HEC_2008_09

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ANNUAL REPORT 2008-2009

Contents

1. Notice of AGM ............................................................................................................................................02

2. Directors Report .......................................................................................................................................03

- R&D, Technology Absorption, Adoptation, Innovation .................................................12and Energy Conservation

- Report on Corporate Governance...............................................................................................14

- Auditors Report and Managements Replies.........................................................................16

- Comments on the Accounts by C & AG...............................................................................32

3. Annual Accounts

- Significant Accounting Policies ......................................................................................................33

- Audited Accounts with Schedules & Cash Flow Statement......................................36

4. Additional Information .........................................................................................................................55

Board of Directors(As on 30.09.2009)

Chairman-cum-Managing Director : Shri G. K. Pillai

Director (Personnel) : Shri M. R. Venugopal

Director (Finance) : Shri R. Misra

Director (Marketing) : Shri B. Prasad

Director (Production) : Shri S. K. Chaudhary

Directors : Shri R. Asokan

: Shri Ved Prakash

: Shri V. K. Srivastava

Company Secretary : Shri Abhay Kumar Kanth

Auditors : M/s Salarpuria Jajodia & Co.Chartered Accountants

Bankers : State Bank of India

Registered Office : Plant Plaza Road, Dhurwa,

Ranchi - 834004 (Jharkhand)

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Notice of Annual General Meeting

Notice is hereby given to the Shareholders of Heavy Engineering Corporation Limited that

the 50th Annual General Meeting of the Company will be held on Wednesday the

30th September, 2009 at 6.00 PM at its Registered Office located at Plant Plaza Road,

Dhurwa, Ranchi to transact the following business :

Ordinary Business

1. To receive, consider and adopt the Directors Report to the Shareholders for the financial

year ended 31st March, 2009.

2. To receive, consider the adopt the audited Profit & Loss Account for the financial year

ended 31st March, 2009 and Balance Sheet as on that date along with the Auditors

Report thereon and our replies thereto.

3. Appointment of Auditor under Section 619 (2) of the Companies Act, 1956 for the

Financial year 2009-10 and authorise Board of Directors to fix remuneration of the

Statutory Auditor for the financial year 2009-2010.

By order of Board of Directors

(A. K. Kanth)Co-Secretary

Dated : 08.09.2009

NOTE : A Member of the Company entitled to attend and vote at the meeting is entitled to appointproxy to attend and vote instead of himself and that the proxy need not be a Member of

the Company.

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ToThe ShareholdersHeavy Engineering Corporation LimitedRanchi

Gentlemen,Heavy Engineering Corporation has completedits fifty years of service to the nation and theDirectors of the Company have the pleasure topresent the 50th Annual Report of the Companytogether with Audited Accounts for the yearended 31st March, 2009.

The year 2008 was marked as the Golden JubileeYear of Heavy Engineering CorporationLimited and was celebrated through thefollowing events :

(a) On 11th November, 2008 a Blood DonationCamp at Plant Hospital was organizedsuccessfully.

(b) A March for Future was conducted on15th November, 2008, which was a greatsuccess.

(c) On 2nd & 3rd May, 2009, Swarn Sandhyawas organized at Jawahar Lal Nehru Stadiumof HEC. On 2nd May09, His Excellency SyedSibtey Razi,Governor of Jharkhand graced

the occasion as Chief Guest on the 1st day.Besides, Sri G. Krishnan, Advisor to Governor,Jharkhand, Dr. S. N. Dash, Secretary, DHI,GOI, Sri Partho Bhattacharya, Chairman, CoalIndia, Sri V. K. Srivastava, MD, Bokaro SteelPlant, Sri Ambuj Sharma, Jt. Secretary, DHI,MHI & PE, GOI and Sri Sunil Kumar Singh,Deputy Secretary, DHI, GOI were amongstthe special Guests on this occasion.

On 3rd May09, cultural evening was arrangedwith artists from Mumbai & Kolkata and theprogramme was enjoyed by one and all.

Directors Report

(d) Also, a wall clock depicting Golden JubileeEmblem was distributed amongst regular aswell as contract employees of the companyas a Golden Jubilee Souvenir.

It is matter of great pride that HEC has been

selected for the Gold Medal Scope Awardfor Excellence and Outstanding Contributionto the Public Sector Management SpecialInstitutional (Turn Around) category 2007-08.

1. PERFORMANCE HIGHLIGHTS

We are happy to inform you that yourcompany has continued the growth despiteeconomic melt down world wide. Yourcompany has shown an appreciable growthin all the areas in the concluded financial

year. The gross turnover has gone up by9.9% inspite of 6% reduction in duties. Thegross turnover during the year has been Rs.453.87 crore against Rs. 412.92 crore duringthe previous year. Production during the yearhas gone up by 9.6% and it has been Rs.419.47 crore.

2. PRODUCTION & SALES

The production & sales figures for the yearas compared to the previous year are asfollows :

2007-2008

Budget MOU Actual

Gross Turnover 360.00 360.00 412.92

Production 333.14 333.14 383.27

(Rs. in Crore)

2008-2009

Budget MOU Actual

Gross Turnover 430.00 465.00 453.87

Production 390.41 412.60 419.47

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Productivity

There is a marked improvement in Gross turnoverper employee.

Gross Turnover per Employee

Gross Turnover

Production

106 115

136

166

281

383

419

0

100

200

300

400

500

02-03 03-04 04-05 05-06 06-07 07-08 08-09

112

0

50

100

150

200

250

300

350

400

450

500

123

159

178

304

413

454

02-03 03-04 04-05 05-06 06-07 07-08 08-09

(Rs. Crore)

(Rs. Crore)

3. FINANCIAL RESULTS(Rs. Lakhs)

Particulars

2008-2009 2007-2008

Budget MOU Actual Budget MOU Actual

Gross Margin 38.50 39.50 42.81 29.05 30.00 35.24

Interest 28.97 28.97 20.41 24.00 24.00 27.47

Depreciation 4.37 4.37 4.03 4.74 4.74 3.60

Profit before Tax 5.16 6.16 18.37 0.31 1.26 4.17

Net Profit 5.16 6.16 18.37 0.31 1.26 4.17

Cash Profit 30.65 31.84 32.62 23.93 24.50 26.94

Net Profit

(Rs. Crore)

The equity of the Company on 31.03.2009remained at the same level of last year at Rs.453.24 crores. During the year your Companycontributed Rs. 63.60 Crores to Central andState Exchequers as compared to Rs. 62.96Crores in the previous year.

4. MARKETING ACTIVITIESOrders Booked & Order Book Position

Despite economic and industrial recession yourcompany has been able to book orders worthRs. 1653.32 crore which is the highest ever.

Order Booking(Rs. Crore)

The order book position of company as on

1.4.2009 has gone up to Rs. 1903.69 crores.

-173.82

-132.68

-285.02

-86.89

2.86 4.1718.37

50

0

-50

-100

-150

-200

-250

-300

-350

02-03 03-04 04-05 05-06 06-07 07-08 08-09

0

200

400

600

800

1000

1200

1400

1600

1800

02-03

133 137236

421 407 397

1653

03-04 04-05 05-06 06-07 07-08 08-09

2.84 3.30

4.41

5.15

9.13

13.80

15.83

0

200

400

600

800

1000

1200

1400

1600

1800

0 2- 03 0 3- 04 04 -0 5 0 5-0 6 06 -0 7 07 -0 8 0 8- 09

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Orders in Hand(at year end)

(Rs. Crore)

HIGHLIGHTS OF THE MAJOR ORDERRECEIVED

During the year, the Company secured followingprestigious orders :

(1) New Ore Bedding and Blending Plant andBase Blending Facilities (Pkg-090) from RSPRourkela.

(2) Coal Handling Plant (Pkg. 062) from BSP,Bhilai.

(3) 3 nos. of 450T EOT Cranes from BSL, Bokaro

and 51 nos. of EOT Cranes from IISCO.(4) 23 nos. of 5 CuM Shovels from different

subsidiaries of CIL.

(5) 14 nos. of machine tools.

Apart from the above, Hammer Mill, 15T PusherCar and number of orders for Slag Cups,Forgings, Spares etc. have also been receivedfrom various Steel Plants, Mining & generalengineering industries in Private sector.

PROJECT ACTIVITIES

It was felt essential that to increase the turnover of the company manifold, the companyshould have orders for big projects on turnkey basis. In that direction, the project divisionhas been re-organized and strengthened. TheProject division is currently executing turnkeyorders of Ore Handling Plant, Par-A (Pkg-060)& Coal Handling Plant (062) of BSP Bhilai andPkg-090 of RSP, Rourkela. The execution of theprojects at these sites are under progress.

The gross turnover of Project Division during2008-09 was Rs. 60.10 crore against the target

of 52 crore.

0

200103

160245

525

671 681

1904

400

600

800

1000

1200

1400

1600

1800

2000

02-03 03-04 04-05 05-06 06-07 07-08 08-09

Two major orders amounting of Rs. 1228 crorehave been received from BSP, Bhilai and RSP,Rourkela against International Competitive

Bidding.

High value orders are being expected from Steel& Mining Sector for Material/Coal Handling Plantprojects in the financial year 2009-10. ProjectDivision has ambitious plan for diversificationin following fields :

(i) Coal Washery Projects : 19 nos. of CoalWasheries are expected to be tendered innear future from different subsidiaries ofCIL.

(ii) Coal Handling Plants for different subsidiariesof CIL, NTPC, Reliance Energy & other PrivateSectors.

(iii) Ash Handling Plants for Power Projects.

BUSINESS SCENARIO AND FUTUREPROSPECT

The present market is driven by the customerand there is cut throat competition everywhere.The state of art technology is needed to meetthe customers requirement in terms of cost,

quality and delivery time. In this direction, yourcompany is also making efforts to update thetechnology. New machines with latest featuresare conceived & developed to keep pace withthe latest trend and to procure orders againstglobal competition.

Despite the recent melt down in the globaleconomy, there is adequate demand of ourproducts and will further boost up in the variouscore sector industries.

Steel Sector :

More than 6% growth is recorded in thedomestic steel industry. It is likely to be 7-10%in the current fiscal and is expected to risefurther between 10-12% by 2012. All major steelproducers like SAIL, TISCO, JINDAL, MITTAL,ESSAR etc. have future plans of increasingproduction level by modernization and hugecapital investment is expected. Requirementof capital equipments like cranes, spares e.g.forged rolls etc., refurbishment of old plants andequipments are likely to increase the overall

business prospect in Steel Sector.

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Mining Sector :

Recognizing the pivotal role of the miningsector in supporting the accelerated economicgrowth, the rapid development of the sector hascome into sharp focus. Major coal producershave planned huge investment during the 11thFive Year Plan. There will be large requirementof Heavy Earth Moving Machines and otherequipments from subsidiaries of CIL, SCCL,NMDC and SAIL mines.

Power Sector :

There is huge requirement of Castings &Forgings in Power sector. Your company intendsto enter this segment and for this purpose

the JV with BHEL is planned. Trial orders fromBHEL for manufacture of power plant castinghas already been received.

STRATEGIC SECTOR SPACE, NUCLEAR &DEFENCE

Your Company intends to play a very importantrole in meeting the requirements of the strategicsectors. There is ongoing investment in thissector where your company can find furtheropportunity. Initial foray into this sector hasalready been done and in future the role of

your company will be substantial.

Railways :Railway has been the major customer formachine tools. Company had entered intocollaboration with M/s Hegenscheidt ofGermany for manufacture of new generationrailway machine tools.

With the Railway going for modernization oftheir workshops, a positive impact on orderbooking is expected for your company.

5. BIFR AND REVIVAL PACKAGEConsequent upon Company and Dept. ofHeavy Industry (DHI), Govt. of India had filedseparate appeals before AAIFR for quashing/staying the winding-up order of BIFR. Asno bench in AAIFR was functioning at thattime, Company filed a writ petition beforethe Honble High Court of Jharkhand forquashing/staying the winding-up order ofBIFR. Several hearings have since been heldby the Honble High Court of Jharkhand in

this regard.

Revival Plan recommended by Board forReconstruction of Public Sector Enterprise(BRPSE) in Oct., 2005, which included waiver

of interest & non-plan loan, conversion ofplan loan into equity fund of Rs. 102 crore,generation of resources to the tune of Rs.330 crore by company through transfer/lease of residential/non-residential buildingsto State Govt./Resident employees and ex-employees, leasing institutional complexesand settlement of dues of CISF and StateGovernment was approved by Cabinet inDecember, 2005. The proposal approved byCabinet was submitted to Honble High Court

of Jharkhand for consideration. Honble Highcourt of Jharkhand in Feb., 2007 approvedthe revival plan pending settlement of landin view of dealy in settlement of land witha direction to settle the land issue as earlyas possible.

Continued efforts were made to settle thevarious issues including issue of land. Severalmeetings were held at various levels includingmeeting between Honble Minister (HI&PE)and Chief Minister of Jharkhand. As a result

of which, in Feb., 2009, Govt. of Jharkhandoffered modified package. In April, 2009, ameeting was held between Secretary (HI),Govt. of India and Chief Secretary, Govt. ofJharkhand to give the final shape to thepackage.

Now Govt. of jharkhand (GOJ) has agreedto waive outstanding electricity dues plusDPS on it and water dues; provide grant ofRs. 275.51 crore out of which HEC will payRs. 25.51 crore to Commercial Tax Dept.

to settle the outstanding Commercial TaxLiabilities. HEC will transfer non-residential/residential buildings, presently given on rentto GOJ, and 2342 acres of land (including85 acres of appurtenant land with buildings)to State Govt. In addition, GOJ agreed fortransfer of 158 acres of land by HEC to CISFto settle their dues. 158 acres of Land hasbeen transferred to CISF. 17 Non-residentialbuildings have been handed over to StateGovt. with the receipt of Rs. 91.41 crore from

Govt. of Jharkhand.

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Affidavits by HEC, DHI and GOJ have beenfiled before Honble Jharkhand High Courtto approve the revised package.

6. SAFETY, ENVIRONMENT AND POLLUTIONCONTROL

Occupational safety and health of workersare given due importance in your companyand following activities are performed in thisregard :

(i) Safety training & awareness programs.

(ii) Provision of safety appliances likedifferent types of hand gloves, goggles,

protective clothing, safety helmets,safety belts, safety shoes etc.

(iii) Regular health check up of employees.

National Safety Day and HEC Safety Weekwere celebrated by all the units.

Your company does not compromise onenvironmental pollution and takes allprecautions towards pollution control asdetailed below :

* Compliance with all Statutory requirementslaid down under Air (Preventionand Control of Pollution) Act, Water(Prevention and Control of Pollution) Actand Environment (Protection) Act.

* Obtaining running consent from the StatePollution Control Board and compliancewith the stipulated conditions.

* Testing of water eff luent samplesregularly for pollutants, based onwhich consent for discharge of water

to inland body is granted.

* Ambient air test is carried out regularlyto ascertain limit of pollution gasesbefore giving consent for air emission.

7. MANPOWER POSITION

The manpower of the Company as on01.04.2009 stood at 2868 as against 2993on 1.4.2008.

8. INDUSTRIAL RELATIONS

(i) Dur ing the period under rev iew,

the industrial relation situation, ingeneral remained normal. However,gate meetings and general meetings

organized by different Trade Unionsand Associations during the first halfof financial year. Their demands mainlyrelated to implementation of WageRevision w.e.f. 01.01.1997.

(ii) Dependants of deceased employeesare continuing indefinite Dharna infront of Hqrs. Administrative Buildingfor their demand of employment in theCorporation.

(iii) Implementation of wage revisionw.e.f. 01.01.1997, w.e.f. 18.09.2008fulfilled the long pending demand ofemployees.

(iv) The retirement age was increased to60 years from present 58 years w.e.f.18th Sept., 2009.

9. EMPLOYEE WELFARE AND COMMUNITYDEVELOPMENT

Employee Welfare :

The Company runs a full - fledged 250bedded Hospital with 12 number of BroadSpecialities. All employees of the companyincluding their dependent family members aregiven free medical aid through this hospitaland in deserving cases, are also referredto outside Referral Hospitals. The medicalfacility as such being extended to the retiredemployees and spouses also.

The hospital is also open to public in generalfor necessary medical assistance on payment

basis.

Community Development :

The Hospital has at its credit the followingachievemnts towards Public Health andCommunity Health Program during theyear :

(a) Immunization programme for protectionagainst BCG, Polio, DPT, Measles,Tuberculosis, DT and Dog Bites.

(b) Ophthalmology department has seen a

boost during the period under review.

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125 operations were held during theFree Blind Relief Camp out of the 140cases admitted with 18 cases of Phaco

emulsification. These 18 patients weregiven foldable lense of Rs. 1000/-each.

Town Administration Division :

Town Administration Division is the caretakerof all real estate of the company in thetownship which includes company residentialquarters for employees, essential services,market area etc.

Main achievements of T.A. Division in the

Financial year 2008-09 :

(i) Revenue collection of Rs. 28.23 croreswas done.

(ii) Construction of an InternationalCricket Stadium was brought in HECTownship by giving land to JharkhandState Cricket Association on long ternlease.

(iii) 17 nos. of Non-Residential Buildingswere handed over to GOJ and GOJ

provided Rs. 91.41 crore, a part ofthe Grant of Rs. 275.51 crore agreedfor.

10. HUMAN RESOURCE DEVELOPMENT

Your company gives immense importance tohuman resource development through thefollowing activities during the year :

(i) Company Specific in-house trainingand skill development programs (TSDPs)for our regular workers and supervisors

which includes various topics pertainingto technical, behavioral, attitudinalchanges; safety & environment, health& hygiene, labor legislations, quality oflife, etc.

(ii) Company-spec if ic in-house andoutstation training and motivationprograms (TMPs) for our prospectiveofficers as per the need pertainingto latest developmental concepts oftechnical, managerial, legislations,

behavioral, quality, safety & environment,

health & hygiene, administrativevigilance, functional, general andstrategic management.

Resource persons for the above trainings arebeing obtained from Central Board of WorkersEducation, Ranchi, National Productivity Council,Patna, IICM, Ranchi; MTI, SAIL; Ranchi; etc. otherthan available in the company.

HEC Training Institute :

The HEC Training Institute (HTI) conductedre-orientation training in technical trades,craftsmen training in technical Trades(equivalent to ITI), and Apprentices training of

ITI and matriculate apprentices. HTI supportedthe plants with manufacturing of small jobsrelated to production & maintenance. It alsoconducted industrial training course leadingto NCVT (National Council of VocationalTraining).

Education Department :

Your company is running two schools forthe wards of employees & others in theneighboring areas. During the year weprovided all support to Education Department

to improve the co-curricular activities as wellas extra curricular activities in these schoolsat par with local public schools.

11. STATUS OF SCHEDULED CASTES ANDSCHEDULED TRIBES

(i) No. of SC & ST employees as on01.04.2009 stood at 325 and 602respectively.

(ii) Percentage of SC & ST employees w.r.t.total employees stood as 11.33% and

20.99% respectively.

(iii) Out of 175 recruitments made duringthe year 2008-09, 65 appointmentoffers were made to SC & STcandidates (32+33) out of which 57(28+29) joined.

12. PROGRESSIVE USE OF HINDI

Rajbhasha Vibhag promotes the usage ofRajbhasha Hindi throughout your company asan essential effort for wider implementation

under the directives of Govt. of India.

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The following steps were taken by thecompany during the year towards progressiveuse of Hindi as official language :

(i) The typist & stenographers workingwith English are trained for working inHindi.

(ii) All employees are being motivated andtrained to become conversant withHindi as a workable language.

(iii) The Official Language ImplementationCommittee organized its quarterlymeetings on regular basis during theyear.

(iv) Various checkpoints have been madeto ensure successful implementationof Raj Bhasa Policy and attention ofthe Heads of Departments/Plants wereattracted towards deficiencies found,if any.

(v) Raj Bhasha Fortnight was organizedand various competitions such asEssay writings, Speech, Poetries,Noting, Drafting, Typing as well as for

Raj Bhasha Shield and excellent workin Hindi were held. The winners weregiven attractive prizes.

13. DEVELOPMENT OF ANCILLARIES AND SSIUNITS

As a part of its social responsibility, yourcompany developed an ancillary area nearTupudana with the help of Ranchi IndustrialArea Development Authority to createopportunity of employment as well as

individual entrepreneurship.Regular interactions were organized withthe SSI units to find out various scopes formutual cooperation and entry in new areascommensurate with HECs growth.

14. VIGILANCE ACTIVITIES

The vigilance organization of your companyoperates under the over all administrativeand functional control of Chief VigilanceOfficer. During the year it has performed

following major vigilance activities :

(i) Attended 59 complaints, 12 departmentalproceedings & 5 nos. investigationsdone.

(ii) To improve Management effectiveness,the preventive vigilance has been givena thrust by carrying out 77 nos. ofSurprise Check and 15 nos. of regularinspection covering all major areasidentified.

(iii) Vigilance training imparted to theemployees.

(iv) Vigilance Awareness Week celebratedinvolving all employees of the

organization.

15. DISPOSAL OF REQUEST/APPEAL UNDERRTI ACT

During the year 2008-09, 75 requests and19 first appeals were received. Out of this,63 (84%) request and 15 (79%) first appealswere disposed of during the period.

16. QUALITY CONTROL

Your company never compromises on qualityof the products manufactured. The company

takes all measures to maintain the qualityof its products and services to the utmostsatisfaction of its customers. The standardsof Quality of products and services are beingmaintained as per relevant Indian standardsand ISO 9001:2000.

ISO 9001 : 2000 accreditation :

Periodical internal audit, surveillance auditof ISO 9001-2000 is organized in all threeplants. We will switch over to ISO 9001:2008(latest edition of ISO 9000) alongwith the

next certification.

17. ENERGY AUDIT

Energy Audit in a limited way was carriedout by Petroleum Conservation ResearchAssociation (PCRA) in 2004-05 with theobjective to study the use of alternate fuelother than the currently being used ProducerGas for Heat treatment/Reheating furnacesafter Performance Analysis of six majorfurnaces at Foundry Forge Plant. It was

recommended to operate the furnaces with

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Producer Gas since it is the most economicalfuel available in the market. However, PCRAalso suggested certain improvement and

modification of the Producer Gas plant andfor operating furnaces for better thermalefficiency and economy. Necessary actionhas been initiated to modernize the ProducerGas Plant. As Foundry Forge unit is the mainenergy consuming unit, company is going tohave fresh energy audit of this unit with thehelp of an external agency M/s EEPL.

18. R&D, TECHNOLOGY ABSORPT ION ,ADAPTATION, AND INNOVATION; ENERGYCONSERVATION

The particulars required under section 217(1) of the Companies Act, 1956 read withthe Companies (Disclosure of particularsin the report of Board of Directors) Rules1988, regarding R&D, Technology Absorption,Adaptation and Innovation as well as EnergyConservation are furnished in Annexure-A.

19. DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to the requirement under section217 (2) of the Companies Act, 1956, it is

hereby confirmed :

(i) that in the preparation of the AnnualAccounts for the financial year endedMarch, 31st 2009, the applicableaccounting standards have been followedalong with the proper explanation relatingto material departures;

(ii) that the Directors have selected suchaccounting policies and applied themconsistently and made judgments and

estimates that were reasonable andprudent so as to give a true and fairview of the state of affairs of theCompany for the year under review;

(iii) that the Directors have taken properand sufficient care for the maintenanceof adequate accounting records inaccordance with the provisions of theCompanies Act, 1956 for safeguardingthe assets of the Company and forpreventing and detecting fraud and

other irregularities;

(iv) that the Directors have prepared theAnnual Accounts for the financial yearended March, 2009 on a going concern

basis.

20. FOREIGN EXCHANGE

The foreign exchange outgo during the yearwas Rs. 5.38 Crores.

21. INFORMATION UNDER SECTION 217 (2A)OF THE COMPANIES ACT, 1956

None of the employees of the Companywas in receipt of remuneration in excessof limits prescribed under section 217 (2A)of the Companies Act, 1956, read withCompanies (Particulars of Employees) Rules,1975 during the financial year ending 31stMarch, 2009.

22. STATUTORY AUDITOR

The Comptroller & Auditor General of India(CAG) has appointed M/s Salarpuria Jajodia& Co., Chartered Accounts, Patna as thesingle Statutory Auditor of the company forthe financial year 2008-2009. As authorizedby the Shareholders in 49th Annual General

Meeting, the Board of Directors has fixedthe remuneration of the statutory Auditorfor the year 2008-2009 at Rs. 1,44,000 (Rs.One lakh forty four thousands) only.

23. COMMENTS OF C&AG AND STATUTORYAUDITORS AND MANAGEMENTS REPLIESTHEREON

The comments of C&AG under Section

619 (4) of the Companies ACT, 1956 on

the Accounts of the Company for the year

ended 31.03.2009 along with the Review of

Accounts of your Company by C&AG and

Statutory Auditors observations along with

Managements replies thereto are furnished

in ANNEXURE-'C'.

24. BOARD OF DIRECTORS

During the year, there were two parttimeOfficial Directors and one part-time NonOfficial Director on the Board of HEC, inaddition to the CMD, Director (Personnel),Director (Finance), Director (Marketing) and

Director (Production).

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During the year Shri B. B. Singh and ShriShashank Goel ceased to be Directors. Boardplaces on record its deep appreciation for the

valuable services and contribution made by SriB. B. Singh and Shri Shashank Goel during theirtenure as Director on the Board of Directorsof HEC Ltd.

25. AUDIT COMMITTEE

An Audit Committee was re-constituted bythe Board in its 265th meeting on 13.09.2006under the chairmanship of Shri V. K. Srivastava,Managing Director of M/s Bokaro Steel Plant,Bokaro. Only one Audit Committee meeting

was held on 29.09.2008.26. ACKNOWLEDGEMENT

The Board also gratefully acknowledges thesupport and guidance received from thevarious Ministries of the Govt. of India.

The Board is particularly grateful to theDepartment of Heavy Industry, Ministry of HeavyIndustries & Public Enterprises for their continuedsupport in the revival of this Company.

The company also wishes to place on record

its thanks to the Govt. of Jharkhand for alltheir support in the revival process of thecompany.

The company wishes to place on record itsappreciation of the continued co-operationreceived from all its stake holders includingthe suppliers, banks, financial institutions, theController and Auditor General of India andStatutory Auditors.

The company wishes to record its deepgratitude to all the members of the HECfamily who have worked very sincerely anddedicatedly in bringing this company toanother year of profitability and growth.

For and on behalf of Board of Directors

(G. K. Pillai)Chairman-cum-Managing Director

Heavy Engineering Corporation Ltd.Ranchi.

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RESEARCH & DEVELOPMENT ACTIVITIES

The company continued its efforts for thetechnology upgradation and development/systems during the year.

(a) Specific areas in which R&D activitieswere carried out by the company aredetailed below :

(I) 450 T Crane for BSL, Bokaro

450+100/20T , 19m span and450+100/16T, 25m span hot metalholding cranes has been developed forthe first time in India for BSL, Bokarowith highest hoisting speed, VariableVoltage Variable Frequency Control,operated at 690V/415V, motorizedwire rope lubrication and automaticrail lubrication systems to enhancethe life of wire rope and wheel, main

Hoist (450T) with double drive andPlanetary gear box to ensure continuousoperation, emergency disk brake onboth rope drums to avoid accident incase of failure of either drive brakesor output shaft of rope drum andload cell for weighing liquid metal.To accommodate 30m long V.V.V.F.Control Panels, Double Decker fully airconditioned electric Panel Rooms onDouble Decker Platforms have been

designed for these cranes.(ii) 15+15T, 28m Span Grab and Magnet

Trolley Crane for BSL, Bokaro

The crane has two trolleys one forscrap handling and another for hotmetal moving at same level with laseroperated anti-collision device. Hoistmechanism of Grab trolley will have twodrums for closing and opening as wellas hoisting/lowering of Grab. All themechanism is having thyristor control

for achieving micro speed. Pressurized

ANNEXURE A

RESEARCH & DEVELOPMENT, TECHNOLOGY ABSORPTION,ADAPTATION, INNOVATION AND ENERGY CONSERVATION

and ventilated wide girder box (2.6mhigh and 2m wide and 29.5m long) hasbeen designed for this crane and all thecontrol panels are placed inside thesepressurized girders.

(iii) Special Steel Forging for BARC

HEC developed heaviest size ingot

(120T) of ultra clean quality, highlycontrolled impurities and gaseouselements controlled to extremely lowlevels. Material was forged, heat treatedand qualified by destructive and non-destructive tests. Many innovativetechnological solutions adopted toachieve the desired results with theexisting facilities.

(b) Import Substitution Efforts

Following important items were manufac-tured and supplied :

Mobile Launching Pedestal for ISRO.

CNC Deep Hole Boring Machine model :BDH 140N/12M to MSF, Ishapore.

CNC Double Column Vertical Turning andBoring machine model: BV 40/50 NM toVSSC Trivendrum.

CNC Single column Vertical Turning andBoring machine model BV 555/70NM toHAL Bangalore.

(c) Technology Absorption, Adaptation andInnovation

(i) Technology of the earlier collaborationwas completely absorbed. New featureslike P.L.C. based electric controls,AC Servometer, AC Spindle motors,centralized lubrication system, guideways covers, bellows, automatictool clamping system, hydraulic/pneumatic clamping, splash guards was

implemented in the older collaborated

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models. New machines with latestfeatures as mentioned above wasconceived and developed to keep pace

with latest trend in machine tools inthe world market.

(ii) Development of Special purpose CNCRailway machine tool with latestfeatures such as Automatic operatorGuidance System. These machines shallbe developed as per the collaborationwith M/s Hegenscheidt.

(iii) Improved products were offered tothe customers to meet their exact

requirements and order procuredagainst global competition. Exerciseswere carried out continuously to offerthe best product with reduced costthrough continuous research andadoption of better technology and lowrejection of components.

(d) Energy Conservation

Company had initiated various steps toconserve the energy. it has been able to

reduce the energy cost substantially during2007-08. All efforts were made to maintainthe reduced energy consumption level,however, due to production of high qualitysteel the energy consumption has slightlygone up on per ton basis. The various stepsbeing taken are as under :

Reduction in maximum Demand of Powerby proper load planning.

Use of energy efficient high pressuresodium vapor lamps/Tube lights.

Replacement of MG Sets by use of StaticTransformers and Rectifiers.

Use of ceramic lining in Furnaces andby installing programmable controller inelectric pit furnace.

Reduction in heat cycle time for meltingfurnaces etc.

Replacement of centralized compressorunit with decentralized Air Compressorat the load centres.

Provision of Transparent Sheets at rooftops of production shops so as to utilizesunlight for illumination.

Energy Consumption details per MT of physicalproduction during the recent years are asunder :

Type of energy Units of consumption per MTof production

2008-09 2007-2008 2006-07

Electricity (KWH) 2699.88 2695.45 2709.68

Coal (MT) 4.61 4.32 4.30

Diesel (Litres) 21.33 18.93 19.66

Energy Audit by an External Agency has beeninitiated and company hopes for further reductionin energy consumption thereafter.

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The Directors present the Companys activitieson Corporate Governance.

CORPORATE MAIN OBJECTIVE ON CODE OFGOVERNANCE

Heavy Engineering Corporation Limited (HECLtd.) trusts the conduct of its business activitiesand enhance the value of all those who are

associated with the company viz., Customers,Suppliers, Govt. of India, Ministry of HeavyIndustry, Department of Public Enterprises,various State Governments, other Governmentalagencies/departments and the society atlarge. Essentially it involves practising of goodCorporate Governance and HEC believes intransparency, accountability and attainingmaximum level of enrichment of the enterprises.HEC also price the global recognition byensuring the integrity, value addition to itsdomestic as also the International customers

in it product commitments.HEC complies with all the laws and regulatesits affairs in a competitive system and monitorseffectively the management policies/decisionand executing its strategies. HEC takes itssenior management accountable in the pursuitof achieving companys objectives.

HEC is committed to practice Good CorporateGovernance by letter and spirit. Keeping with thespirit of the code, the Company has enlargedand strengthened the scope of the committees

formed in accordance with the Companies Act,1956.

Board of Directors :

The Board of Directors oversees all majoractions/activities proposed to be under takenby the company. The Board also reviewsand approves the strategic and businessplans including monitoring of corporateperformance.

In accordance to the provisions of the Articlesof Association, the number of Directors of the

ANNEXURE B

REPORT ON CORPORATE GOVERNANCE(As on 31.03.2009)

Company shall neither be less than two normore than fifteen. The Directors are not requiredto hold any qualification shares.

As on the date of reporting, the Board ofHEC Ltd. consists of eight Directors whohave been classified in three classes viz. (i)Full time Functional Directors, (ii) GovernmentNominee Official Directors and (iii) GovernmentNominee Non-Official Directors. This include (a)Chairman-cum-Managing Director (CMD), FourFunctional Directors i.e. Director (Personnel),Director (Finance), Director (Marketing) andDirector (Production), (b) Two Government ofIndia Nominee Official Directors from Ministryof Heavy Industry, (c) One Government NomineeNon-Official Director. The terms, conditions andtenure of appointment of Directors includingCMD are decided by Government of India,Ministry of Heavy Industry.

The remuneration/compensation payable toDirectors is also fixed by Government of Indiaand the CMD and Full Time Functional Directorsare paid monthly remuneration as fixed byGovernment of India.

The Full-time functional Directors are :

(a) Shri G. K. Pillai : Chairman-cum-Managing Director

(b) Shri M. R. Venugopal : Director (Personnel)

(c) Shri R. Misra : Director (Finance)

(d) Shri Bharat Prasad : Director (Marketing)

(e) Shri S. K. Chaudhary : Director(Production)

Govt. of India Nominee Part-time OfficialDirector are :

(a) Shri R. Asokan

(b) Shri Sunil Kumar Singh

Govt. of India Nominee Non-Official (Part-time)Director is :

(a) Shri V. K. Srivastava

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Meeting of the Board

The Board Meetings are held at CompanysRegistered Office at Ranchi. The CompanySecretary serves as Secretary to the Board.

Number of Board Meetings :

During the years 2008-09, Five (5) meetingswere held, the details of which are givenbelow :

Sl.No.

Date BoardStrength

No. of Directorspresent

1. 20.06.2008 07 06

2. 02.08.2008 07 06

3. 29.09.2008 08 06

4. 06.12.2008 08 06

5. 20.03.2009 08 07

Attendance of each Director at BoardMeetings

Name of theDirectors

Period

No. ofBoard

Meetingsheld

No. ofBoard

MeetingsAttended

No. ofDirectorshipin otherBoard

(a) Executive Directors (Whole-time Functional Directors)

1. Shri G. K.Pillai, CMD

01.04.2008

to

31.03.2009

05 05

2. Shri M. R.VenugopalDirector(Personnel)

01.04.2008

to

31.03.2009

05 05

3. Shri R. Misra

Director(Finance)

16.05.2008

to31.03.2009

05 05

4. Shri BharatPrasad

Director(Marketing)

16.06.2008

to

31.03.2009

05 05

5. Shri S. K.Chaudhary

Director(Production)

03.09.2008

to

31.03.2009

03 03

(b) Govt. of India Nominee Part-time Official Director

1. Shri B. B.

Singh

01.04.2008

to

13.02.2009

03 03 03

2. Shri R.Asokan

01.04.2008

to

31.03.2009

05 03 04

3. Shri ShashankGoel

13.02.2009

to

01.04.2009

01 01 04

(c) Part-time Non-Official Director

1. Shri V. K.

Srivastava

01.04.2008

to

31.03.2009

05 02 02

Board Agenda and Material :

The Board believes that a carefully plannedAgenda is important for effective BoardMeetings. All major issues included in the Agendaare backed by comprehensive backgroundinformation to enable the Board to takedecisions. The agenda is flexible enough toaccommodate any unexpected development(s)

requiring Boards attention and its decision.Agenda papers are, generally circulated wellin advance to the Members of the Board.The Board members, in consultation with theChairman may bring up any relevant matter forthe consideration of the Board.

Attendance of each member in AuditCommittee Meetings

Name of theMembers

Period

No. of

Meetings

held

No. of

Meetings

Attended

1. Shri V. K.SrivasatavaChairman,AuditCommittee

01.04.2008

to

31.03.2009

02 02

2. Shri B. B.SinghMember

01.04.2008

to

13.02.2009

02 00

3. Shri M. R.VenugopalMember

01.04.2008

to

31.03.2009

02 02

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ToThe Members,

We have audited the attached Balance Sheet of HEAVY ENGINEERING CORPORATION LIMITEDas on 31st March 2009 and also the Profit & Loss Account of the Company and Cash Flowstatement for the year ended on that date. These financial statements are the responsibilityof the management. Our responsibility is to express our opinion on these financial statementsbased on audit conducted by us.

Except as disclosed in the following paragraphs, we conducted our Audit in accordance withAuditing standards generally accepted in India. These standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatements. An Audit includes examining, on a test basis, evidence supporting

the amounts and disclosure in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statements presentation, we believe that our audit provides reasonable basisfor our opinion.

AUDITORS REPORT

AUDITORS REPORT

1. As required by the Companies (AuditorsReport) Order, 2003 as amended byCompanies (Auditors Report) (Amendment)Order,2004 issued by the Government ofIndia in terms of Section 227(4A) of theCompanies Act, 1956, and on the basis ofsuch checks of the books and records of theCompany as we considered appropriate andaccording to the information and explanationsgiven to us, we annex hereto a statementon the matter specified in paragraphs 4 &5 of the said order, to the extent applicableto the Company.

2. Further to our comments in annexure referredto in paragraph 1 above and subject to ourobservations contained in paragraphs 3 to 13

to follow and consequent impact thereof onthe profit, assets and liabilities for the itemsquantified in Para no. 6.2,9,10.1,10.2,10.3,10.4& 10.5 and our inability to quantify theimpact of Profit, assets and liabilities inthe other paras in the absence of properinformation / explanation and record at theend of the Company as stated in appropriatepart of those paragraphs read together withSignificant Accounting Policies and otherNotes in Notes on Accounts in Schedule-

25, we report that :

REPLIES

No. comments

Reply has already been furnished against therelevant audit paras.

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Had the observations made in parasquantified as above been considered theProfit for the year would have been Loss

of Rs.6091.97 lakhs (as against the reportedprofit of Rs.1957.87, the figure of Profit &Loss account in the Balance Sheet wouldhave been Rs.181251.15 lakh (as against thereported Rs. 106461.36 ), Turnover (Net) forthe year would have been Rs.39723.52 lakh(as against the reported Rs. 41738.74 lakh),Net current assets would have been Rs.(-)106240.41 Lakhs (as against the reportedRs.(-) 33382.98 lakhs.

2.1 We have obtained all the information and

explanations which to the best of ourknowledge and belief were necessary for thepurpose of our audit.

2.2. Subject to our comments in para 2.6, 4,11and 12 In our opinion, proper books ofaccount, as required by law, have been keptby the Company so far as, appears from ourexamination of those books.

2.3 The said Balance Sheet and Profit & LossAccount and Cash Flow Statement are inagreement with the books of account

2.4 In our opinion, the Balance Sheet and Profit& Loss Account and Cash Flow Statementhave been prepared by the Company incompliance with the Accounting Standardsreferred to in Sub-Section 3(c) of Section211 of the Companies Act, 1956 except forthe deviations noted in Para 11, 12 & 13 ofthis report and except as stated elsewhereand in Significant Accounting Policies andSchedule 25 (Notes on Accounts).

2.5 As explained to us, as per NotificationNo. GSR 829 (E) issued by Department ofCompany Affairs the provisions of Section274(1)(g) of the Companies Act, 1956 arenot applicable to a Government Company.

2.6 In our opinion and to the best of ourinformation and according to the explanationsgiven to us, the said accounts read withsignificant Accounting Policies and otherNotes in Schedule 25 thereon, give theinformation required by the Companies Act,1956 in the manner so required except for

No. comments

No. comments

No. comments

No. comments

No. comments

The matters of deviations as listed by auditunder para 12 have already been explained inNotes on Accounts. Besides the above othermatter in the deviation list under Para 12 and 13have been suitably replied against the respectiveparas. The accounts have been prepared based

on reality and the circumstantial evidence where

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the deviations noted in Para 4,11 and 12of this report and as the profit reported inprofit and loss account converts into loss,

it does not give a true and fair view inconformity with the accounting principlesgenerally accepted in India:

(a) In the case of the Balance Sheet, ofthe State of affairs as on 31st March,2009 and

(b) In the case of Profit & Loss Account,of the profit for the year ended on31st March, 2009, and

(c) In the case of cash flow statement, of

the cash flows for the year ended onthat date.

waiver/ withdrawal of companys long pendingnon admitted liability is certain. As such thesewere not considered in Accounts. Moreover Govt.

of Jharkhand Union Govt. and the Company hadsubmitted affidavits in the Honble High Courtof Jharkhand whose acceptance by the Courtis a must before implementing / accountingfor any of the waiver of the liabilities/ transferof assets. Here it may be mentioned that theBIFR had recommended winding up of thecompany against which the company andGovt. of India had filed writ applications beforeHonble High Court of Jharkhand and the matteris yet to be disposed of and is sub-judice. Untiland unless Honble High Court of Jharkhandpasses appropriate orders it would neitherbe prudent nor advisable to pass entries inthe Books of Account to give effect to thesuggestion of the Audit. Although there weresome sort of understanding between Govt. ofIndia , Govt. of Jharkhand and HEC that in DPSon electricity dues payable by HEC wouldbe waived along with other items included inPara 11 & 12 as a total package deal, inthe absence of any specific agreement to thiseffect perhaps C & AG audit had observed on

the Accounts for 2007-08, that non provisionof such items would result into a loss and assuch it was commented on the Auditors reportas to the true and fair view of the accountsof 2007-08.. But the audit had not taken intocognizance the subsequent developments likethe agreement amongst Govt. of India, Govt.of Jharkhand and the company and filing ofaffidavits before the Honble High Court ofJharkhand. If these affidavits are consideredin its entirety there would be no impact onprofitability, as creating of liability for DPS and

waival of the same would have no impact onthe profitability in the Accounts. But the audithas considered only the DPS leviable but at thesame time ignored waival of the same whichhad been agreed to between Govt. of Indiaand Govt. of Jharkhand. Similar is the caseof other liabilities. In the absence of specificorder of Honble High Court and as the matteris sub-judice company can not pass entriesto give effect to the same in the accounts assuggested by the Auditor.

As such it is requested to reconsider the

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3. As referred in Para 1.0 of Accounting Policy,the Accounts have been prepared on theGoing Concern assumption. In view of factsreferred in Note No. 1 of Schedule 25regarding order of BIFR dated 06.07.2004for winding up the company and in view ofthe huge accumulated losses, the negativenet worth of the company, the companysability to continue as a going concern isdependent on availability of substantialfinance, decision of High Court / AAIFR as

well as future production performance andprofitability, etc.

4. FIXED ASSETS :

Although 17 nos. of non residential building

were transferred by the Company during thecurrent financial year on a consideration ofRs. 80.00 crores and consideration amountreceived on 31st March, 2009, no accountingentry were passed for such transfer as wellas for profit / loss on such transfer, pendingacceptance of Revival Package of Govt. ofJharkhand by Honble Jharkhand High Court(refer notes no. 7 of schedule 25). In absenceof WDV of specific asset( which also includesin some cases part of the building), we areunable to quantify the amount of profit /loss

deletion of the comments that the Accountsprepared by the company fails to give trueand fair view.

Board for Reconstruction of Public SectorEnterprises (BRPSE) recommended the revivalproposal of the company and was duly approvedby Union Cabinet on 15.12.2005. The Govt. ofIndia also implemented the conversion of planloan into equity, waival of Non plan loan andthe interest due on plan & non plan loan stoodas on 31.3.2005 and also provided funds asbridge loan of Rs. 102 crores to HEC beforethe end of the financial year 2005-06. Govt.of Jharkhand also furnished affidavits in the

Honble High Court for settlement of JSEB dues.Waival of Sales tax, water charges and alsoproviding funds as grant. The Govt. of Jharkhandhas also agreed to take over the availablesurplus land of HEC and all the residentialand non residential building which are alreadyon rent with State Government. Moreoversubstantial cash has been generated by wayof transferring the residential quarter on LongTerm Lease. Union Govt. has also convertedthe above bridge loan along with interest intoequity. Company has also increased its volume

of operation drastically and generation ofcash also has tremendously been increased.As such, no shortage of cash towards workingcapital Would be faced by HEC in near futureeven after liquidating the companys liability toemployees. Statutory bodies and other outsideparties and the company would be entirelycapable of running as a going concern withadequate financial resources.

This has been dealt with note no. 7 ofSchedule-25 (Notes on Accounts).

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on transfer of such 17 nos. of non residentialbuildings.

5. INVENTORIESIn HMTP errors in basic data generatedfrom plant/computer system/stores pricedledger/sales value related to inter plant itemssubmitted by PPC/ cost yet to be incurredestimated by PPC were noticed, which mighthave affected the cost of material /directlabour, shop overhead etc. and its correctionwas not carried out by the unit. Withoutcorrection of basic data and fresh calculation,we are unable to express our opinion on

valuation of work in progress taken in Booksof Accounts in that plant. Further, due toerrors in valuation of cost of opening stockin some items of WIP and finished goods inearlier year and continuing during the year inHMBP, we are unable to express our opinionon valuation of work in progress and finishedgoods taken in books of accounts.

6. SUNDRY DEBTORS

6.1 Confirmation of balances due from SundryDebtors were not obtained by the companyfor our verification sundry debtors includebalances, which are long over due andare appearing as sundry debtors for morethan three years and which have not beenconfirmed by the parties from whom theseare receivable. Consequently profit andsundry debtors are over stated to thatextent.

6.2 Sundry Debtors include Rs. 1458.03 lakhs

from a single party which is resultant of anarbitration award awarded in favour of thecompany in February, 1997 against which theparty filed an appeal before Honble DelhiHigh Court. The Honble High Court rejectedthe appeal but the party has again filed anappeal before Honble Delhi High Court. Atthis juncture of time, as the realisation ofthis entire amount of Rs. 1458.03 lakhs isuncertain, since the award has not beenimplemented, is desputed and is long over

due, warranting a provision of the entire

This has been corrected to the extent possibleduring the year. Cost yet to be incurred forcompletion has been prudently calculated byPPC nearest to actual and therefore, existencefor errors in estimation has been minimised/eliminated.

This has been dealt with Note No. 9 of schedule25. (Notes on Accounts)

The long pending Debtors relates to theamount receivable from PHED towards supplyof electricity for water Filtration Plants Thisis to be adjusted against their dues from HECtowards supply of process as well as drinkingwater. This has already been considered inthe revival package by Govt. of Jharkhandand settlement is expected shortly. Hence noprovision has been considered at this stageand therefore no debtors are overstated.

As observed by the statutory audit the appealof the party before Honble High Court Delhi hasbeen rejected. As such there is no uncertaintyregarding realisation of the amount. Accordinglyno provision is considered necessary at thisstage.

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amount, pending which the profit remainsoverstated and accumulated loss remainsunderstated and the sundry debtors at the

end of the year remain overstated.

7. LOANS AND ADVANCES

7.1 Confirmation in respect of various partiesincluded in Loans and Advances werenot obtained for our verification and assuch we are unable to comment on itscorrectness and impact on the profit andother accounts.

8. CURRENT LIABILITIES AND PROVISIONS

8.1 Confirmation in respect of various partiesincluded in current liabilities/sundry creditorswere not obtained for our verification andas such we are unable to comments on itscorrectness and impact on the profit andother accounts. Further, in the absence ofdetails, linking or reconciliation of variousheads of accounts under Liabilities, weare unable to verify the correctness ofthe different amount in the schedule andcomment on its impact on the profit./lossand other accounts. :

8.2 In absence of expert legal opinion/latestposition of cases/litigation against thecompany as referred in notes no. 2(g) ofSchedule-25, we are unable to express ouropinion on additional liability, if any , whichare required to be provided under AS-29lying unprovided.

8.3 Pay Revision of employees is due since01..01.2007. No provision has been made forincremental pay for the period 01.01.2007to 31.03.2009 and its impact, if any, onthe profit as well as current liabilitiesremains unascertained. (Refer note no. 5 ofSchedule-25).

8.4 The Company has not provided for interestpayable on defaulted deposits since 1999recovered from salaries of the employees andpayable to the Employees Co-operative. Theimpact on the loss remains unascertained(Refer notes no. 14 of Schedule-25).

8.5 The company has in earlier years defaulted

in making timely deposits to the Provident

This has been dealt in Notes no. 9 ofSchedule-25 (Notes on Accounts).

Due to non reconciliation of very old duesfrom various parties as well as old liabilitiesto them, complete linking of liabilities as wellas assets has not been possible till date. Butefforts are being made for gradual adjustmentof the same at an early date.

Based on the list of cases pending as on31.03.2009 in the Court of Law and internalscrutiny, the entire amount involved in the caseshave been shown under the head contingentliability.

This has been dealt in note no. 5 ofSchedule-25 (Notes on accounts). Moreover notripartite agreement has been entered into bythe company for implementation of Pay Revisionw.e.f. 01.01.2007.

This has been dealt with Note no. 14 ofSchedule-25 (Notes on Accounts)

Damages fir delay remittances of CPF/EPF

have been assessed by PF authority up to

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Fund Authorities of amounts recovered fromthe salaries of the employees as well as thecompanys own contributions. No provision

for penal interest / damages payable toProvident Fund Authorities has been madefor defaults in payment occurring fromSeptember,99 onwards and the impact onprofit for the year and accumulated lossremains unascertained(Refer note no. 15 ofSchedule-25).

9. SALES

Attention is invited to Note No.11 of Schedule25, Sales for the year / Sundry Debtors inHMBP and FFP is overstated by Rs. 2015.22lacs as title in goods has not passed to the

customer as on 31.03.2009 and inventory /accretion in finished goods is understatedto that extent. Had these been treated asinventory the profit for the year would havebeen lower by Rs. 82.86 lakhs.

10. PROFIT & LOSS ACCOUNT

10.1 Bills of Bihar State Electricity Board andJharkhand State Electricity Board for DelayedPayment Surcharge (DPS) amounting to Rs.62270.94 lacs (previous year 54886.86 lacs)have not been accounted and provided for.As an impact of this, profit for the yearis overstated by Rs. 7384.08 lakhs andaccumulated loss and current Liabilitiesare understated to this extent of Rs.62270.94 lakhs (Refer Note no. 2 (d) inSchedule-25).

September,99 and the same has been appealedbefore Appellate Tribunal and as such this hasbeen shown in Account as contingent liability. The

above matter has not been heard in AppellateTribunal as yet. Company also filed an appealin the Honble High Court of Jharkhand fordirecting Chairman, Central Board of Trustees,Employees Provident Fund Organisation toconsider the waival of damages and accordinglythe Honble High Court has given direction toChairman, CBT for consideration of waiver ofdamages as per Law.

Further, due to non availability of assessmentfor the period from October, 1999 to March,

2006 by PF authority no provision has beenconsidered in accounts. This has already beendealt with Note No. 15 of Schedule 25 of Noteson Accounts.

This has been dealt in Note no. 11 ofSchedule-25 (Notes on accounts).

Despite agreeing to charge consumption ofpower in Township at domestic rate, it wascharged at industrial rate causing DPS asdisputed liability. Moreover waival of DPSis under active consideration of Govt. ofJharkhand along with relief to be extendedby them in the Revival Package of HEC. Sincethe waival of DPS has been approved bythe Cabinet / Governors advisory Councilon 13.02.2009 and later based on decisiontaken in the meeting held between Secretary,DHI, Govt. of India and Chief Secretary, Govt.of Jharkhand on 6.4.2009 that DPS wouldbe waived up to the date of final settlementby J.S.E.B. after approval of Honble HighCourt of Jharkhand, this has been shown as

contingent liability.

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10.2 Water charges bills of public Health EngineeringDepartment amounting to Rs. 1022.44 lacs(Previous year Rs. 976.38 lacs) have not been

accounted and provided for. As an impactof this, profit for the year is overstated byRs. 46.06 lakhs and accumulated loss andcurrent Liabilities are understated to theextent of Rs. 1022.44 lakhs. (Refer Noteno. 2 (e) in Schedule-25).

10.3 Damages of Rs. 9501.54 lacs levied by

Regional Provident Fund CommissionerU/S 14B of the Employees Provident Fundand Miscellaneous Provisions Act, 1952 fordelayed remittances during the period March1976 to September, 1999 have not beenaccounted and Provided. As an impact ofthis, accumulated loss and current Liabilitiesare understated to this extent. (Refer Noteno. 2(f) in Schedule-25).

10.4 As per Revival Package sanctioned by theGovt. of Jharkhand, the company as wellas Government of Jharkhand have agreedto settle all commercial tax liability up to31.03.2007 including penalty / penal interestfor delayed payment, etc after payment of Rs.2551.00 lakhs by the company. Out of that asum of Rs. 500 lakhs has been paid duringthe year and Rs. 1536.04 lakhs is outstandingin the Books of the Company and balance ofRs. 514.96 lakhs was not accounted by the

Company, due to which the profit remainsoverstated and accumulated loss remainsunderstated and the current liabilities at theend of the year remain understated (ReferNote no. 1 in Schedule-25).

Water charges has been accounted for on thebasis of actual consumption and consideringincrease of water charges effective from the

date of receipt of order, excess claim overactual consumption and increase of rate forretrospective period has been protested andshown under contingent liability. Moreover thisis in the process of reconciliation with PHED forwithdrawal of this excess claim. Further waivalof water charges has also been approved bythe Cabinet /Governors Advisory Council on13.02.2009. As such no provision in this regardis required at this stage.

Please refer to reply against 8.5. ( No provision

has been made against the damages ofRs.9501.54.lacs levied by PF authority againstwhich company has filed an appeal beforeAppellate Tribunal. Company has also filed anappeal in the Honble High Court of Jharkhandfor directing Chairman, Central Board of Trustees,Employees Provident Fund Organisation toconsider the waival of damages and accordinglythe Honble High Court has given direction toChairman, CBT for consideration of waiver ofdamages as per Law. As such the same hasbeen shown as contingent liability).

This has been dealt with note no. 1 (Noteson Accounts ) of Schedule-25. The Govt. ofJharkhand as part of the revival packagehas agreed to pay Rs. 25.51 crores to HECtowards final settlement of commercial taxesliability up to 31.03.2007. The liability forpayment of commercial taxes will materializeonly on assessment on sales tax return. Asthe commercial taxes deptt. has completedsales tax assessment up to 2002-03 only, theagreed liability under the revival package has

been finalised to take care of further demand,if any, arising out of the future assessment forthe year 2003-04 to 2006-07.

The liability shown under contingent liability arelying in appeal before adjudicating authorities.Such liabilities would arise only upon the adversedecision of the adjudicating authorities.

Therefore, it can not be said that the futureout flow is definite and quantifiable and henceno liability has accrued to be accounted forat this stage.

Therefore, mere mention of the amount of

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10.5 Interest on over due amounts to smallscale industries undertaking amounting toRs. 21.88 lakhs (Rs. 17.33 lakhs HMBP andRs.4.55 lakhs HMTP) has not been provided.Consequently profit for the year is overstatedby this amount and accumulated loss and

current liabilites are understated to thisextent.(Refer note no. 10 in Schedule-25).

11. DEV I AT ION FROM ACCOUNT INGSTANDARDS

11.1 The element of Profit/ Loss if any, on itemsof inter plant transfers held in closing stockhas not been ascertained or eliminated. Thisis not in accordance with AS-2.

11.2 In some cases valuation of inventories offinished and semi finished goods is notfully in conformity with the requirements ofAS-2 in as much it is not based on propercost booked and estimated net realisablevalue and there is no scientific methodfor assessing costs yet to be incurredfor incomplete portion of the inventory.(impact not ascertained).

11.3 Non disclosure of transfer of 1148 residentialquarters to Govt. of Jharkhand on 27.04.2009,being events occurring after Balance Sheetdate is non compliance of AS-4.

11.4 Non accountal of interest and penal interestpayable on CISF dues as ordinary businessactivities/prior period activities and waiver ofinterest by CISF as extra ordinary activitiesin Books of Accounts as well as in financialstatements is deviation from Accounting

Standard-5.

Rs. 25.51 crores in the revival package doesnot fasten a liability to be disclosed by thecompany to the commercial taxes deptt, as the

accountal of the liability is dependent on theassessment under the respective Act. Hencethere is no definite and quantifiable liabilitiesto be accounted for in the books of accountat this stage.

This has been dealt with note no. 10 (Noteson accounts) of Schedule-25.

Excepting a very few cases no element of profithas been considered in the transfer price ofinter plant transfer due to supply of materialsor for machining towards services to sisterplant. Hence elimination of profit element inthe closing stock does not arise. As such nodeviation from AS-2 on this point seems to

exist.

Disclosed in Notes on Accounts vide note no.19(a) in Schedule-25.

This has been suitably disclosed in Note No.1of Notes on Accounts (Schedule-25)

This has been suitably disclosed in Note No.6of Notes on Accounts (Schedule-25).

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11.5 Accountal of Sales in HMBP and FFP withoutpassing of title to the buyer is deviation fromAccounting Standard-9.

11.6 Non accountal of transfer of 17 Nonresidential building to Govt. of Jharkhandand non calculation of profit / loss onsuch transfer is deviation from AccountingStandard-10.

11.7 Non provision of short term employeebenefits ( due arrear salary according towage revision) as well as short provisionin Post retirement benefits is deviation ofAccounting Standard-15 (Revised 2005).Further provision for LTA liabilities has beenmade on estimated basis and not on thebasis of third party actuarial valuation assuggested by AS-15.

11.8 Accounting for Deferred Tax Assets/ Liabilitieswere not done as referred in Para no. 12of Notes on Accounts, Schedule-25, whichis contrary to AS-22.

11.9 Non accountal of commercial tax liabilityamounting to Rs 514.96 lakhs. is deviationfrom Accounting Standard-29

11.10Non Accountal of DPS liability amounting toRs. 62270.94 lakhs is deviation from AS-29.

12. DEVIATION FROM PART-II OF SCHEDULE-VIUNDER COMPANIES ACT, 1956

Non accountal of a sum of Rs.3791.00 lakhs,

being the amount of interest and penalinterest on CISF dues and its waival by theCISF after the transfer of Land to CISF.

13. DEVIATION FROM SECTION 211(3B) OFCOMPANIES ACT

The company has deviated from AccountingStandards in preparation of Financialstatements as mentioned in Para no. 11.2,11.3, 11.4, 11.6, 11.7, 11.8, 11.10 and 11.11,but the deviation, reason for deviation andits impact was not disclosed by the company.

This has been suitably disclosed in Note No.11 of Notes on Accounts (Schedule-25).

This has been suitably disclosed in Note No.7of Notes on Accounts (Schedule-25).

No circular has been issued by the companyas to short term employee benefit on accountof wage revision. As such no deviation seemsto exist.

No LTA liabilities has been provided in the

Accounts of 2008-09 as the same had alreadybeen provided in the year 2007-08. As per Govt.of India circular, LTA would be payable onlyto the employees retiring in the next 2 yearsin the sick industries. Since the retirement ageof the employees of the company has beenenhanced by 2 years , no further provisionsis considered necessary at this stage.

This has been suitably disclosed in Note No.12 of Notes on Accounts (Schedule-25).

The matter of payment of commercial tax onreceipt of grant from Govt. of Jharkhand hasbeen disclosed in Notes No.1 of Schedule-25(Notes on Accounts).

Please refer to reply against Para 11.1. Furtherthis has been dealt with Note no.2 (d) (Noteson Accounts) of Schedule-25.

This has been suitably disclosed in Para 6 ofNotes on Accounts (Schedule-25).

The reply has already been furnished againstthe relevant audit paras.

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Further, impact of deviation in Para No.11.5 and 11.10 was not disclosed by thecompany.

14 GENERAL

Although there is some improvement still insome cases Debit/Credit balances againstvarious parties in Sundry Creditors/Loans &Advances have been deducted from grossaggregate of Sundry Creditors/loans &Advances instead of adding the debit/creditaggregate of respective accounts with Loans& Advances /Current Liabilities. The quantumof understatement of Sundry Creditors/

Loans and Advances and correspondingLoans and Advances/Current liabilitiesremain unascertainable for non availabilityof detailed information from the Company.This requires rectification.

Noted for further improvement.

For SALARPURIA JAJODIA & CO. (S. K. Chakraborty)Chartered Accountants, Chief of Finance

HEC Ltd.

(Lalan Kumar)M.No. 75101PARTNER

Place : Ranchi

Date : The 18th day of August, 2009

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AUDITORS REPORT TO THE MEMBERS(As referred in paragraph 1 of our report of even date)

AUDITORS REPORT REPLIES

1. In respect of its fixed assets:

(a) The Company has generally maintained proper records to showparticulars of fixed assets including quantitative details andsituation of assets except furniture and fixture, office equipmenton the basis of available information.

Noted

(b) The Fixed Assets of the company (except building) havebeen physically verified in all units by an outside CharteredAccountant Firm during the year .However, some of the assets

were not located during the course of physical verification andit was not dealt by the Company.

These assets were movablein nature and therefore,there is no fixed location

of these assets, These areused in various places as perrequirement of the differentusers in the shop.

(c ) In our opinion and according to the information and explanationsavailable to us, the Company has not disposed off substantialpart of fixed assets during the year, which would affect thegoing concern status of the Company.

No comments

2. In respect of its inventories:

(a) Stock of raw materials and stores and spares have beenphysically verified by an outside Chartered Accountant firm

during the year. The procedure of physical verification of rawmaterials and stores and spares need improvement consideringthe size of the Company and nature of its business.

Physical verification of rawmaterials, stores and spares

have been done in al lplants.

(b) In our opinion, present system of SPL accounting i.e. accountingof items of different value having different specifications in samematerial code needs thorough review. Further, separate recordswere not maintained for indigenous and imported stores andspares in some units.

Noted. Further separateaccounting records suchas issue voucher as wellas certified receipt voucherhave been maintained foridentifying the indigenous andimported items.

(c ) In our opinion and according to the information and explanations

given to us and based on our examination of the records ofinventory we have to state that company has maintainedproper records of its inventory. As explained to us, there werediscrepancies noticed on physical verification of inventory ascompared to the book records and it has been adjusted duringthe year by way of suitable provision.

Steps have been already been

initiated for improvement

3(a) The Company has not granted any loans secured or unsecuredto any companies, firms or other parties covered in theRegister maintained under Section 301 of the CompaniesAct,1956. Accordingly clause 4(iii)(b) to (d) of the order arenot applicable.

No comments

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(b) The Company has not taken any loan secured or unsecuredfrom any companies, firms or other parties covered in the

Register maintained under Section 301 of the CompaniesAct,1956. Accordingly clause 4(iii)(f) to (g) of the order are notapplicable.

No comments

4. On the basis of checks carried out during the course of auditand as per explanations given to us, we are of the opinion thatthe internal control system are generally adequate but needto be strengthened to make the same commensurate withthe size of the company and nature of its business relating topurchase of inventory and fixed assets and for sale of goodsand services. Some of the major areas where internal controlsystem in operation needs to be strengthened and strictlyadhered to are as follows:

Noted. Action has alreadybeen taken for improvement.

a) Outstanding balances in Capital Work in Progress;

b) Regularisation of invoices relating to unbilled debtors;

c) Inclusion of goods although dispatched but transfer of title tothe buyer is yet to complete as per agreement in sales

d) Stores pricing, codification and grouping;

e) Accountal of goods in transit

f) Account of expenses in correct account code

g) Payment of expenses in some cases after sanction/postfacto sanction of appropriate authority

h) Payment of transporting charges to transporters withoutproper verification about type of vehicle for bills / gatepass.

5. In respect of transactions covered under Section 301 of theCompanies Act, 1956:

(a) According to the information and explanation given to us,in our opinion the Company has entered particulars ofcontracts or arrangements referred to in Section 301 of theAct in the register maintained under that Section.

(b) According to the information and explanation given to us,

in our opinion transactions made in pursuance of suchcontracts or arrangements have been made at prices, whichare reasonable having regard to the prevailing market pricesat the relevant time.

No comments

No comments

6. The Company has not accepted deposits from the public withinthe meaning of Section 58A and 58 AA or any other relevantprovisions of the Companies Act, 1956 and the rules framedthere under.

No comments

7. Internal audit of the company was carried out by an outsidechartered Accountant Firm during the year. However, consideringthe size of the company and nature of its business, it needs

more coverage of financial transactions.

Noted. Covered vast areaslike plants, HQrs, Township,Branch Offices to the extent

possible.

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8. As explained to us by the Management, the Central Governmenthas not prescribed maintenance of Cost records under section

209(1)(d) of the Companies Act, 1956 for the products of theCompany.

No comments

9.a. According to the information and explanations given by theCompany, undisputed statutory dues including Provident Fund,Income Tax, Sales Tax, Wealth Tax, Service Tax, CustomsDuty, Excise Duty, Cess and other statutory dues are generallydeposited regularly and no undisputed dues were outstandingas at 31st March, 2009 for a period of more than six monthsfrom the date of becoming payable except the cases whichare stated below.

Due to stringent financialcondition these statutoryl iabil it ies could not bedischarged in time.

9.b. According to the information and explanations given by theCompany, there is no disputed dues of Income Tax, Sales Tax,Wealth Tax, Service Tax, Custom Duty, Excise, Cess that havenot been deposited on account of matters pending beforeappropriate authorities except the cases which are stated asbelow.

D isc losed in Notes onaccounts.

Name of the Statute Nature of Dues Amount Period to which the amount

relates

Bihar Finance Jharkhand Sales Tax 28639798 Feb,03 to March,06

Act,1981 Central Sales Tax 85208177 Jan,03 to March,06

Bihar Electricity

Duty Act, 1948

Electricity Duty 1603316 Oct,01 March,02

3023786 Apri l,02 Mar,03

3176112 April,03 March,04

3506787 April,04 to March,05



Municipal tax Act Municipal Tax 5550000 Jan, 1999 to Dec, 05As informed to us Investor Education and Protection Fund and Employees State Insurance Act arenot applicable to the Company.

Sl.No. Statutes Commiss ioner/JCCT/Appeals/

CTO (Rs.)

Tribunal (Rs.) Total (Rs.)

1 Jharkhand Sales Tax 33767000 5060000 38827000

2 Central Sales Tax 58039000 6775000 64814000

3 Provident Fund - 950153513 950153513

4 Excise Duty - 63198187 63198187

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10. The Accumulated loss of the Company as on 31st march,2009exceed 50% of its net worth. The company has not incurred

cash losses during the current financial year covered by ouraudit and also in the immediately preceding financial year.

As per Accounts of thecompany, it transpires that

company has earned a CashProfit of Rs. 32.62 croresduring the Financial year2008-09.

11. Based on our audit procedures and according to the informationand explanations given to us, we are of the opinion that theCompany has not defaulted in repayment of dues to financialinstitutions, banks or debenture holders. However the companywas defaulter in payment of loan to Govt. of India and as perlatest sanction, the loan was converted into equity.

No comments.

12 According to the information and explanations given to us, the

company has not granted any loan or advances on the basisof security, by way of pledge of shares, debentures and othersecurities.

No comments

13. In our opinion, the Company is not a chit fund or a Nidhi/Mutual benefit fund/society. Therefore, clause 4(xiii) of theCompanies (Auditors Report) Order, 2003 is not applicable tothe Company.

No comments

14. The Company has not done any transactions for trading inShares, securities, debentures and other investments during thefinancial year under audit.

No comments

15 The Company has not given guarantees for loans taken by

others from Banks or financial institutions, the terms andconditions, whereof, in our opinion, are prima facie prejudicialto the interest of the company.

No comments

16. According to the information and explanation given to us andon an overall examination of the Balance Sheet of the Company,We are of the opinion that the term loans were applied for thepurpose for which the loans were obtained.

No comments

17 According to the information and explanation given to us andon an overall examination of the Balance Sheet of the Company,We report that no funds raised on short-term basis have beenused for long-term investment by the Company.

No comments

18 During the year the Company has not made any preferentialallotment of shares.

No comments

19 The Clauses 4(xix) & (xx) of the Companies (Auditors Report)Order, 2003 are not applicable to the Company.

No comments

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20 During the course of our examination of the books and recordsof the company carried out in accordance with the generally

accepted auditing practices in India, and according to theinformation and explanation given to us, we have neither comeacross any instances of fraud on or by the company, noticedor reported during the year, nor we have been informed ofsuch case by the Management except an instance of fraud inHMBP against the company. The quantum of fraud could notbe assessed as matter is under investigation by the VigilanceDepartment of Company.

No comments

For SALARPURIA JAJODIA & CO.

Chartered Accountants

(S. K. Chakraborty)

Chief of Finance /HEC Limited

(Lalan Kumar)

M.No. 75101

PARTNER

Place: Ranchi

Dated: The 18th day of August,2009.

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Comments of the Comptroller & Auditor General of India under Section

619(4) of the Companies Act, 1956 on the Accounts of Heavy Engineering

Corporation Limited for year ended 31st March, 2009

The preparation of financial statements of Heavy Engineering Corporation Limited for the

year ended 31st March, 2009 in accordance with the financial reporting framework prescribed

under the Companies Act, 1956 is the responsibility of the management of the company. The

statutory auditor appointed by the Comptroller and Auditor General of India under Section 619 (2)

of the Companies Act, 1956 is responsible for expressing opinion on these financial statements

under section 227 of the Companies Act, 1956 based on independent Audit in accordance

with the auditing and assurance standards prescribed by their professional body the Institute

of Chartered Accountants of India. This is stated to have been done by them vide their Audit

Report dated 18th August, 2009.

I, on the behalf of the Comptroller and Auditor General of India have conducted a

supplementary audit under Section 619 (3) (b) of the Companies Act, 1956 of the financial

statements of Heavy Engineering Corporation Limited for the year ended 31st March, 2009.

This supplementary audit has been carried out independently without access to the working

papers of the statutory auditors and is limited primarily to enquiries of the statutory auditors

and company personnel and a selective examination of some of the accounting records. On

the basis of my audit nothing significant has come to my knowledge which would give rise to

any comment upon or supplement to Statutory Auditors report under Section 619 (4) of the

Companies Act, 1956.

(Rakesh Mohan)

Principal Director of Commercial Audit

& Ex-Officio Member Audit BoardRanchi

Place : Ranchi

Dated : 25th September, 2009

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HEAVY E

Ranchi - 834004

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1 The Financial statements have been preparedas of a going concern on historical costconvention and on accrual method ofaccounting in accordance with the generallyaccepted accounting principles.

2 FIXED ASSETS

Fixed assets (Other than land acquired freeof cost from State Government) are carriedat the cost of acquisition or constructionless accumulated depreciation

Land acquired free of cost from StateGovernment is valued of Rs.1/- per acre.

3 INVENTORY VALUATION

i) Inventory is valued at actua l /estimated cost or net realiasable value,whichever is lower.

ii) Finished goods and work in progressare valued at actual /estimated factorycost or net realiasable value whicheveris lower.

iii) Raw material, components, loose tools,stores & spares are valued at weightedaverage cost.

iv) I t ems that a re not o rd in ar i lyinterchangeable and goods or servicesproduced & segregated for specificprojects By specific identification ofindividual cost.

v) Rejection and scrap/used as rawmaterial for production is valued atclosing book rate.

vi) Bye products are valued at marketprice.

vii) The percentage of completion ofwork in progress is taken as certifiedby Shop management on technicalassessment .

viii) Loose tools, Drawing instruments,etc. issued to shops are carried toinventory after writing off in 4 yearsin case of ordinary tools, in 10 years

in case of special tools, in 2 years

SIGNIFICANT ACCOUNTING POLICIES

in case of Moulds and on estimatedlife in case of other items. Patternsare charged out in the year of issueitself. Only quantitative records aremaintained in respect of these itemsin shops floor, wherever practicable.

4 REVENUE RECOGNITION

i) Sales are recorded when significantrisks and rewards of ownership aretransferred to the customers. Part

supplies against long term contractsfor which bills have been raised areaccounted for at contract price orprovisional price. In case of dispatchesfor which challans and gate passeshave been issued but bills are notraised, sales are accounted for atcontract or provisional prices asunbilled sales.

ii) Escalations on contracts are accountedfor as per the terms of relevant

contact to the extent ascertained withreasonable certainty though these aresubject to confirmation/acceptanceby customers. Variation is accountedfor when there is provision in contractor evidence of acceptance by thecustomer.

iii) Sales are accounted for inclusive ofexcise duty but exclusive of salestax.

5 LONG TERM TURNKEY CONTRACTS

i) Revenue recognition

Revenue is recognized on percentagecompletion method based on the percentageof actual cost incurred up to the reportingdate to the total estimated cost of thecontract.

Income from supply/ erection of equipment/system and civil works is recognized basedon dispatches to customers and works doneat Project Site. Works executed but not

measured/part executed at the end of the

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year are accounted for based on certificationby the Engineers at Project Site.

ii) Valuation of Work-in-progress :Expenditure incurred from year toyear limited to the certified value ofwork done against the contract valueincluding escalation less amountcredited to sales against the respectivecontract, is accounted for as WIP.

iii) The necessary provision for losses, ifany, on work to be done is made.

6 PROVISION FOR WARRANTY

A provision of 0.5% on sales is made forliabilities under contractual obligations/warranties. Expenses on warranties/contractualobligation are accounted for against naturalheads in the year of incurrence.

7 EMPLOYEES BENEFITS

Long term employee benefits (benefits whichare payable after the end of twelve monthsfrom the end of the peri

HEC_2008_09

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