Bihar Sponge Iron Ltd Directors Report.

To the Members of Bihar Sponge Iron Limited

Report on the Audit of the Financial Statements

Qualified Opinion

We have audited the accompanying financial statements of Bihar Sponge Iron Limited ("the Company") which comprise the Balance Sheet as at March 31, 2019, the Statement of Profit and Loss and Statement of Cash Flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us the aforesaid financial statements give the information required by the Companies Act, 2013 ("Act") in the manner so required and except for the effect of the matter described in the Basis for Qualified Opinion section of our report, give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31,2019, the loss and total comprehensive income, changes in equity and its cash flows for the year ended on that date.

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. 3,09,886 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 (III).

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 31.03.2019 (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. 3,28,817 thousands from 10.08.2013 to 31.03.2019 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 and iii (b) above

a. Loss for the year would have been higher by Rs. 6,60,231 thousands as compared to the disclosed loss of Rs. 1,087 thousands.

b. Accumulated losses would have been Rs.30,79,234 thousands as compared to disclosed losses of Rs. 24,19,003 thousands.

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

We conducted our audit of the financial statements in accordance with the Standards on Auditing specified under section 143(10) of the Act (SAs). Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Audit of the 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 (ICAI) together with the independence requirements that are relevant to our audit of the 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 ICAIs Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for out audit opinion on the financial statements.

Material Uncertainty Related to Going Concern

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.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the 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 given in Basis for Qualified Opinion and the Material Uncertainty Related to Going Concern section of our report to be the key audit matters to be communicated in our report.

Information other than the Financial Statements and Auditors Report thereon

The Companys Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the Management Discussion and Analysis, Boards Report including Annexures to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information, but does not include the financial statements and our auditors report thereon.

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

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained during the course of out audit or otherwise appears 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 have nothing to report in this regard.

Managements Responsibilities for the Financial Statements

The Companys Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. 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 financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Companys ability to 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.

The Board of Directors are also responsible for overseeing the companys financial reporting process.

Auditors Responsibilities for the Audit of Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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 financial statements.

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 financial statements, whether due to 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, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place 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.

• 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 financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions 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 financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in financial statements.

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

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.

Form the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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 discloser 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

1. As required by the Companies (Auditors Report) Order, 2016 ("the Order"), issued by the Central Government in terms of section 143(11) of the Act, we give in "Annexure A a statement on the matters specified in paragraphs 3 and 4 of the Order.

2. As required by Section 143(3) of the Act, based on our audit 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 including Other Comprehensive Income, Statement of Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the relevant 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) On the basis of the written representations received from the directors as on 31st March, 2019 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2019 from being appointed as a director in terms of Section 164 (2) of the Act.

f) With respect of 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 B". Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Companys internal financial controls over financial reporting.

g) With respect to the other matters to be included in the Auditors Report in accordance with the requirements of section 197(16) of the Act, as amended:

In our opinion and to the best of our information and according to the explanations given to us, the remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act.

h) 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, as amended in our opinion and to the best of 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
FR No. : 002465N
(Simmi Jain)
Place : New Delhi Partner
Date : 25.05.2019 M.No. : 086496

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, 2019.

i) Fixed Assets

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

• 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 year end has not been dealt in the books of accounts.

• 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 31.03.2019 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 thereunder.

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), GST, 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 2019 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 unprovided 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:

(Rs. ‘000)
Name of the statute Forum where Dispute pending Nature of dues Period of dispute Amount
1. JVAT Act, 2005 Jt. Comm. of Commercial Taxes (Appeals), Jsr. (Amt. paid on appeal Rs.5.88 lakhs). Tax on JVAT. 2010-11 5,291
2. JVAT Act, 2005 Commissioner of Commercial Taxes Jharkhand, Ranchi. Tax on JVAT. 2010-11 8140
3. JVAT Act, 2005 Commissioner of Commercial Taxes, Jharkhand Ranchi. Central Sales Tax 2010-11 3096
4. Income Tax Act, 1961 ITAT, Patna 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 Tax (Appeals), JSR on 28-03-2016. A.Y. 2004-05 2715
A.Y. 2005-06 2880

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 3,09,886 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 6,03,437 thousands (inclusive of unprovided interest of Rs 3,28,817 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) No managerial remuneration has been paid or provided.

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