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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532432ISIN: INE854D01024INDUSTRY: Beverages & Distilleries

BSE   ` 1134.30   Open: 1144.50   Today's Range 1125.00
1146.00
-3.90 ( -0.34 %) Prev Close: 1138.20 52 Week Range 735.05
1182.90
Year End :2023-03 

(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 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 the Companies (Restriction on Number of Layers) Rules, 2017 ('Layering Rules'), and therefore, the restriction on the number of layers of subsidiaries is not applicable to the Company.

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 accounts of the Company.

ix. Compliance with approved scheme(s) of arrangements

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. (Refer note 49).

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.

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

The Company has not availed any borrowings from any banks or financial institutions during the year.