Notes to the Financial Statements as at and for the year ended 31st March, 2015 1. BASIS OF brPARATION The financial statements of the Company have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material aspects with the accounting standards notified under Section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules 2014 and the directives as brscribed by the Reserve Bank of India for Non Banking Financial Companies. The financial statements have been brpared under the historical cost convention on an accrual basis. However, income is not recognized and also provision is made in respect of non- performing assets as per the prudential norms brscribed by the Reserve Bank of India. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year, except for the change in accounting policy explained below. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES i. Change in Accounting Policy Debrciation on fixed assets Till the year ended 31 March 2014, Schedule XIV to the Companies Act, 1956, brscribed requirements concerning debrciation of fixed assets. From the current year, Schedule XIV has been replaced by Schedule II to the Companies Act, 2013. The applicability of Schedule II has resulted in the following changes related to debrciation of fixed assets. Unless stated otherwise, the impact mentioned for the current year is likely to hold good for future years also. (a) Useful lives/ debrciation rates Till the year ended 31 March 2014, debrciation rates brscribed under Schedule XIV were treated as minimum rates and the company was not allowed to charge debrciation at lower rates even if such lower rates were justified by the estimated useful life of the asset. Schedule II to the Companies Act 2013 brscribes useful lives for fixed assets which, in many cases, are different from lives brscribed under the erstwhile Schedule XIV. However, Schedule II allows companies to use higher/ lower useful lives and residual values if such useful lives and residual values can be technically supported and justification for difference is disclosed in the financial statements. Considering the applicability of Schedule II, the management has re-estimated useful lives and residual values of all its fixed assets. The management believes that debrciation rates currently used fairly reflect its estimate of the useful lives and residual values of fixed assets, these rates are same with the lives brscribed under Schedule II. Hence, this change in accounting policy did not have any material impact on financial statements of the company. (b) Debrciation on assets costing less than Rs. 5,000/- Till year ended 31 March 2014, to comply with the requirements of Schedule XIV to the Companies Act, 1956, the company was charging 100% debrciation on assets costing less than Rs. 5,000/- in the year of purchase. However, Schedule II to the Companies Act 2013, applicable from the current year, does not recognize such practice. Hence, to comply with the requirement of Schedule II to the Companies Act, 2013, the company has changed its accounting policy for debrciations of assets costing less than Rs. 5,000/-. As per the revised policy, the company is debrciating such assets over their useful life as assessed by the management. The management has decided to apply the revised accounting policy prospectively from accounting periods commencing on or after 1 April 2014. The change in accounting for debrciation of assets costing less than Rs. 5,000/- did not have any material impact on financial statements of the company for the current year. ii. Use of Estimates The brparation of financial statements in conformity with generally accepted accounting principles requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the date of financial statements and the results of operations during the reporting year end. Although these estimates are based upon the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amount of assets and liabilities in future periods. iii. Revenue Recognition a. Fees from Investment Banking activities which include Mergers & Acquisitions, Investment and other advisory services are recognized as revenue when the relevant services are rendered to the customers and there are reasonable certainties as regards ultimate collectability of such revenue. The Company collects service tax on behalf of the Government and, therefore, it is not an economic benefit flowing to the Company. Hence, it is excluded from revenue. b. Dividend income is recognized when the shareholder's right to receive dividend is established by the balance sheet date. c. Income from Royalty is recognised on an accrual basis in accordance with the terms of the relevant agreement. d. Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable. e. Profit / (loss) on sale of investments is determined based on the weighted average cost of the investments sold. iv. Tangible Fixed Assets Tangible Fixed assets are stated at cost less accumulated debrciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Any trade discount and rebates are deducted in arriving at the purchase price. Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Statement of Profit and Loss when the asset is de-recognised. v. Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and impairment losses, if any. vi. Debrciation and Amortization on Tangible and Intangible Assets a. Debrciation on fixed assets is calculated on a WDV basis the rates arrived at based on the useful lives estimated by the management which is as per the rates specified in Schedule II to the Companies Act, 2013. b. Debrciation on fixed assets added / disposed off during the year is provided on prorata basis with reference to the date of addition / disposal. c. Copyrights are amortized on straight-line basis over a period of three years from the date the assets become available for use. d. Computer softwares are amortized on straight line basis over a period of three years from the date the assets become available for use. vii. Impairment of tangible and intangible assets The carrying amounts of assets are reviewed at each balance sheet date to determine whether there is any indication of impairment based on external/internal factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount which rebrsents the greater of the net selling price and 'Value in use' of the assets. In assessing the value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, debrciation / amortization is provided on the revised carrying amount of the assets over its remaining useful lives. A brviously recognized impairment loss is increased or reversed depending on the changes in the circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have brvailed by charging usual debrciation / amortization if there was no impairment. viii. Borrowing Costs Borrowing cost includes interest and amortization of ancillary costs incurred in connection with the arrangement of borrowings. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur. xi. Investments Investments that are readily realisable and intended to be held for not more than a year from the date on which such investments are made are classified as Current Investments. All other Investments are classified as Long term Investments. Current Investments are stated at lower of cost and market rate on an individual investment basis. Long term investments are considered "at cost" on individual investment basis, unless there is a decline other than temporary in the value, in which case adequate provision is made against such diminution in the value of investments. x. Provisions A provision is recognized when the company has a brsent obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates. xi. Contingent Liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements. xii. Taxation Tax expense comprises of current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred Income tax reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. The deferred tax for timing differences between the book and tax profit for the year is accounted for using the tax rates and laws that have been substantively enacted as of the Balance Sheet date. Deferred tax asset is recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax asset can be realised. In situations where the company has unabsorbed debrciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. The carrying amount of deferred tax asset is reviewed at each Balance Sheet date. The company writes down the carrying amount of a Deferred Tax Asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. At each Balance Sheet date, the company recognizes the unrecognized deferred tax asset to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax asset can be realized. Minimum Alternative Tax (MAT) credit is recognised as an asset only when and to the extent there is convincing evidence that the company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in the guidance note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the statement of profit and loss and shown as MAT Credit Entitlement. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that the Company will pay normal Income Tax during the specified period. xiii. Provisioning on Standard Assets The Reserve Bank of India (RBI) vide Notification No. DNBS 223/CGM (US) - 2011 dated January 17, 2011 has issued direction to all NBFCs to make provision of 0.25% on standard assets. Accordingly, the Company has made provision @0.25% on standard assets in accordance with RBI directions. xiv. Segment Reporting a) Identification of Segments The Company has identified that its business segments are the primary segments. The Company's operating businesses are organized and managed separately according to the nature of products/services provided, with each segment rebrsenting a strategic business unit that offers different products/services and serves different markets. The analysis of geographical segments is based on the areas in which the operating divisions of the company operates. b) Allocation of Common Costs Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common cost. Revenue and expenses which relate to the enterprise as a whole and are not allocable to segments on a reasonable basis are included under the head "Unallocated - Common". The accounting policies adopted for segment reporting are in line with those of the Company. xv. Retirement and other employees benefits a. Retirement benefit in the form of provident fund is a defined contribution scheme. The company has no obligation, other than the contribution payable to the provident fund. The company recognizes contribution payable to the provident fund scheme as an expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the br payment will lead to a reduction in future payment or a cash refund. b. Gratuity liability being a defined benefit obligation is provided for on the basis of actuarial valuation on projected unit credit method at the end of each financial year. Actuarial gains / losses are recognized in full in the period in which they occur in the Statement of Profit and Loss. The Company has got an approved gratuity fund which has taken an insurance policy with Life Insurance Corporation of India (LIC) to cover the gratuity liabilities c. Short term compensated absences are provided for based on estimates. xvi. Earnings Per Share Basic Earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders, by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. xvii. Cash and Cash Equivalents Cash and cash equivalents in the cash flow statement comprise of Cash at Bank and Cash/Cheque on hand and fixed deposits with an original maturity of three months or less. CONTINGENT LIABILITIES (a) The Company has provided Corporate Guarantee of Rs. 35,00,00,000 (2013-14: Rs. 18,63,75,000) against bank guarantee and has created equitable mortgage of Rs. 7,47,55,370 (2013-14: Rs. 6,92,70,000) over its property at Kolkata as security for credit facility extended by a scheduled bank to Microsec Capital Limited (a wholly owned subsidiary company). The amount of facility/guarantee actually availed by the subsidiary as on the balance sheet date amounts to Rs. 85,267 (2013-14: Rs. Nil) and Rs. 22,94,14,495 (2013-14: Rs. 6,79,85,061) (net of fixed deposits of Rs. 16,75,00,000 (2013-14: Rs. 12,00,00,000) pledged by the subsidiary with the scheduled banks) respectively. (b) Income tax demand under appeal - Rs. 4,69,520 (2013-14: Rs. 4,69,520). The management believes that the Company has a good case for success in this matter and therefore no provision thereagainst is considered necessary. (c) Service tax demand - Rs. 65,91,073 (2013-14: Rs. 65,91,073). The management believes that the Company has a good case for success in this matter and therefore no provision thereagainst is considered necessary. 3. Minimum Alternate Tax (MAT) credit entitlement of Rs. 30,55,715 although available as tax credit for set off in future years as per Income Tax Act, 1961, has not been accounted for in view of accounting policy specified in Note 2(xii) herein. 4. Capital Commitments Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) - Rs. 14,05,138 (2013-14: Rs. 12,72,222). 5. Segment Reporting In terms of Accounting Standard 17 - "Segment Reporting" notified by Companies Act, 2013, the Company is engaged in the business of Financing and has only a single reportable segment. The Company operates in only one geographical segment i.e. 'Within India' and no separate information for geographical segment has been given. 6. The Statutory Auditors has in their audit report for the year ended 31st March, 2014 and review report of 30th June, 2014, 30th September, 2014 and 31st December, 2014 commented regarding concentration of credit / investment norms as provided in paragraph 18 of Non-Banking Financial (Non Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (as amended), having exceeded the limits provided therein, in order to become a Non Deposit Accepting Core Investment Company (ND-CIC). The shareholders of the Company had approved conversion of the Company to a Core Investment Company (CIC) on 19th March 2013. Pursuant to the Revised Regulatory Framework for NBFC issued by the Reserve Bank of India (RBI) on 10th November, 2014, the Company having asset size of less than Rs. 500 crores is not required to comply with credit concentration norms on and from that date. During the year, the Company has surrendered its Certificate of Registration and has applied to the RBI for voluntary deregistration as Systematically Important - Non Deposit - Non-Banking Financial Company (NBFC-ND-SI) to the Reserve Bank of India (RBI). Subsequent to the year end, the Company has received intimation from the RBI that its application for deregistration is under process. A Company having an asset size of more than Rs. 100 crores and not accessing public funds is exempt from the registration as CIC with the RBI in terms of the notification No. DNBS. (PD) 221/CGM (US)-2011 dated 5th January 2011. In view of the above, the management believes that the Company has complied with the extant requirements of operating as a CIC and has also submitted its application with RBI for withdrawal of application for registration as CIC as submitted on 12th August, 2014. 7. The creation of provision for standard assets though not required for a Core Investment Company in terms of the RBI guidelines, however as a matter of abundant brcaution the Company has not written back the amount of Rs 10,00,000 lying as on 31st March 2015, pending necessary registration / clarification from the RBI as stated in note 29 above. 8. Effective from 1st April, 2014, the Company has charged debrciation based on the revised remaining useful life of the assets as per the requirement of Schedule II of the Companies Act, 2013. Due to above, debrciation charge for the year ended 31st March, 2015, is higher by Rs. 7,12,659. Further, based on transitional provision provided in Note 7(b) of Schedule II, an amount of Rs. 21,89,844 being debrciation on fixed assets whose useful lives as per Schedule II of the Companies Act, 2013 had expired before commencement of the year has been adjusted with retained earnings as at 1st April, 2014. 9. Net Deferred Tax Assets of Rs. 8,54,587 (2013-14: Rs. 13,55,981) has not been recognized in view of accounting policy specified in Note 2(xii) herein. 10. Previous year's figures including those in brackets have been regrouped and / or reclassified to confirm to this year's classification. As per our report of even date For S. R. Batliboi & CO. LLP Firm Registration No: 301003E Chartered Accountants per Bhaswar Sarkar Partner Membership No. 55596 For and on behalf of the Board of Directors B. L. Mittal Chairman & Managing Director DIN : 00365809 Ravi Kant Sharma Director DIN : 00364066 Giridhar Dhelia Chief Financial Officer Biplab Kumar Mani Company Secretary Place : Kolkata Date : 30th May, 2015 |