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Updated:22 Aug, 2019, 15:59 PM IST

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Updated:22 Aug, 2019, 16:01 PM IST

INDEPENDENT AUDITOR'S REPORT

TO THE MEMBERS OF UNITED SPIRITS LIMITED

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of United Spirits Limited ("the Company"), which comprise the balance sheet as at 31 March 2016, the statement of profit and loss and the cash flow statement of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

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

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

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

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

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

Basis for Qualified Opinion

1. As stated in Notes 26 (a) and (c) to the standalone financial statements, during the year ended 31 March 2014, 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 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 of Directors of the Company ("Board"), a preliminary internal inquiry was initiated by the Management. Based on the findings of the preliminary internal inquiry by the Management, under the instructions of the Board; and Management's assessment of recoverability, an aggregate amount of Rs. 6,495.48 million (including interest claimed) was provided in the financial statements for the year ended 31 March 2014 and was disclosed as prior period items. During the year ended 31 March 2015, an additional provision of Rs. 216 million was made for interest claimed. The Company has not made provision for any unclaimed interest. During the quarter ended 30 September 2015, the Company reached a settlement with a party pursuant to which the party withdrew claims aggregating Rs. 278.60 million. Accordingly, provision aggregating Rs. 278.60 million has been written back. Additionally, subsequent to the year–end, the Company has signed settlement agreements with certain such parties and based on these settlements has reversed provisions with respect to interest claimed aggregating Rs. 264.60 million as at the balance sheet date. During the year ended 31 March 2016, based on its assessment of recoverability, the Management has written off Rs. 5,666.00 million out of the amounts provided for with respect to the aforesaid parties.

During the year ended 31 March 2014, the Board had also directed a further detailed and expeditious inquiry in relation to the above matter, 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 inrelation to such transactions, and the possible existence of any other transaction of a similar nature ("Inquiry"). While the Inquiry has since been completed, 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 documents dealt with transactions involving the counterparties referred to above. The Inquiry also identified certain additional matters ("Additional Matters") where the documents identified concerns as to the propriety of the underlying transactions.

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

Based on its current knowledge, the Management believes that the balance provisions carried with respect to the above matters are adequate and no additional material adjustments are likely to be required in relation thereto. In the previous year, the Board had directed the Management to expeditiously review the Additional Matters and transactions with the Additional Parties and report to the Board on Management's conclusions on the transactions and any further impact on the Company's financial statements. As the review of the Additional Matters and transactions with Additional Parties is in progress, we are unable to comment on the nature of these transactions; the provisions established; or any further impact on the standalone financial statements including the impact on opening balances for the year. Further, pending resolution of the above disputes, we are unable to comment on whether the provision established for interest is appropriate.

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

Qualified Opinion

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

Emphasis of Matter

We draw attention to:

1. Note 26 (b) to the standalone financial statements, which states that, during the year ended 31 March 2014, various pre–existing loans / advances / deposits (together with interest) due from United Breweries (Holdings) Limited ("UBHL") by the Company and its subsidiaries aggregating Rs. 13,374.17 million on 3 July 2013, were consolidated into a single loan agreement dated 3 July 2013 entered into between the Company and UBHL. With regard to the prior transactions that were consolidated into the single loan due from UBHL on 3 July 2013, the Inquiry 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 to UBHL than that which actually existed at that time. The inquiry also indicates that the manner in which these transactions were conducted and these entries made, prima facie, indicates various improprieties and legal violations. As per the terms of the said loan agreement, interest payable by UBHL to the Company in January 2015 amounted to Rs. 1,911.00 million (gross of tax) and a further interest amounting to Rs. 1,270.50 million (gross of tax) was due in January 2016. 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 Kingfisher Airlines Limited in different Courts all over the country, and that some of the winding up petitions filed against UBHL have been admitted by the High Court of Karnataka. As a result of the above and other relevant factors, during the year ended 31 March 2015, the Company provided the remaining principal balance of the loan aggregating Rs. 9,954.60 million (in addition to the Rs. 3,303.19 million that was provided for during the year ended 31 March 2014) and did not recognise interest income of Rs. 1,207.00 million for the year ended 31 March 2015 (in addition to the provision for interest received (net) of Rs. 713.77 million for the year ended 31 March 2014). Accordingly, the Company has also not recognised interest income of Rs. 315.90 million and Rs. 1,270.50 million for the quarter and twelve months ended 31 March 2016 respectively;

2. As stated in Note 24 (e) to the standalone financial statements, on 25 February 2016, the Company entered into a settlement agreement with a director pursuant to which he resigned from his positions as a director and chairman of the Company and of the boards of its subsidiaries. Amongst other terms as per the agreement, the director agreed to a five year global non–compete (except United Kingdom) and procured / agreed to procure termination of certain agreements that were voted down by the Company's shareholders in the Extra–ordinary General Meeting

("EGM") held on 28 November 2014. The Company, under the settlement agreement, inter alia agreed a mutual release in relation to matters arising out of the initial inquiry by the Company into certain matters referred to in its standalone financial statements for the year ended 31 March 2014 (as mentioned in the Note 26 (a)). Additionally, the Company undertook to the aforesaid director that it shall not bring a civil claim for money, damages or specific performance against the counterparties mentioned in the aforesaid note 26 (a) in relation to the matters referred to therein. The Company also entered into certain arrangements giving the director or his nominee an option to buy certain non–core properties of the Company as per the terms stated therein. The Securities and Exchange Board of India ("SEBI") sought information regarding certain aspects of the settlement agreement, to which the Company has responded (Refer Note 30 (i) to the standalone financial statements). Given the nature and complexities of the settlement, and the possibility of varied interpretations of potentially applicable provisions of the Act and SEBI regulations, the Company obtained legal opinions from a senior legal counsel and its external counsel, opining that the settlement agreement and the related documents are in compliance with the applicable provisions of the Act and SEBI regulations;

3. As stated in Note 24 (d) to the standalone financial statements, as per the requirements of the equity listing agreements entered into by the Company with various stock exchanges in India and various circulars and regulations issued by the SEBI and applicable provisions of the Act, the Company sought approval of its equity shareholders for certain agreements in the extraordinary general meeting ("EGM") held on 28 November 2014. Some of the agreements, as detailed in the aforesaid note, were not approved by the equity shareholders in the aforesaid EGM. The Company has sought clarification / direction from SEBI with respect to the implications arising from the non–approval of the said agreements. Pending the clarification / direction from the SEBI, during the year ended 31 March 2015, the Company had recognised the underlying expenses pursuant to these agreements up to 28 November 2014 aggregating Rs. 1,357.30 million. The Company has not recognised charges arising out of non–approved agreements for the period since 29 November 2014. Further, subsequent to 28 November 2014, in response to the letters received by the Company from some of the concerned counterparties, the Company has made payments amounting to Rs. 74.30 million (excludes a cheque of Rs. 6.10 million which has not been encashed) to such 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. During the current year, the Company has entered into mutual release and termination agreements with some of the counterparties, wherein the Company has retained the right to recover the amounts paid to the respective counterparties for the period before 28 November 2014 in case any regulatory authority and / or any court of competent jurisdiction decides that

these amounts were not payable by the Company at a future date. Pending clarifications from SEBI, based on an opinion received from a senior legal counsel, the Management believes that these contracts have been rendered void by, and from the date of voting down by, the shareholders;

4. Note 25 to the standalone financial statements, wherein it is stated that during the year ended 31 March 2014, the Company decided to prepay credit facilities availed from a bank amounting to Rs. 6,216.60 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. 6,280.00 million including prepayment penalty of Rs. 40.00 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. The Company has disputed the same and its writ petition is pending before the Honourable High Court of Karnataka. On 31 March 2015, the bank demanded an amount of Rs. 474.00 million towards principal and interest on the said loan, which the Company contested in the Honourable High Court of Karnataka. As per the order of the Honourable High Court of Karnataka, the Company engaged with the bank to commence discussions. During the quarter ended 30 September 2015, the bank obtained an ex parte injunction 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 objections against such ex parte order. During the quarter ended 31 December 2015, the Company obtained a stay from the Honourable High Court of Karnataka restraining the bank from dealing with the above–mentioned pledged shares until further orders. Thereafter, the Company received another notice from the relevant bank seeking to recall the loan which had been prepaid, and demanding a sum of Rs. 459.40 million, as well as a subsequent notice issued under section 13(2) of SARFAESI Act in relation to the same loan. Pursuant to an application filed by the Company before the Honourable High Court of Karnataka, in the writ proceedings, the Honourable High Court of Karnataka directed that if the Company deposited the sum of Rs. 459.40 million with the bank, the bank should hold the same in a suspense account and should not deal with any of the secured assets pledged by the Company under the loan till the disposal of the first petition filed by the Company in the Honourable High Court of Karnataka. Subsequent to the year end, the Company has accordingly deposited the said sum and has replied to the bank's various notices in light of the above. The aforesaid amount has been disclosed as a contingent liability in the financial statements by the Company;

5. Note 50 to the standalone financial statements, which more fully describes the uncertainty related to the outcome of writ petitions with the Honourable High Court at Patna, in relation to the ban imposed by the Bihar State Government on trade and consumption of foreign liquor in the state of Bihar with effect from 5 April 2016. Pending final disposal of the petitions, no adjustments are considered necessary in the financial statements;

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

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

Our opinion is not qualified in respect of these matters.

Report on Other Legal and Regulatory Requirements

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

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

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

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

(c) the balance sheet, the statement of profit and loss and the cash flow statement dealt with by this Report are in agreement with

the books of account;

(d) except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

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

(f) on the basis of the written representations received from the directors as on 31 March 2016 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2016 from being appointed as a director in terms of Section 164 (2) of the Act;

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

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

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

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

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

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

Annexure A to the Independent Auditor's Report

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

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

(b) The Company has a regular programme of verification of its fixed assets by which all fixed assets are verified in a phased manner over a period of three years. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, certain fixed assets have been physically verified during the year and no material discrepancies were observed on such verification; and

(c) According to the information and explanations given to us and based on our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company except for 22 cases of freehold land having aggregate gross block of Rs. 1,175 million; 3 cases of leasehold land having aggregate gross block of Rs. 41 million; and various buildings having aggregate gross block of Rs. 1,869 million where the Company is in the process of collating and identifying title deeds.

(ii) The inventory, except goods–in–transit and stocks lying with third parties, has been physically verified by the Management during the year. In our opinion, the frequency of such verification is reasonable. For stocks lying with third parties at the year–end, written confirmations have been obtained by the Management. The discrepancies noticed on verification between the physical stocks and the book records were not material.

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

Further, as stated in Note 26 (a) to the standalone financial statements, the Board had directed a detailed and expeditious inquiry ("the Inquiry'') in relation to certain transactions identified during the year ended 31 March 2014. The Inquiry 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"), which is a party covered in the register maintained under Section 189 of the Act.

Additionally, pending the completion of the review of the Additional Matters and transactions with Additional Parties identified through the Inquiry as disclosed in Paragraphs 1 under 'Basis for Qualified Opinion', we are unable to comment whether

any such arrangements represent transactions with any body corporate covered in the register maintained under Section 189 of the Act.

(a) In our opinion, the rate of interest and other terms and conditions of the above mentioned loan to UBHL, are prima facie, prejudicial to the interest of the Company.

(b) The above mentioned loan to UBHL was voted down by the shareholders of the Company in the Extraordinary General Meeting ("EGM") held on 28 November 2014. UBHL also defaulted in payment of interest. Accordingly, the Company raised a demand on UBHL for repayment of the entire balance of the loan and the interest thereon. The Company is yet to receive the aforesaid amounts due. The loan has been fully provided for in the financial statements.

With respect to loans given to other companies, firms or other parties covered in the Register maintained under Section 189 of the Act, the principle and interest are repayable either on demand or the repayment terms are not stipulated. According to the information and explanation given to us, we understand that the loans were repaid wherever demanded.

(c) According to information and explanation provided to us, the total amount overdue for more than 90 days in respect of the loan granted to UBHL aggregates Rs. 16,555 million (gross of tax and unpaid accrued interest). We understand from the Management that the Company will pursue all rights and claims to recover the entire amount of the loan together with unpaid accrued interest from UBHL and the Company raised a demand on UBHL for repayment of the entire amount due. According to the information and explanation given to us, the Company has filed affidavits in the winding up proceedings against UBHL updating the Honourable High Court of Karnataka with information regarding UBHL's default in payment of amounts due under the loan agreement.

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

(iv) In our opinion and according to the information and explanations given to us, as a result of the matters stated below, we are unable to comment whether the Company has complied with the provisions of Sections 185 and 186 of the Act, with respect to the loans and investments made:

(a) As stated in Note 26 (a) to the standalone financial statements and Paragraph 1 of the Basis for Qualified Opinion, the Board had directed a detailed and expeditious inquiry in relation to certain transactions identified during the year ended 31 March 2014. The Inquiry 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. The Inquiry Report also indicated that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and legal violations.

(b) As stated in Note 26(b) to the standalone financial statements, with regard to the prior transactions that were consolidated into the single loan due from UBHL on 3 July 2013, the Inquiry 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 to UBHL than that which actually existed at that time. The inquiry also indicates that the manner in which these transactions were conducted and these entries made, prima facie, indicates various improprieties and legal violations.

Also refer note 26(c) to the standalone financial statements with respect to theongoing review of the Additional Matters and transactions with Additional Parties identified through the Inquiry as disclosed in Paragraphs 1 under 'Basis for Qualified Opinion'.

(v) According to information and explanations given to us, the Company has not accepted any deposits from the public in accordance with the provisions of Sections 73 to 76 or any other relevant provisions of the Act and the rules framed there under.

(vi) To the best of our knowledge and according to the information and explanations given to us, the Central Government has not prescribed the maintenance of cost records under Section 148(1) of the Act for any of the products manufactured by the Company.

(vii) (a) According to the information and explanations given to us

and on the basis of our examination of the records of the Company, amounts deducted / accrued in the books of account in respect of undisputed statutory dues including Provident fund, Employees' State Insurance, Income–tax, Sales–tax, Service tax, Duty of customs, Duty of excise, Value added tax, Cess and any other material statutory dues have not been regularly deposited during the year by the Company with the appropriate authorities though the delays in deposit have not been serious.

According to the information and explanations given to us, no undisputed amounts payable in respect of Provident fund, Employees' State Insurance, Income–tax, Sales–tax, Service–tax, Duty of customs, Duty of excise, Value added tax, Cess and any other material statutory dues were in arrears as at 31 March 2016 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, dues of Income–tax, Sales–tax, Service tax, Duty of customs, Duty of excise and Value added tax that have not been deposited on account of any dispute are stated in Appendix 1.

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

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

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

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

(a) As stated in Note 26(a) to the standalone financial statements and Paragraph 1 of the 'Basis for Qualified Opinion', the Board had directed a detailed and expeditious inquiry in relation to certain transactions identified during the year ended 31 March 2014. The Inquiry 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. The Inquiry Report also indicated that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and legal violations.

(b) As stated in Note 26(b) to the standalone financial statements, with regard to the prior transactions that were consolidated into the single loan due from UBHL on 3 July 2013, the Inquiry 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 to UBHL than that which actually existed at that time. The inquiry also indicates that the manner in which these transactions were conducted and these entries made, prima facie, indicates various improprieties and legal violations.

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

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

Additionally, pending the completion of the review of the Additional Matters and transactions with Additional Parties identified through the Inquiry as disclosed in Paragraph 1 under 'Basis for Qualified Opinion, we are unable to comment whether any arrangements covered by such review can be termed as 'fraud' and whether there are other instances of a similar nature.

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

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

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

(xiii) According to the information and explanations given to us and based on our examination of the records of the Company, transactions with the related parties are in compliance with Sections 177 and 188 of the Act, where applicable, and details of  such transactions have been disclosed in the financial statements as required by the applicable accounting standards.

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

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

(xv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non–cash transactions with directors or persons connected with director.

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

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

Annexure B to the Independent Auditor's Report of even date on the standalone financial statements of United Spirits Limited Report on the Internal Financial Controls under Clause (i) of Sub–section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of United Spirits Limited ("the Company") as of 31 March 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management's Responsibility for Internal Financial Controls

The Company's management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the "Guidance Note") issued by the Institute of Chartered Accountants of India ('ICAI'). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Company's policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company's internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company's internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal financial control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

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

Opinion

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

Emphasis of Matter

We would draw attention to matters disclosed in Paragraphs 1 under 'Basis for Qualified Opinion, and specifically the ongoing Inquiry with respect to the Additional Parties and Additional Matters which could indicate possible lapses in internal financial controls system at various points in time.

Our opinion under Clause (i) of Sub–section 3 of Section 143 of the Act is not qualified in respect of this matter.

for B S R & Co. LLP

Chartered Accountants

Firm's Registration Number: 101248W/W–100022

Sunil Gaggar

Partner

Membership Number: 104315

Place : Bangalore

date : 26 May 2016

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