hindustan organic chemicals ltd Auditors report

Report on the Audit of the Standalone financial statements

Opinion

1. We have audited the accompanying standalone financial statements of M/s. HINDUSTAN ORGANIC CHEMICALS LIMITED (CIN: L99999MH1960GOI011895) ("the company") which comprises of: -

(a) The Standalone Balance Sheet as at 31st March, 2023

(b) The Standalone Statement of Profit and Loss for the year st March, 2023

(c) Standalone Statement of Change in Equity for the year ended 31st March, 2023

(d) Standalone Cash Flow Statement for the year ended 31st March 2023, and

(e) A Summary of significant accounting policies and other explanatory information

2. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India of the state of affairs of the Company as at March 31, 2023; and its loss, total comprehensive income, the changes in equity and its cash flows for the year ended 31st March, 2023. asset

Basis for opinion

3. We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013 (‘the Act). Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Audit of the Standalone financial statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Going Concern

4. During the year, the company has reported a ‘net loss including other comprehensive income of Rs.4,239.63 Lakhs (PY Rs. 1,015.89 lakhs) and an accumulated loss amounting to Rs.1,07,078.48 lakhs (previous year Rs.1,02,056.08 lakhs). Further, the net worth of the company is negative amounting to Rs. 95,512.95 lakhs (previous year Rs. 90,490.55 lakhs), excluding ‘Other Comprehensive Income, as a result of the capital erosion due to losses reported by the company over the previous years.

However, we are informed that, the company, with the approval of the Government of India, is in the process of divesting and selling off its loss making unit at Rasayani, Mumbai, which includes assets with carrying amount amounting to Rs. 99,219.74 lakhs, including 551.172 acres of land owned by the unit. This process is expected to generate sufficient cash flow for the company Statements, we draw the attention regarding the increased performance of the Manufacturing unit at Kochi.

Considering the above, the management has prepared the standalone Ind AS financial statements on going concern basis.

Our opinion is not modified in respect of the above.

Emphasis of Matter

5. We draw attention to the interim financial results published by the company for the Quarter 2 of the current year included a write back of ‘provision for statutory liability created in the previous years amounting to Rs. 530.58 lakhs, which was reported under ‘Other income. However, based on further discussions, the management reinstated the said liability in the Quarter 4 and accordingly, the effect of such restatement was reported under ‘other income for the said quarter. As the write back as well as its reinstatement occurred in the current year itself, there is no net impact year onthefinancialstatementsforthecurrent Our opinion is not modified in respect of the above.

Key Audit Matters

6. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.

S. The Key Audit Matters	How our audit addressed the key audit matter
1. Investment in Subsidiary	Our audit procedures included and were not limited to the following:
Hindustan Fluorocarbons Limited ("HFL") is a subsidiary of the Company, wherein the company holds 56.43% equity shares by way of an investment of Rs. 1,106 lakh, which is classified as a Financial Asset.	1. Carried out market research with respect to the volume of quoted shares of HFL being traded on the BSE.
Subsequent to initial recognition, the investment made at HFL is measured at fair value through other comprehensive income (FVTOCI).As per the provisions of the Ind AS 107/9, the fair value of the determined every year and financial accordingly, the carrying amount should be restated. Accordingly, the same has been considered as a key audit matter.	2. Evaluated the future prospects of HFLs operations in light of CCEA decision dated 29.01.2020 to close down HFL.
	3. Assessed the financial statements of HFL to verify whether the assets held for sale as shown in the financial statements exceeds its liability to the extent of the companys investment therein.
2. Valuation of Inventory	Our audit procedures included and were not limited to the following:
LPG, Benzene and chemical based inventory part of the forms Companys significant inventory of whichpricesarefluctuatingin nature and also depends on prices, decisions and conditions of other countries Inventories are valued at lower of cost and net realisable value except raw materials, work-in progress & stores.	1. Reviewing data from software used by the company such as Distributed Control System for plant operations, independent PLC for the safety of the Plant, Tank Level Monitoring System "LMS" for the detailed statistics about stock of raw materials, finished products, and intermediate products along with various alarms, warnings and history of the tank operations etc.
The audit mainly focused on verification of the cost and net realizable value of the above.	2. Testing the design, implementation and operating effectiveness of key internal financial controls, including controls over valuation of inventory.
	3. Testing on a sample basis the accuracy of cost for inventory by verifying the actual purchase cost. Testing the net realizable value by comparing actual cost with most recent selling price.

 

S. The Key Audit Matters	How our audit addressed the key audit matter
3. Recognition, Measurement, and Depreciation of PPE	Our audit procedures included and were not limited to the following:
The company, being a asset based entity, the recognition, measurement and depreciation of the PPE is very significant.	1. Evaluating managements processes and controls over the identification, classification, and subsequent measurement of PPE. We assessed the companys policies for determining the initial cost, subsequent measurement, and depreciation of PPE, including the application of appropriate depreciation methods and useful lives.
The audit was mainly focused on the compliance of the provisions of the Ind AS 16 Property, Plant and Equipments and the other aspects of asset accounting.
	2. We also tested a sample of PPE additions and disposals to verify the accuracy and completeness of their recognition and measurement.
	3. We assessed the consistency of depreciation policies and their compliance with applicable accounting standards and the accuracy of the calculation of depreciation.
	4. We verified the compliance with the provisions of Ind AS 16 for adopting the Revaluation model and its impact on the asset disclosures.

Information Other than the Standalone financial statements and Auditors Report thereon

7. The Companys management and Board of Directors are responsible for the other information. The other information comprises the information included in the Companys annual report, but does not include the standalone financial statements and our auditors report thereon.

8. Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

9. In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We are not in receipt of other information and therefore we do not comment on the same.

Managements responsibility for the standalone financial statements

10. The Companys Management and Board of Directors are responsible for the matters stated in Section 134(5) of the act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial financialperformance including other comprehensive income, cash flows and changes in position, equity of the Company in accordance with the accounting principles generally accepted in India including the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act.

11. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

12. In preparing the standalone financial statements, continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

13. The Board of Directors is also responsible for overseeing the Companys financial reporting process.

Auditors Responsibility for the Audit of Standalone Financial Statements

14. Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

15. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the standalone financial fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether the company has adequate internal financial and the operating effectiveness of such controls.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management and the Board of Directors

Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the standalonefinancialstatements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

16. We communicate with those charged with governance regarding, among other matters, the planned scope and timing audit findings, including any significant deficiencies in internal control that we identify oftheauditandsignificant during our audit.

17. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 18. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Standalone Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

19. As required by the Companies (Auditors Report) Order, 2020 issued by the Central Government of India in terms of sub-section 11 of section 143 of the Act, we give in the "Annexure A", a statement on the matters specified paragraphs 3 and 4 of the Order.

20. As required by the directions and sub directions issued by the office of the Comptroller & Auditor General of India under section 143 (5) of the Act, we give in the "Annexure B" a statement on the matters referred in those directions.

21. As required by Section 143(3) of the Act, we report that: a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; b) is responsible for assessing the Companys ability to 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 Standalone Balance Sheet, Statement of Profit and Loss including Other Comprehensive Income, Statement of changes in Equity, and Statement of Cash Flows dealt with by this Report are in agreement with the books of account. d) In our opinion, the aforesaid standalone financial specified under section 133 of the Companies Act, 2013, read with Rule 7 of Companies (Accounts), Rules 2014; e) As per Notification No. G.S.R. 463(E) dated June 5, 2015, the Government Companies are exempted from provisions of section 164(2) of the Act. Accordingly, we are not required to report whether any directors are disqualified in terms of provisions contained in the said section.

f) The report on internal financial control as required under clause (i) of sub section 3 of section 143 of the Companies Act 2013 is attached as "Annexure C". g) With respect to other matters to be included in the Auditors Report in accordance with Rule 11 of Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: (i) The company has disclosed the impact of pending litigations on its financial statement. - Refer note 36 to the standalone financial statements.

(ii) The company do not have any long-term contracts including derivative contracts for which there were any material foreseeable losses;

(iii) There were no amounts which were required to be transferred to Investor Education and Protection Fund by the company.

(iv) a. The management has represented that, to the best of its knowledge and belief, as disclosed in note 47 no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other persons or entities, including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall

directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company ("Ultimate Beneficiaries") or

provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; b. The management has represented, that, to the best of its knowledge and belief, as disclosed in note 48 no funds have been received by the company from any persons or entities, including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the company shall

directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries")or

provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; c. Based on such audit procedures considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-position in its financial clause (iv) (a) and (iv) (b) contain any material mis-statement.

(v) No dividend was declared or paid during the year which required compliance with section 123 of the Companies Act, 2013.

(vi) Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of Account using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 1, 2023, and accordingly, and Auditors) Rules, 2014 is not applicable for the financial year ended March 31, 2023.

22. Non-Compliance of the SEBI Listing Obligation and Disclosure Requirements (LODR) Regulations, 2015: The Company has not complied with the Regulations 17(1)(a) and 17(1)(b) in respect of maintenance of an optimum combination of executive and non-executive directors with at least one-woman director and not less than fifty percent of the Board of Directors as non-executive directors and maintenance of at least half of the board of Directors comprised of Independent Directors. (Refer Note 44 to the Standalone Financial Statements).

ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT

(Referred to in Paragraph 17 under ‘Report on Other Legal and Regulatory Requirements section of our report to the

Members of Hindustan Organic Chemicals Limited of even date)

(i) In respect of the Companys Property Plant and Equipment and Intangible Assets:

(A) The Company is maintaining proper records showing the particulars including quantitative details and situation of property, plant and equipment.

(B) The Company is maintaining proper records showing full particulars of the intangible assets.

(a) According to the information and explanation given to us and on the basis of our examination of the records, the Company follows a phased program for verification of all items of property, plant and equipment and the interval followed by the company, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. As per the said policy, the company has not conducted any physical verification during the current financial year.

(b) According to the information and explanations given to us and based on the examination of the relevant records provided to us, the title deeds of all the immovable properties disclosed in the financial statements, are held in the name of the Company. However, the original title deeds of the immovable properties in Kochi are not produced to us for our verification, and we are informed that the same is kept under the custody of the bank.

Further, we are informed that, 22.717 acres of land owned by the company at Rasayani, Maharashtra, has been encroached and we are informed that the company is taking steps to recover the said land. Further, 10.576 acres of land at Rasayani, Maharasthra and 0.91 acres of land at Panvel, Maharashtra, has been acquired for public road and hence could not be considered as the assets owned by the company. Further, 32.547 acres of land at Rasayani, Maharashtra, is under the disputed possession of various other entities. The company has not considered the above extent of lands while considering the carrying value of land disclosed in the financial statements.

(c) The Company has revalued one of its land during the current year. The re-valuation was done based on the valuation done by the registered valuer. The change in the carrying amount of the said asset revalued amounts to Rs.1305.38 Lakhs.

(d) According to the information and explanation given to us and on the basis of our examination of the records of the Company, no proceeding has been initiated or pending against the company for holding any Benami Property under the Benami Transactions Act.

(ii) (a) The inventory has been physically verified by the management at reasonable intervals. However, we are informed that the company does not follow the practice of physically verifying the items classified under ‘stores and spares. The inventory of ‘stores and spares accounts for 48.41% (P.Y 37.21%) of the total carrying value of the inventories at the year end, and hence in our opinion, the coverage of the physical verification of the inventories are not adequate and appropriate. With respect to the remaining classes of inventories subject to the physical verification during the year, we are informed that, no discrepancies of 10% or more in the aggregate for the said class of inventory were noticed.

(b) The company has not been sanctioned working capital limits in excess of five crore rupees, in aggregate, and hence the clause (ii) (b) of Para 3 of the Order is not applicable to the frombanksor financial Company.

(iii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company has not made any investments in or provided security to companies, firms, limited liability partnerships or any other parties during the year. Hence, the sub-clause (a) to clause (iii) of Para 3 of the said order is not applicable to the company.

(b) According to the information and explanations given to us and based on the audit procedures conducted by us,

1. The company has given a loan to its subsidiary company, secured against the immovable properties of the said subsidiary, during the earlier years, which has been ‘overdue for more than 3 years and has a carrying amount of Rs. 2744.06 lakhs at the end of the year, out of which Rs. 453.01 lakhs is ‘non-interest bearing;

2. The company has given an unsecured advance to M/s. Smith Stanitstreet Pharmaceuticals Ltd amounting to Rs. 65 lakhs during the earlier years which has been outstanding for more than 3 years.

3. The company has invested a sum of Rs. 1106 lakhs in the subsidiary company in the earlier years and the business of the subsidiary has been shut down completely.

According to the information and explanations given to us, in our opinion, the repayments or returns from the above loans, advances and investments were not proper and hence the recoverability or realisability of the same depends on the realisability of the assets secured, if any.

The company has not given any loans, advances or made any investments during the current year.

(c) In respect of the loans and advances as specified in (iii)(b)(1) above, the company has schedule of repayment of principal and interest has been stipulated, whereas, in the case of advance specified in (iii)(b)(2) above, no schedule of repayment of principal and interest has been specified. The repayment of the above are not regular. (d) In respect of the loans and advances as specified in (iii)(b)(1) above, the total amount overdue for more than 90 days amounts to Rs. 3,197.08 lakh and the company has informed us that the same will be realized as and when the assets of the recipient company secured against the said loan are fully realized. However, the company is yet to take the possession of the said property secured against the loan. In respect of the advances specified in (iii)(b)(2) above, the total amount overdue for more than 90 days amounts to Rs. 65 lakh and the company has not taken any steps for the recovery of the principal and interest.

(e) During the year, the company has not renewed or extended or granted fresh loans to settle the overdues of the existing loans given to any of the parties and therefore, the provisions of the clause 3(iii)(e) of the order is not applicable to the company.

(f) In respect of the advance specified in (iii)(b)(2) above amounting to Rs. 65 lakhs, the company has not specified any terms or period of repayment.

Aggregate amount outstanding ()	Rs. 65 lakhs
Percentage to the total loans ()	1.97%
Of the above, aggregate amount of loans granted to Promoters and related parties	Nil

(iv) In our opinion and according to the explanations given to us, the company has complied with the provisions of Sec 185 and 186 of the companies Act 2013 in respect of loans, investments, guarantees and securities made by it, during the year. However, the company has given interest free loans to its subsidiary company amounting to Rs. 2744.06 lakhs and advances to another company amounting to Rs.65 lakhs, for which no interest has been charged. We are informed that, these loans are given before the commencement of the provisions of Section 186(7) and hence does not constitute violation to the provisions of the said section.

(v) In our opinion and according to the information and explanations given to us, the Company has not accepted any deposits during the year and does not have any unclaimed deposits as at March 31, 2022 and therefore, the provisions of the clause 3(v) of the Order are not applicable to the Company.

(vi) According to the information given to us, the company is required to maintain the cost records as specified by the Central Government under sub-section (1) of section 148 of the act, and based on the test checks conducted by us, we are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

(vii) (a) According to the information given to us and on the basis of the checks conducted by us we report that the company has been generally regular in depositing undisputed statutory dues such as Goods and Services Tax, provident fund, employees state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with appropriate authorities during the year. According to the information and explanations given to us and the records of the company examined by us, no undisputed amount payable in respect of Goods and Services Tax, provident fund, employees state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues were in arrears for a period of more than six months from the date they became payable, as at 31st March, 2023.

(b) According to the information and explanations given to us and on the basis of our examination of the records of the company, there are no statutory dues relating to Goods and Services Tax, Provident Fund, Employees State Insurance, Income Tax, Services Tax, Value Added Tax, Customs Duty, Cess and other statutory dues which have not been deposited as at March 31, 2023 on account of dispute, other than mentioned below:

Sl. No. Name of the Statute	Nature of Dues	Period to which the amount related	Amount of dispute (Rs.in Lakhs)	Forum where the dispute is pending
1 Central Excise Act, 1944	Exemption not allowed	2006-07	104.63	Customs, Excise & Services Tax Appellate Tribunal
2 Income Tax Act, 1961	Penalty Dues	2001-02	70.49	High Court
3 Income Tax Act, 1961	Disallowance of Expenses	2010-11	21.50	Income Tax Appellate Tribunal

(viii) According to the information and explanations given to us, the company does not have any transactions not recorded in the books of account and has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (43 of 1961).

(ix) (a) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the company has made default on repayment of loans obtained from the Government of India, the details of which are as under

Nature of Borrowing including debt securities	Name of the lender	Amount not paid on due date (Rs. In lakhs)	Whether Principal or interest	No. of years of delay or unpaid	Remarks if any
Plan loan	Government of India	537.79	Interest	21
Non-Plan loan	Government of India	250.83	Interest	20
Plan loan	Government of India	540.67	Interest	20
Plan loan	Government of India	326.31	Interest	20
Secured plan loan	Government of India	652.62	Interest	20
Plan loan	Government of India	652.62	Interest	20
Plan loan	Government of India	328.61	Interest	19
Plan loan	Government of India	462.20	Interest	19
Plan loan	Government of India	770.34	Interest	18
Plan loan	Government of India	566.68	Interest	18
Plan loan	Government of India	423.24	Interest	17
Plan loan	Government of India	654.81	Interest	17
Plan loan	Government of India	452.14	Interest	16
Plan loan	Government of India	147.36	Interest	15
Plan loan	Government of India	727.81	Interest	14
Non-Plan loan	Government of India	554.48	Interest	14
Non-Plan loan	Government of India	68.77	Interest	13
Non-Plan loan	Government of India	1,142.95	Interest	7
Plan loan	Government of India	660.00	Principal	13
		933.05	Interest
Plan loan	Government of India	843.00	Principal	12
		1181.67	Interest
Plan loan	Government of India	1760.00	Principal	10
		1929.73	Interest
Plan loan	Government of India	1057.00	Principal	7
		796.93	Interest
Non-Plan loan	Government of India	2461.00	Principal	6
		1491.5	Interest
Non-Plan loan	Government of India	1057.00	Principal	5
		540.58	Interest
Non-Plan loan	Government of India	10,000.00	Principal	5
		5093.15	Interest
Non-Plan loan	Government of India	16392.46	Principal	5
		8171.08	Interest
Non-Plan loan	Government of India	11,026.00	Principal	5
		5462.85	Interest

(b) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the company has not been declared as a wilful defaulter by any bank or financial institution or other lender.

(c) In our opinion and according to the information and explanations given to us by the management, the Company has not obtained term loan during the year and accordingly clause 3 (ix) (c) of the Order is not applicable to the company.

(d) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the funds raised by the company on short term basis have not been utilized for long term purposes.

(e) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the company has not taken any funds from any entity or person on account of or to meet the obligations of its subsidiaries, associates or joint ventures of the company.

(f) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the company has not raised any loans during the year on the pledge of securities held in its subsidiaries, joint ventures or associate companies.

(a) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the company has not raised any moneys by way of initial public offeror further public offerduring the year. Hence, the clause

(x) (a) Para 3 of the Companies (Auditors Report) Order, 2020 is not applicable.

(b) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the company has not made any preferential allotment or private placement of shares or convertible debentures during the year and therefore, the clause 3(x)(b) does not apply to the company. (a) According to the information and explanation given to us and on the basis of our examination of the records of the Company, no frauds by the company or any fraud on the company has been noticed or reported during the year, and hence the clause

(xi) (a) Para 3 of the Companies (Auditors Report) Order, 2020 is not applicable.

(b) No report under sub-section (12) of section 143 of the Companies Act has been filed by the auditors Form ADT-4 as prescribed under rule 13 of Companies (Audit and Auditors) Rules, 2014 with the Central Government.

(c) According to the information and explanation given to us and on the basis of our examination of the records of the Company, no whistle-blower complaints have been received during the year by the company.

(xii) In our opinion, the Company is not a Nidhi Company. Hence, the clause (xii) (a) to (c) of Para 3 of the Companies (Auditors Report) Order, 2020 is not applicable.

(xiii) In our opinion, all transactions with the related parties are in compliance with Section 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in Note 38 to the standalone financial statements as required by the applicable accounting standards.

(xiv) (a) In our opinion, based on our examination, the Company has an internal audit system which commensurate with the size and nature of its business.

(b) We have considered the internal audit reports of the company issued for the period under audit.

(xv) In our opinion and according to the information and explanations given to us, the Company has not entered into any non-cash transactions with directors or persons connected with him for which provisions of section 192 are applicable.

(xvi) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the company is not required to be registered under Section 45 IA of the Reserve Bank of India Act 1934, provisions of clause (xvi) (a) to (c) Para 3 of the Companies (Auditors Report) Order, 2020, are not applicable to the Company.

(xvii) The Company has incurred cash losses of Rs.4,903.41 Lakh in the current year and Rs.2,502.45 Lakh in the immediately preceding financial year.

(xviii) The statutory auditor of the company has not resigned during the year. Therefore, the provisions of clause (xiii) Para 3 of the Companies (Auditors Report) Order, 2020, are not applicable to the company.

(xix) According to the information and explanations given to us and on the basis of the financial ratios, ageing and expected dates of realisation of financial assets the standalone financial statements, our knowledge of the Board of Directors and management plans and based on our examination of the evidence supporting the assumptions, nothing has come to our attention, which causes us to believe that any material uncertainty exists as on the date of the audit report that the Company is not capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date. We, however, state that this is not an assurance as to the future viability of the Company. We further state that our reporting is based on the facts up to the date of the audit report and we neither give any guarantee nor any assurance that all liabilities falling due within a period of one year from the balance sheet date, will get discharged by the Company as and when they fall due.

(xx) The company does not fall under the criteria of CSR Responsibilities as per section 135 of Indian Companies Act, 2013. Therefore, the provisions of clause (xx) of Para 3 of the Companies (Auditors Report) Order, 2020, are not applicable to the Company.

ANNEXURE B TO THE INDEPENDENT AUDITORS REPORT

(Referred to in Paragraph 18 under ‘Report on Other Legal and Regulatory Requirements section of our report to the

Members of Hindustan Organic Chemicals Limited of even date)

As required by the directions and sub directions issued by the Comptroller and Auditor General of India under 143 (5) of the Act, we give below our comments on the matters referred therein.

A. Directions

Sl. No. C&AG Direction	Statement of Statutory Auditor
1 Whether the Company has system in place to process all the accounting transactions through IT system? If yes, the implications of processing of accounting transactions outside IT system on the integrity of accounts along with financial implications if any may be stated	Based on the explanations given to us and based on our verification, we have identified the following systems for processing the accounting transactions of the company, viz.,
	a) Accounting transactions are maintained through Tally ERP Prime, an accounting ERP software;
	b) Fixed assets register is maintained in MS Office Excel utility.
	c) Payroll management is done through a separate HRM software system.
	d) Consolidation of unit trial balances are done through MS Office Excel utility. Based on the explanations given to us, we have not come across any accounting transactions being processed outside the above-mentioned systems.
	Further, we recommend having a proper integration between the above-mentioned systems with the major accounting software, so as to avoid any potential risks of data loss or corruption during the data migration and transfer between the systems.
2 Whether there is any restructuring of an existing loan or cases of waiver/ write-off of debts/ loans/ interest etc. made by a lender to the company due to companys inability to repay the loan? If yes, the financial impact may be stated. Whether such cases are properly accounted for?	The company has made default in repayment of the loans and preference shares availed from the Government of India, the principal of which aggregates to Rs. 72,256.46 Lakhs. However, based on the information given to us, there was no restructuring of any of such loans or cases waiver/ write-off of debts/ loans/ interest etc.
	Hence, we are not commenting on the financial impact and accounting of the same.
3 Whether funds (grants/subsidy etc.) received or receivable for specific schemes from central/ state Government or its agencies were properly accounted for/ utilized as per its term and conditions? List the case of deviations.	Based on the information given to us, during the year under report, there were no funds received or receivable for specific schemes from central/ state Government or its agencies.

B. Sub-direction

Sl. C&AG Direction No.	Statement of Statutory Auditor
1 State the area of land under encroachment and briefly explain the steps taken by the company to remove encroachment.	1) Based on the information given to us by the management, 65.840 acres of land at the Rasayani Unit, Maharashtra, of the company has been identified as ‘under encroachment
	With respect to the steps taken by the management to remove the encroachment, we are informed that
	a) The company is constantly communicating with the Senior Government officials of Govt. of Maharashtra for taking prompt steps for removing encroachment by the farmers at the land at Rasayani Unit.
	b) The company is also co-ordinating with the Ministry of Chemicals and Petrochemicals, Government of India, for the speedy resolution in the above case.
	c)The above recommendations include various proposals including settlement arrangements with the encroachers.
	d) The company has also filed suits in some instances.
	2) Based on the explanations given to us, 32.547 acres of land at Rasayani Unit, Maharashtra, are under the possession of various entities such as MIDC, MSEB, HIL, MES etc.
	With respect to the steps taken by the management to remove the encroachment, we are informed that
	a) the company is constantly following up with the concerned officials for the recovery or registration of the said land possessed by such entities.
	b) In case of the land leased out to MES, the company has issued the notice of termination of lease to the party. However, the property is still under the possession of the lessee MES. The matter is pending before Arbitration authority and the proceedings are under progress.
	3) 10.576 acres of land at the Rasayani Unit. Maharashtra has been acquired by Governmental authorities and public road has been constructed. Hence, the company does not have possession as well as ownership with respect to the said land.
2 Whether there is any effective system for follow up of accumulated trade receivables especially which are more than three years old?	The company has a trade receivable amounting to Rs. 1,489.24 lakhs, which is more than three years old. The company has assessed and provided a sum of Rs. 1,474.28 lakhs as provision for bad and doubtful assets.
	We are informed that the management is following up with the above debtors for the recovery and has initiated legal proceedings against some of such cases.
3 Whether there was an adequate system for watching actual consumption against norms in case of raw materials, intermediaries and utilities?	We are informed that the company prepares monthly statements comparing the actual consumption of raw material, intermediaries and utilities against the established norms as MIS Report.

ANNEXURE C TO THE INDEPENDENT AUDITORS REPORT

(Referred to in Paragraph 19(f) under ‘Report on Other Legal and Regulatory Requirements section of our report to the

Members of Hindustan Organic Chemicals Limited of even date)

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (‘the Act) Opinion

1. We have audited the internal financial controls over financial reporting of Hindustan Organic Chemicals Limited (the company) as of 31st March, 2023 in conjunction with our audit of the standalone financial statements of the company for the year ended on that date.

2. In our opinion, the company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting wereoperatingeffectivelyas at March 31, 2023, based on the internal control over the financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of internal Financial Reporting issued by the Institute of Chartered Accountants of India.

Managements responsibility for Internal Financial Controls

3. The companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the company considering the essential components of internal control stated in the guidance note on audit of internal financial controls over financial reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of accounting records and the timely preparation of reliable financial information as required underthe Companies Act, 2013.

Auditors Responsibility

4. Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the guidance note on audit of internal financial controls over financial reporting (the Guidance Note) and the standards on auditing, issued by ICAI and deemed to be prescribed under Section 143(10) of the Companies Act, 2013 to the extent applicable to an audit of internal financial controls, both applicable to an audit of internal financial controls and, both issued by the Institute of Chartered Accountants of India. Those standards and the Guidance Notes require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial reporting was established and maintained and if such controls operated effectively in all material respects.

5. Our audit involves performing procedures to obtain Audit evidence about the adequacy of the internal financial controls system over financial reporting and over financial reporting included obtaining an understanding of internal financial assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controls based on the assessed risk. The procedures selected depend on the auditors judgment including the assessment of risks of material misstatement of the standalone financial statements, whether due to fraud or error,

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the companys internal financial control systems over financial reporting.

Meaning of internal financial controls over financial reporting

6. A companys internal financial controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial for external purposes in accordance with the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act, read Companies (Indian Accounting standards) Rules, 2015 as amended, and other accounting principles generally accepted in India. A companys internal financial controls over financial reporting includes those policies and procedures that

(1) pertain to the maintenance of the records that, in reasonable detail, accurately and fairly reflects the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of standalone financial statements in accordance with the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act, read Companies (Indian Accounting standards) Rules, 2015 as amended, and other accounting principles generally accepted in India and that the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) provide reasonable assurance regarding the prevention or timely deduction of unauthorized acquisition, use, or disposition of the companys assets that could haveamaterialeffecton the standalone financial statements .

Inherent Limitations of Internal Financial Controls Over Financial Reporting

7. Because of the inherent limitations of internal financial collusion of improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over the financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

According to the information and explanations given to us and based on our audit, the following material weakness has been identified as at March 31, 2023:

The internal control system established by the company for conducting the physical verification of the inventory is not as the same does operatingeffectively not cover the physical verification the stores and spares, which constitutes more than 48% (PY 37%) of the total carrying amount of the inventories, which could potentially result in the loss of inventory and obsolescence.

A ‘material weakness is a deficiency, or a combination of deficiencies, in internal financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the possible effects of the material weakness described above on the achievement of the objectives of the control criteria, the Company has maintained, in all material respects, adequate internal financial controls over financial controls over financial reporting and such internal financial controls over as of March 31, 2023, based on "the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial operatingeffectiveness. Controls Over Financial Ourauditofinternal financialcontrols Reporting issued by the Institute of Chartered Accountants of India". We have considered the material weakness identified and reported above in determining the nature, timing, and controls over financial reporting, extent of audit tests applied in our audit of the March 31, 2023 standalone financial statements of the Company, and the material weakness does not affect our opinion on the standalone financial statements of the Company

For Balan & Co.

Chartered Accountants

Firm Regn. No.340S

Joyal George, FCA

Partner (Memb. No: 228702)

UDIN: 23228702BGXDRK1444

Date: 18-05-2023

Place: Kochi-11