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Bharati Defence & Infrastructure Ltd.

BSE: 532609 Sector: Others
NSE: BHARATIDIL ISIN Code: INE673G01013
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VOLUME 28694
52-Week high 30.00
52-Week low 8.30
P/E
Mkt Cap.(Rs cr) 51
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Bharati Defence & Infrastructure Ltd. (BHARATIDIL) - Auditors Report

Company auditors report

To the Members of Bharati Defence and Infrastructure Limited (Formerly Known as BharatiShipyard Limited)

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of Bharati Defenceand Infrastructure Limited (Formerly known as Bharati Shipyard Limited)("the Company") which comprise the Balance Sheet as at 31st March2016 the Statement of Profit and Loss the Cash Flow Statement for the year then endedand 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 Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Company in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecified under Section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding of the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls and ensuring their operating effectiveness and the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe standalone financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on ouraudit. We have taken into account the provisions of the Act the accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made thereunder.

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

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the standalone financial statements. The procedures selected depend on theauditors’ judgment including the assessment of the risks of material misstatement ofthe standalone financial statements whether due to fraud or error. In making those riskassessments the auditor considers internal financial control relevant to theCompany’s preparation of the standalone financial statements that give a true andfair 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 thereasonableness of the accounting estimates made by the Company’s Directors as wellas evaluating the overall presentation of the Financial Statements.

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

Basis for Qualified Opinion

a) The Company has as on 31st March 2016 recognized deferred tax asset(net) of Rs. 101135.63 Lakhs on its carried forward Accumulated Losses (includingunabsorbed depreciation) interest expenses (including Funded Interest Term Loan (FITL))Disallowance of Expenses and Retirement Benefits. The principles of Accounting Standard-22 notified in this regard clearly states that deferred tax assets should be recognizedand carried forward only to the extent that there is a virtual certainty that sufficientfuture taxable income will be available against which such deferred tax assets can berealized. In our opinion considering the huge accumulated losses and the present scenarioof the Company’s business there is no certainty that the company would havesufficient future taxable income to justify the creation of Deferred Tax Asset. Had theDeferred tax asset not been created the net the loss for the year ended 31stMarch 2016 would have been higher by Rs. 101135.63 Lakhs and the accumulated losses asat that date would have been higher by the same amount. (Refer Note No. 31 forming part ofthe standalone financial statements).

b) The Company had recognised for subsidy under Ship Building Subsidy Scheme in earlieryears out of which subsidy of Rs. 42238.11 Lakhs is still receivable as on 31st March2016 (after write off of Rs 22554.66 Lakhs during the year due to change in GovernmentPolicy). The receipt of aforesaid Subsidy is dependent upon completion of vessels andcompliance with other terms and conditions of the Shipbuilding Subsidy Scheme of theGovernment of India. In our opinion the recognition of above claim being contingentasset in nature is not in conformity with AS-29 Provisions Contingent liabilities andContingent assets. In view of the uncertainty involved with respect to generation offuture cash flow as required for completion of vessels we are unable to comment on therecoverability or otherwise of the aforementioned subsidy receivable amounting to Rs.42238.11 Lakhs. Therefore the possible impact of the same on the standalone financialstatement cannot be ascertained. (Refer Note No. 32 forming part of the standalonefinancial statements).

c) We draw attention to Note no. 33 forming part of the standalone financialstatements which indicates that the Company has continuously been incurring substantiallosses since past few years and Company has also incurred net loss of Rs. 189799.01Lakhs for the year ended 31st March 2016. As of reporting date the Company's totalliabilities exceed its total assets by Rs. 296677.35 Lakhs and its net worth has beenfully eroded.

The appropriateness of the going concern basis is interalia dependent uponcompany’s successful financial restructuring including raising requisite finance forits revival and consequent generation of future cash flow to meets its obligations. In ouropinion these conditions along with other matters indicate the existence of materialuncertainty that may cast doubt about the Company’s ability to continue as goingconcern.

d) The Company had given loans and advances of Rs. 91048.18 Lakhs to its subsidiariesfor investment in GOL Offshore Ltd (GOL). Further an amount of Rs. 3523.41 Lakhs is duefrom GOL on account of trade and other receivables. GOL has been incurring losses and itscash flows are under stress and there are continuing defaults in repayment of loansincluding invocation of some of the corporate guarantees and in some cases recoveryproceedings have been initiated. No provision for non- recoverability of loans andadvances given to its subsidiaries and trade and other receivables due from GOL is made bythe company as explained in note no. 34 (a) forming part of the standalone financialstatements. We are unable to comment on the same and ascertain its possible impact ifany on the standalone financial statements in respect of above matters.

e) The Company had given loans and advances of Rs. 8497.86 Lakhs to its subsidiary forinvestment in Tebma Shipyard Limited (TSL). Further an amount of Rs. 86.22 Lakhs was duefrom TSL on account of trade and other receivables. TSL has been incurring cash lossesits net worth is fully eroded its cash flows are under stress and being referred to CDR.The Company has made provision of Rs. 3498.23 Lakhs in respect of loans and advancesreceivable from its subsidiary and trade and other receivable from TSL of Rs. 86.22 Lakhson the basis of business valuation report of TSL by an Independent valuer. In the opinionof management the investment in TSL is strategic and long term and the loans andadvances trade and other receivables (after considering provisions) are collectible andno further provisioning is required against the same as explained in note no 34 (b)forming part of the standalone financial statements. We are unable to comment on the sameand ascertain its possible impact if any on the standalone financial statements inrespect of above matters.

f) Company has not provided for interest on secured loans and other debt facility ifany (funded as well as non- funded) assigned to Edelweiss Asset Reconstruction CompanyLimited (EARC) by lenders over a period of time. In absence of terms of assignment andother relevant details and information with respect to terms of repayment rate ofinterest and other relevant terms for computation of un-provided interest liability weare unable to quantify its possible impact on the standalone financial statement inrespect of above matters. (Refer Note No. 35 forming part of the standalone financialstatements).

g) Company has not provided for interest and other dues on NPA accounts including bankguarantee and other debt facility if any (funded as well as non funded) for which

i. It has not received any statement from lenders or in respect of which interest hasnot been charged in the statement provided by the lenders:

ii. It has received any recall notice in respect of which interest has not beencharged in the statement provided by the lenders.

In absence of relevant details and information with respect to computation ofun-provided interest liability and other dues we are unable to quantify its possibleeffect if any on the standalone financial statements in respect of above matters. (ReferNote No. 35 forming part of the standalone financial statements).

h) Confirmation / bank statements of secured loans outstanding with ICICI Bank as on31st March 2016 were not made available for verification. Due to pending confirmation andconsequent reconciliation with the books of accounts we are unable to comment on the sameand ascertain its impact if any on the standalone financial statements. (Refer Note No.35 forming part of the standalone financial statements).

i) Margin money of Rs.4472.25 Lakhs with State Bank of Travancore is subject toconfirmation and reconciliation. Due to pending confirmation and consequent reconciliationwith the books of accounts we are unable to comment on the same and ascertain its impactif any on the standalone financial statements. (Refer Note No. 36 forming part of thestandalone financial statements).

j) We refer to note no. 37 forming part of the standalone financial statementsregarding Company’s policies procedures and lack of controls in respect of timelyand properly recording of the expenses and proper evidences regarding accounting fordirect and indirect taxes including other statutory compliances. We are unable toascertain its impact if any on the standalone financial statements in respect of abovematters.

k) Due to pending reconciliation and confirmation of Trade Receivables Loan andAdvances Trade Payables and Other Liabilities we are unable to ascertain its impact ifany on the standalone financial statements in respect of above matters. (Refer Note No.38 forming part of the standalone financial statements).

l) The Company is in the process of obtaining legal opinion with respect to disclosureand accounting treatment of unappropriated amount lying in share application money postexpiry of last appointed date for exercise of option for conversion of share warrants andupon revocation of CDR scheme as explained in Note No. 29 forming part of the standalonefinancial statements. Pending legal opinion we are unable to ascertain its impact ifany on the standalone financial statements in respect of above matters.

m) The Company is in process of technical evaluation of componentisation of fixedassets and useful life thereof and identifying significant part of assets qualifying forcomponent accounting as required by para 4(a) Part C schedule II of the Companies Act2013 amended by MCA notification dated 29th August 2015. Pending technical evaluation ofcomponentisation of fixed assets and useful life thereof we are unable to ascertain itsimpact if any on the standalone financial statements in respect of above matters. (ReferNote No. 39 forming part of the standalone financial statements)

n) The Company has not appointed the Internal Auditor as required by Section 138 of theCompanies Act 2013.

Qualified Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects/possible effects of the matter described in theBasis for Qualified Opinion paragraph above the aforesaid standalone financialstatements give the information required by the Act in the manner so required and give atrue and fair view in conformity with the accounting principles generally accepted inIndia of the state of affairs of the Company as at 31st March 2016 and itsloss and its cash flows for the year ended on that date;

Emphasis of Matters

We draw attention to the following matter in the notes to the Standalone FinancialStatements:

a) Based on the valuation report of an Independent Chartered Engineer Company haswritten off excess value of work in progress ("WIP") as on 31st March 2016amounting to Rs. 64174.54 Lakhs and charged excess value of WIP to statement of profitand loss as "Exceptional items". (Refer Note No. 44 forming part of thestandalone financial statements).

b) Based on the valuation report of an Independent Valuer Company has written offCapital work in progress ("CWIP") as on 31st March 2016 amounting to Rs.6397.39 Lakhs by recognising impairment in CWIP and charged said CWIP impairment tostatement of profit and loss as "Exceptional items". (Refer Note No. 44 formingpart of the standalone financial statements).

c) The Company has given effect of invoked bank guarantees to customer accounts andresultant Interest and Exchange variation amounting to Rs. 40457.62 Lakhs and Rs.32977.47 Lakhs respectively has been charged to statement of profit and loss as"Exceptional items". (Refer Note No. 41 forming part of the standalone financialstatements).

d) The Company has made provision for diminution in the value of investment in BengalShipyard Limited and made provision for loans and advances receivable amounting to Rs.22.50 Lakhs and Rs. 3162.36 Lakhs respectively. This has been charged to statement ofprofit and loss as "Exceptional items". (Refer Note No. 34 (c) forming part ofthe standalone financial statements).

e) The Company has reconciled balance of secured loans transferred by 18 lenders toEdelweiss Assets Reconstruction Company (EARC) with the balance appearing in books ofaccounts and the differential interest / other charges amounting to Rs. 29170.46 Lakhs onsuch reconciliation has been charged to statement of profit and loss as "Exceptionalitems". (Refer Note No. 44 (c) forming part of the standalone financial statements).

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

Report on Other Legal and Regulatory Requirements

(1) As required by the Companies (Auditors’ Report) Order 2016 ("theOrder") issued by the Central Government of India (Ministry of Corporate Affairs) interms of sub-section (11) of Section 143 of the Act we give in the Annexure A astatement on the matters specified in paragraphs 3 and 4 of the Order.

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

a. We have sought and except for the matter described in the Basis for QualifiedOpinion and Emphasis of matters paragraph above obtained all the information andexplanations which to the best of our knowledge and belief were necessary for the purposesof our audit;

b. Except for the effects/possible effects of the matters described in the Basis forQualified Opinion paragraph above in our opinion proper books of account as required bylaw have been kept by the Company so far as it appears from our examination of thosebooks;

c. The Company has no branch offices whose accounts are audited by branch auditors;

d. The Balance Sheet the Statement of Profit and Loss and the Cash Flow Statementdealt with by this Report are in agreement with the books of account;

e. Except for the effects/possible effects of the matter described in the Basis forQualified Opinion paragraph above in our opinion the aforesaid standalone financialstatements comply with the Accounting Standards specified under Section 133 of the Actread with Rule 7 of the Companies (Accounts) Rules 2014;

f. The matter described in the Basis for Qualified Opinion paragraph above in ouropinion may have an adverse effect on the functioning of the Company;

g. Based on the legal opinion obtained by the management on disqualification ofdirectors and written representations received from the directors as on 31stMarch 2016 and taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2016 from being appointed as a director in termsof Section 164 (2) of the Act;

h. The qualifications relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above.

i. With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure B";

j. With respect to the other matters to be included in the Auditor’s Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand 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 financialposition in its Financial Statements – (Refer Note No. 28 forming part of thestandalone financial statements on Contingent Liabilities);

(ii) The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts.

(iii) There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.

For Damania and Varaiya.

Firm’s Registration Number: 102079W

Chartered Accountants

CA. Bharat Jain

Partner

Membership No.100583

Place: Mumbai

Date: 30th May 2016.

Annexure A to the Auditors’ Report

Referred to in paragraph 1 under the heading "Report on Other legal andRegulatory Requirements" of our report on even date:

i a. The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets

b. According to information and explanation given to us physical verification of amajor portion of fixed assets including capital work in progress was conducted by anindependent valuation agency as at the year end. In our opinion the frequency of suchverification is reasonable having regard to the size of the Company and the nature of itsassets and the discrepancies noticed on such physical verification have been properlydealt with in the books of account.

c. According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the Company except for immovable properties as referred in AnnexureI for which original title deeds or Lender confirmation for holding original title deedson behalf of the Company are not available for verification and upon which we are unableto comment upon. Further the Company is in the process of reconciling cost of the abovereferred immovable properties as per title deeds vis a vis consolidated cost appearing inbooks of accounts.

ii As informed to us physical verification of inventories except vessels underconstruction have been conducted at reasonable intervals by the management. Physicalverification of the vessels under construction is conducted by an independent CharteredEngineers as at the year end.

In our opinion and according to the information and explanation given to us thediscrepancies noticed on such physical verification between physical stock and the bookrecords have been properly dealt with in the books of account.

iii a. According to the information and explanation given to us the Company hasgranted interest free unsecured loans to parties covered in the register maintained UnderSection 189 of the Companies Act 2013 and the terms and conditions of the loans are notprejudicial to the interest of the Company.

b. As there is no stipulation as to the schedule of repayment of principal andinterest question of repayment of receipts being regular does not arise.

c. As there is no stipulation as to the schedule of repayment of principal andinterest question of amount being overdue does not arise. iv In our opinion and accordingto the information and explanation given to us provisions of section 185 and 186 of theCompanies Act 2013 in respect of loans and advances to entities in which directors areinterested have been complied with by the Company. The Company has not given anyguarantees and securities on behalf of entities in which directors are interested.

v According to the information and explanations given to us the Company has notaccepted any deposit from public as governed by provisions of section 73 to 76 or anyother relevant provisions of the Companies Act 2013 and the rules framed there underwhere applicable hence provision of clause 3 (v) of the order is not applicable to theCompany.

vi According to the information and explanations given to us maintenance of costrecords has not been prescribed by the Central Government under Section 148(1) of theCompanies Act for any of the products or services rendered by the Company and henceprovision of clause 3 (vi) of the order is not applicable to the Company.

vii a. According to the records of the company the Company is not regular indepositing undisputed statutory dues including provident fund investor education andprotection fund employees state insurance income-tax sales tax service tax customsduty excise duty Value added tax cess and any other statutory dues with the appropriateauthorities. According to the information and explanation given to us there are noundisputed statutory dues as referred to above as at 31st March 2016 for a period morethan six months from the date they become payable except as detailed in Annexure I to thisreport.

b. According to the records of the company and information and explanation given to usthe dues in respect of Income tax Service tax Duty of Excise and Duty of Custom thathave not been deposited on account of pending disputes with appropriate authorities are asdetailed in Annexure II to this report.

viii According to the information and explanation given to us company has defaulted inrepayment of loan or borrowings to a financial institution bank government or dues todebenture holders as detailed in Annexure III to this report.

ix According to the information and explanation given to us the Company has not raisedmoneys by way of Initial public issue / Further public offer (including debt instruments).

However term loan raised during the year have been applied for the purposes for whichthey are raised.

x Based upon the audit procedures performed by us and according to the information andexplanations given by the management we report that no fraud on or by the Company by itsofficers/ employees has been noticed or reported during the year.

xi According to the information and explanation given to us and based on ourexamination of the records of the company the company has not paid / provided managerialremuneration during the year and hence provision of clause 3 (xi) of the order is notapplicable to the Company.

xii In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company. Accordingly paragraph 3(xii) of the Order is notapplicable to the Company .

xiii According to the information and explanation given to us and based on ourexamination of the records of the company transactions with the related parties are incompliance with sections 177 and 188 of Companies Act 2013 where applicable and thedetails of such transaction have been disclosed in the standalone financial statements asrequired by the applicable accounting standards.

xiv According to the information and explanation given to us and based on ourexamination of the records of the company Preferential allotment of Share warrants weremade during the year by the Company the requirement of section 42 of the Companies Act2013 have been complied with and the amount raised have been used for the purposes forwhich the funds were raised.

xv According to the information and explanation given to us and based on ourexamination of the records of the company the company has not entered into any non-cashtransactions with directors or or persons connected with him as referred to in section 192of Companies Act 2013. Accordingly paragraph 3(xv) of the Order is not applicable to theCompany.

xvi The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.

For Damania and Varaiya.

Firm’s Registration Number: 102079W

Chartered Accountants

CA. Bharat Jain

Partner

Membership No.100583

Place: Mumbai

Date: 30th May 2016.

Annexure I

Details of immovable properties for which title deeds are not available forverification.

Total no. of cases Leasehold / Freehold Cost of Land as appearing in books of accounts Remarks
7 Freehold 7781699/- Original title deed submitted with Exim Bank. Confirmation from Exim bank confirming holding of original title deed is not available for verification.
2 Freehold 3395251 Original title deed not available with company. However Photocopy is available for verification and verified.

Annexure II to CARO Report

Details of Undisputed Statutory Dues outstanding for a period more than six months fromthe date they become due for payment.

Name of the Statute Nature of the Dues Financial Year to which matters Pertains Amount (Rs. in Lakhs)
The Income Tax Act 1961 Income Tax 2008-2009 928.07
The Income Tax Act 1961 TDS 2011-2012 2.69
The Income Tax Act 1961 TDS 2012-2013 5.56
The Income Tax Act 1961 TDS 2013-2014 300.49
The Income Tax Act 1961 TDS 2014-2015 209.43
The Income Tax Act 1961 TDS 2015-2016 52.95
The Income Tax Act 1961 TCS 2014-2015 4.15
The Income Tax Act 1961 TCS 2015-2016 4.66
The EPF and MP Act 1952 Provident Fund 2013-2014 149.83
The EPF and MP Act 1952 Provident Fund 2014-2015 231.94
The EPF and MP Act 1952 Provident Fund 2015-2016 146.09
Professional Tax Act 1975 Professional Tax 2013-2014 0.30
Professional Tax Act 1975 Professional Tax 2014-2015 9.07
Professional Tax Act 1975 Professional Tax 2015-2016 8.78
Employee’s State Insurance Act 1948 ESIC 2015-2016 3.58
The Customs Act 1962 Custom Duty 2009-2010 115.01
The Customs Act 1962 Custom Duty 2010-2011 71.96
The Finance Act 2004 and Service Tax Rules Service Tax 2015-2016 19.06
The Goa Value Added Tax Act 2005 VAT 2014-2015 86.54
The Goa Value Added Tax Act 2005 VAT 2015-2016 2.53
The West Bengal Value Added Tax Act 2003 VAT * Before 2014- 2.84
2015
The West Bengal Value Added Tax Act 2003 VAT 2014-2015 3.13

• Yearwise breakup not available for VAT Liabilities till Financial year 2014 -2015

Annexure III to CARO Report

Details of statutory dues that have not been deposited on account of pending disputeswith appropriate authorities.

Name of the Statue Nature of the dues Financial Year to which the matter Pertains Amount (Rs in Lakhs) Forum where dispute is pending
The Income Tax Act 1961 Income Tax 2003-2004 0.15 Appeal pending before CIT(A)
The Income Tax Act 1961 Income Tax 2005-2006 0.04 Appeal pending before CIT(A)
The Income Tax Act 1961 Income Tax 2007-2008 668.19 Appeal pending before CIT(A)
The Income Tax Act 1961 Income Tax 2008-2009 496.47 Appeal pending before CIT(A)
The Income Tax Act 1961 Income Tax 2009-2010 451.12 Appeal pending before CIT(A)
The Income Tax Act 1961 Income Tax 2010-2011 373.98 Appeal pending before CIT(A)
The Income Tax Act 1961 Income Tax 2011-2012 2.27 Appeal pending before CIT(A)
The Finance Act 2004 and Service Tax Rules Service Tax 2008-2009 to 2012- 2013 2479.28 Dy. Commissioner
The Customs Act 1962 Custom Duty 2008-2009 81.84 Director General of Central Excise Intelligence
The Customs Act 1962 Custom Duty 2011-2012 4978.56 Commissioner of Customs
The Central Excise Act 1944 Excise Duty 2011-2012 1354.04 Commissioner of Central Excise (LTU)

Annexure IV to CARO Report

Details of default in repayment of dues to financial institution banks and debentureholders:

(1) The company has made continuous default in repayment of its banks loans CompulsoryConvertible Debentures and interest due thereon from date of revokation of CDR scheme i.e.21st August 2014 till the balance sheet date. Upon revocation of CDR schemein absence of requisite information from EARC and other banks covered under CDR schemewith respect to terms of repayment the information in respect of amount and period ofdelays for default in repayment of Loan and interest cannot be ascertained and hence saidinformation were not furnished in this report.

(2) Details of default in repayment of Loans including interest and other dues otherthan those referred above as follows:

(Rs. In Lakhs)

Particulars No of Months Amount
DBS Bank 24 – 36 Months 14814.84
SICOM Limited 24 – 36 Months 6477.80
LIC of India 15 – 30 Months 10742.66
GIC of India 9 – 33 Months 2227.29

ANNEXURE B TO THE INDEPENDENT AUDITOR’S REPORT

(Referred to in paragraph 2(f) under ‘Report on Other Legal and RegulatoryRequirements’ section of our report of even date)

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

We have audited the internal financial controls over financial reporting of BharatiDefence and Infrastructure Limited(Formerly known as Bharati Shipyard Limited)("the Company") as of 31st March 2016 in conjunction with our audit of thestandalone financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reportingissued by the Institute of Chartered Accountants of India. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company’s policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting(the "Guidance Note") issued by the Institute of Chartered Accountants of Indiaand the Standards on Auditing prescribed under Section 143(10) of the Companies Act 2013to the extent applicable to an audit of internal financial controls. Those Standards andthe Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor’s judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company’s internal financial controlssystem over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's 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 financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion:

According to the information and explanation given to us and based on our audit thefollowing material weaknesses have been identified in operative effectiveness of theCompany’s internal financial control over financial reporting as at 31stMarch 2016.

Based on selective verification of process manual and related financial controls madeavailable to us towards the very end of the financial year under audit and thereafter the Company has an internal financial controls system over financial reporting designwhich needs to be enhanced to make it more comprehensive.

A ‘material weakness’ is a deficiency or a combination of deficiencies ininternal financial control over financial reporting such that there is a reasonablepossibility that a material misstatement of the company's annual or interim financialstatements will not be prevented or detected on a timely basis.

in our opinion considering the internal control over financial reporting criteriaestablished by the company as per the essential components of internal control stated inthe Guidance Note the operating effectiveness of such process controls and appropriatedocumentation thereof needs to be strengthened to make the same commensurate with the sizeof the Company and nature of its business.

We have considered the material weaknesses identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the 31stMarch 2016 standalone financial statements of the Company and these material weaknessesdoes not affect our opinion on the standalone financial statements of the Company.

For Damania and Varaiya.

Firm’s Registration Number: 102079W

Chartered Accountants

CA. Bharat Jain

Partner

Membership No.100583

Place: Mumbai

Date: 30th May 2016