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Directors Report of Essar Oil Ltd. Company
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Directors Report of Essar Oil Ltd.

Mar 31, 2015

To The Members of Essar Oil Limited

The Directors have pleasure in presenting the 25th Annual Report and audited Financial Statements of the Company for the financial year ended March 31, 2015.

FINANCIAL HIGHLIGHTS

(Rs.in crore)

Particulars 2014-15 2013-14

Gross Revenue from operations 93,206.31 107,438.67

Net Revenue including other income 84,232.22 99,550.62

Earnings before finance cost, depreciation and amortisation, exceptional items and tax 5,761.35 4,780.69

Profit / (Loss) before Taxes and Exceptional Items 2,439.47 129.09

Exceptional items 918.00 -

Net Profit after tax 1,521.47 125.80

Add: Balance brought forward from previous year (5,219.58) (5,345.26)

Less: Transfer to debenture redemption reserve - 0.12

Less: Depreciation as per transitional provisions specified in Schedule II of the Companies (33.63) - Act, 203

Balance to be carried to Balance Sheet (3,731.74) (5,219.58)

OPERATIONS

Operational Performance During the year, the Refinery continued to operate at more than 100% capacity and achieved a throughput of 20.49 Million Metric Tonnes (MMT) as against a throughput of 20.23 MMT during the last year. This is the highest ever annual throughput of the Company. Further, at the Company's fagship Raniganj Coalbed Methane (CBM) field in West Bengal, the Company achieved gas production of 0.55 million standard cubic meters per day as on March 31, 2015 making the Company the largest CBM gas producer in India.

Financial Performance The gross revenue from operations for the financial year ended March 31, 2015 stood at Rs. 93,206 crore compared to Rs. 1,07,439 crore for the financial year ended March 31, 2014. The decrease in revenues was mainly due to decline in oil prices. The Earnings before Interest, Tax, Depreciation and Amortisation (EBIDTA) and exceptional items stood at Rs. 5,761 crore registering an increase of 20% as against EBIDTA of Rs. 4,781 crore for the previous financial year. The net profit for the year surged to Rs. 1,521 crore compared to Rs. 126 crore for the previous year. With the payment of the final instalment of sales tax liability to Government of Gujarat, the Company has fully discharged its entire sales tax liability of Rs. 7,209 crore (including interest of Rs. 1,040 crore) as decided by the Hon'ble Supreme Court vide its judgment dated January 17, 2012.

Considering carry forward of losses and funds requirement for meeting the operations, the Board has not recommended any dividend for the financial year ended March 31, 2015 in spite of current year's profitability. Further, with the Company having accumulated losses at the end of financial year 2014- 15, no amounts could be transferred to General Reserve.

No material changes and commitments have occurred after the closure of the financial year 2014-15 till the date of this Report, which would affect the financial position of your Company.

Increase in share capital Pursuant to the Essar Oil Employees Stock Option Scheme – 2011, the Company has on July 28, 2015 allotted 6,07,498 equity shares of face value of Rs. 10/- each to Corporate Trustee of the Essar Oil Employees Stock Option Scheme Trust to hold the equity shares for the benefit of eligible employees against an equal number of stock options to enable the eligible employees to exercise their Options that have vested so far. In view of the above, the paid-up capital of the Company has increased to Rs. 14,50,12,43,980 divided into 145,01,24,398 equity shares of Rs. 10/- each.

Management Discussion and

Analysis

In compliance with Clause 49 of the Listing Agreement entered into with the Stock Exchanges a separate section on Management Discussion and Analysis forms part of this Annual Report.

Consolidated Financial Statements The audited Consolidated Financial Statements of the Company as required under Section 129 of the Companies Act, 2013 (Act) and Clause 32 of the Listing Agreement form part of this Annual Report.

HOLDING, SUBSIDIARY, JOINT VENTURE AND ASSOCIATE COMPANIES Holding Company The Company is a subsidiary of Essar Oil & Gas Limited, Mauritius, which as on March 31, 2015 along with its subsidiary, Essar Energy Holdings Limited holds 90.11% of the total share capital (including Global Depository Shares). Essar Oil & Gas Limited in turn is a wholly owned subsidiary of Essar Energy Limited.

Delisting Proposal Last year the Company had informed about receipt of a proposal from Essar Energy Holdings Limited, Mauritius, Promoter Company, to purchase all the publicly held equity shares of the Company and approval obtained from the shareholders by passing of special resolution through postal ballot for delisting of the equity shares from the Stock Exchanges. The Company has received in-principle approval for delisting from the National Stock Exchange of India Limited and BSE Limited on July 2, 2015 and July 15, 2015 respectively. The shareholders' resolution was valid for one year i.e. up to August 5, 2015 for completing the delisting process. The Promoters have made an application to the Securities and Exchange Board of India under regulation 25A of the SEBI (Delisting of Equity Shares Regulations), 2009 seeking extension of time.

Non-binding term sheet executed for sale of 49% stake in the Company

Essar Oil & Gas Limited and Essar Energy Holdings Limited have informed the Company that they have signed a non-binding term sheet with Rosneft Oil Company (Russia) for its participation in the equity capital of Essar Oil Limited with a share of up to 49%. The proposed transaction is conditional upon various factors such as due diligence, determination of the transaction price, execution of definitive transaction documents and receipt of requisite approvals.

Subsidiary and associate

companies

The Company acquired entire equity share capital in Vadinar Properties Limited (VPL) on February 18, 2015. Further, the Company acquired 26% stake in the equity share capital of Vadinar Liquid Terminals Limited on March 27, 2015. As on March 31, 2015, the Company had two subsidiary companies and two associate companies. The Company has no investment in joint venture companies.

Since the controlling stake in your Company is held by foreign entities, any downstream investment by your Company amounts to indirect foreign investment under the Foreign Direct Investment (FDI) Policy. Your Company has obtained a certificate from Statutory Auditors, M/s Deloitte Haskins & Sells, Ahmedabad certifying due compliances with applicable rules of FDI Policy except notifying Foreign Investment Promotion Board (FIPB). The Company has already informed FIPB about the difficulties it is facing in electronic fling, which are being resolved.

A report on the performance and financial position of each of the subsidiaries and associates, is provided in Form AOC -1 attached to consolidated financial statements under financials section of Annual Report and hence is not repeated here for the sake of brevity.

The Financial Statements of these subsidiaries are uploaded on the website of the Company in compliance with Section 136 of the Act. Further, the Financial Statements of these subsidiaries and other related information will be made available to any member of the Company/ its subsidiary(ies) seeking such information at any point of time and are also available for inspection by any member at the Registered Office/ Corporate Office of the Company.

The Company has adopted a policy on Material Subsidiaries. It has been uploaded on the website of the Company and can be accessed at the following link: http://www.essaroil. co.in/investors/investor-information/ corporate-governance.aspx.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Directors

The Board of Directors has appointed Ms. Rugmani Shankar and Dr. Sabyasachi Sen as Independent Directors with effect from March 31, 2015 and May 25, 2015 respectively. Pursuant to the provisions of Section 161 of the Act and the Articles of Association of the Company, Ms. Rugmani Shankar and Dr. Sabyasachi Sen hold office up to the date of ensuing Annual General Meeting of the Company. It is proposed to appoint Ms. Rugmani Shankar and Dr. Sabyasachi Sen as Independent Directors for a period of one year with effect from the respective dates of their appointment.

Further Mr. S. V. Venkatesan and Mr. T. S. Narayanasami who were appointed as Independent Directors on October 10, 2014, tendered resignation effective from March 31, 2015 and May 25, 2015 respectively. Mr. Sushil Maroo stepped down from the Board on October 14, 2014. The Board places on record its sincere appreciation for the valuable services rendered by Mr. S. V. Venkatesan, Mr. T. S. Narayanasami and Mr. Sushil Maroo during their tenure as Directors.

Mr. K. N. Venkatasubramanian and Mr. V. S. Jain will retire by rotation at the ensuing Annual General Meeting. They qualify the criteria of Independence under the Act and Listing Agreement. It is proposed to appoint Mr. K. N. Venkatasubramanian and Mr. V. S. Jain, as Independent Directors for a period of three years each from the date of ensuing Annual General Meeting.

All the Independent Directors have given declarations that they qualify as per the criteria of independence as prescribed under Section 149(6) of the Act and Clause 49 of the Listing Agreement.

Further in terms of the provisions of the Act, Mr. L. K. Gupta and Mr. C. Manoharan are liable to retire by rotation at the ensuing Annual General Meeting and being eligible offer themselves for re-appointment. Mr. C. Manoharan has completed his term of three years as Director (Refnery) on March 28, 2015. The Board, subject to the approval of shareholders, has re-appointed Mr. Manoharan for a period of three years effective from March 29, 2015. Approval of shareholders is being sought at the ensuing AGM for the reappointment of the Directors.

Particulars of the Directors being appointed/re-appointed, as required under Clause 49 of the Listing Agreement, are given in the Notice/ Explanatory Statement convening the ensuing AGM, forming part of the Annual Report.

Performance Evaluation of the Board, Chairman, Committees and Individual Directors The Board carried out a formal evaluation of the performance of the Board, its Committees and Individual Directors for the financial year 2014-15. In addition to this, Independent Directors have also evaluated performance of the Chairman, non-independent Directors and the Board as a whole. The feedback from the individual Directors was sought on the basis of a structured questionnaire covering among others Board and Committee composition, skills of Directors, quality and content of agenda, performance of Directors at the meetings, etc. Evaluation was carried out on the basis of responses from all the Directors compiled by a professional agency.

Directors' Responsibility Statement Pursuant to the provisions of Section 134(3)(c) of the Act, it is hereby confirmed that:

i) in the preparation of the annual accounts for the financial year ended March 31, 2015, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended on March 31, 2015 and of the profit of the Company for the year ended on that date;

iii) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv) the Directors have prepared the accounts for the financial year ended March 31, 2015 on a 'going concern' basis;

v) the Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

vi) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Policy on Appointment of Directors and Remuneration The Board has adopted a policy for Board Diversity, Appointment, Remuneration, Training and Evaluation of Directors and Employees. The policy inter-alia includes the criteria for determining qualifications, positive attributes, independence of a Director and other matters provided under Section 178(3) of the Act. Relevant chapters of the Policy relating to Directors' appointment and remuneration are enclosed as Annexure - A.

Key Managerial Personnel The following executives have been designated as Key Managerial Personnel under the Act:

a) Mr. L. K. Gupta – Managing Director & CEO

b) Mr. C. Manoharan – Director (Refinery)

c) Mr. Suresh Jain – Chief Financial Officer

d) Mr. Sheikh S. Shaff – Company Secretary

RISK MANAGEMENT AND INTERNAL FINANCIAL CONTROLS

Audit & Risk Management

Committee

As on March 31, 2015, the Audit & Risk Management Committee of the Board comprises of three Directors out of which two are Independent Directors.

Mr. D. J. Thakkar, an Independent Director, chairs the meetings. During the year, all the recommendations of the Committee were accepted by the Board.

Risk Management During the year, the Company has enhanced the scope of the existing Audit Committee to include Risk management in its scope and renamed it as Audit & Risk Management Committee.

Your Company has in place a robust risk management framework. Commodity price risk and credit & market risks are managed through Risk management policies. Risks management procedures are also in place for health, safety, environment and fire. The perceived risks are documented in Risk Registers pertaining to all the business divisions and functions of the organization along with their mitigations plans. Legal Compliance risks are being monitored through an online compliance management system. The internal audit plans and internal financial controls are also developed based on risks associated with various activities undertaken by the Company.

Major risks associated with business of the Company are set out in the Management Discussion & Analysis forming part of this Report. In the opinion of the Board, the Company has no risks which would threaten the existence of the Company.

Internal Financial Controls and their adequacy

The Company has an adequate system of internal financial control commensurate with its size and nature of business which helps in ensuring orderly and efficient conduct of its business. These systems provide a reasonable assurance in respect of financial and operational information, complying with applicable statutes, safeguarding of assets of the Company, prevention & detection of frauds, accuracy & completeness of accounting records and ensuring compliance with corporate policies.

Vigil Mechanism

The Company has established a Vigil Mechanism process by adopting a Whistle blower Policy for directors and employees. This policy outlines the procedures for reporting, handling, investigating and deciding on the course of action to be taken in case inappropriate conduct/behaviour is/are noticed, reported or suspected. The Policy provides for adequate safeguards against victimization of persons who use the mechanism and has a process for providing direct access to the Chairman of the Audit & Risk Management Committee in appropriate or exceptional cases. The details of establishment of the process can be accessed on the website of the Company at the link http:// www.essaroil.co.in/investors/investor- information/corporate-governance. aspx.

EMPLOYEES

Particulars of Employees

The details of remuneration as prescribed under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are annexed as Annexure – B to this Report.

In terms of the provisions of Section 197(12) of the Act read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and other particulars of employees drawing remuneration in excess of limits prescribed under the said Rules is annexed to this Report. However pursuant to the provisions of Section 136(1) of the Act, the Annual Report excluding the above said details is being sent to all the members. Any member interested in obtaining such details may write to the Company Secretary.

Employees Stock Option In connection with the Essar Oil Employees Stock Option Scheme – 2011 (Scheme) adopted by the Company, the disclosures required to be made under the SEBI (Share Based Employee Benefits) Regulations, 2014 are enclosed as Annexure - C. The Annual Report containing aforesaid details is uploaded on the website of the Company and can be assessed at the link http://www.essaroil.co.in/investors/ financial-performance/annual-reports. aspx. A certificate obtained from the auditors confirming compliance with the SEBI Regulations and shareholders resolution approving the Scheme will be placed at the Annual General Meeting for inspection by the members.

CORPORATE SOCIAL RESPONSIBILITY

The Company has constituted a Corporate Social Responsibility (CSR) Committee named as CSR, Safety and Sustainability Committee. The Board of Directors on the recommendations of the Committee, has adopted a CSR Policy indicating the activities to be undertaken by the Company. The said policy can be accessed on the website of the Company at the link http://www. essaroil.co.in/sustainability.aspx.

The annual report on CSR containing the details of the CSR Policy adopted by the Company, the CSR initiatives taken during the financial year and other particulars specified in the Companies (Corporate Social Responsibility Policy) Rules, 2014 is annexed to this Report as Annexure- D.

CORPORATE GOVERNANCE

In terms of Clause 49 of Listing Agreement entered into with the Stock Exchanges, a certificate from P. K. Pandya & Co., Practicing Company Secretary on compliance of conditions of Corporate Governance is annexed as Annexure – H to the Directors' Report. A report on Corporate Governance as provided in Clause 49 of the Listing Agreement is included in the Annual Report.

AUDITORS AND AUDIT

Statutory Auditor

M/s. Deloitte Haskins & Sells, Chartered Accountants, Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. They have confrmed their eligibility to the effect that their re-appointment, if made, would be within the prescribed limits under the Act and that they are not disqualified for re-appointment. Accordingly, the members' approval is being sought for their appointment as the Auditors of the Company at the ensuing Annual General Meeting.

The reports given by the Auditors on standalone and consolidated financial statements of the Company form part of the Annual Report. There are no qualifications, reservations, adverse remarks or disclaimers given by the Auditors in their reports. The notes on financial statements referred to in the Auditors' Report are self-explanatory and do not call for any further comments.

Cost Auditor

M/s. Chandra Wadhwa & Co. was appointed as the Cost Auditor for the financial year ended March 31, 2015. The cost audit report for financial year ended March 31, 2015 will be fled with the Ministry of Corporate Affairs within the prescribed time period. M/s. Chandra Wadhwa & Co. have been reappointed as the Cost Auditor of the Company for the financial year 2015- 16. In terms of the provisions of Section 148(3) of the Act and the applicable rules, shareholders approval is being sought to ratify the remuneration payable to the Cost Auditor for the financial year ending on March 31, 2016.

Secretarial Auditor The Board had appointed Mr. Prakash Pandya of M/s P. K. Pandya & Co., Practicing Company Secretaries, as Secretarial Auditor to conduct the Secretarial Audit for the financial year ended on March 31, 2015.

The Secretarial Audit Report for the financial year ended March 31, 2015 is annexed as Annexure - E to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

DISCLOSURES

Meetings of the Board

During the financial year ended March 31, 2015, six meetings of the Board of Directors were held. The dates on which the said meetings were held, are mentioned in the Corporate Governance Report under the heading "Board of Directors".

Particulars of Contracts or Arrangements with Related Parties

As required under Clause 49(VII) of the Equity Listing Agreement, the Company has adopted a policy on Related Party Transactions. The policy can be accessed on the website of the Company at the link http://www.essaroil. co.in/investors/investor-information/ corporate-governance.aspx.

The objective of the Policy is to ensure proper approval, disclosure and reporting of transactions, as applicable, between the Company and any of its related parties in the best interest of the Company and its stakeholders. All related party transactions are placed before the Audit & Risk Management Committee for its review and approval.

All Related Party Transactions entered during the year were in the ordinary course of the business and on arm's length basis. No Material Related Party Transactions i.e. transactions exceeding ten percent of the annual consolidated turnover as per the last audited financial statements, were entered during the year by the Company. Accordingly, the disclosure of Related Party Transactions as required under section 134(3)(h) of the Act in Form AOC-2 is not applicable. Related party disclosure as required by Accounting Standard 18 have been made in note 44 to the Standalone and Consolidated financial statements of the Company.

Particulars of Loans given, Investments made, Guarantees given and Security provided

Particulars of investments made are provided in the standalone financial statements (Please refer to Note 14 to the standalone financial statements). Since your Company belongs to the petroleum and natural gas sector and operates 'infrastructure facilities' as defined under Schedule VI of the Act, it is not required to comply with provisions relating to making of loans, giving guarantees or providing security as prescribed in Section 186 of the Act.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo The particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo as required to be disclosed under the Act are provided as Annexure – F to this Report.

Extract of Annual Return The extract of annual return as on March 31, 2015 is annexed as Annexure – G to this Report.

Fixed Deposits

Your Company has not accepted any deposits from the public in accordance with the provisions of sections 73 to 76 of the Act and the Rules framed there under. Accordingly the details required to be reported under Rule 8(5) of the Companies (Accounts) Rules, 2014, are not applicable.

GENERAL DISCLOSURES

Your Directors state that for the financial year ended March 31, 2015 no disclosure is required in respect of the following items and accordingly confirm as under:

Neither the Managing Director & CEO nor the Director (Refinery) receives any remuneration from the Holding and/or Subsidiary companies.

The Company has neither revised the financial statements nor the report of Board of Directors.

The Company has not issued equity shares with differential rights as to dividend, voting or otherwise or sweat equity shares.

No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status or Company's operations in future.

The Company has not bought back any shares during the year.

No cases were fled pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

No instance of fraud has been reported by the Auditors or any other person to either Audit & Risk Management Committee or the Board of Directors of the Company.

ACKNOWLEDGEMENT

The Board wishes to express its sincere appreciation and place on record its gratitude for the faith reposed in and cooperation extended to the Company by the Government of India, State Governments, various Government agencies/departments, financial institutions, banks, customers, suppliers and investors of the Company. The Board also wishes to place on record its deep gratitude to all its employees whose enthusiasm, team efforts, devotion and sense of belonging that has made this Company proud.

For and on behalf of the Board of Directors

D J Thakkar L K Gupta

Director Managing Director & CEO

Mumbai August 24, 2015


Mar 31, 2014

Dear members,

The Directors have pleasure in presenting the 24th annual report and audited accounts of the Company for the financial year ended March 31, 2014.

(Rs. in Crore)

Particulars 2013-14 2012-13

Gross Revenue from Operations 107,438.67 97,067.92

Net Revenue including other income 99,472.56 89,186.90

Earnings before finance cost, depreciation and amortisation, exceptional items and tax 4,702.63 3,650.68

Profit / (Loss) before Taxes and Exceptional Items 129.09 (1,068.96)

Exceptional items - (111.48)

Net Profit / (Loss) after tax 125.80 (1,180.44)

Add: Balance brought forward from previous year (5,345.26) (4,164.82)

Less: Transfer to debenture redemption reserve 0.12 -

Balance to be carried to Balance Sheet (5,219.58) (5,345.26)

Operational Performance

During the year, the Refinery continued to operate at more than 100% capacity and achieved a throughput of 20.23 Million Metric tones per annum (MMTPA) against the previous year throughput of 19.77 MMTPA. The Refinery processed more heavy and ultra-heavy crudes (93% of crude mix) and produced more value added light and middle distillates (84%) contributing to higher margins.

Detailed information on the operational performance for the financial year is given in the Management Discussion and Analysis which is annexed to the Directors'' Report.

Financial Performance

The gross revenue of Rs. 107,438.67 crore increased by 11% during the year compared to the previous year due to higher sales volumes and improved sales realisation. The Earnings before Interest, Tax, Depreciation and Amortisation increased by 29% to Rs. 4,702.63 crore from Rs. 3,650.68 crore for the previous year on account of higher throughput, improved realisation and increase in other income. The Company made a net profit of Rs. 125.80 crore for the financial year ended on March 31, 2014 as compared to a net loss of Rs. 1180.44 crore during the previous year. Last year, we had reported that the sales tax incentive dispute has been concluded and is to be paid over a period of two years. The Company has paid seven of the eight installments of the sales tax liability aggregating to Rs. 4,519.56 crore till July, 2014. On application filed by the Company the Honourable Supreme Court has allowed extended time up to March 22, 2015 for payment of last instalment of Rs. 645.65 crore due on October 2, 2014.

Considering the current year''s profitability, carry forward of losses and funds requirements for meeting the operations, the Board has not recommended any dividend for the financial year.

The Ministry of Corporate Affairs has by General Circular no. 08/2014 dated April 4, 2014 clarified that financial statements including Board''s report that commence earlier than April 1, 2014 shall be governed by relevant provisions, schedules and rules of the Companies Act, 1956. The financial statements and all annexures thereto including this Report have accordingly been prepared.

Share Capital and Issue of Securities

During the financial year, the Company allotted 8,38,49,814 equity shares of Rs.10/- each (face value) fully paid-up, to Essar Energy Holdings Ltd. (EEHL), a promoter company, in two tranches, on exercise of the option to convert its entire holding of Foreign Currency Convertible Bonds (FCCBs) aggregating to USD 262 million into equity shares at an average price of approximately Rs. 146.05 per equity share. This has resulted in increase of share capital by Rs. 83.85 crore and increase of securities premium account by Rs. 1,256.15 crore. With the conversion of FCCBs, referred to above, there are no outstanding FCCBs.

Directors

During the year, Mr. Sushil Maroo joined the Board as Promoter Company representative effective October 25, 2013 who subsequently stepped down from the Board on October 14, 2014. Mr. Melwyn Rego, Nominee Director of IDBI Bank and Mr. Philip Aiken AM, Non - Executive Director resigned from the Board with effect from August 30, 2013 and May 19, 2014 respectively. Further, State Bank of India has withdrawn its Nominee Mr. R P Singh from the Board with effect from July 11, 2014 and has requested the Company to invite him as ''Observer'' to the Board Meetings. Mr. Sudhir Garg has been appointed by IFCI Ltd. as its Nominee on the Board in place of Mr. Suneet Shukla with effect from September 10, 2014.On October 10, 2014, Mr. S V Venkatesan, Mr. D K Varma and Mr. T S Narayansami have joined the Board as Independent Directors. The Board wishes to place on record its appreciation for the guidance and valuable services rendered by Mr. Melwyn Rego, Mr. Philip Aiken AM, Mr. Rajiv Pal Singh, Mr. Suneet Shukla and Mr. Sushil Maroo during their tenures as members of the Board.

Mr. Prashant S Ruia and Mr. Naresh Nayyar retire by rotation at the ensuing Annual General Meeting (AGM) and offer themselves for re-appointment. Mr. D J Thakkar, Independent Director,who was appointed as Director liable to retire by rotation under the provisions of the Companies Act, 1956 completes his present term at the ensuing Annual General Meeting, having expressed desire to be re-appointed, will be considered for re-appointment. Accordingly, it is proposed to seek approval of shareholders to appoint Mr. D J Thakkar, Mr. S V Venkatesan, Mr. D K Varma and Mr. T S Narayansami as Independent Directors for a term of one year. Particulars of the directors being re-appointed/appointed, as required under clause 49 of the Listing Agreement with the Stock Exchanges, are given in the Notice / Explanatory Statement convening the ensuing AGM, forming part of the Annual Report.

Directors'' Responsibility Statement

Pursuant to the provisions of section 217(2AA) of the Companies Act, 1956, it is hereby confirmed:

i) t hat in the preparation of the accounts for the financial year ended March 31, 2014, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

iii) t hat the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,1956 for safe guarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

iv) That the Directors have prepared the accounts for the financial year ended March 31, 2014 on a ''going concern'' basis.

Corporate Governance

In terms of clause 49 of Listing Agreement with Stock Exchanges, a certificate from the auditors of the Company on compliance of conditions of Corporate Governance is annexed to the Directors'' Report. A report on Corporate Governance as provided in clause 49 of the Listing Agreement is included in the Annual Report.

Employees Stock Option Scheme

In connection with the Essar Oil Employees Stock Option Scheme - 2011 (Scheme), the disclosures required to be made under the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (Guidelines) are enclosed as Annexure B. A certificate obtained from the auditors confirming compliance with the Guidelines and shareholders resolution approving the Scheme will be placed before the shareholders at the Annual General Meeting.

Particulars of Employees

Information as per section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, is given in the Annexure forming part of this Report. However, as per the provisions of section 219(1) (b)(iv) of the said Act, the Report and Accounts are being sent to all shareholders of the Company excluding the statement of particulars of employees under section 217(2A) of the said Act. Any shareholder interested in obtaining a copy of this statement may write to the Company Secretary, for the same, at the Registered Office of the Company.

Energy, Technology Absorption and Foreign Exchange

The particulars as prescribed under section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are set out in Annexure A to this Report.

Fixed Deposits

Your Company has not accepted any public deposits under section 58A of the Companies Act, 1956 during the financial year.

Holding Company

The Company, within the meaning of section 2(87)(ii)of the Companies Act, 2013, is a subsidiary of Essar Oil & Gas Limited, Mauritius, which along with its subsidiary holds 90.11% of the total share capital as on March 31, 2014. Essar Oil & Gas Limited in turn is a wholly owned subsidiary of Essar Energy Limited.

Delisting Proposal

The Company had received a proposal from Essar Energy Holdings Ltd., Promoter Company offering to purchase all the publicly held equity shares of the Company (delisting offer) and upon successful completion of delisting offer, to voluntarily delist the shares of the Company from the Stock Exchanges.

On August 6, 2014, the shareholders of the Company have passed a special resolution approving the Delisting Proposal by Postal Ballot and e-vote mechanism. In compliance with the requirements of SEBI (Delisting of equity shares) Regulations, 2009 the Company applied to stock exchanges for in-principal approval for delisting of equity shares. The approval of stock exchanges is awaited.

Subsidiary Companies

During the financial year, Essar Oil Trading Mauritius Limited (EOTML), Mauritius became a wholly owned subsidiary of the Company. There were no operations in the EOTML during the financial year.

The Company owns 26.01% of equity shares of Vadinar Power Company Limited (VPCL).The Board and Shareholders have approved the acquisition of balance 73.99% of equity shares and all compulsorily convertible preference shares of VPCL for a cash consideration not exceeding Rs. 2,100 crore. The Board has also approved acquisition of entire equity share capital of Vadinar Properties Limited (VPL) for Rs. 54 crore. VPCL owns and operates co-generation power plants at Vadinar, Gujarat having an aggregate power generation capacity of 597 Mega Watts (MW) and 1760 tph of steam and meets the entire requirements of steam and power of the Company''s Refinery at Vadinar. VPL owns the existing township near the Refinery which houses the Company''s employees. It is also constructing a new township at the request of the company. The Company is in the process of completing the formalities to make VPCL and VPL as wholly owned subsidiaries. The funds for the acquisition will be met through internal accruals.

In accordance with the General Circular No. 2/2011 dated 8th February, 2011 issued by the Ministry of Corporate Affairs, Government of India, the Balance Sheet, Statement of Profit and Loss and other documents of EOTML are not being attached with the Balance Sheet of the Company. However, the financial information of EOTML is disclosed in the Annual Report in compliance with the said circular (refer note no. 47 of the consolidated financial statements). The Company will provide a copy of separate annual accounts in respect of the subsidiary to any shareholder of the Company who asks for it and the said annual accounts will also be kept open for inspection at the Registered Office of the Company.

Consolidated Financial Statements

The Consolidated financial statements of the Group prepared in accordance with Accounting Standard AS - 21 on Consolidated Financial Statement read with AS - 23 on Accounting for Investments in Associates in Consolidated Financial Statements forms part of the Annual Report.

Auditors and Auditors'' Report

M/s. Deloitte Haskins & Sells, Chartered Accountants, Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting. They have confirmed that they are eligible for appointment and not disqualified for appointment under the Companies Act, 1956 / 2013, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder and there are no proceedings against them or any partner of the audit firm pending with respect to professional matters of conduct. Accordingly, the members'' approval is being sought to their appointment as the Auditors of the Company at the ensuing Annual General Meeting.

The auditors have made certain observations in their audit report and our comments on the same are set out below:

(i) Auditors have drawn attention that the accumulated losses of the Company as on March 31, 2014 are more than 50% of its net worth and Company has not incurred cash losses during the financial year covered by the audit and the immediately preceding financial year.

The Company''s Net Worth has been seriously impacted by more than Rs. 4,000 crore due to reversal of sales tax defeasement income consequent to the adverse order of Honourable Supreme Court of India passed on January 17, 2012 denying Sales tax incentive benefits to the company.

During the year, a number of steps have been taken to improve the net worth of the Company including allotment of equity shares to Promoter Company, upon their exercising the option to convert the entire holding of FCCBs aggregating to USD 262 million into equity shares. Further, during FY 2014-15, Promoter Company has brought in advance towards issue of global depository shares of Rs. 840 crores.

The Company continues to operate its Refinery at more than 100% capacity on a consistent basis achieving the highest ever throughput during the year. Further, it has widened the crude basket and has processed a high proportion of heavy and ultra-heavy crude. Apart from this a number of energy efficiency projects have been undertaken. These steps have helped in improving the margins of the Company which has for the first time post commencement of commercial production received net profit of Rs. 126 crore against a net loss of Rs. 1,180.4 crore incurred in the previous financial year ended March 31 , 201 3. The Company continues to expand its marketing infrastructure of retail fuel outlets network to take advantage of de-regulation of selling price of transportation fuels.

In addition, the Company is pursuing dollarisation programme (as detailed below) which is expected to reduce the interest cost and improve the profitability.

With the above steps, the Company is hopeful of improving the Net Worth over a period of time.

(ii) On use of funds raised on short term basis amounting to Rs. 6,245.51 crore for long term purposes, the Company has taken the following steps to improve the position:

Post completion of the expansion and optimisation projects and stabilisation of the operations of the expanded refinery of 20 MMTPA, the Company has been generating higher revenues, recording higher Gross Refining Margins (GRMs) in line with those of other complex refineries and registering robust Earnings before Interest Depreciation Tax and Amortisation (EBIDTA). The Company has achieved EBIDTA of Rs. 4,703 crores for FY 2013-14 as compared to EBIDTA of Rs. 3,651 crores for FY 2012-13. The healthy and growing EBIDTA coupled with additional benefit on account of other GRM boosting measures have helped in deleveraging the balance sheet and improvement in working capital position of the Company. In addition, the Company does not have any major capex programme in near future.

The Company has completed USD 1.00 billion dollarisation programme of replacing high cost rupee loans with lower interest bearing foreign currency loans by raising External Commercial Borrowings / Synthetic Swaps and accordingly, the interest cost has reduced.

Further, to strengthen the balance sheet and to improve the financial ratios of the Company, Essar Energy Holdings Limited, promoter company, has brought in advance towards Global Depository shares of Rs. 840 crore during FY 2014-15 in the Company.

The Reserve Bank of India has recently permitted exporters to avail long-term export advance up to a tenor of 10 years which may be backed by Export Promote Bank Guarantee (EPBG) through domestic banks which may be utilised for repayment of existing rupee debt. The Company plans to complete further dollarisation of USD 1.6 billion under the above mechanism. The completion of dollarisation programme will result in availability of higher cash flows with the Company due to lower interest cost and lower repayment obligations which will be available to the Company for reducing the short term liabilities.

Hence with the above measures, the short term funds will progressively get replaced with long term funds.

Other observations of the Auditors in the Audit report by way of reference notes to the accounts are self-explanatory.

Cost Auditors and Cost Audit Report

M/s. Chandra Wadhwa & Co was appointed as the Cost Auditor for the financial year ended March 31, 2014. The cost audit report for financial year ended March 31, 2014 has been filed with the Ministry of Corporate Affairs within the prescribed time period.

Acknowledgement

The Board wishes to express appreciation and place on record its gratitude for the faith reposed in and cooperation extended to the Company by the Government of India, State Governments, various government agencies/departments, financial institutions, banks, customers,suppliers and investors of the Company. Your Directors place on record their appreciation of the dedicated and sincere services rendered by the employees of the Company.

For and on behalf of the Board of Directors

D J Thakkar L K Gupta Director Managing Director & CEO Mumbai, November 21, 2014


Mar 31, 2013

To The Members of Essar Oil Limited

The Directors have pleasure in presenting the 23rd annual report and audited accounts of the Company for the financial year ended March 31, 2013.

(Rs. in Crore)

Particulars 2012-2013 2011-2012

Gross Revenue from 97,067.92 63,427.77 Operations

Net Revenue including 89,186.90 58,761.39 other income

Earnings before finance 3,650.68 2,100.76 cost, depreciation and amortization, exceptional items and tax

Profit / (Loss) before (1,068.96) (48.02) Taxes and Exceptional Items

Exceptional items (111.48) (1,237.46)

Net Profit / (Loss) after (1,180.44) (1,285.48) tax

Add: Balance brought (4,164.82) (2,879.34) forward from previous year

Balance to be carried to (5,345.26) (4,164.82) Balance Sheet

OPERATIONAL PERFORMANCE

The Refinery registered an impressive 46% growth in crude processing at 19.77 million metric tones (MMT) compared to 13.50 MMT during the previous financial year. All the new units completed under Train I expansion project were fully stabilized within two to three months of commissioning and the Optimisation project which took our refining capacity from 18 million metric tones per annum (MMTPA) to 20 MMTPA was also completed four months ahead of schedule in June 2012. The Refinery has operated successfully at the enhanced capacity of 20 MMTPA from July 2012 onwards.

Detailed information on the operational performance for the financial year is given in the Management Discussion and Analysis which is annexed to the Directors'' Report.

FINANCIAL PERFORMANCE

During the year, with increase in refining capacity, the Company recorded a strong revenue growth of 53% at Rs. 97,068 crore up from Rs. 63,428 crore in the previous financial year. The Current Price Gross Refining Margin (CP GRM) for the refinery business also registered a quantum jump at USD7.96 per barrel compared to USD4.23 per barrel for the previous financial year. The Earning before Interest, Depreciation, Tax and Amortization (EBIDTA) for the current financial year increased by 74% to Rs. 3,651 crore from Rs. 2,101 crore for previous financial year. This is mainly on account of increase in the sales volume arising due to expansion of Refining capacity from 10.5 MMTPA to 20 MMTPA, higher gross refining margins, increase in other operating income which is partially offset by MTM provision on commodity hedging. Further in the previous year, even though the income arising out of defeasement of sales tax incentive amounting to Rs. 778.25 was part of EBITDA, this was reversed and shown as exceptional item. For the financial year ended March 31, 2013, the loss after tax decreased marginally due to higher EBITDA as explained above offset by increase in interest and depreciation expenses post completion of Refinery expansion, which was treated as part of expenditure during construction in the previous year. Exceptional items for the previous year mainly represents reversal of sales tax incentive income post litigation of this matter and provision for impact towards exit from Corporate Debt Restructuring mechanism (CDR exit) whereas in the current year it only represents the additional impact on CDR exit. The Company reported net loss after tax (after exceptional items) for current financial year at Rs. 1,180 crore as against previous year figure of Rs. 1,285 crore.

In the absence of profits during the financial year, the Board has not recommended any dividend for the year.

The Sales tax matter has been resolved and concluded with the final judgment of Supreme Court on September 13, 2012. The Company is required to pay balance sales tax liability in two years with 10% interest. Your Company has successfully tied up for term loan facility with a Bank to mitigate the liquidity risk of payment of sales tax liability.

Your Company''s exit from CDR mechanism is another crucial landmark achieved by the Company towards the end of the financial year.

DIRECTORS

Mr. Prashant S Ruia has been elevated as Chairman of the Company with effect from August 14, 2013. He takes over the position of Chairman from Mr. Shashikant N Ruia, who stepped down from the Board effective August 14, 2013. Mr. Shashikant N Ruia, the Founder Chairman of the Essar Group and the Company has played a stellar role in steering the Group to a premier position. It was his vision that saw foray of the Company into Oil Refining business a sector which was earlier an exclusive domain of the public sector. The Board wishes to express its sincere gratitude to Mr. Shashikant N Ruia for the invaluable contributions made by him for bringing the Company to its present position.

During the year, Mr. R Sudarsan joined as Nominee of Life Insurance Corporation of India on the Board in place of Mr. V K Sinha with effect from January 15, 2013. Further, Mr. V. S. Jain, Independent Director and Mr. Rajiv Pal Singh, Nominee of State Bank of India joined the Board with effect from May 10, 2013 and May 24, 2013 respectively. Mr. K V Krishnamurthy, Independent Director passed away on January 16, 2013. The Board wishes to put on record its heartfelt condolences for Late Mr. K V Krishnamurthy. Further, the Board wishes to place on record its appreciation for the guidance and valuable services rendered by Late Mr. K V Krishnamurthy and Mr. V K Sinha during their tenures as members of the Board.

Mr. C Manoharan and Mr. K N Venkatasubramanian retire by rotation at the ensuing Annual General Meeting (AGM) and offer themselves for re-appointment. Further, it is proposed to appoint Mr. V. S. Jain, at the AGM as a director liable to retire by rotation. Particulars of the directors being re-appointed/appointed, as required under clause 49 of the Listing Agreement with the Stock Exchanges, are given in the Notice / Explanatory Statement convening the ensuing AGM, forming part of the Annual Report.

DIRECTORS'' RESPONSIBILITY STATEMENT

Pursuant to the provisions of section 217(2AA) of the Companies Act, 1956, it is hereby confirmed:

i) that in the preparation of the accounts for the financial year ended March 31, 2013, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for that period;

iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,1956 for safe guarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

iv) that the Directors have prepared the accounts for the financial year ended March 31, 2013 on a ''going concern'' basis.

CORPORATE GOVERNANCE

In terms of clause 49 of Listing Agreement with Stock Exchanges, a certificate from the auditors of the Company on compliance of conditions of Corporate Governance is annexed to the Directors'' Report. A report on Corporate Governance as provided in clause 49 of the listing agreement is included in the Annual Report.

EMPLOYEES STOCK OPTION SCHEME

The Company has introduced Essar Oil Employees Stock Option Scheme - 2011 (Scheme). The disclosures required to be made under the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (Guidelines) is enclosed as Annexure B. A certificate obtained from the auditors confirming compliance with the Guidelines and shareholders resolution approving the Scheme will be placed before the shareholders at the Annual General Meeting.

PARTICULARS OF EMPLOYEES

Information as per section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, is given in the Annexures forming part of this Report. However, as per the provisions of section 219(1)(b)(iv) of the said Act, the Report and Accounts are being sent to all shareholders of the Company excluding the statement of particulars of employees under section 217(2A) of the said Act. Any shareholder interested in obtaining a copy of this statement may write to the Company Secretary, for the same, at the Registered Office of the Company.

ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE

The particulars as prescribed under section 217(1)(e) of the Act read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are set out in Annexure A to this Report.

FIxED DEpOsITs

Your Company has not accepted any public deposits under section 58A of the Companies Act, 1956 during financial year under report.

HOLDING COMPANY

The Company, within the meaning of section 4(6) of the Companies Act, 1956, is an indirect subsidiary of Essar Oil & Gas Limited, Mauritius, which along with its subsidiary holds 87.09% of the total share capital as on March 31, 2013. Essar Oil & Gas Limited in turn is a wholly owned subsidiary of Essar Energy Plc.

SUBSIDIARY COMPANY

During the year, Essar Oil Mauritius Limited, Mauritius ceased to be subsidiary of the Company.

AUDITORS AND AUDITORS'' REPORT

M/s. Deloitte Haskins & Sells, Chartered Accountants, Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting.

M/s. Deloitte Haskins & Sells, Chartered Accountants, have informed the Company that, if appointed, their appointment will be within the limits prescribed under section 224(1 B) of the Companies Act, 1956. Accordingly, the members'' approval is being sought to their appointment as the Auditors of the Company at the ensuing Annual General Meeting.

Our comments on the audit observations are set out below:

(i) Auditors have drawn attention that the accumulated losses of the Company as on March 31, 2013 are more than 50% of its net worth with cash losses in the immediately preceding financial year.

The net worth of the Company had deteriorated mainly on account of reversal of sales defeasement income, recognized during financial years 2008-09 to 2011-12, consequent to a Supreme Court order. This had also resulted in cash losses during the previous financial year.

To improve the net worth, during the previous year the terms of Foreign Currency Convertible Bonds (FCCBs) have been amended whereby the above bonds have become compulsorily convertible into equity shares / GDSs on the same terms and conditions. Terms and conditions of FCCBs are mentioned in note 6 to financial statements.

With the Refinery currently operating at its full capacity (20 MMTPA) and improved complexity and other cost reduction measures initiated by the Company like getting cheap power and steam through coal based power plant, the revenue and bottom-line of the Company are expected to improve significantly in coming years.

(ii) On use of funds raised on short term basis amounting to Rs. 2,786.08 crore for long term purposes, the Company has taken following steps to improve the position:

The Company has completed the expansion and optimization projects and the operations of the expanded refinery of 20 MMTPA have since stabilized. This will improve the revenues and profitability of the Company significantly. Further, the Company does not have any major capex program and hence the entire internal accruals will be utilized to deleverage the balance sheet.

The Company has received Reserve Bank of India (RBI) approval to raise External Commercial Borrowings (ECBs) to the extent of USD 2.27 billion for repayment of high cost rupee debt utilized for capital expenditure The Company has availed ECB of USD 270 million from IDBI Bank Ltd. The Company has further received approval for ECB of USD 325 million including commitment to convert buyers'' credit of USD 170 million into ECBs and approval of another USD 315 million is expected shortly. The Company has requested all other term lenders to consider sanction of ECBs for the purpose of refinancing high cost rupee debt. The dollarization program will have positive impact on the cash flows since it will not only reduce the interest cost to a large extent but also provide extended maturity of existing debt. The improved cash flows will be deployed for reducing the short term liabilities.

The Company is also in process of availing of long term export advance against future exports and is in discussions with various banks and overseas suppliers. The availment of export advance will not only reduce the finance cost to a great extent but also shore up working capital of the Company.

Hence with the above measures, the short term funds will progressively get replaced with long term funds.

Other observations of the Auditors in the Audit report, by way of reference to notes to the accounts are self- explanatory.

COST AUDITORS AND COST AUDIT REPORT

M/s. Chandra Wadhwa & Co was appointed as the Cost Auditor for the financial year ended March 31, 2013. The cost audit report for financial year ended March 31, 2013 will be filed with the Ministry of Corporate Affairs within the prescribed time period.

ACKNOWLEDGEMENT

The Board wishes to express appreciation and place on record its gratitude for the faith reposed in and co- operation extended to the Company by the Government of India, state governments, various government agencies/ departments, financial institutions, banks, customers, suppliers and investors of the Company. Your Directors place on record their appreciation of the dedicated and sincere services rendered by the employees of the Company.

For and on behalf of the Board of Directors

Lalit Kumar Gupta Naresh Nayyar

Managing Director & CEO Deputy Chairman

Mumbai, August 14, 2013


Mar 31, 2012

To the Members of Essar Oil Limited

The Directors have pleasure in presenting the 22nd annual report & audited accounts of the Company for the financial year ended March 31, 2012. (Rs. in Crore)

2011-2012 2010-2011

Gross Revenue from 63,427.77 53,191.81 Operations

Net Revenue including 58,761.39 47,342.21 other income

Earnings before Finance cost, depreciation and 2,100.76 2,779.49 amortization, exceptional items and Tax

Profit / (Loss) before Taxes (48.02) 828.39 and Exceptional Items

Less: Exceptional items 1,237.46 1,083.43

Less: Provision for Income Tax / Deferred Tax Liability - (3.35)

Net Profit / (Loss) after tax (1,285.48) (251.69)

Add: Balance brought (2,879.34) (2,627.65) forward from previous year

Balance to be carried to (4,164.82) (2,879.34) Balance Sheet

Financial results

This financial year has been a year of significant importance since the refinery was able to increase its capacity from 10.5 MMTPA to 18 MMTPA with improved complexity from 6.1 to 11.8. Subsequent to financial year ending March 31, 2012, your Company has added another 2 MMTPA capacity by undertaking certain optimization activities taking the total refining capacity to 20 MMTPA. During the year, the Company recorded a strong revenue growth of 19% at Rs.63,428 crore, up from Rs.53,192 crore in the previous financial year before reversal of sales tax benefit. This growth is primarily driven by increased product prices, partly offset by reduction in the sales quantity on account of the planned refinery shut down undertaken during September- October 2011 for tie-in of new units to expand the refining capacity to 18 MMTPA and to carry out routine maintenance activities. The Current Price Gross Refinery Margin (CP GRM) (excluding sales tax benefit) for the refinery business is US$4.23 per barrel compared to US$4.53 per barrel for the previous financial year. The EBIDTA for the current financial year has decreased to Rs. 2,101 crore from Rs. 2,779 crore for last financial year. This is mainly on account of decrease in refinery throughput due to the planned shutdown, decline in gross refinery margin, MTM provision for forex losses, shutdown expenditures and reduction in income on account of non defeasement of sales tax incentive post passing of order of Hon'ble Supreme Court. For the financial year ended March 31, 2012, the loss before and after tax is due to lower EBIDTA as explained above, exceptional items on account of reversal of assignment income arising out of defeasement of sales tax incentive benefits of Rs.778 crore for the period from April 2011 to December 2011 subsequent to the Hon'ble Supreme Court order dated January 17, 2012 denying the Gujarat Sales tax incentive benefit to the Company, creation of provision of sales tax interest of Rs. 83 crore for the period from January 17, 2012 to March 31, 2012 and creation of a provision of Rs. 376 crore in accordance with Corporate Debt Restructuring (CDR) Exit proposal approved by CDR Core Group. The Company reported negative PAT (after exceptional items) for current financial year at Rs. (1,285) crore as against previous year figure of Rs.(252) crore.

During the financial year, the Company has modified the terms of the outstanding Foreign Currency Convertible Bonds aggregating to US$262 million making them compulsorily convertible into equity shares or Global Depository Shares. The Bonds were originally convertible at the option of the Bond holders.

Due to absence of profits during the financial year, the Board has not recommended any dividend for the year. Information on the operational performance, etc. of the Company for the financial year is given in the Management Discussion and Analysis which is annexed to the Directors' Report.

A statement containing salient features of the audited Balance Sheet as at March 31, 2012, Statement of Profit and Loss and Cash flow Statement for the year ending on that date and Auditors Report on the Abridged Financial Statements along with Auditors Report on the full financial statements forms part of the Annual Report.

With reopening of accounts of proceeding three financial years, as explained in subsequent paras, the financial statements for financial year 2011-12 approved by the Board of Directors on May 12, 2012 have consequently been revised and approved by the Board of Directors on November 9, 2012.

Sales Tax Incentive

The Hon'ble Supreme Court of India, on January 17, 2012, allowed an appeal filed by the Gujarat Government and set aside the judgment of the Gujarat High Court dated April 22, 2008, thus denying the Company benefits under a sales tax incentive scheme of the Government of Gujarat to the Company. Hence, the sales tax amount collected and retained by the Company since May 1, 2008 to January 17, 2012 became payable.

Subsequent to above order, the Company received demand notices from the Gujarat Government for repayment of the full amount of sales tax deferment liability of Rs. 6,169 crore collected by the Company along with applicable interest (i.e. 18% p.a.).

While the Company started paying the Sales Tax / VAT collected from the date of Supreme Court judgement i.e. January 17, 2012, it also submitted a proposal on April 5, 2012 to the Gujarat Government for remission of the whole amount of interest on the tax amount payable and also to allow the Company to pay the tax amount without interest in convenient instalments. This was not accepted by the Government. The Company therefore filed a writ petition on May 7, 2012 before the Hon'ble Gujarat High Court which was dismissed by the Hon'ble High Court on June 25, 2012.

The Company filed a Special Leave Petition ('SLP') before the Hon'ble Supreme Court on July 10, 2012 against this order of Gujarat High Court. In compliance with the directives of the Supreme Court, the Company paid an amount of Rs.1,000 crore on July 26, 2012 against the sales tax dues. The Supreme Court vide its order dated September 13, 2012 directed the Company to pay interest @ 10% p.a. on the sales tax dues with effect from January 17, 2012 and also to repay the sales tax amount in eight equal quarterly installments along with interest starting from January 2, 2013.

Re-opening of books of accounts for financial years 2008-09, 2009-10 and 2010-11

As a consequence of the above-referred Supreme Court order, to reflect a true and fair view in the books of account for the three financial years ended on March 31, 2009, March 31 , 2010 and March 31, 2011 based on the permission received from the Ministry of Corporate Affairs, the Company proposes to re-open the books of accounts and financial statements for the said three financial years. Necessary resolution seeking approval of shareholders for re-opening of the said financial statements has been incorporated in the Notice convening the ensuing Annual General Meeting. Except for reflecting true and fair view of the sales tax incentives/liabilities etc. concerning the Government of Gujarat there is no material change in the reopened and revised accounts of the Company.

Consequent to reopening of the books of account for the above three financial years, the financial statements for these years have been revised. The statement containing the salient features of the reopened and revised audited Balance Sheets, Statements of Profit and Loss, Cash Flow statements and auditors reports on the abridged revised financial statements for the financial years 2008-09 to 2010-11 along with Auditors' report on full revised financial statements and amendments to Directors' Reports for respective financial years form part of the Annual Report. With amendment in the aforementioned financial statements, there are corresponding changes in the consolidated financial statements of the Company and its subsidiaries prepared in accordance with Accounting Standard AS 21 for the financial years ended on March 31, 2009 and March 31, 2010. Accordingly, statements containing the salient features of the reopened and revised audited Consolidated Balance Sheets, Statements of Profit and Loss, Cash flow statements and auditors' reports on the abridged revised consolidated financial statements for the financial years 2008-09 and 2009-10 form part of the Annual Report.

Corporate Debt Restructuring

A debt restructuring package for the Company, under the Corporate Debt Restructuring Scheme, of Reserve Bank of India was approved by the lenders to the Refinery Project in 2003. Subsequent to this, the Company successfully completed the Refinery Project in 2008.

During the year, the Company sought approval of its lenders to exit from the CDR scheme. The CDR Core Group has approved the CDR exit proposal at its meeting held on June 29, 2012. The major commercial terms and conditions of CDR exit have been approved and detailed terms and conditions of CDR exit are to be discussed and decided in subsequent lenders' meetings.

CDR exit will give the Company greater financial and operational flexibility. Various stringent covenants like raising further borrowing, dividend payments, undertaking new projects, making new investments, etc. will be relaxed. Offshore lenders will be able to participate in project refinancing and working capital facilities.

Directors

During the year Mr. Naresh Nayyar relinquished the role of Managing Director & CEO and was assigned the newly created role of Deputy Chairman. Further, during the year, Mr. L K Gupta has been appointed as Managing Director & CEO with effect from December 2, 2011. Also, Mr. C Manoharan has joined the Board as Director (Refinery) with effect from March 29, 2012, Mr. Philip Aiken an Independent Director on the Board of parent company; Essar Energy Plc has joined the Board as Promoter company representative with effect from August 14, 2012. Mr. Prashant S Ruia had resigned from the Board with effect from April 23, 2012. Subsequently, he has been appointed as Director with effect from August 14, 2012. Mr. P Sampath resigned as Director from the Board during the year. Mr. Anshuman S. Ruia resigned as Director with effect from Agust 7, 2012. Mr. Suneet Shukla joined as nominee of IFCI Ltd. on the Board in place of Mrs. Manju Jain with effect from November 9, 2012. The Board wishes to place on record its appreciation for the guidance and valuable services rendered by Mr. Anshuman S Ruia, Mr. P Sampath and Mrs. Manju Jain during their tenures as members of the Board.

Mr. Naresh Nayyar and Mr. Dilip J Thakkar retire by rotation at the ensuing Annual General Meeting (AGM) and offer themselves for re-appointment. Mr. L K Gupta and Mr. C Manoharan are proposed to be appointed as Managing Director & CEO and Director (Refinery) respectively at the AGM. Further, it is proposed to appoint Mr. Prashant S Ruia and Mr. Philip Aiken as Non Executive Directors, liable to retire by rotation, at the AGM. Particulars of the directors being re-appointed/appointed, as required under clause 49 of the listing agreement with the Stock Exchanges, are given in the Notice / Explanatory Statement convening the ensuing Annual General Meeting, forming part of the Annual Report.

Directors' Responsibility Statement

Pursuant to the provisions of section 217(2AA) of the Companies Act, 1956, it is hereby confirmed:

i) that in the preparation of the accounts for the financial year ended March 31, 2012, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for that period;

iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safe guarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

iv) that the Directors have prepared the accounts for the financial year ended March 31, 2012 on a 'going concern' basis.

Corporate Governance

In terms of clause 49 of listing agreement with the Stock Exchanges, a certificate from the auditors of the Company on compliance of conditions of Corporate Governance is annexed to the Directors' Report. A report on Corporate Governance as provided in clause 49 of the listing agreement is included in the Annual Report.

Employees Stock Option Scheme

The Company has introduced Essar Oil Employees Stock Option Scheme - 2011 (Scheme). The disclosures required to be made under the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (Guidelines) is enclosed as Annexure B forming part of this report. A certificate obtained from the auditors confirming compliance with the Guidelines and shareholders resolution approving the Scheme will be placed before the shareholders at the Annual General Meeting.

Particulars of Employees

Information as per section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, is given in the Annexure forming part of this Report. However, as per the provisions of section 219(1)(b)(iv) of the said Act, the Report and Accounts are being sent to all shareholders of the Company excluding the statement of particulars of employees under section 217(2A) of the said Act. Any shareholder interested in obtaining a copy of this statement may write to the Company Secretary, for the same, at the Registered Office of the Company.

Energy, Technology Absorption and Foreign Exchange

The particulars as prescribed under section 217(1)(e) of the Act read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are set out in Annexure A to this Report.

Fixed Deposits

Your Company has not accepted any public deposits under section 58A of the Companies Act, 1956 during financial year under report.

Holding Company

The Company, within the meaning of section 4(6) of the Companies Act, 1956, is an indirect subsidiary of Essar Oil & Gas Limited, Mauritius (formerly known as Vadinar Oil), which along with its subsidiary holds 87.09% of the total share capital. Essar Oil & Gas Limited in turn is a wholly owned subsidiary of Essar Energy Plc.

Subsidiary Company

During the financial year, Essar Oil Mauritius Limited, Mauritius (EOML), has become subsidiary of the Company. The paid- up capital of EOML is US$1.00. There were no operations in EOML during the financial year. As required under section 212 of the Companies Act, 1956, the audited financial statements along with the Directors' Report and Auditors' Report thereon of the subsidiary company for the financial year ended as on March 31, 2012 are included in the Annual Report. The control on EOML is intended to be temporary. Hence, consolidated financial statements are not prepared as per AS 21 on Consolidated Financial Statements.

Auditors and Auditors' Report

M/s. Deloitte Haskins & Sells, Chartered Accountants, Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting.

M/s. Deloitte Haskins & Sells, Chartered Accountants, have informed the Company that, if appointed, their appointment will be within the limits prescribed under section 224(1B) of the Companies Act, 1956. Accordingly, the members' approval is being sought to their appointment as the Auditors of the Company at the ensuing Annual General Meeting. Our comments on the Audit observations are as below:

(i) Auditors have drawn attention that the accumulated losses of the Company as on March 31, 2012 are more than 50% of its net worth.

To improve the net worth, during the year the terms of Foreign Currency Convertible bonds (FCCBs) have been amended whereby the above bonds have now become compulsorily convertible into equity shares / Global Depository Shares (GDSs) on the same terms and conditions. Terms and conditions of FCCBs are mentioned in note 2 to Abridged Revised Financial Statements (note 6 to the full financial statements).

The Company has incurred cash losses during the year mainly due to reversal of income recognized during Financial Years 2008-09 to 2011-12 by defeasance of sales tax liability as detailed in Note 10 to Abridged Financial Statements (note 38 of the full financial statements). There were no cash losses in the preceding financial year. With the refining capacity increased to 20 MMTPA coupled with improved complexity, the revenues and profitability of the Company are expected to significantly improve.

(ii) On use of funds raised on short term basis amounting to Rs. 3,180.62 crore for long term investment / purposes, the Company had received a sanction letter for a loan of Rs. 1,133 crore on December 29, 2010 from a Bank to part fund the Optimization Project. Under this arrangement, the Company availed Rs. 500 crore Interim facilities in the form of letter of credit / letter of undertaking (LC/LUT) Facilities. The Company had finalized long term Rupee Term Loan (RTL) facility agreement in July 2012 and under this RTL agreement, LC/LUT can be converted into long term loan. Pending disbursement of the loan as on March 31, 2012, the Company has utilized short term funds in form of project creditors / ICDs for the project temporarily. This will be progressively replaced by long term funds, once the term loan is disbursed.

Hon'ble Supreme Court of India, vide its order dated September 1 3, 201 2 directed the Company to pay the outstanding sales tax amount in 8 equal quarterly installments along with interest from January 2, 2013. The Company in the meanwhile has tied up with a Bank for availing facilities of up to Rs. 5,000 crore for meeting the sales tax and other obligations.

Other observations of the Auditors in the Audit report, if any, are explained, wherever necessary, in the appropriate notes to accounts and are self-explanatory.

Cost Auditors and Cost Audit Report

M/s. Chandra Wadhwa & Co. were appointed as the Cost Auditor for the financial year ended March 31, 2012. The cost audit report for financial year ended March 31, 2012 will be filed with the Registrar of Companies, Gujarat within the prescribed time period.

Acknowledgement

The Board wishes to express appreciation and place on record its gratitude for the faith reposed in and co-operation extended to the Company by the Government of India, state governments, various government agencies/departments, financial institutions, banks, customers, suppliers and investors of the Company. Your Directors place on record their appreciation of the dedicated and sincere services rendered by the employees of the Company.

For and on behalf of the Board of Directors

LALIT KUMAR GUPTA NARESH NAYYAR

Managing Director & CEO Deputy Chairman

Mumbai, November 09, 2012

 
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