Notes to Accounts of Ispat Profiles India Ltd.

Jun 30, 2010

1. CONTINGENT LIABILITIES NOT PROVIDED FOR IN RESPECT OF:

(Rs. In lacs)

As at As at 30.06.2010 31.12.2008

a) Letters of Credit and Bank Guarantees outstanding

b) Claims / disputed liabilities not ackno wledged as debts.

Following demands are disputed by the comp any and are not provided for.

(i) Show Cause Notice issued by The Comm issioner 153,80 153.80 Central Excise, Pune for excise duty on fabrication of factory shed. *The demand is confirmed by

The Commissioner, Central Excise, Pune vide order-dated 29.03.06. Appeal again st the same is filed at CESTAT Mumbai and stay granted.

(ii) Claim for reversal of CENVAT on capital goods 346.72 332.20 (including interest) by DGCEI, Pune * Show Cause Notice has been confirmed by The Commissioner, Central Excise, Pune and Appeal against the same was filed at CESTAT Mumbai and order was set aside. Department has filed appeal in High Court in this regard and the same has been admitted.

(iii) Show Cause Notice issued for service tax on 24.32 24.32 transportation by The Asst. Commissioner, Central Excise, Pune.

* Matter is pending before The Addl. Com missioner, Central Excise, Pune.

(iv) Demand for penalty for non-submission of Bill of Entry 20.74 20.74 by Appellate Tribunal for foreign excha nge, New Delhi.

*Matter is stayed at Calcutta High Court, Calcutta.

(v) Demand for duty/interest/penalty on scrap imported 4.28 4.28 under DEPB at Kandla Port by The Comm. of Custom Kandla *Appeal against the same is filed at CESTAT Ahmedabad.

(vi) Demand for sales tax on stock held at the 363.90 363.90 commencement of the deferment scheme / purchase tax set off / sales tax on dispo sal of scrap / sales tax deferment on account of difference in computation.

* Appeals are pending at MST Tribunal, Mumbai / Commissioner Sales Tax, Pune.

2. SECURED LOANS

a) 1300325017% Non-Convertible Debentures (NCDs) of Rs. 100/- each, issued to Financial institutions and the term loan from Banks are secured by a first mortgage and charge on the Companys immovable and movable properties both present and future, subject to the charges created in favour of the Companys bankers on current assets for securing borrowings for working capital. NCDs issued to IFCI and ICICI are redeemable in five equal annual instalments commencing from 31st March, 1999 and from 31st March, 1997 respectively and NCDs issued to IDBI are redeemable in five equal annual instalments commencing from 31st March, 2000. NCD outstanding to IFCI, ICICI and IDBI are Rs. 3063.25 lacs, Rs. 1029.30 lacs and Rs. 8426.17 lacs (Including Rs. 1596.17 lacs ZRD converted into NCD by IDBI) respectively.

b) 3033881 Zero Rated Debentures (ZRDs) of Rs. 100/- each issued to Financial Institutions towards conversion of interest on NCD during the period 01.04.94 to 31.03.96 are secured as indicated in (a) above. Out of these, 1437710 ZRDs allotted to IFCI & ICICI were redeemable in three equal annual instalments starting from 31 st March, 1997.726810 ZRDs issued to ICICI already redeemed in earlier years and ZRD outstanding to IFCI is Rs. 238.70 lacs. The remaining 1596171 ZRDs of Rs. 100/- each issued to IDBI has been converted into 17% NCDs and are redeemable in three equal annual instalments commencing from 31st March, 2002 and it shall be secured as indicated in (a) above.

c) All the mortgages and charges created or to be created in favour of the Financial Institutions and Banks rank pan passu inter-se.

d) The NCDs are personally guaranteed by the Promoters and ZRDs are yet to be personally guaranteed by the Promoters.

e) Cash Credit facilities from the banks are secured by hypothecation of the Companys stock of raw materials, finished goods, consumable stores and book debts, both present and future as well as second charge on fixed assets.

f) Settlement Amount due to ISPAT INDUSTRIES LIMITED (IIL) is to be secured by a second charge on the Fixed Assets on receipt of No Objection Certificate from secured lenders and was repayable in 28 quarterly equal instalments commencing from 30.06.2000, carrying interest § 13% P.A. from 01.04.98. Up to date Interest on above, amounting to Rs. 151.30 Crores (including Rs.18.52 Crore for the period) has not been provided in view of submission of Draft Rehabilitation Scheme, which seeks waiver of interest among others. Principal outstanding is Rs. 9500 Lacs.

3. The Preference Shares were convertible into Equity Shares between the 3rd and 5th year from the date of allotment i.e. 29th September, 88. The Company has approached the Preference Shareholders for converting this into Equity Shares for which consent is awaited. Arrears of dividends on these shares upto 30th June, 2010 is Rs.217.54 lacs including Rs. 15 lacs for the period.

4. In pursuance of the restructuring scheme sanctioned by All India Financial Institutions in earlier years:-

a) Financial Institutions have a right to revoke the agreement and forfeit the amount paid by the Company in case of default in honouring the commitments.

b) Financial Institutions have a right to recompense in respect of sacrifices undertaken by them.

c) Any delay in payment of settlement amount would carry liquidated damage of 5.15% PA.

5. Unapplied interest to Banks up to 31.03.96 has been converted into WCTL (New) payable in 20 equal quarterly instalments commencing from April 97. New WCTL outstanding is Rs. 1384.37 lacs.

6. The debit balance i?l Profit & Loss Account as on 31.03.1995 and as on 31.03.1998 amounting to Rs. 20418.31 Lacs and Rs. 18095.38 Lacs has been set off and adjusted, during the respective years on the basis of legal opinion obtained by the Company, against balance in revaluation reserve account.

7. a) Balances of Sundry Debtors, Sundry Creditors and loans & advances given & taken are unconfirmed and have been taken at values as stated in the Books of Account and the reconciliation is under process. Necessary adjustments are being carried out in the books of account on completion of reconciliation of individual account.

b) As Companys Accounts with Banks and Financial Institutions have become NPA, balance confirmation from such lenders for the period thereafter are not yet received.

c) Interest on loan / Debentures (NCD & ZRD) from financial Institutions and others is provided up to March 03. Interest due to Financial Institutions, Maharashtra State Electricity Distribution CoTnpany Ltd. (MSEDCL) and others amounting to Rs. 1110.57 Crores from April 03 to June 10 (Including Rs. 387.85 Crores for the Period) has not been provided in view of the submission of a Draft Rehabilitation Scheme, which seeks waiver of accumulated interest among others by these agencies. The same is under.consideration of these agencies.

d) (i) Interest on Outstanding with Banks has been provided up to March 2003.

(ii) Interest on agreed settlement amount of Rs. 42 Crores with banks amounting to Rs. 5.17 Crores has been provided up to March 07.However interest on settlement amount from April 2007 to June 2010 amounting to Rs. 12.05 Crores (Including Rs 5.61 Crores for the Period) has notbeen provided in view of revised Draft Rehabilitation Scheme submitted to BIFR.

(iii) Interest on total outstanding from Banks in excess of settlement amount amounting to Rs. 356.69 Crores (Including Rs 109.49 Crores for the Period) has not been provided from April 2003 in view of the submission of a Draft Rehabilitation Scheme, which seeks waiver of accumulated interest among others by them. The same is under their consideration.

8. Sundry Debtors (Rs.6.59 Crores) are under litigation, against which a provision is made for Rs. 6.59 Crores. Though provision has been made, Company has been following with all sorts of recovery proceedings, and the amount, if any, recovered will be accounted for as and when the same is received.

9. Government of Maharashtra had issued prohibition order against lockout on 29th November 2001, which was upheld by Bombay High Court, against which Special Leave Petition was filed in the Honourable Supreme Court. The Honourable Supreme Court has upheld the order of State Government during the period. No provision has been made for the salary, wages and bonus etc. for the period from 6th November, 2000 onward due to amount being unascertainable as the matter is pending in Industrial Court Pune and is subjudice.

10. Valuation of finished goods has been done at lower of cost or "market price based on the Balance Sheet as at 30th September, 2001" in view of suspension of operation from October 2000. In the opinion of the management, sufficient provision for Raw Material and Stores have already been made in the earlier years, and the realisable value of all the inventories would be more than as stated in the accounts.

11. Depreciation amounting to Rs.35.16 crores on revaluation amount of assets has been charged to Profit & Loss Account.

12. Advance against share application money is pending for conversion in Equity shares due to non-receipt of required approval from Financial Institutions.

13. (i) Gratuity and Other post employment benefit plans:

The Company provides for gratuity and leave expenses on the basis of actuarial valuation. The Company does not have any fund for gratuity and leave liability and the same are accounted for as provision.

(ii) In accordance with the revised Accounting Standard 15 i.e. Employee benefits, the requisite disclosure are as follows:

(b) In respect of Defined Benefit Plans necessary disclosure are as under:

(i) Benefits are as follows:

Every Employee who has completed five years or more of service is entitled to gratuity on terms not less favourable than the provisions of the payment of Gratuity Act, 1972.

(c) During The period company has provided gratuity & Leave Liability based on Actuarial Valuation.

(d) Actuarial liability as on 30.06.10 under gratuity and Leave are Rs. 231.36 Lacs (Rs. 206,13 Lacs) and Rs. 65.99 Lacs (Rs. 64.70 Lacs) respectively for the employees on the roll.

(e) Principal actuarial assumption for gratuity at the balance sheet date are as follows:

14. Quantitative information of goods manufactured:

15. The Company has only single segment i.e. manufacturing of Steel.

16. Deferred tax assets has not been computed and accounted for in view of uncertainty of profit in near future.

17. Test as required under Accounting Standard 28 relating to impairment of assets could not be carried out as the Companys plant is under lock out. The same will be done on restart of the plant.

18. Sales Tax dues under Sales Tax Deferment Scheme, instalment of which amounting to Rs. 2418.03 lacs (1469.96 Lacs) that has fallen due between 2003 and June 2010 has not been paid in view of application to the concerned authority for reschedulement of dues. /

19. Related Party Disclosure under Accounting Standard -18

The List of related parties as identified by the management are as under:

a) Name of Related Parties

Person having direct or indirect control over the Company - None Key management personnel -J. P. Khemka Enterprises over which Key managerial personnel / Shareholders or their relatives have significant influence - None