Notes to Accounts of Lok Housing & Constructions Ltd.

Mar 31, 2014

1. COMPANY OVERVIEW

Lok Housing and Constructions Limited (the Company) is a public limited company domiciled and headquartered in Mumbai, India and incorporated under the provision of Companies Act, 1956. Its shares are listed on one stock exchange in India. The Company is engaged in the development and construction of real estate.

2 EXCEPTIONAL EXPENSE

2.1 There was a dispute with State Bank of India since 2006, and consequently the Company had not provided for compounded interest, penal interest and other charges levied by State Bank of India. During September 2012 the Company arrived at Corporate Debt Restructuring (CDR) with State Bank of India, pursuant to which the debt to State Bank of India was settled for Rs. 95 crores. Before the CDR, the outstanding liability of State Bank of India in the books of Company was Rs. 49.61 crores. The reinstatement of State Bank of India''s liability from Rs. 49.61 crores to Rs. 95 crores has resulted into an additional provision of interest and other obligations, which has been charged to the Profit and Loss Account during the previous year as exceptional items.

2.1.1 Gratuity and Leave encashment benefits are defined benefit plans for which, provision has been made in the accounts based on actuarial valuation as on 31.03.2014. This is in accordance with Accounting Standard No. 15 issued by the Institute of Chartered Accountants of India.

The Gratuity benefit plan is wholly unfunded. Hence there are no plan assets attributable to the obligation.

3 Previous year figures are re-grouped and re-classified wherever necessary.

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Mar 31, 2013

1 EXCEPTIONAL EXPENSE

1.1 There was a dispute with State Bank of India since 2006'' and consequently the Company had not provided for compounded interest'' penal interest and other charges levied by State Bank of India. During September 2012 the Company arrived at Corporate Debt Restructuring (CDR) with State Bank of India'' pursuant to which the debt to State Bank of India is settled for Rs. 95 crores. Before the CDR'' the outstanding liability of State Bank of India in the books of Company was at Rs. 49.61 crores. The reinstatement of State Bank of India’s liability from Rs. 49.61 crores to Rs. 95 crores has resulted into an additional provision of interest and other obligations'' which has been charged to the Profit and Loss Account during the current year as exceptional items.

2.1 Related party disclosure

List of related parties and relationships

a) Key Management Personnel Mr. Darshan L. Gandhi

Ms. Naina M. Shah

b) Relative of Key Management Personnel Mrs. Rajani L. Gandhi

Mrs. Shraddha D. Gandhi Late Mr. Lalit C. Gandhi Mr. Tarak L. Gandhi

c) Associates and Joint Ventures LGNC Ltd.

Lok Realty Corporation Pvt. Ltd.

Remaking of Mumbai Development Ltd.

Saturn Trading Pvt. Ltd.

Lok Enterprises

L. L. Builders

Lok Nagari Developers (Joint Venture)

Lok and Jaydeep (Joint Venture)

Lok Sarita Developers (Joint Venture)

Lok Amber Developers ( Joint Venture)

Lok Fortune Joint Venture

3 Previous year figures are re-grouped and re-classified wherever necessary.

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Mar 31, 2012

1.1.1 Secured short term loan from Banks - Rs. Nil ( previous year Rs. 95.75 lacs ) is taken from UCO Bank. This demand loan facility is repayble on demand and the same is secured by fixed deposits placed with the same bank. The Fixed Deposits are taken out of funds earmarked for payment to customers. The rate of interest on these short term loans is 9.5% pa.

1.1.2 Secured short term loan from Banks - Rs. 243.59 lacs ( previous year Rs. 284.20 lacs) is taken from State Bank of India. This overdraft facility is repayble on demand and the same is secured by fixed deposits placed with the same bank. The Fixed Deposits are taken out of funds earmarked for payment to customers. The rate of interest on this short term loans / overdraft facility is 10.5% pa.

1.1.3 The above loans are not personally guaranteed by directors or any other persons. There is no default in repayment of the said loans.

1.1.4 Secured Short Term loans from other parties - Rs. 300 lacs ( previous year Rs. 200 lacs) taken from Sankalp Realty Pvt. Ltd. This loan is repayble on demand and the same is secured by premises belonging to M/s. Lok Builders which is a sister concern. The rate of interest on this short term loan is Nil.

1.2 Trade payables

1.2.1 Trade Payables include a sum of Rs. 4,360 lacs (previous year Rs. 4,365 lacs ) payable to Mr. Suresh Thanawala and others. This sum is overdue since 15-09-2008 however no provision for interest on delayed payment as per the terms of agreement with Mr. Suresh Thanawala has been made because the Company is under re-negotiation with Mr. Suresh Thanawala and others. The same will be provided as and when the claims are settled and to that extent the Company has Contingent Liability the amount of which is unascertainable. As per the agreement with Mr. Suresh Thanawala and others he has a charge over the Company's property at Turbhe.

1.3.1 Unpaid matured loans - Banks & Financial Institutions amounting to Rs. 4,961.59 lacs (previous year Rs. 4,580.29 lacs) is due to State Bank of India. The same is secured by mortgage of immovable property belonging to the Company situated at Turbhe, Ambernath and Lok Santa (Andheri). Provision for interest due on this loan has been made at 14% p.a. being the last contractual rate of interest. No provision is being made for interest on unpaid interest as also for any penal interest and other charges. The loan is over due since 14-12-2007.

1.3.2 The balance in the above mentioned loan of State Bank of India as per the Company's books of accounts as on 31-03-2012 is Rs. 4,961.59 lacs (previous year Rs. 4,580.29 lacs ) (including interest provision of Rs. 2,238.02 lacs (previous year Rs. 1,856.72 lacs). This balance is based on the settlement arrived at with the Bank vide its letter dated 14th June 2006. As per the said settlement the entire dues to the Bank was to be paid off by 14th December, 2007 to which the Company has not adhered. The Company is in continuous dialogue with the Bank to settle the dues. The Company has not received any formal notice terminating the settlement. The Company has also not received any balance confirmation from the Bank. As per the legal advice received by the Company, the settlement agreement dated 14th June 2006 is valid, subsisting and binding on the parties till date. In view of the facts as mentioned herein it is not possible to ascertain whether the Bank has withdrawn the concessions granted in the settlement of 14th June 2006. Accordingly the final liability towards this Bank loan is not ascertainable. The Company has to that extent unascertainable contingent liability towards any additional claim which may be made by the Bank against this loan liability or also towards withdrawal of any concessions granted vide settlement terms dated 14th June 2006.

1.3.3 Unpaid matured loans - Others, represents defaulted loans taken by the Company. These loans are unsecured. These loans are overdue since 1998-99. The Company has provided interest @18% p.a. on outstanding principal loans. The Company has defaulted in repayment of Unpaid matured loans - Others, taken from various parties, the outstanding principal loan is Rs. 175.27 lacs (previous year Rs. 177.77 lacs ) and outstanding interest is Rs. 550.17 lacs (previous year Rs. 520.51 lacs) .

1.3.4 Unpaid matured loans - others includes Hire Purchase Finance Rs. 10.44 lacs (previous year Rs. 44.55 lacs ), secured by hypothecation of leased assets. These were originally secured against leased assets in respect of which lease term have expired and asset retained by lessees.

1.3.5 The Company is in the process of restructuring and renegotiating its outstanding unsecured loans. Consequently provision for interest due on the outstanding unsecured loans has been made on simple interest basis at rate which is consistent with the trend at which other unsecured loans are restructured and renegotiated, and not at the original /last contracted rate of interest, further no provision for interest is being made on the unpaid interest amount. On account payments made by the Company to its lenders are first apportioned towards unpaid principal, instead of unpaid interest, without the consent of the lenders, this practice would result in to reduction in provision for probable interest liability.

1.3.6 The Company in the past has entered into settlement with several lenders. The Company has failed to meet its commitment in respect of one its lender, Ranbaxy Laboratories Ltd. The agreed liability in respect of Ranbaxy Laboratories Ltd., as reflected in the Books of Accounts of the Company is Rs. 60 lacs (previous year Rs. 60 lacs). The waiver of interest liability in terms of the settlement with Ranbaxy Laboratories Ltd amounting to Rs. 21.77 lacs was credited to Work in Progress account. In the opinion of the Company the revised liabilities as per the settlement with this lender is still valid and subsisting as the Company has not received any legal notice for termination of the settlement from the concerned Lenders.

1.3.7 In case of disputed /defaulted loans taken by the Company, provision for interest due on the outstanding secured loans has been made at the last contractual rate of interest. No provision is being made for interest on unpaid interest as also for any penal interest and other charges.

1.3.8 The Company has obtained legal advise that the overdue bills discounted amounts and the construction loans received from customers are not considered as Deposits in terms of section 58A of the Companies Act, 1956. Accordingly they are classified as other payables under current liabilities.

1.3.9 The balances in overdue secured and unsecured loans are subject to confirmation. The management has been advised that for tactical reasons not to obtain confirmations from its lenders as the same would impact the negotiation position of the Company. The Company has also requested the auditors not to directly write to the lenders to obtain confirmations. The auditors have relied on the judgment of the management in this regard.

1.4 The balances in trade payables, secured and unsecured loans are subject to confirmation. During the year under review balances in the accounts of the several trade payables and other current liabilities have been written off, as in the opinion of the management the same are no longer payable. The auditors have relied on the judgment of the management in this regard.

1.5 The provision for tax for the year is made considering the provision of Minimum Alternative Tax (MAT). While working out the provision of tax it is assumed that the claim made by the Company during financial year 2006-07 and 2007-08, though rejected at original assessment level, will be upheld and decided in favour of the Company, resulting in the Company's eligibility to set off losses returned in those years. If the tax dispute of financial year 2006-07 and 2007-08 are finally not decided in favour of the Company then the provision for tax for the year will be higher by Rs. 229 Lacs ( previous year Rs. 56 lacs) and the resulting profit after tax lower by similar amount.

1 All Fixed Assets are stated at cost of acquisition less accumulated depreciation.

2 Depreciation on fixed assets has been provided under Written Down Value method at the rates prescribed under Schedule XIV to the Companies Act, 1956.

3 Depreciation on additions to fixed assets has been charged from the date when they were first put to use.

4 The Company does not have any intangible assets or Capital work in progress.

5 The Company has nether given nor taken any assets under financial or operating lease.

6 The Company has not acquired any fixed assets through business combinations.

7 There has been no revaluation / reduction in any fixed assets during the immediately preceding five years.

8 No borrowing cost is being capitalised to Fixed Assets in accordance with AS 16.

9 No adjustment on account of fluctuation in foreign currencies have been effected to Fixed Assets in accordance with AS 11.

2.1 All the above shares are fully paid up and the Company has no further obligations towards them.

2.2 Investments are valued at their respective cost of acquisition.

2.3 Of the above investments, except investment in The Shamrao Vithal Co. Op. Bank Ltd., other investment are in companies under same management / group companies.

2.4 Aggregate amount of un-quoted investments - Rs. 832.49 lacs (previous year Rs. 594.01 lacs).

2.5 Aggregate amount of provision for diminution in value of investments Rs. Nil.

3.1 All the above long term loans and advances are unsecured and considered good for recovery.

3.2 Long term loans and advances include Rs. Nil due from directors and other officers of the Company or entities in which directors and other officers of the Company are interested.

3.3 All the above non-current assets are unsecured and considered good for recovery.

3.4 Other non-current assets include Rs. Nil due from directors and other officers of the Company or entities in which directors and other officers of the Company are interested.

4.1 Inventory is valued at lower of market value or cost of acquisition. All direct expenses in respect of acquisition and clearance of title of such inventory are included in the cost of such inventory.

4.2 Construction materials are valued at cost.

4.3 Work in progress are valued at costs, consisting of land development rights, construction, development, administration, marketing and finance expenses or market value whichever is lower. For this purpose items of the same project are compared in totality.

4.4 Finished goods are valued at cost consisting of land development rights, construction, development, administration, marketing and finance expenses or market value whichever is lower. For this purpose items of the same project are compared in totality.

4.5 The Company has undertaken an exercise to evaluate the impairment of each inventory. On the basis of such exercise, the management is of the opinion that all the inventories which are carried over in the Balance Sheet are at their full realizable value. The auditors have relied on the judgment of the management as to the impairment of inventories.

5.1 All the above trade receivables are unsecured, but considered good for recovery.

5.2 Trade receivables include Rs. 830 lacs (previous year Rs. Nil) due from directors and other officers of the Company or entities in which directors and other officers of the Company are interested.

5.3 The balances in receivables are subject to confirmation. The management is of the opinion that all the receivables reflected in the financial statements are fully realizable and that there is no impairment in them. During the year under review balances in the accounts of the several receivables have been written off because in the opinion of the management the same are no longer receivable. The auditors have relied on the judgment of the management in this regard.

5.4 Amount of provision for doubtful debts Rs. Nil.

6.1 All the above short term loans and advances are unsecured, but considered good for recovery.

6.2 The above short term loans and advances given are without interest.

6.3 Short term loans and advances include Rs. 4.72 lacs ( previous year Rs. 365.76 lacs) due from entity in which directors of the Company are interested.

7.1 In respect of all the loans, secured and unsecured, (which are not re- negotiated) no provision has been made for compound interest and penal interest. The same will be accounted for on final settlement of the accounts with the lenders. To that extent Company has Contingent Liability which is unascertainable.

7.2 No provision has been made in respect of contractual delays, lapses and defaults committed by the Company in respect of various contracts in the course of business. These delays, defaults and lapses are generally accepted to occur in the real estate development business and generally settled amicably by the parties. No provision for any probable / additional cost, compensation or penalties are being made by the Company, to that extent the Company has a Contingent Liability, which is unascertainable.

7.3 The Company has received demand from the Income Tax Department for Rs. 75.69 crores and Rs. 59.36 crores in respect of financial year 2006-07 and 2007-08 respectively. The Company has disputed the above demands and the matter is pending at appellate stage with appropriate authorities. Since the matter is disputed the Company has not provided for these liabilities in its books, to that extent the Company has a Contingent Liability. The above figure does not include interest payable u/s. 220 of the Indian Income Tax Ac, 1961, which will be concluded depending on the outcome of the appeal as well at the point of time when the outcome is decided and taxes paid by the Company, to that extent the Contingent Liability is unascertainable.

7.4 The Company is in dispute with the Income Tax department on several counts, these disputes pertain to different accounting periods and are pending before different appellate authorities. The aggregate demand raised by the Income Tax department for which disputes are pending is Rs. 150.69 crores, against these disputed demand the Company has provided liability to the extent of Rs. 6.64 crores. The balance contingent laibility of Rs. 144.05 crores is not provided for.

7.5 Attention is also invited on Note numbers 5.2.1 and 5.3.2 to arrive the total picture of contingent liabilities.

8 Previous year figures are re-grouped and re-classified wherever necessary.

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Mar 31, 2011

1) The Company has received demand from the Income Tax Department for Rs.7,569 lacs and Rs.5,936 lacs in respect of fnancial year 2006-07 and 2007-08 respectively. The Company has disputed the above demands and the matter is pending at appellate stage with appropriate authorities. Since the matter is disputed the Company has not provided for these liabilities in its books, to that extent the Company has a Contingent Liability. The above fgure does not include interest payable u/s. 220 of the Indian Income Tax Ac, 1961, which will be concluded depending on the outcome of the appeal as well at the point of time when the outcome is decided and taxes paid by the Company, to that extent the Contingent Liability is unascertainable.

2) The provision for tax for the year is done considering the provision of Minimum Alternative Tax (MAT). While working out the provision of tax it is assumed that the claimed made by the Company during fnancial year 2006-07 and 2007-08 will be upheld and decided in favour of the Company, resulting in to the Company being eligible for claim of losses in those years which can be used to set off the profits of the year. If the tax dispute of fnancial year 2006-07 and 2007-08 are not decided in favour of the Company then the provision for tax for the year will be higher by Rs. 56 lacs and the resulting profit after tax lower by similar amount.

3) No provision has been made for interest on delayed payments in terms of agreements for purchase of land including Mr. Suresh Thanawala as the claims are disputed and not acknowledged by the Company .The same will be provided as and when the claims are settled with the parties concerned. To that extent the Company has Contingent Liability the amount of which is unascertainable.

4) No provision has been made in respect of contractual delays, lapses and defaults committed by the Company in respect of various contracts in the course of business. These delays, defaults and lapses are generally accepted to occur in the real estate development business and generally settled amicably by the parties. No provision for any probable / additional cost, compensation or penalties are being made by the Company, to that extent the Company has a Contingent Liability, which is unascertainable.

5) The balances in creditors, debtors, secured and unsecured loans are subject to confrmation. The management is of the opinion that all the debtors, loans and advances refected in the fnancial statements are fully realizable and that there is no impairment in them. During the year under review balances in the accounts of the several debtors, creditors and loan and advances have been written off, as in the opinion of the management the same are no longer receivable/ payable. The auditors have relied on the judgment of the management in this regard.

6) The Company has undertaken an exercise to evaluate the impairment of each inventory. On the basis of such exercise, the management is of the opinion that all the inventories which are carried over in the Balance Sheet are at their full realizable value. The auditors have relied on the judgment of the management as to the impairment of inventories.

7) The Company has obtained legal advise that the overdue bills discounted amounts and the construction loans received from customers are not considered as Deposits in terms of section 58A of the Companies Act, 1956. Accordingly they are classifed as Current Liabilities.

8) CONTINGENT LIABILITIES :

Please refer to Note numbered 2 (e), 2(f), 3, 4, 5 and 6 above.

9) MANAGERIAL REMUNERATION :

Remuneration to directors in accordance with the conditions specifed in Schedule XIII of the Companies Act, 1956,– Rs. Nil ( previous year Rs. Nil ).

10) Expenditure in foreign currency on account of travelling Rs.Nil /- (previous year Rs.3.35 lacs).

11) Information pursuant to part II of Schedule VI to the Companies Act

12) Installments becoming due for sale of residential and commercial units, the construction work of which is in progress and not substantially completed are accounted as and when received under the head “Current Liabilities”.

16) Related Parties disclosure : 1. Relationships:

(a) Key Management Personnel :

Mr. Darshan L. Gandhi Ms. Naina M. Shah

(b) Relatives of Key Management Personnel and their Enterprises

Mrs. Rajni L. Gandhi

Mrs. Shraddha D. Gandhi

(c) Associate Companies :

Bahar Housing Developers

L. L. Builders

LGNC Ltd.

Lok Builders

Lok Realty Corporation Pvt. Ltd.

Remaking of Mumbai Housing Infrastructure & Finance Ltd.

Remaking of Mumbai Federation

Remaking of Mumbai Development Ltd.

Nirman Engineers

13) Items required to be reported under Schedule VI being nil or not applicable are not reported herein.

14) Previous year’s fgures have been regrouped and restated wherever necessary to confrm to this year’s classification. Figures in brackets relates to previous year.

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Mar 31, 2010

1) The Company has received demand from the Income Tax Department for Rs.46.74 crores in respect of financial year 2007-08. The said demand is on the basis of original return filed which were subsequently revised. As per the revised returns the tax demand would be Rs.4.62 crores which demand has been fully provided for. It is a settled law that upon filing a revised return the original return and the liabilities thereto become non-est in law, accordingly the demand raised by the department does not exist and is not tenable. The Company has already pointed out this error to the income tax department by making the necessary application for rectification of the above error, the conclusion of the said application is awaited.

2) The Company has received demand from the Income Tax Department for Rs.75.69 crores in respect of financial year 2006-07. The said demand has arisen on the basis that the Income Tax department has not accepted the revision of financial statements, in respect of financial year 2006-07, made by the Company. The Company has been legally advised on the merits and justification of its claim, accordingly the matter is pending in appeals, before the appropriate appellate authorities. To the extent of the said demand of Rs.75.69 crores, the Company has a Contingent liability whose fate will be determined by the outcome of the final order by the appellate authorities. The Company has not provided for the said liability.

3) No provision has been made for interest on delayed payments in terms of agreements for purchase of land as the claims are disputed and not acknowledged by the Company The same will be provided as and when the claims are settled with the parties concerned. To that extent the Company has Contingent Liability the amount of which is unascertainable.

4) The Company had on 22nd May, 2008 issued on Preferential basis 35,00,000 Optionally Convertible Share Warrants @ Rs.354/- convertible into one equity share of Rs.10/- each at a premium of Rs.344/- within 18 months from the date of allotment. The Company had received a sum of Rs. 12,39 lacs towards application money. Pursuant to the applicants not exercising the right to acquire the shares at the terms of issue, during the year under review, the said application money has been forfeited and a sum of Rs. 12,39 lacs received towards application money has been credited to Capital Reserve Account.

5) The Company has on 31st December, 2009 issued on Preferential basis 50,00,000 Optionally Convertible Share Warrants @ Rs.4()/- convertible into one equity share of Rs. 10/- each at a premium of Rs.30/- within 18 months from the date of allotment.

6) The balances in creditors, debtors, secured and unsecured loans are subject to confirmation. The management is of the opinion that all the debtors, loans and advances reflected in the financial statements are fully realizable and that there is no impairment in them. During the year under review balances in the accounts of the several debtors, creditors and loan and advances have been written off, as in the opinion of the management the same are no longer receivable/ payable. The auditors have relied on the judgement of the management in this regard.

7) The Company has undertaken an exercise to evaluate the impairment of each inventory. On the basis of such exercise, the management is of the opinion that all the inventories which are carried over in the Balance Sheet are at their full realizable value. The auditors have relied on the judgement of the management as to the impairment of inventories.

8) Due to certain disputes the Company is not receiving payments from certain lease business debtors. Correspondingly, the Company has also not paid its certain hire purchase installments to the hire purchase vendors of such leased assets. No provision for bad and doubtful debts is made in respect of outstanding and disputed lease rentals.

9) The Company has obtained legal advise that the overdue bills discounted amounts and the construction loans received from customers are not considered as Deposits in terms of section 58A of the Companies Act, 1956. Accordingly they are classified as Current Liabilities.

10) Managerial Remuneration :

a. Remuneration to directors in accordance with the conditions specified in Schedule XIII of the Companies Act, 1956,- Rs. Nil ( previous year Rs. Nil).

b. The managerial remuneration is paid in accordance with the Schedule XIII of the Companies Act, 1956. In view of this the computation of Net profit u/s 198 read with section 349 of the Companies Act,1956, is not relevant and hence not given.

11) Expenditure in foreign currency on account of travelling. Rs.3.35 lacs (previous year Rs. Nil)

12) Installments becoming due for sale of residential and commercial units, the construction work of which is in progress and not substantially completed are accounted as and when received under the head "Current Liabilities".

13) Related Parties disclosure :

1. Relationships:

(a) Key Management Personnel:

Mr. Lalit C. Gandhi Ms. Naina M. Shah

Mr. Darshan L. Gandhi

(b) Relatives of Key Management Personnel and their Enterprises

Mrs. Shraddha D. Gandhi

Mrs. Rajni L. Gandhi

(c) Associate Companies :

Bahar Housing Developers

L. L. Builders

Lgnc Ltd.

Lok Builders

Lok Realty Corporation Ltd.

Remaking Of Mumbai Housing Infrastructure & Finance Ltd.

Remaking Of Mumbai Federation

Remaking Of Mumbai Development Ltd.

Nirman Engineers

14) Contingent Liabilities : -

(i) Disputed Income Tax liability Rs.82,17.71 lacs (previous year Rs. 84,36.66 lacs)

(ii) Please also refer to note no.3 and 4 hereto.

15) Previous years figures have been regrouped and restated wherever necessary to confirm to this years classification. Figures in brackets relates to previous year.