Bihar Sponge Iron Ltd Auditors Report.

TO THE MEMBERS OF BIHAR SPONGE IRON LIMITED Report on the Ind AS Financial Statements

We have audited the accompanying standalone Indian Accounting Standards (herein after referred as "IND AS") Financial Statements of BIHAR SPONGE IRON LIMITED ("the Company"), which comprise the Balance Sheet as at 31st March, 2018, the Statement of Profit and Loss, the Cash Flow Statement and the Statement of changes in equity for the year then ended and a summary of the significant accounting policies and other explanatory information.

Managements Responsibility for the Ind AS Financial Statements

The Companys 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 Ind AS Financial Statements that give a true and fair view of the financial position, financial performance and cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Ind AS prescribed under Section 133 of the Act, read with the Companies (Indian Accounting Standards) Rules, 2015, as amended.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of 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 Ind AS 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 Ind AS 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 there under.

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 misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the Ind AS Financial Statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the Ind AS Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Companys 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 the accounting policies used and the reasonableness of the accounting estimates made by the Companys 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 qualified audit opinion on the Ind AS financial statements. Basis for Qualified Opinion

As explained in the Notes to the financial statement, the company has not provided under noted liabilities:

i. Non recognition of liability on account of currency fluctuations on foreign currency loan and interest thereon (as required under Indian Accounting Standard - 21) amounting to Rs. 3,08,439 thousands as provided in the BIFR Scheme dt. 29.07.2004 and also confirmed by AAIFR/ Single Bench of Jharkhand High Court, Ranchi. The company has filed Letters Patent Appellate Jurisdiction (LPA) before the Divisional Bench of High Court of Jharkhand, Ranchi (refer other note no. 3(II) appearing in Annexure 1)

ii. Non recognition of penalty of Rs. 21,528 thousands recovered by South Eastern Coal Fields Ltd. on account of short lifting of coal in terms of Fuel Supply Agreement since the matter has been disputed by the Company under writ petition filed before the Honble High Court of Chhattisgarh (refer other note no 5 of Annexure I (iii)).

iii. No provision has been made in the books of accounts in respect of the undernoted items of expense in view of suspension of operations of plant since 10th August, 2013 as well as other reasons contented by the company:-

a) Interest on unsecured loan taken from Promoters and other parties from 10.08.2013 to 31.03.2018 (amount unascertained) {refer note 7(i)(a) of Annexure I}.

b) Interest on Soft Loan taken from the Government of Jharkhand under the Jharkhand Industrial Rehabilitation Scheme 2003 amounting to Rs. 2,60,044 thousands from 10.08.2013 to 31.03.2018 which is subject to representation from the company for waiver thereof by the lender {refer note 7(i)(b) of Annexure I}.

Taking into consideration non provision of likely liabilities mentioned paragraph i, ii, iii (b) above

a) Loss for the year would have been higher by Rs. 5,90,011 thousands as compared to the disclosed loss of Rs. 1,227 thousands.

b) Accumulated losses would have been Rs. 30,07,927 thousands as compared to disclosed losses of Rs. 24,17,916 thousands.

c) The above losses is however subject to ascertainment of liabilities as mentioned in Para iii.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis of Qualified Opinion paragraph above, the aforesaid Ind AS 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:

a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2018;

b) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and

c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Emphasis Matters

We draw attention to Note No. 3 (X) of part III of Annexure I of the financial statements the management has explained its reasons for preparing financial statements on ‘going concern basis. The explanation is as under:-

With the revival of the steel industry, considering the substantial accumulated losses, full erosion of working capital and the liabilities including long term borrowings having matured fully along with interest having fallen due. The company has initiated requisite steps for making the plant ready for operations and has in this direction, with a view to generate revenue and make the plant operational, the company has, on 01-04-2017 entered in to a Facility User Agreement with a company specializing in contract manufacturing. Under the said agreement, part of the plant and machinery shall be operated by the said company. With the restart of the plant by them, the management believes that the company shall gradually start earning surplus and losses incurred in past will get wiped out in due course and there after the company will be able to operate in normal course of its business. The financial statements, as such have been prepared on going concern basis on the strength of managements plan of revival including restructuring of liabilities, providing the adequate finance for the operations and reorganization of business of the company.

Our opinion is not modified in respect of this matter since the company contemplates, as explained above, to run and operate the company on going concern basis.

Other Matter

The comparative financial information of the Company for the year ended March 31,2017 and the transition date opening balance sheet as at April 01,2016 included in these Ind AS financial statements, are based on the previously issued statutory financial statements prepared in accordance with the accounting principles generally accepted in India, including the Companies (Accounting Standards) Rules, 2006 (as amended) specified under Section 133 of the Act, read with the Companies (Accounts) Rules, 2014 audited by the predecessor auditor whose report for the year ended March 31,2017 and March 31,2016 expressed modified opinion on those financial statement, as adjusted for the differences in the accounting principles adopted by the Company on transition to the Ind AS, which have been audited by us.

Report on Other Legal and Regulatory Requirements

As required by the Companies (Auditors Report) Order, 2016 ("the Order") 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 statement on the matters specified in paragraphs 3 and 4 of the Order to the extent applicable to the company.

As required by section 143(3) of the Act, we report that:

a) We have sought & obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

b) Except for the effects of the matter described in the Basis for Qualified Opinion Paragraph above, 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 Cash Flow Statement dealt with by this Report are in agreement with the books of account;

d) Except for the effects of the matter described in the Basis of Qualified Opinion paragraph above, in our opinion, the aforesaid Ind AS financial statements comply with the Indian Accounting Standards specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended.

e) The matter described in the basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the company.

f) On the basis of written representations received from the Directors as on 31st March, 2018 taken on record by the Board of Directors, none of directors is disqualified as on 31st March, 2018 from being appointed as a director in terms of section 164(2) of the Act.

g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.

h) With respect to the adequacy of the internal financial controls over financial reporting of the Company with reference to these Ind AS financial statements and the operating effectiveness of such controls, refer to our separate Report in Annexure ‘B.

i) With respect to the other matters to be included in the Auditors 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 possible impact of pending litigations on its financial position in its Ind AS financial statements -Refer other notes III of Annexure I (1) (i) to (xii) to the financial statements;

ii) The company did 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 the Investor Education and Protection Fund by the company.

For K. K. JAIN & CO.
Chartered Accountants
FRN: 02465N
(Ashok Kumar)
Place: New Delhi Partner
Date: 11.05.2018 M. No. : 086497

Annexure A referred to in paragraph 1 under the heading "Report on Other Legal and Regulatory Requirements" of Independent Auditors Report of even date on the financial statements for the year ended on March 31, 2018.

i) Fixed Assets

a) The Company has maintained proper records showing full particulars including quantitative details and situation of its fixed assets.

b) The Company has a programme of verifying all of the fixed assets over a period of three years, having regard to the size of the Company and nature of assets which in our opinion is reasonable. However, no physical verification of Fixed Asset have been carried out by the management, as the plant is under shutdown and suspension of production, w.e.f., 10.08.2013, hence discrepancies, if any, between the physical balance and book balance and their adjustment in the books of accounts at the yearend has not been dealt in the books of accounts.

c) The title deeds of immovable properties are held in the name of the company except in respect of the freehold land having value of Rs 593 thousands (Previous year Rs 593 thousand) for which registration in favour of the company is pending for want of mutation with the competent authorities. The gross and net carry value of such fixed asset as on 31.03.2018 is Rs 3100 thousands.

ii) Inventories

The stock of raw materials and stores & spare parts have not been physically verified by the management at reasonable intervals, since the plant has been under shutdown and operations suspended w.e.f. 10.08.2013. As no physical verification of inventories were carried from 10.08.2013 the discrepancies between book balance & physical balance if any, have neither been ascertained nor the same have been properly dealt in the books of accounts.

iii) Transactions with parties u/s 189 of the Companies Act, 2013

The company has not granted any loans secured or unsecured to companies, firms, limited liability partnerships or other parties during the year or in earlier years covered in the register maintained under section 189 of the Companies Act,2013 as such para (a), (b) & (c) of clause are not applicable.

iv) Loans, Investments Guaranties & Securities etc. covered u/s 185 & 186 of the Act.

The company has neither given any loans investments, guarantees and security covered under section 185 and 186 of the Act during the year under audit nor in earlier year and hence the clause is not applicable.

v) Deposits

The Company has not accepted any deposits during the year or in earlier years which are covered under the directives issued by the Reserve Bank of India and the provisions of section 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed there under.

vi) Cost Records

The maintenance of cost records has been specified by the Central Government under sub section (1) of Section 148 of the Companies Act, 2013. Since there have been no production since 10.08.2013 to till date, no records have been made & maintained by the company. vii Statutory Dues

a) According to the books and records, examined by us and information and explanations given to us, the company is not regular in depositing the undisputed statutory dues including Provident fund, income-tax (tax deducted at source and tax collected at source), sales-tax, service tax, cess & any other applicable statutory dues to the appropriate authorities during the year.

The arrears on account of such statutory dues as at the end of the financial year 31st March 2018 for a period of more than six months from the date they become payable are Service Tax: Rs 7,867 thousands, Income Tax (TCS)Rs. 381 thousands, Electricity Duty: 2,601 thousands (excluding un provided Rs 2,281 thousands) and Cess Rs. 1 thousand.

b) The details of dues of income tax or sales tax or service tax or duty of customs or duty of excise or value added tax, etc. which have not been deposited on account of dispute are given hereunder:

Name of the statute Forum where Dispute pending Nature of dues Period of dispute Amount
1. The Customs Act, 1962 CESTAT, Kolkatta Custom Duty & Demurrage 1991-92 10427
Charges and interest on imported Stores & spare parts. 1994-95 5,032
2. JVAT Act 2005 Jt. Commissioner of Commercial Taxes (Appeals) Jamshedpur Tax on Non -submission of JVAT forms 2006-07 2,397
3. The C.S.T. Act. 1956 Jt. Commissioner of Commercial Taxes (Appeals), JSR Tax on Non-Submission of "C" Forms 2006-07 311
4. JVAT Act, 2005 Jt. Comm. of Commercial Taxes (Appeals), Jsr. (Amt. paid on appeal Rs.5.88 lakhs). Tax on JVAT. 2010-11 5,879
5. JVAT Act, 2005 Jt. Comm. of Commercial Taxes (Appeals), Jsr. (Amt. paid on appeal Rs.15lacs on 19.10.2012) Tax on JVAT. 2010-11 24,786
6. JVAT Act, 2005 Commissioner of Commercial Taxes Jharkhand, Ranchi. Tax on JVAT. 2010-11 8140
7. JVAT Act, 2005 Commissioner of Commercial Taxes, Jharkhand Ranchi. Central Sales Tax 2010-11 3096
8. JVAT Act, 2005 Joint Commissioner of Commercial Taxes, Jharkhand Ranchi. Tax on JVAT 2012-13 778
9. The C.S.T Act, 1956 Joint Commissioner of Commercial Taxes, Jharkhand Ranchi. Central Sales Tax . 2012-13 118
10. Income Tax Act, 1961 ITAT, Patna (in the process for filing) Short deduction of tax at source and collection of Tax at Source with interest and penalty raised by DCIT, JSR and confirmed by the commissioner of Income A.Y 2004-05 2715
A.Y. 2005-06 2880
Tax (Appeals), JSR on 28-03-2016. A.Y.2008-09 2647

viii) The company has not defaulted in repayment of loans to financial institutions & banks except the liability on account of currency fluctuation on foreign currency loan and interest thereon amounting to Rs 3,08,439 thousands disputed by the company and pending before the Honble High Court, Jharkhand, Ranchi. The soft loan obtained under Rehabilitation Scheme, 2003 from Government of Jharkhand amounting to Rs 3,25,000 thousands principal and interest of Rs 5,34,663 thousands (inclusive of unprovided interest of Rs 2,60,044 thousands)which was due after 30.09.2011 as per BIFR Scheme {also refer note 12(f)}. There is no debenture in the Company.

ix) The Company has not raised any money by way of initial public offer or further public offer (including debts instruments) and term loans and hence the application of such money for the specified purposes is not applicable.

x) Based upon the audit procedures performed and on the basis of information and explanations provided by the management, we report that no fraud by the company or any fraud on the company by its officers or employees has been noticed or reported during the year under audit.

xi) The managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act, 2013.

xii) The company is not a Nidhi Company and hence the clause is not applicable.

xiii) According to the records of the company and information and explanation provided to us, all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements, as required by the applicable accounting standards.

xiv) The company has made not any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review as such the clause is not applicable to the company.

xv) As per the records of the company and information and explanation provided to us, the company has not entered into any non-cash transactions with directors or persons connected with him and hence the clause is not applicable.

xvi) The company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

For K. K. JAIN & CO.
Chartered Accountants
FRN: 02465N
(Ashok Kumar)
Place: New Delhi Partner
Date: 11.05.2018 M. No. : 086497

Annexure ‘B to Independent Auditors Report

(Referred to in paragraph (h) under the head ‘Report on Other Legal and Regulatory Requirements of even date)

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, ("the Act") 1. We have audited the internal financial control with reference to financial statement of BIHAR SPONGE IRON LIMITED ("the Company") as of March, 31, 2018 in conjunction with our audit of the financial statements of the Company for the year ended on that date.

Managements Responsibility for Internal Financial Controls

2. The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control with reference to financial statement, 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 (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 companys 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 Act.

Auditors Responsibility

3. 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 prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both applicable to an audit of internal financial controls and issued by the ICAI. 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.

4. 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

5. 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 controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

6. A companys 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 companys 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 authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

7. 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.

Qualified Opinion

8. According to the information and explanation given to us and based on our audit, the following material weakness have been identified as at March 31,2018:

a). The companys internal control system with respect to physical verification of stores & spares parts and Fixed Assets have not been operated effectively since neither physical verification was carried out nor adjustment for discrepancies (including deterioration/ obsolesce for fixed assets) if any, between the physical balance and book balance at the year end 31.03.2018 have been dealt in the books of accounts.

b). Confirmation of balance and reconciliation of Sundry Creditors & Suppliers, Services Providers/Contractors ,Lenders and advances etc. are pending since last 4 years at the year end.

In our opinion, because of the possible effects of the material weakness as described above on the achievements of the objectives of internal control criteria, the company has not maintained adequate internal financial control over financial reporting and such internal financial controls over financial reporting were not operating effectively with respect to inventories and fixed assets as on March 31,2018, and

We have considered the material weakness identified and reported above in determining the nature, timing and extent of audit test applied in our audit of the year ended

March 31,2018 financial statements of the company and these material weaknesses dont affect our opinion on the financial statements of the company.

For K. K. JAIN & CO.
Chartered Accountants
FRN: 02465N
(Ashok Kumar)
Place: New Delhi Partner
Date: 11.05.2018 M. No. : 086497