Essar Shipping Ltd Directors Report.

To the Members of Essar Shipping Limited

Report on the Audit of the Standalone financial Statements Opinion

We have audited the standalone financial statements of Essar Shipping Limited ("the Company"), which comprises of the balance sheet as at 31 March 2019, the standalone statement of Profit and Loss (including Other Comprehensive Income), standalone statement of cash flows and the standalone statement of changes in equity for the year then ended, and notes to the standalone 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 standalone financial statements give the information required by the Companies Act, 2013 ("the Act") in the manner so required and 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 31 March 2019, the loss (financial position including Other Comprehensive Income), changes in equity and its cash flows for the year ended on that date.

Basis for Opinion

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

Material Uncertainty Related to Going Concern

We draw attention to Note No. 29 to the standalone financial statements, which indicates that as on 31 March 2019 the Company has accumulated losses of Rs.5,016.11 crore as against capital and reserves of Rs.5,214.83 crore. The Company has also defaulted on several loans. The Companys current liabilities exceed its current assets as on 31 March 2019. This indicates that a material uncertainty exists that may cast doubt on the Companys ability to continue as a going concern. The Company however has represented that, as mentioned in Note no. 29, necessary steps have been taken to meet liabilities as and when they become due for payment.

Our opinion on the standalone financial statements is not modified for the above matter.

Emphasis of Matter

We draw attention to Note No. 19 of the standalone audited Ind AS financial statements wherein the Company had recognized revenue in the previous year amounting to Rs. 369.81 crore (including accrued interest upto 31 March 2018) based on compensation granted to the Company by arbitration proceedings for breach of contract terms by a charterer and the same remains outstanding as on 31 March 2019. The Company is confident of full recovery of its claims. However pending conclusion of the same, no further interest is accrued on the income.

Our opinion on the standalone financial statements is not modified for the above matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matters described in the Material Uncertainty Related to Going Concern paragraph, we have determined the matters described below to be the key audit matters to be communicated in our report:

Key Audit Matter Auditors Response
Impairment of Investments
The Company had investments of Rs.3,324.58 crore in one of its subsidiaries as at 31 March 2019. Following an internal management review including a process of validating various operational assumptions impacting the estimated future cash flows from that subsidiary, the Company has assessed these investments. An impairment provision of Rs.1,400 crore has been recorded to reduce the carrying value of the investment to its recoverable value on the basis of an independent external valuers report. Our procedures in relation to managements impairment assessment of investments in subsidiary included:
1. Assessing the assumptions and methodologies used by the external valuer to estimate recoverable value;
2. Evaluating the independent external valuers competence, capabilities and objectivity;
3. Considering the potential impact of possible downside changes in the key assumptions;
4. Compliance with Ind AS 36 on ‘Impairment of Assets.
We found the key assumptions were supported by the available evidence. Based on the audit procedures performed, we found disclosures in Note No. 3 of the standalone financial statements to be appropriate.
Our audit included but was not limited to the following activities:
Uncertainty regarding amounts payable to lenders where there are defaults 1. Requested and obtained external confirmation of
The Company has loans of Rs. 863.74 crore (excluding interest) overdue to various lenders as on 31 March 2019. The management of the Company plans to repay the loans within acceptable timeline to each of these lenders. balances from each of these lenders to confirm the balance outstanding as on 31 March 2019;
2. Obtained and evaluated the Companys plans to repay these loans, (with interest) through management letters and the extent of steps taken through the minutes of the board meetings.

Information other than the Standalone financial Statements and Auditors Report thereon

The Companys Board of Directors is responsible for the preparation of the other information. The other information comprises of the information included in the Annual Report including its annexures, Corporate Governance and Shareholders Information, but does not include the standalone financial statements and our independent auditors report thereon. The Companys annual report is expected to be made available to us after the date of this auditors report.

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

In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact.

Responsibilities of the management and those charged with governance for the Standalone financial Statements

The Companys Board of Directors is responsible for the matters stated in section 134(5) of the Act, with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with 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 standalone financial statements 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, the 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 the management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Companys management and Board of Directors are also responsible for overseeing the Companys financial reporting process.

Auditors Responsibilities for the Audit of the Standalone financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an independent 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 Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

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

• Identify and assess the risks of material misstatement of the standalone financial 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 Act, we are not responsible for expressing our opinion on whether the company has adequate internal financial control systems 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 standalone 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 independent 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 standalone financial statements, including the disclosures, and whether the standalone 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 standalone 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 the standalone 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.

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, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the "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, 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 accounts 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 standalone Statement of Profit and Loss including other comprehensive income, standalone statement of changes in equity and the standalone Cash Flow Statement dealt with by this Report are in agreement with the relevant books of accounts.

d. In our opinion, the aforesaid standalone financial statements comply with the Ind AS specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

e. The Going Concern matter described under the Material Uncertainty Related to Going Concern paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

f. On the basis of the written representations received from the directors as on 31 March 2019 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2019 from being appointed as a director in terms of Section 164(2) of the Act.

g. With respect to the adequacy of the internal financial controls with reference to standalone financial statements 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 with reference to standalone financial statements.

h. 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, remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197, read with Schedule V of the Act.

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, as amended in our opinion and to the best of our information and according to the explanations given to us:

i. The Company does not have any pending litigations on its financial position in its standalone financial statements, other than as mentioned in Note No. 23 to the standalone financial statements.

ii. The Company did not have any long-term contracts including derivative for which there were any material foreseeable losses.

iii. The Company is not required to transfer any amount to the Investor Education and Protection Fund during the ended 31 March 2019.

For C N K & Associates LLP

Chartered Accountants

Firm Registration No.: 101961 W/W - 100036

Himanshu Kishnadwala

Partner

Membership No. 37391

Place: Mumbai

Date: 30 May 2019

Annexure - A to the Independent Auditors Report

(Referred to in paragraph 1 under ‘Report on Other Legal and

Regulatory Requirements section of our report of even date)

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

(b) As per the information and explanations provided to us, the management has carried out the physical verification of property, plant and equipment during the year, in accordance with a program of verification, which in our opinion provides physical verification of all assets at reasonable intervals. No material discrepancies have been noticed on such verification;

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, it has proper title of the immovable property in the name of the Company.

(ii) As informed to us, the inventory has been physically verified by the Management at reasonable intervals during the year and no material discrepancies have been noticed on such verification;

(iii) In our opinion and according to the information and explanations given to us and on the basis of documents verified by us, the Company has not granted any loans, secured or unsecured, during the year, to any party covered in the register maintained under Section 189 of the Act. Accordingly, clause 3(iii) of the Order is not applicable to the Company;

(iv) In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of section 185 and 186 of the Act, in respect of loans, investments, guarantees and securities, as applicable;

(v) According to the information and explanations provided to us, the Company has not accepted any deposits to which directives of the Reserve Bank of India and provisions of sections 73 to 76 or any other relevant provisions of the Act and the rules framed there under apply. Accordingly, the provisions of clause 3 (v) of the Order are not applicable to the Company.

(vi) According to the information and explanations provided to us, the Company is not required to maintain cost records pursuant to the Companies (Cost Records and Audit) Rules, 2014, as amended and prescribed by the Central Government under sub-section (1) of section 148 of the Act;

(vii) (a) According to the information and explanation provided to us and the records of the Company examined by us, in our opinion, the Company has generally been regular in depositing undisputed statutory dues including provident fund, duty of customs, service tax, value added tax and other material statutory dues as applicable with appropriate authorities. However delays in deposits of tax deducted at source and Goods and Services Tax and profession tax and provident fund were observed ranging from 1 to 1461 days and 1 to 6 days and 18 to 262 days and 1 to 639 days respectively. The extent of arrears of Goods and Services Tax and provident fund outstanding as at 31 March 2019 for a period of more than six months from the date the same became payable is Rs.10.20 crore & Rs.0.21 crore respectively.

(b) According to the information and explanations provided to us and the records of the company examined by us, the particulars of dues of Income Tax, Service tax, Duty of Customs and Duty of Excise or value added tax or cess as at 31 March 2019 which have not been deposited on account of a dispute, are as follows: (Rs. In crore)

Name of the Statute Nature of Dues Amount Period to which the amount relates Forum where the matter is pending
Income Tax Act, 1961 Income Tax 7.29 A.Y. 1993-94 The High Court of Bombay
Income Tax Act, 1961 Income Tax 14.99* A.Y. 2011-12 ITAT(A) filed
Income Tax Act, 1961 Income Tax 25.38* A.Y. 2012-13 CIT- Appeals
Income Tax Act, 1961 Income Tax 41.99 A.Y. 2013-14 ITAT(A) filed
Income Tax Act, 1961 Income Tax 45.40 A.Y. 2014-15 CIT- Appeals
Income Tax Act, 1961 Income Tax 41.86 A.Y. 2015-16 CIT- Appeals
Foreign Trade (Development and Regulation Act, 1992) Custom Duty 27.40 A.Y. 2006-07 The High Court of Bombay

* The income tax department has adjusted refund of Rs 35.71 Cr against the demand of the respective assessment years.

(viii) According to the records of the Company examined by us and the information and explanations given to us, except for the loans, borrowings and dues mentioned in the below table, the Company has not defaulted in repayment of loans and borrowings to Financial Institution, banks, government or dues to Debenture holders as at the balance sheet date:

Lender Name Amount of Default as at the balance sheet date Period of Default
Debenture Holders
Life Insurance Corporation 700.00 1 to 1401 days
CSEB (Chattisgarh State Electricity Board) Gratuity and Pension fund Trust 14.00 1 to 535 days
MTNL - Employees Provident Fund Trust 1.25 1 to 641 days
Banks
State bank of Patiala 35.29 1 to 396 days
Syndicate Bank 61.91 1 to 1249 days
Financial Institutions
IGOF 25.00 1 to 1430 days
ILFS 3.50 1 day
Total 840.95

(ix) According to the records of the Company examined by us and the information and explanation provided to us, the Company did not raise any money by way of initial public offer or further public offer (including debt instruments);

(x) According to the information and explanations provided to us, no fraud by the Company or on the Company by its officers or employees has been noticed or reported during the course of our audit;

(xi) In our opinion and according to the information and explanations provided to us, the Company has paid / provided managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V of the Act;

(xii) In our opinion and according to the information and explanations provided to us, the Company is not a Nidhi company and accordingly, the provisions of clause 3 (xii) of the Order are not applicable to the company;

(xiii) According to the records of the Company examined by us and the information and explanation provided to us, all transactions with the related parties are in compliance with sections 177 and 188 of the Act, where applicable and the details thereof have been disclosed in the standalone financial statements under Note No. 28 to the standalone financial statements as required by the applicable Indian accounting standards.;

(xiv) The Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review under section 42 of the Act. Accordingly, the provisions of clause 3(xiv) are not applicable to the Company;

(xv) According to the information and explanations provided to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with them. Accordingly, clause 3(xv) of the Order is not applicable to the Company;

(xvi) According to information and explanation given to us, the Company is not required to be registered under section 45IA of the Reserve Bank of India Act, 1934. Accordingly, clause 3(xvi) of the Order is not applicable to the Company.

For C N K & Associates LLP

Chartered Accountants

Firm Registration No.: 101961 W/W - 100036

Himanshu Kishnadwala

Partner

Membership No. 37391

Place: Mumbai

Date: 30 May 2019

Annexure - B to the Independent Auditors Report of even date on the standalone financial statements of Essar Shipping Limited

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

Opinion

We have audited the internal financial controls with reference to financial statements of Essar Shipping Limited ("the Company") as of 31 March 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

In our opinion, the Company has, in all material respects, an adequate internal financial controls with reference to financial statements and such internal financial controls with reference to financial statements were operating effectively as at 31 March 2019, based on the internal control with reference to financial statements 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 ("Guidance Note").

Managements Responsibility for Internal Financial Controls

The Companys management and the Board of Directors are responsible for establishing and maintaining internal financial controls based on the internal control with reference to financial statements criteria established by the Company considering the essential components of internal control stated in the Guidance Note. 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 Companies Act, 2013 (hereinafter referred to as "the Act").

Auditors Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls with reference to financial statements based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls with reference to financial statements. 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 with reference to financial statements was established and maintained and if such controls operated effectively in all material respects.

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

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

Meaning of Internal Financial Controls with reference to financial statements

A companys internal financial control with reference to financial statements 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 with reference to financial statements 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 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 with reference to financial statements

Because of the inherent limitations of internal financial controls with reference to financial statements, 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 with reference to financial statements to future periods are subject to the risk that the internal financial control with reference to financial statements may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

For C N K & Associates LLP

Chartered Accountants

Firm Registration No.: 101961 W/W - 100036

Himanshu Kishnadwala

Partner

Membership No. 37391

Place: Mumbai

Date: 30 May 2019