2.15 Provisions, Contingent Liabilities and Contingent Assets Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made ofthe amount ofthe obligation.
When theeffectofthetimevalueofmoneyis material,theCompanydetermines the level of provision by discounting theexpectedfuture cash flows to net present value using an appropriate pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Contingent Assets / Liabilities
A contingent liability is a present obligation that arises from past events, where it is either not probable that an outflow of resources will be required to settle or a reliable estimate ofthe amount cannot be made. A contingent liability is disclosed. Contingent liabilities are also disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence ofoneormore uncertainfutureevents not wholly within thecontrol oftheCompany.
Claims against the Company, where the possibility of any outflow of resources in settlement is remote, are not disclosed as contingent liabilities.
Contingent assets are not recognised in the Standalone Financial Statements since this may result in the recognition of income that may never be realised. A Contingent asset is disclosed where an inflow ofeconomic benefits is probable.
Recent Accounting Pronouncements
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards) Amendment Rules, 2023 dated 31st March 2023 to amend the following Ind AS which are effective for annual periods beginning on or after 1st April 2023. The company has given effect to these amendments during the reporting period.
a. Definition ofAccounting Estimates - Amendments to Ind AS 8
The amendments clarify the distinction between changes in accounting estimates, changes in accounting policies and the correction of errors. It has also been clarified how entities use measurement techniques and inputs to develop accounting estimates.
The amendments had no impact on the company's financial statements.
b. Disclosure of Accounting Policies - Amendments to Ind AS 1
The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant' accounting policies with a requirement to disclose their 'material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments have had an impact on the Company's disclosures of accounting policies, but not on the measurement, recognition or presentation of any items in the Company's financial statements.
c. Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments toIndAS12
Theamendments narrow the scope ofthe initial recognition exception under Ind AS 12, so that it no longerapplies to transactionsthat give rise to equal taxable and deductible temporary differences such as leases.
The amendments had no impact on the company's financial statements
The 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 March 31,2024, MCA has not notified any new Standards or amendments to the existing Standards applicable to the Company.
Nature and Purpose of Reserves:
Retained Earnings:
The Retained earnings comprises ofGeneral Reserve and Surplus which is usedfrom time to time to transfer profits by appropriations. It is a free reserve of the Company and can be utilised in accordance with the provisions of the Companies Act, 2013 and as per the approval of the Board. It includes the remeasurement of defined benefit plans as per actuarial valuations which will not be reclassified to the Standalone Statement of Profit and Loss in subsequent periods.
Statutory Reserve:
Statutory Reserve represents the reserve created pursuant to the Reserve Bank of India Act, 1934 ("the RBI Act"). In terms of section 45-IC ofthe RBI Act,a Non-Banking FinanceCompany is required to transferan amount not less than 20 percent of its net profitto a Reserve Fund beforedeclaring anydividend.Appropriation from this Reserve Fund is permitted onlyforthe purposesspecified by RBI.
Capital Reserve:
Capital Reserve was created through business combinations and shall be utilised as per the provisions ofthe Companies Act, 2013.
Fair value of Equity Instruments through Other Compehensive Income:
This reserve represents the cumulative effect offairvalue fluctuations of Investments made by the Company in equity instruments of other entities. The cumulative gain or loss arising on such changes are recognised through Other Comprehensive Income (OCI) and is accumulated under this reserve. The amount from this reserve will not be reclassified to the Standalone Statement of Profit and Loss in subsequent periods.
B) Other commitments
i. The Company has given an undertaking to ICICI Bank Limited not to transfer, assign, dispose of, pledge, charge or create any lien or in any way dispose of the existing Equity Shares to the extent of 13,04,748 shares or future shareholdings in McNally Bharat Engineering Company Limited without priorapproval ofthe bank.
ii. In the Matter of InCred Financial Services Limited (formerly KKR Financial Service Private Limited) The Company has been restrained from selling, transferring, alienating, disposing, assigning, dealing or encumbering or creating third party rights on their assets of the Company vide ex-parte, interim order passed by Hon'ble High Court of Delhi in O.M.P.(I) (COMM.) 459/2019 dated 13th December, 2019.
Note 38 : Financial Instruments- Fair Value Measurement (contd.)
Level 1 hierarchy includes financial instruments valued using quoted market prices. Listed equity instruments and traded debt instruments which are traded in the stock exchanges are valued using the closing price at the reporting date.
Level 2 hierarchy includes financial instruments that are not traded in active market.This includes OTC derivatives and debt instruments valued using observable market data such as yield etc. of similar instruments traded in active market. All derivatives are reported at discounted values henceare included in level 2. Borrowings have been fair valued using market rate prevailing ason the reporting date.
Level 3 if one or more significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity instruments and certain debt instruments which are valued using assumptions from market participants.
iii. Valuation techniques used for valuation of instruments categorized as level 3.
Forvaluation ofinvestments in equitysharesand associates which are unquoted, peercomparison has been performed whereveravailable. Valuation has been primarily done based on the cost approach wherein the net worth of the Company is considered and price to book multiple is used to arrive at the fair value. In cases where income approach was feasible valuation has been arrived using the earnings capitalization method. For inputs that are not observable for these instruments, certain assumptions are made based on available information. The most significant of these assumptions are the discount rate and credit spreads used in the valuation process. Forvaluation of investments in debt securities categorized as level 3, market polls which represent indicativeyields are used as assumptions by market participants when pricingtheasset.
Note 39
The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. At the year end, the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses details whereof need to be provided under any law / Indian Accounting Standards.
Note 40
Financial RiskManagement
The Company has operations in India. Whilst risk is inherent in the Company's activities, it is managed through a risk management framework, including on-going identification, measurement and monitoring subject to risk limits and other controls. The Company's activities expose it to credit risk, liquidity risk and market risk.
a) Interestraterisk
The Companyholds shorterduration investment portfolio and thus it has a minimumfairvaluechange impact on its investment portfolio. The interest rate risk on the investment portfolio and corresponding fairvalue change impact is monitored.
On assets and liabilities
Interest rate sensitivity on fixed and floating rate assets and liabilities with differing maturity profiles is measured by using the duration gap analysis. The same is computed monthly and sensitivity of the market value of equity assuming varied changes in interest rates are presented and monitored byALCO.
b) Price risk
Company's equity investments carry a risk of change in prices. To manage its price risk arising from investments in equity securities, Company periodically monitors the sectors it has invested in, performance of the investee companies, measures mark-to-market gains/losses and reviews the same.
c) Credit Risk
Credit riskis the riskoffinancial lossarising out ofa customerorcounterparty failing to meet theirrepayment obligations to theCompany. It has a diversified lending model and focuses on commercial lending.
Classification of financial assets under various stages
The Company classifies its financial assets in three stages having the following characteristics
Stage 1: unimpaired and without significant increase in credit risk since initial recognition on which a 12-months allowance for ECL is recognized;
Stage 2: a significant increase in credit risk since initial recognition on which a lifetime ECL is recognized; and
Stage 3: objective evidence of impairment and are therefore considered to be in default or otherwise credit impaired on which a lifetime ECL is recognized.
Unless identified at an earlier stage, all financial assets are deemed to have suffered a significant increase in credit risk when they are 30 days past due (DPD) or one installment overdue on the reporting date and are accordingly transferred from stage 1 to stage 2. For stage lanECL allowance is calculated based on a 12-months Point in Time (PIT) probability weighted probability of default (PD). For stage 2 and 3 assets a life time ECL is calculated based on a lifetime PD.
The Company has calculated ECL using three main components: PD, LGD (loss given default) and EAD (exposure at default) along with an adjustment considering forward macro-economic conditions.
The Companyhad received an order passed by the Reserve Bankoflndia ("RBI") forcancellation ofCertificateofRegistration (No. 05.05534 dated March 31,2003) vide letter no. KOLDOS.RSG.No.S949/03.03.008/2022-23 dated July 04, 2022 under Section 45-IA(7) of the Reserve Bankoflndia Act, 1934. The RBI had also instructed the Company to follow RBI Norms unless the NBFC operations are ceased by the company.
The Company had filed a petition with the Appellate Authority of NBFC Registration for the restoration ofthe Certificate of Registration. The Appellate Authority has rejected the petition and passed the final order dated May 04,2023 for cancellation of Registration. Further, a Writ Petition before the Calcutta High Court has been filed by the Company for restoration of the licence and the matter is subjudice.
The Company was registered as a NBFC and is still following the prudential norms applicable to such company vide letter no. KOL.DOS.RSG.No. S949/03.03.008/2022-23 dated July 04, 2022 under Section 45-IA(7) ofthe Reserve Bank of India Act, 1934. It is engaged in holding shares in its Group Companies in India.The Standalone Financial Statements ofthe Company for the year ended 31st March, 2024 have been prepared considering the prudential norms applicable to the Non-Banking Financial Company.
Note 44
Themain businessoftheCompany is Investment activity; hence, therearenoseparatereportablesegmentsasper IndAS 108 on 'Operating Segment.
Note 45
Based on Notification no. DNBR.009/CGM(CDS)-2015 dated 27th March, 2015, provision has been madeforstandard assetsat0.40 percent ofthe balance of such assets as at 31st March, 2024 which has been disclosed separately as "Provision for Standard Assets" in Note 19.
Note 46
During the year, the Company's financial performance has been adversely affected due to external factors beyond the control ofthe Company due to the classification of loans and advances as Non-Performing Assets and diminution in the value of Investments resulting in negative net worth. The Company has defaulted in repayment of its loans due to the liquidity issues faced by the Company. However, the management is having constant negotiations and discussions with the lenders for early settlement of disputes and are confident that with the lenders' support and various other measures taken by it, the Company will be able to generate sufficient cash inflows through profitable operations improving its net working capital position to discharge its current and non-current financial obligations. Accordingly, the Board of Directors have decided to prepare the Standalone Financial Statements on a going concern basis.
Note 47
a) The Company has requested the Inter-Corporate lenders to consider the waiver of interest for the current financial year which is yet to be confirmed. Accordingly, interest expense of Rs. 4,24,354 thousand on inter-corporate borrowings for the year ended 31st March, 2024 (Rs. 4,32,101 thousands for the year ended 31st March, 2023) has not been recognized in the Standalone Financial Statements.
b) Due to the disputes with the secured lenders namely Housing Development Finance Corporation Ltd. and InCred Financial Services Limited (formerly KKR Financial Services Private Limited) which are being contested at various legal forums, the Board of Directors has decided not to recognize interest expense on such borrowing.
c) Due to the disputes in earlier years, and ongoing arbitration proceedings, the company has defaulted in its repayment obligation of term loan of Rs. 10,00,000 thousand extended by InCred Financial Services Limited (formerly KKR Financial Services Private Limited).
d) A lender ofthe Company, namelyHDFC Bank Limited, has filed a suit before the Honorable High Court at Calcutta against the Company for default in repayment of loans borrowed by the Company. The Company has decided to contest and defend its case.
Note 48
The company had defaulted in redemption of Non-Convertible Debentures (NCD). Consequently, the debenture holder and/or debenture trustee have invoked various shares and securities given by the company and its group companies. In the absence of any invocation statement and/or confirmation from IL&FS, the company has adjusted the value of NCD and interest thereon from such invocation at the closing market price ofthesaid shares on thedateofinvocation,thedetailsofwhich are given here under:
As on 31st March, 2024, the Company has four directors namely, Mr. Lakshman Singh, Mr. Chandan Mitra, Mr Debashis Lahiri and Ms. Lyla Cherian who are disqualified under section 164(2)(b) ofthe Companies Act, 2013. The disqualification of the Directors of the Company have occurred pursuant to default in repayment of principal amount of Non-Convertible Debentures and payment of interest amount of NonConvertible Debentures.
Note 50
In earlier years, the Company had issued Non-Convertible Debentures worth 10,00,000 thousand to IL & FS which matured at the end of the Financial Year 2022-23. The company defaulted in repayment ofthe dues consequently, invocations were made time-to-time by the debenture trustee towards recovery of its dues.
Debenture trustee had invoked various securities owned by a group company in the earlier years to the tune of Rs. 70,802 thousand of which adjustments were not adjusted in the books of accounts due to non-communication from the debenture trustee. The same are adjusted and given effect to in the current year on communication from a Group Company.
One-time settlement agreement dated 5th May, 2023 has been signed by the Debenture-holder, the Company and Guarantors along with other borrowers. According to the agreement, the Company and other borrowers had settled their respective liability towards debt securities in partforcash consideration of Rs.4,96,700 thousand which was paid by agroupcompanyon behalfofthecompanyand other borrowers and the balance is to be settled by selling the collateral, Neemrana Land, jointly owned by Vedica Sanjeevani Projects Private Limited and Christopher Estates Private Limited bytheend oftheyear.
Cash consideration paid bytheGroupCompanyon behalfofthe Company had been adjusted with the outstanding Debentures to the tune of Rs. 1,98,860 thousand pertaining to it with corresponding credit to the Group Company under the head 'Borrowings other than debt securities' in Note 16. However, the sale of Neemrana Land has not yet been materialized. The proceeds from the sale of Neemrana Land shall be adjusted to settle the outstanding dues only on the Final Settlement Date in the manner as may be communicated by the Debenture holderin writing.
Note 51
In earlier year, Kotak Mahindra Bank (the Investor) had invested in one of the promoter group entity namely McNally Bharat Engineering Company Limited by subscribing to 24,00,000 Compulsorily Convertible Preference Shares (CCPS) issued by it @ Rs 62/- per share aggregating to Rs. 1,48,800 thousand.The Companyhad entered into a Put Option Agreementwith the Investor.As pertheterms ofagreement, thesaid Investor exercised put option to sell the said shares to the Company. On failure to recover the amount, the investor filed an application under section 9 of Arbitration & Conciliation Act before the BombayHigh Court. An order of injunction was passed upon the Company restraining it from transferring, disposing of or alienating its assets and an undertaking was taken from the company that Rs. 5,000 thousand would be paid by it upfront which has since been paid.
The CCPS liability of Rs. 1,48,800 thousand has been settledforan amountof Rs. 63,000 thousandvideasettlement agreementdated 26th December, 2023. The Company had previously created provision for contingency. The same has been now recognized as under the head 'Other Payables' in Note 14.The liabilityis payableas under:
The Company has paid all the instalments falling due during the year except for the instalment to the tune of Rs. 15,000 thousand for the quarter ending 31st March, 2024. KMBL shall provide a grace period of 1 month with penal interest @ 2% p.m. on default in payment of instalment.
Note 52
In theearlieryears, the company had settled and accountedforaterm loan ofRs. 6,00,000 thousand at Rs. 4,79,108thousand given by SREI as per MoU entered between borrower, lender and guarantors on 28.09.2020. However, in the earlier years, the company has received a confirmation and/or demand letter from SREI showing an outstanding amount of Rs. 11.93 crores.
In the matter, the Company has entered into a debt restructuring agreement for the balance Rs. 1,20,000 thousand which has been acknowledged as debt by the Company (shown as Unsecured Borrowings in Note 16). Provision for Contingency previously recorded has been adjusted against this liability and an additional charge of Rs. 38,200 thousand has now been recognized under the head 'Other Expense' as disclosed in Note 29.Theloan has been guaranteed by Mr. Aditya Khaitan, PromoteroftheCompany.TheCompanyhas dulypaid themonthlyinstalmentfalling due during the Quarter.
Note 53
In earlier year, pursuant to put option agreement entered into by the Company with Aditya Birla Finance Limited ("the Investor"), the Investor had invested in one of the promoter group company namely McNally Bharat Engineering Company Limited (MBECL) by subscribing to 1,12,90,000 Compulsorily Convertible Preference Shares (CCPS) @ Rs 62/- per CCPS aggregating to Rs. 6,99,980 thousands. On the Investor's failure to realize the amount on exercising the put option, it initiated arbitration proceedings and the Arbitral Tribunal passed an interim award upon the group companies and the Company declaring it to be jointly and severally liable to pay a sum of Rs. 8,10,000 thousand.
The Company filed an application challenging the award and the adjudication order dated 7th June, 2023 has been passed by the Arbitrator. As per the order and the consent terms agreed, one of the group companies has paid 70,000 thousands on behalf of the Company and another group company has assigned its receivables to the tune of 1,50,000 thousands in favour of the Investor. The Promoters has given post-dated cheques of Rs. 1,00,000 thousand in the capacity of Guarantors of the original arrangement. The Company has recognized the liability in the name of group companies to the tune of Rs. 2,20,000 thousand under the head 'Borrowings other than Debt Securities' in Note 16 with the corresponding charge to Statement of Profit & Loss under the head 'Other Expenses' in Note 29.
Note 54
During theyear,one ofthe lenders oftheCompany, Aryan Mining and Trading Corporation Private Limited has assigned its receivablefrom the Company to Danta Vyapar Kendra Limited. The Principal of Loan assigned amounts to Rs. 38,392 thousand. The Loan is repayable in 7 monthly installments starting from June 2024. The outstanding principal has been recognized in the books under Inter-Corporate Borrowings (in Note No. 16) in the name of Danta Vyapar Kendra Limited and balance liability of Rs. 21,036 thousand as per the agreement has been recognized with the corresponding charge to Statement of Profit & Loss under the head 'Finance Cost' in Note 27.
Note 55
In theearlieryears, thecompanyhad given InterCorporate Loansand Advances to McNally Bharat Engineering Company Limited (MBECL). MBECL is under Corporate Insolvency Resolution Process (CIRP), under the provision ofthe Insolvency Bankruptcy Code, 2016 in terms of theorderdated 29 April, 2022 passed by the National Company Law Tribunal, Kolkata Branch. The company had filed claim ofRs. 15,96,621 thousand including amount as disclosed in Note No. 57 before the Interim Resolution Professional (IRP) in the CIRP of MBECL. The IRP has admitted theclaim to theextentofthe principal amounting to Rs. 1,30,000 thousand only.The Resolution Plan has been approved by NCLT on 19th December2023 but is not effective till the payment is made by the Resolution Applicant. However,theCompanyhas alreadymade provisionsagainst the Inter-corporate depositgiven and its interest of Rs. 15,01,338thousand.
In earlier year, upon exercise of put option by IL&FS Financial Services Limited for loan extended to McNally Bharat Engineering Company Limited by subscribing 1,61,29,000 CCPS issued by said group company @ Rs. 62/- per CCPS, amounting to Rs. 9,99,998 thousands the Company recognized the liabilityto that extent and showed as receivable from McNally Bharat Engineering Company Limited under 'Other Receivable' in Note6.
Note 57
Kilburn Office Automation Limited and Kilburn Chemicals Limited had undergone Corporate Insolvency Resolution Process and pursuant to the NCLT, Kolkata order amounts receivable from both the companies were Nil. Accordingly during the year the company has written off the receivables due from them amounting to Rs. 2,777 thousand and Rs. 1,153 thousand respectively and reversed the provision thereof made in earlieryears.
Note 58
An Adjudicating Order No. Order/SM/AD/2023-24/29524 dated 28th September, 2023 was passed by SEBI Adjudicating Officer imposing a penalty of Rs. 200 thousand. The same has been paid during the year and disclosed as 'Other Expenses' in Note 29.
Note 59
Events after Balance Sheet date but before the adoption of Financial Statements
An Adjudicating Order No. Order/SV/VC/2024-25/30271 dated 10th April, 2024 was passed by SEBI Adjudicating Officer imposing a penalty ofRs. 200 thousand.
Note 60
CorporateSocial Responsibility
As per section 135 of the Companies Act, 2013 a company, meeting the applicability threshold, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility(CSR) activities. In terms of the requirement of section 135 of the Companies Act, 2013 and rules made thereunder, the Company was not required to spend on CSR activities during the Financial Year ended 31st March, 2024 since the Company had an average net loss during the immediately preceding Financial Years.
e. The Company does not have any investment in subsidiary companies and accordingly the disclosures as to whether the company has complied with the number of layers of companies prescribed under clause (87) of section 2 of the Act read with the Companies (Restriction on numberofLayers) Rules, 2017is notapplicable.
f. All the borrowings from banks and financial institutions have been used for the specific purposes for which they have been obtained.
g. Utilisation of Borrowed Funds and Share Premium
i. The Company has not advanced or loaned or invested funds to any other persons or entities, including foreign entities (Intermediaries) with the understanding, whether recorded in writing or otherwise, that the Intermediary shall 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 provideanyguarantee, securityorthe liketo oron behalfofthe ultimate Beneficiaries.
ii. The Company has not received any fund from any persons or entities, including foreign entities(Funding Party) with the understanding, whether recorded in writing or otherwise, that the company shall 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 provide anyguarantee, securityorthelikeon behalfofthe Ultimate Beneficiaries.
h. TheCompanyhas not taken anyworking capital facilitiesfrom bankson the basis ofsecurityofcurrentassets.
i. There were no transactions which have not been recorded in the books of account but have been surrendered or disclosed as income in thetaxassessments underthe IncomeTaxAct, 1961 (43 of 1961) during theyear.
Signature to Notes 1 to 64 As per our report of even date
ForV.SINGHI&ASSOCIATES For and on behalfofthe Board ofDirectors
CharteredAccountants
Firm Registration No: 311017E TabrezAhmed Suk«hD°|ui
(Director) (Director)
(A.SENGUPTA) DIN: 10570558 DIN: 10511602
Partner
MembershipNo:051371 .. , . .
SkJaved Akhtar Sudipta Chakraborty
Place:Kolkata (CompanySecretary) (CFOandManager)
Date:27th May, 2024 Membership No.: ACS24637
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