ESCORTS Notes to Accounts

1. Corporate Information

Escorts Limited is a public limited company domiciled in India and
incorporated under the provisions of Companies Act, 1956. The Company''s
shares are listed with Bombay Stock Exchange Limited, National Stock
Exchange of India Limited and Delhi Stock Exchange Limited. The Company
is engaged in the business of manufacturing of agricultural tractors,
engines for agricultural tractors, round end flat tubes, heating
elements, double acting hydraulic shock absorbers for railways coaches,
center buffer couplers, automobile shock absorbers, telescopic front
fork and Mcpherson struts, break block, internal combustion engine and
all types of breaks used by railway''s, construction, earth moving and
material handling equipments. It also trades in oils and lubricants,
implements, trailers, compressor accessories and spares,construction,
earth moving and material handling equipments and aero business.

2. Basis of Preparation

The financial statements of the Company have been prepared and
presented under the historical cost convention (except for land,
building and plant & machinery acquired before 1st April, 2003 which
are carried at revalued amounts) on the accrual basis of accounting in
accordance with generally accepted accounting principles in india
(GAAP) and comply with the accounting standard notified under the
Companies (Accounting Standards) Rules, 2006 and the relevant
provisions of the Companies Act, 1956.

(a) Terms/Rights Attached to Equity Shares

The Company has only one class of share, i.e., equity shares having the
face value of Rs. 10 per share. Each holder of equity share is entitled
to one vote per share.

Dividend is paid in Indian Rupees. The dividend recomended by the Board
of Directors is subject to the approval of the shareholders at the
ensuing Annual General Meeting. In the event of liquidation of the
Company, equity shareholders will be entitled to receive remaining
assets of the Company after distribution of all preferential amounts.
The distribution will be in proportion to the number of equity shares
held by the shareholders.

In addition, the company has issued total 298,000 (Previous Year
298,000) Equity Share to employees (through Escorts Employees Benefit &
Welfare Trust) on exercise of option granted under the Employee Stock
Option Scheme 2006, wherein part consideration was received in form of
emplyee service.

(b) Share Reserved for Issued Under option

For details of share reserved for issue under the Employee Stock Option
Plan (ESOP) of the Company - (Refer Note 36).

Nature of Security

Cash Credit/Export Packing Credit and Working Capital Demand Loans from
Banks are secured against First charge on current assets and second
charge on movable fixed assets excluding assets specifically charges to
the term landers and repayable on demand and carries interest @ 11-13%
per annum.

3. The outstanding Derivative Instruments as at 30th September, 2012

The Export receivables of the Company as at year end have not been
hedged by forward contract (Previous Year: Nil)

4. Disclosure required by Accounting Standard (AS) 29 ''Provisions,
Contingent Liabilities and Contingent Assets'':

Rs. Crores

Year Ended Year Ended
30.09.2012 30.09.2011

a. Contingent Liabilities

I) Estimated amounts of contracts remaining
to be executed on capital account and
not provided for 48.30 61.91

II) * Claims not acknowledged as debts 0.55 0.51

III) There is a Contingent liability of:

* (a) Excise duty/ Customs duty demands
not acknowledged as liability 12.66 8.98

* (b) ESI additional demand not acknowledged
as liability 4.14 4.14

* (c) Sales Tax & Other demands not
acknowledged as liability 13.50 6.73

* (d) Pending Legal Cases - Personnel 4.06 3.21

- Others 23.41 79.87

* (e) Demand raised by Faridabad Municipal
Corporation for external 2.38 2.38
development charges where the Company is in
litigation

(f) Guarantees given to banks under
Channel Finance Program 26.98 28.18

(g) LC/Guarantees executed in favour of Others 19.54 9.59

(h) Demand raised by Income Tax Department,
disputed by the Company and pending in appeal 111.05 130.52

(i) Liability towards Surety Bond in favour
of Governor of Haryana for Sales Tax
registration under VAT 3.50 -

* The amounts indicated as contingent liability or claims against the
Company only reflect the basic value. Interest, penalty if any or
legal costs, being indeterminable are not considered.

IV) During the period 2004-05, Escorts Limited (EL) sold its entire
share holding in Escorts Heart Institute & Research Center Limited
(EHIRCL) vide Sale Purchase Agreement dated 25th September, 2005. There
were certain pending disputed Income Tax Demands of Rs. 52.33 crores
and interest thereon amounting to Rs. 29.16 crores on EHIRCL and in
terms of the agreement EL has undertaken to indemnify the purchaser to
the extent of Rs. 65 crores plus one-third of any amount in excess of
Rs. 65.00 crores, on final determination of such demands as a result of
adjudication by assessment/appellate authorities. For this purpose and
in terms of Share Purchase Agreement an amount of Rs. 64.99 crores has
been kept in an Escrow Account as fixed deposit, which after renewal
(s) amounts to Rs. 82.80 crores as on 30th September, 2012. A provision
of Rs. 65 crores has been made on prudent basis to meet this liability,
if and when the same arises.

(ii) Nature of provision:

Product Warranties: The Company gives warranties on certain products
and undertakes to repair or replace them if these fail to perform
satisfactorily during the free warranty period. Such provision
represents the amount of expected cost of meeting the obligations of
such rectification/replacement. The timing of the outflows is expected
to be within a period of one year.

5. The Company revalued its freehold land and buildings as on 01st
April, 2009 and amount added on revaluation is Rs. 672.72 crores, the
revaluations was carried out by reputed independent valuer.

6. During 2008 the Haryana State Government introduced Haryana Tax on
Entry of Goods into Local Area Act, 2008 ("Entry Tax") by repealing the
Haryana Local Area Development Tax Act, 2000 ("HLADT"). The said Act
was held unconstitutional by the Hon''ble Punjab & Haryana High Court in
their judgment dated 1st October, 2008.

The State Government of Haryana has preferred an appeal before the
Hon''ble Supreme Court which is pending for adjudication before the
Constitutional Bench. Based on the legal advice received by the Company
no further provision on this account is considered necessary.

7. The Company has executed an Agreement to Sell for transfer of 25
acres of land at Plot No. 219, Sector 58, Balabhgarh, Haryana for a
consideration of Rs. 9.00 crores. The said transfer is subject to
necessary approval from HUDA and accordingly the consideration amount
of Rs. 9.00 crores is being treated as advance.

8. The Company has not received information from vendors regarding
their status under the Micro, Small and Medium Enterprises Development
Act, 2006 and hence disclosure relating to amounts unpaid as at the
year end together with interest paid/payable under this Act and as
required by Schedule VI of Companies Act, 1956 have not been given.

9. Pursuant to the Scheme of Arrangement (Scheme) under Sections 391
to 394 which has been approved by the Hon''ble High Court of Punjab &
Haryana vide its Order dated 17th September 2009, an amount of Rs.
369.79 crores on account of, receivables, fixed assets, inventories,
loans & advances which is doubtful of recovery/ realization has been
provided for/written off and adjusted through Business Reconstruction
Reserve.

Had the Scheme not prescribed for the aforesaid accounting treatment as
approved by the Hon''ble High Court, the balance sheet (including
reserves & surplus) and the statement of profit and loss would have
been impacted to that extent.

Further, the balance amount of Rs. 70.28 crores lying in Business
Reconstruction Reserve has been transferred to General Reserve.

10. A Scheme of Arrangement and Amalgamation under Section 391 to 394
of the Companies Act, 1956 was approved by the shareholders and the
unsecured creditors of Escorts Limited on 20th May, 2012 for the
amalgamation of Escorts Construction Equipment Limited (''ECEL''),
Escotrac Finance and Investments Private Limited (''Escotrac'') and
Escorts Finance Investments and Leasing Private Limited (EFILL)
(together ''Transferor Companies'') with Escorts Limited (''Escorts'' or
Company'') (hereinafter referred to as ''the Scheme''), with effect from
the Appointed Date of 1st October, 2011, The Scheme has been sanctioned
by the Hon''ble High Court of Punjab and Haryana at Chandigarh vide its
order dated 9th August, 2012.

Upon necessary filings with the respective Registrar of Companies by
the Transferor Companies and Transferee Company, the Scheme has become
effective on 12th October, 2012 and the effect thereof has been given
in the financial statements from 1st October, 2011. Consequently in
terms of the Scheme,

1. The entire business undertaking of the Transferor Companies
including all assets and liabilities, as a going concern, stands
transferred to and vested in the Company with effect from 1st October,
2011 being the merger appointed date.

2. The Transferor Companies which were engaged in the business of
manufacture of construction equipment and investment activities have
been dissolved without being wound up.

3. In consideration of the amalgamation, the Company has issued:

- 1,68,83,629 equity shares of Rs. 10 each aggregating to Rs. 16.88
crores in the ratio of 4 (four) fully paid up Equity Shares of the face
value of Rs. 10/- each of the Company for every 27 (Twenty Seven) fully
paid-up equity shares of Rs. 10/- each held in ECEL

- 44,444 equity shares of Rs. 10 each aggregating to Rs. 0.04 crores
in the ratio of 4 (four) fully paid up Equity Shares of the face value
of Rs. 10/- each of the Company for every 27 (Twenty Seven) fully paid
up equity shares of Rs. 10/- each held in Escotrac

- 30,769 equity shares of Rs. 10 each aggregating to Rs. 0.03 crores
in the ratio of 4 (four) fully paid up Equity Shares of the face value
of Rs. 10/- each of the Company for every 39 (Thirty Nine) fully paid
up equity shares of Rs. 10/- each held in EFILL

4. Pursuant to the above, the issued share capital of the Company
increased from Rs. 105.62 crores to Rs. 122.58 crores. Further,
pursuant to the Scheme, the authorized share capital of the Company
stands enhanced to Rs. 1289 crores.

5. Further, equity investments held by Escotrac and by EFILL in the
share capital of the Company and equity investment held by Escotrac and
by EFILL in the share capital of Escorts Finance Limited, ultimately
transferred to the Escorts Benefit and Welfare Trust. The beneficiary
interest in the Escorts Benefit and Welfare Trust, has been accounted
for as an Investment by the Company in the manner prescribed in the
Scheme.

6. The amalgamation has been accounted for under the "Pooling of
Interest Method" in accordance with Accounting Standard (AS) -14 on
Accounting for Amalgamations. Accordingly, all the assets and
liabilities of the Transferor Companies have been taken at their
respective book values as appearing in the books of the Transferor
Companies.

Further, as envisaged in the Scheme, all outstanding intercompany
balances including inter-company investments (other than referred to in
point 5 above) stands cancelled. Furthermore, pursuant to the scheme,
Rs.97.40 crores, being the difference between the net assets of the
transferor companies and the purchase consideration issued by the
company is adjusted in reserves of the Company.

11. The Company had allotted 10,505,306 equity shares for an amount of
Rs. 154.30 crores in the name of Members of Hardship Committee
constituted by Hon''ble High Court of Delhi (High Court) pursuant to the
Scheme of Arrangement and Compromise filed before it to Bail out FD
holders of Escorts Finance Ltd. On the interim directions of the said
High Court, fixed deposit liability of Rs. 130.32 crores has already
been discharged by the Hardship Committee constituted under the
directions of the said High Court. For discharging the remaining
unclaimed deposit, 2,401,050 shares of Escorts Limited have been
transferred to Escorts Benefit Trust (Trust) and the Hardship Committee
has been dissolved.

(ii) Assets purchased/capitalised for Research & Development Centres
(as certified by the management)*

- Tractors Rs. 7.97 crores (Previous Year Rs. 7.39 crores)

- Construction Equipment Rs. 1.80 crores *Doesn''t include capital
advance/capital work-in-progress

(iii) Expenses on Research & Development as percentage to gross
turnover is:

- Tractors 1.45% (Previous Year 1.03%)

- Construction Equipment 1.22%

12(a). Accounting for Leases (AS-19). Details as per Annexure - II

13. The current year figures have been reported as per revised Schedule
VI notified under the Companies Act, 1956. The company has reclassified
the previous year figures to confirm this year''s classification.
Further pursuant to scheme of amalgamation and its effect on the
financial statements, current year figures are not compairable with the
figures of previous year.

Figures have been rounded off to the nearest lac rupees.

CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.
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