This
monthly feature was started in August, 1976 and contained the description
“Notes as appeared in printed balance sheet of various companies regarding
maintenance of proper records of Fixed Asset”. It contained only two pages and
notes were taken from seven companies. No author name was stated.
From
1980-81 N H Kishnadwala wrote the feature till 1986-87. Nayan Parikh took over
from him from 1987-88 till 1994-95 along with other co-authors during that
time. In 1995-96 Ashok Dhere and Himanshu Kishnadwala carried it forward.
Himanshu has been contributing for 24 years now. Many others joined him during
that time for few years. Since 2009-10, Himanshu has been the sole contributor
to this 39-year-old feature.
In the early days, physical annual reports
had to be procured and then reviewed. Many people had to be requested to send
annual reports of companies. While earlier version carried abstracts from
Indian companies, the present feature covers reporting done by foreign
companies too. Feature covers new disclosures and notes, conflicting
disclosures by companies for accounting standards, comments in audit report and
other disclosures.
Limited Review
report containing ‘Qualification’ for potential Inventory losses and ‘Emphasis
of Matter’ for managerial remuneration and other pending inquiries on certain
past transactions and litigation
UNITED SPIRITS LTD (quarter ended 31st
December, 2018)
From Statutory Auditors’ Limited Review
Report
Basis for Qualified Conclusion
4. We draw your attention to Note 11 to the
Statement, which states that the Company has come across differences in the
process losses and potential resultant differences in the inventory of few
categories of work in progress in certain plants, for which the company is
taking appropriate steps as described in the aforesaid Note. At this stage the
Company is not able to determine the related financial impact, if any, and
consequently we are unable to comment on the impact of this matter on the
Company’s results for the quarter ended 31st December, 2018, as
reported in the Statement.
Qualified Conclusion
5. Based on our review conducted as above,
except for the matter stated in Basis for Qualified Conclusion in paragraph 4
above, nothing has come to our attention that causes us to believe that the
Statement has not been prepared in all material respects in accordance with the
applicable Accounting Standards prescribed u/s. 133 of the Companies Act, 2013
and other recognised accounting practices and policies, and has not disclosed
the information required to be disclosed in terms of Regulation 33 of the
Listing Regulations, 2015, including the manner in which it is to be disclosed,
or that it contains any material misstatement.
Emphasis of Matter
6. We draw attention to the following matters:
a) As explained in Note 6 (a) to the Statement,
the Managerial remuneration for the year ended 31st March, 2015
included amounts paid to managerial personnel in excess of the limits
prescribed under the provisions of Schedule V to the Companies Act, 2013 by Rs.
134 million to the former Executive Director and Chief Financial Officer (ED
& CFO). The Company has initiated steps, including by way of filing a suit
for recovery before the jurisdictional court, to recover such excess
remuneration from the former ED&CFO.
b) As explained in Note 3 to the Statement, 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 that revealed 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’ erstwhile non-executive Chairman and other potentially
improper transactions. The amounts identified in the Additional Inquiry have
been fully provided for or expensed by the Company or its subsidiaries in
earlier periods. Management is currently unable to estimate the financial
impact on the Company, if any, arising from potential non-compliances with
applicable laws in respect of the above.
c) As explained in Note 4 to the Statement,
pursuant to its strategic objective of divesting non-core assets and
rationalisation of its subsidiaries, the Company has commenced the
rationalisation process and has sought approval of regulatory authorities for
divesting its stake in an overseas subsidiary and liquidating three of its
wholly owned overseas subsidiaries (and three of its wholly owned step-down
overseas subsidiaries). The completion of the above divestment as well as
liquidations by the Company are subject to regulatory and other approvals (in
India and overseas). At this stage, it is not possible for the management to
estimate the financial impact on the Company, if any, arising out of potential
historical non-compliances, if any, with applicable laws, with respect to its
overseas subsidiaries.
d) As explained in Note 8 to the Statement, the
Company is in litigation with a bank (“the Bank”) that continues to
retain the pledge of certain assets of the Company and of the Company’s shares
held by USL Benefit Trust (of which the Company is the sole beneficiary)
despite the Company prepaying the term loan to that bank along with the
prepayment penalty and further depositing an additional sum of Rs. 459 million
demanded by the Bank and as directed by the Hon’ble High Court of Karnataka
(the “Court”). The Court has directed the Bank not to deal with the
pledged assets of the Company (including the shares held by USL Benefit Trust)
as mentioned above till the disposal of the original writ petition filed by the
Company in the Court.
e) Note 7 to the Statement:
i) regarding clarifications sought by
Securities and Exchange Board of India on matters covered by the Company’s
Initial Inquiry and Additional Inquiry and certain aspects of the agreement
entered into by the Company with its erstwhile non-executive Chairman to which
the Company has responded;
ii) regarding various issues raised and show
cause notices issued pursuant to an inspection u/s. 206(5) of the Companies
Act, 2013 by Ministry of Corporate Affairs/ Registrar of Companies, Karnataka,
alleging violation of certain provisions of the Companies Act, 1956 and
Companies Act, 2013, to which the Company had responded. Further, the Company
has received a letter dated 13th October, 2017 from the Registrar of
Companies, Karnataka (the “Registrar”) 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 had 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 had
requested the Registrar to drop one show cause notice based on expert legal
advice received, for which response is awaited.
iii) regarding the ongoing investigation by the
Directorate of Enforcement in connection with the agreement entered into by the
Company with its erstwhile nonexecutive Chairman and investigations under the
provisions of Foreign Exchange Management Act, 1999 and Prevention of Money
Laundering Act, 2002 to which the Company had responded; and
iv) regarding clarifications sought by Authorised
Dealer banks in relation to certain queries from the Reserve Bank of India with
regard to remittances made in prior years by the Company to its overseas
subsidiaries, past acquisition of the Whyte and Mackay group, clarifications on
Annual Performance Reports submitted for prior years and clarifications on
compliances relating to the Company’s overseas Branch office, to which the
Company had responded.
Our conclusion is
not modified in respect of the matters described under paragraph 6 above.
From Notes to
Statement of Standalone Unaudited Results
3. Additional Inquiry
As disclosed in the
financial statements for the years ended 31st March, 2017 and 31st
March, 2018, 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 periods. 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 in relation to such fund
diversions.
4. Subsidiaries
Rationalisation
a) In relation to its subsidiaries and pursuant
to its strategic objective of divesting non-core assets which began with the
divestment of Bouvet Ladubay SAS, Chapin Landais SAS and United Spirits Nepal
Pvt Ltd, the Company has reviewed its subsidiaries’ operations, obligations and
compliances, and made plans for their rationalisation through sale, liquidation
or merger (“Rationalisation Process”).
b) During the quarter ended 30th
September, 2018, the Company entered into an agreement for the sale of its
entire 51% equity holding in Liquidity Inc. and has sought approval of
regulatory authorities for divesting its stake in Liquidity Inc., as well as
for liquidating two of its wholly owned overseas subsidiaries, United Spirits
Trading (Shanghai) Company Limited and Montrose International SA. During the
quarter ended 31st December, 2018, the Company has also sought
regulatory approval in respect of liquidating its wholly owned subsidiary, USL
Holdings Limited including its three wholly owned step-down overseas
subsidiaries. The completion of the above sale as well as liquidations by the
Company are subject to regulatory and other approvals (in India and overseas).
During this Rationalisation Process, if any historical non-compliances are
established, 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 if any, with applicable laws.
c) On 16th January, 2019, the Company
completed the sale of its entire equity shares held by the Company in its
wholly owned subsidiary Four Seasons Wines Limited (FSWL) along with wine
brands and FSWL’s interest in its associate Wine Society of India (WSI), to
Quintella Assets Limited and Grover Zampa Vineyards Limited. The shares were
sold for a total sale consideration of INR 319 million. Following the
completion of this sale, the Company does not hold any shares in FSWL or WSI
and FSWL has ceased to be a subsidiary of the Company. Also refer Note 10.
6. Excess
managerial remuneration
a) The managerial remuneration for the
financial year ended 31st March, 2015 aggregating Rs. 63 million and
Rs. 153 million 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 30th September, 2014. The
aforesaid remuneration includes amounts paid in excess of the limits prescribed
under the provisions of Schedule V to the Companies Act, 2013 by Rs. 51 million
to the MD & CEO and by Rs. 134 million 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 28th April, 2016 did not approve the Company’s applications.
On 24th May, 2016 the Company resubmitted the applications, along
with detailed explanations, requesting the Central Government to reconsider approving
the waiver of excess remuneration paid. In light of the findings from the
Additional Inquiry, by its letter dated 12th July, 2016, the Company
withdrew its application for approval of excess remuneration paid to the former
ED & CFO and has filed a civil suit before the jurisdictional court to
recover the sums from the former ED & CFO. Consequent to the notification
of section 197(17) of the Companies Act, 2013 effective 12th
September, 2018, the pending application of MD & CEO resubmitted to the Central
Government seeking approval automatically stands abated. The Company has,
during January 2019, secured the requisite approval from shareholders by way of
postal ballot exercise approving the waiver of excess remuneration paid to MD
& CEO.
b) Certain amendments have been carried out, inter
alia, to section 198 and Schedule V of the Companies Act, 2013
(“Act”) by way of the Companies (Amendment) Act, 2017, which are
effective from 12th September, 2018 (“Amendments”),
relating to the remuneration payable to directors by a company. The Company has
negative free reserves and accumulated losses of approximately Rs. 26,580
million as of 31st March, 2018. Pursuant to these Amendments, the
accumulated losses of a company are required to be set off against the profits
in a given financial year while calculating the profit of the Company for such
financial year u/s. 198. Consequent to the aforesaid amendments, the profit of
the Company (calculated in terms of section 198) is expected to be negative for
the financial year ending 31st March, 2019. As a result,
remuneration paid and payable to Executive Directors may exceed the limits as
per Schedule V read with section 197 of the Act for the year ending 31st
March, 2019 and remuneration payable to Non-executive Directors is likely to
exceed the limits as per section 197 both read with section 198 as amended.
The Company has,
during January 2019 secured the requisite approval of the shareholders by way
of postal ballot exercise for the remuneration paid/ payable to the Executive
Directors and remuneration payable to Non-executive Directors for the financial
year ending 31st March, 2019, 31st March, 2020 and 31st
March, 2021 or till the end of the Directors tenure of appointment/
reappointment, whichever is earlier, notwithstanding that such remuneration may
exceed the limits specified under section 197 and Schedule V of the Companies
Act, 2013 as amended.
7. Regulatory
notices and communications
The Company has
previously received letters and notices from various regulatory and other
government authorities as follows:
a) as disclosed in the financial statements for
the years ended 31st March, 2016, 31st March, 2017 and 31st
March, 2018, from the Securities Exchange Board of India (‘SEBI’), in relation
to the Initial Inquiry, Additional Inquiry, and matters arising out of the
Agreement dated 25th February, 2016, entered into by the Company
with Dr. Vijay Mallya to which the Company has responded. No further communications
have been received thereafter;
b) as disclosed in the financial
statements for the years ended 31st March, 2016, 31st
March, 2017 and 31st March, 2018, from the Ministry of Corporate
Affairs (‘MCA’) in relation to its inspection conducted u/s. 206(5) of the
Companies Act, 2013 during the year ended 31st March, 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 had also received a letter dated 13th
October, 2017 from the Registrar of Companies, Karnataka (the ‘Registrar’)
inviting the Company’s attention to the compounding provisions of the Companies
Act, 1956 and Companies Act, 2013 following the aforesaid show cause notices.
During the year ended 31st March, 2018, the Company 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 Company is
awaiting a response from the Registrar to the aforesaid applications. The
management is of the view that the financial impact arising out of compounding/adjudication
of these matters will not be material to the Company’s results;
c) as disclosed in the financial statements for
the years ended 31st March, 2016, 31st March, 2017 and 31st
March, 2018, from the Directorate of Enforcement (‘ED’) in connection with
Agreement dated 25th February, 2016, entered into by the Company
with Dr. Vijay Mallya and investigations under the Foreign Exchange Management
Act, 1999 and Prevention of Money Laundering Act, 2002, to which the Company
had responded. No further communications have been received thereafter; and
d) as disclosed in the financial statements for
the year ended 31st March, 2017 and 31st March, 2018,
from the Company’s authorised dealer banks in relation to certain queries from
the 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, to all of which the Company had duly
responded.
8. Dispute
with a bank
As disclosed in the
financial statements for the years ended 31st March, 2015, 31st
March, 2016, 31st March, 2017 and 31st March, 2018,
during the year ended 31st March, 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 Rs. 6,280 million, including
prepayment penalty of Rs. 40 million, 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 filed on 6th November, 2013 is pending before
the Hon’ble High Court of Karnataka. In August 2015, the bank obtained an ex
parte injunction in proceedings between the bank and Kingfisher Airlines
Limited (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 February 2016, the Company received a notice from the
bank seeking to recall the loan and demanding a sum of Rs. 459 million.
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 Rs. 459 million 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 30th June, 2016,
the Company 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. On 19th January, 2017, the DRT
dismissed the application filed by the bank seeking the attachment of USL
Benefit Trust shares. During the quarter ended 30th September, 2017,
the bank filed an ex-parte appeal before the Debt Recovery Appellate Tribunal
(‘DRAT’), Chennai against the order of the DRT. During the quarter ended 31st
December, 2017, the Company has been impleaded in the proceedings subsequent to
the DRAT’s order. The appeal is pending for final hearing. With regard to the
writ petition filed before the Hon’ble High Court of Karnataka, an early
hearing application was allowed and the hearing of the main matter has
commenced during the quarter ended 31st December, 2018.
11. During
the quarter, the Company has come across potential differences in process
losses and potential resultant differences in the inventory of a few categories
of work in progress in certain plants. The Company is in the process of
undertaking a review in affected plants, with the help of an independent expert
as required, in order to ascertain the actual quantum of differences, if any.
Should the findings establish any differences, the Company will take
appropriate steps to understand the causes and address the same. At this stage,
the Company is unable to determine the related financial impact, if any,
arising from such potential differences. Accordingly, the results for the
quarter and the nine months ended 31st December, 2018 do not include
any adjustment in respect of the above.
