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Notes to Accounts of PNC Infratech Ltd.

Mar 31, 2015

1. COMPANY OVERVIEW

PNC Infratech Limited was incorporated on 9 August 1999 as PNC Construction Company Private Limited. The Company was converted into a limited company in 2001 and was renamed PNC Infratech Limited in 2007.

The Company is engaged in India's infrastructure development through the construction of highways including BOT (built, operate and transfer projects), airport runways, bridges, flyovers and power transmission projects, among others.

In case of BOT, the company bid as a sponsor either alone or in the joint venture with other venturer and once the project is awarded then it is executed by incorporating a company(special purpose vehicle)

The Company's registered office is located in New Delhi, corporate office in Agra and operations are spread across Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttarakhand, Assam and West Bengal, among others.

The Company is ISO 9001:2008-certified, awarded 'SS' (Super Special) class from the Military Engineering Services as well as appreciation from NHAI and the Military Engineer Services, Ministry of Defence. The Company had private equity investment from NYLIM Jacob Ballas India (FVCI) Fund III, LLC, in 2010-201 1. The Company has raised the equity capital by issue & allotment of equity share through Initial Public Offer (IPO) in May-2015.

2. Contingent assets are neither recognized nor disclosed in the financial statements.

Rights and restrictions attached to equity shares

The Company has only one class of equity shares having a par value of Rs.10 per share. Each shareholder is eligible for one vote per share held. In case any dividend is proposed by the Board of Directors the same is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in the case of Interim Dividend. There are no restrictions attached to Equity Shares after the issue of 1,29,21,708 shares, prior to the IPO, the equity shares were subject to restriction as per investment agreement dated 11th January 2011 and subsequent amendment thereto.

3. CONTINGENT LIABILITIES & COMMITMENTS

Amount (H Lacs)

Contingent liabilities and As at March As at March commitments (to the extent 31,2015 31,2014 not provided for)

A) Contingent Liabilities

a) Claims against the Company not acknowledged as debts

Disputed demand of Income Tax (includes, net of advance tax & TDS under verification, adjusted 1,125.93 1,340.09 from demand of Rs.33.51 crore arised in assessment of search proceedings up to AY 2012-13) for which company has preferred appeal. (refer note 43)

Disputed demand of Sales Tax/ VAT for which company preferred appeal 2,088.86 2,089.09

Disputed demand of Service Tax for which company preferred appeal 481.17 458.34

Disputed demand of Entry Tax for which company preferred appeal 1,031.62 702.22

Others (including motor accident, labour & civil matters) 994.24 809.55

(Interest and penalties if any, on above cases will be decided at the time of settlement)

b) Guarantees

(i) Bank Guarantees - Executed in favour of National Highways Authority of India and 90,754.99 51,306.69 others

(ii) Corporate guarantee -

- The outstanding liability at reporting date against the corporate guarantee of 11,594.40 10,128.58

Rs.20500.00 Lacs issued in favour of bank , jointly & severally along-with a joint venture partner and further indemnified by another joint venture partner to the extent of its shareholding for credit facilities extended to an associate ( the entire share capital of which is held by Company and the said two joint venture partners)

- The outstanding liability at reporting date against the corporate guarantee of 3,650.37 -

Rs.5,361.00 Lacs in favour of India Infrastructure Finance Company Limited for

securing their debt to a subsidiary PNC Raebareli Highways Private Limited for discharging the differential between the secured obligation and termination payment.

- The company has issued a corporate guarantee in favour of Posco Engineering 1,800.00 - & Construction Limited for onwards issuance of corporate guarantee to Dedicated

Freight Corporation of India Limited against bid security in the name of POSCO-PNC Joint Venture.*

c) Other money for which the company is contingently liable

Letter of Credit outstanding 249.79 -

(B) Commitments

(a) Estimated amount of contracts remaining to be executed on capital account and 8,661.03 1,079.86 not provided for net of advance of Rs. NIL (previous year Rs.26.49 Lacs)

(b) Capital Commitment for equity (net of Investment)

PNC Raebareli Highways Private Limited** 6,505.00 13,705.00

PNC Kanpur Ayodhya Tollways Private Limited - 900.00

* Joint Venture with POSCO Construction India Limited having share of 45%. The corporate guarantee has been returned on 30.05.2015.

** The amount of Rs.6,500 lacs is invested on 06.06.2015.

4.The status of various project claims in arbitrations is as under :

a. The company had initiated arbitral proceedings against the Uttar Pradesh Public Works Department (UP PWD) for compensation for Rs.851.31 lacs (including interest) towards extra cost incurred on procurement of different material, distant source in relation to the project "rehabilitation Road (Gomat) under Uttar Pradesh State Road Project. The arbitral Tribunal has pronounced its unanimous award dt. March 07, 2014 for Rs.702.31 lacs (including interest) in favour of the Company. The respondent UP PWD has preferred objection against the aforesaid award before the Distt. Judge Mathura and the case is still pending with Ld. Distt. Judge Mathura. Accounting of the same will be done on final settlement.

b. Further, the Company has filed four arbitration claims including claims for delay damages and interest which are pending at arbitration stage. The same will be accounted for on final settlement. In addition to above, the company has filed one claim

During the financial year 2012-13, the Company had invoked two bank guarantees amounting to Rs.3,682.22 Lacs, due to part execution & under performance under contract by a contractor. Out of the two guarantees, one of Rs.1,841.11 Lacs, received against mobilization advance, had been adjusted with mobilization advance given. The second, which was performance guarantee, had been accounted as liability for likely expenditure to be incurred as the balance work is carried out through other agencies. During the Financial year 2013-14, the contractor had approached the mediation centre of Hon'ble High Court Delhi for mediation.

During the Financial year 2014-15, the mediation centre directed the Company for participation in mediation and the same was refuted by the Company on April 05, 2014 and simultaneously Company also raised a counter claim of Rs.18,601.09 Lacs on April 09, 2014 against the party.

A mediator was appointed with mutual consent of both the parties. However, the proceeding before appointed mediator did not succeed and was therefore terminated by the Company. Then, the Company prepared to initiate process of settlement of disputes through process of Arbitration. Now the matter is pending before the Arbitral Tribunal.

Since the matter is under dispute, the accounting of the same will be done on final settlement.

5. Related Party Disclosures

The names of related parties where control exist and/or with whom transactions have taken place during the year and description of relationship as identified and certified by the management are:

A. List of Related Parties and Relationships

Subsidiaries (The Ownership Directly or Indirectly through subsidiaries)

1 MP Highways Private Limited

2 PNC Kanpur Highways Limited

3 PNC Delhi Industrialinfra Private Limited.

4 PNC Power Private Limited.

5 Hospet Bellary Highways Private Limited.

6 PNC Infra Holdings Limited

7 Ferrovia Transrail Solutions Private Limited

8 PNC Kanpur Ayodhya Tollways Private Limited

9 PNC Raebareli Highways Private Limited

10 PNC Bareilly Nainital Highways Private Limited.

6. Joint Ventures

1 PNC BEL Joint Venture

2 PNC TRG Joint Venture

7. Associates

1 Pradeep Kumar Jain HUF

2 Naveen Kumar Jain HUF

3 Yogesh Kumar Jain HUF

4 Ghaziabad Aligarh Expressway Private Limited

8. Key Managerial Personal (KMP)

1 Pradeep Kumar Jain (Chairman and Managing Director)

2 Naveen Kumar Jain (Whole Time Director)

3 Chakresh Kumar Jain (Managing Director & CFO) CFO upto February 10, 2015

4 Yogesh Kumar Jain (Managing Director)

5 Anil Kumar Rao (Whole Time Director)

6 B K Dash (Company Secretary)

7 D K Agarwal (Chief Financial Officer) from February 10, 2015

9. Relatives of KMP

1 Abhinandan Jain (Son of Pradeep Kumar Jain)

2 Meena Jain (W/o Pradeep Kumar Jain)

3 Renu Jain (W/o Naveen Kumar Jain)

4 Madhavi Jain (W/o Chakresh Kumar Jain)

5 Ashita Jain (W/o Yogesh Kumar Jain)

6 Ashish Jain (Brother In Law of promoter directors)

7 Ishu Jain (Daughter in Law of Pradeep Kumar Jain)

Entities controlled/ influenced by KMP and their relatives with whom Transactions have taken place during the period

1 PNC Mining Private Limited

2 MA Buildtech Private Limited

3 Taj Infra Builders Private Limited

4 Ideal Buildtech Private Limited

5 Subhash International Private Limited

6 Jaora Nayagaon Toll Road Company Private Limited

7 Siddhi Readymix Concrete Private Limited

8 Exotica Buildtech Private Limited

9 NCJ Educational Society

As per Accounting Standard (AS-15) 'Employee Benefits', the disclosure of employee benefits as defined in the Accounting Standard is given below:

i) The contribution to provident fund is charged to accounts on accrual basis. The contribution made by the company during the year is Rs.71.08 Lacs (previous year Rs.41.10 lacs)

ii) In respect of short term employee benefits, the company has at present only the scheme of cumulative benefit of leave encashment payable at the time of retirement/ cessation and the same have been provided for on accrual basis as per actuarial valuation.

iii) Liability for retiring gratuity as on March 31, 2015 is Rs.425.11 Lacs (Previous year Rs.376.27 Lacs). The Liability for Gratuity is actuarially determined and provided for in the books.

iv) Details of the company's post-retirement gratuity plans and leave encashment for its employees including whole-time directors are given below, which is certified by the actuary and relied upon by the auditors

a) Discount Rate:

The discount rate is based on the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligations.

b) Salary Escalation Rate:

The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.

c) Attrition Rate:

The rate in current year is re-aligned with the actual.

During the Financial Year 2013-14, the company had infused unsecured business loans in Hospet Bellary Highways Private Limited (Special Purpose Vehicle) as an sponsor. But due to non availability of Project stretch and other difficulties, the project could not commenced and closed with mutual discussion with NHAI. Due to early closure, the Hospet Bellary Highways Private Limited to compensate NHAI, have utilised the amount infused by the sponsors. As the amount infused becoming non-recoverable, had been impaired.

10. Leases:

Disclosure as required under AS - 19 "Accounting for Leases" as prescribed under Companies (Accounting Standards) Rules, 2006 for the Company is given below:

(a) The Company has entered into cancellable/non-cancellable leasing agreement for office, residential and warehouse premises renewable by mutual consent on mutually agreeable terms.

11. The Company was subject to search U/s 132 of the Income tax Act,1961 in the month of August 2011. The assessment for returns filed in response of search proceedings has been completed by the Department wherein certain additions were made and partial allowance of claims U/s 80IA which were claimed in the return filed .The Company has filed appeal against such order.

Based on the legal Opinion, the management is of the view, since the matter is subjudice and at initial level the differential tax benefit on claims of sec 80IA for the period from FY 2005-06 to FY 2011-12 and subsequent years as per returns and provisions in books have not been accounted for in the books of accounts being uncertain and will be accounted for when it attains finality or reasonable admissibility ground/events/development.

12. Segment Reporting

The Company's operations predominantly consist of Infrastructure development and construction/project activities also the Company's operations are only in India Hence there are no reportable segments under Accounting Standard-17 issued by the Central Government.

(i) The above figure does not include Provision towards Gratuity Fund as separate figures are clubbed in overall expense and not segregable

(ii) Computation of net profit in accordance with section 197 of the Company's Act, 2013 has not been enumerated, as no commission is payable and remuneration has been paid as per provisions of schedule V of the Companies Act, 2013

13. In the opinion of the Management, all assets other than fixed assets and non current investments, have a realisable value in the ordinary course of business which is not different from the amount at which it is stated and also provision for all known liabilities have been adequately made in the accounts.



14. Pursuant of notification of The Companies Act 2013 (The New Act), during the year ending March 31, 2015, company has charged the depreciation based on useful life stated in schedule II of the Companies Act 2013, and is on pro-rata basis for addition and deletions. In case of Plant & Machinery based on technical estimate (excluding Cranes & Earthmoving Equipments), the useful life is more than as prescribed in Schedule II. Due to this change, the depreciation for the current year is more by Rs.64.45 Lacs as compared to depreciation as per the Companies Act 1956 and the carrying value of Rs.164.66 Lacs assets whose life have already expired as per schedule II, have been adjusted from opening general reserve.

15. Current period financials have been prepared as per the applicable provisions of The Companies Act 2013.Previous year financials have been prepared as per the provision of The Companies Act 1956 read with circulars 08/2014 and section 133 of The Companies Act 2013 read with rule 7 of Companies (Accounts) Rules 2014 issued by MCA regarding of existing Accounting Standards notified under Companies Act-1956 till the time Accounting Standards are stated by the Central Government in Consultation & Recommendation of National Financial Reporting Authority.

Pursuance to section 135 of the Companies Act' 2013, the Company is covered for spending Corporate Social Responsibility (CSR) at the rate of 2% of the average profit of preceding three years i.e. Rs.225.86 out of this the Company has spent Rs.95.00 Lacs only upto 31-03-2015.

16. The Company completed its Initial Public Offering(IPO), pursuant to which 1,29,21,708 number of equity shares of Rs.10 each were allotted at a price of Rs.378 per equity share, consisting of fresh issue of 1,15,00,000 equity shares and offer for sale of 14,21,708 equity shares by NYLIM Jacob Ballas FVCI(III) LLC. The equity shares of the company were listed on National Stock Exchange of India Limited and BSE Limited on 26th May, 2015.

17. Previous year figures have been re-classified or re-grouped wherever found necessary.

 
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