Manipal Finance Corporation Ltd Directors Report.

To the Members of

Manipal Finance Corporation Limited, Manipal

Report on the Audit of the Financial Statements

Qualified Opinion

We have audited the accompanying financial statements of Manipal Finance Corporation Limited (CIN: L65910KA1984PLC005988) ("the Company"), which comprises the Balance Sheet as at 31st March 2019, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, notes to the financial statements including a summary of significant accounting policies and other explanatory information (hereinafter referred to as "the Financial Statements").

In our opinion and to the best of our information and according to the explanations given to us, except for the effect of the matter described in the Basis of Qualified Opinion paragraph, the aforesaid 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 Accounting Standards prescribed under Section 133 of the Act read with the Rule 7 of the Companies (Accounts) Rules, 2014 i.e. the Companies (Accounting Standard) Rules, 2006 read with Companies (Accounting Standard) Amendment Rules, 2016 and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2019, the profit and its cash flows for the year ended on that date.

Basis for Qualified Opinion

1. We draw attention to Note No. 24.02 of the financial statements. The Company has incurred losses and its majority of funds are blocked in Non Performing Assets, raising a doubt about the Company to continue as a going concern. The Company has presented a scheme of arrangement for restructure of liabilities as detailed in Note No. 5.2.01 of the financial statements and subsequently withdrawn the same, for reasons given therein. The Company is exploring the possibility of presenting the new scheme of arrangement, as detailed in the aforesaid Notes. The account, however have been prepared on a "going concern basis" in view of management perception as detailed in Note No. 24.02 as aforesaid. However we are unable to comment on the ultimate realisability of Companys assets including the Fixed Assets under lease. Accordingly we are also unable to comment on the Companys ability to settle its debts/liabilities (including Deposits, Subordinated debts and Secured Redeemable Debentures.)

2. We draw the attention to Note 5.2.01 of the Financial Statements. The Company has stopped (i) repayment of matured debentures & matured subordinated debts and (ii) payment of interest on debentures and subordinated debts from 1st day of July 2002 and proposed a scheme of arrangement before the Honble High Court of Karnataka, as referred to in the aforesaid Note (which is since withdrawn and we are informed that the Company is exploring the possibility of presenting a new scheme of arrangement). Further the Company has also stopped repayment of deposits matured for repayment from the aforesaid date. All the debts of the Company i.e. debentures, subordinated debts and deposits are matured for repayment. The Company has provided for interest on deposits/debentures/debts up to 30th June 2002 and not thereafter.

There are also many instances of settlement of debentures, debts and public deposits at the discounted rates with partial/full waiver of interest, which has been done with mutual consent. We are also informed that the remaining depositors/debenture holders/debt holders have approached the Company for settlement of the dues and the Company is in the process for the same.

As per the information given to us various consumer courts (including the Appellate Authorities/Courts acting under the Consumer Protection Act) have passed the orders, for the repayment of certain deposits/debentures/debts with interest and other costs. The detailed information on these orders have not been made available to us. However we are informed that the Company has settled the dues of such customers in many cases, which also includes settlement at discounted rates with partial/full waiver of interest and many of the remaining such persons have approached the Company for settlement.

We draw attention to the Statement made by the Management of the Company in Note No. 5.2.01 of the Financial Statement which is as follows: "Considering the facts that the Company has settled the dues of depositors/debenture holders/debt holders at the discounted rates as stated above, that the remaining customers have approached the Company for settlement of their dues, that the orders issued by the various consumer courts including the appellate authorities/courts therein, that the Company has settled the many of such consumer court cases, that the total debts of the Company have reduced considerably because of settlement as aforesaid and that the Company is exploring the possibility of framing the new scheme of arrangement, it is not feasible for the Company to ascertain accurately its liability on any given date".

Considering all the facts as given above, we qualify our opinion that it is not feasible for us to ascertain accurately the liability of the Company as on the date of the Balance Sheet.

We conducted our audit of the Financial Statements in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the Financial Statements under the provisions of the Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the 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 Financial Statements.

Emphasis of Matter:

1. We draw the attention to Note 2.01 of the Financial Statements. The Company during the year with a view towards restructuring its liabilities has settled deposits/debentures/subordinated debts at discounted rates. The same has been done with due consent of the parties to deposits, debentures and debts. The interest write back arising out of such settlement is considered as Extraordinary Income in the Statement of Profit and Loss. Principal write back arising out of such settlement is considered as capital receipt and taken directly to Capital Reserve (viz: Capital Reserve 2) in the Balance Sheet. This has been done as per the accounting policy followed by the Company, as stated in Note No. 24.01 (I). The Company had made similar settlements during the earlier years also, by giving the similar accounting treatment. Our opinion is not modified in this matter.

2. We draw the attention to Note 24.11 of the Financial Statements. The Company has earned Profit during the year and also during immediate previous financial year i.e. year ending 31st March 2018 due to exceptional income as disclosed in Note 21 and Extraordinary Income as stated in Note 22. Our opinion is not modified in this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Except for the matter described in the Basis for Qualified Opinion and Emphasis of Matter section, we have determined that there are no other key audit matters to communicate in our report.

Other Information (other than the Financial Statements and Auditors Report thereon)

The Companys Board of Directors is responsible for the other information. The other information comprises the information included in the Boards Report including Annexures to Boards Report, Corporate Governance Report (including shareholders information) and Schedule to Balance Sheet of a Non-Banking Financial Company (as required in terms of Paragraph 9BB of Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998) but does not include the financial statements and our auditors report thereon. The above information is expected to be made available to us after the date of this auditors report.

Our opinion on the 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 financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

When we read the Boards Report including Annexures to Boards Report, the Corporate Governance Report (including shareholders information) and Schedule to Balance Sheet of a Non-Banking Financial Company (as required in terms of Paragraph 9BB of Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998), if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibility of Management for the Financial Statements

The Companys Board of Directors is responsible for the matters in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation and presentation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of Directors 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 Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

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

Auditors Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.

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

• Identify and assess the risks of material misstatements of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide 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 also responsible for expressing our opinion on whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2016 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of Section 143 of the Companies Act, 2013, we give in the "Annexure A", a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by the Master Direction DNBS PPD.03/66.15.001/2016-17 dated 29.09.2016 (RBI/DNBS/2016-17/48) issued by the Reserve Bank of India, Department of Non-Banking Supervision Central Office we will be giving a statement of matters specified in paragraph 3(A) & 3(B) of the order at a later date.

3. In terms of press release issued by Reserve Bank of India dated 27.06.2001, we state that:

a) The Certificate of Registration as issued by the Reserve Bank of India is not in force, since same was cancelled during December 2004.

b) The Company has not obtained credit rating.

c) The capital adequacy ratio is negative and accordingly the Companys Loans, advances and investments are above the credit exposure limits.

d) The Company has not filed the prudential returns and annual returns as per revised directives. However the Company has filed such returns as per the directives as prevailed till 31st March 2011 i.e. prudential returns on half yearly basis and annual return once a year.

e) The public deposits are matured for repayment, but remained unpaid by the Company. However the company has settled some of the deposits at discounted rates without interest. The Company has not provided/paid interest on deposits after 30th June 2002.

f) The Company has not created floating charge in favour of the depositors, on the statutory liquid assets invested.

g) The Company has not closed any of its branches during the year. Therefore the question of making any comments therein does not arise.

4. 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 account as required by law have been kept by the Company so far as it appears from our examination of those books.

(c) The Balance Sheet, the Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account.

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

(e) Our Qualifications as given under paragraph titled "Basis for qualified opinion" may have adverse effect on the functioning of the Company, if the management perception as detailed in Note 24.02 of financial statement does not materialize. However our observation as given under paragraph titled "Emphasis of matter" will not have adverse effect on the functioning of the Company.

(f) The qualification/observations relating to the maintenance of accounts and other matters connected therewith are as stated in the "Basis for Qualified Opinion paragraph" and "Emphasis of Matter paragraph" above.

(g) The Management of the Company is of the opinion that its directors are not disqualified u/s 164(2) of the Companies Act, 2013 for the reasons as stated in Note 24.06 of the financial statements. Accordingly the directors have given the written representations that they are not disqualified to be the directors of the Company u/s 164(2) of the Companies Act, 2013, which has been taken on record by the Board of Directors. Accordingly, we are not expressing opinion on the aforesaid aspect.

(h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B". Our report expresses a qualified opinion on the adequacy and operating effectiveness of the Companys internal financial controls over financial reporting.

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

The Company has not paid any managerial remuneration to its directors, other than sitting fees. In our opinion and to the best of our information and according to the explanations given to us, the remuneration (i.e. sitting fees) so paid by the Company to its directors during the year is in accordance with the provisions of Section 197 of the Act.

(j) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has stated vide 24.05 and 24.13 of the financial statement that the impact of pending litigations on its financial position is not ascertainable for the reasons as stated in the aforesaid notes.

ii. The Company did not have any long-term contracts including derivatives contracts for which there were any material foreseeable losses, which has been confirmed by the management vide Note 24.14 of the financial statement.

iii. The Company has not transferred any amount to the credit of Investor Education and Protection Fund during the year under audit, for the reason as given by the management vide Note 5.2.01 and 24.15 of financial statement. Accordingly commenting on delay in transferring the amounts to the aforesaid fund does not arise.

For SRIRAMULU NAIDU & CO.
Chartered Accountants
Firm Registration Number: 008975S
Sd/-
CA Sriramulu Naidu
Place : Manipal Partner
Date : 30th May, 2019 Membership Number: 018244