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CHAPTER 1
Comments of the Comptroller and Auditor General of India ON PSUs ACCOUNTS

Under Section 619 of the Companies Act, 1956 the Statutory Auditor of a Government Company, appointed by the Comptroller and Auditor General of India (CAG), conducts the audit of accounts of the Government Companies which also include companies deemed to be Government Companies under Section 619-B of the Act. On the basis of supplementary audit, CAG issues comments upon or supplements the report of the Statutory Auditors. Statutes governing some Corporations also require their accounts to be audited by CAG and a report to be given to the Government.

The details of Government Companies/Deemed Government Companies and Corporations of the Union Government whose accounts for 2001-2002 were received and audited by CAG were as under:

  Government
Companies
Deemed
Government
Companies
Corporations Total
(i) No. of PSUs (List given in Appendix I, II and III) 278 82 6 366
(ii) No. of PSUs whose accounts for 2001-2002 were received for audit upto 31 October 2001. 232 59 4 295
(iii) No. of PSUs selected for supplementary audit 197 45 4 246
(iv) No. of PSUs whose accounts were under audit as of 31 October 2002 (see Annexure I) 28 2 2 32

Note    Individual PSUs have been listed and marked in Appendix I, II & III by alphabet (R) for accounts received and alphabet (S) for accounts selected for test check.

As a result of supplementary audit of accounts, 24 Government Companies and 3 deemed Government Companies revised their accounts for 2001-2002. Comments were issued on the accounts of 72 Government Companies and 14 Deemed Government Companies for 2001-2002. Audit Report on the accounts of 2 Statutory Corporations (Central Warehousing Corporation and Inland Waterways Authority of India were also sent to the Government/Corporation.

1.1    (A)    Revision of Accounts:

As a result of supplementary audit and consequent corrections made in the accounts for the year ended 31 March 2002, the profit in respect of the following Companies increased (+) or decreased (-) as indicated below:

Increase (+) or Decrease (-) of Profit
Name of the Company Rupees in crore
1. Hindustan Aeronautics Limited (+)5.52
2. National Mineral Development Corporation Limited (+)0.38
3. Bharat Earth Movers Limited (+)0.16
4. Vi Bank Housing Finance Limited (+)0.10
5. Karnataka Agriculture Development Finance Company Limited (+)0.01
Total Increase (+) (+)6.17
1. Dredging Corporation of India Limited (-)21.59
2. Mahanadi Coalfields Limited (-)19.42
3. Northern Coalfields Limited (-)18.02
4. Bharat Heavy Electricals Limited (-)9.52
5. South Eastern Coalfields Limited (-)1.57
6. Coal India Limited (-)1.52
7. Neyveli Lignite Corporation Limited (-)0.98
8. Goa Shipyard Limited (-)0.83
9. Central Mines Planning & Design Institute Limited (-)0.61
10.Western Coalfields Limited (-)0.26
11.ITI Limited (-)0.24
12.Antrix Corporation Limited (-)0.12
13.Spices Trading Corporation Limited (-)0.01
Total Decrease (-) (-)74.69

In the following Companies, loss for the year increased (-) or decreased (+) as given below:

Increase (-) or Decrease (+) of Loss
Name of the Company Rupees in crore
1. Central Coalfields Limited (-)14.24
2. Hindustan Shipyard Limited (-)10.90
3. Bharat Cooking Coal Limited (-)5.74
4. Eastern Coalfields Limited (-)1.86
5. National Textiles Corporation Limited (WBAB&O) (-)0.56
Total Increase (-) (-)33.30
1. Mazagoan Dock Limited (+)0.94
Total Decrease (+) (+)0.94

Note:    The Accounts of Mumbai Railways Vikas Corporation Limited, Konkan Railway Corporation Limited and Canbank Venture Capital Fund Limited were also revised but there was no impact.

1.1    (B)    Impact of Comments on Balance Sheet and Profit & Loss Account:

(a)    The comments issued by the Comptroller and Auditor General of India on the financial statements of various companies excluding the ‘Navratna Companies’ in respect of which the position has been brought out separately in para 1.1 (B) (b), indicated that in 18 PSUs assets as on 31 March 2002 were overstated by Rs.232.86 crore and in 4 PSUs these were understated by Rs.267.44 crore. Similarly liabilities were overstated by Rs.22.79 crore in 2 PSUs and understated by Rs.402.83 crore in 14 PSUs. In 11 PSUs net profit for 2001-2002 was overstated by Rs.84.93 crore and in 3 PSUs it was understated by Rs.114.70 crore. Similarly, in 11 PSUs net loss for 2001-2002 was understated by Rs.328.28 crore and overstated by Rs.15.29 crore in one PSU. The following tables give a Company-wise break up of the financial implication of comments of the Comptroller and Auditor General of India:

(i)    Assets overstated(-)/understated(+) :

Name of the Company Rupees in crore
1. Food Corporation of India (1998-99)* (-)57.77
2. Hindustan Steelworks Construction Limited** (-)44.47
3. Industrial Investment Bank of India Limited (-)28.11
4. Shipping corporation of India Limited (-)16.71
5. Bharat Electronics Limited (-)13.23
6. Nuclear Power Corporation of India Limited (-)12.88
7. National Fertilizer Limited (-)11.91
8. ITI Limited (-)11.44
9. Central Coalfields Limited (-)8.53
10. Pyrites Phosphate & Chemical Limited (-)6.85
11. Bharat Earth Movers Limited (-)5.32
12. Bokaro Power Supply Limited (-)3.80
13. National Insurance Company Limited (-)3.61
14. Bongaigaon Refinery and Petrochemicals Limited (-)2.88
15.General Insurance Corporation of India Limited (-)2.60
16. Other 3 PSUs (-)2.75
Total over-statement (-)** (-)232.86
1. Airports Authority of India** (+)180.09
2. MECON Limited** (+)84.79
3. Other - 2 PSUs (+)2.56
Total under-statement (+) (+)267.44

*    Includes Rs.57.77 crore relating to the accounts for the year 1998-99. The accounts for 1999-2000 had not been finalised till 31 October 2002
**    Total assets overstated includes Rs.44.47 crore and total Assets understated includes Rs.264.88 crore relating to the accounts for the year 2000-01.

(ii)    Liabilities understated (+)/overstated (-) :

Name of the Company Rupees in crore
1. MECON Limited* (+)158.29
2. Airports Authority of India* (+)75.29
3. Hindustan Steelworks Construction Limited* (+)70.76
4. Indian Airlines Limited* (+)56.69
5. Instrumentation Limited (+)8.53
6. Pyrites Phosphate & Chemical Limited (+)8.24
7. National Insurance Company Limited (+)7.94
8. National Small Industries Corporation Limited (+)4.88
9. Food Corporation of India** (+)4.17
10. Industrial Investment Bank of India (+)2.77
11. Engineers India Limited (+)2.73
12. Others - 3 PSUs (+)2.54
Total liabilities understated (+)* (+)402.83
1. National Textile Corporation (South Maharashtra) Limited (-)15.29
2. New India Assurance Company Limited (-)7.50
Total liabilities overstated (-) 22.79

*    includes Rs. 361.03 crore relating to the accounts for the year 2000-2001
**   includes Rs.4.17 crore relating to the accounts for the year 1998-99.

(iii)    Profit overstated(-)/understated(+):

Name of the Company (Rs. in crore)
1. The Shipping Corporation of India Limited (-)18.58
2. Bharat Electronics Limited (-)13.74
3. Nuclear Power Corporation Limited (-)12.88
4. National Fertilizers Limited (-)11.91
5. ITI Limited (-)11.44
6. Bharat Earth Movers Limited (-)5.32
7. Bokaro Power Supply company Limited (-)3.80
8. Engineers India Limited (-)2.73
9. General Insurance Corporation of India Limited (-)2.60
10. Others - 2 PSUs (-)1.93
Total Profit over-stated (-) (-)84.93
1. New India Assurance Company Limited (+)9.57
2. Airport Authority of India* (+)104.80
3. Oil India Limited (+)0.33
Total Profit under-stated (+) (+)114.70

(iv)    Loss understated (-)/overstated (+):

Name of the Company (Rs. in crore)
1. Hindustan Steelworks Construction Limited* (-)114.93
2. MECON Limited* (-)73.50
3. Indian Airlines Limited* (-)56.69
4. Industrial Investment Bank of India Limited (-)30.88
5. Pyrites Phosphate & Chemical Limited (-)15.09
6. National Insurance Company Limited (-)11.55
7. Central Coalfields Limited (-)8.53
8. Instrumentation Limited (-)8.53
9. National Small Industries Corporation Limited (-)4.88
10. Others - 2 PSUs (-)3.70
Total Loss under-stated(-) (-)328.28
1. National Textile Corporation (South Maharashtra) Limited (+)15.29
Total Loss over-stated (+) (+)15.29

*    Total profit under-stated includes Rs.104.80 crore and total loss under-stated includes Rs.245.12 crore relating to the accounts for the year 2000-01.

(b)    Navratna Companies:

(b)    (i)    Impact of comments issued by the Comptroller & Auditor General of India on the financial statements on 'Navratna' Public Sector Undertakings for the year 2001-2002 indicated that Assets were over-stated by Rs.377.43 crore in 4 PSUs and understated by Rs.312.00 crore in one PSU. Similarly liabilities were understated by Rs.74.38 crore in 3 PSUs. The following tables give a Company-wise break-up of the financial implication of comments of the Comptroller & Auditor General of India.

Assets over-stated (-)/under-stated (+)

Name of the Company Rs. in crore
1. Steel Authority of India Limited (-)332.71
2. Oil and Natural Gas Corporation Limited (-)28.71
3. Gas Authority of India Limited (-)10.62
4. Mahanagar Telephone Nigam Limited (-)5.39
Total assets over-stated (-) (-)377.43
1. Indian Oil Corporation Limited (+)312.00
Total assets under-stated (+) (+)312.00

Liability under-stated (-)/over-stated (+)

1. Steel Authority of India Limited (-)59.84
2. Mahanagar Telephone Nigam Limited (-)13.07
3. Hindustan Petroleum Corporation Limited (-)1.47
Total liability under-stated (-) (-)74.38

(ii)    In addition to the above, the impact of CAG comments on the profit and loss of the 'Navratna' Public Sector Undertakings for the year 2001-2002 is given as under:

(Rs. in crore)
Name of the Company Net Profit
(before tax)/
Loss (-)
Over-statement (+)/
Under-statement (-) of Profit
or Loss as commented
Impact of comments as
a percentage of profit/loss
shown in the
accounts (3 to 2)
1. 2. 3. 4.
1. Bharat Heavy Electrical Limited* 662.83 (+)9.52 1.44
2. Bharat Petroleum Corporation Limited 132.68 -nil- -nil-
3. Gas Authority of India Limited 1801.89 (+)10.62 0.59
4. Hindustan Petroleum Corporation Limited 122.25 (+)1.47 1.20
5. Indian Oil Corporation Limited 4599.40 (-)312.00 (-)6.78
6. Mahanagar Telephone Nigam Limited 1794.44 (+)18.46 1.03
7. National Thermal Power Corporation Limited 3752.08 -nil- -nil-
8. Oil and Natural Gas Corporation Limited 985.52 (+)28.71 2.91
Total 13851.09 (-)243.22 (-)1.76
9. Steel Authority of India Limited (-)1706.89 (-)392.55 (-)23.00
Total (-)1706.89 (-)392.55 (-)23.00

*    The Company revised the accounts on the basis of CAG comments and the impact of comments covered by the revised accounts had been shown.

1.2    Salient Comments on Balance Sheet/Profit & Loss Statement

Department of Atomic Energy

1.2.1    Nuclear Power Corporation of India Limited

Profit as well as “Capital work-in-progress were overstated by Rs. 12.88 crore due to non- provision for advances paid between 1988 and 1991 to NGEF Limited (BIFR- referred Company) for the supply of motors, the supply against which had not been received although a period of more than 10 years had elapsed.

Management stated that quantum of work completed by the supplier was being assessed for taking over the raw materials and the partially-completed motors and hence provision for doubtful advances was not considered necessary.

The reply of the Management was not tenable as the supply of motors was overdue and the supplier had been referred to BIFR, which was considering the change of Management. Hence, receipt of material or recovery of advances in full was considered doubtful.

1.2.2    Uranium Corporation of India Limited

Current liabilities and fixed assets (net) were understated by Rs. 67.31 lakh and Rs.62.87 lakh respectively as the balance amount payable against modification cost of three Load Hauled Dumpers had not been accounted for. This also resulted in understatement of depreciation and overstatement of Profit by Rs.4.44 lakh.

Management noted the observation for compliance.

MINISTRY OF CHEMICALS & FERTILIZERS

Department of Fertilizers

1.2.3    National Fertilizers Limited

Profit as well as interest accrued and due were overstated by Rs.11.91 crore as the penal interest on loan of Rs.70 crore advanced to Madras Fertilizers Ltd. had not been written back and the realisation of this was uncertain.

Management stated that as a conservative approach, penal interest from the year 2000-2001 onwards was not being accounted for and that the total penal interest was being claimed from Madras Fertilizers Limited.

The reply of the Management is not tenable because on the analogy of the non-accounting of the penal interest for the last two years ended March 2002, a provision should have been made for earlier years penal interest accounted for in the accounts.

2.    The fact that land measuring 309 acres at Nangal (Punjab) was in the physical possession of the ‘erstwhile owners’ had not been disclosed.

The contention of the Management that the compensation for land had been paid to ‘erstwhile owners’ at the time of acquisition long back and the fact of court case pending with Hon’ble High Court of Punjab & Haryana was disclosed in Notes to Accounts is not tenable as the Company had not disclosed about the physical possession of 309 acres of land.

1.2.4    Pyrites, Phosphates & Chemical Limited

The net loss would increase by Rs.15.09 crore due to following:

(i)    Short payment/non-provision of gratuity premium payable to Life Insurance Corporation of India (LIC):- Rs.7.40 crore

Management stated that gratuity policy with LIC envisaged payment of annual premium on deferred basis covering the liability of gratuity on past services and during the year

Rs.4.88 crore (including Rs.3.69 crore caused due to voluntary retirement) had accordingly been accounted for.

Reply is not tenable in view of the fact that the demand for premium was raised by LIC on account of accrued gratuity liability of the serving employees as on 31st March 2002, a provision for Rs 7.40 crore was required to be made.

(ii)    Non-provision of doubtful claims lying unrecovered for more than eight years:-Rs.6.85 crore

Management stated that the claims were under active consideration of the Department of Fertilizers and necessary accounting treatment would be given on receipt of their decision.

Reply is not acceptable in view of the fact that the claims were lying unrecovered for more than eight years and there was no document in support of the management’s reply showing that Department of Fertilizers had confirmed the debt. Hence, a provision was required to be made.

(iii)    Non-provision of liability towards interest payable to parties based on the arbitration award:-Rs.0.84 crore

Management stated that objection to the arbitration award had been filed in the Court. Pending decision of the Court, liability towards interest had been shown as contingent liability.

Reply is not tenable since, based on the arbitration award, the Company made a provision for the amount forfeited by it but for payment of interest, which was also a part of the arbitration award, no provision was made.

MINISTRY OF CIVIL AVIATION

1.2.5    Airports Authority of India

1.    Capital reserves were overstated by Rs.93.63 crore (net) due to the following:

  1. Overstated by Rs.111.91 crore, as the grant received from various non-Government authorities for meeting part cost on the creation of fixed assets of the Authority was not accounted for.
  2. Understated by Rs.14.28 crore due to (i) non-inclusion of Rs.3.80 crore received from a State Government for development of airports and (ii) failure to create Capital Reserve for Rs.10.48 crore, in accordance with AS 12 and Accounting Policy No.1, towards the value of fixed assets transferred free of cost by the Government of India.

2.    Current liabilities were understated by Rs.76.96 crore due to non-inclusion of liabilities towards amount payable to CISF.

3.    Value of land was understated by Rs.4.56 crore due to wrong accounting of the enhanced compensation payable for land to revenue instead of its capitalisation.

4.    Buildings were understated by Rs.2.53 crore (net) due to:

  1. Non-inclusion of the cost of staff quarters and compound wall amounting to Rs. 2.38 crore completed and taken over in 1996-97 and 1998-99 respectively and
  2. by Rs.59.57 lakh due to non-capitalisation of expenditure towards (a) consultancy and project management charges in respect of the New Integrated Terminal Complex, and (b) modification of the existing terminal building, at Hyderabad.
  3. Buildings were overstated by Rs.45.04 lakh due to wrong treatment of revenue expenditure as capital expenditure.

5.    Plants and Equipment were understated by:

  1. Rs.105.72 crore due to non-inclusion of losses on account of foreign exchange fluctuations on borrowed funds;
  2. Rs 49.71 lakh due to non-inclusion of exposure fee paid to US Exim Bank and Export Development Corporation, Canada for the foreign currency loan obtained for MATS-BD Project.
  3. Rs.44.53 crore due to non-capitalisation of interest paid on loans borrowed to finance a project.

6.    Capital Work-in-Progress were overstated by Rs.22.60 crore due to inclusion of (a) Rs.2.23 crore, being the cost of Mega Volt and DG sets, (b) Rs.18.50 crore, being the cost of civil works completed at Mumbai airport, (c) Rs.1.38 crore, being the cost of air-conditioning of new arrival hall at Bangalore, and (d) Rs.0.49 crore, being the cost of various works completed at IGI airport.

7.    Sundry Debtors were overstated by Rs.70.50 crore due to inclusion of dues from various Government Departments, in contravention of Accounting Policy No.8.

8.    Reserve for Doubtful Debts included Rs.18 crore, representing an unauthorised discount offered to Indian Airlines Limited (IAL) in respect of landing and parking charges in violation of guidelines of International Civil Aviation Organisation.

9.    Deposits, Loans and Advances considered good and in respect of which the Authority was fully secured included Rs.280.66 crore in respect of which the Authority did not hold any security.

10.    Deposit, Loans and Advances included Rs.36.50 crore shown as recoverable from NBCC in respect of which, the Arbitration had pronounced an award against the Authority.

11.    The profit was understated by:

(i) Excess provision of depreciation due to wrong calculation Rs.1.67 crore
(ii) Non-accounting of minimum guaranteed amount from ITDC in respect of
duty-free shops at Mumbai and Delhi
Rs.1.17 crore
(iii) Bills not raised on Air India Limited (AI) and Indian Airlines for ground
handling services.
Rs.18.46 crore for Current year (cumulative
Rs.90.20 crore)
(iv) Bills not raised on Hotel Corporation of India Limited Rs.5.15 crore.

12.    Revenue included bills for Rs.2.33 crore for which no details were available.

13.    Accounting Policy No.7 of the Authority was not correct since it allowed charging of full value of stores and spares and spares made during the year irrespective of actual consumption thereof. Store valuing Rs.14.72 crore already charged to Profit and Loss Account were lying unconsumed as on 31 March 2001.

14.    The Authority had not followed AS-15 for making provision towards gratuity and leave encashment as no actuarial valuation had been done.

Reply to the Audit Report on the accounts for the year 2000-2001 was not made available by the Authority to audit as the report had not been placed before the Board.

1.2.6    Indian Airlines Limited

1.    Loss was understated by Rs.23 crore due to reversal of liability created in earlier years towards AI for Gulf revenue-sharing arrangement on the basis of assumption and without the support of any document or concurrence from AI.

Management stated that both creation and reversal of liability was based on the latest information available at the relevant time when neither any document/ concurrence from AI was available.

The reply of the Management is not tenable as the liability was created based on the working data of AI available at that time and AI claimed large amount from the Company on this account.

2.    Loss was understated by:

(i)    Rs.14.79 crore due to non-inclusion of licence fee/ royalty payable to Airports Authority of India (AAI) on revenue earned through flight-handling services rendered at the airports by the Company to other airlines.

Management stated that no licence fee/ royalty was payable by IAL as it had been authorised by the regulations framed under the Airports Authority of India Act, 1994, to provide handling services at all the Indian airports.

The reply of the Management is not tenable as Government of India had directed (December 1997) IAL to pay 5 per cent licence fee/royalty of gross handling revenue to AAI.

(ii)    Rs.0.90 crore due to under-provision of liability towards Land and Space rental charges at Kolkata.

Management assured that necessary corrective action would be taken during 2001-02.

(iii)    Rs.18 crore due to short provision of liability towards landing and parking charges payable to AAI on account of revision of such charges w.e.f. 01.11.1999.

Management stated that as per the understanding with AAI, revised charges would not apply to IAL.

The reply of the Management is not tenable as there was no confirmation from AAI for withdrawing the applicability of revision in charges.

MINISTRY OF COAL AND MINES

Department of Coal

1.2.7    Central Coalfields Limited

Loss for the year was understated by Rs. 8.53 crore as the value of float engines used for replacement in the Heavy Earth Moving Machines was not charged to revenue. Consequently, the fixed assets were overstated by the same amount.

Management accepted the point and stated that necessary decision in the matter would be taken in the next year accounts.

MINISTRY OF COMMERCE & INDUSTRY

1.2.8    MMTC Limited

Stock-in-trade and profit for the year were overstated by Rs.1.77 crore due to overvaluation of:

(i)    Old stock of iron ore having negligible realisable value (Rs.0.40 crore).

Management stated that stock of iron ore had been valued at cost or realisable value whichever was lower in terms of the accounting policy for valuation of inventory.

Management’s reply is not tenable as the stock of iron ore was not valued at realisable value by the Company as per its policy although it was lower in cost.

(ii)    Crude palm oil stock valued at a rate higher than the market rate as decided by the Company. :Rs.1.37 crore

Management stated that the entire stock of crude palm oil had been liquidated in the following financial year and the price realised was not less than the value of stock adopted in the account for the financial year 2001-02.

Management’s reply is not tenable, as it had not followed its Accounting Policy on valuation of stock at cost or market price as on 31 March 2002, whichever was less.

1.2.9    PEC Limited

Motor car/cycle advance amounting to Rs.1.05 crore paid to employees, which were duly secured by hypothecation deeds, were incorrectly shown as unsecured advances.

Management noted the comment.

MINISTRY OF COMMUNICATIONS

1.2.10    ITI Limited

1. (a)    Inventories included Rs.2.48 crore being cost of components import ed during 1997 in anticipation of a bulk order from Ministry of Defence. The order has not been received so far.

Management stated that Ministry of Defence had requested for demonstration-cum-presentation of the static satellite terminals and all-out efforts were being made for disposing of the WIP and Stock-in-trade.

The reply is not tenable as the components related to 9 sets of Transportable Satellite Terminals (TSTs) imported and lying idle in WIP since 1997 and Company's efforts have not yielded results so far.

(b)    Inventories included Rs.1.35 crore being cost of 10 Channel Digital Equipment manufactured for supply to Department of Telecommunications (DoT). The order had been short closed by DoT in October 1999 and also there are no further orders so far.

Management had stated that it has been making concerted efforts to dispose of the inventory and was able to supply 2 of these equipment to Ministry of Defence in January 2000 at competitive price.

Reply is not acceptable as the materials were imported against specific order of DOT/Bharat Sanchar Nigam Limited (BSNL) and no further orders have been received so far.

2.    The work in process in respect of 387 GHz equipment had been valued at Rs.2.08 crore (cost price) instead of at Rs.98.44 lakh (net realisable value) in contravention of the accounting policy. This has resulted in overstatement of work in process and profit by Rs. 1.10 crore.

Management stated that as materials bought for equipment were being sold as spares, the WIP has been valued at cost of the equipment which was lesser than the net realisable value as applicable to spares and which was in line with Accounting Policy. Since spares worth Rs.61.30 lakh were sold to customer during 2002-03, which was more than the cost of the equipment, valuation at cost of the equipment was in order.

The reply is not acceptable since Accounting Policy did not distinguish between valuation of equipment and spares and Company had valued WIP as equipment only. Hence valuation done by comparing cost of equipment on one hand and net realisable value of spares on other hand was not in order.

3.    Profit was overstated due to:

(i)    Non-provision for the cost of 3 of equipments returned by Ministry of Defence (MOD) as these were not found suitable for use and the MOD had also cancelled the related contract: Rs.4.58 crore.

Management stated that MOD had requested (August 2002) for demonstration-cum-presentation of the static satellite terminals and all out efforts for disposing of the WIP and Stock-in-trade were being made.

The reply is not tenable as MOD had terminated the contract for TSTs and there was no guarantee that it would place order for taking back these TSTs. Moreover no confirmed orders have been received so far and Company's efforts remain unfruitful.

(ii)    Non-provision for outstanding dues from India Satcom Limited (ISL), a Joint Venture Company, the realisation of which was doubtful of recovery: Rs.3.28 crore.

Management stated that M/s.ISL had committed to pay the balance amount of Rs.3.28 crore and hence no provision was required.

The reply is not acceptable as financial hardship was being faced by M/s.ISL and considering that only Rs.15 lakh were received during 2001-02, chances of realisation of entire amount is doubtful.

(iii)    Non-provision for additional amount of claim towards laying of cables under a turnkey contract, which had been rejected by the MOD: Rs.2.48 crore.

Management stated that all the additional work was done with the concurrence of Army inspecting authorities at their site and the case was being pursued with MOD to recover the balance amount.

The reply is not acceptable as MOD had categorically rejected the claim.

1.2.11    Mahanagar Telephone Nigam Limited

1.    Gross Block of fixed assets was understated due to non-capitalisation of Apparatus & Plants by Rs. 22.53 crore and civil works valued Rs.20.99 crore and also due to non-capitalisation of cable works valued at Rs. 1.54 crore, which were completed and commissioned during 2001-02 or earlier but were lying in WIP in Delhi & Mumbai Units. The cable works were also wrongly treated as works abandoned and provision for the same was made during the year. Consequently, the depreciation was also understated by Rs.2.51 crore (including prior period depreciation of Rs.0.36 crore) and provision for works abandoned was overstated by Rs.1.54 crore.

Management has accepted the point and stated that necessary action would be taken in the year 2002-03.

2.    Gross Block was overstated by Rs.0.56 crore on account of expenditure incurred on maintenance work carried out during 2000-01 or earlier in Delhi Unit and during 2001-02 in GSM Mumbai Unit. This also resulted in overstatement of depreciation by Rs.0.02 crore and understatement of Administrative, Operations and Other Expenses by Rs.0.16 crore, Employees Remuneration and Benefits by Rs.0.01 crore and Current Liability by Rs.0.40 crore.

Management has accepted the point and stated that necessary action would be taken in the year 2002-03.

3.    Capital Work-in-progress (CWIP) was overstated by Rs 1.89 crore due to wrong inclusions of expenditure incurred on maintenance works carried out by Delhi Unit during 2000-01 or earlier in CWIP. Consequently, profit was overstated by the same amount.

Management has accepted the comment and stated that necessary action would be taken in the year 2002-03.

4.    CWIP as well as fixed assets were overstated by Rs 1.76 crore and Rs 0.07 crore, respectively, due to non-recovery of the cost of a contributory work from the work requisitioning authority (M/s NOIDA Toll Bridge Corporation Limited) as per accounting practice followed by the Company. Correspondingly, the claims recoverable were also understated by Rs.1.83 crore.

Management has accepted the comment and stated that necessary action would be taken in the year 2002-03.

5.    Profit was overstated by Rs.3.26 crore due to non-provisioning for doubtful debts of GSM Mumbai unit.

Management stated (September 2002) that in their opinion the provision made in the accounts was sufficient.

The reply is not tenable because the recovery of the above amount from debtors is doubtful of recovery, as such should have been provided for.

6.    Income accrued from services and provision for doubtful income represent income (and provision thereon) from regular services which remained unrecovered at the end of current year from regular customers due to non-raising of bills. As this was income from regular services due from regular customers, the same should have been included in Sundry Debtors and provision thereon should have been included in provision for doubtful debts. This has resulted in understatement of Sundry Debtors as well as provision for doubtful debts by Rs.581.96 crore and Rs.1.26 crore, respectively and overstatement of other current assets (income accrued from services) as well as Provision for doubtful income by Rs.581.96 crore and Rs.1.26 crore, respectively.

Management stated (September 2002) that since the said income related to accrued income, the depiction had been made in the accounts correctly.

The reply is not acceptable as the income in question was due from regular customers/business and the Management knew details as on 31 March 2002. Its accounting as ‘other current assets’ and not as debtors was wrong and has consequently also affected the debtors’ turnover ratio, etc.

7.    Due to non-provision of liability payable to M/s Bhagyanagar Metals Limited on account of Arbitration Award the Current Liability as well as expenditure was understated by Rs.4.62 crore and profit was overstated by the same amount.

Management stated (September 2002) that the Arbitration Award was received after finalisation of accounts for the year 2001-02 and same has since been adjusted in the accounts for the year 2002-03.

The reply of the management is not correct as the Arbitration Award was received and paid well before the finalisation of accounts for the year 2001-02. As such it should have been booked in the accounts for the year 2002-03.

8.    As 30 per cent concession in respect of call charges (effective from 1 April, 2000) to the Free Phone Subscribers and automatic rent rebate to telephone subscribers for their telephones remaining faulty for a continuous period for 7 days or more was not accounted for, the Income from Services as well as profit was overstated by Rs.8.45 crore each and the Liability was understated by the same amount.

Management has accepted the comment.

9.    In contravention of provision of Schedule XIV of Companies Act, 1956, relating to charging of 100 per cent on each asset valued upto Rs.5000/-, 100 per cent depreciation was charged on higher valued assets which led to overstatement of depreciation by Rs.0.73 crore in Mumbai Unit. Consequently, Profit as well as Net Assets were also understated by Rs.0.73 crore. The deviation from provisions of Schedule XIV of the Companies Act, 1956 along with its financial implications, has also not been disclosed in the Accounts by the Company.

Management stated (September 2002) adequate disclosure was made in their Accounting Policy regarding the depreciation to be charged on assets and such policy was being followed consistently.

The reply is not acceptable because in accordance with Accounting Policy 2(v)(b) of the Company, 100 per cent depreciation was being charged on assets of small value, other than those forming part of project, the cost of which was below Rs.10000/- in respect of Apparatus and Plants, Training equipment and Testing equipment and Rs.20000/- in respect of partitions which was in contravention of the provisions of Schedule XIV of Companies Act, 1956, which do not allow any relaxation. Further, such deviation of policy was also not disclosed adequately in the accounts alongwith financial implications.

MINISTRY OF CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION

1.2.12    Food Corporation of India

Accounts of Food Corporation of India (FCI) for the year 1998-99 were audited by C&AG, as sole auditor under Section 34 of the Food Corporations Act, 1964 as amended in June, 2000. The Audit Report thereon was issued to the Government of India 22 May 2002.

A    Some important observations made in the Report were as under:

Interest payable did not include Rs.4.17 crore being accrued interest payable to bank for one day i.e. 31 March 1999. The reply of the management that the interest has been accounted for on the date of payment i.e. 30 June1999 is not tenable since accounting on cash basis was in violation of accepted accounting principle of accrual.

2.    Claims Receivable were overstated by Rs.4.65 crore due to inclusion of the following:

  1. Claims on railways for excess payment of freight aggregating to Rs.1.03 crore.
  2. Claims for transit shortages recoverable from Handling and transport contractors remained unrealised for more than 3 years’: Rs.2.24 crore
  3. Demurrage charges relating to the period September 1991 to April 1997 lying unrecovered from labour held responsible for the same: Rs.1.38 crore.

Management agreed to review the claims for adjustment at S.No.(a). In regard to claims at S.No.(b) and (c) the Management stated that the claims were under persuasion for settlement.

3.    Consumer subsidy on foodgrains reimbursable by Government of India was overstated by Rs.20.76 crore due to inclusion of loss in value of foodgrains due to deterioration in the quality in the absence of any norms prescribed by the Corporation in this regard. This resulted in claiming of excess subsidy from the Government to that extent.

Management has stated that fixation of norm was not possible. The reply of the Management is not tenable as the Government of India in April 1980 had desired that such norms should be fixed.

4.    Sales were overstated by Rs.5.07 crore due to accounting of sales beyond 30th April 1999 in contravention of Accounting Policy of the Corporation.

Management has accepted the mistake.

The provision for debts, deposits, advance and claims considered doubtful of recovery aggregating Rs.52.80 crore due from Central/ State Government and other parties, had not been made in the books of accounts.

Management replied that any provision for bad and doubtful debts was not allowed as an item of expenditure under Income Tax Act, 1961 until and unless it was written off as irrecoverable. Management further stated that as per the instructions of the Ministry, only those bad and doubtful debts which had been written off as irrecoverable by the competent authority were to be included in the subsidy claim.

The reply of the Management is not tenable since accounts are to be prepared as per accepted accounting principles.

B    Weakness in System of Internal Control and Book Keeping:

1.    Internal Audit System was not adequate and commensurate with the size and nature of the business of the Corporation. Weaknesses in internal audit were observed by the Branch Auditors in most of the regions of the Corporation.

2.    Physical verification of fixed assets as on 31st March 1999 was not conducted in FCI Hqrs, Uttar Pradesh region and West Bengal. Management stated that instructions had been reiterated to conduct the physical verification at the year-end.

3.    Fixed Asset registers were not properly maintain in Zonal Office, (West), Zonal Office (North), Regional Offices (Maharashtra, Punjab, Haryana, Uttar Pradesh, Delhi, West Bengal and Bihar) to exhibit complete details of gross and net value including quantitative details, situation/location, item-wise cost and depreciation.

4.    (i)    The contingent liabilities register were not maintained.

(ii)    Proper records/register for liabilities were not maintained and as such provisions of liabilities wherever required could not be satisfactorily ascertained.

Management has stated that instructions have been issued for proper maintenance of records and registers.

5.    The net shortages in storage and transit were pending regularisation since 1980-81. There was no identification of shortages in respect of which investigation had reached a dead end. The Management in its reply stated that some of the shortages were regularised during the year and the balance were under process of regularisation.

6.    The bank reconciliation statement included discrepant items namely missing debits, excess debits, missing credits and excess credits which related to period as back as 1976-77. The Management stated that the delay in settlement of discrepant items was mainly due to delayed response/reaction from the bank. The reply of the Management is not tenable as proper follow-up action and timely clearance of these items was necessary by the Management.

MINISTRY OF DEFENCE

Department of Defence Production and Supplies

1.2.13    Bharat Earth Movers Limited

1.    Investments included US64 units costing Rs.3.80 crore, valued at Rs.2.60 crore by taking NAV rate as on 31 May 2003 instead of being valued at Rs 1.64 crore at NAV rate as on 31 March 2002 in violation of AS-13. This had resulted in overstatement of Investment and profit by Rs.96.49 lakh.

Management stated that in view of abnormal diminution in value, a decision was taken to hold the investments upto 31 May 2003 and the diminution was accounted up to the fair value, for 31 May 2003 determined as per Government circular and which was conforming to AS-13.

Reply is not tenable as adopting future NAV rate for investment on hand was not correct. According to AS-13 these should have been valued at the NAV rate existed as on 31 March 2002.

Work in progress included Rs.1.48 crore being the material cost of repair charges of float engines. As these materials have been used for repair of the engines under warranty/maintenance contract, the cost of the same should have been charged to revenue. This has resulted in overstatement of inventories and profit by Rs.1.48 crore.

Management stated that the expenditure incurred on maintenance of such floats was accounted as inventory and amortised over period of warranty and hence, such expenses were not charged off to revenue.

Reply is not acceptable as the repair cost of the float engines is revenue in nature and thus, inclusion of the same in the cost of inventories was not correct.

3.    Loans and Advances included Rs.5.88 crore being trade advances given to M/s. Vignyan Industries Limited (VIL), a subsidiary of the Company for the supply of raw materials etc. during 1981-82 to 1993-94 and remaining unpaid/unadjusted till date. The Company had already made a provision for Rs.3 crore in earlier years and agreed with BIFR to absorb/write off the total amount. Accordingly, provision for the balance amount should have also been made. Non-provision on this account had resulted in overstatement of Loans and Advances and Profit by Rs.2.88 crore.

Management stated that as per BIFR scheme, trade advances would be repayable after the net worth of VIL becomes positive. In view of VIL earning profit continuously from 1993-94 onwards, the outstanding advance was not considered doubtful.

Reply is not acceptable as the Company itself conveyed to BIFR to write off the dues recoverable from VIL and write off of trade advance only turns VIL's net worth positive.

1.2.14    Bharat Electronics Limited

1.    (a)    Inventories included spares valued at Rs.3.90 crore purchased against future orders which had not moved for more than five years. Hence, provision should have been made for diminution in their value.

Management stated that no provision was considered necessary as the items were required to be supplied as maintenance spares for which quotations had been submitted and orders were expected.

The reply is not acceptable as the quotations were submitted in March 2000 and no orders have been received even after two years.

(b)    Inventories included Rs.1.40 crore being the value of imported materials held in transit for more than one year for which no provision had been made. Utility and realisability of these items were also doubtful due to obsolescence/closure of work order. Hence, provision should have been made.

Management stated that inventory valued at Rs.1.01 crore have since been accepted and there was no diminution in the value of these items.

The reply is not acceptable since substantial value reduction had already been effected to the work order for which items valued Rs.1.01 crore were meant and work order relating to balance items were already closed.

(c)    Inventories included Rs. 75.34 lakh being the value of Norsat Decoders and Conquest Energy Savers held under work in progress since 1999-2000. As saleability and realisability of these products were doubtful, suitable provision should have been made for diminution in the value of inventory.

Management stated that it expected improvement in market for these products and in case there was no improvement, it would consider making provision during 2002-03.

The reply is not acceptable as there was no progress in conversion of these items into finished goods and sale since 1999-2000.

2.    A reference is invited to Comment No. I (iii) (d) of the Comptroller and Auditor General of India on the accounts of the Company for the year ended 31 March, 2001 about non-provision for doubtful debts amounting to Rs. 78.67 lakh, towards liquidated damages for delayed supply of equipment, leviable by a customer as per contractual terms. In addition, Sundry Debtors included an amount of Rs.44.10 lakh being the liquidated damages levied by other customers towards delayed supply of equipment. Non-provision on this account had resulted in overstatement of Sundry Debtors and Profit by Rs.1.23 crore.

Management stated that out of Rs 78.67 lakh, which was due from Government customers, the Company had already realised some payments without deduction of liquidated damages and the present outstanding was Rs.65.72 lakh. Further it was stated that waiver of liquidated damages had been taken up with customer as delay in procurement of components was affected by US sanctions and as the amounts were due from Government customers, the debt was realisable.

The fact, however, remains that Sundry Debtors still include amounts withheld/levied by customers on account of liquidated damages.

3.    A reference is invited to Comment No. I (iii) (b) of the Comptroller and Auditor General of India on the accounts of the Company for the year ended 31 March, 2001 regarding non-provision of doubtful debts amounting to Rs.3.37 crore due from a customer. Although there was no progress in realisation of the amount, no provision had been made in the accounts. Non-provision on this account has resulted in overstatement of Sundry Debtors and Profit by Rs.3.37 crore.

Management stated that the amount was withheld as one of the critical components had failed and the same had been repaired and was awaiting despatch from supplier, and hence no provision was considered necessary.

The reply of the Management is not tenable as the repair work had been suspended after May 1998. Even after supply of the item, it was not sure whether the customer would accept the part and whether that item would be fit for use.

4.    Sundry debtors included Rs.2.06 crore being the value of certain parts accounted as sales during the year 2000-01 but not despatched till 31 March 2002. This had resulted in overstatement of Sundry Debtors by Rs. 2.06 crore, understatement of Work in Progress by Rs.90.96 lakh and overstatement of Profit by Rs.1.15 crore.

Management stated that the system was marginally out of specification requiring modifications to the parts and that improvement had since been carried out and the parts after modifications would be delivered to the customer shortly.

The reply is not acceptable as these parts had not been despatched to the customer by 31 March 2002.

5.    A reference is invited to Comment No. I (iii) (e) of the Comptroller and Auditor General of India on the accounts of the Company for the year ended 31 March, 2001 about non-provision for doubtful debts amounting to Rs.1.53 crore being outstanding dues against supplies made in March 1997. In addition, Sundry Debtors included Rs.59.49 lakh not claimed from other customers against despatches made prior to 1999-2000. No provision had been made in the accounts. Non-provision on this account had resulted in overstatement of Sundry Debtors and Profit by Rs.2. 12 crore.

Management stated that amendment to the order by the Government customer was under process and the balance payment was expected to be realised and hence no provision was considered necessary. As regards an amount of Rs.59.49 lakh Management stated that it represented 5 percent bills of Government customers which were under review.

The reply of the Management is not tenable as supplies were not made as per the contract and no amendment had been received, so far, for the change in supplies. Regarding Rs.59.49 lakh necessary provision should have been made in the books pending review as claims were not made with customers.

6.    Current liabilities did not include certain components valued at Rs.50.69 lakh borrowed from a customer, despatched and accounted as sales in the year 2000-01 without creating liability for the components borrowed. This resulted in understatement of Current liabilities and overstatement of Profit by Rs.50.69 lakh.

The Management stated that value of the material was not known at that time, hence no provision could be made.

The reply is not tenable as appropriate liability should have been provided for on estimation basis. The reply further confirms non-provision of liability in this regard.

7.    Sales included Rs.19.90 crore being the sale value of imported items which were not in the possession of the Company as on 31 March 2002. This had resulted in overstatement of Sales as well as profit by Rs.19.90 crore and Rs.4.69 crore respectively and understatement of Inventory by Rs.15.21 crore.

Management stated that this related to orders from a Government customer. These imported items were ready and invoiced by the supplier for despatch before 31 March 2002. The customer accepted the materials based on the conformance certificate issued by the supplier as per the terms of the order and billed by the Company. Sale was accounted for based on the procedure cited above.

Management's reply is not acceptable as the items actually arrived in India only during April and May 2002, and were delivered to the customer thereafter.

8.    Sales included Rs.1.45 crore being the sale value of Electronic Attendance System required to be supplied, installed and commissioned at customer’s premises on door delivery basis. As these goods did not reach the destination and could not be commissioned by 31 March 2002 setting up of sales was not in order. This has resulted in overstatement of Sales and Profit by Rs.1.45 crore and Rs 77.77 lakh respectively and understatement of Inventory by Rs.67.23 lakh.

Management stated that sale had been accounted for only to the extent of the value of goods consisting of hardware and spares physically delivered to the carriers as on 30 March 2002 and was in accordance with Accounting policy of the Company and AS-9.

The reply is not acceptable as in a turnkey project, sale is complete only on installation and commissioning of the equipment at the customer's premises.

DEPARTMENT OF DISINVESTMENT AND DEVELOPMENT OF NORTH EASTERN REGION

1.2.15    North Eastern regional Agricultural Marketing Corporation Limited

Net Loss for the year was understated by Rs. 81.85 lakh due to the following:

  1. Loss of stock due to quality deterioration was booked under ‘Miscellaneous Expenditure (to the extent written off or adjusted)’ instead of charging it off in the Profit & Loss Account: Rs. 41.61 lakh; and
  2. Non-Provision for doubtful debts: Rs. 40.24 lakh

Management stated that treatment to the loss of stock of juice due to deterioration was taken as deferred revenue because losses in running juice plant as per BIFR-package were to be reimbursed to the Company as arrears of subsidy over a period of 12 years. As regards provision for doubtful debts, the Management accepted the comment.

The above contention of the Management is not tenable, as no benefit from this expenditure would be available in future, losses on account of deterioration of quality should have been taken as charge to the Profit & loss account instead of treating the same as deferred revenue expenditure.

MINISTRY OF FINANCE

Department of Banking

1.2.16    Indbank Merchant Banking Services Limited

The Company had recognised Rs.30.43 crore of deferred tax assets towards unabsorbed depreciation and business loss. However, the Company had not disclosed the nature of the evidence supporting the recognition of the deferred tax assets as required under AS-22.

The Company contended that deferred tax assets on unabsorbed depreciation and loss carried forward had been recognised taking into account the past record of the enterprise and based on the realistic estimates of profits for the future and therefore required no additional disclosure.

The reply is not tenable as future taxable income of Rs.17.99 crore projected by the Company for the next four years upto 2005-2006 would not be sufficient to realise the net deferred tax assets of Rs.26.04 crore recognised during the year. Further, the disclosure

made by the Company in the notes on accounts was of general nature and not supported by convincing evidence as required under Para 17 of AS-22.

1.2.17    Industrial Investment Bank of India Limited

Net Loss for the year has been understated by Rs. 30.88 crore due to the following:

(i)    The Company had recognised the income of Rs. 14.60 Crore on account of anticipated capital gain in respect of a standard loan asset of Rs. 85 crore sold to a securitisation trust, promoted by the Company itself and acquired Pass Through Certificates (PTC) of Rs. 99.60 Crore for subsequent sale in the market, which did not materialise as on 31 March 2002 and the realisability of the same was also not ascertainable with reasonable certainty.

Management stated that they had sold one such PTC during the year and as such they are confident that this PTC would also be sold at par.

The reply of the Management is not tenable as the recognition of income through future capital gains by the Company is neither in line with AS-13 nor with AS-9.

(ii)    Short provision of Rs. 2.77 Crore on account of interest payable on Government guaranteed Bond.

Management noted the comment and stated that the necessary adjustment in this regard would be made in next year accounts.

(iii)    Short provision of Rs. 13.51 Crore on account of interest receivable from Non Performing Assets converted into Funded Interest Term Loan/Debentures in respect of three substandard loan assets restructured during the year.

The Management stated that necessary provision would be made in the next year accounts.

1.2.18    PNB Capital Services Limited

The adjustment of a refund voucher issued by Income Tax Department on 3 April 2002 has resulted in overstatement of cash and bank balances by Rs.91.11 lakh, understatement of other current assets by Rs.74.99 lakh and overstatement of profit by Rs.16.12 lakh.

The Management’s contention that the refund voucher was accounted for as per accounting policy of the Company is not tenable in view of the fact that the refund voucher was received after the Balance Sheet date.

Insurance Division

1.2.19    GIC Asset Management Limited

In terms of the requirement of Part-I of Schedule VI of the Companies Act, 1956, an amount of Rs. 1.52 crore being the balance lying in “ General reserve” under the head Reserves and Surplus should have been deducted from the debit balance of Profit & Loss account.

Management agreed to draw up the accounts in line with the statutory requirement from the next year.

1.2.20    General Insurance Corporation of India

Profit for the year as well as Investment were overstated by Rs.2.60 crore due to the following:

  1. Non-provision for diminution in the value of 1,47,600 equity shares of Rs.1.05 crore despite the fact that the net worth of the Company in which investments were made had been fully eroded and the same had also been referred to BIFR.
  2. Instead of making provision for Rs. 3.45 crore for value of investment in the debentures/term loan of four BIFR-referred companies as per its accounting practice, the Company had provided for Rs. 1.90 crore only which resulted in short provision of Rs. 1.55 crore.

Management stated that in the cases cited provision was made as per RBI guidelines as the said debt securities were considered as “held to maturity” stock.

The reply of the Management is not tenable because the Company is not following a consistent practice in making provision for all such similar cases.

1.2.21    National Insurance Company Limited

1.    The net loss of the Company had been understated by Rs. 11.55 crore due to following: -

(i)    Loss for the year was understated by Rs.13.62 crore due to:

(a)    Recoverable outstanding loss instead of being booked under ‘Fire Revenue Account’ was shown as recoverable under ‘Reinsurance’ arrangement: Rs.4.50 crore.

Management while accepting the comment stated that provisioning of claim was an ongoing process, furthers differences, if any, would be adjusted in next year account.

(b)    Non-provision of liabilities towards (i) premium payable to GIC under reinsurance cession arrangement and (ii) commission payable to reinsurers: -Rs.0.88 crore.

Management noted the comment and stated that the same would be adjusted in next year accounts.

(c)    Short provision of liabilities on account of damaged rotor of DVC due to accounting of anticipated realisable value of salvage (Rs.0.99 crore) and treating the claim as non-standard without any fault attributable to insured (Rs.1.39 crore): -Rs.2.38 crore.

Management stated that as in this case cost of repair was more than the sum assured, considering the possibility that insured may decide to abandoned the consignment to the insurer, the claim had been evaluated according to the practice followed in the similar cases.

The reply is not acceptable, as there was no evidence to substantiate the fault attributable to the insured the claim should not have been treated as non- standard. Further, the realisable value of salvage should have been taken into account on actual sale basis and not on anticipated sale basis.

(d)    Short/non-provision of liabilities to the extent of Rs.4.12 crore due to:

(i)    Consideration of 1/3rd value instead of full value of Motor (Third Party) Claims :Rs.0.45 crore;

Management noted the comment.

(ii)    Interest @ 9 percent on carrying over of Motor Third Party claims liability and Motor Accident Claims Tribunal (MACT) liabilities: Rs.1.98 crore ;

Management stated that in some offices, interest @ 9 percent on Motor Third Party claims was not considered as these cases were to be settled in the Lok Adalat or on compromise basis where no interest was payable.

Management’s reply is not tenable as the MACT cases attract interest @ 9 per cent and so provision was necessary.

(iii)    Liabilities in cases where full claims details were received under the motor injury cases were not provided for, without any specific reasons etc.: Rs.1.69 crore.

Management stated that omission as pointed would be taken care of the sufficiency of cushion kept under claims Incurred But Not Reported (IBNR) provision of Rs.150.92 crore.

The reply of the Management is not acceptable as the short provision/ non-provision as brought out in the cases referred to above were known to the Management and did come under the category of IBNR cases.

(e)    Non-provision for committed liability to landlord for commercial surcharge imposed by Kolkata Municipal Corporation in terms of agreement with landlord: Rs.0.56 crore.

Management noted the point and stated that the same would be adequately provided in the next financial year.

(f)    Short provision for diminution in the value of investments and non-performing assets: Rs.1.18 crore.

Management accepted the point relating to short provision liability non-performing assets of Rs.48 lakh. As regards making of provision of Rs.70 lakh for non-convertible debentures, the Management stated that the same was not considered necessary, as these were “secured debentures”.

The reply of the Management is not tenable as on the date of balance sheet date the trust deed had not been executed and in the absence of execution of trust deed the debentures were not ‘secured debentures’.

(ii)    Loss for the year was overstated by Rs. 2.07 crore due to:

(a)    Non-accounting of premium receivable from reinsurers: Rs.1.20 crore.

(b)    Excess provision for bad and doubtful debts for debentures: Rs.0.87 crore.

Management noted the comment and stated that the necessary adjustment will be made in the next year accounts.

2.    The financial impact of additional liability amounting to Rs.20.92 crore due to change in accounting policy for making provision towards Motor Third Party unidentified claims had neither been disclosed in the Notes on Accounts nor by the Statutory Auditors in their report to the Shareholders in terms of requirement of AS-I.

Management stated that since there was a change in the method of valuation of outstanding claims, no separate disclosure was given.

Management’s contention is not tenable, as this disclosure was required as per AS-1.

1.2.22    New India Assurance Company Limited

(i)    Operating profit under fire insurance was understated and “Claims outstanding at the end of the year” were overstated by Rs.0.61 crore due to making of provision of Rs.5.49 crore as against the assessed liability of Rs.4.88 crore.

Management is noted the comment.

(ii)    The operating profit in the revenue account (marine insurance) was understated and the incurred claims outstanding at the end under Marine insurance were overstated by Rs. 6.89 crore due to the following:

(a)    Against the assessed liability of Rs. 1.81 crore (being 60 per cent of the claim) lodged by Oil and Natural Gas Corporation Limited (ONGC), the Company had made a provision for Rs. 3.00 crore which resulted in excess provision of Rs. 1.19 crore.

(b)    Against the liability of Rs. 1.82 crore (being 75 percent share) in the hull claim of G.E. Shipping, the Company made a provision for Rs. 5.25 crore which resulted in excess provision by Rs. 3.43 crore.

(c)    Although the surveyor reported that the claim was falling outside the scope of the policy, the Company failed to write back the provision of Rs.2.27 crore made earlier in its accounts.

Management stated that the audit comments were noted for necessary corrective action in the next year accounts.

(iii)    An amount of Rs.2.07 crore on account of paid claims which was to be ceded and shown as recoverable from reinsurers was wrongly adjusted as charge under the “Revenue Account (Miscellaneous)”. This resulted in understatement of “ claims recoverable from re-insurers” and overstatement of “ operating loss under revenue account (Miscellaneous)” to the extent of Rs.2.07 crore.

Management stated that the recoveries as pointed out by audit were noted and necessary correction would be made in next year accounts.

MINISTRY OF HEAVY INDUSTRY & PUBLIC ENTERPRISES

1.2.23    Cycle Corporation of India Limited

Board for Industrial & Financial Reconstruction (BIFR) concluded on 10th July 2000 that the Company was not likely to become viable in future and should be wound up under Section 20(1) of Sick Industrial Companies (Special Provision) Act. Accordingly with the permission of the Government of India, the Company closed its operations with effect from 17-01-2002 after separation of all its employees through Voluntary Separation Scheme. Thus the Company ceases to be a going concern and the annual accounts of the Company prepared on ' going concern ' assumption basis do not reflect a true and fair view of the state of affairs of the Company.

1.2.24    HMT Bearings Limited

Investments were overstated by Rs.3.30 crore due to restating the value of 268000 shares of Andhra Pradesh Gas Power Corporation Limited (APGPCL) of Rs.10 each acquired for a consideration of Rs.70 lakh in contravention of provisions of AS-13. These investments should have been shown at cost of Rs.72 lakh (including stamp duty of Rs.2 lakh).

1.2.25    Instrumentation Limited, Kota

Non-provision of liability amounting to Rs.8.53 crore as on 31 March 2002 towards leave encashment benefits on actuarial valuation.

Management stated that due to uncertainty involved in the availment/encashment of earned leave by the employees during the period of service, no liability had been provided and the same was in line with the practice followed in previous years.

The reply of the Management is not tenable in view of the opinion expressed by the Expert Advisory Committee of the ICAI that provision of leave encashment liability, whether to be discharged during the course of employment or on retirement or death, should be provided in the period in which the services were rendered by the employees in terms of requirement of AS-15.

MINISTRY OF INFORMATION TECHNOLOGY

1.2.26    Electronics Trade and Technology Development Corporation Limited

Current Liabilities and Provisions were understated by Rs.2.59 crore due to inclusion of the same in Deferred Payment Liability in respect of assets purchased in auction from Rajasthan Financial Corporation (RFC) in August 1991, the latest instalment for payment of which had become due in June 1996.

The Management noted the audit observation.

MINISTRY OF PETROLEUM AND NATURAL GAS

1.2.27    Bongaigaon Refinery & Petrochemicals Limited

Capital Work-in-progress was overstated by Rs.23.52 crore due to non-capitalisation of LPG Bottling Plant, which was mechanically completed and trial run conducted. Consequently, the Fixed asset - (Net Block) as well as Loss for the year were understated by Rs.20.64 crore by Rs.2.88 crore respectively.

Management contended that final guarantee test run was yet to be completed, for which the plant had not been capitalised.

The contention of the Management is not acceptable as after completion of trial run in January 2001, the plant was ready for commercial production. This was, however, put on hold, as it did not remain economically viable after withdrawal of Administered Price Mechanism by the Government of India w.e.f. 1.4.1998 due to which the Plant was not commissioned for commercial production even after conducting the trial run.

1.2.28    Chennai Petroleum Corporation Limited

Fixed assets included Rs.14.76 crore being the value of non-functional asset since April 1996 due to non-availability of sour gas (raw material for the plant).

Management stated that they were hopeful of finding a viable solution at the earliest.

1.2.29    Engineers India Limited

The provision for taxation was understated by Rs.2.73 crore being the income tax including surcharge (Rs.0.06 crore) and interest (Rs.0.95 crore) on non-deduction of income tax at source on canteen subsidy paid to employees up to the year 1999-2000 in violation of Income Tax Act, 1961.

Management stated that such expenses reimbursed to the employees were within the prescribed monetary limit under the Income Tax Act and therefore, not taxable in the hands of employees as taxable perquisites. Further, CBDT, vide their circular dated 27 October 1995 had fixed a ceiling of Rs.35 per day on such expenditure.

The contention of the Management is not tenable since the amount was paid directly to the employees and not through the canteen contractor, as required by CBDT circular dated 27 October 1995. Hence, the payment was to be treated as a perquisite in the hands of employees.

Further, the Company is deducting income tax on subsidy being paid in cash to the employees from 2000-01.

1.2.30    Gas Authority of India Limited

1.    Profit was overstated by Rs.1.36 crore as provision was not made for doubtful advances for capital expenditure of Rs.1.36 crore shown as recoverable under an expired bank guarantee on which an injunction was granted by the Court in March 1998.

Management stated that as the matter was sub judice, it was not felt necessary to make any provision for the same.

The reply of the Management is not tenable as the amount of advance backed by bank guarantee, which was not alive, should have been provided as doubtful of recovery considering the nature of dispute. Further, the similar comment was issued, on the accounts for the year 2000-01 also.

2.    Capital work in progress included an amount of Rs.1.33 crore, being expenditure incurred on construction of residential houses, which had been abandoned due to safety hazards. No provision for writing off the same had been made in the accounts.

Management stated that possibility of alternate use of the construction was being explored.

The contention of Management is not tenable as structures were lying idle since February 2001 and contractors had also been asked (December 2001) to demobilise from the site. Hence, provision for Rs.1.33 crore should have been made.

3.    Current Assets, Loans and Advances were understated by Rs.5.47 crore due to non-inclusion of differential amount of royalty and sales tax refunded to customers between 1990 and 1993 and admitted by the Government in May 2002 as claims recoverable. This also resulted in understatement of profit for the year to the same extent.

Management stated that Ministry of Petroleum and Natural Gas (MOP&NG) approved the claim in May'2002 on provisional basis subject to submission of audited claim which was submitted in July 2002 and requisite adjustments would be made after receipt of approval from the Ministry.

The reply is not tenable as claim was approved by MOP&NG in May 2002, well before the adoption of Accounts, and hence necessary adjustment should have been made in the accounts.

4.    Current liabilities were understated by Rs.2.53 crore due to non-provision of liability in respect of Material received upto 31 March 2002.

Management noted the comment.

5.    Other liabilities did not include Rs.3.80 crore due to accounting of Rs.31 lakh being the difference between excise duty receivable (Rs.4.11 crore) and payable (Rs.3.80 crore) in claims recoverable on netting off basis. This had resulted in understatement of other liabilities as well as claims recoverable by Rs.3.80 crore.

The contention of the Management that accounting had been done after netting off the amount recoverable and payable is not correct as this had led to misrepresentation of the dues from Excise Department as well as amount collected by the Company but not remitted to Excise Department.

6.    Depreciation was provided for @ 4.75 percent (on single shift basis) instead of @10.34 percent (on triple shift basis) resulting in the understatement of depreciation and the overstatement of Fixed Assets (Net Block) by Rs.13.40 crore. This also resulted in overstatement of profit for the year by Rs.2.86 crore and for earlier years by Rs.10.54 crore.

Management noted the comment.

1.2.31    Hindustan Petroleum Corporation Limited

Liabilities is understated by Rs.1.47 crore due to the following:

(i)    Non-provision of Rs.1.28 crore payable to Kandla Port Trust towards lease rent for the year 2001-02.

(ii)    Non-provision of Rs.0.19 crore towards demurrage charges on crude imported during the year 2001-02.

Management accepted the comment and stated that necessary accounting entry would be made in the year 2002-03.

(iii)    No provision was made for diminution in the value of investments as required under AS-13 for the investment of Rs.47.17 crore in a Joint Venture Company viz. Mangalore Refinery and Petrochemicals Limited (MRPL) as the networth of MRPL has been completely eroded.

Management stated that all long-term investments were being valued at cost and provision for diminution in value thereof was made, wherever such diminution was other than temporary as disclosed in the significant accounting policies. Only as a prudent purchasing strategy, the offer for purchase at 50 percent of book value was made in respect of shares of MRPL whose market value keeps fluctuating and hence, the erosion was temporary.

The reply is not tenable because as per AS-13, when there was a decline, other than temporary, in the value of a long-term investment, a carrying amount was reduced to recognise the decline. In case of MRPL, the market value of its shares was declining over the years. Besides the net worth of the Company was completely eroded and its debt equity ratio was 7:1. MRPL appointed a consultant M/s. Lazard, for its financial restructuring and it had recommended, inter alia, a fresh infusion of equity between Rs.1000-1500 crore and write down of equity capital of all existing shareholders. Writing down the investment to 50 percent of its book value was based on the offer made by HPCL to Aditya Birla Group to purchase the partners shares at 50 percent of its book value.

1.2.32    Indian Oil Corporation Limited

1.    Current Assets and Loans and Advances was understated by Rs.62.63 crore on account of valuation of the closing stock of LPG and Superior Kerosene Oil (SKO) meant for Public Distribution System (PDS) at Net Realisable Value (NRV) instead of at Cost, due to ignoring the element of subsidy paid by the Government. Consequently the profit was also understated by same amount.

Management stated that though an announcement was made in Union Budget for the year 2002-03 regarding subsidy compensation in respect of domestic LPG and SKO for PDS, modalities of such scheme both relating to quantum and value had not been formulated so far.

The reply of Management is not tenable as closing stock had been sold at subsidised rate and Government would reimburse the loss incurred on account of subsidies which clearly suggested that NRV would be more than cost.

2.    Profit carried forwarded to Balance Sheet as well as Current Assets, Loans and Advances were overstated by Rs.54.34 crore due to inclusion of lease rental for Shakurbasti land for the period from 1993 to 2001 which was being used for various purposes other than handling of Administered Price Mechanism (APM) products as receivable from Oil Co-ordination Committee (OCC) instead of treating it as charge for the respective years.

Management stated that claims pertaining to area of land used for purposes other than APM products was not significant compared to the total pool claim. Moreover, these claims were subject to final adjustment as per separate audit and any adjustment so arising will be carried out subsequently.

The reply of Management is not tenable since after shifting of LPG Plant from the land to Tikrikalan (Commissioned in September 1989) the space was utilised for non-APM products such as storage of engineering project material, for lube, wax, retention of records. Further, due to fire at Kasturba Gandhi Marg, the entire Engineering & Training Department was shifted to Shakurbasti. Hence, rental of the land was not reimbursable by OCC.

3.    Loans and advances included an amount of Rs.9.05 crore, being the claims lodged by the Company on OCC for reimbursement of exchange rate variation in respect of sale of Aviation Turbine fuel to Air India during the period from March 1992 to February 1993. The Arbitrator rejected the claim against Air India for want of specific clause in the agreement and it was not accepted by OCC till adoption of Accounts. Still the Company did not make the provision for the same resulting in overstatement of Current Assets and Loans and Advances as well as Profit to the extent of Rs.9.05 crore.

Management stated that PPAC (formerly OCC) had forwarded the proposal for reimbursement of the amount to MOP&NG and their reply is awaited and hence, amount was now recoverable from PPAC.

The reply of Management is not tenable as the letter of PPAC only stated that Company's claim for reimbursement was forwarded to MOP&NG which did not amount to acceptance of claim. Necessary provision, therefore, should have been made in the accounts.

4.    Profit was understated by Rs.112.76 crore due to non-accounting of income on account of the terminal charges compensation to refineries for the years 2000-2001 and 2001-2002 based on reimbursement of claims for the year 1998-99 and 1999-2000.

Management stated that as per their Accounting Policy claims on Oil Co-ordination Committee/Government arising on account of APM were booked on acceptance in principle thereof which were subject to final adjustment as per separate audit. In respect of terminal charges compensation for the years 2000-2001 & 2001-2002, neither had the claims been accepted nor the instructions for submitting the claim had been conveyed by OCC and hence the same had not been reckoned in the books.

The reply of Management is not tenable as OCC had already paid claims for the years 1998-99 and 1999-2000 and requisite information / details as called for by OCC for the years 2000-2001 & 2001-2002 had already been furnished to OCC. Thus terminal charges had already been accepted in principle. Moreover, Marketing Division had booked the claims for terminalling charges upto March 2002. Hence, Terminal charges by Refineries Division should also have been accounted for on accrual basis.

5.    Investments and Profit was understated by Rs.200 crore due to making a provision for diminution in the value of Current Investments by applying the discount rate on 27 May 2002, i.e. after the Balance Sheet date in contravention of AS-4.

Management stated that considering the realisability of these bonds the provision for diminution in the value of bonds had been made in accordance with the principles of prudence and conservative accounting.

The contention of Management is not tenable as making a provision for decline in value of investment which occurred after the balance sheet date was in contravention of AS - 4.

6.    Company had not reported its working results segment-wise viz., Refining, Marketing of controlled products and Marketing of decent rolled products (including lubes products) as required under AS - 17.

Management stated that in their opinion Refining & Marketing of Petroleum products was a single business segment as Petro-products were manufactured from one raw material i.e. crude oil and were inter related. Accordingly the Company had identified two reportable business segments i.e. sale of petroleum products and sale of imported crude oil and the same had been disclosed in the Notes to Accounts.

The contention of Management is not tenable as the Refining, Marketing of controlled and Marketing of decontrolled products were quite distinct segments. Hence the Company should have reported its working results segment wise as required under AS-17.

1.2.33    Oil and Natural Gas Corporation Limited

1.    Profit is overstated by Rs.28.71 crore due to the following:

(i)    Rs.6.10 crore being cost of the non-producing well Periapatnam-2 completed in January 1999, which should have been written off during the year as per stated accounting policy of the Company.

Management stated that all wells, appearing as exploratory wells in progress and more than three years old, were charged to profit and loss account except those wells where the activity was in progress. Periapatnam field which was currently under development and facilities were being set up for connecting Periapatnam-2 and other wells to flow gas to TNEB for which indent for laying of flow line for connecting well Periapatnam-2 as also four other wells in the area had been taken up, the well has not been written off.

The contention of the management is not tenable as placing an indent for creation of flow line did not amount to production from the well. It is evident from the reply that the well had not produced till capital date, hence the reply is misleading. The reply speaks about the Mining Lease area and not about the well Periapatnam-2. The reply did not controvert the facts mentioned in the comment.

(ii)    Rs.22.61 crore being the cost of original well PRAA1 drilled in October 1999, which had to be abandoned due to complications. This should have been written off as it did not add value to the completed side tracked well PRAA (ST2).

Management stated that accounting standards and ONGC's accounting policies deal with treatment of cost of an exploratory well as a whole only rather than portions of a well. The well PRAA, together with side tracked portions, had been drilled from the same well-mouth involving no rig move and as such was only one well. The well having been completed as a gas-bearing well, the aggregate costs of the well have been correctly capitalised under exploratory wells-in- progress.

The reply is misleading, as the well mouth was not the determining factor for considering the expenditure on the side-tracked well. The expenditure involved in the abandoned portions of the well had not added any value to the well.

2.    Loans and Advances were over stated by Rs.25.32 crore in respect of excise duty on differential rate of ethane propane (Rs.17.12 crore) supplied during April 1994 to March 2000 and interest (Rs.8.20 crore) on delayed payment for 1999-00 which was disputed by Indian Petrochemicals Corporation Limited (IPCL).

Management replied that the dues from IPCL were on account of excise duty on the revision of price of ethane propane supplied during April 1996 to March 2000 and interest. M/s IPCL had not been able to pay this amount so far due to non-availability of Certificate 57-E from Excise authorities. ONGC was pursuing the matter with the Central Excise Department to enable IPCL to claim MODVAT benefit. Once this certificate was made available to IPCL, it would be in a position to avail the MODVAT benefit and pay the dues of ONGC along with interest agreed. A contract had also been signed with IPCL for supply of ethane propane, including price revision for the same, wherein they had agreed to make payment of arrears including interest @ 1 percent higher than prevailing Cash Credit rate. It would be appreciated that once the Certificate 57-E was provided to IPCL, it would be possible to recover the dues from them.

The reply of the Management is not acceptable since the refund of excise duty by IPCL was subject to reissue of 57-E certificate by the Excise department, which it had flatly denied.

3.    Current Liabilities were understated by Rs.14.31 crore on account of under provision of sales tax and octroi payable for the period 1993-98 in respect of MRBC arising on account of revision in crude oil price.

Management stated that as per legal opinion taken in a similar case, liability for sales tax had not accrued as on 31st March 2002, and hence the same has not been provided for.

Management's reply is not tenable as the Company had accounted for sales revenue as per the revised crude oil prices during the year, it was also liable for payment of statutory levies like octroi and sales tax as per the revised prices. As such liability provision was required to be made in the accounts during the year in respect of all the projects. Further, as per instructions from OCC, amount could not be claimed from oil pool account until the payment had actually been made.

4.    Provision and Write-offs

(i)    In the year 1999-2000, management estimated that four process complexes in Western Offshore area would start giving negative revenue from the year 2014-15. Restriction of 15 years imposed by the Corporation in the year 1999-2000, limited the provision for abandonment and restoration costs to just 79 offshore well sites for which cost of abandonment would be USD 8.25 million per platform of these wells instead of 171 existing as on 31st March 2000. Since the Company followed Successful Efforts method of FAS-19, it should also follow provisions of FAS-19 for abandonment costs. As per FAS-19, "Estimated dismantlement, restoration and abandonment costs and residual salvage values should be taken into account in determining amortisation and depletion rates". Since abandonment costs were production costs, they should be recognised in the financial statements over the full productive lives of the facility concerned and corresponding provision for eventual cost of abandonment should be built-up in the balance sheet, such accumulated provision was equal to cost of abandonment at the time the facilities cease to be used.

Management stated that the accounting policy on provision for future abandonment costs was formulated and implemented for the first time in ONGC during the year 1999-2000. In the absence of any Accounting standard for Exploration & Production Companies in India, ONGC had made a beginning and accordingly provision in respect of dismantling abandoning and restoring offshore well site which were likely to be abandoned during the next 15 years was being provided for equally over the remaining useful life of such properties based on the latest technical assessment available. It was felt that till that time the Accounting Standard on this issue is formulated, the accounting policy followed by ONGC for recognising such abandonment cost during the next 15 years was appropriate and the same had been consistently followed from the year 1999-2000.

Reply of the Management is not tenable because Company should have made provision for abandonment cost for all the 171 platforms instead of 79. Further, in the absence of the formulation of Accounting Standard on provision for abandonment costs in India, Company’s policy on the subject should have been guided by International Accounting Standards or the practices being followed in other countries on the issue.

(ii)    Rs 20.08 crore due to non-provision for abandonment in respect of the field B-173-A, though the remaining reserves were likely to be extracted fully during 2002-03 at the present rate of production.

Management stated that they have been consistently making the provision of abandonment based on complex-wise profiles of net return, which is one of the conservative methods recommended in the report of the study committee formed in this respect. Since the said report was to be reviewed in 2002 specially in view of the Market Driven Price Mechanism (MDPM) wherein ONGC was eligible for higher import parity prices, fresh provisions, if required, would be considered as per Committee's review report.

Management contention that as per new scheme the reserves were to be augmented and production thereon is likely to be extracted till 2010 is not correct considering the present level of production. Reservoirs Estimate Committee (REC) is supreme body in ONGC as far as reserve estimation was concerned. There was no reserve accretion during the year. As per accounting policy abandonment costs is provided for offshore well sites and not for complex wise profile as argued in the reply. The import parity concept brought out in the reply was not especially applicable for this field alone and therefore this could not be excluded.

1.2.34    Kochi Refineries Limited

Capital work-in-progress included a sum of Rs.1.83 crore in respect of cost of land, which should have been classified as Fixed Assets. This had resulted in over-statement of Capital work-in-progress and under statement of fixed assets by Rs.1.83 crore.

Management noted the comment.

1.2.35    Oil India Limited

1.    Profit and inventories were understated by Rs.48.79 lakh due to non-inclusion of value of 40 per cent share of closing stock of crude oil as per terms and conditions of a production-sharing contract.

Management stated that as per the joint operating agreement between the parties, the operators should deliver the stock of crude to the parties at the delivery point. Accordingly, the stock of crude before the delivery point at the custody transfer tank was not accounted for

The contention of the Management is not tenable, as 40 percent of total sales has been accounted for in the Company’s accounts. Therefore, the value of 40 percent share of closing stock of oil under production sharing contract of Rs.48.79 lakh should have also been accounted for.

2.    Non-provision of liability towards deployment of CISF personnel for the year resulted in over statement of profit and understatement of current liabilities by Rs.16.40 lakh.

Management accepted the comment and stated that the same would be accounted for in the next year accounts.

MINISTRY OF POWER

1.2.36    Power Finance Corporation Limited

Company had not provided for the stamp duty liability of Rs.4.02 crore (based on the prevailing rate) even though the deposit paid towards the cost of land had been booked under the Fixed Assets - Land as indicated in Notes on Accounts.

Management stated that as per Memorandum of Agreement dated 5 February 2002 with Land and Development office, Ministry of Urban Affairs, the liability for stamp duty would arise only after completion of construction of the said building and from the date of execution of the said lease of land.

Management’s reply is not tenable as the liability towards stamp duty on land should have been provided or the fact of non-provision should have been disclosed in the accounts.

1.2.37    Power Grid Corporation Of India Limited

1.    As Ranganadi-Balipara transmission line was test charged and commissioned in August/November 1998 and commercial operation was not commenced, the Company should have capitalised the expenditure of Rs.114.93 crore incurred till the date of commissioning and accounted for the incidental expenditure of Rs.19.21crore incurred during the intervening period in accordance with its accounting policy.

Management stated that on test charging the line in August/November 1998, certain discrepancies were noticed. As the pending works were not completed till 31 March 2002, the line could not be capitalised.

The reply is not tenable, as the project was completed and ready for commercial operation from August/November 1998.

2.    Company had not accounted for scrap having estimated realisable value of Rs.93 lakh in accordance with its accounting policy, which was not consistent with AS-2.

Management stated (September 2002) that the material in question was yet to be declared/approved as scrap by the competent authority and was a part of the regular inventory, which was valued at book value.

The reply is not tenable as the scrap did not have any value as per the Priced Store Ledger and should have been valued at net realisable value in terms of the provisions of AS-2.

3.    Company had not capitalised insurance spares valuing Rs.14.24 crore in respect of various transmission systems. Accordingly, the same had not been amortised over a period not exceeding the useful life of the principal equipment.

Management stated that the policy would be reviewed in the financial year 2002-03.

4.    Company had not provided for estimated liability of Rs.5.11 crore towards stamp duty and registration charges in respect of land purchased from Haryana Urban Development Authority (HUDA).

Management stated that no liability existed as on 31 March 2002 and necessary liability would be provided after completion of certain formalities.

The reply is not tenable as the registration and stamp duty was payable in terms of the agreement entered into between the Company and HUDA.

5.    Director General of Foreign Trade had demanded interest at the rate of 24 per cent on the amount of customs duty and terminal excise duty refundable by the Company. The Company had neither provided interest liability nor had it disclosed the fact of non-provision.

Management stated that liability of Rs.20.21 crore had been provided in the accounts for the year 2001-02 on approximation basis towards 24 per cent interest on the amount refundable by the Company.

The reply is not tenable, as the Company had made provision only towards custom duty and terminal excise duty and not towards the liability of interest as per books of accounts.

1.2.38    National Thermal Power Corporation Limited

1.    Balance of Rs.561.53 crore in call deposit account should have been disclosed separately as required by Schedule - VI to the Companies Act, 1956.

Management noted the comment.

2.    Company had a practice to account for rebates, allowed to the customers on prompt payment of bills, on cash instead of accrual basis.

Management’s contention that rebates accrued to the customers on the actual payment is not tenable, because rebates allowed to the customers for the year 2001-02 were known to the Company before finalisation of the accounts.

3.    Company did not have a policy for making provision in respect of slow-moving/non-moving spares.

Management replied that there was no diminution in their value and as such they were carried at cost.

The reply is not tenable as the provision for slow-moving/non-moving stores should have been made by considering the aspect of their age, technical obsolescence, and deterioration with the passage of time.

4.    Company had not capitalised insurance spares valuing Rs.139.75 crore on the ground that such spares could not be construed as insurance spares, as there was no uniformity regarding nomenclature of such spares in their units. Accordingly, the same have not been amortised over a period not exceeding the useful life of the principal equipment and plant.

The Management stated that different nomenclatures used for classification of spares in the material management system of the station would be reviewed in the next financial year.

5.    Company had neither provided interest liability on the amount of excise duty refundable as demanded by Director General of Foreign Trade (DGFT), nor had disclosed the fact of non-provision.

The Management replied that the Public Notice dated 5 November 1999 issued by DGFT on reimbursement of cash equivalent of deemed export benefits to Government of India did not stipulate payment of interest.

The reply is not tenable as the DGFT made it clear in February 2002 that interest was to be paid on the cash refund at the rate of 24 per cent per annum.

1.2.39    Nathpa Jhakri Power Corporation Limited

Non-allocation of interest income directly identifiable to the respective assets had resulted in overstatement of capital work-in-progress and understatement of incidental expenditure during construction (pending allocation) by Rs.14.38 crore.

Management noted the comment.

MINISTRY OF RAILWAYS

1.2.40    Container Corporation of India Limited

Expenditure of Rs.3.70 crore on construction of a railway linkage on the Railways land represented capital expenditure on land not belonging to the Company and should have been written off over a period not exceeding 5 years instead of charging depreciation at the rate of 4.75 per cent.

The Management assured to review the same for appropriate action in the next financial year.

1.2.41    Indian Railway Catering and Tourism Corporation Limited

Share Application Money pending allotment of Rs.23.26 lakh was actually the expenditure incurred by the Ministry of Railways on behalf of the Company. Though the Board of Directors in its meeting held on 3 August 2001 had decided to refund this amount, the Company had shown it as Share Application Money, instead of showing it under the head ‘Current Liabilities’. This has resulted in overstatement of share capital and understatement of current liabilities of Rs.23.26 lakh.

The Management noted the comment.

1.2.42    Konkan Railway Corporation Limited

The fixed assets having gross value of Rs.3.80 crore had been completely written off and losses accounted for without ascertaining the realisable value. This is inconsistent with accounting policy No.9 II(d).

1.2.43    Railtel Corporation of India Limited

The Board of Directors of the Company had decided (March 2002) to take over Optical Fibre Cables (OFC) assets and related equipment from IRCON International Limited at a cost of Rs.10.46 crore. This material fact had not been disclosed in the accounts.

Management stated that the Board of Directors had decided to take over the OFC-related assets from IRCON on the condition that no further liability would be devolved upon the Company on this account. The disclosure was not made as the issue was still under discussion with IRCON.

The reply is not tenable as taking over of OFC assets worth Rs.10.46 crore was a material fact and should have been disclosed.

MINISTRY OF SMALL SCALE INDUSTRIES, AGRO AND RURAL INDUSTRIES

1.2.44    The National Small Industries Corporation Limited

Other liabilities and losses were understated by Rs.4.88 crore due to non-provision of penal levy payable to Government of India (GOI) for default in payment of guarantee fee on loans availed by the Company.

Management stated that the matter regarding waiver of the annual guarantee fee was under the consideration of GOI and hence no provision for penalty on account of non-payment of guarantee fee was made.

The reply of the Management is not tenable as there was no specific waiver given by the GOI withdrawing the penal levy and there exist a definite liability.

MINISTRY OF STEEL

1.2.45    Bokaro Power Supply Company Limited

Profit of the Company has been overstated by Rs.3.53 crore due to charging of depreciation on fixed assets at lower rates.

Management stated that the power plant purchased from SAIL had been categorised under four blocks of fixed assets and depreciation provided accordingly. All items classified under plant & machinery have been uniformly depreciated @ 7.84 percent. Further the average life of plant & machinery block is more than 12 years and there was no under provision of depreciation.

Management's reply is not tenable in view of the fact that as per MECON valuation report the life of the items pointed out by Audit ranged from 3 to 11 years and if depreciation is charged @ 7.84 percent, 90 percent of the book value of assets would not depreciate during the life of the assets.

Inventory has been overstated by Rs.6.89 crore due to incorrect accountal of middling coal as closing stock as on 31March 2002, which was already consumed.

Management stated that the middling coal received on transfer of power plant from SAIL on 18 September 2001 was shown as inventory and corresponding figure had been shown as unsecured loan. The stock as on 18 September 2001 continued to be held as on 31 March 2002.

Management's reply is not tenable, as there was no stock of middling coal as on 31 March 2002. Further, Management could not submit any physical verification report to prove that there was any stock of middling coal as on 31 March 2002.

1.2.46    Ferro Scrap Nigam Limited

Liabilities on account of post retirement medical facilities and settlement expenses are not being recognised as per actuary estimate in accordance with AS-15.

Management stated that excepting payment of insurance premium for the medi-claim policy, the entire amount of expenditure for medical treatment of ex-employees were borne by the insurance Company, hence there was no accrual of liability. On settlement expenses, they stated that the benefits were neither linked with the earnings of the employees, nor length of service or any regular Contribution Scheme. Expenditure was reimbursed on the basis of pay as you go.

Reply is not tenable in view of the fact that under defined benefit scheme prescribed in AS-15 the employer assumes an obligation to pay the agreed benefit to the employees. Since the Company had assumed obligation for providing medical facility by taking mediclaim policy and settlement benefit by making reimbursement of expenses, the liability accrued on this should be provided for, in the period during which the service of the employees were rendered.

1.2.47    Hindustan Steelworks Construction Limited

Net loss of Rs.172.55 crore had been understated by Rs.114.93 crore on account of the following:

(a)    Overstatement of contract receipts (Rs.11.35 crore) and contract payments & provisions (Rs.9.72 crore) on account of excess accounting of work done by the Company/Sub-contractors upto 31 March 2001 and resultantly understatement of loss for the year-Rs.1.63 crore.

Management stated that consistent with the past practice and also in line with the Accounting Policy contract receipts had been accounted for in respect of work done not billed based on the certificate issued by the Engineer-in-charge. Similarly contract receipts arising out of escalation, extra items etc. had been accounted for as and when the Company had been able to reasonably ascertain its realisation.

Management’s reply is not tenable, as the contract receipts had been accounted for as income though the work not executed up to 31st March 2001as indicated in the respective Running Bills.

(b)    Non-provision of arbitration award payable to a Sub-contractor for Libya works has resulted in understatement of loss-Rs.28.16 crore.

The Management stated that Arbitration award had been disputed before the High Court of Calcutta. HSCL had filed a set aside application under Section 30 and 33 of the Arbitration Act against the award. As the matter is sub-judice, no liability accrues on the Company. Management’s reply is not acceptable in view of the fact that the management had gone for further appeal did not obliterate the fact the earlier award had gone against the Company. Since the element of certainty crept in the matter, provision was required to be made.

(c)    (i)    Understatement of Pay and Allowances as well as loss due to non-provision for Dearness Allowance payable to employees under the CDA pattern adopted by the Company-Rs.21.96 crore.

Management stated that under Financial Restructuring Package granted by the Government of India increase in the DA in HSCL had been frozen till the Company achieved cash profit .As on date the Company had not earned any cash profit therefore, no liability had arisen to the Company on this head.

Management’s reply is not acceptable, as Company had adopted CDA pattern for payment of DA to their employees, the provision for DA should have been made on the basis of announcement of DA by the Government of India.

(ii)    Liability for leave salary payable to 3122 employees separated under Voluntary Retirement Scheme upto 31.3.2001 had not been provided on prorata basis- Rs.5.46 crore.

Management noted the comment.

(d)    (i)    Understatement of provision for doubtful debts and overstatement of Sundry Debtors due to non provision / under provision in respect of debtors under dispute, old and doubtful claims, debtors disallowed by the clients and debtors lying outstanding for more than 3 years without any confirmation- Rs.9.78 crore.

Management stated that most of its clients were Government Departments and PSUs including inter-alia, SAIL. There were several instances where dues more than 8 to 10 years were kept pending by clients due to non-availability of budget approval by Government authorities. Payment in such cases were received subsequently.

Management’s contention is not acceptable as absence of confirmation / acceptance of the long outstanding claims/debt, non realisation / settlement of debts for a long time ranging between 5 to 13 years indicated that the debt have become doubtful debt / recovery for which provision required to be made in the accounts.

(ii)    Understatement of loss and overstatement of loans and advances for the year due to non-provision against “Other Receivable (security deposit with clients, liquidated damages recovered, retention money etc.)” lying un-realised for more than 3 years after closure of contracts- Rs.3.51 crore.

Management stated that most of its clients are Government department and PSU(s), including inter-alia, SAIL. There were several instances where dues more than 8 to 10years old had been kept pending by clients due to non-availability of the budget approval by Govt authorities or such other reason. Payments had been received subsequently. However, as a matter of conservation, adequate provision had been made in the accounts in respect of old debts, which were more realistic and based on the management judgment and perception.

Management’s reply is not acceptable in view of the fact that amount payable was disputed/disallowed by the clients and the claim of the Company had not been accepted by them even after lapse of considerable period. Thus in view of uncertainty in ultimate collection, provision should be made.

(iii)    Understatement of liability as well as loss for the year due to under provision of amount payable to Bokaro Steel Plant for supply of electricity to HSCL township, office and estate dues etc. for quarters provided to employees of the Company- Rs.2.43 crore.

Management stated that there had been no claim from Bokaro Steel Limited, therefore, no liability had been considered.

Management’s contention is not acceptable as the estate dues was to be paid by the HSCL to Bokaro Steel Plant for the services like electricity, water provided in the quarters of the HSCL employees. Since the liability in this regard was definite and firm, a provision for liability should have been made in the accounts.

(iv)    Understatement of loss and overstatement of Deferred Revenue Expenditure (DRE) not written off due to non-charging of 20 percent of ex-gratia and special ex-gratia paid to 1884 employees separated under Voluntary Retirement Scheme during 1999-2000 in current year’s account on the basis of actual payment- Rs.11.33 crore.

Management stated that the effect of the expenditure had been accounted correctly in the year of disbursement. Under the Income Tax Act (Section 35 DDA) amortisation of an expenditure with regard to VRS payment could be made within an overall period of 5 years. Accordingly, expenditure had been amortised based on actual disbursement in cash which was made in the current accounting year.

Management’s reply is not tenable as 1884 employees were separated under VR Scheme during 1999-2000 and payment of Rs.56.64 crore was made to them in 2000-01 pertaining to the period 1999-2000.As such Rs 11.33 crore being 20 % of the total amount of expenditure should have been charged proportionately for the year 1999-00 as DRE in the accounts of 2000-01.

(v)    Understatement of loss as well as provisions due to non-provision for unforeseeable loss in respect of contracts executed as required under AS-7- Rs.12.45 crore.

Management stated that the major portion of the contracts of the Company were being executed through sub-contractors. The amount paid or payable to sub-contractors identified the cost of respective contracts. The referred contracts did not attract AS-7. However as an abundant precaution the Company had provided Rs.3.99 crore towards unforeseen losses on outstanding amount of works billed as well as works done but not billed.

Management’s contention is not acceptable in view of the fact that as per AS-7 profit elements in respect of contract should not be considered where progress of work was less than 25 percent and in respect of other contracts where progress achieved was more than 25 percent but the work was not completed, a provision was required to be made for unforeseeable loss against the contract.

(vi)    Understatement of Loss and overstatement of Fixed and Current assets due to non-provision for doubtful recovery as the assets had been lying unguarded and unrecognised in Libya since July 1988- Rs.18.22 crore.

Management stated that all the outstanding issues in respect of Libya were being dealt with at the level of Ministry of Commerce, the nodal agency of Government of India. Necessary adjustment would be carried on receipt of the confirmation from Government of India, since all the issues were being taken up at macro level by Indo Libyan Commission from time to time.

Management’s contention is not tenable in view of the fact that the assets of the Company at Libya was lying unguarded since last 13 years. The Ministry of Commerce had also not indicated recovery of assets of Company lying at Libya. Thus in view of uncertainty in recovery of assets, full provision should be made in the accounts.

1.2.48    Indian Iron and Steel Company Limited

1.    Non-provision of liability for the amount payable to DVC towards delayed payment surcharge on Electricity Bill as per agreement - Rs.1.62 crore.

Management has accepted the point for adjustment in the accounts for the year 2002-03.

2.    Overvaluation of stock of old Cast Iron Spun pipes having no market and accumulated over the years - Rs.1.80 crore.

Management stated that the stock of Cast Iron Spun Pipes is saleable, satisfying the test of quality. Pipe market is cyclic in nature and its demand varies which is linked with various urban/rural projects. As the stocks are useable, valuation of Cast Iron Pipes had been made at appropriate rates.

Management’s reply is not acceptable in view of the fact that the old cast iron pipes could not be disposed of despite of issue of tender for sale.

3.    Overvaluation of stock of cast iron general/special castings, steel castings and non-ferrous castings due to adoption of higher rates - Rs.0.75 crore.

Management stated that the stock of casting was valued at lower of cost or net realisable value. Net realisable value was considered based on weighted average price applicable for the captive consumption and outside customers.

Management’s reply is not tenable in view of the fact that as per AS-2, the estimation of net realisable value should be based on the value what is expected to be realised from the customers. Since the Company had been selling the cast iron to their customers at the rate lower than the transfer price, the finished stock should have been valued at net realisable value instead of valuing it at weighted average price.

4.    Overvaluation of stock of unmoved refractory brickbats- Rs.0.90 crore.

Management stated that the stock is usable and dispatches have recently started and hence the valuation of the bricks has been made at appropriate rate.

Management’s reply is not tenable as the brickbats have very negligible market. Out of 15000 tonnes of bricks, Company could dispose of 265 tonnes only i.e. 1.76 per cent of total stock during April 2002 to June 2002 due to poor market response. Thus, the Company should have made provision against such slow moving stock of bricks.

5.    Liabilities on account of post-retirement medical facilities and settlement expenses were not being recognised as per actuary estimates in accordance with AS-15.

Management stated that AS-15 applies to the retirement benefits in the nature of either a defined contribution scheme or defined benefit scheme. The medical facilities and settlement expenses as provided to the retired employees did not fall within the definition of defined contribution scheme or defined benefit scheme.

Management’s contention is not correct in view of the explanation on the definition of “defined benefit scheme” given by the Expert Advisory Committee of ICAI under which the employer assumes an obligation to provide the agreed benefits to employees. Since the Company had been providing medical facility and settlement benefit to its employees on retirement, the facilities comes within the ambit of AS-15, necessitating a provision therefor.

1.2.49    MECON Limited

Net Loss of the Company was understated by Rs.73.50 crore on account of the following:

(a)    Understatement of Income from services rendered and overstatement of loss by Rs.84.79 crore due to the following:

(i)    Accounting of higher percentage of progress of works against the actual work completed resulted in overstatement of Income from services rendered and understatement of Loss- Rs.4.73 crore.

Management stated that percentage progress is computed on the basis of physical progress of work at site. There was no overstatement of income.

Management’s contention is not tenable in view of the fact that as per agreed milestone with the clients, 5 per cent weightage was assigned towards performance guarantee test .Since upto the end of March 2002 , the Performance Guarantee test was not conducted which is evident from the Progress Report prepared by the Site In charge, the actual progress could not be more than 95 per cent. Hence income had been overstated.

(ii)    Excess accounting of income due to non-consideration of reduction in fee resulted in overstatement of income from services rendered and understatement of loss- Rs.2.44 crore.

Management stated that the unilateral reduction in fee by the two clients was contested by the Company. Pending the settlement and in view of contingencies available in these contracts, the income had been correctly taken.

The reply of the Management is not tenable in view of the fact that the client KMCL reduced the contract fee due to reduction in the scope of work. As such accounting of income of Rs.1.02 crore on the basis of pre-revised contract fee was not justified. As regards accounting of income of Rs.1.42 crore in respect of TNEB job, the Management had itself accepted the fact of reduction of contract value due to saving in the change of design. As per the terms of contract benefit of any saving is to be passed on to the client, as such accounting of income of Rs.1.42 crore was not justified.

(iii)    Non-accounting of income due to consideration of lower percentage of progress of work in a turnkey job resulted in understatement of Income from services rendered and overstatement of loss- Rs.(-)91.96 crore.

Management stated that the percentage progress is computed on the basis of physical progress of work. Based on the consistently followed accounting practices, the income from services had been correctly accounted.

Management’s contention is not acceptable in view of the fact that as per Company‘s own accounting policy the income in the lump sum job was recognised on the basis of percentage of progress method.

(b)    Non-provision towards estimated future loss (in violation of AS-7) against one job and also in respect of jobs-in-progress resulted in understatement of Liability as well as understatement of loss- Rs.15.70 crore.

Management stated that future loss on a major turnkey contracts was not ascertainable at that stage on a totality basis due to high degree of technical intricacies involved with significant contract deviations which have impact on the contract price.

Management’s contention is not acceptable in view of the fact that para 13 of the mandatory AS-7 stipulated that when current estimates of total contract cost and revenue indicated a loss, provision was to be made for entire loss on the contract irrespective of the amount of work done and the method of accounting followed. As such provision should have been made in the accounts.

(c)    Short provision of liability towards wage revision already approved by the Board of Directors for implementation with effect from 1 January, 2001 resulted in understatement of Liability as well as understatement of loss- Rs.4.31 crore.

Management stated that the Board of Directors were yet to decide on the payments of Interim Relief from April 1998 to May 1999. Hence, no provision was necessary.

The reply of the Management is not tenable in view of the fact that only the decision of the Management to pay was awaited. Accrual of the liability had nothing to do with the decision to pay or otherwise. As such the provision for accrued liability was required to be made.

(d)    Understatement of Other Expenses and Provisions as well as understatement of loss by Rs.5.42 crore due to the following: -

(i)    Non-provision for debt already deducted by a client and agreed to by the Company to forgo- Rs.1.89 crore.

Management stated that upon crystalisation of the liability under a consultancy contract with one of the clients, it would be taken into account along with income against 100 per cent progress.

The reply of the Management is not tenable in view of the fact that MECON had already agreed to forego the aforesaid amount as a part of the final settlement. In view of this provision for the same was required to be made.

(ii)    Non-provision of doubtful debts deducted by a client due to various reasons and lying outstanding since long- Rs.1.85 crore.

Management stated that upon settlement and closure of the turnkey contract, provision, if any, would be made.

The reply of the Management is not tenable in view of the fact that the amount of Rs1.85 crore had been deducted by the client as per clause 7 of the relevant contract. As such necessary provision for contractual liabilities was required to be made.

(iii)    Non-provision towards liquidated damages already recovered by the clients. (Rs.1.68 crore)

Management stated that upon settlement and closure of the turnkey contract, provision, if any, will be made.

The reply of the Management is not tenable in view of the fact that the recovery of liquidated damage by the client; Rourkela Steel Plant was in terms of the provisions of the contract as such necessary provision should have been made.

(e)    Understatement of expenditure as well as understatement of loss due to non-accounting of matching cost- Rs.131.01 crore.

Management stated that accrued expenditure on sub-contractors matching with the income credited had been accounted for and no further provision was considered necessary.

Management’s reply is not tenable in view of the fact that accounting of income had to be followed by the proportionate charge of expenditure in the accounts.

(f)    Non-provision for liability towards cost of materials ready for dispatch but lying in suppliers premises- Rs.1.85 crore.

Management stated that execution of the project had been kept in abeyance. Both income and expenditure would be accounted in the year of the revival of the project.

The reply of the Management is not tenable in view of the fact that the Company’s suppliers had manufactured the equipment according to the design/instruction etc of the Company, thus, the necessary provision had to be made in the accounts to the extent of ordered quantity.

1.2.50    Sponge Iron India Limited

A reference is invited to the comment No.2 of C&AG of India on the accounts of Company for the year 1999-2000 and 2000-01. Current liabilities and provisions were overstated by Rs.1.73 core due to utilisation of Government grants received under National Renewal Grant (NRG) towards VRS payments for meeting inadmissible item of expenditure viz., notice pay, gratuity, leave encashment etc., during the years 1995-96 to 1999-2000. This resulted in under-statement of prior period expenditure as well as cumulative loss by Rs.1.73 crore.

Management stated that Company did not debit any NRF amount except ex-gratia amount from June 1999 onward after receipt of revised government guidelines.

The reply is not tenable since Ministry had categorically clarified (July 2002) that ever since the inception of NRF from 1992-93, assistance from NRF had been made available to PSUs only for making compensation payment under VRS i.e. ex-gratia as per DPE guidelines.

1.2.51    Steel Authority of India Limited

1.    Loss of the Company was understated by Rs.392.55 crore in view of the following:

(i)    Under/non-provision towards stores and spares not moved for more than 5 years (Rs. 57.63 crore)

Management stated that there was a well defined procedure in the Company for declaration of items as obsolete/surplus stores & spares. Usability of materials in other shops/sister unit/subsidiary companies was ascertained before such declaration.

Management's reply is not acceptable as the Company had been holding stores and spares for more than five years and their non-use within a normal production cycle/reasonable period indicated that these were surplus/obsolete to the requirement. Thus, provision for such stores & spares should have been made in the accounts.

(ii)    Non-provision of liability for entry tax, interest and penalty on procurement of low silica limestone- Rs.59.84 crore.

Management stated that the Hon’ble High Court of Chhattisgarh had admitted the writ petition against the orders of Additional Commissioner of Commercial Tax. The operation of the Department’s orders had also been stayed. In view of dispute, the amount of demand had been shown as ‘Contingent Liability as per consistent practice

Management’ reply is not tenable in view of the fact that as per para 10 of AS-4, contingent loss should be provided for when it is probable that future event will confirm that liability has been incurred as on the date of Balance Sheet. Since Addl. Commissioner had rejected the plea made by the Company and confirmed the demand and Hon’ble High Court of Madhya Pradesh also held that SAIL was liable to pay the entry tax at the rate prescribed in the MP Government notification, a provision for liability was necessary.

(iii)    Non-provision against doubtful and disputed advance of Rs.133.40 crore paid in excess of contractual obligation, outstanding for more than 5 to 10 years, payment of Rs.2.54 crore for future job and irrecoverable estate dues of Rs.2.43 crore in case of Durgapur Steel Plant and financial assistance of Rs.34.11 crore given to HSCL by Bokaro Steel Plant

Management stated that in order to settle the issue of the disputed claims of HSCL relating to DSP, the matter was referred to a conciliator and appropriate adjustments would be made based on the decision arising out of conciliation proceedings. As regards dues of BOSP, since there are continuous dealings with HSCL, these would be recovered in due course.

Management's reply is not tenable in view of the fact that most of the advances were given long time back and were in excess of contractual provisions and dispute could not be settled even after referring the matter to conciliator three years back. In view of above, the realisation of the amount is doubtful, which needed a provision in the accounts

(iv)    Valuation of residual, accumulated, unmarketable mixed coke embedded with soil at Bokaro Steel Plant- Rs. 65.63 crore.

Management stated that mixed coke was usable within the plant and also has a good market outside. Mixed coke lying in the yard was being continuously drawn and used in the sinter plant. Further, MECON, an independent agency, have also surveyed the stock and confirmed the availability, usability and valuation of the same.

Management's reply is not tenable as old stock of mixed coke was neither used for sintering mix in the plant nor sold in the market. The mixed coke in old dump was lying embedded covered with grass and dust. Hence, the study made by MECON on the mixed coke dump would not make any difference relating to old stock in view of the facts mentioned above.

(v)    Overvaluation of closing stock of semi-finished products/scrap either not covered by orders or returned by the customers due to valuation at listed price/cost instead of market price- Rs. 11.21 crore.

Management stated that materials not covered by order were being sold as prime products in normal course and were accordingly valued. The materials returned by customers for non-conformance to specifications were re-processed/re-conditioned and supplied against same order/ matching order, which had been valued at 60 per cent of the prime product price on a conservative basis. Thus, there was no overvaluation of inventory.

Management’s reply is not tenable in view of the fact that realisation price of finished products, not covered by orders, was below (approximately) 50 per cent of listed prices adopted for valuation and Plant Management had also approved only 50 per cent of listed price for their disposal, as pointed out by the Internal Audit Wing itself. Further, inability of the Management in securing market for this stock during the last three years established the facts that there was no market for this stock and only possible use was in recycling of product as raw materials

(vi)    Accountal of excess subsidy on account of interest on loan raised for VRS- Rs.16.02 crore.

Management stated that in line with the decision of the GOI, which provided for GOI’s guarantees of Rs.1500 crore with 50 per cent interest subsidy to be raised from the market for reduction in manpower through VRS, the funds were raised during 2000-01 and 2001-02 and subsidy @ 50 per cent of the interest paid to the Bond holders was claimed and received from the GOI.

Management’s contention is not correct in view of the fact that principle behind giving subsidy was to share 50 per cent of the financing cost, in the present case, relating to money raised from the market. Hence, to arrive at the financing cost, the interest paid out had to be adjusted from the amount of interest earned if any. However, instead of adjusting the amount of interest earned due to temporary parking of the fund, the Company made a claim for subsidy considering only the total interest payment, which was not correct.

(vii)    Income of the Company had been overstated by Rs. 9.74 crore due to accounting of material worth Rs.179.03 crore as sales although the Company had not endorsed the railway receipts in favour of the customer or materials were not delivered or bills of lading was not issued within 31 March, 2002.

Management stated that sales were being accounted for consistently based on the delivery of goods to the carriers wherein significant risks and rewards of ownership have been passed on to the customers. In the cases referred, the despatches have been made to the customers and accordingly included in the sales. However, the documents were held in the custody of the Company for securing the payments.

Reply is not tenable in view of the opinion of the Expert Advisory Committee of ICAI, which states that significant risks and rewards of ownership in goods may be considered to have been transferred to the buyer, where the RRs were in the name of the “Company- Account Party”, as soon as the RRs were endorsed in the name of buyers even though these were kept in the custody of the Company with the only purpose to ensure payments unless other terms & conditions of the contract indicated that significant risks and rewards of the ownerships in the goods have not been transferred. As such sales should be treated only from the date of endorsement of RRs to the customers. In the cases pointed out, RRs were endorsed only after 31 March 2002 by the Company.

2.    Fixed assets included the following idle/surplus assets:

(i)    Ferro Silicon furnaces, DG set, Stamping machine, Tundish Feeder Skids of RHF-I, Load cells, IPU schemes and computerised combustion control system lying unused at Bokaro Steel Plant for last 3-10 years due to non-completion of the scheme/premature failure/for want of requirement etc.- Rs.62.12 crore.

(ii)    ID Motor for Rail & Structural Mill of Bhilai Steel Plant imported in 1997 lying unused since procurement- Rs.8.83 crore.

(iii)    Rotary Kiln of RSP, Weigh bridge, Twin Hearth Furnace and railway track at DSP lying unused for the last 5-10 years- Rs.42.02 crore.

Management stated that some facilities/assets did remain idle for some time due to technical or commercial reasons or as a standby equipment and under work-in-progress on account of disputes with contractors, mid-term review of schemes etc.

Management's contention is not acceptable in view of the fact that the assets/equipment were lying idle either due to obsolescence of technology/want of requirement or incomplete for a considerable period and their revival and alternative use was doubtful.

3.    Liabilities on account of post-retirement medical facilities and settlement expenses were not being recognised in accordance with AS 15.

Management stated that AS-15 applies to retirement benefit in the nature of either a defined contribution scheme or defined benefit scheme. The medical facilities and settlement expenses as provided by the Company to retired employees did not fall within the definition of defined contribution scheme or defined benefit scheme.

Management’s contention is not correct in view of the explanation on the definition of "defined benefit scheme" given by the Expert Advisory Committee of ICAI under which the employer assumes an obligation to provide the agreed benefits to employees. Since the Company had been providing medical facility and settlement benefit to its employees on retirement, the facilities comes within the ambit of AS-15, necessitating a provision therefor.

MINISTRY OF SHIPPING

1.2.52    Shipping Corporation Of India Limited

1.    During the year, the Company transferred Rs. 274.00 crore from Special Reserve (utilised) Account maintained by it under Section 33 AC of the income Tax Act, 1961, to General Reserve and such a transfer was in contravention to the provision of Section 33 AC. 3(C) of the Act, ibid.

The contention of the Management that Section 33 AC did not lay down the period for which special reserve was to be retained is not acceptable as sub-section 3 (c) (ii) under Section 33 AC contemplates that special reserve is to be transferred to P&L account in case where ship is sold or other wise transferred before the expiry of 8 years. As ships acquired by the Company during the years 1998-99 & 1999-2000 had neither been disposed off nor otherwise transferred by the Company, hence the amount of special reserve should not have been written back.

2.    Profit as well as investments were overstated by Rs.16.71 crore due to non-provision towards diminution in the value of investments on account of deficit accumulated during development stage and other comprehensive loss, as a result of which the paid-up share capital of Greenfield Holding Company Limited (GHCL), a joint venture Company (in which the Company held 20 per cent shareholding), was reduced from USD 59.525 million to USD 39.840 million representing erosion of its net-worth by 33.07 percent.

Management stated that since the changes affecting the project at this stage were perceived to be of a temporary nature and the vessel owned by GHCL was expected to be deployed under long term Time Charter to the Government of Sultanate of Oman, no provision was considered necessary.

The reply of the Management is not tenable as the Committee of Board of Directors under the Chairmanship of the then Joint Secretary, S&IW had concluded that based on the available information, there was very little, if any, equity left in the project. The Board of Directors of the Company had also accepted the committee’s report. Further, in light of the uncertainties associated with the project Finance Division of the Company had also showed its inability to examine the project viability and IRR calculations.

3.    Profit for the year was overstated and Sundry Creditors were understated by Rs. 1.87 crore due to provision of liability towards cost of repair of vessel M.T. Basaveswara for Rs. 5.97 crore instead of Rs. 7.84 crore, even though the bills for the repairs carried between 13 December 2001 and 11 February 2002 were received upto 4 May 2002 i.e. before certification of accounts.

The contention of the Management that provision of Rs.5.97 crore made in the account was fairly reasonable is not tenable as bills for the repairs of vessel carried out during the period from 13 December to11 February 2001 were received on 25 April 2002 & 4 May 2002 i.e. much before certification of accounts, hence the same should have been provided for in the accounts.

MINISTRY OF TEXTILES

1.2.53    National Textile Corporation. (South Maharashtra) Limited

Loss was overstated and “ extraordinary items were understated by Rs.15.29 crore due to non-writing off on interest payable to “ Cotton Creditors” as a result of sanction of rehabilitation scheme for the Company by BIFR.

Management stated that negotiations with Cotton Creditors on the basis of BIFR orders were in progress and necessary entries would be incorporated in the accounts for 2002-03.

The reply of the Management is not tenable because as per statutory provisions made under Sick Industrial Companies (Special Provisions) Act, 1985, Scheme sanctioned by BIFR would be binding on all the parties concerned and hence the Company should have made necessary adjustment in the accounts.

MINISTRY OF URBAN DEVELOPMENT AND POVERTY ALLEVIATION

1.2.54    National Buildings Construction Corporation Limited

1.    Current Liabilities were understated by Rs.8.80 crore due to non-inclusion of the surplus release of funds received under a Deferred Payment Agreement with the Government of India.

Management stated that a sum of Rs.8.80 crore has been included in the financial restructuring proposal for conversion into equity.

The reply of the Management is not tenable, as the Government’s approval for converting the liability into equity had not been received.

2.    Current Liabilities and Provisions were understated by Rs.5.04 crore due to non-inclusion of foreseeable losses in respect of 4 projects, which should have been provided for in terms of AS-7.

Management stated that the Company was regularly evaluating the financial status of the projects under execution by initiating necessary corrective/preventive steps to curtail/reduce the cost through close monitoring of the projects etc. Assessment/provision of foreseeable losses during currency of the contract, if any, would not reflect the realistic financial position of the project. The policy was being followed consistently over the years.

The reply of the Management is not tenable, as the Company has not followed the requirement of AS-7.

3.    Bank Charges and Guarantee Commission were understated by Rs.16.06 crore (Rs.1.01 crore for the current year) as on March 2002 due to non-inclusion of guarantee fee and penal levy thereon for internal and external borrowings of Rs.57.32 crore.

This had also resulted in overstatement of ‘Profit’ for the year by Rs.1.01 crore and understatement of ‘Prior Period expenses’ as well as ‘Accumulated Loss’ by Rs.15.05 crore and Rs.16.06 crore respectively.

Management stated that they had requested the Government of India to convert the guarantee fee of Rs.16.02 crore into equity in the financial restructuring proposal.

The reply of the Management is not tenable, as specific approval of the Government of India has not been received.

1.3    Review of Accounts:

 

  Name of the Ministry/Company Brief comments
Department of Atomic Energy
1.3.1 Uranium Corporation of India Limited The net worth of the Company had reduced to Rs. 433.09 crore as on 31.03.2002 as against Rs. 448.83 crore as on 31.03.2001.

MINISTRY OF CHEMICALS & FERTILIZERS Department of Chemicals and Petro-chemicals

1.3.2 Hindustan Organic Chemicals Limited
  1. The trend of declining sales and increasing losses over a period of years resulted in erosion of net worth from Rs.237.19 crore and Rs.194.84 crore as on 31 March 2000 and 2001 respectively to Rs.136.04 crore as on 31 March 2002.
  2. As on 31 March 2002, the sundry debtors outstanding for more than three years was Rs. 20.26 crore, which was 41.64 percent of total outstanding. Further, as against total outstanding of Rs. 48.65 crore, an amount of Rs. 44.74 crore was recoverable from private parties indicating poor realisation of dues.
Department of Fertilizers
1.3.3 Hindustan Fertilizer Corporation Limited
  1. The net worth of the Company had reduced to (-) Rs. 5736.38 crore as on 31.03.2002 as against (-) Rs. 5344.94 crore as on 31.03.2001.
  2. The percentage of finished stock to sales reduced to 32.72 percent as on 31.03.2002 as against 43.26 percent as on 31.03.2001.
1.3.4 National Fertilizers Limited
  1. Working capital of the Company decreased by Rs.37.54 crore during the year from Rs.923.04 crore as on 31 March 2001 to Rs.885.50 crore as on 31 March 2002 mainly due to decrease in inventory and in sundry debtors.
  2. Net worth decreased by Rs.326.25 crore during the year 2001-2002 due to decrease in general reserve and surplus on account of Deferred tax liability and higher proposed dividend.
  3. During the year ended March 2002, the Company generated the funds amounting to Rs.161.81 crore as compared to Rs.185.74 crore during the previous year. This was mainly due to decrease in loan funds.
1.3.5 Pyrites phosphate & Chemical Limited The percentage of current assets to current liabilities (including provisions) decreased from 84.98 percent in 1999-2000 to 69.19 percent in 2000-01 and to 45.02 percent in 2001-02.
1.3.6 Rashtriya Chemicals & Fertilizers Limited The Sundry Debtors as a percentage of sales increased form 18.18 in 1999-2000 to 20.89 in 2001-02.

MINISTRY OF COAL & MINES Department of Coal

1.3.7 Bharat Coking Coal Limited
  1. The net worth of Company had reduced to (-)Rs. 2736.95 crore as on 31.03.2002 as against (-) Rs.1962.88 crore as on 31.03.2001.
  2. Earning per share of the Company had increased to (-) Rs. 356.47 in 2001-02 as against (-) Rs. 602.79 in 2000-01.
1.3.8 Coal India Limited Profitability ratios had a sharp rise due to marked increase of profit after tax to Rs.516.80 crore in 2001-2002 compared to the same of Rs.280.21 crore in the previous year.
1.3.9 Central Coalfields Limited The net worth of Company had reduced to (-) Rs. 328.64 crore in 2001-02 as against (-) Rs.253.28 crore in 2000-01.
1.3.10 Central Mine Planning & Design Institute Limited Earning per share of the Company had increased to (-) Rs.3.26 in 2001-02 as against Rs.(-) Rs. 237.62 in 2000-01.
1.3.11 Eastern Coalfields Limited
  1. The net worth of the Company had reduced to (-) Rs.1937.55 crore as on 31-03-2002 as against (-) Rs.1644.09 crore as on 31-03-2001.
  2. Earning per share of the Company had increased to (-) Rs.125.15 in 2001-2002 as against (-) Rs.413.45 in 2000-2001.
1.3.12 Northern Coalfields Limited Earning per share of the Company as on 31 March 2002 had risen sharply to Rs. 4840.60 as against Rs. 3734.28 as on 31 March 2001 due to increase in profit after tax.
1.3.13 Mahanadi Coalfields Limited The inventory levels of stock of coal, coke etc. had reduced to Rs. 35.10 crore as on 31.02.2002 as against Rs. 59.57 crore as on 31.03.2001.
MINISTRY OF COMMERCE AND INDUSTRY
1.3.14 Export Credit Guarantee Corporation of India Limited Percentage of insured exports to total exports steadily decreased from 15.16 in 1999-2000 to 11.5 in 2001-02.
MINISTRY OF DEFENCE Department of Defence Production & Supplies
1.3.15 Bharat Dynamics Limited The profit for the year amounting to Rs.109.44 crore was after taking into account Rs.97.56 crore being the interest income, on accrual basis in respect of Short Term Deposits/Loans/Sundry Advances/Other Deposits, etc.
1.3.16 Bharat Earth Movers Limited The increase in working capital during 2001-02 was mainly due to increase in sundry debtors by Rs.46.63 crore and cash and bank balance by Rs.70.56 crore.
1.3.17 Garden Reach Shipbuilders & Engineers Limited Profit after tax for 2001-02 amounted to Rs.16.41 crore was after taking into account Rs.30.13 crore being interest income.
1.3.18 Mazagaon Dock Limited The percentage of working capital to the value of production was 24 in 1999-2000, 37 in 2000-01 and 42 in 2001-02.
1.3.19 Mishra Dhatu Nigam Limited
  1. The income during the year 2001-02 included non-operational income of Rs.1.54 crore earned by way of interest on surplus funds invested in term deposits (Inter Corporate/Banks/Others) and income from transfer of surplus Power. If this non-operational income is not considered, the working of the Company for the year 2001-02 would have resulted in Operating Loss of Rs.1.45 crore.
  2. The net Profit as a percentage to Capital Employed decreased from 0.25 in 2000-01 to 0.06 in 2001-02.

MINISTRY OF FINANCE

INSURANCE DIVISION
1.3.20 National Insurance Company Limited
  1. The Net worth of the Company declined from Rs. 10.54 crore in 2000-01 to Rs. 9.64 crore in 2001-02.
  2. The ratio of incurred claims to net premium varied from 80.68 percent in 1999-2000 to 80.99 percent in 2000-01 and 93.15 percent in 2001-02.
  3. The ratio of expenses of Management and Commission to net premium increased from 27.18 percent in 2000-01 to 29.88 percent in 2001-02.
1.3.21 New India Assurance Company Limited Despite an increase in its premium income from Rs. 2477.45 crore in 1999-2000 to Rs. 3068.23 crore in 2001-02, the Company incurred underwriting loss of Rs. 529.60 crore during 2001-02 as compared to Rs. 177.98 crore in 1999-2000 mainly due to disproportionate increase in management expenses.

MINISTRY OF HEAVY INDUSTRY AND PUBLIC ENTERPRISES

1.3.22 Andrew Yule & Company Limited
  1. Paid-up capital of the Company had been fully eroded in view of the negative net worth.
  2. Percentage of good debts to sales increased from 59 per cent in 2000-01 to 70 per cent in 2001-02
1.3.23 Braithwaite & Co. Limited
  1. Net worth of the Company declined sharply from Rs.(-)14.40 crore in 2000-01 to Rs.(-) 51.94 crore in 2001-02.
  2. Sales decreased by Rs.71.32 crore during 2001-02 as compared to the previous year.
  3. Percentage of doubtful debts to total debts had increased from 15 as on 31st March 2001 to 52 as on 31st March 2002
1.3.24 Burn Standard Company Limited
  1. Paid-up capital of the Company had been fully eroded in view of the negative net wroth.
  2. Stock of stores and spares increased from 8.99 month’s consumption in 2000-01 to 15.42 month’s consumption 2001-02.
  3. Despite decrease in sales from Rs.166.30 crore in 2000-01 to Rs. 91.76 crore in 2001-02, percentage of Sundry Debtors to sales had increased from 36 in 2000-01 to 65 in 2001-02.Further 46 percent of Sundry Debtors had been considered doubtful as on 31st March 2002.
1.3.25 Hindustan Cables. Limited
  1. Paid-up capital of the Company had been fully eroded in view of the negative net worth.
  2. Despite decline in sales from Rs.856.97 crore in 2000-01 to Rs.561.66 crore in 2001-02, percentage of sundry debtors to sales increased from 29 percent to 35 percent in 2001-02
1.3.26 Jessop & Co. Limited Paid- up capital of the Company had been fully eroded in view of the negative net worth.
1.3.27 Richardson & Curddas (1972) Limited
  1. Percentage of debt to equity capital had increased from 58.06 in 1999-2000 to 92.71 in 2000-01 and to 130.00 in 2001-02.
  2. Percentage of Sundry debtors to sales increased from 79.11 in 1999-2000 to 79.65 in 2000-01 and to 117.11 in 2001-02 indicating poor realisation of dues.

MINISTRY OF PETROLEUM AND NATURAL GAS

1.3.28 Balmer Lawrie & Co. Limited Profit (after tax) for 2001-02 amounting to Rs.8.01 crore included Rs.5.39 crore being the non-operational income earned from investments as dividend.
1.3.29 Gas Authority of India Limited
  1. Working Capital of the Company for the years 1999-2000, 2000-01 and 2001-02 were (+) Rs.169.21 crore, (+) Rs.437.74 crore and (+) Rs.1216.30 crore respectively, indicating increasing trend mainly because of increase in Sundry Debtors and Loans and Advances.
  2. The capital employed had increased from Rs.5723.95 crore in 1999-2000 to Rs.7751.18 crore in 2001-02 due to increase in working capital.
  3. Net Worth increased from Rs.4715.11 crore in 1999-2000 to Rs.5468.61 crore in 2000-01 but decreased to Rs.5332.65 crore in 2001-02 mainly because of decrease in Reserves and Surplus in 2001-02 due to deferred tax liability.
1.3.30 Indian Oil Corporation Limited
  1. The working capital of the Company for the year 1999-2000, 2000-01 and 2001-02 was Rs.7478.50 crore, Rs.10,970.16 crore and Rs.3848.35 crore respectively. The decrease in 2001-02 was mainly on account of issue of 6.96 percent Oil Companies Special Bonds in part settlement of OCC pool dues.
  2. The capital employed increased from Rs.22,154.54 crore in 1999-2000 to Rs.288,480.31 crore in 2000-01 mainly due to increase in net fixed assets and working capital. During the year 2001-02, it decreased to Rs.22628.14 crore mainly due to decrease in working capital.
  3. Net worth increased from Rs.13984.98 crore in 1999-2000 to Rs.15322.35 crore in 2000-01. During the year 2001-02, it is decreased to Rs.14202.97 crore mainly due to provision for Deferred Tax Liability amounting to Rs.3405.06 crore as on 31 March 2002.
1.3.31 Oil India Limited
  1. Cost of production per tonne of crude oil went up from Rs. 2018.34 in 1999-2000 to 2283.69 in 2000-01 and further to Rs. 2314.68 in 2001-02
  2. Sundry Debtors, which represented 2.32 months sales in 1999-2000, had increased to 2.96 months sales in 2000-01 and to 3.66 months in 2001-02.
1.3.32 Oil and Natural Gas Corporation Limited
  1. Producing properties valuing Rs.90.32 crore (net) as on 31 March 2002 did not produce any oil/gas during the year due to various technical/administrative reasons.
  2. Inventory as on 31st March 2002 included stores and spares valuing Rs.185.46 crore and capital stores valuing Rs.79.48 crore, which have not moved for over two years.
  3. As on 31st March 2002, stores and spares valuing Rs.2.61 crore were in transit for over three years.

MINISTRY OF POWER

1.3.33 National Thermal Power Corporation Limited Sundry debtors to turnover increased from 55.89 per cent in 2000-2001 to 70.72 percent in 2001-2002.

MINISTRY OF RAILWAYS

1.3.34 Konkan Railway Corporation Limited Paid up Capital of Rs.783.67 crore had been fully eroded by the accumulated loss of Rs.1672.27 crore.

MINISTRY OF STEEL

1.3.35 Kudremukh Iron Ore Company Limited
  1. Profit included Rs.18.71 crore income from other sources (18.31 per cent of Profit) mainly derived from interest earned (Rs.9.93 crore) sale of scrap (Rs.1.92 crore) and withdrawal of provisions (Rs.2.88 crore)
  2. Loans and advances taken for calculation of working capital as on 31 March 2002 included Inter Corporate Deposits/loans to:
    1. Rs.2.97 crore towards interest due upto October 1992 and outstanding as on 31 March 2002 from M/s Andhra Bank Financial Services Ltd.
    2. Rs.18.00 crore disbursed as loan to M/s Hindustan Photo Films Ltd. due for payment in March 1993.
    3. Rs.227.50 crore is outstanding as loan from KISCO as on March 2002.
1.3.36 M S T C Limited Profit (after tax) for 2001-02 amounting to Rs.4.54 crore included Rs.14.87 crore being non-operational income earned from interest and dividend.
1.3.37 National Mineral Development Corporation Limited Profit for the year included Rs.53.30 crore being the non-operational income of interest on deposits with Banks and loans to PSUs and other financial institutions.
1.3.38 Rashtriya Ispat Nigam Limited The Loss for the year ended 31 March 2002 amounting to Rs.75.15 crore was decreased by Rs.13.66 crore due to valuation of imported raw materials and stores and spares at landed cost inclusive of import duty benefits, which was in variation to AS-2.
1.3.39 Steel Authority of India Limited
  1. The Company had become a potential sick Company in terms of Section 23 of the Sick Industrial Companies Act, 1985.
  2. Net loss of Rs.1706.89 crore included profit of Rs.662.22 crore on sale of power plant/lease of houses which was not related to normal business operation of the Company.

MINISTRY OF SHIPPING

1.3.40 Dredging Corporation of India Limited The Profit for the year ended 31 March 2002 amounting to Rs.164.61 crore included an amount of Rs.8.04 crore being the non-operational income.

MINISTRY OF TEXTILES

1.3.41 Cotton Corporation of India Limited The stock of finished goods represented 3.50, 4.76 and 8.46 month’s sales in 1999-2000, 2000-01 and 2001-02 respectively.
1.3.42 National Textile Corporation (APKK&M) Limited
  1. The profit booked by the Company during 2001-02 was due to waiver of outstanding interest by Financial Institutions and Banks to the tune of Rs.124.72 crores as per the sanctioned scheme awarded by Hon’ble BIFR for revival of Company which had been accounted as Extra-ordinary income.
  2. The Company had been meeting its working capital requirements mainly out of borrowed funds from holding Company and banks.
1.3.43 National Textile Corporation (Maharashtra North) Limited
  1. Percentage of Sundry Debtors to sales increased from 18.99 in 1999-2000 to 21.80 in 2001-02 indicating poor collection from debtors.
  2. The high debt and consequent interest burden had a major impact on profitability of the Company and the high incidence of losses year after year had completely eroded the capital.
1.3.44 National Textile Corporation (South Maharashtra) Limited Debtors outstanding for more than three years as on 31 March 2002 amounted to Rs. 5.90 crore accounting for 76.62 percent of total debtors.

1.4    Significant findings reported by Statutory Auditors:

As per Section 227 (3) (e) of the Companies Act, 1956 [as amended by Companies (amendment) Act, 2000], the auditor’s report shall also state in thick type or in italics the observations or comments of the auditors, which have any adverse effect on the functioning of the Company. While certifying the accounts of the PSUs for the year 2001-2002, the Statutory Auditors made the following major qualifications highlighting the impact on Balance Sheet and Profit and Loss Account:

MINISTRY OF CHEMCIALS AND FERTILIZERS

Department of Chemicals and Petrochemicals

1.4.1    Hindustan Organic Chemicals Limited

  1. Non-provision of liabilities for:
    1. Investment of Rs.11.06 crore and advances of Rs.25.70 crore granted to the BIFR referred subsidiary Company viz. M/s Hindustan Fluorocarbon Ltd., which incurred heavy losses eroding the net worth;
    2. Liability on account of wrong credits given by various banks and interest due thereon: Rs.1.09 crore;
    3. Liability towards wage revision effective from 1 January 1997 to 31 December 2000: Rs.31.17 crore;
    4. Disputed income tax, sales and excise duty: Rs.7.65 crore;
    5. Demands of CIDCO towards forfeiture of advances: Rs.1.09 crore; and
    6. Minimum guarantee charges amounting to Rs.5.25 crore payable to JNPT authorities.
  2. Capital work-in-progress included an expenditure of Rs.30.71 crore related to JNPT ‘Tank Farm Project’, which was carried in the books at cost instead of at its net realisable value in accordance with AS-4 read with AS-10.
  3. Non-provision for accrued liabilities amounting to Rs.6.84 crore on account of 4/5 of unavailed and encashable leave of employees up to 31 March 2000 was made in the accounts as per requirement of AS-15 and
  4. The recognition of deferred tax assets amounting to Rs.48.80 crore by corresponding credits to reserves and surplus was solely based on the estimates made by Management. The effect of accounting treatment of recognition of deferred tax assets of Rs.48.80 crore due to uncertainties in the achievement of future profits projected by the Management could not be commented upon.

Department of Fertilizers

1.4.2    Pyrites, Phosphates & Chemical Ltd

  1. Loans and Advances includes Rs.71.94 lakh recoverable from banks, as claimed by the Company, for which no confirmation had been received from the banks. In view of uncertainty in the admittance of the claim, this should have been accounted for after acceptance of the claim amount.
  2. Sundry Debtors (unsecured, considered good-Rs.4.96 crore) loans and advances (unsecured, considered good--Rs.9.22 crore) included balances which were not confirmed by some of the parties from whom these were receivable/recoverable. Above also included balances for which long drawn arbitration proceedings were continuing as well as several legal cases were pending in different courts of law.

1.4.3    Hindustan Fertilizer Corporation Limited

Non-provision of liability of penal interest amounting to Rs. 2.01 crore up to 31.03 1991 on loan taken from Government of India.

MINISTRY OF COAL AND MINES

Department of Coal

1.4.4    Eastern Coalfields Limited.

Pending review/ assessment a provision of Rs. 22.03 crore has been made in respect of incomplete civil works valuing Rs. 38.75 crore (10.55 crore abandoned job, Rs.16 83 crore suspended job and Rs.11.37 crore others) which may not be used and required to be written off or assets put to use pending capitalization.

1.4.5    Mahanadi Coalfields Limited

Non provision of liabilities for

  1. sales tax paid under protest- Rs.6.70 crore and
  2. against claim by the State Government towards road tax on Heavy Earth Moving Machine Rs.7.62 crore.

Department of Mines

1.4.6    Bharat Gold Mines Limited

(i)    Liaison Officer at New Delhi, who had been given power to withdraw by signing cheques upto Rs.10000 by himself, had embezzled substantial amounts of withdrawals.

Auditors were not provided with books of accounts pertaining to bank accounts operated in Delhi and Nagpur where the embezzlement had taken place. Hence Auditors were unable to quantify the effect of the same on Profit and Loss account.

(ii)    A sum of Rs.2.12 crore had been provided in the Company’s accounts towards loss of investment by the Provident Fund Trust. Pending the receipt of the investigation report by the Police & CBI vis-à-vis the complaints lodged by the Company, against the trustees of the PF Trust. Auditors could not express their opinion about the manner of recouping the loss by the trust.

(iii)    Company had not provided for leave salary liability as per Accounting Standard 15. The amount was not ascertainable.

(iv)    Provision for Gratuity had been made on accrual basis as against actuarial basis of valuation as required by AS-15. Due to this, the Current liabilities for the year were overstated by Rs.11.43 crore.

MINISTRY OF COMMUNICATIONS

1.4.7    ITI Ltd.

  1. Grants in Aid of Rs.77 crore was taken as income in anticipation of sanction from Government of India for compensation paid/payable under Voluntary Retirement Scheme to opted employees up to 31 March 2001. The Company against this had written off deferred revenue expenditure on voluntary retirement scheme of Rs.20.95 crore in modification of the earlier policy of writing off in 5 years. The impact on profit was Rs.61.59 crore; and
  2. The Company accounted for a refund claim of Rs.6.68 crore as income, pending confirmation from Uttar Pradesh State Electricity Board.

MINISTRY OF DEFENCE

Department of Defence Production and Supplies

1.4.8    Goa Ship Yard Limited

Non-provision for unsecured short-term deposits of Rs. 32.85 crore, which had become overdue from 2 BIFR-referred sick central PSU’s.

Had the provision for long over due short-term deposit been made in account, the profit of Rs. 24.27 crore would have turned into loss of Rs. 8.58 crore.

1.4.9    Hindustan Aeronautics Ltd.

Provisions had not been made in respect of:

  1. Disputed debt of Rs.4.15 crore in respect of difference in exchange rate against the contractual payments due to C.I.S. and
  2. Rs.0.92 crore being royalty recoverable from Indian Airlines from January 1998 to June 2000.

1.4.10    Mazagaon Dock Limited:

  1. Company had not provided for liquidated damages of Rs.34.28 crore in anticipation of waiver relating to the delayed delivery/ completion of the project despite the fact the amount to the extent of liquidated damages was withheld by customer. If waiver were not granted the loss for the year would result in understatement by Rs.34.28 crore;
  2. Non-provision of interest liability of Rs.18.29 crore in respect of custom duty on time expired bonds in anticipation of grant of waiver on representation had an impact on reduction of loss by Rs.18.29 crore; and
  3. For want of sufficient profit Company could not redeem 7 percent redeemable cumulative preference shares of Rs.24.74 crore that became due for redemption during the year (cumulative amount: Rs.49.49 crore). A deferment of redemption of such shares was yet to be obtained from the Government. Further the dividend of Rs.6.93 crore on above-cited preference shares for the year and cumulative: Rs.19.36 crore was also in arrears and not provided for in the accounts because of insufficiency of profits.

MINISTRY OF DISINVESTMENT & NORTH EAST DEVELOPMENT

1.4.11    North Eastern Handicraft and Handlooms Development Corporation Limited

  1. Non-Provision for interest on Government of India loan amounting to TRs. 1.71 crore
  2. Non-provision for interest on bank loan amounting to Rs. 0.50 crore.
  3. Non-Provision against damaged handloom stock at Bangalore showroom amounting to Rs.0.02 Crore.

Had the above observations been considered, the loss for the year would have been Rs. 4.02 Crore against the report loss of Rs. 1.79 crore during the year.

MINISTRY OF FINANCE

Department of Banking

1.4.12    Bharatiya Reserve Bank Note Mudran Private Limited

  1. Auditors were unable to express their opinion on claims recoverable of Rs.453.69 crore due from Govt. of India, in the absence of agreement; and
  2. Accounting of income of Rs.0.63 crore without corresponding liability for the amount due to customer resulted in overstatement of profit to that extent.

1.4.13    Canbank Financial Services Limited

  1. Certain original records and documents of earlier years were said to have been seized by the Central Bureau of Investigation and audit was conducted on the photocopies of the said record to the extent they were made available for verification;
  2. Securities include various investments aggregating in all to Rs.163.75 crore which were disputed, tainted, matter of judicial review etc. apart from shortfall in market value of securities amounting to Rs.14.96 crore against which provision had not been made in the accounts;
  3. The funding cost of arrangement made by way of transfer of securities to Canara Bank, holding Company, had not been accounted in the books of the Company for the period from 1.4.94 to 31.3.2002 amounting to Rs.95.22 crore;
  4. No provision had been made in the accounts towards loss amounting to Rs.243.08 crore, consequent upon settlement of terms of repayment pertaining to 3 PSUs;
  5. Claims against the Company not acknowledged as debts amounting to Rs.282.80 crore relating to matters which were sub judice, against which the Auditors were unable to comment/quantify the interest liability that may arise subsequently;
  6. Stock of securities include Rs.7.50 crore being the residual asset remaining after allocation to the investment trenches of PMS/CIAS constituents against which Auditors were unable to satisfy themselves whether the amounts transferred to the Company’s accounts belong to the Company or not;
  7. On the accounting of decreed amount deposited by CitiBank with Canara Bank amounting to Rs.61.76 crore and interest thereon, which was sub judice, Auditors were unable to express any opinion on the impact of the outcome of the appeal filed in the Supreme Court; and
  8. The Company incurred a loss of Rs.48.23 crore during the year and its total liabilities exceeded by Rs.690.84 crore which raises doubts as to whether the Company would be able to continue as a going concern.

Based on these observations on the accounts, Auditors had stated that they were unable to express any opinion as to whether the Balance Sheet and Profit and Loss Account (Loss) gave a true and fair view.

MINISTRY OF HEAVY INDUSTRY AND PUBLIC ENTERPRISES

1.4.14    Andrew Yule & co. Limited

  1. Non-provision for doubtful loans and debtors - Rs.0.24 crore.
  2. Non-provision for possible loss on investments - Rs.0.89 crore
  3. Non-provision for the capital cost of Rs.2.22 crore incurred in respect of the abandoned AquaCulture Project.
  4. Non-provision for interest-free advance of Rs.1.48 crore recoverable from a Company floated by the associates of the Company, which was doubtful of recovery.
  5. Non-provision for an admitted liability of Rs.8.73 crore arising out of pay revision of employees which was provided for in the accounts of earlier years but written back.

Had the above observations been considered, the loss for the year would have been Rs.50.26 crore (as against the reported figure of Rs.39.48 crore), reserve and surplus would have been Rs.106.65 crore (as against reported figure of Rs.109.12 crore), net current assets would have been Rs.29.00 crore (as against the reported figure of rs.40.02 crore and total assets would have been reduced to Rs.400.11 crore (as against the reported figure of Rs.402.58 crore).

1.4.15    HMT (I) Limited

Provisions had not been made in respect of:-

  1. Rs.4.50 crore receivable from M/s Engineering Industry Commission (EIC), Ethiopia (including interest of Rs.1.81 crore) consequent on final settlement of claims by M/s ECGC.
  2. cumulative interest of Rs.3.93 crore and Rs.4.99 crore claimed by M/s EXIM Bank and State Bank of India respectively and
  3. doubtful Debts/Advances of Rs.2.02 crore from Nucor Wires (0.46 crore), Nawab Cashew Packers (0.36 crore) and Koulthura Export Limited (1.20 crore)

Had the provisions been made in respect of the above items the profit of Rs.0.62 crore for the year would have been converted into loss of Rs.14.82 crore. In the light of the qualifications Auditors have reported that the accounts do not reflect a true and fair view.

1.4.16    Hindustan Cables Limited

  1. No Provision had been made in the accounts amounting to Rs. 9.58 crore paid against pay revision for the period 1.1.1992 to 31.8.1995 to non-executive staff of Rupnarainpur Unit, which had been shown as advance.
  2. Under-provision of depreciation amounting to Rs.5.75 crore on Plant & Machinery relating to Optic Fibre Cable and PIJF Cable manufacture unit at Allahabad.
  3. Non-provision against old, disputed/unacknowledged Sundry Debtors amounting to Rs. 84.80 crore.
  4. Inclusion of Rs. 5.78 crore in deferred revenue expenditure on account of leave Salary and gratuity paid to employees retired under Voluntary Retirement Scheme out of borrowed funds.
  5. Had the observations been considered, the loss for the year would have been Rs.341.99 crore (as against the reported figure of Rs. 236.08 crore), net fixed assets would have been Rs. 194.49 crore (as against the reported figure of Rs. 200.24 crore). Net current assets would have been Rs. (-)81.01 crore (as against the reported figure of Rs. 13.37 crore) and Deferred Revenue Expenditure would have been Rs. 37.61 crore (as against the reported figure of Rs. 43.40 crore).

1.4.17    Hindustan Paper Corporation Limited

  1. Non-provision of Rs.134.25 crore for permanent diminution in value of long terms investments in two subsidiaries.
  2. Non-provision of Rs.33.69 crore against Loans and Advances the recoverability of which was doubtful.
  3. Due to change in (a) the basis of accounting of equalised freight on finished goods lying at depots or in transit, to bring the same in consonance with AS-2 - Valuation of Inventories, issued by the Institute of Chartered Accountants of India and (b) revision in accounting policy of charge of depreciation on ‘Plant & Machinery’ as ‘continuous process plant’ on an from 1.4.93 the profit of the year is higher by Rs. 10.88 crore.

Had the above observations been considered, the profit for the year would have been lower by Rs.178.81 crore (as against the reported figure of Rs.457.40 crore).

1.4.18    Hindustan Photo Films Manufacturing Company Limited

  1. The Company had not obtained confirmation of balances in respect of Sundry Debtors, Loans & advances and Current liabilities. Hence the consequential effect, if any, on the financial statements, on account of not obtaining confirmation of balances was not ascertainable.
  2. The Company had wrongly grouped unsecured loan amounting to Rs.1078.01 crore under secured loan.

1.4.19    Hooghly Printing Company Limited

Instead of Deferred Tax Assets (Net) of Rs.0.71 lakh the Profit & Loss Account included a provision in respect of Deferred Tax Liability of Rs.6.92 lakh.

Had the above observation been considered, the Profit after Tax for the year 2001-02 would have been Rs.28.37 lakh (as against the reported figure of Rs.20.74 lakh) Reserve and Surplus would have been Rs.21.62 lakh (as against the reported figure of Rs.13.99 lakh), Provisions for Current Liabilities and Provisions would have been Rs.23.46 lakh (as against the reported figure of Rs.30.38 lakh), Net Current Assets would have been rs.84.50 lakh (as against the reported figure of Rs.77.58 lakh).

1.4.20    Jessop & Company Limited

  1. Non-provision for revision of pay for officers and non-unionised supervisors being conditional upon generation of internal sources with effect from 1.1.1992 to 31.12.1998 amounting to Rs. 12.33 crore.
  2. No provision for bad & doubtful debts has been made for Rs.1.05 crore shown as other assets receivable from Sales Tax Department arising out of Sales Tax department arising out of Sales Tax deducted/paid at source for works done in Andhra Pradesh and Tamilnadu in earlier years which is subjudice for a long period.
  3. Had the above observations been considered, the loss for the year would have been Rs. 60.98 crore (as against the reported figure of Rs. 47.60 crore, current assets would have been Rs. 71.91 crore (as against the reported figure of Rs. 71.96 crore and current liabilities would have been Rs. 90.58 crore (as against the reported figure of Rs. 78.25 crore)

1.4.21    Richardson & Cruddas (1972) Limited.

No provision had been made in respect of:

  1. Overdue Sundry debtors (sub-judice): Rs.2.21 crore.
  2. Arrears of pay revision of executives: Rs.1.50 crore.
  3. Interest on Government of India loans: Rs.10.51crore.and
  4. Counter guarantee fee: Rs.2.46 crore.

1.4.22    Tyre Corporation of India Limited

No Provision has been made in respect of:

  1. Claim for refund of excise duty of Rs.1.94 crore pertaining to 1973 to 1976 (pre-nationalisation periods) rejected by Central Excise Authority by their order dated 17.12.1997.
  2. Liability for transport charges amounting to Rs. 0.04 crore
  3. Depletion in the value of materials of Rs.0.14 crore held by the transporter
  4. Liability of Rs.0.09 crore on account of purported claim.
  5. Depletion in the value of raw materials of Rs. 0.03 crore withheld by a party.
  6. Doubtful debts of Rs. 0.55 crore.
  7. Value of missing cheques of Rs. 0.02 crore not credited by bank.
  8. Amount of Rs. 0.19 crore receivable from Commissioner of Payments, which was doubtful of recovery.
  9. Interest of Rs. 0.05 crore recoverable for delayed credit of telegraphic transfers which was doubtful of recovery.
  10. Penal interest amounting to Rs.28.94 crore for default in repayment of principal amount of Government loan.

Had the above observations been considered, the loss for the year would have been Rs. 99.40 crore (as against the reported figure of Rs. 67.41 crore)

MINISTRY OF SHIPPING

1.4.23    Cochin Shipyard Limited

Arrears of Electricity charges demanded by Kerala State Electricity Board amounting to Rs.3.59 crore were not provided for.

MINISTRY OF STEEL

1.4.24    Ferro Scrap Nigam Limited

The amount of bills withheld by one of the steel plants during the last three years had accumulated to Rs.6.72 crore, the recovery of which did not appear to be easy though the same had been considered as good for recovery by the management.

1.4.25    Maharashtra Electrosmelt Limited.

Liability of Rs. 1.32 crore on account of future benefits payable under Employee's Family Benefit Scheme had been deferred over a period of 5 years instead of charging it off fully in the current year.

Had it been charged of fully during the year itself the loss for the year ended 31 March 2002 would have been Rs. 9.44 crore instead of Rs. 8.38 crore.

1.4.26    Steel Authority of India Limited

  1. No provision had been made for the likely shortfall in the value of equity investments of Rs.374.94 crore in Indian Iron & Steel Co. Ltd. (under BIFR)
  2. The amount of public deposits as per the detailed computerised list was higher by Rs.2.14 crore as compared to the financial records as on the Balance Sheet date, as indicated in Note No.5.11 in Schedule 3. The deposits have been increased by this amount and debited to Profit & Loss Account as a 'Prior Period Expense'. Internal control procedures in this regard were required to be strengthened.

MINISTRY OF TEXTILES

1.4.27    Cotton Corporation of India Limited.

Sales were overstated by Rs. 25.02 crore, due to accounting of sales against Godown storage facility, which was not in accordance with AS-9.

Had the Company followed AS-9 in toto profit of Rs. 12.29 crore would have turned into loss of Rs. 12.73 crore.

1.4.28    National Textiles Corporation (APKK&M) Limited

The Company has:

  1. not accounted waiver of outstanding interest of Rs.126.92 crore on loans from Govt. of India/NTC Ltd as extra ordinary income pending formal Govt. order and
  2. charged interest of Rs.32.90 crore on the outstanding loan contrary to order of BIFR.

No provision has been made in respect of:

  1. claims of Rs.2.50 crore by MSCCGMF Ltd towards resale loss and carrying charges on cotton not sold and
  2. estimated interest of Rs.4.38 crore payable to certain raw material suppliers

Had the above observations been considered the accumulated loss would have been reduced by Rs.152.94 crore and current liabilities would have been higher by Rs.6.88 crore.

1.4.29    National Textiles Corporation (Maharashtra North) Limited

Company had not made provision in respect of the followings:

  1. Non-payment of dues in respect of provident fund, ESIC & Professional tax including estimated damages and interest Rs. 55.23 crore.
  2. Non-provision towards wages/salaries and other dues of employees for the post take over period: Rs. 9.80 crore.
  3. Non-provision of gratuity liability for the employees transferred in1994: Rs. 4.96 crore.

1.4.30    National Textiles Corporation (South Maharashtra) Limited.

Non-provision towards gratuity liability prior to March 1994 in respect of existing employees in case of 6 mills- Rs.5.36 crore

Had the effect of above observation been incorporated in the accounts, the loss for the year would have been Rs. 194.44 crore instead of Rs. 189.08 crore and loss carried to Balance Sheet would have been Rs. 1351.46 crore instead of Rs. 1346.10 crore and Current liabilities & provisions would have been Rs. 209.99 crore instead of Rs. 204.63 crore.

1.4.31    National Textiles Corporation (TN&P)

  1. Valuation of finished goods at Retail Marketing Division and valuation of Stores and Spares were not in accordance with the AS-2.
  2. The Company was not regular in remitting the Provident Fund and ESI dues with the appropriate authorities. Provident Fund dues of Rs.7.49 crore (including interest on overdue of Rs.2.76 crore) and ESI dues of Rs.1.81 crore (including interest on overdue of Rs.0.53 crore) were in arrears as on 31 March 2002.