Board had directed a detailed andexpeditious inquiry in relation to certain transactions identified during the year ended31 March 2014. The Inquiry stated that between 2010 and 2013 funds involved in many ofthese transactions were diverted from the Company and / or its subsidiaries to certain UBGroup companies. The Inquiry Report also indicated that the manner in which certaintransactions were conducted prima facie indicates various improprieties and legalviolations.

(b) As stated in Note 26(b) to the standalone financial statements with regard to theprior transactions that were consolidated into the single loan due from UBHL on 3 July2013 the Inquiry stated that prima facie between 2010 and July 2013 certaintransactions appear to have been undertaken and certain accounting entries appear to havebeen made to show a lower exposure of the Company to UBHL than that which actually existedat that time. The inquiry also indicates that the manner in which these transactions wereconducted and these entries made prima facie indicates various improprieties and legalviolations.

(c) As discussed in Note 26(d) to the standalone financial statements the Inquiry alsoindicated that an agreement signed with an Alleged Claimant for a lien on certaininvestments of the Company to secure an advance by the Alleged Claimant to KingfisherAirlines Limited was entered into without appropriate Board authorisation or approval.

During the current year we have submitted a report to the Central Government underSection 143(12) of the Act and the relevant rules thereunder.

Additionally pending the completion of the review of the Additional Matters andtransactions with Additional Parties identified through the Inquiry as disclosed inParagraph 1 under ‘Basis for Qualified Opinion’ we are unable to commentwhether any arrangements covered by such review can be termed as ‘fraud’ andwhether there are other instances of a similar nature.

Board’s response: See responses to paragraph 1 of the Auditor’s Report tothe Statements and to paragraphs [(iii) (iv) and (ix)] of the Annexure to the saidAuditor’s Report. As indicated in Note 30 to the Statements the Board’s AuditCommittee had provided its reply and observations to the auditor’s report undersection 143(12) of the Act and the relevant rules thereunder. The said reply andobservations to the Auditors include the following observations.

(i) The Board is not in a position to make (and has not made) any final determinationswith regard to the roles of any individuals involved. The Board therefore directed thatthe Company report such transactions to the authorities as required under applicable law.Accordingly the Company has duly reported the transactions and associated facts to therelevant authorities and has also responded / is in the process of responding as thecase may be to requests for clarifications on the Inquiry that have been sought by theRegional Director of the Ministry of Corporate Affairs the Income-Tax Department theSecurities and Exchange Board of India (SEBI) the Enforcement Directorate (ED) theBangalore policethe Institute of Chartered Accountants of India and the stock exchanges.

(ii) In addition as noted above pursuant to the Board’s directions a copy ofthe MD & CEO’s Inquiry report including the inputs and expert advice of theindependent advisers and specialists as well as the communications received from aconcerned director were provided to the Company’s auditors.

(iii) In connection with the recovery of funds that appear to have been diverted fromthe Company the Board passed a resolution that the Company should take the necessarysteps to pursue all rights and claims against and expeditiously recover its dues fromthe relevant parties to the extent possible. The Board has also authorized the MD &CEO to temper these actions if considered appropriate bearing in mind imperatives ofbusiness continuity with vendors / distributors. The results of these efforts arediscussed in the response to paragraph 1 of the Auditor’s Report to the Statements.

(iv) In light of the above and without making any determination as to fault orculpability at their meeting on April 25 2015 the directors noted that they had lostconfidence in Dr. Vijay Mallya continuing in his role as a director and as chairman andtherefore the Board called upon Dr. Mallya to resign forthwith as a director and as thechairman of the Board and step down from his positions in the Company’s subsidiaries.As stated in Note 24(e) to the Statements and as reported to the stock exchanges by theCompany on February 25 2016 the Company entered into a settlement with Dr. Mallyawhereby inter alia Dr. Mallya stepped down from his positions on the Board of theCompany and its subsidiaries.

(v) In respect of the other employees of the Company who appear to have been involvedin certain transactions covered by the Inquiry the Board directed the company’s MD& CEO to initiate necessary internal proceedings in accordance with the applicablerules and policies of the Company.

The Company completed these proceedings and took necessary actions against implicatedemployees in line with such rules and policies.

(vi) The Board at its meeting on April 25 2015 noted that the control systems of theCompany have been strengthened after July 2013. In addition the Board has continued toreview the operation of the Company’s robust controls environment.

(vii) Following its review of the Inquiry report the Board reaffirmed its commitmentto the highest standards of corporate governance and resolved that the Company wouldcooperate with all relevant authorities in relation to these matters and as mentionedabove the Company has been actively cooperating with all concerned authorities. (viii)Furthermore the Company received letters from erstwhile auditors who served as theCompany’s statutory auditors during the period covered by the Inquiry seeking tounderstand the impact of the findings of the Inquiry on their respective audit reports.Any remedial actions proposed by the previous auditors will be considered by the Companyin the light of applicable legal provisions. With regard to the review of the AdditionalMatters and transactions with Additional Parties identified through the Inquiry as statedin Note [26(a)] to the Statements the Board has directed the MD & CEO toexpeditiously further review the Additional Matters and transactions with the AdditionalParties during the period covered by the Inquiry and report to the Board his conclusionson the transactions and any further impact on the Company’s financial results. Basedon the outcome of such review the Company will take appropriate action in respect of theunderlying Additional Matters and transactions with Additional Parties as is fit andnecessary in the circumstances.

F. Auditor’s observations under paragraph [(xi)] of the Annexure to theAuditor’s report:

According to the information and explanations given to us and as stated in Note 45 tothe standalone financial statements the Managerial remuneration for the year ended 31March 2015 aggregated Rs 64.91 million and Rs 153.09 million towards remuneration of theManaging Director and Chief Executive Officer (MD & CEO) and the Executive Directorand Chief Financial Officer (ED & CFO) respectively. The aforesaid amounts includesremuneration in excess of the limits prescribed under the provisions of Schedule V to theAct. Subsequent to the Balance sheet date the Company received a communication from theCentral Government not approving such excess remuneration. The Company has responded tothe Central Government requesting reconsideration of its application for approval of suchexcess remuneration.

According to the information and explanations given to us and based on examination ofthe records of the Company the Company has paid / provided for managerial remunerationfor the year ended 31 March 2016 in accordance with the requisite approvals mandated bythe provisions 197 read with Schedule V to the Act.

Board’s response: The Board has commented on the above matter in its responseto paragraph 2 of the Auditor’s Report to the Statements.

G. Auditor’s observations under paragraphs[(xiii) & (xv)] of the Annexure tothe Auditor’s report:

(xiii) According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with the related parties are incompliance with Sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the financial statements as required by the applicableaccounting standards.

Also refer Paragraph 2 under ‘Emphasis of Matter’ and Note 24(e) to thestandalone financial statements in relation to compliance requirements under the Act andthe listing regulations arising out of the settlement agreement.

(xv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with director.

Also refer Paragraph 2 under ‘Emphasis of Matter’ and Note 24(e) to thestandalone financial statements in relation to compliance requirements under the Act andthe listing regulations arising out of the settlement agreement.

Board’s response: As stated in Note 24 (e ) to the Standalone financialStatements and as reported to the stock exchanges by the Company on February 25 2016the Company entered into a settlement with Dr. Mallya. Given the nature and complexitiesof the settlement and the possibility of varied interpretations of potentially applicableprovisions of the Act and SEBI regulations the Company obtained legal opinions from asenior legal counsel and from its external counsel opining that the settlement agreementand related documents are in compliance with the applicable provisions of the Act and SEBIregulations.

2.4 Board’s Responses to Observations/Qualifications in Secretarial Audit report:

The Board’s responses to the qualifications and other observations are as follows.

The Secretarial Auditors (Auditors) have submitted their report in form No. MR3 andqualified their opinion/observations in respect of the secretarial Audit conducted for thefinancial year 2015-16 as under and the Board’s responses are given against eachqualification/ observation as follows:

1. As mentioned in my report for the financial year ended on March 31 2015 for themanagerial remuneration paid in excess of limits prescribed under Section 197 read withSchedule V of the Companies Act 2013 in absence of profits during the said year theCompany had applied for the requisite approval from the Central Government. Subsequent toyear end the Company has received the communications from the Central Government notapproving such excess remuneration. The Company has responded to the Central Governmentrequesting reconsideration of its application for approval of such excess remuneration.

Board’s Response: The Company applied for the requisite approval from theCentral Government for such excess remuneration. Subsequent to the year end the Companyreceived a communication from the Central Government not approving the application due tonon-submission of the no objection certificate from one of its lenders. The Company isseeking to obtain the said no objection certificate from the relevant lender. Meanwhilethe Company has also applied to the Central Government for reconsideration of theapplication in view of the dispute with the Bank which are sub-judice and in the light ofthe special circumstances surrounding the matter and getting NOC from the Bank.

2. The vacancy in the office of Chief Financial Officer of the Company was not filledup by the Board of Directors within a period of six months from the date of vacancy asrequired under Section 203(4) of the Companies Act 2013. The Company has made necessaryapplication for compounding the said offense with the prescribed authorities under Section621A of the Companies Act 1956.

Board’s Response: The vacancy was filled up during the year with delay of fewdays. The Company has applied for compounding for this delay.

3. The Company did not hold its Sixteenth Annual General Meeting within a period of sixmonths from the closure of financial year ended on March 31 2015 as required underSection 96 of the Companies Act 2013. The Company has made necessary application forcompounding the said offence with the prescribed authorities under Section 621A of theCompanies Act 1956.

Board’s Response: As stated in para 3.4 of the Directors Report for the yearended March 31 2015 the Company had applied to the Registrar of Companies seekingextension of time for reason explained in the said Directors Report. However the Companydid not receive approval for extension of time for holding the Annual General Meeting fromthe Office of the Ministry of Corporate Affairs. The Annual General Meeting was called atthe earliest date feasible i.e. November 24 2015. Company has since applied forcompounding for this delay as well.

3. Material Changes and Commitments/ Events Subsequent to the date of theFinancial Statements.

3.1 Inquiry into Prior Year’s Audit Qualifications

In 2014 the Board had directed a detailed and expeditious inquiry in relation tocertain matters referred to below the role of individuals involved and potentialnon-compliance (if any) with the provisions of the Companies Act 1956 and otherregulations applicable to the Company in relation to such transactions and the possibleexistence of any other transaction of a similar nature (Inquiry). Pursuant to thedirections of the Board the Inquiry was headed by the MD & CEO of the Company. TheBoard also directed the MD & CEO to engage independent advisers and specialists asrequired.

At its meeting held on April 25 2015 the Board discussed and considered in detail thereport (Inquiry Report) submitted by the MD & CEO in relation to the Inquiry theinputs and expert advice of the independent advisers and specialists and other relevantinputs. Details regarding this Inquiry and the actions taken are contained in Note [26] tothe Statements as well as in the Board’s responses to the ObservationsQualifications and Adverse Remarks contained in the preceding section of this report.

The following paragraphs provide further updates on these matters.

In connection with the recovery of the funds that were diverted from the Company and/orits subsidiaries pursuant to the decision of the Board at its meeting held on April 252015 the Company initiated steps for recovery against the relevant parties so as to seekto expeditiously recover the Company’s dues from such parties to the extentpossible. During the financial year ended March 31 2016 the Company reached settlementswith four of the parties based on which the Company wrote back or reversed provisionsaggregating Rs 54.32 Crores. Settlements with the other parties have not been reached asyet and management is continuing discussions in this regard. During the year ended March31 2016 based on its assessment of recoverability the Management has written off Rs 566Crores out of the amounts provided for with respect to the aforesaid counterparties.

With regard to the Board’s recommendations concerning the former chairman asstated in Note [24(c)] to the Statements and further discussed below on February 252016 the Company entered into a settlement with Dr Mallya whereby inter alia Dr.Mallya stepped down from his positions on the Board of the Company and its subsidiaries.

With regard to the review of the Additional Matters and transactions with AdditionalParties identified through the Inquiry as stated in Note [26(c)] to the Statements theBoard has directed the MD & CEO to expeditiously further review the Additional Mattersand transactions with the Additional Parties during the period covered by the Inquiry andreport to the Board his conclusions on the transactions and any further impact on theCompany’s financial results. Based on the outcome of such review the Company willtake appropriate action in respect of the underlying Additional Matters and transactionswith Additional Parties as is fit and necessary in the circumstances.

The Company is continuing to cooperate with the authorities and provide informationbeing requested including in relation to the additional letters/ notices referred to inNote [30] to the financial statements for year ended March 31 2016.

3.2 Settlement Agreement with Dr. Vijay Mallya

As mentioned in Note [24(c)] to the Statements on February 25 2016 USL entered intoa settlement agreement with Dr. Mallya pursuant to which he resigned from his positions asa director and chairman of the Company and of the boards of its subsidiaries. Pursuant tothis settlement the Company and Dr. Mallya agreed a mutual release in relation to mattersarising out of the above-mentioned Inquiry by the Company into certain matters referred toin its financial statements for the financial year ended March 31 2014. Additionally USLundertook to Dr. Mallya that it shall not bring a civil claim for money damages orspecific performance against the counterparties mentioned in the aforesaid Inquiry inrelation to matters arising out of the said Inquiry. In connection with the settlementDr. Mallya procured or undertook to procure the termination by the relevant counterpartiesof certain historical agreements to which the Company was party and which were voted downby the shareholders in November 2014. While most of these historical agreements wereterminated at the same time as the settlement with Dr. Mallya (including mutual releasesfor claims arising thereunder subsequent to November 28 2014) one of the counterpartiesdid not agree to such termination and release notwithstanding Dr. Mallya’sundertaking to procure such termination. In addition to the above terms in the settlementDr. Mallya agreed to a global non-compete (excluding United Kingdom) noninterference andstandstill obligations as regards the Company for a period of five years following thedate of the settlement. The Company agreed that Dr. Mallya will have the honorary title of"Founder Emeritus - USL". USL confirmed that it has no intention to remove Mr.Sidhartha Mallya (Dr. Mallya’s son) as a director of Royal Challengers Sports PrivateLimited (RCSPL) which holds the franchise for the IPL team Royal Challengers Bangalore(RCB) for a period of two years or while RCB remains part of the USL Group whichever isearlier subject to Dr. Mallya’s continuing compliance with the terms of thesettlement. Dr. Mallya will have the status of Chief Mentor while Mr. Sidhartha Mallyaremains on the board of RCSPL. The members of the board of RCSPL will be able if theywish to consult with Dr. Mallya. Dr. Mallya’s above mentioned titles carry noauthority responsibility rights or benefits within the Company or its group. As part ofits arrangements with Dr. Mallya the Company also entered into certain principlespursuant to which Dr. Mallya or a party nominated by him would have a limited periodoption to purchase up to 13 non-core properties from the Company. If Dr. Mallya or hisnominee elects to acquire any or all of these properties the election would need to bemade in a time-bound manner and the price at which the properties may be acquired will bethe fair market value as assessed by a reputed independent valuer appointed by USL with a10% discount applying to the valuation of three of the residential properties (in MumbaiGoa and New Delhi) provided that each of the fair market value and the discounted valueapplicable to certain select properties as specified above shall not be less than thevalue of that property adopted or assessed by any authority or state government for thepurposes of payment of stamp duty in respect of the transfer of the relevant property. Thesale prices for these properties (including the post-discount price for the relevant threeproperties) are expected to be higher than the prices which applied under thenow-terminated properties call agreement that was one of the above-mentioned historicalagreements terminated in connection with the settlement.

Pursuant to the settlement agreement UBHL and Kingfisher Finvest India Limited’s(KFinvest’s) nominated director on the USL board Dr. Mallya resigned. UBHL indicatedit may be prevented from agreeing to terminate the shareholders agreement immediately byreason of certain legal and court restrictions which may apply as a result of winding-upproceedings to which UBHL is subject in India. USL was informed that UBHL proposes to seekcourt leave for an agreed termination of the Shareholders’ Agreement and USL hasreceived certain undertakings in this regard from Dr. Mallya. USL has received furthernotice from Dr. Mallya regarding some steps taken though UBHL is yet to seek court leaveto terminate the shareholders’ agreement.

Given the nature and complexities of the settlement and the possibility of variedinterpretations of potentially applicable provisions of the Act and SEBI regulations asmentioned above the Company has obtained legal opinions from a senior legal counsel andfrom its external counsel opining that the settlement agreement and related documents arein compliance with the applicable provisions of the Act and SEBI regulations.

3.3 Requests for Information from Regulators

A number of letters and notices were received by the Company with respect to thematters under Inquiry.

The Company received a notice from the Ministry of Corporate Affairs ("MCA")for an inspection under Section 206(5) of the Act of the books of accounts and otherbooks and papers of the Company. Following the Inquiry the Company and its directors andofficers (including former directors and officers) also received a notice from the JointDirector MCA requesting explanations and comments as to why action should not beinitiated in relation to various contraventions alleged by the Joint Director underprovisions of the Act. The Company has responded to this notice. A notice under Section131 of the Income Tax Act 1961 has also been received. The Company is cooperating fullywith the authorities in relation to the same.

The Company also received letters from erstwhile auditors who served as theCompany’s statutory auditors during the period covered by the Inquiry seeking tounderstand the impact of the findings of the Inquiry on their respective audit reports.Any remedial actions proposed by the previous auditors will be considered by the Companyin the light of applicable legal provisions.

As directed by the Board the Company provided a copy of the Inquiry Report to itsstatutory auditors for their review and further actions as may be required. Followingthis the Audit Committee of the Board received from the statutory auditors a report underSection 143(12) of the Act and the relevant rules thereunder seeking the AuditCommittee’s reply/ observations. The Audit Committee provided its reply/ observationsto the statutory auditors. Thereafter the statutory auditors issued a report to theCentral Government under Section 143(12) of the Act and the relevant rules thereunder.

In February 2016 certain directors of the Company including independent directorswere requested to provide statements and information to the Serious Frauds InvestigationOffice (SFIO) in relation to the SFIO’s investigation into Kingfisher Airlines.

The Company also received letters from the National Stock Exchange Limited (NSE)pursuant to SEBI circular no. CIR/CFD/ DIL/7/2012 dated August 3 2012 in relation to FormB along with audited financial statements for the financial year ended March 31 2014.SEBI directed the NSE to advise the Company to suitably rectify/ provide relevantinformation/ explanations on the qualifications raised by the statutory auditors. TheCompany has suitably addressed the same to the extent possible and responded to theNSE’s letters.

By a letter dated October 21 2015 the Institute of Chartered Accountants of Indiasought a copy of the Inquiry Report pursuant to the provisions of Section 21C of theChartered Accountants Act 1949. The Company has responded to the request.

By a letter dated October 29 2015 the Company received a request from the ED seekinginformation and documents regarding USL’s present and former joint ventures andwholly-owned subsidiaries abroad including USL Holdings Limited (BVI) and itssubsidiaries. The Company has responded to the ED and provided the information sought. Bya letter dated May 5 2016 the ED summoned one of the Company’s senior officers toprovide a statement and tender evidence in connection with the ED’s investigationinto matters under the Prevention of Money Laundering Act 2002. The Company’sofficer duly responded to the summons and the Company has also provided additionalinformation as requested by the ED and is cooperating fully with the authorities.

By a warrant dated November 24 2015 issued by the Office of the Tax Recovery Officerthe Company was informed that a certificate had been drawn up by the tax recovery officeragainst Kingfisher Airlines Limited and its chairman cum managing director (Dr. Mallya)and stating that a sum of Rs 350.6 Crores had not been paid in satisfaction of the saidcertificate. The Company was accordingly directed to serve a copy of the warrant on Dr.Mallya and unless after such service Dr. Mallya "pays forthwith the said sum of Rs350.60 crores together with interest at the rate of one and one-half per cent for everymonth or part of a month" thereon to proceed to attach the "salaryremuneration and allowances" of the director named in the warrant and to hold thesame until further orders from the tax recovery officer. The Company has accordinglyserved such warrant.

By a letter dated March 9 2016 SEBI sought further information regarding variousaspects of the settlement agreement with Dr. Mallya. The Company responded to SEBI andprovided the information and clarifications sought. The Company recently received a followup request dated May 11 2016 seeking additional clarifications including on the matterscovered by the Company’s inquiry referred to above. The Company is in the process ofpreparing and submitting its responses to this additional request and will be cooperatingfully with SEBI in this matter.

3.4 Dispute with a Bank

As mentioned in Note [25] to the Statements during the year ended March 31 2014 theCompany decided to prepay credit facilities availed in the earlier years from a bankamounting to Rs 621.66 Crores. This loan was secured by assets of the Company and pledgeof shares of the Company held by the USL Benefit Trust. The Company deposited a sum of Rs628.00 Crores with the bank and instructed the bank to debit the amount from the cashcredit account towards settlement of the loan and release the assets / shares pledged bythe Company including towards a prepayment penalty of Rs 4.0 Crores that was sought to belevied by the bank. The bank however did not apply the sums towards prepayment. TheCompany has disputed the same and a petition is pending before the Hon’ble High Courtof Karnataka. The original tenure of the said credit facility ended on March 31 2015. OnMarch 31 2015 the bank demanded an amount of Rs 47.4 Crores towards principal andinterest on the said loan which the Company contested before the Hon’ble High Courtof Karnataka. As per the order of the Hon’ble High Court of Karnataka the Companyengaged with the bank to commence discussions. However during the year the bank obtainedan ex parte injunction in proceedings between the bank and Kingfisher Airlines Ltd beforethe Debt Recovery Tribunal Bangalore (DRT) restraining the USL Benefit Trust fromdisposing of the pledged shares until further orders. The Company and USL Benefit Trustupon receiving notice of the said order filed their objections against such ex parteorder passed in proceedings in which neither the Company nor the USL Benefit Trust are orhave been enjoined as parties and the Company is vigorously contesting the same. InDecember 2015 the Hon’ble High Court of Karnataka issued a stay order restrainingthe bank from dealing with the above-mentioned pledged shares until further orders by theHon’ble High Court. Thereafter the Company received another notice from the relevantbank seeking to recall the loan which had been prepaid and demanding a sum of Rs 45.94crores as well as a subsequent notice issued under section 13(2) of SARFAESI Act inrelation to the same loan. Pursuant to an application filed by the Company before theHon’ble High Court in the writ proceedings the Hon’ble High Court directedthat if the Company deposited the sum of Rs 45.94 crores with the bank the bank shouldhold the same in a suspense account and should not deal with any of the secured assetspledged by the Company under the loan till the disposal of the first petition filed by theCompany in the Hon’ble High Court of Karnataka. Subsequent to the year end theCompany has accordingly deposited the said sum and has replied to the bank’s variousnotices in light of the above. The bank has recently issued a reply to the Company undersection 13(3) of SARFAESI Act demanding further interest on the prepaid loannotwithstanding the prepayment and the deposit of the additional amounts by the Companypursuant to the orders of the Hon’ble High Court of Karnataka. The Company intends tovigorously contest these baseless demands. Pending closure of this matter the demand bythe bank has been disclosed as a contingent liability.

3.5 Prohibition in Bihar

The Government of Bihar declared complete prohibition in that State w.e.f. April01 2016. Company has taken cognizance of the matter and is taking steps to mitigate thisrisk. Please also refer to the Section Management Discussion and Analysis Report formingpart of this Directors Report.

4. Change in nature of Business if any.

The details of change in nature of business is provided under Management Discussionand Analysis Report and the Report on Risk Management forming part of this Annual Report.

5. Dividend

In view of the accumulated losses of the preceding years your directors have notrecommended any dividend.

6. Capital

As a result of the Scheme of Amalgamation between the Company and SW Finance CO Ltd.being effective from January 1 2014 and upon sanction of the Scheme by the Hon’bleHigh Court of Karnataka and Hon’ble High Court of Judicature at Bombay theauthorized share capital of the Company stands increased to Rs 7192000000 divided into548000000 equity shares of Rs 10/- each amounting to Rs 548 crores 159200000Preference shares of Rs 10/- each amounting to Rs 159.20 crores and 1200000 7%non-cumulative redeemable Preference Shares of Rs 100/- each amounting to Rs 12 crores.

The issued subscribed and paid-up equity share capital of your company standsunchanged at Rs 1453277430/- divided into 145327743 equity shares of Rs 10/- each.

7. Global Depository Shares

The Company had issued during the Financial year 2005-06 17502762 global depositoryshares (GDSs) representing 8751381 equity shares with 2 GDS representing 1 equity shareof par value of Rs 10/-each at US$7.4274 per GDSs aggregating to US$ 130 millioncontinue to be listed on the Luxembourg stock exchange. These GDS do not carry any votingrights. The present outstanding GDRs as on March 31 2016 was 745588.

8. Performance of the Company

During the year under review your company has achieved a sales volume of over 93million cases and declined 1% compared to prior period (previous year 94 million casesexcluding royalty / franchise markets). Net sales/income from operations of thecompany’s brands grew 13% in the financial year ended March 31 2016 and stood at Rs90919 million net of duties and taxes (previous year Rs 80493 million). Directdistribution of the Diageo brand portfolio drove 8 ppts of net sales growth. Sales volumeof the company’s brands in the ‘Prestige and Above’ segment grew 10% in thefinancial year ended March 31 2016 and stood at 34 million cases (previous year 31million cases). Net sales of the ’Prestige and Above’ segment grew 26% and stoodat 46013 million net of duties and taxes (previous year 36500 million). Directdistribution of the Diageo brand portfolio contributed 19 ppts net sales growth to thePrestige and Above segment. The ’Prestige and Above’ segment represents 37% oftotal sales volumes and 51% of total net sales with 4 ppts and 5 ppts improvementrespectively compared to prior year.

9. Details of Subsidiary Companies Joint Ventures and Associate Companies andtheir Financial Position Your Company had 19 subsidiary companies in the financialyear ended on March 31 2016. The information required under the first proviso to section129(3)of the Act is given inform AOC- 1 in Annexure 1. The Company’s policyfor determining material subsidiaries is available at www.unitedspirits.in.

Consequent to the sale Bouvet Ladubay S.A.S. and Chapin Landias S.A.S. the two whollyowned subsidiaries of the Company ceased to be subsidiaries of the Company and as statedin the earlier note SW Finance Co. Limited also ceased to be subsidiary of the Companyupon its merger with your Company.

10. Prospects/ Outlook

The details about prospects/ outlook of your Company are provided under the ManagementDiscussion and Analysis Report forming part of this Annual Report.

11. Depository System

The trading in the equity shares of your Company is under compulsorydematerialisation mode. As on March 31 2016 equity shares representing 98.72% of theequity share capital are in dematerialised form. As the depository system offers numerousadvantages members are requested to take advantage of the same and avail of the facilityof dematerialisation of the Company’s shares.

12. Board Meetings Board of Directors Key Managerial Personnel & Committees ofDirectors 12.1 A. Appointmentchange in designation and resignation

Details on appointments changes in designation and resignation of Directors keymanagerial personnel and Committees of Directors as well as on Board and Committeemeetings of your company and the matters required to be specified pursuant to sections134 and 178 of the Companies Act 2013 and the SEBI (Listing Obligations And DisclosureRequirements) Regulations are provided in the Corporate Governance Report that is annexedto and forms part of this Annual Report.

B. Re-appointment

As per the provisions of the Act Dr. Nicholas Bodo Blazquez retires by rotationand being eligible offers himself for re- appointment.

A brief profile of Dr. Nicholas Bodo Blazquez is provided in the Notice of 17th AGM.

C. Independent Directors

As stated in the Corporate Governance Report the following Independent Directors wereappointed at the 16th annual general meeting (AGM) of your Company who were appointed asAdditional Directors by the Board of Directors for a period of 5 years from the date oftheir appointment by the Board as shown below Mr. Rajeev Gupta w.e.f. December 23 2014Mr. M. K. Sharma w.e.f. April 1 2015

Relay B.V. holding Company of your Company has nominated Mr. Vinod Rao as a Director inthe Company and accordingly the Board of Directors of your Company appointed Mr. VinodRao as a director with effect from May 24 2016.

A brief profile of Mr. Vinod Rao is provided in the Notice of 17th AGM.

Mr. Sudhakar Rao an Independent Director of the Company has resigned as directorw.e.f. May 19 2016.

Your directors place on record their sincere appreciation of the valuable servicesrendered by Mr. Sudhakar Rao during his tenure as director in the Company.

D. Key Managerial Personnel

Mr. Sanjeev Churiwala was appointed as Chief Financial Officer with effect fromNovember 16 2015 in place Mr. P. A. Murali former Executive Director and Chief FinancialOfficer who resigned w.e.f. April 22 2015.

Mr. V. Ramachandran was appointed as Company Secretary with effect from May 1 2015 inplace of Mr. V. S. Venkataraman former Company Secretary who retired on March 31 2015.

E. Number of Meetings of the Board

The details of the Board Meetings and other committee Meetings held during thefinancial Year 2015-16 are stated in the Corporate Governance Report.

F. Board Committees

The Company has setup the following committees of the Board.

Audit Committee Nomination and Remuneration Committee Stakeholders RelationshipCommittee Corporate Social Responsibility Committee Risk Management Committee andGeneral Committee of Directors.

The Board of Directors at their meeting held on May 12 2016 merged the RiskManagement Committee with the Audit Committee and the Audit Committee was renamed as Auditand Risk Management Committee.

The composition of each of the above committees and their respective roles andresponsibilities are detailed in the Corporate Governance Report.

G. Recommendations of the Audit Committee

All the recommendations of the audit committee have been accepted by the Board.

H. Details of remuneration to Directors

As required under Section 197(12) of the Act information relating to remuneration paidto Directors during the financial year 2015 – 16 is provided in the CorporateGovernance Report and in form MGT 9 that is annexed to and forms part of this AnnualReport as Annexure-4.

Furthermore as stated in the Corporate Governance Report the Company has requestedthe Central Government to reconsider the applications for remuneration paid in excess ofthe limits prescribed under the provisions of Schedule V to the Act during the financialyear ended March 31 2015.

As stated in the Corporate Governance Report sitting fees are paid to non-executiveDirectors for attending Board/ Committee meetings. They are also entitled to reimbursementof actual travel expenses boarding and lodging conveyance and incidental expensesincurred in attending such meetings in accordance with the travel policy for Directors.In addition the Non-Executive Directors are also eligible for commission every year notexceeding 1% of the net profits of the Company calculated in accordance with section 198of the Act as approved by the shareholders at the AGM held on September 30 2014. Suchapproval remain in force until revoked. The payment of Commission is to be decided by theBoard of Directors based on the recommendation of the Nomination and Remuneration

Committee. Criteria for payment of remuneration to non-executive directors is as below:

1. Membership of Committees

2. Chairmanship of the Committees/Board

3. Benchmarking with other companies

The Company has made a provision of Rs 1.25 Crores for paying commission to thefollowing Non-Executive Directors subject to approval and adoption of the auditedfinancial statement for the year ended March 31 2016

1) Mr. M.K Sharma

2) Mr. Sudhakar Rao (Ceased to be director w.e.f. May 19 2016)

3) Mr. D. Sivanandhan

4) Dr. (Mrs.) Indu Shahani

5) Mr. Rajeev Gupta

6) Mr. Ravi Rajagopal

The criteria for payment of remuneration to executive directors is determined by theNomination and Remuneration Committee.

I. Board Evaluation Criteria

Pursuant to the provisions of the Act and Regulation 17 of the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 the Board has carried out anannual performance evaluation of its own performance the Directors individually as wellas the Board Committees. The evaluation process considered the effectiveness of the Boardand the committees with special emphasis on the performance and functioning of the Boardand the Committees. The evaluation of the Directors was based on the time spent by each ofthe Board Members core competencies expertise and contribution to the effectiveness andfunctioning of the Board and the Committees.

12.2 Vigil Mechanism

Your Company has a well-established vigil mechanism in place which is managed by thecompliance & ethics team. Ispeak is a confidential service available to employees tomake a report when they believe there to be a potential breach of the code policies orapplicable laws. ispeak is managed by an external company with staff who are trained todeal with the calls and translators who are immediately available to assist if required.Access to the Chairman of the Audit Committee is provided for in appropriate/ exceptionalcases as required under the Act and the SEBI (Listing obligations and DisclosureRequirements) Regulations 2015. All complaints are investigated by the compliance andethics team and appropriate action taken in accordance with your company’s policies.

12.3 Related Party Transactions

The Company’s policy on dealing with related party transactions was adopted bythe Board on June 15 2015 and has been amended from time to time and is available onwebsite link http://unitedspirits.in.

All related party transactions that were entered into during the financial year were onan arm’s length basis and were in the ordinary course of business. There are nomaterially significant related party transactions made by the company with promotersdirectors key managerial personnel or other designated persons which may have apotential conflict with the interest of the company at large.

The details of related party transactions required under section 134(3)(h) read withrule 8 of the Companies (Accounts) Rules 2014 is given inform AOC2 and the same isenclosed as

Annexure- 2 .

As mentioned above on February 25 2016 USL entered into a settlement agreement withDr. Mallya pursuant to which inter alia he resigned from his positions as a director andChairman of the Company and of the boards of its subsidiaries. Given the nature andcomplexities of the settlement and the possibility of varied interpretations ofpotentially applicable provisions of the Act and SEBI regulations as mentioned above theCompany has obtained legal opinions from a senior legal counsel and from its externalcounsel opining that the settlement agreement and related documents are in compliancewith the applicable provisions of the Act and SEBI regulations.

13. Auditors 13.1 Financial Audit

M/s. B.S.R. & Co. LLP Chartered Accountants Statutory Auditors of your Companyhave tendered their resignation with effect from the conclusion the ensuing 17thAGM. The Audit Committee at their meeting held on June 8 2016 recommended theappointment of M/s.Price Waterhouse & Co Chartered Accountants LLP (FRN 304026E/E-300009) who have given their consent and willingness to be appointed as Auditors of yourCompany. The Board of Directors at their meeting held on the same day approved therecommendation of the Audit Committee and proposed to appoint M/s. Price Waterhouse &Co Chartered Accountants LLP as Auditors of your Company for a period of 5 years from theconclusion of the ensuing 17th AGM till the conclusion of the 22ndAGM of the Company subject to the approval of the members of the Company at the ensuingAGM.

13.2 Secretarial Audit

Pursuant to the provisions of section 204 of the Act and the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 a Secretarial Audit has beencarried out by Mr Sudhir V Hulyalkar Practising Company Secretary and his report isannexed as Annexure 3.

14. Listing of Shares of the Company

The equity shares of your Company continue to be listed with the BSE Limited andthe NSE. The Global Depository Shares issued by the Company have been listed on theLuxembourg Stock Exchange. The listing fees due as on date has been paid to the respectivestock exchanges.

15. Corporate Governance

A Corporate Governance Report is annexed separately as a part of this report.

16. Management Discussion and Analysis Report

The Management Discussion and Analysis Report is annexed separately as a part of thisreport.

17. Fixed Deposits

As reported in the previous year’s annual report your Company discontinuedaccepting fixed deposits from the public and shareholders effective January 1 2014. Inaddition pursuant to section 74(1)(b) of the Act the Board of Directors at their meetingheld on August 1 2014 decided to repay all fixed deposits maturing on or after March 312015 by March 31 2015. Fixed Deposits from the public and shareholders which remainedunclaimed and for which instructions had not been received from the depositors as on March31 2016 stood at Rs 16107729. This amount was transferred into a separatenon-interest bearing escrow account opened specifically for the purpose of re-payment hasbeen re-paid consistent with the provisions of the Act and the rules made thereunder. Ofthis amount a sum of Rs 2858043 (as of May 31 2016) has since been paid as perinstructions received after the year end. The balance unclaimed fixed deposits continue toremain in the escrow account.

18. Extract of Annual Return

The details forming part of the extract of the Annual Return in form MGT 9 is annexedas Annexure 4.

19. Transfer to Investor Education and Protection Fund(IEPF)

Pursuant to the provisions of Sections 205A (5) and 205C of the Companies Act 1956read with Rule 8 of the Companies (Accounts) Rules 2014 the Unclaimed Dividend andDeposits remain unclaimed and unpaid for a period of more than 7 years. The Company hasaccordingly transferred an amount aggregating to Rs 1688655/- as unpaid dividend and Rs1191611/- as unclaimed fixed deposits including interests during the year to theInvestor Education and Protection Fund within 30 days from the expiry of 7 years as perthe details given below.

Dividend:

Financial Year No. of Members who have not claimed their dividend Unclaimed dividend as on March 31 2015 Unclaimed dividend as % to total dividend Date of declarat- ion Last date for claiming the dividend prior to its transfer to IEPF
2008-09 11871 2046070.00 0.95 09-Oct-2009 8-Nov-2016
2009-10 12523 2725225.00 0.87 14-Oct-2010 13-Nov-2017
2010-11 14490 2867212.50 0.88 22-Sep-2011 21-Oct-2018
2011-12 16476 3144950.00 0.96 16-Oct-2012 15-Nov-2019
2012-13 10450 2056302.50 0.57 17-Sep-2013 16-Oct-2020
2013-14 - Not applicable - Not applicable as no dividend was declared for the year 2014-15. Year 2021
2014-15 - Not applicable - Not applicable as no dividend was declared for the year 2015-16. Year 2022

Fixed Deposits:

1. Accepted during the year NIL
2. Remained unpaid or unclaimed as at the end of YEAR AMOUNT
the year 2015-16 Not Applicable
2014-15 4556953.00
2013-14 3014852.00
2012-13 3909758.00
2011-12 1363638.00
2010-11 955348.00
2009-10 1879120.00
3. Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so number of such cases and the total amount involved NIL
4. The Details of deposits which are not in compliance with the requirements of Chapter V of the Act Not Applicable

Necessary compliance under rule 3 of the Investor Education and Protection Fund(Uploading of information regarding unpaid and unclaimed amounts lying with companies)Rules 2012 has been ensured

20. Human Resources

Employee relations remained cordial at all the locations of the Company.

Particulars of employees drawing an aggregate remuneration of Rs 6000000/- or aboveper annum or Rs 500000/- or above per month as well as additional information onemployee remuneration as required under the provisions of rule 5(1) 5(2) and 5(3) of theCompanies (Appointment and Remuneration of Managerial personnel) Rules 2014 is annexed aspart of this report in Annexure 5 hereto.

21. Employees Stock Option Scheme

Your Company has not offered any stock options to its employees during the year2015-16. During the year 2015–16 the Board at its meeting held on August 20 2015approved a Stock Appreciation Rights (SAR) plan for grant of 500000 SARs and authorisedthe Nomination and Remuneration Committee to decide the criteria for grant and vesting ofthe SARs to employees and eligible directors. Since there will be no fresh issue of sharesas a result of the SARs there will be no dilution of equity and earning per share.

22. Particulars of Loans Guarantees and Investments

Loans guarantees and investments covered under Section 186 of the Act are detailed inNotes to the financial statements which are as follows:

Notes 7 and 11.1 relating to investmentsNotes 9 and 11.5 relating to loans given andNote 33 relating to guarantee given as per the standalone financial statements for theyear ended March 31 2016 include these disclosures.

23. Risk Management

Details on Risk Management are annexed as part of this report in

Annexure 6 hereto.

24. Internal Financial Controls

The Board considered material placed before it and after reviewing the confirmationfrom external parties and reviewing the effectiveness of the policies and proceduresadopted by the Company for ensuring orderly and efficient conduct of its businessincluding adherence to company’s policy safeguarding its assets prevention anddetection of frauds and errors and completeness of accounting records and timelypreparation of financial statements the Board has satisfied itself that the Company haslaid down internal financial controls commensurate with size of the company and that suchinternal financial controls are broadly adequate and are operating effectively. Thecertification by the auditors on internal financial control forms part of the auditreport.

25. Corporate Social Responsibility

Information on the composition of the Corporate Social Responsibility (CSR) Committeeis provided in the Corporate Governance Report that forms part of this annual report.Furthermore as required by section 135 of the Act and the rules made thereunderadditional information on the policy and implementation of CSR activities by your companyduring the year are provided in Annexure 7 to this report. Business ResponsibilityReport under Regulation 34(2)(f ) of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 has been enclosed as Annexure 9 and also uploadedon to the Company’s websitewww.unitedspirits.in

26. Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

The particulars prescribed under section 134(3)(m) of the Act read with rule 8 of thecompanies (Accounts) Rules 2014 are set out in Annexure 8 to this report.

27. Details of Significant and Material Orders Passed by the Regulators or CourtsImpacting the Going Concern Status and Company’s Operations in Future The Company hasnot received any significant or material order passed by regulators or courts impactingthe Company’s going concern status or the Company’s operations in future. TheManagement Discussion Analysis Report read with the report on Risk Management containsimpact on the business due to regulatory changes.

28. Disclosure as required Under Section 22 of Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013.

The Company has implemented a prevention of sexual harassment policy in line with therequirements of the Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013 (SHWWA). An Internal Complaints Committee (ICC) has been set up toredress complaints received regarding sexual harassment and on-going training is providedto employees as required by the SHWWA. During the financial year 2015-16 one complaint wasreceived and disposed of by the ICC.

29. Directors’ Responsibility Statement

Pursuant to section 134 (5) of the Act in relation to financial statements (togetherwith the notes to such financial statements)

for the year 2015-16 the Board of Directors report that:

(i) in the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanation relating to material departures;

(ii) the Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the company at the end of the financial year and ofthe profit/ loss of the Company for that period;

(iii) the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the company and for preventing and detecting fraud and other irregularities;

(iv) the Directors have prepared the financial statements on a going concern basis;

(v) the Directors have laid down internal financial controls to be followed by thecompany commensurate with the size and nature of its business and the complexity of itsoperations and that such internal financial controls are adequate and are operatingeffectively; and

(vi) the company has a system of getting reports of compliance periodically from theunits and is also in the process of implementing more comprehensive systems to ensurecompliance with the provisions of all applicable laws.

Your Directors place on record their sincere appreciation for the continued supportfrom shareholders customers suppliers banks and financial institutions and otherbusiness associates.

A particular note of thanks to all employees of your company without whosecontribution your company could not have achieved the year’s performance.

By Authority of the Board
Anand Kripalu M K Sharma
MD & CEO Chairman
Bangalore
June 8 2016