REPORT OF THE DIRECTORS  

DEAR MEMBERS

Your Directors are pleased to present the 17th Annual Report of your company and the audited financial statements for the year ended March 31, 2016

1.1 Subsidiary Companies

In accordance with section 129(3) of the Companies Act, 2013, a statement containing salient features of the financial statements of the subsidiary companies in Form AOC1 is provided as Annexure - 1 to this report.

In accordance with third proviso to section 136(1) of the Companies Act, 2013, the annual report and financial statements of each of the subsidiary companies have also been placed on the website of the Company www.unitedspirits.in

2. Board's Responses to Observations, Qualifications and Adverse Remarks in Auditor's Report

The Statutory Auditors (Auditors) have qualified their opinion in relation to the following matters appearing in the Financial Statements for the year ended March 31, 2016. The Board's responses to the qualifications and other observations or adverse remarks made by the Auditors in their Report on the Standalone Financial Statements for the year ended March 31, 2016, Consolidated Financial Statements for the year ended March 31, 2016 and in their CARO Report on these Financial Statements are given below.

The Statutory Auditors have qualified their opinion in relation to the matters specified in Notes 26(a) & (c), and Note 45 of the financial statements for the year ended March 31, 2016 (Statements). The Board's responses to the qualifications and other observations or adverse remarks are as follows.

2.1 Auditor's observations under paragraph 1 'Basis for Qualified Opinion'of the Auditor's report to the standalone financial statements:

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. 278.60million. Accordingly, provision aggregating Rs. 278.60million 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 of Rs.15,666.00 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 in relation 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 in 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.

Above qualification is also contained in the audit report issued on the consolidated financial statement.

Board's Response to audit qualification on standalone financial statements as well as consolidated financial statements:

Detailed information and explanations on the qualification in paragraph 1 of the audit report are provided in Notes 26(a) and 26(c) to the Standalone Financial Statements(and notes 35 (a) to 35 (c) of the consolidated financial statements). In particular, as stated in Note 26 the Inquiry Report stated that between 2010 and 2013, funds involved in many of these transactions were diverted from the Company and / or its subsidiaries to certain UB Group companies, including in particular, King Fisher Airlines Limited ("KFA"). The diverted amounts were included in the provision made by the Company in the financial statements for the year ended March 31, 2014 and certain additional interest amounts were included in the provision made by the Company in the financial statements for the year ended March 31, 2015. The inquiry indicated that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and potential violations of provisions inter alia, of the Companies Act, 1956, and the then listing agreements signed by the Company with various stock exchanges in India on which its securities are listed. The financial impact of these non-compliance were estimated by the Management to be not material.

In connection with the recovery of the funds that were diverted from the Company and / or its subsidiaries, pursuant to the decision of the Board at its meeting held on April 25, 2015, the Company initiated steps for recovery against the relevant parties, so as to seek to expeditiously recover the Company's dues from such parties, to the extent possible. During the quarter ended September 30, 2015, the Company reached a settlement with one of the parties pursuant to which the party had withdrawn claims aggregating Rs. 27.86 Crores. Accordingly, provision amounting to Rs. 27.86 crores has been written back. Subsequent to the year end, the Company has settled these claims with 3 other parties and based on the said settlement has reversed a provision with respect to interest claimed amounting to Rs. 26.46 Crores as at the  balance sheet date. Settlements with the other parties have not been reached as yet and management is continuing discussions in this regard. During the year ended 31 March 2016, based on its assessment of recoverability, the Management has written off Rs. 566 Crores out of the amounts provided for with respect to the aforesaid counterparties.

With regard to the possible existence of any other transaction of a similar nature , the inquiry identified references to certain additional parties ("Additional Parties") in various documents which also dealt with transactions involving the counter parties referred to in Note 26(c) of Standalone Financial Statements and 35(c) of the consolidated financial statements.

As the Board determined it was necessary to assess whether the Additional Matters or the transactions with the Additional Parties were improper, the Board directed the MD & CEO to expeditiously review these aspects during the period covered by the Inquiry and report to the Board his conclusions on the transactions and any further impact on the Company's financial results. This review is in progress. Pending completion of the review into Additional Parties and Additional Matters, no further provision in relation thereto have been made in the financial statements for the year ended March 31, 2016.

With regard to the settlement agreement between the Company and a director of the Company, the details of the settlement agreement have been disclosed in Note 24(e) to the standalone financial statements 26 (e) to the consolidated financial statements]. Furthermore, as disclosed by the Company to the stock exchanges on February 25, 2016, the Board believes the settlement agreement is valuable to USL and all its shareholders. It brings to an end the uncertainty relating to the Company's governance and will allow the Company to prosper and build on the platform that has already been created.

2.2 Auditor's observations under paragraph 2 'Basis for Qualified Opinion' of the Auditor's report to the standalone financial statements:

As stated in [Note 45 to 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.

Above qualification is also contained in the audit report issued on the consolidated financial statement.

Board's response: Information and explanation on the qualification in paragraph 2 of the audit report is provided in Note 45 to Standalone Financial Statements and 44 of the consolidated financial statements. In particular, as stated in Note 45 to Standalone Financial Statements and 44 of the consolidated financial statements, the Company applied for the requisite approval from the Central Government for such excess remuneration. Subsequent to the year end, the Company has received communications from the Central Government not approving such excess remuneration. The Company has responded to the Central Government for requesting reconsideration of its application for approval of such excess remuneration.

2.3 A. Auditor's observations under paragraph [(i)(c)] of the Annexure to the Auditor's report:

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 141 million; and various buildings having aggregate gross block of Rs. 1,869 million, where the Company is in process of collating and identifying title deeds.

Board's response: The Company is in the process of compiling the original title deeds for the 22 cases of freehold land, 3 cases of leasehold land and the buildings referred to in paragraph [(i)(c)] of the Annexures to the Auditor's report and believes that it has good title to all the immovable properties. The Board has directed the Management to expedite the process of compiling the original title deeds.

B. Auditor's observations under paragraphs[(iii), (iv) & (ix)] of the Annexure to the Auditor's report:

(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 loans were repaid where ever 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 UBHLs default in payment ofamounts 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 the ongoing review of the Additional Matters and transactions with Additional Parties identified through the Inquiry as disclosed in Paragraphs 1 under 'Basis for Qualified Opinion'.

(ix) 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.

Board's response: Information and explanation on the observations in paragraphs [(iii), (iv) & (ix)] of the Annexure to the Auditor's report are provided in Notes 26(a), 26(b), 26(c) and 24(e) to the standalone financial statements.

In particular, Note 24(d) provides information in connection with the non-approval by the shareholders of the Company of the loan agreement with UBHL (and of other potential related party transactions).

Furthermore, as stated in Note 26(b), certain pre-existing loan / deposit / advances were due to the Company and its wholly-owned subsidiaries from UBHL and were in existence as on March 31, 2013. In addition, the amounts owed by UBHL to the Company's wholly-owned subsidiaries had been assigned by such subsidiaries to the Company and recorded as loans from such subsidiaries in the books of the Company. Such dues (together with interest) aggregating Rs.1,337.40 Crores, were consolidated into, and recorded as, an unsecured loan by way of an agreement entered into between the Company and UBHL on July 3, 2013. The interest rate under the above mentioned loan agreement with UBHL is 9.5% p.a., with the interest to be paid at six-monthly intervals starting at the end of 18 months from the effective date of the loan agreement. The loan has been granted for a period of eight years and is payable in three annual instalments commencing from the end of 6th anniversary of the effective date of the loan agreement. Pursuant to the directions of the Board, the Inquiry referred to in Note 26(a) to the Statements also included a review of documentation to further understand and assess elements of and background to the above loan arrangement and to establish the rationale / basis for the interest rate applicable in respect of the consolidated loan amount.

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

During the year ended March 31, 2014, as a matter of prudence, the Company provided for receivables in relation to interest income of Rs. 96.31 Crores and provided Rs. 330.32 Crores towards the principal outstanding as at March 31, 2014. The notes to accounts for the year ended March 31, 2014 had recorded the Management's belief that it should be able to recover, and that no further provision is required for the balance amount of Rs. 995.46 Crores. The notes also mentioned that the Management would continue to assess the recoverability of the said loan on an on-going basis. As per the terms of the said loan agreement, interest payable by UBHL to the Company in January 2015 amounted to Rs.191.10 Crores (gross of tax) and a further interest amounting to Rs. 127.05 Crores (gross of tax) was due in January 2016. However, the Company is yet to receive such interest payments from UBHL.

In the financial year ended March 31, 2015 and again in the financial year ended March 31, 2016, the Company received letters 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 and due to Court orders passed in winding up proceedings it is unable to pay such sums without leave of the Court which it proposes to seek. Despite prior undertakings to obtain such leave from the Court to pay USL the amounts due, and despite repeated follow up by the Company with UBHL in this regard, the Company has not received any update or information from UBHL indicating whether UBHL has applied to the Court for the requisite leave to pay USL.

As a result of the above and other relevant factors, and as a matter of prudence, the Company had provided a further amount of Rs. 995.46 Crores towards the entire balance principal amount (i.e., the entire principal amount due under the loan agreement less the amount already provided in the accounts for the financial year ended March 31, 2014) and did not recognise interest income of Rs. 120.70 Crores for the year ended March 31, 2015. Accordingly, the Company has also not recognised interest income of Rs.127.05 Crores for the financial year ended March 31, 2016.

The Company is pursuing all rights and claims to recover the entire amount of the loan together with accrued interest from UBHL and has written to UBHL demanding payment of all sums. As a result of the foregoing and other relevant considerations, the Company also filed affidavits in the winding up proceedings against UBHL updating the Court with information regarding UBHL's conduct and default in payment of amounts due under the loan agreement. Additionally, during the current year, the Company has set-off an amount of Rs. 24.93 Crores payable to UBHL under the trademark agreement against the provision for interest receivables from UBHL and will continue to set off such payables to the extent feasible.

With regard to the Additional Matters and transactions with Additional Parties, as stated in Note 26(e), the Board has directed the MD & CEO to expeditiously further review the Additional Matters and transactions with the Additional Parties during the period covered by the Inquiry and report to the Board his conclusions on the transactions and any further impact on the Company's financial statements.

C. Auditor's observations under paragraph [(vii)(a)] of the Annexure to the Auditor's report:

(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.

Board's response: Management has informed the Board that there were minor delays in depositing certain undisputed statutory dues due to clerical errors, and that these errors are being addressed, so that such delays are further minimized if not eliminated altogether.

D. Auditor's observations under paragraph [(viii)] of the Annexure to the Auditor's report:

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.

Board's response: Management has informed the Board that as of March 31, 2016 there were no outstanding defaults by the Company of any dues to a bank or financial institution. As stated in Note 25, the Company has disputed a demand made by a bank and has filed proceedings before the Honourable High Court of Karnataka contesting the bank's actions, including the bank's false allegation that the Company has defaulted on certain loan payments.

E. Auditor's observations under paragraph [(x)] of the Annexure to the Auditor's report:

(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.

Board's response: See responses to paragraph 1 of the Auditor's Report to the Statements and to paragraphs [(iii), (iv) and (ix)] of the Annexure to the said Auditor's Report. As indicated in Note 30 to the Statements, the Board's Audit Committee had provided its reply and observations to the auditor's report under section 143(12) of the Act and the relevant rules there under. The said reply and observations to the Auditors include the following observations.

(i) The Board is not in a position to make (and has not made) any final determinations with regard to the roles of any individuals involved. The Board therefore directed that the Company report such transactions to the authorities as required under  applicable law. Accordingly, the Company has duly reported the transactions and associated facts to the relevant authorities, and has also responded / is in the process of responding, as the case may be, to requests for clarifications on the Inquiry that have been sought by the Regional Director of the Ministry of Corporate Affairs, the Income-Tax Department, the Securities and Exchange Board of India (SEBI), the Enforcement Directorate (ED), the Bangalore police, the Institute of Chartered Accountants of India, and the stock exchanges.

(ii) In addition, as noted above, pursuant to the Board's directions, a copy of the MD & CEO's Inquiry report, including the inputs and expert advice of the independent advisers and specialists, as well as the communications received from a concerned director were provided to the Company's auditors.

(iii) In connection with the recovery of funds that appear to have been diverted from the Company, the Board passed a resolution that the Company should take the necessary steps to pursue all rights and claims against, and expeditiously recover its dues from, the relevant parties, to the extent possible. The Board has also authorized the MD & CEO to temper these actions, if considered appropriate, bearing in mind imperatives of business continuity with vendors / distributors. The results of these efforts are discussed in the response to paragraph 1 of the Auditor's Report to the Statements.

(iv) In light of the above, and without making any determination as to fault or culpability, at their meeting on April 25, 2015, the directors noted that they had lost confidence in Dr. Vijay Mallya continuing in his role as a director and as chairman and therefore, the Board called upon Dr. Mallya to resign forthwith as a director and as the chairman of the Board and step down from his positions in the Company's subsidiaries. As stated in Note 24(e) to the Statements, and as reported to the stock exchanges by the Company, on February 25, 2016, the Company entered into a settlement with Dr. Mallya, whereby, inter alia, Dr. Mallya stepped down from his positions on the Board of the Company and its subsidiaries.

(v) In respect of the other employees of the Company who appear to have been involved in certain transactions covered by the Inquiry, the Board directed the company's MD & CEO to initiate necessary internal proceedings in accordance with the applicable rules and policies of the Company.

The Company completed these proceedings and took necessary actions against implicated employees in line with such rules and policies.

(vi) The Board, at its meeting on April 25, 2015, noted that the control systems of the Company have been strengthened after July 2013. In addition, the Board has continued to review the operation of the Company's robust controls environment.

(vii) Following its review of the Inquiry report, the Board reaffirmed its commitment to the highest standards of corporate governance and resolved that the Company would cooperate with all relevant authorities in relation to these matters, and as mentioned above, the Company has been actively cooperating with all concerned authorities.

(viii) Furthermore, the Company received letters from erstwhile auditors who served as the Company's statutory auditors during the period covered by the Inquiry, seeking to understand the impact of the findings of the Inquiry on their respective audit reports. Any remedial actions proposed by the previous auditors will be considered by the Company in the light of applicable legal provisions.

With regard to the review of the Additional Matters and transactions with Additional Parties identified through the Inquiry, as stated in Note [26(a)] to the Statements, the Board has directed the MD & CEO to expeditiously further review the Additional Matters and transactions with the Additional Parties during the period covered by the Inquiry and report to the Board his conclusions on the transactions and any further impact on the Company's financial results. Based on the outcome of such review, the Company will take appropriate action in respect of the underlying Additional Matters and transactions with Additional Parties, as is fit and necessary in the circumstances.

F. Auditor's observations under paragraph [(xi)] of the Annexure to the Auditor's report:

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 received a communication 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 /provided for managerial remuneration for the year ended 31 March 2016 in accordance with the requisite approvals mandated by the provisions 197 read with Schedule V to the Act.

Board's response: The Board has commented on the above matter in its response to paragraph 2 of the Auditor's Report to the Statements.

G. Auditor's observations under paragraphs[(xiii) & (xv)] of the Annexure to the Auditor's report:

(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.

(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.

Board's response: As stated in Note 24 (e ) to the Standalone financial Statements, and as reported to the stock exchanges by the Company, on February 25, 2016, the Company entered into a settlement with Dr. Mallya. 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 from its external counsel, opining that the settlement agreement and related documents are in compliance with the applicable provisions of the Act and SEBI regulations.

2.4 Board's Responses to Observations/Qualifications in Secretarial Audit report:

The Board's responses to the qualifications and other observations are as follows.

The Secretarial Auditors (Auditors) have submitted their report in form No. MR3 and qualified their opinion/observations in respect of the secretarial Audit conducted for the financial year 2015­16 as under and the Board's responses are given against each qualification/ observation as follows:

1. As mentioned in my report for the financial year ended on March 31, 2015, for the managerial remuneration paid in excess of limits prescribed under Section 197 read with Schedule V of the Companies Act, 2013, in absence of profits during the said year, the Company had applied for the requisite approval from the Central Government. Subsequent to year end, the Company has received the 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.

Board's Response: The Company applied for the requisite approval from the Central Government for such excess remuneration. Subsequent to the year end, the Company received a communication from the Central Government not approving the application due to non-submission of the no objection certificate from one of its lenders. The Company is seeking to obtain the said no objection certificate from the relevant lender. Meanwhile the Company has also applied to the Central Government for reconsideration of the application in view of the dispute with the Bank which are sub-judice and in the light of the special circumstances surrounding the matter and getting NOC from the Bank.

2. The vacancy in the office of Chief Financial Officer of the Company was not filled up by the Board of Directors within a period of six months from the date of vacancy as required under Section 203(4) of the Companies Act, 2013. The Company has made necessary application for compounding the said offense with the prescribed authorities under Section 621A of the Companies Act, 1956.

Board's Response: The vacancy was filled up during the year with delay of few days. The Company has applied for compounding for this delay.

3. The Company did not hold its Sixteenth Annual General Meeting within a period of six months from the closure of financial year ended on March 31, 2015 as required under Section 96 of the Companies Act, 2013. The Company has made necessary application for compounding the said offence with the prescribed authorities under Section 621A of the Companies Act, 1956.

Board's Response: As stated in para 3.4 of the Directors Report for the year ended March 31, 2015 the Company  had applied to the Registrar of Companies seeking extension of time for reason explained in the said Directors Report. However, the Company did not receive approval for extension of time for holding the Annual General Meeting from the Office of the Ministry of Corporate Affairs. The Annual General Meeting was called at the earliest date feasible i.e. November 24, 2015. Company has since applied for compounding for this delay as well.

Material Changes and Commitments/ Events Subsequent to the date of the Financial Statements.

3.1 Inquiry into Prior Year's Audit Qualifications

In 2014, the Board had directed a detailed and expeditious inquiry in relation to certain matters referred to below, the role of individuals involved and potential non-compliance (if any) with the provisions of the Companies Act, 1956, and other regulations applicable to the Company in relation to such transactions, and the possible existence of any other transaction of a similar nature (Inquiry). Pursuant to the directions of the Board, the Inquiry was headed by the MD & CEO of the Company. The Board also directed the MD & CEO to engage independent advisers and specialists as required.

At its meeting held on April 25, 2015, the Board discussed and considered in detail the report (Inquiry Report) submitted by the MD & CEO in relation to the Inquiry, the inputs and expert advice of the independent advisers and specialists and other relevant inputs. Details regarding this Inquiry and the actions taken are contained in Note [26] to the Statements, as well as in the Board's responses to the Observations, Qualifications and Adverse Remarks contained in the preceding section of this report.

The following paragraphs provide further updates on these matters.

In connection with the recovery of the funds that were diverted from the Company and/or its subsidiaries, pursuant to the decision of the Board at its meeting held on April 25, 2015, the Company initiated steps for recovery against the relevant parties, so as to seek to expeditiously recover the Company's dues from such parties, to the extent possible. During the financial year ended March 31, 2016, the Company reached settlements with four of the parties based on which the Company wrote back or reversed provisions aggregating Rs. 54.32 Crores. Settlements with the other parties have not been reached as yet and management is continuing discussions in this regard. During the year ended March 31, 2016, based on its assessment of recoverability, the Management has written off Rs. 566 Crores out of the amounts provided for with respect to the aforesaid counterparties

With regard to the Board's recommendations concerning the former chairman, as stated in Note [24(c)] to the Statements, and further discussed below, on February 25, 2016, the Company entered into a settlement with Dr Mallya, whereby, inter alia, Dr. Mallya stepped down from his positions on the Board of the Company and its subsidiaries.

With regard to the review of the Additional Matters and transactions with Additional Parties identified through the Inquiry, as stated in Note [26(c)] to the Statements, the Board has directed the MD & CEO to expeditiously further review the Additional Matters and transactions with the Additional Parties during the period covered by the Inquiry and report to the Board his conclusions on the transactions and any further impact on the Company's financial results. Based on the outcome of such review, the Company will take appropriate action in respect of the underlying Additional Matters and transactions with Additional Parties, as is fit and necessary in the circumstances.

The Company is continuing to cooperate with the authorities and provide information being requested, including in relation to the additional letters/ notices referred to in Note [30] to the financial statements for year ended March 31, 2016.

3.2 Settlement Agreement with Dr. Vijay Mallya

As mentioned in Note [24(c)] to the Statements, on February 25, 2016, USL entered into a settlement agreement with Dr. Mallya pursuant to which he resigned from his positions as a director and chairman of the Company and of the boards of its subsidiaries. Pursuant to this settlement, the Company and Dr. Mallya agreed a mutual release in relation to matters arising out of the above-mentioned Inquiry by the Company into certain matters referred to in its financial statements for the financial year ended March 31, 2014. Additionally USL undertook to Dr. Mallya that it shall not bring a civil claim for money, damages or specific performance against the counterparties mentioned in the aforesaid Inquiry in relation to matters arising out of the said Inquiry. In connection with the settlement, Dr. Mallya procured or undertook to procure the termination by the relevant counterparties of certain historical agreements to which the Company was party and which were voted down by the shareholders in November 2014. While most of these historical agreements were terminated at the same time as the settlement with Dr. Mallya (including mutual releases for claims arising thereunder subsequent to November 28, 2014), one of the counterparties did not agree to such termination and release, notwithstanding Dr. Mallya's undertaking to procure such termination. In addition to the above terms in the settlement, Dr. Mallya agreed to a global non-compete (excluding United Kingdom), non­interference and standstill obligations as regards the Company for a period of five years following the date of the settlement. The Company agreed that Dr. Mallya will have the honorary title of

"Founder Emeritus - USL". USL confirmed that it has no intention to remove Mr. Sidhartha Mallya (Dr. Mallya's son) as a director of Royal Challengers Sports Private Limited (RCSPL), which holds the franchise for the IPL team Royal Challengers Bangalore (RCB), for a period of two years or while RCB remains part of the USL Group, whichever is earlier, subject to Dr. Mallya's continuing compliance with the terms of the settlement. Dr. Mallya will have the status of Chief Mentor while Mr. Sidhartha Mallya remains on the board of RCSPL. The members of the board of RCSPL will be able, if they wish, to consult with Dr. Mallya. Dr. Mallya's above mentioned titles carry no authority, responsibility, rights or benefits within the Company or its group. As part of its arrangements with Dr. Mallya, the Company also entered into certain principles, pursuant to which Dr. Mallya or a party nominated by him would have a limited period option to purchase up to 13 non-core properties from the Company. If Dr. Mallya or his nominee elects to acquire any or all of these properties, the election would need to be made in a time-bound manner and the price at which the properties may be acquired will be the fair market value as assessed by a reputed independent valuer appointed by USL, with a 10% discount applying to the valuation of three of the residential properties (in Mumbai, Goa and New Delhi), provided that each of the fair market value and the discounted value applicable to certain select properties as specified above, shall not be less than the value of that property adopted or assessed by any authority or state government for the purposes of payment of stamp duty in respect of the transfer of the relevant property. The sale prices for these properties (including the post-discount price for the relevant three properties) are expected to be higher than the prices, which applied under the now-terminated properties call agreement that was one of the above-mentioned historical agreements terminated in connection with the settlement.

Pursuant to the settlement agreement, UBHL and Kingfisher Finvest India Limited's (KFinvest's) nominated director on the USL board Dr. Mallya, resigned. UBHL indicated it may be prevented from agreeing to terminate the shareholders agreement immediately by reason of certain legal and court restrictions which may apply as a result of winding-up proceedings to which UBHL is subject in India. USL was informed that UBHL proposes to seek court leave for an agreed termination of the Shareholders' Agreement, and USL has received certain undertakings in this regard from Dr. Mallya. USL has received further notice from Dr. Mallya regarding some steps taken, though UBHL is yet to seek court leave to terminate the shareholders' agreement.

Given the nature and complexities of the settlement, and the possibility of varied interpretations of potentially applicable provisions of the Act and SEBI regulations, as mentioned above, the Company has obtained legal opinions from a senior legal counsel and from its external counsel, opining that the settlement agreement and related documents are in compliance with the applicable provisions of the Act and SEBI regulations.

3.3 Requests for Information from Regulators

A number of letters and notices were received by the Company with respect to the matters under Inquiry.

The Company received a notice from the Ministry of Corporate Affairs ("MCA") for an inspection, under Section 206(5) of the Act, of the books of accounts and other books and papers of the Company. Following the Inquiry, the Company and its directors and officers (including former directors and officers) also received a notice from the Joint Director, MCA 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. The Company has responded to this notice. A notice under Section 131 of the Income Tax Act, 1961 has also been received. The Company is cooperating fully with the authorities in relation to the same.

The Company also received letters from erstwhile auditors who served as the Company's statutory auditors during the period covered by the Inquiry, seeking to understand the impact of the findings of the Inquiry on their respective audit reports. Any remedial actions proposed by the previous auditors will be considered by the Company in the light of applicable legal provisions.

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

In February 2016, certain directors of the Company, including independent directors, were requested to provide statements and information to the Serious Frauds Investigation Office (SFIO) in relation to the SFIO's investigation into Kingfisher Airlines.

The Company also received letters from the National Stock Exchange Limited (NSE) pursuant to SEBI circular no. CIR/CFD/ DIL/7/2012 dated August 3, 2012 in relation to Form B, along with audited financial statements for the financial year ended March 31, 2014. SEBI directed the NSE to advise the Company to suitably rectify/ provide relevant information/ explanations on the qualifications raised by the statutory auditors. The Company has suitably addressed the same to the extent possible and responded to the NSE's letters.

By a letter dated October 21, 2015, the Institute of Chartered Accountants of India sought a copy of the Inquiry Report, pursuant to the provisions of Section 21C of the Chartered Accountants Act, 1949. The Company has responded to the request.

By a letter dated October 29, 2015, the Company received a request from the ED, seeking information and documents regarding USL's present and former joint ventures and wholly-owned subsidiaries abroad, including USL Holdings Limited (BVI) and its subsidiaries. The Company has responded to the ED and provided the information sought. By a letter dated May 5, 2016, the ED summoned one of the Company's senior officers to provide a statement and tender evidence in connection with the ED's investigation into matters under the Prevention of Money Laundering Act, 2002. The Company's officer duly responded to the summons and the Company has also provided additional information, as requested by the ED, and is cooperating fully with the authorities.

By a warrant dated November 24, 2015, issued by the Office of the Tax Recovery Officer, the Company was informed that a certificate had been drawn up by the tax recovery officer against Kingfisher Airlines Limited, and its chairman cum managing director (Dr. Mallya), and stating that a sum of Rs. 350.6 Crores had not been paid in satisfaction of the said certificate. The Company was accordingly directed to serve a copy of the warrant on Dr. Mallya, and unless after such service Dr. Mallya "pays forthwith the said sum of Rs. 350.60 crores together with interest at the rate of one and one-half per cent, for every month or part of a month" thereon, to proceed to attach the "salary, remuneration and allowances" of the director named in the warrant and to hold the same until further orders from the tax recovery officer. The Company has accordingly served such warrant.

By a letter dated March 9, 2016, SEBI sought further information regarding various aspects of the settlement agreement with Dr. Mallya. The Company responded to SEBI and provided the information and clarifications sought. The Company recently received a follow up request, dated May 11, 2016 seeking additional clarifications including on the matters covered by the Company's inquiry referred to above. The Company is in the process of preparing and submitting its responses to this additional request and will be cooperating fully with SEBI in this matter.

3.4 Dispute with a Bank

As mentioned in Note [25] to the Statements, during the year ended March 31, 2014, the Company decided to prepay credit facilities availed in the earlier years from a bank, amounting to Rs. 621.66 Crores. This loan was 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. 628.00 Crores, 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, including towards a prepayment penalty of Rs. 4.0 Crores that was sought to be levied by the bank. The bank, however, did not apply the sums towards prepayment. The Company has disputed the same and a petition is pending before the Hon'ble High Court of Karnataka. The original tenure of the said credit facility ended on March 31, 2015. On March 31, 2015, the bank demanded an amount of Rs.47.4 Crores towards principal and interest on the said loan, which the Company contested before the Hon'ble High Court of Karnataka. As per the order of the Hon'ble High Court of Karnataka, the Company engaged with the bank to commence discussions. However, during the year, the bank obtained an ex parte injunction in proceedings between the bank and Kingfisher Airlines Ltd before the Debt Recovery Tribunal Bangalore (DRT), restraining the USL Benefit Trust from disposing of the pledged shares until further orders. The Company and USL Benefit Trust, upon receiving notice of the said order, filed their objections against such ex parte order passed in proceedings in which neither the Company nor the USL Benefit Trust are or have been enjoined as parties, and the Company is vigorously contesting the same. In December 2015, the Hon'ble High Court of Karnataka issued a stay order restraining the bank from dealing with the above-mentioned pledged shares until further orders by the Hon'ble High Court. 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. 45.94 crores, 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 Hon'ble High Court, in the writ proceedings, the Hon'ble High Court directed that if the Company deposited the sum of Rs. 45.94 crores 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 Hon'ble 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 bank has recently issued a reply to the Company under section 13(3) of SARFAESI Act demanding further interest on the prepaid loan, notwithstanding the prepayment and the deposit of the additional amounts by the Company pursuant to the orders of the Hon'ble High Court of Karnataka. The Company intends to vigorously contest these baseless demands. Pending closure of this matter, the demand by the bank has been disclosed as a contingent liability.

3.5 Prohibition in Bihar

The Government of Bihar declared complete prohibition in that State w.e.f. April 01, 2016. Company has taken cognizance of the matter and is taking steps to mitigate this risk. Please also refer  to the Section Management Discussion and Analysis Report forming part of this Directors Report.

4. Change in nature of Business, if any.

The details of change in nature of business is provided under Management Discussion and Analysis Report and the Report on Risk Management forming part of this Annual Report.

5. Dividend

In view of the accumulated losses of the preceding years, your directors have not recommended any dividend.

6. Capital

As a result of the Scheme of Amalgamation between the Company and SW Finance CO Ltd., being effective from January 1, 2014 and upon sanction of the Scheme by the Hon'ble High Court of Karnataka and Hon'ble High Court of Judicature at Bombay, the authorized share capital of the Company stands increased to Rs. 7,192,000,000 divided into 548,000,000 equity shares of Rs. 10/- each amounting to Rs. 548 crores, 159,200,000 Preference shares of Rs.10/- each amounting to Rs. 159.20 crores and 1,200,000 7% non-cumulative redeemable Preference Shares of Rs.100/- each amounting to Rs.12 crores.

The issued, subscribed and paid-up equity share capital of your company stands unchanged at Rs.1,453,277,430/- divided into 145,327,743 equity shares of Rs.10/- each.

7. Global Depository Shares

The Company had issued during the Financial year 2005-06, 17,502,762 global depository shares (GDSs) representing 8,751,381 equity shares with 2 GDS representing 1 equity share of par value of Rs. 10/-each at US$7.4274 per GDSs, aggregating to US$ 130 million, continue to be listed on the Luxembourg stock exchange. These GDS do not carry any voting rights. The present outstanding GDRs as on March 31, 2016 was  745,588.

8. Performance of the Company

During the year under review, your company has achieved a sales volume of over 93 million cases and declined 1% compared to prior period (previous year 94 million cases, excluding royalty / franchise markets). Net sales/income from operations of the company's brands grew 13% in the financial year ended March 31, 2016 and stood at Rs. 90,919 million net of duties and taxes (previous year Rs. 80,493 million). Direct distribution of the Diageo brand portfolio drove 8 ppts of net sales growth. Sales volume of the company's brands in the 'Prestige and Above' segment grew 10% in the financial year ended March 31, 2016 and stood at 34 million cases (previous year 31 million cases). Net sales of the 'Prestige and Above' segment grew 26% and stood at 46,013 million net of duties and taxes (previous year 36,500 million). Direct distribution of the Diageo brand portfolio contributed 19 ppts net sales growth to the Prestige and Above segment. The 'Prestige and Above'segment represents 37% of total sales volumes and 51% of total net sales, with 4 ppts and 5 ppts improvement respectively compared to prior year.

9. Details of Subsidiary Companies, Joint Ventures and Associate Companies, and their Financial Position

Your Company had 19 subsidiary companies in the financial year ended on March 31, 2016. The information required under the first proviso to section 129(3)of the Act is given inform AOC- 1 in Annexure 1. The Company's policy for determining material subsidiaries is available at www.unitedspirits.in

Consequent to the sale Bouvet Ladubay S.A.S. and Chapin Landias S.A.S., the two wholly owned subsidiaries of the Company ceased to be subsidiaries of the Company and as stated in the earlier note, SW Finance Co. Limited also ceased to be subsidiary of the Company upon its merger with your Company.

10. Prospects/ Outlook

The details about prospects/ outlook of your Company are provided under the Management Discussion and Analysis Report, forming part of this Annual Report.

11. Depository System

The trading in the equity shares of your Company is under compulsory dematerialisation mode. As on March 31, 2016, equity shares representing 98.72% of the equity share capital are in dematerialised form. As the depository system offers numerous advantages, members are requested to take advantage of the same and avail of the facility of dematerialisation of the Company's shares.

12. Board Meetings, Board of Directors, Key Managerial Personnel & Committees of Directors

12.1 A. Appointment,change in designation and resignation

Details on appointments, changes in designation, and resignation of Directors, key managerial personnel, and Committees of Directors, as well as on Board and Committee meetings of your company, and the matters required to be specified pursuant to sections 134 and 178 of the Companies Act, 2013 and the SEBI (Listing Obligations And Disclosure Requirements) Regulations are provided in the Corporate Governance Report that is annexed to, and forms part of this Annual Report.

B. Re-appointment

As per the provisions of the Act, Dr. Nicholas Bodo Blazquez retires by rotation and, being eligible, offers himself for re- appointment.

A brief profile of Dr. Nicholas Bodo Blazquez is provided in the Notice of 17th AGM.

C. Independent Directors

As stated in the Corporate Governance Report, the following Independent Directors were appointed at the 16th annual general meeting (AGM) of your Company, who were appointed as Additional Directors by the Board of Directors for a period of 5 years from the date of their appointment by the Board as shown below

Mr. Rajeev Gupta w.e.f. December 23, 2014 Mr. M. K. Sharma w.e.f. April 1, 2015

Relay B.V. holding Company of your Company has nominated Mr. Vinod Rao as a Director in the Company and accordingly, the Board of Directors of your Company appointed Mr. Vinod Rao as a director with effect from May 24, 2016.

A brief profile of Mr. Vinod Rao is provided in the Notice of 17th AGM.

Mr. Sudhakar Rao, an Independent Director of the Company has resigned as director w.e.f. May, 19, 2016.

Your directors place on record their sincere appreciation of the valuable services rendered by Mr. Sudhakar Rao during his tenure as director in the Company.

D. Key Managerial Personnel

Mr. Sanjeev Churiwala was appointed as Chief Financial Officer with effect from November 16, 2015 in place Mr. P. A. Murali, former Executive Director and Chief Financial Officer who resigned w.e.f. April 22, 2015.

Mr. V. Ramachandran was appointed as Company Secretary with effect from May 1, 2015 in place of Mr. V. S. Venkataraman, former Company Secretary, who retired on March 31, 2015.

E. Number of Meetings of the Board

The details of the Board Meetings and other committee Meetings held during the financial Year 2015-16 are stated in the Corporate Governance Report.

F. Board Committees

The Company has setup the following committees of the Board.

Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, Corporate Social Responsibility Committee, Risk Management Committee and General Committee of Directors.

The Board of Directors at their meeting held on May 12, 2016, merged the Risk Management Committee with the Audit Committee and the Audit Committee was renamed as Audit and Risk Management Committee.

The composition of each of the above committees, and their respective roles and responsibilities are detailed in the Corporate Governance Report.

G. Recommendations of the Audit Committee

All the recommendations of the audit committee have been accepted by the Board.

H. Details of remuneration to Directors

As required under Section 197(12) of the Act, information relating to remuneration paid to Directors during the financial year 2015 - 16 is provided in the Corporate Governance Report and in form MGT 9, that is annexed to and forms part of this Annual Report as Annexure-4. Furthermore, as stated in the Corporate Governance Report, the Company has requested the Central Government to reconsider the applications for remuneration paid in excess of the limits prescribed under the provisions of Schedule V to the Act, during the financial year ended  March 31, 2015.

As stated in the Corporate Governance Report, sitting fees are paid to non-executive Directors for attending Board/ Committee meetings. They are also entitled to reimbursement of actual travel expenses, boarding and lodging, conveyance and incidental expenses incurred in attending such meetings, in accordance with the travel policy for Directors. In addition, the Non-Executive Directors are also eligible for commission every year, not exceeding 1% of the net profits of the Company, calculated in accordance with section 198 of the Act, as approved by the shareholders at the AGM held on September 30, 2014. Such approval remain in force until revoked. The payment of Commission is to be decided by the Board of Directors, based on the recommendation of the Nomination and Remuneration  Committee. Criteria for payment of remuneration to non-executive directors is as below:

1. Membership of Committees

2. Chairmanship of the Committees/Board

3. Benchmarking with other companies

The Company has made a provision of t 1.25 Crores for paying commission to the following Non-Executive Directors subject to approval and adoption of the audited financial statement for the year ended March 31, 2016

1) Mr. M.K Sharma

2) Mr. Sudhakar Rao (Ceased to be director w.e.f. May 19,

2016)

3) Mr. D. Sivanandhan

4) Dr. (Mrs.) Indu Shahani

5) Mr. Rajeev Gupta

6) Mr. Ravi Rajagopal

The criteria for payment of remuneration to executive directors is determined by the Nomination and Remuneration Committee.

I. Board Evaluation Criteria

Pursuant to the provisions of the Act, and Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board has carried out an annual performance evaluation of its own performance, the Directors individually, as well as the Board Committees. The evaluation process considered the effectiveness of the Board and the committees with special emphasis on the performance and functioning of the Board and the Committees. The evaluation of the Directors was based on the time spent by each of the Board Members, core competencies, expertise and contribution to the effectiveness and functioning of the Board and the Committees.

12.2 Vigil Mechanism

Your Company has a well-established vigil mechanism in place, which is managed by the compliance & ethics team. Ispeak is a confidential service available to employees to make a report when they believe there to be a potential breach of the code, policies or applicable laws. ispeak is managed by an external company, with staff who are trained to deal with the calls, and translators who are immediately available to assist if required. Access to the Chairman of the Audit Committee is provided for in appropriate/ exceptional cases, as required under the Act and the SEBI (Listing obligations and Disclosure Requirements) Regulations, 2015. All complaints are investigated by the compliance and ethics team and appropriate action taken in accordance with your company's policies.

12.3 Related Party Transactions

The Company's policy on dealing with related party transactions was adopted by the Board on June 15, 2015 and has been amended from time to time and is available on website link <http://unitedspirits.in>.

All related party transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the company with promoters, directors, key managerial personnel or other designated persons, which may have a potential conflict with the interest of the company at large.

The details of related party transactions required under section 134(3)(h) read with rule 8 of the Companies (Accounts) Rules, 2014, is given inform AOC2 and the same is enclosed as Annexure-2.

As mentioned above, on February 25, 2016, USL entered into a settlement agreement with Dr. Mallya pursuant to which, inter alia, he resigned from his positions as a director and Chairman of the Company and of the boards of its subsidiaries. Given the nature and complexities of the settlement, and the possibility of varied interpretations of potentially applicable provisions of the Act and SEBI regulations, as mentioned above, the Company has obtained legal opinions from a senior legal counsel and from its external counsel, opining that the settlement agreement and related documents are in compliance with the applicable provisions of the Act and SEBI regulations.

13. Auditors

13.1 Financial Audit

M/s. B.S.R. & Co. LLP, Chartered Accountants, Statutory Auditors of your Company, have tendered their resignation with effect from the conclusion the ensuing 17th AGM. The Audit Committee at their meeting held on June 8, 2016, recommended the appointment of M/s.Price Waterhouse & Co Chartered Accountants LLP, (FRN 304026E/ E-300009) who have given their consent and willingness to be appointed as Auditors of your Company. The Board of Directors at their meeting held on the same day, approved the recommendation of the Audit Committee and proposed to appoint M/s. Price Waterhouse & Co Chartered Accountants LLP, as Auditors of your Company for a period of 5 years from the conclusion of the ensuing 17th AGM till the conclusion of the 22nd AGM of the Company subject to the approval of the members of the Company at the ensuing AGM.

13.2 Secretarial Audit

Pursuant to the provisions of section 204 of the Act, and the Companies (Appointment and Remuneration of Managerial

Personnel) Rules, 2014, a Secretarial Audit has been carried out by Mr Sudhir V Hulyalkar, Practising Company Secretary, and his report is annexed as Annexure 3.

14. Listing of Shares of the Company

The equity shares of your Company continue to be listed with the BSE Limited and the NSE. The Global Depository Shares issued by the Company have been listed on the Luxembourg Stock Exchange. The listing fees due as on date has been paid to the respective stock exchanges.

15. Corporate Governance

A Corporate Governance Report is annexed separately as a part of this report.

16. Management Discussion and Analysis Report

The Management Discussion and Analysis Report is annexed separately as a part of this report.

17. Fixed Deposits

As reported in the previous year's annual report, your Company discontinued accepting fixed deposits from the public and shareholders effective January 1, 2014. In addition, pursuant to section 74(1)(b) of the Act, the Board of Directors at their meeting held on August 1, 2014 decided to repay all fixed deposits maturing on or after March 31, 2015 by March 31, 2015. Fixed Deposits from the public and shareholders, which remained unclaimed and for which instructions had not been received from the depositors as on March 31, 2016, stood at t 1,61,07,729. This amount was transferred into a separate non-interest bearing escrow account opened specifically for the purpose of re-payment, has been re-paid consistent with the provisions of the Act, and the rules made thereunder. Of this amount, a sum of t 28,58,043 (as of May 31, 2016) has since been paid as per instructions received after the year end. The balance unclaimed fixed deposits continue to remain in the escrow account.

18. Extract of Annual Return

The details forming part of the extract of the Annual Return in form MGT 9 is annexed as Annexure 4.

19. Transfer to Investor Education and Protection Fund(IEPF)

Pursuant to the provisions of Sections 205A (5) and 205C of the Companies Act, 1956 read with Rule 8 of the Companies (Accounts) Rules, 2014, the Unclaimed Dividend and Deposits, remain unclaimed and unpaid for a period of more than 7 years. The Company has accordingly transferred an amount aggregating to Rs. 16,88,655/- as unpaid dividend and Rs. 11,91,611/- as unclaimed fixed deposits including interests during the year to the Investor Education and Protection Fund within 30 days from the expiry of 7 years as per the details given below.

20. Human Resources

Employee relations remained cordial at all the locations of the Company.

Particulars of employees drawing an aggregate remuneration of Rs. 60,00,000/- or above per annum or Rs.5,00,000/- or above per month, as well as additional information on employee remuneration as required under the provisions of rule 5(1), 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial personnel) Rules, 2014 is annexed as part of this report in Annexure 5 hereto.

21. Employees Stock Option Scheme

Your Company has not offered any stock options to its employees during the year 2015-16. During the year 2015-16, the Board, at its meeting held on August 20, 2015, approved a Stock Appreciation Rights (SAR) plan for grant of 500,000 SARs and authorised the Nomination and Remuneration Committee to decide the criteria for grant and vesting of the SARs to employees and eligible directors. Since there will be no fresh issue of shares as a result of the SARs, there will be no dilution of equity and earning per share.

22. Particulars of Loans, Guarantees and Investments

Loans, guarantees and investments covered under Section 186 of the Act, are detailed in Notes to the financial statements, which are as follows:

Notes 7 and 11.1 relating to investments,Notes 9 and 11.5 relating to loans given and Note 33 relating to guarantee given as per the standalone financial statements for the year ended March 31, 2016 include these disclosures.

23. Risk Management

Details on Risk Management are annexed as part of this report in Annexure 6 hereto.

24. Internal Financial Controls

The Board considered material placed before it, and after reviewing the confirmation from external parties and reviewing the effectiveness of the policies and procedures adopted by the Company for ensuring orderly and efficient conduct of its business, including adherence to company's policy, safeguarding its assets, prevention and detection of frauds and errors and completeness of accounting records and timely preparation of financial statements, the Board has satisfied itself that the Company has laid down internal financial controls, commensurate with size of the company and that such internal financial controls are broadly adequate and are operating effectively. The certification by the auditors on internal financial control forms part of the audit report.

25. Corporate Social Responsibility

Information on the composition of the Corporate Social Responsibility (CSR) Committee is provided in the Corporate

Governance Report that forms part of this annual report. Furthermore, as required by section 135 of the Act, and the rules made thereunder, additional information on the policy and implementation of CSR activities by your company during the year are provided in Annexure 7 to this report. Business Responsibility Report under Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 has been enclosed as Annexure 9 and also uploaded on to the Company's websitewww.unitedspirits.in

26. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars prescribed under section 134(3)(m) of the Act, read with rule 8 of the companies (Accounts) Rules, 2014, are set out in Annexure 8 to this report.

27. Details of Significant and Material Orders Passed by the Regulators or Courts Impacting the Going Concern Status and Company's Operations in Future

The Company has not received any significant or material order passed by regulators or courts impacting the Company's going concern status or the Company's operations in future. The Management Discussion Analysis Report read with the report on Risk Management contains impact on the business due to regulatory changes.

28. Disclosure as required Under Section 22 of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

The Company has implemented a prevention of sexual harassment policy, in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (SHWWA). An Internal Complaints

Committee (ICC) has been set up to redress complaints received regarding sexual harassment, and on-going training is provided to employees as required by the SHWWA. During the financial year 2015-16 one complaint was received and disposed of by the ICC.

29. Directors' Responsibility Statement

Pursuant to section 134 (5) of the Act, in relation to financial statements (together with the notes to such financial statements)  for the year 2015-16, the Board of Directors report that:

(i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(ii) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit/ loss of the Company for that period;

(iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(iv) the Directors have prepared the financial statements on a going concern basis;

(v) the Directors have laid down internal financial controls to be followed by the company commensurate with the size and nature of its business and the complexity of its operations and that such internal financial controls are adequate and are operating effectively; and

(vi) the company has a system of getting reports of compliance periodically from the units and is also in the process of implementing more comprehensive systems to ensure compliance with the provisions of all applicable laws.

Your Directors place on record their sincere appreciation for the continued support from shareholders, customers, suppliers, banks and financial institutions and other business associates.

A particular note of thanks to all employees of your company, without whose contribution, your company could not have achieved the year's performance.

By Authority of the Board

Anand Kripalu M K Sharma

MD & CEO

Chairman

Place : Bangalore

date : June 8, 2016