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Notes to Accounts of United Spirits Ltd.

Mar 31, 2023

(a) Land includes: (i) gross carrying amount of ''2,034 million (2022: ''2,312 million) in respect of which the title deeds are in the name of erstwhile merged entities; (ii) gross carrying amount of ''78 million (2022: ''78 million) in respect of which the Company is not in the possession of title deeds; (iii) gross carrying amount of ''43 million (2022: ''43 million) in respect of which title deeds are jointly held in the name of the Company and third party; (iv) gross carrying amount of ''Nil (2022: ''8 million) in respect of which the Company is in possession of photocopies of the title deeds; (v) gross carrying amount of ''60 million (2022: ''60 million) in respect of which the Company is in possession of combination of original & photocopy of title deeds.

(b) Building includes gross carrying amount of ''339 million (2022: ''339 million) in respect of which the Company has initiated litigation for execution of sale deed in favour of the Company.

(c) The Company holds many properties, both freehold and leasehold. Many of the freehold properties have been acquired during the past two decades through mergers and amalgamations and as such their title deeds are in the name of the erstwhile transferor companies. The Company has title documents and other supporting evidences establishing ownership of these properties, makes payment of property taxes in relation to these properties, and is in peaceful possession.

(d) The Company has taken an exceptional charge of ''1,085 million towards impairment of property, plant and equipment covered under Supply Agility Programme by writing down their carrying amounts to their net recoverable amounts which includes provision on certain land holdings on account of regulatory risks (impaired based on independent valuation).

During the year ended March 31, 2022, the Company had recognised a charge of ''340 million on account of impairment of property, plant and equipment. This represented impairment loss of property, plant and equipment in respect of certain manufacturing units and includes a provision on certain land holdings in a state on account of towards potential regulatory risks (Refer note 28(e)).

(e) Opening and closing cost of buildings includes payments below rounding off norms adopted by the Company towards fully paid shares held in a co-operative housing society for the purpose of acquiring the right of occupation in respect of which Company is in possession of photocopy of share certificate in co-operative society.

Property, plant and equipment pledged as security

Refer note 33 for information on property, plant and equipment pledged as security by the Company.

(iii) The total cash outflow for leases for the year ended March 31, 2023 was ''3,712 million (2022: ''3,637 million).

Notes:

(a) Additons to the right-of-use assets for year ended March 31, 2023 aggregate to ''858 million (2022: ''2,292 million).

(b) Variable lease payments

The Company has lease contracts for plant and equipment that contain variable payments. Variable lease payments that depend on production volumes are recognised in the statement of profit and loss in the period in which the condition that triggers those payments occurs. Any changes in production under contracts which includes variable lease payments, would have a proportionate impact on the variable lease payments. Certain agreements contain clauses for minimum production volumes and hence portion of lease payments in these agreements are ''in-substance fixed''. "In-substance" fixed lease payments are included in the determination of the lease liabilities and consequently included in determining the value of right-of-use assets.

(c) Extension and termination options

Extension and termination options are included in a number of property and equipment leases. These are used to maximise operational flexibility in terms of managing the assets used in the Company''s operations. Management considers contractual terms and conditions, leasehold improvements undertaken, costs relating to termination of lease, incentives received from the Government (if any) and importance of the underlying asset to the Company''s operations in determining the lease term for the purpose of recognising/ measuring the lease liability.

(d) Leasehold Land includes: (i) gross carrying amount of ''22 million (2022: ''22 million) in respect of which the title deeds are in the name of erstwhile merged entities; (ii) gross carrying amount of ''76 million (2022: ''76 million) in respect of which the Company is in possession of photocopies of the title deeds.

The Company obtains independent valuations for its investment properties. The best evidence of fair value is current prices in an active

market for similar properties. When such information is not available, the Company considers information from a variety of sources

including:

(a) current prices in an active market for properties of different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences;

(b) discounted cash flow projections based on reliable estimates of future cash flows; and

(c) capitalised income projection based upon a property''s estimated net market income, and a capitalisation rate derived from an analysis of market evidence.

The fair value of investment property has been determined by a valuation expert who holds relevant professional qualification and experience. The market value of the investment property has been assessed on an open market basis with the benefit of vacant possession. In the course of valuation, a direct comparison method has been adopted by making a reference to the relevant market transaction in the building where the investment property is located. The appropriate adjustments have been made in order to account for the differences between the subject property and the comparable in terms of time, floor level, view, condition, quality and facilities etc.

Notes:

(a) Investment Property includes: (i) gross carrying amount of ''181 million in respect of which the title deeds are in the name of erstwhile merged entities; (ii) gross carrying amount of ''8 million in respect of which the Company is in possession of photocopies of the title deeds.

(b) There have been no direct expenses incurred by the Company during the year ended March 31, 2023.

(c) Fair value of investment property is ''1,461 miilion.

(a) Investment as a sole beneficiary in USL Benefit Trust (the ''Trust'') was recorded as per the terms of composite scheme of arrangement approved by the Honourable High Courts of Karnataka and Bombay, upon amalgamating various companies with United Spirits Limited. The Trust has been established for the exclusive benefit of the Company and holds 17,295,450 equity shares of ''2/- face value (2021: 17,295,450 equity shares of ''2/- face value) of the Company [Refer Note 13A(h)]. As per the terms of the aforesaid scheme of arrangement, Company has carried this investment at the aggregate of book value as per the books of the concerned transferor companies. Also refer Note 33(b) for assets pledged and Note 40(d).

(b) On adoption of Ind AS, Company has measured these investments at deemed cost using the net carrying value as per previous GAAP as at March 31, 2015. The Company has subsequently measured its investments in equity shares of subsidiaries and the associate at cost in

accordance with Ind AS 27.

(c) On April 29, 2022, the Company invested ''315 million in Nao Spirits & Beverages Private Limited ("Nao Spirits") by subscribing to 8,094 Compulsory Convertible Preference Shares and 4,670 equity shares of Nao Spirits, resulting in the Company holding 22.5% ownership interest on a fully diluted basis. Management has considered Nao Spirits to be an associate since the Company has significant influence over its operating and financing decisions. (Refer note 50)

a) Upon amalgamation of PDL with the Company, the Company recognised deferred tax asset of ''768 million on brought forward loss relating to PDL and ''64 million on other deductible temporary differences in the statement of profit and loss. The scheme of amalgamation provided for an appointed date of April 1, 2021 and therfore the brought forward losses of PDL and other deductible temporary differences have been utilised in computing the current tax provision for the year ended March 31, 2022. Accordingly, deferred tax asset on brought forward losses amounting to ''768 million has been fully utilised during the year ended March 31, 2022 and has been charged to the statement of profit and loss.

(b) Rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a face value of ''2 per share. Each holder of the equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any, in proportion to their holdings.

(c) Shares held by holding / ultimate holding company and / or their subsidiaries / associates

(i) On December 20, 2013, the Honorable Karnataka High Court passed an order in the matter involving United Breweries (Holdings) Limited (UBHL) and its creditors and the Diageo Plc. setting aside an earlier leave order which permitted UBHL to sell 10,141,437 equity shares on ''10 each (prior to the face value of the shares being split from ''10 each to ''2 each during the year ended March 31, 2019) in the Company to Diageo Relay B V, pending disposal of the winding up petitions against UBHL. On the above matter, UBHL and Diageo plc. have approached the Honorable Supreme Court by way of special leave petitions (SLPs) challenging the order of the division bench. Pending, disposal of the above SLPs, the Honorable Supreme Court has directed that status quo be maintained in respect of the above mentioned transaction of sale of shares to Diageo Relay B V. Such shares are included in arriving at Diageo Relay BV''s shareholding in the Company.

Nature and purpose of reserves:

a) Capital reserve: Created pursuant to a Scheme of Amalgamation between the Company and SW Finance Co. Limited, sanctioned by the Honourable High Court of Karnataka and Honourable High Court of Bombay under the orders dated June 12, 2015 and August 28, 2015, respectively. The balance also includes capital reserve arising on account of amalgamation of Pioneer Distilleries Limited (''"''PDL''"'') with the Company wide order of the Honourable National Company Law Tribunal (NCLT) on December 02, 2022. (Refer note 49)

b) Capital redemption reserve: Capital Redemption Reserve is created for an amount equivalent to the nominal value of shares redeemed in earlier years by the Company (including the erstwhile Companies that were merged with the Company through several schemes of amalgamations / mergers). This also included capital redemption reserve upon amalgamation of PDL. (Refer note 49)

c) Securities premium account: Securities premium account is credited when shares are issued at premium. The balance is utilised in accordance with the provisions of the Act.

d) Central subsidy: The balance is taken over on amalgamation of Shaw Wallace Distilleries Limited with the Company during the year ended March 31, 2006 as per the terms of the arrangement approved by the Honorable High Courts of Karnataka and Bombay.

e) Share based incentive reserve: The share-based incentive reserve is used to recognise grant date fair value of Diageo Plc''s share options under Diageo PLC''s share-based payment arrangements. Recharges towards under this arrangements are debited to this reserve.

f) Contingency reserve: The balance is taken over on amalgamation of McDowell Spirits Limited with the Company during the year ended March 31, 2001 as per the terms of the arrangement approved by the Honorable High Court of Karnataka.

g) General reserve: The General reserve is created by way of transfer of profits from retained earnings for appropriation purposes. This reserve is utilised in accordance with the provisions of the Act.

h) Retained earnings: Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.

(i) Provision for Indirect taxes and other legal matters includes provisions for disputed sales tax, customs duty, state excise duty, levy of water charges and other matters.

(ii) Provision is made for probable cash outflow arising out of pending or potential indirect tax disputes / litigations. It is not practicable for the Company to estimate the timing of the cash outflows, if any, in respect of the above, pending resolution of respective proceedings. Refer Note 9 for payments made under protest in respect of indirect tax and other legal matters.

iii) Pursuant to the amalgamation of PDL with the Company, the Company has taken over the pending water charges dispute. The Water Resources Department (WRD) had raised demands for additional water charges from November 2018 to the year ended March 31, 2023. In respect of this matter, PDL had filed a petition before the Bombay High Court (Aurangabad Bench), challenging these demands. An interim relief was granted by the Aurangabad Bench against any coercive steps to be taken against the Company. Subsequently, the Company challenged these demand notices before the Primary Dispute Resolution Officer and thereafter, in appeal before Maharashtra Water Resources Regulatory Authority (MWRRA). The demands and adverse order passed by MWRRA are currently under challenge in a writ petition before Bombay High Court (at Bombay). There is an interim protection in Company''s favour as against enforcement of demands by WRD. Based on a legal opinion obtained and internal evaluation, Management believes that the Company is carrying adequate provision in the books for the probable rates of water charges applicable to the Company. Any further cash outflow on account of this matter is considered as remote.

The Company''s financial risk management is carried out by treasury department under policies approved by the Board. Corporate treasury identifies, evaluates and hedges financial risks in close co-operation with the Company''s other functions. The Board sets written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, and investment of excess funds.

The Company does not have significant exposure to foreign currency fluctuations.

(A) Credit risk

Credit risk management

Trade receivables:

Company''s Credit policy provides guidance to keep the risk of credit sales within an acceptable level. The Company''s management monitors (at customer group level) and reviews credit limits, overdue trade receivables, provisioning and write-off of credit impaired receivables.

Trade receivables are unsecured and are derived from revenues earned from two main classes of customers, receivable from sales to government corporations/ government owned entities and receivables from sales to private third parties.

Receivables from government corporations/ government owned entities amounted to ''12,297 million; 49% (2022: ''14,342 million; 59%) and private customers amounted to ''12,743 million; 51% (2022: ''9,867 million; 41%) respectively, of total trade receivables, on the reporting date.

The Company determines allowances for expected credit losses separately for different categories of customers using aged based provision matrix.

Loans and other financial assets:

''Other financial assets'' includes balances with banks, receivable from Tie-up manufacturing units, government grants, loans including loans to subsidiaries and interest accrued on such loans.

The Company recognises allowances using expected credit loss method on Other financial assets. Such allowances are measured considering either 12-month expected credit loss approach or life time credit loss approach, based on management''s assessment of credit risk. Assets are written-off where there is no reasonable expectation of recovery. Where the loans or receivables are written-off the Company continues to engage in enforcement activity to attempt to recover the amounts due. Where recoveries are made, these are recognised in profit or loss.

(*) Loans denominated in foreign currency to subsidiaries are credit impaired. Exchange differences arising on restatement of such loans at year-end exchange rates, are offset against an equivalent restatement of loss allowances at year end exchange rates, and hence there is no impact on the statement of profit and loss, on this account.

The Company has credit risk from loans provided to subsidiaries:

• Loans to overseas subsidiary - These loans are classified as credit impaired and have been fully provided for as these subsidiaries are non-operative and do not have the resources to repay the loans.

• Loans to domestic subsidiaries - Management has determined the amount of impairment considering the expected manner of recovery, contractual terms and estimated future cash flows. Based on this assessment, management has concluded that no material allowance for expected credit loss is required in respect of loans to domestic subsidiaries.

Management has assessed credit risk for balances with banks, investments in mutual funds and other financial assets as at year ended March 31, 2023. Basis this assessment management has determined that no additional provision for expected credit loss is required, other than those already provided in these financial statements.

(B) Liquidity Risk

The company monitors daily and monthly rolling forecasts of the liquidity position and cash and cash equivalents on the basis of expected cash flows. Generally, any short-term surplus cash generated, over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess is invested in bank deposits, debt mutual funds and other highly rated corporate debentures to optimise the cash returns on investments guided by the tenets of safety, liquidity and returns.

(C) Interest rate risk

Interest rate risk arises due to uncertainties about the future market interest rate on the borrowings or investments. The Company has repaid all the borrowings by the end of the financial year, except for a liability towards sales tax deferral scheme. As the Company is debt-free, exposure to interest rate risk is negligible.

Further, treasury activities, focused on managing investments in debt instruments, are centralised and administered under a set of approved policies and procedures guided by the tenets of safety, liquidity and returns. This ensures that investments are made within acceptable risk parameters after due evaluation. The Company''s investments are predominantly held in fixed deposits, mutual funds and highly rated corporate debentures.

The Company invests in debt mutual fund schemes of leading fund houses. Such investments are susceptible to market price risks that arise mainly from changes in interest rate which may impact the return and value of such investments. However, given the relatively short tenure of underlying portfolio of the mutual fund schemes in which the Company has invested, such price risk is not significant.

(D) Foreign exchange risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions and balances, primarily with respect to the USD and GBP. Foreign Exchange risk arises from future commercial transactions and monetary assets and liabilities denominated in a currency that is not the Company''s functional currency (''). The risk is measured through a forecast of highly probable foreign currency cash flows.

Foreign currency risk management

The Company''s risk management policy is to assess the Company''s net exposures which is mainly represented by receivables and payables towards exports and imports respectively, and partly represented by the loans extended in foreign currencies.

The Company can hedge its net exposures with a view on forex outlook. Since the net exposure is currently not material, foreign currency risk has not been hedged.

Fair value hierarchy:

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows below:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - I nputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

Accordingly, Investment in mutual funds is considered as Level 1 and measured at fair value through profit or loss. All other financial instruments are considered as Level 3 which are on amortised cost.

Trade receivables, short-term loans, bank deposits, cash and cash-equivalents, receivable from TMUs, trade payables and other financial liabilities (excluding lease liabilities) have tenure of less than 12 months. Accordingly, their carrying amounts are considered to be a fair approximation of their fair values.

Management has determined that the fair values of government grants, receivable from TMUs, security deposits and other receivables are not materially different from their carrying amounts as at March 31, 2023.

Note 38(a): Defined contribution plans Provident Fund:

Provident Fund covers substantially all permanent workmen. Both the eligible employees and the Company make monthly contributions to the Provident Fund as per regulations to a fund administered by government authority, equal to a specified percentage of the employees'' salary. The obligation of the Company is limited to the extent of contributions made on a monthly basis.

Employee Pension Scheme:

Employee Pension Scheme covers all eligible employees (i.e., permanent workmen and executive staff) of the Company. A portion of the Company''s contribution in respect of government administered Provident Fund and Company administered Provident Fund Plan is made to the government administered Employee Pension Scheme, as per regulations. The obligation of the Company is limited to the extent of contributions made on a monthly basis.

Employees'' State Insurance:

Employees'' State Insurance is a state plan which is applicable to those employees of the Company whose salaries do not exceed a specified amount. The contributions are made based on a percentage of salary to a fund administered by government authority. The obligation of the Company is limited to the extent of contributions made on a monthly basis.

Superannuation fund:

Certain executive staff of the Company participate in United Spirits Superannuation fund (the ''Fund''), which is a voluntary contribution plan. The Company has no further obligations to the plan beyond its monthly contributions to the Fund, the corpus of which is administered by a Trust and is invested in insurance products.

National Pension Scheme:

Certain executive staff of the Company participate in National Pension Scheme, which is a voluntary contribution plan. The Company has no further obligations to the plan beyond its monthly contributions to a fund administered by a pension fund manager appointed by Pension Fund Regulatory and Development Authority.

During the year, the Company has recognised the following amounts in the Statement of profit and loss, which are included in contribution to provident and other funds under the employee benefits expense in Note 24:

Note 38(b): Defined benefit plans Gratuity:

The Company provides for gratuity, a defined benefit plan (the "Gratuity Plan”), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment or upon resignation from service, of an amount based on the respective employee''s last drawn salary and years of employment with the Company. Vesting occurs only upon completion of five years of service, except in case of death or permanent disability. The funds are managed by a trust administered by the Company.

Pension plan:

The Company operates an unfunded defined benefit pension plan for certain retired employees of an erstwhile entity which has merged into the Company in earlier years. This plan provides benefits to members in the form of a guaranteed level of pension payable for life post retirement or termination of employment. The level of benefits provided depends on their salary in the final year leading up to retirement, or termination.

Provident fund plan:

Executive staff and certain permanent workmen receive benefits from the provident fund plan, which is a defined benefit plan. Both the employees and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the employee''s salary. A portion of Company''s contribution is transferred to Employee Pension Scheme, which is a defined contribution plan and the remaining amount is transferred to provident fund plan.

The Provident Fund contributions are made to McDowell & Company Limited Employees Provident Fund Trust set up and managed by the Company. The Trust invests in specific designated instruments as permitted by Indian laws. The Company has an obligation to make good the shortfall if any, being the difference between the statutory rate prescribed by the Government and the rate of interest declared by the Trust. The Company also has an obligation to fund any shortfall in the fair value of plan assets as compared with the defined benefit obligation. The actuarial risk and investment risk fall, in substance, on the Company.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as and when calculating the defined benefit liability recognised in the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

Note 38(d): Risk exposure:

Through its defined benefit plans, Company is exposed to number of risks, the most significant of which are detailed below:

Asset volatility

The plan liabilities are calculated using a discount rate set with reference to yields of government securities; if plan assets underperform this yield, this will create a deficit. Plan asset investments for provident fund are made in government securities, private sector bonds and public sector/ financial institution bonds. Plan asset investments for gratuity are made in pre-defined insurance plans. These are subject to risk of default and interest rate risk. The fund manages credit risk/ interest rate risk through continuous monitoring to minimise risk to an acceptable level.

Change in bond yields

A decrease in yields of government securities will increase plan liabilities, although this will be partially offset by an increase in the value of the plans'' bond holdings.

Inflation Risk

In the pension plans, the pensions in payment are not linked to inflation, so this is a less material risk.

Life Expectancy

The pension plan provides benefits for the life of the member, so increases in life expectancy will result in an increase in the plans'' liabilities. This is particularly significant where inflationary increases result in higher sensitivity to changes in life expectancy.

The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets.

A large portion of assets consists of government and public sector bonds, although the Company also invests in private sector bonds, special deposit schemes and bank balances. The plan asset mix is in compliance with the requirements of the respective regulations.

Note 38(e): Effect of the defined benefit plan on the entity''s future cash flows

The Company does not expect to contribute any amounts into the gratuity plan assets during the year ending March 31, 2024, considering the net surplus portion as at March 31, 2023. The Company is expected to contribute ''153 million (2022: ''155 million) to Provident fund during the year ending March 31, 2024.

Note:

The estimates of future increase in compensation levels, considered in the actuarial valuation, take into account inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

Note 39: Long term contracts, including derivative contracts

The Company does not have any derivative contracts as at March 31, 2023. The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. No provision for material foreseeable losses is considered necessary based on the review of such contracts as at year end.

Note 40: Historical matters

(a) Additional Inquiry and other regulatory matters

As disclosed in each of the annual financial statements commencing from year ended March 31, 2014, upon completion in April 2015 of an inquiry into past improper transactions (''Initial Inquiry'') which identified references to certain additional parties and certain additional matters, the then MD & CEO, pursuant to the direction of the Board of Directors, carried out an additional inquiry into past improper transactions (''Additional Inquiry'') which was completed in July 2016. The Additional Inquiry prima facie identified transactions indicating actual and potential diversion of funds from the Company and its Indian and overseas subsidiaries to, in most cases, Indian and overseas entities that appeared to be affiliated or associated with the Company''s former non-executive chairman, Dr. Vijay Mallya, and other potentially improper transactions. All amounts identified in the Additional Inquiry have been provided for or expensed in the financial statements of the Company or its subsidiaries in the respective prior periods. The Company has filed recovery suits against relevant parties and individuals identified pursuant to the Additional Inquiry. Additionally, the Company has also filed a suit for recovery of excess managerial remuneration amounting to ''134 million paid to the former Executive Director and CFO (ED & CFO) for the year ended March 31, 2015. The receivable recorded in the financial statements for excess managerial remuneration has been fully provided for.

As disclosed in each of the annual financial statements commencing from the year ended March 31, 2014, in relation to the above-mentioned Initial Inquiry and Additional Inquiry and the matters arising out of the settlement agreement dated February 25, 2016

entered into by the Company with Dr. Vijay Mallya pursuant to which, inter alia, the Company and Dr. Vijay Mallya agreed a mutual release in relation to matters arising out of the Initial Inquiry (''Agreement''), the Company received letters and notices from the Securities Exchange Board of India (''SEBI'') during the year ended March 31, 2016 to which the Company has responded. There has been no further communication with SEBI on these matters since the Company''s response in October 2017.

As disclosed in each of the annual financial statements commencing from the year ended March 31, 2014, in connection with the investigations carried out by the Directorate of Enforcement (''ED'') under the Foreign Exchange Management Act, 1999 and Prevention of Money Laundering Act, 2002, the Company received letters and notices from ED during the year ended March 31, 2016, to which the Company responded. During the year ended March 31, 2022, the Company received a notice from the ED requesting for information, which the Company has provided. The Company has also received queries from its authorized dealer banks, based on queries from the Reserve Bank of India (''RBI''), with regard to remittances made in the prior years by the Company to its overseas subsidiaries, past acquisitions and Annual Performance Reports (''APR'') for prior years, to which the Company has responded.

As disclosed in each of the annual financial statements commencing from the year ended March 31, 2019, with the objective of divesting its non-core assets, the Company reviewed its subsidiaries'' operations, obligations, and compliances, and recommended a plan for rationalisation through sale, liquidation or merger ("Rationalisation Process”). After receiving approval from the Board, the Company is taking steps to implement this plan and has liquidated three overseas subsidiaries, merged one overseas subsidiary into another, amalgamated one Indian subsidiary with the Company and sold three subsidiaries, one of which was overseas and the other two in India. The Rationalisation Process is subject to regulatory and other approvals (in India and overseas). If any historical non-compliances are established during the Rationalisation Process, the Company will consult with its legal advisors, and address any such issues including, if necessary, considering filing appropriate compounding applications with the relevant authorities. At this stage, it is not possible for the management to estimate the financial impact on the Company, if any, arising out of potential non-compliances with applicable laws, if established.

(b) Notices from the Ministry of Corporate Affairs

As disclosed in each of the annual financial statements commencing from year ended March 31, 2016, and pursuant to the inspection conducted by Ministry of Corporate Affairs (''MCA'') during the year ended March 31, 2016, under Section 206(5) of the Companies Act, 2013, MCA issued show cause notices alleging violation of certain provisions of the Companies Act, 1956 and Companies Act, 2013, to which the Company had responded. As at the year ended March 31, 2023, the Company is awaiting response from the Registrar of Companies (RoC) on one compounding application and one show cause notice wherein the Company had requested the RoC to discontinue further proceedings based on expert legal advice received. The penalty and compounding fees arising out of adjudication applications and compounding application are not material. The management is of the view that in line with the past compounding/ adjudication orders, the financial impact arising out of compounding/ adjudication of the residual matters will not be material to the Company''s financial statements.

(c) Loan to United Breweries (Holdings) Limited (''UBHL'')

As disclosed in each of the annual financial statements commencing from year ended March 31, 2015, the Company had pre-existing loans/ deposits/ advances/ accrued interest that were due to the Company and its subsidiaries from UBHL and its subsidiaries aggregating to ''13,374 million and that were consolidated into, and recorded as, an unsecured loan through an agreement entered into between the Company and UBHL on July 3, 2013 (''Loan Agreement''). UBHL has defaulted on its obligations to pay any amounts under the Loan Agreement. The Company has already made provision in prior financial years for the entire principal amount due, of ''13,374 million, and for the accrued interest of ''846 million up to March 31, 2014. The Company has not recognised interest income on said loan after March 31, 2014 which cumulatively amounts to ''11,074 million up to March 31, 2023. The Company has offset ''2,062 million payable to UBHL arising under a trademark agreement against the principal amount of loan and interest accrued thereon receivable.

Since UBHL had defaulted on its obligations under the Loan Agreement, the Company sought redressal of disputes and claims through arbitration under the terms of the Loan Agreement. In April 2018, the arbitral tribunal passed a final award against the Company.

The reasons for this adverse award were disputed by the Company, and the Company obtained leave from the High Court of Karnataka to challenge this arbitral award. In July 2018, the Company filed a petition challenging the said award before the Jurisdictional Court in Bangalore (the "Court”). The Court has issued notice pursuant thereto on the Official Liquidator and the hearing has commenced.

Notwithstanding the arbitral award, based on management assessment supported by an external legal opinion, the Company has offset payable to UBHL under the trademark agreement against the balance of loan receivable from UBHL. The Company has filed its claim with the Official Liquidator. Management has attended meetings and exchanged certain correspondence with the official liquidator during the year ended March 31, 2023 in relation to the claim filed and the set-off.

(d) Dispute with IDBI Bank Limited

As disclosed in each of the annual financial statements commencing from year ended March 31, 2015, during the year ended March 31, 2014, the Company prepaid a term loan taken from IDBI Bank Limited (the "bank”) in earlier years which was secured by certain property, plant and equipment and brands of the Company as well as by a pledge of certain shares of the Company held by the USL Benefit Trust (of which the Company is the sole beneficiary). The bank disputed the prepayment, following which the Company filed a writ petition ("WP”) in November 2013 before the Hon''ble High Court of Karnataka (''High Court'') challenging the actions of the bank.

In February 2016, following the original maturity date of the loan, the Company received a notice from the bank seeking to recall the loan and demanding a sum of ''459 million on account of outstanding principal, accrued interest and other amounts as also further interest till the settlement date as per the security documents.

The Company challenged this notice in the pending writ proceedings during which the High Court directed that, subject to the Company depositing ''459 million with the bank in a suspense account, the bank should not deal with any of the secured assets including the shares until disposal of the writ petition. The Company deposited the full amount, and the bank was restrained from dealing with any of the secured assets.

In June 2019, a single judge bench of the High Court dismissed the Company''s writ petition, amongst other reasons, on the basis that the matter involved an issue of breach of contract by the Company and was therefore not maintainable in exercise of the court''s writ jurisdiction. The Company filed an appeal against this order before a division bench of the High Court, which was admitted and interim protection on the secured assets was reinstated. The writ appeal is pending.

Based on management assessment supported by external legal opinions, the Company continues to believe that it has a strong case on merits and therefore continues to believe that the aforesaid amount of ''459 million remains recoverable from the bank.

In a separate proceeding before the Debt Recovery Tribunal (DRT), Bengaluru, initiated by a consortium of banks (including the bank) for recovery of loans advanced by the consortium of banks to Kingfisher Airlines Limited (KAL), the bank filed an application for attachment of the pledged shares belonging to USL Benefit Trust. DRT dismissed the said application of the bank and the bank filed an appeal against this order before the Debt Recovery Appellate Tribunal (''DRAT''), Chennai in September 2017. The bank''s appeal is pending for final hearing by the DRAT. There have been no developments with respect to this matter during the year ended March 31, 2023.

(e) Difference in yield of certain non-potable intermediates and associated process losses

As disclosed in each of the annual financial statements commencing from year ended March 31, 2019, the Company came across information suggesting continuing past practices that may have resulted in yields of certain non-potable intermediates and associated process losses in the liquor manufacturing process being higher than what has been reported to the relevant regulatory authorities (the ''Authorities'') as per the records being maintained in certain plants (the ''Affected Plants'').

With prior information to, and engagement with, the Authorities, the Company also engaged independent third-party experts to undertake a physical verification of the inventory of intermediates on a sample basis in the Affected Plants and shared these reports with the Authorities. Based on the understanding and discussion with such Authorities and advice received from external legal counsels, the Company has discharged and provided the amounts of financial obligation (which were determined to be not material) in the financial statements.

Under the direction of the board of directors, the management had engaged an independent law firm to conduct a review of past practices in this area and during the quarter ended June 30, 2019, taken appropriate action, where a violation of the Company''s code of business conduct had occurred.

(a) Income tax matters- Income tax matters primarily relate to exposures under transfer pricing and disallowance of certain expenses that the Company had claimed as deductions in its Income Tax returns.

(b) Indirect tax matters- The Company has operations across various states in India. The Company has identified possible exposures relating to local sales tax, entry tax, state excise duty, goods and services tax and central excise duty.

(c) Other civil litigations and claims- Other civil litigations relate to various claims from third parties under dispute which are lying with various courts/ appellate authorities.

(d) Provident fund- The Company has evaluated the impact of the Supreme Court ("SC") judgement dated February 28, 2019 in the case of Regional Provident Fund Commissioner (II) West Bengal v/s Vivekananda Vidyamandir and Others, in relation to non-inclusion of certain allowances in the definition of "basic wages" of the relevant employees for the purposes of determining contribution to Provident Fund ("PF") under the Employees'' Provident Fund & Miscellaneous Provisions Act, 1952. There are interpretation issues relating to the said SC judgement. In the assessment of the management, the aforesaid matter is not likely to have a significant impact on the Company and accordingly, no provision has been made in the financial statements.

(e) Use of Judgement

Management categorizes the matters based on the probability of cash outflow, which require judgement. Management obtains the views of external consultants where necessary. Based on the assessment, management recognises liability/ provision, or discloses the matter as a

contingent liability, except for matters where the probability of outflow of cash is considered remote. Due to uncertainties involved in the process, actual outflows may be different from those originally estimated. The Company may be involved in legal proceedings in respect of which it is not possible to make a reliable estimate of any expected settlement. In such cases, management has determined that any potential future cash outflows are not likely to be material.

(f) Management is optimistic of a favourable outcome in the above matters based on legal opinions / management assessment. It is not practicable for the Company to estimate the timing of the cash outflows, if any, in respect of the above, pending resolution of respective proceedings.

(g) Contingent liabilities above do not include demands with respect to income tax and indirect tax matters wherein the Company has assessed the probability of outflows of economic benefits to be remote.

Note 48: Exceptional Items

a) Disposal of shares held in Sovereign Distilleries Limited

On January 24, 2023, the Company completed the sale of its equity shares held by the Company in its wholly owned subsidiary, Sovereign Distilleries Ltd certain parties. The shares were sold for a total consideration of ''320 million. Following the completion of the sale, the Company does not hold any shares in Sovereign Distilleries Private Limited and Sovereign Distilleries Private Limited has ceased to be a subsidiary of the Company. This transaction resulted in an impairment of investment and loans amounting to ''129 million and has been accounted as an exceptional item in the Statement of Profit & Loss for the year ended March 31, 2023. Also refer note 28(h).

b) Transfer pursuant to the sale of business undertaking

Further to the announcement on May 27, 2022, the Company, on September 30, 2022: (i) completed the slump sale of the entire business undertaking associated with 32 brands in the ''Popular'' segment to Inbrew Beverages Private Limited ("Inbrew”); and (ii) given effect to the franchise of 11 other brands in the ''Popular'' segment in favour of Inbrew for a period of five years, with an option for Inbrew, subject to certain conditions, (a) to convert the fixed term franchise arrangement into a franchise arrangement with perpetual right to use; and / or (b) to acquire such brands (collectively, the "Transaction”).

In line with the terms of the slump sale agreement, all the assets and liabilities related to the business undertaking have been transferred to Inbrew for a consideration of ''8,180 million (after certain preclosure adjustments) and a profit on sale of the business undertaking amounting to ''3,796 million (net-off costs attributable towards sale and accruals) is recognized as an ''exceptional item'' in the financial statements for the year ended March 31, 2023.

As per the agreement, a portion of the consideration amounting to ''626 million is held under an escrow arrangement which would be settled within a period of 12 months from the date of closure, upon satisfaction of certain specified conditions by the Company, failing which the amount forfeits. Accordingly, the company has determined the profit on sale by considering a part of the amount held in escrow and the balance will be recognized on satisfaction of the conditions.

Pursuant to the slump sale agreement the Company opened an account with a bank and has authorised designated signatories from Inbrew to operate the account. The bank account has been opened for the sole purpose of facilitating Inbrew to receive collections from a Government customer and make payments towards liabilities of Inbrew, until certain licenses are transferred to Inbrew. The Company does not have a present right to appoint authorised signatories and has no right to the economic benefits in respect of the said bank balance. Accordingly, the Company has not recognised the transactions and the balance in the said bank account as at March 31, 2023 in these financial statements.

c) Supply Agility Programme

The Board of Directors of the Company have approved a multi-year supply chain agility programme. The programme primarily is directed towards the optimization of the existing manufacturing footprint with an intent to strengthen its end-to-end supply chain and make it fit for the future. The total implementation cost of the supply chain agility programme, majority of which are expected to be recognized as exceptional items, will be recorded when the recognition criteria are satisfied.

During the year ended, the Company has recognised a provision of ''1,574 million under exceptional items, towards the impairment loss on property, plant and equipment covered under the programme by writing down their carrying amounts to net realizable values which includes provision on certain land holdings on account of potential regulatory risks (impaired based on independent valuation) and severance cost relating to a closed unit.

(d) Voluntary Separation Scheme

During the quarter ended June 30, 2022, the Company announced a Voluntary Separation Scheme (VSS) covering permanent workmen at four factories. Pursuant to the Scheme, the Company has recognised an amount of ''384 million as employee separation costs which is presented as an exceptional item in the financial statements for the year ended March 31, 2023.

Note 49: Amalgamation of Pioneer Distilleries Limited ("PDL") with the Company:

The Board of Directors ("Board”) of PDL and of the Company at their respective meetings held on December 2, 2019 considered and approved a scheme of amalgamation and arrangement (the "Scheme”) in relation to the amalgamation of PDL with the Company under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 and the rules thereunder. The scheme was approved by the National Company Law Tribunal (NCLT) on November 4, 2022. The Scheme provided for an appointed date of April 1, 2021. The approved NCLT orders have been filed with the Registrar of Companies (RoC) on December 30, 2022. Pursuant to filing of the orders with the RoC, PDL was wound up without liquidation.

Pursuant to the scheme, the authorised equity share capital of the Company stands increased, without any further act or deed on the part of the company, including payment of stamp duty and Registrar of Companies fees, by ''200 million, being the authorised equity share capital of the transferor company. Memorandum of Association and Articles of Association of the Company stand amended accordingly without any further act or deed on the part of the company.

In accordance with the terms of the approved Scheme, the non-promoter shareholders of PDL were to receive 10 equity shares of the Company (face value of ''2 each) for every 47 equity shares of PDL (face value of ''10 each), held by them as on January 06, 2023 (''record date''). Allotment of 712,138 equity shares to the non-promoter shareholder of PDL was completed on January 13, 2023. As a result, issued capital of the Company increased by 712,138 equity shares and the revised shareholding of Diageo Relay BV (the holding company, a subsidiary of Diageo plc) in the Company has changed from 55.94% to 55.88% as on the record date.

In accordance with the Scheme all assets, liabilities, employees and the business undertaking of PDL shall vest and be transferred to the Company w.e.f. the appointed date.

The amalgamation of PDL has been recorded in the financial statements using the pooling of interest method as specified by Appendix C to Ind AS 103, Business combination of entities under common control. The accounting treatment followed by the Company is in accordance with the accounting treatment specified in the approved Scheme. For the purpose of the financial statements, the amalgamation has been recorded from the appointed date of April 1, 2021. The accounting treatment followed by the company is as follows:

a) All assets, liabilities and reserves relating to PDL as appearing in the consolidated financial statements of the Company have been transferred and vested in the Company and has been recorded at the book values(In accordance with clarification issued by Ind AS Transition Facilitation Group (ITFG) vide Issue 2 to Bulletin 9).

b) The amount of any intercompany balances between PDL and the Company have been cancelled.

c) The accounting policies followed by PDL have been adjusted for differences (if any) between the accounting policies followed by the Company and the accounting policies followed by the Company have prevailed.

d) The surplus arising out of: (i) the book values of assets over the values of liabilities and reserves taken over on amalgamation; (ii) Face value of equity shares to be issued to the minority shareholders of PDL; and (iii) after considering adjustments for elimination of intercompany balances and differences in accounting policies followed by PDL, is recorded as capital reserve.

Pursuant to the amalgamation following adjustments have been recorded in the financial statements as at April 1, 2021:

(a) The Company has recognised deferred tax credit of ''832 million on April 1, 2021 in the financial statements in relation to unrecognised brought forward losses and deductible temporary differences of PDL.

(b) The Company had recognised provision of ''921 million and ''486 million against loan and interest receivable, respectively, from PDL in earlier years. Pursuant to the amalgamation the said provisions aggregating to ''1,284 million (net of deferred tax of ''123 million) have been written back in the financial statements by crediting retained earnings.

(c) In giving effect to the amalgamation the Company has reversed the difference between interest payable recorded in the financial statements of PDL and corresponding interest receivable recorded in the books of the Company amounting to ''588 million by crediting retained earnings.

Pursuant to the amalgamation following adjustment have been recorded in the financial statements for the year ended March 31, 2022:

(a) An additional stamp duty liability amounting to ''100 million has been recorded in respect of land to be transferred in the name of Company with the corresponding credit to liability.

Management has re estimated the provision for current tax for the financial year ended March 31, 2022, and consequently the deferred tax asset recognised in respect of brought forward losses of PDL amounting to ''768 million has been fully utilised resulting in a current tax credit. (Refer note 29).

Note 50: Investment in Nao Spirits

During the year, the company completed the acquisition in Nao Spirits & Beverages Private Limited (”Nao Spirits”) by investing ''315 million by subscribing to 8,094 Compulsory Convertible Preference Shares and 4,670 equity shares of Nao Spirits, resulting in the Company holding 22.5% ownership interest on a fully diluted basis.

In accordance with the Shareholder''s agreement, the Company has a right to purchase all or any of the shares held by promoters, existing investors and other shareholders upon occurrence of earlier of the Nao Spirits achieving the specified sales volume threshold or March 31, 2025. The exercise price of the call option shall be determined in accordance with a formula specified in the Shareholder''s Agreement. As at March 31, 2023, fair value of the said call option has been determined to be immaterial.

The Company sought a Board Approval on January 24, 2023 to infuse additional amount of ''150 million in Nao Spirits consequent to which the company''s holding in Nao Spirits will increase from 22.5% to 30% on a fully diluted basis. No additional investment has been made by the Company in Nao Spirits till the year ended March 31, 2023 pending satisfaction of certain pre agreed conditions to be fulfilled by Nao Spirits.

Note 51: Additional regulatory information required by Schedule III

i. Details of benami property held

The Company does not hold any benami property. No proceedings have been initiated on the Company or are pending against the Company for holding benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and Rules made thereunder.

ii. Borrowing secured against current assets

The Company has no borrowings from banks and financial institutions on the basis of security of current assets.

iii. Wilful defaulter

The Company has not been declared wilful defaulter by any bank or financial institution or government or any government authority.

iv. Relationship with struck off companies

The Company has no transactions with the companies struck off under the Companies Act, 2013 or the Companies Act, 1956.

v. Registration of charges or satisfaction with Registra


Mar 31, 2022

(a) Land includes: (i) gross carrying amount of '' 2,129 million (2021: '' 2,368 million) in respect of which the title deeds are in the name of erstwhile merged entities; (ii) gross carrying amount of '' 568 million (2021: '' 585 million) in respect of which the Company is in possession of photocopies of title deeds.

(b) Building includes: (i) gross carrying amount of '' 960 million (2021: '' 1,397 million) in respect of which the title deeds are in the name of erstwhile merged entities; (ii) gross carrying amount of '' 633 million (2021: '' 633 million) in respect of which the Company is in possession of photocopies of title deeds; (iii) gross carrying amount of '' 339 million (2021: '' 339 million) in respect of which the Company has initiated litigation for execution of sale deed in favour of the Company.

(c) I n respect of certain freehold land and buildings acquired through amalgamation, the title deeds are held in the name of the erstwhile transferor companies. The Company has possession of title documents and other supporting evidence to establish company''s ownership of such properties. The Company is also regular in payment of property taxes on these properties. In relation to one freehold building, the Company has entered into an agreement to sell and has initiated a litigation to execute the sale deed.

(d) The Company has accounted an impairment provision of INR 340 million (2021: INR 70 million) on property, plant and equipment. Refer note 48(e).

(e) Opening and closing cost of buildings includes payments below rounding off norms adopted by the Company towards fully paid shares held in a co-operative housing society for the purpose of aquiring the right of occupation.

3.2 Leases

This note provides information for leases where the Company is a lessee. The Company takes on lease land, offices, warehouses, plant and equipment and office equipment. Lease contracts are typically entered into for 30 years to 100 years for leasehold land and for periods of 11 months to 5 years for other categories, and may have extension options as described in Note (c) below. Some of the leasing arrangements entered into by the Company include non-cancellable lease terms.

(iii) The total cash outflow for leases for the year ended March 31, 2022 was '' 3,728 million (2021:'' 3,343 million).This excludes advance lease payments amounting to Nil (2021: '' 148 million) in respect of one leasing arrangement, representing lease payments for approximately 12 months, which has been presented as a cash outflow under investing activities in the statement of cashflows.

Additons to the right-of-use assets for year ended March 31, 2022 aggregate to '' 2,292 million (2021: '' 638 million).

Variable lease payments

The Company has lease contracts for plant and equipment that contain variable payments. Variable lease payments that depend on production volumes are recognised in the statement of profit and loss in the period in which the condition that triggers those payments occurs. Any changes in production under contracts which includes variable lease payments, would have a proportionate impact on the variable lease payments.Certain agreements contain clauses for minimum production volumes and hence portion of lease payments in these agreements are ''in-substance fixed''. "In-substance" fixed lease payments are included in the determination of the lease liabilities and consequently included in determining the value of right-of-use assets.

Extension and termination options

Extension and termination options are included in a number of property and equipment leases.These are used to maximise operational flexibility in terms of managing the assets used in the Company''s operations. Management considers contractual terms and conditions, leasehold improvements undertaken, termination costs of leasing arrangements, incentives received from the Government (if any) and importance of the underlying asset to the Company''s operations in determining the lease term for the purpose of recognising/ measuring the lease liability.

Leasehold land includes: (i) net carrying amount of '' 10 million (2021: '' 35 million) in respect of which the lease deeds are in the name of erstwhile merged entities [gross carrying amount of the above leasehold land is '' 32 million (2021: '' 32 million)]; (ii) net carrying amount of '' 4 million (2021: '' 4 million) in respect of which the Company is in possession of photocopies of lease deeds.

Building on Leasehold land includes: (i) net carrying amount of '' 73 million (2021: '' 212 million) in respect of which the lease deeds are in the name of erstwhile merged entities (ii) net carrying amount of '' 56 million (2021: '' 62 million) in respect of which the Company is in possession of photocopies of lease deeds.

Investment as a sole beneficiary in USL Benefit Trust (the ''Trust'') was recorded as per the terms of composite scheme of arrangement approved by the Honourable High Courts of Karnataka and Bombay, upon amalgamating various companies with United Spirits Limited. The Trust has been established for the exclusive benefit of the Company and holds 17,295,450 equity shares of '' 2/- face value (2021: 17,295,450 equity shares of '' 2/- face value) of the Company [Refer Note 13(h)]. As per the terms of the aforesaid scheme of arrangement, Company has carried this investment at the aggregate of book value as per the books of the concerned transferor companies. Also refer Note 33(b) for assets pledged and Note 40(d).

On adoption of Ind AS, Company has measured these investments at deemed cost using the net carrying value as per previous GAAP as at March 31, 2015. The Company has subsequently measured its investments in subsidiaries and the associate at cost in accordance with Ind AS 27.

On October 1, 2020, Company invested '' 20 million in CCPS issued by Hip Bar Private Limited, which has been carried at fair value through profit and loss. The Company had recognised a fair value loss of '' 20 million during the year ended March 31, 2021. The Company has sold its investment in Hipbar Private Limited during the year ended March 31, 2022. Refer Note 28(k).

Work-in-progress (intermediates) includes stocks of maturing spirits held by a branch outside India (in custody of an overseas vendor) amounting to Nil (2021: '' 284 million).

Allowance for obsolete inventories (net) amounting to '' 162 million (2021: '' 752 milllion) has been recognised as an expense during the year and is included in Cost of materials consumed and Change in inventories of finished goods, work-in-progress and stock-in-trade in the Statement of Profit and Loss.

Inventories include inventory held by tie up manufacturing units amounting to '' 2,183 million (2021: '' 2,700 million).

For details of Inventories pledged as security Refer Note 33.

Rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a face value of '' 2/- per share. Each holder of the equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any in proportion to their holdings.

On December 20, 2013, the Honorable Karnataka High Court passed an order in the matter involving United Breweries (Holdings) Limited

(UBHL) and its creditors and the Diageo Plc. setting aside an earlier leave order which permitted UBHL to sell 10,141,437 equity shares on '' 10/- each in the Company to Diageo Relay B V (Formerly known as Relay B V) , pending disposal of the winding up petitions against UBHL. On the above matter, UBHL and Diageo plc. have approached the Honorable Supreme Court by way of special leave petitions (SLPs) challenging the order of the division bench. Pending, disposal of the above SLPs, the Honorable Supreme Court has directed that status quo be maintained in respect of the above mentioned transaction of sale of shares to Diageo Relay B V (Formerly known as Relay B V). Such shares are included in arriving at Diageo Relay BV''s (Formerly known as Relay B V) shareholding in the Company.

Nature and purpose of reserves:

a) Capital reserve: Created pursuant to a Scheme of Amalgamation between the Company and SW Finance Co. Limited, sanctioned by the Honourable High Court of Karnataka and Honourable High Court of Bombay under the orders dated June 12, 2015 and August 28, 2015, respectively.

b) Capital redemption reserve: Capital Redemption Reserve is created for an amount equivalent to the nominal value of shares redeemed in earlier years by the Company (including the erstwhile Companies that were merged with the Company through several schemes of amalgamations / mergers).

c) Securities premium account: Securities premium account is credited when shares are issued at premium. The balance is utilised in accordance with the provisions of the Act.

d) Central subsidy: The balance is taken over on amalgamation of Shaw Wallace Distilleries Limited with the Company during the year ended March 31, 2006 as per the terms of the arrangement approved by the Honorable High Courts of Karnataka and Bombay.

e) Share based incentive reserve: The share-based incentive reserve is used to recognise grant date fair value of Diageo Plc''s share options under the group share-based payment arrangements. Recharges towards such arrangements are debited to this reserve.

f) Contingency reserve: The balance is taken over on amalgamation of McDowell Spirits Limited with the Company during the year ended March 31, 2001 as per the terms of the arrangement approved by the Honorable High Court of Karnataka.

g) General reserve: The General reserve is created by way of transfer of profits from retained earnings for appropriation purposes. This reserve is utilised in accordance with the provisions of the Act.

h) Retained earnings: Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.

The Company''s financial risk management is carried out by treasury department under policies approved by the Board. Corporate treasury identifies, evaluates and hedges financial risks in close co-operation with the Company''s other functions. The Board sets written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess funds.

The Company does not have significant exposure to foreign currency fluctuations.

(A) Credit risk

Credit risk management Trade receivables:

Company''s Credit policy provides guidance to keep the risk of credit sales within an acceptable level. The Company''s management monitors (at customer group level) and reviews credit limits, overdue trade receivables, provisioning and write-off of credit impaired receivables.

Trade receivables are unsecured and are derived from revenue earned from two main classes of customers, receivable from sales to government corporations / government owned entities and receivables from sales to private third parties.

Receivables from government corporations/ government owned entities amounted to '' 14,342 million; 59% (2021: '' 14,441 million; 63%) and private customers amounted to '' 9,867 million; 41% (2021: '' 8,650 million; 37%) respectively, of total trade receivables, on the reporting date.

The Company determines allowances for expected credit losses separately for different categories of customers using aged based provision matrix.

The Company recognises allowances using expected credit loss method on Other financial assets. Such allowances are measured considering either 12-month expected credit loss approach or life time credit loss approach, based on management''s assessment of credit risk. Assets are written-off where there is no reasonable expectation of recovery. Where the loans or receivables are written-off the Company continues to engage in enforcement activity to attempt to recover the amounts due. Where recoveries are made, these are recognised in profit or loss.

Significant estimate in measurement of impairment on loans to subsidiaries

Loans to subsidiaries are measured at amortized cost using the effective interest method. In assessing the expected credit loss, management considers the expected manner of recovery, the contractual terms of the loan, operational status of the subsidiary, historical experience and forecast cash flows. An impairment provision is made to reflect any expected credit loss. Changes in expected manner of recovery consequent to change in forecast cash flows, could lead to the losses being higher/ lower than estimated as at the year end.

The Company has credit risk from loans provided to subsidiaries:

• Loans to overseas subsidiaries- these loans are classified as credit impaired and have been fully provided for as these subsidiaries are non-operative and do not have the resources to repay the loans.

Loans to domestic subsidiaries- management has determined the amount of impairment considering the expected manner of recovery, contractual terms and estimated future cash flows. Based on this assessment, management has concluded that no material allowance for expected credit loss is required in respect of loans to domestic subsidiaries, other than for loan to Pioneer Distilleries Limited. During the year, management has re-estimated the expected future cash flows and has recognised an allowance of '' 532 million (which includes an allowance of '' 99 million on interest accrued and an allowance of '' 433 million on the principal amount (2021: '' 540 million) using the expected credit loss approach in respect of loan to Pioneer Distilleries Limited [Refer Note 28(d)]. The Loan amount outstanding from Pioneer Distilleries Limited as at the year-end is Nil (March 31,2021''433 million).

(B) Liquidity Risk

Changes in regulations, guidelines and operating models influence liquidity risk. The Company generates enough cashflow from the current operation that provides liquidity both in the short-term as well as in the long-term. The Company has prudent liquidity risk management to ensure maintenance of required cash and / or have access to funds through adequate unutilised sanctioned borrowing limits from banks.

(C) Interest rate risk

The Company is exposed to interest rate risk on its loans from Banks. The Company''s short-term borrowings were benchmarked to Bank''s MCLR (Marginal Cost of Lending Rates) and Money Market Rates. Interest rate risk arises due to uncertainties about the future market interest rate on the borrowings. The Company maintains an optimal debt mix and tenure to minimise the impact of interest rate risk.

(D) Foreign exchange risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions and balances, primarily with respect to the USD and GBP. Foreign Exchange risk arises from future commercial transactions and monetary assets and liabilities denominated in a currency that is not the Company''s functional currency (''). The risk is measured through a forecast of highly probable foreign currency cash flows.

Foreign currency risk management

The Company''s risk management policy is to assess the Company''s net exposures which is mainly represented by receivable and payable towards exports and imports respectively, and partly represented by the loans extended in foreign currencies.

The Company can hedge its net exposures with a view on forex outlook. Since the net exposure is currently not material, this has not been hedged.

Note 33: Assets pledged as security

(a) In respect of secured loans from banks (''lenders'') obtained and repaid during earlier years, the Company has in most cases obtained no objection letters from lenders for the release of the hypothecation/ mortgage and have filed the necessary forms with Ministry of Corporate Affairs ("MCA”) to reflect the release of such charge in MCA''s records. In the few remaining cases, the Company is in the process of securing no objection letters from the lenders. As there are no secured loans outstanding as at March 31, 2022, no assets have been shown as hypothecated/ mortgaged as at March 31, 2022.

Diageo Pic. share based plans

Diageo Pic. (Ultimate parent company) runs various equity settled share based plans such as Diageo Performance Incentive (DPI), Diageo Executive Long Term Incentive Plan (DELTIP), Performance Share Plan (PSP) and Senior Executive Share Option Plan (SESOP) and Diageo Exceptional Stock Award Plan (DESAP) for qualifying employees of the Group. Vesting under these plans is subject to conditions such as continuity of employment and achievement of certain other performance factors.

The charge for the year in respect of such plans included in employee benefits expense amounted to '' 55 million (March 31, 2021: net credit of '' 23 million Assets pledged as security (Refer Note 24), with a corresponding credit to share based incentive reserve in other equity. Disclosures are provided to the extent of information available with the Company.

Share Appreciation Rights (SAR)

The India SAR Plan creates an opportunity to link the employees'' reward to Company''s share price performance. Under this plan, Company grants stock appreciation rights (based on USL share price on the date of grant) to qualifying employees. Cash pay-out equivalent to the value of the Company''s share will be made at the end of three years from the date of grant (the vesting period).

Note 37: Offsetting of financial assets and financial liabilities

Until the previous year end, the Company presented receivables from Tie-up manufacturing units after offsetting liabilities towards bottling fees. The Company was not obligated to pay the bottling fees and net amount recoverable (after offsetting the bottling fees) was paid by the Tie-up manufacturing units. However, during the current year, the Company has been separately settling the bottling fees and recovering the gross amounts recoverable from Tie-up manufacturing units. Accordingly, the bottling fees payable has not been offset against receivables from Tie-up manufacturing units as at March 31, 2022.

Note 38(a): Defined contribution plans

Provident Fund:

Provident Fund covers substantially all permanent workmen. Both the eligible employees and the Company make monthly contributions to the Provident Fund as per regulations to a fund administered by government authority, equal to a specified percentage of the employees'' salary. The obligation of the Company is limited to the extent of contributions made on a monthly basis.

Employee Pension Scheme:

Employee Pension Scheme covers all eligible employees (i.e., permanent workmen and executive staff) of the Company. A portion of the Company''s contribution in respect of government administered Provident Fund and Company administered Provident Fund Plan is made to the government administered Employee Pension Scheme, as per regulations. The obligation of the Company is limited to the extent of contributions made on a monthly basis.

Employees'' State Insurance:

Employees'' State Insurance is a state plan which is applicable to those employees of the Company whose salaries do not exceed a specified amount. The contributions are made based on a percentage of salary to a fund administered by government authority. The obligation of the Company is limited to the extent of contributions made on a monthly basis.

Superannuation fund:

Certain executive staff of the Company participate in United Spirits Superannuation fund (the ''Fund''), which is a voluntary contribution plan. The Company has no further obligations to the plan beyond its monthly contributions to the Fund, the corpus of which is administered by a Trust and is invested in insurance products.

National Pension Scheme:

Certain executive staff of the Company participate in National Pension Scheme, which is a voluntary contribution plan. The Company has no further obligations to the plan beyond its monthly contributions to a fund administered by a pension fund manager appointed by Pension Fund Regulatory and Development Authority.

Note 38(b): Defined benefit plans

Gratuity:

The Company provides for gratuity, a defined benefit plan (the "Gratuity Plan”), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment or upon resignation from service, of an amount based on the respective employee''s last drawn salary and years of employment with the Company. Vesting occurs only upon completion of five years of service, except in case of death or permanent disability. The funds are managed by a trust administered by the Company.

Pension plan:

The Company operates an unfunded defined benefit pension plan for certain retired employees of an erstwhile entity which has merged into the Company in earlier years. This plan provides benefits to members in the form of a guaranteed level of pension payable for life post retirement or termination of employment. The level of benefits provided depends on their salary in the final year leading up to retirement, or termination.

Provident fund plan:

Executive staff and certain permanent workmen receive benefits from the provident fund plan, which is a defined benefit plan. Both the employees and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the employee''s salary. A portion of Company''s contribution is transferred to Employee Pension Scheme, which is a defined contribution plan and the remaining amount is transferred to provident fund plan. The Provident Fund contributions are made to McDowell & Company Limited Employees Provident Fund Trust set up and managed by the Company. The Trust invests in specific designated instruments as permitted by Indian laws. The Company has an obligation to make good the shortfall if any, being the difference between the statutory rate prescribed by the Government and the rate of interest declared by the Trust. The Company also has an obligation to fund any shortfall in the fair value of plan assets as compared with the defined benefit obligation. The actuarial risk and investment risk fall, in substance, on the Company.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as and when calculating the defined benefit liability recognised in the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets.

A large portion of assets consists of government and public sector bonds, although the Company also invests in private sector bonds, special deposit schemes and bank balances. The plan asset mix is in compliance with the requirements of the respective regulations.

Note 38(e): Effect of the defined benefit plan on the entity''s future cash flows

The Company does not expect to contribute any amounts into the gratuity plan assets during the year ending March 31, 2023, considering the net surplus portion as at March 31, 2022. The Company is expected to contribute '' 155 Million (2021: '' 149 million) to Provident fund during the year ended March 31, 2023.

Note 39: Long term contracts, including derivative contracts

The Company does not have any derivative contracts as at March 31, 2022. The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. No provision for material foreseeable losses is considered necessary based on the review of such contracts as at year end.

Note 40: Historical matters

(a) Additional Inquiry and other regulatory matters

As disclosed in each of the annual financial statements commencing from year ended March 31, 2014, upon completion in April 2015 of an inquiry into past improper transactions (''Initial Inquiry'') which identified references to certain additional parties and certain additional matters, the then MD & CEO, pursuant to the direction of the Board of Directors, carried out an additional inquiry into past improper transactions (''Additional Inquiry'') which was completed in July 2016. The Additional Inquiryprima facie identified transactions indicating actual and potential diversion of funds from the Company and its Indian and overseas subsidiaries to, in most cases, Indian and overseas entities that appeared to be affiliated or associated with the Company''s former non-executive chairman, Dr. Vijay Mallya, and other potentially improper transactions. All amounts identified in the Additional Inquiry have been provided for or expensed in the financial statements of the Company or its subsidiaries in the respective prior periods. The Company has filed recovery suits against relevant parties and individuals identified pursuant to the Additional Inquiry. Additionally, the Company has also filed a suit for recovery of excess managerial remuneration amounting to '' 134 million paid to the former Executive Director and CFO (ED & CFO) for the year ended March 31, 2015. The receivable recorded in the financial statements for excess managerial remuneration has been fully provided for.

As disclosed in each of the annual financial statements commencing from the year ended March 31, 2014, in relation to the above-mentioned Initial Inquiry and Additional Inquiry and the matters arising out of the settlement agreement dated February 25, 2016 entered into by the Company with Dr. Vijay Mallya pursuant to which, inter alia, the Company and Dr. Vijay Mallya agreed a mutual release in relation to matters arising out of the Initial Inquiry (''Agreement''), the Company received letters and notices from the Securities Exchange Board of India (''SEBI'') during the year ended March 31, 2016 to which the Company has responded. There has been no further communication with SEBI on these matters since the Company''s response in October 2017.

As disclosed in each of the annual financial statements commencing from the year ended March 31, 2014, in connection with the investigations carried out by the Directorate of Enforcement (''ED'') under the Foreign Exchange Management Act, 1999 and Prevention of Money Laundering Act, 2002, the Company received letters and notices from ED during the year ended March 31, 2016, to which the Company responded. During the year ended March 31, 2022, the Company received a notice from the ED requesting for information, which the Company has provided. The Company has also received queries from its authorized dealer banks, based on queries from the Reserve Bank of India (''RBI''), with regard to remittances made in the prior years by the Company to its overseas subsidiaries, past acquisitions and Annual Performance Reports (''APR'') for prior years, to which the Company has responded.

As disclosed in each of the annual financial statements commencing from the year ended March 31, 2019, with the objective of divesting its non-core assets, the Company reviewed its subsidiaries'' operations, obligations, and compliances, and recommended a plan for rationalisation through sale, liquidation or merger ("Rationalisation Process”). After receiving approval from the Board, the Company is taking steps to implement this plan and has liquidated one overseas subsidiary, merged one overseas subsidiary into another and sold two subsidiaries, one of which was overseas and the other in India. The Rationalisation Process is subject to regulatory and other approvals (in India and overseas). If any historical non-compliances are established during the Rationalisation Process, the Company will consult with its legal advisors, and address any such issues including, if necessary, considering filing appropriate compounding applications with the relevant authorities. At this stage, it is not possible for the management to estimate the financial impact on the Company, if any, arising out of potential non-compliances with applicable laws, if established

(b) Notices from the Ministry of Corporate Affairs

As disclosed in each of the annual financial statements commencing from year ended March 31, 2016, and pursuant to the inspection conducted by Ministry of Corporate Affairs (''MCA'') during the year ended March 31, 2016, under Section 206(5) of the Companies Act, 2013, MCA issued show cause notices alleging violation of certain provisions of the Companies Act, 1956 and Companies Act, 2013, to which the Company had responded. As at the year ended March 31, 2022, the Company is awaiting response from the Registrar of Companies (RoC) on one compounding application and one show cause notice wherein the Company had requested the RoC to discontinue further proceedings based on expert legal advice received. The penalty and compounding fees arising out of adjudication applications and compounding application are not material. The management is of the view that in line with the past compounding/ adjudication orders, the financial impact arising out of compounding/ adjudication of the residual matters will not be material to the Company''s financial statements.

(c) Loan to United Breweries (Holdings) Limited (''UBHL'')

As disclosed in each of the annual financial statements commencing from year ended March 31, 2015, the Company had pre-existing loans/ deposits/ advances/ accrued interest that were due to the Company and its subsidiaries from UBHL and its subsidiaries aggregating to '' 13,374 million and that were consolidated into, and recorded as, an unsecured loan through an agreement entered into between the Company and UBHL on July 3, 2013 (''Loan Agreement''). UBHL has defaulted on its obligations to pay any amounts under the Loan Agreement. The Company has already made provision in prior financial years for the entire principal amount due, of '' 13,374 million, and for the accrued interest of '' 846 million up to March 31, 2014. The Company has not recognised interest income on said loan after March 31,2014 which cumulatively amounts to '' 9,898 million up to March 31,2022. The Company has offset payable to UBHL under a trademark agreement entered into with UBHL amounting to '' 74 million for the year ended March 31, 2022, and consequently, the corresponding provision for loan has been reversed to ''Loss allowance on trade receivables and other financial assets (net)''. The cumulative offset up to March 31,2022 amounted to '' 2,062 million.

Since UBHL had defaulted on its obligations under the Loan Agreement, the Company sought redressal of disputes and claims through arbitration under the terms of the Loan Agreement. In April 2018, the arbitral tribunal passed a final award against the Company. The reasons for this adverse award were disputed by the Company, and the Company obtained leave from the High Court of Karnataka to challenge this arbitral award. In July 2018, the Company filed a petition challenging the said award before the Jurisdictional Court in Bangalore (the "Court”). The Court has issued notice pursuant thereto on the Official Liquidator and the hearing has commenced. Notwithstanding the arbitral award, based on management assessment supported by an external legal opinion, the Company has offset payable to UBHL under the trademark agreement against the balance of loan receivable from UBHL. The Company has filed its claim with the Official Liquidator and during the years ended March 31, 2021 and March 31, 2022, and subsequent to the year ended March 31, 2022, the Official Liquidator and the Company exchanged certain correspondence.

(d) Dispute with IDBI Bank Limited

As disclosed in each of the annual financial statements commencing from year ended March 31, 2015, during the year ended March 31, 2014, the Company prepaid a term loan taken from IDBI Bank Limited (the "bank”) in earlier years which was secured by certain property, plant and equipment and brands of the Company as well as by a pledge of certain shares of the Company held by the USL Benefit Trust (of which the Company is the sole beneficiary). The bank disputed the prepayment, following which the Company filed a writ petition ("WP”) in November 2013 before the Hon''ble High Court of Karnataka (''High Court'') challenging the actions of the bank.

In February 2016, following the original maturity date of the loan, the Company received a notice from the bank seeking to recall the loan and demanding a sum of '' 459 million on account of outstanding principal, accrued interest and other amounts as also further interest till the settlement date as per the security documents. The Company challenged this notice in the pending writ proceedings during which the High Court directed that, subject to the Company depositing '' 459 million with the bank in a suspense account, the bank should not deal with any of the secured assets including the shares until disposal of the writ petition. The Company deposited the full amount, and the bank was restrained from dealing with any of the secured assets.

In June 2019, a single judge bench of the High Court dismissed the Company''s writ petition, amongst other reasons, on the basis that the matter involved an issue of breach of contract by the Company and was therefore not maintainable in exercise of the court''s writ jurisdiction. The Company filed an appeal against this order before a division bench of the High Court, which was admitted and interim protection on the secured assets was reinstated. The writ appeal is pending.

Based on management assessment supported by external legal opinions, the Company continues to believe that it has a strong case on merits and therefore continues to believe that the aforesaid amount of '' 459 million remains recoverable from the bank.

In a separate proceeding before the Debt Recovery Tribunal (DRT), Bengaluru, initiated by a consortium of banks (including the bank) for recovery of loans advanced by the consortium of banks to Kingfisher Airlines Limited (KAL), the bank filed an application for attachment of the pledged shares belonging to USL Benefit Trust. DRT dismissed the said application of the bank and the bank filed an appeal against this order before the Debt Recovery Appellate Tribunal (''DRAT''), Chennai in September 2017. The bank''s appeal is pending for final hearing by the DRAT. There have been no developments with respect to this matter during the year ended March 31, 2022.

(e) Difference in yield of certain non-potable intermediates and associated process losses

As disclosed in each of the annual financial statements commencing from year ended March 31, 2019, the Company came across information suggesting continuing past practices that may have resulted in yields of certain non-potable intermediates and associated process losses in the liquor manufacturing process being higher than what has been reported to the relevant regulatory authorities (the ''Authorities'') as per the records being maintained in certain plants (the ''Affected Plants'').

With prior information to, and engagement with, the Authorities, the Company also engaged independent third-party experts to undertake a physical verification of the inventory of intermediates on a sample basis in the Affected Plants and shared these reports with the Authorities. Based on the understanding and discussion with such Authorities and advice received from external legal counsels, the Company has discharged and provided the amounts of financial obligation (which were determined to be not material) in the financial statements.

Under the direction of the board of directors, the management had engaged an independent law firm to conduct a review of past practices in this area and during the quarter ended June 30, 2019, taken appropriate action, where a violation of the Company''s code of business conduct had occurred.

There have been no developments with respect to this matter during the year ended March 31, 2022.

(f) Developments in Relation to Past Claims from a Customer

In April 2021, a customer notified the Company that it was stopping further payment until pending issues of recovery were resolved. The customer was seeking to review a settled issue regarding differential trade terms, which the Company had voluntarily disclosed to the customer, and in relation to which all recovery claims made by the customer had been fully settled. This was disclosed in the annual financial statements for the years ended March 31, 2017 and March 31, 2018. In June 2021, the customer confirmed that the matter of original recovery was settled (which reaffirmed the Company''s view) but made an additional claim amounting to '' 480 million and committed to resume payments. Further to this communication, the Company recognised a claim of '' 353 million (net), which has been presented as an exceptional item in the Standalone financial statements for the year ended March 31, 2022. The Company does not expect any further claim from the customer in relation to this matter. Also refer note 28 (h).

a) The Company has given letters of financial support to the following subsidiaries to conduct their operations in such a manner as to enable them to meet their obligations, as and when they fall due for a period of twelve months from the balance sheet date:

i. Pioneer Distilleries Limited

ii. Sovereign Distilleries Limited

iii. Palmer Investment Group Limited

b) The Company has given a letter of comfort to a bank, towards a loan facility from that bank amounting to '' 3,500 million (2021: '' 3,500 million) availed by Pioneer Distilleries Limited (PDL), a subsidiary. As per the letter, the Company has expressed its intention to ensure that PDL repays the outstanding amount under the facility on due date and in the event of default by PDL, to take appropriate steps to cause PDL to repay the outstanding out of PDL''s resources. The said letter does not constitute a guarantee by USL, as in the event of default by PDL, the bank shall have no recourse to USL.

(a) Income tax matters- Income tax matters primarily relate to exposures under transfer pricing and disallowance of certain expenses that the Company had claimed as deductions in its Income Tax returns.

(b) Indirect tax matters- The Company has operations across various states in India. The Company has identified possible exposures relating to local sales tax, entry tax, state excise duty and central excise duty.

(c) Other civil litigations and claims- Other civil litigations relate to various claims from third parties under dispute which are lying with various courts/ appellate authorities.

(d) Provident fund- The Company has evaluated the impact of the Supreme Court ("SC") judgement dated February 28, 2019 in the case of Regional Provident Fund Commissioner (II) West Bengal v/s Vivekananda Vidyamandir and Others, in relation to non-inclusion of certain allowances in the definition of "basic wages" of the relevant employees for the purposes of determining contribution to Provident Fund ("PF") under the Employees'' Provident Fund & Miscellaneous Provisions Act, 1952. There are interpretation issues relating to the said SC judgement. In the assessment of the management, the aforesaid matter is not likely to have a significant impact on the Company and accordingly, no provision has been made in the financial statements.

(e) Use of Judgement

Management categorizes the matters based on the probability of cash outflow, which require judgement. Management obtains the views of external consultants where necessary. Based on the assessment, management recognises liability/ provision, or discloses the matter as a contingent liability, except for matters where the probability of outflow of cash is considered remote. Due to uncertainties involved in the process, actual outflows may be different from those originally estimated.

The Company may be involved in legal proceedings in respect of which it is not possible to make a reliable estimate of any expected settlement. In such cases, appropriate disclosure is provided but no provision is made and no contingent liability is quantified.

(f) Management is optimistic of a favourable outcome in the above matters based on legal opinions / management assessment. It is not practicable for the Company to estimate the timing of the cash outflows, if any, in respect of the above, pending resolution of respective proceedings.

(g) Contingent liabilities above do not include demands with respect to income tax and indirect tax matters wherein the Company has assessed the probability of outflows of economic benefits to be remote.

Note 45: Corporate Social Responsibility (CSR)

CSR amount required to be spent as per Section 135 of the Companies Act, 2013 read with Schedule VII thereof by the Company during the current year is '' 76 million (2021: '' 93.5 million).

The Company did not undertake any ongoing projects, and thus, the requirement of transferring to a separate bank account as per Section 135(6) of the Companies Act, 2013 read with Schedule VII thereof does not arise. There are no amounts required to be transferred to the fund specified in Section 135 of the Companies Act, 2013.

The Company does not intent to carry forward any excess amount spent under CSR activities for the year ended March 31, 2022. The Company had spent excess amount of '' 0.9 million on CSR activities during the previous year. Hence, as per third proviso to Section 135(5) of the Act amount of '' 0.9 million was carried forward to the current year.

a) As part of Diageo group''s COVID-19 ("Raising the Bar") programme the Company has committed to spend ? 750 million over a period of two years from July 1, 2020, in order to support the post Covid-19 revival and recovery of pubs, bars and restaurants serving alcohol.

Raising the Bar aims to provide non-cash support to qualifying pubs, bars and restaurants serving alcohol in Mumbai, Delhi, Bengaluru and other select cities through the Diageo Bar Academy. The programme includes providing hygiene kits, a range of personal protection equipment (such as masks, gloves, hand sanitizers), digital support and training to help these outlets effectively maintain social distancing and enhanced hygiene standards while deploying confidence building measures for consumers to safely visit and socialize. The amount of ? 750 million had been accounted as exceptional item in the Statement of Profit & loss for the year ended March 31, 2021. Also refer note 28(i).

b) On December 01, 2020, the Company received a no-objection letter from the Reserve Bank of India (RBI) for the liquidation of Montrose. Montrose has been liquidated effective April 16, 2021 and an intimation to that effect was received from the regulatory authorities at Panama on May 5, 2021. Subsequent to the liquidation an amount of ? 89 million has been repatriated to the Company, which has been accounted as income and presented as an exceptional item in the Statement of Profit & loss for the year ended March 31, 2022. Also refer Note 28(a).

c) During the quarter ended March 31, 2022, the Company carried out a consumer research and insights assessment by a third party with respect to a licensed "logo" from UBHL and determined that the "logo" has no impact on consumer''s purchasing decision, thereby resulting in no incremental benefits to the Company. Accordingly, the ''

Company has recorded '' 864 million in exceptional item, being the accelerated charge pertaining to unamortized license fee. Also refer note 28(g).

d) Disposal of shares held in Hip Bar Private Limited

On August 03, 2021, a share purchase agreement has been executed with Hip Bar Private Limited for sale of the entire stake of the Company [Equity Shares (4,567,568 Nos.) and Compulsory Convertible Preference Shares (1,950,000 Nos.)] in Hip Bar Private Limited for '' 5.2 million. Amount received on account of disposal amounting to '' 5.2 million has been presented as gain on disposal of associate under Exceptional item. Pursuant to the sale, the Company has also received all rights, title, and interest in the trademarks ''CloudBar'' and ''BarOnTheCloud'' from Hip Bar Private Limited, which have been valued at Nil. Also refer note 28(b)

e) The Company has taken a charge of INR 340 million on account of impairment of property, plant and equipment. This represents impairment loss on property, plant and equipment in respect of certain manufacturing units and includes provision towards potential regulatory risk arising out of excess land holdings in a state (INR 143 million), which are disclosed as exceptional items (Refer note 28(f)). The Company is in discussion with appropriate authorities to resolve the potential risk.

Note 49: Proposed merger of Pioneer Distilleries Limited with United Spirits Limited:

The Board of Directors ("Board”) of PDL and of the Company at their meetings held on December 2, 2019 considered and approved a scheme of amalgamation and arrangement (the "Scheme”) in relation to the proposed merger of PDL with the Company under Sections 230 - 232 and other applicable provisions of the Companies Act, 2013 and the rules thereunder. Upon completion of the merger, the non-promoter shareholders of PDL will receive 10 equity shares of the Company (face value of INR 2 each) for every 47 equity shares of PDL (face value of INR 10 each), held by them as on the record date. Post the merger, the Company''s issued capital is expected to expand by 712,138 shares and the revised shareholding of Relay BV (the holding company, a subsidiary of Diageo plc) in the Company will change from 55.94% to 55.88%. The Scheme is subject to the receipt of requisite approvals from the relevant statutory authorities. The BSE Limited and the National Stock Exchange of India Limited have issued their no-objection to the draft scheme and related documents filed, vide observation letters dated October 21, 2020 and October 22, 2020, respectively. The Company, jointly with PDL, has filed an application under Sections 230 to 232 of the Companies Act, 2013 on November 27, 2020 with the National Company Law Tribunal, Bangalore ("NCLT”), and again an Interlocutory Application was filed before NCLT on April 7, 2021. Based on the order of the NCLT received on August 18, 2021, the Company and PDL convened meetings of their respective equity shareholders, and the Company also convened a meeting of its unsecured creditors, on September 30, 2021. The Scheme was approved with requisite majority at these meetings. Subsequently, a joint petition to sanction the Scheme has been filed by USL and PDL with the NCLT on October 02, 2021. Company''s petition was heard by the NCLT on January 12, 2022 and April 18, 2022. At the scheduled hearing of the NCLT on May 27, 2022, the matter was not discussed and management is yet to receive the next date for hearing.

The impact of the above merger will be given effect in the standalone financial statements upon approval of the Scheme by the NCLT and completion of the required regulatory filings.

Note 50: Strategic review of selected brands

Following the strategic review of select popular brands announced on February 23, 2021, the Board of Directors of the Company, on May 27, 2022, approved the sale of the business undertaking associated with 32 brands and franchising of 11 Popular brands to an unrelated party. The transaction is subject to the approval of the shareholders and other customary closing conditions. There is no impact of this transaction on the Standalone financial statements for the year ended March 31, 2022.

Note 51: Investment in Nao Spirits

On March 12, 2022, the Company announced strategic investment in Nao Spirits & Beverages Private Limited ("Nao Spirits”). On April 29, 2022, the company completed the acquisition by investing '' 315 million by subscribing to 8,094 Compulsory Convertible Preference Shares and 4,670 equity shares of Nao Spirits, resulting in the Company holding 22.5% ownership interest on a fully diluted basis. The Company has a call option to acquire remaining shares held by the other shareholders of Nao Spirits at a pre-determined valuation methodology.

Note 52: Additional regulatory information required by Schedule III

i. Details of benami property held

The Company does not hold any benami property. No proceedings have been initiated on the Company or are pending against the Company for holding benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and Rules made thereunder.

ii. Borrowing secured against current assets

The Company has no borrowings from banks and financial institutions on the basis of security of current assets.

iii. Wilful defaulter

The Company has not been declared wilful defaulter by any bank or financial institution or government or any government authority.

iv. Relationship with struck off companies

The Company has no transactions with the companies struck off under the Companies Act, 2013 or the Companies Act, 1956.

v. Registration of charges or satisfaction with Registrar of Companies

There are no charges or satisfaction which are yet to be registered with the Registrar of Companies beyond the statutory period.

vi. Compliance with number of layers of companies

The Company has ensured compliance with Section 2(87) of the Companies Act, 2013 read with Companies (Restriction on Number of Layers) Rules, 2017 (''Layering Rules'') is not applicable.

vii. Utilisation of borrowed funds and share premium

The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (intermediaries).

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (ultimate beneficiaries) or

(b) provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries

The Company has not received any fund from any person(s) or entity(ies), including foreign entities (funding party) with the understanding (whether recorded in writing or otherwise) that the Company shall:

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (ultimate beneficiaries) or

(b) provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries

viii. Undisclosed income

There is no income surrendered or disclosed as income during the current or prior year in the tax assessments under the Income Tax Act, 1961, that has not been recorded in the books of account.

ix. Compliance with approved scheme(s) of arrangements

The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous financial year.

x. Loans or advances to specified persons

The Company has not granted any loans or advances to promoters, directors, KMPs and the related parties (as defined under Companies Act, 2013), either severally or jointly with any other person, expect for the parties mentioned under Note 46(b) that are:

(a) Repayable on demand

(b) without specifying any terms or period of repayment

xi. Details of crypto currency or virtual currency

The Company has not traded or invested in crypto currency or virtual currency during the current or prior year.

xii. Valuation of property, plant and equipment, intangible asset and investment property

The Company has not revalued its property, plant and equipment or intangible assets or both during the current or previous year. The Company does not any investment property during the year.

xiii. Utilisation of borrowings taken from banks and financial institutions for specific purpose

The borrowings obtained by the Company from banks have been applied for the purposes for which such loans were was taken, the Company has not availed any loans from financial institutions during the year.

Note 53: Impact of Covid-19

Management has considered various internal and external information available up to the date of approval of Standalone financial statements in assessing the impact of Covid-19 pandemic on the Standalone financial statements for the year ended March 31, 2022. With a large section of the population being vaccinated and based on past-experience of the pandemic, management has determined that COVID-19 is unlikely to have a material impact on the future operations of the Company. The Company continues to maintain a positive outlook for the next financial year and will continue to monitor changes in future economic conditions.

With a surge in the spread of the Covid-19 pandemic in India during the quarter ended June 30, 2021, the Company has committed to spend '' 100 million towards improving health infrastructure of Government hospitals and institutions. The amount of '' 100 million has been recorded and presented as an exceptional item in the Standalone statement of Profit and loss for the year ended March 31, 2022. Also refer Note 28(c).

Notes 54: Previous year figures have been regrouped / reclassified to conform to the current year''s classification.


Mar 31, 2021

B) Financial Liabilities:

a) Recognition and measurement

Financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. On initial recognition, financial liabilities are measured at fair value and subsequently measured at amortised cost.

Trade and other payables

In case of trade and other payables, they are initially recognised at fair value and subsequently, these liabilities are held at amortised cost, using the effective interest rate method.

Trade and other payables represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid as per credit period. Trade and other payables are

presented as current liabilities unless payment is not due within 12 months after the reporting period.

b) Derecognition

A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expires.

C) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

1.7 Inventories

Inventories which comprise raw materials, work-inprogress (intermediates), finished goods, stock-in-trade, packing materials and stores and spares are carried at the lower of cost and net realisable value. Cost of inventories comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. In determining the cost of inventories, weighted average cost method is used. In case of manufactured finished goods and work-in-progress, fixed production overheads are allocated on the basis of normal capacity of production facilities. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. The comparison of cost and net realisable value is made on an item-by-item basis. Adequate allowance is made for obsolete and slow moving items.

1.8 Cash and cash equivalents

Cash and cash equivalents includes cash on hand and balances with banks that are readily convertible to known amounts of cash and other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

1.9 Revenue recognition

Revenue comprises revenue from contracts with customers for sale of goods and income from brand franchisee royalties

receivable. Revenue from sale of goods is inclusive of excise duties and is net of returns, trade allowances, rebates, value added taxes and such amounts collected on behalf of third parties.

Revenue is recognised as and when performance obligations are satisfied by transferring goods or services to the customer, as below:

a. Revenue from sale of products:

Revenue is recognised on transfer of control, being on dispatch of goods or upon delivery to customer, in accordance with the terms of sale.

b. Revenue from manufacture and sale of products from tie-up manufacturing arrangements:

The Company has entered into arrangements with Tie-up Manufacturing Units (TMUs), where-in TMUs manufacture and sell beverage alcohol on behalf of the Company. Under such arrangements, the Company has exposure to significant risks and rewards in such arrangements i.e. it has the primary responsibility for providing goods to the customer, has pricing latitude and is also exposed to inventory and credit risks. The Company is considered to be a principal in such arrangements with TMUs. Accordingly, the transactions of the TMUs under such arrangements have been recorded as gross revenue, excise duty and expenses as if they were transactions of the Company. The Company presents inventory held by the TMUs under such arrangements as its own inventory. The net receivables from/payable to TMUs are recognised under other financial assets/other financial liabilities respectively.

c. Income from brand franchise arrangements

Revenue in respect of fixed income brand franchise arrangements is recognised proportionately in each period. Income from variable franchise arrangements is recognised based on the terms of the respective contracts upon sale of products by the franchisees.

1.10 Employee benefits

(a) Short-term obligations

Liabilities for wages and salaries, including nonmonetary benefits and performance incentives that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees'' services rendered up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities

are presented under ''Other financial liabilities'' in the balance sheet.

(b) Post-employment obligations

The Company''s defined benefit plans comprise gratuity, pension and provident fund (administered by trusts set up by the Company, where the Company''s obligation is to provide the agreed benefit to the qualifying employees and the actuarial risk and investment risk if any, fall in substance, on the Company).

Pension and gratuity obligations

The net liability or asset recognised in the balance sheet in respect of pension and gratuity (defined benefit plans) is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by actuaries using the projected unit credit method.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows by reference to market yields at the end of the reporting period on government bonds that have terms approximating to the terms of the related obligation.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Statement of profit and loss.

Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in retained earnings in the statement of changes in equity and in the balance sheet.

Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in profit or loss as past service cost.

Provident fund

The Company operates a defined benefit provident fund plan for certain category of eligible employees. The minimum statutory rate at which the annual rate of interest is payable to the beneficiaries of such plan is declared by the Central Government. The Company has an obligation to make good the shortfall if any, in the statutory rate prescribed by the Government and the rate of interest declared by the Trust. The Company also has an obligation to fund any shortfall in the fair value

of plan assets as compared with the defined benefit obligation.

Defined-contribution plans

These are plans in which the Company pays predefined amounts to funds administered by government authority/Company and does not have any legal or constructive obligation to pay additional sums. These comprise contributions in respect of Employees'' Provident Fund, Employees'' Pension Scheme, Employees'' State Insurance, Superannuation fund and National Pension Scheme. The Company''s payments to the defined contribution plans are recognised as employee benefit expenses when they are due.

(c) Other long-term employee benefit obligations

The liabilities for earned leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. The benefits are discounted using the market yields of government bonds at the end of the reporting period that have terms approximating to the terms of the related obligation. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in Statement of profit and loss.

(d) Termination benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits at the earlier of the following dates: (a) when the Company can no longer withdraw the offer of those benefits; and (b) when the Company recognises costs for a restructuring that is within the scope of Ind AS 37 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.

(e) Share based payments

Share based compensation benefits are provided to certain grades of employees in the form of United Spirits Limited-Stock Appreciation Rights Plan, a cash settled

scheme, and various equity settled schemes managed by Diageo group.

Stock appreciation rights

Liabilities for the Company''s share appreciation rights are recognised as employee benefit expense over the relevant service period. The liabilities are remeasured to fair value at each reporting date and are presented as current/non-current provisions in the balance sheet.

Diageo group share based payment arrangements

The fair value of equity settled share options based on shares of Diageo plc. (the ultimate holding company) is initially measured at grant date and is charged to the Statement of profit and loss over the vesting period, which is the period over which all of the specified vesting conditions are satisfied, and the credit is included in equity. At the end of each period, the Company revises its estimates of the number of options that are expected to vest based on the non-market and service conditions. It recognises the impact of revision to original estimate, if any, in profit or loss, with a corresponding adjustment to equity. Once the costs towards share option plans are cross charged by Diageo group companies, the same is accounted for as a reduction from equity. To the extent the amount or recharge exceeds the fair value of equity shares on the date of exercise, the same is recognised in the Statement of Profit and Loss.

1.11 Income tax

Income tax expense is the tax payable on the current period''s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, if any.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from initial recognition of goodwill. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted

by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred tax assets are recognised for all deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in Statement of profit and loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

1.12 Earnings per share (EPS)

Basic EPS is arrived by dividing profit attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The diluted EPS is calculated on the same basis as basic EPS, after adjusting for the effects of potential dilutive equity shares unless impact is anti-dilutive. The number of shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented in case of share splits.

1.13 Provisions and contingencies

Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. A provision is made in respect of onerous contracts, i.e., contracts in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under such contracts. Provisions are not recognised for other future operating losses. The carrying amounts of provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.

Provisions are measured at the present value of management''s best estimate of the expenditure required to settle the present obligation at the end of the reporting

period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

A disclosure for contingent liabilities is made where there is a possible obligation or a present obligation that may probably not require an outflow of resources or an obligation for which the future outcome cannot be ascertained with reasonable certainty. When there is a possible or a present obligation where the likelihood of outflow of resources is remote, no provision or disclosure is made.

1.14 Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in Statement of profit and loss over the period of the borrowings using the effective interest method.

Borrowings are derecognised from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in Statement of profit and loss as other gains/(losses).

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

1.15 Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.

Other borrowing costs are expensed in the period in which they are incurred.

1.16 Exceptional items

When an item of income or expense within Statement of profit and loss from ordinary activity is of such size, nature and incidence that its disclosure is relevant to explain more meaningfully the performance of the Company for the

year, the nature and amount of such items is disclosed as exceptional items.

1.17 Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. Executive committee, which has been identified as the chief operating decision maker, assesses the financial performance and position of the Company and makes strategic decisions. The executive committee consists of the Managing Director & Chief Executive Officer and other senior management team members. Since segment disclosures have been provided in the consolidated financial statements, no such disclosures have been made in these standalone financial statements.

1.18 Equity

Own shares represent shares of the Company and those held in treasury by USL Benefit Trust. Pursuant to orders of the High Court of Karnataka and the High Court of Bombay, shares held in aforesaid trust have been treated as an investment.

Dividends - Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.

1.19 Rounding of amounts

All amounts disclosed in the financial statements and notes

have been rounded off to the nearest million as per the requirement of Schedule III (Division II) to the Act, unless otherwise stated. The sign ''0'' in these financial statements indicates that the amounts involved are below INR five lakhs and the sign ''-'' indicates that amounts are nil.

2. Critical estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual result. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

The areas involving critical estimates and judgements are:

• Estimation of provisions recognised and contingent liabilities disclosed in respect of tax matters- Notes 8, 17 and 49

• Impairment of trade receivables - Note 31

• Impairment of loans to subsidiaries - Notes 5, 31 and 36

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.


Mar 31, 2019

NOTES TO THE FINANCIAL STATEMENTS

(All amounts in INR Millions unless otherwise stated)

49. Capital and other commitments

Particulars

As at March 31, 2019

As at March 31, 2018

(a) Capital commitments for property, plant and equipment

1,065

696

(b) Other commitments: i. relating to advertisement, sales promotion and trade mark fee

773

1,150

ii. Towards minimum offtake commitment for purchase of bulk scotch from a related party

1,900

1,560

Notes:

a) The Company has given letters of financial support to the following subsidiaries to conduct their operations in such a manner as to enable them to meet their obligations, as and when they fall due for a period of twelve months from the balance sheet date:

i. Pioneer Distilleries Limited, ii. Sovereign Distilleries Limited, iii. Tern Distilleries Private Limited, iv. Asian Opportunities & Investment Limited, v. United Spirits Singapore Pte Limited, vi. Montrose International SA, vii. Palmer Investment Group Limited, viii. UB Sports Management Overseas Ltd, ix. USL Holdings Limited,x. USL Holdings (UK) Limited,xi. United Spirits (UK) Limited, xii. United Spirits (Great Britain) Limited, xiii. McDowell & Co. (Scotland) Limited, xiv.Shaw Wallace Overseas Limited,xv. Liquidity Inc.xvi. United Spirits (Shanghai)Trading Co. Limited.

b) The Company has given a letter of comfort to a bank, towards a loan facility amounting to INR 1,500 million availed by Pioneer Distilleries Limited (PDL), a subsidiary, from the bank. As per the letter, the Company has expressed its intention to ensure that PDL repays the outstanding amount under the facility on due date and in the event of default by PDL, to take appropriate steps to cause PDL to repay the outstanding out of PDL resources. The said letter does not constitute a guarantee by USL, as in the event of default by PDL, the bank shall have no recourse to USL.

50. Contingent Liabilities

Particulars

As at March 31, 2019

As at March 31, 2018

(a) Tax matters:

(i) State Excise

1,980

1,861

(ii) Central Excise

2

378

(iii) Service Tax

-

233

(iv) Income Tax

7,281

7,220

(v) Sales tax and entry tax

3,509

1,216

(b) Other civil litigations and claims

1,549

2,932

Notes:

(a) Income taxes- Income tax matters primarily relate to exposures under transfer pricing and disallowance of certain expenses that the Company had claimed as deductions in its Income Tax returns.

(b) Indirect taxes-The Company has extensive operations across various states in India.The Company has identified possible exposures relating to local sales tax, state excise duty and central excise duty.

(c) Other civil litigations and claims- Other civil litigations relate to various claims from third parties under dispute which are lying with various courts/appellate authorities.

(d) Provident fund-The Company is in the process of evaluating the impact of the Supreme Court ("SC") judgement dated February 28, 2019 in the case of Regional Provident Fund Commissioner (II) West Bengal v/s Vivekananda Vidyamandir and Others, in relation to non-inclusion of certain allowances in the definition of "basic wages" of the relevant employees for the purposes of determining contribution to Provident Fund ("PF") under the Employees'' Provident Fund & Miscellaneous Provisions Act, 1952. There are interpretation issues relating to the said SC judgement. In the assessment of the management, the aforesaid matter is not likely to have a significant impact and accordingly.no provision has been made in the financial statements.

(e) Use of Judgement- Management categorizes the matters based on the probability of cash outflow, which require judgement. Management obtains the views of external consultants where necessary. Based on the assessment, management recognises liability/ provision, or discloses the matter as a contingent liability, except for matters where the probability of outflow of cash is considered remote. Due to uncertainties involved in the process, actual outflows may be different from those originally estimated.

(All amounts in INR Millions unless otherwise stated)

The Company may be involved in legal proceedings in respect of which it is not possible to make a reliable estimate of any expected settlement. In such cases, appropriate disclosure is provided but no provision is made and no contingent liability is quantified.

(f) Management is optimistic of a favourable outcome in the above matters based on legal opinions / management assessment. It is not practicable for the Company to estimate the timing of the cash outflows, if any, in respect of the above, pending resolution of respective proceedings.

51. Research expenses

Particulars

For the year ended March 31, 2019

For the year ended March 31, 2018

Salaries and wages

52

57

Contribution to provident fund and other funds

5

5

Staff welfare expenses

1

1

Rent

6

5

Miscellaneous expenses

30

24

Total Research expenses

94

92

52. Dues to Micro and Small Enterprises

Particulars

As at March 31, 2019

As at March 31, 2018

Principal amount due to suppliers registered under the MSMED Act and remaining unpaid as at year end (Refer Note 19)

269

89

Interest due to suppliers registered under the MSMED Act and remaining unpaid as at year end

8

17

Principal amounts paid to suppliers registered under the MSMED Act, beyond the appointed day during the year

1,033

230

Interest paid, other than under Section 16 of MSMED Act, to suppliers registered under the MSMED Act, beyond the appointed day during the year

-

-

Interest paid, under Section 16 of MSMED Act, to suppliers registered under the MSMED Act, beyond the appointed day during the year

38

1

Interest due and payable towards suppliers registered under MSMED Act, for payments already made

0

4

Further interest remaining due and payable for earlier years

-

13

The above information has been determined to the extent such parties have been identified on the basis of information provided by the Company, which has been relied upon by the auditors.

53. Corporate Social Responsibility (CSR)

CSR amount required to be spent as per Section 135 of the companies Act, 2013 read with schedule VII thereof by the company during the current year is INR 104 million (2018: INR 36 million).

Details of actual CSR expenditure incurred:

Particulars -

For the year ended March 31, 2019

For the year ended March 31, 2018

In cash

Yet to be paid in cash

Total

In cash

Yet to be paid in cash

Total

Amount spent during the year on:

i) Construction/ Acquisition of assets

-

-

-

-

-

ii) On purposes other than i) above (Refer Note 27)

112

9

121

105

-

105

(All amounts in INR Millions unless otherwise stated)

54. (a) Details of Investments (Original cost) as per Section 186 (4) of Companies Act, 2013 i) Investment in subsidiaries:

Name of the Subsidiaries

Relationship

As at March 31, 2019

As at March 31, 2018

Domestic subsidiaries

Royal Challengers Sports Private Limited

Wholly owned subsidiary

1,699

1,699

Four Seasons Wines Limited

Wholly owned subsidiary

-

693

Tern Distilleries Private Limited

Wholly owned subsidiary

1,127

1,127

Sovereign Distilleries Limited

Wholly owned subsidiary

4,582

4,582

Pioneer Distilleries Limited

Subsidiary

1,117

1,117

Overseas subsidiaries

Asian Opportunities & Investments Limited

Wholly owned subsidiary

301

301

McDowell & Co. (Scotland) Limited

Wholly owned subsidiary

126

126

USL Holdings Limited

Wholly owned subsidiary

22

22

United Spirits (Shanghai) Trading Company Limited

Wholly owned subsidiary

27

27

Liquidity Inc.

Subsidiary

119

119

Shaw Wallace Overseas Limited

Wholly owned subsidiary

14

14

Palmer Investment Group Limited

Wholly owned subsidiary

6,918

6,918

Montrose International S.A

Wholly owned subsidiary

134

134

Total

16,186

16,879

ii) Investment in associate:

iii) Bar Private Limited

Associate

270

-

54. (b) Details of loans (gross) as per Section 186 (4) of Companies Act, 2013

Name of the borrower

Relationship

Purpose

Rate of Interest 2018-19

Rate of Interest 2017-18

Term/ Repayment schedule

As at March 31,2019

As at March 31,2018

Domestic subsidiaries

Royal Challengers Sports Private Limited

Wholly owned subsidiary

Working capital

9%

9%

Principal and interest to be repaid on July 31, 2021

2,433

2,983

Four Seasons Wines Limited [Refer Note 42(d)]

Wholly owned subsidiary

Working capital

9%

9%

Repaid on December 24, 2018

-

781

Tern Distilleries Private Limited

Wholly owned subsidiary

Working capital

9%

9%

Principal and interest to be repaid on July 31, 2021

38

22

Sovereign Distilleries Limited

Wholly owned subsidiary

Working capital

9%

9%

Principal and interest to be repaid on July 31, 2021

45

35

Pioneer Distilleries Limited

Subsidiary

Working capital / Capex funding

9%

9%

Principal to be repaid on Augusts, 2026. Schedule of interest payment not stipulated.

1,354

1,354

Overseas Subsidiaries

Asian Opportunities & Investments Limited

Wholly owned subsidiary

Working capital / Funding towards acquisition of Bouvet Ladubay

Interest free

Interest free

Refer note (b) below

514

532

USL Holdings Limited

Wholly owned subsidiary

Working capital / Funding towards acquisition of Whyte and Mackay Limited

Interest free

Interest free

Refer note (b) below

53,685

50,987

United Spirits (Shanghai) Trading Company Limited

Wholly owned subsidiary

Working capital

Interest free

Interest free

Refer note (b) below

20

19

McDowells Co. (Scotland) Limited

Wholly owned subsidiary

Working capital

Interest free

Interest free

Refer note (b) below

333

319

Liquidity Inc.

Subsidiary

Working capital

Interest free

Interest free

Refer note (b) below

69

66

USL Holdings (UK)Limited

Wholly owned subsidiary

Working capital

Interest free

Interest free

Refer note (b) below

174

177

Others

United Breweries (Holdings) Limited

Unrelated

Refer Note 43

9.50%

9.50%

8 years

13,082

13,374

Total

71,747

70,649

Notes:

a) Simple interest is charged for loans to domestic subsidiaries

b) The loans granted to these companies in earlier years are interest free without any repayment terms stipulated and were largely intended towards acquisition of long term strategic investments overseas.

55: Disclosure as per Regulation 34 (3) and 53 (f) read with Part A of Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of loans/ advances/ investments outstanding as at year end

Particulars

Investments in equity at cost held as at

Gross loans outstanding as at

Maximum amount of loans and advances outstanding during the year

March 31, 2019

March 31, 2018

March 31, 2019

March 31, 2018

March 31, 2019

March 31, 2018

Asian Opportunities & Investments Limited

301

301

514

532

558

532

Four Season Wines Limited

-

693

-

781

781

781

Shaw Wallace Overseas Limited

14

14

-

-

-

-

USL Holdings Limited

22

22

53,685

50,987

57,159

50,987

USL Holdings UK Ltd

-

-

174

177

182

177

Pioneer Distilleries Limited

1,117

1,117

1,354

1,354

1,354

1,354

Palmer Investment Group Limited

6,918

6,918

-

-

-

-

Montrose International S.A

134

134

-

-

-

-

United Spirits (Shanghai) Trading Co. Limited

27

27

20

19

21

19

McDowell & Co (Scotland) Limited

126

126

333

319

354

416

Royal Challengers Sports Private Limited

1,699

1,699

2,433

2,983

3,723

4,269

Tern Distilleries Private Limited

1,127

1,127

38

22

38

22

Liquidity Inc.

119

119

69

66

74

66

Sovereign Distilleries Limited

4,582

4,582

45

35

45

35

Hip Bar Private Limited

270

-

-

-

-

-

Total

16,456

16,879

58,665

57,275

The aforesaid amounts are gross of provisions, if any, made based on Management assessment of recoverability. For repayment schedule and interest related terms. Refer Note 54(b).

(All amounts in INR Millions unless otherwise stated)

56. The Company does not have any derivative contracts as at March 31,2019. The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. No provision for material foreseeable losses is considered necessary based on the review of such contracts as at yea rend.

57. Investment in Hip Bar, as associate

During the year ended March 31, 2019, the Company subscribed to 4,567,568 equity shares of Hip Bar Private Limited ("Hip Bar"), constituting 26% of the paid-up equity share capital of Hip Bar. The subscription price paid by the Company was INR 270 million representing INR 59.11/- (Fifty Nine Rupees and Eleven Raise) per equity share. Hip Bar, incorporated on February 20, 2015, owns and operates a web-based mobile application under the name and style of "HIPBAR", which acts as an electronic payment platform servicing the beverage alcohol industry and its consumers. Following the Company''s investment. Hip Bar has became an "associate company", i.e., by virtue of the Company having a shareholding in excess of 20% in Hip Bar and by virtue of having a right to appoint a director on Hip Bar''s Board.

58. Previous year figures have been regrouped/reclassified to conform to the current year''s classification.

For Price Waterhouse & Co Chartered Accountants LLP

For and on behalf of the Board of Directors

Firm registration number: 304026E/E-300009

Mahendra Kumar Sharma

Anand Kripalu

Chairman

Managing Director & Chief Executive Officer

Pradip Kanakia

V. K.Viswanathan

Sanjeev Churiwala

Partner

Director

Executive Directors/ Chief Financial Officer

Membership number: 039985

Place: Bengaluru

Place : Bengaluru

V. Ramachandran

Date : May 29, 2019

Date: May 29, 2019

Executive Vice Presidents/ Company Secretary


Mar 31, 2018

Company overview

United Spirits Limited (“the Company” or “USL”) is a public company domiciled and headquartered in Bengaluru, Karnataka, India. It is incorporated under the Companies Act, 1956 and its shares are listed on the BSE Limited and National Stock Exchange of India Limited. The Company is engaged in the business of manufacture, purchase and sale of beverage alcohol (spirits and wines), including through tie-up manufacturing and through strategic franchising of some of its brands.

These financial statements are approved for issue by the Company’s Board of Directors on May 24, 2018.

1. Critical estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual result. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

The areas involving critical estimates or judgements are:

- Estimation of defined benefit obligation - Note 38

- Estimation of provisions and contingent liabilities - Notes 18 and 49

- Impairment of investments in subsidiaries - Note 35

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

2.1 property, plant and Equipment

Notes:

(a) Buildings include an amount of INR 357 (2017: INR 357) in respect of which title deeds are yet to be registered in the name of the Company.

(b) Cost of buildings includes the following payments made for the purpose of acquiring the right of occupation:

i) INR NIL (2017: INR 660) equity shares (unquoted) of INR 100/- each fully paid in Shree Madhu Industrial Estate Limited INR NIL (2017 : INR 0).

ii) INR NIL (2017: INR 199) 6 % Debentures (unquoted) of INR 1,000/- each fully paid in Shree Madhu Industrial Estate Limited INR NIL (2017: INR 0).

iii) Deposit with Shree Madhu Industrial Estate Limited INR NIL (2017 : INR 0)

iv) Fully paid shares INR 0 (2017 : INR 0 ) held in a Co-operative Housing Society.

(c) Disposals include write down of INR NIL (2017: INR 217) in the value of certain plant and equipment disclosed as exceptional items [Refer Note 28(b)]

(c) Represents impairment loss recognised on Buildings and Plant and Equipment in respect of certain manufacturing units disclosed as exceptional items [Refer Note 28(c)]

Property, plant and equipment pledged as security

Refer to note 33 for information on property, plant and equipment pledged as security by the company.

Notes:

(a) Investment as a sole beneficiary in USL benefit trust was made as per the terms of composite scheme of arrangement approved by the Honourable High Courts of Karnataka and Bombay, upon amalgamating various companies with the United Spirits Limited. The trust has been established for the exclusive benefit of the Company and holds 3,459,090 equity shares of INR 10/- face value of the Company [Refer Note 14(h)]. As per the terms of the aforesaid scheme of arrangement, Company has carried this investment at the aggregate of book value as per the books of the concerned transferor companies. Also refer Note 33 for assets pledged and Note 44.

(b) The Company has measured its investments in subsidiaries at cost in accordance with Ind AS 27. On adoption of Ind AS, Company has measured these investments at deemed cost using the net carrying value as per previous GAAP as at March 31, 2015.

* This includes stocks of maturing spirits held by a branch outside India (in custody of an overseas vendor) amounting to INR 3,506 (2017: INR 4,024).

As per terms of an agreement entered in earlier year with an overseas vendor, the Company had a contractual obligation to purchase certain minimum specified quantities of fresh fills. However, the Company was unable to meet the purchase commitment and consequently, the Company is required to compensate the overseas vendor for shortfall relating to the purchase commitment up to June 30, 2017 amounting to INR 244. Further, the Company has accrued dues towards storage, disgorgement, blending, handling and loading charges amounting to INR 281 under the aforesaid agreement. The Company has sought regulatory approval to discharge such liability which is awaited. The Company is carrying an aggregate amount of liability of INR 525 towards the above mentioned obligations, which are presented under Trade Payables. The overseas vendor has written various letters to the Company, intimating that it has exercised its lien over the Company’s stock held at their warehouses corresponding to the amounts owed by the Company. The Company has contested the said claim, and called upon the overseas vendor to recall the said letter.

Amounts recognised in the Statement of profit and loss

Allowance for obsolete inventories for the year amounted to INR 73 (2017: INR 301). The net amount is recognised as an expense during the year and is included in Cost of materials consumed in Statement of profit and loss. Further a write down in the value of inventory of INR 36 (2017: INR 168) has been recognised as an expense as exceptional item.

For details of Inventories pledged as security Refer Note 33.

Notes:

(a) Includes INR 9 (2017: INR 11) transferred to a separate non-interest bearing escrow account pertaining to unclaimed public deposits which had matured in earlier years wherein duly discharged deposit receipts were not received from deposit holders.

b) Represents Bank deposits under lien.

Description of the facts and circumstances which led to classification as held for sale

The Company has identified certain properties, vehicles etc. as non-core to its operations. These planned assets are readily available for sale and an active programme to locate the buyer and complete the sale has been initiated by the management.

(b) Rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a face value of INR 10 per share. Each holder of the equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any in proportion to their holdings.

(d) The Company has not issued any shares for consideration other than cash during the period of five years immediately preceding the reporting date.

(e) Details of shareholders holding more than 5% shares in the Company.

(f) There are no shares reserved for issue under options and contracts / commitments for the sale of shares / disinvestments.

(g) There are no bonus shares issued, bought back during the period of five years immediately preceding the reporting date.

(i) The Board of the Company at their meeting held on April 13, 2018 has considered and approved the following:

(A) Sub-division of 548,000,000 equity share of face value of INR 10/- per equity share into 2,740,000,000 of equity shares of face value of INR 2/- per equity share subject to approval by the shareholders of the Company by the way of special resolution.

(B) Sub-division of 1,200,000 7% non-cumulative redeemable preference shares of INR 100/- each into 12,000,000 number of preference shares of INR 10/- each and this class of preference shares shall merge with another existing class of 159,200,000 preference shares of the face value of INR 10/-each subject to approval by the shareholders of the Company by the way of special resolution.

(j) On December 20, 2013, the Honorable Karnataka High Court passed an order in the matter involving United Breweries (Holdings) Limited (UBHL) and its creditors and the Diageo Plc. setting aside an earlier leave order which permitted UBHL to sell 10,141,437 equity shares in the Company to Relay B V, pending disposal of the winding up petitions against UBHL. On the above matter, UBHL and Diageo plc. have approached the Honorable Supreme Court by way of special leave petitions (SLPs) challenging the order of the division bench. Pending, disposal of the above SLPs, the Honorable Supreme Court has directed that status quo be maintained in respect of the above mentioned transaction of sale of shares to Relay B V. Such shares are included in arriving at Relay BV’s shareholding in the Company.

Nature and purpose of reserves:

a) Capital reserve: Created pursuant to a Scheme of Amalgamation between the Company and SW Finance Co. Limited, sanctioned by the Honourable High Court of Karnataka and Honourable High Court of Bombay under the orders dated June 12, 2015 and August 28, 2015, respectively.

b) Capital redemption reserve: Capital Redemption Reserve is created for an amount equivalent to the nominal value of shares redeemed in earlier years in the Company (including the erstwhile Companies that were merged with the Company through several schemes of amalgamations / mergers).

c) Securities premium account: Securities premium reserve is credited when shares are issued at premium. The reserve is utilised in accordance with the provisions of the Act.

d) Central subsidy: The balance is taken over on amalgamation of Shaw Wallace Distilleries Limited with the Company during the year ended March 31, 2006 as per the terms of the arrangement approved by the Honorable High Courts of Karnataka and Bombay.

e) Share based incentive reserve: The share-based incentive reserve is used to recognise the grant date fair value of equity settled share-based payments and credited to this reserve as part of other equity over vesting period. Once the cost towards the plan is recharged by Diageo Plc, the same is reduced from other equity.

f) Contingency reserve: The balance is taken over on amalgamation of McDowell Spirits Limited with the Company during the year ended March 31, 2001 as per the terms of the arrangement approved by the Honorable High Court of Karnataka.

g) General reserve: The General reserve is created by way of transfer of profits from retained earnings for appropriation purposes. This reserve is utilised in accordance with the provisions of the Act.

h) Retained earnings: Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.

Provision is made for probable cash outflow arising out of pending indirect tax disputes / litigations with various regulatory authorities. It is not practicable for the Company to estimate the timing of the cash outflows, if any, in respect of the above, pending resolution of respective proceedings.

(b) Based on past experience, the Company does not expect all employees to avail the full amount of accrued leave or require payment for such leave within the next 12 months. However upon separation of an employee, the Company would be required to settle full amount of accrued leave due to be paid to an employee.

The Company’s risk management is carried out by treasury department under policies approved by the Board. Central treasury identifies, evaluates and hedges financial risks in close co-operation with the Company’s other functions. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

(A) Credit risk

Credit risk management Trade receivables:

Company’s Credit Policy provides guidance to keep the risk of selling on credit within an acceptable level. The policy provides guidelines for risk assessment, review of credit limits and monitoring overdue trade receivables. The Company’s management monitors and reviews credit limits, overdue trade receivables, provisioning and write-off of credit impaired receivables.

Trade receivables are typically unsecured and are derived from revenue earned from two main classes of trade receivables, receivable from sales to government corporations and receivables from sales to private third parties.

Net receivables from government corporation customers amounted to INR 18,646 and 69% (2017: INR 18,985 and 64%) and private customers amounted to INR 8,352 and 31% (2017: INR 10,620 and 36%) of total trade receivables, respectively, on the reporting date.

The Company uses a provision matrix which is applied to overdue receivables other than receivables from government corporations (where the counterparty risk is assessed to be insignificant). The Company’s credit risk is concentrated mostly to states where goods are sold to private third parties.

Other financial assets:

Company carries other financial assets such as balances with banks, receivable from Tie-up manufacturing units, loans to other entities including subsidiaries and interest accrued on such loans etc.

Company monitors the credit exposure on these financial assets on a case-to-case basis. Loans to subsidiaries are assessed for credit risk based on the underlying valuation of the entity and their ability to repay within the contractual repayment terms. Company creates loss allowance wherever there is an indication that credit risk has increased significantly.

Significant estimates and judgements in Impairment of financial assets

The impairment provisions for financial assets disclosed above are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

(B) Liquidity Risk

Changes in regulations, guidelines and operating models influences liquidity risk. A prudent liquidity risk management is to ensure maintaining the required cash and / or have access to funds required through committed banking lines from banks or markets to address such risks, when they arise.

(i) Company has developed three year ‘Capital structure and funding strategy’ with an objective to gauge potential risk, project and strategically address funding needs, among others and ensure continued operations within acceptable tolerance limits.

(ii) Treasury team monitors rolling forecasts of the company’s liquidity position on a periodic basis. Funds are optimally used through centralised cash management system across the company and deficit if any are availed from the undrawn committed borrowing facilities (as below). Internal stake holders are aligned to provide ‘early warning’ surprises should they occur, so as to enable treasury team to pro-actively align the appropriate source and cost of borrowing to mitigate funding and interest risk.

(iii) Management has planned monetisation of certain non-core assets to infuse liquidity and reduce debts, thereby freeing up the banking lines to access in future, if required.

Financing arrangements

The Company had access to the following undrawn borrowing facilities at end of the reporting period:

The above facilities may be drawn at any time and repayable on demand. The Company has fully utilized fixed rate borrowing facilities as at the end of each of the reporting periods.

Maturities of financial liabilities

The tables below analyse the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

(C) Interest rate risk

Company’s main interest rate risk arises from Short-Term borrowings with floating rates, which may have impact on company cash flow.

Presently interest rates are bottomed out and the Company expects this to be stable with upward bias in the near term. In view of this the Company has kept long term borrowings at fixed interest rate. This does away with the exposure and insulates the Company from adverse movements. During the year, Company has issued unsecured Non-Convertible Debentures (‘NCDs’) amounting to INR 7,500 at 7.45% p.a. for a period of 3 years.

Majority of the Company’s short term borrowings are benchmarked to Bank’s MCLR (Marginal Cost of Lending Rates) and Money Market Rates.

(D) Foreign exchange risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD and GBP. Foreign Exchange risk arises from future commercial transactions and assets and liabilities denominated in a currency that is not the Company’s functional currency (INR). The risk is measured through a forecast of highly probable foreign currency cash flows.

3. Financial risk management

Foreign currency risk management

The Company’s risk management policy is to assess the Company’s net exposures which is mainly represented by receivable and payable towards exports and imports respectively, and partly represented by the loans extended in foreign currencies.

The Company can hedge its net exposures with a view on forex outlook. Since the net exposure is currently not material, this has not been hedged.

Foreign currency risk exposure:

The Company’s exposure to foreign currency risk at the end of the reporting period expressed in INR is as follows:

Impact on Profit after Tax

The sensitivity of profit or loss due to changes in exchange rates arises mainly from foreign currency denominated net exposures. The impact of sensitivity to fluctuations in foreign exchange rate is not considered material.

4. Capital management

Risk management

The Company’s objectives when managing capital is to:

a) have a balanced financial profile from short term (1 year) to mid-term (3 years) for sustainable leverage, providing;

- Headroom for future growth / expansion

- Financial flexibility in case of adverse business cycles

b) ensure the capital structure is at competitive advantage when compared to peers and other sector players through optimum debt mix through:

- Diversification of funding sources to manage liquidity and rollover risk

- Financial flexibility in case of adverse business cycles

5. Assets pledged as security

In respect of secured loans from bank and others (‘lenders’) obtained during earlier years and repaid during the year ended March 31, 2018 and in earlier years, the Company has in most cases obtained no objection letters from lenders for the release of the hypothecation / mortgage and have filed the necessary e-forms online with Ministry of Corporate Affairs (‘MCA1) to reflect the release of such charge in MCA’s records. In the few remaining cases, the company is in the process of securing no objection letters from the lenders. As there are no secured loans outstanding as at March 31, 2018, no assets have been shown as hypothecated / mortgaged as at March 31 2018.

6. Share based payments

Diageo Performance Incentive (DPI)

DPI is a one-time long-term incentive scheme for select employees who were active on Company’s payroll on September 1, 2016. A single grant was made in September 2016 with zero pay out for any leaver prior to vesting in September 2019 (vesting period - 3 years). Diageo Plc.’s share options (one option equivalent to one share) were granted to such employees as a percentage of salary. Vesting is subject to conditions such as continuity of employment, Diageo’s productivity and net sales growth and individual’s net promoter score. As at March 31, 2018 such outstanding share options are 59,994 (March 31, 2017: 97,904) and the charge for the year included in employee benefits expense is INR 20 (March 31, 2017: INR 40) (Refer Note 25) with a corresponding credit to other equity.

Share Appreciation Rights (SAR)

The India SAR Plan creates an opportunity to link the employee reward to Company’s share price performance. Under this plan, Company grants stock appreciation rights (based on USL share price) to select employees. The grant is made in September every year, as a percentage of salary. Cash pay-out equivalent to the value of shares will be made at the end of three years from the date of grant (the vesting period).

7. Share based payments

As at March 31, 2018 such outstanding SARs are 84,908 (March 31, 2017: 47,445) and the charge for the year included in employee benefits expense is INR 64 (March 31, 2017: INR 17) (Refer Note 25) with a corresponding credit to non- current provision for employee benefits (Refer Note 18).

8. Impairment of investments in subsidiaries

The Company performs at least an annual assessment for impairment of its investments in subsidiaries and recognises/ reverses impairment, as considered necessary in its investments.

The Company has determined recoverable values of its investments as fair value of net assets, less cost of disposal. Company has used the ‘cost approach’ valuation technique for determining fair value of its investment in subsidiaries using Level 3 inputs. An analysis of investments in subsidiaries where impairment charge/ reversal has been recognised, is provided below:

9. Related party disclosures

(a) Names of related parties and description of relationship (i) Parent entities

- Diageo Plc. (Ultimate Holding Company)

- Tanqueray Gordon & Company Ltd. (Intermediate Holding Company)

- Relay B V (Holding Company)

(iii) Fellow subsidiaries (with whom transactions have been taken place during the year)

- Diageo Scotland Limited

- Diageo India Private Limited

- Diageo Brands BV

- Diageo Great Britain Limited

- Diageo Australia Limited

- Diageo North America Inc.

- Diageo Singapore Pte Limited

- Diageo Singapore Supply Pte Limited

- Guinness Nigeria Plc

- Diageo Business Services India Private Limited

(iv) Other entity where there is control

- USL Benefit Trust, India

(v) Employees’ Benefit Plans:

- McDowell & Company Limited Staff Gratuity Fund

- McDowell & Company Limited Officers’ Gratuity Fund

- McDowell & Company Limited Employees Provident Fund

- Phipson & Company Limited Management Staff Gratuity Fund

- Phipson & Company Limited Gratuity Fund

- Carew & Company Limited Gratuity Fund

- United Spirits Superannuation Fund

- UB Group Employee Benefit Trust

Refer Note 38 for information on transactions with post-employment benefit plans mentioned above.

(vi) Key management personnel

Executive directors

- Anand Kripalu (Managing Director & Chief Executive Officer)

- Sanjeev Churiwala (Chief Financial Officer) (w.e.f April 1, 2017)

(vii) Non-executive/ Independent directors

- Mahendra Kumar Sharma

- Dr Indu Shahani

- D Sivanandhan

- John Thomas Kennedy (w.e.f August 17, 2016)

- Nicholas Bodo Blazquez (till January 21, 2017)

- Rajeev Gupta

- Randall Ingber (w.e.f February 2, 2017)

- Ravi Rajagopal (till October 13, 2016)

- Sudhakar Rao (till May 19, 2016)

- V K Viswanathan (w.e.f October 16, 2016)

- Vinod Rao (w.e.f May 24, 2016)

(e) General terms and conditions for transactions with related parties

Transactions with related parties are carried out in the normal course of business and are generally on normal commercial terms.

Loans to subsidiaries given in earlier years, are generally for an indefinite period or for a period of three years with an option to roll-over based on mutually agreed terms. Interest rates range from NIL to 10%. All loans to related parties are unsecured.

The Company has not recognised interest on loans to following subsidiaries as recoverability of interest is not reasonably certain.

10. Offsetting of financial assets and financial liabilities

(a) The Company provides working capital support to certain Tie-up manufacturing units (TMUs), who are responsible for manufacturing and distribution of certain products on behalf of the Company. The aforesaid working capital is represented by inventories, trade receivables, other financial assets and other financial liabilities. The Company has reported net working capital excluding inventory on the face of balance sheet as other financial assets /liability (net), as these amounts are expected to be settled on net basis. Details of such offset is given in the below table.

(b) The Company gives volume based rebates to certain customers. As a practice amounts payable by Company are offset against receivables from such customers and only the net amounts are settled. The relevant amounts have therefore been presented net in the balance sheet. Details of such offset is given in the below table.

11 (a) Defined contribution plans

The Company contributes to defined contribution plans for employee such as Provident Fund (PF), Employees’ Pension Scheme (EPS), Superannuation Fund (SF) and Employees’ State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and ESI covers eligible employees. Contribution to SF is made to United Spirits Superannuation Fund (‘USSF’). Other contributions are made to the Government funds or insurance companies. While both the employees and the Company pay predetermined contributions into the Provident Fund and the ESI Scheme, contributions into the pension fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain percentage of the employee’s salary.

During the year, the Company has recognised the following amounts in the Statement of profit and loss, which are included in contribution to provident and other funds in the employee benefits expense.

*Excluding contribution to PF made to trusts which are in the nature of defined benefit plans managed by the Company.

(b) Defined benefit plans Gratuity:

The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee’s last drawn salary and years of employment with the Company. The Company has employees’ gratuity funds managed by the Company as well as by Insurance Companies.

Pension Plan:

The Company operates a defined benefit pension plan for certain executives and workers of the Company. This plan provides benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on their salary in the final year leading up to retirement.

Provident fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Company’s obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall if any, in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

(c) Sensitivity analysis:

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as and when calculating the defined benefit liability recognised in the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

(d) Risk exposure:

Through its defined benefit plans, Company is exposed to number of risks, the most significant of which are detailed below:

The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A large portion of assets in March 2018 consists of government and public sector bonds, although the Company also invests in private sector bonds, special deposit schemes and bank balances. The plan asset mix is in compliance with the requirements of the respective local regulations.

(e) Effect of the defined benefit plan on the entity’s future cash flows

Expected contributions to post-employment benefit plans for the year ending March 31, 2019 is INR 167. The weighted average duration of the defined benefit obligation is 6.12 years (2017: 6.12 years). The expected maturity analysis of undiscounted provident fund and gratuity is as follows:

Note: The estimates of future increase in compensation levels, considered in the actuarial valuation, have been taken on account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

12. Leases

(a) Finance lease:

The Company has acquired office equipment and vehicles on finance leases. The lease agreements for office equipment and vehicles are generally for a primary period of 36 to 60 months. The Company has an option to renew these leases for a secondary period. Lease arrangements for land is generally for a period of 95-99 years.

(b) Operating lease:

The Company’s significant operating leasing arrangements are in respect of premises (residential, office, manufacturing facilities, etc.) and plant and equipment, which are for a period generally ranging between 11 months and 3 years. These arrangements are usually renewable on mutually agreeable terms.

Contingent rent represents bottling fees paid to tie-up manufacturers under an arrangement which are in nature of operating lease, where rent is determined based on the output / volume.

13. Initial and Additional Inquiry

As disclosed in the financial statements for the year ended March 31, 2017, pursuant to the findings of the Board’s initial inquiry into past improper transactions (‘Initial Inquiry’), which was completed in April 2015, the Company executed settlement agreements with ten parties identified in the Initial Inquiry, and settlements with four parties were pending at the end of the previous financial year. During the quarter ended June 30, 2017, the Company reached settlements with two of the remaining parties. Discussions with one of the remaining parties turned adverse, and the matter remains likely to manifest itself into a dispute. The last remaining party identified in the Initial Inquiry has ceased to be in business and therefore it is not possible to reach any settlement with this party. All amounts relating to the said two parties that remain unsettled have been fully provided for. Therefore, there is no further material exposure to the Company.

As disclosed in the financial statements for the year ended March 31, 2017, upon completion of the Initial Inquiry which identified references to certain additional parties and certain additional matters, the MD & CEO, pursuant to the direction of the Board of Directors, had carried out an additional inquiry into past improper transactions (‘Additional Inquiry’) which was completed in July 2016 and which prima facie identified transactions indicating actual and potential diversion of funds from the Company and its Indian and overseas subsidiaries to, in most cases, Indian and overseas entities that appear to be affiliated or associated with the Company’s former non-executive chairman, Dr.Vijay Mallya, and other potentially improper transactions. All amounts identified in the Additional Inquiry have been provided for or expensed in the financial statements of the Company or its subsidiaries in prior years. Pursuant to a detailed review of each case of such fund diversion, and after obtaining expert legal advice, the Company has, where appropriate, filed civil suits for recovery of funds from certain parties, including, Dr. Vijay Mallya, before the appropriate courts. Further, at this stage, it is not possible for the management to estimate the financial impact on the Company, if any, arising out of potential non-compliance with applicable laws in relation to such fund diversions.

14. Loan to UBHL

As disclosed in the financial statements for the years ended March 31, 2015, March 31, 2016 and March 31, 2017, the Company had pre-existing loans/ deposits/ advances/accrued interest that were due to the Company and its wholly-owned subsidiaries from United Breweries (Holdings) Limited (‘UBHL1) and its subsidiaries aggregating INR 13,374 and that were consolidated into, and recorded as, an unsecured loan by way of an agreement entered into between the Company and UBHL on July 3, 2013 (‘Loan Agreement’). The Company has already made provision in prior financial years for the entire principal amount due, of INR 13,374, and for the accrued interest of INR 846 up to March 31, 2014. The Company has also not recognised interest income on said loan aggregating to INR 5,019 for the period from April 1, 2014 to March 31, 2018. The Company has offset payable to UBHL under the trademark agreement amounting to INR 307 for the year ended March 31, 2018 (cumulatively INR 846 up to March 31, 2018) against the aforesaid interest receivable from UBHL and consequently corresponding provision for interest receivable has been reversed to ‘Other Income’ in the relevant periods.

The Company sought redressalof disputes and claims through arbitration under the terms of the Loan Agreement. On April 08, 2018, i.e., subsequent to the end of the financial year ended March 31, 2018, the arbitral tribunal passed a final order against the Company. The reasons for this adverse award are disputed by the Company, and the Company is presently working with legal experts to challenge the said award. Notwithstanding the arbitration award, based on management assessment supported by an external legal opinion, the Company continues to offset payable to UBHL under the trademark agreement against the interest and loan receivable from UBHL.

15. Excess managerial remuneration pertaining to earlier year

The managerial remuneration for the financial year ended March 31, 2015 aggregating INR 63 and INR 153 to the Managing Director & Chief Executive Officer (‘MD & CEO’) and the former Executive Director and Chief Financial Officer (‘ED & CFO1), respectively, was approved by the shareholders at the annual general meeting of the Company held on September 30, 2014. The aforesaid remuneration includes amounts paid in excess of the limits prescribed under the provisions of Schedule V to the Companies Act, 2013 (‘Act1) by INR 51 to the MD & CEO and INR 134 to the former ED & CFO. Accordingly, the Company applied for the requisite approval from the Central Government for such excess remuneration. The Central Government, by letters dated April 28, 2016 did not approve the Company’s applications. On May 24, 2016 the Company resubmitted the applications, along with detailed explanations, to the Central Government to reconsider approving the waiver of excess remuneration paid. In light of the findings from the Additional Inquiry, the Company withdrew its application for approval of excess remuneration paid to the former ED & CFO by its letter dated July 12, 2016 and filed a civil suit to recover the sums from the former ED & CFO. The Company is awaiting response from the Central Government to its resubmitted application in respect of the MD & CEO.

16. Regulatory notices and communications

The Company had received letters and notices from various regulatory and other government authorities as follows:

a) as disclosed in the financial statements for the years ended March 31, 2016 and March 31, 2017, from the Securities Exchange Board of India (‘SEB0, in relation to the Initial Inquiry, Additional Inquiry, and matters arising out of the Agreement entered into by the Company with Dr.Vijay Mallya to which the Company has responded and no further communications have been received thereafter;

b) as disclosed in the financial statements for the years ended March 31, 2016 and March 31, 2017, from the Ministry of Corporate Affairs (‘MCA1) in relation to its inspection conducted under section 206(5) of the Companies Act, 2013 during the year ended March 31, 2016 and subsequent show cause notices alleging violation of certain provisions of the Companies Act, 1956 and Companies Act, 2013 to which the Company had responded. The Company has received a letter dated October 13, 2017 from the Registrar of Companies, Karnataka (the ‘Registrar1) inviting the Company’s attention to the compounding provisions of the Companies Act, 1956 and Companies Act, 2013 following the aforesaid show cause notices. The Company thereafter filed applications for compounding of offences with the Registrar in relation to three show cause notices, applications for adjudication with the Registrar in relation to two show cause notices and requested the Registrar to drop one show cause notice based on expert legal advice received. The management is of the view that the financial impact arising out of compounding/ adjudication of these matters will not be material;

c) as disclosed in the financial statements for the years ended March 31, 2016 and March 31, 2017, from the Directorate of Enforcement (‘ED’) in connection with agreements entered into with Dr.Vijay Mallya and investigations under the Foreign Exchange Management Act, 1999 and Prevention of Money Laundering Act, 2002 to which the Company hadresponded and no further communications have been received thereafter; and

d) as disclosed in the financial statements for the year ended March 31, 2017, from the Company’s authorised dealers in relation to certain queries from Reserve Bank of India (‘RBI’) with regard to: (i) remittances made in prior years by the Company to its overseas subsidiaries; (ii) past acquisition of the Whyte and Mackay group; (iii) clarifications on Annual Performance Reports (‘APR’) submitted for prior years; and (iv) compliances relating to the Company’s overseas Branch office, all of which the Company had responded to. During the financial year ended March 31, 2018, the Company has received further queries from authorised dealers in connection with items (i), (iii) and (iv) above to which the Company has responded.

17. Dispute with a bank

As disclosed in the financial statements for the years ended March 31, 2015, March 31, 2016 and March 31, 2017, during the year ended March 31, 2014, the Company decided to prepay a term loan taken from a bank in earlier years under a consortium arrangement, secured by assets of the Company and pledge of shares of the Company held by the USL Benefit Trust (of which the Company is the sole beneficiary). The Company deposited a sum of INR 6,280, including prepayment penalty of INR 40, with the bank and instructed the bank to debit the amount from its cash credit account towards settlement of the loan and release the assets and shares pledged by the Company. The bank, however, disputed the prepayment. The Company has disputed the stand taken by the bank and its writ petition is pending before the Hon’ble High Court of Karnataka. On completion of the loan tenure on March 31, 2015, the bank demanded an amount of INR 474 towards principal and interest on the said loan, which the Company contested in the Hon’ble High Court of Karnataka. In August 2015, the bank obtained an ex parte injunction in proceedings between the bank and KFA, before the Debt Recovery Tribunal, Bangalore (‘DRT’), restraining the USL Benefit Trust from disposing of the pledged shares until further orders. The Company and USL Benefit Trust, upon receiving notice of the said order, filed their objections against such ex parte order passed in proceedings in which neither the Company nor the USL Benefit Trust were enjoined as parties. In December 2015, the Hon’ble High Court of Karnataka issued a stay order restraining the bank from dealing with the above mentioned pledged shares until further orders. Thereafter in February 2016, the Company received a notice from the bank seeking to recall the loan and demanding a sum of INR 459, and the Company also received a subsequent notice in March 2016 issued under section 13(2) of SARFAESI Act in relation to the same loan. Pursuant to an application filed by the Company before the Hon’ble High Court of Karnataka, in the writ proceedings, the Hon’ble High Court of Karnataka directed that if the Company deposited the sum of INR 459 with the bank, the bank should hold the same in a suspense account and should not deal with any of the secured assets including shares pledged with the bank till disposal of the original writ petition filed by the Company before the Hon’ble High Court of Karnataka. During the quarter ended June 30, 2016, the Company accordingly deposited the said sum and replied to the bank’s various notices in light of the above. The aforesaid amount has been accounted as other non-current financial asset [Refer Note 5(a)]. On January 19, 2017, the DRT dismissed the application filed by the bank seeking the attachment of USL Benefit Trust shares. The Company on March 13, 2017 issued a legal notice to the bank asking them to provide the ‘no-objection’ for the release of the pledged shares, withdrawing the notices under SARFAESI and also to pay compensation on account of loss of interest, value of differential share price, loss of reinvestment opportunity, reputational damage etc. to which the bank has responded denying the claim. During the quarter ended June 30, 2017, the Company issued a rejoinder denying the incorrect averments of the bank and issued notice to each member of the board of directors of the bank informing them of the issue and the ‘mala-fide’ actions of the bank, to which the bank has responded denying the claim. The bank has, during the quarter ended September 30, 2017 filed an ex-parte appeal before the Debt Recovery Appellate Tribunal (‘DRAT’), Chennai against the order of the DRT. During the quarter ended December 31, 2017, the bank has subsequent to the order for the DRAT, filed an application impleading the Company in the proceedings.

18. Claim from a customer

Consequent to a voluntary disclosure made by the Company to a customer regarding prices historically charged by the Company to the customer being inconsistent with trading terms that apply between the Company and the customer, the Company received a claim during the quarter ended September 30, 2016 and thereafter a debit note for the period up to December 31, 2016, in the quarter ended March 31, 2017 and a revised debit note for the period up to April 30, 2017, in the quarter ended June 30, 2017. After considering an accrual of INR 250 which was made on this account in the financial year ended March 31, 2016, an additional liability had been recorded for the balance amount of INR 3,030 (including potential liability of INR 130 for the period January to March 2017) during the year ended March 31, 2017 of which INR 460 related to claims for sales made during the year ended March 31, 2017, which had been recorded as reduction from Revenue from Operations, and INR 2,570 pertaining to sales made in earlier years which had been disclosed as an exceptional item in the Statement of profit and loss for the year ended March 31, 2017. In respect of some of the specific products, the prices demanded by the customer resulted in the Company incurring a foreseeable loss and accordingly a provision for the onerous element in such contracts amounting to INR 75 had been made and included in exceptional items for the year ended March 31, 2017. The aggregate amount included in exceptional items was therefore INR 2,645 for the year ended March 31, 2017(Refer Note 28). For the quarter ended June 30, 2017, the estimated potential liability of INR 47 on account of price differences has been utilised from onerous provision and the remaining excess onerous provision no longer required, of INR 28, has been reversed as an exceptional item. During the quarter ended December 31, 2017, the Company utilized INR 3,200 out of the existing liability of INR 3,327 and offset receivables of equivalent amount from the customer. The customer and the Company have agreed on the revised price and trading terms for future supplies. (Refer Note 17).

19. Receivable from Bihar government

The Government of Bihar by its notification dated April 5, 2016 imposed a ban on trade and consumption of Indian Made Foreign Liquor and foreign liquor in the state of Bihar with immediate effect. Writ petitions were filed with the Hon’ble High Court of Patna challenging the said notification and seeking payment for supplies made by the Company and its Tie-up manufacturing units to Bihar State Beverages Corporation Limited (‘BSBCL’). By an order dated September 30, 2016, the Hon’ble High Court of Patna set aside the notification dated April 5, 2016 and held Section 19(4) of the Bihar Excise Act, 1915, as ultra vires the Constitution of India. Subsequently, the Government of Bihar re-imposed prohibition by notifying a new legislation i.e. The Bihar Prohibition and Excise Act, 2016, on October 02, 2016. The Government of Bihar also preferred a special leave petition (‘SLP’) before the Hon’ble Supreme Court against the judgment of the Hon’ble High Court of Patna pursuant to which the Hon’ble Supreme Court has stayed the order of the Hon’ble High Court of Patna. During the quarter ended December 31, 2016, the Company made an application seeking compensation from the Government of Bihar towards losses suffered as a result of arbitrary imposition of prohibition.

On January 24, 2017, the Government of Bihar issued a Notification prohibiting the manufacture of alcoholic beverages in the State (with effect from April 1, 2017) the consequences of which criminalise the continued storage of all stock of raw material and finished goods in the State of Bihar (including the stock lying at BSBCL). Pursuant to an application by the Confederation of Indian Alcoholic Beverage Companies (CIABC) in the Supreme Court, the Government of Bihar extended this timeline to April 30, 2017 and the Hon’ble Supreme Court further extended this to July 31, 2017, to allow additional time for companies to transfer said materials out of the State of Bihar.

The Company has since transferred substantial stocks of raw materials and finished goods outside the state of Bihar including the ‘billed stocks’ supplied by the Company pursuant to valid orders for sales which were in the possession of BSBCL and has destroyed such stocks which could not be transferred. In relation to certain raw materials lying in the State of Bihar, the Company during the quarter ended December 31, 2017 had received an approval from the Department of Liquor Prohibition, Bihar for sale of such raw material to entities outside the State of Bihar, before January 31, 2018, pursuant to which the said raw material has been shifted out of the State of Bihar during the quarter ended March 31, 2018.

The Company had sought from the Government of Bihar refund of statutory duties i.e. VAT and Excise duty paid in respect of the said stocks aggregating to INR 553 (including statutory duties paid by the Tie-up Manufacturing Units) which is considered good and receivable and is classified as other non- current assets (Refer Note 9). The Company had made a provision of INR 267 towards inventory reprocessing charges and write down in the value of inventory (Refer Note 10) for the year ended March 31, 2017. Further, a provision of INR 110 had been made towards employee retrenchment during the year ended March 31, 2017. The total provision in respect of the above items aggregating to INR 377 for the year ended March 31, 2017 had been disclosed as an exceptional item[Refer Note 28(a)]. During the current financial year, an additional provision of INR 180 has been made towards inventory reprocessing charges and write down in the value of inventory (Refer Note 10) and has been disclosed as an exceptional item. During the quarter ended September 30, 2017, the Company had received a letter from the Government of Bihar, stating that it is not liable to refund the aforesaid statutory duties under the Bihar Prohibition and Excise Act, 2016. Thereafter, on October 17, 2017, the Company filed a writ petition before the Hon’ble High Court of Patna seeking refund of the aforesaid statutory duties, i.e. VAT & Excise Duty paid by the Company to the Government of Bihar, which petition is presently pending adjudication.

During the quarter ended March 31, 2018, the Company received a demand from BSBCL seeking demurrage charges for the stock that was lying in their warehouses post the imposition of prohibition till the same was shifted out of the state pursuant to the orders of the Supreme Court. The Company has refuted the claim and has filed a detailed response.

20. Disposal of investment in United Spirits Nepal Private Limited

On January 15, 2016, the Company had entered into an agreement for sale of its entire holding of 67,716 equity shares in United Spirits Nepal Private Limited (‘USNPL’), constituting 82.46% of the paid up equity share capital of USNPL. The sale was subject to various regulatory approvals and other conditions precedent. During the current year, the Company has secured the approval of the Reserve Bank of India under the Foreign Exchange Management Act, 1999, in respect of the sale of shares in USNPL. Following the receipt of other relevant regulatory approvals and fulfilment of other conditions precedent, on February 28, 2018, the Company completed the sale of all the 67,716 equity shares held by it in USNPL at a price of Nepalese Rupees 5,042 per share, amounting to a total consideration of Nepalese Rupees 341,424,072 (INR 213).This resulted in a gain on disposal of investment in subsidiary of INR 148 which has been disclosed as an exceptional item [Refer Note 28(i)]. The sale consideration was remitted to India following the deduction of applicable taxes in Nepal. Following the completion of this sale, the Company holds no shares in USNPL, and USNPL has ceased to be a subsidiary of the Company. The Company will continue to have a licensing arrangement with USNPL pursuant to which, products bearing the Company’s brand names will continue to be manufactured, marketed and sold in Nepal.

The Company has given letters of support to the following subsidiaries to conduct their operations in such a manner as to enable them to meet their obligations, as and when they fall due for a period of twelve months from the balance sheet date:

i) United Spirits (Shanghai) Trading Co. Limited ii) Pioneer Distilleries Limited iii) Sovereign Distilleries Limited iv) Tern Distilleries Private Limited v) Four Seasons Wines Limited vi) Royal Challengers Sports Private Limited vii) Asian Opportunities & Investment Limited viii) United Spirits Singapore Pte Limited ix) Montrose International SA x) Palmer Investment Group Limited xi) UB Sports Management Overseas Ltd (Formerly known as “ JIHL Nominees Limited”) xii) USL Holdings Limited xiii) USL Holdings (UK) Limited xiv) United Spirits (UK) Limited xv) United Spirits (Great Britain) Limited xvi) Liquidity Inc.

Management is optimistic of a favourable outcome in the above appeals / disputes based on legal opinions / management assessment.

It is not practicable for the Company to estimate the timing of the cash outflows, if any, in respect of the above, pending resolution of respective proceedings.

21. Corporate Social Responsibility (CSR)

CSR amount required to spent as per Section 135 of the companies Act, 2013 read with schedule VII thereof by the company during the current year is INR 36(2017: NIL).

22. The Company does not have any derivative contracts as at March31, 2018. The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. No provision for material foreseeable losses is considered necessary based on the review ofsuch contracts as at year end.

23. Previous year figures have been regrouped / reclassified to conform to the current year’s classification.


Mar 31, 2017

Notes:

(a) Buildings include an amount of INR 357 (2016: INR 357, 2015: INR 357) in respect of which title deeds are yet to be registered in the name of the Company.

(b) Cost of buildings includes the following payments made for the purpose of acquiring the right of occupation:

i) 660 equity shares (unquoted) of INR 100/- each fully paid in Shree Madhu Industrial Estate Limited INR 0.066 (2016 and 2015: INR 0.066).

ii) 199, 6 % Debentures (unquoted) of INR 1,000/- each fully paid in Shree Madhu Industrial Estate Limited INR 0.199 (2016 and 2015: INR 0.199).

iii) Deposit with Shree Madhu Industrial Estate Limited INR 0.132 (2016 : INR 0.132 ; 2015: INR 0.132).

iv) Fully paid shares INR 0.006 (2016 : INR 0.006 ; 2015: INR 0.006) held in a Co-operative Housing Society.

(c) Disposal includes write down of INR 217 in the value of certain plant and equipment disclosed as exceptional items (refer Note 28).

Leased assets

Property, plant and equipment pledged as security

Refer to Note 34 for information on property, plant and equipment pledged as security by the Company.

Contractual obligations

Refer to Note 53 for disclosure of contractual commitments for the acquisition of property, plant and equipment.

Notes:

(a) Investment as a sole beneficiary in USL Benefit Trust was made as per the terms of composite scheme of arrangement approved by the Honourable High Courts of Karnataka and Bombay, for amalgamating various companies with the United Spirits Limited. The trust has been established for the exclusive benefit of the Company and holds 3,459,090 shares of the Company. As per the terms of the aforesaid scheme of arrangement, Company has carried this investment at the aggregate of book value as per the books of the concerned transferor companies. Also refer Notes 34 and 46, for assets pledged.

(b) Additional information

The Company has measured its investments in subsidiaries at cost in accordance with Ind AS 27. On adoption of Ind AS, Company has measured these investments at deemed cost using the net carrying value as per previous GAAP as at March 31, 2015.

(b) Rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a face value of INR 10 per share. Each holder of the equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any in proportion to their holdings.

* On December 20, 2013, the Honorable Karnataka High Court passed an order in the matter involving United Breweries (Holdings) Limited (UBHL) and its creditors and the Diageo Plc. setting aside an earlier leave order which permitted UBHL to sell 10,141,437 equity shares in the Company to Relay B V (included above), pending disposal of the winding up petitions against UBHL. On the above matter, UBHL and Diageo Plc. have approached the Honorable Supreme Court by way of special leave petitions (SLPs) challenging the order of the division bench. Pending, disposal of the above SLPs, the Honorable Supreme Court has directed that status quo be maintained in respect of the above mentioned transaction of sale of shares to Relay B V.

(f) During the financial year 2005 - 06, the Company had issued 17,502,762 Global Depository Shares (GDSs) representing 8,751,381 equity shares with 2 GDSs representing 1 equity share of face value of Rs. 10/- each at US$ 7.4274 per GDS, aggregating to US$ 130 million, listed on the Luxembourg stock exchange. These GDSs did not carry any voting rights. The Company during the year has terminated the deposit agreement in respect of the GDSs and has communicated to the Luxembourg Stock Exchange with the objective of delisting these GDSs listed with Luxembourg stock exchange. There are no GDS outstanding as at March 31, 2017. Notwithstanding this development, the number of shares outstanding or issued and subscribed in the share capital of the Company remains unchanged and the Company''s shares continue to be listed with the National Stock Exchange of India Limited (NSE) and BSE Limited (BSE).

(g) There are no shares reserved for issue under options and contracts / commitments for the sale of shares / disinvestments.

(h) There are no bonus shares issued, bought back during the period of five years immediately preceding the reporting date.

(i) Details of shares in the Company held by Company, subsidiaries or associates

Fair value hierarchy

This section explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under Ind AS 109 and all financial instruments measured at fair value fall under Level 1.

The carrying amounts of trade receivables, deposits and advances, trade payables, borrowings, capital creditors, dues to employees and other parties and cash and cash equivalents are same as their fair values, due to their short-term nature.

An explanation of each level follows is provided below:

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments and mutual funds that have quoted price. The fair value of all equity instruments which are traded on the stock exchanges is valued using the closing price as at the reporting date. The mutual funds are valued using the closing NAV (Net Asset value).

Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

1. Financial risk management

The Company''s activities expose it to market risk, liquidity risk and credit risk. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk.

The Company''s risk management is carried out by a central treasury department under policies approved by the Board of Directors. Central treasury identifies, evaluates and hedges financial risks in close co-operation with the Company''s other functions. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

(A) Credit risk

Credit risk arises from cash and cash equivalents, financial assets measured at amortized cost and deposits with banks and financial institutions, as well as credit exposures to trade receivables.

Credit risk management

Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to INR 29,605, INR 23,140 and INR 16,510 as of March 31, 2017, March 31, 2016 and April 1, 2015, respectively.

Trade receivables are typically unsecured and are derived from revenue earned from 2 main classes of trade receivables, receivable from sales to government corporations and receivables from sales to private third parties. Receivables from government corporation customers amounted to INR 18,985 and 64% (2016: INR 12,059 and 52%; 2015: INR. 9,286 and 56%) and private customers amounted to INR 10,620 and 36% (2016: INR 11,081 and 48%; 2015: INR 7,224 and 44%), of total trade receivables, respectively, on the reporting date.

Credit risk is managed by the Company through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses an expected credit loss model to assess the impairment loss or gain. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables. The provision matrix takes into account available external and internal credit risk factors such as regulatory developments which may impact the customers'' ability to repay, and the Company''s historical experience for each of its customers.

At March 31, 2017, the Company was exposed to trade receivables of INR 30,060 (2016: INR 23,947 and 2015: INR 19,476) against which the Company is carrying an expected credit loss allowance of INR 455 as at the year-end (2016: INR 807 and 2015: INR 2,966).

The Company''s financial assets also includes investments, loans, advances and deposits amounting to INR 20,254 (2016: INR 22,555 and 2015: INR 35,462)

The Company actively monitors the performance of each party to whom loans has been advanced, and based on the historical performance and future anticipated cash flows, the ability of the entity to generate sufficient cash flows to service its loan commitments to the Company is assessed. Where the Company believes that the entity will not be able to service its loan commitments over the next 12 months or over the lifetime of the loan, a suitable provision for impairment of the loan receivable is created.

Significant estimates and judgments in Impairment of financial assets

The impairment provisions for financial assets disclosed above are based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Company''s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

(B) Liquidity Risk

Changes in regulations, guidelines and operating models influences liquidity risk. A prudent liquidity risk management is to ensure maintaining the required cash and / or have access to funds required through committed banking lines from banks or markets to address such risks, when they arise.

(i) Company has developed three year ''Capital structure and funding strategy'' with an objective to gauge potential risk, project and strategically address funding needs, among others and ensure continued operations within acceptable tolerance limits.

(ii) Treasury team monitors rolling forecasts of the company''s liquidity position on a periodic basis. Funds are optimally used through centralized cash management system across the company and deficit if any are availed from the undrawn committed borrowing facilities (as below). Internal stake holders are aligned to provide ''early warning'' surprises should they occur, so as to enable treasury to pro-actively align the appropriate source and cost of borrowing to mitigate funding and interest risk (comprising the undrawn borrowing facilities below).

(iii) Management has planned monetization of certain non-core assets to infuse liquidity and reduce debts, thereby freeing up the banking lines to access in future, if required.

Maturities of financial liabilities

The tables below analyze the Company''s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

(C) Cash flow and fair value interest rate risk

Company''s main interest rate risk arises from Long-Term borrowings with variable rates, which expose the Company cash flow interest rate risk.

Presently interest rates seems to be bottomed out and the Company expects this to be stable in the near term. In view of this the Company has kept long term borrowings at variable interest rate, however the Company has an option to exit at the end of interest reset period which is one month. This allows flexibility and insulates the Company from adverse movements.

Majority of the Company''s short term and long term borrowings are benchmarked to Bank''s MCLR (Marginal Cost of Lending Rates) and are already fair valued.

(D) Foreign currency risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD, EUR and GBP. Foreign Exchange risk arises from future commercial transactions and assets and liabilities denominated in a currency that is not the Company''s functional currency (INR). The risk is measured through a forecast of highly probable foreign currency cash flows.

Foreign currency risk management

The Company''s risk management policy is to assess the Company''s net exposures which is mainly represented by receivable towards exports and payable towards imports. The Company hedges its net exposures with a view on forex outlook. The Company''s overall forex net exposures is not material and given that INR is stable against USD and strengthening against GBP, the Company has kept its exposures presently open. However, the present forex policy is being revised to assess the exposures in a robust and structured manner and align mitigation plan.

Impact on Profit after Tax

The sensitivity of profit or loss due to changes in exchange rates arises mainly from foreign currency denominated net trade exposures. There is no material impact on foreign currency loans given to subsidiaries as they are largely provided for.

2. Capital management Risk management

The Company''s objectives when managing capital is to:

a) have a balanced financial profile from short term (1 year) to mid-term (3 years) for sustainable leverage, providing;

- Headroom for future growth / expansion

- Financial flexibility in case of adverse business cycles

b) ensure the capital structure is at competitive advantage when compared to peers and other sector players through optimum debt mix through:

- Diversification of funding sources to manage liquidity and rollover risk

- Financial flexibility in case of adverse business cycles

3. Share based payments Diageo Incentive Plan (DIP)

DIP is a one-time long term incentive scheme for select employees who were active on Company''s payroll on September 1, 2016. A single grant was made in September 2016 with zero pay out for any leaver prior to vesting in September 2019 (vesting period - 3 years). Diageo Plc.''s share options (one option equivalent to one share) were granted to such employees as a percentage of salary. Vesting is subject to conditions such as continuity of employment, Diageo''s productivity and NSV growth and individual''s net promoter score. As at March 31, 2017 such outstanding share options were 97,904 (2016: Nil) and the charge recorded for the current year included in employee benefit expense was INR 40 (2016: Nil) (Refer Note 25). The carrying amount of liability of INR 40 has been included in other equity (Refer Note 15).

Share Appreciation Rights (SAR)

The India SAR Plan creates an opportunity to link the employee reward to Company''s share price performance. Under this plan, Company grants stock appreciation rights (based on USL share price) to select employees. The grant is made in September every year, as a percentage of salary. Cash pay-out equivalent to the value of shares will be made at the end of three years from the date of grant (the vesting period).

4. Impairment of investment in subsidiaries

The Company has performed an assessment for impairment of its investment in subsidiaries owing to continuing losses incurred by subsidiaries and decline in the value of underlying net assets held by these subsidiaries, based on which company has recognized/ reversed impairment charge in its investments in Asian Opportunities Investments Limited (AOIL), Four Seasons Wines Limited (FSWL), Sovereign Distilleries Limited (SDL), Pioneer Distilleries Limited (PDL) and Tern Distilleries Limited (TDL).

The Company has determined recoverable values of its investments as fair value, less cost of disposal. Company has used the ''cost approach'' valuation technique for determining fair value of its investment in subsidiaries using Level 3 inputs. An analysis of investments in subsidiaries where impairment charge/ reversal has been recognized, is provided below:

5. Related party disclosures

(a) Names of related parties and description of relationship

(i) Parent entities

- Diageo Plc. (Ultimate Holding company)

- Relay B V (Holding company)

Pursuant to settlement agreement entered on February 25, 2016 with Dr. Vijay Mallya, erstwhile Chairman and non -executive director and the parties mentioned below have not be considered as related parties post the settlement date [Refer Note 43 and 58(a)].

- United Breweries (Holdings) Limited

- Kingfisher Finvest India Limited

- City Properties Maintenance Company Bangalore Limited

- United Breweries Limited

(iii) Fellow subsidiaries

- Diage- Scotland Limited

- Diageo India Private Limited

- Diageo Brands BV

- Diageo Vietnam Limited

- Diageo Great Britain Limited

- Diageo Australia Limited

- Diageo North America Inc.

- Diageo Singapore Pte Limited

- Diageo Singapore Supply Pte Limited

- Guinness Nigeria Limited

- UDV Kenya Limited

- Diageo Business Services India Private Limited

(iv) Entity where there is control

- USL Benefits Trust

(v) Employees'' Benefit Plans :

- McDowell & Company Limited Staff Gratuity Fund (McD SGF)

- McDowell & Company Limited Officers'' Gratuity Fund (McD OGF)

- Phipson & Company Limited Management Staff Gratuity Fund (PCL SGF)

- Phipson & Company Limited Gratuity Fund (PCL GF)

- Carew & Company Limited Gratuity Fund (CCL GF)

- McDowell & Company Limited Provident Fund (McD PF)

- Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF)

- Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF)

- Shaw Wallace & Co. Associated Companies Provident Fund (SWCPF)

- United Spirits Superannuation Fund (with effect from 15 June 2015)

Refer note 39 for information on transactions with post-employment benefit plans mentioned above.

(vi) Key management personnel Non-executive directors

- Mahendra Kumar Sharma

- Indu Ranjit Shahani

- Rajiv Gupta

- Sivanandhan Dhanushkodi

- Nicholas Bodo Blazquez (till January 21, 2017)

- Vegulaparanam Viswanathan (w.e.f October 16, 2016)

- John Thomas Kennedy (w.e.f August 17, 2016)

- Randall David Ingber (w.e.f February 2, 2017)

- Vinod Rao (w.e.f May 24, 2016)

- Ravi Rajagopal (till October 13, 2016)

- Vijay Mallya (till February 25, 2016)

Executive directors

- Anand Kripalu (Managing Director & Chief Executive Officer)

- Sanjeev Churiwala (Chief Financial Officer) (w.e.f. April 1, 2017)

- P A Murali (Chief Financial Officer) (till April 22, 2015)

6. General terms and conditions for transactions with related parties

Transactions with related parties are carried out in the normal course of business and are generally on normal commercial terms.

Loans to subsidiaries which are generally for an indefinite period or for a period of three years with an option to rollover based on mutually agreed terms. Interest rates range from nil to 12%. All loans to related parties are unsecured. Further, the Company has granted loans to certain subsidiaries, in substance, these loans form part of the Company''s net investment in the subsidiary, as the settlement of these loans is neither planned nor likely to occur in the foreseeable future and the management intends to convert these loans into investment in equity of the respective subsidiary in near future.

The Company has not recognized interest amounting to INR 431 during the year (2016: INR 479) on loans to certain subsidiaries as recoverability of interest is not reasonably certain. Aggregate of amounts of such unrecognized interest as at year end is INR 910 (2016: INR 479, 2015: Nil).

(a) The Company provides working capital support to certain tie-up manufacturers (TMUs), who are responsible for manufacturing and distribution of certain products on behalf of the Company. The aforesaid working capital is represented by inventories, trade receivables, other financial assets and other financial liabilities. The Company has reported net working capital excluding inventory as other financial assets /liability (net) in lieu of working capital exposure to TMUs, as these amounts are expected to be settled on net basis.

(b) The Company gives volume based rebates to certain customers. As a practice amounts payable by Company are offset against receivables from such customers and only the net amounts are settled. The relevant amounts have therefore been presented net in the balance sheet.

7. (a) Defined contribution plans

The Company contributes to defined contribution plans for employee such as Provident Fund (PF), Employees'' Pension Scheme (EPS), Superannuation Fund (SF), Death benefit plan and Employees'' State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and ESI covers eligible employees. Contribution to SF is made to United Spirits Superannuation Fund (''USSF''). Other contributions are made to the Government funds or insurance companies. While both the employees and the Company pay predetermined contributions into the Provident Fund and the ESI Scheme, contributions into the pension fund, death relief fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain percentage of the employee''s salary.

During the year, the Company has recognized the following amounts in the Statement of profit and loss, which are included in contribution to provident and other funds in the employee benefits expense.

(b) Defined benefit plans Gratuity:

The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee''s last drawn salary and years of employment with the Company. The Company has employees'' gratuity funds managed by the Company as well as by Insurance Companies.

Pension:

The Company operates a defined benefit pension plan for certain executives and workers of the Company. This plan is final salary pension plan, which provide benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on their salary in the final year leading up to retirement.

Provident fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Company''s obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall if any, in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A large portion of assets in 2017 consists of government and public sector bonds, although the Company also invests in private sector bonds, special deposit schemes and bank balances. The plan asset mix is in compliance with the requirements of the respective local regulations.

8. (a) Effect of the defined benefit plan on the entity''s future cash flows

Funding levels are monitored on an annual basis and the current agreed contribution rate is 12% of the basic salaries for PF and 4.7% for Gratuity. The Company considers that the contribution rates set at the last valuation date are sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs, will not increase significantly.

Expected contributions to post-employment benefit plans for the year ending March 31, 2018 is INR 266. The weighted average duration of the defined benefit obligation is 13 years (2016: 13 years, 2015: 13.1 years). The expected maturity analysis of undiscounted pension, gratuity and other post-employment benefits is as follows:

9. Leases

(a) Finance lease:

The Company has acquired land, office equipment and vehicles on finance leases. The lease agreements for office equipment and vehicles are generally a primary period of 36 to 60 months. The Company has an option to renew these leases for a secondary period. Lease arrangement for land is generally for a period of 95-99 years.

(b) Operating lease:

The Company''s significant operating leasing arrangements are in respect of premises (residential, office, manufacturing facilities, etc.) and plant and equipment, which are for a period generally ranging between 11 months and 3 years and are cancellable. These arrangements are usually renewable on mutually agreeable terms.

Contingent rent represents bottling fees paid to tie-up manufacturers under an arrangement which are in nature of operating lease, where rent is determined based on the output/ volume.

There are no commitments for non-cancellable operating leases during the current and comparable reporting period.

10. As disclosed in the financial statements for the years ended March 31, 2015 and March 31, 2016, the Board initiated an inquiry ("Initial Inquiry"), which was completed in April 2015. The Initial Inquiry revealed (amongst other things), past instances of improper transactions concerning USL and its subsidiaries in India, including what appeared, prima facie, to be diversions of funds from USL and its subsidiaries to various UB Group companies including Kingfisher Airlines Limited ("KFA"). All such diverted amounts were provided for by the Company in the financial statements for the year ended March 31, 2015. In connection with the funds that were identified by the Initial Inquiry to have been diverted from the Company and/or its subsidiaries, the Company executed settlement agreements with ten parties as of March 31, 2017. These settlements resulted in write-off of receivables balance of INR 358 (2016: INR 5,666) outstanding from such parties, corresponding write back of provisions against such receivables amounting to INR 370 (2016: INR 6,209) and interest claims from such parties amounting to INR 28 (2016: Nil) all of which have been treated as exceptional items during the year (refer Note 28). Settlements with four parties have not been reached as yet. Discussions with two of these parties are continuing and the Company is hopeful of reaching settlements with them. Discussions with the third party have turned adverse and the matter appears likely to manifest itself into a dispute with claims and counter-claims by both parties. The last remaining party identified in the Initial Inquiry has ceased to be in business and therefore it is not possible to reach any settlement with this party. As all the amounts including the likely exposure of counter-claims have been fully provided for, there is no further material exposure to the Company.

The documents reviewed during the Initial Inquiry contained references to certain additional parties ("Additional Parties") and matters ("Additional Matters") indicating possible existence of other improper transactions. While such references could not be fully analyzed during the Initial Inquiry, the nature of these references raised concerns regarding the propriety of the underlying transactions. Therefore, after the Initial Inquiry was concluded, and as disclosed in the Company''s financial results and financial statements from time to time, the Board mandated that USL''s managing director and chief executive officer ("MD & CEO") conduct a further inquiry ("Additional Inquiry") into historical transactions involving the Additional Parties and Additional Matters, to determine whether transactions with these Additional Parties and/or involving these Additional Matters also suffered from improprieties. Pending the Additional Inquiry, and as disclosed in the audited financial statements for the years ended March 31, 2015 and March 31, 2016, certain audit qualifications were made in respect of USL''s financial statements for those financial years, as the statutory auditors were unable to comment on the nature of those matters, the provisions established therefore, or any further potential impact on the financial statements. Pursuant to the Board''s directions, the MD & CEO engaged independent experts with specialized forensic skills to assist with this Additional Inquiry and provide inputs and expert advice in connection therewith. Notwithstanding the limitations posed by lack of access to complete documentation despite best efforts, in July 2016 the MD & CEO submitted his report, taking into account the inputs and expert advice of the independent experts, to the Board. The Board, at its meeting held on July 9, 2016, discussed and considered in detail the report submitted by the MD & CEO in relation to the Additional Inquiry.

a) The Board noted that while only a court or concerned regulatory authority would be in a position to make final determinations as to fault or culpability, the Additional Inquiry, prima facie, revealed further instances of actual or potential fund diversions arising from improper transactions amounting to approximately INR 9,135 using March 31, 2015 exchange rates (approximately INR 9,504 using March 31, 2016 exchange rates) as well as other potentially improper transactions involving USL and its Indian and overseas subsidiaries amounting to approximately INR 3,118 using March 31, 2015 exchange rates (approximately INR 3,260 using March 31, 2016 exchange rates). These transactions occurred during the review period covered by the Additional Inquiry, i.e., from October 2010 to July 2014 ("Review Period", which was substantially the same as the period covered by the Initial Inquiry), although certain transactions appear to have been initiated in years prior to the Review Period.

b) The improper transactions identified in the Additional Inquiry involved, in most cases, diversion of funds to overseas and Indian entities that appear to be affiliated or associated with USL''s former non-executive chairman, Dr. Vijay Mallya. The overseas beneficiaries or recipients of these funds include entities such as Force India Formula One, Watson Ltd, Continental Administrative Services, Modall Securities Limited, Ultra Dynamix Limited and Lombard Wall Corporate Services Inc., in each of which Dr. Mallya appears to have a material, direct or indirect, interest. The Indian beneficiaries or recipients of the funds identified by the Additional Inquiry included, in most cases, KFA.

c) Most of the amounts identified in the Additional Inquiry have been previously provided for or expensed in the financial statements of USL or its subsidiaries for prior periods (including by way of provision made in relation to impairment in the value of or loss on sale of USL''s overseas subsidiaries). With an additional charge of INR 217 in respect of a write down in the value of certain items of plant and equipment made in the current reporting period and disclosed under exceptional items (Refer Note 28), there are no other improper transactions identified by the Additional Inquiry, which have not been expensed or provided. At this stage, it is not possible for the management to estimate the financial implications, if any, arising out of potential non-compliance with applicable laws on the Company.

d) In connection with the recovery of funds that are prima facie identified by the Additional Inquiry to have been diverted from the Company and its subsidiaries, the Company has been undertaking a detailed review of each case of fund diversion to assess the Company''s legal position and is in the process of initiating such action as is necessary to recover the funds from the relevant parties and individuals, to the extent possible. The Company has taken appropriate action in relation to employees named in the Additional Inquiry. In respect of on-going relationships with counter-parties involved in the improper transactions identified by the Additional Inquiry, the Company has undertaken a detailed review of such relationships and ascertained whether they were entered into on an arms-length basis and with appropriate controls and has taken appropriate action on the basis of these findings.

e) During the course of the Additional Inquiry, certain other matters pertaining to historical transactions (carried out during the Review Period of October 2010 to July 2014) were identified, which raised concerns in relation to internal controls regarding vendor invoices with certain vendors and in relation to certain historical sales promotion schemes. The amounts involved were charged off in the relevant prior financial years. Management has carried out a further review which indicates that the said matters did not continue post the Review Period.

11. As disclosed in the financial statements for the years ended March 31, 2015 and March 31, 2016, the Company had preexisting loans/ deposits/ advances/accrued interest that were due to the Company and its wholly-owned subsidiaries from United Breweries (Holdings) Limited ("UBHL") and its subsidiaries aggregating INR 13,374 and that were consolidated into, and recorded as, an unsecured loan by way of an agreement entered into between the Company and UBHL on July 3, 2013 ("Loan Agreement"). The Company has already made provision in prior financial years for the entire principal amount due, of INR 13,374, and for the accrued interest of INR 846 up to March 31, 2014. The Company has also not recognized interest income on said loan aggregating to INR 3,748 for the period from April 1, 2014 to March 31, 2017. During the year Company has set-off payable to UBHL under the trademark agreement amounting to INR 290 (2016: INR 249) (cumulatively INR 539) against the interest receivable from UBHL and consequently corresponding allowance for interest receivable has been reversed to ''Other Income" in the related periods.

The Company is seeking redressal of these disputes and claims through arbitration under the terms of the Loan Agreement and the arbitration proceedings have commenced. On February 7, 2017, the High Court of Karnataka ordered, inter alia, that UBHL be wound up, and that the Official Liquidator be appointed as the liquidator of UBHL. The Company has subsequently secured leave from the Hon''ble High Court of Karnataka to continue the arbitration proceedings.

12. As disclosed in the financial statements for the year ended March 31, 2016 the Company entered into a settlement agreement with its former non-executive chairman, Dr. Mallya ("Agreement"), pursuant to which he resigned from his positions as a director and chairman of the Company and its subsidiaries. In connection with the settlement, Dr. Mallya procured or undertook to procure the termination by the relevant counterparties of certain historical agreements to which the Company was party and which were not approved by the shareholders of the Company at the extraordinary general meeting ("EGM") held on November 28, 2014. Pursuant to the Agreement, the Company entered into mutual release and termination agreements with all the respective counterparties of these historical agreements, save one. The Company has executed an Agreement with the said remaining party by paying a sum of INR 75 ("Amount") during the quarter ended September 30, 2016. The Company made a claim against Dr. Mallya seeking refund of the Amount in terms of the Agreement. Since the refund of the Amount was not forthcoming from Dr. Mallya, the Company has sought indemnification and made a claim against Diageo Plc., for the refund amount which has been recorded as ''Receivable from related parties'' under Other current financial assets as at March 31, 2017 and has been realized post the balance sheet date. There is therefore no financial impact on the Statement of profit and loss of the Company. As previously disclosed by the Company, the Company and Dr. Mallya agreed a mutual release in relation to civil claims arising out of the Initial Inquiry. The Agreement does not extend to matters covered by the Additional Inquiry, any claims connected with the UBHL loan, or any recovery proceedings by USL connected with the Additional Inquiry.

As part of the Agreement with Dr Mallya, the Company, inter alia, also entered into certain principles, pursuant to which Dr Mallya or a party nominated by him would have a limited period option to purchase up to thirteen non-core properties from the Company. The Company secured independent valuation for these properties and had shared the same with Dr. Mallya. Though the Company received call notices from a party nominated by Dr. Mallya indicating its intention to purchase four non-core properties from the Company, the said call notices have since expired due to inaction by the party nominated by Dr.Mallya. As a result, the period of this option has now expired with Dr Mallya (or his nominee) not purchasing any of the non-core properties. The Company now intends to divest these non-core assets at market value through a transparent process, under the overall supervision and direction of the concerned Board Committee.

The Company had received certain undertakings from Dr. Mallya in relation to termination of the Shreholders'' Agreement. During the quarter ended September 30, 2016, on seeking a further update on the status of the termination of the Shareholders'' Agreement by UBHL, the Company was informed by Dr. Mallya that UBHL would not be seeking leave of court to terminate the Shareholders'' Agreement.

13. The managerial remuneration for the financial year ended March 31, 2015 aggregating INR 63 and INR 153 to the Managing Director & Chief Executive Officer ("MD & CEO") and the former Executive Director and Chief Financial Officer ("ED & CFO"), respectively, was approved by the shareholders at the annual general meeting of the Company held on September 30, 2014. The aforesaid remuneration includes amounts paid in excess of the limits prescribed under the provisions of Schedule V to the Companies Act, 2013 ("Act") by INR 51 to the MD & CEO and INR 134 to the former ED & CFO. Accordingly, the Company applied for the requisite approval from the Central Government for such excess remuneration. The Central Government, vide letters dated April 28, 2016 did not approve the Company''s application for the waiver of the excess remuneration. On May 24, 2016 the Company resubmitted the applications, along with detailed explanations, to the Central Government to reconsider approving the waiver of the excess remuneration paid. In light of the findings from the Additional Inquiry as set out in Note 41 above, the Company has withdrawn its application for approval of excess remuneration paid to the former ED & CFO of the Company through a letter dated July 12, 2016. The Company is awaiting response from the Central Government to its resubmitted application in respect of the MD & CEO. As notified to the Central Government, the Company initiated steps seeking refund of excess remuneration paid to the former ED & CFO. Since the refund was not forthcoming, the Company has, on January 5, 2017, filed a suit before the jurisdictional court to recover the excess remuneration paid by the Company to the former ED & CFO.

14. The Company has received and continues to receive letters and notices from various regulatory authorities and other government authorities. The Company has responded to the respective letters and notices and is cooperating with the regulatory authorities. Amongst others, the following letters and notices have been received and/ or responded to by the Company:

a. From the Securities Exchange Board of India ("SEBI"), in relation to the Initial Inquiry, Additional Inquiry, and matters arising out of the Agreement entered into by the Company with Dr. Mallya;

b. From the Ministry of Corporate Affairs ("MCA") in relation to its inspection conducted under section 206(5) of the Companies Act, 2013 during the year ended March 31, 2016 and subsequent show cause notices alleging violation of certain provisions of the Companies Act, 1956 and Companies Act, 2013;

c. From the Enforcement Directorate ("ED") in connection with agreements entered into with Dr. Mallya and investigations under the Foreign Exchange Management Act, 1999 and Prevention of Money Laundering Act, 2002;

d. From the Company''s authorized dealers in relation to certain queries from Reserve Bank of India ("RBI") with regard to remittances made in prior years to subsidiaries of the Company and branch in the United Kingdom and past acquisition of the Whyte and Mackay group; and

e. From the Central Bureau of Investigation (CBI) relating to the Initial Inquiry and Additional Inquiry.

15. As disclosed in the financial statements for the years ended March 31, 2015 and March 31, 2016, during the year ended March 31, 2014, the Company decided to prepay a term loan taken in earlier years under a consortium from bank, secured by assets of the Company and pledge of shares of the Company held by the USL Benefit Trust (of which the Company is the sole beneficiary) with the security trustee. The Company deposited a sum of INR 6,280, including prepayment penalty of INR 40, with the bank and instructed the bank to debit the amount from its cash credit account towards settlement of the loan and release the assets and shares pledged by the Company. The bank, however, disputed the prepayment. The Company has disputed the stand taken by the bank and its writ petition is pending before the Hon''ble High Court of Karnataka. On completion of the loan tenure on March 31, 2015, the bank demanded an amount of INR 474 towards principal and interest on the said loan, which the Company contested in the Hon''ble High Court of Karnataka. As per the order of the Hon''ble High Court of Karnataka directing the parties to consider a negotiated settlement, the Company engaged with the bank to commence discussions towards settlement. In August 2015, the bank obtained an ex parte injunction in proceedings between the bank and KFA, before the Debt Recovery Tribunal, Bangalore ("DRT"), restraining the USL Benefit Trust from disposing of the pledged shares until further orders. The Company and USL Benefit Trust, upon receiving notice of the said order, filed their objections against such ex parte order passed in proceedings in which neither the Company nor the USL Benefit Trust are or have been enjoined as parties. In December 2015, the Hon''ble High Court of Karnataka issued a stay order restraining the bank from dealing with the above mentioned pledged shares until further orders. Thereafter in February 2016, the Company received a notice from the bank seeking to recall the loan and demanding a sum of INR 459, and the Company also received a subsequent notice in March 2016 issued under section 13(2) of SARFAESI Act in relation to the same loan. Pursuant to an application filed by the Company before the Hon''ble High Court of Karnataka, in the writ proceedings, the Hon''ble High Court directed that if the Company deposited the sum of INR 459 with the bank, the bank should hold the same in a suspense account and should not deal with any of the secured assets including shares pledged with the Bank till disposal of the original writ petition filed by the Company before the Hon''ble High Court of Karnataka. During the quarter ended June 30, 2016, the Company accordingly deposited the said sum and replied to the bank''s various notices in light of the above. The aforesaid amount has been accounted as other non-current financial assets. On January 19, 2017, the DRT dismissed the application filed by the bank seeking the attachment of USL Benefit Trust shares. The Company on March 13, 2017 issued a legal notice to the bank asking them to provide the ''no-objection'' for the release of the pledged shares, withdrawing the notices under SARFESI and also to pay compensation on account of loss of interest, value of differential share price, loss of reinvestment opportunity, reputational damage etc to which the bank has responded denying the claim. The Company is in the process of sending an appropriate rejoinder and is also making efforts to expedite the hearing of its Writ Petition before the Karnataka High Court.

16. Consequent to a voluntary disclosure made by the Company to a customer regarding prices historically charged by the Company to said customer being inconsistent with trading terms that apply between the Company and the said customer, the Company received a claim during the quarter ended September 30, 2016 and thereafter a debit note for the period upto December 31, 2016, in the quarter ended March 31, 2017. After considering an accrual of INR 250 which was made on this account in the financial year ended March 31, 2016, an additional liability has been recorded for the balance amount of INR 3,030 (including potential liability of INR 130 for the period January to March 2017) during the current year (of which INR 460 relate to claims for current year sales which has been recorded as reduction from Revenue from Operations) and INR 2,570 pertaining to earlier years which has been disclosed as exceptional item in the Statement of profit and loss. In respect of some of the specific products the prices demanded by the Customer result in the Company incurring a forseeable loss and accordingly a provision for the onerous element in such contracts amounting to INR 75 has been made and included in exceptional item. The aggregate amount included in exceptional items is therefore INR 2,645 (Refer Note 28).

17. The Bihar State Government by its notification dated April 5, 2016 imposed a ban on trade and consumption of Indian Made Foreign Liquor and foreign liquor in the state of Bihar with immediate effect. Writ petitions were filed with the Hon''ble High Court of Patna challenging the said notification and seeking payment for supplies made by the Company and its tie-up manufacturing units to Bihar State Beverages Corporation Limited ("BSBCL"). By an order dated September 30, 2016, the Hon''ble High Court of Patna set aside the notification dated April 5, 2016 and Section 19(4) of the Bihar Excise Act, 1915, as ultra vires the Constitution of India. Subsequently, the Bihar Government re-imposed prohibition by notifying a new legislation i.e. The Bihar Prohibition and Excise Act, 2016, on October 02, 2016. The Bihar Government also preferred a special leave petition ("SLP") before the Hon''ble Supreme Court against the judgment of the Hon''ble High Court of Patna pursuant to which the Hon''ble Supreme Court has stayed the order of the Hon''ble High Court of Patna. During the quarter ended December 31, 2016, the Company filed an application seeking compensation from the Government of Bihar towards losses suffered as a result of arbitrary imposition of prohibition.

On January 24, 2017, the Government of Bihar issued a Notification prohibiting the manufacture of alcoholic beverages in the State (w.e.f April 1, 2017) the consequences of which criminalises the continued storage of all stock of raw material and finished goods in the State of Bihar (including the stock lying at BSBCL). Pursuant to an application by Confederation of Indian Alcoholic Beverage Companies (CIABC) in the Supreme Court, the Bihar Government extended this timeline to April 30, 2017 and the Hon''ble Supreme Court thereafter extended this to July 31, 2017 to allow additional time for companies to transfer said materials out of the state of Bihar. In light of the challenges in carrying out this unique and one time exercise, CIABC has sought an extension of the deadline from the Supreme Court.

The Company has initiated the process of transferring such stocks of raw materials and finished goods outside the state of Bihar. The ''billed stocks'' supplied by the Company pursuant to valid orders for sales which are currently in the possession of BSBCL, are also in the process of being transferred out of the state of Bihar. The Company will take appropriate steps in due course to persuade the Bihar Government to refund the statutory duties i.e. VAT and Excise duty paid in respect of the said stocks aggregating to INR 553 which is considered good and receivable and disclosed as other non-current financial assets. The Company has made a provision during the current reporting period of INR 267 (2016: INR 107) towards reprocessing charges for inventory and INR 110 (2016: Nil) towards employee retrenchment totalling INR 377 (2016: Nil) which has been disclosed as exceptional item under Note 28.

18. Agreement for sale of United Spirits Nepal Private Limited

On January 15, 2016, the Company entered into an agreement for the sale of its entire holding in United Spirits Nepal Private Limited of 67,716 equity shares (constituting 82.46% of the paid up equity share capital of United Spirits Nepal Private Limited). The sale is subject to various regulatory approvals (both in India and Nepal) and other conditions precedent which are normal for such transactions, and which the Company is in the process of seeking. Pending such approvals, the investment in United Spirits Nepal Private Limited amounting to INR 66 (2016: INR 66) has been classified as asset held for sale under current assets (Refer Note 13).

19. During the year ended March 31, 2016, the Company has infused:

(a) Equity capital of INR 987 in Tern Distilleries Private Limited, a wholly owned subsidiary of the Company ("Tern"). Tern has repaid the loans of INR 767 and accrued interest of INR 208 to the Company. Subsequent to the infusion, Tern has made an application to the Board for Industrial and Financial Reconstruction ("BIFR") for deregistering its name from the list of sick industrial undertakings. Accordingly, the Draft Rehabilitation Scheme for the amalgamation of Tern with the Company, as submitted to the BIFR, stands abandoned.

(b) Equity capital of INR 4,267 in Sovereign Distilleries Limited, a wholly owned subsidiary of the Company ("SDL"). SDL has repaid the loans of INR 3,399 and accrued interest of INR 857 to the Company.

(c) Company has recognized exceptional gain of INR 2,480 during the year ended March 31, 2016 pursuant to aforesaid transaction and recovery loans, whose deemed cost was considered lower by INR 2,480.(Refer Note 28).

20. (a) The Scheme of Amalgamation between the Company and SW Finance Co. Limited, a wholly owned subsidiary of the Company ("SWFCL"), under Section 391 and 394 read with Sections 100 to 103 of the Companies Act, 1956 (the "Scheme") with the appointed date of January 1, 2014 has been sanctioned by the Hon''ble High Court of Karnataka and Hon''ble High Court of Judicature at Bombay under the orders dated June 12, 2015 and August 28, 2015, respectively. Upon necessary filings with the respective Registrars of Companies, the Scheme has become effective from September 28, 2015 (the ''Effective Date'') and effect thereof have been given in these financial statements. Consequently:

(i) the Share capital of SWFCL to the extent held by SWFSL Trust stood cancelled;

(ii) the entire business and undertakings of SWFCL including all assets and liabilities, as a going concern transferred to and vested in the Company in accordance with the provisions of the Scheme with effect from the appointed date;

(iii) the Authorized capital of the Company increased to INR 7,192 divided into 548,000,000 equity shares of INR 10/- each, 159,200,000 preference shares of INR 10/- each and 1,200,000 preference shares of INR 100/- each; and

(iv) SWFCL ceased to be subsidiary of the Company, and as SWFCL was a wholly owned subsidiary (WOS) of the Company, no consideration was payable pursuant to amalgamation of SWFCL with the Company. Shaw Wallace Overseas Limited, a WOS of SWFCL has become a direct subsidiary of the Company.

The Company has given effect to the Scheme in the accounts with effect from April 1, 2015 being the date of transition in accordance with Ind AS 101 as this is a common control transaction under Ind AS 103.

(i) Surplus arising out of cancellation of equity shares to the extent held by SWFSL Trust in SWFCL has been credited to "Capital Reserve" for an amount of INR 683.

(ii) Difference between the values of net assets of SWFCL (including reserves) transferred to the Company after adjusting for investments cancelled has been debited to "General Reserve" for an amount of INR 742.

20. (b) During the year ended March 31, 2016 USL''s wholly owned subsidiary Asian Opportunities & Investments Limited (AOIL), has sold its entire interest in Bouvet Ladubay S.A. (and its wholly owned subsidiary Chapin Landais S.A.S). Consequent to the above sale Bouvet Ladubay S.A. (and its wholly owned subsidiary Chapin Landais S.A.S) ceased to be subsidiaries of the Company.

21. Effective December 1, 2016, the provisions of Sick Industrial Companies Act, 1985 was repealed. As a result, Board of Industrial Finance and Reconstruction (BIFR) ceases to exist and all proceedings before BIFR stand automatically dropped. The Company and its four subsidiary companies namely, Pioneer Distilleries Limited, Sovereign Distilleries Limited, Tern Distilleries Private Limited and Four Seasons Wines Limited had been referred to BIFR due to the erosion of more than 50/100% of the net worth of those companies. As a result, the requirement to report erosion of net worth of the Company to the shareholders is not required.

The Company has also given letter of support to the following subsidiaries to conduct their operations in such a manner as to enable them to meet their obligations, as and when they fall due for a period of twelve months:

i) Pioneer Distilleries Limited ii) Sovereign Distilleries Limited iii) Tern Distilleries Private Limited iv) Four Seasons Wines Limited v) Royal Challengers Sports Private Limited vi) Asian Opportunities & Investment Limited vii) United Spirits Singapore Pte Limited viii) Montrose International SA ix) Palmer Investment Group Limited x) UB Sports Management Overseas Ltd (Formerly known as " JIHL Nominees Limited") xi) USL Holdings Limited xii) USL Holdings (UK) Limited xiii) United Spirits (UK) Limited xiv) United Spirits (Great Britain) Limited xv) Liquidity Inc. xvi) United Spirits (Shanghai) Trading Co. Limited

22. Corporate Social Responsibility:

Since the average net profit of the Company during the three immediately preceding financial years is negative, the Company has no obligation to spend towards the Corporate Social Responsibility as required under the provisions of Section 135 of the Act.

23. During the year ended March 31, 2017 no material foreseeable loss was incurred for any long-term contracts including derivative contracts.

24. First-time adoption of Ind AS Transition to Ind AS

These are the Company''s first financial statements prepared in accordance with Ind AS.

The accounting policies set out in Note 1, have been applied in preparing the financial statements from the year ended March 31, 2017, the comparative information presented in these financial statements for the year ended March 31, 2016 and in the preparation of an opening Ind AS balance sheet at April 1, 2015 (the Company''s date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the Company''s financial position, financial performance and cash flows is set out in the following tables and notes.

A. Exemptions and exceptions availed

Set below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

A.1 Ind AS optional exemptions

A.1.1 Deemed cost

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment and investment in subsidiaries as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets.

Accordingly, the Company has elected to measure all of its Investments in subsidiaries, property, plant and equipment and intangible assets at their previous GAAP net carrying value.

A.1.2 Leases

Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS.

The Company has elected to apply this exemption for such contracts/arrangements.

A.1.3 Business Combination

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior top the transition date. This provides relief from full retrospective application that would require restatement of all business combination to the transition date.

The Company has elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occuring prior to the transition date have not been restated.

A.1.4 Designation of previously recognized financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments other than subsidiaries at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS.

Accordingly, the Company has elected to classify fair value gains/losses on such investments in statement of other comprehensive income.

A.1.5 Cumulative translation differences

Ind AS 101 permits cumulative translation gains and losses to be reset to zero at the transition date. The Company elected to reset all cumulative translation gains and losses to zero by transferring it to opening retained earnings at its transition date.

A.1.6 Prospective application of Ind AS 21 to business combinations

Ind AS 101 allows a first-time adopter not to apply Ind AS 21 Effects of changes in Foreign Exchange Rates retrospectively for business combinations that occurred before the date of transition to Ind AS. In such cases, where the entity does not apply Ind AS 21 retrospectrively to fair falue adjustments and goodwill, the entity treats them as assets and liabilities of the acquirer entity and not as the acquiree.

The Company has elected to apply this exemption.

A.2 Ind AS mandatory exceptions A.2.1 Estimates

An entity''s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at April 1, 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP.

A.2.2 De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity''s choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognized as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

A.2.3 Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the fact and circumstances that exits at the date of transition to Ind AS.

B. Reconciliations between previous GAAP and Ind AS

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables provide the reconciliations from previous GAAP to Ind AS.

C. Foot Notes to first-time adoption:

25. Business combination - SW Finance Co. Limited

As noted in Note 51(a) on August 28, 2015, the Company received an approval to merge with SW Finance Co. Limited (SWFCL) with an effective date of January 1, 2014, accordingly company had recorded below mentioned merger entries on August 28, 2015 (being the appointed date) under the previous GAAP. However, as per Ind AS 103, the results of SWFCL have been merged with the company with effect from April 1, 2015 as this is a common control transaction, and below adjustments were made to opening Balance sheet as at the transition date:

26. Cumulative translation differences


Mar 31, 2015

1. (a) Defined contribution plans

The Company of ers its Employees defined contribution plans in the form of Provident fund (PF) and Employees' Pension Scheme (EPS) with the Government, Superannuation Fund (SF) and certain state plans such as Employees' State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and the ESI covers certain workers. Contribution to SF is made to United Breweries Staff Superannuation Fund, however, the Company is in the process of creating its own Trust. Other contributions are made to the Government's funds. While both the employees and the Company pay predetermined contributions into the Provident fund and the ESI Scheme, contributions into the pension fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain proportion of the employee's salary.

The Company has taken group term policy from a Insurance company to cover the death benefit of certain category of employees. On the death of employee, a specific amount will be paid by the insurance company to the nominee of the deceased employee as per the grade.

(b) Defined benefit plans

Gratuity:

The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee's last drawn salary and years of employment with the Company. The Company has employees' gratuity funds managed by the Company as well as by Insurance Companies.

Provident fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Company's obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

2. Leases

a) Finance lease

The Company has acquired computer equipment and cars on finance leases. The lease agreement is for a primary period of 36 to 60 months for computer equipment and cars. The Company has an option to renew these leases for a secondary period.

b) Operating lease

The Company's significant leasing arrangements in respect of operating leases for premises (residential, office, stores, godown, manufacturing facilities etc.) and plant and machineries, which includes cancellable leases ranging between 11 months and 3 years generally (or longer in certain cases) and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as rent under note 18 to the financial statements.

3. Segment reporting

The Company is engaged in the business of manufacture, purchase and sale of beverage alcohol (spirits and wines) including through tie-up manufacturing units / brand franchise, which constitutes a single business segment. The Company is primarily organised into two main geographic segments namely India and outside India. However, the Company's operations outside India did not exceed the quantitative threshold for disclosure envisaged in Accounting Standard-17 (AS-17) on "Segment Reporting" as prescribed under Section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules, 2014. In view of the above, both primary and secondary reporting disclosures for business / geographical segment as envisaged in AS-17 are not applicable to the Company.

4. Related party disclosures

(a) Names of related parties and description of relationship holding company

i) Diageo Plc. (ultimate holding company with effect from 2 July 2014)

ii) Relay B V (holding company with effect from 2 July 2014)

Fellow subsidiaries

i) Diageo Scotland Limited (fellow subsidiary with effect from 2 July 2014)

ii) Diageo India Private Limited (fellow subsidiary with effect from 2 July 2014)

iii) Diageo Brands BV (fellow subsidiary with effect from 2 July 2014)

iv) Diageo Singapore Supply Pte Limited^ (fellow subsidiary with effect from 2 July 2014)

Entities having significant influence over the Company:

i) United Breweries Holdings Limited

ii) Kingfisher Finvest India Limited

Entities under common influence/control with the Company:

i) City Properties Maintenance Company Bangalore Limited

ii) United Breweries Limited

Enterprise where there is control:

(i) Subsidiary companies

1) United Spirits Nepal Private Limited (USNPL), 2) Asian Opportunities & Investment Limited (AOIL), 3) Bouvet -Ladubay S.A.S (BL), 4) Chapin Landais S.A.S (CL)^, 5) Palmer Investment Group Limited (PIG)^, 6) Montrose International SA (MI)^, 7) UB Sports Management Overseas Limited (Formerly known as " JIHL Nominees Limited")(UBS MOL) 8) Shaw Wallace Overseas Limited (SWOL)^, 9) McDowell & Co (Scotland) Limited (MSL), 10) USL Holdings Limited (USLHL), 11) Royal Challengers Sports Private Limited (RCSPL), 12) USL Holdings (UK) Limited, 13) United Spirits (UK) Limited^, 14) United Spirits (Great Britain) Limited, 15) SW Finance Co. Limited (SWFCBL) (formerly known as "Shaw Wallace Breweries Limited") ^^, 16) Four Seasons Wines Limited (FSWL), 17) Liquidity Inc^, 18) United Spirits (Shanghai) Trading Co. Limited^, 19) Tern Distilleries Private Limited, 20) Sovereign Distilleries Limited, 21) Pioneer Distilleries Limited, 22) United Spirits Singapore Pte Limited (formerly known as "Whyte and Mackay Singapore Pte Limited") Consequent to the sale of Whyte and Mackay, the following companies ceased to be subsidiaries with effect from 31 October 2014. 1) Whyte and Mackay Group Limited^, 2) Whyte and Mackay Holdings Ltd^, 3) Whyte and Mackay Limited (W&M) 4) Whyte and Mackay Warehousing Limited^, 5) Bruce & Company (Leith) Limited^, 6) Charles Mackinlay & Company Limited^, 7) Dalmore Distillers Limited^, 8) Dalmore Whyte & Mackay Limited^, 9) Edinburgh Scotch Whisky Company Limited^, 10) Ewen & Company Limited^, 11) Fettercairn Distillery Limited^, 12) Findlater Scotch Whisky Limited^, 13) Glayva Liqueur Limited^, 14) Glentalla Limited, 15) GPS Realisations Limited^, 16) Grey Rogers & Company Limited^, 17) Hay & MacLeod Limited^, 18) Invergordon Distillers (Holdings) Limited^, 19) Invergordon Distillers Group Limited^, 20) Invergordon Distillers Limited^, 21) Invergordon Gin Limited^, 22) Isle of Jura Distillery Company Limited^, 23) Jarvis Halliday & Company Limited^, 24) John E McPherson & Sons Limited^, 25) Kensington Distillers Limited^, 26) Kyndal Spirits Limited^, 27) Leith Distillers Limited^, 28) Loch Glass Distilling Company Limited^, 29) Longman Distillers Limited^, 30) Lycidas (437) Limited^, 31) Pentland Bonding Company Limited^, 32) Ronald Morrison & Company Limited^,33) St The Sheep Dip Whisky Company Limited^, 34) Vincent Street (437) Limited^, 35) Tamnavulin-Glenlivet Distillery Company Limited^, 36) TDL Realisations Limited^, 37) W & S Strong Limited^,38) Watson & Middleton Limited^,39) Wauchope Moodie & Company Limited^, 40) Whyte & Mackay Distillers Limited^, 41) William Muir Limited^, 42) WMB Realisations Limited^,43) Whyte and Mackay Property Limited^,44) Whyte and Mackay de Venezuela CA^,45) KI Trustees Limited^, 46) Whyte and Mackay Americas Limited^

ii) USL Benefit Trust Associate:

i) Wine Society of India Private Limited^

^ No transactions during the year

^^ Shaw Wallace Breweries Limited renamed as " SW Finance Co. Limited" with effect from 16 January 2013

^^^ Whyte and Mackay Singapore Pte Limited renamed as "United Spirits Singapore Pte Limited" with effect from 1 August 2014

Key Management Personnel:

i) Mr Ashok Capoor - Managing Director (effective upto 30 April 2014)

ii) Mr P A Murali - Executive Director and CFO (effective upto 22 April 2015)

iii) Mr Anand Kripalu - Managing Director and Chief Executive Officer (with effect from 14 August 2014)

Employees' Benefit Plans where there is significant influence:

i) McDowell & Company Limited Staff Gratuity Fund (MCD SGF), ii) McDowell & Company Limited Officers' Gratuity Fund (MCD OGF), iii) Phipson & Company Limited Management Staff Gratuity Fund (PCL SGF), iv) Phipson & Company Limited Gratuity Fund (PCL GF), v) Carew & Company Ltd. Gratuity Fund (CCL GF), vi) McDowell & Company Limited Provident Fund (MCD PF), vii) Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF), viii) Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF), ix) Shaw Wallace & Co. Associated Companies Provident Fund (SWCPF), x) Balaji Distilleries Employees Gratuity Trust

* Excludes reimbursement of expenses and cost sharing arrangements, unless otherwise stated.

** Represents balance as on 31 October 2014 when the company ceased to be the subsidiary

^ During the year, the Company has not recognised interest income amounting to Rs.1,207.545 Million on advances to United Breweries (Holdings) Limited.

# The Company has also given letter of support to the following subsidiaries to conduct their operations in such a manner as to enable to meet its obligations:

i) Pioneer Distilleries Limited, ii) Sovereign Distilleries Limited, iii) Tern Distilleries Private Limited, iv) Four Seasons Wines Limited, v) Royal Challengers Sports Private Limited, vi) Asian Opportunities & Investment Limited, vii) United Spirits Singapore Pte Limited, viii) Montrose International SA, ix) Palmer Investment Group Limited, x) UB Sports Management Overseas Ltd (Formerly known as " JIHL Nominees Limited") xi) USL Holdings Limited xii) USL Holdings (UK) Limited xiii) United Spirits (UK) Limited xiv) United Spirits (Great Britain) Limited xv) Liquidity Inc xvi) United Spirits (Shanghai) Trading Co. Limited

Refer note 24(d) for details of historical contracts that were not approved by the shareholders of the Company as per the requirements of the listing agreements entered into by the Company with various stock exchanges.

Note: The following agreement was also entered in July 2013, however there was no transaction:

- United Breweries (Holdings) Limited (UBHL) has a drag along right under a property sale agreement between UBHL and the Company which is exercisable at fair value upto July 2015.

The above information has been determined to the extent such parties have been identified on the basis of information provided by the Company, which has been relied upon by the auditors.

4. (d) As per the requirements of the listing agreements entered into by the Company with various stock exchanges, and applicable circulars issued by SEBI (including circular No. CIR/CFD/POLICY CELL/2/2014 dated 17 April 2014 ("April 17 Circular") and circular No. CIR/CFD/ POLICY CELL/7/2014 dated 15 September 2014), the Company sought approval of its shareholders for certain historical agreements at the Extraordinary General Meeting ("EGM") held on 28 November 2014, including the following: (a) loan agreement dated 3 July 2013, between the Company and UBHL; (b) agreements dated 30 September 2011 and 22 December 2011 respectively, between the Company and UBHL requiring UBHL to sell to the Company certain immovable properties; (c) services agreement dated 3 July 2013, between the Company and Kingfisher Finvest India Limited; (d) advertising agreement dated 1 October 2013 (which amended and restated the original agreement dated 3 July 2013) between the Company and Watson Limited; (e) sponsorship agreement dated 11 June 2013 between the Company and United Racing & Bloodstock Breeders Limited; (f ) sponsorship agreement dated 11 June 2013 between the Company and United Mohun Bagan Football Team Private Limited; (g) aircraft services agreement dated 11 June 2013 between the Company and UB Air Private Limited; (h) properties call agreement dated 11 June 2013 between the Company and PE Data Centre Resources Private Limited; and (i) contribution agreement dated 11June 2013 between the Company and Vittal Mallya Scientific Research Foundation.

As stated in the EGM notice dated 31 October 2014, each of the above-mentioned transactions were duly approved by the board of directors of the Company, prior to entering into the agreement corresponding to such transaction. The EGM notice further stated that while the April 17 Circular mandates that all existing material related party transactions be placed before the shareholders for their approval by way of a special resolution, thus far, the consequences of any non-approval of such existing transactions by the shareholders by the requisite majority is unclear. It is therefore possible that non-approval of one or more of the above-mentioned agreements by the requisite majority may result in the Company being obliged to cease to act upon and potentially put the Company in breach of such agreements, which are the subject of non-approval by the shareholders. This could potentially result in a dispute with the relevant counterparties who may contend that the Company has breached the relevant agreement by failing to act on or fulfil its obligations under the same. Such potential disputes could be protracted and costly, and could result in financial or other liabilities on the Company. Also, any inability on the part of the Company to act on or fulfil its obligations under the unapproved agreements could result in the Company being potentially unable to receive the benefit of the various rights that it is entitled to under such agreements (such as in the case of the agreement noted in (b) above). It was also stated in the EGM Notice that in the absence of sufficient clarity in respect of the provisions dealing with existing material related party contracts and arrangements, the Company was tabling the above-mentioned agreements for the approval of the shareholders by way of abundant caution.

It was further stated that the Company was still in the process of seeking confirmations from, and verifying the position in relation to, the counterparties to, inter alia, the above mentioned agreements as to whether or not they are related parties of the Company, and it was not clear whether the counterparties to such agreements are indeed related parties of the Company for the purpose of Clause 49(VII) of the Listing Agreement. However, to the extent it ultimately transpired that all or any of above mentioned agreements do not qualify as existing material related party contracts or arrangements, or the counterparties to all or any of these agreements do not qualify as related parties of the Company, such that approval of the shareholders of the Company is not required under the April 17 Circular in respect of any of the above mentioned contracts or arrangements then, in that case, it shall follow that there will be no consequences on such contracts or arrangements or on their validity or on any act or omission that may have been committed or omitted pursuant thereto, by reason of the shareholders having approved or not approved any of such contracts or arrangements.

At the EGM, the above-mentioned agreements were not approved by the shareholders of the Company by requisite majority. Consequently, the Company has sought clarifications/ directions from SEBI with respect to the implications of the non-approval of the aforesaid agreements by the shareholders of the Company.

Pending the clarification / direction from SEBI, the Company has recognised the charges up to 28 November 2014, in respect of the agreements listed in (c) to (g) and (i) above, amounting to Rs.1,357.3 Million during the financial year ended 31 March 2015 (Rs.1,382.2 Million for the financial year ended 31 March 2014). In light of the fact that the Company's shareholders have not approved the said agreements on 28 November 2014, the Company has not recognised the charges amounting to Rs.486.2 Million from 29 November 2014 to 31 March 2015 payable under the agreements listed in (c) to (g) and (i) above. The Company has informed the respective counterparties that the contracts mentioned above have not been approved by the shareholders. Further, subsequent to 28 November 2014, in response to the letters received by the Company from the concerned counterparties, the Company has made payments amounting to Rs.74.3 Million to some of these counterparties with respect to the dues for services received prior to 28 November 2014 specifically stating that the said amounts would be refundable to the Company if it is determined that such amounts were not payable by the Company in view of the shareholders not having approved the respective agreements. Pending the clarifications / directions from SEBI, the Company has not made any payments to the respective counterparties under the agreements in (c) to (g) and (i) above for the period subsequent to 28 November 2014 and has considered these amounts as contingent liabilities. Also see Note 26(b) above in relation to the loan agreement listed above.

5. (a) Prepayment of Credit Facility

During the year ended 31 March 2014, the Company decided to prepay credit facilities availed in the earlier years from a bank amounting to Rs.6,216.600 Million, secured by assets of the Company and pledge of shares of the Company held by the USL Benefit Trust. The Company deposited a sum of Rs.6,280.0 Million including prepayment penalty of Rs.40.0 Million with the bank and instructed the bank to debit the amount from the cash credit account towards settlement of the loan and release the assets / shares pledged by the Company. The bank, however, disputed the prepayment and continues to debit the account towards the instalments and interest as per the loan agreement. The Company has disputed the same and a petition is pending before the Honourable High Court of Karnataka. On 31 March 2015, the bank demanded an amount of Rs.474.0 Million towards principal and interest on the said loan. The Company has sought a stay from the Honourable High Court of Karnataka with respect to the aforesaid demand. Pending settlement with the bank, the loan amount and balance available in cash credit account is presented on net basis in the financial results as at 31 March 2015. The tenure of credit facility has been completed as on 31 March 2015.

5. (b) During the year, a bank has declared one of the directors of the Company as a wilful defaulter in respect of another company where he is a promoter director. The Reserve Bank of India's Master Circular on wilful defaulters along with certain covenants in the loan agreements sanctioned by the Company's bankers raise an uncertainty on the impact of this development on the availability of credit facilities to the Company. The said director has assured the Board that he will take appropriate steps to ensure that the operations of the Company are not impacted. Having received such assurance from the said director and appropriate comfort from the controlling shareholder of the Company, the financial results have been prepared on a going concern basis. The Company understands from public records that the above- mentioned decision of the bank declaring the said director as a wilful defaulter has been quashed by an order of the Calcutta High Court on 24 December 2014.

6. Provision for doubtful receivable, advances and deposits

During the previous financial year, the Board had directed a detailed and expeditious inquiry in relation to certain matters referred in paragraphs 26 (a) to 26 (c) below, the role of individuals involved and potential non-compliance (if any) with the provisions of the Companies Act, 1956, and other regulations applicable to the Company in relation to such transactions, and the possible existence of any other transaction of a similar nature (the "Inquiry"). Pursuant to the directions of the Board, the Inquiry was headed by the Managing Director and Chief Executive Officer ("MD & CEO") of the Company. The Board also directed the MD & CEO to engage independent advisers and specialists as required. At its meeting held on 25 April 2015, the Board discussed and considered in detail the report ("Inquiry Report") submitted by the MD & CEO in relation to the Inquiry, the inputs and expert advice of the independent advisers and specialists and other relevant inputs.

6. (a) During the financial year ended 31 March 2014, certain parties who had previously given undisputed balance confirmations for the financial year ended 31 March 2013, claimed in their balance confirmations to the Company for the financial year ended 31 March 2014 that they had advanced certain amounts to certain alleged UB Group entities and that the dues owed by such parties to the Company would, to the extent of the amounts owing by such alleged UB Group entities to such parties in respect of such advances, be paid / refunded by such parties to the Company only upon receipt of their dues from such alleged UB Group entities. These dues of such parties to the Company were on account of advances by the Company in the earlier years under agreements for enhancing capacity, obtaining exclusivity and lease deposits in relation to Tie-up Manufacturing Units ("TMUs"); agreements for specific projects; or dues owing to the Company from customers. In response to these claims, under the instruction of the Board, a preliminary internal inquiry was initiated by the Management. Based on the findings of the preliminary internal inquiry by the Management, the Management's assessment of recoverability and other considerations, as a matter of prudence, an aggregate amount of Rs.6,495.480 Million (including interest claimed) was provided in the financial statements for the financial year ended 31 March 2014 and was disclosed as a prior period item. Management has sought confirmations of balances from these counterparties for the year ended 31 March 2015 but have not received responses from some of them.

The Inquiry Report stated that between 2010 and 2013, funds involved in many of these transactions were diverted from the Company and/or its subsidiaries to certain UB Group companies, including in particular, Kingfisher Airlines Limited ("KFA"). The diverted amounts were included in the provision made by the Company in the financial statements for the previous financial year. The Inquiry also indicated that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and potential violations of provisions, inter alia, of the Companies Act, 1956, and the listing agreement signed by the Company with various stock exchanges in India on which its securities are listed. The financial impact of these non-compliances on the Company were estimated by Management to be not material.

During the year ended 31 March 2015, an additional provision of Rs.216.0 Million was made for interest claimed. The Management has determined that in light of these provisions, no additional material adjustments to the financial statements are required on this account.

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 25 April 2015, the Company is in the process of initiating steps for recovery against the relevant parties, so as to seek to expeditiously recover the Company's dues from such parties, to the extent possible.

6. (b) Certain pre-existing loans / deposits / advances were due to the Company and its wholly-owned subsidiaries from United Breweries (Holdings) Limited ("UBHL") and were in existence as on 31 March 2013. Such dues (together with interest) aggregating Rs.13,374.167 Millions, were consolidated into, and recorded as, an unsecured loan by way of an agreement entered into between the Company and UBHL on 3 July 2013. In addition, the amounts owed by UBHL to the Company's wholly-owned subsidiaries had been assigned by such subsidiaries to the Company and recorded as loans from such subsidiaries in the books of the Company. 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 months from the effective date of the loan agreement. The loan has been granted for a period of eight years and is payable in three annual instalments commencing from the end of 6th anniversary of the effective date of the loan agreement.

Certain lenders have f led petitions for winding up against UBHL. UBHL has provided guarantees to lenders and other vendors of Kingfisher Airlines Limited (KFA), a UB Group entity. Most of these guarantees have been invoked and are being challenged in Courts. The Company has also f led its afdavit opposing the aforesaid winding up petitions and the matter is sub-judice.

Pursuant to the directions of the Board, the Inquiry also included a review of documentation to further understand and assess elements of and background to the above loan arrangement and to establish the rationale / basis for the interest rate applicable in respect of the consolidated loan amount.

With regard to the prior transactions that were consolidated into the single loan on 3 July 2013, the Inquiry Report stated that, prima facie, between 2010 and July 2013, certain transactions appear to have been undertaken and certain accounting entries appear to have been made to show a lower exposure of the Company (and its subsidiaries) to UBHL than the exposure that actually existed at that time. Prima facie, this indicates various improprieties and potential violations of provisions, inter alia, of the Companies Act, 1956, and the listing agreement signed by the Company with various stock exchanges in India on which its securities are listed. The Company is in the process of evaluating its rights and remedies in relation to such violations. The financial impact of these non-compliances on the Company were estimated by Management to be not material.

During the previous year, as a matter of prudence, the Company had not recognised interest income of Rs.963.069 Million and had provided Rs.3,303.186 Million towards the principal outstanding as at 31 March 2014. The notes to accounts for the previous year had recorded the Management's belief that it should be able to recover, and that no further provision is required for the balance amount of Rs.9,954.597 Million. The said notes also mentioned that the Management would continue to assess the recoverability of the said loan on an on-going basis.

As per the terms of the said loan agreement, an amount of Rs.1,911.0 Million (gross of tax) was payable by UBHL to the Company towards the interest payable as of January 2015 under the loan agreement. However, the Company is yet to receive such interest payment from UBHL. The Company has received a letter from UBHL stating that it is involved in litigations with various creditors of KFA in different courts all over the country, and that some of the winding up petitions f led against UBHL have been admitted by the High Court of Karnataka.

As a result of the above and other relevant factors, as a matter of prudence, the Company has provided a further amount of Rs.9,954.597 Million towards the entire balance principal amount (i.e., the entire principal amount due under the loan agreement less the amount already provided in the accounts for the financial year ended 31 March 2014) and has not recognised interest income of Rs.1,207.545 Million. The Company will pursue all rights and claims to recover the entire amount of the loan together with accrued interest from UBHL.

Also refer Note 24 (d) in connection with the non-approval by the shareholders of the Company of the loan agreement with UBHL (and of other potential related party transactions).

6. (c) In May 2014, the Company received a letter on behalf of a third-party claimant alleging that the Company had signed agreements creating a lien on certain assets held by the Company, to secure loans provided by the third party claimant to Kingfisher Airlines Limited. The Company disputed this and the claim was subsequently withdrawn by the third party. Pursuant to the directions of the Board, the Inquiry included a review of documentation to further understand and assess the Company's position in relation to the above matter. The Inquiry indicated that no Board authorisation or approval had been obtained to authorize anyone to execute any such agreement to create a lien on the investments of the Company to secure the rights of the third party claimant. No claims were received from the claimant or any other person during the year. Based on the Inquiry and its current knowledge, Management does not expect any liability or obligation to arise from this matter.

6. (d) In relation to the Company's funds that were diverted from the Company, the Board of Directors at their meeting held on 25 April 2015, unanimously agreed to pursue all rights and claims against the relevant parties mentioned in the Inquiry Report to expeditiously recover the Company's dues from such parties, to the extent possible.

6. (e) With regard to the possible existence of any other transaction of a similar nature, the Inquiry identified references to certain additional parties ("Additional Parties") in various documents, which also dealt with transactions involving the counterparties referred to in the notes to the Company's audited financial statements for the previous financial year. The Inquiry also identified certain additional matters ("Additional Matters") where the documents identified raised concerns as to the propriety of the underlying transactions. The Management has made the following provisions with respect to such transactions: (a) Rs.678.080 Million made in the Company's financial statements for the financial year ended 31 March 2015, (b) Rs.445.486 Million made in the Company's subsidiaries' financial statements for the financial year ended 31 March 2015, (c) Rs.157.040 Million made in the previous year in the Company's financial statements and (d) Rs.1,087.10 Million made in the previous year in the Company's consolidated financial statements. The Management believes these provisions are adequate and no additional material adjustments are likely to be required in relation thereto.

The Board also believes that it is necessary to assess whether the Additional Matters or the transactions with the Additional Parties were improper. The Board has therefore directed the CEO & MD to expeditiously review the Additional Matters and transactions with the Additional Parties during the period covered by the Inquiry and report to the Board his conclusions on the transactions and any further impact on the Company's financial statements.

7. (a) During the year, the scheme of arrangement between the Company and Enrica Enterprises Private Limited ("Enrica") and its shareholders and creditors as the case may be in respect of transfer of undertaking of the Company in Tamil Nadu by way of slump sale, on a going concern basis, under Section 391 read with Section 394 of the Companies Act, 1956 (the "Scheme") with an Appointed Date of 1 April 2013 has been sanctioned by the Honourable High Courts of Karnataka and Madras under their orders dated19 February 2015 and 31 July 2014 respectively.

Upon necessary f ling with the respective Registrar of Companies, the Scheme has become effective from 30 March 2015 (the 'Effective Date') and the effect of the Scheme has been given in these financial statements of the Company. Consequently,

i) the entire business and undertaking of the 'Transferred Undertaking' of the Company, including all assets and liabilities, as a going concern, stands transferred into Enrica with effect from 1 April 2013 being the Appointed Date. The book value of net assets of the Transferred Undertaking as at 1 April 2013 amounts to Rs.894.200 million.

ii) In consideration thereof, the Company has received amount of Rs.1,000.00 Million during the year and balance amount of Rs.250.700 Million has been received subsequent to the Balance sheet date.

iii) The Company has recorded a net profit of Rs.356.500 Million pursuant to sale of the Transferred Undertaking during the year. The profit has been credited to the Statement of profit and loss and has been disclosed separately under the head "Exceptional items (net)".

The Company has also entered into a Franchise Agreement with Enrica under which the Company is entitled to royalty payments in consideration for grant of manufacturing, marketing, distribution and sale rights to Enrica in defined territories. From the Appointed Date up to the Effective Date, the royalty payable was a fixed amount per case or the Franchisee's profit (before tax and royalty) in respect of the franchised products, whichever is lower. Subsequent to the Effective Date, royalty at net sales realisation linked slab rate will accrue to the Company as per the Franchise Agreement.

The net amount resulting from the reversal of the profits of the Transferred Undertaking recognised for the year ended 31 March 2014 and the income under the franchise agreements has been adjusted in the balance of surplus in Statement of profit and loss under the head "Reserves and Surplus". Further, revenue and expenses of the Transferred Undertaking for the Financial Year 2014-15 and its assets and liabilities as at 31 March 2015, have not been considered in the financial statements.

All costs and expenses incidental to the finalisation and implementation of the Scheme, including stamp duty charges, meeting expenses, professional fees, consulting fees and any other expenses attributable to the implementation of the Scheme are debited to respective head of 'Expenditure'. An amount of Rs.871.333 Million is recoverable from Enrica with respect to the working capital amount from the appointed date to the effective date and the balance consideration receivable by the Company.

7. (b) Further to Diageo plc's undertakings offered to UK's Office of Fair Trade ("OFT") (now called Competition and Markets Authority, UK), in January 2014, the Company's Board of Directors decided to initiate a process based on the outlined time-table provided in connection with the decision of the OFT to explore a potential sale of all or part of Whyte and Mackay. As a culmination of this process, on 9 May 2014 the Company's then wholly owned subsidiary, United Spirits (Great Britain) Limited ("seller" or "USGBL") entered into a Share Sale and Purchase agreement with Emperador UK Limited and Emperador Inc. in relation to the sale of the entire issued share capital of Whyte and Mackay Group Limited ("WMG") for an enterprise value of GBP 430 Million (calculated with a normalized level of working capital), from which deduction has been made for the payment of a warranty and indemnity insurance premium of GBP 0.85 Million agreed between the seller and the purchaser. An opinion from a leading merchant banker, addressed to the Board, confirms that the enterprise value is fair from a financial point of view of the Company.

On 31 October 2014, the sale of the entire issued share capital of WMG by USGBL to Emperador UK Limited was completed. With the above sale, WMG and its 45 subsidiaries have ceased to be subsidiaries of the Company. Part of the proceeds from the sale was used to repay Whyte and Mackay acquisition debt amounting to GBP 370 million. Post adjustment of Pension Def cit, repayment of debt and movements in Net Working Capital, the Company will get the balance funds. A Retention Deposit of GBP 10 million is retained for any claims for a period of 7 months post completion. The sale has resulted in true up of provision towards the recoverability of the investments and loans given for WMG, including Palmer and Montrose amounting to Rs.45,064.887 Million. Consequently, additional provision of Rs.1,848.522 Million has been recorded for the year ended 31 March 2015 as an exceptional item. The Company has received a letter dated 16 October 2014 from the authorised dealer advising the Company to complete the disinvestment of WMG and subsequent liquidation of the intermediary wholly owned subsidiary companies. The provisional write of approval is subject to submission of the required documents within a period of 30 days from the date of liquidation of the aforesaid wholly owned subsidiaries. The Company will comply with the requisite conditions specified by the authorised dealer in accordance with applicable law.

8. During the year ended 31 March 2015, the Company has recorded the provisions for diminution on long-term investments in subsidiaries amounting to Rs.3,618.093 Million and loans and advances to subsidiaries amounting to Rs.3,543.507 Million. This provision arises primarily due to low capacity utilization, negative margins or strategic shift in focus of the business. The Company has recorded this provision based on third party valuations.

9. Scheme of amalgamations

The Board of Directors at their meeting held on 8 January 2014, have approved the amalgamation of:

i) Tern Distilleries Private Limited, a wholly owned subsidiary of the Company ("TERN") pursuant to a Draft Rehabilitation Scheme and applicable provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 with the appointed date as 1 April 2013 ("TERN Scheme"). The entire operations of TERN comprise transactions with the Company. The net impact on the financial statement of the Company from such amalgamation is expected to be insignificant when effected. The equity shareholders of the Company approved the TERN Scheme at their Extraordinary General Meeting held on 18 March 2014 and the approval by the Board for Industrial and Financial Reconstruction ("BIFR") is in progress. Pending approval of the TERN Scheme, no effect has been given in the financial statement. A summary of Statement of profit and loss and the statement of assets and liabilities of TERN for the year ended 31 March 2015 is as below:

ii) SW Finance Company Limited, a wholly owned subsidiary of the Company ("SWFCL") with the Company with the appointed date of 1 January 2014 ("SWFCL Scheme") pursuant to the applicable provisions of the Companies Act, 1956, and subject to the sanction of the Honourable jurisdictional High Courts / any competent authority. The accounting for the above amalgamation shall be done upon receiving the necessary sanctions / approval from various regulatory authorities including the Registrar of Companies. Upon the SWFCL Scheme becoming effective, SWFCL will stand merged with the Company. Pending approval of the SWFCL Scheme, no effect has been given in the accompanying financial statement. The operations of SWFCL are predominantly with the Company. The net impact on the financial statement of the Company from such operations is expected to be immaterial when effected. A summary of Statement of profit and loss and the Statement of assets and liabilities of SWFCL for the year ending 31 March 2015 is as below:

10. The following letters / notices were received by the Company subsequent to the Balance sheet date with respect to the matters under Inquiry.

i) The Company has received a notice from the Ministry of Corporate Affairs for an inspection, under Section 206(5) of the Act, of the books of accounts and other books and papers of the Company. A notice under Section 131 of the Income Tax Act, 1961 has also been received. The Company is cooperating fully with the authorities in relation to the same.

ii) The Company has also received letters from erstwhile auditors who served as the Company's statutory auditors during the period covered by the Inquiry, seeking to understand 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 Company in the light of applicable legal provisions.

iii) As directed by the Board, the Company provided a copy of the Inquiry Report to its statutory auditors for their review and further actions as may be required. Following this, the Audit Committee of the Board has received from the statutory auditors a report under Section 143(12) of the Act and the relevant rules thereunder, seeking the Audit Committee's reply / observations. The Audit Committee is in the process of providing its reply / observations to the statutory auditors.

iv) The Company has also received a letter from the National Stock Exchange Limited ("NSE") pursuant to SEBI circular no. CIR/CFD/DIL/7/2012 dated 3 August 2012 in relation to Form B along with audited financial statements for the financial year ended 31 March 2014. SEBI has directed the NSE to advise the Company to suitably rectify the qualifications raised by the statutory auditors, which the Company has suitably addressed to the extent possible.

11. At an extraordinary general meeting of the shareholders of the Company on 28 November 2014, the shareholders approved the reporting of erosion of more than fifty per cent of the Company's peak net worth in the immediately preceding four financial years as required under Section 23(1)(a)(ii) read with Section 23(1)(b) of the Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA"). The Company has reported the fact of such erosion to the BIFR as required under Section 23(1)(a)(i) of SICA vide letter dated 29 December 2014.

12. Capital and other commitments

(a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs.1,474.206 Million (2014: Rs.284.990 Million).

(b) Other commitments relating to advertisement, sales promotion and trade mark fee Rs.3,616.568 Million (2014: Rs.8,393.593 Million). The amount with respect to contracts not approved by the Shareholders as mentioned in note 24(d) have not been disclosed as commitments.

(c) The Company has also given letter of support to the following subsidiaries to conduct their operations in such a manner as to enable to meet its obligations.

i) Pioneer Distilleries Limited ii) Sovereign Distilleries Limited iii) Tern Distilleries Private Limited iv) Four Seasons Wines Limited v) Royal Challengers Sports Private Limited vi) Asian Opportunities & Investment Limited vii) United Spirits Singapore Pte Limited viii) Montrose International SA ix) Palmer Investment Group Limited x) UB Sports Management Overseas Ltd (Formerly known as " JIHL Nominees Limited") xi) USL Holdings Limited xii) USL Holdings (UK) Limited xiii) United Spirits (UK) Limited xiv) United Spirits (Great Britain) Limited xv) Liquidity Inc xvi) United Spirits (Shanghai) Trading Co. Limited.

13. Tie-up Manufacturing arrangement

The Company has entered into arrangements with certain distilleries and bottling units (Tie-up units) for manufacture and marketing of its own brands. The Tie-up units have necessary license and regulatory permits to manufacture beverage alcohol. The arrangements stipulates the obligations of each party and the entire manufacturing activity is carried out under the close supervision of the Company executives. It is the responsibility of the Company to Market its products and ensure adequate finance to the tie-up units for its operations. The risk and reward of the activity lies with the Company. In the circumstances, it is considered appropriate to disclose the following information (Unaudited), as applicable to such activities.

14. Appointment of Finance Head

Subsequent to the Balance sheet date, Board of directors of the Company at its meeting held on 25 April 2015 have appointed Mr. Vinod Rao as Head of finance of the Company.

15. Corporate Social Responsibility

Since average net profits of the Company made during the three immediately preceding financial years is negative, therefore the Company has not earmarked specific funding for Corporate Social Responsibility and sustainable activities as required under the provision of section 135 of the Act.

16.

The Managerial remuneration for the financial year ended 31 March 2015 aggregating Rs.64.907 Million and Rs.153.092 Million towards remuneration of the MD & CEO and the Executive Director and Chief Financial Officer ("ED & CFO") respectively was approved by the shareholders of the Company at the annual general meeting of the Company held on 30 September 2014. The aforesaid remuneration includes amounts paid in excess of the limits prescribed under the provisions of Schedule V to the Act. Accordingly, the Company is in the process of obtaining the requisite approval from the Central Government for such excess remuneration.

17. During the year ended 31 March 2015, no material foreseeable loss was incurred for any long-term contract including derivative contracts.

18. Regroupings

Previous year's figures have been regrouped / reclassified as per the current year's presentation for the purpose of comparability. The following


Mar 31, 2014

Preferential allotment of equity shares

i) On 27 May 2013, the Company allotted 14,532,775 equity shares of face value of Rs. 10/- each at a price of Rs. 1,440/- per share (including a premium of Rs. 1,430/- per equity share) to Relay B.V. an indirect wholly owned subsidiary of Diageo plc., on a preferential allotment basis in terms of the preferential allotment agreement entered between Relay B.V., the Company and Diageo plc. on 9 November 2012 and pursuant to the approval of the shareholders through postal ballot on 14 December 2012 by a way a of special resolution, for an aggregate amount of Rs. 20,927.195 Million.

ii) On 4 July 2013, in terms of the share purchase agreement dated 9 November 2012 between Palmer Investment Group Limited (Palmer) and UB Sports Management Overseas Limited (UB Sports) (both wholly owned subsidiaries of the Company), USL Benefit Trust (of which the Company is a beneficiary) (USLBT), SWEW Benefit Company (SWEW), United Breweries (Holdings) Limited (UBHL) and Kingfisher Finvest India Limited (KFIL) with Relay B.V. and Diageo plc., the sale of 21,767,749 equity shares ("Sale Shares") of the Company in aggregate by UBHL, KFIL, SWEW, Palmer and UB Sports to Relay B.V. at a price of Rs. 1,440/- per sale share were completed.

iii) During the year, Relay B.V. (wholly owned subsidiary of Diageo plc), has further acquired through the open offer and from the open market 5,526,608 equity shares representing 3.80% of the equity share capital of the Company.

iv) Subsequent to the balance sheet date, Relay B.V. further acquired 37,785,214 equity shares representing 26 % equity share capital of the Company through an open offer. As a result of the acquisition of these shares, Relay B.V. holds 79,612,346 equity shares, representing 54.78 % equity share capital of the Company as on date and has become the holding company of the Company.

Rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a face value of Rs. 10 per share. Each holder of the equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquida- tion, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their holdings.

Shares held by holding / ultimate holding company and / or their subsidiaries / associates

* On 20 December 2013, the Honorable Karnataka High Court passed an order in the matter involving United Breweries (Holdings) Limited (UBHL) and its creditors and the Diageo group setting aside an earlier leave order which permitted UBHL to sell 10,141,437 equity shares in the Company, pending disposal of the winding up petitions against UBHL. On the above matter, UBHL and Diageo plc has approached the Honorable Supreme Court by way of SLPs challenging the order of the division bench. Pending, disposal of the above SLPs, the Honorable Supreme Court has directed that status quo be maintained in respect of the transaction of sale of shares to Relay B.V.

* The Company had issued 17,502,762 Global Depositary Shares (GDSs) representing 8,751,381 equity shares ranking pari-passu in all respects with the existing paid up equity shares, 2 GDSs representing 1 equity share of par value of Rs. 10/- each at US $7.4274 per GDSs aggregating to US $ 130 Million. These GDSs are listed on the Luxembourg Stock Exchange. Out of the above, 1,538,638 GDS outstanding (representing 769,319 equity shares) as of 31 March 2014 have no voting rights.

Reserves and surplus

Notes:

1) Taken over on amalgamation of Shaw Wallace Distilleries Limited with the Company during the year ended 31 March 2006 as per the terms of the arrangement approved by the Honorable High Courts of Karnataka and Mumbai.

2) Taken over on amalgamation of McDowell & Co. Limited with the Company during the year ended 31 March 2001 as per the terms of the arrangement approved by the Honorable High Court of Karnataka.

Long-term borrowings

A. Nature of Security and terms of repayment for secured borrowings:

(i) Term loans from banks amounting The loan has been repaid fully to Rs. Nil (2013: Rs. 3,954.0 Million) during the year. are secured by a charge on certain fixed assets of the Company including land and building, pledge of shares held by the USL Benefit Trust and hypothecation of certain trademarks of the Company.

(ii) Term loans from banks amounting The Loan has been repaid fully to Rs.Nil (2013: Rs.4,065.656 Million) during the year. are secured by a charge on certain (Refer note 25 (b)) fixed assets of the Company including land and building, pledge of shares held by the USL Benefit Trust and hypothecation of certain trademarks of the Company.

(iii) Term loans from banks amounting Repayable in 5 annual install- to Rs. 631.274 Million (2013: Rs. ments after three years from 664.500 Million) are secured by a the date of loan (25 October charge on certain fixed assets of the 2010) along with interest of Company. base rate plus 3% (current effective rate is 12.50%)

(iv) Term loans from banks amounting The loan has been repaid fully to Rs. Nil (2013: Rs. 1500.0 Million) during the year. are secured by a charge on certain fixed assets of the Company and fixed asset of a subsidiary company.

(v) Term loans from banks amounting The loan has been repaid fully to Rs. Nil (2013: Rs.2,000.0 Million) during the year. are secured by a charge on certain fixed assets of the Company and pledge of certain shares held by the Company.

(vi) Term loan from banks amounting The loan has been repaid fully to Rs. Nil (2013: Rs.937.500 Million) during the year. are secured by a charge on certain fixed assets of the Company.

(vii) Term loan from banks amounting Repayable in 16 equal quarterly to Rs. 412.500 Million (2013: Rs.Nil) installments, starting 15 months are secured by a charge on certain from the date of first disburse- fixed assets of the Company and ment (3 May 2013) along with pledge of shares held by UB interest base rate plus 2.5% Group entities. (current effective rate is 13.25 %).

(viii)Term loan from banks amounting Repayable end of 3rd year from to Rs.5,000.0 Million (2013: Rs. Nil) the date of first disburse- are secured by a charge on certain ment (3 March 2014) along with fixed assets of the Company. interest of 10.85 %.

(ix) Term loan from banks amounting Repayable in 16 equal quarterly to Rs. 1,145.631 Million (2013: installments, starting 15 months Rs.1,145.631 Million) are secured from the date of first disburse- by a charge on certain fixed assets ment (22 March 2013) along with of the Company and pledge of shares interest base rate plus 3.85% held by UB Group entities. (current effective rate of 14.1%). (x) Term loans from other (financial The loan has been repaid fully institution) amounting to Rs. Nil during the year. (2013: Rs. 500.0 Million) are secured by a charge on certain fixed assets of the Company.

b. Terms of repayment for unsecured borrowings

Borrowings Terms of repayment

i. Long term loan from banks:

(a) amounting to Rs. NIL (2013: The loan has been repaid fully Rs.375.0 Mil-lion) are guaranteed during the year. by a director of the Company.

(b) amounting to Rs.85.555 Million Repayable in 36 equal monthly (2013: Rs.342.223 Million) installments with a moratorium of 1 year from the date of loan (27 August 2010) along with interest base plus 4.75% (current effective rate is 16%).

ii. Fixed Deposits Repayable within 1- 3 years from the date of issue and not on demand or notice except at the discretion of the Company. Rate of interest is 11-11.5%.

iii. Inter-corporate deposits

(a) amounting to Rs.6.522 Million These represent an obligation (2013: Rs.22.174 Million) acquired on amalgamation of erstwhile Shaw Wallace & Company Limited (SWCL) with the Company in an earlier year. Pursuant to the Order of Honorable High court of Calcutta on 5 June 2012, has been directed the Company to pay in monthly installments over the period of two years.

(b) amounting to Rs. Nil (2013: The loan has been repaid fully Rs. 200.0 Million) during the year.

(c) amounting to Rs. Nil (2013: The loan has been repaid fully Rs. 250.0 Million) during the year.

iv. from others Rs.256.718 Million Repayable fully on 25 October 2014 (2013: Rs.Nil) along with interest of 12.40%.

v. from related party Rs.4,624.338 Repayable after expiry of three Million (2013: Rs. Nil) years from the date of disbursment along with interest of 13%.

Short-term borrowings

Nature of security Terms of repayment

(i) Working capital loans are The average rate of interest is secured by hypothecation of 12.40%. inventories, book debts and other current assets.

(ii) Short-term loan from bank The loan has been repaid fully amounting to Rs. Nil (2013: during the year. Rs. 1,500.0 Million) are secured by a charge on certain fixed assets of the Company and pledge of shares held by the UB Group Entities.

(iii) Short-term loan from bank Repayable in 6 months from the date amounting to Rs. 2,400.0 Million of rollover (21 November 2013) along (2013: Rs. 2,400.0 Million) are with interest of 11.75%. secured by a pledge of certain shares held by the Company and UB Group entities.

Trade payables

* Includes bills drawn against inland letters of credit of Rs. 2,301.99 Million (2013: Rs. 2,686.569 Million) and secured by a charge on debtors, inventories and other current assets.

** The year end foreign currency exposures that have not been hedged Rs. 65.887 Million (USD 1.094 Million) [(2013: Rs. 23.569 Million (USD:0.437 Million )] and Rs. 49.246 Million (GBP: 0.495 Million) [(2013: Rs. 2.953 Million (GBP: 0.037 Million)]

Notes:

1. Buildings include an amount of Rs. 357.014 Million (2013: Rs. 357.014 Million) which is yet to be registered in the name of the Company.

2. Cost of buildings includes the following payments made for the purpose of acquiring the right of occupation of Mumbai godown space:

i) 660 equity shares (unquoted) of Rs. 100 each fully paid in Shree Madhu Industrial Estate Limited Rs. 0.066 Million (2013: Rs. 0.066 Million). Application has been made for duplicate share certificates and the same is in the process.

ii) 199, 6 % Debentures (unquoted) of Rs.1,000 each fully paid in Shree Madhu Industrial Estate Limited Rs.0.199 Million (2013: Rs. 0.199 Million). Application has been made for duplicate debentures certificates and the same is in the process.

iii) Deposit with Shree Madhu Industrial Estate Limited Rs.0.132 Million (2013: Rs. 0.132 Million)

3. Cost of buildings include value of fully paid shares Rs.0.006 Million (2013: Rs. 0.006 Million) held in Co-operative Housing Societies.

Note:

1. Investments in Unit Trust of India represent those made under Rule 3A of the Companies (Acceptance of Deposit) Rules,1975.

2. Market quotations are not available.

3. The carrying cost of certain investments amounting to Rs. 1,740.815 Million (2013: Rs. 8,162.555 Million), substantially exceeds the year end net worth and the market value of shares held by the Company directly (includes indirectly through its subsidiaries for the previous year). The management of the Company believes that this reflects intrinsic value far in excess of the carrying cost of investments and that such shortfall in net worth /decline in market value of such shares is purely temporary in nature and, hence no provision is considered necessary for the same.

4. On 11 July 2013 pursuant to the open offer made to the public shareholders of Pioneer Distilleries Limited in terms of Regulations 3(1), 4 and 5(1) of the Regulations of SEBI (Substantial Acquisition of Shares and Takeovers) 2011 by Relay B.V. together with Diageo plc. and the Company as persons acting in concert, 639,185 equity shares were acquired during the year.

5. The Company has pledged the shares held in Pioneer Distilleries Limited (partly), Sovereign Distilleries Limited and United Breweries Limited with banks for the term loan availed.

Long term loans and advances

(a) The above amounts include:

(i) Rs.52,333.490 Million (2013: Rs. 48,833.202 Million) given as interest free loans to subsidiaries.

(ii) due from company secretary Rs. 3.041 Million (2013: Rs. 2.579 Million). Maximum amount outstanding at any time during the year Rs. 3.041 Million (2013: Rs. 2.579 Million).

(iii) due from the directors of the company Rs. 15.055 Million (2013: Rs. 7.250 Million). Maximum amount outstanding at any time during the year Rs. 15.055 Million (2013: Rs. 7.250 Million)

(iv) Rs. 2,581.250 Million (2013: Rs. Nil) paid under trade mark licence agreement.

(v) amount deposited Rs. 350.0 Million (2013: Rs. Nil) in Civil Court, Panjim to establish the proprietary interest it has on the property.

(b) The Company has, granted interest free loans in foreign currency amounting to Rs. 47,928.849 Million (2013: Rs. 41,340.698 Million), to USL Holdings Limited, BVI (USL Holdings) a subsidiary of the Company, for acquisition of long term strategic investments. Management is of the view that out of these loans, Rs. 45,060.887 Million (2013: Rs. 40,417.206 Million), from the inception of the grant of loans, in substance, form part of the Company''s net investment in the subsidiary, as the settlement of these loans is neither planned nor likely to occur in the foreseeable future and management intends to convert these loans into investment in share capital of the subsidiary in near future. Accordingly, in line with AS 11 - The effects of changes in foreign exchange rates (AS 11), exchange difference aggregating to Rs. 9,378.534 Million [2013: Rs. 4,734.854 Million (Credit)] such loans has been accumulated in a foreign currency translation reserve, which at the time of the disposal of the net investment in these subsidiaries would be recognised as income or as expenses. During the current year the company has made a provision of Rs. 36,142.32 Million (2013: Rs. NIL) against the loan after adjusting the amount estimated to be recovered and the accumulated balance in the foreign currency translation reserve.(Refer note no 27(b)).

(c) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are as under :

(i) loans and advances to subsidiaries Rs. 44,206.621 Million (USD 737.890 Million), Rs. 3,893.969 Million (GBP 39.100 Million), Rs. 2,365.550 Million (Euro 28.750 Million) (2013: Rs. 40,215.037 Million (USD 740.890 Million), Rs. 1,322.937 Million (GBP 16.100 Million), Rs. 1,996.688 Million (Euro 28.750 Million).

(ii) Capital advances Rs. 16.433 Million (USD 0.257 Million) (2013: Nil) and Rs.0.095 Million ( Euro: 0.001 Million)

* The Company''s shares held by USL Benefit Trust was pledged in favor of Unit Trust of India Investment Advisory Services Limited, a Security Trustee for Punjab National Bank (PNB) and IDBI Bank Limited (IDBI) for the term loan availed by Company from PNB and IDBI. The loan has been repaid and PNB has issued "No Objection Letter", how- ever IDBI is yet to release the Company''s shares. Writ Petition has been filed by the Company and the same is pending before Honorable High Court of Karnataka.(Also refer note 25(b)).

Defined contribution plans

The Company offers its employees defined contribution plans in the form of Provident fund (PF) and employees'' Pension scheme (EPS) with the Government, Superannuation Fund (SF) and certain state plans such as Employees'' State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and the ESI covers certain workers. Contribution to SF is made to United Breweries Staff Super Annuation Fund, however, the company is in the process of creating its own Trust. Other contributions are made to the Government''s funds. While both the employees and the Company pay predetermined contributions into the Provident fund and the ESI Scheme, contributions into the pension fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain proportion of the employee''s salary.

During the year, the Company has taken group term policy from a insurance company to cover the death benefit of certain category of employees. On the death of employee, a specific amount will be paid by the insurance company to the nominee of the deceased employee as per the grade.

(b) Defined benefit plans Gratuity:

The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee''s last drawn salary and years of employment with the Company. The Company has employees'' gratuity funds managed by the Company as well as by Insurance Companies.

Provident fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Company''s obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

Others (funded)

Notes:

1. The estimates of future increase in compensation levels, considered in the actuarial valuation, have been taken on account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

2. As per the best estimate of the management, contribution of Rs. 523.710 Million is expected to be paid to the plans during the year ending 31 March 2015.

Leases a) Finance lease

The Company has acquired computer equipment and cars on finance leases. The lease agreement is for a primary period of 36 to 48 months for computer equipment and 36 months to 60 months for cars. The company has an option to renew these leases for a secondary period.

b) Operating lease

The Company''s significant leasing arrangements in respect of operating leases for premises (residential, office, stores, godown, manufacturing facilities etc.) and plant and machineries, which includes both cancellable and non cancellable leases and range between 11 months and 3 years generally (or longer in certain cases) and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as rent under note 18 to the accounts.

Segment reporting

The Company is engaged in the business of manufacture, purchase and sale of beverage alcohol (spirits and wines) including through tie-up manufacturing units/ brand franchise, which constitutes a single business segment. The Company is primarily organised into two main geographic segments namely India and outside India. However, the Company''s operations outside India did not exceed the quantitative threshold for disclosure envisaged in AS-17 on "Segment Reporting" notified under the Companies (Accounting Standard) Rules 2006. In view of the above, both primary and secondary reporting disclosures for business / geographical segment as envisaged in AS-17 are not applicable to the Company.

Related party disclosures

(a) Names of related parties and description of relationship Enterprise where there is control

(i) Subsidiary companies:

1) United Spirits Nepal Private Limited (USNPL), 2) Asian Opportunities & Investments Limited (AOIL), 3) Bouvet -Ladubay S.A.S (BL), 4) Chapin Landais S.A.S (CL)A, 5) Palmer Investment Group Limited(PIG), 6) Montrose International SA (MI), 7) UB Sports Management Overseas Ltd (Formerly known as " JIHL Nominees Limited")(UBS MOL)a 8)Shaw Wallace Overseas Limited (SWOL)a, 9) McDowell & Co. (Scotland) Limited (MSL), 10) USL Holdings Limited (USLHL), 11) Royal Challengers Sports Private Limited (RCSPL), 12) USL Holdings (UK) Limited, 13) United Spirits (UK) Limited, 14) United Spirits (Great Britain) Limited, 15) SW Finance Co. Limited (SWFCL)aa, 16) Four Seasons Wines Limited (FSWL), 17) Liquidity Inc., 18) Whyte and Mackay Group Limited, 19) Whyte and Mackay Holdings Ltd, 20) Whyte and Mackay Limited (W&M), 21) Whyte and Mackay Warehousing Limited, 22) Bruce & Company (Leith) Limited, 23) Charles Mackinlay & Company Limited, 24) Dalmore Distillers Limited, 25) Dalmore Whyte & Mackay Limited, 26) Edinburgh Scotch Whisky Company Limited, 27) Ewen & Company Limited, 28) Fettercairn Distillery Limited, 29) Findlater Scotch Whisky Limited, 30) Glayva Liqueur Limited, 31) Glentalla Limited, 32) gps Realisations Limited, 33) Grey Rogers & Company Limited, 34) Hay & MacLeod Limited, 35) Invergordon Distillers (Holdings) Limited, 36) Invergordon Distillers Group Limited, 37) Invergordon Distillers Limited, 38) Invergordon Gin Limited, 39) Isle of Jura Distillery Company Limited, 40) Jarvis Halliday & Company Limited, 41) John E McPherson & Sons Limited, 42) Kensington Distillers Limited, 43) Kyndal Spirits Limited, 44) Leith Distillers Limited, 45) Loch Glass Distilling Company Limited, 46) Longman Distillers Limited, 47) Lycidas (437) Limited, 48) Pentland Bonding Company Limited, 49) Ronald Morrison & Company Limited, 50) st The Sheep Dip Whisky Company Limited, 51) Vincent Street (437) Limited, 52) Tamnavulin-Glenlivet Distillery Company Limited, 53) tdl Realisations Limited, 54) w & S Strong Limited, 55) Watson & Middleton Limited, 56) Wauchope Moodie & Company Limited, 57) Whyte & Mackay Distillers Limited, 58) William Muir Limited, 59) WMB Realisations Limited, 60) Whyte and Mackay Property Limited, 61) Whyte and Mackay de Venezuela CA, 62) KI Trustees Limited, 63) United Spirits (Shanghai) Trading Company Limited 64) Tern Distilleries Private Limited (Tern) 65) Sovereign Distilleries Limited 66) Pioneer Distilleries Limited. 67) Whyte and Mackay Americas Limited 68) Whyte and Mackay Singapore Pte Limited

ii) USL Benefit Trust

No transactions during the year.

** Shaw Wallace Breweries Limited renamed as " SW Finance Co. Limited" W.E.F. 16 January 2013 Associates:

Wine Soc. of India Private Limited

Entities having significant influence over the Company:

i) Diageo Plc. (holding company of Relay B.V.) (with effect from 4 July 2013)

ii) Relav B.V. (with effect from 4 July 2013)

iii) Diageo Scotland Limited (subsidiary of Diageo plc.) (with effect from 4 July 2013)

iv) Diageo India Private Limited (subsidiary of Diageo plc.) (with effect from 4 July 2013)

v) United Breweries (Holdings) Limited (effective upto 3 July 2013)

vi) Kingfisher Finvest India Limited (effective upto 3 July 2013)

Key Management Personnel:

i) Mr Ashok Capoor - Managing Director (effective upto 30 April 2014)

ii) Mr P A Murali - Executive Director and CFO

Employees'' benefit plans where there is significant influence:

Mc Dowell & Company Limited Staff Gratuity Fund (McD SGF), McDowell & Company Limited Officers'' Gratuity Fund (McD OGF), Phipson & Company Limited Management Staff Gratuity Fund. (PCL SGF), Phipson & Company Limited Gratuity Fund. (PCL GF), Carew & Company Ltd. Gratuity Fund (CCL GF), McDowell & Company Limited Provident Fund (McD PF), Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF), Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF), Shaw Wallace & Associated Companies Provident Fund (SWCPF), Balaji Distilleries Employees Gratuity Trust.

* Bank facility

The credit facilities sanctioned by one of the Company''s bankers include a special covenant that needs to be complied by 30 September 2014. On the due date, if the condition remains unsatisfied, the credit facilities will be withdrawn. The fund-based and non fund-based working capital limits available from this bank are Rs. 3,250 Million and Rs. 500 Million respectively. There are ongoing discussions with the bank to address the issue. In any event, the Management believes that the Company is in a position to meet its funding requirement.

* Prepayment of credit facility

During the year ended 31 March 2014, the Company decided to prepay credit facilities availed in the earlier years from a bank amounting to Rs. 6,216.6 Million, secured by assets of the Company and pledge of shares of the Compa- ny held by the USL Benefit Trust. The Company deposited a sum of Rs. 6,280.0 Million including prepayment penalty of Rs. 40 Million with the bank and instructed the bank to debit the amount from the cash credit account towards settlement of the loan and release the assets / shares pledged by the Company. The bank, however, disputed the pre- payment and continues to debit the account towards the installments and interest as per the loan agreement. The Company has disputed the same and a petition is pending before the Honourable High Court of Karnataka. Pending resolution of such dispute with the bank, the loan amount and balance available in cash credit account is presented on net basis in the financial statements as at 31 March 2014. The interest amounting to Rs. 276.03 Million debited by the bank has been disclosed as Contingent Liability under the Miscellaneous claims not acknowledged as debts.

* Subsequent to the balance sheet date, a bank has declared one of the directors of the Company as a willful defaulter in respect of another company where he is a promoter director. The Reserve Bank of India''s Master Circular on Willful Defaulters along with certain covenants in the loan agreements sanctioned by the Company''s bankers raise an uncertainty on the impact of this development on the availability of credit facilities to the Company. The said director has assured the Board that he will take appropriate steps to ensure that the operations of the Company are not impacted. Having received such assurance from the said director and appropriate comfort from the controlling shareholder of the Company, the financial statements have been prepared on a going concern basis.

Provision for doubtful receivable, advances and deposits

(a) Certain parties who had previously given the required undisputed balance confirmations for the year ended 31 March 2013, claimed in their balance confirmations to the Company for the year ended 31 March 2014 that they have advanced certain amounts to certain alleged UB Group entities, and that the dues owed by such parties to the Company will, to the extent of the amounts owing by such alleged UB Group entities to such parties in respect of such advances, be paid / refunded by such parties to the Company only upon receipt of their dues from such alleged UB Group entities. These dues of such parties to the Company are on account of advances by the Company in the earlier years under agreements for enhancing capacity, obtaining exclusivity and lease deposits in relation to Tie-up Manufacturing Units (TMUs); agreements for specific projects; or dues owing to the Company from customers. These dues were duly confirmed by such parties as payable to the Company in such earlier years. However, such parties have now disputed such amounts as mentioned above. Details are as below:

In response to these claims, under the instruction of the Board, a preliminary internal inquiry was initiated by the Management. The results of this inquiry were as follows:

(i) One party (which falls under (a) above), who owes certain amounts to the Company, has disputed an amount of Rs. 2,240.7 Million (including interest claimed by it as due from an alleged UB Group entity), alleging that it had advanced monies to such alleged UB Group entity based on an understanding that, to the extent of the amounts owed to it from such alleged UB Group entity in respect of such advance, it could withhold from the amounts payable by it to the Company, and such party has said that it would not pay its dues to the Company to the extent of the amounts claimed by it from such alleged UB Group entity as mentioned above, unless it received repayment of the amount advanced by it to such alleged UB Group entity along with interest.

(ii) Certain parties (which fall under [(a) and (b)] above), who owe certain amounts to the Company, have disputed an aggregate amount of Rs. 984.5 Million (including interest claimed by them as due from certain alleged UB Group entities), alleging that they had advanced monies to such alleged UB Group entities and that, to the extent of such dues from such alleged UB Group entities, they would not repay the amounts owed by them to the Company unless they received repayment of the amounts advanced by them to such alleged UB Group entities.

(iii) Certain other parties (which fall under [(b) and (c)] above) changed their original stand and acknowledged that their dues from the alleged UB Group entities were based on transactions that were independent of their dealings with the Company. These parties have subsequently provided appropriate confirmations of the relevant balances due from them to the Company. The related balances are Rs. 2,681.8 Million.

(iv) In addition to the above, there is an additional party, being a TMU, whose allegations are on a similar basis to those of the parties mentioned at (iii) above and who has subsequently provided an appropriate confirmation of the balance due from it to the Company. However, this party''s undertaking has closed down and the related balance of Rs. 648.5 Million (including interest) has been provided in the current year.

(v) The claims made in relation to the advances to the parties (including the additional party) mentioned above may indicate that all or some of such amounts may have been improperly advanced from the Company to such parties for, in turn, being advanced to the alleged UB Group entities. The aforesaid, however can only be confirmed by a detailed inquiry which has been authorized by the Board as mentioned below.

(vi) The Company is proposing to more fully inquire into the allegations or claims by the parties in detail and does not acknowledge the correctness of the same. In any event, the Management does not believe that the parties referred to above are entitled to withhold payment / repayment to the Company as claimed by them. The Management further believes that the Company is entitled to recover all the above amounts, including those disputed by certain parties as mentioned in notes (i) and (ii) above, as and when due from these parties. However, the Management has also examined the financial capability of some of these parties, based on which the Management has concluded that the ability of these parties to pay, and consequently the recoverability of, the relevant amounts is doubtful. After considering the above and other considerations and though the above claims were received only when the Company sought balance confirmations from the relevant parties for the year ended 31 March 2014, as a matter of prudence, a provision has been made in the accounts in respect of the dues from these parties (including interest claimed up to the various dates of the balance confirmations from these parties) as detailed below, and as these transactions relate to the period prior to 1 April 2013 they have been reflected as prior period items in the financial statements:

Based on the current knowledge of the Management, the Management believes that the aforesaid provision is adequate and no additional material adjustments are likely to be required in relation to this matter.

As mentioned in Note 26(c), the Board has: (i) directed a detailed and expeditious inquiry into this matter and (ii) authorized the initiation of suitable action and proceedings as considered appropriate by the Managing Director and Chief Executive Officer (MD) for recovering the Company''s dues. Appropriate other action will also be taken commensurate with the outcome of that inquiry.

Pending completion of the inquiry mentioned in note 26(c), the Company is unable to determine whether, on completion of the inquiry, there could be any impact on these financial statements; and these financial statements should be read and construed accordingly.

26(b) Certain pre-existing loans / deposits / advances due to the Company and its wholly-owned subsidiaries from United Breweries (Holdings) Limited (UBHL) which were in existence as on 31 March 2013, had been taken into consideration in the consolidated annual accounts of the Company drawn up as of that date. Pursuant to a previous resolution passed by the board of directors of the Company on 11 October 2012, such dues (together with interest) aggregating to Rs. 13,374 million were consolidated into, and recorded as, an unsecured loan by way of an agreement entered into between the Company and UBHL on 3 July 2013. Further, the amounts owed by UBHL to wholly-owned subsidiaries have been assigned by such subsidiaries to the Company and are recorded as loan from such subsidiaries in the books of the Company. The merger of one of such subsidiaries with the Company is currently under process. The interest rate under the above mentioned loan agreement dated 3 July 2013 is at 9.5% p.a. to be paid at six months intervals starting at the end of 18 months from the effective date of the loan agreement. The loan has been granted for a period of 8 years and is payable in three annual installments commencing from the end of 6th anniversary of the effective date of the loan agreement.

Certain lenders have filed petitions for winding up against UBHL. UBHL has provided guarantees to lenders and other vendors of Kingfisher Airlines Limited (KFA), a UB Group entity. Most of these guarantees have been invoked and are being challenged in Courts. The Company has also filed its affidavit opposing the aforesaid winding up petitions and the matter is sub-judice.

The Management has performed an assessment of the recoverability of the loan and has reviewed valuation reports in relation to UBHL prepared by reputed independent valuers that were commissioned by UBHL, and shared by UBHL with the Company. As a result of the abovementioned assessment and review by the Management, in accordance with the recommendation of the Management, the Company, as a matter of prudence, has not recognized interest income of Rs. 963.069 million and has provided Rs. 3,303.186 million towards the principal outstanding as at 31 March 2014. The Management believes that it should be able to recover, and no further provision is required for the balance amount of Rs. 9,956.806 million, though the Company will attempt to recover the entire amount of Rs. 14,223.061 million. However, the Management will continue to assess the recoverability of the said loan on an ongoing basis.

* The Board has directed a detailed and expeditious inquiry in relation to the matters stated in Notes 26(a), 26(b) and 30(f), the possible existence of any other transaction of a similar nature; the role of individuals involved; and potential non-compliance (if any) with the provisions of the Companies Act, 1956 and other regulations applicable to the Company in relation to such transactions. The Board has directed the Managing Director ("MD") to engage independent advisers and specialists as required for the inquiry. The Board has also authorized the MD to take suitable action and proceedings as considered appropriate by him for recovering the Company''s dues. Appropriate other action will also be taken commensurate with the outcome of that inquiry. On the basis of the knowledge and information of the Management, the Management believes that no additional material adjustments to the financial statements are likely to be required in relation to the matters mentioned above in this note. However, pending completion of the detailed inquiry mentioned above, the Company is unable to determine the impact on the financial statements (if any), on completion of such detailed inquiry, and these financial results should be read and construed accordingly.

* During the year, on 8 November 2013, the Board of Directors have approved the scheme of arrangement between United Spirits Limited and Enrica Enterprises Private Limited (''Enrica'') and its shareholders and creditors as the case may be (''the Scheme'') in respect of transfer of undertaking of the Company in Tamil Nadu by way of slump sale on a going concern basis under Section 391 read with Section 394 of the Companies Act, 1956 with Appointed Date of 1 April 2013. The Scheme has been approved by the Equity Shareholders, Secured Creditors and Unsecured Creditors at their Court convened meeting held on 16 June 2014. The relevant Petition have been filed before the respective jurisdictional High Courts by the Company and Enrica and awaiting for their approval.

The Company has also entered into a Franchise Agreement with Enrica which prescribes a royalty payment to the Company for grant of manufacturing, marketing, distribution and sale rights to Enrica in defined territories. From the Appointed Date up to the Effective Date, the royalty payable shall be a fixed amount per case or the Franchisee''s profit (before tax and royalty) in respect of the franchised products, whichever is lower. Subsequent to the Effective Date royalty at net sales realization linked slab rate will accrue to the Company as per the Franchise Agreement.

Subsequent to the Balance Sheet date, as per the explanatory statement dated 9 May 2014 sent to the members,

(i) Further to Diageo plc''s undertakings offered to UK''s Office of Fair Trade (now called Competition and Markets Au- thority, UK), in January 2014, the Company''s Board of Directors decided to initiate a process based on the outlined time-table provided in connection with the decision of the OFT to explore a potential sale of all or part of Whyte and Mackay. As a culmination of this process, subsequent to the year end, on 9 May 2014 the Company''s wholly owned subsidiary, United Spirits (Great Britain) Limited (seller or USGBL) entered into a Share Sale and Purchase agreement (SPA) with Emperador UK Limited and Emperador Inc. in relation to the sale of the entire issued share capital of Whyte and Mackay Group Limited (WMG) for an Enterprise Value of £430 Million (calculated with a normalized level of work- ing capital) from which deduction has been made for the payment of a warranty and indemnity insurance premium of £0.85 Million agreed between the seller and the purchaser. The Company has also obtained an opinion from a leading merchant banker and considers that the Enterprise Value is fair from a financial point of view of the Company.

(ii) The aggregate consideration for the sale of share capital of WMG payable to USGBL is approximately £429.15 Million ("Aggregate Consideration"), which is subject to adjustments following completion of the sale pursuant to the terms of the SPA ("Completion") reflecting : (a) movements in net working capital (above or below a pre-agreed threshold), net indebtedness and cash of the WMG between signing and Completion; and (b) an agreed sum of £ 19.2 Million in relation to the defined pension scheme deficit, net of pensions contributions for the period commencing 1 April 2014 ("Completion Accounts"). Further, the seller has given warranties and indemnities which are customary for a transac- tion of this nature and these are not currently expected to have any financial implication and will be reassessed at each reporting date.

(iii) The financial closure of the proposed transaction as contemplated by the terms of the SPA (as may be amended and modified from time to time), is subject to satisfaction of certain conditions precedent.

(iv) The equity shareholders of the Company have approved the proposed sale of WMG by USGBL. The Company has filed an application with Reserve Bank of India (through authorized dealer of the Company) for approval. Further to the signing of the SPA, the following provisions have been recorded as an exceptional item.

Scheme of amalgamations

During the current year, the Board of Directors at their meeting held on 8 January 2014, have approved the amalgamation of:

i) Tern Distilleries Private Limited, a wholly owned subsidiary of the Company (TERN) with the Company pursuant to a Draft Rehabilitation Scheme and applicable provisions of Sick Industrial Companies (Special Provisions) Act, 1985 with the appointed date 1 April 2013 (TERN Scheme). The entire operations of TERN comprise transactions with the Company. The net impact on the financial statements of the Company from such amalgamation is expected to be insignificant when effected. The equity shareholders of the Company have approved the TERN Scheme at their Extraordinary General Meeting held on 18 March 2014 and the approval by the Board For Industrial and Financial Reconstruction (BIFR) is in progress. Pending approval of the TERN Scheme, no effect has been given in the financial statement. A summary of statement of profit and loss and the statement of assets and liabilities of TERN for the year ended 31 March 2014 is as below:

ii) SW Finance Co. Limited (SWFCL), a wholly owned subsidiary of the Company with the Company with the appointed date 1 January 2014 (SWFCL Scheme) pursuant to the applicable provisions of the Companies Act, 1956, and sub- ject to the sanction of the Hon''ble jurisdictional High Courts/any such competent authority. The accounting for the above amalgamation shall be done upon receiving the necessary sanctions / approval from various regulatory au- thorities including the Registrar of Companies. Upon the SWFCL Scheme becoming effective, the SWFCL will stand merged with the Company. Pending approval of the SWFCL Scheme, no effect has been given in the financial state- ment. The operations of SWFCL are predominetly with the Company. The net impact on the financial statements of the Company from such operations is expected to be immaterial when effected. A summary of statement of profit and loss and the statement of assets and liabilities of SWFCL for the year ending 31 March 2014 is as below:

Capital and other commitments

a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advanc- es) Rs. 284.990 Million (2013: Rs. 403.793 Million).

(b) Other commitments relating to advertisement, sales promotion and trade mark fee Rs. 8,393.593 Million (2013: Rs. 1383.516 Million).

(c) The Company has also given letter of support to Sovereign Distilleries Limited and Pioneer Distilleries Limited to conduct their operations in such a manner as to enable to meet its obligations.

Contingent liabilities

Rs. Million As at As at 31-March-2014 31-March-2013

(a) (i) Guarantee given on behalf of other bodies corporate 2,179.275 43,192.010

(ii) Guarantees given by the Company''s bankers for which counter guarantees have been given by the Company. 259.344 305.063

(b) Disputed claims against the Company not acknowledged as debts, currently under appeal / sub judice:

(i) State Excise demands for excess wastages and distillation losses 221.536 268.408

(ii) Central Excise demands under appeal 6.534 32.650

(iii) Service tax demands under appeal 233.384 693.725

(iv) Other miscellaneous claims [Refer note 25(b)] 744.376 231.941

(v) Income tax demand (including interest) under appeal 2,361.363 668.546

(vi) Sales tax demands under appeal in various states 547.373 792.075

(c) Bills receivables discounted 426.307 897.126

(d) Co-accepted bills of Tie-up units 349.832 509.757

(e) Claims from suppliers not acknowledged as debts 96.010 83.257

The Management is hopeful of succeeding in the above appeals / disputes based on legal opinions / legal precedents.

(f) Subsequent to the balance sheet date, the Company received a letter dated 5 May 2014 from the lawyers of an entity (Alleged Claimant) alleging that it had given loans amounting to Rs.2,000 Million to KFA at an interest rate of 15% p.a. purportedly on the basis of agreements executed in December 2011 and January 2012. This matter came to the knowledge of the Board for the first time only after the Management informed the Board of the letter dated 5 May 2014. The letter alleges that amongst several obligations under these purported agreements, certain investments held by the Company were subject to a lien, and requires the Company, pending the repayment of the said loan, to pledge such investments in favour of the Alleged Claimant to secure the aforesaid loans. The Company has responded to this letter received from the lawyers of the Alleged Claimant vide its letter dated 3 June 2014, wherein the Company has disputed the claim and denied having created the alleged security or having executed any document in favour of the Alleged Claimant. The Company has reiterated its stand vide a follow-up letter dated 28 July 2014 and has asked for copies of purported documents referred to in the letter dated 5 May 2014. Subsequent to the above, the Company has received a letter dated 31 July 2014 from the Alleged Claimant stating that in light of certain addendums to the aforesaid purported agreements (which had inadvertently not been informed to their lawyers) the Alleged Claimant has no claim or demand of any nature whatsoever against inter alia the Company, including any claim or demand arising out of or connected with the documents / agreements referred to their lawyer''s letter dated 5 May 2014. The Company has replied to the Alleged Claimant vide a letter dated 6 August 2014, noting the above mentioned confirmation of there being no claim or demand against the Company, and asking the Alleged Claimant to immediately provide to the Company all the alleged documents referred to in the letter dated 5 May 2014 and the addendum referred to in the letter dated 31 July 2014, and to also confirm the identity and capacity of the signatory to the letter dated 31 July 2014.

Subsequently, in September 2014, the Company obtained scanned copies of the purported agreements (including the purported power of attorney) and various communications between KFA and the Alleged Claimant. These documents indicate that while the purported agreements may have sought to create a lien on certain investments of the Company, subsequently, the Alleged Claimant and KFA sought to negotiate the release of the purported obligation to create such lien, which was formalised vide a second addendum in September 2012.

The Management has verified from a perusal of the minutes of meetings of the board of directors of the Company that the board of directors of the Company at the relevant time had not approved or ratified any such purported agreement. The Management has represented to the Board that till the receipt of scanned copies of the purported agreements in September 2014, the Company had no knowledge of these purported agreements. The Management, based on legal advice received, does not expect any liability or obligation to arise on the Company out of these purported agreements.

Tie-up manufacturing arrangement:

The Company has entered into arrangements with certain distilleries and bottling units (Tie-up units) for manufac- ture and marketing of its own brands. The Tie-up units have necessary license and regulatory permits to manufacture beverage alcohol. The arrangements stipulates the obligations of each party and the entire manufacturing activity is carried out under the close supervision of the Company executives. It is the responsibility of the Company to Market its products and ensure adequate finance to the tie-up units for its operations. The risk and reward of the activity lies with the Company. In the circumstances, it is considered appropriate to disclose the following information (Unaudited), as applicable to such activities.

Appointment of CEO and Managing Director

Subsequent to the balance sheet date, Board of directors of the Company at is meeting held on 14 August 2014 have appointed Mr. Anand Kripalu as the Managing Director & Chief Executive Officer of the Company, subject to the share- holders'' approval with effect from 14 August 2014.


Mar 31, 2013

1. (a) Defined Contribution Plans

The Company offers its employees defined contribution plans in the form of Provident Fund (PF) and Employees'' Pension Scheme (EPS) with the government, Superannuation Fund (SF) and certain state plans such as Employees'' State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and the ESI covers certain workers. Contribution to SF is made to trust managed by the Company, while other contributions are made to the Government''s funds. While both the employees and the Company pay predetermined contributions into the provident fund and the ESI Scheme, contributions into the pension fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain proportion of the employee''s salary.

(b) Defined Benefit Plans Gratuity:

The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee''s last drawn salary and years of employment with the Company. The Company has employees'' gratuity funds managed by the Company as well as by Insurance Companies.

Provident Fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Company''s obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

Death Benefit:

The Company provides for Death Benefit, a defined benefit plan (the Death Benefit Plan), to certain categories of employees. The Death Benefit Plan provides a lump sum payment to vested employees, on death, of an amount based on the respective employee''s last drawn salary and remaining years of employment with the Company after adjustments for any compensation received from the insurance company and restricted to limits set forth in the said plan. The Death Benefit Plan is Non-Funded.

2. Leases

a) Finance Lease

The Company has acquired computer equipment and cars on finance leases. The lease agreement is for a primary period of 36 to 48 months for computer equipment and 36 months to 60 months for cars. The Company has an option to renew these leases for a secondary period.

b) Operating Lease

The Company''s significant leasing arrangements in respect of operating leases for premises (residential, office, stores, godown, manufacturing facilities etc) and plant and machineries, which includes both cancellable and non cancellable leases and range between 11 months and 3 years generally (or longer in certain cases) and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as Rent under Note 18 to the accounts.

Leasing arrangements entered into prior to April 1, 2001 have not been considered for treatment under AS 19 ''Accounting for Leases''.

3. Segment Reporting

The Company is engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines) including through Tie-up Manufacturing units/ brand franchise,which constitutes a single business segment. The Company is primarily organised into two main geographic segments namely India and Outside India. However, the Company''s operations outside India did not exceed the quantitative threshold for disclosure envisaged in AS-17 on "Segment Reporting" notified under the Companies (Accounting Standard) Rules 2006. In view of the above, both primary and secondary reporting disclosures for business/geographical segment as envisaged in AS-17 are not applicable to the Company.

4 Related Party Disclosures

(a) Names of related parties and description of relationship Enterprise where there is control

(i) Subsidiary Companies:

1) United Spirits Nepal Private Limited (USNPL), 2) Asian Opportunities & Investment Limited (AOIL), 3) Bouvet -Ladubay S.A.S (BL), 4) Chapin Landais S.A.S (CL)A, 5) Palmer Investment Group Limited(PIG)A, 6) Montrose International SA (MI)a, 7) UB Sports Management Overseas Limited (UBSMOL) [Formerly known as JIHL Nominees Limited (JIHL)]a, 8) RG Shaw & Company Limited (RGSC)aaa, 9) Shaw Darby & Company Limited (SDC)aaa, 10) Shaw Scott & Company Ltd (SSC)aaa, 11) Thames Rice Milling Company Limited (TRMCL)aaa, 12) Shaw Wallace Overseas Limited (SWOL)a, 13) McDowell (Scotland) Limited (MSL), 14) USL Holdings Limited (USLHL), 15) Royal Challengers Sports Private Limited (RCSPL), 16) USL Holdings (UK) Limited, 17) United Spirits (UK) LimitedA, 18) United Spirits (Great Britain) LimitedA, 19) SW Finance Co. Limited (SWFCL)aa, 20) Ramanreti Investment & Trading Limited (RITL)aaa, 21) Daffodils Fragrance and Flavours Private Limited (DFFPL)aaa, 22) Four Seasons Wines Limited (FSWL), 23) United Vintners Limited (UVL)aaa, 24) United Alcobev Limited (UAL)aaa , 25) McDowell Beverages Limited (MBL)aaa, 26) McDowell & Company LimitedAAA, 27) Jasmine Flavours and Fragrances LimitedAAA, 28) Liquidity Inc, 29) Whyte and Mackay Group LimitedA, 30) Whyte and Mackay Holdings LtdA, 31) Whyte and Mackay Limited (W&M), 32) Whyte and Mackay Warehousing LimitedA, 33) Bruce & Company (Leith) LimitedA, 34) Charles Mackinlay & Company LimitedA, 35) Dalmore Distillers LimitedA, 36) Dalmore Whyte & Mackay LimitedA, 37) Edinburgh Scotch Whisky Company LimitedA, 38) Ewen & Company LimitedA, 39) Fettercairn Distillery LimitedA, 40) Findlater Scotch Whisky LimitedA, 41) Glayva Liqueur LimitedA, 42) Glentalla LimitedA, 43) gps Realisations LimitedA, 44) Grey Rogers & Company LimitedA, 45) Hay & MacLeod LimitedA, 46) Invergordon Distillers (Holdings) LimitedA, 47) Invergordon Distillers Group LimitedA, 48) Invergordon Distillers LimitedA, 49) Invergordon Gin LimitedA, 50) Isle of Jura Distillery Company LimitedA, 51) Jarvis Halliday & Company LimitedA, 52) John E McPherson & Sons LimitedA, 53) Kensington Distillers LimitedA, 54) Kyndal Spirits LimitedA, 55) Leith Distillers LimitedA, 56) Loch Glass Distilling Company LimitedA, 57) Longman Distillers LimitedA, 58) Lycidas (437) LimitedA, 59) Pentland Bonding Company LimitedA, 60) Ronald Morrison & Company LimitedA, 61) st The Sheep Dip Whisky Company LimitedA, 62) Vincent Street (437) LimitedA, 63) Tamnavulin-Glenlivet Distillery Company LimitedA, 64) TdL Realisations LimitedA, 65) w & S Strong LimitedA, 66) Watson & Middleton LimitedA, 67) Wauchope Moodie & Company LimitedA, 68) Whyte & Mackay Distillers LimitedA, 69) William Muir LimitedA, 70) WMB Realisations LimitedA, 71) Whyte and Mackay Property LimitedA, 72) Whyte and Mackay de Venezuela CAa, 73) KI Trustees LimitedA, 74) usl Shanghai Trading Company LimitedA 75) Tern Distillery Private Limited(Tern) 76) Sovereign Distilleries Limited 77) Pioneer Distilleries Limited. 78) Whyte and Mackay Americas Limited 79) Whyte and Mackay Singapore* 80) BDL Distilleries Private Ltd.AAA

ii) USL Benefit Trust

* Became a subsidiary during the year. a No transactions during the year.

aa Shaw Wallace Breweries Limited renamed as " SW Finance Co. Limited" W.E.F. January 16, 2013 aaa Ceased to be subsidiary during the year

Associates:

Wine Soc. of India Private LimitedA

Promoter Holding together with its Subsidiary is more than 20%.

United Breweries (Holdings) Limited

a No transactions during the year.

Key Management personnel:

Mr Ashok Capoor

Employees'' Benefit Plans where there is significant influence:

Mc Dowell & Company Limited Staff Gratuity Fund (McD SGF), McDowell & Company Limited Officers'' Gratuity Fund (McD OGF), Phipson & Company Limited Management Staff Gratuity Fund. (PCL SGF), Phipson & Company Limited Gratuity Fund. (PCL GF), Carew & Company Ltd. Gratuity Fund (CCL GF), McDowell & Company Limited Provident Fund (McD PF), Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF), Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF), Shaw Wallace & Co. Associated Companies Provident Fund (SWCPF), Balaji Distilleries Employees Gratuity Trust.

5. During the year :

a) Palmer Investment Group Limited and UB Sports Management Overseas Limited (both wholly owned subsidiaries of the Company), USL Benefit Trust (of which the Company is a beneficiary), SWEW Benefit Company, United Breweries (Holdings) Limited and Kingfisher Finvest India Limited (both promoters of the Company) had executed to a Share Purchase Agreement, with Relay B.V. and Diageo PLC, on November 9, 2012, for the sale of 25, 226,839 equity shares constituting approximately 19.29% of the present paid up equity share capital of the Company and approximately 17.36% of the paid up equity share capital of the Company following the preferential allotment referred to in paragraph (b) below, at a price of Rs. 1,440/- per equity share.

b) Simultaneously with the execution of the Share Purchase Agreement, a Preferential Allotment Agreement between Relay B.V. the Company and Diageo PLC has been entered with, for issue of 14,532,775 equity shares of face value of Rs.10/- of the Company, each constituting 10% of the post-issue equity share capital of the Company to Relay B.V. an indirect wholly owned subsidiary of Diageo PLC on a preferential allotment basis at a price of Rs.1,440 per equity share.

c) The consummation of the transaction referred to above are subject to various conditions precedent, including receipt of approval from the Competition Commission of India and in case of the preferential allotment, approval of the shareholders of the Company by way of a special resolution through postal ballot. Shareholder approval to the preferential allotment and approval from the Competition Commission of India has since been received.

d) As a consequence, inter alia, of the transactions referred to in (a) and (b) above, Relay B.V., acting through JM Financial Institutional Securities Private Limited, has made an open offer which commenced on April 10, 2013 and ended on May 13, 2013, to acquire up to 37,785,214 equity shares from the public shareholders of the Company pursuant to Regulation 3(1) and 4 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Relay B.V., has acquired 58,668 equity shares constituting 0.04% of paid up capital of the Company pursuant to the open offer.

6. The Company has directly advanced loans and provided a deposit to a group company and one of its wholly owned subsidiary has further advanced loans to this entity. The amounts recoverable from the group company and the investment and loan to said subsidiary aggregate to Rs.11,554.77 million as at March 31, 2013. The group company has assets with significant market value and has a track record of disposing off assets, if required to settle its dues. The group company has currently provided significant corporate guarantees to lenders and other vendors of its related party, of which certain corporate guarantees have been invoked and are currently being challenged at appropriate forums. The Management is reasonably confident that no material liability, if any, would eventually devolve upon the group company and based on the assets it owns and future business prospects, the Company will be able to recover the amounts stated above, as per the agreed terms and that no provision is considered necessary for these amounts as at 31 March 2013.

7. Capital and other commitments

(a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs.403.793 Million (2012: Rs. 341.114 Million).

(b) Other commitments relating to Advertisement and Sales Promotion Rs.1,383.516 Million (2012: Rs. 523.950 Million).

8. Contingent Liabilities

Rs. Million

2013 2012

(a) (i) Guarantee given on behalf of other bodies corporate 43,192.010 43,470.560

(ii) Guarantees given by the Company''s bankers for which Counter Guarantees have been given by the Company 305.063 456.828

(b) Disputed claims against the Company not acknowledged as debts, currently under appeal/ subjudice:

(i) Excise and Service tax demands for excess wastages and distillation losses 992.911 286.899

(ii) Other miscellaneous claims 231.941 252.063

(iii) Income Tax demand (including interest) under appeal 668.546 723.113

(iv) Sales Tax demands under appeal in various states 792.075 726.507

(c) Bills Receivables discounted - since fully settled 897.126 880.319

(d) Claims from suppliers not acknowledged as debts 83.257 87.044

The Management is hopeful of succeeding in the above appeals/ disputes based on legal opinions/ legal precedents.

9. Previous year''s figures have been regrouped / rearranged wherever necessary.


Mar 31, 2012

1. Leases

a) Finance Lease

The Company has acquired computer equipments and cars on finance leases. The lease agreements are for a primary period of 36 to 48 months for computer equipments and 36 to 60 months for cars. The Company has an option to renew these leases for a secondary period.

b) Operating Lease

The Company's significant leasing arrangements in respect of operating leases for premises (residential, office, stores, godown, manufacturing facilities etc) and plant and machineries, which includes both cancellable and non cancellable leases and range between 11 months and 3 years generally (or longer in certain cases) and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as Rent under Note 18 to the accounts.

Leasing arrangements entered into prior to April 1, 2001 have not been considered for treatment under AS 19 'Accounting for Leases'.

2. Segment Reporting

The Company is engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines) including through Tie-up units/ brand franchise, which constitutes a single business segment. The Company's operations outside India did not exceed the quantitative threshold for disclosure envisaged in AS 17 on 'Segment Reporting' specified in the Companies (Accounting Standard) Rules 2006. In view of the above, primary and secondary reporting disclosures for business/geographical segment as envisaged in AS-17 are not applicable to the Company.

3 Related Party Disclosures

(a) Names of related parties and description of relationship Enterprise where there is control (i) Subsidiary Companies:

1) United Spirits Nepal Private Limited (USNPL), 2) Asian Opportunities & Investment Limited (AOIL), 3) Bouvet -Ladubay S.A.S (BL)^, 4) Chapin Landais S.A.S (CL)^, 5) Palmer Investment Group Limited(PIG)^, 6) Montrose International SA (MI)^, 7) JIHL Nominees Limited (JIHL)^, 8) RG Shaw & Company Limited (RGSC)^, 9) Shaw Darby & Company Limited (SDC)^, 10) Shaw Scott & Company Ltd (SSC)^, 11) Thames Rice Milling Company Limited (TRMCL)^, 12) Shaw Wallace Overseas Limited (SWOL)^, 13) McDowell (Scotland) Limited (MSL), 14) USL Holdings Limited (USLHL), 15) Royal Challengers Sports Private Limited (RCSPL), 16) USL Holdings (UK) Limited, 17) United Spirits (UK) Limited^, 18) United Spirits (Great Britain) Limited^, 19) Shaw Wallace Breweries Limited (SWBL), 20) Ramanreti Investment & Trading Limited (RITL)^, 21) Daffodils Fragrance and Flavours Private Limited (DFFPL), 22) Four Seasons Wines Limited (FSWL), 23) United Vintners Limited (UVL), 24) United Alcobev Limited (UAL) , 25) McDowell Beverages Limited (MBL), 26) McDowell & Company Limited, 27) Jasmine Flavours and Fragrances Limited, 28) Liquidity Inc, 29) Whyte and Mackay Group Limited^, 30) Whyte and Mackay Holdings Ltd^, 31) Whyte and Mackay Limited (W&M), 32) Whyte and Mackay Warehousing Limited^, 33) Bruce & Company (Leith) Limited^, 34) Charles Mackinlay & Company Limited^, 35) Dalmore Distillers Limited^, 36) Dalmore Whyte & Mackay Limited^, 37) Edinburgh Scotch Whisky Company Limited^, 38) Ewen & Company Limited^, 39) Fettercairn Distillery Limited^, 40) Findlater Scotch Whisky Limited^, 41) Glayva Liqueur Limited^, 42) Glentalla Limited^, 43) GPS Realisations Limited^, 44) Grey Rogers & Company Limited^, 45) Hay & MacLeod Limited^, 46) Invergordon Distillers (Holdings) Limited^, 47) Invergordon Distillers Group Limited^, 48) Invergordon Distillers Limited^, 49) Invergordon Gin Limited^, 50) Isle of Jura Distillery Company Limited^, 51) Jarvis Halliday & Company Limited^, 52) John E McPherson & Sons Limited^, 53) Kensington Distillers Limited^, 54) Kyndal Spirits Limited^, 55) Leith Distillers Limited^, 56) Loch Glass Distilling Company Limited^, 57) Longman Distillers Limited^, 58) Lycidas (437) Limited^, 59) Pentland Bonding Company Limited^, 60) Ronald Morrison & Company Limited^, 61) St The Sheep Dip Whisky Company Limited^, 62) Vincent Street (437) Limited^, 63) Tamnavulin-Glenlivet Distillery Company Limited^, 64) TDL Realisations Limited^, 65) W & S Strong Limited^, 66) Watson & Middleton Limited^, 67) Wauchope Moodie & Company Limited^, 68) Whyte & Mackay Distillers Limited^, 69) William Muir Limited^, 70) WMB Realisations Limited^, 71) Whyte and Mackay Property Limited^, 72) Whyte and Mackay de Venezuela CA^, 73) KI Trustees Limited^, 74) USL Shanghai Trading Company Limited^ 75) Tern Distillery Private Limited(Tern) 76) Sovereign Distilleries Limited* 77) Pioneer Distilleries Limited*. 78) Whyte and Mackay Americas Limited*

ii) USL Benefit Trust

* Became a subsidiary during the year. ^ No transactions during the year.

Associates:

Wine Soc. of India Private Limited^

Promoter Holding together with its Subsidiary is more than 20%.

United Breweries (Holdings) Limited

^ No transactions during the year.

Key Management personnel:

a) Mr V K Rekhi - April 01, 2011 to April 18, 2011

b) Mr Ashok Capoor - May 02, 2011 onwards

Employees' Benefit Plans where there is significant influence:

Mc Dowell & Company Limited Staff Gratuity Fund (McD SGF), McDowell & Company Limited Officers' Gratuity Fund (McD OGF), Phipson & Company Limited Management Staff Gratuity Fund. (PCL SGF), Phipson & Company Limited Gratuity Fund. (PCL GF), Carew & Company Ltd. Gratuity Fund (CCL GF), McDowell & Company Limited Provident Fund (McD PF), Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF), Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF), Shaw Wallace & Co. Associated Companies Provident Fund (SWCPF), Balaji Distilleries Employees Gratuity Trust.

4. Capital and other commitments

(a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs.341.114 Million (2011: Rs.351.264 Million).

(b) Other Commitments relating to Advertisement and Sales Promotion as on March 31, 2012 - Rs.523.950 Million.

5. Contingent Liabilities

Rs Million 2012 2011

(a) (i) Guarantee given on behalf of other bodies corporate. 43,470.560 4,460.000 (ii) Guarantees given by the Company's bankers for which Counter Guarantees have been given by the Company. 456.828 217.832

(b) Disputed claims against the Company not acknowledged as debts, currently under appeal/ sub judice:

(i) Excise demands for excess wastages and distillation losses 286.899 235.001

(ii) Other miscellaneous claims 252.063 185.212

(iii) Income Tax demand (including interest) under appeal 723.113 516.221

(iv) Sales Tax demands under appeal in various states 726.507 704.693

(c) Bills Receivables discounted - since fully settled 880.319 746.215

(d) Claims from suppliers not acknowledged as debts 87.044 74.417

The Management is hopeful of succeeding in the above appeals/ disputes based on legal opinions/ legal precedents.

6. Previous Years Figures

The financial statements for the year ended March 31, 2011 had been prepared as per the then applicable, pre-revised Schedule VI to the Companies Act, 1956. Consequent to the notification of Revised Schedule VI under the Compa- nies Act, 1956, the financial statements for the year ended March 31,2012 are prepared as per Revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year's classification. The adoption of Revised Schedule VI for previous year figures does not impact recognition and measurement principles followed for preparation of financial statements. Previous years financial statements were audited by another firm of Chartered Accountants.


Mar 31, 2011

1. Contingent Liabilities

Rs. Million

2011 2010

a) (i) Guarantee given on behalf of other bodies corporate (including performance guarantees) 4,460.000 -

(ii) Guarantees given by the Company's bankers for which Counter Guarantees have been given by the Company 217.832 172.335

b) Disputed claims against the Company not acknowledged as debts, currently under appeal/ sub judice:

(i) Excise demands for excess wastages and distillation losses 235.001 190.338

(ii) Other miscellaneous claims 185.212 250.475

(iii) Income Tax demand (including interest) under appeal 516.221 452.575

(iv) Sales Tax demands under appeal in various states 704.693 557.912

c) Bills Receivables discounted - since fully settled 746.215 480.150

d) Claims from suppliers not acknowledged as debts 74.417 57.511

The Management is hopeful of succeeding in the above appeals/ disputes based on legal opinions/ legal precedents.

2. A. The rehabilitation scheme inter alia containing the scheme of arrangement between Balaji Distilleries Limited

(BDL), Chennai Breweries Private Limited ('CBPL') and the Company (the Scheme) and their respective shareholders and creditors with April 01, 2009 as the appointed date has been approved by the Honourable Appellate Authority for Industrial and Financial Reconstruction (AAIFR), vide its order dated November 29, 2010. Upon necessary filing with the Registrar of Companies, the scheme has become effective on December 27, 2010 and the effect thereof have been given in these accounts. Consequently,

a) In terms of the Scheme the entire business and undertaking of BDL, as a going concern (post transfer of the brewery division undertaking to its wholly owned subsidiary CBPL) ("Balaji") stand transferred to and vested in the Company with effect from April 1, 2009 being the Merger Appointed Date.

b) In consideration of the amalgamation, the Company has issued 5,200,639 equity shares of Rs. 10/- each aggregating to Rs. 52.006 Million in the ratio of 2 (Two) fully paid up Equity shares of the face value of Rs. 10/- each of the Company for every 55 (Fifty Five) fully paid up equity shares of Rs. 10/- each held in BDL.

(I) Pursuant to the scheme, the Authorised share capital of the Company stands increased and reclassified, without any further act or deed on the part of the company, including payment of stamp duty and Registrar of Companies fees, by Rs. 2,250.000 Million, being the authorised share capital of the transferor company, and Memorandum of Association and Articles of Association of the Company stand amended accordingly without any further act or deed on the part of the company.

(II) Accounting for Amalgamation :

The amalgamation of the Transferor Companies with the Company is accounted for on the basis of the Purchase Method as envisaged in the Accounting Standard (AS) -14 on Accounting for Amalgamations specified in the Companies (Accounting Standard) Rules 2006 and in terms of the scheme, as below,

a) All tangible asset and liabilities of the BDL at their respective Fair Values.

b) Rs. 325.404 Million being the difference between the value of net assets of the Transferor Companies transferred to the Company (determined as stated above) and the face value of equity shares allotted in BDL is adjusted to General Reserve of the Company. This accounting treatment of the reserve has been prescribed in the Scheme and approved by AAIFR. Had the scheme not prescribed this treatment, this amount would have been debited to Goodwill, which would have been charged to the profit & loss account as per the accounting policy of the Company having corresponding impact on the results for the year ended March 31,2011.

d) Pursuant to the Scheme, the bank accounts, agreements, licences and certain immovable properties are in the process of being transferred in the name of the Company.

B. The Board of Directors of the erstwhile Central Distilleries & Breweries Limited (CDBL) (amalgamated with erstwhile Shaw Wallace Distilleries Ltd. , which was amalgamated with the Company in an earlier year) on April 29, 1986 decided to issue 134,700 Equity Shares of Rs. 10 each, the allotment whereof was stayed by the Hon'ble High Court of Delhi on September 13,1988. The Hon'ble High Court of Delhi had vacated its order and has ordered to keep in abeyance the allotment on 72,556 shares and the matter is sub-judice. The holders, in exchange of these shares will be entitled to 17,776 equity shares of Rs. 10 each of the Company pursuant to a Scheme of Arrangement. Necessary adjustments in this respect will be carried out on disposal of the matter pending before the aforesaid Court.

3. Fixed Assets

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs. 351.264 Million (2010: Rs. 83.709 Million).

4. Current Assets, Loans and Advances

a) Loans and Advances include:

i) Rs. 39,825.429 Million (2010: Rs. 44,262.147 Million) given as interest free loans to subsidiaries.

ii) An amount of Rs. 498.991 Million (2010: Rs. 733.982 Million) due from the Tie-up units secured by the assets of the Tie-up unit and/or equity shares of the Tie-up unit.

iii) Rs. 3 Million (2010: Rs. 3 Million) being amount paid to BDA Limited (BDA) towards reassignment of certain Liquor Brands/ Trade Marks pursuant to a Memorandum of Understanding dated March 20, 1992. Pending execution of the deed for such assignments and judicial resolutions of various disputes with BDA pertaining to control of BDA and ownership of the 'Officers Choice' and other brands currently sub-judice at various courts, the advance given to BDA has been provided for as a matter of prudence. All consequential adjustments arising out of the above matters will be made as and when ascertained.

iv) Due from an Officer of the Company Rs. 1.777 Million (2010: Rs. 1.407 Million). Maximum amount outstanding at any time during the year Rs. 1.777 Million (2010: Rs. 1.407 Million).

v) Due from the Managing Director of the Company Rs. 3.799 Million (2010: Rs. 3.454 Million). Maximum amount outstanding at any time during the year Rs. 3.799 Million (2010: Rs. 3.454 Million).

vi) Rs. 156.120 Million paid towards Preference Shares application money to subsidiary of the company.

b) Subsequent to the Balance Sheet date, the Company has acquired 73,22,280 equity shares from the Promoters of Pioneer Distilleries Limited (PDL) on May 24, 2011 pursuant to the Share Purchase Agreement dated September 13, 2010 and 26,77,640 equity shares under the Open offer as per the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992. Consequent to the above, Loans and Advances includes Rs. 1,039.820 Million paid towards cost of Investment as on March 31, 2011.

c) Bank Balance with scheduled bank includes Rs. 177.343 Million (2010: Rs. 168.069 Million) out of the proceeds of the beer business of erstwhile Shaw Wallace & Company Ltd.(SWCL), sold in an earlier year which has been kept under escrow pending resolution of various taxation matters.

d) The Company has, granted interest free loans in foreign currency amounting to Rs. 36,857.536 Million [2010: Rs. 39,557.598 Million), to USL Holdings Limited, BVI (USL Holdings) a subsidiary of the Company, for acquisition of long term strategic investments. Management is of the view that out of these loans, Rs. 33,411.109 Million (2010: Rs. 33,435.283 Million), from the inception of the grant of loans, in substance, form part of the Company's net investment in the subsidiary, as the settlement of these loans is neither planned nor likely to occur in the foreseeable future and management intends to convert these loans into investment in share capital of the subsidiary in near future. Accordingly, in line with AS 11 - The Effects of Changes in Foreign Exchange Rates (AS 11), exchange difference aggregating to Rs. 2,271.244 Million (debit) [2010: Rs. 2,247.069 Million (debit)] arising on such loans has been accumulated in a foreign currency translation reserve, which at the time of the disposal of the net investment in these subsidiaries would be recognised as income or as expenses.

b) Investment in USL Benefit Trust represents beneficial interest of the Company in the Trust. Trust holds 3,459,090 (2010: 3,459,090) equity shares of Rs. 10 each of the Company, with all additions or accretions thereto for the benefit of the Company.

c) The carrying cost of investment in Palmer Investment Group Limited amounting to Rs. 6,917.801 Million, substantially exceeds the year end net worth and the market value of shares held by the Company directly and indirectly through its subsidiary. The management of the Company believes that this reflects intrinsic value far in excess of the carrying cost of investments and that such shortfall in net worth / decline in market value of such shares is purely temporary in nature and, hence, no provision is considered necessary for the same.

d) During the year, the Company has acquired 41.54% of equity stake in Karnataka based Sovereign Distilleries Limited (SDL). SDL is engaged in manufacture and sale of Extra Neutral Alcohol (ENA) and Indian Made Foreign Liquor (IMFL). SDL has become associate of the Company with effect from March 31, 2011.

e) The Board of CBPL, a wholly owned Subsidiary of the Company, at its meeting held on March 11, 2011 has considered and approved the amalgamation of CBPL into United Breweries Limited (UBL) with effect from close of business hours of March 31, 2011,being the Appointed date and hence the Investment is held with the intention to transfer to UBL.

The above information has been determined to the extent such parties have been identified on the basis of information provided by the Company, which has been relied upon by the auditors.

5. As required under Section 205C of the Companies Act, 1956, the Company has transferred Rs. 2.801 Million (2010: Rs. 2.882 Million) to the Investor Education and Protection Fund (IEPF) during the year. On March 31, 2011, no amount was due for transfer to the IEPF.

6. Inter corporate deposit and Interest accrued and due thereon Rs. 75.592 Million (2010: Rs. 75.592 Million) included under Unsecured Loan in Schedule 4 represents an obligation acquired on amalgamation of SWCL in an earlier year, where negotiation/ settlement has not been finalised and the same has been provided in terms of the decree and / or otherwise considered adequate by the management. In the opinion of the management, interest so far provided is adequate and no further provision is necessary in this respect. Adjustments, if any, shall be carried out as and when the amounts are determined on final disposal / settlement of the matter.

7. Employee Benefits

a) Defined Contribution Plans

The Company offers its employees defined contribution plans in the form of Provident Fund (PF) and Employees' Pension Scheme (EPS) with the government, Superannuation Fund (SF) and certain state plans such as Employees' State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and the ESI covers certain workers. Contribution to SF is made to trust managed by the Company, while other contributions are made to the Government's funds. While both the employees and the Company pay predetermined contributions into the provident fund and the ESI Scheme, contributions into the pension fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain proportion of the employee's salary.

b) Defined Benefit Plans

Gratuity:

The Company provides for gratuity a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee's last drawn salary and years of employment with the Company. The Company has employees' gratuity funds managed by the Company as well as by Insurance Companies.

Provident Fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Company's obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

Death Benefit:

The Company provides for Death Benefit, a defined benefit plan (the Death Benefit Plan), to certain categories of employees. The Death Benefit Plan provides a lump sum payment to vested employees, on death, of an amount based on the respective employee's last drawn salary and remaining years of employment with the Company after adjustments for any compensation received from the insurance company and restricted to limits set forth in the said plan. The Death Benefit Plan is Non-Funded.

8. Foreign Currency Transactions

a) As on March 31, 2011, the Company has the following derivative instruments outstanding :

Interest and currency swap arrangement (USD-INR) amounting to USD Nil (2010 : USD 35 Million fully settled during the year).

b) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are as under:

Loans and Advances to Subsidiaries USD 732.290 Million, GBP 60.655 Million, Euro 28.750 Million (2010:USD 794.290 Million, GBP 59.450 Million, Euro 27.750 Million).

9. Segment Reporting

The Company is engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines) including through Tie-up units/ brand franchise, which constitutes a single business segment. The Company's operations outside India did not exceed the quantitative threshold for disclosure envisaged in AS 17 on 'Segment Reporting' specified in the Companies (Accounting Standard) Rules 2006. In view of the above, primary and secondary reporting disclosures for business/geographical segment as envisaged in AS-17 are not applicable to the Company.

10. Related Party Disclosures

a) Names of related parties and description of relationship Enterprise where there is control i) Subsidiary Companies:

1)United Spirits Nepal Private Limited (USNPL), 2) Asian Opportunities & Investment Limited (AOIL), 3) Bouvet -Ladubay S.A.S (BL)^, 4) Chapin Landais S.A.S (CL)^, 5) Palmer Investment Group Limited(PIG), 6) Montrose International SA (MI)^, 7) JIHL Nominees Limited (JIHL), 8) RG Shaw & Company Limited (RGSC), 9) Shaw Darby & Company Limited (SDC), 10) Shaw Scott & Company Ltd (SSC), 11) Thames Rice Milling Company Limited (TRMCL), 12) Shaw Wallace Overseas Limited (SWOL)^, 13) McDowell (Scotland) Limited (MSL), 14) USL Holdings Limited (USLHL), 15) Royal Challengers Sports Private Limited (RCSPL), 16) USL Holdings (UK) Limited^, 17) United Spirits (UK) Limited^, 18) United Spirits (Great Britain) Limited^, 19) Shaw Wallace Breweries Limited (SWBL), 20) Ramanretti Investment & Trading Limited (RITL)^, 21) Daffodils Fragrance and Flavours Private Limited (DFFPL), 22) Four Seasons Wines Limited (FSWL), 23) United Vintners Limited (UVL), 24) United Alcobev Limited (UAL) ,

25) McDowell Beverages Limited (MBL), 26) McDowell & Company Limited, 27) Jasmine Flavours and Fragrances Limited, 28) Liquidity Inc, 29) Whyte and Mackay Group Limited^, 30) Whyte and Mackay Holdings Ltd^, 31) Whyte and Mackay Limited (W&M), 32) Whyte and Mackay Warehousing Limited^, 33) Bruce & Company (Leith) Limited^, 34) Charles Mackinlay & Company Limited^, 35) Dalmore Distillers Limited^, 36) Dalmore Whyte & Mackay Limited^, 37) Edinburgh Scotch Whisky Company Limited^, 38) Ewen & Company Limited^, 39) Fettercairn Distillery Limited^, 40) Findlater Scotch Whisky Limited^, 41) Glayva Liqueur Limited^, 42) Glentalla Limited^, 43) GPS Realisations Limited^, 44) Grey Rogers & Company Limited^, 45) Hay & MacLeod Limited^, 46) Invergordon Distillers (Holdings) Limited^, 47) Invergordon Distillers Group Limited^, 48) Invergordon Distillers Limited^, 49) Invergordon Gin Limited^, 50) Isle of Jura Distillery Company Limited^, 51) Jarvis Halliday & Company Limited^, 52) John E McPherson & Sons Limited^, 53) Kensington Distillers Limited^, 54) Kyndal Spirits Limited^, 55) Leith Distillers Limited^, 56) Loch Glass Distilling Company Limited^, 57) Longman Distillers Limited^, 58) Lycidas (437) Limited^, 59) Pentland Bonding Company Limited^, 60) Ronald Morrison & Company Limited^, 61) St The Sheep Dip Whisky Company Limited^, 62) Vincent Street (437) Limited^, 63) Tamnavulin-Glenlivet Distillery Company Limited^, 64) TDL Realisations Limited^, 65) W & S Strong Limited^, 66) Watson & Middleton Limited^, 67) Wauchope Moodie & Company Limited^, 68) Whyte & Mackay Distillers Limited^, 69) William Muir Limited^, 70) WMB Realisations Limited^, 71) Whyte and Mackay Property Limited^, 72) Whyte and Mackay de Venezuela CA^, 73) KI Trustees Limited^, 74) USL Shanghai Trading Company Limited 75) Tern Distillery Private Limited(Tern) 76) Balaji Distillery Private Limited(BDPL)* 77) Chennai Breweries Private Limited(CBPL)* 78) Spring Valley Investment Holding Inc(SVIHI)^^ 79)Herbertsons Limited(HL)^^.

ii) USL Benefit Trust

* Became a subsidiary during the year.

^ No transactions during the year.

^^ Ceased to be a subsidiary during the year.

Associates

Wine Soc. of India Private Limited^ Sovereign Distilleries Limited (SDL)* I

Promoter Holding together with its Subsidiary is more than 20%

United Breweries (Holdings) Limited

* Became an associate during the year.

^ No transactions during the year..

Key Management personnel:

Mr.VK.Rekhi, Managing Director

Employees' Benefit Plans where there is significant influence:

Mc Dowell & Company Limited Staff Gratuity Fund (McD SGF), McDowell & Company Limited Officers' Gratuity Fund (McD OGF), Phipson & Company Limited Management Staff Gratuity Fund. (PCL SGF), Phipson & Company Limited Gratuity Fund. (PCL GF), Carew & Company Ltd. Gratuity Fund (CCL GF), McDowell & Company Limited Provident Fund (McD PF), Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF), Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF), Shaw Wallace & Co. Associated Companies Provident Fund (SWCPF), Balaji Distilleries Employees Gratuity Trust.

11. (a) The Company's significant leasing arrangements in respect of operating leases for premises (residential, office, stores, godown, manufacturing facilities etc), which are not non-cancellable, range between 11 months and 3 years generally (or longer in certain cases) and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as Rent under Schedule 15 to the accounts.

Leasing arrangements entered into prior to April 1, 2001 have not been considered for treatment under AS 19 'Accounting for Leases'.

(b) The Company has acquired computer equipment and cars on finance leases. The lease agreement is for a primary period of 48 months for computer equipment and 36 months to 60 months for cars. The Company has an option to renew these leases for a secondary period. There are no exceptional/restrictive covenants in the lease agreements.

12. Previous year's figures have been regrouped / rearranged wherever necessary.


Mar 31, 2010

Rs. Million

2010 2009

1. Contingent Liabilities

a) (i) Guarantee given on behalf of other bodies corporate (including performance guarantees) - 31,397.558

(ii) Guarantees given by the Companys bankers for which Counter Guarantees have been given by the Company 172.335 172.217

b) Disputed claims against the Company not acknowledged as debts, currently under appeal/ sub judice:

(i) Excise demands for excess wastages and distillation losses 190.338 238.384

(ii) Other miscellaneous claims 250.475 244.274

(iii) Income Tax demand (including interest) under appeal 452.575 305.186

(iv) Sales Tax demands under appeal in various states 557.912 604.036

c) Bills Receivables discounted - since fully settled 480.150

d) Co-accepted bills of Tie-up Units - since fully settled - 15.016

e) Claims from suppliers not acknowledged as debts 57.511 45.449

The Management is hopeful of succeeding in the above appeals/ disputes based on legal opinions/ legal precedents.

2. A. The Scheme of Amalgamation of Shaw Wallace & Company Limited (SWCL) and Primo Distributors Private Limited (Primo) with the Company (Scheme) sanctioned by the Honble High Court of Karnataka at Bangalore, the Honble High Court of Judicature of Bombay and the Honble High Court at Calcutta, has become effective on July 6, 2009. Pursuant to the Scheme, 7,749,121 equity shares of Rs.10 each fully paid up in the Company have been allotted to the eligible shareholders of SWCL on July 24, 2009, resulting in the increase of the paid up share capital of the Company to Rs.1,079,123,770 divided into 107,912,377 equity shares of Rs.10 each fully paid up. As Primo was a wholly owned subsidiary of the Company, no consideration was payable.

B. On June 30, 2009 SWCL sold 10,282,553 equity shares of Rs.10 each, held by it in the Company in the open market through the Stock Exchanges. However, as the aforesaid equity shares, in terms of the Scheme, vest with USL Benefit Trust, of which the Company is the Beneficiary, the resulting surplus of Rs.699.953 Million, being the excess of the net sale proceeds over corresponding carrying value of these shares, has been shown as Exceptional and other non-recurring item in the Profit and Loss Account.

C. The Board of Directors of the Company at their meeting held on November 29, 2008 have approved the proposal of merger of Balaji Distilleries Limited (BDL) with the Company with effect from April 1, 2009 as per the Scheme of Arrangement between BDL, Chennai Breweries Private Limited (CBPL) and the Company, subject to necessary approvals (the Scheme).

At an Extraordinary General Meeting held on April 21, 2010, the Equity Shareholders of the Company have approved, by way of a Special Resolution, the Scheme and the Draft Rehabilitation Scheme (DRS) of BDL as circulated by the Honble Board for Industrial and Financial Reconstruction (the BIFR), formed under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985, vide Order dated February 19, 2010.

The Scheme and the DRS are pending with the Honble BIFR for approval. The accounting effect of the scheme and the DRS shall be given in the year in which the same are approved and become effective.

D. The Board of Directors of the erstwhile Central Distilleries & Breweries Limited (CDBL) (amalgamated with erstwhile SWDL, which was amalgamated with the Company in an earlier year) on April 29, 1986 decided to issue 134,700 Equity Shares of Rs.10 each, the allotment whereof was stayed by the Honble High Court of Delhi on September 13,1988. The Honble High Court of Delhi had vacated its order and has ordered to keep in abeyance the allotment on 72,556 shares and the matter is sub-judice. The holders, in exchange of these shares will be entitled to 17,776 equity shares of Rs.10 each of the Company pursuant to a Scheme of Arrangement. Necessary adjustments in this respect will be carried out on disposal of the matter pending before the aforesaid Court.

3. During the year the Company has raised funds amounting to Rs.16,156 Million (equivalent to US$350 Million) by allotment of 17,681,952 Equity Shares of Rs.10 each at a price of Rs.913.70 per Equity Share (including a premium of Rs.903.70 per Equity Share) on October 23, 2009 to certain Qualified Institutional Buyers (QIBs) through a Qualified Institutions Placement (QIP) under the provisions of Chapter VIII of the Securities and Exchange Board of India (Issue of Capital And Disclosure Requirements) Regulations, 2009 (“the SEBI Regulations”). Consequently, the issued, subscribed and paid-up Equity Share Capital of the Company stands increased from Rs.1,079,123,770 divided into 107,912,377 equity shares of Rs.10 each to Rs.1,255,943,290 divided into 125,594,329 equity shares of Rs.10 each.

The net proceeds of Rs.15,459.726 Million from the issue to QIBs has been utilised for part repayment of certain debt incurred upon the acquisition of Whyte and Mackay Group Limited, capital expenditure and other general corporate purposes.

4. Fixed Assets

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs.83.709 Million (2009: Rs.106.562 Million).

5. Current Assets, Loans and Advances

a) Loans and Advances include:

i) Rs. 44,262.147 Million (2009: Rs.11,093.202 Million) given as interest free loans to subsidiaries.

ii) An amount of Rs.733.982 Million (2009: Rs. 736.429 Million) due from the Tie-up units secured by the assets of the Tie-up unit and/or equity shares of the Tie-up unit.

iii) Rs.3 Million (2009: Rs.3 Million) being amount paid to BDA Limited (BDA) towards reassignment of certain Liquor Brands/ Trade Marks pursuant to a Memorandum of Understanding dated March 20, 1992. Pending execution of the deed for such assignments and judicial resolutions of various disputes with BDA pertaining to control of BDA and ownership of the Officers Choice and other brands currently sub-judice at various courts, the advance given to BDA has been provided for as a matter of prudence. All consequential adjustments arising out of the above matters will be made as and when ascertained.

iv) Due from an Officer of the Company Rs 1.407 Million (2009: Rs.1.193 Million). Maximum amount outstanding at any time during the year Rs.1.407 Million (2009: Rs.1.193 Million).

v) Due from the Managing Director of the Company Rs. 3.454 Million (2009: Rs. 3.140 Million). Maximum amount outstanding at any time during the year Rs. 3.454 Million (2009: Rs. 3.140 Million)

b) Certain confirmation of balances from Sundry Debtors, Loans and Advances, Deposits and Sundry Creditors are awaited and the account reconciliations of some parties where confirmations have been received are in progress. Adjustment for differences, if any, arising out of such confirmations/ reconciliations would be made in the accounts on receipt of such confirmations and reconciliation thereof. The Management is of the opinion that the impact of adjustments, if any, is not likely to be significant. In the opinion of the management, all current assets, loans and advances including advances on capital accounts would be realised at the values at which these are stated in the accounts, in the ordinary course of business.

c) Bank Balance with scheduled bank includes Rs.168.069 Million (2009: Rs.154.000 Million) out of the proceeds of the beer business of erstwhile SWCL, sold in an earlier year which has been kept under escrow pending resolution of various taxation matters.

d) The Company has, granted interest free loans in foreign currency amounting to Rs.39,557.598 Million [2009: Rs. 7,435.245 Million), to USL Holdings Limited, BVI (USL Holdings) a subsidiary of the Company, for acquisition of long term strategic investments. Management is of the view that out of these loans, Rs.33,435.283 Million (2009: Rs.3,630.300 Million), from the inception of the grant of loans, in substance, form part of the Companys net investment in the subsidiary, as the settlement of these loans is neither planned nor likely to occur in the foreseeable future and management intends to convert these loans into investment in share capital of the subsidiary in near future. Accordingly, in line with AS 11 - The Effects of Changes in Foreign Exchange Rates (AS 11), exchange difference aggregating to Rs.2,247.069 Million (2009: Rs. 463.905 Million) arising on such loans has been accumulated in a foreign currency translation reserve, which at the time of the disposal of the net investment in these subsidiaries would be recognised as income or as expenses.

6. Investment

b) Investment in USL Benefit Trust represents beneficial interest of the Company in the Trust. Trust holds 3,459,090 (2009: 13,741,643) equity shares of Rs 10 each of the Company, with all additions or accretions thereto for the benefit of the Company.

c) The carrying cost of investment in Palmer Investment Group Limited amounting to Rs.6,917.801 Million, substantially exceeds the year end net worth and the market value of shares held by the Company directly and indirectly through its subsidiary. The management of the Company believes that this reflects intrinsic value far in excess of the carrying cost of investments and that such shortfall in net worth / decline in market value of such shares is purely temporary in nature and, hence, no provision is considered necessary for the same.

d) During the year, the Company has acquired the entire share capital of Tern Distilleries Private Limited (Tern), a Company in Andhra Pradesh having a manufacturing unit at Visakhapatnam District. Accordingly, Tern has become a wholly owned subsidiary of the Company with effect from November 23, 2009.

e) During the year, Four Seasons Wines Limited ceased to be a wholly owned Subsidiary of the Company.

7. As required under Section 205C of the Companies Act, 1956, the Company has transferred Rs. 2.882 Million (2009: Rs. 4.678 Million) to the Investor Education and Protection Fund (IEPF) during the year. On March 31, 2010, no amount was due for transfer to the IEPF.

8. Interest on inter corporate deposit Rs. 40.592 Million (2009: Rs. 40.592 Million) included under Unsecured Loan - Other in Schedule 4 represents an obligation acquired on amalgamation in an earlier year, where negotiation/ settlement has not been finalised and the same has been provided in terms of the decree and / or otherwise considered adequate by the management. In the opinion of the management, interest so far provided is adequate and no further provision is necessary in this respect. Adjustments, if any, shall be carried out as and when the amounts are determined on final disposal / settlement of the matter.

9. Employee Benefits

a) Defined Contribution Plans

The Company offers its employees defined contribution plans in the form of Provident Fund (PF) and Employees Pension Scheme (EPS) with the government, Superannuation Fund (SF) and certain state plans such as Employees State Insurance (ESI). PF and EPS cover substantially all regular employees while the SF covers certain executives and the ESI covers certain workers. Contribution to SF is made to trust managed by the Company, while other contributions are made to the Governments funds. While both the employees and the Company pay predetermined contributions into the provident fund and the ESI Scheme, contributions into the pension fund and the superannuation fund are made only by the Company. The contributions are normally based on a certain proportion of the employees salary.

b) Defined Benefit Plans

Gratuity:

The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employees last drawn salary and years of employment with the Company. The Company has employees gratuity funds managed by the Company as well as by Insurance Companies.

Provident Fund:

For certain executives and workers of the Company, contributions are made as per applicable Indian laws towards Provident Fund to certain Trusts set up and managed by the Company, where the Companys obligation is to provide the agreed benefit to the employees and the actuarial risk and investment risk fall, in substance, on the Company. Having regard to the assets of the Fund and the return on the investments, shortfall in the assured rate of interest notified by the Government, which the Company is obliged to make good is determined actuarially.

Death Benefit:

The Company provides for Death Benefit, a defined benefit plan (the Death Benefit Plan), to certain categories of employees. The Death Benefit Plan provides a lump sum payment to vested employees, on death, of an amount based on the respective employees last drawn salary and remaining years of employment with the Company after adjustments for any compensation received from the insurance company and restricted to limits set forth in the said plan. The Death Benefit Plan is Non-Funded.

10. Foreign Currency Transactions

a) As on March 31, 2010, the Company has the following derivative instruments outstanding :

Interest and currency swap arrangement (USD-INR) amounting to USD 35 Million (2009 : USD 35 Million), which has been since fully settled.

b) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are as under :

Loans and Advances to Subsidiaries USD 794.290 Million, GBP 59.450 Million, Euro 27.750 Million (2009:USD 76.086 Million, GBP 55.200 Million, Euro 24.750 Million).

11. Segment Reporting

The Company is engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines) including through Tie-up units/ brand franchise, which constitutes a single business segment. The Companys operations outside India did not exceed the quantitative threshold for disclosure envisaged in AS 17 on Segment Reporting specified in the Companies (Accounting Standard) Rules 2006. In view of the above, primary and secondary reporting disclosures for business/geographical segment as envisaged in AS-17 are not applicable to the Company.

Trading Company Limited 77) Tern Distillery Private Limited(Tern)*

ii) USL Benefit Trust

* Became a subsidiary during the year No transactions during the year.

Associates :

Wine Soc. of India Private Limited^

^ No transactions during the year.

Key Management personnel :

Mr.V.K.Rekhi, Managing Director

Employees Benefit Plans where there is significant influence:

Mc Dowell & Company Limited Staff Gratuity Fund (McD SGF), McDowell & Company Limited Officers Gratuity Fund (McD OGF), Phipson & Company Limited Management Staff Gratuity Fund (PCL SGF), Phipson & Company Limited Gratuity Fund (PCL GF), Carew & Company Ltd. Gratuity Fund (CCL GF), McDowell & Company Limited Provident Fund (McD PF), Shaw Wallace & Associated Companies Employees Gratuity Fund (SWCEGF), Shaw Wallace & Associated Companies Executive Staff Fund (SWCSGF), Shaw Wallace & Co. Associated Companies Provident Fund (SWCPF).

12. (a) The Companys significant leasing arrangements in respect of operating leases for premises (residential, office, stores, godown, manufacturing facilities etc), which are not non-cancellable, range between 11 months and 3 years generally (or longer in certain cases) and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as Rent under Schedule 15 to the accounts.

Leasing arrangements entered into prior to April 1, 2001 have not been considered for treatment under AS 19 Accounting for Leases.

(b) The Company has acquired computer equipment and cars on finance leases. The lease agreement is for a primary period of 48 months for computer equipment and 36 months to 60 months for cars. The Company has an option to renew these leases for a secondary period. There are no exceptional/restrictive covenants in the lease agreements.

13. Previous years figures have been regrouped / rearranged wherever necessary.

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