Dewan Housing Finance Corporation Ltd Directors Report.

To The Members of

Dewan Housing Finance Corporation Limited

Report on the Audit of the Standalone Financial Statements

DISCLAIMER OF OPINION

We were engaged to audit the standalone financial statements of Dewan Housing Finance Corporation Limited (“the Company”), which comprises of the Balance Sheet as at March 31, 2020, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

We do not express an opinion on the accompanying standalone financial statements of the Company. Because of the significance of the matter described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these standalone financial statements.

BASIS FOR DISCLAIMER OF OPINION

The predecessor joint statutory auditors had issued a Disclaimer Report basis the observations forming part of their report for the financial year ended 31st March, 2019. Their observations together with the observations noted during the year ended March 31, 2020 are as below:

1. We refer to Note No. 52 of the standalone financial statements regarding that the Administrator, the Advisors (refer to the Members of the Committee of Advisors), and the present Key Managerial Personnel (“KMP” / “Present Management”) have not been able to analyse in depth the accuracy, validity, completeness or authenticity of the information and figures mentioned in the standalone financial statements as they have joined after 20th November 2019; and have been involved in the affairs of the Company for less than four months in the entire financial year 2019-20 and also owing to the lockdown which commenced from March 23, 2020 due to COVID-19, causing the office-shut down till the closure of the financial year 2019-20 which subsequently got extended till May 31, 2020. Further, as a part of Corporate Insolvency Resolution Process (CIRP) the Company, a Transaction Audit to determine avoidable transactions in terms of Section 43, 45, 49, 50 and 66 of Insolvency and Bankruptcy Code (IBC) and an exercise to determine the liquidation value and fair valuation of the Company is underway. These activities could not be conclusively completed till the signing of the financial statement in view of the disruption caused due to the lockdown restrictions. The outcome of such Transaction Audit may provide additional facts/information about the past data with respect to the Company. The Administrator has signed the standalone financial statements solely for the purpose of compliance and discharging his duties during CIRP period of the Company and in accordance with the provisions of the IBC, read with the regulations and rules thereunder, and based on the explanations, clarifications, certifications, representations and statement made by the existing staff of the Company in relation to the data pertaining to the period prior to the joining of the Present Management and does not have knowledge of the past affairs, finances and operations of the Company.

2. We refer to Note No. 51 of the standalone financial statements regarding various good governance initiatives undertaken by the Present Management including various efforts to strengthen of the financial policies and processes, functioning of the IT system; loan / security documentation, legal audit, internal financial controls and updating risk control matrices, risk and fraud risk management, through in-house resources and engagement of external professional experts/consultants. These initiatives have been undertaken soon after the Present Management became effective. While substantial progress is stated to have been made, by concluding some initiatives undertaken by the present management certain initiatives could not be fully concluded and implemented by 31st March, 2020 due to the necessary time required for the same; and also because of lockdown and mobility restrictions introduced in view of COVID-19 and the lockdown imposed by State and Union Government.

In view of the foregoing we have not been able to obtain sufficient and appropriate evidence in support of the outcomes of the said initiatives and their impact upon the overall governance / control environment within the Company.

3. We also refer to the “Written Representations” by Present Management and its limitations and inability thereof in confirming or non-confirming the assertions (refer para 1 above) forming part of the standard “Written Representation” as required by us in accordance with the guidelines issued by the Institute of Chartered Accountants of India (the ICAI”).

4. We refer to multiple issues of financial significance as highlighted by the predecessor joint statutory auditors in their report for the year ended 31st March, 2019 together with the suspected irregularities as reported and under media scrutiny. These issues are presently investigated by the concerned agencies namely Ministry of Corporate Affairs (MCA); Serious Fraud Investigation Office (SFIO), Enforcement Directorate (ED), and Central Bureau of Investigation (CBI). As of the date of this report, investigations are ongoing and not yet concluded and pending outcome of ongoing investigations, the Present Management believes that adjustments of the impact of these matters on the standalone financial statements including with regard to any adjustments to the carrying values of the loans, restatement of receivables/payables, related parties and other disclosures and compliances, as applicable can be made only when the same become known in definitive terms following the conclusion of the said investigations together with the outcome of the ongoing transactions audits performed by independent agencies/firms appointed by the Administrator. Further, we also understand that various regulatory authorities / lenders are currently carrying out their own investigations which are yet to be completed/ concluded; and they may make a determination on whether any fraud or any other non-compliance/ illegalities have occurred in relation to the allegations and matters under public scrutiny. We have been informed by the Present Management that these investigations and audits are not yet completed; with no outcomes being communicated by the concerned agencies / firms to the Present Management, and accordingly no adjustments are made in standalone financial statements in respect of the said reported matters.

In view of the above and pending outcome of ongoing investigation, we have not been able to comment on the completeness and appropriateness of the balances in relation to these subjected matters as quoted in the standalone financial statements and the consequential impact that the outcomes of the investigations and transaction audits may have on the standalone financial statements and the provisions made by the Present Management during this year.

5. We refer to Note No. 59 of the standalone financial statements regarding the investments / advances by way of unsecured Inter Corporate Deposit (ICD) aggregating Rs 565,269 lakh which were outstanding as at March 31, 2019. Of these, ICDs aggregating of Rs 93,835 lakh have since been repaid by the borrowers and ICDs aggregating to Rs 1,30,661 lakh have been converted during the period of previous management into term loans during the period prior to 20th November 2019, resulting in an outstanding of Rs 3,78,624 lakh under ICDs, including interest receivable as of 31st March, 2020. The recoverability or otherwise of the remaining amount is yet to be ascertained, and hence the appropriate provision amounting to Rs 2,25,032 lakh has been made as a prudent measure. Due to non-availability of the recovery data, the company has considered the Loss Given Default percentage (LGD)% as specified in the guidelines issued by the RBI in the circular “Implementation of the Internal Rating Based (IRB) Approaches for Calculation of Capital Charge for Credit Risk” as a proxy LGD%. This is also based on the industry practice followed in the cases where the companies do not have the trend of recovery experience. Present Management has stated that these provisions may undergo changes upon the actual realization on case to case basis and has citied its limitations in confirming w.r.t to completeness; correctness and authenticity of the figures as quoted in the standalone financial statements.

In view of the foregoing we have not been able to comment upon the completeness; correctness and adequacy / inadequacy of such provisions and their consequential effect on the carrying values of the subjected accounts and impact on the standalone financial statements.

6. We refer to the observations made by the predecessor joint statutory auditors in respect of certain loans and Pass-through Certificates (PTC) granted or invested by the Company:

i. Multiple accounting entries were initially recorded in certain customer accounts for receipts despite the cheques or negotiable instrument not having been deposited in the bank(s), as reported in financial year 2018-19 and these were subsequently reversed. Such instances have now been informed to have been constantly reviewed by the Present Management.

ii. Deficiencies in documentation of Project / Mortgage loans for which the Present Management has initiated a legal audit that is ongoing and it has expressed its inability to express any view on the documentation adequacy / completeness till the conclusion of the same.

7. We refer to Note No. 60 of the standalone financial statements regarding the wholesale loan portfolio aggregating Rs 49,58,544 lakh (pursuant to classification of this portfolio to “held for sale” in the previous year ended 31st March 2019) have been “fair valued” as at 31st March 2020 at Rs 30,73,231 lakh, with the resulting fair value loss aggregating Rs 18,85,313 lakh. The basis of valuation of the portfolio is stated to have been changed during the year ended 31st March 2020 by discounting the cash flow assessed by the external registered valuer as against the contractual cash flow used by the erstwhile management in the previous year and present management for the year ended 31st March 2020. Further, as the outcome of valuation exercise to be completed in CIRP, this may undergo change.

8. We refer to Note No. 62 of the standalone financial statements regarding that there exists mis-match amounting to Rs 3,01,868 lakh that is yet to be identified and mapped to individual parties and the underlying securities available, if any, out of the available surplus security covers and for which Present Management has initiated transaction audit which is still in process. Provisions have been made in standalone financial statements for the same due to nonavailability of internal confirmations; and all the relevant and authenticate data in completeness (as stated). These provisions may undergo changes upon the actual realization on case to case basis. Further the Present Management has citied its limitations in confirming w.r.t completeness; correctness and authenticity of the figures as quoted in standalone financial statements.

In view of the foregoing, we have not been able to obtain sufficient appropriate audit evidence to support the values of the loans and we have not been able to determine if these matters would have an impact on the standalone financial statements including with regard to any adjustments to the carrying value of the loans, restatement, related parties and other disclosures and compliances as applicable.

9. We refer to the observations made by National Housing Bank (NHB) in its inspection for the year ended March 31, 2018 as per the provisions of the National Housing Bank Act, 1987 in respect Project Loans. Accounting Adjustments / Provisions are made in the standalone financial statements as recommended in the NHBs Inspection Report as per NHBs Guidelines. Some of the key factors such as credit worthiness of parties, historical / past records, market value of underlying certain securities / assets etc., that could influence the values of such provisions, are not factored into while arriving at the values of such provisions due to non-availability of all the relevant and authenticate data in completeness (as stated). These provisions may undergo changes upon the actual realization on case to case basis. Further the Present Management has citied its limitations in confirming w.r.t completeness; correctness and authenticity of the figures as quoted in standalone financial statements.

Further, the loss aggregating Rs 13,57,515 lakh (including comprehensive Income) incurred by the Company during the year ended 31st March, 2020, has rendered the Company not able to comply with the regulatory requirements of NHB in respect of the Net Owned Fund (NOF) and which also resulted in multiple contraventions of the provisions of NHB Act, 1987, Directions and Guidelines thereon. Although the aforesaid non-compliance may in ordinary course result in potential action against the Company by NHB in this regard, we have not been able to commenting on the same since the Company is presently under moratorium imposed by the Honable NCLT which prevents any actions against the Company

In view of the stated observations made by the NHB and of the non-compliance with the NHBs provisions by the Company, we have not been able to obtain sufficient appropriate audit evidence in support of; and comment upon the completeness; correctness and adequacy / inadequacy of such provisions and their consequential effect on the carrying values of the subjected accounts, penal actions, if any, and impact on standalone financial statements including with regard to any adjustments to the carrying value of the loans, restatement, related parties and other disclosures and compliances as applicable subject to the moratorium declared by NCLT Order in respect of the Company.

10. We refer to Note No. 44(c) of the standalone financial statements regarding that the Present Management has revisited the underlying assumptions required to calculate the provisions for ECL on the retail loan portfolio to remediate the deficiencies in the underlying assumptions as followed in the previous year to measure ECL provisions to be considered in standalone financial statements as on 31st March, 2020. However due to inherent deficiencies and non-availability of the historical data which is being used for the purpose of calculating provisioning based on Expected Credit Loss (ECL), some of the key factors such as historical / past records; relevant underlying securities / assets etc., that could influence the values of such provisions, are still to be fully factored into while arriving at the values of such provisions due to non-availability of all the relevant and authenticate data in completeness (as stated). These provisions may undergo change upon the actual realization on case to case basis. Further the Present Management has citied its limitations in confirming w.r.t completeness; correctness and authenticity of the figures as quoted in the standalone financial statements.

In view of the foregoing, we have not been able to obtain sufficient appropriate audit evidence in support of; and comment upon the completeness; correctness and adequacy / inadequacy of such provisions and their consequential effect on the carrying values of the subjected accounts and impact on standalone financial statements including with regard to any adjustments to the carrying value of the loans, restatement, related parties and other disclosures and compliances as applicable.

11. We refer to Note No. 58 of the standalone financial statements regarding that no provision is made by the Company, pursuant to its admission under the IBC (i.e 3rd December, 2019), in respect of its obligation for interest on all the borrowings basis the opinion from legal advisors. The interest not so provided for amounts to Rs 2,36,133 lakh and the loss for the year ended as on 31st March, 2020 are accordingly understated respectively to that extent.

As a legal opinion is confirmed in finality by the competent authority only when concluding the matter, we have not been able to comment upon the position being taken by the Present Management in this regard.

12. We refer to Note No. 56 & 57 of the standalone financial statements regarding that the Company has recognized net deferred tax asset of Rs 5,05,215 lakh as at 31st March, 2020. The Company is required to perform an assessment as required by Ind AS 12 - ‘Income Taxes which requires the Company to determine the probability of future taxable income to utilize the deferred tax asset. In the light of the above and pending the outcome of the CIRP, we have not been able to comment on the same.

13. We refer to Note No. 63 of the standalone financial statements regarding that the Company has incurred expenditure aggregating Rs 10,517 lakh for development of customised software for its operations and recording of transactions which has been carried as intangible asset under development as at March 31, 2020. The Company has not performed an impairment assessment as required by Ind AS 36 - ‘Impairment of Assets which requires the Company to determine whether the economic benefit in respect of this intangible asset shall be available to the Company in subsequent periods taking into consideration the uncertainty in respect of its plan to monetize its assets, secure funding from the bankers / investors, restructure its liabilities and recommence its operations. In view of foregoing, we have not been provided sufficient appropriate evidence about the carrying value of the intangible asset under development and adjustments required, if any, to standalone financial statements.

14. In view of the possible effects of the matters described in paragraphs 1 to 13 above, we have not been able to comment on the Companys compliance of the covenants in respect of all borrowings and consequential implications including disclosures, if any.

15. In view of the foregoing, we have not been able to obtain sufficient appropriate evidence to support the values of the loans and we have not been able to determine if these matters would have an impact on the standalone financial statements including with regard to any adjustments to the carrying value of the loans, assets, restatement, related parties and other disclosures and compliances, as applicable. We were further not able to comment whether the loans referred in above paragraphs have been properly secured and hence these loans may have been granted including terms and conditions there-of, in a manner that is prejudicial to the interest of the Company or its members, for the reasons stated therein. We have been informed by the Present Management that appropriate classifications for such loans has been made by them now along with the required provisioning in this regard.

16. We refer to Note No. 53 of the standalone financial statements regarding that the differences as noticed in some instances between the claims submitted by the Creditors of the Company, during CIRP, in which in some instances the amount of claim admitted or to be admitted by the Present Management may differ from the amount reflecting in the books of account of the Company. Pending final outcome of the CIRP no adjustments, including of the effects arising due to changes in foreign exchange rates and claims admitted as on the date of acceptance of claims, have been made in the standalone financial statements and books of account for the differential amounts, if any. Further as stated in note 66 of the standalone financial statements regarding that certain balances of banks, trade receivables, trade payable, other payables are subject to confirmation including any adjustment to the carrying value of the assets and liabilities and their presentation and classification. However, in the opinion of the management, these will not have any significant impact on the losses for the year and on the net worth of the Company as on the balance sheet date.

17. Also Refer our comments under ‘Material uncertainty related to Going Concern below.

18. We refer to Note No. 55 of the standalone financial statements regarding that in accordance with RBI regulatory package, the Company has offered moratorium to its eligible customers based on an approved policy. The management has informed us that various measures have been taken to reduce the impact of moratorium on the portfolio of the Company. However, since the extent to which COVID-19 will impact Companys financial performance is dependent on future developments.

MATERIAL UNCERTAINTY RELATED TO GOING CONCERN

The Company has incurred loss aggregating Rs 13,57,515 lakh (including comprehensive Income) during the year ended 31st March, 2020, and has accumulated losses due to which its net worth has been fully eroded. However these standalone financial statements are drawn on going concern basis under the ongoing Corporate Insolvency Resolution Process (CIRP), the outcome of which cannot be presently ascertained including matters also listed herein. Therefore, companys ability to remain as a “going concern” depends upon outcome of the ongoing CIRP.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE STANDALONE FINANCIAL STATEMENTS

The Companys Board of Directors/Resolution Professional / Management 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, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the accounting Standards specified under section 133 of the Act. 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 implementation and maintenance of 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 standalone financial statements, Board of Directors / Resolution Professional / 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.

Those Board of Directors / Resolution Professional / Management are also responsible for overseeing the Companys financial reporting process.

However in case of the Company, the Reserve Bank of India (RBI) vide its letter and press release dated November 20, 2019 (“RBI Order”) issued under Section 45IE of the Reserve Bank of India Act, 1934, superseded the Board of Directors of the Company owing to governance concerns and defaults by the Company in meeting various payment obligations and appointed an Administrator to run the Company. Subsequently, in accordance with the order dated December 3, 2019 of the National Company Law Tribunal (Mumbai Bench) (“NCLT Order”), the Corporate Insolvency Resolution Process (“CIRP”) of the Company commenced under IBC, the RBI appointed Administrator, among other things, to run the Company as a “going concern” during CIRP as also incumbent upon the Resolution Professional, under section 20 of the Code, to manage the operations of the Company as a going concern. Accordingly, the standalone financial statements for the year ended 31st March 2020 have been prepared on going concern assumptions.

The above standalone financial statements of the Company have been taken on record by the Administrator while discharging the powers of the Board of Directors of the Company which have been conferred upon him by the RBI Order superseding the Board of Directors of the Company and in accordance with the NCLT Order dated 3rd December 2019, solely for the purpose of ensuring regulatory compliance.

AUDITORS RESPONSIBILITIES FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS

Our responsibility is to conduct an audit of the Companys standalone financial statements in accordance with Standards on Auditing and to issue an auditors report. However, because of the matters described in the Basis for Disclaimer of Opinion section of our report, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these standalone financial statements.

We are independent of the Company in accordance with the ethical requirements in accordance with the requirements of the Code of Ethics issued by ICAI and the ethical requirements as prescribed under the laws and regulations applicable to the entity.

OTHER MATTER

The standalone financial statements of the Company for the year ended 31st March 2019 were audited by the predecessor joint statutory auditors, who have expressed a disclaimer of opinion on those standalone financial statements.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by Section 143(1), we report that, we have not been able to comment whether the loans referred in paragraph 6(ii) above have been properly secured and hence these loans may have been granted in a manner that is prejudicial to the interest of the Company or its members, for the reasons stated therein. Further, in respect to loans referred to in paragraphs 4, 5 and 6(ii) above, we have not been able to comment whether the terms on which these have been made are prejudicial to the interest of the Company or its members, for the reasons stated therein.

2. 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 B” a statement on the matters specified in paragraphs 3 and 4 of the Order which is subject to the possible effect of the matters described in the Basis for Disclaimer of Opinion section above and the material weakness described in the Basis of Disclaimer of Opinion in our separate Report on the Internal Financial Controls over Financial Reporting.

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

a) As described in the Basis for Disclaimer of Opinion section above, we have sought but were not able to obtain all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) Due to the possible effects of the matter described in the Basis for Disclaimer of Opinion section above, we are unable to state whether 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) Due to the possible effects of the matters described in the Basis for Disclaimer of Opinion section above, we are unable to state whether the Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, Statement of Changes in Equity, and the Cash Flow Statement dealt with by this Report are in agreement with the relevant books of account.

d) Due to the possible effects of the matter described in the Basis for Disclaimer of Opinion section above, we are unable to state whether, the aforesaid standalone financial statements comply with the Indian Accounting Standards prescribed under section 133 of the Act read with Companies (Indian Accounting Standards) Rules, 2015, as amended.

e) The matter described in the Basis for Disclaimer of Opinion section above and in the Material uncertainty related to Going Concern section above, in our opinion, may have an adverse effect on the functioning of the Company.

f) We are unable to state whether any director is disqualified as on March 31, 2020 from being appointed as a director in the terms of Section 164 (2) of the Act, as we have been explained that the Holding Company has not received any written representation from any director in this respect.

g) The reservation relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Disclaimer of Opinion section above.

h) 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”. Our report expresses disclaimer of opinion on the Companys internal financial controls over financial reporting for the reasons stated therein.

i) Due to the possible effects of the matters described in the Basis for Disclaimer of Opinion section above, we are unable to comment whether the managerial remuneration has been paid / provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act, 2013.

j) 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 information and according to the explanations given to us:

i. Due to the possible effects of the matters described in the Basis for Disclaimer of Opinion section above, we are unable to state whether the Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer Note 39 to the standalone financial statements;

ii. Due to the possible effects of the matter described in the Basis for Disclaimer of Opinion section above, we are unable to state whether the Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts;

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund (IEPF) by the Company except general delay ranging from 1 to 16 days in transferring unclaimed public deposits and Rs 59 lakh was due for payment to the IEPF under Section 125 of the Companies Act, 2013 as at the year-end in respect of Unclaimed Matured Deposits which was not deposited into IEPF, pursuant to stay order issued by Honourable Bombay High Court and after RBI initiated the CIRP process against the Company.

DINESH KUMAR BACHCHAS
Partner
Membership No. 097820
For and on Behalf of
K.K. MANKESHWAR & CO.
Chartered Accountants
FRN:106009W
UDIN: 20097820AAAAHJ4433
New Delhi, dated the
20th June 2020

Annexure “A” to the Independent Auditors Report

(Referred to in paragraph 2(h) 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 were engaged to audit the internal financial controls over financial reporting of Dewan Housing Finance Corporation Limited (“the Company”) as of March 31,2020 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

MANAGEMENTS RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS

The Companys Present 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 (‘ICAF). 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 respective 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 Companies Act, 2013.

AUDITORS RESPONSIBILITY

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit conducted in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) issued by the Institute of Chartered Accountants of India 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.

Because of the matter described in Basis for Disclaimer of Opinion paragraph below, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on internal financial controls system over financial reporting of the Company.

MEANING OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING

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

BASIS FOR DISCLAIMER OF OPINION

During the financial year 2019-20, on November 20, 2019, the Reserve Bank of India (RBI) vide its letter and press release (“RBI Order”) issued under Section 45IEofthe Reserve Bank of India Act, 1934, superseded the Board of Directors of the Company owing to governance concerns and defaults by the Company in meeting various payment obligations and appointed an Administrator to run the Company and thereafter also constituted a three-member Advisory Committee to assist the Administrator of the Company in discharge of his duties. Subsequently, the National Company Law Tribunal (Mumbai Bench) vide its order dated December 3, 2019 (“NCLT Order”), among other things, admitted the Application filed by the RBI, commenced the Corporate Insolvency Resolution Process (“CIRP”) of the Company under IBC and confirmed the appointment of the Administrator appointed by the RBI to perform all the functions of Resolution Professional to complete the CIRP. The Key Managerial Personnel (“KMPs” or “Present Management”) team comprises of the Administrator; the Chief Executive Officer (“CEO”), the Company Secretary (“CS”) and the Chief Financial Officer (“CFO”).

The Present Management has undertaken good governance initiative, soon after it became effective, inclusive of strengthening of Internal Financial Controls and updating Risk Control Matrices, Risk and Fraud Risk Management specifically in context of Internal Controls over Financial Reporting. While substantial progress is stated to have been made, by concluding some as well, the initiative pertaining to straightening, updating and revising the internal financial controls and risk control matrices could not be fully concluded and implemented by 31st March, 2020 due to the time essentially required; and also because of lockdown and mobility restrictions introduced in view of Covid-19, by State and Union Government.

Further, due to possible effects of the matters described in the Basis for Disclaimer of Opinion paragraphs of our Audit Report on the standalone financial statements for the year ended March 31, 2020, the Company has a deficient / inadequate system of internal financial control over financial reporting with regard to assessment of possible material adjustments that could/ arise may be required to be made to the recorded values of assets and liabilities.

In view of the foregoing, we are unable to obtain sufficient appropriate audit evidence so as to provide a basis for our opinion as to whether the Company had adequate of internal financial control over financial reporting and that whether such internal financial controls were operating effectively as at March 31,2020.

DISCLAIMER OF OPINION

Because of the significance of the matter described in the Basis for Disclaimer Opinion paragraph above, we are unable to obtain sufficient appropriate audit evidence to provide a basis for our opinion whether the Company had adequate internal financial controls over financial reporting and whether such internal financial controls were operating effectively as at 31 March, 2020. Accordingly, we do not express an opinion on the Companys internal financial controls over financial reporting.

We have considered the disclaimer reported above in determining the nature, timing, and extent of audit tests applied in our audit of the standalone financial statements of the Company for the year ended 31st March, 2020, and this report affects our report dated 20th June, 2020 which expressed a disclaimer of opinion on the standalone financial statements of the Company.

DINESH KUMAR BACHCHAS
Partner
Membership No. 097820
For and on Behalf of
K.K. MANKESHWAR & CO.
Chartered Accountants
FRN:106009W
UDIN: 20097820AAAAHJ4433
New Delhi, dated the
20th June 2020

Annexure “B” to the Independent Auditors Report

(Referred to in paragraph 2 under ‘Report on Other Legal and Regulatory Requirements section of our report of even date and to be read subject to the possible effects of the matters described in the Basis for Disclaimer of Opinion section above)

(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.

b) According to the information and explanations given to us and the records examined by us, the fixed assets were physically verified during the year by the Management however no details of the discrepancy/ reconciliation outcome of the same with the fixed assets record maintained by the Company are made available and in view of the same we have not been able to comment upon the completeness of the physical verification and the discrepancies arising thereof.

c) According to the information and explanations given to us and the records examined by us and based on the examination of the registered sale deed, transfer deed / conveyance deed provided to us, we report that, the title deeds, comprising all the immovable properties of land and buildings which are freehold, are held in the name of the Company as at the balance sheet date.

According to the information and explanations given by the management, the title deeds of immovable properties included in property, plant and equipment are pledged with the lenders and not available with the Company which are based on the confirmation provided to us by the Management as received from trustee of lenders, are held in the name of the Company.

In respect of immovable properties of land and buildings that have been taken on lease and disclosed as fixed asset in the standalone financial statements, the lease agreements are in the name of the Company, where the Company is lessee in the agreement.

(ii) The Company does not have any inventory and hence reporting under clause 3(ii) of the Order is not applicable.

(iii) Due to the possible effects of the matter described in the Basis for Disclaimer of Opinion section above in main report, we have not been able to comment whether the Company has granted any loans, secured or unsecured, to companies, firms, Limited Liability Partnership or other parties covered in the register maintained under Section 189 of the Act during the year. In view of the foregoing, we have been not able to comment on the Clause 3(iii)(a),3(iii) (b) and 3(iii)(c) of the said Order.

Also refer our comments in paragraph 1 of ‘Reporting on other legal and regulatory matters section

(iv) According to the information and explanations given to us, the Company has complied with the provisions of Sections 185 and 186 of the Act in respect of grant of loans and making investments and providing guarantees and securities, as applicable, except for the possible effects of the matter described in the Basis for Disclaimer of Opinion section above in main report on which we have not been able to comment and in respect of the following:

Particulars Relationship Amount ( Rs in lakh) Remarks
Loan Wholly owned Subsidiary 134 As explained, this represents the initial incorporation expenses incurred bythe Holding Company treated / accounted for as interest free loan to the subsidiary, attracting provisions / violation of Section 186(7) in the year of expense. However interest has been charged in the subsequent years and the subsidiary has fully repaid this loan during the year.

(v) As per the Ministry of Corporate Affairs notification dated March 31, 2014, the provisions of Sections 73 to 76 or any other relevant provisions of the Act and the Companies (Acceptance of Deposits) Rules, 2014, as amended, with regard to the deposits accepted are not applicable to the Company and hence reporting under Clause 3(v) of the Order is not applicable.

(vi) According to the information and explanations given to us, the Central Government has not prescribed the maintenance of cost records under section 148(1) of the Act, in respect of the services rendered by the Company and hence reporting under clause 3(vi) of the order is not applicable.

(vii) According to the information and explanations given to us in respect of statutory dues:

(a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion, the Company is generally regular in depositing undisputed statutory dues including provident fund, employees state insurance, income tax, goods & service tax, cess and other material statutory dues, as applicable, with the appropriate authorities except tax deducted at source dues which have not been regularly deposited in view of the stay order issued by Honourable Bombay High Court and after RBI initiated the CIRP process against the Company. There were no arrears in respect of said statutory dues at 31st March, 2020 for a period of more than six months from the date became payable.

(b) According to the information and explanations given to us, and the records of the Company examined by us, the particulars of dues of income-tax, sales-tax, service-tax, duty of customs, and duty of excise or goods and services tax as at 31st March 2020 which have not been deposited on account of a dispute are as follows:

Name of Statute Nature of dues Amount ( Rs in Lakh) Period for which the amount related Forum where dispute is pending
Income Tax Bad debts on account of National Spot Exchange Limited transactions 850.00 A.Y 2014-15 ITAT- U/s 250
Penalty under Income Tax Claiming the premium on Zero coupon bond 10167.00 A.Y 2014-15 CIT(A) - U/s- 271(1 )(c)

(viii) The Company has defaulted in repayment of loans and borrowings to the banks; financial institutions, and in repayment of dues to debenture-holders during the year. Pursuant to the continuing defaults of the Company, a CIRP commenced under the IBC w.e.f 03rd December 2019. Accordingly, no payments could be made thereafter to the banks; financial institutions, and debenture holders, until the resolution process is concluded. The details of outstanding amounts as on 03rd December 2019 (inclusive of interest for the period up to 03rd December 2019) as per books of account, are as given below:

Particulars Outstanding Amount ( Rs in Lakh) Period of Default
Allahabad Bank 12,360.10 Refer note below
Andhra Bank 67,624.01
Bank of Baroda 1,34,408.30
Bank of India 4,07,498.24
Bank of Maharastra 59,635.55
Canara Bank 2,15,075.88
Central Bank of India 1,07,639.45
Corporation Bank 48,923.09
Dena Bank 54,922.21
Federal Bank Limited 18,656.88
Hdfc Bank Limited 53,161.52
I D B I Bank Limited 99,654.13
Indian Bank 1,28,605.91
Indian Overseas Bank 64,892.04
Karnataka Bank Limited 17,121.05
Oriental Bank of Commerce 1,12,621.76
Punjab & Sind Bank 75,098.99
Punjab National Bank 1,22,166.43
South Indian Bank 11,571.90
State Bank of India 5,41,717.67
Syndicate Bank 1,59,852.04
Uco Bank 51,857.49
Union Bank of India 2,34,402.60
United Bank of India 58,903.94
Vijaya Bank 12,753.29
National Housing Bank 2,43,102.42
Non- Convertible Debentures 45,80,392.38
National Bank for Agriculture and Rural Development 10,258.00
External Commercial Borrowing 3,01,888.07

Note: Following the commencement of CIRP under IBC w. e. f. 03rd December 2019, the borrowings including interest are overdue and in continuing default as on 31st March 2020, therefore, we are unable to provide the periods of default.

(ix) The Company has not raised any moneys by way of initial public offer, further public offer (including debt instruments) and term loans. Accordingly the provision of Clause 3(ix) of the Order is not applicable to the Company.

(x) We refer the matters in main report described in the Basis for Disclaimer of Opinion section in main report above referring to multiple issues of financial significance as highlighted by the predecessor joint statutory auditors in their Auditors Report; the suspected irregularities as reported and under media scrutiny, pending conclusion / outcomes of the investigation undertaken by concerned agencies namely Ministry of Corporate Affairs (MCA); Serious Fraud Investigation Office (SFIO), Enforcement Directorate (ED), and Central Bureau of Investigation (CBI) together with the pending conclusion /outcomes of the ongoing transactions audits performed by independent agencies/firms appointed by the Administrator which are underway and informed to have not been concluded till the date of the balance sheet. In view of the foregoing and with the outcomes of the said matters not known in definitive terms we have not been able to comment whether any fraud by the company or any fraud on the company by its officers and employees has been noticed or reported during the year.

(xi) Due to the possible effects of the matters described in the Basis for Disclaimer of Opinion section above, we are unable to comment whether the managerial remuneration has been paid / 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 reporting under clause 3(xii) of the Order is not applicable.

(xiii) Due to the possible effects of the matters described in the Basis for Disclaimer of Opinion section above in main report, we are unable to comment whether 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 the notes to the standalone financial statements etc. as required by the applicable accounting standards.

(xiv) In our opinion and according to the information and explanation given to us, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and hence reporting under clause 3(xiv) of the Order is not applicable to the Company.

(xv) Except for the possible effects of the matters described in the Basis for Disclaimer of Opinion section above in main report, we are unable to comment whether the Company has entered into non-cash transactions with its directors or directors of its subsidiary or associate companies or persons connected with them.

(xvi) In our opinion and according to the information and explanation given to us, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

DINESH KUMAR BACHCHAS
Partner
Membership No. 097820
For and on Behalf of
K.K. MANKESHWAR & CO.
Chartered Accountants
FRN: 106009W
UDIN: 20097820AAAAHJ4433
New Delhi, dated the
20th June 2020