3.8 Provisions and contingent liabilities
Provisions (other than for employee benefits)
The Company recognises provisions when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as interest expense.
3.8 Provisions and contingent liabilities (cont'd) Provisions (other than for employee benefits)
In the normal course of business, contingent liabilities may arise from litigation and other claims against the Company. Potential liabilities that are possible but not probable of crystallising or are very difficult to quantify reliably are treated as contingent liabilities. Such liabilities are disclosed in the notes but are not recognized.
3.9 Cash and cash equivalents
Cash and cash equivalents includes cash on hand and deposits held at call with financial institutions. Bank balances other than cash and cash equivalents includes unpaid dividend accounts and fixed deposits with maturity of more than three months but less than or equal to twelve months.
3.10 Earnings per share
The basic earnings per share is computed by dividing the net profit/ (loss) attributable to owner's of the Company for the year by the weighted average number of equity shares outstanding during reporting period.
The number of shares used in computing diluted earnings/ (loss) per share comprises the weighted average shares considered for deriving basic earnings/ (loss) per share and also the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares.
Dilutive potential equity shares are deemed converted as of the beginning of the reporting date, unless they have been issued at a later date. In computing diluted earnings per share, only potential equity shares that are dilutive and which either reduces earnings per share or increase loss per share are included.
3.11 Borrowing Cost
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
3.12 Assets held for sale
The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale/ distribution rather than through continuing
use. Actions required to complete the sale/ distribution should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the sale expected within one year from the date of classification. For these purposes, sale transactions include exchanges of non-current assets for other non-current assets when the exchange has commercial substance. The criteria for held for sale classification is regarded met only when the assets or disposal group is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales/ distribution of such assets (or disposal groups), its sale is highly probable; and it will genuinely be sold, not abandoned. The Company treats sale of the asset or disposal group to be highly probable when:
•The appropriate level of management is committed to a plan to sell the asset,
• An active programme to locate a buyer and complete the plan has been initiated,
• The asset (or disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value,
• The sale is expected to qualify for recognition as a completed sale within one year from the date of classification, and
• Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Non-current assets held for sale and disposal groups are measured at the lower of their carrying amount and the fair value less costs to sell. Assets and liabilities classified as held for sale are presented separately in the balance sheet. Property, plant and equipment and intangible assets once classified as held for sale to owners are not depreciated or amortised.
3.13 Recent accounting pronouncement
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards) Amendment Rules, 2023 dated 31 March 2023 to amend the following Ind AS which are effective for annual periods beginning on or after 1 April 2023. The Company applied for the first-time these amendments.
Disclosure of Accounting Policies - Amendments to Ind AS 1
The amendments aim to help entities provide accounting policy disclosures that are more useful
3.13 Recent accounting pronouncement (cont'd)
by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments have had an impact on the Company’s disclosures of accounting policies, but not on the measurement, recognition or presentation of any items in the Company’s financial statements.
Definition of Accounting Estimates - Amendments to Ind AS 8
The amendments had no impact on the Company’s standalone financial statements.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to Ind AS 12
The amendments had no impact on the Company’s standalone financial statements.
Notes:
(i) Contractual obligations
The Company has not entered into any contracts to purchase, construct or develop property plant and equipment or for its repairs, maintenance or enhancements exceeding a period of one year.
(ii) Significant estimates
Property, plant and equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life, if any. The useful lives and residual values of the Company's assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
(iii) Refer note 21 for mortgage.
(iv) There is no borrowing cost capitalized during the year ended 31 March 2024 and 31 March 2023.
For the purpose of the Company's capital management, capital includes issued equity share capital, and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company's capital management is to maximise the shareholder value.
The Company's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital, as well as the level of dividends to equity shareholders. The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position.
Notes:
Terms and repayment schedule
(i) Non convertible debentures
The Company has issued non convertible debentures (NCD) as follows:
A. The Company entered into debenture trust deed dated 19 July 2021 as amended and restated on 11 May 2023 for issue of 3,000 zero coupon, senior, secured, rated, redeemable and listed NCD. The Company issued 1,499 listed NCD, nominal value of ? 1 and 15,010 listed NCD, nominal value of ? 0.1 each aggregating to ? 3,000 through private placement. 16,508 debentures were issued to Standard Chartered Bank (Singapore) and 1 debenture was issued to Embassy Property Developments Private Limited. The Company entered into debenture trust deed dated 24 November 2021 for issue of 3,000 zero coupon, senior, secured, rated, redeemable and unlisted NCD which was amended on 2 August 2022 for issue of 500 zero coupon, senior, secured, rated, redeemable and unlisted NCD. The Company issued 500 unlisted NCD, nominal value of ? 1 each aggregating to ? 500 through private placement. 499 debentures were issued to Standard Chartered Bank (Singapore) and 1 debenture was issued to Embassy Property Developments Private Limited. The proceeds from issuance of debentures is being used to fund the Project Zenith.
B. The Company entered into debenture trust deed dated 23 August 2022 as amended on 24 March 2023 for issue of 3,200 zero coupon, senior, secured, rated, redeemable and listed NCD. The Company issued 3,200 listed NCD, nominal value of ? 1 each aggregating to ? 3,200 through private placement. These debentures were issued to Standard Chartered Bank (Singapore). The proceeds from issuance of debentures is being used to fund Project Embassy Business Hub which is undertaken in a wholly owned subsidiary Mac Charles Hub Projects Private Limited as per the Debenture Trust Deed (DTD) ("Hub Debentures").
Terms as stated in DTD 1. Debentures as stated in point A
The NCD issued are zero coupon, have a yield of 16% per annum on XIRR basis.
Fund raised by the issue of Zenith Debentures shall be utilized by the Company solely for the following (and for no other purpose):
(a) making payments to the Embassy Property Developments Private Limited under the Turnkey Contract.
(b) towards any other costs in relation to the Project; and
(c) making payments for all fees, costs and other general expenses incurred in relation to the issue, as approved by the Debenture Trustee.
The issue of NCD has been secured against:
A. First ranking equitable mortgage over:
(i) all that piece and parcel of land admeasuring 2.22 acres situated at Municipal No. 28A (Old Municipal No. 28, still earlier Municipal No. 12), Sankey Road, Ward No. 78 (Old Corporation Site No. 2, Bellary Road), Vasanth Nagar, Bangalore, Karnataka (PID No. 78-121-28A) and the building being constructed thereon (‘Project’)
(ii) apartments held by Company in Embassy Habitat and Maradu Villa
(iii) all that piece and parcel of the Land bearing Sy. No. 879/1,883/3, of Maradu Village, Kanayannoor Taluk, Maradu Sub District, Ernakulam District, measuring 4.1 acres along with a residential Building and Servant Quarters and other structures with electric and water connection and all fixtures and fittings therein and all the improvements.
B. A first ranking exclusive charge over:
(i) all the Account Assets as defined under the debenture documents,
(ii) Company’s rights under the turnkey contract executed with Embassy Property Developments Private Limited
(iii) the Legacy Cirocco (Agreement to sell),
(iv) all receivables of the Company
(v) all movable assets in relation to the Project (including without limitation, the movable fixed assets in relation to the Project)
(vi) all the operating account assets
C. A first ranking exclusive pledge of shares of Blue Lagoon Real Estate Private Limited and Neptune Real Estate Private Limited
D. Embassy Property Developments Private Limited (holding Company) has given guarantee for the same.
21 Borrowings (cont'd)
2. Debentures as stated in point B
The NCD issued are zero coupon, have a yield of 19.75% per annum on XIRR basis.
Fund raised by the issue of Hub NCD shall be utilized by the Company solely for the following (and for no other purpose):
- towards acquisition of the Project land and conversion charges, approval costs, brokerage, stamp duty, fees, costs and other general expenses in relation to the Project land.
The issue of NCD has been secured against:
A. A first ranking exclusive charge over:
(i) all the Account Assets as defined under the debenture documents,
(ii) inter - Company receivables
(iii) Squadron Developers Private Limited Account Assets as defined under the debenture documents
(iv) Mac Charles Hub Projects Private Limited Account Assets as defined under the debenture documents
(v) the receivables and immovable assets (Project) in relation to the project
B. A first ranking exclusive pledge of shares of Mac Charles Hub Projects Private Limited
C. Mr. Jitendra Virwani (promoter), Embassy Property Developments Private Limited (holding Company), Mac Charles Hub Projects Private Limited (subsidiary Company) and Squadron Developers Private Limited (fellow subsidiary) has given guarantee for ? 3,200 million each.
(ii) Vehicle Loan
The loan was taken from ICICI Bank to purchase BMW 220i secured by such vehicle and to be repaid in 60 monthly installments. Such loan is given at an interest rate of 9.5% per annum.
Contingent Liabilities
Income tax 31.65 31.65
During the previous year, the Company received the demand notice of ?31.65 on 29 March 2023 where the Assessing officer during the course of the reassessment proceedings proposed to disallow the proportionate interest expense under Section 36(1 )(iii) of the Income Tax Act on the grounds that interest-bearing funds were diverted as interest free advances. However, the Assessing officer disallowed interest expenses under section 37 of the Income Tax Act for not offering the interest income for delay in execution of contract in the subject AY. The Assessing officer contends that the Company adopts the mercantile system of accounting and the expenditure which is relevant to the earning of an income should be deducted such that it results in the real income chargeable to tax.
The Company has filed an appeal before the CIT(A) against the order stating that the income accrued in next FY were not ascertainable to the Company and only accrued by the effect of cancellation of contract.
37 Financial instruments - fair value measurement and risk management (cont'd)
To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level is mentioned below: Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds and mutual funds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period. The mutual funds are valued using the closing net asset value.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company has elected to measure all financial instruments, except investments, at amortized cost. Investments fall under the 'Level 1' hierarchy and are measured using quoted prices on the respective reporting dates.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
C Financial risk management
The Company has exposure to the following risks arising from financial instruments:
- credit risk (refer note ii below)
- liquidity risk (refer note iii below)
- market risk (refer note iv below)
(i) Risk management framework
The Company's Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities.
The Company's 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.
(ii) Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, inter-corporate deposits and other financial instruments.
The carrying amount of financial assets represents the maximum credit exposure.
Trade receivable and loans
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry.
The Company has credit policies in place and exposure to the credit risk is monitored on an ongoing basis. A majority of Company's income is from the corporate customers by way of advance receipts and revenue from related parties. Credit evaluations are performed on all customers requiring credit over a certain amount and there is no concentration of credit risk. Due from related parties are considered recoverable by the management. Risk assessment is done for each corporate to whom the inter -corporate deposits are provided. Cash is placed with reputable banks and the risk of default is considered remote. Under the current economic conditions, management has assessed the recoverability of its trade receivables as at the reporting date and consider them to be recoverable.
Due to this factor, management believes that no additional credit risk is inherent in the Company's receivables. At the balance sheet date, there were no significant concentrations of credit risk.
(iii) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.
Management monitors rolling forecasts of the Company's liquidity position and cash and cash equivalents on the basis of expected cash flows to ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration the Company's debt financing plans, covenant compliance and compliance with internal statement of financial position ratio targets. Usually the excess of funds is invested in short term mutual funds and fixed deposits. This is generally carried out in accordance with practice and limits set by the Company. These limits vary to take into account the liquidity of the market in which the Company operates.
The Cash flow with respect to project finances will be funded through internal accrual, loan from holding Company and from bank.
Financing arrangements
The Company has undrawn borrowing facilities at the end of the reporting period amounting to ? Nil (31 March 2023: ?1,751) on account of debenture trust deeds entered and ? 1,000 (31 March 2023: ?1,000) on account of inter corporate deposit agreement entered as on 31 March 2024.
(iv) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Market risk comprises of currency risk and interest rate risk. The Company is primarily exposed to fluctuation in interest rates.
Currency risk
The Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the respective functional currencies of transacting parties. The functional currency of the Company is ?. Since the Company does not have any unhedged foreign currency exposure at the year end, it is not exposed to currency risk.
d. There are no guarantee, security or the like provided to or on behalf of the Ultimate Beneficiaries.
e. The Company has complied with provisions of the Foreign Exchange Management Act, 1999 (42 of 1999) and Companies Act has been complied with for such transactions and the transactions are not violative of the Prevention of Money-Laundering Act, 2002 (15 of 2003).
No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other persons or entities, including foreign entities ("Intermediaries") with the understanding whether recorded in writing or otherwise that the Intermediary shall lend or invest in other persons or entities identified by or on behalf of the Company (Ultimate Beneficiaries) or to provide any guarantee, security or like on behalf of the ultimate beneficiaries. 45 Other statutory Information
a) The Company does not have any benami properly, Where any proceeding has been initiated or pending against the Company for holding any benami property.
b) The Company does not have any transactions with companies struck off.
c) The Company does not have any charges or satisfaction which is yet to be registered With ROC beyond the Statutory period.
d) The Company has not traded or invested in crypto currency or virtual currency during the financial year.
e) The Company has not defaulted in repayment of loans, or other borrowings or payment of interest thereon to any lender.
f) The Company has not been declared willful defaulter by any bank, financial institution, government or government authority.
g) The Company has not revalued its property, plant and equipment (Including right -of - use assets) or intangible assets during the year ended 31 March 2024.
46 Additional information as required under paragraph 5 of Part II of the Schedule III to the Act, to the extent either "Nil" or "Not applicable" has not been furnished.
47 Previous year's comparatives have been regrouped wherever necessary to conform to the current year's presentation and any such reclassification/regrouping is immaterial to the users of the financial statements.
As per our report of even date
For Walker Chandiok & Co LLP For and on behalf of the Board of Directors of
Chartered Accountants Mac Charles (India) Limited
Firm Registration No.: 001076N/N500013
Hemant Maheshwari P B Appiah Harish Anand
Partner Director Whole Time Director
Membership No. 096537 DIN: 00215646 DIN: 10198737
Place: Bengaluru Date: 23 May 2024
Chandana Naidu Ankit Shah
Company Secretary Chief Financial Officer
ACS No. 25570
Place: Bengaluru Place: Bengaluru
Date: 23 May 2024 Date: 23 May 2024
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