New Delhi : Diageo-owned United Spirits is seeking approval from its shareholders to report sick to BIFR as its accumulated losses as on March 31, touched 86 per cent of peak net worth during the past four fiscal years.
As per the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), if the accumulated losses of a company, at the end of any financial year have resulted in erosion of 50 per cent or more of its peak net worth during the preceding four financial years, such firm is required to report to the Board for Industrial and Financial Reconstruction (BIFR).
In a notice to the shareholders for an EGM on January 22, United Spirits today said, as per the audited annual accounts for the fiscal ended March 31, “the accumulated losses of the company as at March 31, 2015 is 86 per cent of its peak net worth during the four financial years preceding the financial year ended March 31, 2015”.
“Accordingly, this extraordinary general meeting (EGM) is being convened to consider and approve the enclosed report of the Board of Directors on such erosion and its causes, and the measures being taken as per the relevant provisions of SICA, and also to approve the reporting of such erosion to BIFR in terms of Section 23 of SICA,” it added.
The company said its accumulated losses as on March 31, at Rs 5,045.45 crore is greater than 50 per cent of the peak net worth in the immediately preceding four financial years at Rs 5,849.62 crore.
The two main reasons for the losses are “diminution in the value of long-term investments in subsidiaries and loans and advances to subsidiaries due to low capacity utilisation, negative margins, or strategic shift in business (Rs 716.16 crore)” and “provision on advances to United Breweries (Holdings) Ltd (Rs 995.45 crore)”, it said. Others reasons are diminution in the value of investments and advances in overseas subsidiaries (Rs 184.85 crore), loss on sale of shares in subsidiaries (Rs 10.84 crore), profit on sale of manufacturing unit (Loss of 35.65 crore), provision for doubtful debts, advances and deposits (Rs 113.40 crore) and provision for sales and other taxes (Rs 97.32 crore).
USL said it has generated cash profits during six months ended September 30, and it is taking steps including entering into certain arrangements with certain overseas subsidiary companies of Diageo Plc for manufacture and sale of certain key brands, to improve its financial health.
In April last year alleging fund diversion to Kingfisher and other UB Group entities, USL had asked its erstwhile Promoter and Chairman Vijay Mallya to quit the board, even as the liquor baron rejected the demand and the charge.
The board of USL, in which Diageo had bought a controlling 55 per cent stake for about USD 3 billion, alleged “various improprieties and legal violations” were found in a probe into loans worth Rs 1,337 crore given by USL to various UB Group firms.