Shri B. Mukherjee - HPCL Biofuels Ltd · The Sugar unit at Sugauli was put ... Shri B. Mukherjee is a fellow member of the Institute of Chartered Accountants of India. He joined in

Shri B. MukherjeeDirector

Shri S. Roy ChoudhuryDirector

Shri K. MuraliDirector

Shri Deepak Kumar Hota

Shri R. S. PandeyChairman

BOARD OF DIRECTORS

CHIEF EXECUTIVE OFFICER AND "MANAGER"

2nd Annual Report 2010-2011

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DIRECTORS' REPORT

Dear Shareholders,

Your Directors are pleased to present the Second Annual Report and Audited Accounts for the financial year ended31st March, 2011.

FINANCIAL PERFORMANCE

Summary of financial performance is given as under:

For the year ended For the period31/03/2011 16.10.2009 to

31/03/2010(` in '000s) (` in '000s)

Income from Operations — —

Other Income 2879 97

Total Expenses 51382 14263

Profit / (Loss) beforecharging Interest and Depreciation (48503) (14166)

Depreciation 22850 —

Pre-Incorporation Expenses — 13164

Profit / (Loss) (71354) (27330)

Provision for Taxes 01 22

Profit / (Loss) carried to Balance Sheet (71355) (27352)

DIVIDEND

Since the company has not commenced commercial operations, Directors have decided not to declare any dividend for the year.

RESULTS OF OPERATIONS

Your Company has acquired two sick Sugar Units namely Sugauli & Lauriya East & West Champaran Dist. of Bihar for revival,from Government of Bihar (GoB) as of date the Company has acquired 287.37 acres of land at Sugauli & 195.44 acres atLauriya. Government of Bihar (GoB) has allotted 173 villages as Cane command area of at Suguali and 139 villages at Lauriyafor Cane Development activities.

The project is being set up for installation of 3500 TCD integrated Sugar, 60 KLPD Ethanol & 20 MW Co-gen power plant, eachat Sugauli and Lauriya for production of Sugar, Ethanol & Co-gen. All the major approvals for commissioning of plants atSugauli and Lauriya have been obtained.

Sugar Plant

Sugar Plant being set up by the Company is the most automated Sugar Plant in North India. The Sugar unit at Sugauli was putto trial run on 28th February 2011 and on 11th March 2011 at Lauriya. Your company is the first Company in India to have themodel (South Africa designed) chainless hydraulic based Diffuser which has been designed in South Africa. The units are nowfully ready for the ensuing crushing season i.e. Nov 2011 to March 2012.

Ethanol

The process unit equipments trial with steam was completed. Commissioning of plant will be done in coming Crushing seasoni.e. Nov 2011- to March 2012 on availability of Cane-juice & Molasses.

Co-gen Plant

Boiler commissioned on low pressure to ensure commissioning of Sugar Plant. Turbine has been Installed and Commissioningand Power generation is schedule to start in the coming crushing season i.e. Nov 2011- to March 2012. BSEB grid is now readyto receive power and also to supply the start-up power for plants operations.

CREDIT RATING

Your company has been successful in obtaining a rating of 'A+' for the year for the term loan taken by them. This is the bestrating for a startup sugar mill in their first year.

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INSURANCE

Necessary insurance coverage of all the assets during the construction phase has been obtained and maintained by the Company.

AUDITORS

M/s Ajay Kishore & Company, Chartered Accountants, existing Statutory Auditors, appointed by Comptroller & Auditor General

of India (C&AG) will retire at the conclusion of the ensuing Annual General Meeting.

CLEAN DEVELOPMENT MECHANISM (CDM)

As the Co-gen Power Plant will operate on Biomass fuels, the exportable power qualifies for emission trade under Clean

Development Mechanism (CDM) under KYOTO Protocol. Accordingly your company has taken necessary steps to get the

plant inspected and certified for the benefits. The Company expects to get the CDM benefits post the first year operations.

AUDIT COMMITTEE

The Audit Committee of your Company has carried out functions in accordance with section 292A of the CompaniesAct, 1956.

SAFETY, HEALTH AND ENVIRONMENT

Health, Safety and Environment management is of paramount importance and it is integral part of all activities carried out

at Company's both the Plants i.e. at Sugauli & at Lauriya. Your Company had accident free operations during the period

under review.

Your Company has acquired all environmental approval & permission for its operations. The company has ensured that the

employees are trained in safe operations of the plants, through the EPC Contractors.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to section 217(2AA) of the Companies Act, 1956, your Directors states :

A) In the preparation of Annual Accounts, applicable Accounting Standards have been followed and that there were no

material departures.

B) The Company has selected such Accounting Policies and applied them consistently and made judgments and estimates

that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on 31st March,

2011 and of the Profit and Loss account of the Company for the year ended on that date.

C) The Company has taken proper and sufficient care for the maintenance of adequate accounting records in accordance

with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and

detecting fraud and other irregularities.

D) These Accounts have been prepared on a going concern basis.

DIRECTORS

The Board of Directors of the Company presently comprises of Shri R S Pandey, Shri S Roy Choudhury,Shri B Mukherjee and Shri K Murali.

Shri R S Pandey joined the Board as Non-executive Chairman of the Company on 6th August, 2010 and approved by the

members at the First Annual General Meeting.

As per the provisions section 256 of the Companies Act, 1956, Shri S Roy Choudhury and Shri B Mukherjee will be the

Directors who will retire by rotation at the Annual General Meeting and are eligible for reappointment.

PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGEEARNING/ OUTGO AS PER COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS)RULES, 1988

In accordance with the requirements of Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure ofParticulars in the report of the Board of Directors) Rules, 1988 statement showing the particulars with respect to conservation

of energy, technology absorption and foreign exchange earnings and outgo is annexed and forms part of this report.


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PARTICULARS OF EMPLOYEES

In terms of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975,none of the employees was in receipt of remuneration exceeding the limits prescribed.

ACKNOWLEDGEMENTS

The Directors gratefully acknowledge the valuable guidance and support extended by the HPCL, Department of SugarcaneIndustries, BSEB, BSPCB, Government of Bihar, other State Government Agencies, Ministry Of Environment & Forest(New Delhi), Airport Authority of India Ltd., Ministry of Consumer Affairs and Food & Public Distribution (Govt. of India).

Your Directors also wish to place on record their appreciation for the dedicated services rendered by the employees of theCompany including those deputed by HPCL.

On behalf of the Board of Directors

Place: New Delhi R S PandeyDate: 12th August, 2011 Chairman

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A. CONSERVATION OF ENERGY

(a) The Company is a green field project and will be undertaking manufacture of Sugar, Ethanol and Cogen Power fromcrushing of sugar cane at Sugauli & Lauriya, in the State of Bihar.

(a) Impact of measures taken for reduction of energy consumption would be assessed after detailed study in thenext year.

B. TECHNOLOGY ABSORPTION

1. Specific areas in which R & D carried out by the company.

Your company has signed the MoU with Tamil Nadu Agricultural University (TNAU), Coimbatore on 20.08.2009 forCane Development activities at Sugauli and Lauriya and carried out the following activities:

(a) Technology for improving cane yield per hectare and its recovery.

(b) Intercropping options based on local needs.

(c) Introduction of high yielding varieties of seeds for maximizing ethanol production.

(d) Developing model farm in our captive land.

(e) Continuous education and up gradation program for farmers.

(f) Setting up of soil testing laboratory.

2. Future plan action.

The above initiatives would continue

3. Expenditure on R & D. 2010-11 2009-10

Towards the cane development activities & seed multiplication amounting to ` 18,00,000/- ` 15,00,000/-

TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

1. Efforts in brief, made towards technology absorption, adaptation and innovation.

Plants are under construction and will have the following technologies

(a) Cane Diffusion technology

(b) Manufacturing of Ethanol directly from Sugarcane Juice

(c) Molecular sieve technology

2. Benefits derived as a result of the above efforts.

Benefits will be derived after commencement of production.

3. Information regarding Technology imported during the last 5 years.

(a) Details of technology imported and year of import.

No technology has been imported.

(b) Has technology been fully absorbed, and if not fully absorbed, areaswhere this has not taken place, reasons thereof and future plans of action.

N.A.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO2010-11 2009-10

(a) Activities relating to exports; initiatives taken to increase exports;developments of new export markets for products and services;and export plans.

Nil Nil

(b) Total foreign exchange used and earned.

Total foreign exchange usedConsultancy services/others Nil Nil

Total foreign exchange earnings Nil Nil

ANNEXURE TO DIRECTORS' REPORT


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CORPORATE GOVERNANCE REPORT

Corporate Governance refers to set of laws, regulations and good practices that enable an organization to perform efficientlyand ethically to generate long term wealth and create value for its stakeholders. Your Company recognizes that good CorporateGovernance is a continuous exercise and adopts the best Corporate Governance Practices in order to maintain transparency,accountability and ethics in line with good governance parameters set by its the promoter Company, Hindustan PetroleumCorporation Limited.

CORPORATE INFORMATION

Corporate Identity Number : U24290BR2009GOI014927

PROFILE OF DIRECTORS

Shri R S PandeyNon-executive Chairman

Shri R. S. Pandey is a 1972 batch Indian Administrative Service (IAS) officer (Nagaland cadre). He was Secretary, Ministry of Petroleum& Natural Gas Secretary, Government of India. He also held position of Secretary to Ministry of Steel, Government of India.

Shri R. S. Pandey joined HPCL Biofuels Limited effective 6th August 2010 as Non-executive Chairman.

Shri R. S. Pandey had served various key assignments including Secretary, Ministry of Parliamentary Affairs, Additional Secretary,Department of Agriculture and Cooperation, Chief Secretary, Government of Nagaland, etc. He has also served as Joint Secretaryin the Department of Education (Ministry of HRD), Govt. of India where his important assignments included being in-charge ofDistrict Primary Education Program (DPEP) and National Program Director of Basic Education Program. He was also JointSecretary in the Member of Welfare, Govt. of India and Secretary, National Council of Education and Research and Training(NCERT). He has also held important positions in his cadre as advisor to Governor of Nagaland, Secretary, Industries andCommerce Department, Director of Education etc.

Shri S. Roy ChoudhuryNon-executive Director

Shri S. Roy Choudhury is a Mechanical Engineer from the University of Assam. He commenced his career in the PetroleumIndustry with Assam Oil Company, Digboi, a subsidiary of Burma Oil Company. He joined in HPCL Biofuels Limited since itsinception as Director.

Shri S. Roy Choudhury is Chairman & Managing Director of HPCL effective August 2010. Prior to this he was Director,Marketing of HPCL from May 2004 to July 2010. He has vast experience in holding various positions in Refinery, Marketing(Operations), Projects and Sales Divisions of HPCL.

Among his major achievement, he is credited with creating a Pipelines Division in HPCL and successfully completed severalPipeline Projects and was responsible for smooth transition from APM to Non-APM era in the area of Product Supplies andDistribution.

Shri B. MukherjeeNon-executive Director

Shri B. Mukherjee is a fellow member of the Institute of Chartered Accountants of India. He joined in HPCL Biofuels Limitedsince its inception as Director.

Shri B. Mukherjee is Director Finance of HPCL since 1st February 2008. He has a wide exposure to the Petroleum Industryspanning over 30 years in the areas of Finance, Internal Audit and HR in Hindustan Petroleum Corporation Limited. He iscredited with steering the major strategy initiative called Balanced Scorecard at HPCL. He is also a Director on the Board ofPetronet India Ltd., a Joint Venture Company of HPCL.

Mr. K. MuraliNon-executive Director

Shri K. Murali is a Chemical Engineer. He joined in HPCL Biofuels Limited since its inception as Director.

Shri K. Murali is Director - Refineries of HPCL effective February 02, 2009. Prior to this he was the Executive Director (Refineries)at HPCL.

Shri K. Murali started his career with erstwhile Caltex Oil Company at Visakhapatnam, which was later merged with HPCL. Hehas wide experience in refinery operations. During his long career spanning more than 30 years, he has handled variouscritical positions including as head of both the refineries of HPCL at Mumbai and Visakhapatnam.

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He was instrumental in strategizing and preparing the detailed Project Report for Guru Gobind Refinery, a green field refineryproject located at Bhatinda, Punjab.

SHAREHOLDING

HPCL Biofuels Limited is wholly owned subsidiary company of Hindustan Petroleum Corporation Limited.

DETAILS OF BOARD MEETINGS

During the year ended 31st March, 2011 Eight(8) meetings of the Board of Directors took place, details of the same are as givenunder; the Company has held at least one meeting in every quarter and the time gap between two board meetings were muchlower than 120 days prescribed under Clause49. The details are as follows:

Meeting Date of Meeting Total Strength Directors Duration between twoNo. of the Board Present Board meetings

6 27th April, 2010 3 2 68 Days

7 21st May, 2010 3 2 24 Days

8 14th July, 2010 3 3 54 Days

9 29th July, 2010 3 3 15 Days

10 6th August, 2010 4 3 08 Days

11 23rd September, 2010 4 4 48 Days

12 26th October, 2010 4 3 30 Days

13 27th January, 2011 4 4 93 Days

The overall attendance of Directors at the Board meetings was 88%. It is proposed to introduce tele/video-conferencingfacilities in order to ensure participation of Directors in the deliberations of all meetings of the Board.

Conduct of Board proceedings

The day-to-day business is conducted by the CEO of the Company under the superintendence, control and direction of theBoard of Directors. The Board holds periodic meetings to review and discuss the performance of the Company, review ofoperations and other pertinent issues relating to the Company.

DETAILS OF AUDIT COMMITTEE MEETING

Meeting No. Date of Audit Committee Total Strength Members Present Location

2 27th April, 2010 3 2 Mumbai

3 21st May, 2010 3 2 Mumbai

4 29th July, 2010 3 3 Mumbai

5 26th Oct., 2010 3 3 Delhi

Compliance

The Company monitors the compliance of applicable Laws, Regulations and Rules including the Companies Act, 1956 and allapplicable Corporate Laws. Confirmation of such compliance is placed before the Board at regular intervals.

Last Annual General Meeting

Meeting No. Meeting Date Location

1 10th December, 2010 Patna


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AUDITOR'S REPORT

TO THE MEMBERS OF HPCL BIOFUELS LIMITED

1. We have audited the attached Balance Sheet of HPCL BIOFUELS LIMITED (the company) as at 31st March 2011, the Profitand Loss Account and also the Cash Flow Statement of the company for the year ended on that date, annexed thereto.These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinionon these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003, as amended by the Companies (Auditor’s information)(Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section (4A) of Section 227 ofthe Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of thesaid Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

(a) The accounts adopted by the Board on 6th May 2011 have been revised as given in Para 16 of the Notes on account.This is the revised report on revised accounts;

(b) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessaryfor the purposes of our audit;

(c) In our opinion, proper books of account as required by law have been kept by the company, so far as appears fromour examination of those books;.

(d) The Balance Sheet, the Profit & Loss account and the cash flow statement dealt with by this report are in agreementwith the books of account;

(e) In our opinion, the Balance Sheet, the Profit & Loss Account and the cash flow statement dealt with by this report,comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956;

(f) In the absence of any notification from the Central Government with respect to the Cess payable underSection 441(A) of the Companies Act, 1956, no quantification is made. Hence no opinion is given on Cess unpaid, asper the provision of section 227(3)(g) of the Companies act, 1956.

(g) In our opinion, and to the best of our information and according to the explanations given to us, the said accounts,read together with the notes thereon, and the Accounting Policies give the information required by the CompaniesAct, 1956, in the manner so required gives a true and fair view in conformity with the accounting principles generallyaccepted in India:-

(i) In the case of the Balance Sheet, of the state of affairs of the company as at 31st March 2011,

(ii) In the case of the Profit and Loss account, of the loss of the company for the year ended on that date; and.

(iii) In the case of Cash Flow Statement, of the Cash Flows of the company for the year ended on that date.

For AJAY KISHORE & CO. Chartered Accountants.

(CA Ajay Kishore Jha) Partner

Place: Mumbai Membership No.: 055086Date: 24/05/2011 Firm’s ICAI Reg. No. : 005899C

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ANNEXURE TO THE AUDITOR'S REPORT

(Referred to in paragraph 3 of our report of even date on the accounts of HPCL BIOFUELS LIMITED, for the year ended

31st March 2011)

1. (a) The company has maintained the records showing full particulars including quantitative details and situation of

fixed assets;

(b) As explained to us, the fixed assets have been physically verified by the management at reasonable intervals and no

material discrepancies were noticed on such verification;

(c) There was no substantial disposal of fixed assets during the year which would affect the going concern status of

the company;

2 (a) Physical verification of inventory have been conducted by the management at reasonable intervals;

(b) We found that an inventory statement was prepared at the year end by the management for material to be used in

during trail run.

(c) The company is maintaining records of inventory and it is observed and explained that expenses incurred during test

runs as an indirect element of construction cost for experimental production has been shown as inventory at NRV and

would be used further for test run only and capitalized at the time of commercial production at cost.

3. (a) The company has not granted any loan to the Companies, firms and other parties covered in the Register maintained

under Section 301 of the Companies Act, 1956.

(b) The company has not taken any loan from parties covered in the Register maintained under Section 301 of the

Companies Act, 1956.

4. In our opinion and according to the information and explanations given to us, there is internal control system commensurate

with the size of the company and the nature of its business.

5. Company has not entered into any contracts which are required to be disclosed in the register required to be maintained

in Section 301 of the Companies Act 1956.

6. The company has not accepted any deposits from the public within the meaning of section 58A and 58AA or any other

relevant provisions of the Act, the rules framed there under and the directives issued by the Reserve Bank of India.

7. Internal audit of the company is conducted by the internal audit department of Hindustan Petroleum Corporation Ltd, the

holding company. Internal audit system of the company is commensurate considering its size and the nature of its business.

8. According to the information and explanations given to us, the Central Government has prescribed maintenance of cost

records under section 209 (1)(d) of the Companies Act, 1956 in respect of Sugar Industry vide notification no 388(E) dated

15.07.1997 but as the Plant & Machineries are still under installation and the Company has not started Commercial

production, hence the cost records have not been maintained by the Company.

9. The company has been generally regular in depositing undisputed statutory dues of income tax (TDS), Sales Tax, Service

tax, and any other statutory dues with the appropriate authorities and has provided the contingent liability for disputed

dues as principal employer.

10. As the company has been registered for a period of less than five years, the provisions of Para 4 (x) of the Order are not

applicable to the company.

11. Company has not made any default in payment of interest on term loan from bank. Repayment of dues to bank not yet

started because of moratorium period.

12. Based on the documents and records produced to us, the company has not granted loans and advances on the basis of

security by way of pledge of shares, debentures and other securities.

13. The company is not a chit fund or a nidhi / mutual benefit fund/ society. Accordingly, Para 4 (xiii) of the order is not

applicable.

14. The company has not dealt in or traded in shares, securities, debentures and other investments during the period, and

accordingly, the provisions of Para 4(xiv) of the Order are not applicable to the company during the year.

15. According to the information and explanations given to us, the company has given a corporate guarantee to State Bank of

India for extending credit facilities to sugar cane farmers. In our opinion, the terms and conditions are not prejudicial to

the interests of the company.

16. The Company has applied and obtained term loans during the year from Union Bank of India, for Sugauli and Lauriya

project and total outstanding balance of Term Loan as on 31.03.2011 is ` 289.92 Crores.

17. No funds were raised by the company on short-term basis which have been used for long term investment.

18. The company has not made any preferential allotment of shares to parties and companies covered in the Register to be

maintained under section 301 of the Companies Act, 1956.

19. The company has not issued any debentures during the year.

20. The company has not raised any money through a public issue during the year.

21. According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported

during the year.

For AJAY KISHORE & CO.

Chartered Accountants.

(CA Ajay Kishore Jha)

Partner

Place: Mumbai Membership No.: 055086

Date: 24/05/2011 Firm’s ICAI Reg. No. : 005899C


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Balance Sheet as at 31st March, 2011

PARTICULARS SCHEDULE As at 31.03.2011 As at 31.03.2010

Amount (`) Amount (`)

Source of Funds

Shareholders’ FundsEquity Share Capital A 2,055,200,000 1,000,000,000Advance against Equity pending Allotment — 641,600,000Reserves and Surplus B — —Loan fundsSecured Loan C 2,899,222,744 —Unsecured Loan D 1,074,600,000 —

Deferred Tax Liability (Net) E — —

Total 6,029,022,744 1,641,600,000

Application of FundsFixed AssetsGross Block F 931,262,257 5,160,139Less : Depreciation / Amortisation 22,999,572 148,747

Net Block 908,262,685 5,011,392

Capital Work In Progress G 5,049,315,448 2,004,915,743Current Assets, Loans and AdvancesInventories H 24,779,595Sundry Debtors I —Cash and Bank Balances J 326,780,044 6,387,970Loans and Advances K 485,241,763 919,323

836,801,402 7,307,293

Less: Current Liabilities and ProvisionsLiabilities L 864,064,334 402,964,772Provisions M — 21,876

864,064,334 402,986,648

Net Current Assets (27,262,931) (395,679,355)

Miscellaneous ExpenditurePre-incorporation Expenses to the extent not written off N —Profit & Loss Account 98,707,542 27,352,220

98,707,542 27,352,220

Total 6,029,022,744 1,641,600,000

Significant Account Policies XNotes attached to and forming part of the Statement of Accounts Y

Schedules referred to above form an integral part of the Balance SheetAs per our report of even date attached For and on behalf of the BoardFor Ajay Kishore & CoChartered Accountants

(CA A K JHA) (B Mukherjee) (S. Roy Choudhury)Partner Director DirectorMembership No.055086Firm’s ICAI Reg.No. 005899 C

Place : Mumbai (G P Meena) (B Rajesh) (Heena Shah)Date : 24/05/2011 Chief Finance Officer CEO & Manager Company Secretary

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Schedules referred to above form an integral part of the Balance SheetAs per our report of even date attached For and on behalf of the BoardFor Ajay Kishore & CoChartered Accountants



Profit and Loss Account for the year ended 31st March, 2011

For the For the PeriodYear ended 16/10/2009 to

31/03/2011 31/03/2010


PARTICULARS SCHEDULE

Income

Sales / Income from Operations O — —Other Income P 2,879,663 97,795

Total 2,879,663 97,795

Expenditure(Increase) / Decrease in Stock of Finished Goods Q (8,989,032) —Packing Materials Consumed R — —Operating Expenses S — —Administrative Expenses T 19,093,842 5,527,760Selling and Distribution Expenses U — —Bank Charges V 65,533 2,711,513Cost of Employees W 41,211,983 6,024,696

Total 51,382,326 14,263,969

Profit/(Loss) before Depreciation and Tax (48,502,663) (14,166,174)

Depreciation F 22,850,825 —Pre-Incorporation Expenses Written off N — 13,164,170

Profit/(Loss) before Tax (71,353,488) (27,330,344)

Provision for Tax - Current Tax 21,876— Deferred Tax Charge E — —— In respect of earlier years 1,834 —— Fringe Benefit Tax — —

Profit/(Loss) after Tax (71,355,322) (27,352,220)

Balance brought forward from previous year (27,352,220) —Balance available for appropriation — —AppropriationProposed Dividend — —Tax on Proposed Dividend — —Transfer to General Reserve — —Balance carried to Balance Sheet (98,707,542) (27,352,220)

Total (98,707,542) (27,352,220)

Number of Equity Shares of ` 10 each 205,520,000 100,000,000Earnings per Share - Basic and Diluted — —Schedules M to V form an integral part of the Profit and Loss Account

Significant Account Policies XNotes attached to and forming part of the Statement of Accounts Y


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Schedules forming part of the Balance Sheet

As at 31.03.2011 As at 31.03.2010


SCHEDULE ASHARE CAPITAL

Authorised25,00,00,000 Equity Shares of `10 each. 2,500,000,000 2,500,000,000

Issued, Subscribed and paid up20,55,20,000 Equity Shares of `10 each fully paid up 2,055,200,000 1,000,000,000

2,055,200,000 1,000,000,000

Notes:-1) Of the above 20,55,20,000 equity shares were allotted to the holding company

“Hindustan Petroleum Corporation Ltd” except 6 equity shares which wereallotted to 6 nominees of the holding company.

2) Of the above paid up Capital of ` 2,055,200,000/- `1,51,68,25,525 wasreceived in cash after adjustment of ` 53,83,74,475/- (` 49,17,15,248 towardspreliminary & pre-incorporation expense and ` 4,66,59,227 towards otherexpenses) incurred by HPCL, holding company on behalf of HPCL Biofuels Ltd.

SCHEDULE BRESERVES AND SURPLUS

Add: Transfer from Profit and Loss Account — —

— —

SCHEDULE CSECURED LOANS (AGAINST HYPOTHECATIONOF FIXED ASSETS & CURRENT ASSETS)

UBI - Suguali Project 1,448,449,871 —UBI - Lauriya Project 1,450,772,873 —

2,899,222,744 —

SCHEDULE DUNSECURED LOANS

HPCL Bridge Loan 1,074,600,000 —

1,074,600,000 —

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18

Schedules forming part of the Balance Sheet (Contd.)

As at 31.03.2011 As at 31.03.2010


SCHEDULE GCAPITAL WORK IN PROGRESS (AT COST)

(A) Payment for Leasehold Land and Appurtenant

Suguali 50,00,00,000

Lauriya 45,00,00,000

Total 95,00,00,000

Less: Income from Sale of Scrap 4,13,47,196 — 908,652,804

(B) Advance to Contractor for Capital Expenditure 116,942,427 815,506,779

(C) Unallocated Capital Expenditure 4,515,347,099 230,434,902

(D) Construction period Expenses Pending Apportionment

Project Consultancy Expenses 48,634,009 16,261,480

Cost of Baggasse 36,854,529 —

Bank Charges-Processing fee 25,405,000 —

Cane Purchase 9,925,679 —

Chemicals 2,883,794 —

Genset Hiring 56,996,742 —

Fuel Exp & Firewood 10,628,379 —

Insurance 6,841,078 —

Interest Expense 139,595,514 —

Lease Rental 1,067,000 330,000

Contract Wages & Site Expenses 26,480,031 2,745,618

Maintenance & Repair Expenses 19,006,706 8,580,571

Security Advisor Fee 927,476 480,000

Security Service 8,544,809 2,581,069

Taxi Hire Expenses 7,098,781 2,324,204

Travel Expenses 2,154,788 666,742

Establishment Expenses 16,202,827 16,202,827

Depreciation 148,747 148,747

Recoverable Amount from Trial Production-Sugar & Molasses -2,369,965 —

Sub Total 417,025,923 50,321,258

Total 5,049,315,448 2,004,915,743

SCHEDULE HINVENTORIES

Packing Materials (At Cost) 8,989,032 —Sugar (NRV) 1,766,215 —Molasses (NRV) 603,750 —Process Chemicals 3,189,622 —Lubricants 1,873,526 —Fire & Fuels 8,357,450 —

24,779,595 —

SCHEDULE ISUNDRY DEBTORS

— —

— —

19

SCHEDULE JCASH & BANK BALANCES

Cash and Cheques on hand 888,872 —Balance with Scheduled Banks:In Current Accounts 325,891,172 6,387,970Fixed Deposit — —

326,780,044 6,387,970

SCHEDULE KLOANS AND ADVANCES

(Unsecured, considered good)Tax Deducted at Source on Fixed Deposit with Bank 360,324 5,180CENVAT - Credit unutilized 363,846,461 —Entry Tax Advance 11,184,700 —Advance to Employees 151,536 —Advance to Vendors 5,724,226 —Entry Tax Recoverable from IJT 42,111,348 —Road Map Scheme 788,440 —Advance to BSEB 56,734,615 —Advances to Cane Growers 4,264,113 914,143Advance Lease Rent 76,000 —

485,241,763 919,323

SCHEDULE LCURRENT LIABILITIES

Payable to EPCC Contractor 758,107,898 22,357,707Operating Expenses Payable to HPCL 1,624,742 24,047,691Accrued Expense - Payable 73,882,715 118,113,737Duties & Taxes — —Provident Fund Payable — —WCT Payable 668,023 —CST Payable — —TDS Payable 10,634,352 930,637Payable to Zone Development Council 153,996 —Payable to Cane Growers 1,012,125 —Retention from Vendors 17,191,068 —Security Deposit from Contractors 789,415 15,000Payable to Govt of Bihar — 237,500,000

864,064,334 402,964,772

SCHEDULE MPROVISIONS

Provision for Income Tax — 21,876Income Tax earlier Years — —

— 21,876

SCHEDULE NPRE-INCORPORATION EXPENSES TO THE EXTENT NOT WRITTEN OFF

Pre-Incorporation Expenses — 13,164,170Less: Pre-Incorporation Expenses Written off — -13,164,170

— —

Schedules forming part of the Balance Sheet (Contd.)

As at 31.03.2011 As at 31.03.2010



20

SCHEDULE OSALES/INCOME FROM OPERATIONS

— —

— —

SCHEDULE POTHER INCOME

Interest on Fixed Deposit 2,879,663 51,795Miscellaneous Income — 46,000

2,879,663 97,795

SCHEDULE QINCREASE/DECREASE IN STOCK

Increase in Stock (8,989,032) —

(8,989,032) —

SCHEDULE RPACKING MATERIALS CONSUMED

— —

— —

SCHEDULE SOPERATING EXPENSES

Operating Expenses — —

— —

SCHEDULE TADMINISTRATIVE EXPENSES

Cane Advisor Fees 688,464 400,000Cane Development Expense 5,486,172 3,343,298Purchase of Sugar Bags 9,162,733 —Review & Conference — 206,544Salary & Wages — 971,971Statutory Fees & Taxes 2,418,843 222,045Electricity Charges 79,710 —Telephone & Fax 103,860 122,001Printing & Stationery 958,328 120,719Postage & Telegram 32,520 2,040Sitting Fees 86,000 —Auditor Remuneration– Audit Fees 77,210 33,090– Tax Audit Fees– Certification Fees — —– Other Services — —– Reimbursement of Expenses — —Land Lease Payment 2 2Legal & Consultation Fees — 106,050

19,093,842 5,527,760

Schedules forming part of the Profit and Loss Account


31/03/2011 31/03/2010Amount (`) Amount (`)

21

Schedules forming part of the Profit and Loss Account (Contd.)


31/03/2011 31/03/2010Amount (`) Amount (`)

SCHEDULE USELLING AND DISTRIBUTION EXPENSES

Transportation Charges (Freight outward) — —

— —

SCHEDULE VBANK CHARGES

Bank Charges 65,533 2,711,513

Interest — —

65,533 2,711,513

SCHEDULE WCOST OF EMPLOYEES

Salaries and Wages [of personnel on deputation from HPCL] 27,912,547 6,011,729

Salary to HBL Employees 7,408,700 —

Employees other Allowances 64,503 11,600

Employees Recruitment & Training 5,826,233 1,367

41,211,983 6,024,696


22

SCHEDULE – X: SIGNIFICANT ACCOUNTING POLICIES FOR THE YEAR 2010-11

STATEMENT OF ACCOUNTING POLICIES:

The financial statements are prepared under historical cost convention in accordance with Generally Accepted Accounting Principles (GAAP),Accounting Standards referred to in the Companies (Accounting Standards) Rule, 2006 issued by the Central Government and the relevantprovisions of the Companies Act, 1956. All income and expenditure having material bearing are recognized on accrual basis, except whereotherwise stated. Necessary estimates and assumption of income and expenditure are made during the reporting period and differencebetween the actual and the estimates are recognized in the period in which the results materialize.

1. FIXED ASSETS

a. Land acquired on lease for 99 years or more is treated as freehold land. Land acquired for less than 99 years is treated as lease hold land.

b. Fixed Assets are carried at cost less accumulated depreciation.

2. INTANGIBLE ASSETS

a. Costs incurred on technical know-how/license fee relating to process design/plants/facilities are capitalized as Intangible Assets.

b. Cost of Software directly identified with hardware is capitalized along with the cost of hardware. Application software is capitalizedas Intangible Asset.

3. CONSTRUCTION PERIOD EXPENSES ON PROJECTS

a. Expenditure directly or indirectly related with the project, during construction period, start-up and commissioning of the projectare capitalized.

b. Preliminary, pre-incorporation and pre-operative expenses not capitalized in line with AS 26, are recognized as expense asand when incurred.

4. DEPRECIATION

a. Depreciation on Fixed Assets is provided on Straight Line method, in the manner and at the rates prescribed under Schedule XIV tothe Companies Act, 1956 and is charged pro rata on a monthly basis on assets, from/up to and inclusive of the month of capitalization/sale, disposal or deletion during the year.

b. All assets costing up to ` 5000/- are fully depreciated in the year of capitalization.

c. Premium on leasehold land is amortized over the period of lease. The lease rent is charged in the respective year.

d. Machinery Spares, which can be used only in connection with an item of fixed asset and the use of which is expected to beirregular, are depreciated over a period not exceeding the useful life of the principal item of fixed asset.

e. Intangible Assets other than application software are amortized on straight line basis over the useful life of the parent asset.

f. Application software are normally amortized over a period of four years, or over its useful life, whichever is earlier.

5. IMPAIRMENT OF ASSETS

At each balance sheet date, an assessment is made of whether there is any indication of impairment. An impairment loss is recognizedwhenever the carrying amount of assets of cash generating units (CGU) exceeds their recoverable amount.

6. PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

6.1 A provisions is recognized when there is a present obligation as a result of a past event and it is probable that an outflow ofresources will be required to settle the obligation in respect of which reliable estimate can be made.

6.2 No provision is recognized for:

(i) Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence ornon-occurrence of one or more uncertain future events not wholly within the control of the company.

(ii) Any present obligation that arises from past events but is not recognized because

a. It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

b. A reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as contingent liabilities. These are assessed at regular intervals and only that part of theobligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in theextremely rare circumstances where no reliable estimate can be made.

6.3 Contingent Assets are not recognized in the financial statements as this may result in the recognition of income that maynever be realized.

7. TAXES ON INCOME

a. Provision for current tax is made in accordance with the provisions of the Income Tax Act, 1961.

b. Deferred tax on account of timing difference between taxable and accounting income is provided by using tax rates and tax lawsenacted or substantively enacted as at the balance sheet date.

8. EMPLOYEE BENEFITS

In respect of provident fund, the contribution for the period is recognized as expenses and charged to Profit & Loss Account. Short termemployee benefits are recognized as an expense at an undiscounted amount in the profit & loss account of the year in which relatedservices are rendered.

Retirement benefits of the employees will be recognized from the year in which they will confirm.

9. INVENTORY COST

Cost of inventory is recognized at purchase cost or net realizable value whichever is lower. Cost is arrived at by using weighted averagemethod and includes all costs of purchase. Cost of conversion and other costs including in bringing the inventories to their presentlocation and condition.

Statement of Significant Accounting Policies and Notes forming part of accounts

23

SCHEDULE - Y: NOTES ON ACCOUNTS FOR THE YEAR 2010-11

A wholly owned subsidiary company ‘HPCL Biofuels Ltd’ has been incorporated by holding company Hindustan Petroleum Corporation Ltd,

a Government company under Companies Act, 1956, on 16th October, 2009 at Patna to set up Integrated Sugar, Ethanol & Co-gen Power

Plants at Sugauli in East Champaran District and Lauriya in West Champaran District in Bihar at a total cost of ` 613.54 Crores. Total cost of

the project has been revised to ` 727.88 Crores during the current financial year.

Each of the above plant will have crushing Capacity of 3500 TCPD, Distillery capacity 60 KLPD and Co-gen capacity of 20 MW. 50% juice

will be converted to Sugar and 50% juice will be converted to Ethanol.

EPCC contractor has completed the trial run of the sugar plants at both the locations which only ensures the mechanical completion of the

plants. Commercial run is not yet completed which would be done later. Ethanol & Co-gen plants at both the locations yet to be commissioned

and trial and commissioning activities are under process.

1. Lease hold land

The holding company, Hindustan Petroleum Corporation Ltd, had executed on 18/01/2009 Lease Deeds (not registered so far) as lessee

with Bihar State Sugar Corporation Ltd (the Bihar State Govt. undertaking) as the lessor for the sugar units at Lauriya (Dist: West

Champaran, Bihar) and at Sugauli (Dist: East Champaran, Bihar) and its properties (including lease hold land of 195.44 acres and 289.37

acres respectively) with all rights, easements and appurtenances thereto, except and reserving unto the lessor all mines, minerals in and

under the said land or any part thereto, for establishing factories or manufacturing of Ethanol, allied sugarcane, agriculture related

products, cogeneration and other petroleum products for ` 45 crores and ` 50 Crores respectively.

The Lease of the land is for 60 years subject to renewal at the option of either party for a period 30 years thereafter without any payment

obligation of the lessee other than the rent of ` 2 per annum.

Payment towards 4th and final installment of Leasehold Land was made on 31st March 2011. Hence Land is amortized for 802 days since

the date of lease dated 18th January 2009 to 31st March 2011.

2. Inventory

Molasses & Sugar produced during the trial production will be used next year in the process of test run only. The test runs are yet to

be completed. NRV has been taken on the basis of its realizable value. Molasses value of ` 6,03,750/- (Being apportioned cost of test

runs is ` 5,46,44,561/-) and Brown/sub Standard Sugar value of ` 17,66,215/- (Being apportioned cost of test runs is

` 5,46,44,561/-).

3. Equity Share Capital

Out of the ` 205.52 Crs received as equity from holding company Hindustan Petroleum Corporation Ltd, ` 151.68 Crs was received in

cash (Fund transfer) and balance ` 53.84 Crs was the amount of payment made by the holding company on behalf of the company.

4. Secured Loan

Company has taken Term Loan of ` 289.92 Crs from Union Bank of India which is secured by equitable mortgage/hypothecation of

Land, Building and Fixed Assets of the company.

5. CENVAT Credit

In terms of accounting standard 9 on “Revenue Recognition” the Cenvat credit will be recognized as income in the year the company

starts selling its products when there will be full certainty of CENVAT credits.

6. Capitalization

As per AS 10 construction cost can be capitalized only when asset is in working condition for its intended use. During the year trialswere under taken at both the Sugar plants. However, production during trial runs was not feasible in commercial terms. It has been

confirmed by the Accenture Project Monitoring Consultant that Sugar plants are not ready for commercial production. It was also

reconfirmed by EPC contractors that turbine, ETP, are not ready. Start up power which is to be provided by the BSEB grid is not in place.

In view of above, the construction costs were not capitalized during the current financial year.

7. Depreciation

Depreciation on fixed assets has been debited to Profit & Loss Account during the year.

8. Cash Flow Statement

The cash flow statement by indirect method set out in AS 3 on cash flow statements and presents the cash flows by operating, investing

& financing activities of the company. Cash & cash equivalent presented in the cash flow statement consist of balance in the Bank

account and cash in hand.

Statement of Significant Accounting Policies and Notes forming part of accounts (Contd.)


24

9. Deferred Tax Assets/Liabilities

Unabsorbed depreciation and carry forward of losses during the year which can be set off against future taxable income are also

considered as timing differences and result in deferred tax assets, subject to consideration of prudence.

As per provisions of Accounting Standard 22 (AS-22) deferred tax has not been recognized in accordance with the accounting conceptof prudence. Though, there is deferred tax liability but it is not warranted hence not incorporated in the accounts.

(In `)

Particulars As on 01.04.2010 For the year As on 31.03.2011

As per As per As per As per As per As per Difference DeferredCompanies Income Companies Income Companies Income Tax Assets/

Act Tax Act Act Tax Act Act Tax Act (Liabilities)

Plant & Machinery 87,568 3,12,629 5,02,726 16,75,117 5,02,726 16,75,117 11,72,391 3,62,269

Furniture & Fixtures 53,743 1,37,235 2,02,409 1,37,235 2,02,409 4,37,057 2,34,648 72,506

Computers & Printers 7,436 33,131 1,07,627 33,131 1,07,627 7,46,817 6,39,190 1,97,510

Total 1,48,747 4,82,995 8,12,762 18,45,483 8,12,762 28,58,990 20,46,228 6,32,285

10. Employee Benefits

All the Employees of HPCL Biofuels Ltd. (the Company) are on probation and their salary structure and other benefits are yet to befinalized. Hence reliable estimate or provision amount can’t be made in this year.

11. Remaining Contracts/Contingent Liabilities & Management Remuneration etc

SL Description Amount(` in Crs)

A. Estimated amount of contracts remaining to be executed on capital account not provided for 81.98

Total 81.98

B. Claims against the company not acknowledged as debts Nil

C. Other Contingent Liabilities

(i) Performance Guarantee issued to Govt of Bihar for Sugauli Unit given by HPCL 6.95

(ii) Performance Guarantee issued to Govt of Bihar for Lauriya Unit given by HPCL 7.08

(iii) Corporate Guarantee given to the State Bank of India for Agriculture Financingarrangement with farmers 2.00

(iv) As per EPC contract IJT has to pay Entry Tax but party has approached to the court and court decisionis awaited. If decision of court goes against the company then a liability will arise. 8.50

(v) As a principal employer company has deducted money from EPC contractors in lieu of nonsubmission of proper document for compliance of PF. If company has to pay the same then interestliability may arise in future. Amount of ` 6.55 Crs is calculated on basis of 12% interest &17% penalty. This amount is recoverable from EPC contractors from BGs. 6.55

Total 31.08

D. Managerial Remuneration

Salary & Allowances

(Chief Executive Officer on deputation from HPCL. The amount represents remuneration from HPCLand debited to the company. The salary includes salary, company contribution to PF, LFA, Bonus, medical,gratuity & leave encashment ) 0.21

E. Expenditure in Foreign Currency Nil

F. Earning in Foreign Currency Nil

G. C I F Value of imports during the year Nil

H. Information on each class of goods purchased, sold and stocks during the year Nil


25


12. Related parties

Nature of relationship Name of related parties

Promoters Hindustan Petroleum Corporation Ltd

Key Management personnel Shri B Rajesh (CEO)

Relative of key Management personnel Nil

Details of transaction between the company and related party:

Nature of transaction HPCL

Issue of equity share capital (Equity shares of ` 10 each) 41,36,00,000/-

Bridge Loan availed from HPCL (Outstanding as on 31/03/2011 ` 107.46 Crs) 220,00,00,000/-

Interest Paid during the year to HPCL 7,96,30,466/-

Purchase of Lubes from HPCL-DSRO 44,81,882/-

Amount payable for Expenses incurred on behalf of the Company 16,24,742/-

Manpower cost of employees on deputation and establishment expenses 2,79,12,547/-

13. Micro, Small & Medium Creditors

The company has no sundry creditors falling under the Micro, Small & Medium Enterprises Development Act 2006.

14. Provision for Income Tax

As company has incurred losses during the current financial year, no provision for income tax has been made.

15. Cane Development Expenditure

Cane development expenditure is net of sale of seeds and fertilizer.

16. Revise Annual Accounts

The Annual Accounts adopted by the Board on 6th May 2011 have been revised in view of suggestions from the Comptroller and AuditorGeneral of India as under:

a. Current Liabilities Increased by ` 1,92,26,351/-

b. Inventories Increased by reducing the Capital Work-in-progress ` 1,57,90,563/-

c. Amortization of Land has been done by ` 2,20,38,063/- and rectification made in gross block of fixed assets.

d. Net Increase in Expenditure by ` 2,20,10,584/- resulting in increase of Loss by ` 2,20,10,584/-.

17. Previous year figures have been rearranged / regrouped where ever necessary.

18. Figures have been rounded off to nearest rupee.


26

Cash Flow Statement for the Year Ended 31st March 2011

2010-11 2009-10

PARTICULARS AMOUNT (`) AMOUNT (`) AMOUNT (`)

(A) CASH FLOW FROM OPERATING ACTIVITIES

1. NET PROFIT/(LOSS) BEFORE TAX AND EXTRAORDINARY ITEMS (71,355,322) (27,330,344)

(i) Depreciation 22,850,825

(ii) Preliminary Expenses written off — 13,164,170

(iii) Tax payment of last year in C/Y (21,876)

(iv) Interest Income (2,879,663) 19,949,286 (51,795)

2. OPERATING PROFIT/(LOSS) BEFORE WORKING CAPITAL CHANGES (51,406,036) (14,217,969)

(i) Working Capital Changes —

(ii) Decrease in Current Assets (Except Cash & Cash Equivalents) — —

(iii) Increase in Current Liabilities 461,099,562 402,964,772

(iv) Decrease in Current Liabilities — —

(v) Increase in Current Assets (Except Cash & Cash Equivalents) (493,311,472) (32,211,910) (919,323)

3. CASH GENERATED FROM OPERATIONS BEFORE TAX (83,617,946) 387,827,480

(i) Income Tax Paid —

(ii) Tax Refund Received — — —

4. CASH FLOW BEFORE EXTRAORDINARY ITEMS (83,617,946) 387,827,480

Less: Extraordinary Items- Incorporation Expenses — (13,164,170)

5. Misc Expenditure (Last year P&L balance) — —

NET CASH OUTFLOW FROM OPERATING ACTIVITIES AFTER TAX &EXTRAORDINARY ITEMS

(83,617,946) 374,663,310

(B) CASH FLOW FROM INVESTING ACTIVITIES

(i) Interest Received 2,879,663 51,795

(ii) Purchase of Fixed Assets & Investments (926,102,118) (5,160,139)

(iii) Capital Work in Progress - Project Management Expenses (3,044,399,705) (3,983,412,723) (2,004,766,996)

(iv) Inventory from Trial Production (15,790,563)

NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES (3,983,412,723) (2,009,875,340)

(C) CASH FLOW FROM FINANCING ACTIVITIES

(i) Proceeds from Issue of Shares 413,600,000 1,000,000,000

(ii) Loan Taken 3,973,822,744

(iii) Advance against Equity pending Allotment — — 641,600,000

NET CASH INFLOW FROM FINANCING ACTIVITIES 4,387,422,744 1,641,600,000

(D) NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS (A+B+C) 320,392,074 6,387,970

(E) Add: Cash & Cash Equivalent at 01.04.2010 6,387,970

(F) Cash & Cash Equivalent as at 31.03.2011 326,780,044 6,387,970

As per our report of even date attached For and on behalf of the BoardFor Ajay Kishore & CoChartered Accountants



27

I Registration Details

Registration No. U 2 4 2 9 0 B R 2 0 0 9 G O I 0 1 4 9 2 7 State Code 0 3

Balance Sheet Date 3 1 . 0 3 . 2 0 1 1

II Capital raised during the year (Amount in ` Thousands)

Public Issue Rights Issue

N I L N I L

Bonus Issue Private Issue

N I L 4 1 3 6 0 0 . 0 0

III Position of Mobilisation and Deployment of Funds (Amount in ` Thousands)

Total Liabilities Total Assets

6 0 2 9 0 2 2 . 0 0 6 0 2 9 0 2 2 . 0 0

Sources of Funds:

Paid-up Capital Reserves and Surplus

2 0 5 5 2 0 0 . 0 0 N I L

Secured Loans Unsecured Loans

2 8 9 9 2 2 2 . 0 0 1 0 7 4 6 0 0 . 0 0

Advance against equity Deferred Tax Liability

N I L N I L

Application of Funds:

Net Fixed Assets Investments

9 0 8 2 6 2 6 . 8 5 N I L

Net Current Assets Misc. Expenditure

( 2 7 2 6 2 . 9 3 ) N I L

Accumulated Losses

9 8 7 0 7 . 5 4

IV Performance of the Company (Amount in ` Thousands)

Turnover Total Expenditure

2 8 7 9 . 6 6 5 1 3 8 2 . 3 3

Profit / (Loss) Before Tax Profit / (Loss) After Tax

( 7 1 3 5 3 . 4 9 ) ( 7 1 3 5 5 . 3 2 )

Earning per Share (In `)

N e g a t i v e

Balance Sheet Abstract and Company’s General Business Profile

INFORMATION PURSUANT TO PART IV OF THE SCHEDULE VI OF THE COMPANIES ACT, 1956


28

Schedules referred to above form an intergral part of the Balance SheetAs per our report of even date attached For and on behalf of the BoardFor Ajay Kishore & CoChartered Accountants



V Generic Names of Three Principal Products of Company (As per monetary terms)

Item Code (ITC) 1 7 0 1 9 1 0 0

Product Description S u g a r

Item Code (ITC) 2 9 2 2 1 9 2 0

Product Description E t h a n o l

Item Code (ITC) 9 8 0 1 0 0 1 3

Product Description C o - g e n P o w e r

29

COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 619(4) OF THE

COMPANIES ACT, 1956 ON THE ACCOUNTS OF HPCL BIOFUELS LIMITED FOR THE YEAR ENDED

31 MARCH 2O11.

The preparation of financial statements of HPCL Biofuels Limited for the year ended 31 March 2011 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/auditors appointed by the Comptroller and Auditor General of India under

Section 619(2) of the Companies Act, 1956 is/are 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 24 May 2011.

I, on 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 HPCL Biofuels Limited for the year ended

31 March 2011. This supplementary audit has been carried out independently without access to the working papers

of the statutory auditors and is limited primarily to inquiries of the statutory auditors and company personnel and a

selective examination of some of the accounting records. The financial statements of the Company have been revised

by the management to give effect to some of my audit observations highlighted during supplementary audit as

indicated in the Note No. 16 of the Notes on Accounts (Schedule Y). In addition, I would like to highlight the

following significant matters under section 619 (4) of the Companies Act, 1956 which have come to my attention

and which in my view are necessary for enabling a better understanding of the financial statements and the related

Audit Report:

Comments on Financial position

Balance Sheet

Application of Funds

Capital work in Progress: ` 504.93 crore (Schedule-’G’)

1. This includes an amount of ` 0.61 crore, being prepaid insurance beyond 31st March 2011 which should have been

shown as a current asset under Loans & Advances. This has resulted in overstatement of Capital Work in Progress

and understatement of Current Assets-Loans & Advances by ` 0.61 crore.

Fixed Assets - Schedule F

Leasehold Land - Gross Block - ` 90.27 crore

2 (a). The above leasehold land represents land admeasuring 484.81 acres and capitalized in the books of the Company

during the year in respect of which lease deeds were executed in favour of the Holding company (Hindustan

petroleum Corporation Limited) as lessee on 18 January 2009 for 60 years subject to renewal at the option of

either party for a period 30 years thereafter without any payment obligation of the lessee other than the rent of

` 2 per annum (Refer Note No.1 of Schedule Y - Notes on Accounts). The lease deeds had not been registered

in the name of the Company as at the balance sheet date. (The lease deeds were registered in the name of the

Company on 28 May 2011).


30

(b) During the year, the Company has charged to the Profit & Loss Account an amount of ` 2.20 crore towards

amortisation of the above leasehold land from l8 January 2009 to 31 March 2011 considering the lease tenure

for 90 years. However, as per the terms and conditions of lease deed, the land is given on lease for 60 years

and the Company follows the policy of amortizing the lease premium on lease hold land over the period of

lease {significant Accounting policy No.4 (c), (Schedule X)}. Further, the amortization up to 31 March 2010

should have been treated as prior period amortization expenditure. Amortization on the basis of 90 years' lease

tenure instead of the existing 60 years and accounting for the entire amortization in the current year has

resulted in understatement of Prior Period Expenditure by ` 1.81 crore, overstatement of current year's

Depreciation/Amortisation by ` 0.70 crore with consequent overstatement of Net Block of Assets and

understatement of net loss for the year (after prior period items) by ` 1.11 crore.

For and on the behalf of the

Comptroller & Auditor General of India

Archana P. Shirsat

Principal Director of Commercial Audit

& ex-officio Member, Audit Board-II, Mumbai

Place : Mumbai

Date : 2 August 2011

COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA (Contd.)

31

REPLIES TO PROVISIONAL COMMENTS UNDER SECTION 619(4) OF THE COMPANIES ACT 1956,ON THE ACCOUNTS OF HPCL BIOFUELS LTD FOR THE YEAR 2010-11

Sr. No. Provisional Comment

Balance Sheet1 Application of Funds

Capital work in progress ` 4.93 Crs (Schedule 'G')

This includes an amount of ` 0.61 crore, being prepaidinsurance beyond 31st March 2011 which should havebeen shown as a current asset under Loans & Advances.This has resulted in overstatement of Capital Work inProgress and understatement of Current Assets-Loans &Advances by ` 0.61 crore.

2 Fixed Assets - Schedule F

Leasehold Land - Gross Block ` 90.27 Crs

(a) The above leasehold land represents land admeasuring484.81 acres and capitalized in the books of thecompany during the year in respect of which lease deedswere executed in favour of the Holding Company(Hindustan Petroleum Corporation Limited) as lessee on18th January 2009 for 60 years subject to renewal at theoption of either party for a period 30 years thereafterwithout any payment obligation of the lessee other thanthe rent of ` 2 per annum (Refer Note No.1 of ScheduleY - Notes on Accounts) The lease deeds had not beenregistered in the name of the Company as at the balancesheet date. (The lease deeds were registered in the nameof the company on 28 May 2011).

(b) During the year, the Company has charged to the Profit& Loss Account an amount of ` 2.20 crore towardsamortisation of the above leasehold land from 18 January2009 to 31 March 2011 considering the lease tenure for90 years. However, as per the terms and conditions oflease deed, the land is given on lease for 60 years andthe company follows the policy of amortizing the leasepremium on lease hold land over the period of lease{Significant Accounting Policy No. 4 (c), (Schedule X)}.Further, the amortization up to 31 March 2010 shouldhave been treated as prior period amortizationexpenditure. Amortization on the basis of 90 years' leasetenure instead of the existing 60 years and accountingfor the entire amortization in the current year has resultedin understatement of Prior Period Expenditure by` 1.81 crore, overstatement of current year 'sDepreciation / Amortisation by ` 0.70 crore withconsequent overstatement of Net Block of Assets andunderstatement of net loss for the year (after prior perioditems) by ` 1.11 crore.

For and on Behalf of C&AG of India

Archana P. ShirsatPrincipal Director of Commercial Audit &

Ex-officio member, Audit Board -II, MumbaiMumbai02.08.2011

Company’s Reply

Since Sugar, Ethanol & Sugar Plants are not ready for commercialproduction and handed over to the Company by the EPCCcontractors, capitalization of the same has not been done as of31st March 2011. Accordingly insurance premium has been shownin Capital work in Progress since the policy has been taken duringthe construction period. The exact date of capitalization is notknown and so it is not possible to bifurcate the premium at thisstage. Hence there is no overstatement of Capital work in Progressand understatement of Loan & Advances.However, at the time of capitalization of plant & machinery,proportionate Insurance premium will be capitalized and thebalance will be debited in Profit & Loss Account.This observation has no impact on the Profit & Loss for the Year.

As per para 1 of part-II terms & conditions of the Lease Deedagreement as well as para 7 (m) the Land is given on lease for aperiod of 60 years to the Lessee (HPCL Biofuels Ltd., theCompany) by the Lessor (BSSCL) subject to renewal option ofeither Party for a period of 30 years thereafter without anypayment obligation of the Lessee (the Company) other than thelease rent of ` 2/- per annum.

It is also to be noted that there is nothing in the lease agreementfor Govt of Bihar to reject the option of the Company for renewal.Hence further renewal option for another 30 years after completionof 60 years lease tenure is a definite certainty.

Further there is no condition and no enhancement in LeasePremium for renewal of lease for another 30 years, therefore it isvery clear that effective lease period is 90 years and the Companywill exercise the renewal option for 30 years without any doubt.Accordingly amortization of Leasehold Land has been done for802 days (18th January 2009 to 31st March 2011) for consideringlease period 90 years.

Therefore, it is clear that the period of lease under the leaseagreement is 90 years and not 60 years as contended and suchperiod has been considered for amortization of the lease premium.

Hence, there will be no impact on (i) depreciation / amortizationfor the year, (ii) accumulated depreciation/amortization up toMarch 2011, (iii) Loss for the year and Overstatement of Net Blockof Assets as on 31st March 2011.

Necessary accounting adjustment is being carried out in 2011-12.

For and on Behalf of Board of Directors

R S PandeyChairman

New Delhi12.08.2011


32

Notice of Second Annual General Meeting

NOTICE is hereby given that the Second Annual General Meeting of HPCL Biofuels Limited will be held at the registered officeof the Company on Friday, September 16th, 2011 at 03.30 P.M. to transact the following business:

Ordinary Business:

(1) To consider and adopt the Audited Balance Sheet as at 31st March, 2011, the Profit & Loss Account for the year ended onthat date and the Reports of Board of Directors and Auditors thereon.

(2) To appoint a Director in place of Shri. S. Roy Choudhury who retires by rotation and being eligible offers himself forreappointment.

(3) To appoint a Director in place of Shri B Mukherjee who retires by rotation and being eligible offers himself for reappointment.

(4) To appoint Singh Dikshit & Co., Chartered Accountants as Statutory Auditors of the Company appointed by C&AG to holdoffice from conclusion of this Annual General Meeting until the conclusion of next Annual general meeting of the Companyfor auditing the Accounts of the Company for the Financial Year 2011-12 at remuneration of ` 70000/- (Rupees SeventyThousand only) as fixed by the Board of Directors.

SPECIAL BUSINESS

(5) To consider and if thought fit to pass, with or without modification(s) the following resolution as an Ordinary resolution:

"RESOLVED THAT in terms of the Article 123 of the Articles of Association of the Company, in accordance with theprovisions of Sections 198, 269, 387 and all other applicable provisions, if any, read with Schedule XIII to the CompaniesAct, 1956, and subject to all such sanctions, as may be necessary, the consent of the Company be and is herebyaccorded to the appointment of Shri Deepak Kumar Hota as the Manager of the Company, to be designated as CEO, fora period of one year commencing from 26th July, 2011 or conclusion/completion of deputation or withdrawal ofdeputation by HPCL whichever is earlier, on the terms and conditions including remuneration as set out in the explanatorystatement attached to the notice, so as not to exceed the limits specified in Schedule XIII of the Companies Act, 1956or any amendments thereto.

RESOLVED FURTHER THAT the Director/s of the Company be and is hereby authorized to alter, vary and modify the saidterms of appointment and/or remuneration in such manner as may be agreed to between the Chairman and Shri DeepakKumar Hota within and in accordance with and subject to the limits prescribed in Schedule XIII to the Companies Act,1956, including any amendment or statutory modification thereto for the time being in force."

By Order of the Board of Directors

Heena ShahPlace: New Delhi Company SecretaryDated: 12.08.2011

Registered Office:

No. 271, Road No. 3E

Post Box No. 126 (Patna GPO)

New Patliputra Colony

Patna - 800 013, Bihar.

Notes:-

1. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of himself andthe proxy need not be a member of the Company.

2. The instrument appointing a proxy must be deposited at the Registered Office of the Company not later than forty eighthours prior to the time of commencement of the meeting.

33

3. Corporate member intending to send their authorized representative to attend and vote on their behalf at the Meeting arerequested to send an instrument of proxy duly signed by the authorized official.

4. All documents referred to in the Notice are open for inspection at the Registered Office of the Company.

5. Explanatory Statement pursuant to section 173(2) in respect of item no. 5 is enclosed and forms part of this notice.

6. Item No. 4

HPCL Biofuels Limited (HBL) is a Government Company within meaning of section 617 of the Companies Act, 1956. Interms of the provisions of section 619 of the Companies Act, 1956, Statutory Auditor(s) for a Government Company is/ areappointed by the Comptroller & Auditor General of India (C&AG).

The office of the Comptroller & Auditor General of India, vide their letter reference no. CA NO/PA-V/COY/BIHAR,HPCLBI(1)/672 dated 12/09/2011 have appointed Singh Dikshit & Co., Chartered Accountants as Statutory Auditors of the Companyfor the year 2011-12.

7. Item No. 5

The Board of Directors at their meeting held on 12th August 2011 has appointed Shri Deepak Kumar Hota as Manager ofthe Company for a period of one year w.e.f. 26-07-2011. The matter is being placed at General Meeting for considerationof shareholder to ratify the appointment and approving the remuneration payable to Shri Deepak Kumar Hota.

Shri Deepak Kumar Hota is a BA Economics Honours from St Stephen’s College, Delhi & a PG Diploma in PM&IR fromXLRI Jamshedpur and has over 28 years experience in handing various challenging assignments at different departmentsof HPCL viz; HR Head for Marketing, GM-Project ACE, GM-MRAP to name a few.

In absence or inadequacy of profits in any financial year, the remuneration as set out hereunder is considered as theminimum remuneration to Shri Deepak Kumar Hota, and is within the limits prescribed by Schedule XIII of the CompaniesAct, 1956.

The Board is of the opinion that his appointment as Manager to be designated as Chief Executive Officer (CEO) of theCompany would be in the interest of the Company and accordingly the resolution at item no. 5 of the Notice isrecommended for members’ approval. The remuneration will be paid effective date of appointment of CEO.

The sailent features of remuneration for this appointment are as set out hereunder:

Terms of Appointment

I. Remuneration:

(a) (i) Salary: ` 73,000/- p.m. with such annual/accelerated increments as may be decided by the HPCL up to anamount not exceeding ` 1,00,000 p.m.

(b) Allowances and Perquisites:

(i) Housing: provided by HPCL as per applicable policy.

(ii) Provident Fund Contribution: The Company will contribute to Provident Fund as per rules of HPCL.

(iii) Medical Expenses Reimbursement: Reimbursement of medical expenses incurred as per HPCL Medical policy

(v) Lump sum LFA - 15% of basic

(vi) Gratuity: Gratuity as per gratuity rules of HPCL.

(vii) Leave: 32 days Leave with full pay or encashment thereof as per the rules of the HPCL.

Explanation: Perquisites shall be evaluated as per Income-tax Rules, wherever applicable and in absence ofany such rule, perquisites shall be evaluated at actual cost.

(c) Amenities:

(i) Conveyance facilities: The Company shall reimburse fuel charges, driver’s salary and maintenance for car asper the rules of the Company.

(ii) Communication facilities: The Company shall reimburse telephone/ mobile expenses as per the rules ofthe Company.

(iii) Minimum Incentive: Minimum Incentive at the rate of 8.33% of basic salary per month.

(iv) Performance related pay (PRP)- subject to the profitability of HPCL. (Maximum 60% of Basic Salary.)

II. Overall Remuneration:

The aggregate of salary and perquisites, in any corporate financial year shall not exceed the limits prescribed from time totime under Sections 198, 309 and other applicable provisions of the Companies Act, 1956 read with Schedule XIII to thesaid Act as may for the time being in force.

III. Minimum Remuneration:

In the event of loss or inadequacy of profits in any financial year, Shri Deepak Kumar Hota shall be entitled to receive atotal remuneration including perquisites, etc. not exceeding the ceiling limit as approved by Remuneration Committeeand by Central Government, where necessary as Minimum Remuneration.

IV. Other Terms and Conditions:

(a) The appointment of Shri Deepak Kumar Hota as Manager will be terminable by giving two months notice, by eitherparty as per the terms of appointment. (b) The cessation as Manager of the Company shall not necessarily result incessation of employment of Mr. Deepak Kumar Hota with the Company.”

None of the Directors of the Company is concerned or interested in the resolution.

The Board of Directors recommends the resolutions for your approval as ordinary resolution.

By Order of the Board of Directors,

Heena ShahPlace: New Delhi Company SecretaryDate: 12.08.2011

Registered Office:

No. 271, Road No. 3E

Post Box No. 126 (Patna GPO)

New Patliputra Colony

Patna - 800 013, Bihar.


34

HPCL BIOFUELS LIMITED

No. 271, Road No. 3E, Post Box No. 126 (Patna GPO),New Patliputra Colony, Patna - 800 013, Bihar.

PROXY FORM

I/We of

in the district of being a Member/Members of

the above Company, hereby appoint of in

the district of or failing

him of in the

district of as my/our Proxy to attend and vote for me/us and on

my/our behalf at the 2nd Annual General Meeting of the Company to be held on Friday, 16th September, 2011

and any adjournment thereof.

Signed this day of , 2011

Registered Folio No.:

Affix Re 1/-RevenueStamp

Documents

Shri B. Mukherjee - HPCL Biofuels Ltd · The Sugar unit at Sugauli was put ... Shri B. Mukherjee is a fellow member of the Institute of Chartered Accountants of India. He joined in