gayatri projects limited - Edelweiss

11. In the past, we could not pay interest on our debt obligations on schedule.We have issued 14% Secured Redeemable Non-Convertible Debentures of Rs. 100/- each of the aggregatevalue of Rs. 1500 lakhs on private placement basis to the Unit Trust of India in May, 2001. We delayedpayment of interest during 2001-02 and 2002-03 due to financial constraints. Consequently, UTI issuedrecall notice in January, 2003 and enforcement of guarantee notice in February, 2004. We cleared all ourover-dues to UTI till September, 2004 in September, 2004 and after that all payments in respect of interestand principal have been paid on due dates. Further we have also paid on due date the instalment of Rs.500 lakhs, which was due on July 03, 2006. The balance one instalment of Rs.500 lakhs is due on July 3,2007. However, no assurance can be given for our ability to meet the financial obligations in future.12. Claims made by us against our clients for payment have increased over the years and failure by usto recover adequately on such claims could have a material adverse effect on our financial condition,results of operations and cash flows.Our project claims have increased in recent years. Project claims are claims brought by us against ourclients for additional work and costs incurred in excess of the contract price or amounts not included in thecontract price. These claims typically arise from changes in the initial scope of work or from delays causedby the client. These claims are often subject to lengthy arbitration or litigation proceedings. The costsassociated with these changes or client caused delays include additional direct costs, such as labour andmaterial costs associated with the performance of the additional work, as well as indirect costs that mayarise due to delays in the completion of the project, such as increased labour costs resulting from changesin labour markets. Project claims may continue in the future. We also face a number of counterclaimsinitiated against us by certain clients in connection with our project claims. If we are found liable for any ofthese counterclaims, we should have to incur write downs and charges against our earnings to the extent areserve is not established.We have made claims for projects executed by us amounting to Rs. 13804.01 lakhs which have not beenaccounted for in our books of accounts as these claims are accounted for on cash basis. If we receivethese claims, our profitability and cash flows will increase to the extent of claim received. However, if theclaims are not received, it will not have any affect on our profitability as we have not provided for theseclaims in our books of accounts. At present we have outstanding claims lodged at our various clients areamounting to Rs. 13804.01 lakhs, out of which claims amounting to Rs. 10904.50 lakhs are pending withour clients for settlement and claims amounting to Rs. 1283.49 lakhs and Rs. 1616.02 lakhs are pending forarbitration and various courts respectively. In the past, we have received an amount of Rs. 558.75 lakhs asagainst claims lodged by us to the extent of Rs. 921.61 lakhs. The balance claims amounting to Rs.362.86 lakhs have either been rejected or disallowed by various authorities. The average time frame forsettlement of these claims has been 10 years.13. Failure to provide for excess expenditure could have affected our financial conditions and results ofoperations.Our Company incurred an excess of expenditure over revenue for Rs. 13414 lakhs in respect of workcarried on behalf of IJM-Gayatri JV, for which our Company has raised a debit notes on the JV. If theseclaims are not realized than we will have to provide for the loss of Rs. 5365.60 lakhs (i.e. 40% of Rs.13414 lakhs) in our books, being our 40% share in the JV. However, if this loss would have been providedfor in our books of accounts for the year ended March, 2006 our profit before tax and extraordinary itemwould have shown a loss of Rs. 2606.12 lakhs instead of net profit of Rs. 2759.48 lakhs as shown in therecasted figure.14. Failure to recover the claims made by us on our JV for the work executed by us on JV’s behalfcould have a material adverse effect on our financial condition, results of operations and cash flows.ix