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Directors Report of Shipping Corporation of India Ltd.

Mar 31, 2014

Dear Members,

The Directors have pleasure in presenting the 64th Annual Report on the working of your Company for the financial year ended 31st March 2014.

Accounting Year

The year under report covers a period of 12 months ended on 31st March 2014.

FINANCIAL PERFORMANCE

The comparative position of the working results for the year under report vis-a-vis earlier year is as under:

( in Crores) 2013-14 2012-13

Gross Earnings 4539 4796 Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 896 492

Less : Interest 208 162

Depreciation 856 1,064 760 922

Profit before items relating to earlier years, exceptional

items & tax (168) (430)

Prior year''s adjustments (53) 62

Profit before Extraordinary items & tax (221) (368)

Extraordinary items - 300

Provision for Taxation (53) (46)

Net Profit/Loss (-) (274) (114)

Appropriations:

The working results for your company for the year 2013-14 after considering prior period adjustments show a loss of Rs. 274.66 crores. After adjusting a sum of Rs. 46.20 crores (being balance profit and loss account brought forward from previous year), there is a debit balance in Profit & Loss A/c of Rs. 228.46 crores.

Brief Analysis of Financial Performance:

At an overall level SCI has incurred a loss of Rs. 274.66 crores in the current year as against loss of Rs. 114.31 crores in the preceding year. The financial performance of your Company continued to be impacted by the low levels of freight rates during the year. The Company rescinded nine shipbuilding contracts during the year due to default by the shipyard and this has resulted in foreign exchange gain and interest income upside to the Company by about Rs. 66 crores. However operationally, SCI has improved its performance as can be seen from the fact that our loss before items relating to earlier years, exceptional items & tax has reduced from Rs. 430 crores to Rs. 168 crores. It may also be observed that the preceding year had a write back of Rs. 300 crores of borrowing cost.

Fleet Position during the Year:

During the year under report, nine vessels aggregating to 217,943 DWT were phased out from the SCI fleet whereas two new building bulk carriers, vessels aggregating to 163,430 DWT were delivered to SCI. Thus, the overall fleet position, which was 80 ships at the beginning of the year, declined to 73 ships at the end of the year as shown in the following table. However, there has been only a marginal reduction in the total tonnage.

FLEET PROFILE DURING THE YEAR

Particulars As on 1.4.2013 Additions

No. DWT No. DWT

1. (a) Crude Oil Tanker 23 3,627,893 - -

(b) Product Tankers 15 952,728 - -

(c) Chemical Tankers 1 33,058 - -

(d) Gas Carriers 2 35,202 - -

2. Bulk Carriers 17 1,020,214 2 163,430

3. Liner Ships 5 202,413 - -

4. Offshore Supply Vsls. 16 32,650 - -

5. Passenger-Cum-Cargo Vessels 1 5,140 - -

TOTAL 80 5,909,298 2 163,430

Particulars Deletions As on 31.3.2014

No. DWT No. DWT

1. (a) Crude Oil Tanker 1 94,540 22 3,533,353

(b) Product Tankers 1 44,669 14 908,059

(c) Chemical Tankers - - 1 33,058

(d) Gas Carriers - - 2 35,202

2. Bulk Carriers 2 69,755 17 1,113,889

3. Liner Ships - - 5 202,413

4. Offshore Supply Vsls. 5 8,979 11 23,670

5. Passenger-Cum-Cargo Vessels - - 1 5,140

TOTAL 9 217,943 73 5,854,784

NEW BUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built DWT

m.v. Vishva Chetna Dry Bulk carrier Jiangsu Eastern Heavy 81,733 Industries

m.v. Vishva Uday Dry Bulk carrier Jiangsu Eastern Heavy 81,696 Industries

VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Yard Built DWT

m.v. Lok Pratap Dry Bulk 1993 26,718

m.v. Maharashtra Dry Bulk 1996 43,037

m.t. Motilal Nehru Crude Oil Tanker 1990 94,540

m.t. Rabindranath Tagore Product Carrier 1993 44,669

m.v. Feroze Gandhi AHTSV 1984 1,758

m.v. SCI-02 AHTSV 1984 1,776

m.v. SCI-05 AHTSV 1984 1,818

m.v. SCI-06 AHTSV 1985 1,817

m.v. Capt F M Juvale AHTSV 1985 1,809

VESSELS ON ORDER AT THE END OF THE YEAR

The number of vessels on order of your company reduced from sixteen vessels at the start of the year to seven vessels at the end of the year. Thereafter your company has rescinded contracts of four more vessels (2 nos. 6,500 TEU Container vessels and 2 nos. AHTSVs) thus bringing the vessels on order to three vessels as on 31.07.2014.

Type No. Shipyard Total DWT

VLCC 2 Jiangsu Rongsheng Heavy Industries Co. Ltd. 634,000 6,500 TEU Cellular Container vessel 2 STX (Dalian) Shipbuilding Co. Ltd. 171,200

AHTSV (80T BP) 3 ABG Shipyard Ltd. 6,000

7* 811,200

*- Vessels on order as on 31.07.2014, stood at three vessels of 636,000 dwt.

Implementation of Official Language Policy

In accordance with the Official Language Policy of the Government of India, Constitutional provisions of the Official Language Act, 1963, the Official Language Rules, 1976 your Company continued its consistent efforts to spread the usage of Hindi language during the year.

Besides various Hindi competitions and computer training workshops, your Company also organized a Hindi Talk on "Social Media" in January 2014 and an Annual Hindi Review Meeting in February 2014 in Mumbai. In order to create a conducive atmosphere, Bhashayee Sauhard Sanskritik Karyakram was also conducted in October 2013 wherein a good number of SCI employees presented their items like songs, poetries, etc in Hindi and other Indian languages. Your company also took active participation in the Town Official Languages Implementation Committee (TOLIC) meetings held twice during the year under report.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988 In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under: Rs. in Crores 2013-14 2012-13 Foreign exchange earned and saved including deemed earned and saved 4301.70 4258.93

Foreign exchange used including deemed used 4570.05 4332.55

Expenses on Entertainment, Foreign tours etc. - FY 2013-14

During the year under report your Company spent Rs. 52 lakhs on entertainment, Rs. 258 lakhs on publicity & advertisements and Rs. 307 lakhs on foreign tours of Company''s executives.

Board of Directors

Shri J. N. Das, Director (L&PS) ceased to be a director on the Board of SCI due to superannuation on 30.04.2014. On 07.07.2014, the Board appointed Capt S Narula as Director (L&PS). Shri B. K. Mandal, Director (Finance), who was holding additional charge as CMD from 01.01.2013 to 27.01.2014, ceased to be a director on the Board of SCI due to superannuation on 31.05.2014. Shri A. K. Gupta was appointed Chairman & Managing Director (CMD) w.e.f. 28.01.2014. Shri A. K. Gupta also holds additional charge of the post of Director (T&OS) and Director (Finance). The following independent directors ceased to be a part of the Board of Directors on expiry of their term:

Sr. Name of Director Date of Completion of Tenure No.

1. Shri T. S. Ganeshan 10.08.2013

2. Shri Arun Ramanathan 10.08.2013

3. Shri Arun K. Verma 10.08.2013

4. Shri Nasser Munjee 10.08.2013

5. Shri U. Sunderarajan 10.08.2013

6. Shri S. C. Tripathi 10.08.2013

7. Shri S. K. Roongta 28.10.2013

Subsequently the following Independent Directors were appointed/ reappointed on the Board of Directors of SCI:

Name Date of Appointment/ Remarks Reappointment Shri T. S. Ganeshan 12.11.2013

Shri Arun Ramanathan 12.11.2013 Reappointment

Shri Arun K. Verma 12.11.2013

Shri Ashish Makhja 26.05.2014

Shri P Umashankar 26.05.2014

Shri N. C. Sridharan 26.05.2014 Appointment

Prof. Gopal V 26.05.2014

Shri R. Santhanam 26.05.2014

Auditors'' Report

The auditors in their audit report for the quarter ended 31st March, 2014 have brought out that;

a. In absence of sufficient documentary evidence to comply with clause 50 and 51 of AS 28 Impairment of Assets issued by ICAI in respect of the adjustments required to the Discount rate currently taken at 6% for the specific risks associated with the cash flows such as currency risk, price risk, country risk, cash flow risk etc. and estimation of expected rate of return on equity to arrive at the Weighted Average Cost of Capital, the effect of which on discount rate remains unascertainable on the statement of profit and loss account, fixed assets and provision for impairment.

b. In the absence of positive confirmations required in response of letters issued by the management as per para 13 of SA 505 External confirmations issued by ICAI for trade receivables that may require adjustment to the statement of profit and loss account and their balances respectively, the consequential impact of the same on statement of profit and loss account and balance sheet remains unascertainable.

c. We draw attention toward the direct access of the Accounting Software provided to the Agents for accounting of the expenses relating to the port and 36% of the same are yet to be verified by the Company, due to which global netting is done without reconciliation towards the prefunding to agents and Vendor Reconciliation account, the consequential effect of the same on the Statement of Profit and Loss remains unascertainable.

d. In our opinion and according to the information and explanations given to us, special emphasis is required on the continued failure to correct major weakness in internal control systems as applicable to SAP and other sub systems in relation to the agents working, accounting and timely and proper verification by the Corporation. Emphasis also needs to be given on the implementation of the system audit report conducted by the organization in relation to the SAP - ERP and other critical business process, to establish checks on the complete and proper recording of the transaction relating to the expenses and revenue.

e. In our opinion, the company does have an internal audit system commensurate with its size and the nature of its business. However due care needs to be given to the timely and proper recording of transactions and the inspection of agents needs to be conducted.

f. We have been informed that one of the foreign agents of the company has manipulated the container movement report submitted from time to time and thus did not pay to the company its rightful dues. After the discovery of the same, the agent has deposited an amount of Rs. 13 crores on adhoc basis for last five years. The company has constituted a committee to further investigate the matter and to exactly quantify the actual amount. The report of the committee has not been submitted as yet. Except as mentioned in the Foregoing lines, any other material fraud on or by the Company has not been noticed or reported during the year nor we have been informed of any such case by the management that causes the financial statements to be materially misstated.

The management''s views on the above observations are as below:

a. While doing the impairment exercise, company has taken weighted average cost of capital as the discounting factor as per clause 50 of AS 28 which works out to approximately 6%. The Company has done analysis of risks such as country risk, currency risk, price risk, cashflow risk and asset specific risks. It is found that there is no necessity to make any adjustment to the discounting rate as per clause 51 of AS 28.

b. The PSUs and government organisations constitute more than 50% of the trade receivables. The Company had sent letters requesting balance confirmation to all major customers including PSUs. However, despite persistent follow up through letters, emails, personal visits and correspondence at highest levels, most of the debtors did not respond. The management does not expect any material impact on the Statement of Profit & Loss Account due to this.

c. As per the system adopted by the company, port related expenses are booked by the agents through specially designed software. The same are subsequently verified by an external firm & approved by the company. This process takes time due to involvement of multiple departments in the approval process. About 64.3 % of the expenses have been verified and approved by the company and the balance is in process for FY 2013-14. From our past experience it has been observed that relatively minor amount of expenses are disallowed by the company subsequently. Hence, the impact on Statement of Profit & Loss Account is not expected to be material.

d. The Management is continuously reviewing the functioning of ERP system and incorporating changes to remove deficiencies found / brought to its notice. The systems are reviewed constantly and additional controls are introduced as considered necessary. The accounts and supporting documents are thoroughly checked by the Company and then transactions are approved in the system. System audit was carried out by M/s Deloitte and their recommendations are under implementation.

e. The company is making serious efforts to ensure timely recording of transactions. However, since substantial business is carried out through global network of agents, the receipt of accounts with supporting documents takes some time. We have already commenced inspection of agents accounts. During the year 2014-15, one Indian Agent was inspected by our statutory auditors and four overseas agents were inspected by a team of the company and external internal audit personnel. Management has taken steps to conduct such inspections on regular basis in future as well for better internal controls on agency accounts.

f. As a consequence of discovery of such irregularity in case of one agent, the container movement reporting is being scrutinized thoroughly in respect of all the agents. A specially constituted team of the management comprising representatives from the commercial division, SCI London office representative and a senior partner of SCI''s external-internal auditor had visited four agents in Europe. The movement of containers was scrutinized by this team in all the four locations and no discrepancy was observed. Currently, even in case of agent, who has deposited the above mentioned Rs. 13 crores no further discrepancy has been observed by the visiting team. Management is of the view that this issue is an isolated matter and the financial statements are not materially misstated.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report.

Directors’ Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors’ Responsibility

Statement, it is hereby confirmed:

* That in the preparation of the accounts for the financial year ended 31st March 2014, the applicable accounting standards have been followed along with proper explanation relating to material disclosures;

* That the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

* That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

* That the Directors have prepared the accounts for the financial year ended 31st March 2014 on a “going concern” basis.

Acknowledgements

Your Directors extend their gratitude to Dr. Vishwapati Trivedi, Secretary to the Government of India, Ministry of Shipping, and look forward to his continued support and guidance. Your Directors also welcome Shri Nitin Gadkari, Minister of Shipping and Shri Krishan Pal, Minister of State for Shipping and look forward to their support and guidance in managing the affairs of the Company.

Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, Road Transport & Highways for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers’ Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company. Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Company’s employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

Place : Mumbai Dated : 12th August, 2014 For and on behalf of the Board of Directors

A. K. Gupta Chairman & Managing Director


Mar 31, 2013

To the Members,

The Directors have pleasure in presenting the 63rd Annual Report on the working of your Company for the financial year ended 31st March, 2013.

Accounting Year

The year under report covers a period of 12 months ending on 31st March, 2013.

FINANCIAL PERFORMANCE

The comparative position of the working results for the year under report vis-a-vis earlier year is as under:

(Rs. In crores)

2012-13 2011-12

Gross Earnings 4796 4500

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 492 623

Less : Interest 162 387

Depreciation 760 922 609 996

Profit before items relating to earlier years, exceptional items & tax (430) (373)

Prior year''s adjustments 62 33

Profit before Extraordinary items & tax (368) (340)

Extraordinary items 300 -

Provision for Indian Taxation (46) (88)

Net Profit / Loss (-) (114) (428)

Appropriations :

The working results for your company for the year 2012-13 after considering prior period adjustments & extraordinary items show a loss of Rs. 114.31 crores.

After adding a sum of Rs. 161.71 crores (being balance profit and loss account brought forward from previous year), the amount available for disposal works out to 47.4 crores.

Your directors propose to make the following appropriations from this amount:

Staff Welfare Fund 1.2 crores

Total 1.2 crores

After the proposed appropriation, the sum available is Rs. 46.20 crores which is being carried forward to next year''s accounts.

Brief Analysis of Financial Performance:

The financial performance of your Company was impacted by the adverse freight markets during the year. There has been an increase in the operating earnings due to induction of twelve new vessels during the year though freight rates were depressed. The Company also had extraordinary income of Rs. 300 crs being the reversal of borrowing cost (arising on account of exchange loss arising out of revaluation of the foreign currency loans) of earlier years. However, the same has been offset primarily by increase in depreciation, creation of provision for diminution in value of investments and higher interest cost due to the new vessels inducted.

Fleet Position during the Year:

During the year under report, 8 vessels aggregating to 287,460 DWT were phased out from the SCI fleet whereas 12 vessels comprising of six newbuilding bulk carriers, one resale Crude oil tanker and five new building offshore vessels aggregating to 630,172 DWT were added to SCI fleet. Thus, the overall fleet position, which was 76 ships at the beginning of the year, improved to 80 ships at the end of the year as shown in the following table:

NEWBUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built DWT

SCI KUNDAN AHTSV (120T Bollard Pull) Cochin Shipyard 2,011

m.v. Vishva Diksha Dry Bulk carrier STX (Dalian) yard 57,132

m.v. Vishva Anand Dry Bulk carrier STX (Dalian) yard 80,204

m.v. Vishva Vinay Dry Bulk carrier STX (Dalian) yard 80,139

SCI Ahimsa AHTSV (120T Bollard Pull) Cochin Shipyard 2,005

SCI Nalanda Platform Supply Vessel Cochin Shipyard 3,093

m.t. Desh Shobha Crude Oil Tanker Hyundai Samho Heavy Industries 158,034

m.v. Vishva Vijay Dry Bulk carrier STX (Dalian) yard 80,312

m.v. Vishva Preeti Dry Bulk Carrier STX (Dalian) yard 80,250

SCI Yamuna Platform Supply Vessel Cochin Shipyard 3,095

m.v. Vishva Jyoti Dry Bulk carrier Jiangsu Eastern Heavy Industries 81,894

SCI Urja AHTSV (120T Bollard Pull) Cochin Shipyard 2,003

Total 630,172

VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Year Built DWT

m.v. Ramanujam Passenger 1987 163

m.v. Dakshineshwar Dry Bulk carrier 1987 47,277

m.v. Gangasagar Dry Bulk carrier 1987 47,281

m.t. Maharshi Karve Crude Oil Tanker 1978 122,109

m.t. C.V. Raman Crude Oil Tanker 1981 40,329

m.v. Lok Prem Dry Bulk carrier 1990 26,714

SCI-01 AHTSV 1984 1,775

SCI-04 AHTSV 1984 1,812

VESSELS ON ORDER AT THE END OF THE YEAR

Type No. Shipyard Total DWT

Anchor Handling, Towing & Supply Vessel (AHTSV) (80T BP) 1 Bharati Shipyard Ltd. 2,000

Kamsarmax bulk carrier 3 Jiangsu Eastern Heavy Industries Co. Ltd. 246,000

VLCC 2 Jiangsu Rongsheng Heavy Industries Co. Ltd. 634,000

6.500 teu Cellular Container vessel 3 STX (Dalian) Shipbuilding Co. Ltd. 256,800

3.500 teu Cellular Container vessel 1 Rongcheng Shenfei Shipbuilding Co. Ltd. 43,000

Anchor Handling, Towing & Supply Vessel (AHTSV) (80T BP) 6 ABG Shipyard Ltd. 12,000

16 1,193,800

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988

In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under:

- Foreign exchange earned and saved including deemed earned and saved Rs. 4258.93 crores.

- Foreign exchange used including deemed used Rs. 4332.55 crores.

Expenses on Entertainment, Foreign tours etc.

During the year under report your Company spent Rs. 56 lakhs on entertainment, Rs. 270 lakhs on publicity & advertisements and Rs. 293 lakhs on foreign tours of Company''s executives.

Board of Directors

During the year under review, the Ministry of Shipping appointed Shri Sunil Kohli, Joint Secretary & Financial Advisor (JS&FA) as Non-Executive Director (ex-officio) on the Board of SCI w.e.f. 21.09.2012 in place of Shri Vijay Chibber who had relinquished his charge as Additional Secretary & Financial Advisor (Shipping). Subsequently, on relinquishment of the additional charge of JS&FA (Shipping) by Shri Sunil Kohli on 25.1 1.2012, the Ministry of Shipping appointed Dr. (Ms.) T. Kumar as Additional Secretary & Financial Advisor (Shipping) as Non-Executive Director (ex-officio) and her appointment on the SCI Board took effect on 26.11.2012.

Shri Kailash Gupta, Director (P&A) and Shri S. Hajara, Chairman & Managing Director (CMD) ceased to be directors on the Board of SCI due to superannuation w.e.f. 31.12.2012. Capt. B. B. Sinha was appointed Director (P&A) w.e.f. 1.1.2013. Shri B.K. Mandal, Director (Finance), Shipping Corporation of India (SCI) Ltd., holds additional charge of the post of Chairman & Managing Director (CMD), SCI w.e.f. 01.01.2013 to 31.3.2013 or until further orders of the Ministry, whichever is earlier. The tenure of Shri B K Mandal as CMD has been extended from time to time by the Ministry of Shipping. Prof. Sushil Khanna (Independent Director) tendered his resignation vide his email on 25.03.2013. The said resignation is under process at Ministry level. The tenure of Independent Directors has come to a close on 10th August, 2013. Ministry of Shipping is taking necessary action to fill up the vacant positions of Independent Directors.

Details of shares lying unclaimed

The details of the shares issued pursuant to FPO remaining unclaimed and lying in the escrow account, the voting rights of which shall remain frozen till the rightful owner of such shares claim the shares, are given as under:

Sr. No. Details No. of Share holders No. of Shares

1 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 01.04.2013 4 436

2 Number of shareholders who approached for transfer of shares from suspense account till 31.03.2013 0 0

3 Number of shareholders to whom shares were transferred from suspense account till 31.03.2013 0 0

4 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 31.03.2013 4 436

5 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 10.06.2013 4 436

Auditors'' Report

The auditors in their audit report for the year ended 31st March, 2013 have brought out that;

The Company has not complied with the requirements of AS - 28 - Impairment of Assets, issued by ICAI, the effect of which is unascertainable.

The accuracy of exchange gain / loss in respect of customer reconciliation / advances received from customers / trade payables recognized on revaluation as per accounting standard-11- "The effects of changes in foreign exchange rates" remains unverifiable and unascertainable.

The Company is unable to provide confirmation for accounts receivable, accounts of agents. In the absence of the reasonable audit evidence, the effect of the same remains unascertainable /unverifiable on the statement of profit and loss account and balance sheet.

We draw attention towards the direct access of the Accounting Software provided to the Agents for accounting of expenses relating to the port and 83% of the same are yet to be verified by the Company, the consequential effect of the same on the statement of profit and loss remains unascertainable.

The management''s views on the abovementioned points are as below:

The management has tested its assets for impairment and has computed the recoverable value for all the ships owned by the company following AS 28. The methodology adopted by the company has been consistent over the last 3 years. As per the calculations, there is no impairment on the assets hence provision for impairment is not considered necessary.

The company has developed software to match the collectibles and collections related to customers. Substantial progress has been achieved in this regard upto 31st March, 2013.

In case of vendors, the expenditure incurred by the agents is prefunded through Proforma Disbursement Account after scrutiny of the prefunding claims. The final claims for the expenditure booked by the agent are received through Final Disbursement Account which is verified after the physical documents are received from the agent. This process takes time due to the nature of the business.

We do not expect any material impact on the profit / loss due to this.

We have sent letters seeking confirmation of balances to all our major debtors. However; the confirmations have not been received. This does not have material impact on the accounts of the company.

SCI has a worldwide network of agents. As per the system adopted by the company, port related expenses are booked by the agents. The same are subsequently verified by an external firm. About 45% of the expenses have been verified by the company and the balance is in process. From our past experience it has been observed that relatively minor amount of expenses are disallowed by the company subsequently.

The audited accounts has been reviewed by the Comptroller & Auditor General of India (CAG) and the certificate of CAG is also annexed to this report.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report. Directors'' Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors'' Responsibility Statement, it is hereby confirmed:

- That in the preparation of the accounts for the financial year ended 31st March, 2013, the applicable accounting standards have been followed along with proper explanation relating to material disclosures;

- That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

- That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

- That the Directors have prepared the accounts for the financial year ended 31st March, 2013 on a "going concern" basis.

Acknowledgements

Your Directors extend their gratitude to Shri G. K. Vasan, Hon''ble Minister for Shipping, and look forward to his continued support and guidance. Your Directors also welcome Shri Milind Deora, Minister of State for Shipping and Shri Vishwapati Trivedi, Secretary to the Government of India, Ministry of Shipping, and look forward to their support and guidance in managing the affairs of the Company.

Your Directors also take this opportunity to express their gratitude and thanks to Shri Pradeep K. Sinha, former Secretary to the Government of India, Ministry of Shipping for the support and guidance extended to your Company during his tenure. Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers'' Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and unstinted service of your Company''s employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

For and on behalf of the

Board of Directors

Place : Mumbai B.K.Mandal

Dated : 8th August, 2013 Chairman & Managing Director


Mar 31, 2012

To the Members,

The Directors have pleasure in presenting the 62nd Annual Report on the working of your Company for the financial year ended 31st March 2012.

Accounting Year

The year under report covers a period of 12 months ended on 31st March 2012.

Financial Performance

The comparative position of the working results for the year under report vis-à-vis earlier year is as under:

(Rs. Crores)

2011-12 2010-11

Gross Earnings 4500 4018

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 623 1159

Less : Interest 387 67

Depreciation 609 996 465 532

Profit before items relating to earlier years, exceptional items & tax (373) 627

Prior year's adjustments 33 30

Excess Provision / sundry credit balances written back 0 0

Profit before Exceptional items & tax (340) 657

Exceptional items -

Provision for Indian Taxation (88) (89)

Net Profit (428) 568

Appropriations

The working results of your Company for the year 2011-2012 after considering prior period adjustments show a loss of Rs. 428.21 crores. After adjusting a sum of Rs. 590.42 crores (being balance profit and loss account brought forward from the previous year), the amount available for disposal works out to Rs.162.21 crores. Your Directors propose to make an appropriation of Rs. 0.5 crore towards Staff Welfare Fund from this amount. After the proposed appropriation, the sum available is Rs. 161.71 crores which is being carried forward to next year's accounts.

Brief Analysis of Financial Performance :

The financial performance of your Company was impacted by the adverse freight markets during the year. There has been an increase in the gross earnings due to induction of ten new vessels during the year even though freight rates were depressed. However, the same have been offset primarily by an increase in fuel prices. Further your Company has also reported finance cost at Rs. 387.30 crores during the year which includes Rs. 296.73 crores on account of exchange loss arising out of revaluation of the foreign currency loans as a result of the depreciation of the Indian rupee to the US Dollar. This exchange loss has been considered as finance cost as per the requirement of the relevant accounting standard. The actual interest outgo in the current year was only Rs. 90.57 crores as against Rs. 63.94 crores in the earlier year.

Fleet Position during the Year :

During the year under report, fourteen vessels aggregating 570,443 dwt. tonnage were disposed of whereas eleven vessels comprising of seven newbuilding bulk carriers and four newbuilding offshore vessels total aggregating to 406,927 dwt. were delivered. Thus, the overall fleet position, which was 79 ships at the beginning of the year, closed at 76 ships at the end of the year as shown in the following table:

Implementation of Official Language Policy

During the year under report, your Company organized quarterly meetings of its Departmental Official Language Implementation Committee wherein a review on overall progress of Hindi in its offices was made and thereafter appropriate follow up actions were taken. Your Company has also represented by co-chairing the Town Official Language Implementation Committee (TOLIC) meetings with HPCL, during the year under report.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988

In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under:

Foreign exchange earned and saved including deemed earned and saved ? 4206.80 crores.

Foreign exchange used including deemed used ? 4258.09 crores.

Expenses on Entertainment, Foreign Tours, etc.

During the year under report your Company spent? 63 lakhs on entertainment, ? 356 lakhs on publicity & advertisements and ? 606 lakhs on foreign tours of Company's executives.

Board of Directors

Shri Rajeev Gupta ceased to be a Director w.e.f. 7.12.2011 consequent to relinquishment of the charge of Joint Secretary (Shipping) in the Ministry of Shipping. The Board places on record its appreciation for the valuable services rendered by him.

The Ministry of Shipping (MoS) thereafter communicated appointment of Shri Rakesh Srivastava [who had taken additional charge of Joint Secretary (Shipping) in the MoS] as a Director on the Board of your Company which took effect on 23.12.2011. However, on his relinquishment of the additional charge of Joint Secretary (Shipping), he ceased to be a Director on the Company's Board w.e.f. 1.2.2012 and Shri M. C. Jauhari who took over the charge of Joint Secretary (Shipping), was appointed on the SCI Board w.e.f. 2.2.2012.

Shri U. Sundararajan, Prof. Sushil Khanna, Shri Arun Kumar Verma and Shri Arun Ramanathan are retiring by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for appointment.

Auditors' Report

The Auditors' Report is attached to the Report. The Statutory Auditors had, in respect to the Audited Accounts for the year ended 31.03.2012, drawn the attention of the members on issues mainly arising out of switching over to integrated ERP System which are mentioned below :

1. Refer Note No 35 (i) accompanying to the Financial Statement deals with Netting of certain Balances with trade receivables and payables pending adjustment of likely transaction, verification of physical documents and its authorisation and Note No. 35 (ii) in respect of accounting of the effects of changes in foreign exchanges rates of monetary items and consequential accounting of the exchange gain / losses of which impact on the financial statement is not ascertainable in respect of loss for the year and trade receivables and payables.

2. During the course of audit, failure to correct weaknesses in internal control systems is observed in accounting of transactions, interface of transactions amongst the subsystems and SAP-ERP. Further, no system audit is carried out for interface of the data from functional subsystems to SAP-ERP and other critical business process, to establish checks on the complete and proper recording of the transaction relating to the expenses and revenue, post implementation of functional and accounting software - SAP.

3. The Company has an internal audit system; however the same is not commensurate with the size and nature of its business. In view of implementation of ERP and other functional packages it requires further strengthening.

The replies of the Management to the Auditors' observations are given below :

1. The problem had arisen on account of implementation of the new IT system which is in the process of stabilization. To overcome this, the company has developed software to match the collectibles and collections related to customers. Substantial progress has been achieved in this regard upto 31st March, 2012. The management does not expect the impact to be material.

In case of vendors, the expenditure incurred by the agents are prefunded through Proforma Disbursement Account after scrutiny of the prefunding claims. The final claims for the expenditure booked by the agent are received through Final Disbursement Account which are verified after the physical documents are received from the agent. This process takes time due to the nature of the business.

2. FY 2011-12 was the first full year of operations after the new systems were implemented. Expectedly, there were initial interface errors amongst the systems which were all effectively handled with the help of system vendors and consultants.

It was decided to carry out the system audit after stabilization of the systems. Accordingly, the management proposes to carry out system audit in FY 2012-13.

3. Internal audit is carried out in the organization by an external firm of Chartered Accountants. After assessing the necessity of having internal auditors with SAP certification, system audit related qualifications, capacity to engage more number of staff in SCI and sufficient experience of audits in ERP environment, a new firm of Chartered Accountants fulfilling these requirements has been engaged w.e.f. 01.04.2012. With the stabilization of new IT systems, the scope of internal audit has also been widened.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report.

Directors' Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, it is hereby confirmed:

That in the preparation of the accounts for the financial year ended 31st March 2012, the applicable accounting standards have been followed along with proper explanation relating to material departures;

That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

That the Directors have prepared the accounts for the financial year ended 31st March 2012 on a "going concern" basis.

Acknowledgements

Your Directors extend their gratitude to Shri G. K. Vasan, Hon'ble Minister for Shipping, and look forward to his continued support and guidance. Your Directors also extend a hearty welcome to Shri Pradeep K. Sinha, Secretary to the Government of India, Ministry of Shipping and look forward to his support and guidance in managing the affairs of the Company.

Your Directors also take this opportunity to express their gratitude and thanks to Shri Mukul Roy, former Hon'ble Minister of State in the Ministry of Shipping, and Shri K. Mohandaas, former Secretary to the Government of India, Ministry of Shipping for the support and guidance extended to your Company during their tenure. Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, Road Transport & Highways for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers' Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Company's employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible. For and on behalf of the Board of Directors

Place : Mumbai S. Hajara

Dated : 13.08.2012 Chairman & Managing Director


Mar 31, 2011

To the Members,

The Directors have pleasure in presenting the 61st Annual Report on the working of your Company for the financial year ended 31st March 2011.

Accounting Year

The year under report covers a period of 12 months ended on 31st March 2011. Financial Performance

The Comparative position of the working results for the year ended vis-à-vis earlier year is as under:

(Rs. Crores)

2010-2011 2009 -2010

Gross Earnings 4020 3896

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 1156 849

Less: Interest 64 53

Depreciation 465 529 380 433

Profit before items relating to earlier years, exceptional items & tax 627 416

Prior year's adjustments 30 (6)

Excess Provision / sundry credit balances written back 0 66

Profit before Exceptional items & tax 657 476

Exceptional items -

Provision for Indian Taxation (89) (99)

Net Profit 568 377

Appropriations

The working results of your Company for the year 2010-2011 after considering prior period adjustments show a profit of Rs. 567.35 crores. An amount of Rs. 114 crores has been transferred to Tonnage Tax Reserve u/s 115VT of Income Tax Act. After adding a sum of Rs. 516.63 crores (being balance profit and loss account brought forward from the previous year), the amount available for disposal works out to Rs. 969.98 crores. Your Directors propose to make the following appropriations from this amount:

1. Capital Reserve Rs. 17.59 crores

2. General Reserve Rs. 57.00 crores

3. Staff Welfare Fund Rs. 1.00 crore

4. Corporate Social Responsibility Reserve Rs. 5.67 crores

Total Rs. 81.26 crores

Dividend

The Board of Directors, in addition to the interim dividend @ 30% already paid for the year 2010-11, now recommends payment of final dividend @ 25% for the year 2010-11 absorbing a sum of Rs. 116.45 crores. In addition, dividend tax of Rs.18.89 crores will be payable by the Company. After the proposed appropriations, the sum available is Rs. 590.43 crores which is being carried forward to next year's accounts.

Fleet Position during the Year :

During the year under report, nine vessels aggregating 520,259 dwt. tonnage were disposed of whereas four new building crude oil tankers and eight new building product tankers aggregating to 1,109,145 dwt. were delivered. Thus, the overall fleet position, which was 76 ships at the beginning of the year, closed at 79 ships at the end of the year as shown in the following table:

FLEET PROFILE DURING THE YEAR

Particulars As on 1.4.2010 Additions Deletions As on 31.3.2011

No. Dwt. No. Dwt. No. Dwt. No. Dwt.

1. (a) Crude Oil Tanker 26 35,76,271 4 458,942 6 402,916 24 36,32,297

(b) Product Tankers 10 4,23,172 8 650,203 2 90,893 16 9,82,483

(c) Chemical Tankers 3 99,174 - - - - 3 99,174

(d) Gas Carriers 2 35,202 - - - - 2 35,202

2. Bulk Carriers 18 781,777 - - 1 26,450 17 755,327

3. Liner Ships 5 202,413 - - - - 5 202,413

4. Offshore Supply Vsls. 10 17,904 - - - - 10 17,904

5. Passenger- Cum- Cargo Vessels 2 5,303 - - - - 2 5,303

Total 76 51,41,216 12 1,109145 9 520,259 79 57,30,103

NEWBUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built Dwt.

m.t. Desh Mahima Crude oil Tanker Hyundai Heavy Industries (HHI), S.Korea 114,686

m.t. Desh Garima Crude oil Tanker HHI, S.Korea 114,790

m.t. Desh Suraksha Crude oil Tanker HHI, S.Korea 114,783

m.t. Desh Samman Crude oil Tanker HHI, S.Korea 114,683

m.t. Swarna Sindhu Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Ganga Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Brahmaputra Product Tanker STX Shipyard, S.Korea 73,606

m.t. Swarna Godavari Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Krishna Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Kaveri Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Jayanti Product Tanker HHI, S.Korea 104,895

m.t. Swarna Kamal Product Tanker HHI, S.Korea 104,862

VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Year Built Dwt.

m.v. Lok Rajeshwari Bulk Carrier 1988 26,450

m.t. Lance Naik Karam Singh, PVC Crude Oil Tanker 1984 67,153

m.t. Lt. Rama Raghoba Rane, PVC Crude Oil Tanker 1984 67,153

m.t. Subedar Joginder Singh, PVC Crude Oil Tanker 1984 67,137

m.t. Major Saitan Singh, PVC Crude Oil Tanker 1985 67,185

m.t. Havildar Abdul Hamid, PVC Crude Oil Tanker 1985 67,164

m.t. Col. Ardeshir Burzorji Tarapore, PVC Crude Oil Tanker 1985 67,124

m.t. Major Hoshiar Singh, PVC Product Tanker 1985 45,420

m.t. Lance Naik Albert Ekka, PVC Product Tanker 1985 45,473

VESSELS ON ORDER AT THE END OF THE YEAR

Type No. Shipyard Total Dwt.

VLCC 2 Jiangsu Rongsheng Heavy Industries Co. Ltd. China 6,34,000

Handymax Bulk Carriers 6 STX (Dalian) Shipbuilding Co. Ltd. China 3,44,400

Kamsarmax Bulk Carriers 4 Jiangsu Eastern Heavy Industry Co. Ltd. China 3,28,000

Panamax Bulk Carriers 4 STX (Dalian) Shipbuilding Co. Ltd. China 3,22,620

6,500 TEU Cellular Container vessels 3 STX (Dalian) Shipbuilding Co. Ltd. China 2,56,800

Anchor Handling, Towing & Supply Vessels (AHTSVs) (80T BP) 4 Bharati Shipyard Ltd. India 8,000

Anchor Handling, Towing & Supply vessels (AHTSVs) (120 T BP) 2 Cochin Shipyard Ltd. India 3,940

Anchor Handling, Towing & Supply vessels (AHTSVs) (120 T BP) 2 Cochin Shipyard Ltd. India 3,940

Platform Supply Vessels (UT 755 Design) 2 Cochin Shipyard Ltd. India 6,120

TOTAL VESSELS ON ORDER 29 19,07,820

Implementation of Official Language Policy

Your Company put in all-out efforts to promote and popularize the use of Official Language Hindi in its day-to-day official work and ensured compliance of the provisions of the Official Language Act, 1963 and the Official Language Rules, 1976 during the year under report. On the occasion of Golden Jubilee Year celebration, you company organized an all-India level conference "Sagar Manthan" at its Maritime Training Institute, Mumbai, which was attended to by over 120 participants from various PSUs and Government Offices across the country.

In addition to this, your Company also acquired corporate license (unlimited users) of bilingual software viz. APS Saral, to increase the use of Hindi on computers, and made almost all PCs Unicode Hindi font enabled. As far as Hindi training is concerned, SCI is determined to impart bilingual software training to its employees regularly at its Maritime Training Institute so as to achieve the set targets in the Annual Programme issued by the Central Government. SCI's website is also available in Hindi and English bilingually.

During the year under report, your Company organized quarterly meetings of its Departmental Official Language Implementation Committee wherein a review on overall progress of Hindi in its offices was made and thereafter appropriate follow up actions were taken. Besides this, a number of Hindi promotional activities, competitions and programmes like Hindi Kavi Sammelan were also organized.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988

In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under:

Foreign exchange earned and saved including deemed earned and saved Rs. 3736.53 crores.

Foreign exchange used including deemed used Rs. 3103.94 crores.

Expenses on Entertainment, Foreign Tours, etc.

During the year under report your Company spentRs. 61 lakhs on entertainment, Rs. 269 lakhs on publicity & advertisements and Rs. 371 lakhs on foreign tours of Company's executives.

Board of Directors

Shri A.K. Mago, A.D. Fernando, U. Sundararajan, J.N.L. Srivastava, B.H. Dholakia and Keshav Saran ceased to be Directors w.e.f. 28.07.2010 consequent to the cessation of their tenure as non-official part-time Directors. Shri U.C. Grover and Capt. K.S. Nair ceased to be Directors on the Board consequent to their superannuation on 31.08.2010 and 31.12.2010, respectively. The Board places on record its appreciation for the valuable services rendered by them.

In terms of the nominations received from the Ministry of Shipping, eight non-official part time(independent) Directors have been appointed / reappointed on the Board of Directors. S/Shri Nasser Munjee, Sushil Tripathi and U. Sundararajan have been reappointed and S/Shri Arun Ramanathan, Arun Kumar Verma, Prof. Sushil Khanna and Rear Admiral (Retd.) T.S. Ganeshan have been appointed on the Board w.e.f 11.08.2010.

The Board has also appointed Shri S.K. Roongta as non-official part time Director w.e.f. 13.12.2007 on his nomination by the Ministry of Shipping Road Transport & Highways. Shri Arun Kumar Gupta and Capt. Sunil Thapar have been appointed as Director (Technical & Offshore Services) and Director (Bulk Carriers & Tankers) by the President of India w.e.f. 24.10.2010 and 11.01.2011, respectively. They hold office up to the date of the forthcoming Annual General Meeting and being eligible, offer themselves for appointment Shri B.K. Mandal, Shri J.N. Das, Shri Nasser Munjee and Shri S.C. Tripathi are retiring by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for appointment.

Auditors Report

The Auditors Report is attached to the Report. The Statutory Auditors had, in respect to the Audited Accounts for the year ended 31.03.2011, drawn the attention of the members on issues mainly arising out of switching over to integrated ERP System which are mentioned below.

1) The Auditors observed that various errors and omissions were made by the Company during the process of migration / uploading of data post migration in the new accounting software ERP-SAP in respect of accounting of the income and expenses, assets and liabilities for which necessary rectification were carried out by the Company.

2) They further observed that, there remain certain items where the company is unable to make appropriate adjustment and the effects of errors and adjustments, if any, as might have been determined to be necessary in the data migrated / uploaded in the accounting software post migration.

3) It has been further pointed out by them that the Company has:

i) Not accounted the income and expenditure in respect of unfinished voyages as per accounting policy No. 2 (c) having no impact on the profit for the year.

ii) Not accounted the foreign currency transactions at the rates as stipulated in Accounting Policy No. 8 (a) for the months of January 2011 and February 2011 instead, the same have been accounted at the exchange rates applicable for the month of March 2011.

4) The statutory Auditors observed some weakness in design of internal control in respect of migration of the data / uploading of the data in the process of implementation of ERP-SAP. They however concluded that as at the balance sheet data, the material errors and omission affecting the results as observed during the course of their audit were rectified by the company.

5) The Statutory Auditors further pointed out that post implementation of the ERP-SAP, the internal auditor expressed inability to cover many areas and report thereon including accounting of income and expenses on finished and unfinished voyages, etc.

The replies of the Management to the Auditors' observations are given below.

1) Post migration to SAP, errors coming to our notice have been attended to and necessary adjustments are carried out.

2) The Management has brought out in Schedule 25, Notes on Accounts, such cases where adjustments have not been possible due to issues arising on migration and uploading of data in the new system. The Management has also brought out therein that these have no material impact on the results of the Corporation.

3) (i) As per accounting policy no. 2 (c) of the company, for all unfinished voyages, amount received on account of freight earning and other charges in respect of such voyages are carried forward as Unfinished Voyage Earnings. Direct operating expenses incurred for such voyages including hire charges and freight for vessels chartered-in are carried forward as Unfinished Voyage Expenses except in case of time charter. As far as unfinished voyages are concerned the booking of both income and expenditure is done by SCI consistently on receipt / disbursement basis. It is in line with the accounting policy 2 (c) of the company.

(ii) As per accounting policy 8(a), "All foreign currency transactions are recorded at the exchange rate of the last Friday of the preceding month published in Financial Times, London."

There were no transactions from 1st February to 27th February either in the legacy or in the new system as it was a "Blackout period" prior to data migration to SAP.

The comparative rates for some of the major currencies for February 2011 and March 2011 are as below:

Currency February 2011 March 2011 % difference

Euro 62.632 62.311 (-) 0.005%

USD 45.615 45.325 (-) 0.006%

SGD 35.670 35.591 (-) 0.002%

UKP 72.705 72.846 ( ) 0.002%

Since the exchange rate difference for the month of February 2011 and March 2011 are insignificant, there is no material impact. Moreover, before migration, revaluation run was carried out in legacy system for January, 2011.

4) During data migration, even though a matched trial balance was uploaded but certain deficiencies were subsequently observed by the company in respect of line item wise migrations indicating details like foreign currency component, dates of invoices and debit notes, etc. Care has been taken to rectify such deficiencies as and when observed.

The new system went live on 28.02.2011. The time available before the Annual Closing was not sufficient for the Internal Auditors; at present, the Internal auditors are carrying out the audit.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report.

Directors' Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, it is hereby confirmed:

That in the preparation of the accounts for the financial year ended 31st March 2011, the applicable accounting standards have been followed along with proper explanation relating to material departures;

That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

That the Directors have prepared the accounts for the financial year ended 31st March, 2011 on a "going concern" basis.

Acknowledgements

Your Directors take this opportunity to express their gratitude and thanks to Shri G.K. Vasan, Hon'ble Minister for Shipping, and Shri Mukul Roy, Hon'ble Minister of State in the Ministry of Shipping, and look forward to their support and guidance in managing the affairs of the Company.

Your Directors also extend a hearty welcome to Shri K. Mohandaas, Secretary to the Government of India, Department of Shipping, Ministry of Shipping, and look forward to his support and guidance.

Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers' Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Company's employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

For and on behalf of the Board of Directors

Place : Mumbai S. Hajara

Dated : 13th August, 2011 Chairman & Managing Director


Mar 31, 2010

The Directors have pleasure in presenting the 60th Annual Report on the working of your Company for the financial year ended 31st March 2010.

Accounting Year

The year under report covers a period of 12 months ended on 31st March, 2010.

Financial Performance

The comparative position of the working results for the year under report vis-à-vis earlier year is as under:

(Rs. Crores)

2009- 2010 2008 - 2009

Gross Earnings 3,896 4,564

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 849 1,469

Less : Interest 53 65

Depreciation 380 433 324 389

Profit before items relating to earlier years,

exceptional items & tax 416 1,080

Prior year’s adjustments (6) 4

Excess Provision/sundry credit balances

written back 66 10

Profit before Exceptional items & tax 476 1,094

Exceptional items - (39)

Provision for Indian Taxation 99 (114)

Net Profit 377 941

Appropriations

The working results of your Company for the year 2009-2010 after considering prior period adjustments show a profit of Rs.376.91 crores. An amount of Rs.80 crores has been transferred to Tonnage Tax Reserve u/s 115VT of the Income Tax Act, 1960. After adding a sum of Rs.511.38 crores (being balance in profit and loss account brought forward from the previous year), the amount available for disposal works out to Rs.808.29 crores. Your" Directors propose to make the following appropriations from this amount:

1. General Reserve - Rs. 40.00 crores

2. Staff Welfare Fund - Rs. 1.00 crore

3. Corporate Social Responsibility Reserve - Rs. 3.77 crores

Total - Rs. 44.77 crores

Dividend

Your Directors recommend payment of dividend @ 50% for the year 2009-10 absorbing a sum of Rs.211.73 crores. In addition, dividend tax of Rs.35.16 crores will be payable by the Company. After the proposed appropriations, the sum available is Rs.516.63 crores which is being carried forward to next year’s accounts.

Fleet Position during the Year

During the year under report, eight vessels aggregating to 4,53,540 dwt. were disposed of; one newbuilding crude oil tanker and three newbuilding product tankers aggregating to 4,68,007 dwt. were delivered. Thus, the overall fleet position, which was 80 ships at the beginning of the year, closed at 76 ships at the end of the year as shown in the following table:

FLEET PROFILE DURING THE YEAR

Particulars As on 1.4.2009 Additions

No. Dwt. No. Dwt.

1. (a) Crude Oil Tanker 30 35,89,597 1 3,21,137

(b) Product Tankers 9 3,67,240 3 1,46,870

(c) Chemical Tankers 3 99,174 - -

(d) Gas Carriers 2 35,202 - -

2. Bulk Carriers 19 8,08,505 - -

3. Liner Ships 5 2,02,413 - -

4. Offshore Supply Vessels 10 17,904 - -

5. Passenger-Cum- 2 5,303 - - Cargo Vessels

Total 80 51,25,338 4 4,68,007







Particulars Deletions As on 31.3.2010 No. Dwt. No. Dwt.

1. (a) Crude Oil Tanker 5 3,35,875 26 35,76,271

(b) Product Tankers 2 90,937 10 4,23,172

(c) Chemical Tankers 3 99,174 - -

(d) Gas Carriers 2 35,202 - -

2. Bulk Carriers 1 26,728 18 7,81,777

3. Liner Ships - - 5 2,02,413

4. Offshore Supply Vessels - - 10 17,904

5. Passenger-Cum- - - 2 5,303

Total 8 4,53,540 76 51,41,216



NEWBUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built Dwt.

m.t. Desh Vishal VLCC DSME , S.Korea 3,21,137

m.t. Swarna Kalash Product Tanker Jinling Shipyard, China 47,878

m.t. Swarna Pushp Product Tanker Jinling Shipyard, China 47,795

m.t. Swarna Mala Product Tanker STX Shipyard, S. Korea 51,196*

* Resale vessel acquired on 25.1.2010.



VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Yard Built Dwt.

m.v Lok Prakash Bulk Carrier 1989 26,728

m.t. Major Somnath Sharma, PVC Crude Oil Tanker 1984 67,225

m.t. Naik Jadunath Singh, PVC Crude Oil Tanker 1984 67,169

m.t. CHM Piru Singh, PVC Crude Oil Tanker 1984 67,161

m.t. Capt. G.S. Salaria, PVC Crude Oil Tanker 1984 67,167

m.t. Major Dhan Singh Thapa, PVC Crude Oil Tanker 1984 67,153

m.t. F.O. Nirmaljit Singh Sekhon, PVC Product Tanker 1985 45,485

m.t. Lt. Arun Khetarpal, PVC Product Tanker 1985 45,452

VESSELS ON ORDER AT THE END OF THE YEAR

Type No. Shipyard Total Dwt.

LR-I Product Tankers 6 STX Shipbuilding Co. Ltd., S. Korea 4,33,800

LR-II Product Tanker 2 Hyundai Heavy Industries Co. Ltd., S. Korea 2,10,000

Aframax Crude Oil Carrier 4 Hyundai Heavy Industries

Co. Ltd., S. Korea 4,60,000

Anchor Handling, Towing & 4 Bharati Shipyard Ltd., India 8,000

Supply Vessel (AHTSV) (80T BP)

Handymax Bulk Carrier 6 STX (Dalian) Shipbuilding Co. Ltd., China 3,44,400

Panamax Bulk Carrier 4 STX (Dalian) Shipbuilding Co. Ltd., China 3,22,620

Anchor Handling, Towing & 2 Cochin Shipyard Ltd., India 3,940

Supply vessel (AHTSV) (120 T BP)

Platform Supply Vessels 2 Cochin Shipyard Ltd., India 6,120

(UT 755 Design)

MANAGEMENT DISCUSSION AND ANALYSIS

The overall scenario under which the Shipping industry operated and which impacted the various segments is discussed below.

A) INDUSTRY STRUCTURE AND DEVELOPMENTS

World Scenario

The global economy witnessed a 0.7% contraction in GDP during 2009 after registering a moderate growth of around 3% in the previous year. The performance of major economies / regions during 2009 indicated that, with the exception of China and ‘Other Asia’ which recorded positive growths of 8.3% and 2.6% respectively, the economies of North America, OECD Europe and Japan shrunk by 2.5%, 3.9% and 5.4%, respectively.

* China led the growth in the second half of 2009, mainly fuelled by its domestic demand with the government’s stimulus package contributing to off-set slowdown in exports; and South Korea, Singapore and India also posted significant growth. North American economy reversed the trend of contraction in the second half of 2009 with a surge in manufacturing activity on account of strong exports and inventory build-up. OECD Europe also showed a similar trend, though the pattern was not uniform across the region with Germany and Italy experiencing moderate growth while the British and Spanish economies continued to contract. Japanese economy also reversed the trend by mid-2009 after a double digit rate of decline since late 2008.

Although global Dry Bulk trade contracted slightly during 2009, the year witnessed a massive rebound in Chinese imports with around 50% increase and a stronger than expected recovery in trade in other countries. Deliveries of vessels were 40% below schedule and there was widespread port congestion. Together, these developments contributed to improvement in spot rates throughout the year.

The global Oil trade was characterised by very weak OECD demand, which was off-set to some extent by a massive 12% increase in Chinese imports as also by strong demand in rest of Asia. Overall, the oil trade shrank during 2009 with the crude trade falling somewhat more than the product trade. The total fleet grew by around 7% during the year. The year thus witnessed unfavourable conditions with spot rates falling by around 65% from the previous year. Crude tanker spot rates touched the low levels not experienced since 2002. However, late 2009 and early 2010 brought some encouraging signs with the crude tanker spot rates maintaining a rising trend.

Global "Dry Bulk" imports were 2.9 billion tonnes witnessing a fall of 0.5%. Global "Crude oil" imports during 2009 were around 1.96 billion tonnes, 3.7% lower than in 2008. "Products" imports were 0.8 billion tonnes, declining by 2.3% compared to its previous year’s level. The total "Oil" trade thus witnessed a decline of 3.3%. Global Container trade was in the region of 120 million TEUs, registering an unprecedented contraction of 7.7%.

The share of "Oil" trade in the total ‘Oil & Dry bulk imports in 2009 declined marginally to 48.7% from 50% in the previous year. The share of "Dry Bulk" trade correspondingly increased slightly to 51.3%.

Indian Scenario

As per the Advance Estimates of the Central Statistical Organisation (CSO), Indias GDP growth for 2009-10 is reckoned at 7.2%, nearly the same level as in the previous year despite the unfavourable global economic scenario. This was aided by strong growth in manufacturing and services’ sectors and a lower decline than previously expected in agriculture sector. As per another estimate, the IMF has projected India’s GDP growth in 2009-10 at 6.75% while the RBI has projected 7.5% growth. India’s Foreign Exchange reserves have increased by almost 10% from their year ago level and stood at US$ 277 billion at the end of March 2010. India’s Merchandise Exports in 2009-10 are estimated at US$176.5 billion, lower by 4.7% than the previous year mainly due to global economic meltdown. Imports during the same period were US$278.7 billion, a fall of 8.2% from last-year.

The total Cargo traffic handled by the Major Indian ports during 2009-10 was around 561 million tonnes, increasing by 5.7%. This comprised around 175 million tonnes of POL (Petroleum and Other Liquids) remaining constant at previous year’s level, 189 million tonnes of major Dry Bulk cargoes (Iron Ore, Fertilisers, Coal) which increased by 3.7%, 101 million tonnes of Container traffic showing a substantial increase of 8.6% (however, in terms of TEUs, the increase was around 4.3% indicating that heavy weight cargo was handled at major ports) and 95 million tonnes of "Other Cargoes" (i.e. minor bulks, breakbulk etc.), which declined by 21%.

The share of "Dry Bulk" cargo in Indias Major ports traffic was around 34%, followed by "POL" at 31%, Containerised cargoes at 18% and "Other cargo" accounting for the remaining 17%. The change in the traffic pattern from the previous year indicates that the share of Dry Bulk and POL cargoes has declined with Containerised cargoes and ‘Minor bulk & Breakbulk’ cargoes increasing their share in the trade.

B. OPPORTUNITIES & THREATS

Global Economy

Global GDP is expected to expand by 3.7% in 2010, indicating a considerable improvement over the contraction experienced in 2009. A slightly higher growth at 3.9% is projected for 2011 with similar growth likely to be witnessed over the next three years. However, even this improvement is still below the 4.7% growth witnessed during the 2004-2007 boom period. The overall scenario thus appears to present a somewhat limited growth opportunity for global trade and commerce. As per a recent CMIE (Centre for Monitoring Indian Economy) Report, world trade volume contracted by almost 13% in 2009 with a modest recovery of 5% projected for 2010, subject to a sustained global recovery setting in.

In the dry bulk segment, the Chinese infrastructure spending is expected to slow down and its steel demand projected to mature, with the growth in its overall imports likely to average around 7% p.a. over the next five years. Global demand is also expected to be quite strong over the next two years. However, with the bulk carrier fleet projected to continue growing rapidly in 2010, considerable tonnage would be available for employment. This trend of substantially high addition to the fleet is expected to continue for the next two years.

In the tanker segment, global oil trade is expected to recover in 2010 with both crude and product trades increasing by a little over 3% each. Long-haul shipments such as from Middle East to North America and Europe are projected to rise significantly. However, a new pipeline from Russia to China is scheduled to become operative in late 2010, which would slightly curtail seaborne import shipments. Also, the anticipated decline in floating storage of oil over the coming year would release additional tanker tonnage thereby tempering the demand for tankers. Although global economic growth is projected to accelerate slightly from 2011 to 2014, the demand for oil is expected to grow at a moderate pace as other energy forms such as LNG and nuclear power are likely to increase their market shares. Oil trade is thus projected to grow by around 3% p.a. during this period, with the product trade growing slightly faster than crude trade. China is reckoned to continue to be the most significant market in this segment, followed by ‘Developing Asia’ with India’s oil demand expected to be twice the level of this region. On the fleet side, tanker deliveries are expected to remain relatively high through 2011, and the tanker & combination carrier fleet is expected to continue to expand substantially through 2012.

The projections for the overall economic growth of various countries and regions and the developments in seaborne trade and shipping indicated above are expected to impact global trade as given below.

Global Trade

During 2010 "Dry Bulk" trade is expected to present substantial opportunity for shipping with a robust growth of 10.5% over 2009, however, in 2011 the growth is expected to slow down to about 6.1%.

The "Oil" trade is expected to witness a modest growth of 3.2% in 2010 with both crude and product trades increasing by a little over 3% each. However, in 2011, a lower growth of around 2.8% is projected for the total "Oil" trade with "crude oil" segment witnessing slower growth and the "products" segment likely to register a higher growth compared to their previous years levels.

The Container trade is expected to recover after a drastic contraction in 2009 with a substantial upswing of 8% in 2010, followed by 9% in 2011.

Indian Economy & Trade

A number of investment banks, including certain foreign-owned, have forecast Indias GDP growth of 8.5% for 2010-11. However, one of the foreign banks has projected a slightly lower GDP growth of 8.1% reflecting the global uncertainty arising from the European sovereign debt crisis. A recent CII (Confederation of Indian Industry) survey reckons the growth to be between 7.5% and 8.5%, fuelled mainly by rising capital investment and expanding exports.

C. OUTLOOK

With supply of dry bulk tonnage outpacing the expected growth in demand, the shipping market in this sector is projected to weaken during 2010 with average freight rates declining by more than 20% compared to their 2009 levels. The anticipated deliveries of vessels would continue to exert downward pressure on rates through the first half of 2012, and a recovery is expected to gain momentum only in 2013.

In the tanker segment, crude tanker spot rates are likely to fall back relative to their high levels in January 2010, however, they are expected to remain above 2009 average levels through to 2012. Thereafter, the rates are projected to witness an upturn during the next two years.

Your Company has formulated its Ship Acquisition Programme for the 11th Five Year Plan (2007-12) period reflecting the strategy of focusing on value-adding businesses by building on its core competencies so as to realize the objective of enhancing shareholder value. This Acquisition programme for expansion / diversification/ modernisation of SCI’s fleet envisages acquisition of 62 vessels aggregating to over 2.5 million GT (4.5 million Dwt.) and includes Bulk Carriers (Capesize / Panamax / Handymax), Crude Tankers (VLCC / Suezmax / Aframax, etc.), Product Tankers (LR-II / MR), Offshore Vessels, etc. The Ship acquisition programme is reviewed from time to time in order to sync it with the latest trend of pricing and the conditions of charter market. During the last financial year, your company acquired a resale MR Product tanker built in a first class Korean Yard for US$ 32.9 million (originally priced at US$ 45.2 million) from a Greek owner. Your Company is also on the look-out for suitable Liner vessels. Your Company believes that in the wake of erstwhile meltdown, opportunities for value buying in limited manner may come up and, the Company will consider these proposals.

D. RISKS & CONCERNS .

Although global economic recovery is presently reckoned to continue at a relatively steady pace over the next few years, there is considerable uncertainty with regard to the US economy, which may experience a recession during the second half of 2010, especially if its private sector demand does not improve as the Government’s stimulus package gets phased out. In such a scenario, global GDP growth would not continue at the pace being projected now, and consequently, there would be an adverse impact on trade and shipping activities.

As a result of improvement in freight rates / markets, there is a possibility of reduced slippages (postponement) in the deliveries of dry bulk and tanker vessels from the shipyards than what is presently envisaged and in case the slippages reduce substantially, the increased addition to the respective fleets would result in much faster deterioration in the freight rates.-

Another concern would be a much faster reduction of floating storage (in tankers) of refined products than presently reckoned which would also release much greater tonnage of tankers for employment than projected, thereby putting further downward pressure on rates.

These developments, singly or in combination, would adversely affect revenues and profitability of shipping operations.

A detailed analysis of how the above would impact or strengthen each segment of the Company is discussed below. The segments have been divided into three parts viz. (1) Bulk Carrier & Tanker (Bulk Segment), (2) Liner & Passenger Services (Liner Segment) and (3) Others.

(1) BULK CARRIER & TANKER

The Bulk Carrier & Tanker has been further sub-divided into two segments viz. (I) Tanker and (II) Dry Bulk.

I) TANKER

A) INDUSTRY STRUCTURE & DEVELOPMENTS

World Scenario

The global credit crisis and world economic downturn in 2008-09 dramatically undermined the prospects for tonnage demand for all main ship types; thus, the year 2009-10 opened amid far more negative sentiment than a year earlier.

In the financial year 2009-10, the shipping industry faced rough weather with tanker freight markets not being steady at all. There were huge declines in spot earnings, both for clean and dirty tankers, mainly due to (i) poor oil demand, particularly in the mature industrial economies, and resulting cuts in crude imports (ii) increased oil output from US and Former Soviet Union (FSU); in particular, a 0.58 mb/d (million barrels per day) rise in its domestic crude oil production made the US less dependent on imported supplies, (iii) far faster net fleet growth (net fleet expansion was also compounded by fewer removals from the fleet, as interest in buying "single-hulled" ships for conversion (to bulk carriers or FPSOs) had diminished significantly) (iv) relatively strict adherence by OPEC members to the oil output cuts that had been enacted from late 2008 onwards.

The fourth quarter of 2009-10 showed an upward trend in the tanker freight market as a steady recovery in oil demand (mainly non-OECD), amid bettering economic conditions, and rising offshore storage, pushed up the demand for tonnage.

Indian Scenario

The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. According to the Ministry of Petroleum, India has total reserves of 775 million metric tonnes (mmt.) of crude oil and 1074 billion cubic metres (bcm.) of natural gas as on April 1, 2009.

Under New Exploration Licensing Policy (NELP VIII), 1.62 sq.km. of area comprising 70 blocks was put up for bidding.

Production

By the end of the Eleventh Plan, the refinery capacity is expected to reach 240.96 million metric tonnes per annum (mmtpa.).

- Crude oil production during 2009-10 was 33.68 mt. as compared to 33.50 mt. in 2008-09. -

- Refinery production in terms of crude throughput was 160.03 mt. in 2009-10.

- The production of natural gas went up to 47.57 bcm. in 2009-10 from 32.84 bcm. in 2008-09.

Consumption

The sales/consumption of petroleum products during 2008-09 was 133.40 mt. (including sales through private imports) registering an increase of 3.45 per cent over sales of 128.94 mt. during 2007-08, according to the Ministry of Petroleum.

India"s domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas would increase from 186.54 million metric tonnes of oil equivalent (mmtoe.) in 2009-10 to 233.58 mmtoe. in 2011-12.

The refining capacity in the country increased to 177.97 million tonnes per annum (mtpa.) as on April 1, 2009 as compared to 148.968 mtpa. as on April 1, 2008.

There are various projects under implementation to expand the capacity of the existing refineries and some projects are on the anvil to install new refineries. Considering the expected refining capacity, India is going to emerge as a major refining base and the main business hub for petroleum products for the whole world by 2011.

With respect to crude oil imports it has been observed that there is a shift to higher parcel sizes and, in order to obtain benefit from economies of scale, the use of VLCCs have increased considerably for transportation of crude oil to Indian shores. This is also evident as more number of SBMs are set up/being set up to handle VLCCs.

B) OPPORTUNITIES & THREATS

Opportunities

It is expected that there would be recovery in the global economy thereby brightening the near-term outlook for tanker trade. A pick up in vessel scrapping due to Marpol single-hull phase out deadline would tame growth in tonnage supply in 2010. Tonnage demand is also likely to grow faster with rising long-haul trade and offshore storage. The refining capacity is expected to grow at about 3.24 million bpd (barrels per day) across the world between the years 2009-14. The Indian refining capacity and utilization are set to increase which provides increased opportunity for tanker trade. Increased oil imports in 2 million barrel parcels is resulting into enhanced usage of VLCCs and thus an opportunity for acquisition of more VLCC units. Emergence of India as a significant refining base and the expansion of RIL refinery and Essar refinery would result in enhanced exports of products from India, which would require Clean LR-I and LR-II tankers. With the phase-out of single hulls, freight market levels are likely to improve in Indian crude oil import trade.

Threats

High supply growth next year on the back of hefty deliveries would place downward pressures in 2010 and 2011 as the tonnage supply may improve. Slack oil demand, particularly in the mature industrial economies viz. USA and Japan would adversely affect the trade activity. Demand growth, especially in short term, is heavily dependent on growth in India and China. However, this growth cannot offset the declines in imports by more mature . markets such as the US.

C) SEGMENTWISE PERFORMANCE

Crude Oil Tankers

Your Company has been competing with other players in the global competitive market as few tankers including . VLCCs were employed gainfully on cross trade. M/s. Hindustan Petroleum Corporation Ltd. (HPCL) and M/s. Bharat Petroleum Corporation Ltd. (BPCL) continue to have COA arrangements with SCI for their crude transportation.

During the year 2009-10, the total quantity of crude oil transported by your Company was about 24.89 mmt., which includes 2.89 mmt. in cross trade, 11.42 mmt. of imported crude for Indian Oil Industry and 6.90 mmt. coastal movement. In addition, through in-chartered vessels, your Company transported about 3.68 mmt. of imported crude for Indian Oil Industry.

Of the total 15.10 mmt. of crude oil transported by your Company for Indian PSU refineries, 75% was carried by owned vessels and 25% carried by in-chartered vessels.

Your Company, as an integrated service provider, has also handled lighterage operations during the year 2009-10 at various locations along the Indian Coast and has lightened liquid and dry bulk cargo of 7.16 mmt.

Ship-to-Ship (STS) Lighterage operations

During 2009-10, your Company’s Lighterage Cell carried out 192 STS lighterage operations for STS transfer of 2.541 mmt.(million metric tonnes) of crude oil ( import and indigenous) at various locations off the East & West Coasts of India, and 45 lighterage operations for STS transfer of 4.617 mmt. of bulk Iron ore off Goa.

In January 2010, the Lighterage Cell also commenced STS operations for transfer of Clean Petroleum Products (CPP) for M/s. Reliance Industries Ltd.(RIL) off Sikka.

During 2009-10, the Lighterage Cell supervised/conducted 52 Single Buoy Mooring (SBM) operations of storage tankers at Mumbai High and satellite oilfields.

Contract of Affreightment (COA)

During the year 2009-10, your Company successfully performed COA with HPCL and BPCL. The contracted quantities are 11 mmtpa. of imported crude plus 2 mmtpa. of indigenous crude for HPCL and 6 mmtpa. of imported crude plus 2.35 mmtpa. of indigenous crude for BPCL.

Your company is transporting Mumbai high crude to various Coastal refineries viz. M/s. MRPL(Mangalore Refinery & Petrochemicals Ltd.), M/s. HPCL, M/s. BPCL, M/s. IOCL and M/s.CPCL (Chennai Petroleum Corporation Ltd).

Product Carriers

During the year 2009-10, eight (8) product vessels were gainfully employed with the Indian Oil Industry on time charter basis and one vessel had been employed outside. Out of these, two vessels were phased out during the year.

Your Company took deliveries of 3 new MR tankers. m.t. "Swarna Kalash" was delivered on 10.10.2009, m.t. "Swarna Pushp" on 27.01.2010 and m.t. -Swarna Mala" on 25.01.2010.

Specialized Vessels

Your Companys LPG/Ammonia carriers were operated for carriage of both LPG and Ammonia. After spotting, for few voyages, these vessels, for a major part of the year, were deployed on time charter to M/s. Indian Oil Corporation Ltd.

The three chemical tankers continue to be deployed under COA with M/s. Maroc Phosphor and performed few coastal voyages for M/s. Sterlite Industries.

D) OUTLOOK

A recovery in the global economy, rising demolitions and a slowing pace of new tonnage deliveries are some factors which may bring some positive outlook for the tanker market. Global oil demand is now projected to recover by 1.9% in 2010, driven up by strong non-OECD demand. However, downside risks still remain, with OECD oil demand forecast to further decline by 0.6% (or 110,000 bpd) from 2009. Moreover, oil product stocks -in the US, even after declining significantly over the quarter, still stand at a significantly high level.

However, the tanker freight market is expected to witness downward pressures on freight rates over the next two years viz. 2010 and 2011 on account of a significant expansion in the tonnage supply-demand balance. While tonnage demand is anticipated to continue to grow at a steady rate of around 4% per annum, tonnage supply is forecast to expand at a much more rapid pace of 7% per year, further widening the tonnage supply- demand gap. Going further, decline in floating storage over the next twelve months shall increase the tonnage supply.

In short, the outlook for tanker market in the year 2010-11 looks grim as demand gains are likely to be offset by lower floating storage and steady fleet growth.

Your Company is expected to grow its tanker fleet in the financial year 2010-11 with new deliveries of LRIs, LR2s and Aframax tankers.

SCIs COA with M/s. HPCL and M/s. BPCL for transportation of crude oil has been extended by both the companies. M/s. BPCL has signed COA with SCI till September 2012 with an option of extension for a period of further two years on mutual consent of both parties. The COA signed with M/s. HPCL is valid till September 2010 with two extensions of one year each at charterers’ option.

SCI would continue its dominant position in transportation of indigenous crude.

The movement of clean petroleum products (CPP) along the Coast would remain steady and majority of our product tankers would continue to remain deployed on time charter basis to Indian oil companies.

D) RISKS & CONCERNS

Economic slump, higher tonnage, supply coupled with falling oil demand are the major areas of concern for Tanker market. However, with secured cargoes by way of COA with Indian oil companies and SCI’s quality fleet exposed to cross trades, SCI expects to tide over the challenges posed by the current market environment.

Taking into account the current levels of vessels on order and the further tonnage acquisition planned, SCI is likely to retain its dominant position among Indian Shipowners in terms of tonnage and actually widening the gap from other Indian Shipowners in the tanker segment.

Integrated Management System (IMS)

The Integrated Management System (IMS) is in force across our entire Tanker Fleet since 2006. Key Performance Indicators (KPIs) as stated in TMSA (Tanker Management and Self Assessment) guidelines are being continuously monitored and the status is regularly updated on the website. Accordingly, the tankers are maintained to the highest standards and remain competitive and marketable. The IMS also covers, within its ambit, Risk Assessment, Hazard Identification & Analysis (which will become a requirement under the revised ISM Code effective 1st July 2010).

TMSA compliance is the Oil Majors’ requirement under OCIMF (Oil Companies International Marine Forum), without which the tankers are not accepted by Oil Terminals around the world. TMSA offers a standard of "Best Practice" framework for assessment of Ship Operators’ Management system. Ship operators are expected to conduct and regularly review their TMSA assessment on line against the highest practices recommended in their programme.

Indian Register Quality System, IRQS (IRS) have certified that the Tankers manned and operated by SCI are compliant with ISO 9001 - 2008, EMS 14001 - 2004 and OHSAS 18001- 2008.

Outstanding Payment from the oil industry

As on 31.03.2010, payment under various heads outstanding from the oil industry was approximately Rs.149.92 crores. A substantial portion of the outstandings was in connection with the payment in respect of tankers’ oil transportation including freight, demurrage and charter hire. Your Company has been continuously following up with the oil industry for realization of overdue demurrage claims.

II) DRY BULK

A) INDUSTRY STRUCTURE & DEVELOPMENTS

World Scenario

The average BDI (Baltic Dry Index) during the year 2009-10 was 2978 (as compared to 4896 during 2008-09).

The Baltic Supramax Index (BSMI) also witnessed a decline from 2009-10 where the average stood at 2001 as compared to 2999 during 2008-09.

As mentioned earlier, 2009-10 started with a negative sentiment. The difficulties facing vessel owners were set to be accentuated by softer cargo demand at a time of accelerating net fleet growth. Though the year began in a depressed state, there were series of upturns witnessed during this year. These were largely linked to (a) continued firm import demand by China and (b) the build up of huge volumes of port congestion at some key dry bulk terminals in East Coast Australia and China. Dry bulk carrier earnings predominantly rose in the fourth quarter of financial year 2009-10.

Indian Scenario

Indian Iron Ore shipments and Coal imports are the driving forces for dry bulk demand in India. During the period from April to January 2010, India imported about 61.01 million tones of Coal as against 49.90 million tones imported during the period from Apr-Jan 2009. The iron ore traffic accelerated to 7.1% of total port cargo traffic

in 2009-10 from a modest 2.3% in 2008-09. The exports of iron ore, a key ingredient in steel manufacturing, increased in 2009-10 as compared to last year. Your Companys Handymax fleet continued to perform well in this segment. Growing domestic demand for steel and the augmentation of power generation capacities are driving the Coal demand and SCI is a major transporter for these imports.

B) OPPORTUNITIES & THREATS

Opportunities

Coal demand is increasing in India driven by rising steel production and thermal power plants. Many Ultra Mega Power Projects are being set up near ports and their requirements would be met mainly through shipping imports. Indian Power generation is projected to increase by 21355 MW (7.2%) in 2010-11. The thermal coal imports are projected at 30 MMT in 2008, 60 MMT in 2009 and 81 MMT in 2012. Indian Companies are acquiring coal mines abroad from which coal are to be shipped to India. Coking Coal imports are expected to increase in line with Steel capacity and thus, increasing shipping activity. Coastal Trade is increasing. Deepwater ports with better infrastructure are being developed thereby enabling Indian owners to opt for larger vessels like Panamaxes for shipments. World GDP growth is projected to grow in near future and dry-bulk trade has close co-relation to World GDP growth.

Threats

Changing Government Regulations and Duty structures can affect imports and exports of dry cargoes to a great extent. India is over dependent on Chinese demand for iron ore exports. Eurozone economic downturn will result in reduced demand for industrial raw-materials which can contribute to falling dry bulk freight rates. Large iron ore exports from Brazil to China can reduce demand for Indian iron ore, a trade in which SCI has been an active participant. Leading ore supplier M/s. VALE has embarked on large scale conversion of VLCCs to VLOCs. If shipments from Brazil to China take place on Very Large Ore Carriers (VLOCs), better economies of scale can be achieved and Chinese importers may shift to imports from Brazil. In the iron ore sector, China’s proposed import ban on lower grade iron ore below ‘Fe’ content 60% is likely to curb exports from India. Fleet growth of 10% per year till 2012 will delay any significant rise in freight rates. India’s exports of iron ore will decline as domestic demand is increasing and the Government has just raised the duty on iron ore exports (from 5% to 10% for iron ore lumps and from zero to 5% on fines).

C) SEGMENTWISE PERFORMANCE

Your Company owns 18 bulk carriers (average age 20 yrs.) as on 31st March, 2010 comprising of 15 Handymax and 3 Handysize vessels. .

Eleven (11) units of Handymax vessels were primarily deployed on a triangular voyage for transportation of coking Coal from Australia to ECI both on COA and spot basis for Steel Authority of India Ltd. (SAIL), Kolkata and then mainly deployed for carrying iron ore from ECI to China on spot basis. On account of SAIL, SCI tonnages had lifted from Australia about 13,43,850 mt. during the year 2009-10.

Few Handymax vessels, which are less older tonnages of 45000 DWT, were deployed on short period charter and occasionally to lift urea parcel under COA arrangements and 3 units of Handysize vessels were mainly employed on cross-trades or short-term period charters to carry cargoes like urea, steel, grain, fertilizers, , agri-products etc.

D) OUTLOOK

The Baltic Dry Index (BDI) opened the year in January 2010 at 3005 and reached 3300 in the middle of January 2010. However, the BDI then slipped back to close fourth quarter of 2009-10 at 2998. The major factor affecting poor business in the middle of Q4 of 2009-10 was China going into holiday mode and enquiry levels, therefore, - declined drastically. Another issue that affected the freight market, especially the Pacific, was the uncertainty over the pricing of iron ore.

The world dry bulk fleet at the end of Q4 of 2009-10 stood at 469 million dwt. and by end of this year it is expected to increase to 518 million dwt. showing an increase of 14% over the same period in the previous year. The increase in fleet size is expected to be more than 10% until 2012, after which the deliveries will slacken.

Wth deliveries likely to accelerate further in the short term as slipped and delayed vessels finally get completed, the outlook for the dry market remains weak. Demand is not expected to be sufficiently strong to meet the wave of dry bulk deliveries from shipyards.

Despite indications of some vessel cancellations and delays in 2010, dry bulk vessel supply is expected to negate any improvement in demand, capping freight market gains. However, if China again performs strongly this year and global demand recovers, the glut in supply could be negated to some extent.

E) RISKS & CONCERNS

Ageing fleet demands high level of maintenance and repairs which is adversely affecting Company’s profitability.

Due to shortage of shipbuilding steel globally, the cost of steel renewal in ship repair yard is rising.

The volatility in bunker prices is making the charterers look towards more fuel efficient ships.

Nevertheless, in the current market conditions, there is a niche for SCI’s bulk carriers. Further the delivery of the bulk carrier new buildings, which are Supramax vessels meeting the market requirements, shall be added to the SCI fleet when these vessels are close to reaching 25 years of age.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE (BULK CARRIER AND TANKER)

The overall financial performance of bulk carriers and tankers though had been on a decline on Y-O-Y basis has, however, remained competitive despite poor market conditions. The bulk carriers continued its contribution; the crude sector showed a decline in earnings as crude tanker shipping suffered a heavy fall in 2009-10 but the vessels on period charter served as a hedge both for revenues and against fluctuating bunker prices The product tankers have performed satisfactorily and the performance of LPG vessels has also been impressive. Acid Carriers were affected due to the downturn in the phosphoric acid trade.

The Bulk Carrier & Tanker segment (Tanker and Dry Bulk together) recorded a revenue of Rs.2670.94 crores in 2009-10 as compared to Rs.3271.01 crores in 2008-09. The segment recorded a Profit before Tax of Rs.485.93 . crores in 2009-10 as against Rs.980.11 crores in 2008-09.

(2) LINER & PASSENGER SERVICES

A) INDUSTRY STRUCTURE & DEVELOPMENTS

World Scenario:

The trend of contraction in global Container trade witnessed during 2008 continued in 2009 as well with trade volumes shrinking steeply by an unprecedented 7.7%. The contraction was particularly severe in the two premier lanes, the Asia-Europe West-Bound (15%) and the Transpacific East Bound (17%).

Operators embarked on a major programme of capacity management to substantially curtail vessel capacity through two measures i.e. ‘slow steaming of vessels and vessel lay-ups. The total container capable fleet growth fell drastically from a 12% annual pace at start of 2009 to 6% by year end. Further, there were record high scrappings and deferring of deliveries of new-building ships from the shipyards. By end of 2009, scrappings accounted for 2.8% of the cellular fleet capacity and deferment of deliveries amounted to 43% of total scheduled deliveries.

The container ship markets experienced the worst ever conditions with freight rates and charter rates declining sharply in 2009. Despite small charter rate gains in January 2010, the rates remained near historical lows, in most cases below operating expenses. Freight rate increases in early 2010 in the premier lanes are basically attributed to strict capacity control actions, although market fundamentals have also started to show improvement. For 2009 as a whole, however, most of the liner companies world wide have experienced substantial losses.

Indian Scenario:

The Major Indian ports handled 6.87 Million TEUs of Container traffic in 2009-10 which was only 4.3% higher than the previous year. This is equivalent to 101 Million Tonnes of containerised cargo, representing a significant growth of 8.6%. The SCI continues to be the only Indian mainline carrier providing services from India to some of the major global destinations including Far East / China, Europe, Middle-East / West Asia Gulf etc. However, several international container majors are offering direct services or calling Indian ports enroute on their East-West services.

B) OPPORTUNITIES & THREATS

Global Container trade is projected to rebound by 8% in 2010, which is, however, on a negative growth base seen in 2009. Subsequently, the projections indicate robust growth of 9% in 2011, followed by 8.5% average annual growth upto 2014. The positive growth in container trade is based on expectations of rapid economic growth in both emerging and developed economies. The expansion of emerging economies is particularly attributed to China and India as also Latin America etc., which would accelerate trade to these regions.

On the fleet side it is expected that delivery slippage of container vessels would reduce to around 33% of scheduled deliveries in 2010 and 2011. While this would ease fleet growth in the near term, it would in any case result in faster capacity expansion in later years. The container-Capable fleet is expected to grow by an average of 7% during the next three years (i.e. 2010 to 2012). Most of the expansion is in the Panamax and Post-panamax sizes, especially mega-ships of over 7500 TEU. Though the Smaller size fleet of under 3000 TEU is likely to actually decline slightly over next three years, the cascading down of larger vessels is likely to reduce the demand for charter-vessels and hinder recovery of charter rates.

The breakbulk sector continues to have good potential in respect of imports of Over-Dimensional Cargoes (ODC), Project cargoes, Heavy Lift cargoes etc. on account of the Government departments / PSUs and other commercial organisations as the Infrastructure sector in India will remain strong.

C) Segmentwise Performance of Liner & Passenger Services

Liner Vessels:

The table below shows the profile of SCI’s owned liner fleet having total container carrying capacity of 14,407 TEU.

Type of Ships As on 31.03.2009 Additions Scrapping As on 31.03.2010

No. Dwt. No. Dwt. No. Dwt. No. Dwt. Fully Cellular 5 2,02,413 - - - - 5 2,02,413

Total 5 2,02,413 - - - - 5 2,02,413

Average age of the five(5) owned Container vessels: Approx. 11 years, out of which 2 vessels are around

2 years old.

- As on 31.03.2010, the in-chartered container vessel tonnage operated by SCI comprised of 4 vessels of a total Dwt. of 1,62,399 tonnes and 11,784 TEU total capacity.

Your Company continued to deploy its owned/operated Container vessels and Breakbulk vessels in the various sectors as described below.

Container Services

UK - Continent sector:

Indian Subcontinent Europe Service (ISES):

The UK-Continent cellular container service was started in 1994, with a single operator viz. SCI deploying its

3 owned vessels.

SCI operates this service in consortium with M/s Mediterranean Shipping Lines (MSC) with SCI deploying 2 owned and 1 in-chartered vessel and MSC 4 vessels in this service. It has round voyage duration of 49 days.

Ports of call: Colombo / JNP / Mundra / Salalah / Port Said / Barcelona / Hamburg / Antwerp / Felixstowe / Jeddah / Colombo.

Due to recession, the freight rates had reduced severely. However, the freight rates have now shown signs of recovery.

Far Eastern Sector:

India / Far East Cellular (INDFEX 1): Service

This service commenced in June, 2001 with 5 vessels of 1,600 to 1,800 TEU capacity. It was upgraded in stages and the service is presently operated as a weekly direct service from India’s West Coast to Central China, Korea, Hong Kong, Singapore and Malaysia with 5 vessels of 1950-2250 TEU on a round voyage schedule of 35 days.

The main ports of call are NSICT / Colombo / Singapore / Busan / Shanghai / Ningbo / Hong Kong / Singapore/ Port Kelang / Colombo / NSICT.

The four Vessel Operating Partners are SCI, PIL of Singapore, K-Line of Japan and Wan Hai of Taiwan with one vessel each; and the other remaining one vessel which is shared by the partners (50% by Wan Hai & 50 % by other 3 Partners).

The One vessel deployed by SCI is of 2700 TEU capacity and the average weekly allocation for SCI is about 532 TEU considering owner’s merit.

India / Far East Cellular (INDFEX 2) Service

This service commenced in June 2002, connecting East coast of India to North China and is operated as a weekly direct service with 5 vessels on a round voyage schedule of 35 days.

The constituents of the consortium are SCI, PIL, K LINE and HANJIN.

The main ports of call are Chennai / Vizag / Singapore / Hong Kong / Xingang / Dalian / Qingdao / Hong Kong/ Shekou / Singapore / Port Kelang and Chennai.

Through the INDFEX 1 and INDFEX 2 services, SCI covers the Chinese market extensively with direct calls at 6 mainland Chinese ports and Hong Kong. Due to recession the freight rates continued to be severely affected in the Far East Sector. However, the Freight rates in the sector have started improving, and there is optimism - that the Far- East services will improve in the current year.

SCI Middle East India Liner Express (SMILE) Service

SCI is operating this new independent weekly service (commenced in March 2008) to the Gulf with its 3 owned vessels on a round voyage schedule of 21 days.

This service covers "India & the Indian Subcontinent - West Asia Gulf sector catering to the trade requirement in the Gulf markets as also the Far East, Red Sea, UK-Continent through transhipment at Colombo.

Upper Gulf locations are also covered by feeder services ex-Jebel Ali. In December 2008, the SMILE service was expanded to carry feeder and coastal cargoes on the west coast of India. With this service SCI is now one of the leading coastal carriers for domestic cargo on west coast of India.

The main ports of call are Colombo / Jebel Ali / Mundra / Pipavav / JNPT/ Cochin / Tuticorin / Colombo.

The freight rates between India and Gulf owing to recession have also dropped. However, catering to coastal shipping and some feeder cargoes mitigated the losses. As this service is also acting as feeder to other services, the revenues on this service also are reflected in other mainline services.

India-Red Sea Service

This is a new service launched at the end of 2008-09. This service was affected by the recession in the industry. In order to cut costs, this service has been discontinued and the vessel mv SCI Trust has been suitably redeployed in other services.

Break-Bulk Services

SCI is the only Indian company providing overseas liner break-bulk services to Indian trade. SCI arranges carriage of breakbulk cargoes on space charter basis from various regions across the globe including USA and Far East for imports on account of the Government departments / PSUs and other commercial organisations which includes Shipments of Over-Dimensional Cargoes (ODC) / Project cargoes / Heavy Lift cargoes / IMO

Class I Cargoes etc. and also containers. SCI continues to operate its India-UK Continent breakbulk service from European ports to India jointly with Rickmers Linie on space sharing basis on their vessels.

Feeder Service

SCI makes feeder arrangements with ‘Common Carriers’ between various destinations on the Indian subcontinent depending on market requirements.

SCIMAX Feeder Service

SCI operated a feeder service in consortium with another Indian Feeder operator i.e. Maxicon Line. This service was catering to Kolkata - Colombo sector. Besides SCI’s own captive cargoes, this service also catered to other mainline operators cargo as a feeder operator. With the completion of the charter period and redelivery of the vessel, SCI has suspended this service. Currently SCI is using common feeder lines to cater to its feeder cargoes in this sector.

Currently SCI is using common feeder lines to cater to its feeder cargoes in this sector.

Coastal Operations

Domestic Passenger-Cum-Cargo Service

In addition to International operations, the SCI with its 2 Owned Passenger-cum-Cargo vessels and 30 Managed vessels operates domestic passenger & cargo transportation services between the Mainland and Andaman & Nicobar and Lakshadweep groups of Islands and inter-island, on behalf of the Government of India.

Other Coastal Services:

SCI also manages / mans certain other types of (Coastal) Research vessels on behalf of Government agencies/ departments viz. 3 vessels of Ministry of Steel and Mines (Geological Survey of India) and 2 vessels of Ministry of Earth Sciences (Dept. of Ocean Development).

SCI’s Owned Passenger-Cum-Cargo Vessels:

The table below shows the profile of the owned Passenger-cum-Cargo carrier fleet owned by your Company:

Type of Ships As on 31.03.2009 Additions Scrapped As on 31.03.2010

Nos. Nos.

Nos. Pax. Cargo Nos. Pax. Cargo

Cap. Cap. Cap. Cap.

(mt.) (mt.)

Pax-Cum- Cargo Ships 2 1,502 1,500 - - 2 1,502 1,500

Total 2 1,502 1,500 - - 2 1,502 1,500

The deployment pattern of the above mentioned owned fleet of your Company was as under:

- m.v"Harshavardhana" was deployed in the Mainland/Andaman Sector.

- m.v"Ramanujam" was deployed in the Inter-Island Services of the Andaman and Nicobar Islands.

Manned and Managed Vessels:

The following table shows the profile of the vessels Passenger-cum-Cargo vessels and other vessels managed by your Company on behalf of the various Governmental Organisations/Departments:

Type of Ships As on 31.03.2009 Additions Scrapped As on 31.03.2010

Nos. Nos.

Nos. Pax. Cargo Nos. Pax. Cargo

Cap. Cap. Cap. Cap.

(mt.) (mt.)

Pax-Cum- Cargo Ships 29 9,178 6,498 1 - 30 9,278 6,498

Other vessels 6 - - - - 6 - -

Total 35 9,178 6,498 1 - 36 9,278 6,498

The deployment of these vessels on behalf of various organizations was as follows:

- Twenty Six (26) Ships on account of the A&N Administration, of which 4 are for carrying Passengers and cargo between the Mainland and Andaman and Nicobar Islands and 22 for Inter-Islands run.

- Five (5) Ships on account of the Union Territory of Lakshadweep Administration, of which two (2) are for carrying Passengers and cargo between the Mainland and Lakshadweep Islands, 2 for Inter Islands and the remaining One (1) is an Oil Barge.

- Five (5) Research vessels on behalf of various Governmental organisations/ Departments, of which three (3) ships on behalf of the Ministry of Steel and Mines (Geological Survey of India) and two (2) on behalf of the Ministry of Earth Sciences (Department of Ocean Development).

During the year under review, the SCI carried Passengers and cargo on the Mainland/Island sector on owned and managed vessels as under:

Sector No. of Passengers General Cargo (mt.)

Mainland/A&N Islands 1,76,962 16,485.62

Mainland/UTL Islands 24,718 NIL

Total 2,01,680 16,485.62

Marketing

Your Company has intensified the marketing efforts for its break-bulk and container services. Sales calls are being regularly made by the SCI’s marketing team, through own offices and also through agents appointed at various ports in India and abroad so as to build a sound rapport with its customers viz. various Government of India Departments, Public Sector Undertakings and major Export / Import Business Houses. Your Company has adopted a proactive approach towards competition by undertaking an all India customer contact programme, gathering market intelligence on trade activities, cargo prospects and projects in pipeline etc. Marketing efforts have also been specifically directed at various Departments of the Government of India, Public Sector Undertakings etc., for retaining their valuable patronage and cargo support.

D) OUTLOOK

Global container trade started to show signs of recovery in the fourth quarter of 2009-10 / first quarter of 2010-11, with only slight positive impact on the container freight rates. The losses in the SCIs Container services segment during 2009-10 are on account of severe drop in the freight rates and are a matter of serious concern to the management. The major reasons attributed to the dismal results are higher cost of operations like bunkers and port dues along with abysmally low freight rates ever experienced in the liner services.

The SCI’s flagship ISE (Indian Subcontinent Europe) service has undergone a change with the earlier partners having withdrawn from the consortium. The service is now continuing with a new partner, M/s. Mediterranean Shipping Company, Geneva. SCI has deployed two owned vessels and one in-chartered vessel at a very attractive charter rate in the service, and the service is expected to perform well in the future.

In the Far East sector, two of the high cost vessels were redelivered in 2009, thereby reducing the outgo of about US$ 50,000 per day, which has a positive effect in the INDFEX services. In the current year also, SCI is redelivering 2 inchartered vessels with high charter rates, which will reduce the input costs and thus improve the profitability of the services. However, INDFEX 2 Service would still be hampered by the deployment of m.v SCI Vijay, which is a relatively higher cost vessel.

The freight rate levels, as on date, are showing signs of revival in various sectors, and it is expected that this trend will improve. On its part, the Management is continuing to work on the loss mitigating plan in order to ensure overall profitability of SCI. Efforts are being made for acquiring the required tonnage from the market at attractive prices. This will enable the SCI to be insulated from the fluctuating charter markets in future and reap the benefits once the global economy recovers.

SCI has also obtained the freight forwarding licences, and is now registered as a Multimodal Transport Operator (MTO). With this, the SCI is also rendering in a limited way 3PL (Third Party Logistics) business using its vast experience and agency network.

The prospects of Breakbulk services provided by your Company continue to be reasonably bright in respect of both the independent space charter arrangements being made by SCI for carriage of import cargoes from various locations worldwide and also SCI’s joint service with M/s Rickmers Linie on space sharing basis on their vessels for imports from European ports to India.

Your Company will continue to operate Coastal and Passenger Services successfully by deploying its owned / managed vessels for the Andaman & Nicobar Administration, Ministry of Steel and Mines (Geological Survey of India), Ministry of Earth Sciences (Dept. of Ocean Development) and Union Territory of Lakshadweep Administration (till July 2010).

Developments of material nature affecting the financial position of the Company subsequent to the close of the year 2009-10 i.e. after 31.03.2010:

In the passenger-cum-cargo coastal service, UTL Administration has decided to take over 4 vessels and one vessel will be scrapped during 2010-11.

E) RISKS & CONCERNS

There is a concern regarding relapse of the global economic crisis in view of the debt problem in EU countries, a "job-less" economic recovery in the US, and an over-heating Chinese economy. These factors could affect the global economic recovery with the possibility of a "W" shaped recovery scenario which would have adverse impact on world trade. In such an event, the prospects of shipping industry including container shipping would not be very encouraging in the year ahead.

F) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The freight rates on almost all the container services have been severely impacted by the global recession which has adversely affected performance of the Liner Services.

In the Breakbulk sector, your Company continued to achieve very encouraging positive results during the year under review. Coastal and Passenger services sector also earned good remuneration, thereby further enhancing the Company’s profitability.

In financial terms, overall the Liner segment recorded revenue of Rs.833.64 crores in 2009-10 as against Rs.825.46 crores in 2008-09. However, as compared to loss of Rs.187.23 crores in 2008-09, the Liner Division has recorded a loss of Rs. 225.09 crores in the year 2009-10.

(3) OTHERS

TECHNICAL & OFFSHORE SERVICES

OFFSHORE SERVICES

(A) DEVELOPMENTS

During the year under review, all the 10 Offshore Supply Vessels (OSVs) of your Company continued to be gainfully employed with ONGC. All the 10 vessels secured the contract against ONGCs global tender floated in 2006 for charter hire of OSVs, Anchor Handling Tug Supply Vessels (AHTSVs) and Platform Supply Vessels (PSVs) for Offshore operations. The contract period is for 5 years from the date of mobilization of vessels. As per the ONGCs tender requirements, the vessels were upgraded by installing DP1, Fresh water generator and partial UKOOA compliance. SCI has also imparted training, especially to Masters and other officers, to man these vessels.

Your Company also continued the Operation & Maintenance management (O&M) of ONGCs Seismic Survey Vessel (SSV) ‘Sagar Sandhani’ since 1986 on ‘cost plus’ basis. The previous contract expired on 31.03.2007 -and the same was renewed for a period of 39 months upto 30.06.2010 on ‘cost plus’ basis. The terms and conditions of the contract are similar, with some changes with regard to increase in payment of monthly advance to SCI and inclusion of "Monsoon lay up repairs" in Drydocking clause. The review of percentage of SCIs remuneration beyond 31.03.2008 had also been done and the same has been increased from 5% to 6% w.e.f. 01.04.2008.

Your Company has also continued to provide O&M services onboard ONGC’s Well Simulation Vessel (WSV) Samudra Nidhi on ‘cost plus’ basis. The present contract is upto 31.03.2011.

Your Company continues to provide O&M services to ONGCs two Multi Support Vessels (MSVs) "Samudra Sevak" and "Samudra Prabha" and one Geotechnical vessel (GSV) "Samudra Sarvekshak" since March 2003 on nomination basis under ‘cost plus’ arrangement. The existing contract is valid upto 23.03.2011.

Your company continues to provide O&M services to ONGC’s 16 "SAMUDRIKA" series OSVs on nomination basis under ‘cost plus’ arrangement.

ONGC has also entrusted O&M contract of ONGC owned 14 ‘Sindhu’ series OSVs to your Company on nomination basis under ‘cost plus’ arrangement. Accordingly SCI has already taken over 7 vessels during the period 09.11.2009 to 04.03.2010. This contract is valid till 31.03.2011. The terms and conditions of the contract are similar to existing "SAMUDRIKA" vessels’ O&M contract.

Outstanding amount from ONGC: An amount of Rs. 14.96 crores was outstanding charter hire as of 31.03.2010 from ONGC against SCI owned OSVs (including service tax).

B) OUTLOOK

Due to the global financial crisis, there was a slowdown in the industrial output which has had a direct impact on the demand for oil. In the first half of 2009-10, the oil prices were prevailing at low US$ 70 per barrel due to which many deep-sea exploration and new oil well drilling activities had been put on a slow burner. This had negatively impacted the offshore sector. However due to long ‘period charter’ arrangements, your Company was not affected with the falling charter rates for AHTSVs.

In the second half of the financial year 2009-10, however, things have started to look bright with the oil prices having risen to US$87.4 per barrel. Oil prices averaged to US$ 73 per barrel over the last 12 months and have been relatively stable. OPEC has increased its estimate for 2010 world oil demand growth and expects a 9,50,000 bpd increase for the year.

Considering the countrys low level of self sufficiency in the energy sector (only about 22%) and the recovery in the international crude oil prices, future prospects of the Indian offshore sector would remain attractive for many years to come. Your Company is taking active measures to increase its exposure in this promising sector.

C) RISKS AND CONCERNS:

Evolution of new markets in the Offshore shipping Sector has led to entry of new players in the industry including foreign operators, some of which are equipped with modern technologies. In order to survive the competition, your Company would require adequate resources in the form of modern vessels and expertise. * Your Company’s offshore fleet is about 25 years old and is being replaced in phased manner.

Considering Indian Oil Industrys requirement of advanced vessels which are equipped with DP1, Reverse Osmosis, etc., SCI also needs to acquire vessels such as MSVs, DSVs, PSVs, etc. meeting the existing / future offshore logistic requirement.

Information relating to period from 01.04.2009 till date: O&M of ONGC owned Vessels

16 SAMUDRIKA series OSVs:

Your Company has taken over sixteen (16) ONGC OSVs, out of which, as on 31.03.2010, fifteen (15) OSVs were put in operation. The remaining vessel "Samudrika-7" was not considered a viable proposal for revamping and ONGC has requested SCI to dispose of the vessel.

14 SINDHU series OSVs:

As requested by ONGC, the balance seven (7) Sindhu series vessels are being taken in phased manner, out of which three (3) Sindhu series vessels have been taken over till date. All these vessels are not viable for revamping; hence, ONGC has advised SCI to dispose of all these fourteen (14) vessels. One vessel (Sindhu-17) is being disposed of shortly and action is being initiated for disposing remaining vessels.

SSV "Sagar Sandhani":

ONGC has given e