CONTENTS Proxy Form 65

SCHEDULE 6 - NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2008A. Background and Nature of OperationsThe Company was incorporated on June 17, 2005 as Essar Steel(Jharkhand) Limited. On July 26, 2006 the Company’s name has beenchanged to Essar Steel Jharkhand Limited. The Company is in processof setting a steel plant in the Chaibasa district of Jharkhand.B. Significant Accounting Policiesa. Basis of preparationThe financial statements have been prepared to comply inall material respects with the notified Accounting Standardsby the Companies Accounting Standard Rules, 2006 andthe relevant provisions of the Companies Act, 1956. Thefinancial statements have been prepared under the historicalcost convention on an accrual basis except in case of assetsfor which provision for impairment is made and revaluation iscarried out. The accounting policies have been consistentlyapplied by the Company and are consistent with those usedin the previous year.b. Use of EstimatesThe preparation of financial statements in conformitywith generally accepted accounting principles requiresmanagement to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosureof contingent liabilities at the date of the financial statementsand the results of operations during the reporting period end.Although these estimates are based upon management’sbest knowledge of current events and actions, actual resultscould differ from these estimates.c. Expenditure during Construction PeriodAll Cost including finance cost till commencement ofcommercial production is capitalized. Indirect expenditureincurred during construction period is capitalized as partof the indirect construction cost to the extent to which theexpenditure is indirectly related to construction or is incidentalthereto. Other indirect expenditure incurred during theconstruction period which are not related to the constructionactivity nor is incidental thereto is charged to the Profit andLoss Account. Income earned from deposits earmarkedagainst financing facilities during construction period isdeducted from the total of the indirect expenditure.All indirect expenses relating to project incurred uptocommencement of commercial production are classified asPre operative Expenditure and disclosed under Schedule2 – Pre-operative expenditure (net of income earned duringproject development stage).d. Operating LeaseLeases where the lessor effectively retains substantially allthe risks and benefits of ownership of the leased term, areclassified as operating leases. Operating lease payments arerecognized on a straight-line basis over the lease term.e. Earning Per ShareBasic earning per share is calculated by dividing the net profitor loss for the period attributable to equity shareholders bythe weighted average numbers of equity shares outstandingduring the period.For the purpose of calculating diluted earnings per share,the net profit or loss for the period attributable to equityshareholders and the weighted average number of sharesoutstanding during the period are adjusted for the effectsof all dilutive potential equity shares.f. Income taxesTax expense comprises of fringe benefit tax. Fringe benefittax is measured at the amount expected to be paid to the taxauthorities in accordance with the Indian Income Tax Act.Deferred tax is measured based on the tax rates and thetax laws enacted or substantively enacted at the balancesheet date. Deferred tax assets are recognised only to theextent that there is reasonable certainty that sufficient futuretaxable income will be available against which such deferredtax assets can be realized. In situations where the Companyhas unabsorbed depreciation or carry forward tax losses,all deferred tax assets are recognised only if there is virtualcertainty supported by convincing evidence that they canbe realized against future taxable profits.g. ProvisionsA provision is recognized when an enterprise has a presentobligation as a result of past event; it is probable that anoutflow of resources will be required to settle the obligation,in respect of which a reliable estimate can be made.Provisions are not discounted to its present value and aredetermined based on best estimate required to settle theobligation at the balance sheet date. These are reviewed ateach balance sheet date and adjusted to reflect the currentbest estimates.h. Segment ReportingThe Company’s activities during the year revolve aroundsetting up of the project (Refer Note C below). Consideringthe nature of Company’s business and operations, there areno reportable segments (business and/or geographical) inaccordance with the requirements of Accounting Standard17 – ‘Segment Reporting’, issued by the Institute ofChartered Accountants of India (ICAI).Other NotesC. The Company is in the process of setting up steel plant (project)in the state of Jharkhand. The project is at start up stage ofconstruction and the Company has not commenced revenueoperations. The expenditure incurred directly or indirectly isclassified as Expenditure during Construction Period pendingcapitalization and will be apportioned to the Assets on thecompletion of project.Necessary details as per part II of Schedule VI to the CompaniesAct, 1956 have been disclosed in Schedule 2.Expenditure not directly or indirectly related to the constructionof the project has been charged off to Profit & Loss Account.D. Related Parties:a) Related Party where the control existsa. Holding Company:• Essar Steel Limited (ESTL)• Essar Steel Holdings Ltd. Mauritius the UltimateHolding Companyb. Ultimate Holding Company:• Essar Global Ltd. - Holding Company of Essar SteelHoldings Ltd. (EGL)b) Fellow Subsidiaries:• Essar Steel (Hazira) Limited (ESHL)• Essar Constructions (India) Limited (ECIL)• ETHL Global Capital Limited (EGCL)• Essar Steel Orissa Limited (ESOL)• Essar Steel Chhattisgarh Limited (ESCL)• Essar Steel Trading FZE, Dubai (ESTF)• Hazira Plate Limited (HPLT)• Essar Shipping & Logistics Limited (ESLL)• Essar SEZ Hazira Limited (Essar SEZ)• Essar Telecom Infrastructure Private Limited (ETIPL)• Hazira Pipe Mill Limited (HPML)c) Key Management Personnel:• Mr. J. Mehra, Directord) Individuals Owning, directly or indirectly, an interest in votingpower that gives them control or significant influence –• Mr. Shashi Ruia• Mr. Ravi Ruia• Mr. Prashant Ruia• Mr. Anshuman Ruia• Mr. Rewant Ruia43