Modern Dairies Ltd Auditors Report.

INDEPENDENT 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, 2018, 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.

Management’s Responsibility for the Financial Statements

The Company’s 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 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 auditor’s 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 Company’s 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 Company’s 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.

Opinion

We have audited the standalone financial statements of Modern Dairies Limited ("the Company"), which comprise the balance sheet as at March 31, 2018, 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 of in conformity with the accounting principles, of the state of affairs of the Company as at March 31st, 2018 and profit/loss, (changes in equity) and its cash flows for the year ended on that date.

Basis for Qualified Opinion

I. Director’s remuneration is not admissible as prescribed in Sec-197 of companies Act,2013 if there are no profits or profits are inadequate except in accordance with the provision of Schedule V and if it is not able to comply with such provisions, the prior approval of central government 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. The company during the year has given the following director remuneration

S. no. Name Designation Remuneration
1. Mr. Krishan Kumar Goyal Chairman & Managing Director 30,00,000
2. Mr. Ashwani Kumar Aggarwal Executive Director 25,48,884

*Remuneration is inclusive of Perks & excluding

Provident Fund.

Prior approval from central government for inability to comply with the said conditions has however not been taken. An application for approval however has been made to the central government by the company on 27-06-2017 passed in the board meeting and by Nomination & Remuneration Committee on 27-05-2017. As informed by the management the decision on the said approval is awaited.

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 Auditor’s 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 ICAI’s 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

1. Interest on Non-Convertible Debentures:

The Company’s Corporate Debt Restructuring (CDR) package was approved by Corporate Debt Restructuring Empowered Group (CDREG) vide letter dated 19 October 2011. As per CDR approval, at the end of two years i.e. 1 April 2013, outstanding balance of Working Capital Term Loan (WCTL) and Funded Interest Term Loan (FITL) taken from respective banks has been converted into 496,530,325 unsecured optionally convertible debentures (OCD) at a coupon rate of 0.001%. The said OCDs had an option of conversion into equity during 18 months from date of allotment of OCD as per then applicable SEBI guidelines. Since the conversion could not take place because of the issue of conversion price and as suggested by the lenders, the Company proposed to increase the rate of interest from its existing level of 0.001% to Coupon rate at 5 year G-Sec or 8.00% p.a. whichever is higher, in lieu of conversion. State Bank of India vide its letter dated 31 July 2015 has already conveyed its approval for increase in the interest rate in lieu of conversion and the proposal is under consideration of Punjab National Bank and Canara Bank. Any change in the terms of issue will require the approval of shareholders at the general meeting. The proposal has been accepted by the State Bank of India. However, the company has still not provided for any interest payable to state bank of India in the books of accounts due to the reason as explained in point no. 2 below. Such interest amounts to Rs. 0.66 Crores which has resulted in the understatement of current liabilities and losses by Rs. 0.66 Crores

2. Interest provisioning on facilities from Consortium banks:

The Company’s various credit facilities have been declared "Non-Performing Assets" 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.21.19 Crores which has resulted in the understatement of current liabilities and losses by Rs.21.19 Crores.

3. Statement on Impact of above qualification for the Financial Year ended March 31,2018.

S. No. Particulars Audited Figures (as reported before adjusting for qualifications) (Amt in Cr.) Adjusted Figures (audited figures after adjusting for qualifications) (Amt in Cr.)
1 Turnover/ Total Income 467.29 467.29
2 Total Expenditure 485.86 507.71
3 Net Profit/ (Loss) (18.57) (40.42)
4 Earnings Per Share (7.96) (17.33)
5 Total outside Liabilities 321.58 343.43

*The above calculation is based only after giving effect of OCD and NPA interest.

4. Reclassification of OCDs and Long Term Loans into current liabilities

The Company’s various credit facilities and Loss declared as NPA for which one time settlement was pending have been recalled by the bank and as such the amounts of such term loans and corporate loans have been reclassified into current liabilities instead of earlier classification as non-current liabilities. In respect

OCDs, the entire amount shall be redeemable at the end financial year 2018-19 in one bullet payment; therefore, these are also reclassified into current liabilities.

Material Uncertainty related to Going-Concern

The preparation of the financial statements is done going concern basis, consequently assets and liabilities are being carried at their book value. We draw attention to the financial statements, which indicates that company had accumulated losses and has also incurred losses during the financial year ended 31st March 2018. As on date, the Company’s current liabilities exceeded its current assets and the Company’s net worth has also been eroded. There are negative operating cash flows indicated by historical financial statements, adverse key financial ratios, and inability to comply with the term loan agreements. These conditions indicate the existence of a material uncertainty that may cast doubt about the company’s ability to continue as a going concern.

Our Opinion is not modified in respect of this matter.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

As required by the Companies (Auditor’s 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. 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 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, 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 other matters to be included in the Auditor’s 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: i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements; ii. 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; iii. 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
CA Harsharanjit Singh Chahal
Partner
Place : Chandigarh Membership no. 091689
Date: 29th June, 2018 (Firm Registration No. 015935N)

ANNEXURE TO THE AUDITORS’ REPORT

The Annexure referred to in our report to the members of the company for the year ended 31st March, 2018. 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 certifiedcopies 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 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 Company’s 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 ( Rs. ) in lakhs Amount paid under protest ( Rs. ) in lakhs Period to which the amount relates Forum where dispute is pending
The Haryana Murrah Buffalo and Other Milk Cess 1742.91 5,91.00 2001-02 to Hon’ble Supreme
Milk Animal Breed(Preservation and Development of Animal Husbandry and Dairy Development Sector)Act, 2001 2016-17 Court of India
The Haryana Murrah Buffalo and Other Interest on 2022.04 - 2001-02 to Hon’ble Supreme
Milk Animal Breed(Preservation and Development of Animal Husbandry and Dairy Development Sector)Act, 2001 milk cess 2016-17 Court of India
Central Excise Act, 1944 CENVAT credit interest 82.4 82.4 2005-06, 2006-07 Custom Excise and Service Tax Appellate Tribunal.
Central Excise Act, 1944 CENVAT credit interest credit, 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 164.58 - 2007-08 to 2018-19 Hon’ble Supreme Court of India Supreme

During the year ended 31 March 2018, 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 31.03.2018 is as under:

Sr. No. Name of the bank Amount of default (in lakhs) Date of default
1 Punjab National Bank 6591.68 30.11.2015
2 State Bank of India 3252.04 30.11.2015
3 Canara Bank 1870.39 31.10.2015

*It doesn’t include interest of Rs.1671.35 lakhs not provided in books regarding various loans and non- convertible debentures till 31st march 2018.

(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: 29th June, 2018 Membership No. 091689

Annexure II

Annexure to the Independent Auditor’s Report of even date to the members of Modern Dairies Limited, on the financial statements for the year ended 31st March, 2018 Independent Auditor’s report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

1. In conjunction with our audit of the financial statements of Modern Dairies Limited ("the Company") as of and for the year ended 31 controls over financial st March2018,wehaveauditedtheinternalfinancial reporting (IFCoFR) of the company of as of that date.

Management’s Responsibility for Internal Financial Controls

2. The Company’s Board of Directors 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 were operating effectively for ensuring the orderly and efficient conduct of ofadequateinternalfinancial the company’s business, including adherence to company’s 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

3. Our responsibility is to express an opinion on the Company’s IFCoFR based on our audit. We conducted our audit in accordance with the Standards on Auditing, issued by the Institute of Chartered Accountants of India (ICAI) and deemed to be prescribed under Section 143(10) of the Act, to the extent applicable to an audit of IFCoFR, and the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") issued by the ICAI. 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 IFCoFR were established and maintained and if such controls operated effectively in all material respects.

4. Our audit involves performing procedures to obtain audit evidence about the adequacy of the IFCoFR and their operating effectiveness. Our audit of IFCoFR included obtaining an understanding of IFCoFR, 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 auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s IFCoFR.

Meaning of Internal Financial Controls over Financial Reporting

6. A Company’s IFCoFR 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 Indian Accounting Standards. A Company’s IFCoFR 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 Indian Accounting Standards, 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 Company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

7. Because of the inherent limitations of IFCoFR, 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 IFCoFR to future periods are subject to the risk that IFCoFR may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

8. In our opinion, the Company has, in all material respects, adequate internal financial controls over financial reporting controls over financial andsuchinternalfinancial reporting were operating effectively as at 31 st March 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.

For AARYAA & Associates
Chartered Accountants
Firm Registration No. 0015935N
CA Harsharanjit Singh Chahal
Place: Chandigarh Partner
Dated: 29th June, 2018 Membership No. 091689