xxxi) Provisions, contingent liabilities, contingent assets and commitments
A provision is recognised when the Company has a present obligation (legal or constructive) as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, in respect of which a reliable estimate can be made of the amount of obligation. Provisions (excluding gratuity and compensated absences) are determined based on management's estimate required to settle the obligation at the Balance Sheet date. In case the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. These are reviewed at each Balance Sheet date and adjusted to reflect the current management estimates.
Contingent liabilities are disclosed in respect of possible obligations that arise from past events, whose existence would be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. A contingent liability also arises, in rare cases, where a liability cannot be recognised because it cannot be measured reliably.
Contingent assets are disclosed where an inflow of economic benefits is probable.
Commitments are future liabilities for contractual expenditure, classified and disclosed as estimated amount of contracts remaining to be executed on capital account and not provided for.
xxxii) Share based payments
Share based compensated benefits are provided to certain grades of employees in consideration of the services rendered. Under the equity settled share based payment, the fair value on the grant date of the instrument given to employees is recognised as 'employee benefits expenses' with a corresponding increase in equity over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. The fair value of the options at the grant date is calculated by an independent valuer basis Black Scholes model. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. Upon exercise of share options, the proceeds received are allocated to share capital up to the par value of the shares issued with any excess being recorded as share premium.
xxxiii) Exceptional items
When items of income and expense within statement of profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such material items are disclosed separately as exceptional items.
xxxiv) RECENT ACCOUNTING PRONOUNCEMENTS
Ministry of Corporate Affairs ("MCA") notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On 31 March, 2024, MCA amended
the Companies (Indian Accounting standards) Amendment Rules, 2023, as below:
Ind AS 1 - Presentation of Financial Statements
This amendment requires the entities to disclose their material accounting policies rather than their significant accounting policies. The effective date for adoption of this amendment is annual periods beginning on or after 1 April 2023. The Company does not expect any significant impact of the amendment on its financial statements.
Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
This amendment has introduced a definition of 'accounting estimates' and included amendments to Ind AS 8 to help entities distinguish changes in accounting policies from changes in accounting estimates. The effective date for adoption or this amendment is annual periods beginning on or after 1 April 2023. The Company does not expect any significant impact of the amendment on its financial statements.
Ind AS 109 - Financial Instruments
The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf.
In accordance with the transitional provisions, the Company applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment (the date of initial application). The Company does not expect any significant impact of the amendment on its financial statements.
Ind AS 12 - Income Taxes
This amendment has narrowed the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. The effective date for adoption of this amendment is annual periods beginning on or after 1 April 2023. The Company does not expect any significant impact of the amendment on its financial statements.
Nature and purpose of reserves
i. Capital reserve
The Company recognizes profit or loss on purchase or cancellation (including forfeiture) of its own equity instruments to capital reserve.
ii. Forfeited debentures account
The Company recognizes profit or loss on purchase or cancellation (including forfeiture) of its own debentures to forfeited debentures account.
iii. Securities premium
Securities premium is used to record the premium received on issue of shares. This account is utilised in accordance with the provisions of the Companies Act, 2013.
iv. Debenture redemption reserve
The Act requires that where a Company issues debentures, it shall create a debenture redemption reserve out of profits of the Company available for payment of dividend. The Company is required to maintain a Debenture Redemption Reserve of 25% of the value of the debentures issued, either by a public issue or a private placement basis. The amounts credited to the debenture redemption reserve cannot be utilised by the Company except to redeem debentures. Consequent to the amendment in the provision of Act, requirement to create reserve in respect of certain debenture have been withdrawn.
v. General reserve
Under the erstwhile Companies Act 1956, a general reserve was created through an annual transfer of net profit at a specified percentage in accordance with applicable regulations. Consequent to the introduction of the Companies Act, 2013, the requirement to mandatorily transfer a specified percentage of net profit to general reserve has been withdrawn.
vi. Share option outstanding account
The share option outstanding reserve represents reserve in respect of equity settled share options granted to the Company's employees in pursuance of the Employee Stock Option Plans.
vii. Retained earnings
Retained earnings represents the profits/ losses that the Company has earned/ incurred till date including gain/ (loss) on remeasurement of defined benefits plans as adjusted for distirbutions to owners, transfer to other reserves, etc.
viii. Equity instruments at fair value through other comprehensive income
The Company has elected to recognise changes in the fair value of certain investments in equity securities in other comprehensive income. These changes are accumulated within FVTOCI reserve within equity. The Company transfers amount from this reserve to retained earnings when the relevant equity securities are disposed off.
NOTE 18 BORROWINGS....Contd.
(b) Non-Convertible Debentures - LIC
These NCDs carry an interest yield of 11.50% p.a. compounded quarterly and a coupon of 0.01% p.a. These are repayable in 7 structured annual instalments commencing 31 March 2023 and ending on 31 March 2029. Refer note 18.1.2 for security details.
(c) Non Convertible Debentures - Karnataka Bank
These debentures are issued to one of the lender of erstwhile subsidiary, which carry an interest yield of 9.5% p.a. compounded quarterly and a coupon of 0.01% p.a. These NCDs are repayable on 31 March 2026 and are secured by exclusive charge upto 0.19% on specific claims of the Company.
(d) Non Convertible Debentures - ACRE
These NCDs carry an interest yield of 9.5% p.a. compounded quarterly and a coupon of 0.01% p.a. These are repayable in 2 structured instalments on 31 March 2026 and 30 June 2029 and are secured by exclusive charge upto 49.53% on specific claims of the Company.
(e) Foreign Currency Term Loan ('FCTL')
During the previous year, the Company has implemented debt resolution plan pursuant to which the FCTL has been restructured and is payable in 7 structured annual instalments commencing from 31 March 2023. The FCTL carries a floating interest rate equal to 3 Month SOFR plus 350 basis point. The facility is secured by first charge by way of hypothecation of plant and machinery acquired under the facility described in the first schedule to the memorandum of hypothecation.
Note 18.1.1: Optionally Convertible Debentures (OCDs) are secured in the form of:
1. First ranking pari-passu charge on all of the Company's Property, plant and equipment (immovable and movable) [excluding the Specified Assets and Excluded Assets]; and
2. Second ranking and pari-passu security interest by way of a legal mortgage over the First, Second and the Fifth Mortgaged Properties as specified in the mortgage deed. The security perfection has been completed on the OCD facilities issued as part of the S4A scheme.
Note 18.1.2: Non-Convertible Debentures - LIC
1. All the present and future movable assets of the Borrower (excluding 'Current Assets' and 'Specified Assets') as the Second Mortgaged Properties.
2. All the present and future current assets of the Borrower (other than those forming part of Additional Assets') as the Third Mortgaged Properties.
3. All of the Additional Assets' collectively referred to as the Fourth Mortgaged Properties.
The terms 'Current Assets', 'Specified Assets' and Additional Assets' have been defined in the Master Restructuring Agreement (MRA).
The above security having ranking in respect to LIC -NCD are as below:
1. A first ranking and pari-passu security interest by way of legal mortgage over the First Mortgaged Properties and Second Mortgaged Properties.
2. A second ranking and pari-passu security interest by way of legal mortgage over the Third Mortgaged Properties, Fourth Mortgaged Properties and the Fifth Mortgaged Properties.
Collateral security pari-passu with lenders for LIC-NCD and OCD
1. HREL Real Estate Limited, an erstwhile subsidiary, has provided Corporate guarantee for the above outstanding facilities of the Company.
2. First pari-passu charge on 154,151,669 shares of the Company and second charge on 85,767,617 equity shares of the Company held by Hincon Holdings Limited and Hincon Finance Limited.
3. First pari-passu charge over Prolific Shares of 50,000 of HCC Holding
4. Personal guarantee of Chairman and Non-Executive Director of the Company.
II. Unsecured
(A) Non Convertible Debentures - ARCIL
These NCDs carry an interest yield of 9.5% p.a. compounded quarterly and a coupon of 0.01% p.a. These NCDs are repayable in 7 structured annual instalments commencing 31 March 2023 and ending on 31 March 2029. The Company has paid its March 2023 and March 2024 instalment on time.
(B) Non Convertible Debentures - Others
These NCDs carry an interest yield of 9.5% p.a. compounded quarterly and a coupon of 0.01% p.a. and are repayable in 3 structured instalments commencing on 30 June 2029 and ending on 30 June 2031.
(C) Foreign Currency Term Loan from Bank
During the earlier years, the Company has entered into an amendment agreement with the lender wherein the parties have agreed to restructure the outstanding amounts for USD 6.89 Million with fixed interest rate of 1.91% compounded annually, repayable in 3 structured instalments commencing from 31 December 2028 and ending on 31 December 2030.
(D) Loan from related parties
Loans from Western Securities Limited carried an interest rate of 12.50% p.a. (31 March 2023: 12.50% p.a.) which were repayable on demand. This loan has been repaid during the current year.
Loan from Steiner India Limited is interest free and is repayable in 365 days.
(E) Other bank loan
Overdraft facility availed by HCC-HDC a joint operations carries interest rate of 8.71% p.a. (31 March 2023: 8.71%) are repayable on demand.
Note 18.2 : Right to Recompense:
In accordance with the provisions of Master Restructuring Agreement (MRA) dated 29 June 2012 executed between the Company and its lenders, as amended from time to time and pursuant to deliberations between the parties, lenders have agreed for the recompense amount to be settled by the Company in the form of equity shares to be issued at a future date, which is irter-alia dependent upon various factors including improved financial performance of the Company and other conditions, and which would be restricted to a maximum of 2.87% of equity share capital of the Company on the date of issue of such equity shares. This is valid as on balance sheet date under MRA dated 20 July 2022.
(a) Disaggregation of revenue
Company's entire business falls under one operational segment of 'Engineering and Construction'. Contract revenue represents revenue from Engineering and Construction contracts wherein the performance obligation is satisfied over a period of time. Further, the management believes that the nature, amount, timing and uncertainty of revenue and cash flows from all its contracts are similar. Accordingly, disclosure of revenue recognised from contracts disaggregated into categories has not been made.
(b) Unsatisfied performance obligations
The aggregate amount of transaction price allocated to performance obligations that are unsatisfied as at the end of reporting period is ' 10,475 crore (31 March 2023: ' 14,772 crore). Most of Company's contracts have a life cycle of three to five years. Management expects that around 40%- 50% of the transaction price allocated to unsatisfied contracts as of 31 March 2024 will be recognised as revenue during next reporting period depending upon the progress on each contracts. The remaining amounts are expected to be recognised over the next two years. The amount disclosed above does not include variable consideration.
Note 30.1 : During the previous year, the Company successfully novated specified debt of lenders aggregating ' 2,855.69 crore to Prolific Resolution Private Limited ('PRPL), a wholly owned subsidiary upto 30 September 2023 and joint venture thereafter, with the consideration being the assignment of beneficial interest in the specified arbitration awards and claims with a carrying value of ' 2,894.11 crore in favor of PRPL. The Company continues to furnish Corporate Guarantees in favor of the PRPLs lenders for debt novated. Further, the revision in terms of facilities with respect to repayment terms, rate of interest and waiver of penal interest by lenders resulted in a gain of ' 223.30 crore.
Note 30.2 : During the current year, the Company sold a land parcel situated in Village Karnala (Tara), Panvel, Maharashtra along with the structures standing thereon for a consideration of ' 95 crore. The resultant gain of ' 8793 crore has been presented as an exceptional item.
Note 30.3 : During the current year, the Company has entered into a Share Purchase Agreement ('SPA') with HREL Real Estate Limited ('HREL) for acquisition of HRL Thane Real Estate Limited ('HRL Thane'), a wholly owned subsidiary of HREL. Pursuant to the SPA, HRL Thane has become a direct subsidiary of the Company.
Further, HREL has assigned certain inter corporate deposits ('ICD') receivable from HRL Thane in favor of HCC. As per the terms of the agreement between the parties, the considerations in respect of the above have been adjusted against the Company's receivable from HREL, which were written off in the earlier years. The effect of these transactions has resulted in a net gain of ' 80.63 crore, which has been presented as an exceptional item.
II Provident fund
In respect of certain employees, provident fund contributions are made to a trust administered by the Company. The interest rate payable to the members of the trust shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 and shortfall, if any, shall be made good by the Company. Accordingly, the contribution paid or payable and the interest shortfall, if any, is recognised as an expense in the period in which services are rendered by the employee.
In accordance with an actuarial valuation of provident fund liabilities on the basis of guidance issued by Actuarial Society of India and based on the assumptions as mentioned below, there is no deficiency in the interest cost as the present value of the expected future earnings of the fund is greater than the expected amount to be credited to the individual members based on the expected guaranteed rate of interest of Government administered provident fund.
NOTE 37 FAIR VALUE
The fair value of the financial assets are included at amounts at which the instruments could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair value:
(a) Fair value of cash and short term deposits, trade and other short term receivables, trade payables, other current liabilities, approximate their carrying amounts largely due to the short-term maturities of these instruments.
(b) Financial instruments with fixed and variable interest rates are evaluated by the Company based on parameters such as interest rates and individual credit worthiness of the counterparty. Based on this evaluation, allowances are taken to account for the expected losses of these receivables.
NOTE 39 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company's focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance.
i Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk. Major financial instruments affected by market risk includes loans and borrowings.
a) 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's exposure to the risk of changes in market interest rates relates primarily to the Company's total debt obligations with floating interest rates.
NOTE 39 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES....Contd.
Considering the Company's total debt obligation with floating interest rate as at 31 March 2024 is ' 63.38 crore
(31 March 2023: ' 70.60 crore), the impact on Statement of Profit and Loss due to fluctuation in exchange rates would be
immaterial. Therefore the disclosure for sensibility analysis has not been included.
b) Foreign currency risk
Although, the exchange rate between the rupee and foreign currencies has changed in recent years, it has not materially affected the results of the Company. The Company evaluates exchange rate exposure arising from foreign currency transaction and follows established risk management policies.
Foreign currency risk from financial instruments
Sensitivity analysis
Considering the Company's exposure of foreign currency financial instruments as at respective reporting dates' the impact on Statement of Profit and Loss due to fluctuation in exchange rates would be immaterial. Therefore, the disclosure for sensitivity analysis not been included in the standalone financial statements.
c) Equity price risk
The Company's listed and non-listed equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Company manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Company's senior management on a regular basis. The Company's Board of Directors review and approve all equity investment decisions.
Exposure to:
i) unlisted equity securities at fair value through other comprehensive income is ' 33.38 crore (31 March 2023:
' 13.65 crore).
ii) unlisted equity in subsidiaries at cost of ' 1,594.15 crore (31 March 2023: ' 1,573.50 crore).
Exposure to listed equity securities at fair value:
As at 31 March 2024, the exposure to listed equity securities at fair value is ' 4.53 crore (31 March 2023: ' 4.82 crore). Changes in this exposure would not have a material effect on the profit and loss of the Company.
ii Credit risk
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 financing activities, financial assets. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.
a) Trade receivables (gross of provision)
Trade receivables are typically unsecured and are derived from revenue earned from two main classes of trade receivables i.e. receivables from Government promoted agencies and receivables from private third parties. A substantial portion of the Group's trade receivables are from Government promoted agencies having strong credit worthiness. For ageing analysis of the trade receivable, refer note 6. .
The primary objective of the Company's capital management is to maximise the shareholder's wealth. The Company's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitor the return on capital employed as well as the level of dividend to shareholders.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a debt equity ratio, which is total debt divided by total capital.
a) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Group for holding any Benami property.
b) The Company does not have any transactions with struck off companies.
c) The Company does not have any charges or satisfaction which is yet to be registered with Registrar of Companies beyond the
statutory period.
d) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
e) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), 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 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.
f) The Company does not have any such transaction which is not recorded in the books of account that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).
g) The Company has not been declared willful defaulter by any bank or financial institution or government or any government authority.
h) The Company has complied with the number of layers prescribed under the Companies Act, 2013.
i) The Company has not entered into any scheme of arrangement which has an accounting impact on the standalone financial statements for the current or previous year.
NOTE 45 DETAILS OF LOAN GIVEN TO ULTIMATE BENEFICIARY THROUGH FUNDING PARTY
The Company has not received any fund from any person(s) or entity(ies), 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 or on behalf of the Funding Party (Ultimate Beneficiaries); or ii) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries, except the below transaction:
The Ministry of Corporate Affairs (MCA) vide notification dated 24 March 2021 has issued the "Companies (Audit and Auditors) Amendment Rules, 2021. As per proviso to Rule 3(1), applicable for financial years commencing on or after the 1 April, 2022, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.
As required under above rules, the Company has used SAP application as accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded and the audit trail feature has not been tampered with.
The audit trail feature at database level was enabled subsequent to balance sheet date. However, the Company believes that no instances of changes in database found as the Company has all other necessary controls in place which are operating effectively
NOTE 47 The Company is principally engaged in a single business segment viz. "Engineering and Construction" Also, refer note 39 (ii) b for information on revenue from major customers.
NOTE 48 Figures for the previous year have been regrouped/ rearranged, wherever considered necessary, to confirm to current period's classification. The impact of such reclassification/ regrouping is not material to the standalone financial statements.
For Walker Chandiok & Co LLP For and on behalf of the Board of Directors
Chartered Accountants
Firm Registration No. 001076N/ N500013 Ajit Gulabchand DIN : 00010827 Chairman
Arjun Dhawan DIN : 01778379 Executive Vice Chairman
Jaspreet Bhullar DIN : 03644691 Managing Director & Chief Executive Officer
Mahendra Singh Mehta DIN : 00019566 Director
Girish Gangal Chief Financial Officer
Shashi Tadwalkar Nitesh Jha FCS No. 8436 Company Secretary
Partner
Membership No.: 101797
Place: Mumbai Place: Mumbai
Date : 24 May 2024 Date : 24 May 2024
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