Mar 31, 2023
Financial liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at
fair value and, in the case of financial liabilities
at amortized cost, net of directly attributable
transaction costs.
All financial liabilities (except derivatives and fair
value liabilities) are subsequently measured at
amortised cost using the effective interest rate
method.
The effective interest method is a method of
calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant
period. The effective interest rate is the rate that
exactly discounts estimated future cash payments
(including all fees and points paid or received that
form an integral part of the effective interest rate,
transaction costs and other premiums or discounts)
through the expected life of the financial liability,
or (where appropriate) a shorter period, to the net
carrying amount on initial recognition.
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same
lender on substantially different terms, or the terms
of an existing liability are substantially modified,
such an exchange or modification is treated as
the derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit and loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset
and the net amount is reported in the balance sheet
if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to
settle on a net basis, to realise the assets and settle
the liabilities simultaneously.
Investments in equity instruments of subsidiaries
These are measured at cost in accordance with Ind
AS 27 ''Separate Financial Statements''.
r) Inventories
Inventories comprising expendable aircraft spares,
miscellaneous stores and in-flight inventories
which are valued at cost or net realizable
value, whichever is lower after providing for
obsolescence and other losses, where considered
necessary. Cost includes cost of purchase and
other costs incurred in bringing the inventories
to their present location and condition and is
determined on a weighted average basis. Net
realisable value is the estimated selling price
in the ordinary course of business, less the
estimated costs of completion and the estimated
costs necessary to make the sale.
s) Manufacturers'' incentives
Cash incentives
The Company receives incentives from original
equipment manufacturers (''OEMs'') of aircraft
components in connection with acquisition of
aircraft and engines. In case of owned aircraft,
incentives are recorded as a reduction to the cost
of related aircraft and engines. In case of aircraft
and engines held under leases, the incentives are
recorded as reduction to the carrying amount of
right to use assets at the commencement of lease
of the respective aircraft.
Where the aircraft is held under finance lease as
per erstwhile Ind AS, the milestone incentives are
deferred and recognised under the head ''Other
operating revenue'' in the statement of profit and
loss, on a straight line basis over the remaining
initial lease period of the respective aircraft for
which the aircraft is expected to be used. In case of
prepayment of finance lease obligations for aircraft
taken on finance lease and consequently taking
the ownership of the aircraft, before the expiry of
the lease term, the unamortised balance of such
deferred incentive is recorded as a reduction to the
carrying value of the aircraft.
Non-cash incentives
Non-cash incentives relating to aircraft are
recorded as and when due to the Company by
setting up a deferred asset and a corresponding
deferred incentive. These incentives are recorded
as a reduction to the cost of related aircraft and
engines in case of owned aircraft. In case of aircraft
held under leases, the incentives are recorded
as reduction to the carrying amount of right to
use assets at the commencement of lease of the
respective aircraft. The deferred asset explained
above is reduced on the basis of utilization against
purchase of goods and services.
t) Commission to agents
Commission expense is recognized as an expense
coinciding with the recognition of related revenues
considering various estimates including applicable
commission slabs, performance of individual agents
with respect to their targets etc.
u) Share-based payment expense
Employees (including senior executives) of the
Company receive remuneration in the form of share-
based payment transactions, whereby employees
render services as consideration for equity
instruments (equity-settled transactions). The cost
of equity-settled transactions is determined by the
fair value of instrument at the date when the grant
is made using an appropriate valuation model.
That cost is recognised as employee benefits
expense, together with a corresponding increase
in stock options outstanding account in equity
over the period in which the performance
and/or service conditions are fulfilled. The
cumulative expense recognised for equity-
settled transactions at each reporting date until
the vesting date reflects the extent to which the
vesting period has expired and the Company''s
best estimate of the number of equity instruments
that will ultimately vest. The statement of profit
and loss expense (or reversal) for a period
represents the movement in cumulative expense
recognised as at the beginning and end of that
period and is recognised in employee benefits
expense.
When the terms of an equity-settled award are
modified, the minimum expense recognised is the
expense had the terms had not been modified, if the
original terms of the award are met. An additional
expense is recognised for any modification that
increases the total fair value of equity-settled
transaction, or is otherwise beneficial to the
employee as measured at the date of modification.
Where an award is cancelled by the entity or by
the counterparty, any remaining element of the
fair value of the award is expensed immediately
through statement of profit and loss.
v) Segment reporting
Operating segments are reported in a manner
consistent with the internal reporting provided
to the chief operating decision maker. The chief
operating decision maker is considered to be the
Board of Directors who makes strategic decisions
and is responsible for allocating resources
and assessing performance of the operating
segments.
w) Contingent liabilities and contingent assets
A contingent liability is a possible obligation that
arises from past events whose existence will be
confirmed by the occurrence or non-occurrence
of one or more uncertain future events beyond
the control of Company or present obligation that
is not recognized because it is not probable that
an outflow of resources will be required to settle
the obligation. A contingent liability also arises
in cases where there is a liability that cannot be
recognized because it cannot be measured reliably.
The Company does not recognise a contingent
liability but discloses its existence in the financial
statements.
Contingent assets are disclosed only when inflow
of economic benefits therefrom is probable and
recognize only when realization of income is
virtually certain.
x) Measurement of earnings before interest, tax,
depreciation and amortization (âEBITDA'')
The Company has elected to present EBITDA as a
separate line item on the face of the statement of
profit and loss. In its measurement, the Company
does not include depreciation and amortization,
finance income, finance costs and tax expense.
B. Changes in accounting policies/disclosures
and recent accounting pronouncement
Recent accounting pronouncement [as applicable]
Amendment to Ind AS 1, Presentation of Financial
Statements
The Ministry of Corporate Affairs ("MCA") vide
notification dated March 31, 2023, has issued an
amendment to Ind AS 1 which requires entities
to disclose material accounting policies instead
of significant accounting policies. Accounting
policy information considered together with other
information, is material when it can reasonably
be expected to influence decisions of primary
users of general purpose financial statements.
The amendment also clarifies that immaterial
accounting policy information does not need to
disclose. If it is disclosed, it should not obscure
material accounting information. The Company is
evaluating the requirement of the said amendment
and its impact on these financial statements.
Amendment to Ind AS 8, Accounting Policies,
Change in Accounting Estimates and Errors
The Ministry of Corporate Affairs ("MCA") vide
notification dated March 31, 2023, has issued
an amendment to Ind AS 8 which specifies an
updated definition of an ''accounting estimate''.
As per the amendment, accounting estimates are
monetary amounts in the financial statements
that are subject to measurement uncertainty and
measurement techniques and inputs are used to
develop an accounting estimate. Measurement
techniques include estimation techniques and
valuation techniques. The Company is evaluating
the requirement of the said amendment and its
impact on these financial statements.
Amendment to Ind AS 12, Income Taxes
The Ministry of Corporate Affairs ("MCA") vide
notification dated March 31, 2023, has issued an
amendment to Ind AS 12, which requires entities
to recognise deferred tax on transactions that, on
initial recognition, give rise to equal amounts of
taxable and deductible temporary differences. This
will typically apply to transactions such as leases
of lessees and decommissioning obligations and
will require recognition of additional deferred tax
assets and liabilities. The Company is evaluating the
requirement of the said amendment and its impact
on these financial statements.
Mar 31, 2022
Repayment terms (Including current maturities) and security details for term loans from bank
a. The Company had taken a loan of ''500 million from IDFC First Bank Limited (''IDFC Bank''). The loan is repayable after 3 years from the date of the borrowing and carries an floating interest rate based on IDFC MCLR plus a spread of 3%. The loan has been secured by first pari-passu charge on the land of the Company and one of the subsidiary and pledge on equity shares of the promoter of the Company for 1.0x of total facility. The loan agreement requires the Company to maintain debt service coverage ratio of 1.25. The Company has not complied with this financial covenant and accordingly, the borrowing has been reclassified to current maturities of long term borrowings.
b During the year, the Company has availed term loan under Electronic Credit Line Guarantee Scheme (''ECLGS'') from Yes Bank Limited amounting to ''1,275.17 million. The loan is repayable in 48 equal instalments commencing after 2 years from the date of the borrowing and carries an interest rate of 9.25% ( 0.80% spread over MCLR rate of the bank revised every year capped at 9.25% ). The loan is secured as follows:
- Second charge on movable fixed assets;
- Second charge on current assets of the Company (both present and future) including all receipts in foreign currency and rupee credit (except lien marked deposits);
- Second charge on pledge of shares of the Company held by the Promoter; and
- 100% credit guarantee by National Credit Guarantee Trust Company Limited (NCGTC)
c During the year, the Company has availed term loan under Electronic Credit Line Guarantee Scheme (''ECLGS'') from IDFC Bank Limited (""IDFC Bank"") amounting to ''200 million. The loan is repayable in 48 equal instalments commencing after 2 years from the date of the borrowing and carries an interest rate of 9.25% ( 1.00% spread over MCLR rate of the bank revised every year capped at 9.25%). The loan is secured as follows:
- Second pari-passu charge movable fixed assets and current assets of the Company;
- Second charge on land of the Company and one of the subsidiary;
- Second charge on pledge of shares of the promoter of the Company (1.0x cover); and
- 100% credit guarantee by National Credit Guarantee Trust Company Limited (NCGTC)
d The External Commercial Borrowing (''ECB'') relates to the acquisition of ''Bombardier Q400 Aircrafts'', accordingly, secured against these aircrafts. The ECB has been approved by the Reserve Bank of India and is granted through a structure between the Company and Maple Leaf Financing Limited with lending from Export Development Canada (''EDC''). As per the terms of the agreement, the Company may opt for either fixed or a floating rate of interest benchmarked to LIBOR for each drawdown, which coincides with the delivery of each aircraft. Accordingly, the interest on these ECBs ranges from 3.79% to 4.91%. During the year, due to impact of Covid-19 on business, the Company has negotiated revised payment schedule and the repayment will now commence with effect form April 1, 2022. Accordingly, the Company has updated classification of the borrowing amount in current and non-current.
a. Working capital demand loan from bank is secured by fixed deposits placed by the erstwhile promoter and is repayable on demand. The loan carries an interest rate of 12.75% per annum.
b. During the year, working capital demand loan of Company has been recalled by the City Union Bank Limited (''the Bank'') and then, the Bank has issued an application dated April 4, 2022 to classify the said overdraft facility as ''Special Mention Account''. In reply to this, on April 28, 2022, the Company had filed an application for stay order restraining the Bank from declaring the loan as non-performing asset on the grounds that the Bank had illegally recalled the said overdraft facility extended to the Company without any plausible reasons. On April 28, 2022, the Exclusive Commercial Court, Gurugram
has granted the stay order, ex-parte, to the Company. Further, on July 23, 2022, the Company and the Bank have entered into an agreement, whereby the Bank has extended the period of the said facility till June 30, 2023, and the Company has agreed to repay the outstanding balance of the facility (i.e., 1,000 million) in multiple tranches i.e., ''750 million in financial year 2022-23 and balance on June 30, 2023.â
c. Pre-shipment credit foreign currency loan from bank is secured by fixed deposits placed by the Company having a carrying value of ''375 million and is repayable within 6 months from each drawdown. The loan carries an interest rate benchmarked to the LIBOR rate at each drawdown. The interest rate on these borrowings ranges between 3.15% to 4.05% per annum.
43. Employee stock option plans
The following share-based payment arrangements were in existence during the current and previous year :
The shareholders at the Annual General Meeting held on November 27, 2017, approved an Employee Stock Option Scheme (''ESOS'') which provides for the grant of 10,000,000 stock options which will be granted to eligible employees of the Company determined by Nomination and Remuneration Committee, which are convertible into equivalent number of equity shares of ''10 each as per the terms of the scheme. Upon vesting, the employees can acquire one common equity share of the Company for every option. The stock options were granted on the dates as mentioned in table below.
Expected volatility calculation is based on daily volatility of the share prices over a period prior to the date of grant, corresponding to the expected life of the options.
The risk free return is the implied yield currently available on zero coupon government issues, with a remaining term equal to the expected term of the option being valued.
The above calculation is based on government yield on zero coupon bonds with 4 to 5 as term to maturity.
Expected life of the option have been calculated by adding the vesting period and half of the exercise period.
The Company has not declared any dividend from last several years. Therefore, expected dividend yield is taken as Nil.
âIncludes only options granted to employees who have fulfilled the related conditions in respect of such grant.
The weighted average remaining period of stock options as at March 31, 2022 is 6 years (March 31, 2021: 5 years).
The weighted average share price at the date of exercise of stock options during the year was ''72.38 (March 31, 2021 ''72.84). Option excersiable as at March 31, 2022 is 20,300 (March 31, 2021- 486,012)
44. Employee benefits obligation
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of ''2.00 million. The scheme is unfunded and accordingly the disclosures relating to plan assets are not provided.
Salary increases - Actual salary increases will increase the Plan''s liability. Increase in salary increase rate assumption in future valuations will also increase the liability.
Investment risk - If Plan is funded then assets liabilities mismatch and actual investment return on assets lower than the discount rate assumed at the last valuation date can impact the liability.
Discount rate - Reduction in discount rate in subsequent valuations can increase the plan''s liability.
Mortality and disability - Actual deaths and disability cases proving lower or higher than assumed in the valuation can impact the liabilities.
Withdrawals - Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal rates at subsequent valuations can impact Plan''s liability.
During the year, the Company recognized ''30762 million (March 31, 2021 - ''319.25 million) as provident fund expense under defined contribution plan and ''37.30 million (March 31, 2021 - ''36.20 million) for contributions to employee state insurance scheme in the Statement of profit and loss.
The Company''s leased assets primarily consist of leases for aircraft, aircraft components (including engines) and buildings. The Company has several lease contracts that include extension and termination options. The management has included termination options in determination of lease term for contracts having such option. Extension options have not been included in determination of lease term since the management is reasonably certain not to exercise these options. Potential cash flows in relation to such extension options cannot be ascertained since the cash outflow for the extended period will depend on the negotiations with the lessors in the event of exercising the extension options. Under certain lease arrangements of aircraft, the Company incurs variable payments towards maintenance of the aircraft which are disclosed under "Supplemental lease charges - aircraft, engines and auxiliary power units".
During the year ended March 31, 2022, the Company has recognized an expense of ''5,919.21 million (March 31, 2021 ''2,484.84 million) on account of short term leases which represents leased aircraft, engines and auxiliary power units having a remaining lease term of less than 12 months as on transition date and other short-term leases. The portfolio of other short-term leases to which the Company is committed at the end of the reporting period is not materially different from the portfolio of other short-term leases for which expense has been recognized during the year ended March 31, 2022.
guidance prescribed in Ind AS 116, read with the amendment thereto vide Ministry of Corporate Affairs notification dated
June 18, 2021, relating to Covid-19-Related Rent Concessions.
46. Capital and other commitments
a. As at March 31, 2022, the Company has commitments of ''550,358.71 million (March 31, 2021 - ''533,786.89 million) relating to the acquisition of aircraft.
b. Under certain long-term maintenance contracts for the management, maintenance, repair and overhaul of aircraft components and spares, the Company incurs an agreed power-by-the-hour cost based on aircraft/component utilization.
i) Matters wherein management has concluded the liability to be probable have been provided for in the books. Refer note 30.
ii) Matters wherein management has concluded the liability to be possible have been disclosed under note 47 (b) below.
Particulars |
As at March 31, 2022 |
As at March 31, 2021 |
Liability arising out of legal cases filed against the Company in various Courts/ Consumer Redressal Forums, Consumer Courts, disputed by the Company |
210.11 |
171.56 |
Liability arising out of goods and service tax related show cause notice |
124.75 |
63.86 |
Liability arising out of custom tariff classification |
112.10 |
- |
Demand in respect of provident fund dues for international workers as explained in note (i) below |
142.37 |
142.37 |
Demand in respect of service tax (including interest and penalty) as explained in note (ii) below |
170.70 |
170.70 |
Show cause notice received in respect of service tax as explained in note (iii) below |
3,458.92 |
3,458.92 |
Liability arising out of Integrated Goods and Services Tax (''IGST''), on overseas repairs and replacement of various aircraft equipment as explained in note (iv) below |
580.70 |
2,556.29 |
Liability in respect of inter-corporate deposit received from Mallanpur Steels Limited (refer note (v) below) |
35.00 |
35.00 |
Demand in respect of order from the Competition Commission of India as explained in note (vi) below |
51.00 |
51.00 |
Liability arising out of legal case filed against the Company by aircraft manufacturer as explained in note (vii) below |
- |
3,200.00 |
The Company has various demands arising from Income-tax assessments pertaining to Assessment year 2006-07 to 2018-19. The litigations are currently pending at various forums and such sum contested after adjusting the brought forward losses and depreciation was computed to be ''Nil. Consequently, without prejudice to its legal defense on these matters, the Company has not disclosed the same as a contingent liability.
i. The Company has received a demand notice from the Regional Provident Fund Commissioner, Gurgaon for ''79.91 million in respect of provident fund (''PF'') dues for international workers vide Notifications GSR 706(E) dated October 1, 2008 and GSR 148 dated September 3, 2010, for the period from November 2008 to February 2011. The Company has responded to the notice disputing the demand and, without admitting any liability towards the same, has deposited an amount of ''1.96 million towards the PF contributions in respect of international workers for the period from November 2008 to July 2011 under the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (''PF Act''). Since August 2011, the Company has been making provident fund contributions in respect of international workers under the provisions of the PF Act.
During the year ended March 31, 2012, the Company has filed a writ petition with the Hon''ble Delhi High Court contending that the above notifications relating to international workers are unreasonable and ultra vires the PF Act. The Court has directed that this matter be put up in the regular list and the interim order in favour of the Company has been made absolute till disposal of the petition. In addition, a report has been filed by the Department''s Representative before the Regional Provident Fund Commissioner ("RPFC") on March 22, 2017 pursuant to which there is an aggregate demand ''144.43 million against the Company for the period from November 2008 to January 2012. The Company has filed its reply on the report on August 18, 2017 Thereafter, the RPFC has passed its final order on June 8, 2020 against the Company for an amount of ''142.04 million towards outstanding PF dues for its expat employees for the period of November 2008 to January 2012. The RPFC order also states that there is an order in favour of the Company restraining the PF department from taking any coercive steps against the Company for recovery of the said amount till the disposal of the writ petition. Pending disposal of the writ petition, the Company has not accrued for any additional liability in respect of provident fund contributions to international workers.
ii. The Company has received a demand order for a sum of ''77.28 million, and applicable interest, as well as penalty of ''77.28 million from the service tax department for non-remittance of service tax on reverse charge mechanism on certain payments made during the period April 18, 2006 to March 31, 2012. The Company is contesting the order on the grounds that the services obtained by the Company were not liable to service tax under the categories determined by the authorities and are hence not taxable services. Effective July 2012, pursuant to the enactment of the negative list of taxable services, the Company has been paying service tax on these services received on reverse charge basis under the relevant provisions of the Finance Act, 1994. Based on advice by its tax consultants and internal evaluation, the Company has provided an amount of ''77.28 million (including a portion of applicable interest) on a conservative basis (also refer note 29). However, the Company continues to contest the entire demand and has filed an appeal against the adverse order with the Customs, Excise and Service Tax Appellate Tribunal (''CESTAT'') and is confident of its success. The balance amount of the matter under litigation, (including interest and penalty) of ''170.70 million, has not been accrued pending final outcome of this matter and has been disclosed as a contingent liability.
iii. The Company has received certain show cause notices from the service tax authorities, citing various defaults, including failure/delay in remitting service tax collected, over past financial years as well as alleged failure in remittance of service tax on certain other items. Based on their assessment of the contentions of the service tax authorities, management has submitted a detailed reply to the notices, and based on legal advice obtained, believes that the likelihood of this liability devolving on the Company is low, and accordingly has made no adjustments to the financial statements.
iv. The Company has received certain orders from customs authorities levying Integrated Goods and Services Tax (''IGST'') and basic customs duty on re-import of various aircraft engines and aircraft equipment repaired/replaced outside India, which is in the opinion of the Management and based on expert advice obtained, is not subject to such levy. Accordingly, these amounts have been considered as recoverable. Further, in January 2021, the Company has received favourable order in reference to one of the matters for which tax is paid under protest, from the Customs Excise and Service Tax Appellate Tribunal (''CESTAT''), New Delhi in respect of this matter. During the year, the customs authorities have filed an appeal before the Hon''ble Supreme Court of India (''the Supreme Court'') against the CESTAT order. The matter is yet to be decided by the Supreme Court and no stay on CESTAT order has been granted by the Supreme Court till date. Further, the customs authorities vide customs amendment notification dated 19 July 2021 has amended earlier customs exemption notification to reiterate their position that IGST is applicable on re-import of goods after repair. However, the Company based on the legal advice from counsels, continues to believe that no IGST is payable on such re-import of repaired aircraft engines and related parts. Accordingly, the above amounts, which is paid under protest till March 31, 2022 have been shown as recoverable.
v. M/s Hindustan Development Corporation Limited ("HDCL") (now renamed as Mallanpur Steels Limited) who had lent ''50 million by way of inter-corporate deposit to the Company, has filed an appeal before the division bench of the Hon''ble Delhi High Court against the Scheme of Settlement passed by the Hon''ble Delhi High Court wherein the Company''s liability was fixed at ''35 million. The Company had made a deposit of ''35 million to the Official Administrator of the Scheme in accordance with approved Scheme. Pending disposition of the review petition, the likelihood of the balance amount of ''15 million devolving on the Company is not probable. Also, the interest (if any) on the same is not ascertainable and accordingly no adjustments have been made to the financial statements.
vi. The Competition Commission of India ("CCI") passed an order dated November 17, 2015 against, inter alia, the Company, which included a demand of ''424.80 million. The Company''s appeal against this order with Competition Appellate Tribunal ("COMPAT") was disposed of by the COMPAT, which set aside the impugned order on technical grounds and has referred the matter back to the CCI for fresh adjudication. Subsequent thereto, the matter was reconsidered by CCI and a revised order dated March 7, 2018 imposing fine of ''51 million was imposed on the Company. The Company
has filed an appeal before COMPAT and based on legal advice received, management is confident of a favourable outcome in this matter and accordingly no adjustments are considered necessary in the financial statements.
vii. The aircraft manufacturer of Q400 aircraft initiated a claim against the Company in the foreign court amounting
to approximately ''3,200 million for declarations, liquidated damages, interest and costs relating to the Company''s alleged breaches of, and the manufacturer''s purported termination of the purchase agreement for certain undelivered aircraft. The foreign court decided a summary judgement in favour of the aircraft manufacturer and the aircraft manufacturer had filed an execution petition before the Hon''ble High Court of Delhi (the "High Court") for execution of the said summary judgement. During the year, the Company has entered into a settlement agreement with the aircraft manufacturer which has resulted in a one-time expense of ''774.58 million on account of this settlement. Accordingly, the execution petition filed before the High Court is dismissed as withdrawn on July 5, 2022.
viii. The Assistant Commissioner of Income-Tax ("ACIT") has filed a complaint against the Company and its erstwhile Chairman
and Managing Director in their individual capacity, over delayed payment of tax deducted at source in contravention of section 276B of the Income-tax Act, 1961 for financial years 2013-14 and 2014-15. The matter is sub-judice as on date and based on professional advice, the management is confident of a favourable outcome in this matter in so far as it relates to the Company. Accordingly, no adjustments are considered necessary in the financial statements.
48. Advance money received against securities proposed to be issued
The Company had, in earlier financial years, received amounts aggregating to ''5,790.9 million from Mr. Kalanithi Maran and KAL Airways Private Limited (together, "Erstwhile Promoters") as advance money towards proposed allotment of certain securities (189,091,378 share warrants and 3,750,000 non-convertible cumulative redeemable preference shares, issuable based on approvals to be obtained), to be adjusted at the time those securities were to be issued. Pursuant to the legal proceedings in this regard before the Hon''ble Delhi High Court ("Court") between the Erstwhile Promoters, the present promoter and the Company, the Company was required to secure an amount of ''3,290.89 million through a bank guarantee in favour of the Registrar General of the Court ("Registrar") and to deposit the balance amount of ''2,500 million with the Registrar. The Company has complied with these requirements.
The parties to the aforementioned litigation concurrently initiated arbitration proceedings before a three-member arbitral tribunal (the "Tribunal"), which pronounced its award on 20 July 2018 (the "Award"). In terms of the Award, the Company was required to (a) refund an amount of approximately ''3,082.19 million to the counterparty, (b) explore the possibility of allotting non-convertible cumulative redeemable preference shares in respect of approximately ''2,708.70 million, failing which, refund such amount to the counterparty, and (c) pay interest calculated to be ''924.66 million (being interest on the amount stated under (a) above, in terms of the Award). The amounts referred to under (a) and (b) above, aggregating ''5,790.89 million, continue to be carried as current liabilities without prejudice to the rights of the Company under law. Further, the Company was entitled to receive from the counterparty, under the said Award, an amount of ''290.00 million of past interest/servicing charges. Consequent to the Award, and without prejudice to the rights and remedies it may have in the matter, the Company accounted for ''634.66 million as an exceptional item (net) during the year ended 31 March 2019, being the net effect of amount referred to under (c) and interest/servicing charges receivable of ''290.00 million, above. During the year ended 31 March 2019, the Court had ordered release of ''2,500 million, out of the amount deposited by the Company, to the counterparty, subject to certain conditions as enumerated by the Court in its order. Further, pursuant to an order of the Court dated 20 September 2019, the Company has remitted an additional ''582.19 million out of the guarantee placed with the Court, to the counterparty, in October 2019. All such payments made have been included under other non-current assets.
The Company, its present promoter and the counterparties have challenged various aspects of the Award, including the above-mentioned interest obligations and rights, petitions for which have been admitted by the Court, as a result of which the matter is currently sub-judice.
Further, the Court vide its order dated 2 September 2020 in the said matter, directed the Company to deposit an amount of ''2,429.37 million of interest component under the Award (including the amount of ''924.66 million provided for as indicated earlier, without prejudice to the rights of the Company under law). The Company preferred a Special Leave Petition before the Hon''ble Supreme Court of India against the aforesaid Order and the Hon''ble Supreme Court of India pursuant to its order dated 6 November 2020, has stayed the deposit of ''2,429.37 million. Accordingly, based on the foregoing and also legal advice obtained by management, no additional amounts have been accounted for in this regard.
In view of the foregoing and pending outcome of the aforesaid challenges at the Court, the management is of the view that it is not possible to determine the effects of any such obligations and rights (including any additional/consequential obligations and rights). Accordingly, no further adjustments have been made in this regard, to these financial statements.
The effects of the matter stated above may attract the consequent provisions (including penal provisions) of applicable provisions of law, including deeming provisions, relating to acceptance of deposits. Based on their assessment and legal advice obtained,
the management is of the view that any possible consequential effects (including penal consequences and any compounding thereof), of past events and actions in relation to the foregoing, are not likely to have a material impact on the financial statements of the Company. Accordingly, no adjustments have been made for any such consequential penal effects in this regard.
49. Claims on the aircraft manufacturer
The Company had thirteen Boeing 737 Max aircraft in its fleet prior to the worldwide grounding of these aircraft during March 2019 due to technical reasons. Despite its inability to undertake revenue operations, the Company continued to incur various costs with respect to these aircraft. As a result, and to reflect the true operational parameters of its operating fleet, the management of the Company recognised claim recoverable for such expenses which accumulated to ''15,549.03 million till September 30, 2021 under the head ''other income'' in respective quarters as the management was confident about the recoverability of its claims since the grounding of these aircraft. While the Boeing 737 Max aircraft were approved by the Federal Aviation Administration in November 2020, the same was only approved by the Director General of Civil Aviation (DGCA) in August 2021 subject to accomplishment of certain compliances and modifications. The aircraft type was finally recertified by DGCA in November 2021. During the current year, the Company concluded its settlement agreement with the aircraft manufacturer and 737 max aircraft lessors whereby the Company is entitled for certain cash and non-cash accommodations over a period of time including waiver of past due lease rentals on these Boeing 737 Max aircraft, resulting in re-induction of twelve of these aircraft into its fleet. Accordingly, basis the various terms of settlement agreed with the aircraft manufacturer and the 737 Max aircraft lessors, the Company has recognised these amounts under the head ''other income''. Upon execution of the settlement agreement and various accommodations extended, the assessment of the management about the recoverability of its claims for these aircraft stands substantiated. In auditors'' assessment, the Company should have recognised such accommodations in its entirety during the current year on completion of settlement and hence, the auditors have qualified their audit report to that extent.
The impact of Covid-19 has led to significant disruptions and dislocations for individuals and businesses and has had consequential impact of grounding the passenger airline operations. The Company is required to adhere to various regulatory restrictions, which severely impacts its operations and have their own additional financial implications. As per Government guidelines, the Company had stopped all passenger travel from March 25, 2020 to May 24, 2020. The Government allowed operations of the domestic flights effective May 25, 2020 in a calibrated manner. The operation was ramping up in a phased manner in accordance with Government directions, however starting March 2021, the second wave of the Covid-19 has hit the country which leads to significant drop in demand and as per revised Government guidelines the domestic operation was also restricted which continued to have severe impact on the Company''s revenue and profitability for the quarters ended 30 June 2021 and 30 September 2021. Subsequently, the third wave of the Covid-19 in December 2021/January 2022 has again impacted the passenger load factor and consequently Company''s revenue and profitability for the quarter ended March 31, 2022.
However, post above specified period domestic and international passenger airline business witness significant improvement in passenger traffic due to relaxation of restrictions in operation due to substantial reduction in Covid cases across the country. With the above developments and various measures taken by the Company, the financial performance is expected to improve substantially in subsequent quarters.
The impact of Covid-19 is not specific to the Company but is applicable across the entire aviation industry within and outside India. While there is uncertainty in the revenue operation in the short-term which is expected to normalise in the long-term. It is also to be noted that while generally the passenger business was either suspended or very low demand during the lockdown period and/or restricted operation period, the Company further enhanced its cargo operations which were fulfilled by dedicated fleet of freighter aircraft and passenger converted aircraft.
Further, the Company is in negotiations with lessors/lenders regarding deferment of dues and other waivers (including, in particular, contracts with aircraft lessors), and also assessed the recoverability and carrying values of its assets while preparing the standalone financial result for the quarter and year ended March 31, 2022. The management is confident that they have considered all known potential impacts arising from the Covid-19 pandemic on the Company''s business, and where relevant, have accounted for the same in these standalone financial results. However, the Company will continue to closely monitor any material change to future economic conditions on account of Covid-19 to assess any possible impact on the Company. The auditors have drawn an ''emphasis of matter'' in their audit report in this regard"
Operating segments of the Company are Air Transport Services and Freighter and Logistics Services. Air Transport Services includes, inter alia, passenger transport and ancillary cargo operations arising from passenger aircraft operations and freighter and logistics services includes cargo services.
Segment assets and liabilities include those directly identifiable with the respective segments. Unallocated corporate assets and liabilities represent the assets and liabilities that relate to the Company as a whole and are not allocable to any segment. Expenses that are directly identifiable to segments are considered for determining the segment results. Expenses which relate to the Company as a whole and are not allocable to segments are included under unallocated corporate expenses.
The Management considers that the carrying amounts of financial assets and financial liabilities (except lease liability) recognised in the financial statements approximate their fair values. The management assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, and other current and non-current financial liabilities and financial assets approximate their carrying amounts largely due to the short-term maturities of these financial instruments. The borrowings of the Company do not have any comparable instrument having the similar terms and conditions with related security being pledged and hence the carrying value of the borrowings represents the best estimate of fair value.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard.
Level 1: quoted prices (unadjusted) in active markets for financial instruments
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3: unobservable inputs for the asset or liability Valuation techniques used to determine fair value
Level 1 - The use of net asset value for mutual funds on the basis of the statement received from investee party.
Level 3 - The use of adjusted net asset value method for equity investment.
56. Financial risk management objectives and policies
The Company is exposed to market risk, credit risk and liquidity risk. The Company''s senior management oversees the management of these risks. The Company''s senior management is supported by a treasury team. The treasury team provides assurance to the Company''s senior management that the Company''s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company''s policies and risk objectives. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. Market risk comprises three types of risk: interest rate risk, currency risk and foreign currency risk.
The sensitivity analyses in the following sections relate to the position as at March 31, 2022 and March 31, 2021.
The Company''s exposure to price risk arises from investments held and classified as FVTPL. To manage the price risk arising from investments in mutual funds, the Company diversifies its portfolio of assets.
Sensitivity analysis
If price had been 50 basis points higher/lower and all other variables were held constant, the Company''s loss for the year ended March 31, 2022 would decrease/increase by ''0.22 million (March 31, 2021: decrease/increase by ''0.21 million).
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk because it borrows funds at floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. As at March 31, 2022 approximately 78.96% of the Company''s borrowings are at a variable rate of interest (March 31, 2021 - 57.90%)
Sensitivity analysis
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company''s loss for the year ended March 31, 2022 would increase by ''30.33 million and decrease by ''36.73 million respectively. (March 31, 2021: increase/ decrease by ''35.95 million).
In management''s opinion, the sensitivity analysis is unrepresentative of the inherent interest rate risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.
Sensitivity analysis
The following demonstrates the sensitivity to a reasonably possible change in the foreign currency exchange rates, with all other variables held constant. The impact on the Company''s loss before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The sensitivity analysis includes only outstanding unhedged foreign currency denominated monetary items.
If the foreign currency rates had been 5% higher/lower and all other variables were held constant, the Company''s loss for the year ended March 31, 2022 would increase/decrease by ''5,542.14 million (March 31, 2021: increase/decrease by ''5,504.91 million).
In management''s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
The Company has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. Trade receivables are typically unsecured and are primarily derived from cargo and other revenue streams. Majority of the Company''s passenger revenue is are made against deposits made by agents. Trade receivables primarily comprise of domestic customers, which are fragmented and are not concentrated to individual customers. The Company''s exposure and the credit ratings of its counterparties are continuously monitored. At March 31, 2022, the Company had 43 customers (March 31, 2021: 40 customers) that owed the Company more than ''10 million each and accounted for approximately 88% (March 31, 2021: 88%) of all the receivables outstanding.
An impairment analysis is performed at each reporting date on an individual basis for major customers. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are widely dispersed and operate in largely independent markets. The average credit period ranges between 30 and 90 days.
Credit risk related to cash and cash equivalents and bank deposits is managed by only investing in deposits with highly rated banks and financial institutions and diversifying bank deposits and accounts in different banks. Credit risk related to loans and other financial assets is managed by monitoring the recoverability of such amounts continuously. Credit risk is considered low because the Company is in possession of the underlying asset (in case of security deposit) or as per trade experience (in case of unbilled revenue). Further, the Company creates provision by assessing individual financial asset for expectation of any credit loss basis 12 month expected credit loss model.
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company has obtained fund and non-fund based working capital lines from various banks. The Company invests its surplus funds in bank fixed deposit
and mutual funds, which carry minimal mark to market risks. The Company also constantly monitors funding options available in the debt markets with a view to maintaining financial flexibility.
The Company''s capital management is intended to create value for shareholders by facilitating the meeting of long-term and short-term goals of the Company.
The Company determines the amount of capital required on the basis of annual operating plans and long-term fleet expansion plans. The funding requirements are met through internal accruals and other long-term/short-term borrowings. The Company''s policy is aimed at combination of short-term and long-term borrowings. The Company monitors capital employed using a debt equity ratio, which is total debt divided by total equity.
58. Details of corporate social responsibility (âCSRâ) expenditure
The Company has met the criteria as specified under sub-section (1) of section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, however, in the absence of average net profits in the immediately three preceding years, there is no requirement for the Company to spend any amount under sub-section (5) of
60. As at March 31, 2022 the composition of the Board of Directors of the Company is not as per the requirement of Regulation 17(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 as the Company has not appointed one independent woman director and the total number of directors are less than six. The Company is in the process of identifying suitable candidate for the vacant position. Post appointment of one independent woman director, the Company will comply Regulation 17(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
A. The Company has not advanced or loaned or invested funds to any person or any entity, including foreign entities (Intermediaries) with the understanding that the intermediary shall:
(i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by a or on behalf of the Company (Ultimate Beneficiaries); or
(ii) provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries.
B. The Company has not received any fund from any person or any entity, including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:
(i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by a or on behalf of the Funding Party (Ultimate Beneficiaries); or
(ii) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
C. The Company does not have any transactions and outstanding balances during the current as well previous year with Companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956.
63. In an old matter between the Company and Credit Suisse emanating from an agreement dated 24 November 2011 between the Company and SRT Technics ("SRT") for provision of engine maintenance services ("Agreement"), the Madras High Court has allowed the petition for winding up of the Company for non-payment of amounts aggregating to USD 24.01 million (equivalent to ''1,787.30 million) to Credit Suisse, as assignee of SRT. The Company opposed the petition inter-alia on the grounds that there is no legally enforceable debt because SRT, did not possess the relevant Directorate General of Civil Aviation ("DGCA") approval for provision of services under the Agreement. However, the Madras High Court despite holding that SRT did not have a valid authorization from DGCA to carry out engine maintenance during the period of the Agreement, rejected the Company''s defence and ordered winding up of the Company. The winding up Order of Madras High Court was immediately stayed on the condition of Company providing security of USD 5 million (equivalent to ''373.20 million) and to allow the Company to appeal against the order. The challenge before the Division Bench of the Madras High Court was also rejected while maintaining the stay of winding up order and subsequently the Company preferred a Special Leave Petition before the Hon''ble Supreme Court of India ("the Supreme Court"). The Supreme Court on January 28, 2022 stayed the order of winding up to facilitate settlement between the parties. The parties entered into a settlement on May 23, 2022 and have filed the settlement consent terms with the Supreme Court for appropriate order and disposal of the matter. Consequently, the Supreme Court on August 18, 2022 has dismissed the Special Leave Petition as withdrawn and directed the parties to abide by the settlement terms.
The standalone financial statements were approved for issue by the board of directors on August 31, 2022
Mar 31, 2021
Company has responded to the notice disputing the demand and, without admitting any liability towards the same, has deposited an amount of Rs. 1.96 million towards the PF contributions in respect of international workers for the period from November 2008 to July 2011 under the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (''PF Act''). Since August 2011, the Company has been making provident fund contributions in respect of international workers under the provisions of the PF Act. During the year ended March 31, 2012, the Company has filed a writ petition with the Hon''ble Delhi High Court contending that the above notifications relating to international workers are unreasonable and ultra vires the PF Act. The Court has directed that this matter be put up in the regular list and the interim order in favour of the Company has been made absolute till disposal of the petition. In addition, a report has been filed by the Department''s Representative before the Regional Provident Fund Commissioner ("RPFC") on March 22, 2017 pursuant to which there is an aggregate demand Rs. 144.43 million against the Company for the period from November 2008 to January 2012. The Company has filed its reply on the report on August 18, 2017. Thereafter, the RPFC has passed its final order on June 8, 2020 against the Company for an amount of Rs. 142.04 million towards outstanding PF dues for its expat employees for the period of November 2008 to January 2012. The RPFC order also states that there is an order in favour of the Company restraining the PF department from taking any coercive steps against the Company for recovery of the said amount till the disposal of the writ petition. Pending disposal of the writ petition, the Company has not accrued for any additional liability in respect of provident fund contributions to international workers.
ii. The Company has received a demand order for a sum of Rs. 7728 million, and applicable interest, as well as penalty of Rs. 77.28 million from the service tax department for non-remittance of service tax on reverse charge mechanism on certain payments made during the period April 18, 2006 to March 31, 2012. The Company is contesting the order on the grounds that the services obtained by the Company were not liable to service tax under the categories determined by the authorities and are hence not taxable services. Effective July 2012, pursuant to the enactment of the negative list of taxable services, the Company has been paying service tax on these services received on reverse charge basis under the relevant provisions of the Finance Act, 1994. Based on advice by its tax consultants and internal evaluation, the Company has provided an amount of Rs. 77.28 million (including a portion of applicable interest) on a conservative basis (also refer note 28). However, the Company continues to contest the entire demand and has filed an appeal against the adverse order with the Customs, Excise and Service Tax Appellate Tribunal (''CESTAT'') and is confident of its success. The balance amount of the matter under litigation, (including interest and penalty) of Rs. 170.70 million, has not been accrued pending final outcome of this matter and has been disclosed as a contingent liability.
iii. The Company has received certain show cause notices from the service tax authorities, citing various defaults, including failure/delay in remitting service tax collected, over past financial years as well as alleged failure in remittance of service tax on certain other items. Based on their assessment of the contentions of the service tax authorities, management has submitted a detailed reply to the notice, and based on legal advice obtained, believes that the likelihood of this liability devolving on the Company is low, and accordingly has made no adjustments to the standalone financial statements.
iv. The Company has received certain orders from customs authorities levying IGST and basic customs duty, on reimport of various aircraft equipment repaired outside India, which in the opinion of the management and based on expert advice obtained, is not subject to such levy. Further, in January 2021, the Company has received favourable order in reference to one of the matters for which tax is paid under protest, from the CESTAT, New Delhi.
v. In another case, M/s Hindustan Development Corporation Limited ("HDCL") (now renamed as Mallanpur Steels Limited) who had lent Rs. 50 million by way of inter-corporate deposit to the Company, has filed an appeal before the division bench of the Hon''ble Delhi High Court against the Scheme of Settlement passed by the Hon''ble Delhi High Court wherein the Company''s liability was fixed at Rs. 35 million. The Company had made a deposit of Rs. 35 million to the Official Administrator of the Scheme in accordance with approved Scheme. Pending disposition of the review petition, the likelihood of the balance amount of Rs.15 million devolving on the Company is not probable. Also, the interest (if any) on the same is not ascertainable and accordingly no adjustments have been made to the standalone financial statements.
vi. The Competition Commission of India ("CCI") passed an order dated November 17, 2015 against, inter alia, the Company, which included a demand of Rs 424.80 million. The Company''s appeal against this order with Competition Appellate Tribunal ("COMPAT") was disposed of by the COMPAT, which set aside the impugned order on technical grounds and has referred the matter back to the CCI for fresh adjudication. Subsequent thereto, the matter was reconsidered by CCI and a revised order dated March 7, 2018 imposing fine of Rs. 51 million was imposed on the Company. The Company has filed an appeal before COMPAT and based on legal advice received, management is confident of a favourable outcome in this matter and accordingly no adjustments are considered necessary in the standalone financial statements.
vii. The aircraft manufacturer of Q400 aircrafts initiated a claim against the Company amounting to approximately Rs. 3,200 million for declarations, liquidated damages, interest and costs relating to the Company''s alleged breaches of, and the manufacturer''s purported termination of the purchase agreement for certain undelivered aircrafts. During the year, while there has been a summary judgement decided in favour of the aircraft manufacturer, the Company has been permitted to assail the said judgement relating to termination of certain aircrafts and the same is presently pending for adjudication before the Court of Appeal. In view of the foregoing and pending outcome of the aforesaid challenge before the Court of Appeal, the management is of the view that it is not possible to determine the effects of any such obligations and rights (including any additional/consequential obligations and rights) and accordingly, no further adjustments have been made in this regard, to these standalone financial statements.
viii. There are numerous interpretative issues relating to the Hon''ble Supreme Court judgement on Provident Fund dated February 28, 2019. As a matter of caution, the Company has made a provision on a prospective basis from the date of the Hon''ble Supreme Court order. The Company will update its provision, on receiving further clarity on the subject.
ix. The Assistant Commissioner of Income-Tax ("ACIT") has filed a complaint against the Company and its erstwhile Chairman and Managing Director in their individual capacity, over delayed payment of tax deducted at source in contravention of section 276B of the Income-tax Act, 1961 for financial years 2013-14 and 2014-15. The matter is sub-judice as on date and based on professional advice, the management is confident of a favourable outcome in this matter in so far as it relates to the Company. Accordingly, no adjustments are considered necessary in the standalone financial statements.
46. Advance money received against securities proposed to be issued
The Company had, in earlier financial years, received amounts aggregating Rs. 5,790.9 million from Mr. Kalanithi Maran and M/s KAL Airways Private Limited together, ("Erstwhile Promoters") as advance money towards proposed allotment of certain securities (189,091,378 share warrants and 3,750,000 non-convertible cumulative redeemable preference shares, issuable based on approvals to be obtained), to be adjusted at the time those securities were to be issued. Pursuant to the legal proceedings in this regard before the Hon''ble High Court of Delhi ("Court") between the Erstwhile Promoters, the present promoter and the Company, the Company was required to secure an amount of Rs. 3,290.89 million through a bank guarantee in favour of the Registrar General of the Court ("Registrar") and to deposit the balance amount of Rs. 2,500 million with the Registrar. The Company has complied with these requirements.
The parties to the aforementioned litigation concurrently initiated arbitration proceedings before a three-member arbitral tribunal (the "Tribunal"), which pronounced its award on July 20, 2018 (the "Award"). In terms of the Award, the Company was required to (a) refund an amount of approximately Rs. 3,082.19 million to the counterparty, (b) explore the possibility of allotting preference shares in respect of approximately Rs. 2,708.70 million, failing which, refund such amount to the counterparty, and (c) pay interest calculated to be Rs. 924.66 million (being interest on the amount stated under (a) above, in terms of the Award). The amounts referred to under (a) and (b) above, aggregating Rs. 5,790.89 million, continue to be carried as current liabilities without prejudice to the rights of the Company under law. Further, the Company was entitled to receive from the counterparty, under the said Award, an amount of Rs. 290.00 million of past interest/servicing charges. During the year ended March 31, 2019, the Court has ordered release of Rs. 2,500.00 million, out of the amount deposited by the Company, to the counterparty, subject to certain conditions as enumerated by the Court in its order. Further, pursuant to an order of the Court dated September 20, 2019, the Company has remitted an additional amount of Rs. 580.00 million out of the guarantee placed with the Court, to the counterparty, in October 2019. All such payments made have been included under other non-current assets.
The Company, its present promoter and the counterparties have challenged various aspects of the Award, including the above-mentioned interest obligations and rights, petitions for which have been admitted by the Court and notices issued, as a result of which the matter is currently sub-judice.
Further, the Court vide its order dated September 2, 2020 in the said matter, directed the Company to deposit an amount of Rs. 2,429.37 million of interest component under the Award (including the amount of Rs. 924.66 million provided for as indicated earlier, without prejudice to the rights of the Company under law). The Company preferred a Special Leave Petition before the Hon''ble Supreme Court of India against the aforesaid Order and the Hon''ble Supreme Court of India pursuant to its order dated November 6, 2020, has stayed the deposit of Rs. 2,429.37 million. Accordingly, based on the foregoing and also legal advice obtained by management, no additional amounts have been accounted for in this regard.
In view of the foregoing and pending outcome of the aforesaid challenges at the Court, the management is of the view that it is not possible to determine the effects of any such obligations and rights (including any additional/consequential obligations and rights). Accordingly, no further adjustments have been made in this regard, to these financial statements.
The effects of the matter stated above may attract the consequent provisions (including penal provisions) of applicable provisions of law, including deeming provisions, relating to acceptance of deposits. Based on their assessment and legal advice obtained, management is of the view that any possible consequential effects (including penal consequences and any compounding thereof), of past events and actions in relation to the foregoing, are not likely to have a material impact on the standalone financial statements of the Company. Accordingly, no adjustments have been made for any such consequential penal effects in this regard.
47. Claims on the aircraft manufacturer
Following the worldwide grounding during March 2019 of Boeing 737 MAX aircraft due to technical reasons, the Company''s fleet of thirteen Boeing 737 MAX aircraft continues to be grounded. Despite its inability to undertake revenue operations, the Company continues to incur various costs with respect to these aircraft. As a result of the above, and the uncertainty in timing of return operations of these aircraft, the Company has initiated the process of claims on the aircraft manufacturer towards cost and losses, which are currently under discussion. Consequently, and without in any manner limiting or prejudicing the legal and the commercial rights of the Company towards its claim in this regard, certain costs (including, inter alia, aircraft and supplemental lease rentals and certain other identified expenses relating to the Boeing 737 MAX aircraft) aggregating Rs. 5,604.48 million for the year ended March 31, 2021 (Rs. 6,718.04 million for the year ended March 31, 2021) have been recognised as other income. Further, Company has recognised the related foreign exchange loss of Rs. 270.71 million for the year ended March 31, 2021 (foreign exchange gain of Rs. 367.05 million for the year ended March 31, 2021). Based on current advanced stage of discussions with the aircraft manufacturer and considering the interim offer of accommodation received from the aircraft manufacturer, its own assessment and legal advice obtained by the Company, the management is confident of ultimate collection of the income recognized by the Company upon conclusion of discussions with the aircraft manufacturer.
The Covid-19 pandemic (declared as such by the World Health Organisation on March 11, 2020), has contributed to a significant decline and volatility, and a significant decrease in economic activity, in global and Indian markets. The Indian Government had announced a strict lockdown to contain the spread of the virus till May 31, 2020, which was extended by certain states, with varying levels of relaxations. The impact of Covid-19 has led to significant disruptions and dislocations for individuals and businesses and has had consequential impact of grounding the passenger airline operations. The Company is required to adhere to various regulatory restrictions, which severely impacts its operations and have their own additional financial implications. As per Government guidelines, the Company had stopped all passenger travel from March 25, 2020 to May 24, 2020. The Government allowed operations of the domestic flights effective May 25, 2020 in a calibrated manner. However, the scheduled international/commercial passenger service is continued to be suspended. The operation was ramping up in a phased manner in accordance with Government directions, however starting March 2021, the second wave of the Covid-19 has hit the country leading to significant drop in demand which has impacted the Company''s revenue and profitability for the last quarter of financial year ended March 31, 2021.
The impact of Covid-19 is not specific to the Company but is applicable across the entire aviation industry within and outside India. While there is uncertainty in the revenue operation in the short-term which is expected to normalise in the long-run. It is also to be noted that while generally the passenger business was either suspended or very low demand during the lockdown, the Company enhanced its cargo operations which were fulfilled by dedicated fleet of freighter aircraft and passenger converted aircraft.
The Company has also renegotiated/is renegotiating various operating contracts (including, in particular, contracts with aircraft lessors), and has reassessed their maintenance provisions (having regard to contractual obligations and current maintenance conditions), based on the anticipated scale of operations in the immediate future and the Company''s expectations of the timing of re-introduction of Boeing 737 Max aircraft into its operations. Further, the Company has assessed its liquidity position for the next one year, is in negotiations with lenders regarding deferment of dues and other waivers, and also assessed the recoverability and carrying values of its assets while preparing the standalone financial statements as of and for the year ended 31 March 2021. The management is confident that they have considered all known potential impacts arising from the Covid-19 pandemic on the Company''s business, and where relevant, have accounted for the same in these standalone financial statements. However, the full extent of impact of the Covid-19 pandemic on the Company''s operations, and financial metrics will depend on future developments across the geographies that the Company operates in, and the governmental, regulatory and the Company''s responses thereto, which are highly uncertain and incapable of estimation at this time. The impact of the Covid-19 pandemic on the financial position and its financial performance might be different from that estimated as at the date of approval of these standalone financial statements.
Earlier, the Company had considered "Air Transport Services" as the only segment of the Company. During the previous year, based on the relative significance of, and focus on, freighter-related and associated operations, and the consequent changes to the nature of internal reporting provided to the chief operating decision maker, management has reassessed the Company''s segments. Accordingly, operating segments of the Company are Air Transport Services and Freighter and Logistics Services. Air Transport Services includes, inter alia, passenger transport and ancillary cargo operations arising from passenger aircraft operations. Accordingly, segment information provided below, including in respect of comparative periods, is based on such operating segments described above.
Segment assets and liabilities include those directly identifiable with the respective segments. Unallocated corporate assets and liabilities represent the assets and liabilities that relate to the Company as a whole and are not allocable to any segment. Expenses that are directly identifiable to segments are considered for determining the segment results. Expenses which relate to the Company as a whole and are not allocable to segments are included under unallocated corporate expenses.
The Management considers that the carrying amounts of financial assets and financial liabilities recognised in the standalone financial statements approximate their fair values. The management assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, and other current and non-current financial liabilities and financial assets approximate their carrying amounts largely due to the short-term maturities of these standalone financial instruments. The borrowings of the Company do not have any comparable instrument having the similar terms and conditions with related security being pledged and hence the carrying value of the borrowings represents the best estimate of fair value.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard.
Level 1: quoted prices (unadjusted) in active markets for financial instruments
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3: unobservable inputs for the asset or liability
54. Financial risk management objectives and policies
the Company is exposed to market risk, credit risk and liquidity risk. The Company''s senior management oversees the management of these risks. The Company''s senior management is supported by a treasury team. The treasury team provides assurance to the Company''s senior management that the Company''s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company''s policies and risk objectives. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. Market risk comprises three types of risk: interest rate risk, currency risk and foreign currency risk.
The sensitivity analyses in the following sections relate to the position as at March 31, 2021 and March 31, 2020.
The Company''s exposure to price risk arises from investments held and classified as FVTPL. To manage the price risk arising from investments in mutual funds, the Company diversifies its portfolio of assets.
Sensitivity analysis
If price had been 50 basis points higher/lower and all other variables were held constant, the Company''s loss for the year ended March 31, 2021 would decrease/increase by Rs. 0.21 million (March 31, 2020: decrease/increase by Rs. 0.20 million).
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk because it borrows funds at floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. As at March 31, 2021 approximately 57.90% of the Company''s borrowings are at a variable rate of interest (March 31, 2020 - 48.31%)
Interest rate sensitivity
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company''s loss for the year ended March 31, 2021 would increase/decrease by Rs. 35.95 million (March 31, 2020: increase/decrease by Rs. 37.10 million).
In management''s opinion, the sensitivity analysis is unrepresentative of the inherent interest rate risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.
Foreign currency sensitivity
The following demonstrates the sensitivity to a reasonably possible change in the foreign currency exchange rates, with all other variables held constant. The impact on the Company''s loss before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The sensitivity analysis includes only outstanding unhedged foreign currency denominated monetary items.
If the foreign currency rates had been 5% higher/lower and all other variables were held constant, the Company''s loss for the year ended March 31, 2021 would decrease/increase by Rs. 5,504.91 million (March 31, 2020: decrease/increase by Rs. 4,666.65 million).
In management''s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
The Company has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. Trade receivables are typically unsecured and are primarily derived from cargo and other revenue streams. Majority of the Company''s passenger revenue is are made against deposits made by agents. Trade receivables primarily comprise of domestic customers, which are fragmented and are not concentrated to individual customers. The Company''s exposure and the credit ratings of its counterparties are continuously monitored. At March 31, 2021, the Company had 40 customers (March 31, 2020: 47 customers) that owed the Company more than Rs. 10 million each and accounted for approximately 88% (March 31, 2020: 84%) of all the receivables outstanding.
An impairment analysis is performed at each reporting date on an individual basis for major customers. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are widely dispersed and operate in largely independent markets. The average credit period ranges between 30 and 90 days.
Credit risk related to cash and cash equivalents and bank deposits is managed by only investing in deposits with highly rated banks and financial institutions and diversifying bank deposits and accounts in different banks. Credit risk related to loans and other financial assets is managed by monitoring the recoverability of such amounts continuously. Credit risk is considered low because the Company is in possession of the underlying asset (in case of security deposit) or as per trade experience (in case of unbilled revenue). Further, the Company creates provision by assessing individual financial asset for expectation of any credit loss basis 12 month expected credit loss model.
The standalone financial statements were approved for issue by the board of directors on June 30, 2021.
Mar 31, 2018
1. CORPORATE INFORMATION
SpiceJet Limited (âSpiceJetâ or the âCompanyâ) was incorporated on February 9, 1984 as a limited Company under the Companies Act, 1956 and is listed on the Bombay Stock Exchange Limited (âBSEâ). The Company is principally engaged in the business of providing air transport services for the carriage of passengers and cargo. The Company is a low cost carrier (âLCCâ) operating under the brand name of âSpiceJetâ in India since May 23, 2005. The Company operates a fleet of 60 aircraft including 4 aircraft taken on wet lease across various routes in India and abroad as at March 31, 2018. The registered office of the Company is located at Indira Gandhi International Airport, Terminal 1D, New Delhi - 110037.
The financial statements were approved for issue by the board of directors on May 11, 2018.
2. OTHER NON-CURRENT FINANCIAL ASSETS
(Unsecured, considered good unless stated otherwise)
Sale of air tickets are on cash basis. In respect of revenue from cargo operations, the Company offers credit to its customers which is in the range of 30 to 90 days.
For terms and conditions relating to related party receivables, refer Note 47.
At March 31, 2018, the Company had available INR 925.62 million (March 31, 2017: INR 377.55 million, April 01, 2015: Nil) of undrawn committed borrowing facilities.
*Margin money deposit have been placed with banks for non-fund based facilities sanctioned to the Company.
B Term / Rights attached to Equity Shares
The Company has only one class of equity shares having a par value of Rs 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the board of directors is subject to the approval of the shareholders in the ensuing annual general meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
As per records of the Company, including its register of shareholders / members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares.
D. Aggregate number of bonus shares, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceeding the reporting date:
The Company has issued total Nil shares (March 31, 2017 - 171,665 shares) during the period of five years immediately preceeding the reporting date on exercise of options granted under the employee stock option (âESOPâ) plan wherein part consideration was received in form of employee services.
E. Shares reserved for issue under options
For details of shares reserved for issue under ESOP, refer Note 39
e. Foreign Currency Monetary Item Translation Difference Account
Represents the exchange differences arising on other long-term foreign currency monetary item amortised to the Statement of Profit and Loss over the remaining life of the concerned monetary item.
a. Term loan from banks is repayable in 6 equal instalments commencing from December 2017, and carries an interest rate of 10%.
The loan and other facilities granted by the lender were secured by exclusive charge on current assets both present and future excluding lien marked deposits, second charge on movable fixed assets, both present and future, and pledge of shares of the Company owned by the promoter of the Company, Mr. Ajay Singh.
b. The External commercial borrowing (âECBâ) relates to the acquisition of âBombardier Q400 Aircraftâ. The ECB has been approved by the Reserve Bank of India and is granted through a finance lease structure between the Company and the lessor with lending from Export Development Canada. The related aircraft are owned by the lessor until the repayment of all outstanding by the Company under the terms of the respective lease agreements (also refer note 3). As per the terms of these lease agreements with the lessor, the Company may opt for either fixed or a floating rate of interest benchmarked to LIBOR for each drawdown, which coincides with the delivery of each aircraft. The interest on these borrowings ranges from 2.4% to 4.1%. Under each lease agreement the Company is required to make payment of lease rentals over a period of forty-eight quarters to lessor or its nominees.
c. The vehicle loan has been availed from Yes Bank Limited and is repayable in equal instalments over a period of three years commencing from March 2016, and carries an interest rate of 10.25%. The loan is secured by the related vehicle purchased by the Company having a carrying value of Rs. 13.79 million.
Working capital demand loan from bank is secured by fixed deposits placed by the erstwhile promoter and is repayable on demand. The loan carries an interest rate of 12.75%.
Working capital demand loan from others is secured by an exclusive charge on pledge of shares and a first pari-passu charge over all current assets of the Company. The loan carries an interest rate of 11.25%.
Buyers Credit from bank is secured by fixed deposits places by the Company having a carrying value of Rs. 160 million and repayable within 6 months. The loan carries an interest rate benchmarked to the LIBOR rate at each drawdown ranging between 2% to 2.5%..
Pre-shipment credit foreign currency loan from bank is secured by fixed deposits placed by the Company having a carrying value of Rs. 793.14 million and is repayable within 6 months from each drawdown. The loan carries an interest rate benchmarked to the LIBOR rate at each drawdown. The interest rate on these borrowings ranges between 3.72% to 4.45%.
There are no overdue amounts payable to Micro and Small Enterprises as defined under Micro, Small and Medium Enterprises Development Act, 2006. Further, the Company has not paid any interest to any Micro and Small Enterprises during the current and previous year.
Terms and conditions of the above financial liabilities:
Trade payables are non interest bearing and carry a credit period generally between 30 and 90 days For terms and conditions relating to related party payables, refer Note 47.
** Provision for aircraft maintenance:
Certain heavy maintenance checks for the aircraft engines need to be performed at specified intervals as enforced by the Director General of Civil Aviation in accordance with the Maintenance Program Document laid down by the aircraft manufacturers. In this regard, the Company estimates the expected costs at the time of such check factoring expected drawdown of supplemental rentals and other contributions receivable from the lessors wherever applicable. As required by Ind-AS 37, âProvisions, Contingent Liabilities and Contingent Assetsâ given below is the movement in provision for aircraft maintenance.
The Company has, having regard to its obligation to maintain engines under aircraft lease agreements, finalized the terms of service contracts and has also entered into revised contracts for maintenance of engines on its Boeing and Q400 aircraft. Based on such finalized contracts / terms, and factors such as scope and timing of maintenance and repairs of engines including firm fixed costs of maintenance at different intervals, expected drawdown from the supplemental rentals under the relevant lease agreements (wherever applicable), etc, management undertook a comprehensive exercise to re-estimate its liabilities in respect of engine maintenance obligations. During the current year, the Company continues to evaluate for expected shortfalls in the maintenance obligations and on such basis estimates the provisions required to be made in this regard.
The Company has in its fleet certain aircraft on operating lease. As per the terms of the lease agreements, the aircraft are to be redelivered to the lessors at the end of the lease term in technical condition as stipulated under the lease agreements. Such redelivery conditions include costs for technical inspection, maintenance checks, repainting costs prior to its redelivery and the cost of ferrying the aircraft to the location as stipulated in the lease agreements.
The Company, therefore, provides for such redelivery expenses, as contractually agreed, in proportion to the expired lease period.
The Company in the past, had also accounted for costs relating to early termination of Boeing aircraft leased by the Company which were retired from commercial use. Such accrual is based on management estimate of these liabilities, having regard to various factors including lease terms, age of the aircraft and past experience of aircraft redelivery costs incurred by the Company. Further liabilities in this regard, are accounted for in the period they are determined to be payable. During the previous year, the Company has concluded / substantially agreed the terms of settlement with these aircraft lessors.
Note:
# In previous financial reporting periods, the Company had made certain provisions based on managementâs assessment of certain claims by a vendor, based on applicable contractual terms. Under the provisions of such contract, the vendor had initiated arbitration proceedings in the previous financial year. Based on the status of the proceedings and submissions thereat, and legal advice obtained, management is of the view that certain previously recognised provisions are not likely to subsist. Accordingly, management has revised its assessment thereof, and as a consequence, the Company has written back provisions made in this regard, of Rs. 385.54 million as an exceptional item.
3. EARNINGS PER SHARE (âEPSâ)
a. Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders by the weighted average number of Equity shares outstanding during the year.
b. Diluted EPS amounts are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Equity shares outstanding during the year plus the weighted average number of Equity shares that would be issued on conversion of all the dilutive potential Equity shares into Equity shares.
The following reflects the income and share data used in the basic and diluted EPS computations:
c. Having regard to the status of the matters relating to the allotment and conversion of share warrants, as stated in Note 44, it is not possible to determine the dilutive effect, if any, of those on Diluted Earnings Per Share calculations. Accordingly, diluted earnings per share do not include the dilutive impact on the allotment and conversion of share warrants stated in Note 44.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with Ind AS requires the Companyâs management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities recognised in the financial statements that are not readily apparent from other sources. The judgements, estimates and associated assumptions are based on historical experience and other factors including estimation of effects of uncertain future events that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates (accounted on a prospective basis) are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the critical judgements and estimations that have been made by the management in the process of applying the Companyâs accounting policies that have the most significant effect on the amounts recognised in the financial statements and/or key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Taxation
Determining of income tax liabilities using tax rates and tax laws that have been enacted or substantially enacted requires the management to estimate the level of tax that will be payable based upon the Companyâs/ expertâs interpretation of applicable tax laws, relevant judicial pronouncements and an estimation of the likely outcome of any open tax assessments including litigations or closures thereof.
Deferred income tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses, unabsorbed depreciation and unused tax credits could be utilized.
In respect of other taxes which are in disputes, the management estimates the level of tax that will be payable based upon the Companyâs / expertâs interpretation of applicable tax laws, relevant judicial pronouncements and an estimation of the likely outcome of any open tax assessments including litigations or closures thereof.
Defined Benefit plans (gratuity benefits)
The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at armâs length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model.
Useful life, residual value of property, plant and equipment
The management has estimated the useful life of its property, plant and equipment based on technical assessment. The estimate has been supported by independent assessment by technical experts. The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.
Going concern assumption
These financial statements have been prepared on the basis that the Company will continue as a going concern for the foreseeable future. (refer note 2(a)(iii) for managementâs assessment regarding going concern, including related judgments involved).
5. SHARE BASED PAYMENTS
The following share-based payment arrangements were in existence during the current and prior years :
Employees Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11, 2007, approved an Employee Stock Option Scheme (ESOS) which provides for the grant of 6,016,250 options (each option convertible into share) to employees. Further, at the Extraordinary General Meeting held on December 23, 2009, the shareholders had approved to extend the aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible employees on September 11, 2007 at an exercise price of Rs. 30 /- per share. Such options were to vest over 4 years in the following manner:
- 35% of the options - one year from the date of grant
- 25% of the options - two years from the date of grant
- 25% of the options - three years from the date of grant
- 15% of the options - four years from the date of grant
In accordance with the shareholdersâ approval, options once vested can only be exercised by the employee (subject to him / her remaining in employment) within a period of 5 years. Consequently, the scheme expires on September 11, 2016 which is the last date for exercise of options vested to the employeeâs. All the unexercised options have been forfeited in the current year.
Employees Stock Option Scheme, 2017
The shareholders at the Annual General Meeting held on November 27, 2017, approved an ESOS which provides for the grant of 10,000,000 options (each option convertible into share) to employees.
The remuneration committee had granted 2,131,538 options to eligible employees subject to certain conditions on February 07, 2018 at an exercise price of Rs. 10 /- per share. Such options were to vest over 3 years in the following manner:
- 25% of the options - one year from the date of grant
- 35% of the options - two years from the date of grant
- 40% of the options - three years from the date of grant
In accordance with the shareholdersâ approval, options once vested can only be exercised by the employee (subject to him / her remaining in employment) within a period of 5 years.
The compensation cost for ESOS been recognized based on the fair value at the date of grant in accordance with the Black-Scholes method.
The fair value of options provided under the ESOS, 2017 was estimated at the date of grant using the Black-Scholes method with the following assumptions:
6. EMPLOYEE BENEFITS obligation Defined benefit plan
a. Gratuity
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs. 2.00 million (March 31, 2017 - Rs. 1.00 million). The scheme is unfunded and accordingly the disclosures relating to plan assets are not provided.
The following tables summarise the components of net benefit expense recognised in the profit and loss account and amounts recognised in the balance sheet for gratuity.
c. Contributions to defined contribution plan:
During the year, the company recognized Rs. 209.59 Million (Previous year- t 171.10 Million) to Provident Fund under defined contribution plan and Rs. 37.66 Million (Previous year - Rs 12.41 Million) for contributions to Employee State Insurance scheme in the Statement of profit & loss.
7. LEASES
Operating lease: Company as a lessee
The Company has taken on lease aircraft, aircraft spares, engines and premises from third parties. Lease charges for aircraft and engines for the year ended March 31, 2018 amount to Rs. 10,369.11 million (Previous year Rs. 9,605.76 million), supplemental lease charges amount to Rs. 6,330.81 million (Previous year Rs. 4,907.86 million) and rental expense on premises for the year ended March 31, 2018 amount to Rs. 447.14 million (Previous year Rs. 376.17 million).
The Company has taken aircraft through dry operating lease from lessors. Under the aircraft lease agreements, the Company pays monthly rentals in the form of base and supplementary rental. Base rental payments are either based on floating or fixed interest rates. Supplemental rentals are based on aircraft utilisation and are calculated with reference to the number of hours flown or number of cycles operated during each month. Both base and supplemental lease rentals have been charged to the statement of profit and loss. The lease terms vary between 4 and 10 years. There are no significant restrictions imposed by lease arrangements.
The Company has also taken aircraft on wet lease. In a wet lease lease arrangement, the lessor provides an aircraft, complete crew, maintenance, and insurance (ACMI) to the lessee. The Company pays monthly lease rentals containing fixed and variable consideration. The lease period for a wet lease are generally between 3 to 5 months.
The future minimum lease rentals payable under non-cancellable leases (except supplementary rental which are based on aircraft utilisation and calculated on number of hours flown or cycle operated) are as follows:
8. CAPITAL AND OTHER COMMITMENTS
a. At March 31, 2018, the Company has commitments of t 529,250.32 million (March 31, 2017 - Rs 496,134.73 million) relating to the acquisition of aircraft.
b. The Company has commitments in the nature of non-cancellable operating leases. The future minimum lease payments expected to be incurred over the remaining lease term are detailed in Note 41.
c. Under certain long-term maintenance contracts for the management, maintenance, repair and overhaul of aircraft components and spares, the Company incurs an agreed power-by-the-hour cost based on aircraft / component utilization. In addition, some contracts provide for compensation upon pre-mature termination, as applicable.
9. LITIGATIONS AND CLAIMS
a) Note 1:
i) Matters wherein management has concluded the Companyâs liability to be probable have accordingly been provided for in the books. Also refer note 25.
ii) Matters wherein management has concluded the Companyâs liability to be possible have accordingly been disclosed under Note 2 Contingent liabilities below.
iii) Matters wherein management is confident of succeeding in these litigations and have concluded the Companyâs liability to be remote. This is based on the relevant facts of judicial precedents and as advised by legal counsel which involves various legal proceedings and claims, in different stages of process.
i. Under a suit filed by Leela Capital (petitioner) for recovery of the Inter Corporate Deposit (âICDâ) aggregating Rs. 50 million, the Company had deposited the amount of Rs. 50 million on November 30, 2001 with the Honâble Bombay High Court and the Honâble Bombay High Court later allowed the petitioner to withdraw the said amount, upon furnishing an undertaking that the petitioner will restitute the said sum or such part thereof, with 9% interest, to the Company, if and as directed by the Honâble Court at the time of the final decision of the suit filed by the petitioner. Accordingly, pending finality of the matter, both the ICD and deposit with Honâble High Court have been disclosed under Short-term borrowings and Other non-current assets, respectively. The parties have entered into a settlement agreement in the current year and have agreed to 10 million as a full and final settlement towards interest. Accordingly, the Company has written back interest payable of Rs. 64.71 million up to the date of deposit in its financial statements.
ii. In another case, M/s Hindustan Development Corporation Limited (âHDCLâ) (now renamed as Mallanpur Steels Limited) who had lent Rs. 50 million by way of inter-corporate deposit to the Company, has filed an appeal before the division bench of the Honâble Delhi High Court against the Scheme of Settlement passed by the Honâble Delhi High Court wherein the Companyâs liability was fixed at Rs. 35 million. The Company had made a deposit of Rs. 35 million to the Official Administrator of the Scheme in accordance with approved Scheme. Pending disposition of the review petition, the likelihood of the balance amount of Rs. 15 million devolving on the Company is not probable. Also, the interest (if any) on the same is not ascertainable.
iii. The Company has received a demand notice from the Regional Provident Fund Commissioner, Gurgaon for Rs 79.91 million in respect of provident fund (âPFâ) dues for international workers vide Notifications GSR 706(E) dated 1st October 2008 and GSR 148 dated 3rd September 2010, for the period from November 2008 to February 2011. The Company has responded to the notice disputing the demand and, without admitting any liability towards the same, has deposited an amount of Rs 1.96 million towards the PF contributions in respect of international workers for the period from November 2008 to July 2011 under the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (âPF Actâ). Since August 2011, the Company has been making provident fund contributions in respect of international workers under the provisions of the PF Act. During the year ended March 31, 2012, the Company has filed a writ petition with the Honâble Delhi High Court contending that the above notifications relating to international workers are unreasonable and ultra vires the PF Act. The Court has directed that this matter be put up in the regular list and the interim order in favour of the Company has been made absolute till disposal of the petition. In addition, during the current year, a report has been filed by the Departmentâs Representatives before the Regional Provident Fund Commissioner on March 22, 2017 pursuant to which there is an additional claim against the Company aggregating Rs. 64.42 million for the period from March 2011 till January 2012. The aggregate demand on account of this matter from the period November 2008 to January 2012 is Rs. 144.43 million. Pending disposal of the petition, the Company has not accrued for any additional liability in respect of provident fund contributions to international workers.
iv. A vendor has filed an arbitration claim against the Company for Rs. 33.32 million including an interest of Rs. 10.58 million for termination of a lease agreement for accommodation of the Companyâs crew. The agreement was terminated by the Company citing poor quality of services . The arbitration proceedings in the matter have been completed and the suit has been dismissed in favour of the Company. The vendor has subsequently, filed an appeal before the High Court of Delhi and the matter is currently sub-judice. Pending disposal of the appeal, the Company has not accrued for any additional liability in respect of the dispute.
v. The Company has received a demand order for a sum of f 77.28 million, and applicable interest, as well as penalty of Rs. 77.28 million from the service tax department for non-remittance of service tax on reverse charge mechanism on certain payments made during the period April 18, 2006 to March 31, 2012. The Company is contesting the order on the grounds that the services obtained by the Company were not liable to service tax under the categories determined by the authorities and are hence not taxable services. Effective July 2012, pursuant to the enactment of the negative list of taxable services, the Company has been paying service tax on these services received on reverse charge basis under the relevant provisions of the Finance Act, 1994. Based on advice by its tax consultants and internal evaluation, the Company has provided an amount of Rs. 67.09 million (including a portion of applicable interest) on a conservative basis. However, the Company continues to contest the entire demand and has filed an appeal against the adverse order with the CESTAT and is confident of its success. The balance amount of the matter under litigation, (including interest and penalty) of f 170.70 million, has not been accrued pending final outcome of this matter and has been disclosed as a contingent liability.
vi. One of the Companyâs vendors filed an arbitration claim against the Company before the International Court of Arbitration of the International Chamber of Commerce claiming payment of overdue amounts with applicable interest. The Company has also served a counter-claim against the vendor during the arbitration proceedings, and without prejudice to its defence, has accrued for the amounts claimed by the vendor which were considered probable in its financial statements as at March 31, 2017. During the previous year, based on the current status of such proceedings and submissions thereat, and legal advice obtained, certain previously recognised provisions are not likely to subsist. Accordingly, the Company has written back provisions made in this regard, of Rs. 385.54 million in previous financial year as an exceptional item. The Company has not made any adjustments to the financial statements in respect of its counter-claim. The Company has received the final arbitral award in the current year against its favour directing refund of the amounts which form the subject matter of the claims made by the Vendor along with interest and legal costs incurred in connection with the arbitration. Based on the final arbitral award, the Company has accounted for the damages claimed by the Vendor.
vii. The Company has received certain show cause notices from the service tax authorities, citing various defaults, including failure/delay in remitting service tax collected, over past financial years as well as alleged failure in remittance of service tax on certain other items. Based on their assessment of the contentions of the service tax authorities, management has submitted a detailed reply to the notice, and based on legal advice obtained, believes that the likelihood of this liability devolving on the Company is low, and accordingly has made no adjustments to the financial statements.
viii.The Competition Commission of India (âCCIâ) passed an order dated November 17, 2015 against, inter alia, the Company, which included a demand of Rs 424.80 million on the Company. The Companyâs appeal against this order with Competition Appellate Tribunal (âCOMPATâ) was disposed of by the COMPAT, which set aside the impugned order on technical grounds and has referred the matter back to the CCI for fresh adjudication based on the COMPATâs directions. Subsequent thereto, the matter was reconsidered by CCI and a revised order dated March 7, 2018 imposing fine of Rs. 51 million was imposed on the Company. The Company is in the process of filing its appeal before COMPAT and based on legal advice received, management is confident of a favourable outcome in this matter and accordingly no adjustments are considered necessary in the financial statements.
ix. The Company had previously defaulted in remittance of the Inland Air Travel Tax (âIATTâ) dues for the period of March 1996 to August, 1996. The Revisionary Authority, Government of India had confirmed the orders of the Commissioner (Appeals), Department of Customs directing the Company to pay Rs. 86.50 million together with a penalty of Rs. 100.00 million. The Company remitted the entire dues towards IATT and a minimum penalty @ 20% amounting to Rs. 17.30 million. The Company filed a Civil Writ Petition challenging the orders passed by the Revisionary Authority against the penal dues levied. The Honâble Delhi High Court dismissed the Companyâs writ petition. Subsequently, the Company has challenged the same through a Special Leave to Petition (SLP) before the Honâble Supreme Court and the SLP has been dismissed in the current year pursuant to which the Company has remitted Rs. 82.69 million against this obligation to the Department of Customs.
x. The Assistant Commissioner of Income-Tax (âACITâ) has filed a complaint against the Company and its erstwhile Chairman and Managing Director in their individual capacity, over delayed payment of tax deducted at source in contravention of section 276B of the IT Act, 1961 for financial years 2013-14 and 2014-15. The matter is sub-judice as on date and based on professional advice, the management is confident of a favourable outcome in this matter in so far as it relates to the Company. Accordingly, no adjustments are considered necessary in the financial statements.
xi. The Company has received certain orders from the the customs authorities, levying IGST, on overseas repairs and replacement of various aircraft equipment, which in the opinion of management and based on expert advise obtained, is not subject to such levy. Accordingly no further adjustments have been made in this regard as at March 31, 2018.
c. Based on the legal advice obtained by the management, no provision is required to be made for the above contingent liabilities.
10. STATUS OF ADVANCE MONEY RECEIVED AGAINST SECURITIES PROPOSED TO BE ISSUED
The Company, had in earlier financial years, received amounts aggregating Rs 5,790.89 Million from Mr. Kalanithi Maran and M/S KAL Airways Private Limited (âerstwhile promotersâ) as advance money towards proposed allotment of certain securities (189,091,378 share warrants and 3,750,000 non-convertible cumulative redeemable preference shares, issuable based on approvals to be obtained), to be adjusted at the time those securities were to be issued. Pursuant to the legal proceedings in this regard before the Honâble High Court of Delhi (âCourtâ) between the erstwhile promoters, the present promoter and the Company, the Court, in its order dated July 29, 2016, without expressing anything on the merits of the dispute, ordered the Company to deposit the amount of Rs. 5,790 Million as security with the Court, in 5 equal monthly instalments, and directed the parties to take necessary steps for the purpose of constitution of an Arbitral Tribunal.
During the current year, the Companyâs appeal against this order was dismissed by Honâble Division Bench of the Court (âDivision Benchâ). As a consequence, the Company was required to secure an amount of Rs. 3,290 Million through a bank guarantee in favour of the Registrar General of the Delhi High Court (âRegistrarâ) and to deposit the balance amount of Rs. 2,500 Million with the Registrar. The Company has complied with these requirements during the year.
The parties to the aforementioned litigation have concurrently initiated arbitration proceedings which are ongoing before a 3 member arbitral tribunal. The erstwhile promoters have made various claims against the Company and the present promoter, citing various purported breaches / non-compliances with the terms of the Share Sale & Purchase Agreement (âSSPAâ) dated January 29, 2015. The Company and the current promoter have disputed all such claims citing various grounds including non-compliances with the terms of the SSPA by the erstwhile promoters themselves. The arbitration is currently in progress, and the final outcome of the matter is currently not ascertainable.
In view of the uncertainties involved as explained above, management believes that the manner, timing and other related aspects of adjustment of these amounts, are currently not determinable. The effects of this matter may attract the consequent non-compliance provisions (including penal provisions) of applicable law, including deeming provisions, relating to acceptance of deposits. Based on their assessment and legal advice obtained, management is of the view that any possible consequential effects, including penal consequences and any compounding thereof, will not have a material impact on the financial statements of the Company. Accordingly, no adjustments have been made for any such consequential penal effects in this regard.
11. SEGMENT REPORTING
Based on internal reporting provided to the chief operating decision maker, air transport service is the only reportable segment for the Company.
Non-current assets for this purpose consist of property, plant and equipment ,intangible assets and other non-current assets.
There are no sales to external customers more than 10% of total revenue.
12. INCOME TAX EXPENSE
The major components of income tax expense for the years ended March 31, 2018 and March 31, 2017 are:
Reconciliation of tax expense and the accounting profit multiplied by Indiaâs domestic tax rate for March 31, 2017 and March 31, 2018 :
The tax on the Companyâs profit before tax differs from the theoretical amount that would arise using the standard rate of corporation tax in India (34.608%) as follows:
Deferred Tax
The Company has recognized deferred tax assets arising on account of carried forward tax losses and unabsorbed depreciation to the extent of the deferred tax liability arising on account of the temporary difference on depreciation of Rs. 4,276.32 million as at March 31, 2018 (Rs. 4,470.24 million as at March 31, 2017) since it is not probable that future taxable profit will be available against which the complete unused tax losses and unused tax credits will be utilised.
Unused tax losses and unused tax credits
Unused tax losses and unused tax credits for which no deferred tax assets have been recognized are attributable to the following:
The unused tax losses and unabsorbed depreciation considered above are based in the tax records and returns of the Company and does not consider the potential effect of matters under dispute/litigation with the tax authorities which are currently sub-judice at various levels. Also refer note 43.
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made on terms equivalent to those that prevail in armâs length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. For the year ended March 31, 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (March 31, 2017: Nil).
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel.
As the liabilities for gratuity and compensated absences are provided on actuarial basis for the Company as a whole, the amounts pertaining to the key management personnel are not included above.
13. FAIR VALUES
The Management considers that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values. The management assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, and other current and non-current financial liabilities and financial assets approximate their carrying amounts largely due to the short-term maturities of these financial instruments.
14. FAIR VALUE HIERARCHY
The following table provides the fair value measurement hierarchy of the Companyâs assets and liabilities are measured at fair value in the Balance Sheet.
The fair value of the derivative instruments have been calculated in reference to the intermediate market rate between offer rate and bid rate (both interest rate and exchange rate) or intermediate price between buying price and selling price as on the reporting date.
There have been no transfers between level 1 and level 2 during the period.
15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Companyâs principal financial liabilities, comprise of loans and borrowings, trade and other payables and derivatives. The main purpose of these financial liabilities is to finance the Companyâs operations. The Companyâs principal financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The Companyâs senior management oversees the management of these risks. The Companyâs senior management is supported by a treasury team. The treasury team provides assurance to the Companyâs senior management that the Companyâs financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Companyâs policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Companyâs policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Market risk
Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. Market risk comprises three types of risk: interest rate risk, currency risk and foreign currency risk.
The sensitivity analyses in the following sections relate to the position as at March 31, 2018 and March 31, 2017.
The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant as at March 31, 2018.
Equity Price Risk is related to the change in market reference price of the investments in equity securities. The majority of the Companyâs investments are in the shares of subsidiaries, which are carried at cost. The investments in other equity instruments as at the reporting date are not material.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk because it borrow funds at floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. As at March 31, 2018 approximately 53.95% of the Companyâs borrowings are at a variable rate of interest (March 31, 2017 - 61.58%)
Interest rate sensitivity
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Companyâs profit for the year ended March 31, 2018 would decrease/increase by Rs. 30.98 million (March 31, 2017: decrease/increase by Rs. 37.30 million).
In managementâs opinion, the sensitivity analysis is unrepresentative of the inherent interest rate risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company actively manages its currency rate exposures through its treasury team using derivative instruments such as forward contracts to mitigate the risks from such exposures.
The use of derivative instruments is subject to limits and regular monitoring by appropriate levels of management.
Foreign currency sensitivity
The following demonstrates the sensitivity to a reasonably possible change in the foreign currency exchange rates, with all other variables held constant. The impact on the Companyâs profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The sensitivity analysis includes only outstanding unhedged foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates.
If the foreign currency rates had been 5% higher/lower and all other variables were held constant, the Companyâs profit for the year ended March 31, 2018 would decrease/increase by Rs. 275.06 million (March 31, 2017: decrease/increase by 291.70 million).
In managementâs opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Credit risk management
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
The Company has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. Trade receivables are typically unsecured and are primarily derived from cargo and other revenue streams. Majority of the Companyâs passenger revenue is are made against deposits made by agents. Trade receivables primarily comprise of domestic customers, which are fragmented and are not concentrated to individual customers. The Companyâs exposure and the credit ratings of its counterparties are continuously monitored. At March 31, 2018, the Company had 11 customers (March 31, 2017: 11 customers) that owed the Company more than Rs. 10 million each and accounted for approximately 61% (March 31, 2017: 64%) of all the receivables outstanding.
An impairment analysis is performed at each reporting date on an individual basis for major customers. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on exchange losses historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are widely dispersed and operate in largely independent markets. The average credit period ranges between 30 and 90 days.
Liquidity risk
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company has obtained fund and non-fund based working capital lines from various banks. The Company invests its surplus funds in bank fixed deposit and mutual funds, which carry minimal mark to market risks. The Company also constantly monitors funding options available in the debt markets with a view to maintaining financial flexibility.
The table below summarises the maturity profile of the Companyâs financial liabilities based on contractual undiscounted payments
16. CAPITAL MANAGEMENT
The Companyâs capital management is intended to create value for shareholders by facilitating the meeting of long-term and short-term goals of the Company.
The Company determines the amount of capital required on the basis of annual operating plans and longterm fleet expansion plans. The funding requirements are met through internal accruals and other longterm/short-term borrowings. The Companyâs policy is aimed at combination of short-term and long-term borrowings.
The Company monitors capital employed using a Debt equity ratio, which is total debt divided by total equity and maturity profile of the overall debt portfolio of the Company.
The Companyâs policy is to keep the net debt to total equity ratio above (1.00).
No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2018 and March 31, 2017
17. PRIOR PERIOD COMPARATIVES
Prior year comparative amounts in these financial statements have been reclassified wherever applicable to conform to current yearâs presentation.
18. STANDARDS ISSUED BUT NOT EFFECTIVE
The amendments to standards that are issued, but not yet effective, up to the date of issuance of the companyâs financial statements are disclosed below. The company intends to adopt these standards, if applicable, when they become effective.
The Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2017 and Companies (Indian Accounting Standards) Amendment Rules, 2018 amending the following standard:
Ind AS 115 Revenue from Contracts with Customers
Ind AS 115 was issued on 28 March 2018 and establishes a five-step model to account for revenue arising from contracts with customers. Under Ind AS 115, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The new revenue standard will supersede all current revenue recognition requirements under Ind AS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 April 2018. The Company plans to adopt the new standard on the required effective date using the modified method.
Sale of Services
For passenger revenues and cargo revenues in which the provision of transportation services are generally expected to be the only performance obligation, adoption of Ind AS 115 is not expected to have any impact on the Companyâs revenue and profit or loss. The Company expects the revenue recognition to occur at a point in time when performance obligation is met.
Amendments to Ind AS 12 Recognition of Deferred Tax Assets for Unrealised Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.
These amendments are effective for annual periods beginning on or after 1 April 2018. These amendments are not expected to have any impact on the Company as the Company has significant tax losses and consequently there are no assets that are in the scope of the amendments.
Amendments to Ind AS 112 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in Ind AS 112
The amendments clarify that disclosure requirements for interests in other entities also apply to interests that are classified (or included in a disposal group that is classified) as held for sale or as discontinued operations in accordance with Ind AS 105, Non-current Asset Held for Sale and Discontinued Operations.
The amendments are effective for annual periods beginning on or after 1 April 2018. The group will apply amendments when they become effective.
Appendix B to Ind AS 21 Foreign Currency Transactions and Advance Consideration
The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration.
Entities may apply the Appendix requirements on a fully retrospective basis. Alternatively, an entity may apply these requirements prospectively to all assets, expenses and income in its scope that are initially recognised on or after:
i) The beginning of the reporting period in which the entity first applies the Appendix, or
ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix.
The Appendix is effective for annual periods beginning on or after 1 April 2018. The Company is analysing the changes and impact as applicable from financial year 2018-19.
19. EVENTS AFTER THE REPORTING PERIOD
The financials have been approved by the Board of Directors on May 11, 2018 and there have been been no significant events after the reporting period till such date.
Mar 31, 2017
1. CORPORATE INFORMATION
SpiceJet Limited (âSpiceJetâ or the âCompanyâ) was incorporated on February 9, 1984 as a limited Company under the Companies Act, 1956 and is listed on the Bombay Stock Exchange Limited (âBSEâ). The Company is engaged principally in the business of providing air transport services for the carriage of passengers and cargo. The Company is a low cost carrier (âLCCâ) operating under the brand name of âSpiceJetâ in India since May 23, 2005. The Company operates a fleet oRs.49 aircraft including 2 aircraft taken on wet lease across various routes in India and abroad as at March 31, 2017. The registered office of the Company is located at Indira Gandhi International Airport, Terminal 1D, New Delhi - 110037.
The financial statements were approved for issue by the board of directors on June 3, 2017.
A Reconciliation of Equity Shares outstanding at the beginning and at the end of the reporting period
B Term / Rights attached to Equity Shares
The Company has only one class of equity shares having a par value of Rs. 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the board of directors is subject to the approval of the shareholders in the ensuing annual general meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
C Details of Shareholders holding more than 5 percent in the Company:
As per records of the Company, including its register of shareholders / members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares.
D. Aggregate number of bonus shares, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceeding the reporting date:
The Company has issued total 171,665 shares (March 31, 2016 - 1,091,265 shares) (March 31, 2015 - 1,732,865 shares) during the period of five years immediately preceeding the reporting date on exercise of options granted under the employee stock option (âESOPâ) plan wherein part consideration was received in form of employee services.
E. Shares reserved for issue under options
For details of shares reserved for issue under ESOP, refer Note 40
a. Term loan from banks is repayable in unequal instalments from April 2012. This interest on this loan ranges from 12.25% to 12.86%.
The loan and other facilities granted by the lender were secured by exclusive charge on current assets both present and future excluding lien marked deposits, second charge on movable fixed assets, both present and future, and pledge of shares of the Company owned by the promoter of the Company, Mr. Ajay Singh.
b. The External commercial borrowing (âECBâ) relates to the acquisition of âBombardier Q400 Aircraftâ. The ECB has been approved by the Reserve Bank of India and is granted through a finance lease structure between the Company and the lessor with lending from Export Development Canada. The related aircraft are owned by the lessor until the repayment of all outstanding by the Company under the terms of the respective lease agreements (also refer note 3). As per the terms of these lease agreements with the lessor, the Company may opt for either fixed or a floating rate of interest benchmarked to LIBOR for each drawdown, which coincides with the delivery of each aircraft. The interest on these borrowings ranges from 2.4% to 4.1%. Under each lease agreement the Company is required to make payment of lease rentals over a period of forty-eight quarters to lessor or its nominees.
During the year ended March 2015, in view of overdue payments of interest and repayment of principal of ECB to the lender, the Company had entered into an agreement with the lender for the forbearance of defaults and the discharge of overdue amounts of principal and interest aggregating Rs. 897.54 million. Under the terms of this agreement, the Company had to make 12 equal monthly payments of this overdue amount, commencing from April 2015. There were no changes to any of the terms and conditions of the original agreement with the lender including repayment terms of other instalments as well as interest rates applicable on the ECB. Pursuant to this, the Company has made all such monthy payments under this agreement during the previous year.
c. The vehicle loan has been availed from Yes Bank Limited and is repayable in equal instalments over a period of three years commencing from March 2016, and carries an interest rate oRs.10.25%. The loan is secured by the related vehicle purchased by the Company having a carrying value of Rs. 16.13 million.
Working capital demand loan from bank is secured by fixed deposits placed by the erstwhile promoter and is repayable on demand. The loan carries an interest rate oRs.12.75%.
Pre-shipment credit foreign currency loan from bank is secured by fixed deposits placed by the Company having a carrying value of Rs. 772.22 million and is repayable within 6 months from each drawdown. The loan carries an interest rate benchmarked to the LIBOR rate at each drawdown. The interest rate on these borrowings ranges between 3.21% to 5.25%.
There are no overdue amounts payable to Micro and Small Enterprises as defined under Micro, Small and Medium Enterprises Development Act, 2006. Further, the Company has not paid any interest to any Micro and Small Enterprises during the current and previous year.
Terms and conditions of the above financial liabilities:
Trade payables are non interest bearing and carry a credit period generally between 30 and 90 days
* Provision for litigation:
** Provision for aircraft maintenance:
Certain heavy maintenance checks for the aircraft engines need to be performed at specified intervals as enforced by the Director General of Civil Aviation in accordance with the Maintenance Program Document laid down by the aircraft manufacturers. In this regard, the Company estimates the expected costs at the time of such check factoring expected drawdown of supplemental rentals and other contributions receivable from the lessors wherever applicable. As required by Ind-AS 37, âProvisions, Contingent Liabilities and Contingent Assetsâ given below is the movement in provision for aircraft maintenance.
During the previous year, the Company has, having regard to its obligation to maintain engines under aircraft lease agreements, finalized the terms of service contracts and has also entered into new contracts for maintenance of engines on its Boeing and Q400 aircraft . Based on such finalized contracts / terms, and factors such as scope and timing of maintenance and repairs of engines including firm fixed costs of maintenance at different intervals, expected drawdown from the supplemental rentals under the relevant lease agreements (wherever applicable), etc, management undertook a comprehensive exercise to reestimate its liabilities in respect of engine maintenance obligations as at March 31, 2016. During the current year, the Company continues to evaluate for expected shortfalls in the maintenance obligations and on such basis estimates the provisions required to be made in this regard.
** Provision for aircraft maintenance
# Provision for aircraft redelivery:
The Company has in its fleet certain aircraft on operating lease. As per the terms of the lease agreements, the aircraft are to be redelivered to the lessors at the end of the lease term in technical condition as stipulated under the lease agreements. Such redelivery conditions include costs for technical inspection, maintenance checks, repainting costs prior to its redelivery and the cost of ferrying the aircraft to the location as stipulated in the lease agreements.
The Company, therefore, provides for such redelivery expenses, as contractually agreed, in proportion to the expired lease period.
The Company in the previous years, had also accounted for costs relating to early termination of Boeing aircraft leased by the Company which were retired from commercial use in the previous year. Such accrual is based on management estimate of these liabilities, having regard to various factors including lease terms, age of the aircraft and past experience of aircraft redelivery costs incurred by the Company. Further liabilities in this regard, are accounted for in the period they are determined to be payable. During the current year, the Company has concluded / substantially agreed the terms of settlement with these aircraft lessors.
In the past the Company have received a demand from an aircraft lessor in relation to four aircraft which were redelivered for Rs. 744.20 million, of which Rs. 368.66 million relates to cost of storage of the aircraft from the date of deregistration of the aircraft till the date of redelivery of the aircraft, and the remaining Rs. 375.54 million relates to damages claimed by the lessor. Management had accounted for claims aggregating Rs. 368.66 million, as these are costs incurred under the terms of the lease agreement, and has not admitted the liability in respect of damages claimed by the lessor of Rs. 375.54 million. Subsequently, the management has finalized the terms of settlement with the concerned lessor and pursuant to this, based on their assessment and best estimates of the likely final financial effect of these settlement terms, during the previous year, management has made an additional accrual of Rs. 233.18 million under Aircraft redelivery costs.
a. Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders by the weighted average number of Equity shares outstanding during the year.
b. Diluted EPS amounts are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Equity shares outstanding during the year plus the weighted average number of Equity shares that would be issued on conversion of all the dilutive potential Equity shares into Equity shares.
The following reflects the income and share data used in the basic and diluted EPS computations:
c. Having regard to the status of the matters relating to the allotment and conversion of share warrants, as stated in Note 44, it is not possible to determine the dilutive effect, if any, of those on Diluted Earnings Per Share calculations. Accordingly, diluted earnings per share for the year ended March 31, 2017 do not include the dilutive impact on the allotment and conversion of share warrants stated in Note 44. However, for the year ended March 31, 2016, diluted earnings per share considered dilutive potential ordinary shares arising from allotment and conversion of share warrants referred to in Note 44, into equity shares, based on managementâs expectation of the outcome of such instruments, at the time of finalisation of financial statements for the comparative period.
2. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with Ind AS requires the Companyâs management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities recognised in the financial statements that are not readily apparent from other sources. The judgements, estimates and associated assumptions are based on historical experience and other factors including estimation of effects of uncertain future events that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates (accounted on a prospective basis) are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the critical judgements and estimations that have been made by the management in the process of applying the Companyâs accounting policies that have the most significant effect on the amounts recognised in the financial statements and/or key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Taxation
Determining of income tax liabilities using tax rates and tax laws that have been enacted or substantially enacted requires the management to estimate the level of tax that will be payable based upon the Companyâs/ expertâs interpretation of applicable tax laws, relevant judicial pronouncements and an estimation of the likely outcome of any open tax assessments including litigations or closures thereof.
Deferred income tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses, unabsorbed depreciation and unused tax credits could be utilized.
In respect of other taxes which are in disputes, the management estimates the level of tax that will be payable based upon the Companyâs / expertâs interpretation of applicable tax laws, relevant judicial pronouncements and an estimation of the likely outcome of any open tax assessments including litigations or closures thereof.
Defined Benefit plans (gratuity benefits)
The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at armâs length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model.
Useful life, residual value of property, plant and equipment
The management has estimated the useful life of its property, plant and equipment based on technical assessment. The estimate has been supported by independent assessment by technical experts. The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.
Going concern assumption
These financial statements have been prepared on the basis that the Company will continue as a going concern for the foreseeable future. (refer note 2(a)(iii) for managementâs assessment regarding going concern, including related judgments involved).
3. STANARDS ISSUED BUT NOT EFFECTIVE
The amendments to standards that are issued, but not yet effective, up to the date of issuance of the companyâs financial statements are disclosed below. The company intends to adopt these standards, if applicable, when they become effective.
The Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2017 and has amended the following standard:
Amendments to Ind AS 7, Statement of Cash Flows
The amendments to Ind AS 7 requires an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1st April 2017. Application of this amendment will not have any recognition and measurement impact. However, it will require additional disclosure in the financial statements.
Amendments to Ind AS 102, Share-based Payment
The MCA has issued amendments to Ind AS 102 that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction, the classification of a share-based payment transaction with net settlement features for withholding tax obligations, and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. The amendments are effective for annual periods beginning on or after 1st April 2017. The company is assessing the potential effect of the amendments on its financial statements.
The company will adopt these amendments from their applicability date.
4. EMPLOYEE STOCK OPTION PLANS
The Company has a stock option plan that provides for the granting of stock options to qualifying employees including Directors of the Company (not being promoter directors and executive directors, holding more than 10% of the equity shares of the Company). The option plan is summarized below:
Employees Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11, 2007, approved an Employee Stock Option Scheme (ESOS) which provides for the grant oRs.6,016,250 options (each option convertible into share) to employees. Further, at the Extraordinary General Meeting held on December 23, 2009, the shareholders had approved to extend the aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible employees on September 11, 2007 at an exercise price of Rs. 30 /- per share. Such options were to vest over 4 years in the following manner:
- 35% of the options - one year from the date of grant
- 25% of the options - two years from the date of grant
- 25% of the options - three years from the date of grant
- 15% of the options - four years from the date of grant
In accordance with the shareholdersâ approval, options once vested can only be exercised by the employee (subject to him / her remaining in employment) within a period oRs.5 years. Consequently, the scheme expires on September 11, 2016 which is the last date for exercise of options vested to the employeeâs.
The compensation cost for ESOS 2007 been recognized based on the fair value at the date of grant in accordance with the Black-Scholes method.
5. EMPLOYEE BENEFITS OBLIGATION Defined benefit plan
a. Gratuity
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs. 1.00 million. The scheme is unfunded and accordingly the disclosures relating to plan assets are not provided.
The following tables summarise the components of net benefit expense recognised in the profit and loss account and amounts recognised in the balance sheet for gratuity.
During the year, the company recognized Rs. 171.10 Million (Previous year- Rs. 134.74 Million) to Provident Fund under defined contribution plan and Rs. 12.41 Million (Previous year - t 4.30 Million) for contributions to Employee State Insurance scheme in the Statement of profit & loss.
6. LEASES
Operating lease: Company as a lessee
The Company has taken on lease aircraft, aircraft spares, engines and premises from third parties. Lease charges for aircraft and engines for the year ended March 31, 2017 amount to Rs. 9,605.76 million (Previous year Rs. 8,110.92 million), supplemental lease charges amount to Rs. 4,907.86 million (Previous year Rs. 3,155.91 million) and rental expense on premises for the year ended March 31, 2017 amount to Rs. 376.17 million (Previous year Rs. 264.14 million).
The Company has taken aircraft through dry operating lease from lessors. Under the aircraft lease agreements, the Company pays monthly rentals in the form of base and supplementary rental. Base rental payments are either based on floating or fixed interest rates. Supplemental rentals are based on aircraft utilisation and are calculated with reference to the number of hours flown or number of cycles operated during each month. Both base and supplemental lease rentals have been charged to the statement of profit and loss. The lease terms vary between 4 and 10 years. There are no significant restrictions imposed by lease arrangements.
The Company has also taken aircraft on wet lease. In a wet lease lease arrangement, the lessor provides an aircraft, complete crew, maintenance, and insurance (ACMI) to the lessee. The Company pays monthly lease rentals containing fixed and variable consideration. The lease period for a wet lease are generally between 3 to 5 months.
The future minimum lease rentals payable under non-cancellable leases (except supplementary rental which are based on aircraft utilisation and calculated on number of hours flown or cycle operated) are as follows:
7. CAPITAL AND OTHER COMMITMENTS
a. At March 31, 2017, the Company has commitments of t 496,134.73 million (March 31, 2016 - Rs. 176,555.98 million) relating to the acquisition of aircraft.
b. The Company has commitments in the nature of non-cancellable operating leases. The future minimum lease payments expected to be incurred over the remaining lease term are detailed in Note 41.
c. Under certain long-term maintenance contracts for the management, maintenance, repair and overhaul of aircraft components and spares, the Company incurs an agreed power-by-the-hour cost based on aircraft / component utilization. In addition, some contracts provide for compensation upon pre-mature termination, as applicable.
8. LITIGATIONS AND CLAIMS
a) Note 1:
i) Matters wherein management has concluded the Companyâs liability to be probable have accordingly been provided for in the books. Also refer note 25.
ii) Matters wherein management has concluded the Companyâs liability to be possible have accordingly been disclosed under Note 2 Contingent liabilities below.
iii) Matters wherein management is confident of succeeding in these litigations and have concluded the Companyâs liability to be remote. This is based on the relevant facts of judicial precedents and as advised by legal counsel which involves various legal proceedings and claims, in different stages of process.
b) Note 2: Contingent liabilities
The Company has various demands arising from Income-Tax assessments pertaining to Assessment year 2006-07 to 2014-15. The litigations are currently pending at various forums and such sum contested after adjusting the brought forward losses and depreciation was computed to be Nil. Consequently, without prejudice to to its legal defence on these matters, the Company have not disclosed the same as a contingent liability.
i. Under a suit filed by Leela Capital (petitioner) for recovery of the Inter Corporate Deposit (âICDâ) aggregating Rs. 50 million, the Company had deposited the amount of Rs. 50 million on November 30, 2001 with the Honâble Bombay High Court and the Honâble Bombay High Court later allowed the petitioner to withdraw the said amount, upon furnishing an undertaking that the petitioner will restitute the said sum or such part thereof, with 9% interest, to the Company, if and as directed by the Honâble Court at the time of the final decision of the suit filed by the petitioner. Accordingly, pending finality of the matter, both the ICD and deposit with Honâble High Court have been disclosed under Short-term borrowings and Other non-current assets, respectively. Without prejudice to its legal defence on this matter, interest payable of Rs. 74.71 million up to the date of deposit of the amount with the Honâble Court has been accrued by the Company in its financial statements.
ii. In another case, M/s Hindustan Development Corporation Limited (âHDCLâ) (now renamed as Mallanpur Steels Limited) who had lent Rs.50 million by way of inter-corporate deposit to the Company, has filed a Review Petition against the Scheme of Settlement passed by the Honâble Delhi High Court wherein the Companyâs liability was fixed at Rs. 35 million. The Company had made a deposit of Rs. 35 million to the Official Administrator of the Scheme in accordance with approved Scheme. Pending disposition of the review petition, the likelihood of the balance amount of Rs.15 million devolving on the Company is not probable. Also, the interest (if any) on the same is not ascertainable.
iii. The Company has received a demand notice from the Regional Provident Fund Commissioner, Gurgaon for Rs. 79.91 million in respect of provident fund (âPFâ) dues for international workers vide Notifications GSR 706(E) dated 1st October 2008 and GSR 148 dated 3rd September 2010, for the period from November 2008 to February 2011. The Company has responded to the notice disputing the demand and, without admitting any liability towards the same, has deposited an amount of Rs. 1.96 million towards the PF contributions in respect of international workers for the period from November 2008 to July 2011 under the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (âPF Actâ). Since August 2011, the Company has been making provident fund contributions in respect of international workers under the provisions of the PF Act. During the year ended March 31, 2012, the Company has filed a writ petition with the Honâble Delhi High Court contending that the above notifications relating to international workers are unreasonable and ultra vires the PF Act. The Court has directed that this matter be put up in the regular list and the interim order in favour of the Company has been made absolute till disposal of the petition. In addition, during the current year, a report has been filed by the Departmentâs Representatives before the Regional Provident Fund Commissioner on March 22, 2017 pursuant to which there is an additional claim against the Company aggregating 164.42 million for the period from March 2011 till January 2012. The aggregate demand on account of this matter from the period November 2008 to January 2012 is Rs. 144.43 million. Pending disposal of the petition, the Company has not accrued for any additional liability in respect of provident fund contributions to international workers.
iv. A vendor has filed an arbitration claim against the Company for Rs. 33.32 million including an interest of Rs. 10.58 million for termination of a lease agreement for accommodation of the Companyâs crew. The agreement was terminated by the Company citing poor quality of services . The arbitration proceedings in the matter have been completed and the suit has been dismissed in favour of the Company. The vendor has subsequently, filed an appeal before the High Court of Delhi and the matter is currently sub-judice. Pending disposal of the appeal, the Company has not accrued for any additional liability in respect of the dispute.
v. The Company has received a demand order for a sum of Rs. 77.28 million, and applicable interest, as well as penalty of Rs. 77.28 million from the service tax department for non-remittance of service tax on reverse charge mechanism on certain payments made during the period April 18, 2006 to March 31, 2012. The Company is contesting the order on the grounds that the services obtained by the Company were not liable to service tax under the categories determined by the authorities and are hence not taxable services. Effective July 2012, pursuant to the enactment of the negative list of taxable services, the Company has been paying service tax on these services received on reverse charge basis under the relevant provisions of the Finance Act, 1994. Based on advice by its tax consultants and internal evaluation, the Company has provided an amount of Rs. 67.09 million (including a portion of applicable interest) on a conservative basis (also refer note 26). However, the Company continues to contest the entire demand and has filed an appeal against the adverse order with the CESTAT and is confident of its success. The balance amount of the matter under litigation, (including interest and penalty) of Rs. 170.70 million, has not been accrued pending final outcome of this matter and has been disclosed as a contingent liability.
vi. During the previous year, one of the Companyâs vendors filed an arbitration claim against the Company before the International Court of Arbitration of the International Chamber of Commerce claiming payment of overdue amounts with applicable interest. The Company has also served a counter-claim against the vendor during the arbitration proceedings, and without prejudice to its defence, has accrued for the amounts claimed by the vendor which were considered probable in its financial statements as at March 31, 2016. The Company has not made any adjustments to the financial statements in respect of its counter-claim. During the current year, based on the current status of such proceedings and submissions thereat, and legal advice obtained, certain previously recognised provisions are not likely to subsist. Accordingly, the Company has written back provisions made in this regard, of Rs. 385.54 million in previous financial years as an exceptional item. Based on an evaluation of the merits of vendors claims during the arbitration process, as well as the strength of the Companyâs own claims , and based on legal advice obtained, certain claims amounting to Rs. 196.51 million are not expected to result in a probable outflow and have been disclosed as a contingent liability.
vii. The Company has received certain show cause notices during the current and previous year from the service tax authorities, citing various defaults, including failure/delay in remitting service tax collected, over past financial years as well as alleged failure in remittance of service tax on certain other items. Based on their assessment of the contentions of the service tax authorities, management has submitted a detailed reply to the notice, and based on legal advice obtained, believes that the likelihood of this liability devolving on the Company is low, and accordingly has made no adjustments to the financial statements.
viii. During the previous year, the Competition Commission of India (âCCIâ) passed an order dated November 17, 2015 against, inter alia, the Company, which included a demand of t 424.80 million on the Company. The Companyâs appeal against this order with Competition Appellate Tribunal (âCOMPATâ) was disposed of by the COMPAT, which set aside the impugned order on technical grounds and has referred the matter back to the CCI for fresh adjudication based on the COMPATâs directions. Based on legal advice received, management is confident of a favourable outcome in this matter and accordingly no adjustments are considered necessary in the financial statements.
ix. The Company had previously defaulted in remittance of the Inland Air Travel Tax (âIATTâ) dues for the period of March 1996 to August, 1996. The Revisionary Authority, Government of India had confirmed the orders of the Commissioner (Appeals), Department of Customs directing the Company to pay Rs. 86.50 million together with a penalty oRs.1100.00 million. The Company remitted the entire dues towards IATT and a minimum penalty @ 20% amounting to Rs. 17.30 millon. The Company filed a Civil Writ Petition challenging the orders passed by the Revisionary Authority against the penal dues levied. The Honâble Delhi High Court dismissed the Companyâs writ petition. Subsequently, the Company has challenged the same through a Special Leave to Petition (SLP) before the Honâble Supreme Court and the matter is currently sub-judice. Without prejudice to its legal defense in this matter, the Company has made a provision of Rs. 82.69 million against this obligation.
x. During the previous year, the Assistant Commissioner of Income-Tax (âACITâ) has filed a complaint against the Company and its erstwhile Chairman and Managing Director in their individual capacity, over delayed payment of tax deducted at source in contravention of section 276B of the IT Act, 1961 for financial years 2013-14 and 2014-15. The matter is sub-judice as on date and based on professional advice, the management is confident of a favourable outcome in this matter in so far as it relates to the Company. Accordingly, no adjustments are considered necessary in the financial statements.
c) Based on the legal advice obtained by the management, no provision is required to be made for the above contingent liabilities.
9. STATUS OF ADVANCE MONEY RECEIVED AGAINST SECURITIES PROPOSED TO BE ISSUED
The Company had received amounts aggregating Rs. 5,790.89 million from Mr. Kalanithi Maran and M/S KAL Airways Private Limited (âerstwhile promotersâ) as advance money towards proposed allotment of certain securities (189,091,378 share warrants and 3,750,000 non-convertible cumulative redeemable preference shares, issuable based on approvals obtained), to be adjusted at the time those securities were to be issued. Pursuant to the legal proceedings in this regard before the Honâble High Court of Delhi (âCourtâ) between the erstwhile promoters and the Company, the Court, in its order dated on July 29, 2016, without expressing anything on the merits of the dispute, ordered the Company to deposit the amount of Rs. 5790.89 million with the Court, in 5 equal monthly instalments, and directed the parties to take necessary steps for the purpose of constitution of an arbitral tribunal.
The Company has preferred an appeal against this order, which is pending disposal before the Honâble Division Bench of the Court. Based on the submissions made by the parties during the appeal proceedings, and legal advice obtained, management believes that no amounts are due under the original order, until disposal of the appeal by the Division Bench. In view of the foregoing, and the averments made before the Honâble Division Bench, by the Company, no amounts have been deposited with the Court till date. Pending adjudication of this matter by the Court, the parties have initiated arbitration proceedings.
In view of the uncertainties involved as explained above, management believes that the manner, timing and other related aspects of adjustment of these amounts, are currently not determinable. The effects of this matter may attract the consequent provisions (including penal provisions) of applicable provisions of law, including deeming provisions, relating to acceptance of deposits. Based on their assessment and legal advice obtained, management is of the view that any possible consequential effects, including penal consequences and any compounding thereof, will not have a material impact on the financial statements of the Company. Accordingly, no adjustments have been made for any such consequential penal effects in this regard.
Based on internal reporting provided to the chief operating decision maker, air transport service is the only reportable segment for the Company.
Non-current assets for this purpose consist of property, plant and equipment ,intangible assets and other non-current assets.
There are no sales to external customers more than 10% of total revenue.
10. INCOME TAX EXPENSE
The major components of income tax expense for the years ended March 31, 2017 and March 31, 2016 are:
Reconciliation of tax expense and the accounting profit multiplied by Indiaâs domestic tax rate for March 31, 2016 and March 31, 2017 :
The tax on the Companyâs profit before tax differs from the theoretical amount that would arise using the standard rate of corporation tax in India (34.608%) as follows:
Deferred Tax
The Company has recognized deferred tax assets arising on account of carried forward tax losses and unabsorbed depreciation to the extent of the deferred tax liability arising on account of the temporary difference on depreciation of Rs. 4,276.97 million as at March 31, 2017 (Rs. 4,706.09 million as at March 31, 2016) (Rs. 4,408.66 million as at April 1, 2015)
The Management considers that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values.The management assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, and other current and non-current financial liabilities and financial assets approximate their carrying amounts largely due to the short-term maturities of these financial instruments.
The fair value of the derivative instruments have been calculated in reference to the intermediate market rate between offer rate and bid rate (both interest rate and exchange rate) or intermediate price between buying price and selling price as on the reporting date.
There have been no transfers between level 1 and level 2 during the period.
11. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Companyâs principal financial liabilities, comprise of loans and borrowings, trade and other payables and derivatives. The main purpose of these financial liabilities is to finance the Companyâs operations. The Companyâs principal financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The Companyâs senior management oversees the management of these risks. The Companyâs senior management is supported by a treasury team. The treasury team provides assurance to the Companyâs senior management that the Companyâs financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Companyâs policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Companyâs policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Market risk
Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. Market risk comprises three types of risk: interest rate risk, currency risk and foreign currency risk.
The sensitivity analyses in the following sections relate to the position as at March 31, 2017 and March 31, 2016.
The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant as at March 31, 2017.
Equity Price Risk is related to the change in market reference price of the investments in equity securities. The majority of the Companyâs investments are in the shares of subsidiaries, which are carried at cost. The investments in other equity instruments as at the reporting date are not material.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk because it borrow funds at floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. As at March 31, 2017 approximately 61.58% of the Companyâs borrowings are at a variable rate of interest (March 31, 2016 - 73.36%) (March 31, 2015 - 74.69%)
Interest rate sensitivity
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Companyâs profit for the year ended March 31, 2017 would decrease/increase by Rs.39.65 million (March 31, 2016: decrease/increase by Rs.48.95 million) (April 1, 2015: decrease/increase by Rs. 56.16 million).
In managementâs opinion, the sensitivity analysis is unrepresentative of the inherent interest rate risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company actively manages its currency rate exposures through its treasury team using derivative instruments such as forward contracts to mitigate the risks from such exposures.
The use of derivative instruments is subject to limits and regular monitoring by appropriate levels of management.
Foreign currency sensitivity
The following demonstrates the sensitivity to a reasonably possible change in the foreign currency exchange rates, with all other variables held constant. The impact on the Companyâs profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The sensitivity analysis includes only outstanding unhedged foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates.
If the foreign currency rates had been 5% higher/lower and all other variables were held constant, the Companyâs profit for the year ended March 31, 2017 would decrease/increase by Rs. 291.70 million (March 31, 2016: decrease/increase by Rs. 422.13 million) (April 1, 2015: decrease/increase by Rs. 414.85 million)
In managementâs opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Credit risk management
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
The Company has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. Trade receivables are typically unsecured and are primarily derived from cargo and other revenue streams. Majority of the Companyâs passenger revenue is are made against deposits made by agents. Trade receivables primarily comprise of domestic customers, which are fragmented and are not concentrated to individual customers. The Companyâs exposure and the credit ratings of its counterparties are continuously monitored. At March 31, 2017, the Company had 11 customers (March 31, 2016: 6 customers, April 01, 2015: 3 customers) that owed the Company more than Rs. 10 million each and accounted for approximately 64% (March 31, 2016: 63%, April 01, 2015: 62%) of all the receivables outstanding.
An impairment analysis is performed at each reporting date on an individual basis for major customers. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on exchange losses historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are widely dispersed and operate in largely independent markets. The average credit period ranges between 30 and 90 days.
Liquidity risk
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company has obtained fund and non-fund based working capital lines from various banks. The Company invests its surplus funds in bank fixed deposit and mutual funds, which carry minimal mark to market risks. The Company also constantly monitors funding options available in the debt markets with a view to maintaining financial flexibility.
12. DETAILS OF SPECIFIED BANK NOTES HELD AND TRANSACTED DURING THE PERIOD 08/11/2016 TO 30/12/2016
The Companyâs operations are spread across more than 24 states / union territories in India. Pursuant to notification of the Government of India, Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated November 8, 2016, the Company established internal guidelines with respect to cash transactions during the specified period (November 9, 2016 to December 30, 2016) to comply with the applicable regulations, including intimating all its stations / branches not to collect cash in Specified Bank Notes (âSBNsâ) post November 8, 2016 other than in compliance with various notifications issued by the government from time to time permitting airlines to collect SBNs against sale of air tickets at such stations subject to specified conditions. Necessary controls were also put in place by the Company to help ensure related compliance. However, due to the wide-spread regional operations as well as the low individual transaction sizes, the information relating to cash transactions during the specified period is voluminous. Accordingly, the below information has been compiled based on the information available from the Companyâs books of accounts, related underlying records, and other records (including details received from the Companyâs banks regarding cash deposits during the specified period), managementâs understanding of such transactions and the internal guidelines established during the specified period.
The Companyâs capital management is intended to create value for shareholders by facilitating the meeting of long-term and short-term goals of the Company.
The Company determines the amount of capital required on the basis of annual operating plans and longterm fleet expansion plans. The funding requirements are met through internal accruals and other longterm/short-term borrowings. The Companyâs policy is aimed at combination of short-term and long-term borrowings.
The Company monitors capital employed using a Debt equity ratio, which is total debt divided by total equity and maturity profile of the overall debt portfolio of the Company.
The Companyâs policy is to keep the net debt to total equity ratio above (1.00).
13. FIRST TIME ADOPTION OF IND-AS Exemptions Applied
Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
Deemed cost for property, plant and equipment and intangible assets
Since there is no change in the functional currency, the Company has elected to continue with the carrying value for all of its property, plant and equipment and intangible assets as recognised in its Indian GAAP financial statement as deemed cost at the transition date.
Share based payment transactions
The Company has elected not to apply Ind AS 102 Share based Payment for equity settled share based payment transactions that vested or exercised before the date of transition (April 01, 2015).
Accounting for translation of long-term foreign currency monetary items
The Company has opted to avail the exemption under Ind AS 101 to continue the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognised in financial statements for period ending immediately before beginning of first Ind AS financial reporting period as per Indian GAAP (i.e. till March 31, 2016). Consequent to which:
- Exchange differences arising on long-term foreign currency monetary items related to acquisition of certain Bombardier Q400 aircraft are capitalized and depreciated over the remaining useful life of the asset.
- Exchange differences arising on other long-term foreign currency monetary items are accumulated in the âForeign Currency Monetary Item Translation Difference Accountâ and amortized over the remaining life of the concerned monetary item.
Mandatory exceptions
Estimates
The estimates at April 01, 2015 and at March 31, 2016 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies) apart from the following items where application of Indian GAAP did not require estimation:
- Fair valuation of derivative instruments
- Impairment of financial assets based on expected credit loss model
The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at April 01, 2015, the date of transition to Ind AS and as of March 31, 2016.
14. RECONCILIATION OF PROFIT OR LOSS FOR THE YEAR ENDED 31 MARCH 2016
Notes to Reconcilation
A. Embedded derivatives
Under Ind AS, purchase and sale contracts in foreign currency which is not the functional currency of either the Company or the counter-party has been treated as embedded derivative which is not closely related to the host contract and has been separately accounted for. Under Indian GAAP, such contracts are not accounted for separately.
B. Long term provision and trade payables
Under Indian GAAP, the Company has accounted for trade payables and provisions, including long-term provision, at the undiscounted amount. Under Ind AS, where the effect of time value of money is material, the amount of provision and trade payables has been recorded at the present value of the expenditures expected to be required to settle the obligation. Also where discounting is used, the carrying amount of the provision and trade payable increases in each period to reflect the passage of time. This increase is recognised as finance cost.
C. Repairs & maintenance expenses- Property, plant and equipment
Under Ind AS, the cost of major inspections is capitalised and depreciated separately over the period to the next major inspection. Under Indian GAAP, the Company expensed off repairs and maintenance expenses unless such expenses increased the future benefits from the existing asset beyond its previously assessed standard of performance.
D. Other financial liabilities
Under Indian GAAP, the Company recognized the long term employee benefits payable at transaction cost. Under Ind AS, the Company has initially recorded the payable at fair value by discounting to present value (based on market rate of interest) and subsequently accretes interest thereon as a period cost.
E. Trade payables and derivative liability
Under Indian GAAP, the forward covers taken for trade payables were reinstated as per AS 11 (Premium Amortisation Method). Under Ind AS, these derivative contracts are carried at their fair value at reporting dates.
F. Defined benefit plans
Under Indian GAAP, the Company recognized actuarial gains / losses and expected rate of return on defined benefit plans in the income statement. Under Ind AS, the Company has recognized the actuarial gains / losses in other comprehensive income. However, this has no impact on total comprehensive income and total equity.
G. Other comprehensive income
Under Indian GAAP, the Company has not presented other comprehensive income (OCI) separately. Hence, it has reconciled Indian GAAP profit or loss to profit or loss as per Ind AS. Further, Indian GAAP profit or loss is reconciled to total comprehensive income as per Ind AS.
H. Other financial assets
Under Indian GAAP, the Company measures the rental deposits paid to the lessor at transaction value. Under Ind AS, the deposits have been measured at fair value and the difference between the fair value and the transaction cost has been recorded as prepaid lease rent.
I. Processing fee on borrowings
Under IGAAP, the Company amortizes the processing fees over the tenure of the borrowings. Under Ind AS, the Company has considered these fee as part of the effective interest rate on the underlying borrowings.
J. Investments carried at Fair value through P&L
Under Indian GAAP, the Company accounted for investments in unquoted mutual funds as investment measured at the lower of cost market value. Under Ind AS, the Company has measured such investments at fair value. The difference between fair value and Indian GAAP carrying amount as at April 01, 2015 has been recognized in retained earnings
K. Statement of cash flows
The transition from Indian GAAP to Ind AS has not had a material impact on the statement of cash flows.
Mar 31, 2016
B. Terms / rights attached to equity shares
The Company has only one class of equity shares having a par value of Rs 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the board of directors is subject to the approval of the shareholders in the ensuing annual general meeting.
In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
C. Aggregate number of bonus shares, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:
The Company has issued total 1,732,865 shares (March 31, 2015 - 1,732,865 shares) during the period of five years immediately preceding the reporting date on exercise of options granted under the employee stock option (âESOPâ) plan wherein part consideration was received in form of employee services.
The shareholders in the annual general meeting held on September 24, 2014, approved the issuance of 189,091,378 warrants having a nominal value of Rs. 10 each to the Erstwhile Promoters, for consideration aggregating Rs. 3,082.19 million, with an option to apply for and be allotted equivalent number of equity shares of the face value of Rs. 10 each at a premium of Rs. 6.30 each.
The Board of Directors in their meeting held on January 29, 2015, approved the issuance of up to 3,750,000 nonconvertible redeemable preference shares (âCRPSâ) of Rs. 1,000 each to the Erstwhile Promoters on a preferential basis for a consideration aggregating Rs. 375,000,000.
Amounts aggregating Rs. 1,785.92 million which was disclosed as short term borrowings in the previous year, have been appropriately disclosed as advances received against securities to be issued in the current year as per the terms of the underlying agreement (as amended). Also refer Note 44.
a. The vehicle loan has been availed from Yes Bank Limited and is repayable in equal installments over a period of three years commencing from March 2016, and carries an interest rate of 10.25%. The loan is secured by the related vehicle purchased by the Company.
b The external commercial borrowing (âECBâ) relates to the acquisition of âBombardier Q400 Aircraftâ. The ECB has been approved by the Reserve Bank of India and is granted through a finance lease structure between the Company and the lesser with lending from Export Development Canada. The related aircraft are owned by the lesser until the repayment of all outstanding by the Company under the terms of the respective lease agreements (also refer note 12). As per the terms of these lease agreements with the lesser, the Company may opt for either fixed or a floating rate of interest benchmarked to LIBOR for each drawdown, which coincides with the delivery of each aircraft. The interest on these borrowings ranges from 2.4% to 4.1%. Under each lease agreement the Company is required to make payment of lease rentals over a period of forty-eight quarters to lesser or its nominees.
During the previous year, in view of overdue payments of interest and repayment of principal of ECB to the lender, the Company had entered into an agreement with the lender for the forbearance of defaults and the discharge of overdue amounts of principal and interest aggregating Rs. 897.54 million. Under the terms of this agreement, the Company had to make 12 equal monthly payments of this overdue amount, commencing from April 2015. There were no changes to any of the terms and conditions of the original agreement with the lender including repayment terms of other installments as well as interest rates applicable on the ECB. Pursuant to this, the Company has made all such monthly payments under this agreement as at March 31, 2016.
Provision for aircraft maintenance:
Certain heavy maintenance checks for the aircraft engines need to be performed at specified intervals as enforced by the Director General of Civil Aviation in accordance with the Maintenance Program Document laid down by the aircraft manufacturers. In this regard, the Company estimates the expected costs at the time of such check factoring expected drawdown of supplemental rentals and other contributions receivable from the lesser wherever applicable. As required by Accounting Standard 29, âProvisions, Contingent Liabilities and Contingent Assetsâ given below is the movement in provision for aircraft maintenance.
The Company has, having regard to its obligation to maintain engines under aircraft lease agreements, finalized the terms of service contracts and has also entered into new contracts for maintenance of engines on its Boeing and Q400 aircraft in the current year. Based on such finalized contracts / terms, as also such factors as scope and timing of maintenance and repairs of engines including firm fixed costs of maintenance at different intervals, expected drawdown from the supplemental rentals under the relevant lease agreements (wherever applicable), etc, management undertook a comprehensive exercise to re-estimate its liabilities in respect of engine maintenance obligations as at March 31, 2016. Arising from the foregoing, the Company has made additional accruals of Rs. 1,495.50 million resulting from changes in estimates as explained above.
** Provision for aircraft maintenance
Provision for aircraft redelivery:
As required by Accounting Standard 29, âProvisions, Contingent Liabilities and Contingent Assetsâ given below is the movement in provision for aircraft redelivery.
The Company has in its fleet certain aircraft on operating lease. As per the terms of the lease agreements, the aircraft are to be redelivered to the lesser at the end of the lease term in technical condition as stipulated under the lease agreements. Such redelivery conditions include costs for technical inspection, maintenance checks, repainting costs prior to its redelivery and the cost of ferrying the aircraft to the location as stipulated in the lease agreements.
The Company, therefore, provides for such redelivery expenses, as contractually agreed, in proportion to the expired lease period.
The Company has also accounted for costs relating to early termination of Boeing aircraft leased by the Company which were retired from commercial use in the previous year. Such accrual is based on management estimate of these liabilities, having regard to various factors including lease terms, age of the aircraft and past experience of aircraft redelivery costs incurred by the Company. Further liabilities in this regard, if any, will be accounted for in the period they are determined to be payable.
During the current year and the period since then till date, the Company has concluded / substantially agreed the terms of settlement with these aircraft lesser. Accordingly, and based on their assessment and best estimates of the likely final financial effect of these settlement terms, management has made adjustments in the financial statements as follows:
(a) Additional accrual of Rs. 497.31 million under Aircraft redelivery costs disclosed in Note 23; and
(b) Write back of provisions made in earlier periods of Rs. 830.33 million recorded under Liabilities / provision no longer required written back disclosed in Note 22.
After giving effect to the above, the Company carries provisions of Rs 1,679.28 million as at March 31, 2016, towards its obligations in respect of such redelivered aircraft.
Note:
During the year, one Bombardier Q400 aircraft of the Company sustained damage during operations. The determination of the financial effects thereof was pending in view of the highly technical nature of the assessment involved. Upon completion of such technical assessment, this aircraft has been assessed as being beyond economic repair and declared a total loss. Accordingly, the carrying value of that aircraft as at the date of the incident of Rs 1,037.75 million, net of unrecognized incentive credits of Rs 16.37 million, has been recorded as a loss in the current year. The Company has recognized insurance claims of Rs. 1,658.32 million based on the in-principle approvals received from the insurers of such aircraft. The net loss on account of the damage to the aircraft and the related proceeds receivable from the insurance company, as discussed above, have been disclosed as extraordinary items (net). The amount payable to the relevant aircraftâs lesser / financier as at March 31, 2016, of Rs. 737.90 million has been disclosed under current liabilities.
Extraordinary items for the year ended March 31, 2015, represent insurance claims and the related loss accounted for by the Company pertaining to another Bombardier aircraft that sustained extensive damage and was declared a total loss.
1. Employee stock option plans
The Company has a stock option plan that provides for the granting of stock options to qualifying employees including Directors of the Company (not being promoter directors and executive directors, holding more than 10% of the equity shares of the Company). The option plan is summarized below:
Employees Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11, 2007, approved an Employee Stock Option Scheme (ESOS) which provides for the grant of 6,016,250 options (each option convertible into share) to employees. Further, at the Extraordinary General Meeting held on December 23, 2009, the shareholders had approved to extend the aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible employees on September 11, 2007 at an exercise price of Rs. 30 /- per share. Such options were to vest over 4 years in the following manner:
- 35% of the options - one year from the date of grant
- 25% of the options - two years from the date of grant
- 25% of the options - three years from the date of grant
- 15% of the options - four years from the date of grant
Pro-forma Disclosures
In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for ESOS 2007 been recognized based on the fair value at the date of grant in accordance with the Black-Scholes method, the amounts of the Companyâs net profit / (loss) and earnings per share would have been as follows:
2. Gratuity - benefit plan
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs. 1.00 million. The scheme is unfunded.
The following tables summaries the components of net benefit expense recognized in the profit and loss account and amounts recognized in the balance sheet for gratuity.
3. Deferred Tax Asset
The Company has recognized deferred tax assets arising on account of carried forward tax losses and unabsorbed depreciation to the extent of the deferred tax liability arising on account of the timing difference on depreciation of Rs. 4,706.09 million as at March 31, 2016 (Rs. 4,408.66 million as at March 31, 2015).
4. Leases
Operating lease: Company as a lessee
The Company has taken on lease aircraft, aircraft spares, engines and premises from third parties. Lease charges for aircraft and engines for the year ended March 31, 2016 amounts to Rs. 8,054.47 million (Previous year Rs. 8,643.88 million), supplemental lease charges amounts to Rs. 3,155.91 million (Previous year Rs. 3,340.20 million) and rental expense on premises for the year ended March 31, 2016 amount to Rs. 250.65 million (Previous year Rs. 160.45 million)
The Company has taken aircraft through dry operating lease from lesser. Under the aircraft lease agreements, the Company pays monthly rentals in the form of base and supplementary rental. Base rental payments are either based on floating or fixed interest rates. Supplemental rentals are based on aircraft utilization and are calculated with reference to the number of hours flown or number of cycles operated during each month. Both base and supplemental lease rentals have been charged to the statement of profit and loss. The lease terms vary between 3 and 10 years. There are no significant restrictions imposed by lease arrangements.
The Company has also taken aircraft on wet lease for lease terms which vary between 3 to 5 months.
The future minimum lease rentals payable under non-cancellable leases (except supplementary rental which are based on aircraft utilization and calculated on number of hours flown or cycle operated) are as follows:
Note: The remuneration to the key managerial personnel does not include the provisions made for gratuity and leave benefits, as they are determined on an actuarial basis for the Company as a whole.
5. Capital and other commitments
a. At March 31, 2016, the Company has commitments of Rs. 176,555.98 million (March 31, 2015 - Rs. 166,595.76 million) relating to the acquisition of aircraft.
b. The Company has commitments in the nature of non-cancellable operating leases. The future minimum lease payments expected to be incurred over the remaining lease term are detailed in Note 33.
c. Under certain long-term maintenance contracts for the management, maintenance, repair and overhaul of aircraft components and spares, the Company incurs an agreed power-by-the-hour cost based on aircraft / component utilization. In addition, some contracts provide for compensation upon pre-mature termination, as applicable.
6. Litigations and claims a) Note 1 :
i) Matters wherein management has concluded the Companyâs liability to be probable have accordingly been provided for in the books. Also refer note 11.
ii) Matters wherein management has concluded the Companyâs liability to be possible have accordingly been disclosed under Note 2 Contingent liabilities below.
iii) Matters wherein management is confident of succeeding in these litigations and have concluded the Companyâs liability to be remote. This is based on the relevant facts of judicial precedents and as advised by legal counsel which involves various legal proceedings and claims, in different stages of process
9 Assessment relating to Assessment Year 2010-11 is pending with CIT(A) in respect of certain additions made to returned loss by the Assessing Officer which resulted in taxable income, but income tax payable after adjusting the brought forward losses and depreciation was computed to be Nil. Though there is no demand for payment of tax arising out of above assessments, the Assessing Officer (âAOâ) has initiated penalty proceedings against the Company under section 271(1)(c). Penalty amount is not ascertainable as AO has not raised any demand.
i. Under a suit filed by Leela Capital (petitioner) for recovery of the Inter Corporate Deposit (âICDâ) aggregating Rs. 50 million, the Company had deposited the amount of Rs. 50 million on November 30, 2001 with the Honâble Bombay High Court and the Honâble Bombay High Court later allowed the petitioner to withdraw the said amount, upon furnishing an undertaking that the petitioner will restitute the said sum or such part thereof, with 9% interest, to the Company, if and as directed by the Honâble Court at the time of the final decision of the suit filed by the petitioner. Accordingly, pending finality of the matter, both the ICD and deposit with Honâble High Court have been disclosed under the Unsecured Loans and Loans and Advances, respectively. The Company had hitherto not accrued interest payable of Rs. 74.71 million up to the date of deposit of the amount with the Honâble Court on account of its defense in the court proceedings. Pursuant to the review process by the Qualified Audit Review Committee (âQARCâ) constituted by the SEBI, the Company has been directed to rectify the qualifications in the auditorsâ report. Accordingly, and without prejudice to its legal defense on this matter, such interest of Rs 74.71 million has been accounted for in the previous year.
ii. In another case, M/s Hindustan Development Corporation Limited (âHDCLâ) (now renamed as Mallanpur Steels Limited) who had lent Rs. 50 million by way of inter-corporate deposit to the Company, has filed a Review Petition against the Scheme of Settlement passed by the Honâble Delhi High Court wherein the Companyâs liability was fixed at Rs. 35 million. The Company had made a deposit of Rs. 35 million to the Official Administrator of the Scheme in accordance with approved Scheme. Pending disposition of the review petition, the likelihood of the balance amount of Rs.15 million devolving on the Company is not probable. Also, the interest (if any) on the same is not ascertainable.
iii. The Company has received a demand notice from the Regional Provident Fund Commissioner, Gurgaon for Rs 79.91 million in respect of provident fund (âPFâ) dues for international workers vide Notifications GSR 706(E) dated 1st October 2008 and GSR 148 dated 3rd September 2010, for the period from November 2008 to February 2011. The Company has responded to the notice disputing the demand and, without admitting any liability towards the same, has deposited an amount of Rs 1.96 million towards the PF contributions in respect of international workers for the period from November 2008 to July 2011 under the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (âPF Actâ). Since August 2011, the Company has been making provident fund contributions in respect of international workers under the provisions of the PF Act. During the year ended March 31, 2012, the Company has filed a writ petition with the Honâble Delhi High Court contending that the above notifications relating to international workers are unreasonable and ultra vires the PF Act. The Court has directed that this matter be put up in the regular list and the interim order in favor of the Company has been made absolute till disposal of the petition. Pending disposal of the petition, the Company has not accrued for any additional liability in respect of provident fund contributions to international workers.
iv. The Company has received a demand order for a sum of Rs. 77.28 million, and applicable interest, as well as penalty of Rs. 77.28 million from the service tax department for non-remittance of service tax on reverse charge mechanism on certain payments made during the period April 18, 2006 to March 31, 2012. The Company is contesting the order on the grounds that the services obtained by the Company were not liable to service tax under the categories determined by the authorities and are hence not taxable services. Effective July 2012, pursuant to the enactment of the negative list of taxable services, the Company has been paying service tax on these services received on reverse charge basis under the relevant provisions of the Finance Act, 1994. Based on advice by its tax consultants and internal evaluation, the Company has provided an amount of Rs.
67.09 million (including a portion of applicable interest) on a conservative basis during the previous year (also refer note 11). However, the Company continues to contest the entire demand and has filed an appeal against the adverse order with the CESTAT and is confident of its success. The balance amount of the matter under litigation, (including interest and penalty) of Rs. 170.70 million, has not been accrued pending final outcome of this matter and has been disclosed as a contingent liability.
v. During the previous year, the Company received a demand from one of its aircraft lesser in relation to four aircraft which were redelivered during the previous year of Rs. 744.20 million, of which Rs. 368.66 million relates to cost of storage of the aircraft from the date of deregistration of the aircraft till the date of redelivery of the aircraft, and the remaining Rs. 375.54 million relates to damages claimed by the lesser. Management had accounted for claims aggregating Rs. 368.66 million during the previous year, as these are costs incurred under the terms of the lease agreement (also refer note 11), and has not admitted the liability in respect of damages claimed by the lesser of Rs. 375.54 million. Subsequent to the reporting date, the management has finalized the terms of settlement with the concerned lesser and pursuant to this, based on their assessment and best estimates of the likely final financial effect of these settlement terms, management has made an additional accrual of Rs. 233.18 million under Aircraft redelivery costs.
vi. During the current year, one of the Companyâs vendors has filed an arbitration claim against the Company before the International Court of Arbitration of the International Chamber of Commerce claiming payment of overdue amounts with applicable interest aggregating Rs. 1,923.65 million. The Company has served a counter-claim against the vendor to the tune of Rs. 4,178.92 million which it intends to pursue in the course of the arbitration proceedings, and without prejudice to its defense, has accrued for the amounts claimed by the vendor. The Company has not made any adjustments to the financial statements in respect of its counter-claim.
vii. The Company has received a show cause notice from the service tax authorities during the current year, citing various defaults, including failure/delay in remitting service tax collected, over past financial years as well as alleged failure in remittance of service tax on certain other items. Based on their assessment of the contentions of the service tax authorities, management has submitted a detailed reply to the notice, and based on legal advice obtained, believes that the likelihood of this liability devolving on the Company is low, and accordingly has made no adjustments to the financial statements.
viii. During the year, the Competition Commission of India (âCCIâ) passed an order dated November 17, 2015 against, inter alia, the Company, which included a demand of Rs 424.80 million on the Company. The Companyâs appeal against this order with Competition Appellate Tribunal (âCOMPATâ) was disposed of by the COMPAT, which set aside the impugned order on technical grounds and has referred the matter back to the CCI for fresh adjudication based on the COMPATâs directions. Based on legal advice received, management is confident of a favorable outcome in this matter and accordingly no adjustments are considered necessary in the financial statements.
ix. During the current year, the Assistant Commissioner of Income-Tax (âACITâ) has filed a complaint against the Company and its erstwhile Chairman and Managing Director in their individual capacity, over delayed payment of tax deducted at source in contravention of section 276B of the IT Act, 1961 for financial years 2013-14 and 2014-15. The matter is sub-judice as on date and based on professional advice, the management is confident of a favorable outcome in this matter in so far as it relates to the Company. Accordingly, no adjustments are considered necessary in the financial statements.
c. Based on the legal advice obtained by the management, no provision is required to be made for the above contingent liabilities
7 Dues to Micro, Small and Medium Enterprises
Management has determined that there are no overdue amounts payable to Micro, Small and Medium Enterprises as defined under The Micro, Small and Medium Enterprises Development Act, 2006 based on information available with the Company as at March 31, 2016, and March 31, 2015. Further, the Company has not paid any interest to any Micro, Small and Medium Enterprises during the current year.
8 Un-hedged foreign currency exposure
Particulars of un-hedged foreign currency exposure as at the reporting date
9. Status of advance money received against securities proposed to be issued
The Company had during the previous financial year and in the current financial year, received amounts aggregating Rs. 5,790.89 million (including amounts of Rs. 1,785.92 million disclosed as short term borrowings in the previous year, which have been appropriately disclosed as advances received against securities to be issued in the current year) in relation to (a) 189,091,378 share warrants of Rs.10 each approved by shareholders and (b) 3,750,000 CRPS approved by the Board of Directors, for issuance to the Erstwhile Promoters. Under the terms of relevant approvals, and the agreements inter-se the Company and the Erstwhile Promoters, these amounts will be adjusted against amounts payable upon allotment of the said securities. While the Company is awaiting approval of regulatory bodies / shareholders (as the case may be) the time limit for completion of the Companyâs obligations under applicable rules and regulations has expired as of date, attracting the consequent provisions (including penal provisions) of applicable rules and also the deeming provisions relating to acceptance of deposits. The management is in the process of taking steps to cure these defects, and is of the view that any consequential effects, including penal consequences, will not have a material impact on the financial statements of the Company. Accordingly, no adjustments have been made for any consequential penal effects in this regard.
10. Dissolution of the Audit Committee
Two independent directors of the Company resigned effective September 21, 2015, pursuant to which the Companyâs Audit Committee was dissolved due to inadequacy of constituents. Subsequent to this, another independent director who was appointed on May 21, 2015, resigned effective November 17, 2015. After receipt of requisite approvals, the Company has appointed a new independent director to its Board on December 1, 2015 to fill-up one of the above vacancies. However as on date, the Audit Committee continues to remain dissolved as detailed above due to inadequacy of independent directors. The Company has initiated steps for appointing additional independent directors and is awaiting security clearances for identified candidates for independent directors from the Ministry of Civil Aviation, Government of India (âMoCAâ) as required under the Civil Aviation Requirements. As a result, the Company is in non-compliance with the requirements of the Companies Act, 2013 as well as SEBI (Listing Obligations and Disclosure Requirements) with regard to constitution of an audit committee and related requirements including the review of these financial statements by the audit committee as per applicable requirements. Based on legal advice obtained by the Company, the Board of Directors of the Company has approved the financial statements at their meeting held on May 19, 2016, and no material adjustments or consequences are expected in relation to this matter, affecting these financial statements.
11. Previous year figures
Prior year comparative amounts in these financial statements have been reclassified wherever applicable to conform to current yearâs presentation. As per our report of even date
Mar 31, 2015
A. Terms / rights attached to equity shares
The Company has only one class of equity shares having a par value of
Rs 10 per share. Each holder of equity shares is entitled to one vote
per share. The Company declares and pays dividends in Indian rupees.
The dividend proposed by the board of directors is subject to the
approval of the shareholders in the ensuing annual general meeting.
In the event of liquidation of the company, the holders of equity
shares will be entitled to receive remaining assets of the company,
after distribution of all preferential amounts. The distribution will
be in proportion to the number of equity shares held by the
shareholders.
B. Aggregate number of bonus shares, shares issued for consideration
other than cash and shares bought back during the period of five years
immediately preceding the reporting date:
The Company has issued total 1,732,865 shares (March 31, 2014 -
1,732,865 shares) during the period of five years immediately preceding
the reporting date on exercise of options granted under the employee
stock option ('ESOP') plan wherein part consideration was received in
form of employee services.
C. Shares held by shareholders holding more than 5 percent shares in
the Company.
As discussed in note 1, during the current year, the outgoing promoters
have sold and transferred their entire shareholding to Mr. Ajay Singh
pursuant to the SSPA.
The shareholders in the annual general meeting held on September 24,
2014, approved the issuance of 189,091,378 warrants having a nominal
value of Rs. 10 each to the Outgoing Promoters, for consideration
aggregating Rs. 3,082.19 million, with an option to apply for and be
allotted equivalent number of equity shares of the face value of Rs. 10
each at a premium of Rs. 6.30 each. During the current year, the
proposed subscribers to these warrants have paid sums aggregating Rs.
2,304.68 million against such proposed warrants.
The board of directors of the Company in their meeting held on January
29, 2015, approved the issuance of up to 3,750,000 non-convertible CRPS
of Rs. 1,000 each to the Outgoing Promoters on a preferential basis.
This proposed issue of securities is subject to the approval of the
shareholder of the Company. Subject to such approval, the proposed
subscribers to these CRPS have paid sums aggregating Rs. 1,200.29
million against such proposed CRPS.
Money received against share warrants as at March 31, 2014 represents
25% advance money received towards warrants which entitles the warrant
holders, the option to apply for and be allotted equivalent number of
equity shares of the face value of Rs.10 each of an aggregate nominal
amount up to Rs. 1,332.15 million at an issue price of Rs. 20.76 per
equity share. During the current year, pursuant to the exercise of
options attached to these warrants and the receipt of the balance
consideration of Rs. 999.11 million, the Company has issued 19,169,000
equity shares to Mr. Kalanithi Maran and 45,000,000 equity shares to
M/s KAL Airways Private Limited, having a nominal value of Rs. 10 each.
As per records of the company, including its register of shareholders /
members and other declarations received from shareholders regarding
beneficial interest, the above shareholding represents both legal and
beneficial ownership of shares.
D. Shares reserved for issue under options
i. For details of shares reserved for issue under ESOP, refer Note 29.
ii. For details of shares reserved for share warrants, refer note 4
below.
a. Term loan from banks is repayable in unequal installments from
April 2012. This interest on this loan ranges from 12.25% to 12.86%.
The loan and other facilities granted by the lender are secured by
exclusive charge on current assets both present and future excluding
lien marked deposits, second charge on movable fixed assets, both
present and future, and pledge of shares of the Company owned by the
promoter of the Company, Mr. Ajay Singh.
b. The external commercial borrowing ("ECB") relates to the
acquisition of "Bombardier Q400 Aircraft". The ECB has been approved by
the Reserve Bank of India and is granted through a finance lease
structure between the Company and the lessor with lending from Export
Development Canada. The related aircraft are owned by the lessor until
the repayment of all outstanding by the Company under the terms of the
respective lease agreements (also refer note 12). As per the terms of
these lease agreements with the lessor, the Company may opt for either
fixed or a floating rate of interest benchmarked to LIBOR for each
drawdown, which coincides with the delivery of each aircraft. The
interest on these borrowings ranges from 2.4% to 4.1%. Under each lease
agreement the Company is required to make payment of lease rentals over
a period of forty-eight quarters to lessor or its nominees.
During the current year, in view of overdue payments of interest and
repayment of principal of ECB to the lender, the Company has entered
into an agreement with the lender for the forbearance of defaults and
the discharge of overdue amounts of principal and interest aggregating
Rs. 897.54 million. Under the terms of this agreement, the Company will
make 12 equal monthly payments of this overdue amount, commencing from
April 2015. There are no changes to any of the terms and conditions of
the original agreement with the lender including repayment terms of
other installments as well as interest rates applicable on the ECB.
As per the terms of the SSPA, the short term loan from outgoing
promoter does not bear any interest and is to be adjusted against
future subscription money due from the outgoing promoter in connection
with issuance of proposed securities mentioned in Note 4, subject to
necessary approvals.
Aircraft redelivery:
As required by Accounting Standard 29, "Provisions, Contingent
Liabilities and Contingent Assets" given below is the movement in
provision for aircraft redelivery.
The Company has in its fleet certain aircraft on operating lease. As
per the terms of the lease agreements, the aircraft are to be
redelivered to the lessors at the end of the lease term in technical
condition as stipulated under the lease agreements. Such redelivery
conditions include costs for technical inspection, maintenance checks,
repainting costs prior to its redelivery and the cost of ferrying the
aircraft to the location as stipulated in the lease agreements.
The Company, therefore, provides for such redelivery expenses, as
contractually agreed, in proportion to the expired lease period.
The Company has also accounted for costs relating to early termination
of Boeing aircraft leased by the Company which have been retired from
commercial use. Such accrual is based on management estimate of these
liabilities, having regard to various factors including lease terms,
age of the aircraft and past experience of aircraft redelivery costs
incurred by the Company. Further liabilities in this regard, if any,
will be accounted for in the period they are determined to be payable.
* Represents margin money deposit placed with banks for non-fund based
facilities sanctioned to the Company.
Note:
During the current year, one of the Company's Bombardier Q400 aircraft
sustained extensive damage during operations and has been assessed as
being beyond economic repair after technical review and declared a
total loss. The carrying value of the aircraft as at the date of the
incident, net of unrecognized incentive credits, was Rs. 1,003.77
million, which the Company has recorded as a loss in the current year.
The Company has received approvals from the insurers of such aircraft
for an insurance claim of Rs. 1,617.24 million, which has been
recognized as income, of which Rs. 835.04 million is payable to the
relevant aircraft lessor / financier relating to outstanding
liabilities there against. The net gain on account of the damage to the
aircraft and the related proceeds receivable from the insurance
company, as discussed above, have been disclosed as an extraordinary
item.
1. Employee stock option plans
The Company has a stock option plan that provides for the granting of
stock options to qualifying employees including Directors of the
Company (not being promoter directors and executive directors, holding
more than 10% of the equity shares of the Company). The option plan is
summarized below:
Employees Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11,
2007, approved an Employee Stock Option Scheme (ESOS) which provides
for the grant of 6,016,250 options (each option convertible into share)
to employees. Further, at the Extraordinary General Meeting held on
December 23, 2009, the shareholders had approved to extend the
aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible
employees on September 11, 2007 at an exercise price of Rs. 30 /- per
share. Such options were to vest over 4 years in the following manner:
- 35% of the options  one year from the date of grant
- 25% of the options  two years from the date of grant
- 25% of the options  three years from the date of grant
- 15% of the options  four years from the date of grant
The Company has adopted the (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 issued by Securities and
Exchange Board of India, and has recorded a compensation expense using
the intrinsic value method as set out in those guidelines. The summary
of the movement in options is given below:
Pro-forma Disclosures
In accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for
ESOS 2007 been recognized based on the fair value at the date of grant
in accordance with the Black-Schools method, the amounts of the
Company's net profit / (loss) and earnings per share would have been as
follows:
The expected life of the stock is based on historical data and current
expectations and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that
the historical volatility over a period similar to the life of the
options is indicative of future trends, which may also not necessarily
be the actual outcome.
2. Gratuity - benefit plan
The Company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service gets a gratuity on departure at
15 days salary (last drawn salary) for each completed year of service
subject to a maximum of Rs. 1 million. The scheme is unfunded.
The following tables summaries the components of net benefit expense
recognized in the profit and loss account and amounts recognized in the
balance sheet for gratuity.
The estimates of future salary increases, considered in actuarial
valuation, take account of inflation, seniority, promotion and other
relevant factors, such as supply and demand in the employment market.
3. Deferred Tax Asset
The Company has recognized deferred tax assets arising on account of
carried forward tax losses and unabsorbed depreciation to the extent of
the deferred tax liability arising on account of the timing difference
on depreciation of Rs. 4,408.66 million as at March 31, 2015 (Rs.
3,672.01 million as at March 31, 2014).
4. Leases
Operating lease: Company as a lessee
The Company has taken on lease aircraft, aircraft spares, engines and
premises from third parties. Lease charges for aircraft and engines for
the year ended March 31, 2015 amount to Rs. 8,643.88 million (Previous
year Rs. 10,531.74 million), supplemental lease charges amount to Rs.
3,340.20 million (Previous year Rs. 4,244.82 million) and rental
expense on premises for the year ended March 31, 2015 amount to Rs.
160.45 million (Previous year Rs. 163.89 million).
The Company has taken aircraft through dry operating lease from
lassoers. Under the aircraft lease agreements, the Company pays monthly
rentals in the form of base and supplementary rental. Base rental
payments are either based on floating or fixed interest rates.
Supplemental rentals are based on aircraft utilization and are
calculated with reference to the number of hours flown or number of
cycles operated during each month. Both base and supplemental lease
rentals have been charged to the statement of profit and loss. The
lease terms vary between 3 and 10 years. There are no significant
restrictions imposed by lease arrangements. The future minimum lease
rentals payable under non-cancellable leases (except supplementary
rental which are based on aircraft utilization and calculated on number
of hours flown or cycle operated) are as follows:
5. Related party transactions
Relationship Name of the party
Party exercising control Kal Airways Private Limited (up to February
23, 2015)
Mr. Kalanithi Maran (up to February 23, 2015) Mr. Ajay Singh (from
February 23, 2015)
Enterprises over which parties Sun TV Network Limited A
above or their relatives have control Kal Publications Private Limited
/ significant influence (Affiliates) Udaya FM Private Limited
Sun Direct TV Private Limited
Kungumam Publications Private Limited
Sun Distribution Services Private Limited
Kal Investments (Madras) Private Limited
Kal Holdings Private Limited
Sun Foundation
Murasoli Maran Family Trust V (up to February 23, 2015)
D K Enterprises Private Limited
Kungumam Nithyagam Private Limited
Kal Comm Private Limited
Kal Media Services Private Limited
Kal Cables Private Limited
Sun Business Solutions Private Limited
South Asia FM Limited
Kal Radio Limited
Digital Radio (Delhi) Broadcasting Limited J
Crosslink Finlease Private Limited A
Greenline Transit System Private Limited
Spice Homes Private Limited
Argentum Electric Vehicles Private Limited
Argentum Defence Systems Private Limited
i2n Technologies Private Limited (From February 23, 2015)
Greenstar Mobility Private Limited
Greenvolt Technologies Private Limited
Greenline Communication Private Limited
Pan India Motors Private Limited
Key management personnel Mr. S Natrajhen, Managing Director (up to
January 29, 2015) Mr. Sanjiv Kapoor, Chief Operating Officer
During the year, as already mentioned, the Company has issued to Mr.
Kalanithi Maran and Kal Airways Private Limited on a preferential basis
64,169,000 equity shares at a price of Rs. 20.76 per share for a total
consideration aggregating Rs. 1,332.45 million.
6. Capital and other commitments
a. At March 31, 2015, the Company has commitments of Rs. 166,595.76
million (March 31, 2014 - Rs. 150,707.25 million) relating to the
acquisition of aircraft.
b. The Company has commitments in the nature of non-cancellable
operating leases. The future minimum lease payments expected to be
incurred over the remaining lease term are detailed in Note 32.
c. Under certain long-term maintenance contracts for the management,
maintenance, repair and overhaul of aircraft components and spares, the
Company incurs an agreed power-by-the-hour cost based on aircraft /
component utilization. In addition, some contracts provide for
compensation upon pre-mature termination, as applicable.
7. Litigations and claims
a) Note 1:
i) Matters wherein management has concluded the Company's liability to
be probable have accordingly been provided for in the books. Refer note
11.
ii) Matters wherein management has concluded the Company's liability to
be possible have accordingly been disclosed under Note 2 Contingent
liabilities below.
iii) Matters wherein management is confident of succeeding in these
litigations and have concluded the Company's liability to be remote.
This is based on the relevant facts of judicial precedents and as
advised by legal counsel which involves various legal proceedings and
claims, in different stages of process.
12 Assessment relating to Assessment Year 2010-11 is pending with
CIT(A) in respect of certain additions made to returned loss by the
Assessing Officer which resulted in taxable income, but income tax
payable after adjusting the brought forward losses and depreciation was
computed to be Nil. Though there is no demand for payment of tax
arising out of above assessments, the Assessing Officer ('AO') has
initiated penalty proceedings against the Company under section
271(1)(c). Penalty amount is not ascertainable as AO has not raised any
demand.
i. Under a suit filed by Leela Capital (petitioner) for recovery of the
Inter Corporate Deposit ('ICD') aggregating Rs. 50 million, the Company
had deposited the amount of Rs. 50 million on November 30, 2001 with
the Hon'ble Bombay High Court and the Hon'ble Bombay High Court later
allowed the petitioner to withdraw the said amount, upon furnishing an
undertaking that the petitioner will restitute the said sum or such
part thereof, with 9% interest, to the Company, if and as directed by
the Hon'ble Court at the time of the final decision of the suit filed
by the petitioner. Accordingly, pending finality of the matter, both
the ICD and deposit with Hon'ble High Court have been disclosed under
the Unsecured Loans and Loans and Advances, respectively. The Company
had hitherto not accrued interest payable of Rs. 74.71 million up to
the date of deposit of the amount with the Hon'ble Court on account of
its defence in the court proceedings. Pursuant to the review process by
the Qualified Audit Review Committee ('QARC') constituted by the SEBI,
the Company has been directed to rectify the qualifications in the
auditors' report. Accordingly, and without prejudice to its legal
defence on this matter, such interest of Rs 74.71 million has been
accounted for in the current year.
ii. In another case, M/s Hindustan Development Corporation Limited
("HDCL") (now renamed as Mallanpur Steels Limited) who had lent Rs. 50
million by way of inter-corporate deposit to the Company, has filed a
Review Petition against the Scheme of Settlement passed by the Hon'ble
Delhi High Court wherein the Company's liability was fixed at Rs. 35
million. The Company had made a deposit of Rs. 35 million to the
Official Administrator of the Scheme in accordance with approved
Scheme. Pending disposition of the review petition, the likelihood of
the balance amount of Rs.15 million devolving on the Company is not
probable. Also, the interest (if any) on the same is not ascertainable.
iii. The Company has received a demand notice from the Regional
Provident Fund Commissioner, Gurgaon for Rs 79.91 million in respect of
provident fund ("PF") dues for international workers vide Notifications
GSR 706(E) dated 1st October 2008 and GSR 148 dated 3rd September 2010,
for the period from November 2008 to February 2011. The Company has
responded to the notice disputing the demand and, without admitting any
liability towards the same, has deposited an amount of Rs 1.96 million
towards the PF contributions in respect of international workers for
the period from November 2008 to July 2011 under the provisions of the
Employees Provident Funds and Miscellaneous Provisions Act, 1952 ('PF
Act'). Since August 2011, the Company has been making provident fund
contributions in respect of international workers under the provisions
of the PF Act. During the year ended March 31, 2012, the Company has
filed a writ petition with the Hon'ble Delhi High Court contending that
the above notifications relating to international workers are
unreasonable and ultra vires the PF Act. The Court has directed that
this matter be put up in the regular list and the interim order in
favour of the Company has been made absolute till disposal of the
petition. Pending disposal of the petition, the Company has not accrued
for any additional liability in respect of provident fund contributions
to international workers.
iv. The Company has received a demand order for a sum of Rs. 77.28
million, and applicable interest, as well as penalty of Rs. 77.28
million from the service tax department for non-remittance of service
tax on reverse charge mechanism on certain payments made during the
period April 18, 2006 to March 31, 2012. The Company is contesting the
order on the grounds that the services obtained by the Company were not
liable to service tax under the categories determined by the
authorities and are hence not taxable services. Effective July 2012,
pursuant to the enactment of the negative list of taxable services, the
Company has been paying service tax on these services received on
reverse charge basis under the relevant provisions of the Finance Act,
1994. Based on advice by its tax consultants and internal evaluation,
the Company has provided an amount of Rs. 67.09 million (including a
portion of applicable interest) on a conservative basis (also refer
note 11). However, the Company continues to contest the entire demand
and has filed an appeal against the adverse order with the CESTAT and
is confident of its success. The balance amount of the matter under
litigation, (including interest and penalty) of Rs. 160.16 million, has
not been accrued pending final outcome of this matter and has been
disclosed as a contingent liability.
v. During the current year, three aircraft lessors had served notice of
termination of leases in respect of eleven aircraft, citing events of
defaults by the Company under the terms of the relevant lease
agreements. These lessors also sought repossession of these aircraft,
and filed petitions in Court, seeking relief. During the final quarter
of the current year, the Company has entered into (a) settlement
agreements with two lessors in respect of six aircraft, under which the
lessors have withdrawn court proceedings and deregistration process of
aircraft, and (b) a letter of intent with the lessor in respect of the
other five aircraft, most of whose conditions have been satisfied by
the Company as of date, and management is confident of fulfilling the
remaining conditions in due course, consequent to which no adjustments
have been made to the financial statements in this regard.
Additionally, the Company has received a demand from another lessor in
relation to four aircraft which were redelivered during the current
year of Rs. 744.20 million, of which Rs. 368.66 million relates to cost
of storage of the aircraft from the date of deregistration of the
aircraft till the date of redelivery of the aircraft, and the remaining
Rs. 375.54 million relates to damages claimed by the lessor. Management
has accounted for claims aggregating Rs. 368.66 million, as these are
costs incurred under the terms of the lease agreement (also refer note
11), and has not admitted the liability in respect of damages claimed
by the lessor of Rs. 375.54 million. Management is of the view that a
claim for damages is not tenable and no adjustments have been made to
the financial statements in this regard pending final outcome of this
matter, and has disclosed this amount as a contingent liability.
c. Based on the legal advice obtained by the management, no provision
is required to be made for the above contingent liabilities.
8. Dues to Micro, Small and Medium Enterprises
Management has determined that there are no overdue amounts payable to
Micro, Small and Medium Enterprises as defined under The Micro, Small
and Medium Enterprises Development Act, 2006 based on information
available with the Company as at March 31, 2015, and March 31, 2014.
Further, the Company has not paid any interest to any Micro, Small and
Medium Enterprises during the current year.
9. During the year, (a) the shareholders had approved the issuance of
189,091,378 share warrants of Rs. 10 each to the outgoing promoters,
and (b) the Board of Directors has approved the issuance of up to
3,750,000 non-convertible cumulative redeemable preference shares
("CRPS") to the outgoing promoters, in respect of which the approval of
shareholders is awaited. In respect of these securities, the Company
has received amounts aggregating Rs. 3,504.97 million during the year.
Under the terms of the relevant approvals and having regard to the
terms of the SSPA, these advances are to be adjusted against amounts
that fall due upon allotment of share warrants and CRPS to the outgoing
promoters. Accordingly, these have been disclosed in the balance sheet
as advances money received against securities proposed to be issued.
However, as the time limit for the completion of the company's
obligations under the relevant provisions of the Companies Act 2013
(the "Act") has expired as of date, it attracts the applicable
consequent provisions, including penal, as well as the deeming
provisions of the Act relating to acceptance of deposits. The
Management is in the process of undertaking various actions, including
the allotment of these securities and compounding of non-compliance
referred to above, and is also of the view that any consequent effects
will not have a material impact on the financial statements of the
Company. Accordingly, no adjustments have been made for any
consequential penal effects in this regard, or the balance sheet
classification of the amounts.
10. Previous year figures
Prior year comparative amounts in these financial statements have been
reclassified wherever applicable to conform to current year's
presentation.
Mar 31, 2014
(All amounts are in millions of Indian Rupees except in respect of
number and per share information and unless otherwise stated)
A.Terms / rights attached to equity shares
The Company has only one class of equity shares having a par value of
Rs 10 per share. Each holder of equity shares is entitled to one vote
per share. The Company declares and pays dividends in Indian rupees.
The dividend proposed by the board of directors is subject to the
approval of the shareholders in the ensuing annual general meeting.
In the event of liquidation of the company, the holders of equity
shares will be entitled to receive remaining assets of the company,
after distribution of all preferential amounts. The distribution will
be in proportion to the number of equity shares held by the
shareholders.
C. Aggregate number of bonus shares, shares issued for consideration
other than cash and shares bought back during the period of five years
immediately preceeding the reporting date:
The Company has issued total 1,732,865 shares (March 31, 2013 -
1,732,865 shares) during the period of five years immediately
preceeding the reporting date on exercise of options granted under the
employee stock option (''ESOP'') plan wherein part consideration was
received in form of employee services.
(All amounts are in millions of Indian Rupees except in respect of
number and per share information and unless otherwise stated)
As per records of the company, including its register of shareholders /
members and other declarations received from shareholders regarding
beneficial interest, the above shareholding represents both legal and
beneficial ownership of shares.
E. Shares reserved for issue under options
i. For details of shares reserved for issue under ESOP, refer Note 28.
ii. For details of shares reserved for issue on conversion of
compulsorily convertible debentures, refer
note 6.c. iii. For details of shares reserved for share warrants,
refer note 4 below.
Money received against share warrants represents amounts received
towards warrants which entitles the warrant holders, the option to
apply for and be allotted equivalent number of equity shares of the
face value of Rs.10 each.
During the previous year, the Company had issued to its promoter
15,000,000 warrants of a face value of Rs.10 each, having option to
apply for and be allotted an equivalent number of equity shares of the
face value of Rs.10 each at a premium of 26.18 each determined in
accordance with Regulation 76 of SEBI (Issue of Capital & Disclosure
Requirements) Regulations, 2009 ("SEBI ICDR Regulations"). During the
current year, the promoter exercised his right to convert the warrants
into equity shares, and consequently 15,000,000 equity shares were
issued to the promoter for an aggregate consideration of Rs.542.70.
During the current year, the Company issued to its promoters 64,169,000
warrants of a face value of Rs.10 each, having option to apply for and
be allotted an equivalent number of equity shares of a face value of
Rs.10 each at a premium of Rs.10.77 each determined in accordance with
Regulation 76 of SEBI (Issue of Capital & Disclosure Requirements)
Regulations, 2009 ("SEBI ICDR Regulations"). The holder of the warrants
would need to exercise the option to subscribe to shares before
September 12, 2015 upon payment of the balance amount of Rs. 999.75.
Notes to the financial statements for the year ended March 31, 2014
(All amounts are in millions of Indian Rupees, unless otherwise stated)
a. Term loan from banks is repayable in unequal installments from
April 2012. This interest on this loan ranges from 12.25% to 12.86%.
The loan and other facilities granted by the said lender are secured by
exclusive charge on current assets both present and future excluding
lien marked deposits, second charge on movable fixed assets, both
present and future, pledge of shares of the Company owned by KAL
Airways Private Limited ("KAL Airways") and an unconditional and
irrevocable guarantees from KAL Airways and Mr. Kalanithi Maran.
b. The external commercial borrowing ("ECB") relates to the
acquisition of "Bombardier Q400 Aircraft". The ECB has been approved
by the Reserve Bank of India and is granted through a finance lease
structure between the Company and the lessor with lending from Export
Development Canada. The related aircrafts are owned by the lessor until
the repayment of all outstanding by the Company under respective
finance leases. As per the terms of these lease agreements with the
lessor, the Company may opt for either fixed or a floating rate of
interest benchmarked to LIBOR for each drawdown, which coincides with
the delivery of each aircraft. The interest on these borrowings ranges
from 2.4% to 4.1%. Under each lease agreement the Company is required
to make payment of lease rentals over a period of forty-eight quarters
commencing from the date of delivery of the aircraft to the lessor or
its nominees.
c. 13,000,000 14% unsecured compulsorily convertible debentures are
convertible into 35,931,453 equity shares at a price of Rs 36.18 per
equity share effective from April 1, 2013 and July 30, 2014, (being 18
months from the date of allotment). If the conversion option is not
exercised, all of these debentures will compulsorily be converted into
equity shares on the expiry of 18 months from the date of allotment.
During the year, upon exercise of the option by the debenture holder,
these debentures have been converted into equity shares of the Company.
Short term loan from bank is repayable at the end of every quarter
unless renewed, with the first repayment falling due in July 2013. The
loan is secured by fixed deposits placed by third parties.
Working capital demand loan from bank is secured by the personal
guarantee of the Company''s promoter, Mr. Kalanithi Maran and is
repayable on demand. Also refer note 32.
The interest on these borrowings range between 11% to 14%.
Loan from promoter is repayable after one year from the date of
commencement of the loan, with the repayment falling due in December
2014. The interest on this loan is payable at 14%.
* Margin money deposit have been placed with banks for non-fund based
facilities sanctioned to the Company.
28. Employee stock option plans
The Company has a stock option plan that provides for the granting of
stock options to qualifying employees including Directors of the
Company (not being promoter directors and executive directors, holding
more than 10% of the equity shares of the Company). The option plan is
summarized below:
Employees Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11,
2007, approved an Employee Stock Option Scheme (ESOS) which provides
for the grant of 6,016,250 options (each option convertible into share)
to employees. Further, at the Extraordinary General Meeting held on
December 23, 2009, the shareholders had approved to extend the
aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible
employees on September 11, 2007 at an exercise price of Rs. 30 /- per
share. Such options were to vest over 4 years in the following manner:
- 35% of the options  one year from the date of grant
- 25% of the options  two years from the date of grant
- 25% of the options  three years from the date of grant
- 15% of the options  four years from the date of grant
The Company has adopted the (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 issued by Securities and
Exchange Board of India, and has recorded a compensation expense using
the intrinsic value method as set out in those guidelines. The summary
of the movement in options is given below:
Pro-forma Disclosures
In accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for
ESOS 2007 been recognized based on the fair value at the date of grant
in accordance with the Black-Scholes method, the amounts of the
Company''s net profit / (loss) and earnings per share would have been as
follows:
The expected life of the stock is based on historical data and current
expectations and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that
the historical volatility over a period similar to the life of the
options is indicative of future trends, which may also not necessarily
be the actual outcome.
2. Gratuity - benefit plan
The Company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service gets a gratuity on departure at
15 days salary (last drawn salary) for each completed year of service
subject to a maximum of Rupees one. The scheme is unfunded.
The following tables summarise the components of net benefit expense
recognised in the profit and loss account and amounts recognised in the
balance sheet for gratuity.
Statement of profit and loss
The estimates of future salary increases, considered in actuarial
valuation, take account of inflation, seniority, promotion and other
relevant factors, such as supply and demand in the employment market.
3. Deferred Tax Asset
The Company has recognized deferred tax assets arising on account of
carried forward tax losses and unabsorbed depreciation to the extent of
the deferred tax liability arising on account of the timing difference
on depreciation of Rs 3,672.01 as at March 31, 2014 (Rs. 3,145.16 as at
March 31, 2013).
4. Leases
Operating lease: Company as a lessee
The Company has taken on lease aircrafts, aircraft spares, engines and
premises from third parties. Lease charges for aircrafts & engines for
the year ended March 31, 2014 amount to Rs.10,531.74 (Previous year Rs.
8,081.02), supplemental lease charges amount to Rs. 4,244.82 (Previous
year Rs. 3,243.54) and rental expense on premises for the year ended
March 31, 2014 amount to Rs. 163.89 (Previous year Rs. 140.72).
The Company has taken aircraft through dry operating lease from
lessors. Under the aircraft lease agreement, the Company pays monthly
rentals in the form of base and supplementary rental. Base rental
payments are either based on floating or fixed interest rates.
Supplemental rentals are based on aircraft utilisation and are
calculated with reference to the number of hours flown or number of
cycles operated during each month. Both base and supplemental lease
rentals have been charged to the statement of profit and loss. The
lease terms vary between 3 and 10 years. There are no restrictions
imposed by lease arrangements. The future minimum lease rentals
payable under non-cancellable leases (except supplementary rental which
are based on aircraft utilisation and calculated on number of hours
flown or cycle operated) are as follows:
5. Related party transactions
Relationship :
Party exercising control
Enterprises over which parties above or their relatives have control /
significant influence (''Affiliates'')
Name of the party :
Kal Airways Private Limited
Mr. Kalanithi Maran
Sun TV Network Limited
Kal Publications Private Limited
Udaya FM Private Limited
Sun Direct TV Private Limited
Kungumam Publications Private Limited
Sun Distribution Services Private Limited
Kal Investments (Madras) Private Limited
Kal Holdings Private Limited
Sun Foundation
Murasoli Maran Family Trust
S & S Textiles
D K Enterprises Private Limited
Kungumam Nithyagam Private Limited
Kal Comm Private Limited
Kal Media Services Private Limited
Kal Cables Private Limited
Sun Business Solutions Private Limited
South Asia FM Limited
Kal Radio Limited
Digital Radio (Delhi) Broadcasting Limited
Relationship :
Key management personnel
Name of the party :
Neil Raymond Mills, Chief Executive Officer
(up to August 2, 2013)
S Natrajhen, Managing Director
Sanjiv Kapoor, Chief Operating Officer (from November 1, 2013)
During the year, as already mentioned, the Company has issued to Mr.
Kalanithi Maran on a preferential basis:
(i) 35,931,453 equity shares at a price of Rs. 36.18 per share for a
total consideration aggregating to Rs. 1,300.00.
(ii) 15,000,000 equity shares at a price of Rs. 36.18 per share for a total
consideration aggregating to Rs. 542.70.
(iii) 19,169,000 warrants having option to apply for and be allotted equivalent
number of equity sharesof the face value of Rs.10 each at a premium of
Rs.10.77 each.
Further, the Company has issued to Kal Airways 45,000,000 warrants
having option to apply for and be allotted equivalent number of equity
sharesof the face value of Rs.10 each at a premium of Rs.10.77 each.
Further, Mr. Kalanithi Maran and Kal Airways, have on a free of cost
basis, extended guarantees / securities for loans taken by the Company.
Also refer notes 6and 9for details of the same.
Note: The remuneration to the key managerial personnel does not include
the provisions made for gratuity and leave benefits, as they are
determined on an actuarial basis for the Company as a whole.
6. Capital and other commitments
a. At March 31, 2014, the Company has commitments of Rs.150,707.25
(March 31, 2013 - Rs. 153,902.47) relating to the acquisition
ofaircrafts.
b. The Company has commitments in the nature of non-cancellable
operating leases. The future minimum lease payments expected to be
incurred over the remaining lease term are detailed in Note 31.
c. Under certain long-term maintenance contracts for the management,
maintenance, repair and overhaul of aircraft components and spares, the
Company incurs an agreed power-by-the-hour cost based on aircraft /
component utilization. In addition, some contracts provide for
compensation upon pre-mature termination, as applicable.
7. Contingent liabilities
a. Claims against the Company not acknowledged as debts
Particulars As at As at
March March
31,2014 31,2013
1 Liability arising out of legal cases filed
against the 47.40 29.50
Company in various Courts/ Consumer Redressal
Forums, Consumer Courts,disputed by the Company.
2 Liability arising out of Arbitration proceedings 33.32 33.32
on account of cancellation of leased premises
3 Liability towards labour cases filed against the Nil 0.48
Company in various Courts, disputed by t h e Company.
4 Liability towards Penalty levied by customs 82.69 82.69
department on late payments which is disputed and is
pending in the Hon''ble High Court of Delhi.
5 Liability towards additionalclaim received from a Nil Nil
vendor who was already covered in the settlement
scheme approved by the Hon''ble High Court of Delhi.
6 Unaccrued interest as explained in note (a) below. 74.71 74.71
7 Demand in respect of provident fund dues for 77.95 77.95
international workers as e xplained in note
(iii) below
8 Show cause notice in respect of service tax dues 41.28 64.77
(excluding amounts in respect of penalty as these
are not yet ascertainable)
9 Liability arising out of claim made for refunds on 5.42 Nil
cancelled tickets
10 Liability arising out of other legal cases filed 11.66 Nil
against the Company
11 Assessment relating to Assessment Year 2010-11 is pending with
CIT(A) in respect of certain
additions made to returned loss by the Assessing Officer which resulted
in taxable income, but income tax payable after adjusting the brought
forward losses and depreciation was computed to be Nil. Though there is
no demand for payment of tax arising out of above assessments, the
Assessing Officer (''AO'') has initiated penalty proceedings against the
Company under section 271(1)(c). Penalty amount is not ascertainable as
AO has not raised any demand.
i. Under a suit filed by Leela Capital (petitioner) for recovery of the
Inter Corporate Deposit (''ICD'') aggregating to Rs. 50, the Company had
deposited the amount of Rs. 50 on November 30, 2001 with the Hon''ble
Bombay High Court and the Hon''ble Bombay High Court later allowed the
petitioner to withdraw the said amount, upon furnishing an undertaking
that the petitioner will restitute the said sum or such part thereof,
with 9% interest, to the Company, if and as directed by the Hon''ble
Court at the time of the final decision of the suit filed by the
petitioner. Accordingly, pending finality of the matter, both the ICD
and deposit with Hon''ble High Court have been disclosed under the
Unsecured Loans and Loans and Advances, respectively. The Company has
not accrued interest payable of Rs. 74.71 up to the date of deposit of
the amount with the Hon''ble Court on account of its defence in the
court proceedings.
ii. In another case, M/s Hindustan Development Corporation Limited
("HDCL") (now renamed as Mallanpur Steels Limited) who had lent Rs. 50
ICD to the Company, has filed a Review Petition against the Scheme of
Settlement passed by the Hon''ble Delhi High Court wherein its liability
was fixed at Rs. 35. The Company had made a deposit of Rs. 35 to the
Official Administrator of the Schemein accordance with approved Scheme.
Pending disposition of the review petition, the likelihood of the
balance amount of Rs.15 devolving on the Company is not probable. Also,
the interest (if any) on the same is not ascertainable.
iii. The Company has received a demand notice from the Regional
Provident Fund Commissioner, Gurgaon for Rs 79.91 in respect of
provident fund ("PF") dues for international workers vide Notifications
GSR 706(E) dated 1st October 2008 and GSR 148 dated 3rd September 2010,
for the period from November 2008 to February 2011. The Company has
responded to the notice disputing the demand and, without admitting any
liability towards the same, has deposited an amount of Rs 1.96 towards
the PF contributions in respect of international workers for the period
from November 2008 to July 2011 under the provisions of the Employees
Provident Funds and Miscellaneous Provisions Act, 1952(''PF Act''). Since
August 2011, the Company has been making provident fund contributions
in respect of international workers under the provisions of the PF Act.
During the year ended March 31, 2012, the Company has filed a writ
petition with the Hon''ble Delhi High Court contending that the above
notifications relating to international workers are unreasonable and
ultra vires the PF Act. The Court has directed that this matter be put
up on regular list and the interim order in favour of the Company has
been made absolute till disposal of the petition. Pending disposal of
the petition, the Company has not accrued for any additional liability
in respect of provident fund contributions to international workers.
b. Based on the legal advice obtained by the management, no provision
is required to be made for the above contingent liabilities.
8. Dues to Micro and Small Enterprises
There are no overdue amounts payable to Micro and Small Enterprises as
defined under the Micro, Small and Medium Enterprises Development Act,
2006. Further, the Company has not paid any interest to any Micro and
Small Enterprises during the current and previous year.
9. Transfer pricing
The Company has entered into transactions with certain related parties.
For the year ended March 31, 2014, management confirms that it
maintains documents as prescribed by the Income-tax Act, 1961, to prove
that these transactions are at arm''s length and the aforesaid
legislation will not have any impact on the financial statements,
particularly on the amount of tax expense and that of provision for
taxation.
10. Previous year figures
Prior year comparative amounts in these financial statements have been
reclassified wherever applicable to conform to current year''s
presentation.
Mar 31, 2013
1. Corporate Information
SpiceJet Limited (''SpiceJet'' or the ''Company'') was incorporated
on February 9, 1984 as a limited Company under the Companies Act, 1956
and is listed on the Bombay Stock Exchange Limited (''BSE''). The
Company is engaged in the business of providing air transport services
for the carriage of passengers. The Company is a low cost carrier
(''LCC'') operating under the brand name of ''SpiceJet'' in India
since May 23, 2005. The Company currently operates a fleet of 52
aircrafts across various routes in India as at March 31, 2013. SpiceJet
has also obtained permission of the Directorate General of Civil
Aviation (DGCA) to operate on selected routes outside India and has
commenced international operations from October 2010.
During the year, the Company issued 42,900,000 shares to Mr. Kalanithi
Maran, the promoter of the Company through a preferential allotment at
a price of Rs. 23.18 per share aggregating to Rs. 994.42 million.
Further, the Company has also issued the following securities to the
promoter of the Company on a preferential basis in the current year:
(i) 13,000,000 14% Unsecured Compulsorily Convertible Debentures of
Rs.100 each aggregating to Rs.1,300.00 million which are convertible
into equity shares of the Company at a price of Rs. 36.18 per equity
share; and
(ii) 15,000,000 Warrants, which provide the option to apply for and be
allotted equivalent number of equity shares of the face value of Rs.10
each at a premium of Rs.26.18 each.
Subsequent to the year end, the Promoter exercised his right to convert
the 13,000,000 14% Unsecured Compulsorily Convertible Debentures into
equity shares of the Company, pursuant to which 35,931,453 equity
shares of the Company were allotted to the promoter at a price of
Rs.36.18 per equity share.
2. Employee stock option plans
The Company has a stock option plan that provides for the granting of
stock options to qualifying employees including Directors of the
Company (not being promoter directors and executive directors, holding
more than 10% of the equity shares of the Company). The option plan is
summarized below:
Employees Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11,
2007, approved an Employee Stock Option Scheme (ESOS) which provides
for the grant of 6,016,250 options (each option convertible into share)
to employees. Further, at the Extraordinary General Meeting held on
December 23, 2009, the shareholders had approved to extend the
aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible
employees on September 11, 2007 at an exercise price of Rs. 30 /- per
share. Such options were to vest over 4 years in the following manner:
- 35% of the options - one year from the date of grant
- 25% of the options - two years from the date of grant
- 25% of the options - three years from the date of grant
- 15% of the options - four years from the date of grant
3. Gratuity - benefit plan
The Company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service gets a gratuity on departure at
15 days salary (last drawn salary) for each completed year of service
subject to a maximum of Rupees one million. The scheme is unfunded.
The following tables summarise the components of net benefit expense
recognised in the profit and loss account and amounts recognised in the
balance sheet for gratuity.
4. Deferred Tax Asset
The Company has recognized deferred tax assets arising on account of
carried forward tax losses and unabsorbed depreciation to the extent of
the deferred tax liability arising on account of the timing difference
on depreciation of Rs.3,145.16 million as at March 31, 2013
(Rs.1,291.28 million as at March 31, 2012).
5. Leases
Operating lease: Company as a lessee
The Company has taken on lease aircrafts, aircraft spares, engines and
premises from third parties. Lease charges for aircrafts & engines for
the year ended March 31, 2013 amount to Rs. 8,081.02 million (Previous
year Rs. 6,019.07 million), supplemental lease charges amount to Rs.
3,243.54 million (Previous year Rs. 2,473.46 million) and rental
expense on premises for the year ended March 31, 2013 amount to Rs.
140.72 million (Previous year Rs. 139.27 million).
The Company has taken aircraft through dry operating lease from
lessors. Under the aircraft lease agreement, the Company pays monthly
rentals in the form of base and supplementary rental. Base rental
payments are either based on floating or fixed interest rates.
Supplemental rentals are based on aircraft utilisation and are
calculated with reference to the number of hours flown or number of
cycles operated during each month. Both base and supplemental lease
rentals have been charged to the statement of profit and loss. The
lease terms vary between 3 and 10 years. There are no restrictions
imposed by lease arrangements. The future minimum lease rentals payable
under non cancellable leases (except supplementary rental which are
based on aircraft utilisation and calculated on number of hours flown
or cycle operated) are as follows:
6. Capital and other commitments
a. At March 31, 2013, the Company has commitments of Rs. 153,902.47
million (March 31, 2012 - Rs. 151,323.36 million) relating to the
acquisition of aircrafts.
b. The Company has commitments in the nature of non-cancellable
operating leases. The future minimum lease payments expected to be
incurred over the remaining lease term are detailed in Note 31.
c. Under certain long-term maintenance contracts for the management,
maintenance, repair and overhaul of aircraft components and spares, the
Company incurs an agreed power-by-the-hour cost based on aircraft /
component utilization. In addition, some contracts provide for
compensation upon pre-mature termination, as applicable.
d. The Company has entered into agreements with oil companies for the
purchase of aviation turbine fuel. The commercial terms of these
agreements are subject to the fulfilment of certain stipulated off-take
commitments as specified thereunder.
7. Dues to Micro and Small Enterprises
There are no overdue amounts payable to Micro and Small Enterprises as
defined under the Micro, Small and Medium Enterprises Development Act,
2006. Further, the Company has not paid any interest to any Micro and
Small Enterprises during the current and previous year.
8. Transfer pricing
The Company has entered into transactions with certain related parties.
For the year ended March 31, 2013, management confirms that it
maintains documents as prescribed by the Income-tax Act, 1961, to prove
that these transactions are at arm''s length and the aforesaid
legislation will not have any impact on the financial statements,
particularly on the amount of tax expense and that of provision for
taxation.
9. Previous year figures
Prior year comparative amounts in these financial statements have been
reclassified wherever applicable to conform to current year''s
presentation.
As per our report of even date.
Mar 31, 2012
1. Corporate Information
SpiceJet Limited ('SpiceJet' or the 'Company') was incorporated on
February 9, 1984 as a limited Company under the Companies Act, 1956 and
is listed on the Bombay Stock Exchange Limited ('BSE'). The Company is
engaged in the business of providing air transport services for the
carriage of passengers. The Company is a low cost carrier ('LCC')
operating under the brand name of 'SpiceJet' in India since May 23,
2005. The Company currently operates a fleet of 40 aircrafts across
various routes in India as at March 31, 2012. SpiceJet has also
obtained permission of the Directorate General of Civil Aviation (DGCA)
to operate on selected routes outside India and has commenced
international operations from October 2010.
During the previous year, KAL Airways Private Limited and Mr. Kalanithi
Maran (collectively referred to as the 'Acquirers') had acquired 38.66%
of the then paid-up capital of the Company, including the entire equity
holding of Royal Holdings Services Limited (the 'Erstwhile Promoter').
Consequently, the Acquirers have become the largest shareholders in the
Company and the Promoters of the Company.
During the year, the Company has issued 35,900,000 shares constituting
5% to Mr. Kalanithi Maran, the promoter of the Company through
preferential allotment at a price of Rs.36.48 per share aggregating to
Rs.1,309.6 million.
Further, subsequent to the year end, the Company has issued 42,900,000
shares to Mr. Kalanithi Maran, the promoter of the Company through
preferential allotment at a price of Rs.23.18 per share aggregating to
Rs.994.42 million.
2 SHARE CAPITAL
B. Terms / rights attached to equity shares
The Company has only one class of equity shares having a par value of
Rs 10 per share. Each holder of equity shares is entitled to one vote
per share. The Company declares and pays dividends in Indian rupees.
The dividend proposed by the board of directors is subject to the
approval of the shareholders in the ensuing Annual General Meeting.
C. Terms of conversion / redemption of FCCBs
During the year ended May 31, 2006, the Company had issued 800 FCCBs
with face value of US$ 100,000 aggregating to USD 80 million. These
FCCBs were convertible into equity shares at a conversion price of Rs.
25 per equity share at a fixed exchange rate of Rs. 46.12 to US$ 1 till
November 11, 2010. Unless previously converted, redeemed or purchased
and cancelled, such bonds were redeemable at 140.499 % of the principal
amount on December 13, 2010. These FCCBs were listed on Luxemburg Stock
Exchange. Out of the above, 2 FCCBs were converted into equity shares
during the financial year ended March 31, 2009. During the year ended
March 31, 2011, pursuant to the exercise of the right to conversion by
the holders of these instruments, the Company issued 147,215,040 equity
shares of Rs. 10/- at a price of Rs. 25 per equity share against the
798 outstanding FCCBs. The difference between the amounts outstanding
against such FCCBs as at the dates of conversion (including the
exchange fluctuation on restatement of such FCCBs upto the conversion
dates of Rs. 38.73 million) and the face value of the shares issued
aggregating to Rs. 2,246.96 million was transferred to the securities
premium account. Post such conversion, the Company does not have any
FCCB's outstanding.
Further, on conversion of these instruments, the provision for premium
on redemption of the above FCCBs created out of the securities premium
account for the period from date of issue of bonds till the dates of
conversion aggregating to Rs. 1,372.54 million was reversed back to the
securities premium account in the previous year.
D. Terms of warrants
The Company allotted 15,360,715 warrants on December 12, 2008 to GS
Investment Partners (Mauritius) I Limited. Each warrant was convertible
into one equity share of the Company at a conversion / exercise price
of Rs. 39.46 per resultant equity share, at any time before the expiry
of 18 months from the date of allotment of the warrant. The Company
received Rs.60.61 million (10% of the total subscription value) towards
subscription of warrants, in accordance with the terms of the
allotment. During the previous year, the holders of the warrants
exercised the option for conversion on June 11, 2010 and consequently,
the Company allotted 15,360,715 equity shares after receiving the
balance subscription value of Rs. 545.52 million from the holder of the
warrants.
E. Aggregate number of bonus shares, shares issued for consideration
other than cash and shares bought back during the period of five years
immediately preceeding the reporting date:
The Company has issued total 1,732,865 shares (March 31, 2011 -
1,561,200 shares) during the period of five years immediately
preceeding the reporting date on exercise of options granted under the
ESOP wherein part consideration was received in form of employee
services.
F. Shares held by shareholders holding more than 5 percent shares in
the Company.
As per records of the Company, including its register of shareholders /
members and other declarations recived from shareholders regarding
beneficial interest, the above shareholding represents both legal and
beneficial ownership of shares.
G. Shares reserved for issue under options
For details of shares reserved for issue under the employee stock
option (ESOP) plan of the company, please refer Note 28.
3. Deferral / Capitalization of exchange differences
The Ministry of Corporate Affairs (MCA) has issued the amendment dated
December 29, 2011 to AS 11 - The Effects of Changes in Foreign Exchange
Rates, to allow companies the option to defer / capitalize exchange
differences arising on long-term foreign currency monetary items.
The Company has elected to adopt the accounting treatment prescribed
under paragraph 46 A of the said amendment to AS 11. In accordance with
such amendment / earlier amendment to AS 11, the Company has
capitalized exchange losses arising on the long-term foreign currency
lease obligation amounting to Rs 321.39 million (March 31, 2011: Rs
Nil) to the cost of the aircrafts. However, the said notification does
not cover exchange differences arising from foreign currency borrowings
to the extent that they are regarded as an adjustment to interest costs
as defined in paragraph 4 (e) of AS 16 - Borrowing costs. During the
current year, the Company has not considered any part of the foreign
exchange fluctuation on the underlying borrowings as interest cost as
required under paragraph 4 (e) of AS 16 - Borrowing costs, as it
believes that the recent movements in currency rates cannot be
attributed to changes in interest rates in view of the high volatility
in the currency rates.
Further, net exchange gains arising on other long-term foreign currency
monetary items of Rs 58.31 million (March 31, 2011: Rs Nil) have been
deferred in the "Foreign Currency Monetary Item Translation Difference
Account".
4. Employee stock option plans
The Company has a stock option plan that provides for the granting of
stock options to qualifying employees including Directors of the
Company (not being promoter directors and executive directors, holding
more than 10% of the equity shares of the Company). The option plan is
summarized below:
Employees Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11,
2007, approved an Employee Stock Option Scheme (ESOS) which provides
for the grant of 6,016,250 options (each option convertible into share)
to employees. Further, at the Extraordinary General Meeting held on
December 23, 2009, the shareholders had approved to extend the
aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible
employees on September 11, 2007 at an exercise price of Rs. 30 /- per
share. Such options were to vest over 4 years in the following manner:
- 35% of the options à one year from the date of grant
- 25% of the options à two years from the date of grant
- 25% of the options à three years from the date of grant
- 15% of the options à four years from the date of grant
During the year ended March 31, 2010, the remuneration committee made
two grants out of its Scheme to the erstwhile Chief Executive Officer
("CEO") of the Company at an exercise price of Rs.10 /- per share. The
first grant of 1,804,884 options made on October 5, 2009 has a vesting
period of 1 year from the date of grant. Vesting of the second grant of
5,422,954 options made on December 23, 2009 will happen in nine equal
instalments with first vesting on December 23, 2010, second on January
20, 2011 and thereafter remaining seven at quarterly intervals. Half
the options in the second grant will vest with each successive
completion of employment and half of the options vests on achievement
of certain performance targets defined in his employment agreement. For
the purpose of accounting of these options, the management has assumed
that performance targets defined in the employment agreement will be
achieved and all options will vest to him accordingly. It may be noted
that the erstwhile CEO ceased to be in employment with the Company
effective June 30, 2010.
Further, during the previous year, the remuneration committee has
granted 100,000 options to an employee at an exercise price of Rs. 30/-
per share. These options would vest over 3 years in the following
manner:
- 60% of the options à one year from the date of grant
- 25% of the options à two years from the date of grant
- 15% of the options à three years from the date of grant
Again, the employee to whom these 100,000 options were granted in the
previous year has ceased to be in employment with the Company effective
January 19, 2012.
The Company has adopted the (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 issued by Securities and
Exchange Board of India, and has recorded a compensation expense using
the intrinsic value method as set out in those guidelines. The summary
of the movement in options is given below:
5. Gratuity - benefit plan
The Company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service gets a gratuity on departure at
15 days salary (last drawn salary) for each completed year of service
subject to a maximum of Rupees one million. The scheme is unfunded.
The following tables summarise the components of net benefit expense
recognised in the profit and loss account and amounts recognised in the
balance sheet for gratuity.
6. Deferred Tax Asset
The Company has recognized deferred tax assets arising on account of
carried forward tax losses and unabsorbed depreciation to the extent of
the deferred tax liability arising on account of the timing difference
on depreciation of Rs. 1,291.28 million as at March 31, 2012 (Rs. 52.92
million as at March 31, 2011).
7. Leases
Operating lease: Company as a lessee
The Company has taken on lease aircrafts, aircraft spares, engines and
premises from third parties. Lease charges for aircrafts & engines for
the year ended March 31, 2012 amount to Rs. 6,019.07 million (Previous
year Rs. 4,284.79 million), supplemental lease charges amount to Rs.
2,473.46 million (Previous year Rs.1,687.25 million).
8. Capital and other commitments
a. At March 31, 2012, the Company has commitments of Rs. 151,323.36
million (March 31, 2011: Rs. 157,218.19 million) relating to the
acquisition of aircrafts.
b. The Company has commitments in the nature of non-cancellable
operating leases. The future minimum lease payments expected to be
incurred over the remaining lease term are detailed in Note 31.
c. Under certain long-term maintenance contracts for the management,
maintenance, repair and overhaul of aircraft components and spares, the
Company incurs an agreed power-by-the-hour cost based on aircraft /
component utilization. In addition, some contracts provide for
compensation upon pre-mature termination, as applicable.
d. The Company has entered into agreements with oil companies for the
purchase of aviation turbine fuel. The commercial terms of these
agreements are subject to the fulfillment of certain stipulated
off-take commitments as specified thereunder.
9. Contingent liabilities
Claims against the Company not acknowledged as debts
S.
No Particulars As at March As at March
31, 2012 31, 2011
1 Liability arising out of legal
cases filed against the 24.62 22.99
Company in various Courts/
Consumer Redressal
Forums, Consumer Courts, disputed
by the Company.
2 Liability arising out of
Arbitration proceedings on 33.32 33.32
account of cancellation of
leased premises
3 Liability towards labour cases
filed against the 0.48 0.48
Company in various Courts,
disputed by the Company.
4 Liability towards Penalty levied
by customs 82.69 82.69
department on late payments which
is disputed and is pending in the
Hon'ble High Court of Delhi.
5 Liability towards additional claim
received from a 17.50 17.50
vendor who was already covered in
the settlement scheme approved by
the Hon'ble High Court of Delhi.
6 Unaccrued interest as explained
in note (a) below. 74.71 74.71
7 Demand in respect of provident
fund dues for 77.95 -
international workers as explained
in note (d) below
8 Show cause notice in respect of
service tax dues 64.77 -
(excluding amounts in respect of
penalty as these are not yet
ascertainable)
10 Assessment relating to Assessment Year 2009-10 is pending with CIT(A)
in respect of certain additions made to returned loss by the Assessing
Officer which resulted in taxable income, but income tax payable after
adjusting the brought forward losses and depreciation was computed to
be Nil. Though there is no demand for payment of tax arising out of
above assessments, the Assessing Officer ('AO') has initiated penalty
proceedings against the Company under section 271(1)(c). Penalty amount
is not ascertainable as AO has not raised any demand.
a. Under a suit filed by Leela Capital (petitioner) for recovery of
the Inter Corporate Deposit ('ICD') aggregating to Rs. 50 million, the
Company had deposited the amount of Rs. 50 million on November 30, 2001
with the Hon'ble Bombay High Court and the Hon'ble Bombay High Court
later allowed the petitioner to withdraw the said amount, upon
furnishing an undertaking that the petitioner will restitute the said
sum or such part thereof, with 9% interest, to the Company, if and as
directed by the Hon'ble Court at the time of the final decision of the
suit filed by the petitioner. Accordingly, pending finality of the
matter, both the ICD and deposit with Hon'ble High Court have been
disclosed under the Unsecured Loans and Loans and Advances,
respectively. The Company has not accrued interest payable of Rs. 74.71
million upto the date of deposit of the amount with the Hon'ble Court
on account of its defence in the court proceedings.
b. In another case, M/s Hindustan Development Corporation Limited
("HDCL") (now renamed as Mallanpur Steels Limited) who had lent Rs. 50
million ICD to the Company, has filed a Review Petition against the
Scheme of Settlement passed by the Hon'ble Delhi High Court wherein its
liability was settled at Rs. 35 million. The Company had made a deposit
of Rs. 35 million in accordance with approved Scheme to the Official
Administrator of the Scheme. The review petition is yet to be decided.
_
c. The Company is in the process of finalising the full and final
settlement payable to an erstwhile key management person, in accordance
with the terms of his employment agreement. Management believes that
the provision made in the financial statements as at March 31, 2012 for
the same is adequate.
d. The Company has received a demand notice from the Regional
Provident Fund Commissioner, Gurgaon for Rs 79.91 million in respect of
provident fund ("PF") dues for international workers vide Notifications
GSR 706(E) dated 1st October 2008 and GSR 148 dated 3rd September 2010,
for the period from November 2008 to February 2011. The Company has
responded to the notice disputing the demand and, without admitting any
liability towards the same, has deposited an amount of Rs 1.96 million
towards the PF contributions in respect of international workers for
the period from November 2008 to July 2011 under the provisions of the
Employees Provident Funds and Miscellaneous Provisions Act, 1952('PF
Act'). Since August 2011, the Company has been making provident fund
contributions in respect of international workers under the provisions
of the PF Act. Subsequent to the year end, the Company has filed a
writ petition with the Hon'ble Delhi High Court contending that the
above notifications relating to international workers are unreasonable
and ultra vires the PF Act. The Hon'ble Delhi High Court has issued
notices to the respondents to file their reply and the next hearing is
fixed on September 16, 2012. Pending disposal of the petition, the
Company has not accrued for any additional liability in respect of
provident fund contributions to international workers.
Based on the legal advice obtained by the management, no provision is
required to be made for the above contingent liabilities.
11. Dues to Micro and Small Enterprises
There are no overdue amounts payable to Micro and Small Enterprises as
defined under the Micro, Small and Medium Enterprises Development Act,
2006. Further, the Company has not paid any interest to any Micro and
Small Enterprises during the current and previous year.
12. Engine repair costs
During the year, the Company has entered into a fresh maintenance
contract to manage its long-term engine maintenance costs. The Company
has carried out certain additional overhauls to its existing engines to
help migrate to the new arrangement resulting in an expenditure of Rs.
252.94 million, the benefit of which is expected to accrue over the
duration of the contract. Such costs have been fully expensed in the
current year.
13. Previous year figures
Till the previous year, the Company was using pre-revised Schedule VI
to the Companies Act 1956, for preparation and presentation of its
financial statements. The current year's financial statements have been
prepared and presented in accordance with the requirements of the
revised Schedule VI, as notified under the Companies Act, 1956 and
applicable to the Company. The Company has also reclassified previous
year figures in accordance with these requirements.
As per our report of even date.
Mar 31, 2011
1.1 Background
SpiceJet Limited ('SpiceJet' or the 'Company') was incorporated on
February 9, 1984 as a limited company under the Companies Act, 1956 and
is listed on the Bombay Stock Exchange Limited ('BSE'). The Company is
engaged in the business of providing air transport services for the
carriage of passengers. The Company is a low cost carrier ('LCC')
operating under the brand name of 'SpiceJet' in India since May 23,
2005. The Company currently operates a fleet of 27 aircrafts across
various routes in India as at March 31, 2011. SpiceJet has also
obtained the permission of the Directorate General of Civil Aviation
(DGCA) to operate on selected routes outside India and has commenced
international operations from October 2010.
During the year, pursuant to an Open Offer made by KAL Airways Private
Limited and Mr. Kalanithi Maran (collectively referred to as the
'Acquirers'), the Acquirers have acquired, in aggregate, 156,528,305
equity shares of the Company constituting 38.66% of the then paid-up
capital of the Company, including 31,077,500 equity shares acquired
from Royal Holdings Services Limited (the 'Erstwhile Promoter').
Consequently, the Acquirers have become the largest shareholders in the
Company and the Promoters of the Company.
2.1 Conversion of Zero Coupon Foreign Currency Convertible Bonds
('FCCB's)
During the year ended May 31, 2006, the Company had issued 800 FCCBs
with face value of US$ 100,000 aggregating to USD 80 million. These
FCCBs were convertible into equity shares at a conversion price of Rs.
25 per equity share at a fixed exchange rate of Rs.46.12 to US$ 1 till
November 11, 2010. Unless previously converted, redeemed or purchased
and cancelled, such bonds were redeemable at 140.499 % of the principal
amount on December 13, 2010. These FCCBs were listed on Luxemburg Stock
Exchange. Out of the above, 2 FCCBs were converted into equity shares
during the financial year ended March 31, 2009.
During the current year, pursuant to the exercise of the right to
conversion by the holders of these instruments, the Company has issued
147,215,040 equity shares of Rs. 10/- at a price of Rs.25 per equity
share against the 798 outstanding FCCBs. The difference between the
amounts outstanding against such FCCBs as at the dates of conversion
(including the exchange fluctuation on restatement of such FCCBs upto
the conversion dates of Rs. 38.73 million) and the face value of the
shares issued of Rs.2,246.96 million has been transferred to the
securities premium account. Post such conversion, the Company does not
have any FCCB's outstanding.
Further, on conversion of these instruments, the provision for premium
on redemption of the above FCCBs created out of the securities premium
account for the period from date of issue of bonds till the dates of
conversion has been reversed back to the securities premium account.
2.2 Conversion of Warrants
The Company had allotted 15,360,715 warrants on December 12, 2008 to GS
Investment Partners (Mauritius) I Limited. Each warrant was convertible
into one equity share of the Company at a conversion / exercise price
of Rs. 39.46 per resultant equity share, at any time before the expiry
of 18 months from the date of allotment of the warrant. The Company had
received Rs.60.61 million (i.e. 10% of the total subscription value)
towards subscription of warrants, in accordance with the terms of the
allotment.
During the current year, the holders of the warrants had exercised the
option for conversion on June 11, 2010 and consequently, the Company
has allotted 15,360,715 equity shares after receiving the balance
subscription value of Rs. 545.52 million.
2.3 Stock option plans
The Company has a stock option plan that provides for the granting of
stock options to qualifying employees including Directors of the
Company (not being promoter Directors and Executive Directors, holding
more than 10% of the equity shares of the Company). The option plan is
summarized below:
Employee Stock Option Scheme, 2007
The shareholders at the Annual General Meeting held on September 11,
2007, approved an Employee Stock Option Scheme (ESOS) which provides
for the grant of 6,016,250 options (each option convertible into 1
share) to employees. Further, at the Extraordinary General Meeting held
on December 23, 2009, the shareholders had approved to extend the
aggregate number of options under the scheme to 20,000,000 options.
The remuneration committee had granted 5,200,000 options to eligible
employees on September 11, 2007 at an exercise price of Rs. 30 /- per
share. Such options were to vest over 4 years in the following manner:
- 35% of the options - one year from the date of grant
- 25% of the options - two years from the date of grant
- 25% of the options - three years from the date of grant
- 15% of the options - four years from the date of grant
During the year ended March 31, 2010, the remuneration committee made
two grants out of its Scheme, to its Chief Executive Officer, Mr.
Sanjay Aggarwal at an exercise price of Rs.10 /- per share. The first
grant of 1,804,884 options made on October 5, 2009 has a vesting period
of 1 year from the date of grant. Vesting of the second grant of
5,422,954 options made on December 23, 2009 will happen in nine equal
instalments with first vesting on December 23, 2010, second on January
20, 2011 and thereafter remaining seven at quarterly intervals. Half
the options in the second grant will vest with each successive
completion of employment and half of the options vests on achievement
of certain performance targets defined in his employment agreement. For
the purpose of accounting of these options, the management has assumed
that performance targets defined in the employment agreement will be
achieved and all options will vest to him accordingly. Further it may
be noted that Mr. Sanjay Aggarwal ceased to be in employment with the
Company effective June 30, 2010.
Further, during the year, the remuneration committee has granted
100,000 options to an employee at an exercise price of Rs. 30/- per
share. These options will vest over 3 years in the following manner:
- 60% of the options - one year from the date of grant
- 25% of the options - two years from the date of grant
- 15% of the options - three years from the date of grant
2.4 Secured loans
The secured term loans from Allahabad Bank, Industrial Finance Branch,
Mumbai are secured by a pledge of certain identified fixed deposits of
the Company held with the same bank, the hypothecation of certain
assets and the pledge of certain shares of the Promoter.
2.5 Deferred tax assets / MAT credit
The Company has recognized deferred tax assets arising on account of
carried forward tax losses and unabsorbed depreciation to the extent of
the deferred tax liability arising on account of the timing difference
on depreciation of Rs. 52.92 million as at March 31, 2011 (Rs. 46.72
million as at March 31, 2010).
In accordance with Accounting Standard - 22 'Accounting for taxes on
income' and the Guidance Note on accounting for credit available in
respect of minimum alternative tax, the Company has not recognised the
balance deferred tax assets arising on account of carried forward tax
losses and unabsorbed depreciation and MAT credit, as subsequent
realisation of such amounts is not virtually / reasonably certain, as
applicable.
2.6 Segment reporting
The Company's operations predominantly relate only to air
transportation services and accordingly this is the only primary
reportable segment. Further, the operations of the Company are
substantially limited within one geographical segment (India) and
accordingly this is considered the only reportable secondary segment.
2.7 Related party transactions
1. Names of related parties
Relationship Name of the party
Party exercising significant influence Kal Airways Private Limited and
Mr. Kalanithi Maran from November 11, 2010
Royal Holdings Services Limited, Nevada, USA (upto November 10, 2010)
Enterprises over which parties above or their relatives have
control/significant influence ('Affiliates')
Sun TV Network Limited (from November 11, 2010) Digital Radio (Delhi)
Broadcasting Limited (from November 11, 2010)
Subsidiary company Spice Enterprises Private Limited (ceased to be a
related party on September 11, 2009)
Key management personnel Sanjay Aggarwal (upto June 30, 2010)
Kishore Gupta (July 1, 2010 to October 10, 2010) Neil Raymond Mills
(from October 11, 2010)
2.8 Lease commitments
Operating leases
The Company has taken on lease aircrafts, aircraft spares, engines and
premises from third parties. Rental expense for the year ended March
31, 2011 amounts to Rs. 4,457.41 million (Previous year Rs. 4,059.78
million), supplemental rent amounts to Rs. 1,687.25 million (Previous
year Rs.1,459.01 million).
The Company has taken aircraft through dry operating lease from
lessors. Under the aircraft lease agreement, the Company pays monthly
rentals in the form of base and supplementary rental. Base rental
payments are either based on floating or fixed interest rates.
Supplemental rentals are based on aircraft utilisation and are
calculated with reference to the number of hours flown or number of
cycles operated during each month. Both base and supplemental lease
rentals have been charged to the Profit and loss account. The lease
terms vary between 3 and 10 years. There are no restrictions imposed by
lease arrangements. There are no subleases. There are no initial direct
costs. The future minimum lease rentals payable under non cancellable
leases (except supplementary rental which are based on aircraft
utilisation and calculated on number of hours flown or cycle operated)
are as follows:
2.9 Gratuity benefit plans
The Company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service gets a gratuity on departure at
15 days salary (last drawn salary) for each completed year of service
subject to a maximum of Rupees one million. The scheme is unfunded.
The following tables summarise the components of net benefit expense
recognised in the profit and loss account and amounts recognised in the
balance sheet for gratuity.
The estimates of future salary increases, considered in actuarial
valuation, take account of inflation, seniority, promotion and other
relevant factors, such as supply and demand in the employment market.
The Company does not currently have any estimates of the contribution
to be paid to the plan during the next year. Accordingly, the same has
not been disclosed.
2.10 There is no overdue amount payable to Micro, Small and Medium
Enterprises as defined under the Micro, Small and Medium Enterprises
Development Act, 2006. Further, the Company has not paid any interest
to any Micro, Small and Medium Enterprises during the current and
previous year.
2.11 On account of the nature of the business of the Company,
supplementary information for the profit and loss account as required
to be disclosed under paragraph 3 (i) to (iii) except 3 (i) (c), (ii)
(c) and paragraph 4 C of Part II to Schedule VI of the Act are not
applicable and hence no disclosures have been made in this regard.
2.12 The Company has exercised the exemption granted to airline
companies vide the Ministry of Corporate Affairs notification dated
February 8, 2011 for non-disclosure of the information required under
paragraphs 4-D (a) to (e) except (d) of Part II to Schedule VI of the
Act. Accordingly, such information has not been disclosed.
Contingent liabilities
Claims against the Company not acknowledged as debts
S. No Particulars As at As at
March 31, 2011 March 31, 2010
a. Demand raised under the provisions
of. Employees' - 4.12
State Insurance Act, 1948 for the
period November 1996 to September
1997 inclusive of interest and penalty.
(The Company has obtained stay against
recovery of said demand from the
Hon'ble High Court of Delhi).
b. Liability arising out of legal
cases filed against the 22.99 16.17
Company in various Courts/ Consumer
Redressal Forums, Consumer Courts,
disputed by the Company.
c. Liability arising out of
Arbitration proceedings on account 33.32 -
of cancellation of leased premises
d. Liability towards labour cases
filed against the Company 0.48 0.48
in various Courts, disputed by the
Company.
e. Liability towards Penalty levied
by customs department on 82.69 82.69
late payments which is disputed and is
pending in the Hon'ble High Court of
Delhi.
f. Liability towards additional claim
received from a vendor 17.50 17.50
who was already covered in the
settlement scheme approved
by the Hon'ble High Court of Delhi.
g. Unaccrued interest as explained in
Note 1 below. 74.71 74.71
h. Assessments relating to Assessment Year 2007-08 and 2008-09 are
pending with CIT(A) in respect of certain additions made to returned
loss by the Assessing Officer which resulted in taxable income, but
income tax payable after adjusting the brought forward losses and
depreciation was computed to be Nil.
Though there is no demand for payment of tax arising out of above
assessments, the Assessing Officer ('AO') has initiated penalty
proceedings against the Company under section 271(1)(c). Penalty amount
is not ascertainable as AO has not raised any demand.
Legal Proceeding by and / or against the company
1. Under a suit filed by Leela Capital (petitioner) for recovery of
the Inter Corporate Deposit ('ICD') aggregating to Rs. 50 million, the
Company had deposited the amount of Rs. 50 million on November 30, 2001
with the Hon'ble Bombay High Court and the Hon'ble Bombay High Court
later allowed the petitioner to withdraw the said amount, upon
furnishing an undertaking that the petitioner will restitute the said
sum or such part thereof, with 9% interest, to the Company, if and as
directed by the Hon'ble Court at the time of the final decision of the
suit filed by the petitioner. Accordingly, pending finality of the
matter, both the ICD and deposit with Hon'ble High Court have been
disclosed under the Unsecured Loans and Loans and Advances,
respectively. The Company has not accrued interest payable of Rs. 74.71
million upto the date of deposit of the amount with the Hon'ble Court
on account of its defence in the court proceedings.
2. In another case, M/s Hindustan Development Corporation Limited
("HDCL") (now renamed as Mallanpur Steels Limited) who had lent Rs. 50
million ICD to the Company, filed a Review Petition against the Scheme
of Settlement passed by the Hon'ble Delhi High Court wherein its
liability was settled at Rs. 35 million. The Company had made a deposit
of Rs. 35 million in accordance with approved Scheme to the Official
Administrator of the Scheme. The review petition filed by HDCL has been
dismissed by the Delhi High Court on July 16, 2010.
3. The Company has received a notice dated May 10, 2011 from the
Registrar of Companies ('ROC') seeking to explain the reasons for
non-compliance with section 269 of the Companies Act, 1956 relating to
the requirement to have a whole time director. The Company is in the
process of responding to the said notice and taking necessary actions
and believes that the impact of the same is not likely to be material
to the financial statements for the year ended March 31, 2011.
notice and taking necessary actions and believes that the impact of the
same is not likely to be material to the financial statements for the
year ended March 31, 2011.
4. The Company is in the process of finalising the full and final
settlement payable to its erstwhile Chief Executive Officer, Mr. Sanjay
Aggarwal, in accordance with the terms of his employment agreement.
Management believes that the provision made in the financial statements
as at March 31, 2011 for the same is adequate.
Based on the legal advice obtained by the management, no provision is
required to be made for the above contingent liabilities.
2.13 Application of funds
During the year, the Company has used some of the short term funds that
were generated from its operations to temporarily fund the pre-delivery
payments for the acquisition of aircrafts. Towards the end of the year,
the Company has tied up a long term funding in the form of terms loan
facility of Rs. 2,500 million from a bank for the same purpose. The
Company has also drawn down such loans as and when required, subsequent
to the balance sheet date, to make good such temporary utilization of
short term funds. Management further believes that such pre-delivery
payments made towards the acquisition of certain of the aircrafts are
temporary and would be recovered on finalizing the lease arrangements
for such aircrafts.
2.14 Previous year comparatives
The financial statements for the previous year were audited by a firm
other than S.R. Batliboi & Associates. Previous year figures have been
reclassified / regrouped wherever necessary to conform to current
year's classification.
Mar 31, 2010
1. Contingent Liabilities not provided for in the accounts exist in
respect of:
(Rs.in Millions)
S.N. Particulars As at March As at March
31, 2010 31, 2009
Demand raised under the provisions
of Employee State Insurance 4.12 4.12
Act, 1948 for the period November
1996 to September 1997 inclusive of
interest and penalty. (The Company
has obtained stay against recovery
of said demand from the Honorable High
Court of Delhi).
ii) Liability arising out of legal
cases filed against the Company 16.17 11.59
in various Courts/ Consumer Redressal
Forums, Consumer Courts, disputed
by the Company.
iii) Liability towards labour cases
filed against the Company in 0.48 0.70
various Courts, disputed by the Company.
iv) Liability towards Penalty levied
by customs department on late 82.69 82.69
payments which is disputed and is
pending in the Honorable
High Court of Delhi.
v) Liability towards additional claim
received from a vendor who 17.50 17.50
was already covered in the settlement
scheme approved by the
Honorable High Court of Delhi.
vi) Unaccrued interest as explained
in Note 2.1 below 74.71 74.71
vii) Assessments relating to Assessment Year 2006-07 and 2007-08 are
pending with CIT(A) in respect of certain additions made to returned
loss by the Assessing Offi cer which resulted in taxable income, but
income tax payable after adjusting the brought forward losses and
depreciation was computed to be Nil.
Though there is no demand for payment of tax arising out of above
assessments, the Assessing Offi cer (AO) has initiated penalty
proceedings against the Company under section 271(1)(c). Penalty amount
is not ascertainable as AO has not raised any demand.
2. Legal proceeding by and/ or against the Company
2.1 Under a suit fi led by Leela Capital (petitioner) for recovery of
the Inter Corporate Deposit ("ICD") aggregating to Rs. 50 million, the
Company had deposited the amount of Rs. 50 million on November 30, 2001
with the Bombay High Court and the Honble Bombay High Court later
allowed the petitioner to withdraw the said amount, upon furnishing an
undertaking that the petitioner will restitute the said sum or such
part thereof, with 9% interest, to the Company, if and as directed by
the Court at the time of the fi nal decision of the suit fi led by the
petitioner. Accordingly, pending fi nality of the matter, both the ICD
and deposit with High Court have been disclosed under the Unsecured
Loans and Loans and Advances, respectively. The Company has not accrued
interest payable of Rs. 74.71 million upto the date of deposit of the
amount with the court on account of its defence in the court
proceedings.
2.2 In another case, M/s Hindustan Development Corporation Limited
("HDCL") (now renamed as Mallanpur Steels Limited) who had lent Rs. 50
million ICD to the Company, has fi led a Review Petition against the
Scheme of Settlement passed by the Delhi High Court wherein its
liability was settled at Rs. 35 million. The Company had made a deposit
of Rs. 35 million in accordance with approved Scheme to the Offi cial
Administrator of the Scheme. The review petition is yet to be decided.
3. Estimated amount of Contracts remaining to be executed on Capital
Account and not provided for (net of advances) Rs. 25,869.45 million
(Previous year Rs. 36,635.18 million).
4. Settlement of litigation with S. K. Modi Group
The Company entered into a Memorandum of Settlement (MoS) on November
26, 2008 with its erstwhile promoter S K Modi Group to settle various
ongoing litigations with them. This settlement was approved by the
Honble High Court of Delhi on January 16, 2009.
In terms of the MoS, S. K. Modi group surrendered 8 million shares of
the Company in their name, under a trust for the benefi t of the
Company whereby the Company was given the right to authorize sale of
shares at the most opportune time and receive sale proceeds. For this
purpose, a trustee was appointed on June 9, 2009.
During the previous year ended March 31, 2009, the above mentioned
right in the 8 million shares were recorded in the books under the head
"Other current assets" at the rate of Rs.13.5 per share amounting to
Rs.108 million.
During the year ended March 31, 2010, the Company has sold the
aforesaid shares and has earned a profi t of Rs.113.49 million (net of
brokerage) on this transaction. Profi t on sale of these shares is
included in "Other income" in profi t and loss account.
5. The Companys accumulated losses stand at Rs.8,223.75 million which
have completely eroded the net worth of the Company as at March 31,
2010. These losses are due to a variety of factors in past.
The management expects improvement in the business results in the year
ended March 31, 2010 to continue in the foreseeable future primarily
due to improvement in the general economic environment, stabilization
of fuel prices and rationalization of capacity in the airline industry.
With improvement in results of operations, the management is of the
opinion that the likelihood of the FCCB holders seeking conversion into
equity shares instead of redemption and warrant holders exercis- ing
their option to apply for equity shares has improved.
The financial statements have, therefore, been prepared on going
concern basis.
6. Share Warrants
The Company on December 12, 2008 allotted 15,360,715 warrants, having
an option to apply for and be allotted equivalent number of equity
shares of Rs.10 each at a price of Rs.39.46 per share to GS Investment
Partners (Mauritius) I Limited. The Company received Rs.60.61 million
(i.e.10% of the total investment value) towards subscription of
warrants. The above said warrants can be converted into eq- uity shares
till June 11, 2010. In case of non-exercise of conversion right, the
warrants shall automatically get extinguished and money paid towards
subscription of warrants shall stand forfeited.
7. Secured loans
The Company has taken secured term loans from Allahabad Bank,
Industrial Finance Branch, Mumbai of which total balance outstanding as
at March 31, 2010 is Rs.339.89 million (Previous year Rs.300 mil-
lion). These loans are secured by a pledge on fi xed deposit of Rs.300
million held with the same branch and hypothecation of assets worth
Rs.39.89 million.
8. Zero Coupon Foreign Currency Convertible Bonds (FCCBs)
(a) During the year ended May 31, 2006, the Company issued 800 FCCBs
with face value of USD 100,000 aggregating to USD 80 million. The FCCBs
are convertible into equity shares at a conversion price of Rs.25 per
equity share at a fi xed exchange rate of Rs. 46.12 to USD 1 till
November 11, 2010. The conversion price is subject to certain
adjustments. Unless previously converted, redeemed or purchased and
cancelled, the Company will redeem these bonds at 140.499 percent of
the principal amount on December 13, 2010. Also, the Company has
deposited USD 500,000 with the Security Trustee for administrative
purposes. These FCCBs are listed on Luxemburg Stock Exchange.
During the financial year ended March 31, 2009, 2 FCCBs were converted
into equity shares.
9. Recoverability of unexpired unabsorbed depreciation and carry
forward losses and Minimum Alternate Tax
a. Deferred tax
In accordance with Accounting Standard 22 "Accounting for taxes on
income" of the Companies (Accounting standards) Rules, 2006, in view of
substantial losses incurred by the Company during the last years and
large amount of unexpired unabsorbed depreciation and carry forward
losses under the Income Tax Act, 1961, deferred tax assets on
carried-forward losses and unabsorbed depreciation and have not been
accounted for in the books, since it is not virtually certain whether
the Company will be able to utilize such losses/ depreciation.
b. Minimum Alternate Tax (MAT)
During the year ended March 31, 2010, the Company has paid tax under
MAT provisions of Income Tax Act, 1961, which the Company can claim in
the subsequent year(s) (upto a certain time limit) in which tax is
payable under normal provision of Income tax Act, 1961. However, in
view of the substantial unexpired unabsorbed losses and depreciation
available to the Company, an asset for this entitlement has not been
recorded in the fi nancial statements.
10. Accounting Standard 17 "Segment Reporting" of the Companies
(Accounting standards) Rules, 2006 requires the Company to disclose
certain information about operating segments. The Company is man- aged
as a single operating unit that provides air transportation only and
therefore, has only one report- able business segment. Further, the
operations of the Company are limited within one geographical segment.
Hence the disclosure required by this standard is presently not
applicable to the Company.
11. Disclosure of details pertaining to transactions with related
parties entered into during the year and balances as at March 31, 2010
in terms of Accounting Standard 18 ÃRelated Party Disclosures of the
Companies (Accounting standards) Rules, 2006, as identifi ed and
certifi ed by the Management:
A. Related Party Relationship
Subsidiary company
Spice Enterprises Private Limited*
Entities exercising signifi cant infl uence on the Company
Royal Holdings Services Limited, Nevada, USA
Key Management Personnel
Mr.Sanjay Aggarwal à Chief Executive Officer
* Ceased to be a related party on September 11, 2009. Hence,
transactions till this date have been included in the disclosures.
12. Accounting for Leases:
(a) Operating Lease Obligations
The Company has taken on lease aircrafts, aircraft spares, engines and
premises from third parties. Rental expense for the year ended March
31, 2010 amounts to Rs. 4,059.78 million (Previous year Rs. 3,784.37
million).
(b) Operating Lease Income
The Company had given one aircraft (obtained on operating lease) to a
party under an operating lease agreement for a period of 4 months in
the previous year. Lease rental recognized in the profi t and loss
account amounted to Rs. 77.17 million in the previous year 2008-09 in
this regard. In the current year no aircraft has been sub-leased.
13. The Company does not use foreign currency forward contracts to
hedge its risks associated with foreign currency fl uctuations relating
to certain fi rm commitments and forecasted transactions.
14. Based on the information available with the Company, there are no
dues outstanding in respect of Micro, Small and Medium enterprises at
the balance sheet date. The above disclosure has been determined to the
extent such parties have been identifi ed on the basis of information
available with the Company. This has been relied upon by the auditors.
15. Previous years figures have been regrouped or reclassified
wherever necessary to conform to current years classifi cation.