Rural Electrification Corporation

1.  We have audited the attached Balance Sheet of RURAL ELECTRIFICATION
 CORPORATION LIMITED as at 31st March 2009 and also the Profit & Loss
 Account and the Cash Flow Statement of the Company for the year ended
 31st March 2009 on that date annexed thereto. These financial
 statements are the responsibility of the Companys management. Our
 responsibility is to express an opinion on these financial statements
 based on our audit.
 
 2.  We conducted our audit in accordance with the auditing standards
 generally accepted in India. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by the management, as well as evaluating the overall financial
 statements presentation. We believe that our audit provides a
 reasonable basis for our opinion.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 (as
 amended) issued by the Central Government of India in terms of
 sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose
 in the Annexure a statement on the matters specified in paragraphs 4
 and 5 of the said order to the extent applicable to the Corporation.
 
 4.  Further to our comments in the Annexure referred in paragraph 3
 above, we report that:
 
 i) We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit;
 
 ii) In our opinion, proper books of accounts as required by law have
 been kept by the company so far as appears from our examination of such
 books;
 
 iii) The Balance Sheet, Profit & Loss account and cash flow statement
 dealt with by this report are in agreement with the books of accounts;
 
 iv) In our opinion, the Balance Sheet, Profit & Loss account and Cash
 Flow statement dealt with by this report comply with the Accounting
 Standards referred to in sub-section (3C) of Section 211 of the
 Companies Act, 1956 to the extent applicable;
 
 v) Vide notification No. 2/5/2001-CL.V dated 22.03.2002 of the
 Department of Company Affairs, Government of India, Government
 Companies have been exempted from applicability of the provisions of
 Section 274(1)(g) of the Companies Act, 1956.
 
 vi) In our opinion and to the best of our information and according to
 explanations given to us, the said statements of accounts read together
 with notes and accounting policies thereon more specifically to the
 note no. 31 of schedule 17 regarding change in accounting policy by way
 of increasing the monetary limits in respect of prepaid and prior
 period expenditures having no impact on net profit of the company, give
 the information required by the Companies Act 1956, in the manner so
 required and give a true and fair view in conformity with the
 accounting principles generally accepted in India:
 
 a) In the case of the Balance Sheet of the State of Affairs of the
 Company as at 31st March 2009.
 
 b) In the case of Profit & Loss Account, of the Profit of the Company
 for the year ended on that date; and
 
 c) In the case of the Cash Flow Statement, of the Cash flows for the
 year ended on that date.
 
  ANNEXURE TO THE AUDITORS’ REPORT
 
 Referred to in the paragraph 3 of our Report of even date on the
 Statement of Accounts of RURAL ELECTRIFICATION CORPORATION LIMITED as
 at 31st March, 2009
 
 1.  a) The Company has maintained fixed assets records for the
 
 year under review.
 
 b) The Company has a phased programme of physical verification of its
 fixed assets, which in our opinion is reasonable having regard to the
 size of the Company and the nature of its assets. In accordance with
 this programme, substantial assets were physically verified by the
 management during the period. Discrepancies noticed on such
 verification have been properly dealt with in the books of accounts.
 
 c) In our opinion and according to the information and explanation
 given to us, there was no substantial disposal of fixed assets during
 the year.
 
 2.  The Company, being Non-banking Financial Company, does not have any
 inventory.
 
 3.  a) According to information & explanation given to us, the
 
 company has granted unsecured loan to two of its subsidiary companies,
 and two fellow subsidiary companies of RECTPCL who are listed in the
 register maintained u/s 301 of companies Act 1956.The maximum amount
 involved during the year was Rs. 268.72 Lacs and the year end balance
 of loans granted to such companies was Rs.200.65 Lacs. There is no
 stipulation as to repayment of principal amount. However interest is
 being claimed on the basis of general lending rate of Rural
 Electrification Corporation Ltd applicable for T&D Scheme. Hence the
 same is prima facie not prejudicial to the interest of the Company.
 
 b) According to the information & explanation given to us, the Company
 has not taken any loans, secured or unsecured, from companies, firms
 and other parties covered in the register maintained under section 301
 of the Companies Act 1956. Accordingly, clause 4 (iii) (f) and (g) of
 the Companies (Auditors Report) Order, 2003 (as amended) are not
 applicable to the Company.
 
 4.  In our opinion and according to information & explanations given to
 us, internal controls in certain areas are commensurate with the size
 of the company & the nature of its business.  However in certain areas
 internal control needs further strengthening like financial including
 Loan accounting; Loan pricing being not linked to rating linked policy
 in certain cases; Review of T&D lending norms prescribing appropriate
 debt equity ratios; adoption of control records regarding status of
 loan documents including formulation of legal manual ; Receipt,
 disbursement & utilization of grants received under various schemes;
 monitoring of loans given to various SEBs/DISCOMS/ TRANSCOS/GENCOS
 including obtaining search reports for charges created against the
 loans given.
 
 5.  According to information and explanations given to us, the Company
 has not entered into any transaction of business with the Companies or
 Entities covered u/s 301 of the Companies Act, 1956.
 
 6.  The Company has not accepted any deposits from public to which the
 provisions of sections 58A and 58AA or any other relevant provisions of
 the Companies Act, 1956 and rules framed there under, apply.
 
 7.  Corporation is having internal audit department responsible for
 carrying out the Internal Audit of various departments at head office
 and at project offices at periodical intervals as per the approved
 audit plan. In our opinion Internal Audit needs to be further
 strengthened with identification of critical areas for risk based
 audit.
 
 8.  To the best of our knowledge and as explained, the Central
 Government has not prescribed the maintenance of cost records under
 clause (d) of sub section (1) of section 209 of the Companies Act,
 1956, for the products/services of the Company.  Accordingly, clause 4
 (viii) of the Companies (Auditors Report) Order, 2003 (as amended) are
 not applicable to the Company.
 
 9.  a) The Company is generally regular in depositing with the
 
 appropriate authorities undisputed statutory dues including provident
 fund, investors education protection fund, employees state insurance,
 income tax, wealth tax and other material statutory dues applicable to
 it.
 
 b) According to information and explanation given to us, no undisputed
 amounts payable in respect of income tax & wealth tax were in arrears
 as at 31.03.2009 for a period of more than six months from the date
 they became payable.
 
 c) According to information and explanation given to us, there are no
 dues of Income Tax, Custom Duty, Wealth Tax, Excise Duty and Cess,
 which has not been deposited on account of dispute.
 
 10.  The Company does not have any accumulated losses. The Company has
 also not incurred cash losses during the financial year covered by our
 audit and the immediate preceding financial year. Accordingly, clause 4
 (x) of the Companies (Auditors Report) Order, 2003 (as amended) are
 not applicable to the Company.
 
 11.  In our opinion and according to the information and explanation
 given to us, the Company has not defaulted in repayment of dues to a
 financial institution, bank or bondholders as at the balance sheet
 date.
 
 12.  The Company has maintained records and documents in respect loan
 granted by it to various State Electricity Boards, Transmission,
 Distribution and Generation companies including independent power
 producers on the basis of security including collateral security by way
 of pledge of share and other security.
 
 13.  In our opinion and according to the information and explanation
 given to us, the company is not a chit fund or a Nidhi Mutual Benefit
 fund/ society. Therefore, the provisions of clause 4(xiii) of the
 Companies (Auditors Report) Order 2003 (as amended) are not applicable
 to the company.
 
 14.  In our opinion and according to the information and explanation
 given to us, the company is not dealing in or trading in shares,
 securities, debentures and other investments. Accordingly, the
 provisions of clause 4(xiv) of the Companies (Auditors Report) Order
 2003 (as amended) are not applicable to the Company.
 
 15.  In our opinion and according to the information and explanation
 given to us the Company has not given guarantee for loans, taken by
 others, from banks or financial institutions.
 
 16.  In our opinion and according to the information and explanation
 given to us the term loan has been applied for the purpose for which
 they were raised.
 
 17.  According to information and explanation given to us and on
 overall examination of the Balance Sheet of the Company, we report that
 no funds raised on short-term basis have been used for long-term
 deployment/investment.
 
 18.  According to information and explanation given to us, the Company
 has not made preferential allotment of shares to parties and companies
 covered in the register under Section 301 of the Act.
 
 19.  According to the information and explanation given to us, during
 the period covered by our audit report, the company had issued 99302
 Institutional bonds of Rs. 10 Lacs each and 2,525,233 Capital Gain tax
 exemption bonds of Rs. 10,000/- each. The company has created security
 in respect of Institutional & capital gain tax exemption bonds in the
 form of charge on current assets (book debts) and legal mortgage on the
 immovable properties of the Company at Mumbai & Delhi.
 
 20.  The Company has not raised any monies by issue of securities to
 public during the year. Consequently, this clause on disclosure on end
 use of money raised is not applicable.
 
 21.  Based upon the audit procedures performed for the purpose of
 reporting the true and fair view of the financial statements and as per
 the information and explanation given by the management, we report that
 no fraud on or by the Company has been noticed or reported during the
 course of our audit.
 
                                                For G.S. MATHUR & CO. 
                                                Chartered Accountants
 
                                                     (Suresh Chandra) 
 Place: New Delhi                                         Partner
 Dated: 25.05.2009                              Membership. No. 82023.