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Auditor Report of Rural Electrification Corporation Ltd.

Mar 31, 2016

We have audited the accompanying standalone financial statements of Rural Electrification Corporation Limited ("the Company"), which comprise the Balance Sheet as at 31st March, 2016, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Standalone Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 and MCA General Circular No. 15/2013 dated 13th September, 2013. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company''s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2016,

(b) In the case of Statement of Profit & Loss, of the Profit for the year ended on that date,

(c) In the case of Cash Flow Statement, of the cash flows for the year ended on that date.

Emphasis of Matter

We draw attention to the following matter in the notes to the financial statements:- (a) Note No. 11.2.7 in respect of classification of one of the borrower account as standard asset in view of ad-interim order of Hon''ble High Court of Madras.

Our opinion is not modified in respect of above matter.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2016 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the Annexure-A, a statement on the matters specified in paragraphs 3 and 4 of the Order.

2. We are enclosing our report in terms of Section 143 (5) of the Act, on the basis of such checks of the books and records of the Company as we have considered appropriate and according to the information and explanations given to us, in Annexure B on the directions and sub-directions issued by Comptroller and Auditor General of India.

3. As required by section 143(3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

(c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

(d) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 and MCA General Circular No. 15/2013 dated 13th September, 2013.

(e) Vide Notification No. G.S.R. 463(E) dated 5th June, 2015 issued by Ministry of Corporate Affairs, Government Companies have been exempted from applicability of the provisions of Section 164(2) of the Companies Act, 2013.

(f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in "Annexure-C"; and

(g) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

(i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 24.1 to the financial statements;

(ii) The Company does not have any such long-term contracts including derivative contracts for which there are any material foreseeable losses;

(iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

ANNEXURE-A TO THE INDEPENDENT AUDITOR''S REPORT

Referred to in Paragraph 1 under ''Report on Other Legal and Regulatory Requirements'' Section of Our Report of Even Date on the Accounts of Rural Electrification Corporation Limited for the Year ended on 31st March, 2016

(I) (a) The Company has maintained fixed assets records to show full particulars including quantitative details and situation of its fixed assets.

(b) According to the information and explanations given to us, the company has the policy of verifying the fixed assets in a phased manner but the physical verification of IT assets has not been completed during the year. Discrepancies arising from such physical verification have been suitably accounted for in the books of accounts. In our opinion, the periodicity of physical verification is reasonable having regard to the size of the company and the nature of its assets.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company except for the following:

(Rs. in Crores)

Particulars No. of cases Gross Block Net Block Remarks

1 Conveyance Deed by Haryana Urban Development Freehold Land 45.92 45.92 Authority is yet to be executed.

1 Conveyance Deed by Standing Committee of Public Building 4.59 2.39 Enterprises is yet to be executed.

(II) The company being Non Banking Financial Company (NBFC), does not have any inventory; as such this clause is not applicable.

(III) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to any Companies, firms or other parties covered in register maintained under section 189 of the Companies Act, 2013. Accordingly, clause 3(iii) (a), (b) and (c) of the Order are not applicable.

(IV) In our opinion and according to information & explanations given to us, the Company, being NBFC, is exempt from the provisions of Section 185 and 186 of the Act, and the relevant rules in respect of loans and guarantees. Further, in respect of the investments, the Company has complied with the provisions of section 185 and 186 of the Act.

(V) According to the information and explanations given to us, the Company has not accepted any deposits from public to which the provisions of Sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the Rules framed thereunder, apply.

(VI) To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records for the products/services of the Company under Companies (Cost Records and Audit) Rules, 2014, read with Companies (Cost Records and Audit) Amendment Rules, 2014 prescribed by the Central Government under Section 148 of the Companies Act, 2013. Accordingly, this clause of the order is not applicable to the Company.

(VII) (a) The Company is generally regular in depositing undisputed statutory dues including Provident Fund, employees'' State Insurance, Income-tax, Sales-tax, Service Tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues to the appropriate authorities. There were no undisputed statutory dues in arrears as at 31st March, 2016 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, the disputed statutory dues aggregating to Rs. 0.96 crores have not been deposited on account of matters pending before appropriate authorities as detailed below:

(Rs. in Crores)

Name of Nature of Amount Amount Net Statute Dues Disputed paid/ refund Amount adjusted Unpaid

Income Tax Income Tax 22.35 22.35 - Act, 1961 and Interest

Income Tax Income Tax 12.08 12.08 - Act, 1961 and Interest

Income Tax Fringe 0.48 - 0.48 Act, 1961 Benefit Tax

Income Tax Tax Deducted 0.12 - 0.12 Act, 1961 at Source

Chapter V Service Tax, 0.36 - 0.36 of Finance Penal Interest Act, 1994 u/s 73(4A)

Total 35.39 34.43 0.96

Name of Staute Period to which the Forum where dispute is amount relates pending

Income Tax Act, 1961 AY 2005-06, AY 2006-07, Income Tax Appellate AY 2008-09 to AY 2011-12 Tribunal, Delhi

Income Tax Act, 1961 AY 2012-13, AY 2013-14 Commissioner of Income Tax (Appeals), Delhi

Income Tax Act, 1961 AY 2008-09 Commissioner of Income Tax (Appeals), Delhi

Income Tax Act, 1961 FY 2007-08 to FY 2015-16 CPC, TDS

Chapter V of Finance Act, 1994 FY 2008-09 to 2011-12 Commissioner of Service Tax (LTU), Delhi

(VIII) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the company has not defaulted in repayment of loans or borrowing to a financial institution, bank, government or dues to debenture holders as at the Balance Sheet date.

(IX) According to the in formation and explanations given to us and on the basis of our examination of the records of the Company, the Company has utilized the money raised by way of public offer of debt instruments during the year for the purposes for which they were raised. Further, no moneys were raised during the year through further public offer or term loans.

(X) According to the information and explanations given to us and on the basis of our examination of the records of the Company, no fraud by the company or any fraud on the company by its Officers or employees has been noticed or reported during the year.

(XI) According to the information and explanations given to us, Central Government has exempted the Government Companies from the provisions of Section 197. Accordingly, this clause of the Order is not applicable to the Company.

(XII) According to the information and explanations given to us, the Company is not a Nidhi Company. Accordingly, this clause of the Order is not applicable to the Company.

(XIII) According to the information and explanations given to us and on the basis of our examination of the records of the Company, transactions with the related parties are in compliance with section 177 and 188 of the Act where applicable and the necessary disclosures have been made in the financial statements etc., as required by the applicable accounting standards.

(XIV) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

(XV) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him. Accordingly, this clause of the Order is not applicable.

(XVI) According to the information and explanations given to us and based on our examination of the records of the Company, the Company, being a NBFC, is required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934. The registration as required has been duly obtained and registration number issued to the Company is 14.000011.

We have considered the areas of improvement identified which needs further strengthening as reported above in determining the nature, timing, and extent of audit tests applied in our audit of the March 31, 2016 standalone financial statements of the Company. However, these areas of improvement do not affect our opinion on the standalone financial statements of the Company.

For Raj Har Gopal & Co. For A.R. & Co.

Chartered Accountants Chartered Accountants

Firm Regn. No. 002074N Firm Regn. No. 002744C

Gopal Krishan Pawan K Goel

Partner Partner

M. No. 081085 M. No. 072209

Place : New Delhi

Date : 27th May, 2016


Mar 31, 2015

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of Rural Electrification Corporation Limited ("the Company"), which comprise the Balance Sheet as at 31st March, 2015, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Standalone Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 and General Circular No. 15/2013 dated 13th September, 2013. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company''s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2015, and its profit and its cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2015 ("the Order"), issued by the Central Government of India in terms of sub- section (11) of section 143 of the Companies Act, 2013, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by section 143(3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

(c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

(d) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 and General Circular No. 15/2013 dated 13th September, 2013.

(e) On the basis of the written representations received from the directors as on 31st March, 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of Section 164 (2) of the Act.

(f) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

(i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 23.1 to the financial statements;

(ii) The Company does not have any such long-term contracts including derivative contracts for which there are any material foreseeable losses;

(iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

3. As required under the Section 143(5) of the Act, with respect to the directions issued by The Comptroller & Auditor General of India, we report that :

Sl. No. Directions Report

1. If the Company has been selected Though the Company has been selected for disinvestment of Govt. Shareholding only for disinvestment, a complete status during the FY 2014-15, the actual transaction by way of Offer for Sale (OFS) through report in terms of valuation of Assets Stock Exchanges happened only on 8th April, 2015. As per the transaction, The (including intangible assets and land) President of India, acting through Ministry of Power sold 4,93,72,950 (5.00%) Equity and Liabilities (including Committed Shares through OFS on 8th April, 2015. Accordingly, the process of 5% disinvestment & General Reserves) may be examined by the Govt. of India has been completed. However, no fresh issue of shares was made including the mode and present stage by the Company and accordingly, there was no need of valuation of Assets (including of disinvestment process. intangible assets and land) and Liabilities (including Committed & General Reserves).

However, in view of the materiality of the change in shareholding of the Govt. of India, adequate disclosure has also been made in the Notes to Accounts in Note No. 1.2.

2. Please report whether there are any During the FY 2014-15, penal interest on delayed payment aggregating to Rs. 0.01 cases of waiver-write off of debts/ Crore in respect of four borrowers was waived off on account of Bank Holiday on the loans interest etc. If yes, the reasons due date on account of State Assembly Elections in Haryana and Maharashtra. there for and the amount involved.

3. Whether proper records are The Company, being an NBFC, the clause with respect to inventories lying with third maintained for inventories lying with parties and assets received as gifts from Govt. and other authorities is not applicable. third parties & assets received as gift from Govt. or other authorities.

4. A report on age-wise analysis of pending legal/ arbitration cases including the reasons of pendency and existence/ effectiveness of a monitoring mechanism for expenditure on all legal cases (foreign and local) may be given. As per the information and explanations given to us, following cases are pending as at 31st March, 2015 with courts/ arbitrators/ taxation authorities:

Age-wise analysis No. of Reasons of pendency Amount where cases ascertain able (Rs. in Crores)

Court Cases

Year 1990-2000 3 Recovery matters before DRT. 55.47 Recovery Certificate issued and recovery is proceeding before Recovery Officer.

Year 2001-2010 20 Admitted and matter fixed for final 5.34 hearing.

Year 2011 onwards 18 Matters pending for admission and - those admitted are fixed for final hearing.

Arbitration Cases

Year 2010 onwards 2 In one case it is admitted before 3.75 the High Court and pending for final hearing. In other case the matter is at evidence stage.

Taxation Litigation Cases

Year 2010 onwards 17 Matters pending with different 50.20 taxation authorities/ courts for submissions/ remand report/ hearing or passing of the orders.

Total 60 114.76

The financial impact of the above cases, which is contingent upon the outcome of settlement of court/ arbitration/ taxation cases, wherever ascertainable, has also been disclosed in Notes to Accounts in Note No. 23.1 under the head ''Claims against the Company not acknowledged as debts''.

The Company has a suitable mechanism for monitoring the expenditure on all legal cases and the payment towards legal expenditure is duly regulated by the Delegation of Powers duly approved by the Competent Authority.

ANNEXURE TO THE INDEPENDENT AUDITOR''S REPORT

Referred to in paragraph 1 under ''report on other legal and regulatory requirements'' section of our report of even date on the accounts of Rural Electrification Corporation Limited for the year ended on 31st March, 2015

(i) (a) The Company has maintained fixed assets records to show full particulars including quantitative details and situation of its fixed assets.

(b) Some of the fixed assets were physically verified during the year by the Management in accordance with a programme of verification, which in our opinion provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(ii) The company being Non Banking Financial Company, does not have any inventory; as such this clause is not applicable.

(iii) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to any Companies, firms or other parties covered in register maintained under section 189 of the Companies Act, 2013. Accordingly, clause 3(iii)(a) and 3(iii) (b) of the Order are not applicable.

(iv) In our opinion and according to information & explanations given to us, internal controls for purchase of fixed assets and for the financial services are generally commensurate with the size of the Company and the nature of its business. However, in certain areas internal control needs further strengthening like monitoring and supervision of loans given to various SEBs/ DISCOMS/ TRANSCOS/ GENCOS including obtaining search reports for charges created against the loans given and physical verification of assets charged to REC as security after Commercial Operations Date. During the course of audit, we have not come across any major failure in internal control system.

(v) According to the information and explanations given to us, the Company has not accepted any deposits from public to which the provisions of Sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the Rules framed thereunder, apply.

(vi) To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records for the products/services of the Company under Companies (Cost Records and Audit) Rules, 2014, read with Companies (Cost Records and Audit) Amendment Rules, 2014 prescribed by the Central Government under Section 148 of the Companies Act, 2013. Accordingly, this clause of the order is not applicable to the Company.

(vii) (a) The Company is generally regular in depositing with the appropriate authorities undisputed statutory dues including provident fund, employees'' state insurance, income-tax, wealth tax, service tax, custom duty and other material statutory dues applicable to it. There were no undisputed statutory dues in arrears as at 31st March, 2015 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, the disputed Statutory dues aggregating to Rs. 2.80 crores that have not been deposited on account of matters pending before appropriate authorities are detailed below:

(Rs. in crores)

Name of Nature of Dues Amount Amount Net Statute Disputed paid/ refund Amount adjusted Unpaid

Income Tax Income Tax and 8.15 8.15 - Act, 1961 Interest

Income Tax Penalty u/s 0.07 - 0.07 Act, 1961 271(1) (c)

Income Tax Fringe Benefit 0.48 - 0.48 Act, 1961 Tax

Income Tax Income Tax and 21.14 20.95 0.19 Act, 1961 Interest

Income Tax Tax Deducted at 0.47 - 0.47 Act, 1961 Source

Income Tax Tax Deducted at 1.23 - 1.23 Act, 1961 Source

Chapter V of Service Tax, 0.36 - 0.36 Finance Act, Penal Interest u/s 1994 73(4A)

Total 31.90 29.10 2.80

Name of Statute Period to which the Forum where dispute is amount relates pending

Income Tax Act, 1961 AY 2008-09 Commissioner of Income Tax (Appeals), Delhi

Income Tax Act, 1961 AY 2005-06 Commissioner of Income Tax (Appeals), Delhi

Income Tax Act, 1961 AY 2008-09 Commissioner of Income Tax (Appeals), Delhi

Income Tax Act, 1961 AY 2003-04, AY 2006-07, Income Tax Appellate AY 2009-10 , AY 2010-11, Tribunal, Delhi AY 2011-12

Income Tax Act, 1961 FY 2012-13 Commissioner of Income Tax (Appeals), Delhi

Income Tax Act, 1961 FY 2007-08 to FY 2014-15 CPC, TDS

Chapter V of Finance Act, 1994 FY 2008-09 to 2011-12 Commissioner of Service Tax (LTU), Delhi

(c) The amounts required to be transferred to Investor Education and Protection Fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder has been transferred to such fund within the prescribed time.

(viii) The Company does not have any accumulated losses as at 31st March, 2015. The Company has also not incurred cash losses during the year covered by our audit and in the immediate preceding financial year. Accordingly, this clause of the Order is not applicable.

(ix) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to a financial institution, bank and debenture holders as at the Balance Sheet date.

(x) In our opinion and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year. Accordingly, this clause of the Order is not applicable to the Company.

(xi) To the best of our knowledge and according to the information and explanations given to us, the term loans raised during the year were applied for the purpose for which the loans were obtained.

(xii) To the best of our knowledge and according to the information and explanations given to us, no material fraud on or by the Company has been noticed or reported during the year.

For Raj Har Gopal & Co. For P. K. Chopra & Co.

Chartered Accountants Chartered Accountants

Firm Regn. No. 002074N Firm Regn. No. 006747N

Gopal Krishan K. S. Ponnuswami

Partner Partner

M. No. 081085 M. No. 070276

Place : New Delhi

Date : 27th July, 2015


Mar 31, 2014

1. We have audited the accompanying financial statements of RURAL ELECTRIFICATION Corporation Limited ("the Company"), which comprise the Balance Sheet as at 31st March, 2014, and the Statement of profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and OTHER explanatory information.

2. Management''s RESPONSIBILITY for the FINANCIAL Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This RESPONSIBILITY includes the design, IMPLEMENTATION and maintenance of internal CONTROL relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatements, whether due to fraud or error.

3. Auditor''s RESPONSIBILITY

Our RESPONSIBILITY is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the INSTITUTE of Chartered Accountants of India. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal CONTROL relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity''s internal CONTROL. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for our audit opinion.

4. Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principals generally accepted in India:

(a) in the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2014;

(b) in the case of Statement of profit and Loss, of the profit for the year ended on that date; and

(c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

5. Report on OTHER Legal and Regulatory Requirements

(i) As required by the Companies (Auditors'' Report) Order, 2003 ("the Order") issued by the CENTRAL Government of India in terms of sub-section (4A) of Section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

(ii) As required by section 227(3) of the Act, we report that:

a. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

b. in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

c. the Balance Sheet, Statement of profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d. in our opinion, the Balance Sheet, Statement of profit and Loss and Cash Flow Statement comply with the Accounting Standards referred to in sub- section (3C) of Section 211 of the Companies Act, 1956;

e. vide Notifcation No. 2/5/2001-CL.V dated 22.03.2002 of the Department of Company Affairs, Government of India, Government Companies have been exempted from applicability of the provisions of Section 274(1) (g) of the Companies Act, 1956.

f. Since the CENTRAL Government has not issued any notifcation as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

ANNExURE TO THE INDEPENDENT AUDITOR''S REPORT REFERRED TO IN PARAGRAPH 5(i) OF OUR REPORT OF EVEN DATE ON THE ACCOUNTS OF RURAL ELECTRIFICATION CORPORATION LIMITED FOR THE YEAR ENDED ON 31st MARCH, 2014

(i) (a) The Company has maintained fixed assets records to show full particulars including quantitative details and situation of its fixed assets.

(b) The Company has a phased manner of physical verifcation of its fixed assets, which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. In accordance with this programme, substantial assets were physically verifed by the management during the year. Discrepancies noticed on such verifcation have been properly dealt with in the books of account.

(c) In our opinion and according to the explanations given to us, during the year, the Company has not disposed off substantial part of fixed assets; therefore going concern is not affected. Hence, this clause of the order is not applicable.

(ii) The company being Non Banking FINANCIAL Company, does not have any inventory; as such this clause is not applicable.

(iii) (a) According to the information and explanations given to us, the Company has not granted any LOANS secured or unsecured to any Corporation, firm or OTHER parties covered in register maintained under section 301 of Companies Act, 1956. Accordingly, clause 4(iii)(a), 4(iii) (b), 4(iii)(c) and 4(iii)(d) of the order are not applicable.

(b) According to the information and explanations given to us, the Company has not taken any LOANS, secured or unsecured, from any Corporation, firm, or OTHER parties covered in the register maintained under section 301 of the Companies Act 1956. Accordingly clause 4(iii)(e), the clause 4(iii)(f) and 4(iii)(g) of the order are not applicable.

(iv) In our opinion and according to information & explanations given to us, internal CONTROLs for purchase of fixed assets and for the financial services are generally commensurate with the size of the Company and the nature of its BUSINESS. However, in certain areas internal CONTROL needs further strengthening like monitoring and supervision of LOANS given to various SEBs/ DISCOMS/ TRANSCOS/ GENCOS including obtaining search reports for charges created against the LOANS given and physical verifcation of assets charged to REC as security after Commercial Operations Date.

(v) According to information and explanations given to us, the Company has not entered into any contract with the Companies or Entities covered u/s 301 of the Companies Act, 1956. Accordingly, this clause of the order is not applicable.

(vi) According to the information and explanations given to us, the Company has not accepted any deposit from public to which the provisions of Sections 58A and 58AA or any OTHER relevant provisions of the Companies Act, 1956 and the Rules framed there under, apply.

(vii) In our opinion, the Company has an internal audit system generally commensurate with its size and nature of its BUSINESS.

(viii) To the best of our knowledge and as explained, the CENTRAL Government has not prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of the Companies Act, 1956, for the products/services of the Company. Accordingly, this clause of the order is not applicable to the Company.

(ix) (a) The Company is generally regular in depositing with the appropriate authorities undisputed statutory dues including provident fund, investor''s education protection fund, employees state insurance, income tax, wealth tax, service tax, custom duty and OTHER material statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, service tax, wealth tax were in arrears as at 31st March, 2014 for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us, there are no dues of income tax, wealth tax, service tax, sales tax, custom duty and cess which has not been deposited on account of dispute.

(x) The Company does not have any accumulated losses as at 31st March, 2014. The Company has also not incurred cash losses during the year covered by our audit and in the immediate preceding financial year. Accordingly, this clause of the order is not applicable.

(xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to a financial institution, bank and bond holders as at the Balance Sheet date.

(xii) In our opinion and according to the information and explanations given to us, the Company has maintained records and documents in respect of loan granted by it to various State Electricity Boards, Transmission, DISTRIBUTION and Generation Companies including independent POWER producers on the basis of security including collateral security by way of pledge of share and OTHER securities.

(xiii) In our opinion and according to the information and explanations given to us, the Company is not a chit fund or a nidhi or mutual benefit fund or society, therefore, this clause of the order is not applicable to the Company.

(xiv) In our opinion and according to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debenture and OTHER investment, therefore this clause of the order is not applicable to the Company.

(xv) In our opinion and according to the information and explanations given to us, the Company has not given any guarantee for LOANS taken by OTHERs from banks or financial institutions during the year. Accordingly, this clause of the order is not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to us, the term LOANS were applied for the purpose for which they were raised.

(xvii) According to the information and explanations given to us and on the overall examination of the balance sheet of the Company, we report that no funds raised on short term basis have been used for long term investment.

(xviii) According to the information and explanations given to us, during the year the Company has not made any preferential

allotment of shares to companies, firms or OTHER parties needs to be listed in the register maintained u/s 301 of the Companies Act.

(xix) According to the information and explanations given to us, the Company has created security in respect of Institutional Bonds, Tax Free Secured Bonds, and 54EC Capital Gain Tax Exemption Bonds in the form of charge on receivables and Registered Mortgage on the immovable properties of the Company at Maharashtra, Delhi, Tamil Nadu & Gujarat.

(xx) The Company had made public issue of Tax Free Bonds of face value of Rs. 1,000.00 each aggregating to Rs. 2,148.41 Crores in two tranches during the financial year 2012-13 in addition to a private placement issue of the Tax Free Bonds of Rs. 500.00 Crores. The issue proceeds of Rs. 0.63 Crores remaining unutilized as on 31st March, 2013 have since been utilized for the purposes as mentioned in the Offer document.

The Company has made a public issue of Tax Free Bonds of face value of Rs. 1,000 each aggregating to Rs. 4,500 Crores during the financial year 2013-14 in addition to a private placement of the Tax Free Bonds of Rs. 1,500 Crores. The bonds under public issue had been allotted in line with the prescribed guidelines and within the financial year 2013-14. The issue proceeds have been utilised for the purposes as mentioned in the Offer document except for Rs. 5.96 Crores which is kept in designated public issue account pending its utilisation.

(xxi) During the course of our examination of the books of account carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the management.

Referred in paragraph 5 (i) of report of even date, clauses (ii) (b) & (c), (iii) (c) & (d), (v) (b), (viii) (a) (b) (c) (d) of Companies (Auditor''s Report) Order, 2003 are not applicable to the Company.

ERRATA TO INDEPENDENT AUDITORS'' REPORT DATED 26th MAY, 2014

1. In sub-paragraph 2 of Paragraph 3 "Auditor''s RESPONSIBILITY", first line should be read as "An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements."

2. Point (ii)(f) of Paragraph 5- "Report on OTHER Legal and Regulatory Requirements" may be considered as deleted.

3. Point (i)(b) of "Annexure to the Independent Auditor''s Report" should be read as "All the assets have not been physically verifed by the Management during the year, but there is a regular programme of verifcation to cover all assets, which is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verifcation."

4. Point (ix)(c) of "Annexure to the Independent Auditor''s Report" should be read as below:

The disputed Statutory dues aggregating to Rs. 50.92 crores that have not been deposited on account of matters pending before appropriate authorities are detailed below:

Name of Statute Nature of dues Forum where dispute is pending Rs. Crores

Income Tax Act, 1961 Income Tax CIT (Appeals) 17.75

ITAT 13.21

Delhi High Court 3.79

Supreme Court of India 16.17

Total 50.92

5. Last Paragraph to "Annexure to the Independent Auditor''s Report" should be read as "Referred in paragraph 5 (i) of report of even date, clauses (ii) (a), (b) & (c), (iii) (a), (b), (c), (d), (e), (f) & (g), (v) (a) & (b), (viii), (xiii) (a) (b) (c) & (d) and (xiv) of Companies (Auditor''s Report) Order, 2003 are not applicable to the Company."

For Raj Har Gopal & Co. For P. K. Chopra & Co.

Chartered Accountants Chartered Accountants

Firm Regn No. 002074N Firm Regn No. 006747N

(Gopal Krishan) (K. S. Ponnuswami)

Partner Partner

M. No. 081085 M. No. 070276

Place : New Delhi Date : 26th May, 2014


Mar 31, 2013

Report on the Financial Statements

1. We have audited the accompanying financial statements of RURAL ELECTRIFICATION CORPORATION LIMITED, which comprise the Balance Sheet as at March 31, 2013, and the Statement of Profit & Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

2. Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatements, whether due to fraud or error.

3. Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on auditing issued by the Institute of Chartered Accountants of India. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4. Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principals generally accepted in India:

(a) In the case of Balance Sheet, of the state of affairs of the company as at March 31, 2013;

(b) In the case of Statement of Profit and Loss , of the profit for the year ended on that date; and

(c) In the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

5. Report on Other Legal and Regulatory Requirements

(i) As required by the Companies (Auditors'' Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the order.

(ii) As required under the provisions of section 227(3) of the Companies Act, 1956, we report that:

a. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

b. In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

c. The Balance Sheet, Statement of Profit & Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d. In our opinion, the Balance Sheet, Statement of Profit & Loss and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956;

e. Vide notification No. 2/5/2001-CL.V dated 22.03.2002 of the Department of Company Affairs, Government of India, Government Companies have been exempted from applicability of the provisions of Section 274(1)(g) of the Companies Act, 1956.

f. Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act,1956 nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

(i) (a) The Corporation has maintained fixed assets records to show full particulars including quantitative details and situation of its fixed assets.

(b) The fixed assets of the corporation were physically verified by the management during the year ended on 31st March, 2013; as certified by the management, no material discrepancies has been found on such physical verification.

(c) In our opinion and according to the explanations given to us, during the year, the Corporation has not disposed off substantial part of fixed assets; therefore going concern is not affected. Hence this clause of the order is not applicable.

(ii) The Corporation being Non Banking Financial Company, does not have any inventory; as such this clause is not applicable.

(iii) (a) According to the information and explanations given to us, the Corporation has not granted any loans secured or unsecured to any Corporation, firm or other parties covered in register maintained under section 301 of Companies Act, 1956. Accordingly clause 4(iii) (a), the clause 4(iii)(b), 4(iii)(c) and 4(iii)(d) of the order are not applicable.

(b) According to the information and explanations given to us, the Corporation has not taken any loans, secured or unsecured, from any Corporation, firm, or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly clause 4(iii)(e), the clause 4(iii)(f) and 4(iii)(g) of the order are not applicable.

(iv) In our opinion and according to information & explanations given to us, internal controls are generally commensurate with the size of the Corporation and the nature of its business. However in certain areas internal control needs further strengthening like utilization of grants/subsidy received under various schemes; monitoring and supervision of loans given to various SEBs/DISCOMS/TRANSCOS/GENCOS including obtaining search reports for charges created against the loans given, physical verification of assets charged to REC as security after Commercial Operations Date; regular updating of Loan module and generation of various reports from loan module in ERP to have better control over loan assets.

(v) According to information and explanations given to us, the Corporation has not entered into any contract with the Companies or Entities covered u/s 301 of the Companies Act, 1956. Accordingly this clause of the order is not applicable.

(vi) According to the information and explanations given to us, the Corporation has not accepted any deposit from public to which the provisions of Sections 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the Rules framed there under, apply.

(vii) In our opinion the Corporation has an internal audit system generally commensurate with its size and nature of its business.

(viii) To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of the Companies Act, 1956, for the products/services of the Corporation. Accordingly, this clause of the order is not applicable to the Corporation.

(ix) (a) The Corporation is generally regular in depositing with the appropriate authorities undisputed statutory dues including provident fund, investor''s education protection fund, employees state insurance, income tax, wealth tax, service tax and other material statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, service tax, wealth tax were in arrears as at 31st March 2013 for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us, there are no dues of income tax, wealth tax, service tax and cess which has not been deposited on account of dispute.

(x) The Corporation does not have any accumulated losses as at 31st March, 2013. The Corporation has also not incurred cash losses during the financial year covered by our audit and in the immediate preceding financial year. Accordingly, this clause of the order is not applicable.

(xi) In our opinion and according to the information and explanations given to us, the Corporation has not defaulted in repayment of dues to a financial institution, bank or bond holders as at the Balance Sheet date.

(xii) In our opinion and according to the information and explanations given to us, the Corporation has maintained records and documents in respect of loan granted by it to various State Electricity Board, Transmission, Distribution and Generation Companies including independent power producers on the basis of security including collateral security by way of pledge of shares and other securities.

(xiii) In our opinion and according to the information and explanations given to us, the Corporation is not a chit fund or a nidhi or mutual benefit fund or society, therefore, this clause of the order is not applicable to the Corporation.

(xiv) In our opinion and according to the information and explanations given to us, the Corporation is not dealing or trading in shares, securities, debenture and other investment, therefore this clause of the order is not applicable to the Corporation.

(xv) In our opinion and according to the information and explanations given to us, the Corporation has not given any guarantee for loans taken by others from banks or financial institutions during the year. Accordingly this clause of the order is not applicable to the Corporation.

(xvi) In our opinion and according to the information and explanations given to us the term loans were applied for the purpose for which they were raised.

(xvii) According to the information and explanations given to us and on the overall examination of the balance sheet of the Corporation, we report that no funds raised on short term basis have been used for long term investment.

(xviii) According to the information and explanations given to us, during the year the Corporation has not made any preferential allotment of shares to companies, firms or other parties needs to be listed in the register maintained u/s 301 of the Companies Act.

(xix) According to the information and explanations given to us, the corporation has created security in respect of Institutional Bonds, Tax Free Secured Bonds and Capital Gain Bonds in the form of charge on receivables and Registered Mortgage on the immovable properties of the Corporation at Maharashtra, Delhi, Tamilnadu & Gujarat.

(xx) The Corporation has made a public issue of Tax Free Bonds of face value of Rs. 1000/- each aggregating to Rs. 3000.00 crores during the financial year 2011-12. The bonds have been allotted on 27.03.2012 and the issue proceeds had been kept in designated Public Issue accounts. The issue proceeds have been made available to the Company and utilized for the purpose as mentioned in the offer document during the period ended 31st March, 2013. Further, an amount of Rs. 0.63 Crore remaining unutilized as on 31.03.2013 out of the issue proceeds of Tax Free Bonds of Rs. 2148.41 crores for public issue and Rs. 500 crores for private placement made during the year 2012-13. The unutilized proceeds are kept in the designated public account.

(xxi) During the course of our examination of the books of account carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Corporation, noticed or reported during the year, nor have we been informed of such case by the management.

For Bansal & Co. For P.K. Chopra & Co.

Chartered Accountants Chartered Accountants

Firm Regn No. 001113N Firm Regn No. 006747N

(R.C.Pandey) (K.S. Ponnuswami)

Partner Partner

M. No. 070811 M. No. 070276

Place : New Delhi

Date : 28th May, 2013


Mar 31, 2012

1. We have audited the attached Balance Sheet of RURAL ELECTRIFICATION CORPORATION LIMITED as at 31st March 2012 and also the Statement of Profit & Loss and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors' Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said order to the extent applicable to the Corporation.

4. Further to our comments in the Annexure referred in paragraph 3 above, we report that:

i) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) In our opinion, proper books of account as required by law have been kept by the Corporation so far as appears from our examination of such books;

iii) The Balance Sheet, Statement of Profit & Loss and Cash Flow Statement dealt with by this report are in agreement with the books of accounts;

iv) In our opinion, the Balance Sheet, Statement of Profit & Loss and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub- section (3C) of Section 211 of the Companies Act, 1956 to the extent possible.

v) Vide notification No. 2/5/2001-CL.V dated 22.03.2002 of the Department of Corporate Affairs, Government of India, Government Companies have been exempted from applicability of the provisions of Section 274(1)(g) of the Companies Act, 1956.

vi) In our opinion and to the best of our information and according to explanations given to us, the said financial statements read together with notes and accounting policies thereon, give the information required by the Companies Act 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

a) In the case of the Balance Sheet of the State of Affairs of the Company as at 31th March 2012.

b) In the case of Statement of Profit & Loss, of the Profit of the Company for the year ended on that date; and

c) In the case of the Cash Flow Statement, of the Cash flows for the year ended on that date.

ANNEXURE TO THE AUDITORS' REPORT REFERRED TO IN PARAGRAPH (3) OF OUR REPORT OF EVEN DATE ON THE ACCOUNTS OF RURAL ELECTRIFICATION CORPORATION LIMITED FOR THE YEAR ENDED ON 31st MARCH, 2012

(i) (a) The Corporation has maintained fixed assets records to show full particulars including quantitative details and situation of its fixed assets.

(b) The fixed assets of the corporation were physically verified by the management during the year ended on 31st March,2012; as certified by the management, no material discrepancies has been found on such physical verification.

(c) In our opinion and according to the explanations given to us, during the year, the Corporation has not disposed off substantial part of fixed assets therefore going concern is not affected . Hence this clause of the order is not applicable.

(ii) The Corporation being Non Banking Financial Company, does not has any inventory; as such this clause is not applicable.

(iii) (a) According to the information and explanations given to us, the Corporation has not granted any loans secured or unsecured to any Corporation, firm or other parties covered in register maintained under section 301 of Companies Act, 1956. Accordingly clause 4(iii)(a), the clause 4(iii)(b), 4(iii)(c) and 4(iii)(d) of the order are not applicable.

(b) According to the information and explanations given to us, the Corporation has not taken any loans, secured or unsecured, from any Corporation, firm, or other parties covered in the register maintained under section 301 of the Companies Act 1956. Accordingly clause 4(iii)(e), the clause 4(iii)(f) and 4(iii)(g) of the order are not applicable.

(iv) In our opinion and according to information & explanations given to us, internal controls are generally commensurate with the size of the Corporation and the nature of its business. However in certain areas internal control needs further strengthening like utilization of grants/subsidy received under various schemes; monitoring and supervision of loans given to various SEBs/DISCOMS/TRANSCOS/GENCOS including obtaining search reports for charges created against the loans given, regular updating of Loan module and generation of various reports from loan module in ERP to have better control over loan assets. During the course of audit we have not come across any major failure in internal control system.

(v) According to information and explanations given to us, the Corporation has not entered into any contract with the Companies or Entities covered u/s 301 of the Companies Act, 1956. Accordingly this clause of the order is not applicable.

(vi) According to the information and explanations given to us, the Corporation has not accepted any deposit from public to which the provisions of Sections 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the Rules framed there under, apply.

(vii) In our opinion the Corporation has an internal audit system generally commensurate with its size and nature of its business.

(viii) To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of the Companies Act, 1956, for the products/services of the

Corporation. Accordingly, this clause of the order is not applicable to the Corporation.

(ix) (a) The Corporation is generally regular in depositing with the appropriate authorities undisputed statutory dues including provident fund, investor's education protection fund, employees state insurance, income tax, wealth tax, service tax and other material statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, service tax, wealth tax were in arrears as at 31st March 2012 for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us, there are no dues of income tax, wealth tax, service tax and cess which has not been deposited on account of dispute.

(x) The Corporation does not have any accumulated losses as at 31st March, 2012. The Corporation has also not incurred cash losses during the financial year covered by our audit and in the immediate preceding financial year. Accordingly, this clause of the order is not applicable.

(xi) In our opinion and according to the information and explanations given to us, the Corporation has not defaulted in repayment of dues to a financial institution, bank or bond holders as at the Balance Sheet date.

(xii) In our opinion and according to the information and explanations given to us, the Corporation has maintained records and documents in respect of loan granted by it to various State Electricity Board, Transmission, Distribution and Generation Companies including independent power producers on the basis of security including collateral security by way of pledge of shares and other securities.

(xiii) In our opinion and according to the information and explanations given to us, the Corporation is not a chit fund or a nidhi or mutual benefit fund or society, therefore, this clause of the order is not applicable to the Corporation.

(xiv) In our opinion and according to the information and explanations given to us, the Corporation is not dealing or trading in shares, securities, debenture and other investment, therefore this clause of the order is not applicable to the Corporation.

(xv) In our opinion and according to the information and explanations given to us, the Corporation has not given any guarantee for loans taken by others from banks or financial institutions during the year. Accordingly this clause of the order is not applicable to the Corporation.

(xvi) In our opinion and according to the information and explanations given to us the term loans were applied for the purpose for which they were raised.

(xvii) According to the information and explanations given to us and on the overall examination of the balance sheet of the Corporation, we report that no funds raised on short term basis have been used for long term investment.

(xviii)According to the information and explanations given to us, during the year the Corporation has not made any preferential allotment of shares to companies, firms or other parties needs to be listed in the register maintained u/s 301 of the Companies Act.

(xix) According to the information and explanations given to us, the corporation has created security in respect of Institutional Bonds, Tax Free Secured Bonds and Capital Gain Bonds in the form of charge on receivables and Registered Mortgage on the immovable properties of the Corporation at Maharashtra, Delhi & Chennai.

(xx) The Corporation has made a public issue of Tax Free Bonds of face value of Rs. 1000/- each aggregating to Rs. 3000.00 Crores during the financial year 2011-12. The bonds have been allotted on 27.03.2012 and the issue proceeds had been kept in designated Public Issue accounts. The issue proceeds could not be utilized till the Balance Sheet date as the proceeds of the funds raised became available to the corporation only on the listing of the bonds on Bombay Stock Exchange (BSE) on 04.04.2012.

(xxi) During the course of our examination of the books of account carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Corporation, noticed or reported during the year, nor have we been informed of such case by the management.

For P.K. Chopra & Co. For Bansal & Co.

Chartered Accountants Chartered Accountants

Firm Regn No. 006747N Firm Regn No. 001113N

(K.S. Ponnuswami) (R.C. Pandey)

Partner Partner

M. No. 070276 M. No. 070811

Place: New Delhi

Date: 23rd May 2012


Mar 31, 2011

1. We have audited the attached Balance Sheet of Rural Electrification Corporation Limited as at 31st March 2011 and also the Profit & Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and Significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors' Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said order to the extent applicable to the Corporation.

4. Further to our comments in the Annexure referred in paragraph 3 above, we report that:

i) We have obtained all the information and explanations which to be best of our knowledge and belief were necessary for the purposes of our audit;

ii) In our opinion, proper books of accounts as required by law have been kept by the company so far as appears from our examination of such books;

iii) The Balance Sheet, Profit & Loss account and cash flow

statement dealt with by this report are in agreement with the books of accounts;

iv) In our opinion, the Balance Sheet, Profit & Loss account and Cash Flow statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 to the extent possible.

v) Vide notification No. 2/5/2001-CL.V dated 22.03.2002 of the Department of Company Aaffairs, Government of India, Government Companies have been exempted from applicability of the provisions of Section 274(1)(g) of the Companies Act, 1956.

vi) In our opinion and to the best of our information and according to explanations given to us, the said statements of accounts read together with notes and accounting policies thereon, give the information required by the Companies Act 1956, in the manner so required and give a true and affair view in conformity with the accounting principles generally accepted in India:

a) In the case of the Balance Sheet of the State of affairs of the Company as at 31st March 2011.

b) In the case of Profit & Loss Account, of the Profit of the Company for the year ended on that date; and

c) In the case of the Cash Flow Statement, of the Cash flows for the year ended on that date.

Annexure to the Auditors' Report

Referred to in paragraph (3) of our report of even date on the accounts Of rural electrification corporation limited for the year ended on 31st March, 2011

(i) (a) The Corporation has maintained fixed assets records to show full particulars including quantitative details and situation of its fixed assets.

(b) The fixed assets of the corporation were physically verified by the management during the year ended on 31st March,2011;as certified by management, no material discrepancies has been found out on such physical verification.

(c) In our opinion and according to the explanations given to us, during the year, the Corporation has not disposed of substantial part of fixed assets therefore going concern is not affected . Hence this clause of the order is not applicable.

(ii) The Corporation being Non Banking Financial Company, does not has any inventory; as such this clause is not applicable.

(iii) (a) According to the information and explanations given to us, the Corporation has not granted any loans secured or unsecured to any company, frm or other parties covered in register maintained under section 301 of Companies Act, 1956. Accordingly clauses 4(iii)(a), 4(iii)(b), 4(iii)(c) and 4(iii)(d) of the order are not applicable.

(e) According to the information and explanations given to us, the Corporation has not taken any loans, secured or unsecured, from any company, frm, or other parties covered in the register maintained under section 301 of the Companies Act 1956. Accordingly clause 4(iii)(e), the clause 4(iii)(f) and 4(iii)(g) of the order are not applicable.

(iv) In our opinion and according to information & explanations given to us, internal controls for purchase of fixed assets and for the financial services are generally commensurate with the size of the Corporation and the nature of its business. However in certain areas internal control needs further strengthening like Utilization of grants/subsidies disbursed under various schemes; Monitoring and supervision of loans given to various SEBs/ DISCOMS/TRANSCOS/GENCOS including obtaining search reports for charges created against the loans given, ascertainment of viability of revised project at the time of re-schedulement of loan assets; Generation of various reports from loan module in ERP to have better control over loan assets. During the course of audit we have not come across any major failure in internal control system.

(v) According to information and explanations given to us, the Corporation has not entered into any contract with the Companies or Entities covered u/s 301 of the Companies Act, 1956. Accordingly this clause of the order is not applicable.

(vi) According to the information and explanations given to us, the Corporation has not accepted any deposit from public to which the provisions of Sections 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the Rules framed there under, apply.

(vii) In our opinion the Corporation has an internal audit system generally commensurate with its size and nature of its business

(viii) To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of the Companies Act, 1956, for the products/services of the Corporation. Accordingly, this clause of the order is not applicable to the Corporation.

(ix) (a) The Corporation is generally regular in depositing with the appropriate authorities undisputed statutory dues including provident fund, investor's education protection fund, employees state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty, cess and any other statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, service tax, wealth tax were in arrears as at 31st March 2011 for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us, there are no dues of income tax, sales tax, wealth tax, service tax, custom duty, excise duty and cess which have not been deposited on account of dispute.

(x) The Corporation does not have any accumulated losses as at 31st March 2011. The Corporation has also not incurred cash losses during the year covered by our audit and in the immediate preceding financial year. Accordingly, this clause of the order is not applicable.

(xi) In our opinion and according to the information and explanations given to us, the Corporation has not defaulted in repayment of dues to a financial institution, bank or bond holders as at the Balance Sheet date.

(xii) In our opinion and according to the information and explanations given to us, the Corporation has maintained records and documents in respect of loan granted by it to various State Electricity Board, Transmission, Distribution and Generation Companies including independent power producers on the basis of security by way of pledge of shares and other securities.

(xiii) In our opinion and according to the information and explanations given to us, the Corporation is not a chit fund or a nidhi or mutual benefit fund or society, therefore, this clause of the order is not applicable to the corporation

(xiv) In our opinion and according to the information and explanations given to us, the Corporation is not dealing or trading in shares, securities, debenture and other investment, therefore this clause of the order is not applicable to the corporation.

(xv) In our opinion and according to the information and explanations given to us, the Corporation has not given any guarantee for loans taken by others from banks or financial institutions during the year. Accordingly this clause of the order is not applicable to the Corporation.

(xvi) In our opinion and according to the information and explanations given to us the term loans were applied for the purpose for which they were raised.

(xvii) According to the information and explanations given to us and on the overall examination of the balance sheet of the Corporation, we report that funds raised on short term basis have not been used for long term investment.

(xviii) According to the information and explanations given to us, during the year the Corporation has not made any preferential allotment of shares to companies, firms or other parties needs to be listed in the register maintained u/s 301 of the Companies Act.

(xix) According to the information and explanations given to us, the Corporation has created security in respect of Institutional

Loans, Taxable Secured Bonds and Capital Gain Bonds in the form of charge on receivables and Registered Mortgage on the immovable properties of the Corporation at Maharashtra & Delhi.

(xx) The Corporation has not raised monies by public issue during the year. Accordingly this clause for disclosure of end use of money raised is not applicable. As explained to us, the money raised by way of Taxable Secured Bonds and Capital Gain Bonds is not a public issue.

(xxi) During the course of our examination of the books of account carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Corporation, noticed or reported during the year, nor have we been informed of such case by the management.

For Bansal & Co. for K.G Somani & Co. Chartered Accountants Chartered Accountants R.C. Pandey Bhuvnesh maheshwari Partner Partner

M. No.070811 M. No. 088155

Firm Regn No.001113N Firm Regn No.006591N

Place: New Delhi

Date : 24th May, 2011


Mar 31, 2010

1. We have audited the attached Balance Sheet of RURAL ELECTRIFICATION CORPORATION LIMITED as at 31st March 2010 and also the Profit & Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said order to the extent applicable to the Company.

4. Further to our comments in the Annexure referred in paragraph 3 above, we report that:

i) We have obtained all the information and explanations which to be best of our knowledge and belief were necessary for the purposes of our audit;

ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of such books;

iii) The Balance Sheet, Profit & Loss account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

iv) In our opinion, the Balance Sheet, Profit & Loss account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 to the extent applicable.

v) Vide notification No. 2/5/2001-CL.V dated 22.03.2002 of the Department of Company Affairs, Government of India, Government Companies have been exempted from applicability of the provisions of Section 274(1)(g) of the Companies Act, 1956.

vi) In our opinion and to the best of our information and according to explanations given to us, the said financial statements read together with Note No. 21(B) in schedule 17 of Notes on Accounts regarding Deferred Tax Liability that after considering the opinion given by various concerned authorities, and also the practice followed by other similarly placed Institutions of not creating Deferred Tax Liability (DTL) on account of special reserve created and maintained under Section 36(1)(viii) of the Income Tax Act 1961, the Company is of the opinion that there is no requirement for DTL as per AS 22 of ICAI. Accordingly, the Company has not created Deferred Tax Liability (DTL) of Rs. 155.65 Crore on account of special reserve created and maintained under Section 36(1)(viii) of the Income Tax Act, 1961, for the year ended on 31st March, 2010 and has also reversed the DTL of Rs. 964.57 Crore created in earlier years on this account as per Notes on Accounts, note no. 21(B). The reversal of DTL is done by crediting General Reserve by Rs. 638.80 Crore for the financial years upto 2005-06 and through Profit and Loss Appropriation by Rs. 325.77 Crore for the financial year 2006-07 to financial year 2008-09. Had the company followed the same accounting treatment regarding creation of DTL as in earlier years, the profit after tax for the year ended 31.03.2010 would have been Rs. 1845.77 Crore against reported profit of Rs. 2001.42 Crore and Reserve & Surplus would have been Rs. 8,972.66 Crore against reported Reserve & Surplus of Rs. 10,092.88 Crore as on 31.03.2010, together with other notes and accounting policies thereon, give the information required by the Companies Act 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

a) In the case of the Balance Sheet of the State of Affairs of the Company as at 31st March 2010.

b) In the case of Profit & Loss Account, of the Profit of the Company for the year ended on that date; and

c) In the case of the Cash Flow Statement, of the Cash flows for the year ended on that date.

ANNEXURE TO THE AUDITORS REPORT

Referred to in Paragraph (3) of Our Report of even date on the Accounts of Rural Electrification Corporation Limited for The Year Ended on 31st March, 2010

(i) (a) The Company has maintained fixed assets records to show full particulars including quantitative details and situation of its fixed assets.

(b) The Company has a phased programme of physical verification of its fixed assets, which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. In accordance with this programme, substantial assets were physically verified by the management during the year. Discrepancies noticed on such verification have been properly dealt with in the books of account.

(c) In our opinion and according to the explanations given to us, during the year, the Company has not disposed off substantial part of fixed assets therefore going concern is not affected . Hence this clause of the order is not applicable.

(ii) The company being Non Banking Financial Company, does not has any inventory.

(iii) (a) According to the information and explanations given to us, the Company has not granted any loans secured or unsecured to any company, firm or other parties covered in register maintained under section 301 of Companies Act, 1956. Accordingly clause 4(iii)(a), the clause 4(iii)(b), 4(iii)(c) and 4(iii)(d) of the order are not applicable.

(b) According to the information and explanations given to us, the Company has not taken any loans, secured or unsecured, from any company, firm, or other parties covered in the register maintained under section 301 of the Companies Act 1956. Accordingly clause 4(iii)(e), the clause 4(iii)(f) and 4(iii)(g) of the order are not applicable.

(iv) In our opinion and according to information & explanations given to us, internal controls are generally commensurate with the size of the Company and the nature of its business. However in certain areas internal control needs further strengthening like loan accounting, loan pricing being not linked to rating linked policy in certain cases, control records regarding status of loan documents including formulation of legal manual; Receipt, disbursement & utilization of grants/subsidy received under various schemes; monitoring and supervision of loans given to various SEBs/DISCOMS/ TRANSCOS/GENCOS including obtaining search reports for charges created against the loans given.

During the course of audit we have not come across any major failure in internal control system.

(v) According to information and explanations given to us, the Company has not entered into any contract with the Companies or Entities covered u/s 301 of the Companies Act, 1956. Accordingly this clause of the order is not applicable.

(vi) According to the information and explanations given to us, the Company has not accepted any deposit from public to which the provisions of Sections 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the Rules framed there under, apply.

(vii) Company is having internal audit department responsible for carrying out the internal audit of various departments at head office and at project office at periodical intervals as per the approved audit plan. The internal audit has been carried out for part of the accounting year. In our opinion internal audit needs to be further strengthened with identification of critical areas for risk based audit and frequency of coverage in respect of loan department.

(viii) To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of the Companies Act, 1956, for the products/services of the company. Accordingly, this clause of the order is not applicable to the Company.

(ix) (a) The Company is generally regular in depositing with the appropriate authorities undisputed statutory dues including provident fund, investors education protection fund, employees state insurance, income tax, wealth tax, service tax and other material statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, service tax, wealth tax were in arrears as at 31st March 2010 for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us, there are no dues of income tax, wealth tax, service tax and cess which has not been deposited on account of dispute.

(x) The Company does not have any accumulated losses as at 31st March, 2010. The Company has also not incurred cash losses during the financial year covered by our audit and in the immediate preceding financial year. Accordingly, this clause of the order is not applicable.

(xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to a financial institution, bank, bond holders as at the Balance Sheet date.

(xii) In our opinion and according to the information and explanations given to us, the Company has maintained records and documents in respect of loan granted by it to various State Electricity Board, Transmission, Distribution and Generation Companies including independent power producers on the basis of security including collateral security by way of pledge of share and other security.

(xiii) In our opinion and according to the information and explanations given to us, the Company is not a chit fund or a nidhi or mutual benefit fund or society, therefore, this clause of the order is not applicable to the company.

(xiv) In our opinion and according to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debenture and other investment, therefore this clause of the order is not applicable to the company.

(xv) In our opinion and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year. Accordingly this clause of the order is not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to us the term loans were applied for the purpose for which they were raised.

(xvii) According to the information and explanations given to us and on the overall examination of the balance sheet of the company, we report that no funds raised on short term basis have been used for long term investment.

(xviii)According to the information and explanations given to us, during the year the Company has not made any preferential allotment of shares to companies, firms or other parties needs to be listed in the register maintained u/s 301 of the Companies Act.

(xix) According to the information and explanations given to us, during the year covered by our audit report, the company had issued 1,35,295 institutional bonds of Rs. 10 Lacs each and 30,57,776 capital gain bonds of Rs. 10000/-. The Company has created security in respect of Institutional and capital gain tax exemption bonds in the form of charge on current assets (book debts) and legal mortgage on the immovable properties of the Company at Mumbai & Delhi except in case of 43934 institutional bonds of 91 to 93 series for which registration of charge is in process.

(xx) The Company has raised monies by issue of fresh equity share of 12,87,99,000 of Rs. 10 each at a premium of about Rs. 195/- during the year. The management has disclosed the end use of money raised in notes on accounts.

(xxi) During the course of our examination of the books of account carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the management.

For Bansal & Co. For K.G. Somani & Co.

Chartered Accountants Chartered Accountants

Firm Regn. No. 001113N Firm Regn. No. 006591N

( D.S Rawat) (Bhuvnesh Maheshwari)

Partner Partner

M. No.83030 M. No. 88155

Place: New Delhi Date : 19.05.2010

 
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