From published accounts

From Notes to Financial Statements

Scheme of arrangement

The shareholders of the Company had in February 2010 approved a Scheme of Arrangement (‘Scheme’) between the Company and four of its wholly owned subsidiaries, Cairn Energy India Pty Ltd (‘CEIPL’), Cairn Energy India West BV (‘CEIW’), Cairn Energy Cambay BV (‘CEC’), Cairn Energy Gujarat BV (‘CEG’), (collectively the ‘transferor companies’), with an Appointed date of 1 January 2010. The Scheme of Arrangement had been approved by the Hon’ble High Court of Madras and Hon’ble High Court of Bombay and was subsequently approved by other relevant regulatory authorities on 18th October 2012. Accordingly, from 1st January 2010, the Indian undertakings of the transferor companies stood transferred to and vested in the Company on a going concern basis.

In accordance with the provisions of the aforesaid Scheme,

i) The Indian undertakings of the transferor companies relating to exploration, development and production of crude, natural gas and related by-products have been transferred to the Company on a going concern basis. The transfer of assets and liabilities representing the Indian undertakings has been effected from the “Appointed date” of 1st January 2010, as defined in the Scheme.

ii) Assets and liabilities transferred from the transferor companies are as under:

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The above mentioned deferred tax liabilities (net) have been further reduced by Rs. 4,563 lakh on account of application of tax rate as applicable to the Company and fixed assets have been further decreased by Rs. 530 lakh due to alignment of accounting policy (on depreciation) as consistently followed by the Company, and adjustments in respect of these have been recorded in the Statement of profit and loss.

iii) As a consideration for the transfer of the above mentioned assets and liabilities and consequential expected future cash flows from the transferor companies to the Company, the Company has reduced the value of its investment in its direct subsidiary Cairn India Holdings Limited (‘CIHL’) by Rs. 1,495,278 lakh and consequentially a goodwill of Rs. 1,016,703 lakh, after adjusting the net assets taken over of Rs. 478,575 lakh, has been recorded in the books of accounts in accordance with the provisions of Accounting Standard (AS)-10 of the Companies (Accounting Standard) Rules, 2006 (as amended). The reduction in value of investments in CIHL has been considered on the basis of an independent valuation of the future discounted cash flows from CIHL as at 31st December 2009.

iv) Further, in accordance with the Special Resolution passed by the shareholders of the Company u/s. 78 and 100 to 103 of the Companies Act, 1956, which was an integral part of the aforesaid Scheme approved the Courts, the goodwill of Rs. 1,016,703 lakh as mentioned in (iii) above has been adjusted against the securities premium account and as a result both goodwill and securities premium account are stated lower by Rs. 1,016,703 lakh each. This accounting, although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, as the same has been approved by the Courts and has no impact on the profit for the year.

v) Since the Scheme received all the requisite approvals in the current year, operations of the Indian undertakings of the transferor companies from 1st January 2010 to 31st March 2012, as detailed below, have been accounted for in the current year’s statement of profit and loss as a separate line item.

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Further, net cash flows for the period 1st January 2010 to 31st March 2012 pertaining to the transferor companies on account of operating, investing and financing activities aggregating to Rs. 795,008 lakh, Rs. (441,815) lakh and Rs. (4,778) lakh respectively have been included in the current year’s statement of cash flows as a separate line item under the respective heads.

From Independent Auditors’ Report

Emphasis of Matter
Without qualifying our opinion, we draw attention to note no. 26 of the accompanying financial statements, relating to the accounting treatment adopted by the Company pursuant to a Scheme of Arrangement approved by the Honorable High Court of Bombay and by the Honorable High Court of Madras and other relevant regulatory authorities, whereby the Company has adjusted goodwill aggregating to Rs. 1,016,703 lakh, which arose upon implementation of the said scheme, against the securities premium account. This accounting of showing both goodwill and securities premium account lower by Rs. 1,016,703 lakh, although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, as the same has been approved by the Courts.

From Directors’ Report

Auditors’ Report
In the accompanying financial statements, the Company has adjusted goodwill against the securities premium account pursuant to the Scheme of Arrangement approved by the Honorable High Court of Bombay and by the Honorable High Court of Madras and other relevant regulatory authorities. This accounting although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, and the same has been approved by the Courts. The same has been reported by the Auditors under “Emphasis of Matter” in their report.