Extracts from Modified Auditor’s Reports

Essar Steel Limited – Annual Report 2003-04

Extract from Auditor’s Report

4.  Further to our comments in the Annexure referred to in Paragraph 3 above, we report that:

a) (i)  The company has accounted for interest and restatement of certain outstanding loan dues in accordance with the Scheme of Compromise and/or Arrangement under section 391 of the Companies Act, 1956 pending with the Honourable High Court of Gujarat. (Refer Note No.2 of Schedule 23).

    (ii)  During the year, the company has settled the Long Term Advances received from a customer.  Exchange Variation (Loss) of Rs. 153.58 crores (Net of Exchange Variation Gain of Rs. 53.09 crores for the year 2003-04) arose on settlement of the said Long Term Advance has been adjusted to Fixed Assets during the year 2003-04 as according to the company the said advances were utilised in connection with acquisition of Fixed Assets.  In absence of verifiable evidence to support the company’s explanation, we are unable to express opinion as to treatment of capitalisation or otherwise of Exchange Variation of Rs. 153.58 crores (Net) to carrying cost of Fixed Assets, and charging of depreciation of Rs. 17.03 crore related to this accounting year.  (Refer Note No. 4 of Schedule 23).

  (iii)   Loans and Advances of the company include overdue intercorporate deposits (including interest thereon) of Rs. 4.13 crores and other overdue amounts of Rs. 119.94 crores.  Further, Capital Work-in-Progress include overdue advances of Rs. 1.83 crores to suppliers and Sundry Debtors and other overdue amounts (including interest) of Rs. 83.35 crores.  In the opinion of the company, these amounts are recoverable; hence, in respect of these amounts the company has not made any provision.  In absence of any Supporting evidence, We are unable to express any opinion regarding recoverability of these amounts.  (Refer Note No. 7 of Schedule 23).

c)       In our opinion, subject to our observations in paragraphs (a) above, proper books of account as   required by law have been kept by the company so far as appears from our examination of those books;

e)       In our opinion, subject to our observations in paragraph (a)(ii) above, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

g)       In our opinion and to the best of our information and according to the explanations given to us, subject to our observations in paragraph (a) above with corresponding effects of which on the profit for the year and net assets and liability presently are not quantifiable, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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Extract from Schedule 23

Notes to the Accounts:

2. The company had received during the previous year 2002-03 approval from Corporate Debt Restructuring (CDR) Group to Comprehensive Financial Restructuring Plan (CFRP).  The approval is effective from 1^st October, 2002 and it envisages conversion of existing term loans, debentures, interest and lease rent accrued upto 30^th September, 2002 into Rupee Term Loans, Foreign Currency Term Loans/Reduced Rate Rupee Term Loans, conversion of unsecured promoters contribution into equity, differential and compound interest to be converted into Cumulative Redeemable Preference Shares and Zero Coupon Bonds respectively and part of existing loans to be converted into equity etc.

The company is in the process of complying the residual formalities stipulated in the approval received from the Corporate Debt Restructuring Group (CDR) to the company’s comprehensive restructuring plan.

Further, inter-alia to effect a statutory contract to bind all the secured lenders (secured lenders who are members and who are not members of CDR), the company has submitted a Scheme of Compromise and/or Arrangement in the Honourable High Court of Gujarat, Ahmedabad under section 391 of the Companies Act, 1956. Pursuant to the Court Order, the company had convened a meeting of secured lenders on 6^th June, 2003 and more than 3/4ths of secured lenders in value have approved the said Scheme of Compromise and/or Arrangement together with modifications.  Pending approval of the Court, the dues including interest payable to secured lenders, have been treated as per the terms of the above said Scheme.

Pending the sanction of the Scheme under section 391 by the Honourable High Court of Gujarat, the company has accounted during the current year for the differential interest, interest on interest, penal interest (net) up to 30-09-2002 amounting to Rs. 374.40 crores following acceptance by the company with the Institutions.

Unsecured loan and Non Convertible Debentures issued to Unit Trust of India amounting to Rs. 827.68 crores (including interest upto 30^th September, 2002) have also been restated in line with the said Scheme of Compromise and/or Arrangement as Rupee Term Loans, Amount Pending Conversion into Equity and Contribution towards Cumulative Redeemable Preference Shares.  In the absence of creation of security in relation to the Unit Trust of India loan in the form of subscription of the Rs. 94 crores facility (included in the above mentioned amount), the same has been regrouped under unsecured loans in this balance sheet.

4.  The company has considered the receipt of the export advances and supply of steel as inter related transaction in the past as per Accounting Standard 11 – Accounting for the effects of changes in foreign exchange rates and accordingly the advances were not revalued at the year end exchange rates.  During the year the company has settled with a customer from whom long term export advances were earlier received.  Consequent to such settlement, exchange difference on these advances amounting to Rs. 153.58 crores (net) has been added to the carrying cost of the fixed assets and depreciation amounting to Rs. 17.03 crores has been provided during the year on such capitalised assets as such advances were utilised in connection with settlement of liabilities arising on account of setting up of HRC project.

7.  Loans and Advances include overdue inter-corporate deposits (including interest thereon) of Rs. 4.13 crores (Previous year Rs. 11.13 crores) and other overdue amounts (including interest) of Rs. 119.94 crores (Previous year Rs. 129.68 crores). Further, Capital Work-in-Progress includes overdue advances to suppliers of Rs. 1.83 crores (Previous year Rs. 13.56 crores) and Sundry Debtors and other overdue amounts (including interest) of Rs. 83.35 crores (Previous year 150.01 crores) respectively.  The management has undertaken an extensive exercise for collection of such overdue amounts and is confident of recovering the same progressively.  Accordingly, provision there against is not considered necessary at this stage.           

SKF Bearings India Limited - Annual Report 2003

Extract from Auditors’ Report to the Shareholders

4.  We draw attention to note 2 in Schedule 6 to the financial statements. Capital Work in progress as at 31^st December 2003 includes assets acquired in November 1998, amounting to Rs. 81.2 millions, net of provision for impairment Rs. 20.0 millions.  The realisation of the balance carrying amount of these assets is dependent on the successful installation and utilisation of these assets.

Extract from Schedules forming part of the Accounts

6.   FIXED ASSETS (At Cost)

Notes:

2.   Capital work-in-progress (‘CWIP’) includes machinery acquired in November 1998 and not installed as at December 31, 2003 worth Rs. 81.2 mio (Previous year Rs. 81.2 mio), net of provision for impairment of Rs. 20 mio (Previous year Rs. 20 mio).  The company believes that on installation, these assets will generate revenues adequate to recover carrying cost.

Mahindra Gesco Developers Limited - Annual Report 2003-04

Extract from Auditors’ Report to the Members

4 e) Without qualifying our opinion, we draw attention to:

  i) Note 10 of Schedule 23 to the financial statements, regarding change in accounting policy for amortisation of Miscellaneous Expenditure. Had the company not changed the policy, Miscellaneous Expenditure and profit before tax for the year would have been higher by Rs. 20,644,215.

 ii) Note 12 of Schedule 23 to the financial statements regarding remission of liabilities amounting to Rs. 151,115,380/- and Rs. 22,903,872/- obtained under one-time settlements being of an exceptional nature. The said amounts have been credited to the Profit and Loss Account under the head “Other Income”; and

   f)  In respect of projects under long term contracts undertaken and/or financed by the Company [Note no. 1(e), 7(a) and 8(b), we have relied upon the management’s estimates of the percentage of completion, costs to completion and the projections of revenues expected from projects owing to the technical nature of such estimates, on the basis of which profits/losses have been accounted, interest income accrued and realizability of the construction work in progress and project advances determined.

  g)  In our opinion and to the best of our information and according to the explanations given to us, the said accounts read with the notes thereon give the information required by the Companies Act, 1956, in the manner so required and subject to the matter referred to in paragraph (f) above, give a true and fair view in conformity with the accounting principles generally accepted in India:

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Extract from Schedule 23

NOTES TO ACCOUNTS

1.  SIGNIFICANT ACCOUNTING POLICIES:

e)  Revenue Recognition:

Income from projects under long term contracts is recognised on the percentage of completion basis.  As the long-term contracts necessarily extend beyond one year, revision in costs and revenues estimated during the course of the contract are reflected in the accounting period in which the facts requiring the revision become known.  Unbilled costs are carried as construction work-in-progress.

Determination of revenues under the percentage of completion method necessarily involves making estimates by the Company, some of which are of a technical nature, concerning, where relevant, the percentages of completion, costs to completion, the expected revenues from the project/activity and the foreseeable losses to completion. Such estimates have been relied upon by the auditors.

Project Management Fees receivable on fixed period contracts is accounted over the tenure of the contract/agreement.  Where the management fee is linked to the input costs, revenue is recognised as a proportion of the work completed based on progress claims submitted.  Where the management fee is linked to the revenue generation from the project, revenue is recognised on the percentage of completion basis.

Income from operation of commercial complexes is recognised over the tenure of the lease/service agreement.

Income from services rendered in respect of projects is inclusive of service tax recoverable from the clients.

Interest income is accounted on an accrual basis at contracted rates.

Dividend income is recognised when the right to receive the same is established.

7)  Inventories:

a)  Construction Work in Progress represents materials at site and unbilled costs on the projects.  Based on projections and estimates by the company of the expected revenues and costs to completion, provision for losses to completion and/or write offs of costs carried to inventory have been made on projects where the expected revenues are lower than the estimated costs to completion.  In the opinion of the management, the net realisable value of the construction work in progress will not be lower than the costs so included under work in progress.

8)  Current Assets, Loans and Advances:

b)  Project advances and interest accrued thereon represent the amounts recoverable from the proceeds of projects undertaken/financed by the Company as per the contracted terms.  The advances as well as the interest thereon are considered good and fully recoverable based on the estimates and projections by the company of the project costs and revenues expected from the respective projects.

10) Miscellaneous Expenditure:

During the year, the Company has changed its accounting policy in respect of amortisation of Miscellaneous Expenditure (to the extent not written off), effective which, the unamortised part of such expenditure has been written off to the Profit and Loss Account.  Had the Company not changed the policy, Miscellaneous Expenditure (to the extent not written off) and Profit for the year would have been higher by Rs. 20,644,215.

12)  Exceptional Items:

During the year, the Company has re-negotiated its liabilities arising out of two separate contracts and obtained:

a)  remission of Rs. 151,115,380 of the principal amount due against a project, and

b)  remission of interest payable under an agreement of Rs. 22,903,872.

The said amounts arising out of a one-time settlement have been credited to the Profit and Loss account and are exceptional in nature.

Alembic Limited - Annual Report 2003-04

Extract from Auditors’ Report

(vi) No provision has been made by the Company;

a)  for the demand of interest on delayed payment of gas price in respect of the gas supplied by ONGC during the period 01.01.1982 to 29.01.1987 to ONGC, pending final determination of amount as detailed in note no. 4 to the accounts and

 b)  in respect of gas supplied by ONGC during the period 30.01.1987 to 31.05.1991, the matter being subjudice as detailed in note no. 4 to the accounts.

(vii) The Company has revalued some items of plant and machinery on a selective basis rather than for a class of assets as at 1^st April, 1997 as detailed in note no. 5 to the accounts.  Such selective application of revaluation is not in conformity with the Accounting Standard 10 on “Accounting for Fixed Assets” prescribed by the Institute of Chartered Accountants of India even though the accounting per se of such revaluation is as per accepted accounting practice;

We further report that the effect of our observations at (vi) and (vii) above is not quantified/quantifiable.

Subject to para vi and vii above, in our opinion and to the best of our information and according to the explanation given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India;

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The Premier Automobiles Ltd. - Annual Report 2003-04

Extract from Auditors Report

4(f)  Without qualifying our opinion, we draw attention to Note no. 9(d) of notes forming part of the accounts with regard to long term investment in Fiat (India) Pvt. Ltd. amounting to Rs. 3200.03 lakhs.  We are unable to form a view with regard to management decision to retain the investment at its book value in view of the complex nature of issues involved.

Extract from Notes Forming Part of the Accounts:

9(d) The Company is holding 32,00,034 Equity shares Rs. 100/- each fully paid in Fiat India Pvt. Ltd. (FIPL). The value of the shares shown in books of the Company is Rs. 32 crores. To restructure its equity capital to off-set its accumulated losses, FIPL has proposed to reduce the paid up value of its equity shares from Rs. 100/- per share to Rs. 3.431 per share.  FIPL has filed a petition in Bombay High Court for approval of the reduction.  The Company, as well as one of the creditors of FIPL, has opposed the petition of FIPL on the ground that it is unjust, inequitable and prejudicial to the interest of the Company, the minority shareholder and fiduciary of its own shareholder. The proposal as claimed by FIPL is in conformity with their avowed plans of increasing the production and introduction of new models in India as well as the infusion of fresh capital by Fiat Auto Italy at present face value.  The Management of the Company has taken the view that its investment in FIPL is of a long term nature, its value has to be determined based on its intrinsic and strategic value especially in view of FIAT’s long term commitment in India and introduction of new models.  In view of the complexity of issues involved and in absence of any contradictory information available to disbelieve FIAT’s long term commitment in India and also Company’s offer of sale of shares at a value above par is still open, the Management has taken the decision not to diminish value of its investments in FIPL.

 As per agreement between Fiat Auto and the Company, the shares held in Fiat India Pvt. Ltd. (FIPL) were kept in escrow for completing certain formalities like registration of the conveyance deed to complete the transfer of the Kurla business.  The Company having completed the terms of escrow, requested to escrow holder to release the shares.  FIPL has raised certain commercial issues unrelated to the purpose for which this escrow arrangement was agreed upon and requested the escrow holder to continue to hold the shares in escrow which the Company is disputing.  The escrow arrangement does not affect the rights of the Company as a shareholder of FIPL and the shares owned by the Company.

There are certain disputes with regard to the rights of the Company as shareholder of FIPL and the Company has filed a petition before the Company Law Board.  The matter has been partly heard.  During the course of the hearing both parties have initiated discussion to settle all the pending issues including inter company transactions and sale of shares held by the Company in FIPL which are currently yet in progress.