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Notes to Accounts of Royal Orchid Hotels Ltd.

Mar 31, 2015

1. Commitments and contingencies

a) Litigations

i) The Company has been named as a defendant in two civil suits filed restraining the Company from using certain parts of land taken on lease from the Karnataka State Tourism Development Corporation ("KSTDC") for the operation of the Hotel Royal Orchid, Bangalore, which are adjacent to the hotel premises. Consequently, these lands are currently not being utilised by the Company. These cases are pending with the Civil Courts and scheduled for hearings shortly. Management believes that these cases will be settled in its favour and will not adversely affect its operations.

ii) The Company has been named as a defendant along with Cygnus Business Consulting & Research Private Limited in a suit filed in mid 2008 by Kamat Hotels (India) Limited ('the plaintiff) restraining the alleged use of the trademark of the plaintiff by the Company since 1997. The plaintiff seeks a relief of a permanent injuction restraining the Company from using the trademark 'Orchid'. The plaintiff had filed an application seeking an interim injuction while the above proceedings are pending. The Bombay High Court vide its interim order dated April 05, 2011, has allowed the Company to continue to operate its current hotels as on that date but has restrained the Company from opening new hotels under the said brand. However, the Division bench of the Bombay High Court vide its order dated May 06, 2011 has partially stayed operation of the said Order and allowed opening of one of Company's proposed hotels in Vadodara under the 'Royal Orchid' brand. The Company during the previous year has obtained two favourable rulings from the Intellectual Property Appellate Board. The plantiff has preferred to appeal the ruling of IPAB in Madras High Court during the year and the Company has filed a counter affidavit subsequently. The appeal is yet to come up for hearing in the Madras High Court.

Based on an independent legal advise, the management believes that the case will be settled in its favour and will not affect its current and future operations.

iii) The Company received tax demand including interest, from the Indian tax authorities for payment of tax of Rs. 19.87 million, arising on denial of certain expenditure , upon completion of tax assessment for the fiscal years ended 31 March 2011. The Company's appeal against the said demands are pending before appellate authorities in various stages of litigation.

The Company is contesting the above demands and the management believes that it is more-like-than-not that the advance tax receivables (net of provision) recorded in the financial statements towards the tax demands is recoverable. Considering the facts and nature of disallowances, the Company believes that the final outcome of the disputes should be in favour of the Company and will not have any material adverse effect on the financial position and results of operations.

b) Guarantees

The Company has given guarantees to banks for loans sanctioned to subsidiaries, jointly controlled entities and an unrelated party amounting to Rs. 1,975,000,000 (31 March 2014:Rs. 1,975,000,000). The loans availed and outstanding at year end - Rs. 479,557,432 (31 March 2014: Rs. 661,710,580).

c) Export obligation

The Company has received various Export Promotion Capital Goods ('EPCG') licenses which entitles it to import capital goods at a concessional rate of duty. Against these imports, the Company has an export obligation equal to eight times the duty amount saved. The Company's export turnover till date is in excess of this obligation.

2. Segment information

The Company's business comprises the operation of hotels and allied services, the services of which represents one business segment as they are subject to risks and returns that are similar to each other. Further, the Company derives its entire revenue from services rendered in India. Consequently, the disclosure of business and geographic segment-wise information is not applicable to the Company.

3. During previous year, the Company announced that it had executed a Business Transfer Agreement with Samhi Hotels Private Limited for sale of Hotel Regenta One, Hyderabad ('the unit') for a consideration of Rs. 1,796.48 million, including consideration towards working capital adjustment of Rs. 6.48 million. Accordingly, this unit is classified as a discontinuing operation. The carrying amounts of assets disposed and liabilities settled of the unit on 29 November 2013 ('the effective date') was Rs. 1,946.11 million and Rs. 29.65 million respectively, resulting in a loss on sale of the unit amounting to Rs. 132.94 million. The transfer of the unit was completed on the effective date after the necessary shareholder approvals. The net payable outstanding as at 31 March 2015 and 2014 towards working capital adjustment is Rs. 6.48 million and disclosed under note 9 with 'Others'.

For the period 01 April 2013 to 29 November 2013, the unit recorded operating revenues of Rs. 101.98 million and expenses of Rs. 347.65 million from ordinary activities, including depreciation and amortization of Rs. 113.36 and interest expense of Rs. 135.31 million, respectively, resulting in net loss from discontinuing operations of Rs. 245.66 million. The net cash flows of this unit from operating, investing and financing activities during the period are Rs. 150.77 million, Rs. 15.60 million (negative) and Rs. 135.53 million (negative), respectively.

Subsequently, the Company has executed a 'Hotels Operations Agreement' with the buyer for managing the unit effective 01 October 2013. During the year ended 31 March 2015, the Company has terminated the 'Hotel Operations Agreement' in lieu of termination fee of Rs. 20 million (refer note 18).

4. Comparatives

Prior year amounts have been regrouped/reclassified wherever necessary to conform to the current year's presentation.


Mar 31, 2014

Background

Royal Orchid Hotels Limited (''the Company'') is a listed public company incorporated in 1986. The Company is engaged in the business of operating and managing hotels/ resorts and providing related services, through its portfolio of hotel properties across the country.

1) Terms and rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 10 per share. Each equity share is entitled to one vote per share. The dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting and shall be payable in Indian Rupees. In the event of liquidation of the Company, the shareholders 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.

2) Aggregate number of bonus shares issued and shares issued for consideration other than cash during the period of five years immediately preceding the reporting date

The Company has not issued any bonus shares nor has there been any buy back of shares during five years immediately preceding 31 March 2014. Further, the Company has not issued any shares without payment being received in cash.

Notes: I) Corporate Debt Restructuring ("CDR")

During the previous year, the Company had executed a Corporate Debt Restructuring (CDR) scheme under the CDR mechanism of the Reserve Bank of India (RBI). In accordance with the approved CDR scheme and after attaining super- majority, the Company executed a Master Restructuring Agreement (MRA) with the lenders on 28 March 2013, with an effective date of 01 October 2012. The MRA, inter-alia, provided for waiver of certain existing obligations of the Company, restructuring of repayment terms for principal and interest, reduction/adjustment in interest rates, conversion of outstanding interest amounts to loan, pledge of entire promoter shareholding as additional security to lenders, promoter undertaking for additional infusion of funds, monitoring oversight and certain restrictive covenants, as defined and accordingly the measurement, classification and disclosures of the Company''s term loan obligations have been recorded in these financial statements in accordance with the MRA. The Company has implemented the significant terms of the MRA.

II) Details of terms of repayment, guarantee and security for term loans from banks

(i) (a) The Company was sanctioned a consortium term loan from State Bank of India, State Bank of Hyderabad and State Bank of Mysore for Rs. 1,000 million in April 2009 to finance the hotel project at Hyderabad.

This term loan was secured by way of first mortgage charge on all immoveable properties and assets of the said project and first charge by way of hypothecation of all moveable assets, both present and future. Additionally, the term loan was secured by the corporate guarantee of Alif Resources and Infrastructure Private Limited and personal guarantees of Mr. Chander K. Baljee, Managing Director and Mr. Kiran Kumar, Director, Alif Resources and Infrastructure Private Limited.

Pursuant to the Corporate Debt Restructuring, the term loan had been rescheduled and was repayable in 24 quarterly instalments commencing from 30 June 2014, bearing interest rates ranging between 13% - 17%.

During the year, the Company has repaid the entire consortium term loan and the balance outstanding as at 31 March 2014 is Rs. Nil (31 March 2013 - Rs. 889.96 million).

(i) b) The Company was sanctioned a term loan from State Bank of Hyderabad for Rs. 65 million in April 2009 to finance repairs, renovation, refurbishment and maintenance for Hotel Ramada, Bengaluru.

Term loan from bank is secured by equitable mortgage of lease hold property leased in favour of Hotel Royal Orchid and Hotel Ramada situated in Bengaluru and exclusive charge on assets created out of bank finance. Further, the term loan is secured by extension of first charge on all fixed assets of the Company, both present and future. Additionally, the term loan is secured by the corporate guarantees of Baljee Hotels and Real Estates Private Limited and Hotel Stay Longer Private Limited and a personal guarantee of Mr. Chander K. Baljee, Managing Director.

The Company was sanctioned a term loan from State Bank of Hyderabad for Rs. 129.50 million in April 2009 to finance for repairs, renovation, refurbishment and maintenance for Royal Orchid Central, Pune.

The loan is secured by equitable mortgage of lease hold property leased in favour of Royal Orchid Hotel situated at Pune and exclusive charge on assets created out of bank finance. Further, the term loan is secured by extension of first charge on all fixed assets of the Company, both present and future. Additionally, the term is secured by a personal guarantee of Mr. Chander K. Baljee, Managing Director.

Pursuant to the Corporate Debt Restructuring, the above term loans have been rescheduled and are repayable in 18 quarterly instalments commencing from 30 June 2014 and bear interest rates ranging between 13% - 17.60%.

During the year, the Company has repaid the term loan partially and the balance outstanding as at 31 March 2014 is Rs. 49.29 million (31 March 2013 - Rs. 84.40 million).

(ii) The Company was sanctioned a term loan from IDBI Bank Limited for Rs. 400 million in March 2010 to finance repairs, renovation, refurbishment and maintenance for the existing hotels.

The loan is secured by a first pari-passu charge on equitable mortgage of leasehold property of Hotel Royal Orchid, Bengaluru. Additionally, the loan is secured by the corporate guarantee of Baljees Hotels and Real Estates Private Limited and a personal guarantee of Mr. Chander K. Baljee, Managing Director.

Pursuant to the Corporate Debt Restructuring, the term loan has been rescheduled and is repayable in 18 quarterly instalments commencing from 30 June 2014 and bear interest rates ranging between 13% - 16.25%.

The balance outstanding as at 31 March 2014 is Rs. 285 million (31 March 2013 - Rs. 285 million).

(iii) The Company was sanctioned a term loan from Tourism Finance Corporation of India Limited for Rs. 250 million in July 2011 towards expansion in hospitality sector.

The loan is secured by a first pari-passu charge on all the fixed assets, both present and future, of Hotel Royal Orchid, Bengaluru which comprise equitable mortgage of leasehold land and building and hypothecation of all movables ranking pari passu with State Bank of Hyderabad and IDBI Bank Limited. Additionally, the loan is secured by a personal guarantee of Mr. Chander K. Baljee, Managing Director.

Pursuant to the Corporate Debt Restructuring, the term loan has been rescheduled and is repayable in 18 quarterly instalments commencing from 30 June 2014 and bear interest rates ranging between 13% - 15.50%.

During the year, the Company has repaid the term loan partially and the balance outstanding as at 31 March 2014 is Rs. 110.49 million (31 March 2013 - Rs. 198.50 million).

(iv) In accordance with the MRA, the interest on existing term loans for the period 01 October 2012 to 30 September 2013 was converted to a Funded Interest Term Loan (''FITL''), which was secured by extension of charge on security held by respective banks. During the year, the Company has repaid the FITL and the balance outstanding as at 31 March 2014 is Rs. Nil (31 March 2013 - Rs. 94.49 million).

(v) On December 2013, the Company has applied to the CDR cell for exiting the CDR scheme. Accordingly, the Company has recorded a recompense fee of Rs. 10.08 million towards closure of existing consortium term loans/FITL accounts during the year and has an outstanding amount of Rs. 6.78 million as at 31 March 2014, disclosed under "interest accrued and due on borrowings" in Note 9.

Interest amounting to Rs. 3.39 million on a secured term loan is outstanding for 1 month and interest amounting to Rs. 4.71 million on unsecured loans is outstanding for 2 - 25 months.

(vi) Bank overdraft, sanctioned by State Bank of Hyderabad for Rs. 40 million and bearing interest rate of 13.45%, is secured by hypothecation of stocks, receivables and extension of equitable mortgage of leasehold property leased in favour of Hotel Royal Orchid, Bengaluru. Further, it is secured by extension of charge on all fixed assets of the Company, both present and future. Additionally, it is secured by the corporate guarantee of Baljee Hotels and Real Estates Private Limited and a personal guarantee of Mr. Chander K. Baljee, Managing Director.

(vii) The vehicle loans are secured by the hypothecation of the vehicles concerned.

(viii) The unsecured loans are repayable on demand and bear interest rate of 18% p.a.

III) Commitments and contingencies

a) Litigations

i) The Company has been named as a defendant in two civil suits filed restraining the Company from using certain parts of land taken on lease from the Karnataka State Tourism Development Corporation ("KSTDC") for the operation of the Hotel Royal Orchid, Bengaluru, which are adjacent to the hotel premises. Consequently, these lands are currently not being utilised by the Company. These cases are pending with the Civil Courts and scheduled for hearings shortly. Management believes that these cases will be settled in its favour and will not adversely affect its operations.

ii) "The Company has been named as a defendant along with Cygnus Business Consulting & Research Private Limited in a suit filed in mid 2008 by Kamat Hotels (India) Limited (''the plaintiff'') restraining the alleged use of the trademark of the plaintiff by the Company since 1997. The plaintiff seeks a relief of a permanent injuction restraining the Company from using the trademark ''Orchid''. The plaintiff had filed an application seeking an interim injuction while the above proceedings are pending. The Bombay High Court vide its interim order dated April 05, 2011, has allowed the Company to continue to operate its current hotels as on that date but has restrained the Company from opening new hotels under the said brand. However, the Division bench of the Bombay High Court vide its order dated May 06, 2011 has partially stayed operation of the said Order and allowed opening of one of Company''s proposed hotels in Vadodara under the ''Royal Orchid'' brand. The Company during the previous year has obtained two favourable rulings from the Intellectual Property Appellate Board. The plantiff has preferred to appeal the ruling of IPAB in Madras High Court during the year and the Company has filed a counter affidavit subsequently.The appeal is yet to come up for hearing in the Madras High Court.

Based on an independent legal advise, the management believes that the case will be settled in its favour and will not affect its current and future operations."

b) Guarantees

The Company has given guarantees to banks for loans sanctioned to subsidiaries, joint ventures and an unrelated party amounting to Rs. 1,975,000,000 (31 March 2013: Rs. 1,975,000,000). The loans outstanding at year end - Rs. 661,710,580 (31 March 2013: Rs. 797,657,594).

c) Export obligation

The Company has received various Export Promotion Capital Goods (''EPCG'') licenses which entitles it to import capital goods at a concessional rate of duty. Against these imports, the Company has an export obligation equal to eight times the duty amount saved. The Company''s export turnover till date is in excess of this obligation.

IV Segment information

The Company''s business comprises the operation of hotels and allied services, the services of which represents one business segment as they are subject to risks and returns that are similar to each other. Further, the Company derives its entire revenue from services rendered in India. Consequently, the disclosure of business and geographic segment-wise information is not applicable to the Company.


Mar 31, 2013

1) Background

Royal Orchid Hotels Limited (''the Company'') is a listed public company incorporated in 1986. The Company is engaged in the business of operating and managing hotels/ resorts and providing related services, through its portfolio of hotel properties across the country.

2 Operating leases

The Company has taken various hotel properties and ofces on cancellable and non-cancellable leases, which have tenures ranging from 11 months to 30 years. Some of these leases have an escalation in lease rental of 15% every 3-10 years and / or a share of annual revenues from such properties, in excess of pre-agreed limits.

The lease expense for cancellable and non-cancellable operating leases during the year ended 31 March 2013 is disclosed under note 23.

3 Commitments and contingencies

a) Litigations

i) The Company has been named as a defendant in two civil suits fled restraining the Company from using certain parts of land taken on lease from the Karnataka State Tourism Development Corporation ("KSTDC") for the operation of the Hotel Royal Orchid, Bangalore, which are adjacent to the hotel premises. Consequently, these lands are currently not being utilised by the Company. These cases are pending with the Civil Courts and scheduled for hearings shortly. Management believes that these cases will be settled in its favour and will not adversely afect its operations.

ii) During the year ended 31 March 2008, the Company fled a legal suit on a lessor for a property taken on lease which is currently under construction and assigned to its subsidiary Royal Orchid Hyderabad Private Limited. The Company had injunctive relief to restrain the lessor from selling or mortgaging the property or carrying out the business of a hotel without the consent of the Company. The Company has paid Rs.10,000,000 as a refundable security deposit under this lease agreement. During the year, the Company has obtained the award from the Supreme Court of India for the refund of the deposit along with interest from the lessor. The management believes that the case will be settled in their favour and hence will not adversely afect its operations.

iii) The Company has been named as a defendant along with Cygnus Business Consulting & Research Private Limited in a suit fled in mid 2008 by Kamat Hotels (India) Limited (''the plaintif'') restraining the alleged use of the trademark of the plaintif by the Company since 1997. The plaintif seeks a relief of a permanent injuction restraining the Company from using the trademark ''Orchid''. The plaintif had fled an application seeking an interim injuction while the above proceedings are pending. The Bombay High Court vide its interim order dated April 05, 2011, has allowed the Company to continue to operate its current hotels as on that date but has restrained the Company from opening new hotels under the said brand. However, the Division bench of the Bombay High Court vide its order dated May 06, 2011 has partially stayed operation of the said Order and allowed opening of one of Company''s proposed hotels in Vadodara under the ''Royal Orchid'' brand. The Company during the year has obtained two favourable rulings from the Intellectual Property Appellate Board. Based on an independent legal advise, the management believes that the case will be settled in its favour and will not afect its current and future operations.

b) Guarantees

The Company has given guarantees to banks for loans sanctioned to subsidiaries, joint ventures and an unrelated party amounting to f 1,975,000,000 (31 March 2012: Rs.2,275,000,000). The loans availed and outstanding as at 31 March 2013 - Rs.797,657,594 (31 March 2012: f 1,125,243,819).

c) Capital commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs. Nil (31 March 2012: Rs. 193,913,547).

d) Export obligation

The Company has received various Export Promotion Capital Goods (''EPCG'') licenses which entitles it to import capital goods at a concessional rate of duty. Against these imports, the Company has an export obligation equal to eight times the duty amount saved. The Company''s export turnover till date is in excess of this obligation.

4 Segment information

The Company''s business comprises the operation of hotels and allied services, the services of which represents one business segment as they are subject to risks and returns that are similar to each other. Further, the Company derives its entire revenue from services rendered in India. Consequently, the disclosure of business and geographic segment- wise information is not applicable to the Company.

5 Prior period comparatives

Prior year amounts have been regrouped/reclassifed wherever necessary to conform to the current year''s presentation.


Mar 31, 2012

1) Background

Royal Orchid Hotels Limited ('the Company') was incorporated on 3 January 1986 as Universal Resorts Limited to carry on the business and management of hotels/holiday resorts and related services. The name of the Company was changed to Royal Orchid Hotels Limited on 10 April 1997.

a) Terms and rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 10 per share. Each equity share is entitled to one vote per share. The dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting and shall be payable in Indian Rupees. In the event of liquidation of the Company, the shareholders 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.

Notes:

a) On 16 December 2004, the Company was sanctioned a term loan from State Bank of Hyderabad ('the Bank') for Rs. 300 million which was fully drawn. This loan is secured by way of an equitable mortgage of the building of the Hotel Royal Orchid and a first charge on the present and future fixed assets of the Company.

Additionally, this borrowing is also secured by the personal guarantees of Mr. Chander K. Baljee, and Mrs. Sunita Baljee and a corporate guarantee from Baljees Hotels and Real Estates Private Limited. This loan is repayable in 24 quarterly instalments of Rs. 12.5 million each, commencing from 31 December 2005. The key covenants include cost overruns on expansion being met directly by the Company, and new plant and machinery acquired to be insured jointly in the names of the Company and the Bank. Further, the arrangement also requires all expenditure in excess of the budgets and any other expansion activities to be pre-approved by the Bank. The loan was fully repaid during the current year. (Outstanding at 31 March 2011 - Rs. 12.5 million).

b) In April 2009, the Company was sanctioned a consortium term loan from State Bank of India, State Bank of Hyderabad and State Bank of Mysore for Rs. 1,000 million to finance a hotel project at Hyderabad. The loan is secured by a first charge on moveable and immovable properties. Additionally, a personal guarantee of Mr. Chander K. Baljee, Managing Director has been provided. This loan is repayable in 30 quarterly instalments commencing from 30 September 2011. The balance outstanding as at 31 March 2012 - Rs. 995 million (31 March 2011 -Rs. 689 million).

c) In April 2009, the Company was sanctioned a Rupee Term Loan for repairs, renovations, refurbishment and maintenance for the existing hotels from State Bank of Hyderabad amounting to Rs. 194.50 million from which the Company has drawn down Rs. 164.50 million. This loan is secured by extending its equitable mortgage of the building of the Hotel Royal Orchid and a first charge on the present and future fixed assets of the Company. The balance outstanding as at 31 March 2012 - Rs. 111 million (31 March 2011 - Rs. 137 million).

d) In March 2010, the Company was sanctioned a Rupee Term Loan for repairs, renovations, refurbishment and maintenance for the existing hotels from IDBI Bank Limited amounting to Rs. 400 million. The loan is repayable in 20 quarterly instalments commencing from 1 July 2010. The loan is secured by a first paripassu charge on equitable mortgage of leasehold property of Hotel Royal Orchid. Additionally, the loan is secured by the corporate guarantee of Baljees Hotels and Real Estates Private Limited and a personal guarantee of Mr. Chander K. Baljee, Managing Director of the Company. The balance outstanding as at 31 March 2012 - Rs. 350 million (31 March 2011 - Rs. 378 million).

e) In July 2011, the Company was sanctioned a Rupee Term Loan for Rs. 250 million for expansion in hospitality sector by Tourism Finance Corporation of India Limited. The loan is repayable in 16 quarterly instalments of Rs. 15.5 million each, commencing from 15 October 2011. The loan is secured by a first paripassu charge on equitable mortgage of leasehold land. Additionally, the loan is secured by a personal guarantee of Mr. Chander K. Baljee, Managing Director of the Company. The balance outstanding as at 31 March 2012 - Rs. 219 million (31 March 2011 - Nil).

f) The vehicle loans are secured by the hypothecation of the vehicles concerned.

g) The current portion of the term loan where instalments are due within one year have been classified under "current maturities of long term debt'' under other current liabilities.

h) As at 31 March 2012, the Company is in default for payment of interest of Rs. 21,654,417 (31 March 2011 -Rs. 3,833,557) and repayment of principal of Rs. 9,900,000 (31 March 2011 - Nil) on various term loans that were due as at 31 March 2012. These amounts have been settled by the Company subsequent to the Balance Sheet date.

Note:

Based on the information available with the Company, there are no outstanding dues in respect of Micro, Small and Medium enterprises at the Balance Sheet date. The above disclosure has been determined to the extent such parties have been identified on the basis of information available to the Company. This has been relied upon by the auditors.

Note:

a) There are no amounts that are due to be paid to the Investor Education and Protection Fund.

b) The Company has executed a Share Purchase Agreement (the"Agreement") with SAMHI Hotels Private Limited ("SAMHI") to sell their entire share holding in Royal Orchid Ahmedabad Private Limited ("the Subsidiary") after completion of certain activities as per the Agreement. The secured lender of the Subsidiary has approved this transaction, subject to full payment of their outstanding balances by SAMHI with in a stipulated time period.

2 Operating leases

The Company has taken various hotel properties and offices on cancellable and non-cancellable leases, which have tenures ranging from 11 months to 30 years. Some of these leases have an escalation in lease rental of 15% every 3-10 years and / or a share of annual revenues from such properties, in excess of pre-agreed limits.

The lease expense for cancellable and non-cancellable operating leases during the year ended 31 March 2012 was Rs.115,366,793 (31 March 2011 -Rs. 86,383,168).

3 Commitments and contingencies

a) Litigations

i) The Company has been named as a defendant in two civil suits filed restraining the Company from using certain parts of land taken on lease from the KSTDC for the operation of the Hotel Royal Orchid, Bengaluru , which are adjacent to the hotel premises. Consequently, these lands are currently not being utilised by the Company. These cases are pending with the Civil Courts and scheduled for hearings shortly. Management believes that these cases will be settled in its favour and will not adversely affect its operations.

ii) During the year ended 31 March 2008, the Company filed a legal suit on a lessor for a property taken on lease which is currently under construction and assigned to its subsidiary Royal Orchid Hyderabad Private Limited. The Company had injunctive relief to restrain the lessor from selling or mortgaging the property or carrying out the business of a hotel without the consent of the Company. The Company has paid Rs. 10,000,000 as a refundable security deposit under this lease agreement. The Company has obtained the award from the Arbitrator for the refund of the deposit along with interest from the lessor, which has been challenged by the lessor in the High Court. The management believes that the case will be settled in their favour and hence will not adversely affect its operations.

iii) The Company has been named as a defendant along with Cygnus Business Consulting & Research Private Limited in a suit filed in mid 2008 by Kamat Hotels (India) Limited ('the plaintiff') restraining the alleged use of the trademark of the plaintiff by the Company since 1997. The plaintiff seeks a relief of a permanent injuction restraining the Company from using the trademark 'Orchid'. The plaintiff had filed an application seeking an interim injuction while the above proceedings are pending. The Bombay High Court vide its interim order dated April 05, 2011, has allowed the Company to continue to operate its current hotels as on that date but has restrained the Company from opening new hotels under the said brand. However, the Division bench of the Bombay High Court vide its order dated May 06, 2011 has partially stayed operation of the said Order and allowed opening of one of Company's proposed hotels in Vadodara under the 'Royal Orchid' brand. Based on an independent legal advise, the management believes that the case will be settled in its favour and will not affect its current and future operations.

b) Guarantees

The Company has given guarantees to banks for loans sanctioned to subsidiaries, joint ventures and a unrelated party amounting to ' 2,275,000,000 (31 March 2011- Rs. 2,050,000,000). The loans availed and outstanding as at 31 March 2012 - Rs.1,125,243,819 (31 March 2011 - Rs. 1,024,550,512).

c) Capital commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs. 193,913,547 (31 March 2011 - Rs. 408,806,124).

d) Export obligation

The Company has received various Export Promotion Capital Goods ('EPCGO licenses which entitles it to import capital goods at a concessional rate of duty. Against these imports, the Company has an export obligation equal to eight times the duty amount saved. The Company's export turnover till date is in excess of this obligation.

4 Stock based compensation

The Royal Orchid Hotels Limited Employee Stock Option Plan 2006, ('the Plan') was approved in the Annual General Meeting of the members held on 13 September 2006. Subsequently, at the Annual General Meeting held on 8 August 2007 the aforesaid Plan was amended to include the employees of the subsidiaries of the Company and to increase the period available to exercise the options. The Plan provides for the issuance of stock options to eligible employees (including directors of the Company) with the total options issuable under the Plan not to exceed 2,723,300 options (being 10% of the issued and paid-up capital) and includes a limit for the maximum number of options that may be granted to each employee. Under the Plan, these options vest over a period of three years after the date of grant and can be exercised within a period of one year from the date of vesting. As per the Plan, all the taxes, are to be borne by the employees and hence the taxes, if any, will not have an impact on the Statement of Profit and Loss of the Company. At the Annual General Meeting held on 24 September 2010, the shareholders authorised the Board to fix the exercise price based on the prevailing market price and to amend the validity period for exercise of options. The Plan has expired on 09 August 2011 and hence all options vested and outstanding as at the beginning of the year have lapsed. The disclosures along with the weighted average price for options movement have been provided below:

The consumption above is net of Rs. 9,374,055 (31 March 2012 - Rs. 9,174,409) representing amounts utilised for internal consumption which has been classified under staff welfare.

5 Segment information

The Company's business comprises the operation of hotels and allied services, the services of which represents one business segment as they are subject to risks and returns that are similar to each other. Further, the Company derives its entire revenue from services rendered in India. Consequently, the disclosure of business and geographic segment- wise information is not applicable to the Company.

6 Prior period comparatives

The financial statements for the year ended 31 March 2011 had been prepared as per the then applicable, pre-revised Schedule VI to the Companies Act, 1956. Consequent to the notification of Revised Schedule VI under the Companies Act, 1956, the financial statements for the year ended 31 March 2012 are prepared as per Revised Schedule VI. Accordingly, the previous year amounts have also been reclassified to conform to this year's classification. The adoption of Revised Schedule VI for previous year amounts does not impact recognition and measurement principles followed for preparation of financial statements.


Mar 31, 2011

1. Background

Royal Orchid Hotels Limited ('the Company') was incorporated on 3rd January 1986 as Universal Resorts Limited to carry on the business and management of hotels/holiday resorts and related services. The name of the Company was changed to Royal Orchid Hotels Limited on 10 April 1997. The Company currently operates the following hotel properties - Royal Orchid Hotel, Bangalore, Ramada, Bangalore, Royal Orchid Metropole, Royal Orchid Brindavan Gardens, Royal Orchid Central, Pune and Royal Orchid Central Kireeti, Hospet. Additionally the Company has also entered into an agreement to manage and operate hotels for Royal Orchid Golden Suites, Pune and Royal Orchid Golden Suites, Bangalore.

2. Leases

Operating leases

The key operating lease arrangements entered into by the Company are summarised below:

Hotel Royal Orchid

The Company has entered into various non-cancellable tri-partite agreements along with its Managing Director and the Kamataka State Tourism Development Corporation ('KSTDC') to lease lands on which the hotel premises has been constructed and adjacent areas. The primary lease periods for these agreements is 30 years and are further extendable by a period between 10 to 30 years at the option of the Company and carry an escalation provision for the increase in annual rent by 15 % every 10 years thereafter.

Additionally, the Company has also entered into an agreement with its managing director for the use of his 50 % interest in the leased lands with the value of this consideration being determined at 7 60 million, payable as an interest free security deposit repayable on the termination of the lease with KSTDC. This consideration could be discharged either in cash or through the issue of equity shares of the Company. The Company discharged this consideration through the allotment of 6 million equity shares at par through July 1999.

Ramada

Effective July 2002, the Company entered into a tri-partite agreement with Hotel Stay Longer Private Limited and Baljee Hotels and Real Estates Private Limited, companies under the same management, to lease the hotel premises and related assets at Ramada. This agreement was for an initial period of 11 months, renewable at the option of the Company and it has deposited an interest-free security deposit of Rs. 10 million with Baljee Hotels and Real Estate Private Limited which is repayable on the termination of the lease agreement.

This agreement has been revised effective 1 August 2008 for a period of eleven months with an option to renew for a further 3 terms of 11 months each. As per the agreement, the Company is required to make annual payments at a specified percentage of the gross room revenues or a minimum committed amount, whichever is higher. This lease charge is paid to Hotel Stay Longer Private Limited and Baljee Hotels and Real Estate Private Limited at a pre- determined ratio.

Royal Orchid Metropole

In May 2004, the Company entered into a lease agreement with Jungle Lodges and Resorts Limited ('JLR'), a Government of Kamataka Undertaking for the use of the land and building representing Royal Orchid Metropole at Mysore for a non-cancellable period of 15 years. As a consideration, the Company is required to pay an annual amount comprising a fixed charge per annum and a revenue share of the annual revenues in excess of a specified limit.

Royal Orchid Brindavan

In March 2006, the Company entered into a lease agreement with Jungle Lodges and Resorts Limited ('JLR'), a Government of Kamataka Undertaking for the use of the land and building representing Hotel Krishna Raja Sagar at Mysore for a non-cancellable period of 15 years commencing from the readiness date. As a consideration, the Company is required to pay an annual amount comprising a fixed charge per annum and a revenue share of the annual revenues in excess of a specified limit.

Royal Orchid Central, Pune

In July 2006, the Company entered into an agreement for the use of land and building representing the hotel property for a non-cancellable lease period of 5 years. The lease term for the said property is 10 years and extendable by another 10 years subject to conditions as perthe agreement.

As a consideration for the property the Company is required to pay a minimum guaranteed lease rent escalated at 15% at an interval of every 3 years or increasing percentage of Net Room Revenue (NRR) whichever is higher.

Hospef

In May 2010, the Company entered into lease agreement with Ennoble Hotels International Limited for the use of land and building representing the hotel property for a cancellable lease period of 3 years. The lease period is extendable for a further period of 5 years subject to other conditions. As per the agreement, the Company is required to make monthly payments at a specified percentage of sales revenue.

Corporate Office

The Company has entered into a lease agreement for the corporate office premises and related assets. The agreement is for an initial period of 36 months, renewable at the option of the lessor or the Company. As a consideration for the property the Company is required to pay a minimum guaranteed lease rent escalated at 15% at an interval of every 3 years.

Lease expenses

The lease expense for cancellable and non-cancellable operating leases during the year ended 31 March 2011 was Rs. 86,383,168 (31 March 2010- Rs. 86,031,538).

3. Commitments and contingencies

a) Litigations

i) The Company has been named as a defendant in two civil suits filed restraining the Company from using certain parts of land taken on lease from the KSTDC for the operation of the Royal Orchid Hotel, which are adjacent to the hotel premises. Consequently, these lands are currently not being utilised by the Company. These cases are pending with the Civil Courts and scheduled for hearings shortly. Management believes that these cases will be settled in its favour and will not adversely affect its operations.

ii) During the year ended 31 March 2008, the Company filed a legal suit on a lessor for a property taken on lease which is currently under construction and assigned to its subsidiary Royal Orchid Hyderabad Private Limited. The Company had injunctive relief to restrain the lessor from selling or mortgaging the property or carrying out the business of a hotel without the consent of the Company. The Company has paid Rs. 10,000,000 as a refundable security deposit under this lease agreement. During the year the Company has obtained the award from the Arbitrator for the refund of the deposit along with interest from the lessor which has been challenged by the lessor in the High court. The management believes that the case will be settled in their favour and hence will not affect its operations.

iii) The Company has been named as a defendant along with Cygnus Business Consulting & Research Private Limited in a suit filed around July 2008 by Kamat Hotels (India) Limited ('the plaintiff) restraining the alleged use of the trademark of the plaintiff by the Company since 1997. The plaintiff seeks a relief of a permanent injuction restraining the Company from using the trademark 'Royal Orchid'. The plaintiff had filed an application seeking an interim injuction during the pendency of the above proceedings. The Bombay High Court vide its interim order dated April 05, 2011, has allowed the Company to continue to operate its current hotels as on that date but at the same time restraining the Company from opening new hotels under the said brand. However, the Division bench of the Bombay High court vide its order dated May 06,2011 has partially stayed operation of the said order and allowed opening of one of Company's proposed hotels in Vadodara under the 'Royal Orchid' brand. Based on a independent legal advise the management believes that the case will be settled in its favour and will not affect its current and future operations.

b) Guarantees

The Company has given guarantees to banks for loans sanctioned to subsidiary and joint ventures amounting to Rs.2,200,000,000 (31 March 2010- Rs. 1,250,000,000). The loans availed and outstanding as at 31 March2011- Rs. 1,111,699,985 (31 March 2010- Rs. 489,893,499)

c) Capital commitments

Estimated amount ofcontracts remaining to be executed on capital account and not provided for is Rs. 408,806,124 (31 March 2010- Rs. 296,286,302)

d) Export obligation

The Company has received various Export Promotion Capital Goods ('EPCG') licenses which entitles it to import capital goods at a concessional rate of duty. Against these imports the Company has an export obligation equal to eight times the duty amount saved. The Company's export turnovertill date is in excess of this obligation.

4. Related party transactions

i. Parties where control exists includes:

Name of party Nature of relationship

Icon Hospitality Private Limited Subsidiary

Maruti Comforts and Inn Private Limited Subsidiary

Royal Orchid Hyderabad Private Limited. Subsidiary

Royal Orchid Jaipur Private Limited Subsidiary

A B Holdings Private Limited Subsidiary

Royal Orchid East Private Limited Subsidiary (subsidiary of A B Holdings Private Limited)

Royal Orchid South Private Limited Subsidiary

Royal Orchid Shimla Private Limited Subsidiary

Royal Orchid Goa Private Limited Subsidiary

Royal Orchid Maharashtra Private Limited Subsidiary

Royal Orchid Mumbai Private Limited Subsidiary

Multihotels Limited Subsidiary

Royal Orchid Ahmedabad Private Limited Subsidiary

Amartara Hospitality Private Limited Subsidiary

Chander K. Baljee Managing Director and Key Management Personnel

Relatives of key management personnel (KMP)

Sunil Sikka Arjun Baljee Keshav Baljee Sunita Baljee

Hi. Entities controlled by KMP

Harsha Farms Private Limited

Royal Orchid West Private Limited

Baljee Hotels and Real Estate Private Limited

Hotel Staylonger Private Limited

Royal Orchid Resorts Private Limited

Trans Himalayan Power Private Limited

B. Defined contribution plan

The Company makes contribution to the statutory provident fund as per Employees Provident Fund and Miscellaneous Provision Act, 1952. Contribution made during the year ended 31 March 2011 is Rs. 6,013,112 (31 March 2010 - Rs. 4,592,039)

5. Stock based compensation

The Royal Orchid Hotels Limited Employee Stock Option Plan 2006 was approved in the Annual General Meeting of the members held on 13 September 2006. Subsequently at the Annual General Meeting held on 8 August 2007 the aforesaid scheme was amended to include the employees of the subsidiaries of the Company and to increase the period available to exercise the options.

The plan provides for the issuance of stock options to eligible employees (including directors of the Company) with the total options issuable under the Plan not to exceed 2,723,300 options (being 10% of the issued and paid up capital) and includes a limit for the maximum number of options that may be granted to each employee. Under the plan, these options vest over a period of three years after the date of grant and can be exercised within a period of one year from the date of vesting. As per the ESOP scheme of the Company, all the taxes, are to be borne by the employees and hence will not have an impact on the profit and loss account of the Company.

At the Annual General Meeting held on 24 September 2010 the shareholders authorised the Board to fix the exercise price based on the prevailing market price and to amend the validity period for exercise of options.

The weighted average exercise price of the options outstanding at 31 March 2011 is Rs. 165 and they had weighted average remaining contractual life of Nil (31 March 2010: 9.33 months).

6. Segmental Information

The Company's business comprises of operation of hotels and allied services, which represent one business segment as they are subject to risks and returns that are similar to each other. Further the Company derives its entire revenues from services rendered in India. Consequently, the disclosure of business and geographic segment - wise information is not applicable to the Company.

b. During the year ended 31 March 2010, the Company has paid remuneration payable to Managing director ('MD') in excess of the limits defined in Schedule XIII of Companies Act, 1956 amounting to Rs. 9,600,000. These amounts have been approved by the shareholders of the Company. The Company had provided for the remuneration payable in excess of the limits defined in the approvals from Central Government as recoverable from the MD. During the year ended 31 March 2011, the Company has obtained the necessary approvals for the said remuneration and the receivable of Rs. 9,600,000 has been charged to the Profit and loss Account. The amount disclosed in the schedule above does include the said amount.

7. The Ministry of Corporate Affairs vide its Notification no. S.O.301(E) dated 8th February 2011 has exempted Hotel Companies from disclosing the quantitative information as required under paragraphs 3(i)(a) and 3(ii)(d) of Part II of Schedule VI of the Companies Act, 1956 and accordingly, the same are not furnished

8. Prior year comparatives

Prior year figures have been regrouped / reclassified wherever necessary to conform to the current year's presentation.

 
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