To the Members of Reliance Defence and Engineering Limited (Formerly known as Pipavav Defence and Offshore Engineering Company Limited)

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of RELIANCE DEFENCE AND ENGINEERING LIMITED (Formerly known as Pipavav Defence and Offshore Engineering Company Limited) ("the Company"), which comprise the Balance sheet as at 31st March, 2016, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Principles Generally Accepted in India (Indian GAAPs), including Indian Accounting Standards (‘Ind AS’) prescribed under Section 133 of the Companies Act, 2013, as applicable.

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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Company’s directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

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 31st March, 2016 and its loss and its cash flows for the year ended on that date.

Emphasis of Matters

We draw attention to the: a. note no. 29.1 regarding managerial remuneration paid / payable to a Executive Director, which is subject to the approval of the Central Government. b. note no. 48 regarding voluntary early adoption of ‘Ind AS’ by the company and its consequential impacts on the Other Equity (Reserve & Surplus) as well as restatement/ rework of corresponding figures of the previous year and presentations of financial statements as per Schedule III of the Companies Act 2013 as notified vide notification No. G.S.R. 404 (E) dated 6th April, 2016 by the Ministry of Corporate Affairs. Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. 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 purposes of our audit. b. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books. c. The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this report are in agreement with the books of account. d. In our opinion, the aforesaid standalone financial statements comply with the Ind AS prescribed under Section 133 of the Act, as applicable. e. On the basis of the written representations received from the directors as on 31st March, 2016 and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2016 from being appointed as a director in terms of Section 164 (2) of the Act. f. With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure A". g. With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the 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 position in its financial statements as referred to in Note No. 33 to the standalone financial statements; ii. The Company has made provisions, as required under the applicable law or Ind AS, for material foreseeable losses, if any, on long term contracts including derivative contracts; and iii. There are no amounts which are required to be transferred to the Investor Education and Protection Fund by the Company.

2. As required by the Companies (Auditor’s Report) Order, 2016 ("CARO 2016") issued by the Central Government in terms of Section 143(11) of the Act, we give in "Annexure B" a statement on the matters specified in paragraphs 3 and 4 of CARO 2016.

For Pathak H. D. & Associates
Chartered Accountants
Firm Regn. No: 107783W
Rupesh Shah
Partner
Membership No. 117964
Place: Mumbai
Date: 14th May, 2016

Annexure "A" to the Independent Auditor’s Report

(Referred to in paragraph 1 (g) under ‘Report on Other Legal and Regulatory Requirements’ of our report of even date)

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

We have audited the internal financial controls over financial reporting of RELIANCE DEFENCE AND ENGINEERING LIMITED

(Formerly known as Pipavav Defence and Offshore Engineering Company Limited) (‘the Company’) as of 31st March, 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s 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 (‘the Guidance Note’) issued by the Institute of Chartered Accountants of India (ICAI). 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 company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditor’s Responsibility

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

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the 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 Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company's internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or 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 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.

Opinion

In our opinion, to the best of our information and according to the explanations given to us, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March, 2016, 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.

For Pathak H. D. & Associates
Chartered Accountants
Firm Regn. No: 107783W
Rupesh Shah
Partner
Membership No. 117964
Place: Mumbai
Date: 14th May, 2016

Annexure - B to Independent Auditor’s Report

(Referred to in paragraph 2 under the heading "Report on Other Legal and Regulatory Requirements" of our report of even date to the members of RELIANCE DEFENCE AND ENGINEERING LIMITED (Formerly known as Pipavav Defence and Offshore Engineering Company Limited) on the standalone financial statements for the year ended 31st March, 2016) i. In respect of its fixed assets: a. The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets on the basis of available information. b. As explained to us, the Company has physically verified certain assets, in accordance with a phased program of verification, which in our opinion is reasonable, having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such physical verification as compared with the available records. c. According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company doesn’t have any freehold immovable properties. As informed to us, in respect of leasehold immovable properties the original title deeds have been deposited with the lenders, we have been produced the photocopy of the title deeds of these leasehold immovable properties and based on such documents, the title deeds are held in the name of the Company. ii. As explained to us, inventories have been physically verified during the year by the management and in our opinion the frequency of verification is reasonable. Discrepancies noticed on physical verification of the inventories between the physical inventories and book records were not material, having regard to the size of the operations of the Company and the same have been properly dealt with. iii. In respect of loans, secured or unsecured, granted by the company to companies, firms, Limited liability partnerships or other parties covered in the register maintained under section 189 of the Act: a. The company has granted unsecured loans to wholly owned subsidiary companies, and in our opinion, the rate of interest and other terms and conditions on which the loans had been granted are not, prima facie, prejudicial to the interest of the Company. b. As per the information and explanations given to us, the above loans are repayable on demand along with the interest accrued thereon. The repayment / receipts, if any, demanded have been received. c. As the above loans are repayable on demand, the question of overdue amount does not arise. iv. In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of section 185 and 186 of the Act, in respect of grant of loans, making investments and providing guarantees and securities. v. According to the information and explanations given to us, the Company has not accepted any deposits from the public. Therefore, the provisions of paragraph 3 (v) of the CARO 2016 are not applicable to the Company. vi. According to the information and explanations given to us, the Central Government has not prescribed the cost records to be maintained under sub-Section (1) of Section 148 of the Act in respect of activities carried on by the Company. Therefore the provisions of paragraph 3(vi) of the CARO 2016 are not applicable to the Company. vii. According to the information and explanations given to us in respect of statutory dues: a. During the year delays have been noticed in depositing undisputed statutory dues, including 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, as applicable, with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of such statutory dues were outstanding as at 31st March, 2016 for a period of more than six months from the date they became payable except in respect of TDS and Works Contract Tax aggregating to Rs.1,696.35 Lacs as detailed below, which have since been paid.

Name of the Statutes Nature of the Dues Period to which it relates Amounts (Rs.in Lacs)
Income Tax Act,1961 Tax Deducted at source April 2015 to August 2015 229.30
MVAT Act Works Contract Tax December 2014 1,467.05
Total 1,696.35

b. Details of dues of Income tax, Duty of Excise and

Value added tax aggregating to Rs.2,173.26 Lacs that have not been deposited on account of disputed matters pending before appropriate authorities are as under:

Name of the Statutes Nature of the Dues Period to which it relates Amounts (Rs. in Lacs) (*) Forum where the dispute is pending
Income Tax Act,1961 Income Tax 2007-08 942.17 Income Tax Appellate Tribunal
2004-05 30.16 High Court
2007-08 to 2014-15 18.57 ITO (TDS)
MVAT, 2002 VAT 2006-07 to 2011-12 146.36 Assistance Commissioner of Sales Tax
CENVAT Credit Rules,2004 Central Excise Penalty 2010-11 to 2014-15 1,036.00 Commissioner of Central Excise
Total 2,173.26

(*) Net of amount deposited under protest viii. Based on our audit procedures and information and explanations given by the management, and considering the Corporate Debt Restructuring (CDR) scheme, we are of the opinion that as on 31st March, 2016 the Company has defaulted in repayment of loans to banks and financial institutions aggregating to Rs.7,869.07 Lacs. Lender wise details of such default is as under:

(Rs.in Lacs)
Sr. No Bank / Financial Institution Amount of default as at the balance sheet date Period of default
1 HUDCO Ltd 6,263.00 Above 100 days
2 India Infrastructure 902.13 Below 100 days
Financial Ltd ECB
3 Bank of India 182.95 Below 100 days
4 United Bank of India 131.92 Below 100 days
5 Union Bank of India 92.07 Below 100 days
6 Oriental Bank of 90.26 Below 100 days
Commerce
7 Dena Bank 70.49 Below 100 days
8 Vijaya Bank 56.28 Below 100 days
9 State Bank of Patiala 28.79 Below 100 days
10 Central Bank of India 24.99 Below 100 days
11 Punjab National Bank 21.22 Below 100 days
12 State Bank of Mysore 4.97 Below 100 days
Total 7,869.07

ix. According to the information and explanations given to us, the term loans raised during the year were, prima facie, been applied for the purpose for which those are raised. The Company has not raised any money by way of initial public offer or further public offer (including debt instruments). x. Based on our audit procedures performed for the purpose of reporting the true and fair view of the financial statements and on the basis of information and explanations given by the management, no fraud by the Company or on the Company by its officers or employees has been noticed or reported during the year. xi. According to the information and explanations give to us and based on our examination of the records Company has paid or provided Rs.249.51 Lacs to one of the executive director of the Company which was in excess of remuneration as prescribed in the Schedule V to the Act by Rs.120.53 Lacs. The Company has applied the requisite approval from the Central Government mandated by the provisions of section 197 read with Schedule V, which is awaited. xii. In our opinion and according to the information and explanations given to us, the Company is not a nidhi company. Therefore, the provisions of paragraph 3 (xii) of the CARO 2016 are not applicable to the Company. xiii. According to the information and explanations given to us and based on our examination of the records of the Company, transactions with the related parties are in compliance with sections 177 and 188 of the Act where applicable and details of such transactions have been disclosed in the financial statements etc. as required by the applicable accounting standards. xiv. According to the information and explanations give to us and based on our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year. Therefore, the provisions of paragraph 3 (xiv) of the CARO 2016 are not applicable to the Company. xv. According to the information and explanations given to us, the Company has not entered into non-cash transactions with directors or persons connected with him. Therefore, the provisions of paragraph 3 (xv) of the CARO 2016 are not applicable to the Company. xvi. In our opinion and according to information and explanations provided to us, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act 1934.

For Pathak H. D. & Associates
Chartered Accountants
Firm Regn. No: 107783W
Rupesh Shah
Partner
Membership No. 117964
Place: Mumbai
Date: 14th May, 2016