NEL Holdings South Ltd Directors Report.

To the Members of

NEL Holdings South Limited (Formerly known as NEL Holdings Limited)

Report on the Audit of the Standalone Financial Statements

Adverse Opinion

We have audited the standalone financial statements of NEL Holdings South Limited (Formerly known as NEL Holdings Limited and herein after referred as "the Company"), which comprise the Balance Sheet as at 31st March 2021, the Statement of Profit and Loss, Statement of changes in Equity and Statement of Cash Flows for the year then ended, and notes to the standalone 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 Adverse Opinion paragraph below, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 ("the Act") in the manner so required and due to the significance of matter described in the Basis for Adverse Opinion paragraph given below, the accompanying standalone financial results do not give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2021, and its loss, changes in equity and its cash flows for the year ended on that date.

Basis for Adverse Opinion

1. The Company incurred a net loss of Rs 8,041 lakhs for the year ended 31st March, 2021 and the Companys current liabilities exceeded its current assets by Rs 99,529 lakhs as on that date. The Company has incurred losses over the years resulting in negative net worth, negative working capital and negative cash flows.

During the year Company has sold two projects through a Business Transfer Agreement to repay some portion of the bank loan. The Company has cancelled the development right of the project Virgin Island and handed over the rights to the original land owner. Although these transactions have reduced the liability of the Company to banks and financial institutions, the ability of the Company to continue as a going concern remains uncertain in view of the above. The default in payment of dues to banks and financial institution and creditors etc. are the identified events that, individually or collectively, may cast significant doubt on the Companys ability to continue as a going concern.

As the Company has not recognized this fact and has prepared the standalone financial statements on a going concern assumption basis without carrying out any adjustments, in our opinion, the standalone financial statements may not give a true and fair view.

2. The Company has given unsecured advance amounting to Rs. 3,515 lakhs to Boulevard Developers Private Limited (Boulevard) for acquiring various immovable properties on behalf of the Company for which no Joint Development Agreements (JDA) could be produced to us. We have been informed that Boulevard is not in a position to honor its commitment and repay the advance. Considering the above, we are concerned about the manner in which the funds were given without obtaining any security. The Company has made full provision for the said advance in the current financial year which in our opinion is a matter of concern.

3. As reported earlier, the Company had advanced Rs. 1,228 lakhs to Somerset Infra Projects Private Limited (Somerset) for acquiring immovable properties and for transfer of development rights (TDR) in various cities like Chennai, Cochin, Bangalore, on behalf of the Company. Somerset has failed to procure land and/ or the licensed TDR Rights as per the agreement and has not refunded the money. These advances were made without obtaining any security and without assessing the financial position and repayment capacity of the party. In our opinion, such injudicious advances are a matter of concern and may be prejudicial to the interest of the Company. The Company had made full provision for the said advance over the last three years without taking any legal action for recovery. (refer note no 12(i) of the standalone financial statements)

4. The Company has accounted for Principal amount of Rs. 35,586 lakhs, Accrued Interest of Rs.16,752 lakhs and Disputed Liability of Rs.14,933 lakhs (which include Rs. 14,881 lakhs in respect of loans from banks and financial institutions and Rs. 52 lakhs in respect of salaries - refer note no. 16 of the standalone financial statements) in its books of account as total outstanding to banks and financial institution as on 31st March, 2021. Pending confirmation and correspondence, the outstanding balance and status of demand raised by the respective banks and financial institutions has not been verified by us. Further, penal interest on default on payment to banks and financial institution has not been provided for in the books of account of the Company.

Included in the above figures, with respect to other borrowings from Yes Bank Ltd, the bank has called upon the entire loan amount of Rs. 22,611 lakhs. (refer note no.15(i)(b) of the standalone financial statements).

In relation to a loan taken from Yes Bank for the Soho Project, the Bank has principally agreed for settlement of the loan for Rs. 3,000 lakhs. The Company has not provided any further interest on this loan (refer note no. 15 (i)(b) of the standalone financial statements).

5. During the financial year, as per the information and explanations given to us and from the perusal of the documents provided to us, the Company has disposed/ sold off the projects viz "Knightsbridge" and "Park Avenue" on an ongoing basis through Business Transfer Agreements (BTA). Further, the Company has cancelled the development right for the development of the project "Virgin Island" and has handed over the rights to the original land owners. In this respect;

(i) The Company has borrowed Rs. 26,067 lakhs (previous year Rs 28,497 lakhs) from HDFC Limited for various projects including Knightsbridge, Park Avenue and Virgin Island. As per the terms of BTA with the third party, an amount of Rs. 800 lakhs and 3,500 lakhs have been paid to HDFC Limited for release of charge on the Knightsbridge and Park Avenue projects respectively together with an amount of Rs. 200 lakhs paid for Knightsbridge project as a part of a supplementary agreement. Basis the same the Company has classified the remaining outstanding liability, to the extent allocated to these two projects, as disputed liability.

(ii) During the financial year, charge/mortgage of the project Virgin Island was released by HDFC Limited. Such release was upon the condition that the same shall not be construed as settlement of any kind. Consequently, the Company has accounted for Rs 8,146 lakhs being the estimated carrying value of loan liability and Rs 3,000 lakhs being the interest component as a disputed liability in the standalone financial statements.

(iii) The Company has now considered the remaining balance of the term loan, for these three projects viz, Knightsbridge, Park Avenue and Virgin Island amounting Rs 14,881 lakhs taken from HDFC Bank, as a "Disputed liability" instead of "Borrowings" without adequate documentation as per the requirements of Schedule III to the Companies Act, without any correspondence from the bank (refer note no 16(i) and 16(ii)), as represented below;

(Rs. In lakhs)

Project Name Principal Interest Total
Knightsbridge - 256 256
Park Avenue 2,422 1,057 3,479
Virgin Island 8,146 3,000 11,146
Total 10,568 4,313 14,881

6. As stated in the standalone financial statements, the outstanding balance of advances collected from customers in earlier years pertaining to closed/ suspended residential projects, which have now been abandoned, amounts to Rs. 452 lakhs as on the reporting date. Such receipts are in the nature of deemed deposits under Rule 2(c) (xii) (b) of the Companies Acceptance of Deposit (Rules) 2014 and is within the purview of the provisions of sections 73 to 76 of the Companies Act, 2013. Proper disclosure has not been made in the standalone financial statements in this respect.

7. The Company has advanced Rs. 9,224 lakhs to its various subsidiaries which have all reported negative net worth. The Company has only provided for impairment loss of Rs. 4,547 lakhs against such above advances, resulting in the understatement of loss and overstatement of net worth by the said amount. Even after making the above noted provision, the Company has disbursed fresh advance amounting Rs. 360 lakhs during the year for which no document has been provided to us for our verification and which in our opinion is a matter of concern and is prejudicial to the interest of the Company.

8. The Company has not tested impairment of its projects CWIP and Inventories amounting to Rs 8,835 lakhs and Rs 12,466 lakhs (Net of "Payable to land owner for land under JDA" and other reclassification) respectively, for ascertaining the realizable value as on 31st March, 2021. To the extent of any possible diminution of value not accounted for, the standalone financial statements may not give a true and fair view as per the requirement of Ind AS 2.

9. Year-end balance confirmation certificates in respect of trade receivables, trade payables, vendor advances, advance from customers and other advances have not been provided for our verification and record. In absence of adequate audit evidence, we are unable to ascertain as to whether any further provision may be necessary with respect to the carrying amounts of these balances as on the reporting date. Further, Trade Receivable amounting to Rs. 753 lakhs as on 31st March, 2021 has not been considered for impairment loss based on expected credit loss method as per requirement of Ind AS 109. It may be noted that the details in respect of most of such outstanding has not been produced to us for our verification.

10. As per the records of the Company and information and explanations provided to us, the Company has been irregular in depositing the undisputed statutory dues including provident fund, employees state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, Goods and Services tax, cess. In this respect;

- The Company has disclosed figures of employee liability referred to in note 16(ii) and note 19 of the standalone financial statements. Due to non-availability of additional information and ageing, we are unable to comment on the applicability of related statutory compliances or on the requirement of any further provision.

- The Company has a receivable balance amounting to Rs. 1,195 lakhs with government authorities. During the year, the Company has been irregular in depositing and filing returns under certain statutory requirements. Due to nonavailability of information on such statutory non compliances against such balances, we are unable to comment on the actual recoverability of such credit balances.

- During the year, the Company has over provided for gratuity and leave encashment amounting to Rs. 38 lakhs and Rs. 46 lakhs respectively and has under provided for corresponding other comprehensive income pertaining to gratuity expenses and leave encashment by Rs. 52 lakhs and Rs. 49 lakhs respectively. This has resulted in a net overstatement of total comprehensive income by Rs. 17 lakhs in the Statement of Profit and Loss with consequent effect on the net worth

11. The Company has neither ascertained nor accounted for component wise Deferred Tax Assets/ Liabilities as on balance sheet date and its adjustment in the Statement of Profit & Loss during the year.

12. The Company has not provided customer wise reconciled figures for some outstanding balances disclosed under "Billing in excess of revenue" (Net of debit balance). Due to non-availability of such details, we are unable to verify the correctness of the same.

We conducted our audit 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 standalone 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 standalone financial statements under the provisions of the Companies Act, 2013 and the Rules made 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 obtained by us is sufficient and appropriate to provide a basis for our Adverse opinion on the standalone financial statements.

Emphasis of Matter

a. The Company has given unsecured advance amounting to Rs. 1887 lakhs to Winter Lands Pvt. Ltd. (Winter Lands) for acquiring various immovable properties on behalf of the Company for which no Joint Development Agreement (JDA) could be produced to us. We have been informed that Winter Lands is not in a position to honor its commitment or repay the advance. The management is of the view that provision for the same is not required as, Winter Lands has sought to transfer its JDA rights in the Project at Commissariat Road, Bengaluru, to the extent of 9920 Sq. feet to the Company by way of Memorandum of Understanding (MOU). The enforceability of this MOU, No Objection Certificate (NOC) from Land owners and the basis of the valuation has not been satisfactorily explained to us.

b. The Company has granted fresh loans or advances amounting to Rs. 20 lakhs to a certain related party viz. Nitlogis Private Limited during the current financial year in line with the provisions of section 185 and 186 of the Act. In this respect, it may be noted that the management has not provided us with the necessary copies of the board approvals and contract agreements in respect of such fresh loans or advances granted to the related parties.

c. We draw attention to the note no. 30 of the standalone financial statements which states that the Gratuity plan of the Company is unfunded as at 31st March, 2021 and the Company has made provision for the entire Gratuity Liability. Employee Gratuity Liability is being met as and when they fall due. As no assets are maintained by the Company, there is liquidity risk that the Company may run out of cash resources which may further affect the financial position of the Company.

Our opinion is not modified in respect of the above matters.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current year. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matters described in the Basis for Adverse Opinion section of our report, we have determined the matters described below to be the key audit matters to be communicated in our report.

Key Audit Matter Response to Key Audit Matter
Accuracy of recognition, measurement, presentation and disclosures of revenues and other related balances in view of adoption of Ind-AS 115 “Revenue from contracts with Customers”. Principal Audit Procedure:
The revenue recognition by the Company in a particular contract is dependent on certain key judgments relating to identification of distinct performance obligations, determination of transaction price of identified performance obligation and disclosures including presentations of balances in the standalone financial statements. (Refer notes 21 and 40 to the standalone financial statements.) Our audit approach consisted testing of the design and operating effectiveness of internal controls and procedures as follows:
a) We have assessed the application of the provisions of the Ind AS 115 in respect of the Companys revenue recognition and appropriateness of the estimated adjustments in the process.
b) Selected a sample of existing continuing contracts and new contracts and tested the operating effectiveness of the internal control, relating to identification of the distinct performance obligations and determination of transaction price.
c) Tested the relevant information, accounting systems and change relating to contracts and related information used in recording and disclosing revenue in accordance with the new revenue accounting standard.
d) Performed analytical procedures and test of details for reasonableness and other related material items.

Information Other than the Financial Statements and Auditors Report Thereon

The Companys Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in Boards Report including Annexures to Boards Report, Management Discussion and Analysis and Corporate Governance, but does not include the standalone financial statements and our auditors report thereon.

We have not been provided with such other information and our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

Responsibilities of the Management and Those Charged with Governance for the Standalone 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 financial statements that give a true and fair view of the financial position, financial performance, changes in equity 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. 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 judgements 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 financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, management 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 management 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 standalone 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 standalone financial statements.

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

• Identify and assess the risks of material misstatement of the standalone 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 a 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 financial 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 the 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 standalone 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 standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone 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 standalone 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 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 the standalone 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.

Other Matters

a. The Company has an investment in Whitefield Housing Enterprises (Whitefield) amounting Rs 1,008 lakhs on the balance sheet date. Due to non-availability of financial statements of Whitefield, we are unable to comment on the status of the same.

b. The Company has not renewed the registration of project "Rio" under the provisions of Real Estate (Regulation and Development) Act, 2016 since 31st March 2019, resulting in non-compliance under the relevant rules and regulations of the Real Estate (Regulation and Development) Act, 2016

c. Disclosures regarding related party transactions in the standalone financial statements is not in compliance with the applicable accounting standards.

d. Contingent Liability of Rs. 15,857 lakhs as disclosed in the standalone financial statements is based on management certification (Refer note no. 32). We have not been provided with any other independent legal opinion in relation to any other litigation, demand or claim by or against the Company which may be contingent in nature.

e. The Company has transferred the debenture outstanding liability of Rs. 5,500 lakhs to land owners of Virgin Island Project during the year for settlement of the dues of the debenture holder Investcorp Real Estate Fund (erstwhile IDFC Real Estate Yield Fund) on cancellation of the Joint Development agreement (JDA) and has handed over the title documents of the said composite property to the respective land owners in terms of the mutual agreement which the land owners and Investcorp Real Estate Yield Fund (erstwhile IDFC Real Estate Yield Fund) may have entered into, however, such documents have not been provided to us for verification. As such, the net of surplus arising on settlement of debenture liability and consideration for handing over the title documents to land owners amounting to Rs. 5,268 lakhs with accrued debenture interest of Rs. 5,356 lakhs has been disclosed as exceptional income to the Statement of Profit & Loss of the Company on the date of said transfer. The same has been approved by the Board of Directors. The management has not properly disclosed the required details in note no. 15(iii) and 26A of the standalone financial statements.

f. We draw attention to note no. 43 of the standalone financial statements, wherein the Company has indicated some figures in respect of the exit from two of the projects "Knights Bridge" and "Park Avenue" via Business Transfer Agreement (BTA) with Garden City Private Limited. The details of such transfer are given below:

Rs/lakhs

Particulars Knights Bridge Park Avenue Total Note No.
Sales:
Term Loan from Banks and Financial Institutions 1,000 3,500 4,500 15 - Borrowings
Amount received in Current Bank Accounts 150 595 745 10 - Cash and Cash equivalent
Advance received from customers for sale of properties 50 50 18 - Other liabilities
Revenue on sale of projects (A) 1,150 4,145 5,295 21 - Revenue from operations

Cost of Sales:

Assets transferred

Refundable deposit towards joint development agreement 400 402 802 7 - Loans (Unsecured, considered good unless otherwise stated)
Land held under joint development arrangements 3,015 12,647 15,663 8 - Inventories
Properties under development 1,602 7,525 9,127 8 - Inventories
Trade receivables considered good - secured 498 498 9 - Trade receivables
Advances paid towards Joint Development 157 - 157 12 - Other assets
Total of Assets transferred 5,174 21,071 26,246

Liabilities transferred

Total outstanding dues of creditors other than micro enterprises and small enterprises to other than related parties 73 846 919 19 - Trade payables
Liability under joint development arrangement 3,015 12,647 15,663 18 - Other liabilities
Contract Liability-Billing in excess of revenue (Net of debit balance) 806 839 1,645 18 - Other liabilities
Total of Liabilities transferred 3,894 14,333 18,227
Net Cost of Sales (B) 6,738 1,280 8,018 23 - Land & construction cost
Net Loss (A) - (B) -2,593 -130 -2,723

As explained to us, the fixation of sale consideration by the Company has been made on the basis of realisable value. However, no confirmation could be provided to us in this respect. Further, the Company is still under process for execution of Memorandum of Settlement between its existing vendors and Garden City Private Limited as per the BTA related to above project.

g. Effect of COVID-19: We draw attention to note no. 3(b)(vi) of the standalone financial statements, which describes the economic and social consequences/disruption that the entity is encountering as a result of the COVID-19 pandemic that has impacted supply chains and consumer demand across the Country and has negatively affected the business of the Company. The situation is still evolving and the managements assessment of the impact of the pandemic on subsequent periods is dependent on the circumstances as they evolve.

Our report is not modified in respect of these matters.

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 Section 143(3) of the Act, we report that:

a) Except for the effects of the matters described in the Basis for Adverse Opinion paragraph above read with the Emphasis of Matter and Other Matters paragraphs, 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) Except for the effects of the matters described in the Basis for Adverse Opinion paragraph above read with the Emphasis of Matter and Other Matters paragraphs, 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, statement of changes in equity and statement of cash flows dealt with by this Report are in agreement with the books of account apart from the disclosure of Net loss in the Statement of Profit and Loss which is overstated to the extent of Rs. 29 lakhs due to non-consideration of the effect of deferred tax with corresponding effect on Other Equity (note no. 14A(b)) and Deferred Tax liability (note no. 17).

d) Except for the effects of the matters described in the Basis for Adverse Opinion paragraph above read with the Emphasis of Matter paragraph, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with relevant rules issued thereunder. However, the presentation of the Cash Flow Statement in the standalone financial statements is not as per the disclosure requirement of Ind AS 7.

e) The matters stated in the Basis for Adverse Opinion section above, in our opinion, may have an adverse effect on the functioning of the Company.

f) On the basis of written representations received from the directors as on 31st March, 2021 taken on record by the Board of Directors, none of the directors is disqualified from being appointed as director in terms of Section 164(2) of the Act as on 31st March, 2021.

g) 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 for the reasons stated therein.

h) According to the information and explanation given to us by the management, no managerial remuneration has been paid/ provided during the year. Accordingly, the provisions of section 197(16) of the Companies Act, 2013 are not applicable.

i) 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. Subject to our comment in point d in the Other Matters paragraph in our audit report, the Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer note no. 32;

ii. According to the information and explanation given by the management, the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.

iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

ANNEXURE "A" TO THE INDEPENDENT AUDITORS REPORT

"Annexure A" referred to in our report to the members of NEL Holdings South Limited (Formerly known as NEL Holdings Limited) under the heading Report on Other Legal and Regulatory Requirements of our report at even date.

We report that:

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

b) According to the information and explanation given to us, the Company follows a policy of physical verification of the fixed assets in a phased manner over the years. Some of the fixed assets have been physically verified by the management during the year and no material discrepancies was noticed. In our opinion, the frequency if such verification is reasonable having regard to the size of the Company and the nature of its assets.

c) According to information and explanation given to us no immovable properties are held in the name of the Company.

ii. The Company is engaged in the business of real estate development and related services and holds inventories in the form of land, developed properties and properties under development. Having regard to the nature of inventory, the management has conducted physical verification of inventory by way of verification of title deeds, site visits conducted and certification of extent of work completion by competent persons, at reasonable intervals during the year. However, in respect of certain completed projects, certificate of the competent authority has not been provided to us. Accordingly, we are unable to comment on whether material discrepancies, if any, have been properly dealt with in the books of accounts in such cases.

iii. According to the information and explanation given to us, the Company has granted unsecured loans or advances to companies, firms, or other parties as listed in the register maintained under section 189 of the Companies Act, 2013. The Company has not provided the details with respect to fresh loans and advances given to certain related companies. Again, in some cases, fresh advances have been given to the same related companies/ parties during the current financial year without realisation of the previous loans or advances. Hence, in our opinion, such further loans or advances granted are prejudicial to the interest of the Company.

iv. According to the information and explanation given to us, the Company has granted fresh loans or advances amounting to Rs. 309 Lakhs to certain related parties (both wholly owned subsidiaries and other related parties other than subsidiaries) during the current financial year in line with the provisions of section 185 and 186 of the Act. However, in this respect, it may also be noted that the management has not provided us with the necessary copies of the board approvals and contract agreements in respect of such fresh loans or advances granted to the related parties.

v. As stated in the standalone financial statements, the outstanding balance of the advances collected from customers pertaining to closed/suspended residential projects in the earlier years which have now been abandoned amounts to Rs. 452 Lakhs as on the reporting date. Such receipts are now in the nature of deemed deposits under rule 2(c) (xii) (b) Companies Acceptance of deposit (Rules) 2014 and are also within the purview of sections 73 to 76 of the Companies Act, 2013. The amount and disclosure requirement of such deemed deposits which are required by the relevant act and directives issued by the Reserve Bank of India have not yet been ascertained. (Refer note no. 41 to the standalone financial statements).

vi. To the best of our knowledge and according to the information and explanations given to us, the Central Government has prescribed for the maintenance of the cost records under section 148(1) of the Companies Act, 2013 in respect of the products of the Company. However, since the Companys net revenue falls below the threshold, no Cost Auditor was appointed during the year ended on 31st March, 2021.

vii. (a) As per the records of the Company and information and explanations provided to us, the Company is irregular in depositing the undisputed statutory dues including provident fund, employees state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, Goods and Services tax, cess and other applicable statutory dues.

The following amounts were outstanding as at 31st March 2021 for a period of more than six months from the date they became payable.

Name of the statute Nature of the dues Amount (Rs in Lakhs) Period to which the amount relates Due date Date of payment
KVAT Act VAT 1,268.37 2010-11 - Not paid
Income Tax Act, 1961 TDS 9.54 April 2020 - September 2020 Various due dates Not paid
Income Tax Act, 1961 TDS 31.73 Previous Years - Not paid
CGST Act, SGST Act & IGST Act, 2017 GST 2.83 April 2020 - September 2020 Various due dates Not paid
CGST Act, SGST Act & IGST Act, 2017 GST 173.26 Previous Years - Not paid
Provident Fund & Misc. Provisions Act, 1952 Provident Fund 11.58 April 2020- September 2020 Various due dates Not paid
Provident Fund & Misc. Provisions Act, 1952 Provident Fund 9.87 Previous Years - Not paid
KTPTCE Act, 1976 Profession Tax 0.44 April 2020 - September 2020 Various due dates Not paid
KTPTCE Act, 1976 Profession Tax 0.38 Previous Years - Not paid
ESI Act, 1948 ESI 0.61 April 2020 - September 2020 Various due dates Not paid
ESI Act, 1948 ESI 0.18 Previous Years - Not paid

(b) According to the information and explanations given to us, the following are the disputed statutory dues which have not been deposited by the Company as on 31st March, 2021.

Name of Statute Nature of Dues Period to which the amount relates Amount (Rs. in Lakhs) Forum where Disputes is Pending
Income Tax Act, 1961 Income tax AY 2009-10 148 CIT- Appeal
AY 2011-12 9 CIT-Appeal
AY 2007-08, 2008-09 & 2009-10 77 High Court
KAVAT Act VAT AY 2009-10 41 DCCT - Appeal
AY 2011-12 1267 DCCT-Audit
AY 2014-15 114 DCCT-Audit

viii. According to the information and explanations given to us, the Company has defaulted in repayment of loans or borrowing to banks and financial institutions as detailed below.

Nature of Borrowings, including debt securities Name of Lender Amount of default (Rs./Lakh) Whether Principal or Interest Period of default
Term Loan Yes Bank Limited 27,864 Principal Rs. 21,210 and Interest Rs. 6,654 More than 180 days
Loan HDFC Ltd. 43,305 Principal Rs. 24,015, Interest Rs. 19,290 More than 180 days
Loan Sriram City Union Finance Ltd. 1,225 Principal Rs. 929, Interest Rs. 296 More than 180 days

As mentioned in note no.15(i) of the standalone financial statements, these borrowings from the banks and financial institutions have become Non-Performing Assets (NPAs) as on the balance sheet date and the banks and financial institutions have called upon the debt. The Company has not taken any loans or borrowings from the government.

ix. The Company has not raised money by way of initial public offer or further public offer (including debt instruments) and as per the information and explanations provided to us by the management, these term loans were applied for the purposes for which these were raised. However, the necessary certification in respect of the end use of such loans or advance has not been provided to us by the management and hence we cannot comment on the same.

x. According to the information and explanations given to us by the management, no fraud on or by the Company or by the officers or employees of the Company has been noticed or reported during the year. Accordingly, the provisions of clause 3(x) of the said order is not applicable.

xi. According to the information and explanations give to us and based on our examination of the books of the Company and as reported by the Company in its standalone financial statements, no managerial remuneration has been paid by the Company for the current financial year and hence the provisions of section 197 read with Schedule V to the Act is not applicable to the Company.

xii. The Company is not a Nidhi Company. Accordingly, paragraph 3(xii) of the Order is not applicable.

xiii. According to the information and explanations given to us by the management, all transactions with the related parties are in compliance with Sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the standalone financial statements etc., as required by the applicable accounting standards. The management has provided us with extracts of the board notings in respect of these transactions with related parties, however, details and nature of such transactions have not been shared with us.

xiv. The Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review. Accordingly, the provision of clause 3(xiv) of the Order is not applicable.

xv. To the extent of verification of the records produced to us and from the information and explanations received from the management, the Company has not entered into any non-cash transactions with directors or persons connected with them. Accordingly, the provision of clause 3(xv) of the Order is not applicable.

xvi. The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934. Accordingly, the provision of clause 3(xvi) of the Order is not applicable.

"Annexure-B" to the Independent Auditors Report

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 NEL Holdings South Limited (formerly known as NEL Holdings Limited and herein after referred as "the Company") as of 31st March, 2021 in conjunction with our audit of the standalone 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 (ICAI). 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 Companies Act, 2013.

Auditors Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting 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") and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. 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 judgment, 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 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 authorizations of management and directors of the company; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized 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 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.

Qualified Opinion

In our opinion, to the best of our information and according to the explanations given to us, except for the effects/possible effects of the material weaknesses described in Basis for Qualified Opinion paragraph below on the achievement of the objectives of the control criteria over financial reporting, there is an urgent requirement for the management to design control procedures for recording and documentation of transactions and financial approvals of the Company and also for complying with the various provisions of the applicable acts which as a whole are directly related to the effectiveness of the Internal Control Functions over Financial Reporting of the Company, considering the essential component of internal control as stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

Basis for Qualified Opinion

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.

According to the information and explanations given to us and based on our audit procedures, the following material weaknesses have been identified in the Companys internal financial controls over financial reporting as at 31s March, 2021.

a) The Company did not have an appropriate internal control system relating to granting of unsecured advances for acquiring various immovable properties. The credit worthiness of the parties, exposure and experience in handling land procurement by third parties, asset base for providing security and guarantee, establishing segregation of duties, determining credentials of the counterparties and sufficient documentation regarding such transactions etc. should be verified at the time of authorization and disbursement of said advances.

b) The Company did not have an adequate internal control system to ensure necessary compliance with the provision of the Companies Act, with respect to refund of advances collected from customers for closed/suspended residential projects which have been abandoned.

c) The Company did not have complete system of obtaining year-end balance confirmation certificates in respect of trade receivables, trade payables, vendor advances, advance from customers and other advances.

d) The Company did not have an adequate internal control system to manage the utilisation of loans and facilities obtained from the banks and other financial institutions as per the terms governing such loans and facilities and also the disclosure requirements against such loans and advances received from the banks and the financial institutions.

e) The Company did not have an appropriate internal control system to ascertain the realizable value of Inventory and also does not have a documented system of regular inventory verification.

f) The Company did not have adequate internal control for ascertaining tax assets/liabilities and payments of statutory dues including Income Tax and Goods and Service Tax and other relevant Taxes.

g) The Company did not have appropriate internal control system to ascertain the net realizable value of financial assets and the system for conducting impairment testing to ascertain the actual value of the asset to be carried in the books of accounts.

h) The Company did not have an adequate internal control system to maintain the details of pending litigations and to ascertain corresponding financial impact to report on the contingent liability of the Company.

i) The Company did not have an appropriate internal control system to ascertain and maintain employee wise ageing details of the salary payable and other employee benefit expenses like gratuity payable.

j) The Company should introduce appropriate internal controls system to ascertain the customer wise balance for billing in excess of revenue, unbilled revenue.

k) The Company did not have adequate internal control system to relating to the preparation and presentation of financial statements.

We have considered the material weaknesses identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the March 31, 2021 standalone financial statements of the Company, and these material weaknesses have affected our opinion on the standalone financial statements of the Company and we have issued an adverse opinion on the standalone financial statements.

For RAY & RAY
Chartered Accountants
(Firms Registration No. 301072E)
(Shipra Gupta)
Partner
Place: Bengaluru Membership No 436857
Date: 29.06.2021 UDIN: 21436857AAAAAZ5891