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CHAPTER I
INTRODUCTION
1.1 INTRODUCTION OF THE STUDY
Corporate governance is the set of processes, customs, policies, laws, and
institutions affecting the way a corporation (or company) is directed, administered or
controlled. Corporate governance also includes the relationships among the many
stakeholders involved and the goals for which the corporation is governed. In simpler
terms it means the extent to which companies are run in an open & honest manner.
Corporate governance has three key constituents namely: the Shareholders, the Board
of Directors & the Management. Other stakeholders include employees, customers,
creditors, suppliers, regulators, and the community at large.

DEFINITION:
The manner in which the stakeholders in a corporation relate to one another.
Corporate governance has a positive connotation and a company with "good" corporate
governance is said to be a company in which all stakeholders relate to each other in a
positive way. Good corporate governance is considered an important quality of
sustainable growth for a company; that is, if the shareholders, management, and
employees all fulfill their fiduciary responsibilities to one another, the corporation is
thought to have a greater likelihood of success. Corporate governance is laid out in the
corporation's charter and other applicable documents.
The frame work of rules and practices by which a board of directors ensures
accountability, fairness, and transparency in a company's relationship with its all
stakeholders (financiers, customers, management, employees, government, and the
community). The corporate governance framework consists of (1) explicit and implicit
contracts between the company and the stakeholders for distribution of responsibilities,
rights, and rewards, (2) procedures for reconciling the sometimes conflicting interests of
stakeholders in accordance with their duties, privileges, and roles, and (3) procedures for
proper supervision, control, and information-flows to serve as a system of checks-and-
balances.
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The concept of corporate governance identifies their roles & responsibilities as well
as their rights in the context of the company. It emphasizes accountability, transparency
& fairness in the management of a company by its Board, so as to achieve sustained
prosperity for all the stakeholders. Corporate governance is a synonym for sound
management, transparency & disclosure. Transparency refers to creation of an
environment whereby decisions & actions of the corporate are made visible, accessible &
understandable.
In the light of originating competition and liberation Corporate Governance has
assumed significance in the public sector undertaking (PSUS)
The various groups in the ECIL Company are as follows.
Workers union
Officers Association
Other agency including Government representatives
Need for Transparency is invested in public sector undertaking
Tax payers money is invested in public sector undertaking
It is also to be noted that accounts are placed in parliament through the parent department
of Atomic Energy for discussion.
In the light of above, it is felt that the project on Corporate Government can be
appropriately under taken for ECIL.

1.2 OBJECTIVES OF THE STUDY
To study the Corporate Governance practices at ECIL.
To analyze the impact of Corporate Governance at ECIL.
To identify the various problems of Corporate Governance.
To draw proper conclusion from the project study.
To make suggestion for improvements.




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1.3 SCOPE OF THE STUDY
A study of Corporate Governance involves the process and structure used to direct and
manage the business and affairs of the business enterprise with the objective of enhancing
long term value for the shareholders and the financial viability of the business.
The scope of the study is confined to the Corporate Governance practices in ECIL for
3years and encompasses analysis followed by conclusions and suggestions.

1.4 RESEARCH METHODOLOGY
Data relating to ECIL has been collected through.
Primary sources:
Detailed discussions with Mr.J.S.Anand, (G.M-FAG, Finance and Accounts ECIL,
Hyderabad).
Discussions with Finance manager and the other members of the Finance department at
ECIL.
Secondary sources:
Data is collected from the Published Annual reports of the ECIL Company.
It is collected through the internet (web), and newspapers.
Sample size-3 years data.


1.5 LIMITATIONS OF THE STUDY

Employees had not responded in time due to heavy work
Division-wise practices are not covered due to limited time of the study.
Time limit to do in depth study.
Since ECIL is public sector unit, confidentiality maintained to certain issues which may
not cover under project work.




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CHAPTER II

LITERATURE REVIEW

2.1 OVERVIEW OF CORPORATE GOVERNANCE

INTRODUCTION:
Corporate governance refers to the set of systems, principles and processes by
which a company is governed. They provide the guidelines as to how the company can be
directed or controlled such that it can fulfill its goals and objectives in a manner that adds
to the value of the company and is also beneficial for all stakeholders in the long term.
Stakeholders in this case would include everyone ranging from the board of directors,
management, shareholders to customers, employees and society. The management of the
company hence assumes the role of a trustee for all the others.
Corporate governance is a process, not a state.The field is continually evolving, as
the review explains. Its initial focus was on the way in which individual corporations are
directed and controlled. This led to the introduction of national codes of best practice. As
the wider economic and social significance of corporate governance became apparent,
international guidelines were published to advance its cause more broadly. These
guidelines reflected the part which good governance can play in promoting economic
growth and business integrity. The way ahead lies in ensuring that the fruits of good
governance, its ability to add value, are widely and wisely shared, thus playing a positive
part in the goal of the developed and developing world to alleviate poverty.

Definition of Corporate Governance
Corporate Governance is the relationship between corporate managers, directors
and the providers of equity, people and institutions who save and invest their capital to
earn a return .It ensures that the Board of Directors is accountable for the pursuit of
corporate objectives and that the corporation itself conforms to the law and regulations.
The frame work of rules and practices by which a board of directors ensures
accountability, fairness, and transparency in a company's relationship with its all
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stakeholders (financiers, customers, management, employees, government, and the
community).The corporate governance framework consists of (1) explicit and implicit
contracts between the company and the stakeholders for distribution of responsibilities,
rights, and rewards, (2) procedures for reconciling the sometimes conflicting interests of
stakeholders in accordance with their duties, privileges, and roles, and (3) procedures for
proper supervision, control, and information-flows to serve as a system of checks-and-
balances.
Corporate Governance is the relationship among various participants in determining
the direction and performance of corporations. The primary participants are:
shareholders; company management; and the Board of Directors.
Why do we need corporate governance
With increased global competitiveness, the growing market in Bahrain is faced
with the challenge of attracting and retaining investment in order to participate more fully
in the global economy and address mounting demographic concerns. Increasing
awareness and implementation of good corporate governance practices can improve the
investment climate and promote the development of a vibrant private sector and capital
market.

2.2 Objectives
The Core Objective of Corporate Governance can be defined as under:
Strategic Focus
Predictability
Transparency
Participation
Accountability
Efficiency & Effectiveness
Stakeholder Satisfaction.
The Strategy Focus defines the direction the organization should take to meet its
goals and to ensure Stakeholder satisfaction.
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The Strategic focus should be based on predictability as the evolution of strategies
has to consider the dynamic environment within which it has to operate and hence the
challenges from the environment need to be anticipated.
A well-designed process to evolve and deploy strategy has to have Transparency for
all stakeholders so that there is a commitment and an understanding of the result expected
from the operations.
For proper execution of any processes aimed at achieving the desired end result,
Participation of all stakeholder is important and actually necessary.
The participation should have a clear goal of Efficiency and Effectiveness of the
organization as a whole and this where Accountability is the key.
All stakeholders have to have a clear understanding of their accountability for the
most effective operations of any Organization.
Importance
Fundamentally, there is a level of confidence that is associated with a company
that is known to have good corporate governance. The presence of an active group of
independent directors on the board contributes a great deal towards ensuring confidence
in the market. Corporate governance is known to be one of the criteria that foreign
institutional investors are increasingly depending on when deciding on which companies
to invest in. It is also known to have a positive influence on the share price of the
company. Having a clean image on the corporate governance front could also make it
easier for companies to source capital at more reasonable costs. Unfortunately, corporate
governance often becomes the centre of discussion only after the exposure of a large
scam.
Impact of Corporate Governance
The positive effect of good corporate governance on different stakeholders
ultimately is a strengthened economy, and hence good corporate governance is a tool for
socio-economic development.
Parties to corporate governance
The most influential parties involved in corporate governance include government
agencies and authorities, stock exchanges, management (including the board of directors
and its chair, the Chief Executive Officer or the equivalent, other executives and line
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management, shareholders and auditors). Other influential stakeholders may include
lenders, suppliers, employees, creditors, customers and the community at large.
The agency view of the corporation posits that the shareholder forgoes decision
rights (control) and entrusts the manager to act in the shareholders' best (joint) interests.
Partly as a result of this separation between the two investors and managers, corporate
governance mechanisms include a system of controls intended to help align managers'
incentives with those of shareholders. Agency concerns (risk) are necessarily lower for a
controlling shareholder.
A board of directors is expected to play a key role in corporate governance. The
board has the responsibility of endorsing the organization's strategy, developing
directional policy, appointing, supervising and remunerating senior executives, and
ensuring accountability of the organization to its investors and authorities.
All parties to corporate governance have an interest, whether direct or indirect, in
the financial performance of the corporation. Directors, workers and management receive
salaries, benefits and reputation, while investors expect to receive financial returns. For
lenders, it is specified interest payments, while returns to equity investors arise from
dividend distributions or capital gains on their stock. Customers are concerned with the
certainty of the provision of goods and services of an appropriate quality; suppliers are
concerned with compensation for their goods or services, and possible continued trading
relationships. These parties provide value to the corporation in the form of financial,
physical, human and other forms of capital. Many parties may also be concerned with
corporate social performance.

2.3 Principles:
Key elements of good corporate governance principles include honesty, trust and
integrity, openness, performance orientation, responsibility and accountability, mutual
respect, and commitment to the organization.
Commonly accepted principles of corporate governance include:
Rights and equitable treatment of shareholders :
Organizations should respect the rights of shareholders and help shareholders to
exercise those rights. They can help shareholders exercise their rights by openly and
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effectively communicating information and by encouraging shareholders to participate in
general meetings.
Interests of other stakeholders :
Organizations should recognize that they have legal, contractual, social, and market
driven obligations to non-shareholder stakeholders, including employees, investors,
creditors, suppliers, local communities, customers, and policy makers.
Role and responsibilities of the board :
The board needs sufficient relevant skills and understanding to review and challenge
management performance. It also needs adequate size and appropriate levels of
independence and commitment
Integrity and ethical behavior :
Integrity should be a fundamental requirement in choosing corporate officers and
board members. Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making.
Disclosure and transparency :
Organizations should clarify and make publicly known the roles and responsibilities of
board and management to provide stakeholders with a level of accountability. They
should also implement procedures to independently verify and safeguard the integrity of
the company's financial reporting. Disclosure of material matters concerning the
organization should be timely and balanced to ensure that all investors have access to
clear, factual information
Issues involving corporate governance principles include:
Internal controls and the independence of the entity's auditors
Oversight and management of risk
Oversight of the preparation of the entity's financial statements
Review of the compensation arrangements for the chief executive
Officer and other senior executives
There sources made available to directors in carrying out their duties
The way in which individuals are nominated for positions on the board
Dividend policy
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"Corporate Governance" despite some feeble attempts from various quarters has
remained ambiguous and often misunderstood phrase. For quite some time it was
confined to only corporate management. It is not so. It is something much broader for it
must include a fair, efficient and transparent administration to meet certain well defined
objectives. Corporate governance also must go beyond law. The quantity, quality and
frequency of financial and managerial disclosure, the degree and extent to which the
board of Director (BOD) exercise their trustee responsibilities and the commitment to run
transparent organization- these should evolve due to interplay of many factors and the
role played by more progressive elements within the corporate sector. In India, a strident
demand for evolving a code of good practices by the corporate themselves is emerging.

2.4 Mechanisms and controls:
Corporate governance mechanisms and controls are designed to reduce the
inefficiencies that arise from moral hazard and adverse selection. There are both internal
monitoring systems and external monitoring systems.Internal monitoring can be done, for
example, by one (or a few) large shareholder(s) in the case of privately held companies or
a firm belonging to a business group. Furthermore, the various board mechanisms
provide for internal monitoring. External monitoring of managers' behaviour occurs when
an independent third party (e.g. the external auditor) attests the accuracy of information
provided by management to investors. Stock analysts and debt holders may also conduct
such external monitoring. An ideal monitoring and control system should regulate both
motivation and ability, while providing incentive alignment toward corporate goals and
objectives.
Internal corporate governance controls:
Internal corporate governance controls monitor activities and then take corrective
action to accomplish organizational goals. Examples include:
Monitoring by the board of directors: The board of directors, with its legal authority
to hire, fire and compensate top management, safeguards invested capital. Regular board
meetings allow potential problems to be identified, discussed and avoided. Whilst non-
executive directors are thought to be more independent, they may not always result in
more effective corporate governance and may not increase performance. Different board
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structures are optimal for different firms. Moreover, the ability of the board to monitor
the firm's executives is a function of its access to information. Executive directors
possess superior knowledge of the decision-making process and therefore evaluate top
management on the basis of the quality of its decisions that lead to financial performance
outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the
financial criteria.
Internal control procedures and internal auditors: Internal control procedures are
policies implemented by an entity's board of directors, audit committee, management,
and other personnel to provide reasonable assurance of the entity achieving its objectives
related to reliable financial reporting, operating efficiency, and compliance with laws and
regulations. Internal auditors are personnel within an organization who test the design
and implementation of the entity's internal control procedures and the reliability of its
financial reporting.
Balance of power: The simplest balance of power is very common; require that the
President be a different person from the Treasurer. This application of separation of
power is further developed in companies where separate divisions check and balance
each other's actions. One group may propose company-wide administrative changes,
another group review and can veto the changes, and a third group check that the interests
of people (customers, shareholders, employees) outside the three groups are being met.
Remuneration: Performance-based remuneration is designed to relate some proportion
of salary to individual performance. It may be in the form of cash or non-cash payments
such as shares and share options, superannuation or other benefits. Such incentive
schemes, however, are reactive in the sense that they provide no mechanism for
preventing mistakes or opportunistic behavior, and can elicit myopic behavior.

External corporate governance controls :
External corporate governance controls encompass the controls external
stakeholders exercise over the organization.
Examples include:
Competition
Debt covenants
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Demand for and assessment of performance information (especially financial
statements)
Government regulations
Managerial labour market
Media pressure
Takeovers
Role of the accountant
Financial reporting is a crucial element necessary for the corporate governance
system to function effectively. Accountants and auditors are the primary providers of
information to capital market participants. The directors of the company should be
entitled to expect that management prepare the financial information in compliance with
statutory and ethical obligations, and rely on auditors' competence.
Current accounting practice allows a degree of choice of method in determining
the method of measurement, criteria for recognition, and even the definition of the
accounting entity. The exercise of this choice to improve apparent performance
(popularly known as creative accounting) imposes extra information costs on users. In the
extreme, it can involve non-disclosure of information.
One area of concern is whether the accounting firm acts as both the independent
auditor and management consultant to the firm they are auditing. This may result in a
conflict of interest which places the integrity of financial reports in doubt due to client
pressure to appease management. The power of the corporate client to initiate and
terminate management consulting services and, more fundamentally, to select and
dismiss accounting firms contradicts the concept of an independent auditor. Changes
enacted in the United States in the form of the Sarbanes-Oxley Act (in response to the
Enron situation as noted below) prohibit accounting firms from providing both auditing
and management consulting services. Similar provisions are in place under clause 49
of SEBI Act in India.
The Enron collapse is an example of misleading financial reporting. Enron
concealed huge losses by creating illusions that a third party was contractually obliged to
pay the amount of any losses. However, the third party was an entity in which Enron had
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a substantial economic stake. In discussions of accounting practices with Arthur
Andersen, the partner in charge of auditing, views inevitably led to the client prevailing.
However, good financial reporting is not a sufficient condition for the
effectiveness of corporate governance if users don't process it, or if the informed user is
unable to exercise a monitoring role due to high costs.
Corporate governance models around the world
Although the US model of corporate governance is the most notorious, there is a
considerable variation in corporate governance models around the world. The intricated
shareholding structures of keiretsus in Japan, the heavy presence of banks in the equity of
German firms, the chaebols in South Korea and many others are examples of
arrangements which try to respond to the same corporate governance challenges as in the
US.
The World Business Council for Sustainable Development WBCSD has done
work on corporate governance, particularly on accountability and reporting, and in 2004
created an Issue Management Tool: Strategic challenges for business in the use of
corporate responsibility codes, standards, and frameworks. This document aims to
provide general information, a "snap-shot" of the landscape and a perspective from a
think-tank/professional association on a few key codes, standards and frameworks
relevant to the sustainability agenda.

Codes and guidelines
Corporate governance principles and codes have been developed in different
countries and issued from stock exchanges, corporations, institutional investors, or
associations (institutes) of directors and managers with the support of governments and
international organizations. As a rule, compliance with these governance
recommendations is not mandated by law, although the codes linked to stock exchange
listing requirements may have a coercive effect.
For example, companies quoted on the London, Toronto and Australian Stock
Exchanges formally need not follow the recommendations of their respective codes.
However, they must disclose whether they follow the recommendations in those
documents and, where not, they should provide explanations concerning divergent
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practices. Such disclosure requirements exert a significant pressure on listed companies
for compliance.
One of the most influential guidelines has been the OECD Principles of Corporate
Governance published in 1999 and revised in 2004. The OECD guidelines are often
referenced by countries developing local codes or guidelines. Building on the work of the
OECD, other international organizations, private sector associations and more than 20
national corporate governance codes formed the United Nations Intergovernmental
Working Group of Experts on International Standards of Accounting and Reporting
(ISAR) to produce their Guidance on Good Practices in Corporate Governance
Disclosure.[32] This internationally agreed[33] benchmark consists of more than fifty
distinct disclosure items across five broad categories.
Auditing
Board and management structure and process
Corporate responsibility and compliance
Financial transparency and information disclosure
Ownership structure and exercise of control rights
The World Business Council for Sustainable Development (WBCSD) has done
work on corporate governance, particularly on accountability and reporting, and in 2004
released Issue Management Tool: Strategic challenges for business in the use of corporate
responsibility codes, standards, and frameworks. This document offers general
information and a perspective from a business association/think-tank on a few key codes,
standards and frameworks relevant to the sustainability agenda.

Corporate governance and firm performance
In its 'Global Investor Opinion Survey' of over 200 institutional investors first
undertaken in 2000 and updated in 2002, McKinsey found that 80% of the respondents
would pay a premium for well-governed companies. They defined a well-governed
company as one that had mostly out-side directors, who had no management ties,
undertook formal evaluation of its directors, and was responsive to investors' requests for
information on governance issues. The size of the premium varied by market, from 11%
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for Canadian companies to around 40% for companies where the regulatory backdrop
was least certain (those Morocco, Egypt and Russia).
Other studies have linked broad perceptions of the quality of companies to
superior share price performance. In a study of five year cumulative returns of Fortune
Magazine's survey of 'most admired firms', Antunovich et al found that those "most
admired" had an average return of 125%, whilst the 'least admired' firms returned 80%. In
a separate study Business Week enlisted institutional investors and 'experts' to assist in
differentiating between boards with good and bad governance and found that companies
with the highest rankings had the highest financial returns.
On the other hand, research into the relationship between specific corporate
governance controls and firm performance has been mixed and often weak.
Board composition
Some researchers have found support for the relationship between frequency of
meetings and profitability. Others have found a negative relationship between the
proportion of external directors and firm performance, while others found no relationship
between external board membership and performance. In a recent paper Bagahat and
Black found that companies with more independent boards do not perform better than
other companies. It is unlikely that board composition has a direct impact on firm
performance.
SEBI committee on Corporate Governance
Report of SEBI committee on Corporate Governance defines corporate
governance as the acceptance by management of the inalienable rights of shareholders as
the true owners of the corporation and of their own role as trustees on behalf of the
shareholders. It is about commitment to values, about ethical business conduct and about
making a distinction between personal & corporate funds in the management of a
company.
Issues involving corporate governance principles include:
Internal controls and internal auditors.
The independence of the entity's external auditors and the quality of their audits.
Oversight of the preparation of the entity's financial statements.
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Review of the compensation arrangements for the chief executive officer and other senior
executives. arch
To analyze corporate governance practice of BSE-30 companies for last five years with
reference of mandatory disclosure described by SEBI for Indian companies.
To find out importance of corporate governance in Indian companies from the view point
of the Company Secretary.
To find out the awareness of functioning of Corporate Governance amongst investors
who are fundamental analyst. To evaluate the importance of corporate governance as a
parameter for investor before investing.

2.5 There are four broad theories to explain and elucidate corporate governance.
These are:
Agency theory
Stewardship theory
Stakeholder theory
Sociological theory

Agency theory:
Recent thinking about strategic management and business policy has been
influenced by agency cost theory, though the roots of the theory can be traced back to
Adam Smith who identified an agency problem in the joint stock company. The
fundamental theoretical basis of corporate governance is agency costs. Shareholders are
the owners of any joint stock, limited liability Company, and are the principals of the
same. By virtue of their ownership, the principals define the objectives of the company.
The management, directly or indirectly selected by the shareholders to pursue such
objectives, are the agents. While the principals generally assume that the agents would
invariably carry out their objectives, it is often not so. In many instances, the objectives
of managers are at variance from those of the shareholders. Such mismatch of objectives
is called the agency problem; the cost inflicted by such dissonance is the agency cost. The
core of corporate governance is designing and putting in place disclosures, monitoring,
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oversight and corrective systems that can align the objectives of the two sets of players as
closely as possible and hence minimize agency costs.

Stewardship theory:
The stewardship theory of corporate governance discounts the possible conflicts
between corporate management and owners and shows a preference for board of directors
made u primarily of corporate insiders. This theory assumes that managers are basically
trustworthy and attach significant value to their own personal reputations. The market for
managers with strong personal reputations serves as the primary mechanism to control
behavior, with more reputable managers being offered higher compensation packages.

Stakeholder theory:
The stakeholder theory is grounded in many normative, theoretical perspectives
including ethics of care, the ethics of fiduciary relationships, social contract theory,
theory of property rights, and so on. While it is possible to develop stakeholder analysis
from a variety of theoretical perspectives, in practice much of stakeholder analysis does
not firmly or explicitly root itself in a given theoretical tradition, but rather operates at the
level of individual principles and norms for which it provides little formal justification.
Stakeholder theory is often criticized, mainly because it is not applicable in practice by
corporations.

Sociological theory:
The sociological approach has focused mostly on board composition and
implications for power and wealth distribution in the society. Under this theory, board
composition, financial reporting, and disclosure and auditing are of utmost importance to
realize the socio-economic objectives of corporations.el
This is also known as unitary board model, in which all directors participate in a
single board comprising both executive and non-executive directors in varying
proportions. This approach to governance tends to be shareholder oriented. It is also
called the 'Anglo-Saxon' approach to corporate governance being the basis of corporate
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governance in America, Britain, Canada, Australia and other Commonwealth law
countries including India.

The major features of this model are as follows:
The ownership of companies is more or less equally divided between individual
shareholders and institutional shareholders.
Directors are rarely independent of management.
Companies are typically run by professional managers who have negligible ownership
stake. There is a fairly clear separation of ownership and management.

A CASE STUDY ON INFOSYS

The case, 'Corporate Governance at Infosys talks about the corporate governance
practices at Infosys, one of India's largest software companies. Till late 1990s, corporate
governance did not have much significance in India. In 1999, two committees
(Confederation of Indian Industries, CII and the Kumar Mangalam Birla Committee)
were set up to recommend good governance norms. These committees came out with
several recommendations, which were made mandatory for the companies to adhere to by
2001. Infosys was one of the first companies in India which had complied with the
recommendations made by the committees. The case discusses in detail, the corporate
governance practices at Infosys, which complied with most of the recommendations
made by the committees.
By the late 1990s, Infosys Technologies Limited (Infosys)
1
had clearly emerged one
of the best managed companies in India. Its corporate governance practices seemed to be
better than those of many other companies in India.
Because of its good governance practices, Infosys was the recipient of many awards.
In 2001, Infosys was rated India's most respected company by Business World
2
. Infosys
was also ranked second in corporate governance among 495 emerging companies in a
survey conducted by Credit Lyonnais Securities Asia (CLSA) Emerging Markets. It was
voted India's best managed company five years in a row (1996-2000) by the Asiamoney
poll.
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Code of Corporate Governance
In the late 1990s, the Confederation of Indian Industries (CII) published a code of
corporate governance (Refer Exhibit II for the highlights of the report). In 1999, the
Securities and Exchange Board of India (SEBI) appointed a committee under the
Chairmanship of Kumar Mangalam Birla
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to recommend a code of corporate governance.

Corporate Governance-The Infosys Way
Infosys had accepted the recommendation of both the CII and the Kumar Mangalam
Birla Committee. This section provides an overview of corporate governance practices
followed by Infosys.
Infosys had an executive chairman and chief executive officer (CEO) and a managing
director, president and chief operating officer (COO). The CEO was responsible for
corporate strategy, brand equity, planning, external contacts, acquisitions, and board
matters. The COO was responsible for all day-to-day operational issues and achievement
of the annual targets in client satisfaction, sales, profits, quality, productivity, employee
empowerment and employee retention.
The CEO,COO, executive directors and the senior management made periodic
presentations to the board on their targets, responsibilities and performance.

Infosys-A Benchmark for Corporate Governance:

Some analysts felt that Infosys corporate governance practices offered many
lessons to corporate India. Infosys had shown that increasing shareholder wealth and
safeguarding the interests of other stakeholders was not incompatible. Infosys had given
its non-executive directors the mandate to pass judgement on the efficacy of its business
plans. Every non-executive director not only played an active role in decision making,
but also led or served on at least one of the three (Nomination, Compensation and Audit)
committees.



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CHAPTER III
COMPANY PROFILE
3.1 INTRODUCTION
Electronics Corporation of India Limited (ECIL) is a wholly owned Government
of India enterprise under the Department of Atomic Energy. Established in 1967
primarily to meet the control and instrumentation requirements of Indias nuclear power
program, ECIL has played a pioneering role in spurring the growth of indigenous
electronics industry in the country. Spanning from miniature components to mammoth
systems and encompassing control, communication and computer technologies, ECIL,
today is a multi-product, multi-technology organization providing cutting-edge
technology solutions in the strategic areas of Atomic Energy, Defence, Aerospace,
Integrated Security and IT & e-Governance.
HISTORY:
Ayyagari Sambasiva Rao, the founder Managing Director of the Electronics
Corporation of India Limited (ECIL), died on Friday night at Nims after a prolonged
illness, family sources said. He was 89.He is survived by his wife, four sons and three
daughters. Rao, born in Mogallu in West Godavari district in 1914, obtained his
engineering degree from Stanford University in 1947 and joined the Department of
Atomic Energy as a nuclear physic is to work with the likes of HomiJBhabha. He was the
director of radiation health protection and electronics groups at Bhabha Atomic Research
Centre (Barc) and later played a key role in setting up ECIL in the city in 1967 when the
DAE decided to go commercial in its electronics research.
Performance in 2011-12:
During the year, the company posted a turnover of Rs. 1474 Crores which is 14%
higher than the turnover of the previous year. The major contribution of 48% came from
the e-Governance sector, 35% from the Defence sector, 12% from the nuclear sector and
balance 5% from supplies to other sectors in the Government domain. The company has
earned a Profit Before Tax of Rs. 55 Crores as compared to Rs.22 Crores during the
previous year.
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The order book stood at Rs.2425 Crores at the beginning of 2012-13 as compared to
Rs.1150 Crores at the beginning of 2011-12.
Welfare Activities:
The employees were provided all benefits and facilities under the provisions of
Social Welfare and Industrial Acts. Some of the statutory measures were also extended to
the Contract Labour. The children of 30 workmen received merit scholarships under AP
Labour Welfare Fund 1987. Under the Workers.
Education Programme, 5 women workers were sponsored for Trainers Training
Course. 5 male workers were also sponsored to Worker Teachers programme under the
same scheme. Various social security insurance schemes were extended to the
employees viz., Janata Insurance Policy, Group Personal Accident Policy for the
employees proceeding on official tours. Under Group Savings Linked Insurance cum
Retirement Benefit Scheme, 23 employees who expired while in service were provided
with insurance amount of Rs. 1.00 lakh each and an additional payment of Rs.10,000/-
per employee from management side. As per the scheme of promoting small family
norms, 21 employees who have undergone Tubectomy/ Vasectomy operations were
given one increment as personal pay.
Research and Development:
In addition to in-house R&D activities, ECIL adopts the basic designs developed by
Bhabha Atomic Research Centre and Nuclear Power Corporation of India Limited and
engineers them into products and systems for industrial use. Recently, the company
signed a Strategic MoU with IGCAR (Indira Gandhi Centre for Atomic Research) to
meet the C&I requirements for Fast Reactors, Fuel Cycle Projects etc. and also for High
Performance Computer Systems and Security. Technology Planning, Identification of
Projects/Projects/Solutions, Funding and Project Monitoring happen through Technology
Development Council (TDC), an institutional mechanism to promote actionable R&D
and timely product ionization to support the ambitious programmes and expansion plans
of the Department of Atomic Energy.
21

Research and Development holds the key to the future business and
competitiveness of the company. The management has devoted focused attention on
R&D activities which has resulted in a number of new products being introduced apart
from adding features to existing products.
3.2 Products and Services
ECIL supplied hard wired relay logic systems for older power generating plants
like those in Rajasthan and Tamilnadu. As newer technologies became available, ECIL
graduated to supply partly computerized systems for plants at Narora and Kakrapara.
ECIL provides Programmable Logic Controller and Computer based Control and
Information systems for the newer power generating units at Tarapur, Kaiga and
Rawatbhata, Rajasthan.
ECIL manufactures and supplies a wide range of equipment which include:
1. Control Room Panels
2. Operator Information Systems
3. Programmable Controllers
4. Operator Training Simulators
5. Dual Processor Hot Standby Systems (DPHS) and many more.
Products:
Present product range of ECIL includes:
Nuclear sector : Control and instrumentation products for nuclear power plants;
Integrated security systems for nuclear installations; Radiation monitoring instruments;
Secured network of all Department of Atomic Energy (India) units via satellite.
Defence Sector : Various types of fuses; V/UHF Radio communication equipment;
Electronics warfare systems and derivatives; Thermal batteries and special components
for missile projects; Precision servo components like gyros; Missile support control and
command systems; Training simulators; Stabilized antenna and tracking for Light
Combat Aircraft; Detection and pre-detonation of explosive devices; Jammers with
direction finding abilities.
22

Commercial Sector: Electronic voting machines; Wireless local loop (WLL) systems;
Antenna products; Electronic Energy Meters or Electricity Meter; X-Ray baggage
inspection system for airports; Computer hardware, software and services; Computer
education services.
Corporate Governance
The company continues to take several measures to enhance the openness and
transparency of all its operations.
Joint venture:
The Joint Venture, ECIL- Rapiscan Limited registered a total income of Rs.30.20
crore during 2005-06 by way of supply of Multi-energy X-Ray machines etc. to Indian
Airlines, Ship Building Centre, Police Department & Prison of various States, Tihar Jail,
Cochin International Airport, etc. JV have supplied computer hardware to ECIL for their
Maharashtra State Government E-governance Project worth about Rs.3.00 crore and
earned around Rs.10 crore from maintenance income during the year.
The total income has increased by 24% as compared to the previous year due to
receipt of good orders. Provisional profit before tax for the year is Rs.6 crore, the profit
before tax has gone up by Rs.1.00 crore, a growth of 20% over the previous year. The
income target set for the year 2006-07 is Rs.35 crore and the JV Company is confident of
achieving it considering the requirement of security products in the country due to threat
from terrorists and introduction of large cargo scanning machines.
Financials:
The company has a turnover of around 14 billion (US$254.8 million) and
overall profit of around 220 million (US$4 million) for the financial year 201011.

23

INDUSRY PROFILE

ECIL is a multi-product and multi-disciplinary organization providing key
technology inputs, system integration and system solutions in the areas of Information
Technology, Strategic Electronics, Communications, Control and Automation,
Instrumentation and Components
The Telecommunications Industry produces technologies and services that are used
to facilitate people's communication. Major products include cell phones, chipsets,
wireless and landline infrastructure equipment, digital subscriber-line (DSL) and cable
modems, and networking devices, such as routers and switches. The industry's customer
base is highly diversified, including multi-national corporations, telephone companies,
governments, universities, institutions, commercial businesses and consumers.
Competitive Landscape:
Competition among companies in this industry can be intense. Most products are
technologically advanced, entailing significant research and development. This, and the
need for great economy-of-scale and international distribution facilities, creates a high
barrier to entry.
Market Influences:
Telecom services companies still depend on landline business for cash flow.
When economic times are tough, customers tend to disconnect these lines and rely more
on wireless and broadband communications. Also, consumers will gravitate to the most
economical voice and Internet plans.
Financial Considerations:
The Telecom Equipment Industry is fairly cyclical, conforming to the multiyear
boom and bust swings of the economy. Typical network infrastructure contracts, though,
are long-term, thereby lending stability to operating results. The degree to which its
products are technically advanced determines an equipment maker's pricing power. Hi-
tech offerings allow for higher prices and improved cost absorption.

24

Electronics Industry Analysis:
The Electronics Industry in India took off around 1965 with an orientation
towards space and defence technologies. This was rigidly controlled and initiated by the
government. This was followed by developments in consumer electronics mainly with
transistor radios, Black & White TV, Calculators and other audio products.1985 saw the
advent of Computers and Telephone exchanges, which were succeeded by Digital
Exchanges in 1988.In1997 the ITA agreement, was signed at the WTO where India
committed it self to total elimination of all customs duties on IT hardware by 2005. In the
subsequent years, a number of companies turned sick and had to be closed down.
Current Scenario:
In recent years the electronic industry is growing at a brisk pace. It is currently
worth US$ 32Billion and according to industry estimates it has the potential to reach US$
150 billion by 2010. The electronic industry in India constitutes just 0.7 per cent of the
global electronic industry. Hence it is miniscule by international comparison. However
the demand in the Indian market is growing rapidly and investments are flowing in to
augment manufacturing capacity. The output of the Electronic Hardware Industry in India
is worth US$11.6 Billion at present.
Electronic Manufacturing Services:
India is well-known for its software prowess. But on the hardware front, the
progress is rather slow. However, the country has been making gains in this sector also.
Already, 50 Electronics Manufacturing Services (EMS)/Original Design Manufacturers
(ODMs) providers are operating in India, ranging from global players including
Flextronics and Solectron to indigenous firms including Deltron, TVS Electronics and
Sahasra. Indias contract-manufacturing business is expected to nearly triple in revenue
over the next five years, a development that will present both opportunities and potential
pitfalls for the worldwide electronics supply chain. Revenue generated by Electronics
Manufacturing Services (EMS) providers and Original Design Manufacturers (ODMs) in
India will expand to $2.03 billion in 2009, rising at a CAGR of 21per cent from $774
million in 2004. Indian EMS/ODM revenue grew by 20.8 per cent to reach $935 million
in 2005.
25

CHAPTER IV
DATA ANALYSIS AND INTETPRETATION
Corporate Governance practices at ECIL are reflected through the annual
directors comments and replies and accounting policies.
4.1 ANNUAL REPORT FOR THE YEAR 2009-2010
The company continues to take several measures to enhance the openness and
transparency of all its operations.
Board of Directors
In terms of Sec 617 of the Companies Act, 1956, ECIL is a Government
company. The entire paid up capital of the company is held by the President of India,
including the 3 shares held by his nominees.
The Board, as on date comprised of seven Directors - Chairman & Managing
Director, one Whole-time Director and five Non-Executive Directors. The Board meets at
regular intervals and is responsible for the proper direction and management of the
Company.
During the financial year, six Board Meetings were held on 21.04.2009,
28.05.2009, 04.07.2009, 18.09.2009, 14.12.2009, and 02.03.2010. The composition of the
Directors, their attendance at the Board Meetings during the financial year and at the last
Annual General Meeting , etc.,
The remuneration
The remuneration of whole-time Directors is fixed by the Government of India.
Dr M J Zarabi is an Independent Director and is paid Rs 3,000 as sitting fee per
attendance. All other Part-time Directors on Board are officials from Government / other
PSUs and therefore, are not paid any sitting fees for the meetings attended.
Audit Committee
The Audit Committee comprises of Shri Umesh Chandra, Shri V R Sadasivam
and Shri Y S Mayya, Director (T) (up to 30.4.2009). Shri J K Ghai, Director (Finance),
26

NPCIL is a special invitee for all the meetings. Shri Umesh Chandra is the Chairman of
the Committee. During the year, five meetings were held on 21.04.09, 03.07.09,
18.09.09, 30.12.09 and 02.03.10. The Audit Committee reviewed the implementation of
Accounting Standards and Audit Programmes and Internal Audit Reports. The
Committee perused the Annual Financial Statements and interacted with the Statutory
Auditors for improvement in the system for maintaining financial records as well as the
data under Cost Accounting Record Rules.
Corporate Management Committee
The Corporate Management Committee is a high level policy making body at the
Corporate level which is headed by the Chairman & Managing Director. The Committee
consists of all Functional Directors, Executive Directors, General Managers and Heads of
Divisions. The Committee meets regularly and deliberates upon the major policy issues
including performance of the Company. The President and General Secretary of ECEU
and President and Secretary of ECOA are the special invitees.
General Body Meetings

The details of the last three Annual General Meetings of the Company are given
below:

Year Date Time Venue
2006-07

2007-08

2008-09
26.9.2007

29.9.2008

18.9.2009
14.00 hrs

12.00 hrs

14.00 hrs
Registered ofce:
ECIL Post Ofce ,
Hyderabad
500062


The Company has obtained a Compliance Certificate from M/s K K Rao &
Associates Company Secretaries.

27

4.1.2 AUDITORS REPORTS AND COMPANY REPLIES ON ECIL


AUDITORS REPORT

COMPANYS REPLIES
To
The Members of
Electronics Corporation of India Limited
Hyderabad.
We have audited the attached Balance
Sheet of Electronics Corporation of India
Limited (ECIL), Hyderabad, as at 31st
March, 2010 and the related Profit & Loss
Account and the Cash Flow Statement for the
year ended on that date annexed thereto.
These financial statements are the
responsibility of the Companys
management. Our responsibility is to express
an opinion on these financial statements
based on our audit.
A) We conducted our audit in accordance
with the auditing standards generally
accepted in India. These standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the
financial statements are free of material
misstatement. An audit includes examining,
on a test basis, evidence supporting the
amounts and disclosures in the financial
statements. An audit also includes assessing
the accounting principles used and significant


















28

estimates made by the management, as well
as evaluating the overall financial statement
presentation. We believe that our audit
provides a reasonable basis for our opinion.
B) As required by the Companies (Auditors
Report) Order,2003 issued by the Central
Government of India in terms of Section
227(4A) of the Companies Act, 1956 and on
the basis of such checks as we considered
appropriate and according to the information
and explanations given to us, we annex hereto
a statement on the matters specified in
paragraphs 4 and 5 of the said order.
Further to our comments in the annexure
referred to in paragraph (B) above, attention
is invited to the following:
i) Note No: 2 in Schedule Q During the year
the company has changed Accounting Policy
on liquidated damages which has resulted in
increase of contingent liabilities by
Rs.1222.59 Lakhs and thereby increase in
Profit by the same amount.
ii) Note No: 9 In Schedule Q regarding
Recognition of Revenue on provisional basis
/ pending recommendation of the final price
by the Price Review Committee in respect of
Electronic Voting Machines at Rs.8670 per
unit for supplies.
iii) Note no.10 in Schedule Q regarding
reclassification of expenditure of Rs.2091.66
Lakhs from primary heads to functional heads



















The Company has been receiving in
full the amount of revenue recognized.



R&D expenditure has been identified
and reclassified and the practice is
being followed consistently.
29

under in house R&D expenditure. We have
relied on the information given by the
management and accepted the same for the
disclosure purpose.
iv) Note No 15 (i) in Schedule Q regarding
Deposit of Rs.128.64 Lakhs received from
NFC for the purpose of Investment in
APGPCL. Pending settlement of issues
between NFC and the Company with
reference to investment in shares and its
ownership, the amount deposited has been
exhibited under Current Liabilities.
v) Note No 5 in Schedule Q regarding
deviations from the Guidance Note issued by
Institute of Chartered Accountants of India
for VAT accounting.
D)Our comments on the Financial
Statements 2009-10 are as under :
1. Accounting Policy A on Revenue
Recognition
a) Refer Note No 8(i), the Company has the
practice of recognizing the sales on
retention basis which is retained at the
request of the customer in the custody of
the company, the Risk & Rewards for
which are not passed to the customer. The
same in our opinion is not in accordance
with the Accounting Standard (AS)-9 and
by which the revenue and debtors are
overstated by Rs 918.96 Lakhs,
expenditure and liabilities are overstated
by Rs 98.42 Lakhs, inventory is



The note referred to by the Statutory
Auditors is factual and self-
explanatory.




The note referred is self-explanatory. It
has no financial impact on the results
for the year.



All the items were customer specific
and inspected wherever pre-inspection
clause is applicable and ready for
delivery. They were retained on
customers specific requests. Since the
customer has specifically requested for
retention, it amounts to transfer of
significant risks and rewards to the
buyer. Further, as these are produced
against specific orders, there is no
uncertainty in taking delivery by the
customer. As on date, out of the total
30

understated by Rs 676.71 Lakhs.
Consequential increase of PBT by Rs
143.83 Lakhs.
The company is having the stock in its
custody which are sold on retention basis for
financial year 2002-03 (Rs 1517.40 Lakhs);
2003-04 (Rs 1040.92 Lakhs); 2004-05 (Rs
344.88 Lakhs); 2007-08 (Rs.200.80 Lakhs)
2008-09 (Rs.191.90 Lakhs)- aggregating to
Rs. 3295.90 Lakhs,awaiting dispatch as on
31.03.2010.
b) The company bifurcated the work orders
received into construction contracts (AS7)
and supply of products/ services (AS9), We
have relied on the percentage completion of
the projects under AS-7 as certified by the
management.
2. The balances appearing under Sundry
Debtors, Sundry Creditors, Advances to
Suppliers, Advances from Customers, EMDs
and Security Deposits, claims recoverable
and other amounts paid/ received are long
pending and subject to confirmation and
reconciliation and consequential adjustments.
In view of same we are unable to comment
on the recoverability/ liability on account of
same and the impact of the same on the profit
and Loss statement.
3. Refer Note No. 15(vi) of schedule
Qregarding disclosure as per section 22 of
the Micro, Small and Medium Enterprises
retention sales recognized, an amount
of Rs.953 lakhs have already been
dispatched.















The Company has a practice of issuing
letters for confirmation of balances of
Sundry Debtors. There is a review
mechanism in place for outstanding
Sundry Debtors, Creditors and
Liquidated Damages etc. and necessary
actions have been taken. During the
year, apart from the confirmation
letters to Sundry Debtors, letters for
confirmation of balances in respect of
Sundry Creditors, Advances paid to
suppliers and Advances received from
Customers were sent with a request to
31

Development Act, 2006, we have relied on
the information given by the management and
accepted the same for the disclosure purpose.
4. Considering the substantial amounts
involved in disputes at different levels
particularly relating to Income Tax, Sales
Tax, excise, service tax, etc, we are not in a
position to comment on the ultimate liability
that may devolve on the company and as such
the treatment given by the company showing
Contingent Liability has been relied upon by
us, as the issues are sub-judice.
E) Subject to our above comments, we
report that:
a. We have obtained all the information and
explanations which to the best of our
knowledge and belief were necessary for the
purposes of our audit;
b. In our opinion, proper books of account as
required by law have been kept by the
Company, so far as appears from our
examination of those books;
c. The Balance Sheet, the Profit & Loss
account and Cash Flow statement dealt with
by this report are in agreement with the books
of account;
d. In our opinion, the Balance Sheet, the
Profit and 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
send the confirmations directly to the
statutory auditors. Replies received
have been properly dealt with.
32

Companies Act, 1956 except to the extent of
the deviations expressed in paragraphs C and
D above in so far as they relate to changes in
accounting policies, AS-9 on Revenue
Recognition.
e. As per circular No.8/2002, dated
22.03.2002 issued by the Ministry of Law,
Justice & Company Affairs, the provisions of
section 274 (1)(g) of the Companies Act,
1956 are not applicable to the Company, as it
is a Government Company.
f. According to our information, the Central
Government has not issued any Notification
for the purpose of levy and collection of cess
under section 441A of the Companies Act,
1956.
g. We report that without considering items 2,
3 and 4 of Para-D above, the impact of which
could not be determined or where we have
relied on the information given by the
management, had the other observations
made by us under 1 of Para-D above been
considered;
The gross sales would have been
Rs.117821.28 Lakhs instead of Rs.118740.24
Lakhs;
Total expenditure would have been
Rs.108623.12 Lakhs instead of Rs.108721.54
Lakhs;
Profit before tax for the year would have
been Rs.5297.97 Lakhs instead of Rs.5441.80
33

Lakhs;
Sundry Debtors would have been
Rs.140825.91Lakhs as against Rs.141744.87
Lakhs;
Current liabilities would have been
Rs.128623.91 Lakhs as against Rs.128722.33
Lakhs;
Inventories on 31.03.2010 would have been
Rs.20144.58 Lakhs instead of Rs.19467.87
Lakhs.
h) In our opinion and to the best of our
opinion and according to the explanations
given to us, the said accounts read together
with the accounting policies and notes
forming part of accounts, further, read with
our comments in the Annexure referred to in
paragraph B and subject to our comments
given in paragraph D and the cumulative
consequent effect thereof on the accounts to
the extent quantified, as stated in paragraph
E(g) above, give the information as required
by the Companies Act, 1956 in the manner so
required and give a true and fair view in
conformity with the accounting principles
generally accepted in India: a) In the case of
the Balance Sheet, of the state of affairs of
the Company as at 31.03.2010.
b) In case of the Profit and Loss Account, of
the profit for the year ended on that date; and
c) In the case of the Cash Flow Statement, of
the cash flows for the year ended on that date.
34

4.1.3 COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA
UNDER SECTION 619(4) OF THE COMPANIES ACT 1956 ON THE ACCOUNTS OF
ELECTRONICS CORPORATION OF INDIA LIMITED,HYDERABAD FOR THE YEAR
ENDED 31 MARCH 2010.

The preparation of financial statements of Electronics Corporation of India
Limited, Hyderabad for the year ended on 31 March 2010 in accordance with the
financial reporting framework prescribed under the Companies Act, 1956 is the
responsibility of the management of the Company. The statutory auditor appointed by the
Comptroller and Auditor General of India under Section 619(2) of the Companies Act,
1956 is responsible for expressing opinion on these financial statements under Section
227 of the Companies Act,1956 based on the 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 29 June 2010.

I, on the behalf of the Comptroller and Auditor General of India, have conducted
a supplementary audit under Section 619(3)(b) of the Companies Act, 1956 of the
financial statements of Electronics Corporation of India Limited, Hyderabad for the year
ended on 31 March 2010. 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 auditor and company personnel and a selective examination of
some of the accounting records. On the basis of my audit, nothing significant has come to
my knowledge, which would give rise to any comment upon or supplement to Statutory
Auditor's report under Section 619(4) of the Companies Act, 1956.




35

4.2 ANNUAL REPORT FOR THE YEAR 2010-2011
The company continues to take several measures to enhance the openness and
transparency of all its operations.
Board of Directors:
In terms of Sec 617 of the Companies Act, 1956, ECIL is a Government company.
The entire paid up capital of the company is held by the President of India, including the
3 shares held by his nominees.
The board as on date, comprises of ten - Directors, Chairman & Managing
Director three whole-time Directors and 6 (Six) Non- Executive Directors. The Board
meets at regular intervals and is responsible for the proper direction and management of
the Company.
During the nancial year, 8 (eight) Board Meetings were held on 24th May,
2010, 9th June, 2010, 13th August, 2010, 27th September, 2010, 8th November,2010,
28th January, 2011, 1st March, 2011 and 14th March, 2011. The composition of
Directors, their attendance at the Board Meetings during the nancial year and at the
last Annual General Meetings etc.
The remuneration:
The remuneration of whole-time Directors is fixed by the Government of India as
the company is a Government company in terms of section 617of the Companies Act,
1956. At present, all the part time Directors except Dr. M J Zarabi , are Government
officials from other PSUs and therefore, are eligible for sitting fee for the meetings
attended by them. Dr. MJ Zarabi, who is an Independent Director, is being paid Rs. 2500
as sitting fee per attendance.
Audit Committee:
A three-member Audit Committee was constituted by the board in March
2001comprising of two Non-Executive Directors and a whole time Director. With
regard to terms of reference, powers and functions of the committee, the Board suggested
36

that the provisions in Clause 49 of Listing Agreement prescribed by SEBI as applicable
to listed Companies are to be followed as guidelines.
The Audit Committee presently comprises of two Non-Executive Directors, Sri
Rahul Asthana, (up to 26.03.2007) and Sri Umesh Chandra and one whole time Director
(Technical) of the company, Sri G.N.V. Satyanarayana. Sri Rahul Asthana is the
chairman of the committee. During the year, four meetings of the committees were held
on 09.02.2006, 27.07.2006, 08.11.2006 and 01.03.2007.
The Audit committee reviewed the implementation of Accounting Standards and
Audit Programmes. The committee reviewed the Internal Audit Reports and also the
report on Fixed Assets Physical Verification. The committee pursued the Annual
Financial Statements and interacted with the Statutory Auditors for improvement in the
system for maintaining financial records as well as the data under Cost Accounts Record
Rules.
Boards Sub-Committee on Capital Projects:
The Board reconstituted the sub-committee on Capital Projects on
29.3.2003consisting of Sri V.P.Raja, Non-Executive Director, Sri A .Murugesan,
Director (Finance) and Sri.G.N.V.Satyanarayana, Director (Technical) to scrutinize the
capital proposals and recommend to the Board for its approval.
Investments Committee:
The Board constituted an Investment Committee on 17.12.2003 consisting
of Chairman & Managing Director, Director (Finance), General Manager (Accounts) and
are preventative from Corporate Planning and Projects Monitoring Division. This
committee will consider the proposals for investment of surplus funds in nationalized
banks or sound rated scheduled banks at the highest and competitive rates as per DPE
guidelines.
Corporate Management Committee:
The Corporate Management Committee is a high level policy making body at the
Corporate level which is headed by the Chairman & Managing Director. The Committee
consists of all Functional Directors, Executive Directors, General Manager and Heads
37

of Divisions. The Committee meets deliberates on the major policy issues
including performance of the company. The President and General Secretary of ECEU
and President and Secretary of ECOA are the special invitees.
Apex Committee:
The Apex Committee is constituted under the scheme of Workers Participation in
Management. The Committee is headed by Chairman & Managing Director and
other members include Functional Directors on the Board, Executive Directors, General
Manager (HR), President and General Secretary of ECEU and President and Secretary of
ECOA.
General Body Meetings:
The details of the last three Annual General Meetings of the Company are given
below:

Year Date Time Venue
2007-08

2008-09

2009-10
29.09.2008

18.09.2009

13.08.2010
12.00 hrs

14.00 hrs

14.00 hrs
Registered ofce, ECIL Post
Ofce , Hyderabad do-
500062










38

4.2.1 AUDITORS REPORTS AND COMPANY REPLIES ON ECIL


AUDITORS REPORT

COMPANYS REPLIES TO AUDITORS
To
The Members of
Electronics Corporation of India Limited
Hyderabad.
We have audited the attached Balance Sheet
of Electronics Corporation of India Limited
(ECIL), Hyderabad, as at March, 2011 and
the related Prot & Loss Account and the
Cash Flow Statement for the year ended on
that date annexed thereto. These nancial
statements are the responsibility of the
Companys management. Our responsibility
is to express an opinion on these nancial
statements based on our audit.
A)We conducted our audit in accordance with
the auditing standards generally accepted in
India. These standards require that we plan
and perform the audit to obtain reasonable
assurance about whether the nancial
statements are free of material misstatement.
An audit includes examining, on a test
basis, evidence supporting the amounts and
disclosures in the nancial statements. An
audit also includes assessing the accounting
principles used and signicant estimates made
by the management, as well as evaluating the


















39

overall nancial statement presentation.We
believe that our audit provides a reasonable
basis for our opinion.
B) As required by the Companies
(Auditors Report) Order, 2003 issued by the
Central Government of India in terms of
Section 227(4A) of the Companies Act, 1956
and on the basis of such checks as we
considered appropriate and according to the
information and explanations given to us,
we annex hereto a statement on the matters
specied in paragraphs 4 and 5 of the said
order.
C) Further to our comments in the
annexure referred to in paragraph (B)
above, attention is invited to the following
1) Note No:7 In Schedule Q regarding
Recognition of Revenue on provisional
basis / pending recommendation of the
nal price by the Price Review Committee in
respect of Electronic Voting Machines at
Rs.8670 per unit for supplies.
2) Note no. 8 in Schedule Q regarding re
classication of expenditure of Rs.2696.85
Lakhs from primary heads to functional
heads under in-house R&D expenditure. We
have relied on the information given by
the management and accepted the same for












The Company has been receiving in full the
amount of revenue recognized.



R&D expenditure has been identied and
reclassied and the practice is being followed
consistently.


40

the disclosure purpose.
3) Note No 13 (i) in Schedule Q regarding
Deposit of Rs.128.64 Lakhs received from
NFC for the purpose of Investment in
APGPCL.Pending settlement of issues
between NFC and the Company with
reference to investment in shares and its
ownership, the amount deposited has been
exhibited under Current Liabilities.
4) Note No 3 in Schedule Q regarding
deviations from the Guidance Note issued by
Institute of Chartered Accountants of India
for VAT accounting.
5) 5) Note No. 6: The company is having the
stock in its custody which are sold on
retention basis for nancial year 2002-03
(Rs 1517.40 Lakhs); 2003-04 (Rs 1040.92
Lakhs); 2004-05 (Rs 344.88 Lakhs); 2009-10
(Rs.143.12 Lakhs) 2010-11 (Rs.641.38
Lakhs)- aggregating to Rs.3687.70Lakhs,
awaiting dispatch as on 31.03.2011
(Accounting Policy A on Revenue
Recognition)
6) 6) The company bifurcated the work orders
received into construction contracts (AS-7)
and supply of products/ services (AS-9), we
have relied on the percentage completion of
the projects under AS-7 as certied by the
management.

The note referred to by the Statutory Auditors is
factual and self-explanatory.




The note referred is self-explanatory. It has no
nancial impact on the results for the year.


All the items were customer specic and
inspected wherever pre-inspection clause is
applicable and ready for delivery. They were
retained on customers specic requests. As on
date,out of the total retention sales recognized,
an amount of Rs.641.38 lakhs have already
been dispatched.






41

7) 7) The balances appearing under Sundry
Debtors, Sundry Creditors, Advances to
Suppliers, Advances from Customers, EMDs
and Security Deposits, claims recoverable and
other amounts paid/ received are long
pending. We are unable to comment on the
recoverability/ liability and the impact of the
same on the prot and Loss statement.
8) 8) Refer Not e No. 13(vi) of schedule
Q regarding disclosure as per section 22
of the Micro, Small and Medium Enterprises
Development Act, 2006, we have relied on the
information given by the management and
accepted the same for the disclosure purpose.
9) 9) Considering the substantial amounts
involved in disputes at different levels
particularly relating to Income Tax, Sales
Tax, excise, service tax, etc, we are not in a
position to comment on the ultimate liability
that may devolve on the company and as
such the treatment given by the company
showing Contingent Liability has been relied
upon by us, as the issues are sub-judice.

D) D) Further to the above, our comments
on the Financial Statements of 2010-11 are
as under.
1. 1.Note No: 2(B)(i) in Schedule Q The
Company has charged an amount of
Rs.26.80 Crores only against the total
gratuity liability amount of Rs.133.99
The Company has developed a review
mechanism for outstanding dues and periodical
review is taken up with all the heads and
marketing In-charges of the Divisions for
review, conrmation and collection of
outstanding dues.













Consequent to the amendment to The Payment
of Gratuity Act, 1972 increasing the ceiling
limit from Rs. 3.5 lakhs to Rs. 10 lakhs with
effect from 24
th
May, 2010, the total amount
chargeable to Prot & Loss Account, as per
actuarial valuation, as on 31
st
March, 2011 is
42

Crores to be provided as per the
Accounting Standard 15 (Employee
Benets) issued by ICAI. Had the entire
amount been charged to the Prot and
Loss Account, the prot before tax of
Rs.22.36 Crores would have become a
Loss of Rs.84.83 Crores.







E) Subject to our above comments, we
report that:
a. We have obtained all the information and
explanations which to the best of our
knowledge and belief were necessary for the
purposes of our audit;
b. b. In our opinion, proper books of account
as required by law have been kept by the
Company, so far as appears from our
examination of those books,
c. c. The Balance Sheet, the Prot & Loss
account and Cash Flow statement dealt with
by this report are in agreement with the
books of account;
Rs.133.99 crores. As the substantial increase in
liability pertains to the services of the
employees of earlier years and the said
provision is too huge to be met in a single
nancial year, drawing analogy from RBI &
IRDA guidelines to Banks and Insurance
Companies respectively, to amortise the
liability over ve years beginning March,
2011 the Company has charged one fth of
the gratuity liability during the current
nancial year, since the scenario of Banks and
Insurance Companies with respect of Gratuity
is same with that of the Company and the
accounting treatment should conceptually
remain same irrespective of the nature of
industry, i.e., Companies incorporated under
Companies Act, 1956 or otherwise.










43

d. d. In our opinion, the Balance Sheet, the
Prot and 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 except to the
extent of the deviations expressed in
paragraph D above.
e. As per circular No.8/2002, dated
22.03.2002 issued by the Ministry of Law,
Justice & Company Affairs, the provisions of
section 274 (l)(g) of the Companies Act, are
not applicable to the Company, as it is a
Government Company.
f. f. According to our information, the Central
Government has not issued any Notication for
the purpose of levy and collection of cess
under section 441A of the Companies Act,
1956.
g. g. We report that without considering
items 5 to 9 of Para-C above, the impact of
which could not be determined or where we
have relied on the information given by the
management, had the other observations made
by us under Para D above been considered;
N Total expenditure would have been
Rs.132797.04 Lakhs instead of Rs.122077.54
Lakhs;
P Prot before tax for the year would have
been Rs.(8482.82) Lakhs instead of
Rs.2236.68 Lakhs;
44

Current liabilities &Provisions would have
been Rs.137740.35 Lakhs as against
Rs.127020.85 Lakhs;
h. In our opinion and to the best of our
opinion and according to the explanations
given to us, the said accounts read together
with the accounting policies and notes
forming part of accounts, further, read with
our comments in the Annexure referred to in
paragraph B and subject to our comments
given in paragraph D and the cumulative
consequent effect thereof on the accounts
to the extent quantied, as stated in
paragraph E(g) above, give the information
as required by the Companies Act, 1956 in the
manner so required and give a true and fair
view in conformity with the accounting
principles generally accepted in India:
a) In the case of the Balance Sheet, of the
state of affairs of the Company as at
31.03.2011.
b)In case of the Prot and Loss Account, of
the prot for the year ended on that date; and
c) c) In the case of the Cash Flow Statement, of
the cash ows for the year ended on that date.




45

4.2.2 COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA
UNDER SECTION 619(4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF
ELECTRONICS CORPORATION OF INDIA LIMITED, HYDERABAD FOR THE
YEAR ENDED 31 MARCH 2011
The preparation of nancial statements of Electronics Corporation of India
Limited, Hyderabad for the year ended 31 March 2011 in accordance with the nancial
reporting framework prescribed under the Companies Act, 1956 is the responsibility of
the management of the Company. The statutory auditor appointed by the Comptroller and
Auditor General of India under Section 619(2) of the Companies Act, 1956 is responsible
for expressing opinion on these nancial 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 29 June
2011.
I, on the behalf of the Comptroller and Auditor General of India, have conducted
a supplementary audit under Section 619(3)(b) of the Companies Act, 1956 of the
nancial statements of Electronics Corporation of India Limited, Hyderabad 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
enquiries of the statutory auditor and Company personnel and selective examination of
some of the accounting records. On the basis of my audit, nothing signicant has come to
my knowledge which would give rise to any comment upon or supplement to Statutory
Auditors report under Section 619(4) of the Companies Act, 1956.





46

4.3 ANNUAL REPORT FOR THE YEAR 2011-2012
The company continues to take several measures to enhance the openness and
transparency of all its operations.
Board of Directors:
In terms of Sec 617 of the Companies Act, 1956, ECIL is a Government company.
The entire paid up capital of the company is held by the President of India, including the
3 shares held by his nominees.
The board as on date, comprises of ten - Directors, Chairman & Managing
Director three whole-time Directors and 6 (Six) Non- Executive Directors. The Board
meets at regular intervals and is responsible for the proper direction and management of
the Company.
During the nancial year, 8 (eight) Board Meetings were held on 24th May,
2010, 9th June, 2010, 13th August, 2010, 27th September, 2010, 8th November,2010,
28th January, 2011, 1st March, 2011 and 14th March, 2011. The composition of
Directors, their attendance at the Board Meetings during the nancial year and at
the last Annual General Meetings etc.,
The remuneration:
The remuneration of whole-time Directors is fixed by the Government of India as
the company is a Government company in terms of section 617of the Companies Act,
1956. At present, all the part time Directors except Dr. M J Zarabi , are Government
officials from other PSUs and therefore, are eligible for sitting fee for the meetings
attended by them. Dr. MJ Zarabi, who is an Independent Director, is being paid Rs. 2500
as sitting fee per attendance.
Audit Committee:
A three-member Audit Committee was constituted by the board in March
2001comprising of two Non-Executive Directors and a whole time Director. With
regard to terms of reference, powers and functions of the committee, the Board suggested
47

that the provisions in Clause 49 of Listing Agreement prescribed by SEBI as applicable
to listed Companies are to be followed as guidelines.
The Audit Committee presently comprises of two Non-Executive Directors, Sri
Rahul Asthana, (up to 26.03.2007) and Sri Umesh Chandra and one whole time Director
(Technical)of the company, Sri G.N.V. Satyanarayana. Sri Rahul Asthana is the chairman
of the committee. During the year, four meetings of the committees were held on
09.02.2006, 27.07.2006, 08.11.2006 and 01.03.2007. The Audit committee reviewed the
implementation of Accounting Standards and Audit Programmes.
The committee reviewed the Internal Audit Reports and also the report on Fixed
Assets Physical Verification. The committee pursued the Annual Financial Statements
and interacted with the Statutory Auditors for improvement in the system for maintaining
Financial records as well as the data under Cost Accounts Record Rules.
Boards Sub-Committee on Capital Projects:
The Board reconstituted the sub-committee on Capital Projects on
29.3.2003consisting of Sri V.P.Raja, Non-Executive Director, Sri A .Murugesan,
Director (Finance) and Sri.G.N.V.Satyanarayana, Director(Technical) to scrutinize the
capital proposals and recommend to the Board for its approval.
Investments Committee:
The Board constituted an Investment Committee on 17.12.2003 consisting
of Chairman & Managing Director, Director (Finance), General Manager (Accounts) and
are preventative from Corporate Planning and Projects Monitoring Division. This
committee will consider the proposals for investment of surplus funds in nationalized
banks or sound rated scheduled banks at the highest and competitive rates as per DPE
guidelines.


48

Corporate Management Committee:
The Corporate Management Committee is a high level policy making body at the
Corporate level which is headed by the Chairman & Managing Director. The Committee
consists of all Functional Directors, Executive Directors, General Manager and Heads
of Divisions. The Committee meets deliberates on the major policy issues
including performance of the company. The President and General Secretary of ECEU
and President and Secretary of ECOA are the special invitees.
Apex Committee:
The Apex Committee is constituted under the scheme of Workers Participation in
Management. The Committee is headed by Chairman & Managing Director and
other members include Functional Directors on the Board, Executive Directors, General
Manager (HR), President and General Secretary of ECEU and President and Secretary of
ECOA.
General Body Meetings

The details of the last three Annual General Meetings of the Company are given
below:



Year Date Time Venue
2007-08

2008-09

2009-10
29.09.2008

18.09.2009

13.08.2010
12.00 hrs

14.00 hrs

14.00 hrs
Registered ofce, ECIL Post
Ofce , Hyderabad do-
500062


49

4.3.1 AUDITORS REPORTS AND COMPANY REPLIES ON ECIL

AUDITORS REPORT

COMPANYS REPLIES TO AUDITORS
To
The Members of
Electronics Corporation of India Limited
Hyderabad.
We have audited the attached Balance Sheet
of Electronics Corporation of India Limited
(ECIL), Hyderabad, as at 31
st
March, 2012 and
the related Prot & Loss Account and the Cash
Flow Statement for the year ended on that date
annexed thereto.
Managements Responsibility for the
Financial Statements:
Management is responsible for the preparation of
these financial statements that give a true and fair
view of the financial position, financial
performance and cash flow of the Company in
accordance with the Accounting Standards
referred to in sub-section (3c) of Section 211 of
the Companies Act, 1956(the Act). This
responsibility includes the design,
implementation and maintenance of internal
control relevant to the preparation and fair
presentation of the financial statements that are
free from material misstatement, whether due to
fraud or error.
Auditors Responsibility:
Our responsibility is to express an opinion on



























50

these financial statements based on our audit.We
conducted our audit in accordance with the
Standards of Auditing issued by the Institute of
Chartered Accountants of India. Those Standards
require that we comply with ethical requirements
and plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts and
disclosures in the financial statements. The
procedures selected depend on the auditors
judgment, including the assessment of the risks
of material misstatement of the financial
statements, whether due to fraud or error. In
making those risk assessments, the auditor
considers internal control relevant to the
Companys preparation and fair presentation of
the financial statements in order to design audit
procedures that are appropriate in the
circumstances. An audit also includes evaluating
the appropriateness of accounting polices used
and the reasonableness of the accounting
estimates made by management, as well as
evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our qualified audit opinion.
Basis for Qualified Opinion:
Consequent to the amendment to the Payment






























Consequent to the amendment to The
51

of Gratuity Act, 1972 enhancing the ceiling for
payment of gratuity from Rs.3.50 lakhs to Rs.10
lakhs per employee, the total expenditure
chargeable to the statement of profit and Loss for
the year 2010-11 was Rs.13399.37 Lakhs.
However the company has not charged the entire
amount during the year 2010-11 and has been
amortising the said amount in five equal annual
installments of Rs. 2679.87 Lakhs each
commencing from the year 2010-11, which
constitutes a departure from the Accounting
Standards referred in Sec 211(3)(c) of the Act.
Accordingly Rs.2679.87 Lakhs has been
charged by the company to the statement of
Profit and Loss of the year under audit and the un
amortised amount as at 31st March 2012 is
Rs.8039.63 Lakhs. As a result the profit for the
year is understated by an amount of Rs.2679.87
lakhs. further the Reserves and surplus are over
stated by Rs.8039.63 lakhs and the current
liabilities are under stated by an equal amount.



2.The balances appearing under Trade
Receivables, Sundry Creditors Advances to
Suppliers, Advances from Customers, EMDs and
Security Deposits, claims recoverable and other
amounts aid/received include certain of amounts
which are long outstanding. Pending
confirmations, econciliations and consequent
Payment of Gratuity Act, 1972 increasing the
ceiling limit from Rs. 3.5 lakhs to Rs. 10
lakhs with effect from 24th May, 2010, the
total amount chargeable to Profit & Loss
Account, as per actuarial valuation, as on 31st
March, 2011 is Rs.13399.37 lakhs. As the
substantial increase in liability pertains to the
services of the employees of earlier years and
the said provision is too huge to be met in a
single financial year, drawing analogy from
RBI & IRDA guidelines to Banks and
Insurance Companies respectively, to
amortize the liability over five years
beginning March, 2011; the Company has
charged one fifth of the gratuity liability for
the financial year 2011- 12 also, since the
scenario of Banks and Insurance Companies
with respect of Gratuity is same with that of
the Company and the accounting treatment
should conceptually remain same irrespective
of the nature of industry, i.e., Companies
incorporated under Companies Act, 1956 or
otherwise.

Present review mechanism will be
strengthened for reviewing the long
outstanding dues. Confirmation of balances
for customers/ suppliers will be sent for the
balances outstanding as on 30th September, as
against the present practice of 31st December
and will be followed up.
52

adjustments, if any, of such balances, the impact
of the same on the Statement of Profit and Loss
and Balance Sheet, is not quantifiable.

Opinion:
In our opinion and to the best of our information
and according to the explanation given to us,
except for the effects of the matter described in
the Basis for Qualified Opinion paragraph, the
financial statements give the information required
in the Act in the manner so required and give a
true and fair view in conformity with the
accounting principles generally accepted in India.
a) in the case of the Balance Sheet, of the state of
affairs of the Company as at 31.03.2012.
b) in case of the Statement of Profit and Loss, of
the profit for the year ended on that date;and
c) in the case of the Cash Flow Statement,of the
cash flows for the year ended on that date.

Report on Other Legal and Regulatory
Requirements
1. As required by the Companies (Auditors
Report) Order, 2003 read with Companies
(Auditors Report) (Amendment) Order, 2004
issued by the Central Government of India in
terms of Section 227(4A) of the Act, we annex
hereto a statement on the matters specified in
paragraphs 4 and 5 of the said order.
2. As required by Section 227(3) of the Act, we
report that:

53

a. We have obtained all the information and
explanations which to the best of our knowledge
and belief were necessary for the purposes of our
audit;
b. In our opinion, proper books of account as
required by law have been kept by the Company
so far as appears from our examination of those
books,
c. The Balance Sheet, the Statement of Profit &
Loss and Cash Flow statement dealt with by this
report are in agreement with the books of account
and with the returns received from branches not
visited by us;
d. Except for the effects of the matter described
in the Basis of Qualified Opinion paragraph, in
our opinion, the Balance Sheet,the Statement of
Profit and Loss and the Cash Flow statement
dealt with by this report comply with the
Accounting Standards referred to in subsection
3C of Section 211 of the Act.
e. As per circular No.8/2002, dated 22.03.2002
issued by the Ministry of Law, Justice &
Company Affairs, the provisions of section
274(1)(g) of the Act, are not applicable to the
Company, as it is a Government Company.
f. Since the Central Government has not issued
any notification as to the rate at which the cess is
to be paid under section 441A of the Act nor has
it issued any rules under the said section,
prescribing the manner in which such cess is to be
paid, no dues payable by the Company.
54

4.3.2 COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA
UNDER SECTION 619(4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF
ELECTRONICS CORPORATION OF INDIA LIMITED, HYDERABAD FOR THE
YEAR ENDED 31 MARCH 2012
The preparation of nancial statements of Electronics Corporation of India
Limited, Hyderabad for the year ended 31 March 2012 in accordance with the nancial
reporting framework prescribed under the Companies Act, 1956 is the responsibility of
the management of the Company. The statutory auditor appointed by the Comptroller and
Auditor General of India under Section 619(2) of the Companies Act, 1956 is responsible
for expressing opinion on these nancial 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 29 June
2012
I, on the behalf of the Comptroller and Auditor General of India, have conducted
a supplementary audit under Section 619(3)(b) of the Companies Act, 1956 of the
nancial statements of Electronics Corporation of India Limited, Hyderabad for the year
ended 31 March 2012. This supplementary audit has been carried out independently
without access to the working papers of the statutory auditors and is limited primarily to
enquiries of the statutory auditor and Company personnel and selective examination of
some of the accounting records. On the basis of my audit, nothing signicant has come to
my knowledge which would give rise to any comment upon or supplement to Statutory
Auditors report under Section 619(4) of the Companies Act, 1956.
4.4 ACCOUNTING POLICIES
Basis of Accounting:
The financial statements are prepared and presented under the historical cost
convention, in accordance with Generally Accepted Accounting Principles in India
(IGAAP) and the provisions of the Companies Act, 1956.

55

Use of Estimates:
The preparation of financial statements requires estimates and assumptions (including
revisions, if any) that affect the reported amount of assets and liabilities on the date of
financial statements and the reported amount of revenues and expenses during reporting
period. Differences between the actual results and estimates are recognized in the period
in which the results are known / materialized.
A) Recognition of Revenue:
(i) Sales include Excise Duty and exclude Sales Tax / Value Added Tax and Service Tax
and revenue is recognized on accrual basis inter-alia in the following cases :
a) In case of FOR destination cases, Revenue is recognized on dispatch if there is
reasonable expectation of the goods reaching the destination within the accounting
period.
b) In case of Ex-works, FOT works, FOR Works contracts, revenue is recognized when
the goods are handed over to the carrier for transmission to the buyer.
c) In respect of composite contracts involving supply and services where price breakup is
available, revenue in respect of supplies are recognized when goods are delivered to
customers unconditionally and service income is recognized based on completion of
services. And where price break-up is not available, revenue is recognized as per contract
value duly providing for services on estimated basis for the supplies made
unconditionally.
d) Revenue is recognized in respect of services/software against completion of
milestones/ acceptance/ acknowledgement, where break-up values for each system/
package are available in contract or based on technical estimates where such break up
values are not available.
e) If the sale price is pending finalization, revenue is recognized on the basis of price
expected to be realized.
(ii) On transfer of items (for Defence) to the bonded stores awaiting field-testing.
56

(iii) On completion of customers prior inspection and acceptance in case the contract so
provides, even if the goods are retained in the custody of the Company at the request of
the customer.
(iv) In case of turnkey/composite contracts of complex equipment/ systems, where the
normal cycle time for completion is more than 12 months, subject to provision of
anticipated losses, revenue is recognized (excluding taxes and duties) based on
percentage completion method based on the percentage of actual cost incurred up to the
reporting date to the total estimated cost of the contract.
B. Internal Capitalization and Inter-Group Transfers:
i) Internal Capitalization: Equipment manufactured for internal use is capitalized at
cost.
ii) Inter-Group Transfers: Inter and Intra group transfers are made at agreed transfer
price. However, unutilized stock of such items at the yearend lying as inventory is valued
at cost or NRV whichever is lower.
C. Inventory:
i) Raw materials, stores and spares and components are valued at cost (net of
CENVAT/VAT) by using weighted average cost formula or NRV whichever is lower.
Inventories which are non-moving for more than 3 years and which may not be required
for further use are suitably provided and in the case of inventories which are less than 3
years old, provision is made as assessed technically.
ii) Work in progress of products / projects is valued at Factory Cost or NRV whichever is
lower and such valuation is based on technical estimate as to the stage of progress.
iii) Finished goods are valued at factory cost or net realizable value whichever is
lower.
D. Fixed Assets and Depreciation of Assets:
i) a) fixed Assets are stated at historical cost net of CENVAT/VAT, if any.
b) Assets are depreciated on straight line method and depreciation is charged on monthly
prorate basis for the additions / deletions during the year. The rates of depreciation
57

adopted by the Company are as per Schedule XIV of the Companies Act, 1956, except in
the following cases:
(i) Where the cost of the asset is Rs.10,000/- or below (for assets acquired after
01.04.2003) depreciation is at 100% of the cost retaining Re.1/- in the net block.
(ii) Computer Systems acquired by Computer Education Division (CED) and systems
sent on hire or for demonstration or for use outside factory is depreciated @ 50%.
(iii) Assets acquired by Electronic Manufacturing Services Division under the heads of (i)
Plant and Machinery and
(ii) Electronic Testing and Measuring Equipment which are depreciated at the rate of
50%.
(iv) Structures, erections, warehouses, Electrical installations and other similar enabling
works at projects / sites are depreciated considering the tenure of the contracts.
(v) Data processing equipment acquired for execution of NPR & SECC project is
Depreciated @ 50%.
ii) Impairment of Assets: As at the end of each Balance Sheet date, the carrying amount
of assets is assessed as to whether there is any indication of impairment. If the estimated
recoverable amount is found less than its carrying amount, the impairment loss is
recognized and assets are written down to their recoverable amount.
E. Prepaid Expenses and Prior Period Expense / Income:
Prepaid expenses and prior period expenses / income of items of Rs.1,00,000 and
below are charged to natural heads of accounts.
F. Technical Knowhow:
Expenditure on Technical Knowhow (TKH) fees, Software, Training of Personnel
etc., are charged off to revenue on incurrence. However, in case of TKH charges incurred
for new product lines or up gradations expenditure is amortised,based on technical
assessment over the life cycle of the Project not exceeding 5 years.

58

G. Demurrages and Wharfages:
Expenditure on demurrages and/or wharfages on all imports, whether capital or
otherwise, is charged off to revenue.
H. Foreign Currency Transactions and Exchange Variation:
Transactions in foreign currencies are accounted at the exchange rate prevailing
on the date of transactions. Gains / losses arising out of the fluctuations in the exchange
rate are recognized in the profit & loss account in the period in which they arise.
The foreign currency fluctuations relating to monetary items at the year ending
are accounted as gains / losses in the profit & loss account.
I. Government Grants:
Govt. grants related to specific fixed assets are shown as a deduction from the
gross value of the assets concerned and those related to Revenue are deducted from the
relevant expense accounts in the year in which the expenditure is incurred.
Subject to the conditions of the Grants, fully funded assets are shown at nominal
value, while partially funded assets are shown after reduction of the grant amount.
J. Research & Development Expenditure:
Research and development expenditure of revenue nature is charged off to
revenue when incurred; while of capital nature is capitalized.
K. Employee Benefits:
i) Provisions for gratuity and leave encashment liability to employees are made on the
basis of actuarial valuation as at the year end. Actuarial gains and losses are recognized in
the statement of profit and loss as income or expense.
ii) Compensation under VRS is charged off to revenue in the year of incurrence.
L. Borrowing Costs:
Borrowing costs, directly attributable to the acquisition, construction or
production of qualifying assets are capitalized till the month in which the asset is ready to
59

use as part of the cost of that asset. Other borrowing costs are recognized as an expense in
the period in which these are incurred.
M. Deferred Taxes:
Deferred Income Tax is provided using the liability method on all temporary
timing differences at the Balance Sheet date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply to the period when the asset is realized or the liability settled, based on tax rates
(and the tax laws) that have been enacted upto the date of approval of the financial
statements.
N. Investments:
Long term investments are carried at cost. Provision is made for dimunition, other
than temporary, in the value of such investments.
O. Leases:
a) Assets given on operating lease are capitalized. The related lease income is recognized
as income, over the lease period, on accrual basis. In respect of lease and sublease
arrangement, the lease rental received and payable are recognized as income and
expenditure respectively in the Profit & Loss Account on accrual basis.
b) Assets given on finance lease are recognized as sale at normal sale price/fair value/Net
Present Value. Finance income is recognized over the lease period. Initial direct costs are
expensed in the year of incurrence. In respect of assets taken on finance lease and
subsequently sub-leased, the Accounting Policy for finance lease, as stated is applicable.
P. Liquidated Damages:
Claims for liquidated damages against the company are considered, to the extent
revenue recognized except those which are considered by the management as negotiable
and not payable. However, the same are treated as contingent liability.


60

Q. Provisions, Contingent Liabilities and Contingent Assets:
Provisions involving substantial degree of estimation in measurement are
recognized when there is a present obligation as a result of past events and it is probable
that there will be an outflow of resources. Contingent Liabilities are not recognized but
are disclosed in the notes. Contingent Assets are neither recognized nor disclosed in the
financial statements.

4.5 PROBLEMS OF CORPORATE GOVERNANCE
1. Control:
a) Advisers: Problems regularly arise for which the enterprise does not have the internal
skills selecting the right advisers for each stage of development will be a vital first stage
in best practice and one that will have to be regularly reviewed.
b) Articles of Association/Company statutes: Defining what the enterprise can do is
another vital first stage in development one that tells management what is permitted and
what is not. Standard terms and conditions exist which function for the early stage
organization, but which again will need to be regularly reviewed.
c) Shareholders agreement: In small organizations, with a limited shareholder base,
conflicts can easily arise. Documenting how shares can be transferred, what rights each
shareholder has, and how they are valued, is important in reducing the potential impact of
disputes. This shareholder agreement will no longer be valid once the shares are more
widely traded.
d) Record keeping: Best practice insists that the enterprise should maintain comprehensive
records, both financial and non financial. Computerization provides both advantages
and disadvantages, but which need to be backed up digitally and with hard copy.
e) Conservative accounting: Many of the problems of public Corporate Governance
develop as a result of creative accounting approaches. Establishing Conservative
accounting guidelines at an early stage and maintaining them throughout the development
of the enterprise will control this tendency.

61

2. Encouraging and maintaining diversity
a) Separation of powers : with the increasing workload of the growing company
strategic, operational, personnel considerations and stakeholder relationships, the
separation of powers between a chief executive and a chairman is both important to
provide a check and balance within the organization, but also to improve operational
performance.
b) Directors trained in corporate requirements: with the growing complexity of the
business, it becomes more important that the Board of Directors has a clear
understanding of corporate governance and the actions that need to be taken to ensure
best practice. Most directors lack this expertise and require relevant training.
c) Compliance officer: The wider number of stakeholders involved with the medium sized
enterprise suggests that the appointment of a corporate governance Compliance officer is
a sensible measure, with regular (at least six monthly) reports on the quality of corporate
governance.

3. Centralization vs. decentralization:
Simple structure consistent with operational requirements. Complex structures
produce opaque reporting and control.
a) Profit centre emphasis on corporate governance: Think global, but act local.
Maintaining responsibility for the majority of corporate governance activity at the local
level will both improve the responsiveness of the entire organization but ensure that key
activities are modified for local legal and stakeholder requirements, while meeting overall
corporate guidelines.
b) Succession planning: With the devolution of power into profit centers, an emphasis on
Succession planning and corporate governance training will be required to create the pool
of staff able to manage the increasingly complex enterprise relationships.




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4. Stabilizing stakeholder relationships
a) Management team and development: Decision making requires diversity and depth
improving the management team will be a priority for the growing enterprise which tends
to be relatively narrowly based in terms of expertise.
b) Standard operating procedures: With the increased size of the organization, it becomes
important to both standardize procedures in many areas, but also to incorporate
experience and to provide training, all of which are part of the creation of Standard
operating procedure.
c) Regular formal reviews: As the number and importance of decisions grow, the
formalization of the reporting system needs to increase. To improve control, management
meetings needs to include formal agenda, supporting documentation, formal voting and
records of the meeting decisions. This will often need to include for major projects an
investment and risk appraisal.
d) Internal audit: With increasing complexity of control, an Internal audit system, which
reviews procedures will become a steadily more important element in corporate
governance and control.









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CHAPTER-V
FINDINGS & SUGGESTIONS

FINDINGS:
It is found that E.C.I.L maintained the accounting procedures as per Accounting
Standards which is appreciable.
It is found that the company is not dealing in or trading in shares, securities, debentures
and other investments.
It is found that the company has taken several measures to enhance the openness and
transparency of all its operations.
It is found that the audit conducted is in accordance with the auditing standards generally
accepted in India.
Proper records are maintained showing full particulars of fixed assests with a phased
programme of their physical verification.
The company is maintaining proper records of inventory.
The internal control procedure for purchase of stores, raw materials including
components and for sale of goods is adequate.
Reasonable records are maintained for the sale and disposal of the scrap.
The provident fund dues were deposited regularly with the appropriate authorities.









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SUGGESTIONS:

Include self-audit on Corporate Governance.
Implementation of audit committee suggestions.
Recruiting Professionals for certifying Corporate Governance.
Foreign investment and foreign firms would raise standards of Corporate Governance.
Rating companies on the basis of Corporate Governance.
As new talents are emerging day by day, ECIL should restructure the organization by
recruiting the new talent.
Generate ideas for new products and services.
Various training programme should be conducted for management and staff regarding
various Corporate Governance.
The company should work towards empowering women and children sustainable
community development programme. The company should take part in community
development.











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CONCLUSIONS:

1. Effective Corporate Governance is more than just putting in place structure, such as
committees and reporting mechanisms, to achieve desired results. Such structure is only a
means for developing a more creatable Corporate Governance framework and is not ends
in them. That is, there must be more emphasis on the substance rather than the form of
good Corporate Governance and to the confidence and assurance of stakeholders.
2. Corporate Governance as practiced in Electronic Corporation Of India Limited is a
voluntary basis as the same is not mandatory. The reason is ECIL is not listed company
and is wholly owned by Central Government.
3. It is observed that ECIL is people oriented and operations are labour intensive in day-to-
day operations any minor deviation can be interpreted in different ways ready to lessen
unrest. In the contest transparency which is a corner stone of Corporate Governance is
must. Hence a foundation is laid for practicing good Corporate Governance principles.
4. On the audit side, a perusal of Accounting policies & Auditors would reveal various
Auditing practices of ECIL to the information of one and all.
5. Apart from various audit committees, committees like Government committee and their
activities are reported in Annual report. This is another feature of good Corporate
Governance principles.







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BIBLIOGRAPHY
TEXT BOOKS:
Corporate Governance and Accountability, 3rd Edition,Jill Solomon, April 2010, 2009
Financial Reporting and Corporate Governance, Thomas A. Lee, April 2007, 2007
NEWS PAPERS:
Economic Times
Times of India
WEBSITES:
http://www.ecil.co.in/Quality_Overview.php
http://www.google.co.in/#sclient=psy-
ab&q=cost+compliance+report&oq=&fp=ae79251d47acedd1
http://www.oecd.org/daf/ca/corporategovernanceprinciples/corporategovernanceandthefi
nancialcrisis.htm