1. We have audited the attached Balance Sheet of RURAL ELECTRIFICATION
CORPORATION LIMITED as at 31st March 2010 and also the Profit & Loss
Account and the Cash Flow Statement for the year ended 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 Company.
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 be
best of our knowledge and belief were necessary for the purposes of our
ii) In our opinion, proper books of account as required by law have
been kept by the Company so far as appears from our examination of such
iii) The Balance Sheet, Profit & Loss account and Cash Flow Statement
dealt with by this report are in agreement with the books of account;
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 financial statements read together
with Note No. 21(B) in schedule 17 of Notes on Accounts regarding
Deferred Tax Liability that after considering the opinion given by
various concerned authorities, and also the practice followed by other
similarly placed Institutions of not creating Deferred Tax Liability
(DTL) on account of special reserve created and maintained under
Section 36(1)(viii) of the Income Tax Act 1961, the Company is of the
opinion that there is no requirement for DTL as per AS 22 of ICAI.
Accordingly, the Company has not created Deferred Tax Liability (DTL)
of Rs. 155.65 Crore on account of special reserve created and
maintained under Section 36(1)(viii) of the Income Tax Act, 1961, for
the year ended on 31st March, 2010 and has also reversed the DTL of Rs.
964.57 Crore created in earlier years on this account as per Notes on
Accounts, note no. 21(B). The reversal of DTL is done by crediting
General Reserve by Rs. 638.80 Crore for the financial years upto
2005-06 and through Profit and Loss Appropriation by Rs. 325.77 Crore
for the financial year 2006-07 to financial year 2008-09. Had the
company followed the same accounting treatment regarding creation of
DTL as in earlier years, the profit after tax for the year ended
31.03.2010 would have been Rs. 1845.77 Crore against reported profit of
Rs. 2001.42 Crore and Reserve & Surplus would have been Rs. 8,972.66
Crore against reported Reserve & Surplus of Rs. 10,092.88 Crore as on
31.03.2010, together with other notes and accounting policies thereon,
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 2010.
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 Paragraph (3) of Our Report of even date on the Accounts
of Rural Electrification Corporation Limited for The Year Ended on 31st
(i) (a) The Company has maintained fixed assets records to show full
particulars including quantitative details and situation of its fixed
(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 year. Discrepancies noticed on such verification
have been properly dealt with in the books of account.
(c) In our opinion and according to the explanations given to us,
during the year, the Company has not disposed off substantial part of
fixed assets therefore going concern is not affected . Hence this
clause of the order is not applicable.
(ii) The company being Non Banking Financial Company, does not has any
(iii) (a) According to the information and explanations given to us,
the Company has not granted any loans secured or unsecured to any
company, firm or other parties covered in register maintained under
section 301 of Companies Act, 1956. Accordingly clause 4(iii)(a), the
clause 4(iii)(b), 4(iii)(c) and 4(iii)(d) of the order are not
(b) According to the information and explanations given to us, the
Company has not taken any loans, secured or unsecured, from any
company, firm, or other parties covered in the register maintained
under section 301 of the Companies Act 1956. Accordingly clause
4(iii)(e), the clause 4(iii)(f) and 4(iii)(g) of the order are not
(iv) In our opinion and according to information & explanations given
to us, internal controls are generally commensurate with the size of
the Company and the nature of its business. However in certain areas
internal control needs further strengthening like loan accounting, loan
pricing being not linked to rating linked policy in certain cases,
control records regarding status of loan documents including
formulation of legal manual; Receipt, disbursement & utilization of
grants/subsidy received under various schemes; monitoring and
supervision of loans given to various SEBs/DISCOMS/ TRANSCOS/GENCOS
including obtaining search reports for charges created against the
During the course of audit we have not come across any major failure in
internal control system.
(v) According to information and explanations given to us, the Company
has not entered into any contract with the Companies or Entities
covered u/s 301 of the Companies Act, 1956. Accordingly this clause of
the order is not applicable.
(vi) According to the information and explanations given to us, the
Company has not accepted any deposit from public to which the
provisions of Sections 58A and 58AA or any other relevant provisions of
the Companies Act, 1956 and the Rules framed there under, apply.
(vii) Company is having internal audit department responsible for
carrying out the internal audit of various departments at head office
and at project office at periodical intervals as per the approved audit
plan. The internal audit has been carried out for part of the
accounting year. In our opinion internal audit needs to be further
strengthened with identification of critical areas for risk based audit
and frequency of coverage in respect of loan department.
(viii) 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, this
clause of the order is not applicable to the Company.
(ix) (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, service tax and other material statutory dues
applicable to it.
(b) According to the information and explanations given to us, no
undisputed amounts payable in respect of income tax, service tax,
wealth tax were in arrears as at 31st March 2010 for a period of more
than six months from the date they became payable.
(c) According to the information and explanations given to us, there
are no dues of income tax, wealth tax, service tax and cess which has
not been deposited on account of dispute.
(x) The Company does not have any accumulated losses as at 31st March,
2010. The Company has also not incurred cash losses during the
financial year covered by our audit and in the immediate preceding
financial year. Accordingly, this clause of the order is not
(xi) In our opinion and according to the information and explanations
given to us, the Company has not defaulted in repayment of dues to a
financial institution, bank, bond holders as at the Balance Sheet date.
(xii) In our opinion and according to the information and explanations
given to us, the Company has maintained records and documents in
respect of loan granted by it to various State Electricity Board,
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.
(xiii) In our opinion and according to the information and explanations
given to us, the Company is not a chit fund or a nidhi or mutual
benefit fund or society, therefore, this clause of the order is not
applicable to the company.
(xiv) In our opinion and according to the information and explanations
given to us, the Company is not dealing or trading in shares,
securities, debenture and other investment, therefore this clause of
the order is not applicable to the company.
(xv) In our opinion and according to the information and explanations
given to us, the Company has not given any guarantee for loans taken by
others from banks or financial institutions during the year.
Accordingly this clause of the order is not applicable to the Company.
(xvi) In our opinion and according to the information and explanations
given to us the term loans were applied for the purpose for which they
(xvii) According to the information and explanations given to us and on
the 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
(xviii)According to the information and explanations given to us,
during the year the Company has not made any preferential allotment of
shares to companies, firms or other parties needs to be listed in the
register maintained u/s 301 of the Companies Act.
(xix) According to the information and explanations given to us, during
the year covered by our audit report, the company had issued 1,35,295
institutional bonds of Rs. 10 Lacs each and 30,57,776 capital gain
bonds of Rs. 10000/-. The Company has created security in respect of
Institutional and 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 except in case of
43934 institutional bonds of 91 to 93 series for which registration of
charge is in process.
(xx) The Company has raised monies by issue of fresh equity share of
12,87,99,000 of Rs. 10 each at a premium of about Rs. 195/- during the
year. The management has disclosed the end use of money raised in notes
(xxi) During the course of our examination of the books of account
carried out in accordance with the generally accepted auditing
practices in India, and according to the information and explanations
given to us, we have neither come across any instance of fraud on or by
the Company, noticed or reported during the year, nor have we been
informed of such case by the management.
For Bansal & Co. For K.G. Somani & Co.
Chartered Accountants Chartered Accountants
Firm Regn. No. 001113N Firm Regn. No. 006591N
( D.S Rawat) (Bhuvnesh Maheshwari)
M. No.83030 M. No. 88155
Place: New Delhi
Date : 19.05.2010