Bharat Heavy Electricals

1.  Estimated amount of contracts, net of advances, remaining to be
 executed on capital account and not provided for is Rs. 1783.78 crore
 (previous year Rs. 1062.14 crore) including Rs. 24.78 crore (previous
 year Rs. 23.70 crore) for acquisition of intangible assets.
 
 2.  Land and buildings include:
 
 a) 9597.485 acres of land (previous year 13016.258 acres), 36 flats
 (previous year 36 flats) and one building (previous year one building)
 for which formal transfer/lease deeds have not been executed including
 for 51.520 acres of land (previous year 51.520 acres) for which the
 cost paid is provisional; registration charges and stamp duty net of
 provision already made thereon, would be accounted for on payment.
 
 b) 79.076 acres of land (previous year 79.076 acres) leased to Ministry
 of Defence, Government Departments and others.
 
 c) 180 acres of land (previous year 180 acres) being used by the
 Ministry of Defence and for which further approval of the competent
 authority for continuance of licensing of the land is awaited.
 
 d) 106.858 acres (previous year 106.858 acres) of land is under adverse
 possession.
 
 3.  Sales and despatches to customers:
 
 (a) Includes Rs. 766.64 crore (previous year Rs.  151.01 crore) based
 on provisional prices.
 
 (b) Includes Rs. 923.93 crore (previous year Rs.  574.48 crore) for
 escalation claims raised in accordance with the sales contracts,
 inclusive of escalation claims on accrual basis to the extent latest
 indices were available;
 
 (c) Includes despatches of equipment valued at Rs.  25.45 crore
 (previous year Rs. 15.18 crore) held on behaif of customers at their
 request for which payment has been received by the Company; and
 
 (d) Excludes Rs. 15.65 crore (previous year Rs. Nil) for price
 reduction due to delay in delivery as per terms of the contract.
 
 4.  Contingent Liabilities:
 
 (a) Claims against the company not acknowledged as debt:
 
 (i) Income Tax pending appeals (net of provisions) Rs. 28.57 crore
 (previous year Rs. 28.41 crore) against which Rs 0.01 crore (previous
 year Rs 0.01 crore) has been paid under protest and included under the
 head deposits- others.
 
 (ii) Sales Tax demands Rs. 326.39 Crore (previous year Rs. 295.18
 crore) against which Rs. 71.56 crore (previous year Rs.  78.03 crore)
 has been paid under protest/court orders and included under the head
 advances recoverable.
 
 (iii) Excise Duty demands Rs.169.16 crore (previous year Rs. 134.12
 crore), against which Rs.5.11 crore (previous year Rs.  12.49 crore)
 has been paid under protest/court orders and included under the head
 advances recoverable.
 
 (iv) Custom Duty demands Rs. 0.21 crore (previous year Rs. Nil) against
 which Rs.  0.06 crore has been paid under protest..
 
 (iv) Court / Arbitration cases Rs. 86.06 crore (previous year Rs. 76.17
 crore)
 
 (v) Liquidated Damages Rs. 1363.44 crore (previous year Rs. 809.53
 crore).
 
 (vi) Counter claim by contractors Rs. 40.99 crore (previous year Rs.
 40.99 crore).
 
 (vii) Service Tax demand Rs. 70.31 crore (previous year Rs. 6.11 crore)
 against which Rs. 0.08 crore (previous year Rs. Nil) has been deposited
 against protest.
 
 (viii) Others Rs. 58.77 crore (previous year Rs.  56.31 crore).
 
 In view of the various court cases / litigations and claims disputed by
 the company financial impact as to outflow of resources is not
 ascertainable at this stage.
 
 (b) Bills discounted under IDBI scheme outstanding at the close of the
 year amount to Rs. 0.06 crore (previous year Rs. 0.40 crore).
 
 5.  The company invested a sum of Rs. 5 crore towards equity shares of
 Rs. 10/- each (at par) in erstwhile Konark Met Coke Ltd. (KMCL)
 Bhubneshwar, to secure orders for equipment being supplied by the
 company to erstwhile KMCL and Neelachal Ispat Nigam Ltd (NINL).
 Pursuant to Order passed by Honble Orissa High Court, KMCL was
 amalgamated with NINL u/s 391 read with section 394 of the Companies
 Act, 1956 & in terms of the scheme of amalgamation sanctioned by the
 Honble High Court, Orissa, NINL had allotted equity shares aggregating
 to Rs. 5 crore (previous year Rs. 5 crore) to the company.  The equity
 participation in NINL is restricted to 7.5% of the value of the orders
 received with a maximum of Rs.  17.32 crore (previous year Rs. 17.32
 crore).
 
 6.  Cash credit limit (including bills discounting limit in respect of
 IDBI Scheme) from banks aggregating to Rs. 100 crore (previous year Rs.
 100 crore) and Companys counter guarantee / indemnity obligations in
 regard to bank guarantee / letters of credit limit aggregating to Rs.
 30000 crore (previous year Rs.  20000 crore) sanctioned by the
 consortium banks are secured by first charge by way of hypothecation of
 raw materials, components, work in progress, finished goods, stores,
 book debts and other current assets both present and future. The
 outstanding bank guarantee as at 31.03.2009 is Rs. 26752 crore
 (previous year Rs. 19314 crore).
 
 7.  Other liabilities include a sum of Rs. 100.51 crore (previous year
 Rs. 100.51 crore) towards guarantee fee demanded by the Government of
 India in respect of foreign currency loans taken by the company at the
 instance of the Government upto 1990-91. The matter for its waiver has
 been taken up with the Government since there was no stipulation for
 payment of such guarantee fee at the time the loans (guaranteed by
 Government) were taken.
 
 8.  Amorphous Silicon Solar Cell Plant (ASSCP), Gurgaon was taken on
 April 1, 1999 from Ministry of Non-conventional Energy Sources on lease
 for a period of 30 years. The lease agreement with the Government is
 yet to be finalised.
 
 9.  Responses to confirmation of outstanding balances of Sundry
 debtors, creditors, contractors advances, deposits and
 stocks/materials lying with sub- contractors/fabricators were received
 in few cases, some of them seeking details. The reconciliations with
 the parties are carried out as an ongoing process.
 
 10.  EPF organization (Govt, of India, Ministry of Labour) vide its
 notice dated 21st April 2008 has communicated the decision of the
 Supreme Court in the case of Manipal Academy of higher education Vs
 RPFC i.e. leave encashment need not be included for deduction of PF
 contribution. Accordingly, PF is not deducted and provided for leave
 encashment liability w.e.f. 30.05.2008 in line with Company circular
 dated 30.05.2008, due to this change the liability of leave encashment
 has been reduced by approx. Rs. 56 crore during the year 2008-09.
 
 11.  The company accounts the leave encashment expenditure with 26 days
 a month as base. The company proposed a change in the base as 30 days a
 month in line with the directives of Government of India, Department of
 Public enterprise vide their O.M.  dated 20.9.2005. However, some of
 the workers unions have raised a dispute under section 9(A) of the
 Industrial Dispute Act 1947 against the proposed changes in the
 calculation of leave encashment with 30 days month base instead of 26
 days month. As per section 33 (3) of the Industrial dispute Act no
 employer can alter the service conditions during the pendency of such
 proceedings with the Conciliation Officer.  Pending final disposal of
 the dispute by the Conciliation officerthe status quo is being
 continued.
 
 12. The disclosure relating to AS-15 (R) - Employee Benefits
 
 a) Effc-fv-e April 1, 2006 the company adopted the revised Accounting
 Standard 15 (R) on Employee Benefits. The following disclosure sets out
 the status as required under AS 15 (R).
 
 b) Gratuity Plan
 
 The gratuity liability arises on account of future payments, which are
 required to be made in the event of retirement, death in service or
 withdrawal. The iiability has been assessed using projected unit credit
 actuarial method.
 
 d) Provident Fund
 
 In line with the guidance note on AS-15 (R) issued by ICAI, the company
 has got the actuarial valuation of provident fund in respect of PF
 trusts of the company. As per the actuarial valuations, a liability of
 Rs. 4.14 crore reversed during the year 2008-09, with this the
 cumulative likely interest shortfall for the future period is Rs. 9.64
 crore (previous year Rs. 13.78 crore), to be compensated by the company
 to the PF trusts has been kept in the books of accounts.
 
 13. Related Party Transactions:
 
 i) Related Parties where control exists (Joint Ventures):
 
 Powerplant Performance Improvement Ltd.
 
 BHEL-GE Gas Turbine Services Pvt. Ltd.
 
 NTPC-BHEL Power Projects Pvt. Ltd.
 
 Udangudi Power Corporation Ltd.
 
 Barak Power Pvt. Ltd.  ii) Other related parties (Key Management
 Personnel- Functional Directors: existing & retired):
 
 S/Shri K.Ravi Kumar, C.S.Verma, Anil Sachdev, B.P.Rao and C.P. Singh
 
 b.  The company is in the practice of taking houses for employees,
 office buildings and EDP equipment etc., on operating lease both as
 cancellable and non-cancellable.
 
 14. Joint ventures/Subsidiaries:
 
 (i) An MoU has been signed on 3rd Feb, 2009 between BHEL and Keral
 Electricals & Allied Engineering Co. Ltd. (KEL), to set up a Joint
 Venture company for the Kasaragod unit of KEL with majority ownership
 of BHEL.
 
 (ii) A Joint venture agreement was signed between BHEL and KPCL on 12th
 Jan, 2009 to float a JV company for setting up Supercritical Thermal
 Power Projects in Karnataka.
 
 (iii) An MoU has been signed between BHEL and Heavy Engineering
 Corporation Ltd. (HEC) on 6th Sept., 2008 for acquiring the Foundry
 Forge Plant of HEC and setting up a Joint Venture Company on 50:50
 basis.
 
 (iv) An MoU dated 30th March 2009 entered into between BHEL and Bharat
 Electronics Ltd for exploring the possibility of setting up a Joint
 Venture Company in India to address the solar photo-voltaic business.
 
 (v) The company has taken over Bharat Heavy Plate & Vessels Ltd.
 (BHPV), a sick company referred under BIFR, as a 100% subsidiary
 w.e.f.10.05.2008, along with all its assets and liabilities (including
 contingent liabilities) at a nominal value of Rs. 1/- as per the terms
 set out in GOI, Ministry of Heavy Industries & Public Enterprises,
 Department of Heavy Industry letter No. F.No.1 (ll)/2004-PE(IV) dated
 7th May 2008.
 
 a) Liquidated damages are provided inline with the Accounting Policy of
 the company and the same is dealt suitably in the accounts on
 settlement or otherwise. Contingent liability relating to liquidated
 damages is shown in Note No. 5 of Schedule-19.
 
 b) The provision for contractual obligation is made at the rate of 2.5%
 of the contract value in line with significant Accounting Policy No.14
 to meet the warranty obligations as per the terms and conditions of the
 contract. The same is retained till the completion of the warranty
 obligations of the contract. The actual expenses on warranty obligation
 may vary from contract to contract and on year to year depending upon
 the terms and conditions of the respective contract.
 
 B) The provision for wage revision due from 01.01.2007 has been
 reassessed based on the developments during the year.  The revised
 guidelines for pay scales and perquisites for the Executives and non
 unionized supervisors were issued by Department of Public Enterprises
 vide letter No. 2 (70)/08-DPE (WC)-GL VII/09 dated 2nd April, 2009. The
 revision in pay scales etc. for workmen is still under discussions. In
 addition an amount of Rs. 661 crore has been provided towards
 additional gratuity liability due to increase in the ceiling limit from
 Rs. 3.5 lacs to Rs. 10 lacs as per above guidelines.
 
 The total liability on wage revision, based on the above development,
 for the period from 01.01.2007 to 31.03.2009 works out to Rs. 2547
 crore. Out of the above Rs. 799 crore has been paid and accounted as
 adhoc and 50% DA merger (Rs.  199 crore in 2007-08 and Rs. 600 crore in
 2008-09) leaving an amount of Rs. 1749 crore to be kept as provision.
 
 The amount charged to the profit & loss accounts on the above for the
 year 2008-09 has been considered for ascertainment of cost for AS-7 ®,
 inventory etc.
 
 Notes:
 
 1 The products and services of the company have been grouped under
 Power and Industry segments depending upon the sector to which they
 are predominantly identified in the market.
 
 2 Power sector includes products and services relating to various power
 generating sets and its auxilaries.
 
 3 Industry sector includes products and services relating to
 transportation and transmission, electric machines, industrial sets and
 DG sets and telecommunications and other industrial products and
 systems.
 
 4 Inter segment transfers have been carried out at mutually agreed
 prices.