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NOTES TO ACCOUNTS

Electrotherm (India) Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 189.87 Cr. P/BV -0.16 Book Value (₹) -958.95
52 Week High/Low (₹) 380/114 FV/ML 10/1 P/E(X) 1.34
Bookclosure 30/09/2015 EPS (₹) 111.32 Div Yield (%) 0.00
Year End :2018-03 

1. CORPORATE INFORMATION:

Electrotherm (India) Limited (the “Company”) is a public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The registered office of the Company is located at A-1, Skylark Appartment, Satellite Road, Satellite, Ahmedabad, Gujarat. The Company is engaged in the manufacturing of Electronic Furnace, Sponge and Pig Iron, Ferrous and Non-Ferrous Billets/ bars/ Ingots, Duct Iron Pipes, Battery Operated Vehicles and Services relating to Electric Furnace and Other Capital equipment and battery operated vehicles.

The financial statements were authorized for issue in accordance with a resolution passed in Board Meeting held on 25th May 2018.

2. BASIS OF PREPARATION:

The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015.

For all periods up to and including the year ended March 31, 2017, the company prepared its financial statements in accordance with Accounting Standards notified under Section 133 of the Companies Act, 2013 (the “Act”) read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). These financial statements for the year ended March 31, 2018 are the first the Company has prepared in accordance with Ind AS.

The financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities which have been measured at fair value. Refer accounting policy regarding financial instruments.

The financial statements are presented in Rupees in crore and all values are rounded to the nearest Crore, except where otherwise indicated.

2.1 SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS:

The preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

(a) Defined benefit plans (gratuity benefits)

The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuation. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation

The mortality rate is based on publicly available mortality tables for India. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates for India.

(b) Fair value measurement for financial instruments

When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

(a) The Company holds investment in equity shares of Shree Ram Electrocast Limited and in Electrotherm Mali SARI as subsidiary company. Due to heavy losses and non operation of Shree Ram Electrocast Limited the amount of Investment of Rs. 78.68 Crore has been written off during the financial year 2015-2016 and Electrotherm Mali SARI ceases to the subsidary of the company on 27th March 2017, as the company has been wound up and therefore the company has written off its investment of Rs. 0.01 Crore

(b) The company holds an investment in equity shares of ET Elec-Trans Limited as subsidary company and Bhaskarpara Coal Company Limited as a joint venture. These Companies have incurred heavy losses and/or are non-operating and therefore the fate of said Companies is uncertain. Provision for impairement of Rs. Nil (March 31, 2017 Rs. Nil and on April 1, 2016 Rs. 2.13 Crore) in the value of investment in joint ventures namely Bhaskarpara Coal Company Limited and in the value of investment in subsidiary namely ET Elec-Trans Limited Rs. Nil (March 31, 2017 Rs. Nil and on April 1, 2016 Rs. 0.72 Crore) has been provided.

(b) The settlement of loans and advances to subsidiaries is neither planned nor likely to occur in the next twelve months and are given as interest free.

(c) Loans and advances to subsidiaries are given for business purpose.

(d) Provision for the Expected Credit Loss on amount recoverable from Shree Hans Papers Limited has been made of as at March 31, 2018 Rs. Nil (As at March 31, 2017 Rs. Nil and on April 1, 2016 Rs. 4.18 Crore) due to uncertainity of it’s recovery.

(b) The settlement of loans and advances to subsidiaries and related parties is not planned but is likely to occur with in twelve months and are given interest free.

(c) Loans and advances to subsidiaries are given for the business purpose.

A formal credit policy has been framed and credit facilities are given to customer within the framework of the credit policy. As per credit risk management mechanism, a policy for doubtful debt has been formulated and risk exposure related to receivables are identified based on criteria mentioned in the policy and provided for credit loss allowance.

b) Rights, preference and restriction attached to Equity Shares

The face value of the Equity shares is Rs 10/- per share . Each holder of equity share is entitled to one vote per share. The company declares and pays dividend in Indian Rupees. During the year, the company has not declared any dividend.

The shareholders are not entitled to exercise any voting right either personally or proxy at any meeting of the Company in cases of calls or other sums payable have not been paid.

In the event of liquidation of the company, holder of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

c) Rights, preference and restriction attached to Preference Shares

- The face value of the Preference shares is Rs 10/- per share . The Preference share holder have voting right in their meeting. During the year, the company has not declared any dividend.

- In the event of liquidation of the company, the preference share holders will have priority over equity shares in the payment of dividend and repayment of capital .

d) Rights, preference and restriction attached to Partially Convertible Partially Redeemable Preference Shares (PCPRPS)

- The face value of the PCPRPS is Rs 10/- per share . The preference share holder does not have any voting right in their meeting. During the year, the company has not declared any dividend.

- In the event of liquidation of the company, the preference share holders will have priority over equity shares in the payment of dividend and repayment of capital.

- The Equity Shares arising upon conversion of the PCPRPS shall rank pari passu with the existing Equity Shares of the Company in all respects, including dividend.

f) The Company has calls in arrears / unpaid calls of Rs. Nil (March 31, 2017: Nil and April 1, 2016: Nil)

g) Details of Shares alloted as fully paid up persuant to contract(s) without payment being received in cash. ( during 5 years immediately preceeding March 31, 2018).

As per the terms and conditions of the settlement with Edelweiss Asset Reconstruction Company Limited (EARC), the company has issued and alloted 2,85,90,000 partially redeemable preference shares (PCPRPS) to EARC on 22nd August 2015.

h) As per the terms and conditions of the settlement with Edelweiss Asset Reconstruction Company Limited (EARC), the company has allotted 2,85,90,000 Partially convertible and Partially Redeemable Preference Shares (PCPRPS) of Rs.10 Each of amounting to Rs 28.59 Crore on August 22, 2015 and against the said PCPRPS, 12,66,440/- Equity shares of Rs. 10/- each at the price of Rs. 225.75 per equity share (inclusive of Share premium amount of Rs. 215.75 per equity share) were allotted during F.Y. 2016-17. As equity shares were allotted against such PCPRPS the entire amount of preference Share Capital of Rs. 28.59 Crore has been treated as part of Equity Share Capital as on April 1, 2016

a. Capital Reserve

Capital Reserve is not available for distribution of profits.

b. Securities Premium

Securities Premium is used to record the premium on issue of shares and is utilised in accordance with the provisions of the Companies Act, 2013.

c. General Reserve

General Reserve is used from time to time to transfer profits to/from Retained Earnings for appropriation purposes including the amount arising due to past revaluation of land and building under previous GAAP. As the general reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income.

d. Retained Earnings

Retained Earnings are the profits of the Company earned till date and net of appropriations.

(a) Rupee term loan and foreign currency loan are secured by first Charge by way of Equitable mortgage of all immovable properties and hypothecation of specified movable assets situated at Vatva, Palodia, Dhank, Samakhiyali - Kutch, and Chhadawada -Bhachau and Juni Jithardi, Karjan, Vadodara and Bank Fixed Deposits & as second charge on all Stock-in-Trade & Receivables. Further the loans are guaranteed by the personal guarantees of some of the Directors of the Company.

(b) External Commercial Borrowings is secured by Pari Passu Charge over the movable assets and first Pari Passu Charge on immovable assets of the company.

(a) Secured by first charge by way of hypothecation of all stocks of raw material, packing materials, fuel, stock in process, semi finished and finished goods, stores and spares not relating to the plant and machinery and stock in trade & receivables and second charge on all movable fixed assets & second and subservient charge by way of equitable mortgage of all immovable properties situated at Vatva, Palodia, Dhank, Samakhyali- Kutch and Chhadawada -Bhachau. Further the loans are guaranteed by the personal guarantees of some of the Directors of the company.

The revenue from operations for the year ended March 31, 2017 and part of the financial year ended March 31, 2018 (upto June 30, 2017) are inclusive of excise duty. As the Goods and Service Tax (“GST”) has been implemented with effect from July 1, 2017 and which replaced excise duty and other input taxes. In view of the said fact the revenue for the part of the year ended March 31, 2018 is reported net of GST and accordingly, is not comparable with earlier year.

viii) Claims against the Company not acknowledged as debts amounting to Rs.0.70 Crore (As at March 31, 2017: Rs.0.70 Crore and on April 1, 2016: Rs. 0.70 Crore), are pending before various courts, authorities, arbitration, Consumer Dispute Redressal Forum etc. Further during the year, in respect of one pending arbitration matter, the Company has claimed an amount of Rs.1.06 Crore (As at March 31, 2017: Rs. 1.06 Crore)and the counter claim of the respondent is Rs.0.72 Crore (As at March 31, 2017: Rs.0.72 Crore).

ix) The company has used advanced license for import of certain raw material against which company was under an obligation to export certain pre-determined quantity of finished goods within specified time period. However, there was a shortage in the goods exported by the company against its export obligation. Accordingly, in the opinion of the management, the company may be liable to pay Rs.5.37 Crore (including interest) (As at March 31, 2017: Rs.5.02 Crore and on April 1, 2016: Rs. 4.66 Crore) as import duty.

Note:-

i. Future cash flows in respect of above, if any, is determinable only on receipt of judgement/ decisions pending with relevant authorities.

ii. The above amounts are without the amount involved in the appeal preferred by the Department, if any, and further applicable interest on the demand

3 Employee benefit obligations

The Company has classified the various employee benefits provided to employees as under:

I Defined Contribution Plans

During the year, the Company has recognised the following amounts in the Statement of Profit and Loss-

The above sensitivity analysis is based on a change in assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of defined benefit obligation calculated with the Projected Unit Credit Method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet. The method and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

i. The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

ii. The sensitivity analysis presented above may not be representative of the actual change in the projected benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

iii. Furthermore, in presenting the above sensitivity analysis, the present value of the projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognized in the balance sheet.

iv. There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

3.1 Risks associated with defined benefit plan

Gratuity is a defined benefit plan and company is exposed to the Following Risks:

I nterest rate risk: A fall in the discount rate which is linked to the G.Sec. Rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of assest.

Salary Risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan’s liability.

Investment Risk: The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.

Asset Liability Matching Risk: The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.

Mortality Risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.

Concentration Risk: Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very less as insurance companies have to follow regulatory guidelines.

4 Segment Reporting

The segment report is given in consolidated financial statements.

5. Details of the Cases of Winding Up of the Company, Recovery by the Lenders / Creditors against the company

(a) Winding Up Petitions:

Shiv Sales Industries and Shiv Metal Industries have filed winding up petitions under section 433 and 434 of the Companies Act, 1956 against the company before the Hon’ble Gujarat High Court and which are pending before them. Winding up petition by UCO Bank and Syndicate bank has been withdrawn/ disposed off.

(b) Cases before Debt Recovery Tribunal (DRT)/DRAT Cases:

(i) Syndicate Bank, Central Bank of India, Corporation Bank and Vijaya Bank had filed Original Applications against the Company before the Hon’ble Debt Recovery Tribunal-1, Ahmedabad (“DRT”) under section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. The DRT has granted ad-interim injunction orders against transfer of certain properties. Syndicate Bank has filed an appeal before DRAT, Mumbai against the order of DRT for modification of ex-parte adinterim injunction order. The Company had filed its reply/written statement/interim application and the said matters are pending for judgment/further hearing before DRT/DRAT.

(ii) In view of settlement/consent terms filed with DRT, the original application filed by Invent asset securitization and reconstruction Private Limited (being the assignee of debts of Allahabad Bank) was disposed of on 21st March 2018.

(iii) In view of settlement/consent terms filed with DRT, the original application filed by Union Bank of India of India was disposed of on 28th April 2018.

(iv) Subject to final terms to be agreed upon and provisional settlement with Vijaya Bank, the bank has agreed to withdrawn the original application filed with DRT.

(v) The Indian Overseas Bank and Dena Bank have assigned the debts associated with the company to Rare Asset Reconstruction Private Limited (formerly known as Raytheon Asset Reconstruction Private Limited) and the original application filed by them are pending before DRT, with some ad-interim injunction order in the matter of India Overseas Bank.

(c) Cases Under section 138 of the Negotiable Instruments Act,1881

Syndicate Bank, Indian Overseas Bank and Vijaya Bank had filed criminal complaints against the company and its Directors/officers under section 138 of Negotiable Instruments Act, 1881 for dishonor of various cheques issued by the Company and the Company is contesting all the said cases and all the matters are pending for further hearing before the respective Hon’ble Metropolitan Magistrates, Ahmedabad.

(d) Wilful Defaulters:

(i) Central Bank of India has declared the Company as a wilful defaulter and reported the name of Company and its directors to the Reserve Bank of India and Credit Information Bureau (India) Limited (CIBIL) as wilful defaulter.

(ii) Dena Bank has declared the Company as a wilful defaulter and reported the name of Company and its directors to the Reserve Bank of India and Credit Information Bureau (India) Limited (CIBIL) as Wilful Defaulter. The Company has challenged the said action before the Hon’ble Gujarat High Court and the said petition is pending for further hearing. Dena Bank has assigned the debt associated with the company to Rare Asset Reconstruction Private Limited (formerly known as Raytheon Asset Reconstruction Private Limited).

(e) Notice under SARFAESI Act, 2002

Vijaya Bank had issued notices under section 13(2) of Chapter III of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act, 2002”) for assets of Transmission Line Tower (TLT) Division of the Company situated at Village : JuniJithardi, Tal : Karjan, Dist : Vadodara on 08/05/2012, 19/03/2015 and 04/11/2015. The company has filed its reply in respect of all the notices issued by the bank. Vijaya Bank has withdrawn its notice dated 19/03/2015.

Vijaya Bank vide possession notice dated 02.03.2017 taken the symbolic possession of the movable and immovable properties of TLT division of the Company. The Company has filed Securitization Application before DRT-1, Ahmedabad against the said action of symbolic possession and the matter is pending before DRT-1 Ahmedabad for further hearing.

6. Non Provisions of Disputed Advances and Claims/Liability

(a) The Company has VAT tax liability (including interest) of Rs. Nil (March 31, 2017: Rs.35.84 Crore) under Maharashtra Sales Tax Act (Rs. 9.25 Crore for the financial year 2009-10 and Rs.26.59 Crore for the financial year 2010-11) out of which the company had paid Rs. 4.00 Crore, under protest and the same has been shown as Balance with Revenue authority under the head Other Current Asset. The company has filed an appeal against the said order before the Appellate Authority and the appellate Authority has set aside the matter for fresh assessment. On account of the said order presently the liability of the company has become Rs. Nil (March 31, 2017: Rs. 35.84 Crore).

(b) During the Previous Year, VAT/CST Assessment for the financial year 2010-11 was completed and assessing officer has determined the tax liability of Rs.20.95 Crore of VAT and Rs.11.15 Crore of CST. The company has made part payment of Rs. 3.25 Crore for VAT and Rs. 1.50 Crore for CST under protest and the same has been shown as Balance with Revenue authority under the head Other Current Asset. Provision for the impugned disputed tax liability has not been made as the company is hopeful of matter being decided in its favor by the appellate authority. With regard to the payment of balance amount the company has been granted stay up to 30.09.2018. The Appellate Authority vides order dated 27.04.2018 has passed the refund order of Rs. 7.35 Crore for financial year 2009-10 and ordered for adjustment against demand for next financial year. On account of the said order the VAT liability for financial year 2010-11 has reduced to Rs. 13.60 Crore and is subject to order of the Appellate Authority.

(c) In current year VAT/CST assessment for financial year 2013-14 was completed and the assessing officer has determined the tax liability of Rs. 6.13 Crore and against the said order company is under the process of filling appeal before the Appellate Authority.

(d) In view of the non-provision of the above items 34(a), 34(b) and 34(c) the Profit of the company are overstated by Rs. 30.88 Crore (Losses as on March 31, 2017 of Rs. 67.94 Crore are understated) and to that extent advances are overstated or the respective liabilities are understated.

(e) Loan accounts of the company have been classified as Non- Performing Assets by the Bankers and some of the bankers has not charged interest on the said accounts and therefore provision for Interest (Other than upfront charges) has not been made in the books of accounts and to that extent profit has been overstated and bankers loan liability has been understated. The extent of exact amount is under determination and reconciliation with the banks, however as per the details available with the company, the amount of unprovided interest, on approximate basis, on the said loans (Other than the loans of International Finance Corporation {Refer Note No. 35(h)}, Union Bank of India, UCO Bank, Vijaya Bank and loans which are assigned to Edelweiss Assets Reconstruction Company Limited (EARC), Invent Assets Securitization & Reconstruction Private Limited (Invent) and Rare Asset Reconstruction Private Limited (formerly known as Raytheon Asset Reconstruction Private Limited) is as under:-

7. Additional Disclosures

(a) Power and Fuel expenses are inclusive of duties and taxes of Rs. 14.91 Crore (March 31, 2017: Rs. 12.45 Crore) paid towards power generation.

(b) During the year, old non-recoverable amount of Rs. 18.96 Crore {which includes an amount of Rs. 5.61 Crore pertaining to related party} (March 31, 2017: Rs. 7.27 Crore) and the unclaimed amount of Rs. 3.45 Crore (March 31, 2017: Rs. 3.18 Crore) have been written off/ back on account of non-realization and payment. Its’ net balance of Rs. 15.51 Crore (March 31, 2017: Rs. 4.09 Crore) has been charged to the Statement of Profit and loss.

(c) During the previous year, the settlement amount of ICICI Bank, as per settlement agreement, has been fully paid by the company. After repayment of the settlement amount, there has been net reduction in debt by Rs. 43.47 Crore which has been accounted for as under:

(d) Product Development Cost includes total Research and Development expenses of Rs. 14.66 Crore (March 31, 2017: Rs. 14.38 Crore) incurred on development of CONTIFUR Project, which is still in progress and said expenses, would be written off in five years from the year of completion of the projects. During the previous year, product hybrid bus and T-Cab were subject to research but due to some technical reason/ non-performance up to the expected level, the product could not be launched in market. Accordingly management has decided to abandon the project and during the year the company has written off the research cost of Rs. Nil (March 31, 2017: Rs.17.81 Crore) incurred on the said project.

(e) The cost of material consumed includes freight, loading and unloading expenses, inspection fees, commission on purchase, taxes & duties (to the extent of credit not available),rate difference and interest cost on purchase of raw material and ancillary thereof (including reversal of any claims).

(f) In view of heavy accumulated losses and uncertainty of its realization/payment of taxes in near future, no provision for Deferred Tax Asset/liability has been made by the company.

(g) Some of the creditors have filed cases of recovery against the company before the various Hon’ble Courts/Forums for Rs. 1.92 Crore (March 31, 2017 Rs. 2.04 Crore). The said amounts are excluding interest.

(h) Assignment /Settlement of Loans Taken Accounts and its Accounting Treatment

- Bank of India, Bank of Baroda, State Bank of India, Canara Bank and State Bank of Travancore have assigned their debts to Edelweiss Asset Reconstruction Company Limited. The Company has entered into settlement agreement on 10th March 2015 for the repayment of the Debts of the said Banks to Edelweiss Asset Reconstruction Company Limited. In terms of settlement agreement, if all the terms and conditions are fully complied by the company upto the March 2023, there will be reduction in debt, as per Books of accounts of the Company, by Rs. 403.90 Crore.

The Management is of the opinion that Fixed Deposit of Rs. 12.45 Crore held by Bank of Baroda will be adjusted against the outstanding liability payable to Edelweiss Asset Reconstruction Company Limited at the time of last installment. Accordingly, the said amount has been shown as advance recoverable in cash or kind under the head Other Current Asset.

- The amount of installments paid to Edelweiss Asset Reconstruction Company Limited, up to the balance sheet date are shown as part of other current asset and to that extent the amount of Loans from Asset Reconstruction Companies (Current Maturity of Long term Borrowings of Rs. 179.50 Crore and Non-Current Borrowings of Rs. 12.45 Crore)(March 31, 2017: Current Maturity of Long term Borrowings of Rs. 114.50 Crore and Non-Current of Rs. 12.45Crore) and the amount of advance recoverable in cash or kind are overstated by Rs. 191.95 Crore (March 31, 2017: Rs. 126.95 Crore).

- Oriental Bank of Commerce, Punjab National Bank and Allahabad Bank have assigned their debts to Invent Assets Securitization and Reconstruction Pvt. Ltd. vide settlement agreement for the repayment of debts of the said banks to Invent Assets Securitization and Reconstruction Pvt. Ltd. In terms of settlement, if all the terms and conditions are fully complied by the company, there would be a reduction in debt, as per books of accounts of the company by Rs. 325.01 Crore.

Further the amount of installments paid to Invent Assets Securitization and Reconstruction Pvt. Ltd., up to the balance sheet date are shown as part of other current asset and to that extent the amount of current maturities of long term borrowings from Invent Assets Securitization and Reconstruction Pvt. Ltd. and the amount of advance recoverable in cash or kind are overstated by Rs.13.14 Crore (March 31, 2017: Rs. 5.89 Crore).

- The company, subject to some terms, agreed for repayment of debts of Union Bank of India and in pursuance to the same, the company has made payment of Rs. 12.35 Crore (March 31, 2017: Rs. 1.50 Crore) and the said amount has been shown as part of other current asset and to that extent the amount of current maturities of long term borrowings from Union Bank of India and the amount of advance recoverable in cash or kind are overstated by Rs.12.35 Crore (March 31, 2017: Rs. 1.50 Crore).

- The company was informed vide letter dated 7th April 2017 of Dena Bank and letter dated 27th March 2017 of Rare Asset Reconstruction Pvt. Ltd. (formerly known as Raytheon Asset Reconstruction Private Limited), Dena Bank has assigned debt to Rare Asset Reconstruction Pvt. Ltd. on 18th March 2017. However on account of non-finalization of repayment terms and condition the entire loan amount has been shown as current maturities of long term borrowings.

- The company was informed vide letter dated 12th October 2017 of Indian Overseas Bank, that the bank has assigned debt to Rare Asset Reconstruction Pvt. Ltd. (formerly known as Raytheon Asset Reconstruction Private Limited). However on account of non-finalization of repayment terms and condition the entire loan amount has been shown as current maturities of long term borrowings.

- During the year the Company has deposited Rs. 7.70 Crore in corporation bank and Rs. 7.25 Crore in Central Bank of India subject to settlement with the banks which is shown under the head Cash and Cash Equivalents.

- The company, subject to some terms, agreed for repayment of debts of Vijaya Bank and in pursuance to the same, the company has made payment of Rs. 10.00 Crore (March 31, 2017: Rs. Nil) and the said amount has been shown as part of other current asset and to that extent the amount of current maturities of long term borrowings from Vijaya Bank and the amount of advance recoverable in cash or kind are overstated.

- The company has received and accepted settlement terms with International Finance Corporation. But the payment schedule has been revised due to delay in obtaining required RBI permission for restructuring of External Commercial Borrowings and Foreign Currency Convertible Bonds. The company has been informed by Bank of India [Authorized Dealer] vide letter dated April 16, 2018 that required RBI permission has been received. Final terms of settlement agreement with IFC is in process and company expect it to be signed in the month of June-2018.

(i) The balances of Central Bank of India, Syndicate Bank, Indian Overseas Bank and International Financial Corporation are not being confirmed / reconciled by the borrowers, as these borrowers have treated the loan accounts as non performing assets account. (j) In view of the commercial prudence, during the year, the company has not restated the long outstanding export trade receivables and foreign currency loan at the rate prevailing as on March 31, 2018.

(k) Dispute with Micro, Small & Medium Enterprise

(i) There was dispute with Supreme Metallurgical Services Pvt. Ltd. (“Supreme Metallurgical”) in relation to material supplied by the said party and there was litigation pending before Hon’ble Gujarat High Court. However, the company entered into settlement with Supreme Metallurgical and it has agreed to withdraw the pending litigation from Hon’ble Gujarat High Court.

(ii) There is dispute with Prima Automation (India) Private Limited (a Micro, Small and Medium Enterprise) in relation to material supplied by the said party and for which the said party has filed an application before Gujarat State Level Industry Facilitation Council (“SLIFC”). In view of settlement with Prime Automation, they have withdrawn its application from SLIFC on 1st November 2017.

(l) The Central Bureau of Investigation (CBI) has conducted certain proceedings, on the basis of the complaint filed by Central Bank of India with regard to the utilization of the loan disbursed by Central Bank of India. Central Bureau of Investigation has filed a charge sheet and a CBI special case number 27 of 2015 was registered against the company and its few Directors before the Hon’ble CBI Court, Ahmedabad on 6th October 2015 and now the matter is pending before Hon’ble CBI Court for hearing.

(m) The Ahmedabad Zonal Office of the Directorate of Enforcement (“ED”) has recorded a case under the provisions of the Prevention of Money Laundering Act, 2002 and during the course of investigation, the ED has passed an order dated 28th March, 2018 under sub-section (1) of section 5 of the Prevention of Money Laundering Act, 2012 for provisional attachment of certain properties comprising Land having total area of 4,90,621 square meter at chhavada and samkhiyali of steel Plant, Building and Plant & Machinery for a period of 180 days. Thereafter, a complaint under sub-section (5) of section 5 of the Prevention of Money Laundering Act, 2012 was filed by ED before the Adjudicating Authority, New Delhi and the same is pending for hearing.

(n) The Company has filed recovery case against Victory Rich Trading Limited (“VRTL”) & its director for non-payment of amount in the High Court of Hong Kong and the High Court of Hong Kong has passed judgment for payment of recovery amount. Thereafter, VRTL has challenged the said order and the same is pending before the High Court of Hong Kong.

8. DIRECTOR’S REMUNERATION:

As per the approval of shareholders of the company at the 30th annual general meeting held on 30th September 2016 and approval of Central Government vide letter dated 21st November 2017, the company has paid remuneration of Rs. 1,50,000/- per month to Mr. Mukesh Bhandari, Mr. Shailesh Bhandari and Mr. Avinash Bhandari with effect from 1st February 2017. The central government has approved the remuneration of Rs.1,50,000/- per month for the said three appointees for a period from 1st February 2017 to 31st January 2020.

9. Account of Receivables / Payables in respect of Goods and Service Tax, Service Tax, CENVAT, and Vat are subject to reconciliation, submission of its return for its claim and/or its Audit/ Assessment, if any.

10. RELATED PARTY DISCLOSURE

As required by Indian Accounting Standard-24 “RELATED PARTY DISCLOSURE”, the disclosure of transaction with related parties are given below (with whom transaction taken place during the year):-A. List of Related Parties

I) SUBSIDIARY COMPANIES

1. Jinhua Indus Enterprises Limited

2. Jinhua Jahari Enterprises Limited

3. ET Elec-Trans Limited

4. Hans Ispat Limited

5. Shree Ram Electro Cast Limited

6. Shree Hans Papers Limited

II) JOINT VENTURE COMPANY

1. Bhaskarpara Coal Company Limited

III) Enterprises owned or significantly influenced by key management personnel or their relatives*(Except foreign companies)

1. EIL Software Services Offshore Pvt. Ltd.

2. Etain Electric Vehicles Limited

3. ETAIN Renewables Ltd.

4. Electrotherm Solar Ltd.

5. Bhandari Charitable Trust

IV) Key Management Personnel/Director of Companies

1. Mr. Mukesh Bhandari (Chairman & Managing Director)

2. Mr. Shailesh Bhandari (Managing Director)

3. Mr. Avinash Bhandari (Joint Managing Director & CEO)

4. Mr. Siddharth Bhandari (Whole time Director)

5. Mr. Pawan Gaur (Chief Financial Officer)

6. Mr. Fagesh R Soni (Company Secretary)

V) Relatives of Key Management Personnel

1. Mrs. Indubala Bhandari (Mother of Director)

2. Mrs. Jyoti Bhandari (Wife of Director)

3. Mr. Rakesh Bhandari (Brother of Director)

4. Mr. Anurag Bhandari (Son of Director)

5. Mrs. Shivani Bhandari (Daughter of Director)

6. Mrs. Panna Bhandari (Daughter of Director)

11. (a) In the opinion of the Management, the Other Assets and Financial Assets are realizable at the values stated, if realized in the ordinary course of business and the provisions for all known Liabilities are adequate.

(b) (i) The account of “Trade Receivables”, “Borrowings”, “Trade payables”, “Advances from Customer”, “Advances Recoverable In Cash or Kind”, “Advance to Suppliers and Other Parties” and some Bank Balances are subject to confirmation / reconciliation and the same includes very old non-moving items and therefore the same are subject to necessary adjustments for accounting or re-grouping /classification.

(ii) The amount of “Advance from Customers” includes Rs.0.72 Crore (March 31, 2017: Rs.0.89 Crore) (net of receipts and payments) of the parties in the bank accounts of which names are not readily available with the company and which are to be accounted under the correct account head on receipt of accurate information from the Banker/parties.

(iii) The amount of account of some of the same party under the Head “Advance from customers”, “Trade Payable”, “Advance to Suppliers and Others”, “Trade Receivables” appearing under more than one head are shown on gross basis and same are not netted off as its reconciliation and confirmations are pending.

12. (a) The amount of current maturity of Long Term Liability of Rs. 1168.04 Crore (March 31, 2017: Rs.959.54 Crore) shown under the head “Other Financial Liabilities” has been determined on the basis of the data available with the company and on the assumption that it is payable within one year.

(b) The amount of inventory has been taken by the management on the basis of information available with the company and without conducting physical verification of the slow moving inventory. The slow moving inventories have been valued by the management on estimated net realizable value.

(c) The classification/grouping of items of the accounts are made by the management, on the basis of the available data with the company.

(d) The management is of the opinion that the uncompleted projects shown as Capital Work in Progress of Rs.10.45 Crore (March 31, 2017: Rs. 10.45 Crore) requires some further investment to bring them into commercial use and the company desire to complete the project, therefore these are not treated as impaired assets.

(e) Account of “Advance to staff” is under confirmation, reconciliation and subject to the settlement of the accounts with the respective employees (including ex-employees) of the Company.

12.2 Category-wise Classification of Financial Instruments

i) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

Level 1:Level 1 hierarchy includes financial instruments measured using quoted prices.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.

iii) Valuation process

The Company obtains valuation results from external valuers for level 2 measurements. Inputs to level 2 measurements are verified by the Company’s treasury department

iv) Fair value of financial assets and liabilities measured at amortised cost

The carrying amounts of trade receivables, security deposits, cash and cash equivalents, interest accrued on fixed deposits, loans, unbilled revenue and trade payables are considered to be the same as their fair values, due to their short-term nature.

13 Financial Instrumet Risk, Management, Objectives & Policies

13.1 Financial risk management

The management of the Company has implemented a risk management system that is monitored by the Board of Directors. The general conditions for compliance with the requirements for proper and future-oriented risk management within the Company are set out in the risk management principles. These principles aim at encouraging all members of staff to responsibly deal with risks as well as supporting a sustained process to improve risk awareness. The guidelines on risk management specify risk management processes, compulsory limitations, and the application of financial instruments. The risk management system aims at identifying, analyzing, managing, controlling and communicating risks promptly throughout the Company. Risk management reporting is a continuous process and part of regular Group reporting. In addition, our Corporate Function Internal Auditing regularly checks whether Company complies with risk management system requirements.

The Company is exposed to credit, liquidity and market risks (interest rate risk, foreign currency risk and other price risk) during the course of ordinary activities. The aim of risk management is to limit the risks arising from operating activities and associated financing requirements by applying selected derivative and non-derivative hedging instruments.

13.2 Credit risk

The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and other financial instruments. The balances with banks and security deposits are subject to low credit risk since the counter-party has strong capacity to meet the obligations and where the risk of default is negligible or nil. Trade receivables, Loans and Advances to Suppliers & Others

Credit risk arises from the possibility that customer/borrowers will not be able to settle their obligations as and when agreed. To manage this, the Company periodically assesses the financial reliability of customers and the borrowers, taking into account the financial condition, current economic trends, analysis of historical bad debts, ageing of accounts receivable and forward looking information.

The provision on trade receivables for expected credit loss is recognised on the basis of life-time expected credit losses (simplified approach). Trade receivables are evaluated separately for balances towards progress billings and retention money due from customers. An expected loss rate is calculated at each year-end, based on combination of rate of default and rate of delay. The Company considers the rate of default and delay upon initial recognition of asset, based on the past experience and forward-looking information, wherever available. The provision on loans for expected credit loss is recognised on the basis of 12-month expected credit losses and assessed for significant increase in the credit risk.

13.3 Liquidity risk

Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities. The Company’s approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses. In doing this, management considers both normal and stressed conditions.

The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended March 31, 2018 and March 31, 2017. Cash flow from operating activities provides the funds to service the financial liabilities on a day-to-day basis. The Company regularly monitors the rolling forecasts to ensure it has sufficient cash on an on-going basis to meet operational needs. Any short term surplus cash generated, over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess is invested in interest bearing term deposits and mutual funds with appropriate maturities to optimise the cash returns on investments while ensuring sufficient liquidity to meet its liabilities.

The following table shows the maturity analysis of the Company’s financial liabilities based on contractually agreed undiscounted cash flows along with its carrying value as at the Balance Sheet date.

Maturities of financial liabilities

The table below analyse the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities:

13.4 Market risk

Market risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risk. Financial instruments affected by market risk includes borrowings, deposits, investments, trade and other receivables, trade and other payables and derivative financial instruments.

The potential economic impact, due to these assumptions, is based on the occurrence of adverse / inverse market conditions and reflects estimated changes resulting from the sensitivity analysis. Actual results that are included in the Statement of Profit and Loss may differ materially from these estimates due to actual developments in the global financial markets. The company is mainly exposed to interest rate risk and foreign currency risk.

i) Interest Rate Risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the market rates. Since the borrowing of the company are classified as non performing assets or are transfer to assets reconstruction company or the settlement agreement have been executed, the borrowers are not charging interest, therefore the exposure to risk of changes in market interest rates is minimal.

ii) Foreign currency risk

The international nature of the Company’s business activities generates numerous cash flows in different currencies -especially in USD and EURO. To contain the risks of numerous payment flows in different currencies- in particular in USD and EURO- the Company follows groupwide policies for foreign currency management.

The above table represent only total major exposure of the company towards foreign exchange denominated trade receivables and trade payables.

The company is mainly exposed to change in USD and Euro. The below table demonstrates the sensitivity to a 5% increase or decrease in the USD and Euro against INR, with all other variables held constant. The sensitivity analysis is prepared on the net unhedged exposure of the Company as at the reporting date. 5% represents management’s assessment of resonably possible change in foreign exchange rate.

14 Capital Management:

The Company’s objectives when managing capital are to:

- safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and

- maintain an optimal capital structure to reduce the cost of capital.

For the purpose of the Company’s capital management, capital includes issued equity capital, securities premium and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company’s capital management is to maximise the shareholders value. The Company manages its capital structure and makes adjustments in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders. The Capital structure of the Company is as follows:

15 First-time adoption of Indian Accounting Standards (IND AS)

Transition to Ind AS

These are the Company’s first financial statements prepared in accordance with Ind AS.

The accounting policies set out in Note 2 have been applied in preparing the financial statements for the year ended March 31, 2018, the comparative information presented in these financial statements for the year ended March 31, 2017 and in the preparation of the opening Ind AS balance sheet at April 1, 2016 (the Company’s date of transition) subject to certain exemptions and exceptions provided in Ind AS 101 with respect to transition date (refer note below). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and notes.

I Exemptions availed

a) The Company has elected to measure investments in subsidiaries as per the statement of financial position prepared in accordance with previous GAAP as a deemed cost (Net off Impariment) at the date of transition as per exemption available under Ind AS 101

b) Since there is no change in the functional currency, the Company has elected to continue with the carrying value for all of its Property, plant and equipment and Intangible assets as recognised in its Indian GAAP financial as deemed cost at the transition date.

II Exceptions applied

a) Estimates

An entity’s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. Ind AS estimates as at 1 April 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company made estimates for Impairment of financial assets based on expected credit loss model in accordance with Ind AS at the date of transition as these were not required under previous GAAP.

b) De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the derecognition “requirements in Ind AS 109 retrospectively from a date of the entity’s choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions. The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

c) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

Notes to First time adoption:-a Expected credit loss provision

As per Ind AS 109, the Company is required to apply expected credit loss model for recognising the allowance for doubtful debts on financial assets. b Reclassification of Redeemable Preference Shares

As per Ind AS, redeemable preference shares are classified as financial liabilties. c Deferral of Sales and related costs

Under Ind AS 18, revenue and related costs are recognised when the risks and rewards are passed to the customers and the Company retains no continuing managerial involvement. d Fair Valuation/ Impariment adjustment under Ind AS

Under Ind AS, investments in units of mutual funds are measured at fair value and Impariment of the Investment of the subsidaries due to heavy losses and/or are non-operating. e Remeasurement of post-employment benefit obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability, are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year. f Material Adjustment to Statement of Cash flow

No material adjustments have been identified to the Statement of Cash flows on account of transition to Indian Accounting Standards. g Bhaskarpara Coal Company Limited considered as Joint Venture Bhaskarpara Coal Company Limited is Jointly control by two different entities having the same power, exposure, rights, returns, etc.

16 Events occurred after the Balance Sheet Date

The Company evaluates events and transactions that occur subsequent to the Balance Sheet date but prior to the approval of the financial statements to determine the necessity for recognition and/or reporting of any of these events and transactions in the financial statements. As of 25th May 2018, there were no subsequent events to be recognized or reported that are not already disclosed elsewhere in the financial statements.

17 Previous year amount has been regrouped/re-casted/re-arranged/ re-classified/re-determined, wherever necessary, to make the figure of the current year comparable with the previous year.

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