Statutory auditor SR Batliboi & Co, while passing the accounts, has noted that it is unable to ascertain the impact of the deferred revenue expenditure, non-provisioning of leave liability and doubtful/ disputed debts, claims and advances.

In the year to March 31, 1998, HM reported a profit after tax of Rs 39.36 crore, compared with Rs 39.32 crore registered in the previous year. Turnover stood at Rs 1,327.18 crore as against Rs 1,291.95 crore in 1996-97.

However, the company slipped into the red during the first three months of the current accounting year. The company's performance in 1997-98 and the subsequent slide is likely to be the focus of the shareholders at the annual general meeting on September 3.

At the AGM, the HM management is likely to highlight the business prospects ofthe rural transport vehicle (RTV) launched in August.

According to the directors' report, overall production of vehicles declined to 26,684 in 1997-98 as against 29,039 in 1996-97. Production of Ambassador cars declined to 21,382 in 1997-98 from 24,294 in the previous year. The directors attributed this to the recession. However, production of Trekkers increased to 3,725 in 1997-98 from 2,574 in the previous year.

The profit & loss account shows that the company's deferred revenue expenditure has increased to Rs 8.17 crore in 1997-98 as against Rs 5.10 crore in the previous year. The heads are technical know-how fees, service charges for major consultancy assistance, share/ debenture issue expenses, product development expenses, commitment charges and market development expenses.

The accounting policy states that the technical know-how fees, service charges for major consultancy assistance, shares/ debenture issue expenses, market development expenses for products pertaining to new projects and productdevelopment expenses are considered as deferred revenue expenditure and will be written off in six equal annual instalments.

The company also stated in Note 1(I)(d) that insurance and other claims to the extent considered recoverable have been accounted for in the year of claim. It also noted that claims and refunds, which include interest payment for delayed refunds from excise and tax whose recovery "cannot be ascertained with reasonable certainty, are accounted for on acceptance/ actual receipt basis".

Export benefits against advance/ special licence scheme have been accounted for at the time of actual consumption of materials/ sale of entitlements, the notes to the accounts said.

Batliboi has noted that the proposer books of account have been kept by the company -- "subject to Note Nos 1(I)(c) to (e) [deferred revenue, insurance claims, excise and income tax returns and export benefits against advance] and 1(IX)(b) Schedule 22 regarding non-accounting of certain expenses/ income on accrualbasis."

The auditor also pointed out that the company has not made any provision for leave liability in respect of employees. The "indeterminate" amount has been accounted for on actual payment basis.

Batliboi also noted that the disputed liability/ doubtful claims and advances amounting to Rs 6.92 crore have not been provided as the settlement has not been finalised.

HM's contingent liability has ballooned to Rs 61.27 crore in 1997-98, compared with Rs 12.23 crore in 1996-97. The company's accounting policy does not acknowledge these claims, which include demands raised by the government.

Out of this, the excise authorities have either raised demands or showcause notices which are together worth Rs 50.14 crore. This relates to the after sales service rendered by dealers and on other matters, which according to the company is "not tenable in view of the certain legal pronouncements in case of other companies as well as opinions obtained from legal experts".

Contingent liability also includes bonuspayment for the period between 1963-64 and 1967-68 at the Hindmotor unit in West Bengal and for the years 1984-85 and 1989-90 at Hosur in Karnataka which has been contested by the company. According to the company, there is no liability under the Payment of Bonus Act, 1965.

The accounting policy also noted that the company's property deals have run into legal hurdles. The two instances disclosed by the company on its real estate front are:

* The demolition order by the Bangalore Municipal Corporation of the company's flats worth Rs 11.89 lakh purchased earlier. A stay on the BMC's order has been obtained;

* On March 28, 1997, HM agreed to exchange one of its properties worth Rs 1.87 crore with another property valued at Rs 2.50 crore. Against the difference of Rs 63 lakh, the company made an advance of Rs 25 lakh. The Income-tax department on August 21, 1997, notified the company about their intention to make a pre-emptive purchase of the property against which the company has obtained an interim stayfrom the Chennai high court.

New faces on board

Shareholders of Hindustan Motors Ltd will be witness to an important change of guard at the company's 56th annual general meeting on September 3 -- Chandra Kant Birla will now be in the chair as his father, GP Birla, stepped down after the last AGM. Also, the nine-member board will have three new faces.

Rahul Bajaj resigned from the board on August 25, 1997. In his place, Sanmar group chairman Narayanan Shankar was appointed to the board.

SG Guhagarkar resigned from the board on April 13, 1998, and his place has been taken by K Sinha, Life Insurance Corp's manager for the central zone.