Modern Dairies Ltd Auditors Report.

To

The Members of Modern Dairies Limited

Report on the Financial Statements

We have audited the accompanying financial statements of Modern Dairies Limited, which comprise the Balance Sheet as at March 31, 2019, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and Statement of Cash Flows for the year ended, and a summary of significant accounting policies and other explanatory information.

OPINION

We have audited the standalone financial statements of Modern Dairies Limited ("the Company"), which comprise the balance sheet as at March 31, 2019, and the statement of Profit and Loss, (statement of changes in equity) and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion section of our report and Emphasis of Matters, the aforesaid financial statements give a true and fair view in conformity with the accounting principles, of the state of affairs of the Company as at March 31,2019 and profit/loss, (changes in equity) and its cash flows for the year ended on that date.

Basis for Qualified Opinion

I. Directors remuneration is not admissible as prescribed in Sec-197 of Companies Act, 2013 except in accordance with the provision of Schedule V and if it is not able to comply with such provisions, the prior approval of lenders is required.

The Company is not eligible to pay director remuneration for non-compliance of conditions prescribed in schedule V of the Companies Act, 2013. During the year, the Company has given the director remuneration to Mr. Krishan Kumar Goyal (Chairman & Managing Director) amounting to Rs. 30,00,000 and Mr. Ashwani Kumar Goyal (Executive Director) amounting to Rs. 26,62,358.

Apart from the managerial remuneration for year ended 31st March, 2019, as mentioned above the company has paid director remuneration of Rs. 55,48,884 till 31st March, 2018 without complying the provisions of Schedule V of the Companies Act, 2013.

We conducted our audit in accordance with 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 together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Companies Act, 2013 and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAIs Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

EMPHASIS OF MATTER

(A) Assignment of SBI debt to ARC

A lender bank of the company viz. State Bank of India (SBI) has assigned its loans and other facilities along with underlying financial documents together with all the rights, title and interest to Edelweiss Asset Reconstruction Company Limited, acting in its capacity as trustee of the EARC Trust- SC 306 for the benefits of the holders of the Security Receipts issued by the trustee thereunder.

During the reporting period there has been no written agreement between the Company and Edelweiss Asset Reconstruction Company Limited to crystalise the amount payable and interest thereon to them, hence the said debt, till then, is continued to be shown as payable to SBI instead of Edelweiss Asset Reconstruction Company Limited.

(B) One Time Settlement (OTS) with PNB

The company had proposed their OTS offer to Punjab National Bank (PNB). The bank has approved the same. The company has, however, requested to the bank for extension of the period of repayment of OTS amount.

(C) Interest provisioning on facilities from Consortium Banks & Optionally Convertible Debentures:

The Companys various credit facilities, including Optionally Convertible Debentures have been declared "Non-Performing Assets"/ recalled by its respective banks. There is a usual practice that banks discontinue to account for as "income" in respect to the accrued interest on such assets, subsequent to the declaration of these as "Non-Performing Assets". The Bankers of the Company too have not accounted as "income" in respect to the interest subsequent to NPA declaration date. In order to achieve the desired congruency on this issue & uncertainty of the amount liable to be paid, the management of the company has not provided for such interest i.e. interest on credit facilities subsequent to the date of declaration of theses credit facilities as non-performing. Such interest amounts to Rs. 24.55 Crores (including on the assigned debts of SBI) which has resulted in the understatement of current liabilities and losses by Rs. 24.55 Crores. Even though the debts of SBI have been assigned to Edelweiss Asset Reconstruction Company Limited, in absence of any express agreement between the company and Edelweiss Asset Reconstruction Company Limited, no interest has been accounted for in this respect.

MANAGEMENTS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Companys Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, changes in equity and cash flows 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 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 financial statements based on 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 there under.

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

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the 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 financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. 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 financial statements.

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

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 Act, we give in the Annexure, a statement on the matters specified in the paragraph 3 and 4 of the Order, to the extent applicable.

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

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

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

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

d. In our opinion, the aforesaid standalone 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 as on March 31, 2019, taken on record by the Board of Directors, none of the directors is disqualified

as on March 31,2019, from being appointed as a director in terms of Section 164(2) of the Act.

f. 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, in our opinion and to the best of our information and according to the explanations given to us:

• The Company has disclosed the impact of pending litigations on its financial position in its financial statements;

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

• There has been no delay in transferring amounts, required to be transferred, to the

Investor Education and Protection Fund by the Company.

FOR AARYAA & ASSOCIATES
Chartered Accountants
(Firm Registration No. 015935N)
CA Harsharanjit Singh Chahal
Place : Chandigarh Partner
Date: 30th May, 2019 Membership No. 091689

ANNEXURE TO THE AUDITORS REPORT

The Annexure referred to in our report to the members of the company for the year ended 3181 March, 2019. To the best of our knowledge and belief and information & explanation given to us, we further report that:-

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

(b) The Company has a regular program of physical verification of its fixed assets under which fixed assets are verified 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. In accordance with this program, certain fixed assets were verified during the year and no material discrepancies were noticed on such verification.

(c) According to information and explanations given to us, the title deeds of all the immovable properties (which are included under the head "fixed assets") are mortgaged with banks from which borrowings are obtained by the Company. The Company has maintained certified copies of the title deeds. Based on our examination of these records and other sufficient appropriate audit evidences, in our opinion, the title deeds of all the immovable properties (which are included under the head ‘fixed assets) are held in the name of the Company.

(ii) The inventory of the company has been physically verified by the management at reasonable intervals during the year. No material discrepancies were noticed.

(iii) The company has not granted loans, secured or unsecured to Companies, Firms or other parties covered in the Register maintained u/s 189 of the Company Act 2013 during the year.

(iv) In our opinion, the Company has not entered into any transaction covered under Sections 185 and 186 of the Act. Accordingly, the provisions of clause 3(iv) of the Order are not applicable.

(v) In our opinion, the Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Accordingly, the provisions of clause 3(v) of the Order are not applicable.

(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under sub-section (1) of Section 148 of the Act in respect of Companys products/services and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

(vii) (a) Undisputed statutory dues including provident fund, employees state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, good and service tax, cess and other material statutory dues, as applicable, have generally been regularly deposited to the appropriate authorities. Further, no undisputed amounts payable in respect thereof were outstanding at the year-end for a period of more than six months from the date they became payable.

(b) The dues outstanding in respect of income-tax, sales-tax, service tax, duty of customs, duty of excise, goods and service tax and value added tax on account of any dispute, are as follows:

Statement of Disputed Dues

Name of the statute Nature of dues Amount (D) in lakhs Amount paid under protest (D) in lakhs Period to which the amount relates Forum where dispute is pending
The Haryana Murrah Buffalo and Other Milk Animal Breed(Preser- vation and Development of Animal Husbandry and Dairy Development Sector)Act, 2001 Milk Cess 17,76.01 5,91.00 2001-02 to 2016-17 Honble Supreme Court of India
The Haryana Murrah Buffalo and Other Milk Animal Breed(Preser- vation and Development of Animal Husbandry and Dairy Development Sector)Act, 2001 Interest on milk cess 25,39.34 2001-02 to 2016-17 Honble Supreme Court of India
Central Excise Act, 1944 CENVAT credit interest 77.21 77.21 2005- 06, 2006- 07 Custom Excise and Service Tax Appellate Tribunal.
Central Excise Act, 1944 CENVAT credit interest 1,78.85 15 2007-08 to 2009-10 Custom Excise and Service Tax Appellate Tribunal.
Customs Act, 1962 Penalty and redemption fine 10.6 10.6 2011-12 Commissioner of Customs (Appeals)
Haryana Tax on Entry of Goods into Local Areas Act, 2003 Entry Tax 1,64.58 - 2007-08 to 2018-19 Honble Supreme Court of India

(viii) During the year ended 31 March 2019, the Company has defaulted on timely payment of principal and interest on term loans and cash credits and The lender wise details with respect to amount outstanding as on 31.03.2019 is as under:

Sr. No. Name of the bank Amount of default (in Lakhs) Date of default
1 Punjab National Bank 1,02,69.57 30.11.2015
2 State Bank of India 39,95.51 30.11.2015
3 Canara Bank 21,94.51 31.10.2015

*It doesnt include interest of Rs. 6217.96 lacs not provided in books regarding various loans and non- convertible debentures till 31st March 2019.

(ix) The Company did not raise moneys by way of initial public offer or further public offer (including debt instruments and term loans during the year).

(x) No fraud by the Company or on the Company by its officers or employees has been noticed or reported during the period covered by our audit.

(xi) The Company has not obtained the requisite approval mandated by the provisions of section 197 read with schedule V to the Companies Act for the payment of managerial remuneration. The details of the same have been mentioned in the "Basis of Qualified Opinion" section of Audit Report.

(xii) In our opinion, considering the nature of activities carried on by the Company during the year, the provisions of any special/statute applicable to Nidhi Company are not applicable to it.

(xiii) In our opinion all transactions with the related parties are in compliance with Sections 177 and 188 of Act, where applicable, and the requisite details have been disclosed in the financial statements etc., as required by the applicable Ind-AS.

(xiv) During the year under review, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures.

(xv) In our opinion, the Company has not entered into any non-cash transactions with the Directors or persons connected with them covered under Section 192 of the Act.

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

For AARYAA & ASSOCIATES
Chartered Accountants
Firm Registration No. 0015935N
CA Harsharanjit Singh Chahal
Place: Chandigarh Partner
Dated: 30th May, 2019 Membership No. 091689