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Bharati Defence & Infrastructure Ltd.

BSE: 532609 Sector: Others
NSE: BHARATIDIL ISIN Code: INE673G01013
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OPEN 15.80
PREVIOUS CLOSE 15.15
VOLUME 2720
52-Week high 37.00
52-Week low 13.50
P/E
Mkt Cap.(Rs cr) 79.98
Buy Price 15.90
Buy Qty 17950.00
Sell Price 0.00
Sell Qty 0.00
OPEN 15.80
CLOSE 15.15
VOLUME 2720
52-Week high 37.00
52-Week low 13.50
P/E
Mkt Cap.(Rs cr) 79.98
Buy Price 15.90
Buy Qty 17950.00
Sell Price 0.00
Sell Qty 0.00

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

Company auditors report

To the Members of Bharati Shipyard Limited

Report on the Financial Statements

We have audited the accompanying Financial Statements of Bharati Shipyards Limited("the Company") which comprise the Balance Sheet as at March 31 2015 theStatement of Profit and Loss the Cash Flow Statement for the year then ended and asummary 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 Financial Statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Accounting Standards specified underSection 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls andensuring their operating effectiveness and the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the Financial Statements thatgive a true and fair view and are free from material misstatement whether due to fraud orerror.

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 Financial Statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the Financial Statements. The procedures selected depend on theauditors’ judgment including the assessment of the risks of material misstatement ofthe Financial Statements whether due to fraud or error. In making those risk assessmentsthe auditor considers internal financial control relevant to the Company’spreparation of the Financial Statements that give a true and fair view in order to designaudit procedures that are appropriate in the circumstances but not for the purpose ofexpressing an opinion on whether the Company has in place an adequate internal financialcontrols system over financial reporting and the operating effectiveness of such controls.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 Financial Statements.

Basis for Qualified Opinion

a) The Company has as on 31st March 2015 recognized deferred tax asset(net) of Rs.

29998 Lakhs in the financial Statement on its carried forward Accumulated Losses(including unabsorbed depreciation) interest expenses (including Funded Interest TermLoan (FITL)) Disallowance of Expenses Gratuity and Leave Encashment. The principles ofAccounting Standard- 22 notified in this regard clearly states that deferred tax assetsshould be recognized and carried forward only to the extent that there is a virtualcertainty that sufficient future taxable income will be available against which suchdeferred tax assets can be realized. In our opinion considering the huge accumulatedlosses and the present scenario of the Company’s business there is no certainty thatthe company would have sufficient future taxable income to justify the creation ofDeferred Tax Asset. Had the Deferred tax asset not been created the net the loss for theyear ended 31st March 2015 would have been higher by Rs. 29998 Lakhs and theaccumulated losses as at that date would have been higher by the same amount. Refer NoteNo. 31 forming part of the Financial Statements.

b) The company has issued refund bank guarantees to customers against various advancestage payments received by the Company. Several of these customers had invoked the BankGuarantees and the Banks have made payment aggregating to Rs. 96632.71 Lakhs on accountof refund bank guarantee invoked by the customers along with Interest of Rs. 30245.42Lakhs and foreign exchange variation of Rs. 32843.42 Lakhs upto 31st March 2015 and hascharged further interest of Rs. 9027 lakhs on such invoked refund bank guarantee paymentsupto 31st March 2015. The Company is of the opinion that payments under therefund bank guarantee are made by banks without following due process of law. The Companyhas also filed a suit before the Hon’ble City civil court Mumbai against the lendingbanks for payment of such invoked refund bank guarantees and the same is pending fordisposal. Hence the Company has not made any provision in its Financial Statements for theyear ended 31st March 2015 in respect of any of the above payments made by the banks. Inview of the pending litigation and the uncertainty of outcome of such pending litigationwe are unable to quantify its possible effect that may arise upon settlement of suchlitigation on the Financial Statement for the year ended 31st March 2015. Refer Note No.32 forming part of the Financial Statements.

c) The Company had recognized for subsidy under Ship Building Subsidy Scheme in earlieryears of which subsidy of Rs.64792.77 Lakhs is outstanding as on 31st March2015. 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 contingent assetin 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 vassals we are unable to comment on therecoverability or otherwise of the aforementioned Subsidy receivable amounting to Rs.64792.77 Lakhs. Therefore the possible impact of the same on the Financial Statement forthe year ended 31st March 2015 cannot be ascertained. Refer Note No. 33 forming part ofthe Financial Statements.

d) The Company had been referred to CDR Cell on 16th December 2011 and thefinancing arrangements under the scheme have been partly implemented. The said CDR schemehas been subsequently revoked by CDR EG being monitoring institutions vide its letterdated 21st August 2014. Some of the lenders including Lead Bankers have transferred thereright title securities and interest in financial assistances to Edelweiss AssetReconstruction Company Limited (EARC). EARC is also proposing to come up with variousstage wise restructuring plans for debts including reference made to BIFR on 10th April2015 to curtail the financial burden of the business cash flows in addition to businessoperation and management. We draw attention to Note no. 30 of the Financial Statementwhich indicates that the Company has continuously been incurring substantial losses sincepast few years and Company has also incurred a net loss of Rs 86458.24 Lakhs for the yearended 31st March 2015. As of this date the Company’s total liabilities exceed itstotal assets by Rs 106878.36 Lakhs and its net worth has been fully 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.

e) The Company had given loans and advances of Rs. 91048.18 Lakhs to its subsidiarieswhich in turn holds investment in GOL Offshore Ltd (GOL). As per the Audited FinancialResult of GOL as on 31st March 2015 there are continuing defaults in repayment of loansincluding invocation of some of the corporate guarantees and in some cases recoveryproceedings have been initiated. In the opinion of the management Investment in GOL beingstrategic and long term in nature and the diminution in the value of investment istemporary and the loans and advances given are recoverable and no provisioning is requiredagainst the same. We are unable to comment on the recoverability of the Loans and Advancesand ascertain its possible impact if any on the Financial Statements for the year ended31st March 2015. Refer Note No. 34 (a) forming part of the Financial Statements.

f) The Company had given loans and advances of Rs. 8497.86 Lakhs to its subsidiary forinvestment in Tebma Shipyard Limited (TSL). TSL has been incurring cash losses and its networth has substantially eroded and its cash flows are under stress. In the opinion of themanagement the investment is strategic and long term in nature and the diminution invalue of Investment is temporary and the loans and advances given are recoverable and noprovisioning is required against the same. We are unable to comment on the recoverabilityof the Loans and Advances and ascertain its possible impact if any on the FinancialStatements for the year ended 31st March 2015. Refer Note No.34 (b) forming part of theFinancial Statements.

g) The Company had made investment and given loans and advances amounting to Rs.

3184.86 Lakhs in/to Bengal Shipyard Limited (Bengal). Bengal is yet to start itsbusiness operations due to pending approvals and problems associated with acquisition ofland from Govt of West Bengal. In the opinion of the management the investment isstrategic and long term in nature and the diminution in value of Investment is temporaryand the loans and advances given are recoverable and no provisioning is required againstthe same. We are unable to comment on the recoverability of the Loans and Advances anddiminution in the value of the investments and ascertain its possible impact if any onthe Financial Statement for the year ended 31st March 2015. Refer Note No. 34 (c) formingpart of the Financial Statements.

h) Confirmation / bank statements from some banks and Edelweiss Asset ReconstructionCompany Limited (EARC) with respect to secured loans outstanding as on 31stMarch 2015 were not made available for verification. Hence the possible effect due topending reconciliation with the books of accounts if any on Financial Statements for theyear ended 31st March 2015 remains unascertained. Refer Note No. 35 formingpart of the Financial Statements.

i) Company has not provided for interest on secured loans including bank guarantee andother debt facility if any (funded as well as non funded) assigned to Edelweiss AssetReconstruction Company Limited (EARC) and loans for which company has received any recallnotice from the date of assignment and / or receipt of recall notice from banks and NPAloan accounts for which it has not received call notice or any statement from lenders. Inabsence of relevant details and information with respect to computation of un-providedinterest liability we are unable to quantify its possible effect on the FinancialStatement for the year ended 31st March 2015. Refer Note No.

35 forming part of the Financial Statements.

j) In absence of relevant documents / confirmations from banks we are unable tocomment on current status of Margin deposit with banks and Bank Guarantee as disclosed incontingent liability. Refer Note No. 36 forming part of the Financial Statements.

k) Due to pending reconciliation and confirmation of Trade Receivables Loan andAdvances Trade Payables and Other Liabilities we are unable to comment upon its possibleeffect on the Financial Statement for the year ended 31st March 2015. Refer Note No. 38forming part of the Financial Statements.

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 Financial Statements give the informationrequired by the Act in the manner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India;

a) In the case of the Balance Sheet of the state of affairs of the Company as at March31 2015;

b) In the case of the Statement of Profit and Loss of the loss for the year ended onthat date; and

c) In the case of the Cash Flow Statement of the cash flows for the year ended on thatdate.

Emphasis of Matter

We draw attention to the following matter in the notes to the Financial Statements:

i Based on the valuation report of an Independent Chartered Engineer company haswritten off excess value of Work in Progress ("WIP") as on 31st March2015 amounting to Rs. 54177.02 Lakhs and charged excess value of WIP to statement ofprofit and loss as "Exception items". Refer Note No. 39 (a) forming part of theFinancial Statements.

ii 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. Refer Note No. 29.1 forming part of the FinancialStatements.

iii Internal control system in relation to timely and proper recording of the revenueand expenses transaction needs to be strengthened. Refer Note No. 37 forming part of theFinancial 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 2015 ("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 statementon 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 auditorshence requirement of clause c of section 143(3) of the act is not applicable.

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 Financial Statementscomply with the Accounting Standards specified under Section 133 of the Act read with Rule7 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 2015 and taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2015 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 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 theFinancial 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 is a delay of 19 days in transferring amount of Rs. 0.61 Lakhs as requiredto be transferred to the 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 2015.

Annexure to the Auditors’ Report

Annexure referred to in paragraph 1 under the heading "Report on other legal andregulatory

requirements" of our report of 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. As informed to us no material discrepancies were noticed on such physicalverification.

ii a. As explained to us physical verification of inventories has been conducted atreasonable intervals by the management and the physical verification of the vessels underconstruction was conducted by an independent valuation agency as at the year end.

b. In our opinion and according to the information and explanations given to us theprocedures of physical verification of inventory and vessels under construction followedby the management are reasonable and adequate in relation to the size of the Company andthe nature of its business.

c. In our opinion and according to the information and explanation given to us theCompany is maintaining proper records of inventories and vessels under construction andthe discrepancies noticed on such physical verification between physical stock and thebook records have been properly dealt with in the books of account.

iii a. As per the records of the company it has granted interest free unsecured loansto parties covered in the register maintained Under Section 189 of the Companies Act2013.

b. According to the information and explanation given to us there is no stipulation asto the repayment of the above loans and the same are repayable on demand.

c. As there is no stipulation as to the repayment of the loans given question of anyoverdue amount exceeding Rs. One lakh does not arise.

iv In our opinion and according to the information and explanations given to us aninternal control system is required to be strengthened to make it commensurate with thesize of the Company and the nature of its business for the purchase of inventory andfixed assets and for the sale of goods and services. During the course of our audit wehave not observed any continuing failure to correct major weakness in such internalcontrol system.

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 (v) of the order is not applicable.

vi On the basis of records produced before us we are of the opinion that prima faciethe cost records prescribed by the Central Government of India under section 148(1) of theCompanies Act 2013 have been made and maintained. We have however not made a detailedexamination of the cost records with a view to determine whether they are accurate orcomplete

vii a. According to the records of the company the Company is not regular indepositing undisputed statutory dues including Provident Fund Employees State InsuranceIncome-tax Sales-tax Wealth-tax Service tax Duty of customs Duty of Excise Valueadded tax Cess and any other statutory dues with the appropriate authorities. Accordingto the information and explanation given to us there are no undisputed statutory dues asreferred to above as at 31st March 2015 for a period more than six months from the datethey become payable except as detailed in Annexure I to this report.

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.

c. According to the information and explanation given to us the amounts required to betransferred to Investor Education and Protection Fund in accordance with the relevantprovisions of the Companies Act 1956 (1 of 1956) and rules made there under have been sotransferred. However there is a delay of 19 days in transferring amount of Rs. 0.61 Lakhs.

viii The accumulated losses of the Company at the end of the financial year exceedfifty percent of its net worth. The Company has incurred cash losses during the financialyear and in the immediately preceding financial year. ix According to the information andexplanation given to us the Company has defaulted in repayment of dues to a financialinstitution banks and debenture holders as detailed in Annexure III to this report.

x According to the information and explanation given to us the Company has not givenguarantees for loans taken by others from Banks or Financial Institutions; hence provisionof clause (x) of the order is not applicable.

xi According to the information and explanation given to us the company has notobtained any term loans; hence provision of clause (xi) of the order is not applicable.

xii Based upon the audit procedures performed and information and explanations given bythe management we report that no fraud on or by the Company has been noticed or reportedduring the year.

For Damania and Varaiya.

Firm’s Registration Number: 102079W Chartered Accountants

CA. Bharat Jain
Partner
Membership No.100583
Place: Mumbai
Date: 30th May 2015.

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