A SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Preparation of Financial Statements

The accompanying financial statements have been prepared under the historical cost convention and accrual basis of accounting, unless otherwise stated, in accordance with Indian Generally Accepted Accounting Principles (GAAP) and other accounting principles generally accepted in India, to the extent applicable and conform to the statutory requirements prescribed under the State Financial Corporation (SFCs) Act, 1951, circulars and guidelines issued by the Small Industries Development Bank of India.(SIDBI).

b) Use of Estimates

The preparation of financial statements requires estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date financial statements and the reported amount of revenue and expenses during the reporting period. Any difference between the actual results and estimates are recognised in the financial statements in the period in which the results are known/materialized.

c) Fixed Assets

Fixed Assets are stated at written down value. Cost of acquisition or construction is inclusive of duties, taxes and other incidental.

d) Depreciation

Depreciation on fixed assets is provided on written down value method (WDV) at the rates prescribed under provisions of Income Tax Rules, 1962.

e) Revenue Recognition

All expenses and income to the extent ascertained as payable and receivable respectively, are accounted for on accrual basis except the matters as under:

- Additional demand raised upon completion of assessment under Sales Tax, Income Tax, ESIC and

EPF, etc are being debited in Profit & Loss a/c in the year of demand raised.

- Interest on NPA's are accounted for on receipt basis as per RBI guidelines.

f) Appropriation

The amount received from the borrowers against loans and advances is appropriated in the following order:-

i. Miscellaneous Expenses.

ii. Interest.

iii. Principal.

g) As per policy in respect of mortgaged properties, the Auction Purchaser has to make the payment within 3 months from the date of sale confirmation. However, in some exceptional cases, the Managing Director may give extension in payment of sale consideration for a further period of 9 months with interest @ 13% p.a. compounded on monthly basis. The possession of the unit is handed over to the Auction Purchaser after receipt of full amount of bid.

h) The Corporation has introduced new settlement policies namely, “The Policy for Compromise Settlement of Chronic Non-Performing Assets (Doubtful Loan Accounts) of Haryana Financial Corporation-2021 ” and “The Policy for Compromise Settlement of Loss Accounts of Haryana Financial Corporation-2021” in the financial year 2021-22 which were valid upto 31.03.22 to reduce NPAs/written off portfolios. There is no settlement policy for settlement of NPA's now.

i) Retirement Benefits

Gratuity to Staff is covered under the Group Gratuity Scheme of Life Insurance Corporation of India and Leave Encashment to staff is covered under the Group Leave Encashment Scheme of Life Insurance Corporation of India.

Post employment and other long term employee benefits viz. Contribution to Gratuity, Leave Encashment etc. are recognized as an expense in the Profit & Loss account in which the employee has been rendered services. The expense is recognized at the present value of the amount payable determining using actuarial valuation. Actuarial gains and losses in respect of post employment and other long-term benefits are charged to profit and loss account.

The basis of actuarial valuation for Gratuity and Leave Encashment considered by LIC are as under:

Monthly matching contribution towards Employees Provident Fund is remitted to the Regional Provident Fund Commissioner, Chandigarh as per provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and is charged to profit and loss account.

j Asset Classification and Provisioning

i) Loans and Advances have been categorised and provisioning has been made as per guidelines received from Small Industries Development Bank of India (SIDBI) which are as under :

k Investments

As per guidelines issued by SIDBI in respect of investments in equity shares (available for sale ), valuation has been done as per market rate, which is the price of the script available from trades / quotes on the stock exchange. Those scripts for which current quotations are not available or where the shares are not quoted on stock exchange, have been valued at book value ascertained from their latest Balance Sheets.In case the latest Balance Sheet is not available, the shares have been valued at Rs. 1/- per company. In case of Investment in equity shares (held to maturity) valuation has been done at acquisition price.(Reference Annexure to Schedule -‘F' & ‘H') iii) The provisioning has been made without giving the effect of the amount lying in the Sundry Deposits under Schedule-‘C' - Other Current Liabilities.

A Retirement Benefits

i) Gratuity to staff is covered under the Group Gratuity Scheme of Life Insurance Corporation of India. As per actuarial valuation of Life Insurance Corporation of India (LIC) as on 31.03.24 the amount payable is Rs.1.19 lakh (shown in Schedule ‘C' - Other Current Liability) and fund value lying with LIC towards above gratuity fund is Rs.1,27,36,011/-..

Leave Encashment to staff is covered under the Group Leave Encashment Scheme of Life Insurance Corporation of India (LIC). As per books of accounts total liability towards Leave Encashment at the end of year is Rs.1,62,89,565/- shown in Schedule ‘C' - Other Current Liability. Against this liability the fund size of Leave Encashment Policy with LIC is Rs.1,47,49,977/- shown in Schedule ‘J' - Other Current Assets. The balance amount payable to LIC comes to Rs.15,39,588/- (Rs.1,62,89,565/- -Rs.1,47,49,977/-) As per actuarial valuation of LIC the amount payable to LIC at the end of the year is Rs.15,39,588/-.

At the time of retirement, the Corporation is paying Leave Encashment maximum upto 10 months of salary (last pay drawn plus applicable DA). Similarly Gratuity is also paid maximum upto 16.5 months to other staff (17.5 months in case of class IV employees) of salary (last pay drawn plus applicable DA).

ii) Monthly matching contribution towards Employees Provident Fund is remitted to the Regional

Provident Fund Commissioner, Chandigarh as per provisions of the Employees Provident Fund and Miscellaneous Provisions Ac, 1952 and is charged to profit and loss account.

b) Contingent liabilities

1 Liability in respect of units disposed off but in dispute - amount indeterminate.

2. Bank Guarantee earlier issued is not acknowledged as debt- Rs. 20,47,820/-

3. The contingent liabilities in respect of claims lodged against the Corporation by ex-employees/ pensioners (11 cases) are to the extent of Rs.1348.44 lakh (approx.) not acknowledged. In addition to above there are 16 court cases/appeals filed by the employees/ex-employees/pensioners against which amount is indeterminate.

Further, there is contingent liability amounting to Rs.125.88 lakh in respect of claims lodged by Loanees/ Auction purchasers. The corporation is generally unable to reasonably estimate possible loss for proceedings or disputes other than estimated, including where parties have not claimed an amount of damages. There is uncertainty as to the outcome of pending appeals or legal cases pending at any stage.

A sum of Rs.224.08 lakh Shown in Other Assets Schedule ‘J' - Other Current Assets' deposited with Income Tax Department against demand for Financial Years 1980-81 to 1982-83 and the Corporation has filed appeals before Hon'ble High Court against the orders of Income Tax department. Since the matter is sub-judice, no provision against this amount has been provided in the books of accounts.

The Income Tax Department has raised demand of Rs.5897 lakh u/s 271(1)(c) and 147 r.w.s. 144 in respect of assessment year 2013-14, 2014-15 and 2015-16.The Corporation has filed appeals against these demands and the same are pending with CIT(A)/ITAT. During the year the Corporation has deposited a sum of Rs. 40.00 lakh and Income Tax department adjusted Income Tax refund of Rs.85.75 lakh of FY 2021-22 and FY 2022-23 against the above demand.

4. The sale tax assessment for the financial year 2007-08 was also completed and an additional demand of Rs. 60.01 lakh was raised. The Corporation filed appeal before the Court of Jt. ETC(A), Ambala against the above demand. The case was remanded back to Assessing Authority, Panchkula for fresh decision vide orders dt.19.03.2013 of appellate authority. The fresh decision of sale tax department is still awaited. The Sale Tax number was surrendered on 05.12.2014 and the sale tax returns were filed till FY 2014-15 and no assessment is pending.

c) The Corporation has recommended to the State Government for its winding up/liquidation u/s 45 of SFCs Act 1951. The State Govt. has appointed Managing Director HSIIDC as Nodal Officer for completing the frmalities of winding up.

The Board of Directors of the Corporation in its meeting held on 22.07.2019 had constituted a Committee under the chairmanship of the Director of Industries & Commerce, Haryana to give its recommendations regarding steps/ modalities regarding winding up of the Corporation considering legal/ financial aspect and to give detailed modalities/ steps for liquidating all the assets (including loan assets) and liabilities (including court cases) of the Corporation. A total of three meetings of the Committee were held on 17.09.2019, 26.09.2019 & 14.10.2019.

The Board of Directors of the Corporation in its meeting held on 11.02.2022 reconstituted the Committee for winding up as under :

1. Managing Director, HSIIDC Chairman

2. Director of I&C, Haryana Member

3. Nominee from Finance Deptt., Haryana Member

First meeting of Winding up Committee was held on 16.12.2022 at 12.30 P.M. in the Office of MD, HSIIDC, Sector- 6, Panchkula under the Chairmanship of MD, HSIIDC.

The State Govt., Haryana (being Promoter) has decided to delist the shares of the Corporation from BSE. In furtherance to that, a request for relaxation from detailed procedure of delisting pursuant to Regulation 42 of SEBI (Delisting of Equity Shares) Regulations, 2021 has been filed by Industries Deptt., Haryana with SEBI vide Letter dated 11.02.2022 which has been accepted by SEBI vide letter dt.27.09.2023 subject to fulfillment of certain conditions.

In furtherance to the decision of the Board in its 359th Meeting held on 16.02.2024; HSIIDC has appointed M/s VC Corporate Advisor, Kolkata, as Merchant Banker for the purpose of delisting of shares of Haryana Financial Corporation from BSE Ltd. as per the direction of the SEBI.

Further, the Board of Directors in its 359th meeting held on 16.02.2024 resolved to constitute a Committee of Directors comprising of Smt. Radhika Singh, Joint Secy/Finance, Shri Piyush Bhargava, GM/SIDBI, Shri M.K. Chopra and Managing Directors/HFC for finalizing the modalities for determination of the price of shares as well as the valuation of the Assets of the Corporation, as per the advice of the Merchant Banker appointed for delisting of the shares of the Corporation.

d) No amount towards deferred tax asset/liability is outstanding in the books of accounts of the Corporation. The Corporation has stopped fresh sanctions since May, 2010. In such circumstances it is not feasible to create any deferred tax asset/liability for the current financial year. The Corporation has recommended to the State Government for its winding up/liquidation u/s 45 of SFCs Act 1951 and their decision is awaited.

e) The value of primary and collateral securities of all the Loan & Advances as on the date of the balance sheet is not re-assessed. However, adequate provision against non-performing assets (NPAs) has been made in the books of accounts as on 31.03.2024 as per the provisioning norms of SIDBI.

g. As per guidelines issued by SIDBI, provision towards diminution in the value of investments in respect of listed & Un-listed shares is required to be made which is to the extent of Rs.423.17 lakh upto 31.03.2024 against which the Corporation has already made provision of Rs. 419.91 lakh upto 31.03.2023 and provision of Rs. 3.26 lakh has been made during the year as shown in Schedule ‘D'- Provisions

h. The State Government has appointed Corporation as agent for disbursement of its various subsidies, seed money and agency loans. Unutilized amount of Rs.23.28 lakh against various subsidies and balance amount of Seed Money Agency/RIS amounting to Rs.87.31 lakh has been shown under the sub head “(b) (1) & (2) State Govt. Funds (As an Agency)” of Schedule ‘C' - Other Current Liabilities.

i. Sundry Deposits under Schedule ‘C' - Other Current Liabilities amounting to Rs.1120.38 lakh includes a sum of Rs.1066.10 lakh in case of M/s Surendera Enterprises Pvt. Ltd., Rewari a joint financing case with Haryana State Industrial and Infrastructure Development Corporation Ltd. (HSIIDC). The unit was auctioned for Rs.1095 lakh on14.06.2012 to M/s Balaji Enterprises (AP) on deferred payment basis. Out of sale amountof Rs.1095 lakh, down payment of Rs. 273.75 lakh i.e. 25% received from auction purchaser ( AP ) and a new loan account of Rs. 821.25 lakh ( 75% of auction price) in the name of the AP under the head Loans and Advances was opened. The AP paid a sum of Rs.678.20 lakh (including interest and down payment) to the Corporation and defaulted in further repayment. Corporation repossessed the unit and decided to forfeit the above amount. Against the above action of the Corporation, the AP filed a suit against the Corporation in the Court of Civil Judge (JD), Rewari. The AP also raised the issue of shortage of land area. The suit of the AP was dismissed vide orders dated 04.07.2018. Now as per orders dt.18.08.2021 of Hon'ble Supreme Court of India, the case titled Balaji Enterprises V/s HFC has been restored to its original number in Distt. Court Rewari and is pending. Keeping in view the above circumstances, the proper accounting entries are yet to be passed and amount is still kept in Sundry Deposit A/c. Further, out of Rs.1095 lakh, a sum of Rs. 28.90 lakh was paid to HSIIDC being a joint financing case and the balance amount of Rs.1066.10 lakh is kept in sundry.

j. Earnest Money amounting to Rs.1,82,82,250/- (in three cases Rs.1,00,50,000/- Rs.74,16,250 Rs.8,16,000/-) shown under Schedule ‘C' - Other Current Liabilities is the amount of earnest money received against e-auction of primary security held on 14.11.2019 in case of M/s Devi Dayal Castings Pvt. Ltd., Gurgaon. Principal and Misc. expenses outstanding in this case have been prudentially written off in financial year 2014 -15 with retaining the Recovery rights. The borrower has filed a contempt petition in the Hon'ble Supreme Court and also a stay application against e-auction. Vide orders dt.13.12.19, the Hon'ble Supreme Court of India has directed the Corporation not to take any coercive steps and the matter is pending in Hon'ble Supreme Court.

During the current financial year the Corporation has auctioned its building at Karnal for Rs.297 lakh. The auction purchaser has deposited 25% of the auctioned amount i.e Rs.74 lakh and the same is kept in Earnest Money account. The Corporation has also auctioned collateral security in case of M/s Panj Rattan Food, Sirsa situated at Sardulgarh, Distt. Mansa, Punjab for Rs. 33 lakh. Auction purchaser has deposited 25% of auctioned amount i.e Rs. 8 lakh which is kept in Earnest Money Account.

k. Borrowers' Imprest amounting to Rs.10,42,950/- shown under Schedule ‘C' - Other Current Liabilities is the amount received from the parties at the time adjustment of loan account for payment of pending bills ( legal fee, security charges etc. ) to be submitted by the respective agencies. The balance excess amount, if any after the adjustment of above expenses is refunded to the parties.

l. Claims Recoverable under Schedule ‘J'- Other Current Assets amounting to Rs.40,64,093/-, includes a sum of Rs.22,09,712/- recoverable in case of M/s S.K.Wood Products, Yamuna Nagar. In this case the collateral security was sold to Sh.S.K.Saini and Sh. Robin Saini (auction purchasers) for Rs. 24.30 lakh on 23.08.07 and credited to the loan account of the loanee. Later on Auction Purchasers filed writ petition in the Hon'ble Punjab & Haryana High Court, Chandigarh seeking relief that the property purchased by them had no access and the Corporation may provide the access to the auctioned land or refund the amount. The case was decided by Hon'ble Punjab & Haryana High Court, Chandigarh and the Hon'ble Court directed the Corporation to refund the amount along with interest. Accordingly the Corporation refunded a sum of Rs.38,01,285/- including interest to the auction purchaser by debiting Claim Recoverable Account as the loan account of loanee M/s S.K.Wood Products has already been adjusted.

The Corporation again auctioned the above property at a price of Rs.56.00 lakh. The auction purchaser deposited an amount of Rs.16.00 lakh and failed to deposit the remaining amount. The received amount of Rs.16.00 lakh was forfeited and credited to claims recoverable account. Auction purchaser filed a case against the Corporation which was decided in favour of auction purchaser. An appeal was filed against the above orders before the higher Court and same has been decided on 10.08.2023 in favour of the Corporation. Now the recoverable amount in the above case is Rs.22,09,712/- including Rs. 8,427/- debited subsequently towards expenses. The unit will be put to auction after taking legal opinion from the advocate.

m. The Corporation is maintaining Fixed Assets Purchase register where all items of fixed is

assets are entered with date, amount of purchase and its location. Mostly the fixed asset item purchased on the request of the particular division/branch and after the purchase of the item, the same is underthe control of that particular division/branch. As the purchases are of meager amount, no separate physical verification is being done by the Corporation.

n. The Corporate building of the Corporation at Panchkula was leased out to UHBVN, Panchkula in the financial year 2008-09. UHBVN, Panchkula shifted to its own premises and vacated the office building in the month of October, 2022. The Corporation leased out the Conference Room at First Floor, and complete 2nd and 3rd Floor of the said building to Haryana Parivar Pehchan Authority, Panchkula (HPPA) at a monthly rent of Rs.15,08,792/- plus GST extra w.e.f. December, 2022. The Corporation has issued demand of the rent from December, 2022 to December, 2023 amounting to Rs.2,31,44,873/- (Rs.1,96,14,296/- plus Rs.35,30,579/- as GST shown under the head Rent and GST due but not received in Schedule ‘J'- Other Current Assets) from HPPA, Panchkula. But no amount has been received from HPPA so far. The Corporation has shown above amount as rental income in the books of accounts of financial year 2023 - 24 as rent due but not received. The Corporation has already deposited GST amounting to Rs. 35,30,579/- with the GST Authorities as it was a statutory liability of the Corporation and would have attracted penalty from the GST Authorities.

o. The Board of Directors of the Corporation, in the year 2011 decided to transfer the Corporate Building to Haryana State Industrial Infrastructure Development Corporation ( HSIIDC ) at a price of Rs. 2750.88 lakh. This decision has been duly approved by the state government vide letter dated 13/ 05/2013.

The Corporation had previously received an advance amounting to Rs 2224.45 lakh upto 31st March, 2015. Now during the current financial year ( 2023 - 24 ), the HSIIDC transferred the balance amount of Rs. 498.92 lakh after deducting TDS of Rs.27.51 lakh at the rate of 1% as per Provisions of Income Tax Act during the current year.

The corporation has handed over physical possession of the property i.e Land & Building to HSIIDC on 03.01.2024 after receipt of full amount and has been accounted for as Sale of Land & Building in the books of account, resulting in a profit of Rs 2642.56 lakhs during the current year. The Corporation has deposited capital gain tax of Rs. 164.51 lakh with the income Tax Deapartment.

Although a letter has been issued to HSIIDC on 1st March 2024, but Sale deed is yet to be executed for the same.

q. Figures have been rounded off to the nearest rupee and wherever necessary figures for the previous year have been rearranged/regrouped in order to make it in conformity with current year's figures.

r. Schedules 'A' to 'Q' alongwith Cash Flow statement form integral part of the Balance Sheet and Profit and Loss Account.