Notes to Accounts of The Sirpur Paper Mills Ltd.

Mar 31, 2014

1 Corporate information

Incorporated in 1938, the Sirpur Paper Mills Limited is a manufacturer of paper and paper board in India, and its fully integrated pulp and paper mill and captive power plant is located at Sirpur Kaghaznagar, Andhra Pradesh, India. Its production commenced in 1942 with a capacity of 5,000 TPA. The present installed capacity of the mill is 138,300 TPA.

i. Current maturities of long-term borrowings are included in ''Other current liabilities'' in Note 10.

ii. Pursuant to the Company''s application for restructuring of its existing debts, the final restructuring package was approved by CDR-EG and implemented last year. As per the approved scheme, a moratorium period of 21 months, commencing from April 2012 to December 2013, was granted. Interest accrued and due on term loans aggregating to Rs 58,75.22 Lakhs (March 31, 2013: Rs 33,66.21 Lakhs) is converted to Funded Interest Term Loan (FITL) and included in the Rupee loan above.

iii. The nature of security and terms of repayment for long-term secured borrowings as per the approved CDR package is given below:

Nature of security Terms of repayments

a. Term loan from banks amounting Repayable in 33 quarterly to Rs 315,69.96 Lakhs (March 31, instalments. Last instalment 2013: Rs 290,60.96 Lakhs) is due on March 31, 2022. Rate of secured/to be secured by first interest ranges from 11.00% to pari passu charge on immovable 15.05% p.a. and movable fixed assets both present and future and a pari passu second charge on entire current assets of the Company both present and future.

b. Pledge of entire shareholding of the promoters viz. Shri Ranjan Kumar Poddar, M/s. Aravali Securities & Finance Limited and M/s. Amba Investment Private Limited, along with their voting rights on pari passu basis.

c. Irrevocable and unconditional personal guarantee of Shri Ranjan Kumar Poddar and Shri Devashish Poddar in favour of the lenders.

iv. Term loans from banks include Rs 315,69.96 Lakhs (March 31, 2013: Rs 290,60.96 Lakhs) which are optionally convertible by the lenders into fully paid Ordinary shares in the event of default in repayment of principal amount of loan or interest thereon or any combination thereof.

v. Vehicle loan is repayable in 27 monthly instalments ending in June, 2016.

vi. As per final eligibility certificate of Commissioner of Industries, Hyderabad, the sales tax payable on the sale of products manufactured by the Company over and above the annual turnover of Rs 184,65.00 Lakhs is eligible for deferment up to a maximum of Rs 65,45.85 Lakhs. The deferment is to be availed in 14 financial years commencing from March 21, 2002 to March 20, 2016. Each year''s deferment is payable after 14 years from the year of deferment, without interest. Based on the above, the Company has deferred payment of sales tax liability aggregating to Rs 30,01.58 Lakhs till March 31, 2014 (March 31, 2013: Rs 24,54.11 Lakhs).

The Company has received a demand of Rs 2,42.16 Lakhs (March 31, 2013: Rs 2,42.16 Lakhs) from the sales tax department towards excess deferment availed, which is grouped under statutory remittances in Note 10.

2. Notes forming part of the financial statements

a. Contingent liabilities & commitments

Contingent liabilities

i. Claims/demands under dispute not provided for Rs Lakhs

As at As at Particulars March 31, 2014 March 31, 2013

Claims/demands under dispute

Income tax 76.73 75.33

Excise duty etc. 8,71.28 6,09.51

Value added tax 3,24.56 3,24.56

Demand from Government of Andhra Pradesh* 22,01.67 22,01.67

State levies 9,41.77 9,41.77

Labour related cases 3,51.32 3,51.32

Suppliers and service contracts 7,75.44 7,68.54

*Includes interest demand of Rs 12,25.52 Lakhs from the Forest Department, Government of Andhra Pradesh on delayed payment of differential royalty which had been levied for the period 1980-81 to 1984-85. The Company has contested this demand in the Hon''ble High Court of Andhra Pradesh and in terms of the order of the court a sum of Rs 1,00 Lakhs has been deposited and a corporate guarantee has been given for the balance amount. Based on the legal opinion, the management is hopeful of a decision in its favour and consequently, no provision has been made in the financial statement for the above mentioned demand.

ii. Show cause notices were issued by Central Excise Department claiming full rate of duty on clearance of paper & paper board at concessional rate during the period from September 1994 to September 1999. The amount involved, as per show cause notices, is Rs 18,08 Lakhs. The case was adjudicated by the Commissioner of Customs & Central Excise in Company''s favour in July, 2005 dropping all the proceedings, interest, penalty, duty. However, the department has gone on an appeal to CESTAT against the order of Commissioner. Pending the final outcome of the petition, no provision has been made.

iii. Government of Andhra Pradesh had levied electricity duty on power generated and consumed for captive use with effect from July 17, 2003 @ Rs 0.25 paise per unit of power generated. The Company had filed a writ petition against the said levy in the Hon''ble High Court of Andhra Pradesh which had granted a stay. Pending the final outcome of the petition, no provision has been made.

iv. Northern Power Distribution Company Limited of Andhra Pradesh (NPDCL) has raised a demand for Rs 9,13.34 Lakhs towards back billing alleging non segregation of lights and fans load for the period 2007 to 2012. On a petition filed by the Company, the Hon''ble High Court has granted interim suspension of the demand and observed that the Company has already deposited Rs 1,00 Lakhs which covers the billing for 12 months maximum permissible under the circumstances. Pending the final outcome of the petition, no provision has been made.

v. As per paragraph 3.7 of Rs CDR Master Circular 2012 - Clause 3 Scrutiny before CDR reference/approval'', lenders shall have the right to recompense for their sacrifices proposed in the CDR package. The amount of recompense as at March 31, 2014 works out to ''7,85.12 Lakhs (March 31, 2013: ''3,67.56 Lakhs).

Commitments

i. Estimated amount of contracts remaining to be executed on capital account and not provided for Nil (March 31, 2013: Rs 1,11.11 Lakhs) against which advances paid amount to Nil (March 31, 2013: Rs 2.48 Lakhs).

ii. Estimated amount of contracts remaining to be executed on other than capital commitments and not provided for ''4,76.66 Lakhs (March 31, 2013: ''4,24.98 Lakhs).

iii. Total outstanding bank guarantees and letters of credit as on March 31, 2014, aggregated to Rs 8,90.19 Lakhs (March 31, 2013: 10,08.76 Lakhs), which are secured against the Company''s assets.

iv. As per the provisions of Industrial Investment Promotion Policy 2005-10 of Government of Andhra Pradesh, the Company is eligible for part reimbursement of power consumption charges. Necessary claim from May 1, 2008 to April 30, 2013 have been filed with relevant authorities. The amount so eligible aggregating to Rs 7,93.26 Lakhs (March 31, 2013: Rs 6,82.81 Lakhs) is included in other current assets under Note 19 with a corresponding credit to power and fuel expenses, in respective years.

v. The wage agreement with workers'' union covering the period from April 1, 2008 to March 31, 2013 has expired and a new agreement is yet to be concluded. Pending conclusion of such agreement, possible impact on the financials is not ascertainable.

vi. Segment information

The Company is in the business of manufacture and sale of pulp, paper and paper board. The power produced is for captive use. Considering the core activities of the Company, management is of the view that manufacture and sale of pulp, paper and paper boards is a single reportable business segment and hence information relating to primary segment is not required to be disclosed.

vii. The Company''s significant leasing arrangement are in respect of operating leases for premises (residential, office, stores, godown etc.). These leasing arrangements which are not non-cancellable range between 11 months and 3 years generally or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as lease rent under Note 27.

viii. As at March 31, 2014, the accumulated losses amounted to Rs 203,61 Lakhs has eroded the net worth of the Company. The Company has the continuous support from the promoters and has put in place measures for revival and cost reduction, which in the opinion of the management would enable the Company to generate sufficient profits in the foreseeable future.

ix. Previous year''s figures have been regrouped/reclassified wherever necessary to correspond with the current year''s classification/ disclosure.

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Mar 31, 2013

1.1 Corporate information

Incorporated in 1938, the Sirpur Paper Mills Limited is a manufacturer of paper and paper board in India, and its fully integrated pulp and paper mill and captive power plant is located at Sirpur Kaghaznagar, Andhra Pradesh, India. Its production commenced in 1942 with a capacity of 5,000 TPA. The present installed capacity of the mill is 138,300 TPA.

a. Contingent liabilities & commitments Contingent liabilities

i. Claims/demands under dispute not provided for Rs. Lakhs As at As at Particulars March 31, 2013 March 31, 2012

Claims/demands under dispute

Income tax 75.33 1,82.26

Excise duty etc. 6,09.51 5,33.70

Value added tax 3,24.56 3,23.48

Demand from Government of Andhra Pradesh@ 22,01.67 22,01.67

State levies 9,41.77 16,20.25

Labour related cases 3,51.32 3,51.31

Suppliers and service contracts 7,68.54 6,95.47

@ Includes interest demand of Rs.12,25.52 lakhs from the Forest Department, Government of Andhra Pradesh on delayed payment of differential royalty which had been levied for the period 1980-81 to 1984-85. The Company has contested this demand in the Hon''ble High Court of Andhra Pradesh and in terms of the Order of the Court, a sum of Rs.1,00 lakhs has been deposited and a corporate guarantee has been given for the balance amount. Based on the legal opinion, the management is hopeful of a decision in its favour and consequently, no provision has been made in the financial statement for the above mentioned demand.

ii. Show cause notices were issued by Central Excise Department claiming full rate of duty on clearance of paper & paper board at concessional rate during the period from September 1994 to September 1999. The amount involved, as per show cause notices, is Rs.18,08 lakhs. The case was adjudicated by the Commissioner of Customs & Central Excise in Company''s favour in July 2005 dropping all the proceedings, interest, penalty and duty. However, the Department has gone on an appeal to CESTAT against the order of the Commissioner. Pending the final outcome of the petition, no provision has been made.

iii. Government of Andhra Pradesh had levied electricity duty on power generated and consumed for captive use with effect from July 17, 2003 @ Rs.0.25 paise per unit of power generated. The Company had filed a writ petition against the said levy in the Hon''ble High Court of Andhra Pradesh which had granted a stay. Pending the final outcome of the petition, no provision has been made.

iv. Northern Power Distribution Company Limited of Andhra Pradesh (NPDCL) has raised a demand for Rs.9,13.34 lakhs towards back billing alleging non-segregation of lights and fans load for the period 2007 to 2012. On a petition filed by the Company, the Hon''ble High Court of Andhra Pradesh has granted interim suspension of the demand and observed that the Company has already deposited Rs.1,00 lakhs which covers the billing for 12 months maximum permissible under the circumstances. Pending the final outcome of the petition, no provision has been made.

Commitments

i. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs.1,11.11 lakhs (March 31, 2012: Rs.6,41.42 lakhs) against which advances paid amount to Rs.2.48 lakhs (March 31, 2012: Rs.79.53 lakhs).

ii. Estimated amount of contracts remaining to be executed on other than capital commitments and not provided for Rs.4,24.98 lakhs (March 31, 2012: Nil)

iii. Total outstanding bank guarantees and letters of credit as on March 31, 2013 aggregated to Rs.10,08.76 lakhs (March 31, 2012: Rs.10,96.28 lakhs), which are secured against the Company''s assets.

b. Power & fuel cost includes an amount of Rs.10,50 lakhs towards provision for Fuel Surcharge Adjustment (FSA) for the financial year 2010-11 and financial year 2011-12 levied by electricity distribution companies (DISCOMS) vide the order dated September 20, 2012 of the Andhra Pradesh Electricity Regulatory Commission and being contested by the Company.

c. As per the provisions of Industrial Investment Promotion Policy 2005-10 of Government of Andhra Pradesh, the Company is eligible for part reimbursement of power consumption charges. Necessary claim for 2008-09, 2009-10 & 2010-11 have been filed with relevant authorities. The amount so eligible aggregating to Rs.6,82.81 lakhs (March 31, 2012: Rs.5,82.00 lakhs) is included in other current assets under Note 19 with a corresponding credit to power and fuel expenses, in respective years.

d. Segment information

The Company is in the business of manufacture and sale of pulp, paper and paper board. The power produced is for captive use. Considering the core activities of the Company, management is of the view that manufacture and sale of pulp, paper and paper boards is a single reportable business segment and hence information relating to primary segment is not required to be disclosed.

e. The Company''s significant leasing arrangement are in respect of operating leases for premises (residential, office, stores, godown etc). These leasing arrangements which are not non-cancellable range between 11 months and 3 years generally or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as lease rent under Note 27.

f. Previous year''s figures have been regrouped/reclassified wherever necessary to correspond with the current year''s classification/ disclosure.

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Mar 31, 2012

A. Rights, preferences and restrictions attached to ordinary shares:

The ordinary shares of the Company, having par value of Rs.10 per share, rank pari passu in all respects inlcuding voting rights and entitlement to dividend.

b. Term loans from banks include Rs.111,40 lakhs which are optionally convertible by the lenders into fully paid ordinary shares in the event of default in repayment of principal amount of loan or interest thereon or any combination thereof.

c. Vehicle loan is repayable in 51 monthly installments ending in June 2016.

d. As per final eligibility certificate of Commissioner of Industries, Hyderabad, the sales tax payable on the sale of products manufactured by the Company over and above the turnover of Rs.184,65 lakhs is eligible for deferment up to a maximum of Rs.65,45.85 lakhs. The deferment is to be availed in 14 financial years commencing from March 21, 2002 to March 20, 2016. Each year's deferment is payable after 14 years from the year of deferment without interest. Based on the above, deferred liability of the Company as at March 31, 2012 is Rs.20,37.43 lakhs (March 31, 2011: Rs.15,88.45 lakhs). During the year, the Company has received a demand of Rs.63.08 lakhs towards excess deferment availed, which is grouped under other current liabilities.

Notes:

a. The gratuity fund is invested in a group gratuity cash accumulation policy offered by Life Insurance Corporation of India. The investment returns earned on the policy comprises bonus declared by LIC having regard to LIC's investment earnings. The information at the allocation of fund into major asset classes and expected return to each major class are not readily available. We understand that LIC's overall portfolio of assets is well diversified and as such, the long term return on the policy is expected to be higher than the rate of return on central government bonds.

b. Provision for compensated absences (leave) is made on the basis of actuarial valuation and the same is unfunded.

c. Provision for retirement ex-gratia (Long term service award) is made on the basis of actuarial valuation and same is unfunded.

Note:

Short term borrowings from banks are secured by a first charge on the inventory, trade and other receivables of the Company, both present and future and also by second charge created and/or to be created in favour of the term lenders of the Company on the Company's immovable properties and other fixed assets.

Note:

Investor Education and Protection Fund represents unclaimed dividend required to be transferred to this fund on completion of seven years. No such amount is due for deposit as on the Balance Sheet date.



1. a. Commitments and contingent liabilities Rs Lakhs

As at As at Particulars March 31, 2012 March 31, 2011

Claims/Demands under dispute

i. Income tax 1,82.26 1,44.23

ii. Excise duty etc. 5,33.70 4,05.34

iii. Value added tax 3,23.48 2,26.93

iv. Demand from Government of Andhra Pradesh for forest related cases 22,01.67 21,91.55

v. State levies 16,20.25 5,78.79

vi. Labour related cases 3,51.31 4,07.12

vii. Suppliers and service contracts 6,95.47 3,08.73

TOTAL 59,08.14 42,62.69



b. The Forest Department, Government of Andhra Pradesh has demanded interest of Rs.12,25.52 lakhs included in the note a(iv) above on delayed payment of differential royalty which had been levied for the period 1980-81 to 1984-85. The Company has contested this demand in the Hon'ble High Court of Andhra Pradesh and in terms of the order of the Court a sum of Rs.100 lakhs has been deposited and a corporate guarantee has been given for the balance amount. Based on the legal opinion, the management is hopeful of a decision in its favour and consequently, no provision has been made for the above mentioned demand of Rs.12,25.52 lakhs.

c. Show cause notice was issued claiming full rate of duty on clearance of paper & paper board at concessional rate during the period from September 1994 to September 1999. The amount involved, as per show cause notice is Rs.18.08 crore. The case was adjudicated to the Commissioner of Customs & Central Excise in the Company favour in July 2005 dropping all the proceedings, interest, penalty and duty. However, the Department has gone on an appeal against the order of Commissioner to CESTAT, where it is pending.

d. Government of Andhra Pradesh had levied electricity duty on power generated and consumed for captive use. The Company had filed a writ petition against the said levy in the Hon'ble High Court of Andhra Pradesh which had granted a stay.

e. Estimated amount of contracts remaining to be executed on Capital Account and not provided for Rs.6,41.42 lakhs (March 31, 2011: Rs.2,24.23 lakhs) against which advances paid amount to Rs.79.53 lakhs (March 31, 2011: Rs.66.33 lakhs).

f. Total outstanding bank guarantees and letters of credit as on March 31, 2012, aggregated to Rs.10,96.28 lakhs (March 31, 2011: Rs.7,33.13 lakhs), which are secured against the Company's assets.

g. As per the provisions of Industrial Investment Promotion Policy 2005-10 of Government of Andhra Pradesh, the Company is eligible for part reimbursement of power consumption charges. Necessary claim for 2008-09, 2009-10 & 2010-11 have been filed with relevant authorities. The amount so eligible aggregating to Rs.5,82.00 lakhs (March 31, 2011: Rs.3,48.59 lakhs) is included in other current assets under Note 19 with a corresponding credit to power and fuel expenses, in respective years.

h. The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise towards amount payable in foreign currency on account of import of goods and services are as below:

i. Segment information

The Company is in the business of manufacture and sale of pulp, paper and paper board. Considering the core activities of the Company, management is of the view that manufacture and sale of pulp, paper and paper boards is a single reportable business segment and hence information relating to primary segment is not required to be disclosed.

j. The Company's significant leasing arrangement are in respect of operating leases for premises (residential, office, stores, godown etc). These leasing arrangements which are not non-cancellable range between 11 months and 3 years generally or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as rent under Note 28.

k. The Revised Schedule VI has become effective from April 1, 2011 for the preparation of financial statements. This has significantly impacted the disclosure and presentation made in the financial statements. Previous year's figures have been regrouped/reclassified wherever necessary to correspond with the current year's classification/disclosure.

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Mar 31, 2011

1. Contingent liabilities not provided for:

Particulars 2010-11 2009-10 (Rs. Lakhs) (Rs. Lakhs)

A) Claims / Demands under dispute

(i) Income Tax 144.23 113.46

(ii) Excise Duty etc. 405.34 165.77

(iii) Value Added Tax 226.93 186.16

(iv) Demand from Government of A.P. for Forest related Cases 2191.55 2191.55

(v) State levies 578.79 454.91

(vi) Labour related cases 407.12 393.24

(vii) Suppliers and service contracts 308.73 121.85

4262.69 3626.94

2. The Forest Department, Government of Andhra Pradesh has demanded interest of Rs.1,225.52 lakhs (included in Note 1 (A) (iv) above) on delayed payment of differential royalty which had been levied for the period 1980-81 to 1984-85. The Company has contested this demand in the High Court of Andhra Pradesh and in terms of the Order of the Court a sum of Rs.100 lakhs has been deposited and a Corporate Guarantee has been given for the balance amount. Based on the legal opinion, the management is hopeful of a decision in its favour and consequently, no provision has been made for the aforementioned demand of Rs.1,225.52 lakhs.

2. Show Cause Notice was issued claiming full duty on clearance of paper & paper board at concessional rate during Sept. 1994 to Sept. 1999. The amount involved, as per the Show Cause Notice, is Rs 18.08 crore. The case was adjudicated by the Commissioner of Customs & Central Excise in the Company's favour in July 2005 dropping all other proceedings, interest, penalty, duty. However, the Department has gone on an appeal against the order of the Commissioner to CESTAT, where it is pending.

3. Estimated amount of contracts remaining to be executed on Capital Account and not provided for Rs.224.23 lakhs (31-3- 2010: Rs.296.98 lakhs) against which advances paid amount to Rs.66.33 lakhs (31-3-2010: Rs. 34.14 lakhs).

4. Total outstanding Bank Guarantees and Letters of Credit as on March 31, 2011, aggregated to Rs.733.13 lakhs (31-3- 2010: Rs.792.58 lakhs), which are secured against the Company's assets stated in note (i) of Schedule 3.

5. Inter-corporate and other loans (Schedule – 10) of Rs.924.31 lakhs as on March 31, 2011 are in the opinion of the management considered good and recoverable having regard to the parties from whom the amounts are due and the previous record of the repayment.

6. As per the provisions of Industrial Investment Promotion Policy 2005-10 of Government of Andhra Pradesh, the company is eligible for part reimbursement of power consumption charges. Necessary claim for 2008-09, 2009-10 & 2010-11 have been filed with the relevant authorities. The amount so eligible aggregating to Rs 348.59 lakhs (31-3-2010: Rs.184.36 lakhs) is included in loans and advances with a corresponding credit to Power and fuel expenses of Rs 164.23 lakhs (31-3-2010: Rs.72.64 lakhs)

7. Disclosure in accordance with the revised AS-15 is as under:-

II. Disclosures in accordance with the defined benefit plans based on actuarial reports as on March 31, 2011.

GRATUITY

The Gratuity Fund is invested in a Group Gratuity Cash Accumulation Policy offered by Life Insurance Corporation (LIC) of India. The invested return earned on the policy comprises bonus declared by LIC having regard to LIC's investment earnings. The information on the allocation of the fund into major asset classes and expected return to each major class are not readily available. We understand that LIC's overall portfolio of assets is well diversified and as such, the long-term return on the policy is expected to be higher than the rate of return on Central Government bonds.

8. The Company's significant leasing arrangements are in respect of operating leases for premises (Residential, Office, Stores, Godowns etc.). These leasing arrangements which are not non-cancellable range between 11 months and 3 years generally or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as Rent under Schedule-17.

9. Licensed and Installed Capacities and Production

Licensed capacity is not applicable in terms of Govt. of India's Notification.

(a) Installed Capacities are as certified by the Executive Director.

(b) Represents Finished Production of Pulp, Paper and Paper Board. Production of Pulp is not separately ascertained as pulp plant is an integral part of paper and paper board plant. Includes pulp production of 4091 (Previous Year - Nil MT) meant for external sales.

Note: Generation of electricity is for internal consumption. The installed capacity of these Plants for the current year and for earlier years is as per the original designed capacity.

10. As per final eligibility certificate of Commissioner of Industries, Hyderabad the Sales Tax payable on the sale of products manufactured by the Company over and above the turnover of Rs.18,465 lakhs is eligible for deferment up to a maximum tax of Rs.6,545.85 lakhs. The deferment is to be availed in 14 financial years commencing from March 21, 2002 (2001– 02) to March 20, 2016 (2015–16). Each year's deferment is payable after 14 years from the year of deferment without interest. Based on the above, deferment liability as at March 31, 2011 has been computed at Rs. 1588.45 lakhs (31-3- 2010: Rs1,387.62 lakhs) and considered as part of Unsecured Loans (Schedule – 4).

11. The Company operates only in one business segment viz., Paper and Paper Board. The company's operations predominantly consist of production and sales of Pulp, Paper and Paper Boards. The power generated is for captive use. Hence, there are no reportable segments under Accounting Standard 17. During the year, substantial part of the company's business has been carried out in India. The condition prevailing in India being uniform no separate geographical disclosures are considered necessary.

12. RELATED PARTY DISCLOSURES

(a) List of Related Parties and Relationships

Party Relation

A. Aravali Securities & Finance Ltd. Promoters holding is more than 20%

B. Key Management Personnel

Shri M.P.Dokania Executive Director (Upto 29th April 2010)

Shri TVV Satyanarayana Executive Director (Upto 09th August 2010)

Shri R.L. Lakhotia Executive Director (24thJuly 2010 onwards) Shri Devashish Poddar Vice Chairman & Managing Director

13. Figures for previous year have been regrouped wherever necessary.

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Mar 31, 2010

1. Contingent liabilities not provided for:

Particulars 2009-10 2008-09

(Rs. Lakhs) (Rs. Lakhs)

A) Claims / Demands under dispute

(i) Income Tax 113.46 234.87

(ii) Excise Duty etc. 165.77 80.35

(iii) Value Added Tax 186.16 182.69

(iv) Demand from Government of A.P. for Forest related Cases 2,191.55 2,191.55

(v) State levies 454.91 441.75

(vi) Labour related cases 393.24 254.46

(vii) Suppliers and service contracts 121.85 216.75

3,626.94 3,602.42

2. The Forest Department, Government of Andhra Pradesh has demanded interest of Rs.1,225.52 lakhs (included in Note 1 (A) (iv) above) on delayed payment of differential royalty which had been levied for the period 1980-81 to 1984-85. The Company has contested this demand in the High Court of Andhra Pradesh and in terms of the Order of the Court a sum of Rs.100 lakhs has been deposited and a Corporate Guarantee has been given for the balance amount. Based on the legal opinion, the management is hopeful of a decision in its favour and consequently, no provision has been made for the aforementioned demand of Rs.1,225.52 lakhs.

3. Estimated amount of contracts remaining to be executed on Capital Account and not provided for Rs. 296.98 lakhs (31-3-2009: Rs. 264.89 lakhs) against which advances paid amount to Rs. 34.14 lakhs (31-3-2009: Rs. 34.43 lakhs).

4. Total outstanding Bank Guarantees and Letters of Credit as on 31 March 2010, aggregated to Rs. 792.58 lakhs (31-3-2009: Rs. 921.45 lakhs), which are secured against the Companys assets stated in note (i) of Schedule 3.

5. Inter-corporate and other loans (Schedule – 10) of Rs. 975.68 lakhs as on 31 March 2010: are in the opinion of the management considered good and recoverable having regard to the parties from whom the amounts are due and the previous record of the repayment.

6. The wage agreement with workers union covering the period from 1 April 2008 to 31 March 2013 was concluded on 24 May 2010 and the effect thereof towards arrears aggregating to Rs. 441 lakhs including Rs. 227 lakhs for the year 2008-09 was recorded in the financial statements for the year ended 31 March 2010.

Note: As the provision for gratuity, compensated absence and long service award is made on an actuarial basis for the Company as a whole, the amount pertaining to whole-time directors is not included above.

7. As per the provisions of Industrial Investment Promotion Policy 2005-10 of Government of Andhra Pradesh, the Company is eligible for part reimbursement of power consumption charges. Necessary claim for 2008-09 and 2009-10 have been filed with the relevant authorities. The amount so eligible aggregating to Rs. 184.36 lakhs (31-03-2009: Rs. 111.72 lakhs) is included in loans and advances with a corresponding credit to power & fuel expenses of Rs. 72.64 lakhs (31-03-2009: Rs. 111.72 lakhs).

GRATUITY

The Gratuity Fund is invested in a Group Gratuity Cash Accumulation Policy offered by Life Insurance Corporation (LIC) of India. The invested return earned on the policy comprises bonus declared by LIC having regard to LICs investment earnings. The information on the allocation of the fund into major asset classes and expected return to each major class are not readily available. We understand that LICs overall portfolio of assets is well diversified and as such, the long-term return on the policy is expected to be higher than the rate of return on Central Government bonds.

8. The Companys significant leasing arrangements are in respect of operating leases for premises (Residential, Office, Stores, Godowns etc.). These leasing arrangements which are not non-cancelable range between 11 months and 3 years generally or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as Rent under Schedule-18.

Licensed capacity is not applicable in terms of Govt. of Indias Notification.

(a) Installed Capacities are as certified by the Executive Director.

(b) Represents finished production of Paper and Paper Board. Production of pulp is not separately ascertained, Pulp Plant being integral part of Paper and Paper Board Plant.

Note: Generation of electricity is for internal consumption. The installed capacity of these Plants for the current year and for earlier years is as per the original designed capacity.

Note: Except as stated above the Company has not remitted any amount in foreign currencies on account of dividends during the year and does not have information as to the extent to which remittances, if any, in foreign currencies on account of dividend have been made to non- resident shareholders.

Note: The above excludes export sales through merchant exports Rs. 70.08 lakhs (2008-09: Rs. 350.03 Lakhs) and Sales to Nepal Rs. Nil lakhs (2008-09: Rs. 78.94 lakhs)

9. As per final eligibility certificate of Commissioner of Industries, Hyderabad the Sales Tax payable on the sale of products manufactured by the Company over and above the turnover of Rs. 18,465 lakhs is eligible for deferment up to a maximum tax of Rs. 6,545.85 lakhs. The deferment is to be availed in 14 financial years commencing from 21 March 2002 (2001– 02) to 20 March 2016 (2015–16). Each years deferment is payable after 14 years from the year of deferment without interest. Based on the above, deferment liability as at 31 March 2010 has been computed at Rs. 1,387.62 lakhs (31-3- 2009: Rs. 1,186.64 lakhs) and considered as part of Unsecured Loans (Schedule – 4).

The above deferment of Rs. 1,387.62 lakhs includes an amount of Rs. 23.44 lakhs relating to the year 2008-09, which has been disallowed by the Commercial tax authority in the sales tax assessment of the said year. The Company has contested the basis on which the assessing authority has disallowed the Companys claim in a writ petition filed in the High court of Andhra Pradesh. The High court, in terms of its order dated 22 April 2010 has suspended initiation of any coercive steps till the Companys petition is adjudicated up on.

10. The Company operates only in one business segment viz. Paper and Paper Board. The Companys operations predominantly consist of production and sales of paper and paper boards. The power generated is for captive use. Hence, there are no reportable segments under Accounting Standard 17. During the year, substantial part of the Companys business has been carried out in India. The condition prevailing in India being uniform no separate geographical disclosures are considered necessary.

11. Figures for previous year have been regrouped wherever necessary.