State Trading Corporation of India Ltd Directors Report.

To the Members of The State Trading Corporation of India Limited

Report on the Standalone Financial Statements

We have audited the accompanying standalone Ind AS financial statements of THE STATE TRADING CORPORATION OF INDIA LIMITED ("the Company"), which comprise the Balance Sheet as at 31st March, 2018, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information, in which are incorporated the returns for the year ended on that date audited by the branch auditors of Companys eight branches at Ahmedabad, Bangalore, Bhopal, Chennai, Cochin, Hyderabad, Kolkata and Mumbai.

Managements Responsibility for the Standalone Ind AS financial statements

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

Auditors Responsibility

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

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

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

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

Basis for Qualified Opinion

(i) Reference is invited to Note no. 9.5 and 26.1, Trade receivable includes Rs.2076.70 crore (previous year Rs.1904.24 crores) and other income includes interest of Rs.259.47 crore (previous year Rs.231.93) booked during the current year on over dues from one of the business associates on account of goods supplied in earlier years. The dues are stated to be secured by EMD of Rs.29.73 crore and personal guarantee of chairman of its holding company. Consequent upon Conciliation Agreement dated 15.11.2011 and further settlement agreement dated 17.05.2012 the entire dues were payable to the company by 10.11.2012. During the year, the Business Associate remitted an amount of Rs.100 crore (previous year Rs.70.18 crore) on the directions of Honble Supreme Court. Considering the poor recovery, non-availability of security, dispute by party with respect to interest charged, and age of outstanding dues, interest income should not be recognized as per concept of prudence.

Considering the overall circumstances surrounding the recoverability of outstanding dues of Rs.2076.70 crores, we are not in a position to ascertain whether the amount is fully recoverable or not. We are informed by the management that petition for execution of decree as per Conciliation Agreements under the Arbitration and Conciliation Act, 1996 has been filed before the Honble Supreme Court wherein it has been held that decree is final. The party has submitted payment proposal before the Honble Apex Court which is still subjudice before the Honble Apex Court. Cases U/s 138 of Negotiable Instruments Act are also filed by the company before the Honble High Court Delhi. The Enforcement Directorate and CBI are also investigating into the matter about cheating and fraud done by the party. We have also been provided affirmative Board Resolution dt. 14.02.2017 and outcome dt. 30.05.2017 that all possible efforts are extended for recovery of the dues through legal process and company is assured of recovering the dues.

(ii) With respect to contingent assets disclosed, the management has not provided any substantive evidence in support of probability of recovery, hence we are not in a position to form an opinion thereon.

(iii) Reference is invited to Note 4.1, the company has not made provision of Rs.132.83 crores being the amount payable to L&DO for execution of lease deed of companys one of the property, hence to that extent provision for impairment of fixed assets is short made.

(iv) Reference is invited to Note no. 9.16 as regard provision of Rs.3.58 crore made against Rs.10.53 crore recoverable from one of the business associate, the management has considered Rs.6.13 crore towards value of immovable property provided as security. Since the company is not able to sale the property inspite of various auctions, hence in our opinion till realization of such security, its value should not be considered for ascertainment of provision for doubtful debts. Had the company made the provision of said amount, net profit of current year would have been lower by Rs.5.77 crore, retained earning and trade receivable (current assets) would have been lower by Rs.5.77 crore.

(v) Mumbai branch auditor has reported that debit balances appearing in Bhopal branch pertaining to security deposit and loans & advances of Rs.0.19 crore has not been written off pending approval from competent authority. Had the company written off these balances, net profit of current year would have been lower by Rs.0.19 crore, retained earning and deposits and loans & advances would have been lower by Rs.0.19 crore.

The cumulative effect of above observations (i), (iii), (iv) & (v) is that net profit of current year would have been net loss of Rs.357.59 crore, retained earning and assets would be lower by Rs.398.26 crore and Rs.265.43 crore respectively and claims payable would have been higher by Rs.132.83 crore.

Emphasis of Matters

We draw attention to the following matters in the Notes to the standalone Ind AS financial statements: a) Reference is invited to Note no. 20.2 & 20.5, the bank accounts of the company are classified as non performing asset by all the financing banks due to non payment of dues by the company. The company has prepared the accounts on going concern basis considering the various actions being taken by the management under the supervision of the administrative ministry. b) Reference is invited to Note no. 38.3, regarding contingent liability of Rs.83.32 crore payable to foreign supplier as per arbitral award, the company has filed an appeal against the arbitration award in the Honble Delhi High Court and Company deposited Rs.33.05 crore with court as per direction of Delhi High Court. Court proceedings are completed and Court judgement is reserved. The transaction was undertaken on behalf of Department of Fertilizer (DOF) and is being regularly followed up. Hence, no provision is considered necessary. c) Reference in invited to Note no. 38.4, regarding contingent liability of Rs.90.73 crore along with interest payable to a foreign supplier on account of import of Pluses in earlier years as per majority arbitration award passed in favour of foreign supplier. The company has filed an appeal against the majority arbitration award in the Honble Delhi High Court. This transaction was undertaken on behalf of Ministry of Consumer Affairs (MOCA), which is being regularly followed -up.In view of above, no provision is considered necessary. d) Reference is invited to Note no.14.2 regarding trade advance of Rs.87.39 crore recoverable from one of parties against which the company has initiated legal actions including criminal proceedings. Pending outcome of legal steps initiated for recovery, full provision of Rs.87.39 crore was made in earlier year. However, the company was successful in getting arbitration award of Rs.110.00 crore in its favour along with 12% interest per annum from 1st May 2006 till realization of award which has been objected by the party and hearing is pending before Honble High Court, New Delhi. e) Reference is invited to Note no. 11.4 regarding Non Current Claim Recoverable under other financial assets Rs.3.92 crore recoverable from one of the business associate and counter claim against company for an amount of Rs.39.41 crore ( Rs. 39.41 crore) by an associate. Legal proceedings are going on, As per the legal opinion obtained the ultimate outcome of the case may be in favour of company. Hence no provision and liability has been recognized in this respect. f) Reference is invited to Note no. 22.2 regarding claim of Rs.80.03 crore towards property tax dues raised by NDMC, New Delhi on the company. The company has made the part payment of Rs.20 crore pending the review of assessment by NDMC and judgment of appeals filed there against in Honble Patiala District Court New Delhi. g) Reference is invited to Note no. 9.6, regarding non current trade receivable Rs.568.44 crore on account of export of pharma products to foreign buyers on back to back basis. As there is default in the payment against export bills by the buyers which have ultimately gone into liquidation, litigation process have been initiated by the Company as well as by Indian Associates and their bankers. A claim of Rs.527.86 crore has been admitted by the liquidator and decree for Rs.62.47 crore by Honble High Court Mumbai. There is however corresponding credit balance of Rs.568.44 crore under trade payables. Management does not anticipate any liability on this account. h) Reference is invited to Note no.9.9, regarding non current trade receivable of Rs.787.65 crore under the Credit Linked Insurance Scheme (CLIS) for export of gold jewellery etc. against which corresponding credit balance of Rs.342.19 crore are available, leaving net receivable of Rs.445.46 crore. Actions against the Business Associate have been initiated. The matter is being pursued legally and company is hopeful of recovery. As a measure of abundant caution, full provision of Rs.445.46 crore being net receivable, has been made in earlier year. i) Reference is invited to Note no. 9.7, regarding non current trade receivables of Rs.9.83 crore (net of provision for diminution in value of stock) recoverable from one of the business associates for goods sold in earlier years. The overdue is secured by pledge of stocks in favour of STC. Upon non-payment of overdue receivables, legal actions have been initiated against the business associate u/s 138 of Negotiable Instruments Act, 1881 and civil hearings are in progress. Another PSU company MSTC had made a claim in respect of ownership of some of the pledged stock sold by the STC to business associate. The case is pending at Honble Mumbai High Court. j) Reference is invited to Note no.9.10, regarding other trade receivables of Rs.41.92 crore on account of export of agro commodities to foreign buyers through Indian business associates against which credit balance of Rs.41.92 crore is available under trade payable. The foreign buyer defaulted in making payment and upon non-receipt of the dues from business associate, the Company has initiated necessary legal steps against business associates for recovery. Considering the legal enforceability of the agreement and corresponding credit of Rs.41.92 crore, no provision is considered necessary. k) Reference is invited to Note no.11.3, regarding claim recoverable of Rs.5.48 crore from one of the business associate on account of quality variations in material supplied. Considering the current status, no provision is considered necessary by the company. l) Reference is invited to Note no.9.2, regarding current trade receivables of Rs.89.75 Crore which is overdue on account of pending reconciliation issues/performance guarantee. No provision has been considered necessary by the company since the outstanding amount is secured by corresponding credit balance available in sundry creditors. m) Reference is invited to Note no. 9.11, regarding non current trade receivable of Rs.10.21 crore recoverable from MARKFED, Govt. of Maharashtra (GOM) towards supply of RBD Palmolien under PDS Scheme during the years 2010-11 and 2011-12, pending for final reconciliation at their end. Matter is being constantly taken up with MARKFED, Govt. of Maharashtra for recovery. As a matter of prudence, full provision of Rs.10.21 crore has been made during the previous year 2016-17. n) The credit of input tax payable to recipient of common maintenance services provided by the company at its Delhi office is not determined and transferred to recipients as required by Section 171 of Delhi GST Act, 2017 and CGST Act, 2017. o) Reference is invited to Note no. 9.3, regarding non current trade receivable of Rs.122.95 crore from one of the business associate for goods sold in the earlier years which is overdue. STC has filed compliant for commission of offences under section 405, 406, 409, 415 & 420 read with sec. 107, 120-B, 34 of Indian Penal Code in the court of Judicial Magistrate (First Class) against the associate. As a matter of prudence, full provision for Rs.122.95 crore had been made in previous year. p) Reference is invited to Note no. 51 & 52 relating to pending reconciliation/confirmation of balances in parties accounts, claims recoverable, advances and current and other liabilities and consequential adjustment that may arise on reconciliation. q) Reference is invited to Note no. 9.8 regarding non current trade receivables of Rs.17.28 crore recoverable from one of the business associates for goods sold in earlier years. Criminal complaints u/s 138 of Negotiable Instruments Act, 1881 and contempt application filed before Honble High Court, New Delhi are under progress against the business associate. As a matter of prudence, provision for full amount of Rs.17.28 crore had been made in previous year.

Our opinion is not modified in respect of these matters.

Qualified Opinion

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

Other Matter

We did not audit the Ind AS financial statements/information of eight branches included in the standalone Ind AS financial statements of the Company whose Ind AS financial statements/financial information reflect total assets of Rs.1247.91 crore as at 31st March, 2018 and total revenues of Rs.7741.43 crore for the year ended on that date, as considered in the standalone Ind AS financial statements. The Ind AS financial statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors and management replies to the observations of the branch auditors.

Our opinion 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 Act, based on our observations, reports received from branch auditors in respect of branches not visited by us, and explanations received from management, we give in the Annexure ‘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) 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 except certain records/information at Mumbai branch, Chennai branch, and balance confirmation of parties as mentioned in para no. (p) above under Emphasis of Matters.

(b) Except for the effect of the matters described in the Basis for Qualified Opinion paragraph above, 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 and proper returns adequate for the purposes of our audit have been received from the branches not visited by us except the system of maintaining stock records by branch with respect to goods kept with third party needs to be further strengthen.

(c) The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by the branch auditors have been sent to us alongwith management replies to the observations of the branch auditors and have been properly dealt with by us in preparing this report.

(d) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity dealt with by this Report are in agreement with the books of account and with the returns received from the branches not visited by us.

(e) Except for the effect of the matters described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid standalone Ind AS financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with relevant rules issued thereunder.

(f) The matters described in the Basis of Qualified Opinion paragraph above, in our opinion may have an adverse effect on functioning of the company (g) Being a Government Company, section 164(2) of Companies Act, 2013 regarding whether any director is disqualified from being appointed as a director is not applicable to the Company in view of notification no. G.S.R.463 (E) dt. 05.06.2015.

(h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in Annexure ‘B, and (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, in our opinion and to the best of our information and according to the explanations given to us: i. The Company has disclosed the impact of pending litigations on its financial position in its Standalone Ind AS financial statements as referred to in Note No. 38, 38.1, 38.2, 38.3 & 38.4 to the Standalone Ind AS financial statements. ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts. iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

3. As required by C&AG of India through directions issued under Section 143(5) of the Act, we give a report in the attached Annexure ‘C.

For P. Jain & Company
Chartered Accountants
Firm Regn. No.000711C
(Pankaj Jain)
Partner
M. No. 097279
Place : New Delhi
Date : 28.05.2018

ANNEXURE ‘A TO INDEPENDENT AUDITORS REPORT

Re: The State Trading Corporation of India Limited

Referred to in Paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date

1. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets except that absence of proper tagging at Mumbai Branch, (b) The fixed assets were physically verified by the management during the year. We have been informed that no material discrepancies were noticed on such physical verification wherever done, except at Mumbai, Agra and Jalandhar branch where the management is in process of reconciling the discrepancies noticed on such physical verification. (c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company except for immovable properties referred to in Annexure- E whose title deeds are not held in the companys name.

2. As explained to us, verification of inventories undertaken by the Company through surveyor from time to time. In respect of the goods in the custody of third parties, certificate is obtained from the Clearing & Handling Agents or the warehousing corporation or from the concerned parties.

3. As informed to us, the Company has not granted any loans, secured or unsecured to companies, firms, limited liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013 (‘the Act). Accordingly, clauses (iii)(a), (b) & (c) of paragraph 3 of the Order are not applicable to the Company.

4. According to the information and explanations given to us, the Company has not given any loans, or made any investments or provided any guarantees or security to the parties covered under sections 185 and 186 of the Act. Accordingly, paragraph 3 (iv) of the Order is not applicable to the Company.

5. The Company has not accepted any deposits from the public during the year and consequently, the directives issued by Reserve Bank of India, the provisions of sections 73 to 76 of the Act and rules framed there under are not applicable to the Company. However certain old amount are outstanding in advances from customers/credit balance in customer account which as explained to us is immaterial and is subject to reconciliation and adjustment, if any.

6. As informed by the management, the Central Government has not prescribed the maintenance of cost records under section 148 (1) of the Act for the Company.

7. (a) According to the records of the Company, undisputed statutory dues including provident fund, employees state insurance, income-tax, sales-tax, goods and service tax (GST), service tax, duty of customs, duty of excise, value added tax, cess and other statutory dues have been generally regularly deposited with the appropriate authorities. There were no undisputed amounts payables in respect of the aforesaid dues which were outstanding as at 31st March, 2018 for a period of over six months from the date they became payable except Rs.0.01 crore professional tax payable at Mumbai branch.

(b) According to the information and explanations given to us, there are following disputed statutory dues aggregating Rs.2.56 crore on account of Income tax, Rs.767.15 crore on account of Sales tax/VAT, Rs.50.73 crore on account of Service tax and Rs.0.06 crore under BPDRA which have not been deposited.

Name of the statute Nature of dues Amount (Rs. in Crore) Period to which the amount relates Forum where dispute is pending
Income Tax
Income Tax Act Income Tax 1.73 2008-09 DCIT, Delhi
Income Tax Act Penalty 0.83 2010-11 CIT Appeal, Delhi
Sales Tax
TNGST/AST/CST (Chennai Branch) Sales Tax (incl. penalty) 0.83 1974-75, 1975-76, 1985-86 to 1987-88, 1989-90 & 1991-92 Honble Madras High Court
Central Sales Tax Act (Chennai Branch) Central Sales Tax 0.01 1987-88 Appellate Tribunal
Custom Act (Chennai Branch) Custom Duty 4.16 2017-18 SLP to be filed in Supreme Court
Central Sales Tax Act (Bengaluru Branch) Central Sales Tax, Interest & Penalty 0.08 2014-15 Asstt. Commissioner Commercial Tax
Bihar Sales Tax Act (Kolkata Branch) Sales Tax 0.01 1989-90 Sales Tax Appellate Tribunal
Orrisa Sales Tax Act (Kolkata Branch) Sales Tax 0.01 1988-89 Commissioner (Appeals), Orrissa
Central Sales Tax Act (Kolkata Branch) Central Sales Tax 0.02 1993-94 to 1995-96 Honble Assam High Court
Central Sales Tax Act (Kolkata Branch) Central Sales Tax 0.23 2003-04 Joint Commissioner, Sales Tax
West Bengal Vat Act/ Central Sales Tax Act (Kolkata Branch) Vat & CST 0.02 2011-12 Joint Commissioner, Commercial Tax
Maharashtra Sales Tax Act (Mumbai Branch) BST (Sales Tax) 0.69 1992-93 & 1996-97 Maharashtra Sales Tax Tribunal
Maharashtra Sales Tax Act (Mumbai Branch) BST & CST 46.88 1993-94, 2000-01 & 2003-04 Joint Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch) BST, CST & MVAT *391.06 2004-05, 2006-07, 2009-10 & 2011-12 Joint Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch) CST & WCT *290.52 2008-09 & 2012-13 Deputy Commissioner, Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch) MVAT **32.63 2006-07 Joint Commissioner, Sales Tax

* a stay order has been received against the amounted disputed.

** the matter is reminded back to the nodal office in charge for fresh assessment

Name of the statute Service Tax Nature of dues Amount Rs. ( in Crore) Period to which the amount relates Forum where dispute is pending
Finance Act, 1994 (Kolkata Branch) Service Tax 7.29 2005-06 & 2006-07 CESTAT
Finance Act, 1994 Service Tax 7.96 2007-08 to 2013-14 Commissioner Service Tax
Finance Act, 1994 Service Tax 3.54 2014-15 Principal Commissioner Service Tax
Finance Act, 1994 (Mumbai Branch) Service Tax *16.54 01.10.2004 to 31.03.2011 Service Tax Appellate Tribunal Mumbai
Finance Act, 1994 (Mumbai Branch) Service Tax *0.13 01.04.2011 to 31.03.2012 Service Tax Appellate Authority Mumbai
Finance Act, 1994 (Mumbai Branch) Service Tax **14.03 01.04.2012 to 31.03.2015 Service Tax Assessing Authority Mumbai
Finance Act, 1994 (Mumbai Branch) Service Tax **1.24 01.04.2015 to 30.06.2017 Joint Commissioner of CGST & Central Excise Mumbai
Certificate Dues Liability
BPDRA Certificate Dues Liability 0.06 1971-72 & 1976-77 to 1978-79 Concerned Department

* Appeal rejected and branch has contested / in process of contesting the order ** Show cause notice received

8. In our opinion and according to the information and explanations given to us, the Company has defaulted in repayment of loans or borrowing to banks as mentioned below. The Company does not have any loans or borrowing from any financial institution or government or dues to debenture holders during the year

Name of the bank/ financial institution Amount of instalment/ interest due (Rs. In Crore) Due date Date of payment Delay (days)
Exim Bank (Instalment) 5.00 03.10.2017 23.10.2017 20
Exim Bank (Instalment) 5.00 01.01.2018 Not paid -
Exim Bank (Interest) 1.25 03.10.2017 10.10.2017 7
Exim Bank (Interest) 1.27 04.12.2017 Not paid -
Exim Bank (Interest) 1.08 01.01.2018 Not paid -
Exim Bank (Interest) 1.21 01.02.2018 Not paid -
Exim Bank (Interest) 1.10 01.03.2018 Not paid -
Exim Bank (Interest) 1.24 03.04.2018 Not paid -
Exim Bank (Interest) 0.11 Various dates as referred above Not paid -
Bank of Baroda 56.26 Invocation of BG Not paid -
Syndicate Bank 25.41 Working capital loans Not paid -
Indian Overseas Bank 215.95 Working capital loans Not paid -
Union Bank of India 308.19 Working capital loans Not paid -
Indian Bank 10.12 Working capital loans Not paid -

9. The Company did not raise any money by way of initial public offer or further public offer (including debt instruments). 10. According to the information and explanations given to us, no material fraud by the company or on the Company by its officers or employees has been noticed or reported during the course of our audit except fraud of Rs.5.63 crore by a business associate in Kolkata.

11. In our opinion and according to the information and explanations given to us, the Company has paid / provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Act.

12. In our opinion and according to the information and explanations given to us, the Company is not a nidhi company.

Accordingly, paragraph 3 (xii) of the Order is not applicable to the Company.

13. According to the information and explanations given to us and based on our examination of the records of the Company, transactions with the related parties are generally in compliance with sections 177 and 188 of the Act where applicable and details of such transactions have been disclosed in the Ind AS financial statements as required by the applicable accounting standards. 14. According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

15. According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him. Accordingly, paragraph 3 (xv) of the Order is not applicable to the Company.

16. The Company is not required to be registered under section 45-1A of the Reserve Bank of India Act, 1934

For P. Jain & Company
Chartered Accountants
Firm Regn. No.000711C
(Pankaj Jain)
Place : New Delhi Partner
Date : 28.05.2018 M. No. 097279

ANNEXURE-‘B TO THE INDEPENDENT AUDITORS REPORT

Report on the Internal Financial Controls 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 The State Trading Corporation of India Limited ("the Company") as on 31st March, 2018 in conjunction with our audit of the Ind AS financial statements of the Company for the year ended on that date.

Managements Responsibility for Internal Financial Controls

The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (‘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 judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

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

Meaning of Internal Financial Controls over Financial Reporting

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

Inherent Limitations of Internal Financial Controls over Financial Reporting (IFCFR)

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.

Basis for Qualified Opinion

(i) Following design gap are noticed in IFCFR such as lawyers certificate not taken in litigation cases, monitoring and record keeping of pledged/owned inventory not maintained, ageing analysis and reconciliation with vendors not reviewed, manual calculations for leaves, no HR Software, insurance of goods, IT policy not documented, disaster management plan not documented, no data backup for divisions other than corporate accounts, data backup of accounting records not maintained for branches, maker checker mechanism not in place for sales invoicing, fixed assets tag numbers not maintained in fixed assets register, the risk control matrix neither been reviewed nor updated, huge gap in time lines fixed by the corporate account and actual reporting of financials by the divisions and branches etc.

(ii) With respect to Mumbai branch of the Company, the branch auditor has reported certain material weaknesses in internal financial control over financial reporting such as inadequate- IT & general controls, internal control system with regards to pledged inventory including maintenance of adequate records and physical verification, customer acceptance, credit evaluation and establishing customer credit limit, internal audit coverage, large financial exposure in litigated matters & pending statutory litigation involving tax demands, financial reporting system, compliance with statutory dues, maintenance of case wise legal expenses register, maintenance of fixed asset register, non availability of required information and documents in respect of old outstanding, security deposit, EMD, advances and other deposit received and paid.

(iii) Reference is invited to Note no. 51 & 52 relating to pending reconciliation/ confirmation of balances in parties accounts, claims recoverable, advances and current and other liabilities and consequential adjustment that may arise on reconciliation. A ‘material weakness is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis.

Qualified Opinion

In our opinion, the Company has, except for effects of the material weaknesses described above on achievement of the objectives of the control criteria, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st 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.

Other Matters

Our aforesaid report under Section 143(3)(i) of the Act on the adequacy and operating effectiveness of the internal financial controls over financial reporting insofar as it relates to eight branches at Ahmedabad, Bangalore, Bhopal, Chennai, Cochin, Hyderabad, Kolkata and Mumbai is based on the corresponding reports of the auditors of such branches and management replies to the observations of the branch auditors.

For P. Jain & Company
Chartered Accountants
Firm Regn. No.000711C
(Pankaj Jain)
Place : New Delhi Partner
Date : 28.05.2018 M. No. 097279