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United Spirits Ltd.

BSE: 532432 Sector: Consumer
NSE: MCDOWELL-N ISIN Code: INE854D01016
BSE 15:54 | 27 Mar 2018 United Spirits Ltd
NSE 05:30 | 01 Jan 1970 United Spirits Ltd
OPEN 3111.10
PREVIOUS CLOSE 3108.85
VOLUME 28461
52-Week high 4003.45
52-Week low 1831.25
P/E 83.53
Mkt Cap.(Rs cr) 46,423
Buy Price 0.00
Buy Qty 0.00
Sell Price 3194.35
Sell Qty 252.00
OPEN 3111.10
CLOSE 3108.85
VOLUME 28461
52-Week high 4003.45
52-Week low 1831.25
P/E 83.53
Mkt Cap.(Rs cr) 46,423
Buy Price 0.00
Buy Qty 0.00
Sell Price 3194.35
Sell Qty 252.00

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

Company auditors report

To the Members of United Spirits Limited Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of United SpiritsLimited ("the Company") which comprise the balance sheet as at 31 March 2016the statement of profit and loss and the cash flow statement of the Company for the yearthen ended and a summary of significant accounting policies and other explanatoryinformation.

Management’s Responsibility for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Company in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecified under Section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding of the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these standalone financial statementsbased on our audit.

We have taken into account the provisions of the Act the accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified underSection 143(10) of the Act. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the financial statements. The procedures selected depend on theauditor’s judgment including the assessment of the risks of material misstatement ofthe financial statements whether due to fraud or error. In making those risk assessmentsthe auditor considers internal financial control relevant to the Company’spreparation of the financial statements that give a true and fair view in order to designaudit procedures that are appropriate in the circumstances. An audit also includesevaluating the appropriateness of the accounting policies used and the reasonableness ofthe accounting estimates made by the Company’s Directors as well as evaluating theoverall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our qualified audit opinion on the standalone financial statements.

Basis for Qualified Opinion

1. 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. Basedon 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 relation to matters also set out therein.

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.

2. As stated in Note 45 to the standalone financial statements the Managerialremuneration for the year ended 31 March 2015 aggregated Rs 64.91 million and Rs 153.09million towards remuneration of the Managing Director and Chief Executive Officer (MD& CEO) and the Executive Director and Chief Financial Officer (ED & CFO)respectively. The aforesaid amounts includes remuneration in excess of the limitsprescribed under the provisions of Schedule V to the Act. Subsequent to the balance sheetdate the Company has received communications from the Central Government not approvingsuch excess remuneration. The Company has responded to the Central Government requestingreconsideration of its application for approval of such excess remuneration.

Qualified Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effects of the matters described in the Basis forQualified Opinion paragraph above the aforesaid standalone financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India of the state ofaffairs of the Company as at 31 March 2016 and its profit and cash flows for the yearended on that date.

Emphasis of Matter

We draw attention to:

1. Note 26 (b) to the standalone financial statements which states that during theyear ended 31 March 2014 various pre-existing loans / advances / deposits (together withinterest) due from United Breweries (Holdings) Limited ("UBHL") by the Companyand its subsidiaries aggregating Rs 13374.17 million on 3 July 2013 were consolidatedinto a single loan agreement dated 3 July 2013 entered into between the Company and UBHL.With regard to the prior transactions that were consolidated into the single loan due fromUBHL on 3 July 2013 the Inquiry 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 to UBHL than that which actuallyexisted at that time. The inquiry also indicates that the manner in which thesetransactions were conducted and these entries made prima facie indicates variousimproprieties and legal violations. As per the terms of the said loan agreement interestpayable by UBHL to the Company in January 2015 amounted to Rs 1911.00 million (gross oftax) and a further interest amounting to Rs 1270.50 million (gross of tax) was due inJanuary 2016. However the Company is yet to receive such interest payment from UBHL. TheCompany has received a letter from UBHL stating that it is involved in litigations withvarious creditors of Kingfisher Airlines Limited in different Courts all over the countryand that some of the winding up petitions filed against UBHL have been admitted by theHigh Court of Karnataka. As a result of the above and other relevant factors during theyear ended 31 March 2015 the Company provided the remaining principal balance of the loanaggregating Rs 9954.60 million (in addition to the Rs 3303.19 million that was providedfor during the year ended 31 March 2014) and did not recognise interest income of Rs1207.00 million for the year ended 31 March 2015 (in addition to the provision forinterest received (net) of Rs 713.77 million for the year ended 31 March 2014).Accordingly the Company has also not recognised interest income of Rs 315.90 million andRs 1270.50 million for the quarter and twelve months ended 31 March 2016 respectively;

2. As stated in Note 24 (e) to the standalone financial statements on 25 February2016 the Company entered into a settlement agreement with a director pursuant to which heresigned from his positions as a director and chairman of the Company and of the boards ofits subsidiaries. Amongst other terms as per the agreement the director agreed to a fiveyear global non-compete (except United Kingdom) and procured / agreed to procuretermination of certain agreements that were voted down by the Company’s shareholdersin the Extra-ordinary General Meeting ( "EGM") held on 28 Novem ber 2014. TheCompany under the settlement agreement inter alia agreed a mutual release in relation tomatters arising out of the initial inquiry by the Company into certain matters referred toin its standalone financial statements for the year ended 31 March 2014 (as mentioned inthe Note 26 (a)). Additionally the Company undertook to the aforesaid director that itshall not bring a civil claim for money damages or specific performance against thecounterparties mentioned in the aforesaid note 26 (a) in relation to the matters referredto therein. The Company also entered into certain arrangements giving the director or hisnominee an option to buy certain non-core properties of the Company as per the termsstated therein. The Securities and Exchange Board of India ("SEBI") soughtinformation regarding certain aspects of the settlement agreement to which the Companyhas responded (Refer Note 30 (i) to the standalone financial statements). Given the natureand complexities of the settlement and the possibility of varied interpretations ofpotentially applicable provisions of the Act and SEBI regulations the Company obtainedlegal opinions from a senior legal counsel and its external counsel opining that thesettlement agreement and the related documents are in compliance with the applicableprovisions of the Act and SEBI regulations;

3. As stated in Note 24 (d) to the standalone financial statements as per therequirements of the equity listing agreements entered into by the Company with variousstock exchanges in India and variouscircularsandregulationsissuedbytheSEBIandapplicableprovisions of the Act the Companysought approval of its equity shareholders for certain agreements in the extraordinarygeneral meeting ("EGM") held on 28 November 2014. Some of the agreements asdetailed in the aforesaid note were not approved by the equity shareholders in theaforesaid EGM. The Company has sought clarification / direction from SEBI with respect tothe implications arising from the non-approval of the said agreements. Pending the clarification/ direction from the SEBI during the year ended 31 March 2015 the Company had recognisedthe underlying expenses pursuant to these agreements up to 28 November 2014 aggregating Rs1357.30 million. The Company has not recognised charges arising out of non-approvedagreements for the period since 29 November 2014. Further subsequent to 28 November 2014in response to the letters received by the Company from some of the concernedcounterparties the Company has made payments amounting to Rs 74.30 million (excludes acheque of Rs 6.10 million which has not been encashed) to such counterparties with respectto the dues for services received prior to 28 November 2014 specifically stating that thesaid amounts would be refundable to the Company if it is determined that such amounts werenot payable by the Company in view of the shareholders not having approved the respectiveagreements. During the current year the Company has entered into mutual release andtermination agreements with some of the counterparties wherein the Company has retainedthe right to recover the amounts paid to the respective counterparties for the periodbefore 28 November 2014 in case any regulatory authority and / or any court of competentjurisdiction decides that these amounts were not payable by the Company at a future date.Pending clarifications from SEBI based on an opinion received from a senior legalcounsel the Management believes that these contracts have been rendered void by and fromthe date of voting down by the shareholders;

4. Note 25 to the standalone financial statements wherein it is stated that during theyear ended 31 March 2014 the Company decided to prepay credit facilities availed from abank amounting to Rs 6216.60 million secured by assets of the Company and pledgeof shares of the Company held by the USL Benefit Trust. The Company deposited a sum of Rs6280.00 million including prepayment penalty of Rs 40.00 million with the bank andinstructed the bank to debit the amount from the cash credit account towards settlement ofthe loan and release the assets / shares pledged by the Company. The bank howeverdisputed the prepayment. The Company has disputed the same and its writ petition ispending before the Honourable High Court of Karnataka. On 31 March 2015 the bank demandedan amount of Rs 474.00 million towards principal and interest on the said loan which theCompany contested in the Honourable High Court of Karnataka. As per the order of theHonourable High Court of Karnataka the Company engaged with the bank to commencediscussions. During the quarter ended 30 September 2015 the bank obtained an ex parteinjunction before the Debt Recovery Tribunal Bangalore ("DRT") restraining theUSL Benefit Trust from disposing of the pledged shares until further orders. The Companyand USL Benefit Trust upon receiving notice of the said order filed objections againstsuch ex parte order. During the quarter ended 31 December 2015 the Company obtained astay from the Honourable High Court of Karnataka restraining the bank from dealing withthe above-mentioned pledged shares until further orders. Thereafter the Company receivedanother notice from the relevant bank seeking to recall the loan which had been prepaidand demanding a sum of Rs 459.40 million as well as a subsequent notice issued undersection 13(2) of SARFAESI Act in relation to the same loan. Pursuant to an applicationfiled by the Company before the Honourable High Court of Karnataka in the writproceedings the Honourable High Court of Karnataka directed that if the Company depositedthe sum of Rs 459.40 million with the bank the bank should hold the same in a suspenseaccount and should not deal with any of the secured assets pledged by the Company underthe loan till the disposal of the first petition filed by the Company in the HonourableHigh Court of Karnataka. Subsequent to the year end the Company has accordingly depositedthe said sum and has replied to the bank’s various notices in light of the above. Theaforesaid amount has been disclosed as a contingent liability in the financial statementsby the Company;

5. Note 50 to the standalone financial statements which more fully describes theuncertainty related to the outcome of writ petitions with the Honourable High Court atPatna in relation to the ban imposed by the Bihar State Government on trade andconsumption of foreign liquor in the state of Bihar with effect from 5 April 2016. Pendingfinal disposal of the petitions no adjustments are considered necessary in the financialstatements;

6. Note 30 to the standalone financial statements wherein it is stated that (i) theCompany has received a notice from the Ministry of Corporate Affairs under section 206(5)of the Act requesting explanations and comments as to why action should not be initiatedin relation to various contraventions alleged by the Joint Director under provisions ofthe Act ; (ii) the Company has received notice under Section 131 of the Income Tax Act1961; (iii) the Company has 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;(iv) the Company has received a letter from the Institute of Chartered Accountants ofIndia seeking a copy of the Inquiry Report pursuant to Section 21C of the CharteredAccountants Act 1949; (v) the Company has received a letter from the EnforcementDirectorate of the Government of India in connection with investigation being conductedunder the provisions of Foreign Exchange Management Act 1999 seeking necessary details;(vi) the Company has received a notice under Rule 20 of the Second Schedule to the Incometax Act 1961 issued with respect to a director of the Company and another Company wheresuch director is the principal officer; and (vii) the Company has received letters fromthe Securities and Exchange Board of India under Section 11 of the SEBI Act 1992; and

7. Note 26 to the standalone financial statements wherein it is stated that theInquiry noted certain regulatory non-compliances with respect to the Companies Act 1956the listing agreement with the stock exchanges in India and other regulations as mentionedin the said note and that the financial impact of these non-compliances on the Companywere estimated by Management to be not material.

Our opinion is not qualified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order 2016 ("theOrder") issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the Act we give in the Annexure A a statement on the matters specified inthe paragraph 3 and 4 of the order to the extent applicable.

2. As required by Section 143 (3) of the Act we report that:

(a) except for the matters described in the Basis for Qualified Opinion paragraphabove we have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit;

(b) except for the possible effects of the matter described in the Basis for QualifiedOpinion paragraph above in our opinion proper books of account as required by law havebeen kept by the Company so far as it appears from our examination of those books;

(c) the balance sheet the statement of profit and loss and the cash flow statementdealt with by this Report are in agreement with the books of account;

(d) except for the possible effects of the matter described in the Basis for QualifiedOpinion paragraph above in our opinion the aforesaid standalone financial statementscomply with the Accounting Standards specified under Section 133 of the Act read withRule 7 of the Companies (Accounts) Rules 2014;

(e) the matters described in the Basis for Qualified Opinion paragraph above and thematters described in sub-paragraphs (1) (2) (4) and (7) of the Emphasis of Matterparagraph above in our opinion may have an adverse effect on the functioning of theCompany;

(f ) on the basis of the written representations received from the directors as on 31March 2016 taken on record by the Board of Directors none of the directors isdisqualified as on 31 March 2016 from being appointed as a director in terms of Section164 (2) of the Act;

(g) the qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above;

(h) with respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in Annexure B; and

(i) with respect to the other matters to be included in the Auditor’s Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:

a. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements – Refer Notes 25 33(b) 50 and 51 tothe standalone financial statements;

b. The Company did not have any long term contracts including derivative contracts forwhich there were any material foreseeable losses – Refer Note 49 to the standalonefinancial statements; and

c. There has been no delay in transferring amounts required to be transferred to theInvestor Education and Protection Fund by the Company.

for B S R & Co. LLP

Chartered Accountants

Firm Registration Number: 101248W/W-100022

Sunil Gaggar

Partner

Membership Number: 104315

Bangalore

26 May 2016

Annexure A to the Independent Auditor’s Report

Annexure referred to in Paragraph 1 in Report on Other Legal and RegulatoryRequirements of the Independent Auditor’s Report to the members of the Company on thestandalone financial statements for the year ended 31 March 2016. We report that:

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets;

(b) The Company has a regular programme of verification of its fixed assets by whichall fixed assets are verified in a phased manner over a period of three years. In ouropinion this periodicity of physical verification is reasonable having regard to the sizeof the Company and the nature of its assets. Pursuant to the programme certain fixedassets have been physically verified during the year and no material discrepancies wereobserved on such verification; and

(c) According to the information and explanations given to us and based on ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the Company except for 22 cases of freehold land having aggregategross block of Rs 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 millionwhere the Company is in the process of collating and identifying title deeds.

(ii) The inventory except goods-in-transit and stocks lying with third parties hasbeen physically verified by the Management during the year. In our opinion the frequencyof such verification is reasonable. For stocks lying with third parties at the year-endwritten confirmations have been obtained by the Management. The discrepancies noticed onverification between the physical stocks and the book records were not material.

(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 tocertain transactions identified during the year ended 31 March 2014. The Inquiry statedthat between 2010 and 2013 funds involved in many of these transactions were divertedfrom the Company and / or its subsidiaries to certain UB Group companies includingin particular Kingfisher Airlines Limited ("KFA") which is a party covered inthe register maintained under Section 189 of the Act. Additionally pending the completionof the review of the Additional Matters and transactions with Additional Partiesidentified through the Inquiry as disclosed in Paragraphs 1 under ‘Basis forQualified Opinion’ we are unable to comment whether any such arrangements representtransactions with any body corporate covered in the register maintained under Section 189of 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 Companyin the Extraordinary 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 the loans were repaid wherever demanded.(c) According to information and explanation provided to us the total amount overdue formore 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 the standalone financial statements inrelation 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 statementsand Paragraph 1 of the 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. Also refer note 26(c) to the standalone financial statements with respect totheongoing review of the Additional Matters and transactions with Additional Partiesidentified through the Inquiry as disclosed in Paragraphs 1 under ‘Basis forQualified Opinion’. (v) According to information and explanations given to us theCompany has not accepted any deposits from the public in accordance with the provisions ofSections 73 to 76 or any other relevant provisions of the Act and the rules framed thereunder. (vi) To the best of our knowledge and according to the information and explanationsgiven to us the Central Government has not prescribed the maintenance of cost recordsunder Section 148(1) of the Act for any of the products manufactured by the Company. (vii)(a) According to the information and explanations given to us and on the basis of ourexamination 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.

According to the information and explanations given to us no undisputed amountspayable in respect of Provident fund Employees’ State Insurance Income-taxSales-tax Service-tax Duty of customs Duty of excise Value added tax Cess and anyother material statutory dues were in arrears as at 31 March 2016 for a period of morethan six months from the date they became payable.

(b) According to the information and explanations given to us dues of Income-taxSales-tax Service tax Duty of customs Duty of excise and Value added tax that have notbeen deposited on account of any dispute are stated in Appendix 1.

(viii) In our opinion and according to the information and explanations given to usthe Company has not defaulted in repayment of loans or borrowings to a financialinstitution or any bank during the year. The Company does not have any dues to debentureholders or outstanding loans or borrowings from government during the year. Also refer thematter referred to in Paragraph 4 under ‘Emphasis of Matter’ and Note 25 to thestandalone financial statements. (ix) The Company has not raised any money by way ofinitial public offer or further public offer (including debt instrument). In our opinionand according to the information and explanations given to us the term loans taken by theCompany and applied during the year 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. (x) (a) Asstated in Note 26(a) to the standalone financial statements and Paragraph 1 of 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) Asstated in Note 26(b) to the standalone financial statements with regard to the priortransactions that were consolidated into the single loan due from UBHL on 3 July 2013 theInquiry stated that prima facie between 2010 and July 2013 certain transactions appearto have been undertaken and certain accounting entries appear to have been made to show alower exposure of the Company to UBHL than that which actually existed at that time. Theinquiry also indicates that the manner in which these transactions were conducted andthese entries made prima facie indicates various improprieties and legal violations. (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.

(xi) According to the information and explanations given to us and as stated in Note 45to the 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 has received communications fromthe Central Government not approving such excess remuneration. The Company has respondedto the Central Government requesting reconsideration of its application for approval ofsuch excess remuneration.

According to the information and explanations given to us and based on examination ofthe records of the Company the Company has paid managerial remuneration for the yearended 31 March 2016 in accordance with the requisite approvals mandated by the provisionsof section 197 read with Schedule V to the Act.

(xii) According to the information and explanations given to us in our opinion theCompany is not a Nidhi Company as prescribed under Section 406 of the Act.

(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.

(xiv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not made preferential allotmentor private placement of shares or fully or partly convertible debentures during the year.

(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.

(xvi) According to the information and explanation given to us and in our opinion theCompany is not required to be registered under section 45-IA of the Reserve Bank of IndiaAct 1934.

for B S R & Co. LLP

Chartered Accountants

Firm Registration Number: 101248W/W-100022

Sunil Gaggar

Partner

Membership Number: 104315

Bangalore

26 May 2016

Appendix 1 to the Annexure A to the Independent Auditor’s Report*

Name of the Statute Nature of dues Disputed demand ( Rs in million) Paid Rs ( in million) Unpaid ( Rs in millions) Periods to which the amount relates to Forum where the dispute is pending
The Income-tax Act 1961 Income Tax 6832.403 5935.745 909.051 Assessment years -1989-90 to 1993-94 1996-97 2000-01 2001-02 2003-04 to 2009-10 Income Tax Appellate Tribunal
The Income-tax Act 1961 Income Tax 4912.135 4165.019 747.116 Assessment years - 2004-05 to 2006-07 2008-09 2010-11 2011-12 Commissioner of Income Tax (Appeals)
The Income-tax Act 1961 Income Tax 2546.647 165.936 2380.711 Assessment year - 2012-13 Dispute Resolution Panel
The Income-tax Act 1961 Income Tax 770.576 - 770.576 Assessment year-1986-87 to 2002-03 2003-04 to 2005-06 High Court
Central Excise Act1944 Excise Duty 1.834 - 1.834 1991-92 Custom Excise and Service Tax Appellate Tribunal
Central Excise Act 1944 Excise Duty 117.327 - 117.327 1994-95 2009-15 Commissioner of Central Excise
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 11.339 0.157 11.181 2003-04 2004-05 2006-07 to 2011-12 Additional Commissioner
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 6.244 0.401 5.843 1993-94 2003-04 2005-06 Appellate and Revisional board
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 96.572 5.719 90.853 1982-83 to 1985-86 1992-93 1994-95 to 2000-01 2010-11 2013-14 2015-16 Appellate Tribunal
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 84.363 - 84.363 1994-95 to 1996-97 2009-10 2010-11 2012-13 2013-14 Assistant Commissioner
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 32.000 5.067 26.934 1989-90 1993-94 to 1997-98 2010-11 to 2014-15 Commercial Tax Officer
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 1863.586 - 1863.586 1978-79 1980-81 1981-82 1984-85 1985-86 2008-09 2015-16 Commissioner
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 406.027 44.826 361.200 1985-86 2006-07 to 2013-14 2015-16 Deputy Commissioner
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 122.917 23.094 99.822 1982-83 1988-89 1989-90 1992-93 1996-97 to 2001-02 2007-08 2009-10 to 2011-12 High Courts
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 60.802 25.185 35.617 1990-00 to 2002-03 2008-09 2012-13 Joint Commissioner
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 29.328 25.731 3.597 2007-08 2011-12 2013-14 Supreme Court
Central and Respective State Sales Tax Acts Sales Tax / Value Added Tax 3.152 - 3.152 2006-07 Civil Courts
Central and Respective State Sales Tax Acts Entry Tax 7.402 - 7.402 2007-08 Additional Commissioner
Central and Respective State Sales Tax Acts Entry Tax 11.557 - 11.557 2005-06 Appellate and revisional board
Central and Respective State Sales Tax Acts Entry Tax 143.551 22.767 120.783 1987-88 2004-05 2007-08 2009-10 2011-12 Appellate Tribunal
Central and Respective State Sales Tax Acts Entry Tax 81.715 8.171 73.544 2008-09 2009-10 2010-11 Deputy Commissioner

 

Name of the Statute Nature of dues Disputed demand ( Rs in million) Paid Rs ( in million) Unpaid ( Rs in millions) Periods to which the amount relates to Forum where the dispute is pending
Central and Respective State Sales Tax Acts Entry Tax 33.670 1.600 32.070 1984-85 2005-06 High Court
Central and Respective State Sales Tax Acts Entry Tax 124.384 5.433 118.951 2003-04 to 2010-11 Supreme Court
Central and Respective State Sales Tax Acts Entry Tax 7.117 1.000 6.117 2007-08 Joint Commissioner
Service Tax - Finance Act 1994 Service Tax 266.198 - 266.198 2004-05 to 2006-07 2009-10 2010-11 CESTAT
Service Tax - Finance Act 1994 Service Tax 1.872 - 1.872 2004-05 High Courts
Respective State Excise Acts State Excise 66.09 - 66.09 1983-84 2001-02 2002-03 Additional Commissioner
Respective State Excise Acts State Excise 8.411 - 8.411 1993-94 2003-04 2009-10 2012-13 2013-14 Additional District Magistrate
Respective State Excise Acts State Excise 23.638 0.191 23.447 1998-99 to 2001-02 2003-04 to 2007-08 2013-14 Appellate Tribunal
Respective State Excise Acts State Excise 25.367 - 25.367 1981-82 to 1983-84 1992-93 to 1998-99 Civil Courts
Respective State Excise Acts State Excise 1.899 - 1.899 1994-95 2013-14 2014-15 Collector
Respective State Excise Acts State Excise 297.679 8.154 289.524 1974-75 to 1989-90 1993-94 to 1998-99 2003-04 to 2007-08 2008-09 2011-12 to 2014-15 Commissioner
Respective State Excise Acts State Excise 1.790 0.091 1.699 1994-95 District Magistrate and Collector
Respective State Excise Acts State Excise 602.641 102.509 500.132 1963-64 1972-73 1973-74 1983-84 to 2015-16 High Courts
Respective State Excise Acts State Excise 12.682 0.180 12.502 1986-871992-931997-98 1998-99 2015-16 Superintendent
Respective State Excise Acts State Excise 1164.999 - 1164.999 1970-71 1971-72 1983-84 1999-00 Supreme Court
Custom Act 1962 Custom Duty 3.365 - 3.365 2004-05 Commissioner of customs
Custom Act 1962 Custom Duty 6.164 - 6.164 1979-80 1986-87 1993-94 to 1995-96 1997-98 High Court

*As represented by the management

Annexure B to the Independent Auditor’s Report of even date on the standalonefinancial statements of United Spirits Limited

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of UnitedSpirits Limited ("the Company") as of 31 March 2016 in conjunction with ouraudit of the standalone financial statements of the Company for the year ended on thatdate.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the"Guidance Note") issued by the Institute of Chartered Accountants of India(‘ICAI’). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of its business including adherence toCompany’s policies the safeguarding of its assets the prevention and detection offrauds and errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note and the Standards on Auditing issued by ICAI and deemed to beprescribed under section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of Internal Financial Controlsand both issued by the ICAI. Those Standards and the Guidance Note require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether adequate internal financial controls over financial reporting wasestablished and maintained and if such controls operated effectively in all materialrespects. Our audit involves performing procedures to obtain audit evidence about theadequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor’s judgment including the assessment of therisks of material misstatement of the financial statements whether due to fraud or error.We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company’s internal financial controlssystem over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company’s internal financial control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal financial control overfinancial reporting includes those policies and procedures that (i) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion the Company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31 March 2016 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note issued by ICAI.

Emphasis of Matter

We would draw attention to matters disclosed in Paragraphs 1 under ‘Basis forQualified Opinion’ and specifically the ongoing Inquiry with respect to theAdditional Parties and Additional Matters which could indicate possible lapses in internalfinancial controls system at various points in time.

Our opinion under Clause (i) of Sub-section 3 of Section 143 of the Act

is not qualified in respect of this matter.

f or B S R & Co. LLP

Chartered Accountants

Firm’s Registration Number: 101248W/W-100022

Sunil Gaggar

Partner

Membership Number: 104315

Bangalore

26 May 2016