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Notes to Accounts of Orient Abrasives Ltd.

Mar 31, 2015

1. CORPORATE INFORMATION

Orient Abrasives Limited ('The Company') is engaged in the production and selling of fused aluminium oxide grains, calcined products, and generation of power. The Company has manufacturing facilities at Porbandar (Gujarat) and Power Generation facilities at Rajasthan and Karnataka.

2. BASIS OF PREPARATION

The financial statements of the company have been prepared in accordance with the generally accepted accounting principles in India (Indian GAAP). The company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been prepared on an accrual basis and under the historical cost convention.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year, except for the change in accounting policy explained below.

b. Terms/rights attached to equity shares

The company has only one class of equity shares having a par value of Rs. 1.00 per share. The holder of each fully paid equity share is entitled to one vote. The company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing annual general meeting.

During the year ended March 31, 2015, the amount of per equity share dividend recognized as distributions to equity shareholders is Rs. 0.25 (Previous year Rs. 0.20)

In the event of liquidation of the company, holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

* Foreign currency loan of Rs. 312.95 lacs (Previous year Rs. 907.35 lacs) carries interest @ LIBOR plus 3% p.a., is repayable in 16 quarterly installments of USD 250,000 each from the date of October 2011. It is exclusively secured on all the wind mills of the company.

'Working capital loan from banks are secured by first pari passu charge on all current assets of company, both present & future, including stocks of raw materials, stores, spares, stocks in process & finished goods etc lying in their premises, godowns, elsewhere including those in transit and all present and future book-debts / receivables of the company. These facilities are further secured by second pari passu charge on the entire fixed assets of the Company. The managing director has also given a personnel guarantee to the bank for this facility. The working capital loan is repayable on demand and carries interest @ 10.00% - 15.50 % p.a.

3. SEGMENT INFORMATION

Business Segments :

The Company operates in primarily two segments i.e. (a) Fused aluminium oxide grains including calcined products, Monolithics and (b) generation of power.

A description of the types of products and services provided by each reportable segment is as follows:

Fused Aluminium Oxide Grains manufactures calcined bauxite and fused aluminium oxide abrasive grains. Raw bauxite and calcined alumina are the basic raw materials used for the manufacture of abrasive grains. Raw bauxite is procured from mines owned by the Company and others and Calcined alumina is purchased from aluminium companies. A portion of these products is captively consumed for manufacturing of monolithics and low cement castables which are mainly consumed in steel plants.

Power Generation segment - The Company has a thermal power plant and a furnace oil based power plant with capacity of 9 MW each. The electricity from these power plants is meant for captive consumption by the manufacturing division at Porbandar (Fused aluminium oxide grain).

The Company has also set up windmills of total power generation capacity of 11.1 MW. The power generated by these windmills is sold to the respective state power distribution companies.

Geographical Segments:

The analysis of geographical segment is based on the geographical location of the customers. The Company operates primarily in India and has some presence in international markets as well. Its business is accordingly aligned geographically, catering to two markets i.e India and Outside India. The Company has considered domestic and exports markets as geographical segments and accordingly considered them for disclosure based on materiality of transactions.

SECONDARY SEGMENT REPORTING (BY GEOGRAPHICAL SEGMENTS)

Secondary segment reporting is based on the geographical location of customers. The geographical segments have been identified based on revenues within India (sales to customers within India) and revenues outside India (deemed exports to customers located outside India). Since the export market revenue, results and assets constitute less than 10% of the total revenue, results and assets, the same has not been disclosed.

4. RELATED PARTY DISCLOSURES

(a) Names of related parties and related party relationship

(i) Related parties with whom transactions have taken place during the year a. Key management personnel

Name Relationship

1. Mr. S. G. Rajgarhia Managing Director

2. Mr. P. P. Khanna Executive Director

3. Mr. R. K. Khanna Whole Time Director

4. Mrs. Anisha Mittal Director

5. Mr. A. Sihag Chief Financial Officer (w.e.f. April 1, 2014)

6. Mr. K. Mundra Company Secretary (w.e.f. May 7, 2014)

b. Relatives of Key management personnel

Name Relationship

1. Mrs. Usha Rajgarhia Wife of Managing Director

2. Mr. R. K. Rajgarhia Brother of Managing Director

3. Ms. Bhawna Rajgarhia Daughter of Managing Director

c. The Enterprises controlled, owned or significantly influenced by key managerial personnel or their relatives.

1. Pyramid Abrasives Private Limited

2. Hindustan General Industries Limited

3. HGI Finance and Leasing Limited

4. Rovo Marketing Private Limited

5. Madhushree Properties Private Limited

6. Orient Coated Private Limited

7. Zipper Trading Enterprises Limited

8. BAMR Properties LLP

(Amount in Rs. Lacs) March 31, 2015 March 31, 2014

5. Contingent liabilities

i) Power claim matters decided in favour of the Company by the District Court (Civil Court, Senior Division, Porbandar) but Paschim Gujarat Vidyut Company Limited has gone in to further appeal before Hon'ble High Court of Gujarat,. 338.02 338.02 (Refer Note A below)

ii) Sales tax and interest demand raised by Kolkata Sales tax authorities for non-submission of declarations forms for the year 1993-94. 3.75 3.75

iii) Demand raised by the Income Tax Authorities, being disputed by the Company (Refer Note B below) 255.45 2,187.73

(vi) Entry tax demand for entry of goods in Rajasthan relating to the year 2006-07 36.06 36.06

v) Service Tax demand for input tax credit availed on foreign business auxiliary services and other consulting services 85.48 85.48

In view of decision already in favour of Company by the District Court (Civil Court, Senior Division, Porbandar) and based on discussion with the solicitors, the management believes that the Company has a strong chance and hence no provision there against is considered necessary.

Note B

Demand raised by the Income tax authorities relate to the following matters:

i. The Company has a thermal power plant at Porbandar to meet the energy needs of its abrasives grains division (AGD) at Porbandar. Under Section 80IA of the Income Tax Act, 1961, the profit of the power plant is not liable to income tax and therefore a deduction of an amount equal to hundred percent of the profit derived from such business is allowable from the total income of the Company for a period of 10 consecutive assessment years. During the financial year 2010-11, the Company had received a demand in respect of the Assessment Year ('A.Y.') 2008-09 against which the Company filed an appeal with CIT(A). and the said appeal was allowed by CIT(A). The department has appealed against that order with ITAT. Tax amount involved for disallowance under section 80IA in various years is Rs. 55.42 lacs (Previous year Rs. 1,715.16 lacs).

ii. The AO had initiated penalty proceedings against the Company for return filed by the Company for the A.Y. 2009-10 as the Company has erroneously claimed deduction on notional loss on derivative transaction and unrealised exchange loss on capital account. The Company filed an Appeal with CIT(A) but the CIT(A) dismissed the appeal of the Company. Thereafter, the Company went into further appeal with ITAT, New Delhi. ITAT allowed appeal of the Company but department went into further appeal with Hon'ble High Court, Delhi. Hon'ble High Court has dimissed the appeal of the department in its order dated February 6, 2015. Penalty amount involved is Rs. 159.79 lacs (Previous year Rs. 159.79 lacs). Since the Hon'ble High Court (Delhi) has asked the Assessing Officer to reassess the assessment for the A.Y. 2009-10, therefore, in management's view, the penalty imposed by the AO is not sustainable.

iii. The assessing officer (AO) has made disallowances on account of depreciation on windmills installed by the Company in the A.Y. 2010-11 stating that the windmills were not put-to-use in the said assessment year. Further, the AO has disallowed depreciation claimed by the Company in A.Y. 2010-11 on motor vehicles stating that the non-refundable payment made by the employees for purchase of motor vehicles should be reduced from the cost of the asset. The Company had filed appeal against the same and in the current year, the Commissioner of Income-tax (Appeals) ("CIT(A)") has passed an order (dated February 2, 2015) directing AO to allow depreciation on all windmills except one installed at Gajendra Garh, Karnataka on March 31, 2010 on which depreciation was claimed Rs. 117.60 lacs. Further, depreciation on vehicles were not allowed in the said order and the addition of Rs. 0.78 lac was confirmed by the CIT(A). Tax amount involved is Rs. 40.24 lacs (Previous year Rs. 312.78 lacs). The Company on the basis of current status of the cases and advice obtained from legal counsel is confident that there would not be any probable outflow of resources in these matters.

Note C

In view of large number of cases, it is not practicable to disclose individual details of all the cases. On the basis of current status of individual case and as per legal advice obtained by the Company, wherever applicable, the Company is of view that no provision is required in respect of these cases.

6. The Company has received demand from the Joint Commissioner, Customs for payment of differential custom duty on account of mis-classification on import of coal, whereby the Company has availed the benefit of exemption notification and paid custom duty at a lower rate. The Company has gone for further appeal to the Commissioner of Customs (Appeals). The Company on a conservative basis has made provision for the entire amount of Rs. 37.68 lacs.

7. GRATUITY AND OTHER POST-EMPLOYMENT BENEFIT PLANS

The Company has a defined benefit gratuity plan. Gratuity is computed as 15 days salary, for every completed year of service or part thereof in excess of 6 months and is payable on retirement/termination/resignation. The benefit vests on the employees after completion of 5 years of service. The scheme is funded with an insurance Company in the form of a qualifying insurance policy. At the end of accounting year actuarial valuation is done as per the Projected unit credit method and any shortfall in the funding claims is further provided for.

The Company has also provided long term compensated absences which are unfunded.

The following tables summarize the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the Gratuity

8. Provision for Income tax Act has been made after taking into consideration the benefits available under Section 80I A of the Income Tax Act, 1961 in respect of windmills installed at Rajasthan and Karnataka.

9. The Company has taken various residential, office and warehouse premises and plant and machinery under operating lease agreements. These are cancellable and are renewable by mutual consent on mutually agreed terms. The lease payment recognized in the statement of profit and loss for the year is Rs. 50.37 lacs (Previous year Rs. 57.08 lacs).

10. (a) Sale of non plant grade bauxite requires specific approval from the state government. During the year, the Company has sold such stock amounting to Rs. 69.27 lacs (Previous year Rs. 840.18 lacs) on the basis of approval obtained.

(b) The management believes that the net realizable value of stocks of non plant grade bauxite, at various mines in Bhuj district (Gujarat) weighing 59,090 tonnes, is higher than its cost price. The management has filed an application for approval to sale of such stock with the state government and it is confident that the required approvals will be obtained shortly and accordingly the stock of Rs. 259.20 lacs (previous year Rs. 259.20 lacs) have been valued at cost.

11. Capital Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of capital advance and capital work in progress) Rs. Nil (Previous Year : Rs. 140.57).

12. Corporate Social Responsibility (CSR) expenditure

The company is covered under the criteria for applicability of Section 135(1) of Companies Act 2013 under which the company has to follow the requirements of the Companies Act for CSR activities and follow the guidelines issued under the Companies (Corporate Social Responsibility Policy) Rules, 2014.

13. Previous year figures have been regrouped / reclassified, where necessary, to confirm to this year's classification.


Mar 31, 2013

1. CORPORATE INFORMATION

Orient Abrasives Limited (The Company'') is engaged in the production and selling of fused aluminum oxide grains, calcined products, and generation of power. The Company has manufacturing facilities at Porbandar (Gujarat) and Power Generation facilities at Rajasthan and Karnataka.

During the previous year, the Hon''ble High Court of Delhi approved the demerger of the refractory undertaking with effect from April 1, 2011. As per the scheme, one share of Orient Refractories Limited was issued for one share of the Company (note 27).

2. BASIS OF PREPARATION

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on an accrual basis and under the historical cost convention except for derivative financial instruments which have been measured at fair value.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year.

3. SEGMENT INFORMATION Business Segments

The Company operates in primarily two segments i.e. (a) Fused aluminum oxide grains including calcined products, refractories & monolithics and (b) generation of power.

A description of the types of products and services provided by each reportable segment is as follows:

Fused Aluminium Oxide Grains manufactures calcined bauxite and fused aluminium oxide abrasive grains. Raw bauxite and calcined alumina are the basic raw materials used for the manufacture of abrasive grains. Raw bauxite is procured from mines owned by the Company and others and Calcined alumina is purchased from aluminium companies. A portion of these products is captively consumed for manufacturing of monolithics low cement castables which are mainly consumed in steel plants.

Power generation segment - The Company has a thermal power plant and a furnace oil based power plant with capacity of 9MW each. The electricity from these power plants is meant for captive consumption by the manufacturing division at Porbandar (Fused aluminium oxide grain). The Company has also set up windmills of total power generation capacity of 11.1 MW. The power generated by these windmills is sold to the respective state power distribution companies.

Geographical Segments

The analysis of geographical segment is based on the geographical location of the customers. The Company operates primarily in India and has presence in international markets as well. Its business is accordingly aligned geographically, catering to two markets i.e India and Outside India. The Company has considered domestic and exports markets as geographical segments and accordingly disclosed these as separate segments. The geographical segments considered for disclosure are as follows:

- Sales within India include sales to customers located within India.

- Sales outside India include sales to customers located outside India.

4. Pursuant to the scheme of arrangement between the Company and Orient Refractories Limited ("ORL" or "transferee company"), the refractory business of the Company carried at its manufacturing unit at Bhiwadi (demerged undertaking), was transferred to the transferee company with effect from April 01, 2011 (the Appointed Date). The said scheme under Section 391 to 394 of the Companies Act, 1956 was approved by the Hon''ble High Court of Delhi vide its order dated September 19, 2011 and it was effective from October 31, 2011 ("the effective date"), i.e. date of filing the above order with the Registrar of companies.

The said scheme provided, inter alia, the transfer of demerged undertaking on a going concern basis to the transferee company in consideration of which, each shareholder of the Company whose name appeared in the register of members of the Company on the record date i.e. November 14, 2011, received one fully paid equity share of face value of Rs. 1.00 each in the transferee company.

The scheme provided for its basis of transfer of certain specific assets and liabilities and where not specifically provided in the scheme, it authorized the ''Board of Directors'' of both the companies to mutually decide through a resolution. In terms of above, following was done in the previous year

5. RELATED PARTY DISCLOSURES Names of Related Parties A. Individuals holding 20% or more voting rights

1. Mr S G Rajgarhia (Managing Director) upto November 28, 2012

2. S G Rajgarhia (HUF) upto November 28, 2012

C. The Enterprises controlled, owned or significantly influenced by key managerial personnel or their relatives.

1. Unifrax India Ltd.

2. Pyramid Abrasives Pvt. Ltd.

3. Hindustan General Industries Ltd.

4. HGI Finance & Leasing Ltd.

5. Rovo Marketing Pvt. Ltd.

6. Madhushree Properties Pvt. Ltd.

7. Orient Coated Pvt. Ltd.

8. Orient Refractories Limited after November 15, 2011

9. Zipper Trading Enterprises Ltd.

Note: As individual holding 20% or more voting right is also a key managerial personnel, his relative and transactions with relative are covered under key management personnel and their relatives.

6. The assets of Rs. 205.00 Lacs (Previous year Rs. 322.00 Lacs) recognized by the Company as ''MAT Credit Entitlement Account'' under ''Loans and Advances'' represents that portion of MAT liability, which can be recovered and set off in subsequent years based on provisions of Section 115JAA of the Income Tax Act, 1961. The management, based on present trend of profitability and also the future profitability projections, is of the view that there would be sufficient taxable income in foreseeable future, which will enable the Company to utilize MAT credit assets. The management is confident that no losses are expected in this regard.

(Amount in Rs. Lacs)

March 31, 2013 March 31, 2012

7. CONTINGENT LIABILITIES (NOT PROVIDED FOR) IN RESPECT OF

i) Power claim matters decided in favour of the Company by the District Court (Civil Court, Senior Division, Porbandar) but Paschim Gujarat Vidyut Company Limited has gone into further appeal before Hon''ble High Court of Gujarat.* 338.02 338.02

ii) Sales tax and interest demand raised by Kolkata Sales tax authorities for non-submission of declarations forms for the year 1993-94 3.75 3.75

iii) Demand raised by the Income Tax Authorities, being disputed by the Company (refer note A below) 2,187.73 2,175.97

iv) Demand for payment of royalty (refer note B below) 3,809.46 3,809.46

v) Cases pending with Labour Courts* (Amount unascertainable)

*ln view of decision already in favour of Company by the District Court (Civil Court, Senior Division, Porbandar) and based on discussion with the solicitors, the management believes that the Company has a strong chance and hence no provision there against is considered necessary.

#ln view of large number of cases, it is not practicable to disclose individual details of all the cases. On the basis of current status of individual case and as per legal advice obtained by the Company, wherever applicable, the Company is of view that no provision is required in respect of these cases.

(A) Demand raised by the Income tax authorities relate to the following matters

i. The Company has a thermal power plant at Porbandar to meet the energy needs of its abrasives grains division (AGD) at Porbandar. Under Section 80IA of the Income Tax Act, 1961, the profit of the power plant is not liable to income tax and therefore a deduction of an amount equal to hundred percent of the profit derived from such business is allowable from the total income of the Company for a period of 10 consecutive assessment years. The Department allowed the benefit to Company with respect to financial years 2001-02 and 2002-03. However in respect of financial years 2003- 04, 2004-05, 2005-06 and 2006-07, department denied the benefit by taking a different view. The Company appealed against the same and Commissioner of Income Tax (Appeals) [''CIT(A)''] decided appeal in favour of the Company by reversing the department''s order. Against this, the department has gone into appeal before the Income Tax Appellate Tribunal (''ITAT''). Subsequently, the department reopened the case for the year 2001-02 and disallowed the benefit to the Company. The Company has appealed against this, and CIT (A) and ITAT has passed orders in favour of the Company. During the year 2009-10, ITAT has decided the cases in respect of financial years 2001-02, 2003-04, 2004- 05, 2005-06 and 2006-07 in favour of the Company. Again, regarding above orders of ITAT, the department has filed an appeal with the Hon''ble High Court. Further during the year 2010-11, the Company has also received demand in respect of the financial year 2007-08 against which the Company filed an appeal with CIT(A). In the current year, CIT(A) has allowed the deduction under section 80IA of the Income tax Act for the financial year 2002-03 in respect of power generated by it for captive consumption. The Company had also received order in the previous year from CIT(A) in relation to financial year 2007-08 allowing the deduction. The department has appealed against this order with ITAT. Also assessment order in relation to financial year 2008-09 was received in the previous year, again denying the benefit. The Company had preferred an appeal against this order.

However, an assessment order has been received by the Company during the year for financial year 2009-10 in which no disallowance under section 80IA has been made by AO. Aggregate tax amount involved in relation to all these years is Rs. 1715.16 Lacs (Previous year Rs. 1,988.73 Lacs). The Company on the basis of current status of the case and advice obtained from legal counsel is confident that there would not be any probable outflow of resources in this matter.

ii. Disallowance in respect of treatment of surrender value of keyman insurance policy with respect to financial year 2002-03 and 2008-09. Tax amount involved is.Rs. Nil (Previous year Rs. 27.45 Lacs).

iii. The Company had claimed notional loss on account of derivative transaction with respect to year 2008-09, which was later on disallowed by the Company by way of revising its return. The assessing officer has accepted the Company''s revised return, however, initiated penalty proceedings. Tax amount involved is Rs. 159.79 Lacs (Previous year Rs. 159.79 Lacs).

iv. The assessing officer (AO) has made disallowances on account of depreciation on windmills by the Company in the A.Y. 2010-11 stating that the windmills were not put-to-use in the said assessment year. Further, the AO has disallowed depreciation claimed by the Company in A.Y. 2010-11 on motor vehicles stating that the non-refundable payment made by the employee for purchase of motor vehicles should be reduced from the cost of the asset. Tax amount involved is Rs. 312.78 Lacs (Previous year Rs. Nil).

The Company on the basis of current status of the cases and advice obtained from legal counsel is confident that there would not be any probable outflow of resources in this matter.

B. (i) The Company has also received various demands for payment of differential royalty on raw bauxite dispatched from the Company owned mines. The amount involved is Rs. 1,289.07 Lacs. As the Company has disputed this demand, it has also paid Rs. 100.00 Lacs as deposit. Further the Company based on legal advice is of view that no provision is necessary for the present demand.

(ii) During the year, the Company has received various demands from Geology and Mining Department, for payment of royalty on difference between quantity of raw bauxite dispatched from the Company owned mines as per the its records and as computed by the department. The amount involved is Rs. 2,520.39 Lacs.

The Company has disputed this demand and has filed an appeal with the appropriate authority. Further, based on legal advice, the Company is of the view that no provision for the same is required as of now.

8. GRATUITY AND OTHER POST- EMPLOYMENT BENEFIT PLANS

The Company has a defined benefit gratuity plan. Gratuity is computed as 15 days salary, for every completed year of service or part thereof in excess of 6 months and is payable on retirement/termination/resignation. The benefit vests on the employees after completion of 5 years of service. The scheme is funded with an insurance Company in the form of a qualifying insurance policy. At the end of accounting year actuarial valuation is done as per the Projected unit credit method and any shortfall in the funding claims is further provided for.

The Company has also provided long term compensated absences which are unfunded.

9. Provision for Income tax Act has been made after taking into consideration the benefits available under Section 80IA of the Income Tax Act, 1961 in respect of power plant installed at Porbandar for captive consumption.

10. The Company has taken various residential, office and warehouse premises and plant and machinery under operating lease agreements. These are cancellable and are renewable by mutual consent on mutually agreed terms. The lease payment recognized in the statement of profit & loss account for the year is Rs. 19.61 Lacs (Previous year Rs. 29.23 Lacs).

11. (a) Sale of non plant grade bauxite requires specific approval from the state government. During the year, the Company has sold such stock amounting to Rs. 2,488.39 Lacs (Previous year t Nil) on the basis of approval obtained.

(b) The management estimates that the Company has stocks of non plant grade bauxite at various mines in Jamnagar district, Gujarat weighing 207,658 tonnes for which it has not obtained any approval for sale (in many cases not even applied for). In view of this, no realizable value has been considered at the year end for such stocks and thus valued accordingly.

12. Previous year figures have been regrouped / reclassified, where necessary, to conform to this year''s classification.


Mar 31, 2012

1. CORPORATE INFORMATION

Orient Abrasives Limited ('The Company') is engaged in the production and selling of Fused Aluminum Oxide Grains, Calcined Products, and Generation of Power. The Company has manufacturing facilities at Porbandar (Gujarat) and Power Generation facilities at Gujarat, Rajasthan and Karnataka.

During the year, the Court approved the demerger of the refractory undertaking with effect from April 1, 2011. As per the scheme, one share of Orient Refractories Limited has been issued for one share of the Company. (refer note 27)

2. BASIS OF PREPARATION

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on an accrual basis and under the historical cost convention.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year, except for the change in accounting policy explained below.

a. Terms/rights attached to equity shares

The company has only one class of equity shares having a par value of Rs. 1.00 per share. The holder of each fully paid equity share is entitled to one vote. The Company declares and pays dividends in Indian rupees.

The dividend proposed by the board of directors is subject to the approval of the shareholders in the ensuing annual general meeting.

During the year ended March 31, 2012, the amount of per share dividend recognized as distributions to equity shareholders is Rs. 0.20 (Previous year Rs. 1.00)

In the event of liquidation of the Company, holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

*Working Capital loans from banks are secured by first pari passu charge on all current assets of the Company, both present & future, including stocks of raw materials, finished and semi-finished goods and book debts of the Company. These facilities are further secured by second pari passu charge on the entire fixed assets of the Company. The managing director has also given a personnel guarantee to the bank for this facility. The working capital loans are repayable on demand and carry interest @ 11.8 % p.a.

3. SEGMENT INFORMATION

Business Segments

The Company operates in primarily three segments i.e. Fused Aluminum Oxide Grains including Calcined Products, Refractories and Monolithics and generation of power.

A description of the types of products and services provided by each reportable segment is as follows:

Fused Aluminium Oxide Grains manufactures calcined bauxite and fused aluminium oxide abrasive grains. Raw bauxite and calcined alumina are the basic raw materials used for the manufacture of abrasive grains. Raw bauxite is procured from mines owned by the Company and others and Calcined alumina is purchased from aluminium companies. A portion of these products were being captively consumed by the refractory division till the demerger of refractory devision.

Refractories and Monolothics manufacture various types of continuos casting and slide gate refractories, low cement castables etc, which are mainly consumed in steel plants. The segment exports a fair share of its output to various overseas customers. The major export customers are based in Egypt, Turkey, Indonesia, Italy, Pakistan, Kingdom of Saudi Arabia, Sultanate of Oman and Greece etc. Post demerger of refractory undertaking, this segment does not produce slide gate and refractories and does not have any exports.

Power Generation segment - The Company has a thermal power plant and a furnace oil based power plant with capacity of 9MW each. The electricity from these power plants is meant for captive consumption by the manufacturing division at Porbandar (Fused aluminium oxide grain).

The Company has also set up windmills of total power generation capacity of 11.1 MW. The power generated by these windmills is sold to the respective state power distribution companies.

Geographical Segments

The analysis of geographical segment is based on the geographical location of the customers. The Company operates primarily in India and has presence in international markets as well. Its business is accordingly aligned geographically, catering to two markets i.e India and Outside India. The Company has considered domestic and exports markets as geographical segments and accordingly disclosed these as separate segments. The geographical segments considered for disclosure are as follows:

- Sales within India include sales to customers located within India.

- Sales outside India include sales to customers located outside India.

4. Pursuant to the scheme of arrangement between the Company and Orient Refractories Limited ("ORL" or "transferee company"), the Refractory business of the Company carried at its manufacturing unit at Bhiwadi (demerged undertaking), was transferred to the transferee company with effect from April 01, 2011 (the Appointed Date). The said scheme under Section 391 to 394 of the Companies Act, 1956 has been approved by the Hon'ble High Court of Delhi vide its order dated September 19, 2011 and has been effective from October 31, 2011 ("the effective date"), i.e. date of filing the above order with the Registrar of Companies.

The said scheme provides, inter alia, the transfer of demerged undertaking on a going concern basis to the transferee company in consideration of which, each shareholder of the Company whose name appeared in the register of members of the Company on the record date i.e. November 14, 2011, received one fully paid equity share of face value of Rs.1.00 each in the transferee company.

The scheme provides for its basis of transfer of certain specific assets and liabilities and where not specifically provided in the scheme, has authorized the 'Board of Directors' of both the companies to mutually decide through a resolution. In terms of above, following have been done

(i) The book value of assets, liabilities, reserves and surplus (as agreed) of the demerged undertaking as on the Appointed Date has been accounted for as assets and liabilities and reserves in the books of the transferee as on the Appointed Date. Following is the amount of such assets, liabilities and reserves:

(ii) Loans as identified for the demerged undertaking and transferred to ORL have been recorded in the books of the transferee company.

(iii) Aggregate face value of the new equity shares (1,196.39 lacs shares of Rs. 1.00 each amounting to Rs. 1,196.39 lacs) to be issued by the transferee company to the members of the Company was credited to the share capital account on the Appointed Date by the transferee company. The transferee company in its board meeting dated November 15, 2011 had allotted these shares. In view of the allotment of shares, the Company is no longer the holding Company of the transferee company.

(iv) The employees of the demerged undertaking have been transferred to ORL on their existing terms of employment with the Company.

(v) All contingent liabilities relating to demerged undertaking have been transferred to the transferee company on the Appointed Date.

(vi) Deferred tax liability (net) pertaining to the demerged undertaking and as agreed by the board of directors has been transferred to the transferee company.

The Company was carrying on business of demerged undertaking in trust on behalf of the transferee company for the period from the Appointed Date till the Effective Date.

5. RELATED PARTY DISCLOSURES

Names of Related Parties

A. Parties where control exists

Orient Refractories Limited - Subsidiary Company up to November 15, 2011

B. Individuals holding 20% or more voting rights Mr. S.G.Rajgarhia (Managing Director)

S.G.Rajgarhia (HUF)

C. Key Management personnel and their relatives

Name Relationship

1. Mr. S.G. Rajgarhia Managing Director

2. Mrs. Usha Rajgarhia Wife

3. Mr. R.K. Rajgarhia Brother

4. Ms. Anisha Mittal Daughter

5. Ms. Bhavna Rajgarhia Daughter

6. S G Rajgarhia (HUF) HUF

7. Mr. P.P. Khanna Executive Director

D. The Enterprises controlled, owned or significantly influenced by key management personnel or their relatives.

1. Perfectpac Ltd.

2. Unifrax India Ltd.

3. Pyramid Abrasives Pvt. Ltd.

4. Hindustan General Industries Ltd.

5. HGI Finance & Leasing Ltd.

6. Rovo Marketing Pvt. Ltd.

7. Madhushree Properties Pvt. Ltd.

8. Orient Coated Pvt. Ltd.

9. Orient Refractories Limited after November 15, 2011

Note:- As individual holding 20% or more voting right is also a key managerial personnel, his relative and transactionsn with relative are covered under Key management personnel, and their relatives.

6. Contingent liabilities (not provided for) in respect of:

i) Power claim matters decided in favour of the Company by the District Court (Civil Court, Senior Division, Porbandar) but Pashim Gujarat Vidyut Company Limited has gone into further appeal before Hon'ble High Court of Gujarat* 338.02 338.02

ii) Sales tax and interest demand raised by Kolkata Sales tax authorities for non-submission of declarations forms for the year 1993-94. 3.75 3.75

iii) Demand raised by the Income Tax Authorities, being disputed by the Company (note A below) 2,289.52 1,756.69

iv) Show cause issued by service tax authorities for input tax credit availed on foreign business auxiliary services, consulting engineer service, telephone service and insurance service.

(Transfer to ORL under De-Merger Scheme) - 85.48

v) Demand for payment of royalty (note B below) 3,809.46 1,289.07

v) Cases pending with Labour Courts # (Amount unascertainable)

* In view of decision already in favour of Company by the District Court (Civil Court, Senior Division, Porbandar) and based on discussion with the solicitors, the management believes that the Company has a strong chance and hence no provision there against is considered necessary.

#In view of large number of cases, it is not practicable to disclose individual details of all the cases. On the basis of current status of individual case and as per legal advice obtained by the Company, wherever applicable, the Company is of view that no provision is required in respect of these cases.

(A) Demand raised by the Income tax authorities relate to the following matters:

(i) The Company has a thermal power plant at Porbandar to meet the energy needs of its abrasives grains division (AGD) at Porbandar. Under Section 80 IA of the Income Tax Act, 1961, the profit of the power plant is not liable to income tax and therefore a deduction of an amount equal to hundred percent of the profit derived from such business is allowable from the total income of the Company for a period of 10 consecutive assessment years. The Department allowed the benefit to Company with respect to financial year 2001-02 and 2002-03. However in respect of year 2003-04, 2004-05, 2005-06, and 2006-07, department denied the benefit by taking a different view. The Company appealed against the same and Commissioner of Income Tax (Appeals) decided appeal in favor of Company by reversing the department's order. Against this, the department has gone into appeal before the Income Tax Appellate Tribunal (ITAT). Subsequently, the department reopened the cases for the year 2001-02 and disallowed the benefit to Company. The Company has appealed against this, and CIT (Appeals) and ITAT has passed orders in favor of Company. The department also reopened the case for the year 2002-03 against which the Company has filled a writ petition in Hon'ble High Court and Court has passed an interim order staying further assessment by department. During the year 2009-10, ITAT has decided the cases in respect of years 2001-02, 2003-04, 2004-05, 2005-06, and 2006-07 in favor of Company. Again, regarding above orders of ITAT, the department has filed an appeal with the Hon'ble High Court. Further during the previous year, the Company received demand in respect of the financial year 2007-08 against which the Company filed an appeal with CIT(A). During the year, the Company received re-assessment order in relation to financial year 2002-03 where assessing officer has disallowed the deduction. The Company has filed an appeal against the same. Further, the Company has also received CIT (A) order in relation to 2007-08 allowing the deduction. The department has appealed against this order with ITAT. Also assessment order in relation to financial year 2008-09 has been received during the year, again denying the benefit. The Company has preferred an appeal against this order. Aggregate amount involved in relation to all these years is Rs. 1,988.73 lacs. The Company on the basis of current status of the case and advice obtained from legal counsel is confident that there would not be any probable outflow of resources in this matter.

(ii) The assessing officer has treated surrender value of keyman insurance policy income on accrual basis and added the same to taxable income with respect to financial year 2002-03 and 2008-09. Amount involved is Rs. 27.45 lacs.

(iii) The assessing officer has disallowed unrealized foreign exchange loss in respct of years 2007-08 and 2008-09 treating the same to be of capital nature. The Company has appealed against the same and it has been decided in its favour by CIT(A). Amount involved is Rs. 113.54 lacs.

(iv) The Company had claimed notional loss on account of derivative transaction with respect to year 2008-09, which was later on disallowed by the Company by way of revising its return. The assessing officer has accepted the Company's revised return, however, initiated penalty proceedings. Amount involved is Rs. 159.79 lacs.

(B) (i) The Company on the basis of current status of the cases and advice obtained from legal counsel is confident that there would not be any probable outflow of resources in this matter.

(ii) The Company has also received various demands for payment of differential royalty on Raw bauxite dispatched from the company owned mines. The amount involved is Rs. 1,289.07 lacs. As the company has disputed this demand, it has also paid Rs.100 lacs as deposit. Further the company based on legal advice is of view that no provision is necessary for the present demand.

During the year, the Company has received various demands from Geology and Mining Department, for payment of royalty on difference between quantity of raw bauxite dispatched from the company owned mines as per the its records and as computed by the department. The amount involved is Rs. 2,520.39 lacs.

The Company has disputed this demand and has filed an appeal with the appropriate authority. Further, based on legal advice, the company is of the view that no provision for the same is required as of now.

7. DISCONTINUING OPERATIONS

The demerger of refractory undertaking has been done for the purpose of better, efficient and economical management, control and operation of the businesses of the Company and for a focused strategy and independent planning and growth of the different businesses and also to keep one business free from the regulatory or economic constraints faced by the other.

8. GRATUITY AND OTHER POST- EMPLOYMENT BENEFIT PLANS

The Company has a defined benefit gratuity plan. Gratuity is computed as 15 days salary, for every completed year of service or part thereof in excess of 6 months and is payable on retirement/termination/resignation. The benefit vests on the employees after completion of 5 years of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy. At the end of accounting year actuarial valuation is done as per the Projected unit credit method and any shortfall in the funding claims is further provided for.

The Company has also provided long term compensated absences which are unfunded.

The following tables summarize the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the Gratuity

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

9. Provision for Income tax Act has been made after taking into consideration the benefits available under Section 80IA of the Income Tax Act, 1961 in respect of Power Plant installed at Porbandar for captive consumption.

10. The Company has taken various residential, office and warehouse premises and plant and machinery under operating lease agreements. These are cancellable and are renewable by mutual consent on mutually agreed terms. The lease payment recognized in the statement of profit & loss account for the year is Rs. 29.23 lacs (previous year Rs. 47.41 lacs).

11. The assets of Rs. 323 lacs (Previous year Rs. 265 lacs) recognized by the Company as 'MAT Credit Entitlement Account' under 'Loans and Advances' represents that portion of MAT liability, which can be recovered and set off in subsequent years based on provisions of Section 115JAA of the Income Tax Act, 1961. The management, based on present trend of profitability and also the future profitability projections, is of the view that there would be sufficient taxable income in foreseeable future, which will enable the Company to utilize MAT credit assets. The management is confident that no losses are expected in this regard.

 
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