Kwality Ltd. - Quarterly/Annual Result Disclosures and Notes dated 31 Mar 2020

1. The Corporate Insolvency Resolution Process (“CIRP”) was initiated, on an application filed under Section 7 of the Insolvency & Bankruptcy Code, 2016 (“the Code”) by KKR India 1‘inancial Services Private Limited against Kwality Limited (“the Company” and/or “Corporate Debtor”) vide admission Order dated 11 December 2018 C Insolvency Commencement Date") passed by the Hon Tile National Company Law Tribunal (“NCLT”), Delhi Bench. Shailendra Ajmera IP Registration No. IBBI/IPA-(X)1/IP-P003G4/2Q17-18/10568 was appointed as Interim Resolution Professional ("IRP") to manage affairs of the Company in accordance with the provisions of the Code and thereafter he was continued and appointed as the Resolution Professional (“RP”) by the committee of creditors (“CoC”) of the Company in the meeting held on 11 January 2019 under the provisions of the Code. Pursuant to the NCLT order for commencement of the CIRP and in line with the applicable provisions of the Code, the power of the Board of Directors stood suspended and same is being exercised by RP. The CIRP period was extended from 180 days to 330 days from the insolvency commencement date, vide orders dated 24 May 2019 and 6 September 2019.

Resolution Plan dated 17 October 2019 (read with Addendum 1 & Addendum 2) of Consortium of Haldiram Snacks Pvt. Ltd and Pioneer Securities Pvt. Ltd. (“Resolution Applicant”) for the Company was not approved in terms of the requirement of Section 30(4) of the Code. Subsequently, the Resolution Applicant improved the value offered in the resolution plan vide Addendum 3 dated 4th November 2019, which was not considered by the CoC. Consequently, on 8th November 2019, on the direction of CoC, an application was filed by the RP in this regard with Hon’ble NCLT to pass such order or direction as it considers fit and proper in the facts and circumstances of the case.

Simultaneously, the Resolution Applicant also filed an application with Hon’ble NCLT on 6th November 2019 in respect of the Company for extension of the CIRP period and directing the RP to place the revised offer, vide Addendum 3 submitted by the Resolution Applicant, before the CoC for consideration among other miscellaneous matters. Resolution plan dated 17 October 2019 read with Addendum 1, 2, 3 and 4 was re-considered by the CoC on direction of Hon’ble NCLT vide order dated 14 November 2019 and was again not approved in terms of the requirement of Section 30(4) of the Code. RP filed a status report with Hon’ble NCLT on 6th December 2019 apprising the 1 Jon’ble NCLT of the same.

However, on 7th December 2019, the Resolution Applicant has further filed an application with Hon’ble NCLT in respect of the Company, for directing the CoC to approve the Resolution Plan and make it binding on the Corporate Debtor and other stakeholders with immediate effect and keeping the application for liquidation of the Corporate Debtor filed by RP in abeyance until the application is decided by the Hon’ble NCLT among other miscellaneous matters. The matter is currently sub-judice and consequently the Company is continuing to operate as a going concern in terms of the Code.

These standalone financial results for the quarter ended 31 December 2019 have been prepared by the management of the Company and certified by Mr. Sharad Bhandari, Chief Financial Officer (‘CFO’) of the Company in accordance with Regulation 33(2) of the SEBl (Listing Obligations and Disclosure Requirements) Rules, 2015.

The unaudited financial results w'ere placed before, the RP, the CFO and the Company Secretary on 14 February 2020 for their consideration. Accordingly, the unaudited financial results were considered, recommended and approved in the meeting. In view thereof, the RP, in reliance of such examination and the representations, clarifications and explanations by the CFO, has approved the same. To the extent, these unaudited financial results indicate or confirm to events prior to the appointment of RP, the confirmation is being provided only by the CFO. The RP is relying on the representation letter dated 14 February 2020 for all information and confirmation in relation to the day to day functioning of the Company and all information and confirmation in relation thereto.

the RP has approved these standalone financial statements solely in discharge of the powers of the Board of Directors of the Company (suspended during CIRP) being exercised by him in terms of provisions of Section 17 of the Code.

2. The carrying value of tangible assets (including capital work in progress of INR 662.16 lakhs) and intangible assets as at 31 December 2019 amounting to INR 29,055.86 lakhs and INR 70.82 lakhs respectively. The CIRP of the Company is yet to be concluded, hence the final outcome is yet to be ascertained. The Company has not taken into consideration any impact on the value of the tangible and intangible assets, if any, in preparation of financial statements as required by lnd-AS 10 on “Events after the reporting period”. Further, the Company has also not made full assessment of impairment as required by Ind-AS 36 on Impairment of Assets, if any, as at 31 December 2019 in the value of tangible and intangible assets.

3. In accordance with the requirements of the IND AS-108 “Operating Segments”, the Company’s business consists of one reportable business segment i.e., “Manufacturing and Processing of Milk and Milk Products”, hence separate disclosures pertaining to attributable revenue, profits, assets, liabilities and capital employed are not required.

4. Creditors Claim:

a. As a part of the CIRP, creditors of the Company were called to submit their claims to the Interim Resolution Professional/ Resolution Professional. The Claims received summary position of the same is reproduced below: (For Table, kindly refer Corporate Announcements on www.bseindia.com.)

* Amount claimed till the insolvency commencement date and amount admitted on the basis of verification and collation of available information from the records of Kwality’ Limited.

# Includes INR 117.92 lakhs in relation to un-invoked bank guarantees received and admitted as contingent claim without any voting rights

Consequential impact of claims being higher than the book balances, if any, has not been considered and will be appropriately dealt with basis the outcome of the proceedings pending with NCLT going forward. Refer note 1 for further details.

b. The Company has not provided any liability’ towards interest, penal interest charges and any foreign currency fluctuation on claims by financial creditors for the period w.e.f. the Insolvency Commencement Date, since as part of the CIRP, the claims for interest, penal interest charges and foreign currency fluctuation can impact their claims in Form C onlyr till the date of commencement of CIRP in the Corporate Debtor. The aggregate claims submitted by the Financial Creditors exceeded the amount as appearing in the books of accounts. Pending the final outcome of the proceedings pending with NCLT as mentioned in note 1, no provision in the books of accounts has been made for excess claims submitted in respect of financial /operational/other creditors and no corresponding accounting effect in respect of such creditors has been given.

5. Income Tax:

a. The tax payable (including interest upto insolvency commencement date) amounting to INR 18,814.68 lakhs under the Income Tax Act of 1961 (“IT Act”) for the assessment years 2016-17, 2017-18 and 2018-19, which has not been paid by the Company has been provided in the books of accounts of the Company. It may be noted that the income tax department has already filed the claims (i.e. Form Bs) under the Insolvency and Bankruptcy Code, 2016 aggregating IN'll 24,290.52 lakhs (includes INR 5,567.93 lakhs w.r.t AY 2017-18 under section 140A, which has been inadvertently claimed twice), which includes claim towards tax payable for the assessment years 2016-17, 2017-18 and 2018-19 out of which claim aggregating INR 17,798.69 lakhs has been accepted by the RP,

b. Basis the assessment proceedings under Section 132 under the IT Act, income tax authorities has recently raised demand amounting to INR 8,97,440.28 lakhs (including interest) beginning from AY 2011-12 till AY 2018-19. Demand has generally been raised u/s 143(3) and u/s 144 r.w.s. 153A of the IT Act, as applicable. The Company has filled the appeal in January 2020 against the disputed demand with the Commissioner of Income-tax (Appeals). In addition to the demand raised income tax department has issued show cause notice for penalty proceedings for AY 2011-12 to 2018-19 covered u/s 274 r.w.s 271(l)(c) and 274 r.w.s 270A of the IT Act.

c. Income tax authorities has belatedly also filed additional claim in Form B dated 31.12.2019 for INR 8,97,440.28 lakhs (including claim admitted of INR 17,798.69 lakhs) on 20.01.2020 with the Resolution Professional for the Company. As statutory period of completion of CIRP u/s 12 of the Code has come to an end on 5 November 2019 and the matter is subjudicc before the Hon'ble NCLT for appropriate orders either under Section 31 or Section 33 of the Code (Refer Note 1), the Resolution Professional for the Company has not collated and verified the additional claim submitted by income tax authorities.

d. There is an outstanding FDS of INR 481.70 lakhs (includes INR 417.11 lakhs outstanding as on insolvency commencement date) payable as on 31 December 2019. Interest payable on the outstanding TDS is estimated at INR 128.54 lakhs (includes INR 117.66 lakhs with respect to dues outstanding as on insolvency commencement date), which has not been recognised in the books of account. It may be noted that rhe Income Tax Authorities have filed a claim oflNR 452.60 lakhs (includes interest of INR 42.12 lakhs) as on insolvency commencement date.

6. “Other Expenses” as stated in the income statement for the quarter ended 31 March 2020, include adjustment on these accounts, as enumerated below: (For Table, kindly refer Corporate Announcements on www.bseindia.com.)

7. The figures for the previous periods have been regrouped/ rearranged wherever necessary.

Sharad Bhandari
Chief Financial Officer