ACCOUNTING POLICIES & GENERAL NOTES FORMING PART OF THE FINANCIAL INFORMATION I. Corporate Information I. Bihar Sponge Iron Ltd. (refereed to as 'BISL') "the company" established in the year 1982 and having its registered office at Umesh Nagar, Chandil, District, Saraikela - Kharsawan, Jharkhand - 832401 is engaged in manufacture, producing, purchase, export, sale and deal of br-reduced form of Iron such as sponge iron. II. Significant Accounting Policies 1. Basis of brparation of financial information The financial statements have been brpared in accordance with the Generally Accepted Accounting Principles in India ('Indian GAAP') to company with the accounting standard specified under section 133 of the Companies Act, 2013 read with rule 7 of The Companies (Accounts) Rules 2014 and the relevant provision of the Companies Act, 2013. The financial statements have been brpared under the historical cost convention on accrual basis (except for revaluation of certain fixed assets). 2. Use of Estimates The brparation of financial statements require the management to make some estimates and assumptions which affect the reported amount of assets and liabilities and the disclosures relating the contingent liabilities as at the date of the financial statements and the reported amount of income and expense during the year. Examples of such estimates include provisions for doubtful receivables, employee benefit, provision for tax & duties (including interest on arrear statutory dues/liabilities), the useful lives of debrciable fixed assets and provisions for impairment. Future results could differ due to change in these estimates and the difference between the actual result and the estimates are recognized in the period in which the results are known/materialised. 3. Inventories a) Stocks of raw materials and stores and spares and consumables are valued at lower of weighted average cost or net realisable value. The cost being exclusive of cenvatable excise duty and set offs of VAT, if any. b) The material in transit is valued at invoice cost. c) Closing stock of finished goods is valued at lower of cost or estimated net realisable value. For this purpose, cost includes debrciation and direct expenses to the point of stocking and excise duty but excludes interest, administrative and selling expenses. d) Work-in-progress is carried at the lower of cost or net realisable value; for this purpose cost does not include excise duty. 4. Fixed Assets: a) Fixed Assets are stated at cost or revalued cost, less accumulated debrciation/amortization. Costs include taxes duties (net of CENVAT and set off),cost of stores materials issued and expenditure incurred during construction and installation where applicable. Indirect expenses are not capitalised alongwith the fixed assets. b) An impairment loss is recognized based on the review conducted by the management at each balance date wherever the carrying value of existing assets exceed its net selling price or value in use, whichever is higher. 5. Expenditure during Construction: In respect of new projects, all expenses including interest incurred up to the date of commencement of commercial production are capitalized. In respect of substantial expansion of business, at existing locations, only direct costs are capitalized together with interest on the funds relatable to them up to the date of commercial production. 6. Debrciation / Amortization a) Debrciation on Tangible fixed assets other than land is charged on straight line method so as to write off the cost/carrying amount of assets (including revalued amount) as on 1-04-2014 over the useful life of assets as per Schedule II of the Companies Act, 2013. For assets acquired or sold during the year, the debrciation is calculated on pro-rata basis from the date of addition or upto the date of sale or discarded. Further where the remaining useful life of the asset is nil as on 1.4.2014, after retaining the residual value, debrciation has been recognized in the opening balance of retained earnings. b) Lease hold land is debrciated over the lease period. c) Intangible assets are being amortised over their useful life / licenses period. 7. Foreign Currency Translation: a) Transactions in Foreign Currencies are recorded at the exchange rate brvailing on the date of transactions. b) Foreign Currency Loans and other Liabilities are stated at the exchange rate brvailing as on the date of the balance sheet. c) Exchange variation arising as a result of the translation of foreign currency loans are Capitalized / de-capitalized to relating plant & machinery / assets. d) Exchange variations arising as a result of translation of interest on foreign currency loans accrued but not due are treated as income or expense. 8. Revenue Recognition: a) Sales are accounted for based on despatch of finished goods to the customers from various stocking points, and includes excise duty but exclusive of VAT / CST and is net of trade discounts. b) Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest on tax refund is accounted for on receipt basis. c) Other miscellaneous revenues are recognized when the amount and the collectability are certain. Accordingly insurance claims are accounted for on settlement. 9. Raw Material consumption is accounted for after ascertaining the year end closing stock of the raw materials by an independent Surveyor from the total of the opening stocks and purchases. 10. Salaries and wages on repairs and maintenance of plant & machinery, where carried out internally, are charged to salaries and wages account. 11. Extraordinary Items: Extraordinary items of income & expenditure as covered by AS-5, are disclosed separately. 12. Borrowing cost Borrowing cost attributable to the acquisition or construction of a qualifying assets are capitalized as part of cost of that asset. Other borrowing costs are recognized as expense in the period to which they relate. 13. Employee Benefits Employee benefits have been recognized in accordance with Accounting Standard 15 (Revised)issued by the ICAI accordingly:- (a) Short Term Employee Benefits Short Term employee benefits are recognized in the period during which the services have been rendered. (b) Long Term Employee Benefits (i) Defined Contribution Plan Provident Fund All employees of the Company are entitled to receive benefits under the Provident Fund, which is a defined contribution plan. Both Employee and employer make monthly contribution to the plan at a brdetermined rate of employee's basic salary. Contribution to Provident Fund are administered and managed by a separate fund. Contributions to Provident Fund are expensed in the Profit and Loss account. (ii) Defined Benefits plan (a) Leave encashment The liability on account of un-availed earned leave at the year end is fully provided for on actuarial valuation basis. (b) Gratuity The Company provides for gratuity, a defined benefit plan (the 'Gratuity Plan') covering all eligible employees. In accordance with the Payment of Gratuity Act, 1972, the Gratuity Plan provides a lump sum payment to vested employees at retirement, deaths incapacitation or termination of employment. Liabilities with regards to the Gratuity Plan are determined by actuarial valuation as of balance sheet date and are expensed in the Profit and Loss account. (iii) The actuarial valuation takes note of actuarial gains and losses. 14. Provisions Contingent Liabilities Liabilities, though contingent, are provided for if there are reasonable prospects of such liabilities maturing. Other contingent liabilities, barring frivolous claims, not acknowledged as debt, are disclosed by way of a note. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. 15. Earning Per Share The earnings considered in accounting the Company's Earning Per Share (EPS) comprise the net profit after tax and includes the post tax effect of any extraordinary items. The number of shares used in computing basic & diluted EPS is the weighted average number of shares outstanding during the periods and adjusted for all events. The diluted EPS is calculated on the same basis as basic EPS, after adjusting for the effects of potential dilutive shares. 16. Taxation a) Provision for current tax is made on the basis of applicable Income Tax Act, 1961. b) Deferred tax assets and liabilities are accounted for in accordance with AS-22 issued by the Institute of Chartered Accountants of India. 17. Leases Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as Operating Leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognized in the Statement of Profit and Loss on a straight line basis over the lease term. Costs, including debrciation, are recognized as an expense in the statement of Profit and Loss. 18. Cash Flow Statement Cash flow are reported using the indirect method, whereby profit before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the company are segregated based on the available information. II. NOTES RELATED TO ACCOUNTING STANDARDS 1 Segmental Reporting The company is a single location single product company and hence the requirements of AS - 17 on Segment Reporting are not relevant. 2. The management is of the opinion that except the fixed assets retired from active use and the capital work in progress for coal block written off during the year and there is no further impairment of assets as at 31-3-2015 as contemplated in the Accounting Standard (AS) 28. III : OTHER NOTES REQUIRED BY PART I & PART II OF SCHEDULE III 1. Rehabilitation Scheme: (I) The company was declared a Sick Industrial Company within the meaning of clause (0) of Sub-Section (1) of Section 3 of the Sick Industrial Companies (Special Provision) Act, 1985 by the Hon'ble BIFR vide its order dated 19.12.1996. The Hon'ble BIFR vide its order dated 29th July, 2004 had sanctioned the Rehabilitation Scheme. The said scheme envisaged a total payment of Rs. 1350000 Thousands, Rs.650000 Thousands was to be paid as upfront payment and the balance Rs. 700000 Thousands was to be paid in 30 quarterly installments effective from 15th July, 2004. (II) In the review hearing held on 3rd September, 2007 & 22nd September, 2010, the BIFR, by exercising powers under Section 18 (5) and 18 (9) of the SICA, clarified / directed that the Company shall make payment of the due installments to its foreign lenders in 'Euro' as per the amount reflected in Euro in the statement annexed to the sanctioned scheme along with the applicable interest i.e. LIBOR plus 1% per annum (LIBOR + 3% in case of delay/ default in payment of installments). The Company has filed appeal before the Appellate Tribunal for Industrial and Financial Reconstruction (AAIFR) challenging the above said order. AAIFR in its order dated 23-12-2011 has dismissed the appeal. The above order of AAIFR was challenged by the Company by filling Writ Petition in Jharkhand High Court on 06.02.2012. In the hearing held on 22nd February, 2012, the Appeal was dismissed. The Company has not recognized Rs.232381 Thousands (P.Y. 275409 Thousands) the liability on account of foreign currency fluctuation in Euro on foreign currency loans installments and interest thereon as per the BIFR Scheme. The Company has filed a Letters Patent Appellate Jurisdiction (LPA) on 27th July, 2012 before the higher bench in the High Court of Jharkhand, Ranchi against the order of the Single Judge which is still pending. (III) The Net worth of the Company could not become positive during the implementation of BIFR Scheme till 30-09-2011. As per Order date 5th May 2012, BIFR directed to the company to submit Modified Draft Rehabilitation Scheme (MDRS) within four months for the rehabilitation of the Company. (IV) The Modified Draft Rehabilitation Scheme of the company was filed before the Hon'ble BIFR on 3rd December 2012. The modified scheme is under consideration of the BFIR for which last hearing was held on 20.01.2014 in which the BIFR has made the following direction. (i) Ministry of Coal, Government of India, Central Coalfields Limited and Coal India Limited to extend regular supply of coal as per the existing coal linkage with CCL, as envisaged in the sanctioned scheme and submit its report to the Board with a copy to IFCI (MA), within a month. (ii) The Company to update the status of the writ petition /IA filed before the Hon,ble High Court of Jharkhand, Ranchi as and when the final decision is arrived at. The Company has made an interlocutor application for the withdrawal of the Writ Petition before the Hon'ble High Court of Jharkhand, Ranchi and it is expected that on withdrawal of the said Writ Petition the Fuel Supply Agreement (FSA) would be entered into for the regular supply of the Coal. This would expedite the process of finalization and sanction of the Draft Modified Rehabilitation Scheme with the grant of reliefs and concessions, the restructuring of the soft loan and other measures for the fresh induction of fund etc. for making the unit viable as a going concern. 2. The demand of water charges Rs. 250947 thousands (inclusive of interest on arrear of water bills of Rs.23103 thousands) as on 31.03.2015 (P.Y. Rs.231494 thousands inclusive of interest of Rs.20528 thousands as on 31.3.2014) raised by Chief Engineer, Subernarekha Multipurpose Project, Chandil has been disputed by the company under a Writ Petition with Jharkhand High Court, Ranchi. However, pending disposal of Writ Petition, the company based on its own estimate of liability has made total provision for Rs. 13869 thousands up to 31st March, 2015, (Rs.13869 thousands as on 31.3.2014.) 3. South Eastern Coalfield Ltd. has imposed a penalty of Rs.21528 Thousands in 2011-12 on account of short lifting of coal quantity in terms of Fuel Supply Agreement (FSA) dated 02.05.2008 and recovered the same by encashment of the bank guarantee. The Company has taken up the matter with Coal India Limited/ South Eastern Coalfield Ltd. for refund of the said amount as settlement of dispute under clause 15.3 of the FSA. No provision has been made for penalty recovered since the matter is pending under writ petition filled by the Company before the Hon'ble High Court of Chattisgarh, Bilaspur. 4. The company was allocated for captive use a Coal Block in the Macherkunda Coal Block in the State of Jharkhand on 5th August 2008 by the Ministry of Coal, Government of India. The Ministry of Coal vide letter date 20.11.2012 deallocated the above coal block on the ground that the company has failed to develop the coal block allotted within the brscribed milestone/time frame. On being aggrieved with the above order, the company has filled a Writ Petition before the Jharkhand High Court, challenging the decision of the Ministry of Coal to de-allocate the Coal block. The matter was transferred to Hon'ble Subrme Court of India, and the said court vide its order dated 24.09.2014 has cancelled all coal blocks allotted on and after 2003. In view of the above Rs. 894 Thousands incurred by the company on this account appearing under CWIP Coal block has been written off during the year and shown under the head of exceptional item. 5. The Central Coalfield Limited has recovered a penalty of Rs 5468 Thousands on account of short lifting of coal quantity in terms of fuel supply agreements (FSA) during the Financial Year 2012-13 and F.Y. 2013-14(April 2013) and Rs.5263 Thousands for rate differences. These amounts has been shown as exceptional items. 6. In accordance with the Companies Act, 2013 the Company has revised the useful life of the fixed assets during the current year to comply with the useful / remaining useful life of assets as mentioned under Schedule II of the Act. As per the transitional provision the company has adjusted Rs. 126918 thousands net of deferred tax (including Rs.124981 thousands for debrciation on revaluation reserve) with the opening balance of retained earning (i.e., deficit in the statement of Profit and Loss on April 01, 2014). Had the Company continued to follow the earlier life, the debrciation expense for the year ended on 31.03.2015 would have been higher by 10438 Thousands(excluding debrciation on revaluation reserve), and the loss before tax increased with that amount. 7. (a) Shri Satish Kumar Gupta, has been appointed as Additional Director and then Whole Time Director w.e.f. 13.12.2013. During the F.Y. 2013-14 a sum of Rs. 325 Thousands has been provided as remuneration as a Whole time director which was subject to the approval of shareholders of the Company in the ensuing general meeting (32nd AGM) and the approval of the Central Govt. in terms of the provisions of section 198, 269,309 & Schedule XIII as amended from time to time & other applicable provisions, if any of the Companies Act, 1956. The Shareholders has approved the payment of aforesaid remuneration by way of special resolution in the said Annual General Meeting (AGM). Since, Shri S. K. Gupta vide letter dated 13.11.2014 has voluntarily waived off his entire remuneration for the period 13.12.2013 to 12.12.2014, the provision for remuneration made in earlier year has been reversed & not paid to him and hence no Central Govt, approval has been sought. (b) The remuneration to the whole tine director has been paid /provided w.e.f. 13-12-2014 to 31-03-2015 is in compliance of Section 197 and Schedule V of the ACT. 8. Shut down of Plant and suspension of operations. Central Coalfields Ltd has stopped supply of linkage coal as per existing Fuel Supply Agreements to the Company w.e.f. 5th February 2013 for reason stated at para 7 above. Due to non-supply of Coal by CCL, the operations of the company has been shutdown and operation suspended w.e.f. 9th August 2013. The aforesaid action of Coal India Ltd, Central Coalfields Ltd and the Ministry of Coal, GOI. has been challenged by the company by way of Writ Petition (C) vtde No. 1660 of 2013 before the Hon'ble Jharkhand High Court and the same is still pending. In view of the above, provision for the undernoted items of expense have not been made in the accounts for the period from 10th August, 2013 to 31st March. 2015: (a) Interest on Unsecured Loans of Rs. 686001 thousands taken from Promoters and other Parties (amounts unascertained), (b) Interest on Soft Loan from Government of Jharkhand under Jharkhand Industrial Rehabilitation Scheme 2003 amounting to Rs. 81331 Thousands (Rs. 30526 thousands upto March 2014) which is subject to rebrsentations for waiver, and (c) Salaries, Wages and allowances, provident fund including as well as employee benefits expense (amount unascertained) except for KMP. 9. Related Party Transaction (RPT) in respect of renting of the office of the Company is Rs. 6146 thousands and the availing or rendering of services amounting to Rs. 6788 thousands as covered under section 188 (1) (c) and (d) respectively and Rules made thereunder and is within the overall limits of Rule 15 of the Companies (Meetings of Board and its Power) Rules, 2014. 10. Income Tax assessment of the Company for the Asstt. Year 2012-13 has been completed under Section 143 (3) of the Act vide order dt.24.03.2015 by the Asstt. Commissioner of Income Tax, JSR. The Assessing Officer has disallowed the Returned loss on the ground that the company has not furnished the required information, documents, books of accounts and records inspite of questionnaire & the various reminders show cause notice given to the assessee. Since the plant was under shut down and laborers did not allow the entry of staff and officer to factory brmises and hence the information / documents / papers were produced to the extent possible. On being aggrieved with the said order, the Company has filed an appeal before the CIT (Appeal-3), Patna on 27.04.2015. 11. Credit/Debit balances of the Creditors, Lenders, Debtors and Advances are subject to reconciliation/confirmation at the year end. 12. In the opinion of the Board, Current Assets have a realizable value equivalent to the amount at which they are stated in the Balance Sheet and the provision for all known liabilities have been made except to the extent as appearing in other notes. 13. Previous year figures have been recast / restated to conform to the classification required by the Revised Schedule VI Notes 1 to 29 and Annexure - I containing Accounting Policies and General Notes form part of the Financial Statements. As per our report of even date attached. for Thakur, Vaidyanath Aiyar & Co. Chartered Accountants [FRNo. 000038N] M.P. Thakur (Partner) Membership no. 052473 S.K. Gupta (Director- Works)[DIN 03537417] Manoj Kumar(Company Secretary)M.No. F6698 B.K. Goel(Chief Financial Officer) M.No. 086168 Directors B.D. Garg- [00002792] J.C. Chawla [05316202] J.N. Khurana [00003817] Madan Lal [00272672] R.K. Agarwal [00298252] Place : New Delhi Date : 12.05.2015 |