(A) Sethusamudram Corporation Ltd. (SCL), a Special Purpose Vehicle was incorporated on 06.12.2004 for developing the Sethusamudram Channel Project with Tuticorin Port Trust, Ennore Port Ltd, Visakhapatnam Port trust, Chennai Port Trust, Dredging Corporation of India Ltd., Shipping Corporation of India Ltd. and Paradip Port Trust as the shareholders. SCI participated with an investment of ' 5000 lakhs (previous year ' 5000 lakhs). The dredging work is suspended from 17.09.2009 consequent upon the direction of the Hon'ble Supreme Court of India. As there is no progress in the project since then, the Management had provided for diminution towards the investment in FY 2012-13.
(B) India LNG Transport Companies No. 1 & 2 Ltd. are two joint venture companies promoted by the Corporation and three Japanese companies Viz. M/S Mitsui O.S.K. lines Ltd. (MOL), M/S Nippon Yusen Kabushiki Kaisha Ltd (NYK Lines) and M/S Kawasaki Kisen Kaisha Ltd (K Line) along with M/S Qatar Shipping Company ( Q Ship), Qatar. SCI and MOL are the largest shareholders, each holding 29.08% shares while NYK Line 17.89%, K Line 8.95% & Q Ship holds 15% respectively. The Shares held by the Corporation and other partners in the two joint venture Companies have been pledged against loans provided by lender banks to these companies. India LNG Transport Company No.1 Ltd owns and operates one LNG Carrier Disha and India LNG Transport Company No. 2 Ltd owns and operates one LNG Carrier Raahi (Refer Note no - 34).
(C) India LNG Transport Company No. 3 Ltd. is the 3rd joint venture company which owns and operates one LNG Carrier Aseem. The company is promoted by the Corporation and three Japanese partners viz. MOL, NYK Lines, K Line along with M/S Qatar Gas Transport Company (QGTC), Qatar and M/s Petronet LNG Limited (PLL), India who are the other partners. SCI and MOL are the largest shareholders with 26% share each, while NYK, K Line, QGTC and PLL hold 16.67%, 8.33%, 20% and 3% respectively. The Shares held by the Corporation and other partners in the joint venture company have been pledged against loans provided by lender banks to this company (Refer Note no - 34).
(D) India LNG Transport Company (No. 4) Pvt. Ltd. is the 4th Joint Venture Company is promoted by the Corporation and three Japanese partners viz NYK, MOL and K Line along with PLL, India. SCI, NYK and PLL are the largest shareholders with 26% share each, while MOL and Kline hold 15.67% and 6.33% respectively. The Shares held by the Corporation and other partners in the joint venture company have been pledged against loans provided by lender banks to this company. India LNG Transport Company (No. 4) Pvt. Ltd owns and operates one LNG Carrier Prachi (Refer Note no - 34).
(E) Inland & Coastal Shipping Ltd is 100 percent Subsidiary.
Nature and Purpose of other reserves
Capital Reserve: The amount of sales proceeds in excess of original cost of ships sold by the Company. This is not available for distribution of dividend but can be utilised for issuing bonus shares.
Securities Premium: The amount received in excess of face value of the equity shares is recognised in Share Premium Reserve. This is not available for distribution of dividend but can be utilised for issuing bonus shares.
General Reserve: General Reserve represents appropriation of retained earnings and are available for distribution to shareholders.
Tonnage Tax Reserve/Tonnage Tax Reserve (Utilised): This reserve is a statutory reserve as per requirement of section 115VT of the Income Tax Act, 1961 for the purpose of complying with the conditions for applicability of tonnage tax scheme.
Retained Earnings: Retained Earnings represents surplus/accumulated earnings of the Corporation and are available for distribution to shareholders.
Other comprehensive income (OCI): OCI comprises items of income and expenses (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by Indian Accounting Standards. The components of OCI include: re-measurements of
(1) On 14.03.2023, The Hon’ble ITAT Mumbai in the Company’s own case of AY 2008-09 has passed an order in favor of the Company in the matter of Interest income by ruling that the said income would be in the nature of business income i.e. core business activity and not in the nature of ‘Income from Other Sources’. Accordingly, the Company has reversed the provision for income tax for the said assessment year to the tune of ' 77 crore, consequent to the aforesaid ruling. The provision for tax in respect of FY 2021-22 and for the current year has also been revised on the basis of aforesaid ruling. The Contingent liability in respect of various assessment years which are pending before ITAT / CIT(A) has also been adjusted based on the aforesaid ruling.
(2) The following demands are not disclosed as Contingent Liability as the possibility of an outflow of resources embodying economic benefits is remote as assessed by the Company;
In case of AY 2013-14 & 2016-17 for which the assessments were re-opened and in case of AY 2017-18 for which the assessment has been completed, the Income Tax department has issued orders determining additional demand to the tune of ' 410 lakhs, ' 1,083 lakhs and ' 1,436 lakhs respectively. While going through the orders, it is noticed that there are errors in determining the income or allowing credit for tax paid. The Company has filed appeals against the said orders and is hopeful of getting the demand reversed. Further, the demands arising on account of the refunds received in the past in respect of the assessments for AY 2013-14 & 2016-17 are not considered for the purpose of disclosure as contingent liability, considering that the demands are expected to be reversed.
@ Service Tax:
(1) includes a sum of ' 1,14,728 lakhs as interest (previous year ' 97,774 lakhs).
(2) In the matter of de-novo proceedings, in respect of demand on account of Payment (reversal) of Cenvat Credit under Rule 6(3) of Cenvat Credit Rules, 2004 for the period between October 2009 to September 2014, the Principal Commissioner of CGST & C. Excise, Mumbai South vide order dated 26.04.2023 (received on 4th May 2023) has set aside the demand of service tax and also dropped the show cause proceedings for the period October 2014 to March 2016. However, the Principal Commissioner imposed the penalty of ' 173.86 crore by holding the view that the mandate of the Hon’ble CESTAT on de-novo adjudication is limited to the extent of CENVAT reversal. The Company has been advised by its legal consultant that once the Commissioner held the matter in favour of the Company, relating to principal demand, there should not have been any penalty. Accordingly, the Company has been advised to file appeal against the penalty and the process of filing appeal is in progress.
(3) During the year, the Company has received demand of ' 67.24 crore plus interest & penalty towards non-payment of service tax on expenses incurred in foreign currency for the period October 2015 to June 2017. The Company has already filed appeal in CESTAT against this demand. In similar cases in respect of previous periods from October 2009 to September 2015, the Company has filed appeal against the orders issued by the Service Tax department. The Company is of view that it has fair chance of succeeding in CESTAT taking into account the fact that service tax is leviable only in respect of prescribed services rendered in the territory of India and that the demand which has been made is relating to activity undertaken by foreign service providers from whom the Company has availed services, who do not have any office in India, have not visited India; and rendered services outside India and the said services were received, used and consumed by the Company outside India.
(4) Show Cause Notice/Demands are not considered for Contingent Liability based on merits of the cases and where the Company has obtained favourable orders in similar cases relating to other years/periods.
(a) The Company’s pending litigations comprise claims against the Company and proceedings pending with Tax / Statutory/ Government Authorities. After review of all its pending litigations and proceedings, the Company has made adequate provisions, wherever required and disclosed the contingent liabilities, wherever applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a material impact on its financial position. Future cash outflows in respect of the above are determinable only on receipt of judgments / decisions pending with various forums / authorities.
(b) A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. During the normal course of business, several unresolved claims are currently outstanding. The inflow of economic benefits, in respect of such claims cannot be measured due to uncertainties that surround the related events and circumstances.
(c) The company issued bonds of ' 61,114 lakhs to custom authorities [a(IV)] is mainly for duty free movement of Import/Export containers.
The movement of contingent liabilities from [I (a)] to [I (d)] under various categories is tabulated below:
The expected rate of return on plan assets has been estimated on the basis of actual returns of the trust in the past years. The securities of trust have an effect on the fair value of plan assets as the value of the securities vary with the changes in the market interest rates.
Actual Return on plan assets ' 1,044 lakhs (Prev. period ' 657 lakhs)
Through its defined benefit plans, the group is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility:
The plan liabilities are calculated using a discount rate set with reference to bond yields; if plan assets underperform this yield, this will create a deficit. Most of the plan asset investments is in fixed income securities with high grades and in government securities. The Company intends to maintain the above investment mix in the continuing years.
Changes in bond yields:
A decrease in bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.
Life expectancy:
The gratuity plan obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. This is particularly significant where inflationary increases result in higher sensitivity to changes in life expectancy. Contribution expected to be paid in the next year is NIL.
The weighted average duration of the defined benefit obligation is 9.82 years (2022 - 10.21 years).
(III) Tanker
Tankers segment includes both crude and product carriers, gas carriers.
(IV) T&OS
Technical & Offshore services segment includes company owned offshore vessels, offshore vessels managed on behalf of other organisations, income from technical consultancy and passenger vessels & research vessels managed on behalf of other organisations.
(V) Unallocated
Unallocable items and interest income/expenses are disclosed separately.
Expense and Revenue items are allocated vessel wise wherever possible. Expenses and revenue items that cannot be allocated vessel wise are allocated on the basis of age of the vessel i.e. (Current year - Built year) 1.
(b) Geographical Segments
Presently, the Company's operations are predominantly confined in India.
(c) Adjusted Earnings before Interest & Tax (EBIT)
Adjusted EBIT excludes discontinued operations and the effects of significant items of income and expenditure which may have an impact on the quality of earnings such as restructuring costs, impairments when the impairment is the result of an isolated, nonrecurring event. It also excludes the effects of gains or losses on financial instruments.
Interest income is not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Company.
The nature of services and its disclosure of timing of satisfaction of performance obligation is mentioned in para 1.8 of Note No. 1. Contract Assets in the balance sheet constitutes unbilled amounts to customers representing the Company’s right to consideration for the services transferred to date. Any amount previously recognised as Contract Assets is reclassified to trade receivables at the time it is invoiced to the customer.
Contract Liabilities in the balance sheet constitutes advance payments and billings in excess of revenue recognised. The Company expects to recognise such revenue in the subsequent financial years.
There were no significant changes in contract assets and contract liabilities during the reporting period except amount as mentioned in the table and explanation given above.
Trade receivables as disclosed in note no 7(d) includes contract balances. Impairment losses as disclosed in Note 37 includes receivables arising from contracts with customers.
Under the payment terms generally applicable to the Company’s revenue generating activities, prepayments are received only to a limited extent. Typically, payment is due upon or after completion of the services.
The Company generates revenue from shipping activities.Revenue from a voyage charter is recognised over time, which is determined on a percentage of voyage completion method. The Company has recognised revenue over a period of time basis following output method. Since, the Company can tracks the progress toward completion of the contract by measuring days to date relative to total estimated days needed to
satisfy the performance obligation, the percentage of voyage completion method/ straight-line basis over the period of the charter i.e. output method provide a faithful depiction of transfer of goods or services.
Note 33: LEASE
The Company as lessee has agreements/contracts relating to charter in of vessel on time basis, land, building, Cars, Photocopier machine etc. The Company as lessor has entered into agreements/contracts of out charter of vessel on time, etc. The right-of-use and lease liability are disclosed in the financial statements at note no 5 & 14 (b) respectively. The Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss.
The carrying amounts of trade receivables, trade payables, short term security deposits, bank deposits with more than 12 months maturity, cash and cash equivalents including other bank balances and other current financial assets and liabilities are considered to be the same as their fair values. Hence the current financial assets & liabilities have not been considered for Fair value hierarchy above.
The fair values of non-current borrowings (with floating rate of interest) is not impacted due to interest rate changes and will not be significantly different from their carrying amount as there is no significant change in the underlying credit risk of the Company's borrowings. The fair values of non-current borrowings (with fixed rate of interest) are based on discounted cash flows using a current borrowing rate. They are classified as level 2 fair values in the fair value hierarchy due to the use of observable inputs.
For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.
Note 37: Financial risk management
The Company has exposure to the Credit risk, Liquidity risk and Market risk.
The Company's Board of Directors has overall responsibility for the establishment and supervision of the Company's risk management
(All amounts in INR lakhs, unless otherwise stated)
framework. The Board of Directors has established the Risk Management Committee (RMC), which is responsible for developing and monitoring the Company's risk management policies. The Audit Committee oversees how management monitors compliance with the Company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
(A) Credit Risk:
(i) Credit risk is the risk of financial loss to the Company if a customer to a financial instrument fails to meet its contractual obligations. Company'sexposuretocreditriskprimarilyarisesonaccountofitsTradereceivables.Tradereceivablesconsistofalargenumberofcustomers spread across diverse geographical areas. A default on a trade receivableis considered when the customerfailsto make contractual payments within the credit period. This credit period has been determined by considering the business environment in which the Company operates. The Company considers dealing with creditworthy customers and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The credit risk due to above is periodically monitored. Based on the periodical analyses, the credit risk is managed by continuous review and follow-up.
(ii) Provision for expected credit losses (ECL):
The Company provides for expected credit loss on trade receivables based on a provision matrix. This matrix is a simplified basis of recognition of expected credit losses in case of trade receivables. The model uses historical credit loss experience for trade receivables i.e. this model uses aging analysis of trade receivables as at the reporting date and is based on the number of days that a trade receivables is past due. The aging has been done for bracket of 90 days over a period of last 3 years. Receivables that are more than 3 years old are considered uncollectible. Further, customers declaring bankruptcy or failing to engage in repayment plan with the Company, provisioning is made on case to case basis i.e. such customers do not form part of this impairment exercise and provided for separately.
(B) Liquidity risk
(i) Prudent liquidity risk management refers to the management of the Company's short term and long term funding and liquidity management requirements. The Company's treasury maintains flexibility in funding by maintaining availability of funds under committed credit lines.
Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
(ii) Maturities of financial liabilities
The tables below analyse the Company’s non-derivative financial liabilities into relevant maturity groupings based on their contractual maturities.
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. In the table below, borrowings include both interest and principal cash flows. To the extent that interest rates are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period.
Market risk is the risk that changes in market indicators such foreign exchange rates, interest rates and commodity prices will affect the Company's income or the value of its financial instruments. The Company's activities mainly expose it to risks arising from changes in foreign exchange rate and interest rate and freight/charter hire rates.
(i) Foreign currency risk
The Company operates vessels in foreign waters, earns revenues and incurs expenditure in foreign currencies, primarily with respect to USD, EURO and certain other foreign currencies. Foreign currency risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Company's functional currency (INR).
Considering the business environment in which Company operates, exposure to foreign exchange rate risk is largely managed by collection of income in foreign currencies in bank accounts abroad.
Interest rate risk is the risk that the future cash flows of floating interest bearing borrowings will fluctuate because of fluctuations in the interest rates. The Company’s main interest rate risk arises from long-term borrowings with variable rates, which expose the Company to cash flow interest rate risk.
The Company's fixed rate borrowings are carried at amortised cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.
The Company manages its interest rate risk by regularly monitoring the interest rate movement and deciding on type of interest rate i.e. fixed or fluctuating.
(iii) Freight/Charter hire risk
Shipping industry is governed by various national and international economic and geopolitical developments. Local and international demand and supply determine freight and charter hire rates. Since Company's vessels ply in international waters, it is affected by such developments. Also, bunker cost is major component of Company's cost structure and bunker prices are highly volatile. Informatively, as per GST return filed during FY 2022-23, Export Revenue of the group is ' 171,809 lakhs (previous year ' 151,814 lakhs).
Note 38: Capital management (a) Risk management
The Company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to
(b) Loan covenants
The Company has ECB loan agreements with two Banks and these banks have covenants of DSCR, total liabilities to shareholders equity and Total Fixed assets to long term secure debt. The Corporation is comfortably meeting all the financial loan covenants for both the banks for FY 2022-23.
Note 39
As per the guidelines dated 27.5.2016 issued by Department of Investment and Public Asset Management (DIPAM), MOF, GOI in respect of dividend, bonus shares, etc. the Company has an obligation to comply with these guidelines. However, the company shall take in to consideration and be guided by the provisions of the Companies Act 2013, Companies (Declaration and Payment of Dividend) Rules, 2014 and Guidance Note on Dividend & Secretarial Standard 3 (SS3) for taking necessary action appropriate and deemed fit in the circumstances. Note 40
The matter of payment of Performance Related Pay (PRP) of ' 1,103 lakhs vis-a-vis DPE guidelines w.r.t. computation of profits from core activities and non-observance of "Bell Curve” is continued since the FY 2014-15. The Action Taken Notes (ATNs) furnished by the Ministry of Ports, Shipping and Waterways (MoPSW) are yet to be examined by Committee of Public Undertakings. The Company is pursuing the matter with the aforesaid Ministry and awaiting their further instructions for resolution and final decision in the matter.
Note 41
During the quarter and year ended 31.03.2023, Hon’ble ITAT Mumbai has passed an order in favor of the company in respect of an appeal filed for A.Y 2008-09. Accordingly, the Company has reversed provision for income tax for the said assessment year consequent to the ruling. The Provision for tax for F.Y 2021-22 has also been revised on the basis of this ruling and the same has been reflected under “Tax pertaining to earlier Years”.
Note 42
The proposed strategic disinvestment of SCI is being handled by Department of Investment and Public Asset Management (DIPAM) with the engagement of Transaction Advisor. In this regard, Preliminary Information Memorandum (PIM) for inviting expression of interest was released on 22.12.2020. The Virtual Data Room is open and is being managed by the Transaction Advisor for the process of due diligence by the Qualified Interested Parties.
Note 43
The Demerger Scheme (‘the Scheme’) for hiving off the identified Non-Core assets had been approved by the SCI Board on 03.08.2021. Pursuant to the instructions of Ministry of Ports, Shipping and Waterways (MoPSW), the Company incorporated a 100 % subsidiary viz. Shipping Corporation of India Land and Assets Limited (SCILAL) on 10.11.2021 for the demerger of Non-Core assets in terms of the Scheme. The Board of SCILAL approved the Scheme on 16.11.2021. The Scheme had been approved by the stock exchange vide approval dated 02.03.2022.
Subsequent to the approval of Scheme by the Boards of SCI as well as SCILAL, assets and liabilities to be transferred to SCILAL had been categorised as “Non-Core Assets / Liabilities Held for Demerger” and consequential impact had been given in the Profit and Loss account w.r.t reversal of amortisation of deferred tax liability, depreciation and foreign exchange loss during the quarter ended 31.12.2021.
The Board of Directors of the Company in its meeting held on 06.05.2022, had approved certain modifications in the Scheme of Arrangement for Demerger of Non-Core Assets. Revised Demerger Scheme was approved by Department of Investment and Public Asset Management (DIPAM), MoPSW and by the SCILAL Board at its meeting held on 25.05.2022 and thereafter it was filed with the stock exchanges and
Ministry of Corporate Affairs (MCA). Further to filing of First Motion Petition, the MCA vide its order dated 01.09.2022, directed the Company to convene the Meetings of the Shareholders, Secured and Unsecured Creditors.
The Revised Demerger Scheme was duly approved by the requisite number of Shareholders, Secured and Unsecured Creditors of the Company in accordance with aforesaid MCA Order. Subsequently, the Company filed the Second Motion Petition requesting further orders from the MCA on 21.10.2022, pursuant to which, MCA had called for final hearing on 29.12.2022 and directed SCI to provide responses to the Objections. Thereafter, the MCA vide its order dated 22.02.2023 approved the Demerger Scheme. The Company filed FORM INC 28 with ROC on 14.03.2023 and thereby the Demerger Scheme became effective from 14.03.2023 (effective date).
"As per the Demerger Scheme and MCA order, investment of ' 1 lakh by SCI in the Shares of SCILAL stands cancelled w.e.f. 01.04.2021 (appointed date) and SCILAL shall allot equity shares to shareholders. Also, SCILAL ceased to be a subsidiary of SCI w.e.f. 01.04.2021. Further, Inter-ministerial Group (IMG) in its meeting held on 15.03.2023 decided that Maritime Training Institute(MTI) will be transferred to SCILAL as Unit/ undertaking under demerger Scheme. Pursuant to the above decision, all MTI business assets and liabilities become part of Demerger Scheme and are deemed to be transferred to SCILAL w.e.f. Appointed date i.e. 01.04.2021 at their book value. The above decision has been placed for the information of the respective Boards. Upto disinvestment of SCI, SCI will run business of SCILAL on its behalf and post disinvestment of SCI, SCILAL will run its business.
In accordance with the Demerger Scheme, all the Non-Core assets and liabilities including MTI unit/undertaking, which ceased to be assets / liabilities of SCI as at Appointed date of 01.04.2021 has been reduced from the books of accounts of the Company. Non-Core Assets and Liabilities (excluding MTI Unit/ Undertaking) were classified under “Assets / Liabilities held for Demerger” during FY 2021-22 and have been reduced from same, while MTI business assets have been reduced from the respective assets / liabilities. Retained Earnings of MTI business is adjusted from General Reserve of SCI. The financial results for F.Y 2021-22 have been restated for giving effect to the above.
As per Appendix C of Ind AS 103, for all business combinations under common controls, the financial information in the financial statements in respect of prior period should be reinstated as if business combination had occurred from the beginning of preceding period in the financial statements, irrespective ofactual date of the combination. Hence, upon transfer of Non-Core Assets / Liabilities including MTI unit/ undertaking, financial statement for the year ended 31.03.2022 have been restated.
Note 44
The Company has the practice of seeking confirmations of balances from all the parties in respect of the Trade Receivables, Trade Payables and Deposits. During the year, the Company has sent letters to all such parties seeking confirmations of balances. There are fewer responses to the confirmation requests. The company is in the process of following up with the parties for the purpose of recovery / payment of dues. In case of Trade Receivables, approx. 66% of the Total Trade receivables pertain to Government and Public Sector Undertaking Customers. While the reconciliation is an on-going process, the management does not expect any material difference affecting the financial statements of the current year due to the same.
Note 45
The Board of Directors recommended a dividend of ' 0.44/- per equity share of face value of ' 10/- each. The outgo on this account will be approximately ' 2049.52 Lakhs, subject to the approval of members at the ensuing Annual General Meeting.
Note 46
The Company is undertaking a review of all open charges as per MCA records and taking necessary action for filing of satisfaction of charges for which liability has already been discharged.
The figures of previous year have been regrouped or rearranged wherever necessary to conform to current year's presentation as per Schedule III (Division II) to the Companies Act 2013.
For Note no.1 to 48 of Standalone Financial Statements
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