IL&FS Transportation Networks Ltd Directors Report.

The Members

IL&FS Transportation Networks Limited

Your Directors have pleasure in presenting the Nineteenth Annual Report alongwith the Audited Standalone Financial Statements for the year ended March 31, 2019

FINANCIAL RESULTS

The Financial performance highlights of the Company are as under:

Particulars For the year ended For the year ended
31.03.2019 31.03.2018
(Rs in Crore) (Rs in Crore)
Standalone Standalone
Total Income 786.24 4,709.48
Earnings before Interest, Tax, Depreciation and Amortisation and Exceptional items (EBITDA) (931.66) 1,996.22
Exceptional items 14,340.59 -
Profit / (Loss) Before Tax (16,568.72) 331.79
Profit /(Loss) After Tax (17,000.32) 251.76
(Attributable to owners of the Company)
Balance Brought Forward 118.92 81.79
Profit available for appropriation (16,881.40) 333.55
Appropriation:
Dividend Proposed/Paid - -
Equity Shares
Tax on Dividend Equity Shares - -
Defined benefit plan adjustment 2.13 (1.69)
Transition impact due to Ind AS 115 (4.75) -
Debenture Redemption Reserve - (212.94)
Balance carried forward (16,884.02) 118.92

The Companys financial statements have been prepared in accordance with the provisions of the Companies Act, 2013 and the Indian Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 read with Section 133 of the Companies Act, 2013 (as amended from time to time).

As a result of the various events during the financial year 2018-19 which are more fully discussed in the notes to the Financial Statements, there was significant uncertainty around the recoverable amounts and valuations, and related provisions for impairment, of the various investments made and loans, trade and other receivables of the Company from its group companies.

Your Board in consultation with the operating management has performed an assessment to determine the recoverability of the carrying amounts of the investments, loans, trade and other receivables from its group companies following a detailed approach as specified in Note 1.12 of the attached Financial Statements

Your Board has followed a conservative approach by making prudent provisions to the best of its judgement with a view to ensure that the Financial Statements reflect the asset values close to the recoverable values. Accordingly, the Board has made a provision on account of credit risk and impairment of investments, resulting into loss during the year. The actual realisable values may differ from the estimates assumed.

DIVIDEND

As your Company has been defaulting in servicing its debt obligations since June 30, 2018 and that a resolution process is being implemented for your Company in proceedings pending before the Honble National Company Law Tribunal, Mumbai Bench (“NCLT”) and the Honble National Company Law Appellate Tribunal (“NCLAT”) under Sections 241-242 of the Companies Act, 2013, your Company is unable to pay dividend to preference and equity shareholders until the satisfaction of all its dues. Considering the magnitude of loss incurred in the financial year, the Board does not recommend any dividend for the year ended March 31, 2019.

SHARE CAPITAL

During the year under review, the Authorized Share Capital was increased from existing 1500 Crores comprising of Equity Share Capital of 500 Crores divided into 50,00,00,000 Equity shares of 10/- each and Preference Share Capital of 1000 Crores divided into 100,00,00,000 Preference Shares of 10 each to 2500 Crores comprising of Equity Share Capital of 2000 Crores divided into 200,00,00,000 Equity Shares of 10 each and Preference Share Capital of 500 Crores divided into 50,00,00,000 Preference Shares of Rs. 10 each by reclassifying the un-issued Authorized Preference Share Capital of the Company to the extent of 500 Crores divided into 50,00,00,000 Preference Shares of 10 each as Equity Share Capital by way of cancellation of the said Authorized Preference Share Capital and by further creation of additional capital of 117,10,39,973 Equity Shares of 10/- each.

The Company has redeemed 2,00,00,000 Cumulative Redeemable Preference Shares of 10/- each on May 31, 2018

GENERAL RESERVE

During the year under review, the Company has incurred a net loss of 17,000.32 Crore. As a result, the Company has not transferred any amount to the General Reserve for the Financial Year ended March 31, 2019.

ISSUE OF DEBENTURES / BONDS

During the year under review, the Company had issued Redeemable Non-Convertible Debentures each having a face value of 10,00,000 aggregating to 199,00,00,000 on a private placement basis.

As on the date, the Debentures/Bonds issued and outstanding is 4,475.70 Crore. The Company has not been servicing the same with respect to repayment of the principal amounts and interest due thereon since October 1, 2018.

SIGNIFICANT DEVELOPMENTS

The financial year 2018-19 witnessed some very significant developments in the Company. The operating environment continued to be very challenging from the Companys perspective. During first half of the year, the Company made efforts to progress on construction of its under-implementation projects. However, the liquidity constraints faced by the Company and its inability to achieve financial closure in 3 of these under implementation projects due to reluctance of banks to lend to the Company and its projects and the banks existing exposure limit, prevented the Company to make any significant progress. The Company therefore, suspended construction activity on all under-implementation projects in second quarter of the year until liquidity situation improved. The Company however continued to carry out Operations and Maintenance services on its Operational Projects.

The Company has witnessed considerable cost overruns and delays in its projects. In some cases, claims and compensation has been sought from the respective Authorities; the realization of which is subject to view points of Authorities as well as significant procedural requirements. Many projects of the Company, have not been able to generate adequate revenue to support and service all their obligations, resulting in their looking up to the Company for providing liquidity support to them. These issues coupled with lack of financial closure in 3 projects, affected the already stressed cash flows of the Company.

Efforts were made by the Company to mobilise financial resources through external as well as group sources. The erstwhile Management Board of the Group also tried to raise resources through third parties including vendors of the Company. The erstwhile management had issued certain letters of awareness to a fellow subsidiary in connection with finances raised by third parties including vendors of the Company from that fellow subsidiary. The Company and its group entities had received loans during the same period from these parties. As part of claim management process, some of the vendors have now represented that they had given financial support to the company by borrowing funds from the fellow subsidiary. The transactions are being investigated by various regulatory authorities. Appropriate disclosures have been made in financial statements in this respect

Due to its deteriorating financial condition, the Company found it very challenging to raise further resources. Consequently, the Company reported default on its bank borrowing obligations on June 30, 2018, followed by defaults in servicing NCDs on October 1, 2018. As a result, the credit rating agencies downgraded the ratings of the Company to ‘D (lowest grade).

The Company had tried to raise resource from its existing shareholders and the Board of Directors passed a resolution on July 27, 2018 to launch a Rights issue. The same however could not be achieved due to lack of investor interest

The Company embarked on divestment of its entire road portfolio in the second quarter of the year and efforts were made by erstwhile management with various institutional investors and market intermediaries to seek their interest for individual asset or on portfolio basis.

Key Corporate Developments since October 1, 2018

However, by end of first half of the year, the overall financial situation of IL&FS Group had worsened with defaults reported by fellow subsidiaries as well as IL&FS, the parent Company. Therefore, pursuant to a report filed by the Registrar of Companies, Mumbai ("RoC") under Section 208 of the Companies Act, 2013, the Ministry of Corporate Affairs (“MCA”) vide its Order dated September 30, 2018, directed that the affairs of the IL&FS and its subsidiaries including the Company be investigated by the Serious Fraud Investigation Office ("SFIO").

On October 1, 2018 Union of India (“UOI”) (acting through the MCA) filed a petition with Honble NCLT seeking immediate suspension of the Board of Directors of IL&FS and appointment of a new Board of Directors, amongst others, on the grounds of mismanagement and compromise in corporate governance norms and risk management by the erstwhile Board of the Company and that the affairs of the Company being conducted in a manner prejudicial to the public interest. The Honble NCLT vide its Order dated October 1, 2018 allowed the UOIs petition and vide its Orders dated October 1, 2018, October 3, 2019 and December 21, 2018 appointed new Directors to the Board of IL&FS on the recommendations of UOI. Accordingly, a New Board consisting of 8 Directors was appointed at IL&FS.

Pursuant to the above developments, the New Board also initiated reconstitution of the Board of Directors of the Company as detailed below:

Name Status
Directors as on September 30, 2018
Mr. Hari Sankaran Resigned effective October 1, 2018
Mr. Arun Saha Resigned effective October 1, 2018
Mr. K Ramchand Resigned effective October 29, 2018
Mr. Mukund Sapre Resigned effective November 2, 2018
Ms. Neeru Singh Resigned effective November 1, 2018
Ms. Deepak Dasgupta Ceased to be director on March 31, 2019 upon expiry of their term
Mr. R C Sinha Ceased to be director on March 31, 2019 upon expiry of their term
Mr. H P Jamdar Ceased to be director on March 31, 2019 upon expiry of their term
Appointment of New Directors post October 1, 2018
Mr. Vineet Nayyar Appointed as director effective October 25, 2018
Mr. C. S. Rajan Appointed as director effective October 25, 2018
Mr. Nand Kishore Appointed as director effective November 15, 2018
Mr. Bijay Kumar Appointed as director effective May 21, 2019

*Mr. Ravi Parthasarathy, Director had resigned from the Board effective July 21, 2018.

The current composition of the Board of Directors is thus as follows:

(i) Mr. Vineet Nayyar

(ii) Mr. Chandra Shekhar Rajan

(iii) Mr. Nand Kishore

(iv) Mr. Bijay Kumar

The changes in constitution of Key Managerial Personnel of the Company are as given below:

Name Status
Key Managerial Personnel prior to September 30, 2018
Mr. K Ramchand Resigned as Managing Director effective October 29, 2018
Mr. Mukund Sapre Resigned as Executive Director effective November 2, 2018
Mr. Dilip Bhatia Stepped down as Chief Financial Officer effective September 22, 2018
Mr. Krishna Ghag Company Secretary
Key Managerial Personnel post October 1, 2018
Mr. Dilip Bhatia Appointed as CEO-Officiating effective November 15, 2018 and re-designated as CEO effective April 24, 2019
Ms. Shaivali Parekh Appointed as Chief Financial Officer effective December 13, 2018 till January 31, 2020
Mr. Mohit Bhasin Appointed as Chief Financial Officer effective February 1, 2020
Mr. Krishna Ghag Company Secretary

Additionally, the Honble NCLAT passed an Order on October 15, 2018 (the “Interim Order”) pursuant to which it stayed various proceedings and actions against the Company and its Group Companies including the Company (until further Orders). The Interim Order enabled value preservation of the IL&FS Groups assets and provides time to the New Board to evaluate, prepare and implement a resolution plan for IL&FS and its group companies in an orderly manner, keeping in mind the interest of the various stakeholders.

The New Board of IL&FS has been working on the Resolution Plan of the IL&FS Group, which has multiple, complex and diverse entities under varied operating structures. At the time of its appointment, the New Board was directed by the Honble NCLT to submit a roadmap for resolution of the IL&FS Group within a month and accordingly, the New Board submitted the First Progress Report to the MCA on October 30, 2018 (the “First Progress Report”) setting out the way forward for the IL&FS Group (which in turn was filed by the MCA with the Honble NCLT on October 31, 2018). In the First Progress Report, the New Board, based on its initial assessment, amongst others outlined:

(i) key challenges facing the IL&FS Group; and

(ii) options which were and could be considered for resolution of the IL&FS Group.

Taking into account the various challenges facing the IL&FS Group, including the complexity posed by its structure, width of operating business, scale, group-wide levels of leverage, public interest, financial stability, legality, various stakeholder interests (including interests of the joint venture partners) and commercial feasibility, the New Board has put in place a resolution framework to have a timely resolution process, which is fair and transparent and incorporates well established legal principles and seeks to address concerns of all stakeholders of the IL&FS Group. The implementation of the resolution framework is presently under way and the Company has initiated the divestment processes in relation to various group entities.

The assessment of the New Board, based on analysis of the current position of and challenges facing the IL&FS group, is that an Asset Level Resolution Approach serves the best interest of all stakeholders to achieve final resolution. Additionally, NCLAT vide its orders dated February 04, 2019 and February 11, 2019 has directed the appointment of Honble Justice D K Jain (Retd Justice of the Supreme Court of India) to supervise the resolution process for the IL&FS group.

The New Board has submitted five Progress Reports from time to time to the Union of India who in turn has filed them with the NCLT.

The External Resolution Consultant has conducted a cash flow solvency test based on a ‘12 month look-forward testing period (“Testing Period”) based on which 150 entities (incorporated in India) of the IL&FS Group have been classified into Green, Amber and Red.

The Company has been classified as a "Red" entity indicating that it is not able to meet all obligations (financial and operational) including payment obligations to its senior secured financial creditors. Accordingly, under the resolution mechanism, the Company is permitted to make only those payments necessary to maintain and preserve a going concern status.

An order received from NCLT dated January 01, 2019 has allowed a petition by the Union of India for reopening of the books of accounts and recasting of the financial statements under Section 130 of the Companies Act for the five financial years between 2013-14 to 2017-18 of IL&FS and its Subsidiaries including the Company. Accordingly, the NCLT has appointed firms to carry out the re-opening and recasting of financial statements which is under progress. The company will make the required adjustments once the recasting process is completed.

The Company has not submitted quarterly/yearly financial statements from the quarter ended September 30, 2018 onwards. In view thereof, the stock exchanges have initiated action by transferring the equity shares of the Company to “Z” category (‘BZ series) wherein trades shall take place on ‘Trade for Trade basis and have also levied penalties. However, the Company has from time to time has submitted reasons in detail for such non-compliance to the stock exchanges and requested to not take any coercive/pecuniary actions against the Company on account of the circumstances mentioned therein and also the moratorium granted by the National Company Law Appellate Tribunal to the IL&FS Group including the Company.

ACQUISITION & DIVESTMENT

During the year under review, the Company infused additional capital in following project entities:

Sr. No. Name of project entities Crore
1. Amravati Chikhli Expressway Limited 2.80
2. Barwa Adda Expressway Limited 13.00
3. Fagne Songadh Expressway Limited 34.50
4. GRICL Rail Bridge Development Company Limited 1.50
5. Jharkhand Infrastructure Implementation Company Limited 35.00
Total 86.80

During the year under review, the Company divested its equity stakes in N.A.M. Expressway Limited at an aggregate consideration of 60.00 Crore. The details of the transaction are mentioned in Note No.4 (a) in the standalone Ind AS Financial Statements for the year ended March 31, 2019. In addition, the Company also acquired 50% equity stake in Jorabat Shillong Expressway Limited and 51% equity stake in Srinagar Sonmarg Tunnelway Limited from the JV partners at a consideration of . 16.80 Crore and 5.91 Crore respectively.

Divestments initiated by the New Board

Pursuant to the Report on Progress and Way Forward dated October 30, 2018 (“Report”) submitted by IL&FS to the Ministry of Corporate Affairs, Government of India, which in turn was filed with the Honble NCLT, a publicly solicited bid process for certain assets in the domestic roads vertical was initiated on December 18, 2018 (with public advertisements being published in the Economic Times dated December 18, 2018 and the Maharashtra Times dated December 18, 2018), and expressions of interest (“EOI”) were sought for a potential acquisition of IL&FS Groups (including of the Companys) equity stake(s) / interest(s) in the following assets/ businesses.

(a) 7 operating annuity-based road projects in various parts of India;

(b) 8 operating toll-based road projects in various parts of India;

(c) 4 under construction road projects in various parts of India; and

(d) 3 other assets and businesses, which includes engineering, procurement and construction business, operations and maintenance business in connection with infrastructure projects (Elsamex Maintenance Services Limited) and operation and management of a sports complex (Karyavattom Sports Facilities Limited).

In response to the above advertisement, the IL&FS Group received EOIs from 34 applicants out of which 32 applicants were considered eligible after technical evaluation as per eligibility criteria set forth in the EOIs (“Eligible Applicants”). Subsequently, the eligible applicants were, after receipt of an executed non-disclosure undertaking, provided access to a virtual data room containing required information about these projects/ assets. The request for proposal was also subsequently issued by the IL&FS Group to the Eligible Applicants, seeking binding bids in respect of these assets. The process was on-going as on March 31, 2019.

MATERIAL CHANGES & COMMITMENTS AFFECTING THE FINANCIAL POSITION BETWEEN THE END OF FINANCIAL YEAR AND DATE OF REPORT

I. Pursuant to defaults in obligations in terms of servicing its debts, the credit rating of the Company has been downgraded to “D” rating during the year, and consequent to loss incurred during the year, the networth of the Company has been substantially eroded.

II. The New Board as part of the resolution process, has submitted several progress reports to the NCLT. This includes framework for a resolution plan and process, steps undertaken for monetization of assets, appointment of consultants, and classification of group entities based on their abilities to meet various financial and operational obligations, measures for cost optimization and protocol for making payments beyond certain limits. The resolution plan seeks a fair and transparent resolution for the Company while keeping in mind larger public interest, financial stability, various stakeholders interest, compliance with legal framework and commercial feasibility. It is proposed to have a timely resolution process which in turn mitigate the fallout on the financial markets of the country and restore investor confidence in the financial markets thereby serving larger public interest. The Company being a holding company of transportation vertical of IL&FS having projects through various group entities, depends on its group entities to continue operating as a going concern. The resolution plan and processes for various verticals are under way and options of restructuring business, as well as exits are planned. The plan of the management is to sell/exit from assets at the group entity as a going concern.

The assessment of the New Board, based on analysis of the current position of and challenges facing the IL&FS group, is that an Asset Level Resolution Approach serves the best interest of all stakeholders to achieve final resolution.

III. Update on Progress made post March 31, 2019 on the resolution process:

1. Binding bids were received on August 30, 2019 (i.e. the binding bid due date) for 10 special purpose vehicles of the Company, of which for the following 5 SPVs, the sale process is currently ongoing in accordance with the Resolution Framework:

(a) Jharkhand Infrastructure Implementation Company Limited;

(b) Chenani Nashri Tunnelway Limited;

(c) Jorabat Shillong Expressway Limited;

(d) Hazaribagh Ranchi Expressway Limited and

(e) Pune Sholapur Road Development Company Limited

2. For the following 5 SPVs, the respective bids were significantly lower than the average ‘fair market value, obtained by the New Board for the relevant SPV of the Company in the manner as contemplated in the Resolution Framework:

(a) Moradabad Bareilly Expressway Limited;

(b) Jharkhand Road Projects Implementation Company Limited;

(c) Baleshwar Kharagpur Expressway Limited;

(d) Road Infrastructure Development Company of Rajasthan Limited; and

(e) Sikar Bikaner Highway Limited.

3. No binding bids were received for the following 4 SPVs:

(a) West Gujarat Expressway Limited;

(b) East Hyderabad Expressway Limited;

(c) Thiruvananthapuram Road Development Company Limited; and

(d) Barwa Adda Expressway Limited.

4. No bids were also received for engineering, procurement and construction business of the Company and operations and maintenance business carried out by Elsamex Maintenance Services Ltd.

5. For Karyavattom Sports Facilities Limited (which operates a stadium complex), binding bids have been received and are under evaluation by the New Board.

6. For the 9 SPVs (mentioned in paragraph II and III above), after careful evaluation of alternate resolution options, the New Board has given its in-principle approval to establish an infrastructure investment trust (“InvIT”) under the Securities and Exchange Board of India (Infrastructure and Investment Trusts) Regulation 2014. The proposal envisages establishment of an InvIT for holding the equity and other receivables from the relevant SPVs in consideration of units to be issued by the InvIT.

7. In furtherance of the same, the following steps have been undertaken:

(i) the Company has incorporated a wholly owned subsidiary to act as the Sponsor to the proposed InvIT; and

(ii) the application for registration of the InvIT has been made to the Securities and Exchange Board of India, which is under consideration.

The Company expects to complete the setup of the InvIT and transfer of the projects to the said InvIT in financial year 2021.

8. Honble NCLAT vide its judgement dated March 12, 2020, has approved the revised Resolution Framework submitted by New Board along with its amendments and also directed IL&FS and the Union of India to conclude the resolution process for all IL&FS Group entities preferably within 90 days. Subsequently, vide its order dated March 30, 2020, the NCLAT clarified that lock down/shut down period as ordered by the Central Government and State Government will be excluded for the calculation of aforementioned 90 days.

9. International Operations / Subsidiaries

The Company has initiated steps toward divestment and resolution of its direct and indirect international subsidiaries and the progress achieved in respect of key subsidiaries is as under:

(i) Binding bid has been received in respect of 49% stake held in Chongqing Yuhe Expressway Limited, China by ITNL International Pte Ltd (IIPL), a wholly owned subsidiary of the Company and the divestment process is expected to be completed by Q2 FY 20

(ii) In case of Dubai operations of IIPL carried out through its subsidiaries namely, ITNL International DMCC (IIDMCC) and ITNL Infrastructure Developers LLC (IIDL), the divestment process for Dubai Supreme Court Project being executed by IIDL through a SPV could not progress due to lack of interest. The Board of the Company has therefore resolved to file application for insolvency of the IIDL and IIDMCC and necessary steps are being taken in this respect

(iii)IIPL operations in US have been closed and the Company is in the process of filing an application for dissolution

(iv) The Board of Elsamex S.A.U., Spain, a subsidiary of IIPL, after evaluating all available options for resolution of the Company has resolved to file an application for voluntary insolvency of the Company. The process has been delayed due to declaration of State of alarm by the State in Spain. In the meanwhile, one of the creditors of Elsamex S.A.U has filed an application for mandatory insolvency of the Company. Due to non-functioning of the Courts in Spain, the application has not been considered as yet.

In view of the aforementioned, the Company has prepared its financial statements on a going concern basis based on its plans for resolution discussed above.

OPERATIONAL PERFORMANCE

In view of various developments described hereinabove, construction activities at all the ongoing projects have been suspended/terminated post September 2018. The Company through its various SPVs has also initiated discussions with the respective Concession Authorities for foreclosure/ termination of incomplete / partially incomplete projects. In order to maintain going concern status of the SPVs for which Operation and Maintenance (“O&M”) activities are carried out by the Company, it has continued to perform its obligations with respect to the said activities post September 2018 and O&M activities are carried out uninterrupted. Due to reluctance of various SPV lenders in releasing O&M payment to the Company and insistence of paying the O&M vendors directly, the Company in consultation with these lenders, with effect from January 1, 2019, novated O&M contracts with 10 SPVs in favor of Elsamex Maintenance Services Limited, a wholly owned subsidiary of the Company.

ENVIRONMENTAL, HEALTH & SAFETY

The Environmental and Social Policy Framework (ESPF) adopted by the Company helps to identify and mitigate Environmental and Social concerns relating to all projects. During the year under review, Quality, Environment, Health & Safety (EHS) Management systems were implemented and monitored at all the implementation and O&M sites. Further, all sites have started maintaining records related to environment, safety and health.

For continual improvement and to ensure implementation and adherence to the Management System and Safety standards, the standardized documents related to Tool Box Talks topics and guidelines & digests related to IS standards were issued to all sites.

PERFORMANCE OF THE SUBSIDIARIES, JOINT VENTURES & ASSOCIATE COMPANIES

The Company has been facing capacity issues due to loss of key employees while meeting the need for servicing information requirements and providing clarifications to multiple investigating agencies, providing information to enable the ongoing asset monetization and restructuring activities and meeting ‘going concern requirements. In view of the above, there was a considerable delay in preparation and presentation of Standalone Financial Statements of the Company as well as receipt of Financial Statements of the Subsidiaries and the

Company is in the process of preparing its Consolidated Financial Statement and the same would be presented separately. Accordingly the Company is unable to provide its Consolidated Financial Statement and salient features of the Financial Statements of the Companys Subsidiaries and Joint Ventures in Form AOC-1 as required under Section 129(3) of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014. An application has been made to the competent authority seeking an exemption for the Company from presenting its consolidated financial statement.

STATUTORY AUDITORS

SRBC & Co. LLP, Chartered Accountants, were appointed as the Statutory Auditors of the Company for a term of five consecutive years at the 17th Annual General Meeting held on August 29, 2017. In accordance with the Companies Amendment Act, 2017, effective May 7, 2018 by the Ministry of Corporate Affairs (MCA), the appointment of Statutory Auditors is not required to be ratified at every Annual General Meeting.

The Management Representation on the qualifications/ observations/ remarks of Statutory Auditor pertaining to year ended March 31, 2019 are as under:

Qualification Response to Audit Qualification / observations
1(a) Note 1.5 to the accompanying standalone Ind AS financial statements, on January 1, 2019, the Company, its Holding Company (Infrastructure Leasing & Financial Services Limited) and its fellow subsidiary (IL&FS Financial Services Limited) received orders from the National Company Law Tribunal for the reopening and recasting of their accounts in respect of financial years 2013-14 to 2017-18, under Section 130 of the Companies Act 2013. Such process of reopening and recasting of prior years accounts is currently in progress An order received from NCLT dated January 01, 2019 has allowed a petition by the Union of India for reopening of the books of accounts and recasting of the financial statements under Section 130 of the Companies Act for the five financial years between 2013-14 to 2017-18 of IL&FS and its Subsidiaries IFIN and ITNL.
Accordingly, the NCLT has appointed firms to carry out the re-opening and recasting of financial statements which is under progress. The company will make the required adjustments once the recasting process is completed.
1(b) Note 1.6 to the accompanying standalone Ind AS financial statements, the Board of Directors of the Holding Company have initiated a third-party forensic examination of various matters for the period April 2013 to September 2018, which is currently ongoing. The New Board of IL&FS (New Board), in January 2019, has initiated a forensic examination for the period from April 2013 to September 2018, in relation to certain companies of the Group, and has appointed an independent third party for performing the forensic audit and to report their findings to the to the New Board
The Company has received one Interim report and the
same was discussed in the Board meeting of the Company held on November 28, 2019. Copy of the said report has also been shared with regulatory agencies Pending full completion of their examination, no adjustments have been recorded in these standalone Ind AS financial statements for any consequential effects/ matters that may arise in this regard
1(c) Note 1.7 to the accompanying standalone Ind AS financial statements, there are ongoing investigations by various regulatory authorities on the Company including investigation in respect of borrowings obtained from the third parties having outstanding balance amounting to Rs. 1,183.98 Crores as at March 31, 2019 as fully described in Note 1.19 to the accompanying standalone Ind AS financial statements The Ministry of Corporate Affairs (“MCA”), Government of India, has vide its letter dated October 1, 2018 initiated investigation by SFIO against IL&FS and its group companies including ITNL under Section 212 (1) of the Companies Act, 2013. As a part of its investigation, SFIO has been seeking information from the Company on an ongoing basis. The investigation is in progress and the Company is fully cooperating with the investigating agencies. The implications if any, arising from the aforesaid developments would be known only after the aforesaid matters are concluded and hence are not determinable at this stage.
1(d) Note 1.8 to the accompanying standalone Ind AS financial statements, management is in the process of reconciling claims received with its books of account. Pursuant to the "Third Progress Report Proposed Resolution Framework for the IL&FS Group" dated December 17, 2018 and the "Addendum to the Third Progress Report Proposed Resolution Framework for IL&FS Group" dated January 15, 2019 ("Resolution Framework Report") submitted by the Company to the Ministry of Corporate Affairs, Government of India which, in turn, was filed with the Honble National Company Law Appellate Tribunal ("NCLAT"), the creditors of the Company were invited (via advertisement(s) dated May 22, 2019) to submit their claims as at October 15, 2018 with proof, on or before June 05, 2019 (subsequently extended till February 05, 2020) to a Claims Management Advisor ("CMA") appointed by the IL&FS group. The amounts claimed by the financial and operational creditors are assessed for admission by the CMA.
Consequently, the accompanying standalone Ind AS financial statements do not include any possible adjustments arising from the aforesaid matters, including to the extent these may affect prior period comparatives presented therein. The CMA have submitted their report on the status of the claims received and its admission status (details provide in note 1.8). Management of the Company is in the process of reviewing the claims made by third parties with the CMA, and reconciliation of such claims with the corresponding amounts as per the Companys books of account in going on. Having regard to the nature, volume and value of claims received, management is of the view that due process will need to be applied to all such claims, in order to finally determine the level of present obligations that would need to be recognised by the Company as liabilities. In respect of claims filed by operational creditors, based on the ongoing review the Company has provided the reconciliation for differences amounting to Rs .440.23 crore to the CMA and the revert is awaited.
2 Note 1.12 and Note 1.13 to the accompanying Ind AS financial statements which explains the uncertainties involved in determining the recoverable value considered for determining provision for impairment and expected credit loss on investments, trade and other receivables respectively (collectively referred to as “Receivable Balances”) during the current year: As a result of the various events that have taken place during the financial year 2018-19 and subsequently up to the date of the financial statements, which are more fully described in note 1.2 to attached stand-alone financial statements, there is a significant uncertainty around the recoverability of the carrying amount of the investments, loans, trade and other receivables from the subsidiaries and other entities in the Group. The New Board has also initiated a process for divesting stakes held by the Company and other IL&FS Group entities in various subsidiaries and road projects and related businesses as described above in note 1.3 to the standalone Ind-AS financial statements.
a) The recoverable amount is subject to finalisation of the claim management process of subsidiaries and joint ventures and their audited financial statements. Further, the distribution mechanism applied for determining recoverable amount is not in accordance with distribution mechanism approved by National Company Law Appellate Tribunal (‘NCLAT) vide its order dated March 12, 2020; The Board in consultation with management, has performed an assessment to determine the recoverability of the carrying amounts of the investments, loans, trade and other receivables from its subsidiaries and other entities. For determining the recoverable amount, the Company has made its assessment on the following basis
Category Basis
b) Recoverable amount considered in case of certain Receivable Balances is based on binding financial proposals approved by the Board of Directors and are subject to requisite approvals and acceptance of the Letter of Intent by the successful bidder; A Entities where Binding Financial bids have been received and approved by the Board, recoverable amount has been determined basis the financial bid received.
c) Recoverable amount for certain Receivable Balances is based on Fair Valuation, which is subject to various internal and external factors including significant assumptions, as at September 30, 2018 and does not consider any adjustment to the present value of the cash flows / working capital upto March 31, 2019; B Entities where Binding Financial bids were received but not accepted by the New Board, the recoverable amount has been determined basis lower of the Fair Market Values assigned by valuers engaged by the New Board during the divestment process.
C Entities where no Financial bids were received, recoverable amount has been determined basis Fair market valuation obtained through an independent third- party valuer.
d) As further explained in Note 1.12, the recoverable amount for certain Receivable Balances does not consider the requirement of the relevant Ind AS standards due to non- availability of the necessary and/or complete information in respect thereof. Further, recoverable amount in respect of under construction projects is subject to finalisation / acceptance / disbursement of settlement amount by the respective authorities. D Entities, where projects are under construction/ incomplete/ partially incomplete and discussions are ongoing with the Concessioning Authorities for foreclosure/ termination of the Concession Agreements, recoverable amounts have been determined basis the net compensation agreed or indicated by the respective Concessioning Authority for the said foreclosure / termination. Based on the expected timing of realisation of these claims, the present value of the claim has been considered. Further, all known counter- claims and penalties have been adjusted to the recoverable amount.
E For other entities, recoverable amount has been determined on the basis of:
e) As mentioned in the note 1.12 to the accompanying standalone financial statements, during the previous year, the Company had not considered latest traffic study report for impairment assessment of a project and in the current year the impairment provision has been recognised basis the said latest traffic study report. In the absence of the revised impairment assessment basis the latest traffic study report including its consequential impact on other significant assumptions, we are unable to comment on the impairment provision required in the previous year for the said project and its consequential impact accounted in the current year, if any a. Market valuation with appropriate illiquidity discount in respect of listed entities.
b. Net Asset Value based on audited/management accounts of the entities.
c. For others entities classified into ‘Red, ‘Amber or ‘Green entities, with 100% provisions being made for exposure to Red entities, as per the policy adopted by the Parent Company.
d. Estimated realisable value based on realisable value of underlying assets.
e. For certain entities based on management best estimate.
f. For overseas entities, realisable value considered as Nil.
In view of the above uncertainties involved and absence of sufficient appropriate audit evidence to support the estimates / judgements used in determination of recoverable amount for computing the impairment / expected credit loss, we are unable to comment on the possible effects of changes, on account of aforesaid factors, on these standalone Ind AS financial statements In respect of one project, the latest traffic study report (received by the SPV on April 17, 2018) was inadvertently not considered for computing projected cash flows for carrying out impairment assessment as at March 31, 2018. In view of management, if the said traffic study was used and its consequent impacts on other assumptions was considered at that time, impairment provision could not have been determined as at March 31, 2018 in the said project.
In the current year, impairment assessment has been carried out considering the said latest traffic study report and in accordance with the approach detailed hereinabove and necessary provision made in the profit and loss account
Based on above assessment, the Company has made an impairment provision in respect of the balance of loans, receivables, Contract assets, Other financial assets and investments from its subsidiaries and group companies aggregating to 5,682.77 crore, 2,229.59 crore, 368.51 crore, 50.44 crore and 5,971.71 crore respectively, and recorded net loss on fair value changes of Rs101.67 crore on financial assets measured at fair value through profit and loss, arising from transactions up to September 30, 2018
In the view of the Company, the impairment provision made is prudent and represents the economic substance of the amounts recoverable
3 Note 1.11 of the accompanying standalone Ind AS financial statements, the Company is in the process of reconciling the completeness and status of financial guarantees, performance guarantees, letter of awareness, letter of comfort, sponsor guarantees and corporate guarantees extended by it to its group / other companies (including overseas subsidiaries) in the period prior to September 30, 2018, pending which, the Company has not recognised any resultant liabilities, if any, in the accompanying standalone Ind AS financial statements. Consequently, the accompanying standalone Ind AS financial statements do not include any possible adjustments in this regard The Company has issued financial guarantees to its group companies. Management is in the process of reconciling the completeness and status of financial guarantees issued, devolved, claimed and recorded / to be recorded in the books of account, including those guarantees in respect of which claims have been received as part of the claims management process.
4 With respect to following transactions, we are unable to obtain sufficient and appropriate evidence about the underlying commercial substance and rationale of such transactions and consequential impact on the accompanying standalone Ind AS financial statements: a) Loans to related parties of 7.5 Cr were provided in normal course prior to September 30, 2018. These entities have been categorised as Red entities and accordingly the exposures to these entities have been fully provided in accordance with the policy adopted by the Audit Committee of IL&FS
a) Amounts paid during the year to certain related parties which are classified as loans amounting to Rs. 7.50 Crores have been fully impaired during the year as fully described in Note 5 (c) to the accompanying standalone Ind AS financial statements. b) In respect of construction costs and Other direct expenses, the contracts to these parties were awarded by the erstwhile senior management of the Company.
These expenses have been accounted basis duly approved work orders, invoices and related supporting documentation / reports. As further mentioned in Note 1.6 of the standalone Ind AS financial statements, the forensic audit firm is in the process of carrying out further examination relating to certain aspects described more specifically in note 24.1 of the attached stand-alone financial statements
b) Construction cost and other direct expenses incurred/debited to statements of profit and loss during the year, verified by us on a test check basis, amounting to Rs. 52.26 Crores as fully described in Note 24.1 to the accompanying standalone Ind AS financial statements and in respect of Other expenses amounting to Rs. 3.50 crores. c) Other expenses include 3.50 crore towards Sponsorship of an event in May 2018. The expense was incurred basis approval provided by the erstwhile Managing Director of the Company
5 As fully described in the Note 4 (i) to the accompanying standalone Ind AS financial statements, the Company has invested Rs. 172.60 Crores in the units of Real Estate Assets Performance Fund I, a SEBI registered Fund, measured at fair value amounting to Rs. 63.73 Crores as at March 31, 2019. The investment was approved by erstwhile management and ratified by erstwhile Board of the Company. During the current year, in view of the developments at the Company as mentioned in note 1.2 of the attached stand-alone Financial Statements, the Company has performed an assessment of the recoverability of the carrying amounts of its investments as mentioned in note 1.12 to these stand- alone financial statements and following the rationale / basis mentioned therein, has determined fair value for its investment in units of the scheme of the Fund, based on the valuation of its underlying investments (in accordance with note 1.12 to these standalone Ind AS Financial Statements) and recognized fair valuation loss amounting to 101.67 crore (net of gain 7.20 crore) which has been disclosed in the note 29 as fair valuation loss on Investments recognised through profit and loss
We have not been provided with the commercial substance and rationale of the said investment including related expenses and the audited financial statements of the said Fund as at March 31, 2019. Hence, we are unable to comment on the fair value of the said investment and other impact on the standalone Ind AS financial statements, if any.
6 As fully described in the note 1.5 to the accompanying standalone financial statements and further noted in paragraph 1 of our report stated above, the following transactions/matters will be considered by management along with the process of reopening / recasting of accounts in respect of financial years 2013-14 to 2017-18 pending which the comparative information has not been restated (a) During the previous year in September 2017 , the Company had sold 14.5% of equity investments in Moradabad Barely Expressway Limited (MBEL) and 10% of equity investments in Gujarat Road Infrastructure Company Limited (GRICL) for a total consideration of 164.00 crore and recognised the resulting gain amounting to 126.00 crore pursuant to a binding sale agreement between the Company and one of the large infrastructure player (the “Original Purchaser”). The valuation for both the entities was determined by an independent external valuer
(a) Sale of equity shares of Moradabad Barely Expressway Limited (MBEL) and Gujarat Road Infrastructure Company Limited (GRICL) which had resulted in gain amounting to Rs. 126 Crores in the previous year and subsequently during the current year these investments were acquired by Real Estate Assets Performance Fund and the investment was made by the Company in units of the said Fund, as fully described in Note 4(i) to the accompanying standalone Ind AS financial statements. These shares were lodged irreversibly by the Company in an escrow account under the control of an independent Trustee and Escrow agent pursuant to the sale agreement. The consideration was due to be received within 180 days of the transaction and the Escrow agent was to transfer/release the shares to the Original Purchaser on receipt of the same. The Original Purchaser did not pay the consideration within the stipulated time and despite an extension granted by the Company
(b) Transfer of equity shares of wholly owned subsidiary Rajasthan Subsequently, in accordance with provisions of the said sale agreement and pursuant to a tripartite agreement entered between the Original Purchaser, the Company and a SEBI registered Fund (“New Purchaser”), in the month of May 2018 the shares were transferred in favour of the New Purchaser by the Escrow agent and consideration was received by the Company which resulted in additional gain of 7.20 crore which is after netting of 0.34 crore paid to the Original Purchaser pursuant to the sale agreement. The Company had also invested 172.60 crore in the units of a scheme of the Fund (New Purchaser).
Land Holdings Limited (RLHL) to Pario Developers Private Limited (‘Pario) (which was treated as an associate) in exchange for Preference Shares issued by Pario which had resulted in gain amounting to Rs. 147.50 Crores in the previous year as fully described in Note 4(j) to the accompanying standalone Ind AS financial statements.
Consequently, during the year ended March 31, 2019, the Company has recorded charge on account of impairment/fair valuation of aforementioned investment in units and preference shares amounting to Rs. 223.54 crores As at March 31, 2019, the Company has fair valued it investments in units of the scheme of Fund amounting to 63.73 crore, based on the valuation of its underlying investments determined in accordance with note 1.12 and note 1.13 to these stand-alone financial statements and recognized fair valuation loss amounting to 101.67 crore (net of gain 7.20 crore) which has been disclosed in the note 29 as fair value loss on Investments recognised through Profit and Loss
(b) The Company had entered into an arrangement with a Pune based leading developer ("Developer") for development of land parcels of Rajasthan Land Holdings Limited (RLHL) (‘a subsidiary of the Company) and its subsidiaries for residential and commercial complexes (Project) through Pario Developers Private Limited (‘Pario) a company owned by the Developer
Consequently, during the previous year in June 2017, the Company transferred its 100% equity investment in Rajasthan Land Holdings Limited (RLHL) to Pario.
The Developer was also to transfer shares held by it in an entity holding land parcels to Pario by December 31, 2017 as specified in the Share Purchase Agreement (SPA). The Company received consideration towards the said equity shares of RLHL in the form of Preference Shares in Pario amounting to 150.00 crore, which was arrived at basis the fair valuation of equity shares of RLHL as determined by an independent external valuer. The Company subsequently on July 20, 2017, took 34% stake in Pario and the balance stake was held by the Developer
The Developer despite regular follow ups and extension to the original time limits granted by the Company till June 30, 2018, did not comply with the applicable conditions precedent as per the SPA with the Company to transfer shares of the entity holding parcels of land to Pario. Further, on March 31, 2018, the Developer transferred its holding in Pario to another party without prior written consent of the Company which was one of the condition of the Shareholders agreement of Pario. On subsequent follow up and in response to the demand by the Company in February 2019, for redemption of the Preference Shares held by it in Pario, a remedy available to it under the SPA , the developer vide letter dated March 19, 2019 cited various reasons including recession in real estate market and group restructuring among others, for non-compliance with the conditions of the SPA and suggested to unwind the agreement and liquidate Pario. Further, During the current year, one of the operational creditor of RLHL, filed CIRP application against the Company and one of its subsidiary. The application has been accepted by Honble NCLAT Jaipur in September 2019 and a Resolution Professional has been appointed to oversee the operations of Company.
Pursuant to various developments mentioned in note 1.2 above, issues faced by the Developer and recent developments at RLHL, the proposal for residential and commercial complexes project has not progressed and the current management does not have any visibility about the said project progressing in near future. Accordingly, the Company based on assessment of recoverable amounts of underlying assets of Pario has fully impaired the investments of 158.37 crore in the preference shares and 0.33 crore in Equity shares of Pario. Also refer note 1.12 and note 5 (e))
d) As a result of the various events that have taken place in the Company during the financial year 2018- 19 and subsequently up to the date of the financial statements which are more fully described in note 1.2 to these stand-alone financial statements and particularly with respect to these transactions/ matters, the Company in the current year has performed an assessment to determine the recoverability of the carrying amounts of its investment in aforementioned Units and Preference shares following the basis mentioned in note 1.12 to these stand-alone financial statements and recognised necessary provisions for the impairment / fair valuation of these investments / units
As mentioned in (1) above, the process of re-opening and re-casting of financial statements is currently in progress. Management is of the view that charge on account of impairment / fair valuation of these investments/ units has arisen due to subsequent actions / breaches by these counter parties as described in para
(a) and (b) above and the events described in note 1.2 of these standalone Ind AS financial statements, it will however be evaluating these transactions along with various business transactions in those years for possible re-casting, if any, during the re-opening and re-casting exercise. Pending completion of the said exercise, the Company has not made any adjustments with respect to the consequential effect arising therefrom including their effect on (a) business transactions in those financial years (b) the balance sheet as at March 31, 2018 (comparative period end date) and the current year ended March 31, 2019 and (c) the statement of Profit and Loss for the years ended March 31, 2018 and March 31, 2019
7 Note 5 (d) to the accompanying standalone financial statements, the Company had assigned Loans given to its subsidiaries to a Bank on a Recourse basis and derecognized the said financial asset from the balance sheet amounting to Rs. 1,000 Crores which is not in accordance with IND AS 109. Accordingly, financial assets and financial liabilities included in these financial statements for the current year and previous year are understated by the said amount. The Company since past few years has been assigning loans given to its group companies to a Commercial Bank. During the previous year, loans given to its group companies amounting to 1,000.00 crore were assigned. Cash received on assignment of these loans were utilized by the Company to meet its obligations.
The assignment agreement signed with the Bank contains clauses that suggest that the assignment was done on a recourse basis, however the same was not mentioned in the other transaction documents (term sheets, Letter of Awareness (LOA) issued by the Company). The LoA given by the Company to the bank, makes it clear that the Company was not providing any guarantee or taking liability in respect of the said loans. Further as the cash was received, these loans were derecognized in the books of account of the Company.
8 We have not received audit evidence as follows: The Company believes that there was never any intention to provide any recourse to itself and the same is also evident from the fact that during the current year, the said Bank has filed its claim against the respective group companies and not against the Company. Accordingly, management has not recognised financial assets and corresponding financial liabilities in these standalone Ind AS financial statements The Company has done extensive follow up and will continue its efforts to get the requisite documents and confirmations from the banks. Also, the Company has written letters protesting any unilateral adjustments pending final outcome of resolution and claim management process
a) Reconciliation of differences with banks mentioned in Note 1.17 to the accompanying standalone Ind AS financial statements aggregating Rs 426.34 Crores, which management believes represents unauthorised adjustments made by the bank in the Companys bank account and unreconciled differences in bank reconciliation statements including direct debits by banks aggregating Rs 420.13 Crores, for which the management is not aware of its nature and the same are in the process of being reconciled by the Company (included in Note 13 to the accompanying standalone Ind AS financial statements). The management is in the process of reconciling the said amounts / accounts, pending outcome of the said assessment, consequential impacts if any are not adjusted in the standalone Ind-AS financial statements
b) Reconciliation with vendors/ sub-contractors as mentioned in Note 1.8 to the accompanying standalone Ind AS financial statements.
Accordingly, we are unable to comment on the consequential effects of the above, on the accompanying standalone Ind AS financial statements 9 Note 24.1 of the accompanying standalone Ind AS financial statements, a third-party forensic audit, in respect of construction cost and other operating expenses incurred in respect of various projects is currently ongoing. Hence, we are unable to comment on any possible impact on the construction cost and other operating expenses and other consequential impact on the accompanying standalone Ind AS financial statements if any. Further to note 1.6 and 24.1, the forensic auditor appointed by the New Board is in the process of carrying out further examination relating to certain aspects described in note 24.1
10 Note 1.18 of the accompanying standalone Ind AS financial statements as at March 31, 2019, the Company has not carried out analysis for determination of recoverable value as per Ind AS 36 ‘Impairment of assets and net realisable value as per Ind AS 2 ‘Inventories of its Property and plant and equipment and Inventories respectively. Further, no physical verification for inventories has been carried out. Consequently, the accompanying standalone Ind AS financial statements do not include any possible adjustments in this regard 11 Note 3 (c) of the accompanying standalone Ind AS financial statements as at March 31, 2019, the Company has valued its investment property as per ready reckoner rate as notified by the Maharashtra State Government and which is not in accordance with relevant Ind AS. Pending full completion of their examination, no adjustments have been recorded in these standalone Ind AS financial statements for any consequential effects/ matters that may arise in this regard
Subsequent to the balance sheet date, the Company has carried out physical verification of Property, Plant and Equipment at sites through in-house teams and made a provision of Rs 14.61 towards assets discarded / significantly damaged / scrapped
The Company has also carried out verification of inventory at sites through the respective Site teams
Investment property consists of 22,692 sq.ft carpet area of commercial property in Mumbai. The investment property is held under freehold interests and offered as a security given to one of the lenders of the Company. The property has been under construction from past couple of years and completion has been substantially delayed. Out of 22,692 sq.ft (carpet area), Occupation Certificate (OC) has been received for 5312 sq, ft (carpet area) only.
The Company intends to sale the property on "as is" basis and has invited Expression of Interests for the same. Considering that substantial part of the property is yet to received OC and in view of the current depressed market conditions, the Company on a conservative basis has valued the said investment property at Ready Reckoner Rate (circle rate) setup by Maharashtra State Government. The Company basis the said valuation, has recognised impairment loss of 37.57 crore in these financial statements.
12 Note 1.10 to the accompanying standalone Ind AS financial statements, pending managements determination of the financial and other consequences of the litigations stated in the said note, no adjustments have been made to the accompanying standalone Ind AS financial statements in this regard. As a result of events up to September 30, 2018, as more fully described in note 1.2, there have been various litigations, legal cases and suits filed against the company following the default of borrowings made by the company, as described in the note. The Company has also received notices from debenture trustees with respect to default in payment of interest to the debenture holders. Further, the Company is undergoing a resolution process (refer note 1.3) under the order of the NCLT, pending which the management is in the process of making assessments and determinations as to liabilities, provisions and contingent liabilities as per Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets or as per Ind AS 109, Financial Instruments as the case may be. Pending final outcome of such process, no adjustments have been made to the stand-alone financial statements in this regard. Also refer note 37 for contingent liability disclosures.
13 Note 1.9 to the accompanying standalone Ind AS financial statements, the Company is not in compliance with certain requirements / provisions of applicable laws and regulations as more fully stated in that note. Pending final determination by management of the financial and other consequences arising from such non-compliances, no adjustments have been made to the accompanying standalone Ind AS financial statements. As a consequence of the matter described in Note 1.2 above and various other matters discussed in this accompanying stand-alone Ind AS financial statements, the Company is not in compliance with provision of various applicable laws and regulations, including but not limited to the Companies Act 2013, SEBI Regulations as applicable to listed entities, Income Tax Act, 1961, Good and Services Tax Act, 2017, State VAT Regulations, Regulations of the Reserve Bank of India as applicable to the Company and Foreign Exchange Management Act, 1999.
Where the management has identified any non- compliance subsequent to September 30, 2018, these have been reported or are in the process of being reported to the relevant regulator, and the Company intends to comply with the necessary requirements or further directions at the earliest.
Management is in the process of evaluating the financial and other consequences arising from such non-compliance and of making a comprehensive assessment of other non-compliances, to determine their impact/ consequences, including financial and operational impact, of such non-compliances on the Company. Pending final determination and assessment thereof, no adjustments have been made to these Financial Statements
14 Note 1.14 to the accompanying standalone Ind AS financial statements, pending completion of audit of financial statements of various subsidiaries, associates and joint ventures as at and for the year ended March 31, 2019 / December 31, 2018, and/or the related completion of the inter-company balances reconciliation process, we are unable to comment on the adjustments that may be required and the consequential effects on the standalone Ind AS financial statements and disclosures of related party transactions and balances in Note 41, to the accompanying standalone Ind AS financial statements. The Company and its Group entities have been facing capacity issues due to loss of key employees while meeting the need for servicing information requirements and providing clarifications to multiple investigating agencies, providing information to enable the ongoing asset monetization and restructuring activities and meeting ‘going concern requirements. Therefore, audited financial statements of several subsidiaries, associates and joint ventures of the Company for the year ended March 31, 2019, are not available. The Company is in the process of performing and completing the confirmation and reconciliation of intercompany balances with its subsidiaries, associates, joint ventures.
15 We have not received responses to our request for such direct balance confirmations towards borrowings of Rs.3,507 Crores, Bank balances of Rs. 61 Crores, certain Trade receivable balances aggregating to Rs. 105 Crores, certain loans and advances aggregating to Rs. 251 Crores and certain trade payables of Rs. 843 Crores and confirmation from banks / financial institutions in respect of details of securities, lien, collaterals, guarantees etc. The Company has done extensive follow up and will continue its efforts to get the requisite documents and confirmations.
Further, under the claims management process, these parties have already filed their claims and accordingly, there is indirect acknowledgement available with the Company.

COST AUDITOR AND COST AUDIT REPORT

Your Company is required to maintain the cost records under sub-section (1) of section 148 of the Companies Act, 2013 and accordingly all such accounts and records are duly made and maintained by the Company. Pursuant to Section 148 of the Companies Act, 2013 and the Companies (Cost Records and Audit) Rules, 2014 framed thereunder, the Board of Directors had appointed M/s. Chivilkar Solanki & Associates, Cost Accountants as Cost Auditors for FY 2018-19.

M/s. Chivilkar Solanki & Associates have conveyed their consent and confirmed their eligibility for appointment as Cost Auditors. The Board has recommended to the Members, for seeking approval to the remuneration payable to the Cost Auditors for FY 2019-20.

SECRETARIAL AUDIT & SECRETARIAL AUDIT REPORT

M/s. Mehta & Mehta, Practicing Company Secretaries were appointed by the Board to carry out the Secretarial Audit of the Company pursuant to the provisions of Section 204 of the Companies Act, 2013 for FY 2018-19. The report of the Secretarial Auditor is set out herewith as Annexure I to this report.

The Management Representation on the qualifications/ observations/ remarks of Secretarial Auditor pertaining to year ended March 31, 2019 are as under:

Sl. No. Qualifications/Observations Responses to Qualifications/Observations
1. The Company has paid managerial remuneration exceeding the limits specified under Section 197 of Companies Act 2013. The Company has initiated actions for recovery of the excess remuneration
2. Form APR (Annual Performance Report) under Foreign Exchange Management Act, 1999 has not been filed during the reporting period. Due to non-availability of the financial statements of the overseas subsidiaries the APR could not be filed. However, subsequent thereto steps have been initiated for completion of the audits for filing of the same.
3. Company has not complied with Regulation 33 and Regulation 47(1)(b) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with respect to filing of Financial results for the Quarter ended September 30, 2018 and December 31, 2018 as on March 31, 2019 and publication of financial results in newspapers for the Quarter ended September 30, 2018 and December 31, 2018 as on March 31, 2019. BSE & NSE vide its letter dated November 30, 2018 and March 05, 2019 has levied a fine of Rs. 5000 per day for non-compliance till the date of compliance of the said regulation, which has not yet been paid by the Company. During the financial year 2018-19, the Company has undergone various operational constrains and challenges, like Re-constitution of the Board of the Company, Re-opening of books of accounts and re-casting of the financial statements, Investigation by Serious Fraud Investigating office (SFIO) and special audit conducted by the Grant Thornton
Thus, the Company was not in a position to submit its financial statement/results as the preparation of financial statement/results requires management to make various estimates and representation. However, the Company has from time to time submitted reasons in detail for such non-compliance to the stock exchanges and requested to not take any coercive/pecuniary actions against the Company on account of the circumstances mentioned therein and also the moratorium granted by the National Company Law Appellate Tribunal to the IL&FS Group including the Company.
4. Regulation 52 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 - with respect to filing of Financial results under Chapter V - Obligations of listed entity which has listed its Non-Convertible Debt securities or Non-Convertible Redeemable Preference shares or both. Company has not complied with the said regulation for the Quarter ended September 30, 2018 as on March 31, 2019 Same as 3 above
5. Regulation 57(1) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with respect to submission of certificate to the stock exchange within two days of the interest or principal or both becoming due that the Company has made timely payment of interests or principal obligations or both in respect of the non-convertible debt securities There are instances where the said certificates have not been submitted to the Stock Exchanges within two days of the interest becoming due. There were delays on some instances
6. Regulation 61 (1) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with respect to ensuring of timely payment of interest. The Company has not paid interest on Non-Convertible Debentures due from October 01, 2018 to March 31, 2019. The amount of Redemption for the following Non- Convertible Debentures was not paid: INE975G08017 Tranche 1, matured on January 23, 2019 INE975G08033 Tranche II Series II, matured on March 18, 2019. In view of the severe liquidity crisis faced by the Company, it has not been able to service the NCD Debenture holders.
7. Regulation 61 (1) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Regulation 12 of SEBI (Issue of Listing of Non Convertible and Redeemable Preference Shares) Regulations, 2013, ensuring timely payment of dividend and timely redemption of non-convertible redeemable preference shares. Dividend on Cumulative Non Convertible Preference Shares not paid for period April 01, 2017 to December 23, 2018 In view of the severe liquidity crisis faced by the Company, it has not been able to service the Preference Shareholders.
Amount of Redemption of Cumulative Non-Convertible Redeemable Preference Shares due and payable on December 23, 2018 has not been paid

EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return as on March 31, 2019 in Form MGT - 9 in accordance with Section 92(3) of the Companies Act, 2013 read with Companies (Management and Administration) Rules, 2014, are set out herewith as Annexure II to this report.

SIGNIFICANT AND MATERIAL ORDERS

The summary of significant and material orders passed by the Regulators or courts or tribunals impacting the going concern status and the Companys operations in future is enclosed as Annexure VI to this report.

POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION

The Board has adopted a Policy on appointment and remuneration of Directors which includes the criteria for determining qualifications, positive attributes, independence of a director and other matters, as required under Sub-section (3) of Section 178 of the Companies Act, 2013 and Regulation 19 of the SEBI (LODR) Regulations, 2015. The Policy is available on the website of the Company: www.itnlindia.com. The remuneration paid to the Directors and Senior Management personnel is as per Managerial Remuneration Policy of the Company. Brief details of the Managerial Remuneration Policy are provided in the Corporate Governance Report

As a consequence of the losses reported for the year ended March 31, 2019, the same has resulted in the excess payment of remuneration to Mr. K Ramchand (erstwhile Managing Director) and Mr. Mukund Sapre (erstwhile Executive Director) amounting to 0.70 Crore and 0.13 Crore respectively aggregating to 0.83 Crore. The Company has initiated action for recovering the excess remuneration paid to them.

DECLARATION BY INDEPENDENT DIRECTORS

All the erstwhile Independent Directors had provided the declarations that they met the criteria of independence as provided under section 149(6) of the Companies Act, 2013

PERFORMANCE EVALUATION OF THE BOARD, COMMITTEES AND DIRECTORS

In accordance with the provisions of the Companies Act, 2013 and Regulation 4(2)(f) of the SEBI (LODR) Regulations, 2015, the erstwhile Board of Directors had laid down the criteria for performance evaluation of erstwhile Independent, Non-Independent & Executive Directors. The evaluation of the performance of the erstwhile individual Directors, Committees and the erstwhile Board was noted at the Meeting of the erstwhile Board of Directors of the Company held on May 25, 2018.

CORPORATE GOVERNANCE

A Report on Corporate Governance is enclosed and forms part of this Report. A certificate from the Statutory Auditor on compliance with the provisions of Corporate Governance is also annexed to this Report

The details of the meetings of the Board and its Committees including its composition & terms of reference are provided in the Report on Corporate Governance which forms part of this Report

POLICY ON DIVIDEND DISTRIBUTION

In accordance with Regulation 43A of the SEBI (LODR) Regulations, 2015, the Company has formulated a Dividend Distribution Policy setting out the parameters and circumstances for consideration of the Board in determining the distribution of dividend to the Shareholders. The Policy is available on the website of the Company. The same can be viewed through the link: http://www.itnlindia.com/application/web_directory/Company%20Policies/2017/Dividend% 20Distribution%20Policy.pdf

TRANSFER OF UNPAID/UNCLAIMED DIVIDEND TO INVESTOR EDUCATION AND PROTECTION FUND AUTHORITY:

In terms of Section 125 of the Companies Act, 2013 and Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (the Rules), unclaimed/unpaid dividend for FY 2010-11 and FY 2011-12 lying in the Companys bank account for a consecutive period of seven years amounting to 1,90,229/- and 1,87,900/- respectively was transferred to the Investor Education and Protection Fund (IEPF) on November 05, 2018 and December 02, 2019. Accordingly, the underlying 514 equity shares for FY 2010-11 and 3953 equity shares for FY 2011-12 were also transferred to the demat account of IEPF, the details of which are available on the weblink: http://www.itnlindia.com/invrelation.aspx?page_ID=24&Sec_ID=5.

The Members may lodge their claim for the shares/dividend transferred to IEPF by making an application to IEPF in Form IEPF-5 as per the IEPF Rules. The said form is available on the website of IEPF viz. http://www.iepf.gov.in/IEPFA/ corporates.html The dividend for FY 2012-13, which has remained unpaid/unclaimed for a consecutive period of seven years is also due for transfer to IEPF Account on September 14, 2020. The underlying Equity Shares would also be transferred to the demat account of IEPF on the said date. Members who have not claimed the dividend as yet is requested send request for claiming the dividend to RTA immediately. The details are available on the weblink:http://www.itnlindia.com/pdffiles/DV/StatementofUnclaimeddividendamountconsec utivelyfor 7years_2018.pdf

RELATED PARTY TRANSACTIONS

The erstwhile Management had developed a Related Party Transactions Policy & Framework which was reviewed and recommended by the then Audit Committee and approved by the erstwhile Board which is uploaded on the Companys website and is available on the link: http://www.itnlindia.com/application/web_directory/Company%20Policies/2019/RPT%20Pol icy%20(Amended).pdf

All Related Party Transactions that were entered into during the Financial Year were on an arms length basis and were in the ordinary course of business. During the year under review, few material transactions were entered into with the Promoter as disclosed in Form AOC-2 annexed as Annexure VII.

It should be noted that the nature of related party transactions undertaken during the year, prior to October 1, 2018 under the erstwhile management, are under review as part of various internal and external investigations that have been initiated.

POLICY FOR PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE

The Company has provided a safe and dignified work environment for its employees which are free of discrimination, intimidation and abuse. The Company has adopted a Policy for Prevention of Sexual Harassment of Women and constituted Internal Complaints Committee as per the requirement of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The objective of this policy is to provide protection against sexual harassment of women at workplace and for redressal of complaints of any such harassment. No complaints with allegations of any sexual harassment were reported during the year under review

WHISTLE BLOWER POLICY

In accordance with the provisions of Section 177 (10) of the Companies Act, 2013 and Regulation 22 of the SEBI (LODR) Regulations, 2015, the Company has established a vigil mechanism by adopting a Whistle Blower Policy to report concerns or grievances. The administration of the vigil mechanism is ensured through the Audit Committee

Two complaints were received via the Whistle Blower Mechanism during the year under review and have been duly addressed by the Company.

The Whistle Blower Policy adopted by the Company is available on the website of the Company. The same can be viewed through the link: http://www.itnlindia.com/application/web_directory/Company%20Policies/Whistle%20Blow er%20Policy.pdf

RISK MANAGEMENT

Your Company had a risk management framework and compliance systems including the risk management policy adopted by the erstwhile management. Given the circumstances in which the New Board was appointed on October 1, 2018, the New Board has reviewed and put in place a revised and updated risk management framework which takes into account the complexity of IL&FS Group structure and the situation with respect to operations/liquidity management. It has also implemented certain key initiatives to protect interests of the stakeholders in order to mitigate the risks being faced by the Company (and the IL&FS Group), which are as follows: Engagement of expert agencies to assist the New Board in the ongoing resolution of the Company and of the IL&FS Group. External Resolution Consultant, Financial and Transaction Advisors, Claims Management Advisor and Legal Advisors have been appointed. Constitution of an ‘Operating Committee to work on a day to day basis to ensure coordination among group companies and maintain uniformity in the decisions taken across the IL&FS Group. Constitution of an ‘Asset Sale Committee to undertake all necessary actions and take decisions in relation to the asset monetization process (being undertaken in line with the Resolution Framework Report). Introduction of new position, Chief Operating Officer (“COO”). The COO is responsible for oversight of day to day operations of the IL&FS Group and providing hands-on leadership for and oversight of the asset monetization efforts. The COO is part of the Operating Committee and the Asset Sale Committee. Institution of a group-wide payment protocol. One of the most pressing challenges which the New Board faced immediately upon taking over was the significant liquidity constrains being faced by the IL&FS Group, including the fact that (as highlighted in the First Report) there was no suitably empowered central financial control function that maintained information and accuracy at the group level. With an aim to manage liquidity, ensuring statutory compliance, preserving value and maintaining ‘going concern status, the New Board, based on discussions with the External Resolution Consultant instituted a payment protocol for the entire IL&FS Group (“Payment Protocol”). The Payment Protocol ensures that no selective payment is made to creditors which could prejudice interests of other stakeholders (i.e. the risk of being classified as a preferential payment). The External Resolution Consultant has been assisting the New Board in periodically monitoring and reviewing the liquidity position of key entities in the IL&FS Group, including conducting the following key oversight functions:

(i) Preparing monthly cash budget: Preparation of a budget by the respective entitys management based on forecast of collections from customers, prioritization of payments based on the Payment Protocol and cash available, actual cash flows in the previous period etc.;

(ii) Reviewing operational issues: Discussion and mitigation of key operational issues faced by the entities, such as delay in collections from customers, stoppage of supply by specific vendors / service providers, termination of projects, lenders not permitting ‘going concern payments etc.;

(iii) Tracking key liquidity parameters: Periodic collation and review of cash balances across entities, amount of cash deployed in interest bearing instruments, tracking overdue salaries / statutory liabilities etc.; and

(iv) Identifying avenues for cash generation/ preservation: Identification of entities with significant cash gap and determining focus areas for the respective managements such as following up on claims/ old receivables, releasing funds lien marked by lenders, cost reduction, sale of non-core assets etc. The External Resolution Consultant also conducted a cash flow solvency test based on a ‘12 month look-forward testing period (“Testing Period”) based on which 150 entities (incorporated in India) of the IL&FS Group have been classified into one of the following categories:

(a) “Green” entities i.e. those entities where there is no payment default/overdues subsisting currently and cash flows to be generated by that entity in the Testing Period from its operations and available cash balances are sufficient to meet all payment obligations of that entity (both operational and financial, secured as well as unsecured) as and when such payment obligations fall due in the Testing Period. These entities also do not rely upon other IL&FS Group entities for any financial support to service its debt obligations (financial and operational);

(b) “Amber” entities i.e. those entities which are not able to meet all their respective obligations (financial and operational) during the Testing Period but can only meet operational payment obligations and payment obligations to senior secured financial creditors (financial creditors whose financial debt is secured by a first charge over the assets of the relevant IL&FS Group entity) during the Testing Period [1]; and

(c) “Red” entities i.e. those entities which cannot meet their respective payment obligations towards even senior secured financial creditors as and when they fall due in the Testing Period[2].

You Company has been classified as Red Entity and is permitted to make only payments necessary to maintain and preserve the ‘going concern status.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Particulars of investments, loans and guarantees form part of Note no. 4, 5 and 38 respectively to the financial statements provided in the Annual Report

DEPOSITS

Your Company has not accepted any Fixed Deposits under the Companies Act, 2013 during the year under review

1 For the purposes of determining the categorization as “Amber”, in addition to ability of making payment to senior secured creditors of such companies as and when they fall due, the cash flow sufficiency to meet current operational payments (post September 30, 2018) has been considered 2 Where the relevant “Red” IL&FS Group entity does not have senior secured financial debt, the unsecured (operational and financial) debt of that IL&FS Group Entity has been considered, which also cannot be fully paid as and when it falls due

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Since the Company does not own any manufacturing facility, there is nothing to report under the Energy Conservation and Technology Absorption particulars in the Companies (Accounts) Rules, 2014

During the year under review, your Companys foreign exchange earnings and expenditure was Nil & 0.37 Crore respectively

PARTICULARS OF EMPLOYEES

In terms of the provisions of Section 197(12) of the Companies Act, 2013, (“the Act”) read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, particulars of the employees drawing remuneration in excess of the limits specified therein forms part of this Report as Annexure III

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this Report as Annexure IV

CORPORATE SOCIAL RESPONSIBILITY

The CSR Policy of the Company was approved by the erstwhile Board at its meeting held on May 13, 2014. The CSR Policy was effective from April 1, 2014.

Details of the CSR expenditure during the first six months of the year under review are given in Annexure V enclosed to the report.

DIRECTORS RESPONSIBILITY STATEMENT

(1) On October 01, 2018, based on a petition by Union of India (“UOI”), the erstwhile Board of Directors of Infrastructure Leasing and Financial Services Limited (IL&FS) was suspended by the Honble NCLT and New Board of Directors was appointed.

(2) The New Board of IL&FS thereafter, pursuant to the authority granted by the Honble NCLT, nominated the appointment of Directors on the Board of the Company. Accordingly, at the First Board Meeting of the Company held thereafter on October 25, 2018, 2 Directors (Mr Vineet Nayyar and Mr C S Rajan) representing the New Board were appointed on the Board of the Company. Subsequent thereto, 2 more Directors (Mr Nand Kishore and Mr Bijay Kumar) were nominated by the New Board of IL&FS and inducted on the Board of the Company. Accordingly, in respect of the period prior to October 25, 2018, the Directors nominated by the New Board of IL&FS are unable to and do not confirm the compliance with the requirements of the provisions of the Companies Act 2013.

(3) The Board of the Company has on a best effort basis and after considering the complexity of the operations, including challenges in implementing the resolution plan, put in place a framework for preparation of financial statements, selection of accounting policies, maintenance of accounting records and prevention and detection of frauds for periods subsequent to their appointment. The Company has also faced several challenges in obtaining financial information and in being able to prepare its financial statements for the year ended March 31, 2019 in view of severe resource and other constraints. Having regard to these matters, the Company has applied judgments and estimates for several matters on applying prudence and conservatism for accounting and has tried to reflect substance over form in respect of transactions and balances in order to derive the business sense from the transactions and events and to present them in a manner that best reflects their true essence based on current estimates. These estimates may change due to subsequent events and are subject to the internal and external investigations that have been initiated.

(4) The Companys accounts for the 5 financial years ended 2017-18 are undergoing the process of reopening and restatement, pursuant to an order of the Honble NCLT. The SFIO and the IL&FS Board have also initiated their respective, independent investigations on various matters in relation to the Company, for past years and for the current financial year up to September 30, 2018. The possible outcomes of these matters and their effects are currently not determinable.

(5) Section 134(3)(c) of the Companies Act, 2013, requires the Board of Directors to provide a statement to the Members of the Company in connection with maintenance of books, records, and preparation of Annual Accounts in conformity with accepted accounting standards and past practices followed by the Company.

(6) Pursuant to the foregoing and to the best of the knowledge and belief of the current Board of Directors of the Company, on the basis of representations received from the operating management and after due enquiry and having regard to the matters discussed previously and subject to the various limitations due to the extenuating circumstances, it is confirmed that.

(a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures. Such departures, which are stated in the relevant notes to the financial statements, have been done having regard to the prevailing conditions under which the Company is operating currently as more fully explained in paragraphs 1-4 above;

(b) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for that period, having regard to the prevailing conditions under which the Company is operating currently;

(c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the applicable Regulations for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities, from the period from which the members of the Board have been appointed. The directors have put in place controls and processes in respect of resolution processes / transactions from October 25, 2018 to March 31, 2019;

(d) the Directors have prepared the annual accounts on a going concern basis;

(e) the Directors have laid down internal financial controls to be followed by the Company in respect of the period from October 25, 2018 from which date the new members of the Board have been appointed and that such internal financial controls were adequate and were operating effectively as at year end, except that due to the prevailing conditions under which the Company is operating currently, and having regard to the matters stated;

(f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively, commencing from the period from October 25, 2018, having regard to the various matters discussed earlier that have resulted in the current status of the Company.

ACKNOWLEDGMENTS

The Board of Directors place on record their appreciation for the continued support and co-operation received from the Government and its various Authorities including National Highways Authority of India, Banks, Financial Institutions and Members of the Company

The Board of Directors expresses their grateful and sincere appreciation for the contribution and commitment of the employees

By the Order of the Board
Sd/- Sd/-
Chandra Shekhar Rajan Vineet Nayyar
Director Director
(DIN: 00126063) (DIN: 00018243)
Sd/- Sd/-
Nand Kishore Bijay Kumar
Director Director
(DIN: 08267502) (DIN: 07262627)
Mumbai, June 4, 2020