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Notes to Accounts of Gujarat Gas Ltd.

Mar 31, 2015

Note 1. The Company has taken premises for business and residential use for its employees under cancellable operating lease arrangements. The total lease rentals recognized as an expense during the year for such lease arrangements is Rs. 3.80 Crores (P.Y. 4.52 Crores). The lease arrangement typically ranges from 11 months to 9 years.

The company is contesting the demands and the management including its tax advisors believe that its position is likely to be upheld in the appellate process. No tax expense has been accrued in the financial statements for the tax demand raised. The management believes that the ultimate outcome of these proceedings will not have a material adverse effect on the company's financial position and results of operations.

Note 2. PGNRB had vide its orders dated 13.09.2011 of Chairman and dated 10.10.2011 of the majority members (three member panel of Board) unanimously held that GAIL had adopted Restrictive Trade Practices by blocking off direct connectivity to GSPC and further, directed Respondents to immediately give direct connectivity to GSPC at Dahej Terminal.

The PLL Off takers (GAIL) filed appeals against the said PNGRB orders before the Appellate Tribunal for Electricity (APTEL). On 23.02.2012 APTEL had issued an interim order for shifting the Delivery Point from GAIL-GSPL Delivery Point to GSPL-PLL Delivery Point. On 18.12.2013 APTEL issued its judgment and required GSPCL to pay the amount of the difference between Rs. 8.74/MMBTU (exclusive of Service Tax) - earlier connectivity charges and Rs. 19.83/MMBTU (Exclusive of Service Tax) - HVJ/ DVPL Zone-1 tariff to GAIL for the period from 20.11.2008 to 29.02.2012.

GSPCL has filed an appeal against the APTEL's above referred judgment before Hon'ble Supreme Court of India (GSPCL vs. GAIL & Others, Civil Appeal No. 2473-2476 of 2014) and the Hon'ble Supreme Court of India had passed the Interim Order on 28.02.2014. The Court has stated that the ends of justice would be met if as a matter of interim arrangement, the appellant is directed to pay interconnectivity charges at the rate of Rs. 12.00 per MMBTU (exclusive of Taxes).

Note: No interest has been paid by the Company to the enterprises covered under Micro, Small and Medium Enterprises Development Act, 2006 according to the terms agreed with the enterprises.

Note 3. DISCLOSURE OF EMPLOYEE BENEFITS

The Company has implemented Accounting Standard - 15 (Revised 2005) on "Employee Benefits", issued by the Institute of Chartered Accountants of India.

(a) Provident Fund - Defined Contribution Plan

All employees are entitled to provident fund benefits and amount charged to Statement of Profit and Loss during 12 months ended is Rs. 5.40 Crores (Previous year Rs. 5.01 Crores).

(b) Gratuity and Leave Encashment - Defined Benefit Plans (payable in future)

Provision has been made for gratuity and leave encashment as per actuarial valuation. The principal assumptions used in actuarial valuation and necessary disclosures are as below:

Note 4. Employee Stock Option Plan 2008:

The erstwhile Gujarat Gas Company Ltd implemented an Employee Stock Option Plan 2008 ('ESOP 2008') which provides for the allotment of equity shares of Rs. 2 /- each to eligible employees of the erstwhile Gujarat Gas Company Ltd and its subsidiaries. The Scheme is administered by an ESOP Trust (Gujarat Gas Company Limited Employee Stock Option Welfare Trust) which purchases, out of the funds advanced by the Company, the shares equivalent to the number of options granted, for allotment to the grantees. IDBI Trusteeship Services Limited are the trustees of the said trust. The trustees can purchase or sell the shares from the market as per the approved scheme. For the year ended on 31 st March 2015, there are no purchases from the market.

Pursuant to the above scheme, the Company has granted options, as mentioned here below, convertible into equity shares of Rs. 2/- each to employees of erstwhile Gujarat Gas Company Ltd and its subsidiaries. The exercise price is calculated at 10% discount to the closing price of the shares on record date, being the date on which the grant of options were approved. The Scheme provides for graded vesting of options granted, over a period of 4 years from the date of grant.

In accordance with the approval granted by the members of the erstwhile Gujarat Gas Company Limited, to the issue of Bonus Shares in the ratio of one equity share of the Company of Rs. 2/- each for every one equity share of the Company held by the Shareholders of the Company as on September 19, 2009, being the Record Date, the Compensation Committee of the Board of Directors of the Company, on September 22, 2009, had approved adjustments to the Options granted and unvested as on September 19, 2009, under the Gujarat Gas Company Ltd - Employee Stock Option Plan 2008, whereby each option had been doubled and the Exercise Price thereof been halved with effect from September 22, 2009.

The employee share based payment plans have been accounted based on the Fair value method of accounting using the Black-Scholes Option Pricing Formula. The weighted average remaining contractual life of options outstanding as on 31 March 2015 is 1.79 years. (Previous year 1.67 years).

In accordance with Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India and SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 issued by Securities Exchange Board of India, an amount of Nil (Previous year Rs. 0.56 Crores) has been recognized as an expense in Employee Benefits Expenses (Note 27) and corresponding liability has been disclosed as Stock Options Outstanding Account (Note 3). The balance of Rs. 0.32 Crores (Previous year Rs. 2.69 Crores) in Stock Options Outstanding Account (Note 3) represents the amortized cost of stock options outstanding. As on 31 March 2015, the amount recoverable from ESOP trust is Rs. 3.01 Crores (Previous year Rs.8.63 Crores).

The Company has adjusted gain of Rs.2.06 Crores (Previous year loss of Rs. 1.05 Crores) to General Reserve (to Surplus in Statement of Profit and Loss in previous year) to as the difference between the cost incurred by the ESOP Trust for the purchase of shares and the exercise price of those options which have been exercised by the employees during the current year, in accordance with Guidance Note on accounting for Employee share based payment, issued by the ICAI.

Note 5. Corporate Social Responsibility

During the year, the Company spent Rs 1.07 crores on corporate social responsibility out of which Rs. 1.05 Crores is included in Donation in Note 29.

Note 6. SEGMENT REPORTING

The Company primarily operates in the segment of Natural Gas Business. Natural gas business involves distribution of gas from sources of supply to centres of demand and to the end customers. Accordingly, disclosures relating to primary and secondary business segments under the Accounting Standard 17 on Segment Reporting are not relevant to the Company.

Note 7. RECOVERABLE VALUE OF ALL ASSETS OTHER THAN FIXED ASSETS AND NON CURRENT INVESTMENTS

In the opinion of management, the current assets including loans and advances, Trade receivables and other current assets are recoverable at the value stated in the balance sheet in ordinary course of business.

Note 8. Authorization with PNGRB :

Erstwhile GSPC GAS Company Limited had applied to the 'Petroleum & Natural Gas Regulatory Board' in May 2008 for authorization of its various Geographical Areas (GA)- City Gas Distribution Network under section 18( 1) of the 'Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand local or City Gas Distribution Network) Regulations, 2008. The authorizations for Palej and Gandhinagar are under process of authorization with PNGRB.

The PNGRB has rejected the application of authorization of Halol and Khambhat GA by issuing a speaking orders in May, 2011. The management of company has replied to PNGRB against the said speaking order and requested to continue to operate in Halol and Khambhat GA in public interest and company has continued to operate and book the income thereof. Erstwhile GSPC Gas has incurred capital expenditure amounting to Rs. 5.44 Crores during FY 2014-15 (Previous year Rs. 8.82 crores) in said GA. Though the company's application for reviewing of the decisions are pending before the board, it is exposed to penal provisions for contravention and continued contravention of the directions of the Board of the PNGRB Act, 2006. Total Capital expenditure till Balance sheet date is Rs. 141.14 Crores (Previous year Rs. 135.69 Crores) in said GA. Total revenue of Rs. 207.57 Crores (Previous year Rs. 207.06 Crores) is generated from said GA. Further, the company is engaged with PNGRB to obtain authorization for Halol and Khambhat GA as well along with other GA's under relevant rules of the PNGRB Act, 2006. Company has not received any further communication from PNGRB in this regard.

NOTE 9. Scheme of Amalgamation and Arrangement

Scheme of Amalgamation and Arrangement and Capital Reduction

Overview of the scheme of amalgamation and arrangement

The Board of Directors of the following Companies at their meeting held on 21st April, 2014 passed a resolution to consider the Composite Scheme of Amalgamation and Arrangement under section 391 to 394 read with section 100 to 103 and other relevant provisions of the Companies Act 1956 between the following transferors companies -

1. GSPC Gas Company Limited (GSPC Gas)

2. Gujarat Gas Company Limited (GGCL)

3. Gujarat Gas Financial Services Limited (GFSL)

4. Gujaratgas Trading Company Limited (GTCL) (Collectively called Transferor Companies)

with Gujarat Gas Limited (formerly known as GSPC Distribution Networks Limited-GDNL) (the transferee) under the Scheme with appointed date as 1st April, 2013. The Scheme of Amalgamation and Arrangement was approved by respective board of directors and the shareholders of the transferor and transferee companies.

The scheme of arrangement was sanctioned by the Hon'ble Gujarat High Court at Ahmadabad vide its order dated 30th March 2015. The certified copy of order was received on 18th April 2015 and filed with Registrar of Companies (ROC) at Ahmadabad on 14th May 2015. The Scheme of Amalgamation became effective on 14th May, 2015 on submission of the order of the High Court of Gujarat with the Registrar of Companies at Ahmadabad. Subsequently, the company's name has been changed from GSPC Distribution Networks Limited to Gujarat Gas Limited (GGL) with effect from 15th May 2015.

The scheme of amalgamation and arrangement covers the below entities:

1. GSPC Distribution Networks Limited (GDNL) is an unlisted company incorporated under the Companies Act 1956 and main objective of the company is to engage in Natural Gas Business in Gujarat.

2. GSPC Gas Company Limited (GSPC Gas), an unlisted company incorporated under the Companies Act 1956, was also engaged in the business of Natural Gas. It caters to the requirements of retail segment comprising of industrial, commercial, CNG and residential customers.

3. Gujarat Gas Company Limited (GGCL), a listed company incorporated under the Companies Act 1956, was also engaged in the business of transmission and distribution of natural gas to industrial, commercial, CNG and residential customers.

4. Gujarat Gas Financial Services Limited (GFSL), an unlisted company incorporated under the Companies Act 1956, was also engaged in the business of sale of gas connections in India to GGCL and other commercial as well as non- commercial customers in India.

5. Gujarat gas Trading Company Limited (GTCL), an unlisted company incorporated under the Companies Act 1956, was also engaged in the business of distribution of gas from sources of supply to centers of demand and/or end customers.

As a part of the scheme of amalgamation and arrangement, GSPC Gas, GGCL, GFSL and GTCL (transferor companies) have merged into to Gujarat Gas Limited (formerly known as GSPC Distribution Networks Limited-GDNL).

The appointed date of the Scheme of Amalgamation for the merger is 1 st April 2013 (the appointed date). Upon the coming into effect of the Scheme of Amalgamation and with effect from the appointed date, the transferor company carried all business and activities relating to the transferor company and stand possessed of all the estates, assets, rights, title, all debts, liabilities (including contingent liabilities), duties and obligations of every kind, nature and interest of the transferor company for and on account of, and in trust for, the transferee Company.

Upon the Scheme becoming effective, all the Transferor Companies are dissolved without winding up pursuant to the provisions of Section 394 of the Companies Act, 1956

Accounting Treatment

The above Scheme of Amalgamation is an amalgamation in the nature of purchase in accordance with the requirements of Accounting Standard 14- "Accounting for Amalgamations" and has been accounted in books of the company with effect from the appointed date (1st April 2013) as per the Purchase method under AS -14 "Accounting for Amalgamations". Consequent to order dated 6th July 2015 of the Honourable High Court of Gujarat for sanctioning permission of re- opening and revision of books of accounts for the year 2013-14, the audited financial statements of transferee company Gujarat Gas Limited (formerly known as GSPC Distribution Networks Limited-GDNL) for year 2013-14 have been re- opened and revised to give effect of the said amalgamation and arrangement in books of accounts for the year 2013-14. Accordingly, operation of all the transferors companies from 1 st April 2013, as detailed below have been accounted for in the financial statements for financial year 2013-14.

1 The business of the transferor companies have been transferred to the company on a going concern basis. As per the Scheme, the appointed date, for the transfer of assets and liabilities at their respective fair value as determined by the board, is 1st April 2013.

Note : The above mentioned figures have been increased/(deceased) due to alignment of accounting policies as on 1st April, 2013 as mentioned below. These adjustments have been recorded in the opening reserves as per the accounting treatment prescribed under the scheme.

(a) Inventories have been increased by Rs. 2.12 Crores on account of recognition of Gas Inventory of erstwhile GGCL

(b) Long Term loans and advances have been decreased by Rs. 1.55 Crores on account of recognition of provision for doubtful advances of erstwhile GSPC GAS.

(c) Trade Receivables have been increased by Rs. 0.33 Crores on account of recognition of interest income accrual of erstwhile GSPC GAS.

(d) Unbilled Revenue has been decreased by Rs. 18.37 Crores to align accrual of sales income of erstwhile GGCL with erstwhile GSPC Gas.

3 As a purchase consideration for the transfer of the above mentioned assets and liabilities determined by the Board as on the appointed date 1 st April, 2013 and consequential expected future cash flows from the transferor companies, the company has to issue 4,731,764,975 equity shares of Rs. 10 each totaling value Rs. 4,731.77 Crores. This has resulted in recognition of goodwill of Rs. 742.99 crores (equity shares of Rs. 4,731.77 Crores for net assets of Rs. 3,988.77 Crores) based on the Purchase method of accounting as prescribed under AS 14 - "Accounting for Amalgamations". Pursuant to the scheme and after re-organation of share capital, new 124,520,130 equity shares have been issued to equity shareholders of Transferor Companies in the swap ratio as specified in the scheme.

4 Pursuant to the scheme, equity shares of the Company held by the transferor Company and transferor companies inter-company investments stood cancelled. Accordingly, investments of Rs. 2,811.14 crores (GDNL investments in GGCL) and Rs. 0.13 Crores (GGCL investments in GTCL) and Rs. 1.40 Crores (GGCL investments in GFSL) and Rs. 400.05 Crores (GSPC Gas investments in GDNL) have been cancelled.

Further, in accordance with the scheme, cancellation of equity shares of transferor companies has resulted in creation of goodwill of Rs. 2,812.67 Crores. This along with the amount of goodwill as mentioned in (3) above has been adjusted against the reserves arising on account of capital reduction to reduce the share capital to comprise of 137,678,025 equity shares of Rs. 10/- each aggregating value Rs. 137.68 Crores. The reduction in the share capital of the Company has been effected as an integral part of the Scheme in accordance with the provisions of Sections 100 to 103 of the Companies Act, 1956 and the order of the High Court sanctioning the Scheme.

5 Considering above points no. 1 to 4 and pursuant to the Scheme, the net assets of the transferor companies acquired by the transferee company in excess of the consideration issued as share capital by the transferee company to the shareholders of the transferor company after adjustments of the inter-company investment holdings and inter-company balances, if any, and reduction of share capital has been adjusted against the "Reserve Account" of the transferee company (Refer Note 3) in accordance with the requirements of the approved Scheme of Amalgamation.

Note 10 Previous year figures

Previous year's figures have been regrouped or reclassified wherever necessary to confirm to the current period's presentation.

 
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