Notes to Accounts of BCL Forgings Ltd.

Mar 31, 2011

1 The net worth of the Company has substantially eroded. However, these accounts have been prepared by applying the assumption of Going Concern in view of continuing business operations. Further, the Management of the Company is taking steps towards optimization of its operations and is of the view that same shall enable the Company to achieve positive results and the restoration of positive net worth. ¦

PARTICULARS For the year For the year ended ended 31st March, 2011 31st March/2010

2 Contingent Liabilities:

(a) The Company has imported capital goods under 18,00,000 18,00,000 the EPCG Scheme at concessional duty with an export obligation for which bank guarantee has been provided for in favour of Government of India. In the event export obligation is not fulfilled the Company would be liable to pay the . custom duty saved along with interest thereon. The amount of custom duty saved is Rs. 1,07,65,944/-. ,

(b) Excise demands, where favorable decision of the 58,313 58,313 Appellate Authorities are disputed by the Excise Department in further appeals.

3 No provision has been made for

(a) Estimated gratuity payable to its employees at a 2,13,31,769 1,76,73,792 future date, being the difference between the' liability determined on actuarial valuation and the fund, balance-:

(b) Estimated leave salary payable to its employees at 10,19,514 10,19,514 a future date, representing the difference between the liability determined on actuarial valuation and the-provision made therefore as upto ,31st March, 2007. Further, effective year ended 31st March, 2008 actuarial valuation has not been carried out.

4 The Company had revalued it's leasehold land, buildings, electrical installations and plant and machinery acquired upto 31st March, 1995 and held as on 1st April, 1996 at their "Current Replacement Cost" on the basis of a report by an approved value by ¦transferring the resultant difference between the "Current Replacement Cost" and "Original Cost" of Rs. 5,13,83,446/- to the "Revaluation Reserve Account". Difference in depreciation in respect of revalued assets as provided on "Current Replacement Cost and "Original Cost" is adjusted as under:

(a) Till 31st March, 1996 depreciation adjusted to Revaluation Reserve Account is Rs. 2,16,57,503/-.

(b) For the year depreciation transferred from Revaluation Reserve Account to the Profit and Loss Account is Rs.2,39,938 /- (Previous Year Rs.9,47,047/--),

5 During the previous year, the Company had sold its freehold land situated at Pathardi Nasik for Rs. 18,00,000/- and earned profit of Rs. 56,37,254/-, representing an extraordinary item. The said profit is included in the amount of Profit on Sale of Fixed Assets under the Schedule of Other Income.

6. The Company's 36/70,000 6% Cumulative Convertible Preference Shares of Rs 30/ each wen, converted into 36,70,000 equity shares of Rs. 10/- each fully paid up at a premium Rs. 20/- per share on 26th September, 2007. However, the Company has not paid the Cumulative Dividend of Rs 1,42,97,918/-in respect of the said 6% cumulated convertible preference shares up to the date of their conversion into equity shares, as the management is of the view that the same is not payable as not declared.

7. The Company in accordance with the approval accorded by it shareholders at its extra ordinary general meeting held on 8th January,2008 had issued 1830000 Zero Percent Convertible Warrants of Rs.30/- per warrant convertible into 183000 on vemdie Waianae of Rs. 30/- per warrant convertible into 18,30,000 equity shares of Rs. 10/- each at a premium, of Rs. 20/- per share on preferential basis placement as per rite SEB1 (Disclosure & Investor Protection) being 10 % of the amount receivable on issue thereof. During the previous year account of non-receipt of 90%. of me amounts payable on convulse hereof some warrant were cancelled by the Board of Directors at their meeting held on 28th January 2010 and consequently the application money received there against was forfeited and credited to Capital Reserve Account.

8.1. In the absence of "Net Profit" as computed under Section 349 of the Companies Act made. Consequently, the computation of "Net Profit" under Section 349 of the Companies Act, 1956 has not been shown.

9. The Company is in the process of evaluating the utility as well as realisable value of certain inventories of stores, spare parts and die blocks which have remained unmoved for asserting whether there is any need to provide for obsolescence/ impairment. Upon completion of such execrate, necessary provision shall be made thereof, if required.

10. No provision for doubtful debts aepreeatine to Rs.23649749 Previous Year Rs 2,49,34,621 ) has been made as the Company continues its efforts to recover them bv taking appropriate legal steps and or personal follow up actions.

11. The Company had entered into an agreement, effective 1st April, 2005 with Messrs. Invest well for portfolio management and investment Activities 24 Months. In accordance with the said agreement, the "profits" (Net) earned during the period of 24 months were to be shared equally and the "losses" (Net) incurred were to be borne by Messrs. Invest well. The said Agreement was mutually extended for a further period of 12 months. As on 31.03.20T1, there is a debit balance of Rs. 6,32,66,282/- in the name of. Messrs. Invest well, which comprises of funds utilized and losses and costs incurred in relation to the said activities. The management is of the view that the said amount of Rs. 6,32,66,282/-due from M/s Invest well is good for recovery.

12. Loans and Advances include Rs. 2,75,69,994/-, being the aggregate amounts paid to Prathamesh Investment & Trading Private Limited including, on their behest, for certain services rendered by them in connection with Preferential Issue of Shares and Warrants by the Company in the earlier period(s).

No provision has been made for the fees payable by the Company to them, as the amount payable has not been agreed upon by and between the Company and the said Prathamesh Investment, & Trading Private Limited as yet. The management has decided that as and when the said- fees are determined, then amount thereof shall be charged off to Share Premium Account ,:in accordance with the provisions of Section 79 of the- Companies Act, 1956 and hence, provision at this junction is not necessary.

13. The Company had entered into a "license cum operating agreement" (the agreement) with Business Combine Limited (BCL) under which, w.e.f. 1st April, 2005, BCL had granted the Company an exclusive license to operate its factory for manufacture of S.g! Iron Castings of various types ,& machine components, as per the terms and conditions as stated therein. The said agreement has been discontinued w.ei. 1st October, 2008 and consequently, the amount of security deposit of Rs. 9,00,00,0.00/- placed by the Company has been refunded during the year.

As on 31st March, 2011 an amount of Rs. 7,04,68,215/- is recoverable from BCL, which includes the following which are subject to reconciliation and confutation by item.

(a) Interest of Rs. 1,86,57,778 charged by the company during the previous year on the outstanding balances recoverable from BCL, However, the Company has not charged such interest on the outstanding balances recoverable from BCL for the year.

(b) Labour charges of Rs.81,60,395/- credited by the Company to BCL towards products manufactured by them for and upto years ended 31st March, 2011.

(c) Debit notes issued by the Company for rejection(s) as well as reimbursement of expenses for and upto years ended 31st March, 2011.

The aforesaid debit of interest/rejection(s)/reimbursement of expenses and credits for conversion charges are subject to acceptance by BCL, The necessary adjustments if any arising upon finalization/settlement of the aforesaid claims-shall be made in the year in which the same are concluded. '

Further, in the opinion of the Management of the Company, the amount due from BCL as on 31.03.2011 of Rs. 7,04,68,215/- is good for recovery, though it is a Sick Industrial Company as it continues its business operations and the Company. endeavors to recover the same.

14. Advances includes Rs. 1,07,87,214 (Previous Year Rs. 1,05,28,192) paid to suppliers which are subject to reconciliation and necessary adjustment entries shall be passed upon reconciliation thereof.

15. The balances of Sundry Debtors, Loans and Advances and Sundry Creditors are subject, to conformation/reconciliation. Necessary adjustment entries shall be passed upon receipt of conformations/ reconciliations.

16. The Company does not have any information as regards status of the vendors covered under the Micro, Small and Medium Enterprises Act, 2006 and consequently, no disclosure of the amount due to such vendors along with interest payable, if any, has been made.

17. No provision has been made for the income tax demand of Rs, 64,90,611 for earlier years as the same are disputed in appeals.

18. The Company has constituted an audit committee under Section 292A of the Companies Act, 1956. The audit committee had functioned during the year. However; the Management of the 'Company is taking steps to make the same more effective.

19. SEGMENT REPORTING PURSUANT TO ACCOUNTING STANDARD-17:

The Company is engaged. in the business of manufacture arid sale of carbon and alloy steel forgings and hence, The company has only one business segment. Further, the Company does not have any geographical segment.

20. TAXATION:

(a) Deferred tax : In accordance with Accounting Standard (AS - 22) on Accounting for Tax on Income notified by the Companies (Accounting Standards) Rules,20Q6 , Deferred Tax Assets consist of substantial amounts of'carry' forward losses and unabsorbed depreciation under fee Income Tax Act, 1961. However, since the availability of sufficient future taxable income against Which the said benefits can be set off is not possible to be ascertained with virtual certainty, Deferred Tax Assets have not been recognised as a measure of abundant caution.

(b) Current Tax Company has incurred loss during the year and hence no provision for current tax has been made during the year.

21. DISCLOSURE IN RESPECT OF RELATED PARTIES PURSUANT TO ACCOUNTING STANDARD

A. Related Parties and their relationship:

1. Mr. C.D Dhongde: Managing Director, a Key Management Personnel (KMP)

2 Business Combine Limited: Promoter Company (*)

3. Hindustan Hardy Spicer Limited and XLO India Limited: Companies in which a director of the Promoter Company exercises significant influence-(*). (*) Referred to as "Associated Enterprises"

Note: Related parties and then relationship are as identified by the Company and relied upon by the Auditors.

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Mar 31, 2010

A. NATURE OF OPERATIONS:

The Company is engaged in the business of manufacture of carbon and alloy steel forgings and machined components. Further, it also manufactures S.G Iron Casting. The said manu- facturing activities are carried out on own basis and for others on job basis.

B. OTHER NOTES TO THE ACCOUNTS:

For the year For the year Particulars ended ended

31st March, 2010 31st March, 2009

1 Contingent Liabilities:

(a) The Company has imported capital goods under the EPCG Scheme at concessional duty with an export obligation for which bank guarantee has been provided in favour of Gov ernment of India. In the event export obligation is not ful filled the Company would be liable to pay the custom duty saved along with interest thereon. The amount of custom duty saved is Rs. 1,07,65,944/-. 1,800,000 1,800,000

(b) Letters of Credit Outstanding -- 15,030,682

(c) Excise demands, where favourable decision of the Appellate Authorities are disputed by the Excise Department in further appeals. 58,313 58,313

3 The Company had revalued its leasehold land, buildings, electrical installations and plant and machinery acquired upto 31st March 1995 and held as on 1st April 1996 at their "Current Replacement Cost" on the basis of a report by an approved valuer by transferring the result- ant difference between the "Current Replacement Cost" and "Original Cost" of Rs. 51,383,446/ - to the "Revaluation Reserve Account". Difference in depreciation in respect of revalued assets as provided on "Current Replacement Cost and "Original Cost" is adjusted as under:

(a) Till 31st March, 1996 depreciation adjusted to Revaluation Reserve Account is Rs. 21,657,503/-.

(b) For the year depreciation transferred from Revaluation Reserve Account to the Profit and Loss Account is Rs. 9, 47,047/- (Rs.2, 287,547/-).

4. During the year, the Company has sold its freehold land situated at Pathardi, Nasik for Rs. 58,00,000/- and earned profit of Rs. 56,37,254/-, representing an extraordinary item. The said profit is included in the amount of Profit on sale of fixed assets under the Schedule of Other Income.

5. During the year, the Company has written back excess provision for depreciation of Rs. 11,60,650/- on plant and machinery representing depreciation provided as upto the year ended 31st March 2009 in excess of 95% of the cost of the respective assets, the impact of which is included in the amount of depreciation on plant and machinery for the year.

6.1. In the absence of "Net Profit" as computed under Section 349 of the Companies Act, 1956, no provision for commission payable to the Managing Director is required to be made. Con- sequently, the computation of "Net Profit" under Section 349 of the Companies Act, 1956 has not been shown.

7. No provision for doubtful debts aggregating to Rs. 250.02 Lacs has been made as the Company continues its efforts to recover them by taking appropriate legal steps and or personal follow up actions.

8 The Companys 36,70,000 6% Cumulative Convertible Preference Shares of Rs. 30/- each were converted into 36,70,000 equity shares of Rs. 10/- each fully paid up at a premium of Rs. 20/- per share on 26th September 2007. However, the Company has not paid the Cumu- lative Dividend of Rs. 14,297,918/- in respect of the said 6% Cumulative Convertible Prefer- ence Shares upto the date of their conversion into equity shares, as the management is of the view that the same is not payable as not declared.

9 The Company in accordance with the approval accorded by its shareholders at its extra- ordinary general meeting held on 8th January, 2008 had issued 18,30,000 Zero Percent Convertible Warrants of Rs. 30/- per warrant convertible into 18,30,000 equity shares of Rs. 10/- each at a premium of Rs. 20/- per share on preferential basis by way of private place- ment as per the SEBI (Disclosure & Investor Protection) Guidelines, 2000. The said warrants were convertible upon expiry of 18 months from the date of allotment i.e. 9th June 2008. Against the said issue of warrants, the Company had received Rs. 54, 90,000/-, being 10% of the amount receivable on issue thereof. During the year, on account of non-receipt of 90% of the amounts payable on conversion thereof, the said warrants were cancelled by the Board of Directors at their meeting held on 28th January, 2010 and consequently, the appli- cation money received there against has been forfeited and credited to Capital Reserve Account.

10 The Company has constituted an audit committee under Section 292A of the Companies Act, 1956. However, the audit committee has not become fully functional.

11 The Company does not have any information as regards status of the vendors covered under the Micro, Small and Medium Enterprises Act, 2006 and consequently, no disclosure of the amount due to such vendors along with interest payable, if any, has been made.

12 During the year, the Companys banker State Bank of India, has restructured the loan and credit facilities granted to the Company by converting a portion thereof into Working Capital Term Loan of Rs. 24.01 Crores and Funded Interest Term Loan of Rs. 27.40 lacs, which are included in term loans of Rs. 313,671,382/-.

13 Since the filing of winding up petition by Noble Explochem Limited under Section 433 of the Companies Act, 1956 in the High Court of Bombay for recovery of inter corporate loan of Rs. 98,00,000/-, the Company has entered into consent terms with them on 10th September 2009, according to which the Company has to pay Rs. 98,00,000/- in full and final settlement in agreed installments. Accordingly, the Company has paid Rs. 45,00,000/- as upto the yearend and further Rs. 25,00,000/- as on date. As per the said consent terms, no interest is payable in respect of the said inter corporate loan.

14 No provision has been made for the income tax demand of Rs. 17,71,938/- for- an earlier year as the same is disputed in appeal.

15 The Company had entered into an agreement effective 1st April, 2005 with Messrs. Investwell for portfolio management and investment activities for 24 Months. In accordance with the said agreement, the "profits" (Net) earned during the period of 24 months were to be shared equally and the "losses" (Net) incurred were to be borne by Messrs. Investwell. The said Agreement was mutually extended for a further period of 12 months. As on 31.03.2010, there is a debit balance of Rs. 65,266,282/- in the name of Messrs. Investwell, which com- prises of funds utilized and losses and costs incurred in relation to the said activities. The management is of the view that the said amount of Rs. 65,266,282/-due from M/s Investwell is good for recovery.

16. Loans and Advances include Rs. 2,75,69,994/-, being the aggregate amounts paid to Prathamesh Investment & Trading Private Limited including, on their behest, for certain services rendered by them in connection with Preferential Issue of Shares and Warrants by the Company in the earlier period(s).

No provision has been made for the fees payable by the Company to them, as the amount payable has not been agreed upon by and between the Company and the said Prathamesh Investment & Trading Private Limited as yet. The management has decided that as and When the said fees are determined, then amount thereof shall be charged off to Share Premium Account in accordance with the provisions of Section 79 of the Companies Act, 1956 and hence, provision at this junction is not necessary.

17 The Company had executed a license cum operating agreement (the agreement) with Busi- ness Combine Limited (BCL) whereby, w.e.f. 1st April, 2005, BCL had granted the Company an exclusive license to operate its factory for manufacture of S.G. Iron Castings of various types & machine components, as per the terms and conditions as stated therein. The said agreement has been discontinued w.e.f. 1st October, 2008 and consequently, the amount of security deposit of Rs. 9,00,00,000/- paid to BCL under the agreement has become refund- able to the Company.

In addition to the said amount, an amount of Rs. 72,334,210/- is recoverable from them as on 31st March 2010, which includes the following which are subject to reconciliation and confirmation by BCL.

(a) Interest of Rs. 1,86,57,778/- for the year charged by the Company to BCL in respect of the outstanding balances recoverable from it and,

(b) Labour charges of Rs. 59,93,101/- credited by the Company to BCL towards products manufactured by them.

The aforesaid debit of interest and credits for conversion charges are subject to their acceptance. Consequently, the necessary adjustments if any arising upon finalization/settle- ment of the aforesaid claims shall be made in the year in which the same are concluded.

Further, in the opinion of the Management of the Company, the amount due from BCL as on 31.03.2010 of Rs. 162,334,210/- is good for recovery, though it is a Sick Industrial Company as it continues its business operations and the Company endeavors to recover the same.

18 Advances includes Rs. 105.28 Lacs paid to suppliers which are subject to reconciliation and necessary adjustment entries shall be passed upon reconciliation thereof.

19 The balance of Sundry Debtors, Loans and Advances and Sundry Creditors are subject to confirmation/reconciliation. Necessary adjustment entries shall be passed upon receipt of confirmation/reconciliation.

20 SEGMENT REPORTING PURSUANT TO ACCOUNTING STANDARD -17:

The Company is engaged in the business of manufacture and sale of carbon and alloy steel forgings, machined components and S.G Iron Castings. In the opinion of the man- agement, having regard to the risks and returns as well as both the activities are auto ancillaries, they constitute one business segment. The Company does not have any geo- graphical segment.

21 DEFERRED TAX:

The Company has net Deferred Tax Asset as of the year end. However, as a matter of prudence, the management of the Company has decided not to recognise the same in view of loss for the year.

22 DISCLOSURE IN RESPECT OF RELATED PARTIES PURSUANT TO ACCOUNTING STAN- DARD-18:

A. Related Parties and their relationship:

1. Mr. C. D. Dhongde: Managing Director, a Key Management Personnel (KMP)

2. Business Combine Limited: Promoter Company (*).

3. Hindustan Hardy Spicer Limited and XLO India Limited: Companies in which a director of the Promoter Company exercises significant influence (*).

(*) Referred to as "Associated Enterprises"

Note: Related parties and their relationship are as identified by the Company and relied upon by the Auditors.

23 Figures in bracket relate to those of previous year.

24 The previous years figures have been re-grouped and re-classified, wherever necessary so as to confirm the current years presentation.