McNally Bharat Engineering Company Ltd Auditors Report.

To The Members of

McNally Bharat Engineering Company Limited

REPORT ON THE STANDALONE IND AS FINANCIAL STATEMENTS

We have audited the accompanying standalone Ind AS financial statements of McNally Bharat Engineering Company Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2018, the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information (herein after referred to as "standalone Ind AS financial statements").

MANAGEMENTS RESPONSIBILITY FOR THE STANDALONE IND AS FINANCIAL STATEMENTS

The Companys Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone Ind AS financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, and other accounting principles generally accepted in India.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

AUDITORS RESPONSIBILITY

Our responsibility is to express an opinion on these standalone Ind AS financial statements based on our audit.

In conducting our audit, we have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit of the standalone Ind AS financial statements in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the standalone Ind AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the standalone Ind AS financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Companys preparation of the standalone Ind AS financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Companys Directors, as well as evaluating the overall presentation of the standalone Ind AS financial statements.

We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone Ind AS financial statements.

BASIS FOR QUALIFIED OPINION

We draw attention to:

(i) Note 32(A) on the standalone Ind AS financial statements regarding payment of excess managerial remuneration for

which the Company is yet to seek approval from the Central Government to regularize the same in terms of section 197(3) read with Schedule V to the Act amounting to 40.82 lacs paid/payable to erstwhile one whole time director for the financial year ended March 31, 2018.

(ii) Note 32(B) on the standalone Ind AS financial statements regarding payment of excess managerial remuneration for which approval in terms of section 197(3) read with Schedule V to the Act is pending from the Central Government amounting to 220.03 lacs paid/ payable to the managing director for the financial year ended March 31, 2018 and 121.87 lacs paid/payable to two erstwhile whole time directors for the financial year ended March 31, 2017.

This matter was also qualified by the predecessor auditor in the report for the financial year ended March 31, 2017 as reported 76.80 lacs.

Pending Central Government approval, we are unable to comment on the consequential effect of the above matters on the standalone Ind AS financial statements.

QUALIFIED OPINION

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid standalone Ind AS financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the Ind AS and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2018, and its loss, total comprehensive income, its cash flows and the changes in equity for the year ended on that date.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by Section 143(3) of the Act, based on our audit we report that:

a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

c) the Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Cash Flow Statement and Statement of Changes in Equity dealt with by this Report are in agreement with the books of account.

d) in our opinion, the aforesaid standalone Ind AS financial statements comply with the Indian Accounting Standards prescribed under section 133 of the Act.

e) on the basis of the written representations received from the directors of the Company as on March 31, 2018 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2018 from being appointed as a director in terms of Section 164(2) of the Act.

f) with respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure A". Our report expresses a qualified opinion on the adequacy and operating effectiveness of the Companys internal financial controls over financial reporting for the reasons stated therein.

g) 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 disclosed the impact of pending litigations on its financial position in its standalone Ind AS financial statements.

ii. the Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts.

Independent Auditors Report (Contd.)

iii. there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

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

For DELOITTE HASKINS & SELLS LLP

For V. SINGHI & ASSOCIATES

Chartered Accountants Chartered Accountants

Firm Registration Number: Firm Registration Number:

117366W/W-100018 311017E

A. Bhattacharya V. K. Singhi

Place: Kolkata Partner Partner

Date: May 29, 2018 Membership Number: 054110 Membership Number: 050051

McNally Bharat Engineering Company Limited

Annexure "A" to the Independent Auditors Report

(Referred to in paragraph 1(f) under Report on Other Legal and Regulatory Requirements of our report of even date)

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

We have audited the internal financial controls over financial reporting of McNally Bharat Engineering Company Limited ("the Company") as of March 31, 2018 in conjunction with our audit of the standalone Ind AS financial statements of the Company for the year ended on that date.

MANAGEMENTS RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS

The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

AUDITORS RESPONSIBILITY

Our responsibility is to express an opinion on the internal financial controls over financial reporting of the Company based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") issued by the Institute of Chartered Accountants of India and the Standards on Auditing prescribed under Section 143(10) of the Act, to the extent applicable to an audit of internal financial controls. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

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

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the Companys internal financial controls system over financial reporting.

MEANING OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING

A companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

INHERENT LIMITATIONS OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods

Annexure "A" to the Independent Auditors Report (Contd.)

are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

BASIS FOR QUALIFIED OPINION

According to the information and explanations given to us and based on our audit, material weakness has been identified in the Companys internal financial controls over financial reporting as at March 31, 2018 relating to compliance with laws and regulations did not operate effectively which resulted in payment of excess managerial remuneration without complying the requirements of Section 197(3) read with Schedule V to the Act.

A material weakness is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis.

QUALIFIED OPINION

In our opinion, to the best of our information and according to the explanations given to us, except for the possible effects of the material weakness described in Basis for Qualified Opinion paragraph above on the achievement of the objectives of the control criteria, the Company has maintained, in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as of March 31, 2018, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

We have considered the material weakness identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the standalone Ind AS financial statements of the Company for the year ended March 31, 2018, and the material weakness does affect our opinion on the said standalone Ind AS financial statements of the Company.

For DELOITTE HASKINS & SELLS LLP

For V. SINGHI & ASSOCIATES

Chartered Accountants Chartered Accountants

Firm Registration Number: Firm Registration Number:

117366W/W-100018 311017E

A. Bhattacharya V. K. Singhi

Place: Kolkata

Partner

Partner

Date: May 29, 2018 Membership Number: 054110 Membership Number: 050051

McNally Bharat Engineering Company Limited

Annexure "B" to the Independent Auditors Report

(Referred to in paragraph 2 under Report on Other Legal and Regulatory Requirements section of our report of

even date)

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation

of fixed assets.

(b) The Company has a program of physical verification of Property, Plant and Equipment to cover all the items in a phased manner over a period of three years which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the program, certain fixed assets were physically verified by the Management during the year. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(c) The Company does not own any immovable property as disclosed in Note 3 on Property, plant & equipment to the financial statements. Therefore, the provisions of Clause 3(i)(c) of the said Order is not applicable to the Company.

(ii) As explained to us, the inventories were physically verified during the year by the Management at reasonable intervals and no material discrepancies were noticed on physical verification.

(iii) The Company has granted unsecured loans to companies covered in the register maintained under Section 189 of the Act. The Company has not granted any secured/unsecured loans to firms, Limited Liability Partnerships or other parties covered in the register maintained under Section 189 of the Act.

(a) In respect of the aforesaid loans, the terms and conditions under which such loans are granted are not prejudicial to the Companys interest.

(b) In respect of the aforesaid loans, no schedules of repayment of principal have been stipulated by the Company. Therefore, in absence of stipulation of repayment terms we do not make any comment on the regularity of repayment of principal and payment of interest.

(c) In respect of the aforesaid loans, in absence of schedules of repayment, we are unable to comment on the overdue ageing of the repayments.

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

(v) According to the information and explanations given to us, the Company has not accepted any deposit from the public within the meaning of Sections 73, 74, 75 and 76 of the Act and the Rules framed thereunder to the extent notified.

(vi) The maintenance of cost records has been specified by the Central Government under section 148(1) of the Act. We have broadly reviewed the same as maintained by the Company pursuant to the Companies (Cost Records and Audit) Rules, 2014, as amended prescribed by the Central Government under sub-section (1) of Section 148 of the Act and are of the opinion that, primafacie, the prescribed cost records have been made and maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

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

(a) The dues of Employees State Insurance, Cess and Value Added Tax have not been regularly deposited during the year with the appropriate authorities .The Company has generally been regular in depositing other undisputed statutory dues, including Provident Fund, Service tax, Custom Duty, Excise Duty, Sales Tax and other material statutory dues applicable to it to the appropriate authorities.

(b) There were arrears in undisputed amounts payable in respect of Employees State Insurance, Cess and Value Added Tax as at March 31, 2018 for a period of more than six months from the date they became payable are as follows:

Annexure "B" to the Independent Auditors Report (Contd.)

Name of Statute Nature of Dues Amount (?) Period to which the amount Relates Due Date Date of subsequent Payment
Employees State Insurance Scheme, 1948 ESI 1,476 Apr 16 21-May-16 23-May-18
880 May 16 21-Jun-16 23-May-18
1,593 Jun 16 21-Jul-16 23-May-18
1,261 Jul 16 21-Aug-16 23-May-18
386 Aug 16 21-Sep-16 23-May-18
471 Sep 16 21-Oct-16 23-May-18
166 Oct 16 15-Nov-16 23-May-18
166 Nov 16 15-Dec-16 23-May-18
620 Jan 17 15-Feb-17 23-May-18
The Uttar Pradesh Value Added Tax Act, 2008 UP WCT 117,755 Oct 15 21-Nov-15 28-May-18
45,518 Jun 17 21-Jul-17 30-Apr-18
Tamil Nadu Value Added Tax Act, 2006 TM WCT 202,850 Jun 17 21-Jul-17 28-May-18
The Chhattsgarh Value Added Sales Tax Act, 2003 CH WCT 316,880 Jun 17 21-Jul-17 2-May-18
Madhya Pradesh VAT Act, 2002 MP WCT 45,872 May 17 21-Jun-17 2-May-18
184,571 Jun 17 21-Jul-17 2-May-18
Jharkhand Value Added Tax Act, 2005 JH WCT 1,300,362 Jun 17 21-Jul-17 28-May-18
GST (Compensation to States) Act, 2017 GST Compensation Cess 115,975 Sep 17 20-Oct-17 21-May-18

c) Details of dues of Sales Tax, Service Tax, Excise Duty and Value Added Tax which have not been deposited as on March 31, 2018 on account of disputes are given below:

Statute Forum where dispute is pending Period to which the amount relates to Amount involved ( in lacs)
Sales Tax/Value Added Tax Acts Assistant Commissioner/ Additional Commissioner/ Deputy Commissioner/ Commissioner/ Joint Commissioner (Appeal) 2003-04 to 2013-14 3,974.24
Appellate and Revisional Board 2005-06 to 2014-15 3,363.30
Sales Tax Appellate Tribunal 1994-95 4.16
The Central Excise Act, 1944 Commissioner of Central Excise 1989-1993 129.51
The Finance Act, 1994 Assistant Commissioner/ Additional Commissioner of Service Tax 2003-04 to 2005-06 2,786.98

(viii) In our opinion and according to the information and explanations given to us, the Company has not defaulted in the repayment of loans or borrowings to financial institutions, banks. The Company has not taken any loan from the Government and not issued any debentures during the year.

(ix) The Company has not raised moneys by way of initial public offer or further public offer (including debt instruments).

McNally Bharat Engineering Company Limited

Annexure "B" to the Independent Auditors Report (Contd.)

Further, the term loans have been applied by the Company during the year for the purposes for which they were raised.

(x) To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no fraud on the Company by its officers or employees has been noticed or reported during the year.

(xi) In our opinion and according to the information and explanations given to us, the Company has paid/provided managerial remuneration during the year in excess of the limits and approvals prescribed under section 197 read with Schedule V to the Act to the following managerial personnel:

Managerial

Position

Excess amount of remuneration paid/ provided ( in lacs) Financial year ending Treatment of the excess remuneration in the respective year financial statements Steps taken by the Company for securing refund
Managing

Director

220.03 2017-18 Recognised as expense in the Statement of Profit & Loss. Application filed with Central Government for approval of excess remuneration paid/ payable.
Whole Time Director 40.82 2017-18 Recognised as expense in the Statement of Profit & Loss. The Company is yet to seek approval from the Central Government for excess remuneration paid/ payable.

(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of the CARO 2016 Order is not applicable.

(xiii) In our opinion and according to the information and explanations given to us, the Company is in compliance with Section 177 and 188 of the Act, where applicable, for all transactions with the related parties and the details of related party transactions have been disclosed in the Standalone Ind AS financial statements as required by the applicable accounting standards.

(xiv) According to the information and explanations given to us, the Company has made preferential allotment of equity shares, share warrants and compulsorily convertible preference shares during the year under review.

In respect of the above issue, we further report that:

a) the requirement of Section 42 of the Act, as applicable, have been complied with; and

b) the amounts raised have been applied by the Company during the year for the purposes for which the funds were raised.

(xv) In our opinion and according to the information and explanations given to us, the Company has not entered into any non-cash transactions with its directors or persons connected with him, during the year and hence provisions of section 192 of the Act are not applicable.

(xvi) The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934. Accordingly, clause (xvi) of the CARO 2016 Order is not applicable.

For DELOITTE HASKINS & SELLS LLP

For V. SINGHI & ASSOCIATES

Chartered Accountants Chartered Accountants

Firm Registration Number: Firm Registration Number:

117366W/W-100018 311017E

A. Bhattacharya

V. K. Singhi

Place: Kolkata Partner Partner

Date: May 29, 2018 Membership Number: 054110 Membership Number: 050051