Escorts

1.  EMPLOYEE STOCK OPTION SCHEME
 
 In respect of stock options granted pursuant to Employees Stock Option
 Scheme, the intrinsic value of the options (Excess of market price of
 the share over the as employee compensation cost over the vesting
 period.
 
 Provisions are recognised for liabilities that can be measured only by
 using a substantial degree of estimation, if
 
 a) the Company has a present obligation as a result of past event,
 
 b) a probable outflow of resources is expected to settle the obligation
 and
 
 c) the amount of obligation can be reliably estimated.
 
 Reimbursements expected in respect of expenditure required to settle a
 provision is recognised only when it is virtually certain that the
 reimbursement will be received.
 
 Contingent liability is disclosed in the case of
 
 a) a present obligation arising from the past event, when it is not
 probable that an outflow of resources will be required to settle the
 obligation
 
 b) a possible obligation, unless the probability of outflow of
 resources is remote.  Contingent assets are neither recognised nor
 disclosed.
 
 Provisions, Contingent Liabilities are reviewed at each Balance Sheet
 date.
 
 II.  Consequent to an agreement dated 31st March, 2000 between the
 Company and Hughes Network Systems (HNS), the joint venture partner of
 the Company in Hughes Communications India Limited and ICICI Bank Ltd.
 (ICICI), the Company sold 34,50,000 equity shares of HECL to Escorts
 Motors Limited (EML). HNS and ICICI thereafter subscribed to the equity
 share capital of EML equally to hold 98% of its total equity share
 capital. Under the terms of the agreement, the Company had given an
 assurance to HNS and ICICI of a minimum return compounded annually for
 a period of four years.
 
 Subsequent to 31st March, 2004, the Company has in terms of earlier
 agreement agreed to purchase the 49% holding in EML from ICICI and had
 advanced Rs. 68.00 crores out of which Rs. 31.25 crores has been
 provided as diminution in the value of proposed investment, being the
 differential in excess of the original investment made by ICICI. The
 transfer of the shares in favour of the Company is awaited pending
 final settlement with ICICI. The amount of Rs. 68.00 crores remains
 grouped under Advances recoverable in cash or kind in Schedule 8 Loans
 & Advances.
 
 2.  The Company has proposed a scheme of Compromise & Arrangement with
 the Fixed Deposit holders and Secured Creditors of Escorts Finance Ltd
 (EFL), under the provisions of Section 391 of the Companies Act, 1956.
 With a view to preserve its reputation and image and on request of
 Board of Directors of EFL, Escorts Ltd (EL) proposes to grant under the
 Scheme liquidity options to all the fixed deposit holders in the form
 of either Equity Shares or Fully Convertible Unsecured Debentures of EL
 equivalent to 75% of the Fixed Deposit value, as described in the
 Scheme. The Shareholders, Secured Creditors and Unsecured Creditors of
 EL and Fixed Deposit holders and Secured Creditors of EFL have already
 approved the Scheme with requisite majority at the Court Convened
 Meetings held for this purpose on 5th May, 2006 and 10th May, 2006
 respectively. The petition made by the Company for the approval of the
 scheme is still pending before Honble Delhi High Court and pending
 such approval Honble Delhi High Court vide its order dated 5th
 December, 2007 and 16th July, 2008 has directed the Company to place
 Equity shares of Escorts Limited to the tune of Rs. 32.00 Crores at the
 rate of Rs. 94/- per equity share at the disposal of Hardship Committee
 appointed by Honble Delhi High Court, to provide relief to the Fixed
 Deposit holders of EFL who are facing hardship.
 
 Consequentially, 34,04,256 fully paid Equity Shares of Rs. 10/- each
 have been allotted to members of above said Hardship Committee at the
 rate of Rs.94/- per Equity Share.
 
 3.  During the period 2004-05, Escorts Limited (EL) sold its entire
 share holding in Escorts Heart Institute & Research Centre Limited
 (EHIRCL) for consideration of Rs. 520.00 crores vide Sale Purchase
 Agreement dated 25th September, 2005. The sale proceeds have been
 received, excepting for Rs. 85.08 crores which were retained in an
 Escrow Account, awaiting fulfillment of certain conditions. The Honble
 Delhi High Court had ordered status quo, on a petition filed
 challenging the sale transaction. During the year the said petition
 have been dismissed by the Honble Court. The Company has paid an
 amount of Rs. 7.50 crores as settlement cost to the buyer and the
 amount held in the Escrow Account has been realised.
 
 At the request of the Company, other stakeholders of EHIRCL, who were
 holding 5% each of the paid up share capital of EHIRCL, had also agreed
 to keep their share of the sale consideration amounting to Rs. 64.99
 crores in an Escrow Account. Pursuant to the status quo order of the
 Honble High Court the amount held in Escrow Account belonging to the
 aforesaid stakeholders could not be released even on demand by them.
 The matter was referred to arbitration. As per the award, EL was
 required to pay the money to the aforesaid stakeholders including
 interest accrued thereon. Consequently, during the year the Company has
 placed a sum of Rs. 64.99 crores in an Escrow Account by paying off the
 other stakeholders.
 
 4.  As a part of consideration for sale of its Telecom Business during
 the period 2003-04 the Company was issued an Unsecured Subordinated
 Bond of Rs. 175.74 crores by Idea Cellular Limited (Idea). Idea has a
 call option for early redemption of the Bond at a discount rate of
 10.50% per annum exercisable at any time and the Company has a put
 option in January, 2010. The Bond was assigned to Axis Bank to avail
 financial assistance.  The loan outstanding from Axis Bank as at 30th
 September, 2008 of Rs. 58.10 crores is further secured by pledge of
 18,76,246 Equity Shares of Hughes Communication India Limited. On
 payment by Idea to the Bank, the Company will receive any surplus
 after deducting dues to Bank on account of loan amount, and any
 outstanding interest/penal interest and charges and contingent
 liabilities to the extent set off by Idea. The Bank has also retained
 a cash margin whose book value of Rs. 7.01 crore is included in Fixed
 deposits with Scheduled Banks, (pledged) in Schedule 7 Current
 Assets.
 
 5.  The Company has executed an Agreement to Sell for transfer of 20
 acres of land at Plot No. 219, Sector 58, Balabhgarh, Haryana for a
 consideration of Rs. 7.00 crores. The said transfer is subject to
 necessary approval from HUDA and accordingly the consideration amount
 of Rs. 7.00 crores is being treated as advance.
 
 6.  The Company has reserved issuance of 36,11,610 Equity Shares of
 Rs. 10/- each for offering to eligible employees of the Company under
 Employees Stock Option Scheme (ESOS). In the previous year ended on
 30th September, 2007, the Company had granted 3,87,000 options to its
 employees, in accordance with the guidelines issued by SEBI, out of
 which 59,000 options had been forfeited during the previous year and
 72,000 options have been forfeited during the current year.
 
 7. The Company has revalued the freehold land as on 1st September,
 2006. The revaluation was done by an independent external agency.  The
 amount added on revaluation was Rs. 387.64 crores.
 
 8. Hitherto, payment under voluntary retirement scheme (VRS) was
 amortised over a period of five years. However, from the current year,
 the Company has changed its accounting policy to comply with the
 provisions of Accounting Standard-15 Employee Benefits (Revised) and
 has amortised the remaining amount of VRS over a remaining period upto
 31st March, 2010. As a result of the change in the accounting policy,
 the profit for the year is lower by Rs. 1.42 crores and Miscellaneous
 Expenditure as on date is lower by the same amount.
 
 9.  Disclosure required by Accounting Standard (AS) 29 Provisions,
 Contingent Liabilities and Contingent Assets:
 
 a) Contingent Liabilities                   Year Ended     Year Ended
                                             30.09.2008     30.09.2007
                                             Rs. Crores     Rs. Crores
 
 i) Estimated amounts of contracts 
 remaining to be executed on capital 
 account and not provided for                      6.97          14.32
 
 ii) Claims not acknowledged as debts              0.55           1.27
 
 iii) There is a Contingent liability of:
 
 (a) Excise duty/ Customs duty demands 
 not acknowledged as liability                    59.25          53.40
 
 (b) ESI additional demand not 
 acknowledged as liability                         3.84          17.97
 
 (c) Sales Tax demand not 
 acknowledged as liability                         8.76           6.56
 
 (d) Pending Legal Cases - Personnel               3.43           2.65
 
 -Others                                          19.16          14.41
 
 (e) Demand raised by Faridabad Municipal 
 Corporation for external development 
 charges where the Company is in litigation        2.38           2.38
 
 (f) Bills discounted with 
 Banks/Financial Institutions/NBFCs               13.63          13.18
 
 (g) Guarantees given to banks under 
 Channel Finance Program                          27.90          27.67
 
 (h) Guarantees executed in favour of Others       2.48           1.84
 
 (i) Guarantees given on behalf of 
 Escorts Construction Equipment Limited               -          49.56
 
 (j) Demand raised by Income Tax Department, 
 disputed by the Company and pending in appeal    20.05          56.15
 
 - The value of facilities actually utilised 
 against these Guarantees were:                       -          37.59
 
 - The amounts indicated as contingent liability or claims against the
 Company only reflect the basic value. Interest, penalty if any or legal
 costs, being indeterminable are not considered.
 
 iv) Vide an agreement dated 15th January, 2004 between Escotel Mobile
 Communications Limited (EMCL) now part of Idea Cellular Limited and the
 Company, contingent liabilities amounting to Rs. 2.60 crores on account
 of entry tax, consumer court cases and Stamp Duty exist. In the event
 of any such claims being crystallised, the amount can be set off from
 the redemption proceeds of Bonds of Idea Cellular Limited.
 
 v) Escorts Heart Institute & Research Centre Limited (EHIRCL), the
 subsidiary company that was sold in September, 2005, has disputed the
 Income Tax demand of Rs. 52.33 crores and interest thereon amounting to
 Rs. 29.16 crores and the matter is pending in appeal.  Escorts Limited
 has undertaken vide the sale agreement dated 25th September, 2005 to
 indemnify the purchaser to the extent of Rs. 65.00 crores plus
 one-third of any amount in excess of Rs. 65.00 crores, in case the
 appeal is decided against EHIRCL. In view of the above the Company has
 kept an amount of Rs. 64.99 crores in an Escrow Account.
 
 10 The Company has not received information from vendors regarding
 their status under the Micro, Small and Medium Enterprises Development
 Act, 2006 and hence disclosure relating to amounts unpaid as at the
 year end together with interest paid/payable under this Act and as
 required by Schedule VI of the Companies Act, 1956 have not been given.
 
 11 Debtors and creditors are under the process of review and
 reconciliation. Adjustment, if any, arising out of this will be
 accounted for in the subsquent years.
 
 12 Clause 32 disclosure - Details as per Annexure - II
 
 13 Accounting for Leases (AS-19) - Details as per Annexure - III
 
 14 Figures have been rounded off to the nearest lac rupees. Previous
 year figures have been regrouped/rearranged wherever necessary.