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IL&FS Engineering & Construction Co Ltd.

BSE: 532907 Sector: Infrastructure
NSE: IL&FSENGG ISIN Code: INE369I01014
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VOLUME 26717
52-Week high 65.95
52-Week low 33.40
P/E
Mkt Cap.(Rs cr) 445
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
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OPEN 34.25
CLOSE 34.30
VOLUME 26717
52-Week high 65.95
52-Week low 33.40
P/E
Mkt Cap.(Rs cr) 445
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

IL&FS Engineering & Construction Co Ltd. (IL&FSENGG) - Auditors Report

Company auditors report

To the Members of IL&FS Engineering and Construction Company Limited

Report on the Financial Statements

We have audited the accompanying standalone financial statements of IL&FSEngineering and Construction Company Limited (“the Company”) which comprise theBalance Sheet as at March 31 2017 the Statement of Profit and Loss and Cash FlowStatement for the year then ended and a summary of significant accounting policies andother 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 withaccounting principles generally accepted in India including the Accounting Standardsspecified under section 133 of the Act and Companies (Accounting Standards) AmendmentRules 2016. 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 the design implementation and maintenance of adequateinternal financial control that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these standalone financial statementsbased on our audit. We have taken into account the provisions of the Act the accountingand auditing standards and matters which are required to be included in the audit reportunder the provisions of the Act and the Rules made thereunder. We conducted our audit inaccordance with the Standards on Auditing issued by the Institute of CharteredAccountants of India specified under Section 143(10) of the Act. Those Standards requirethat we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor'sjudgment including the assessment of the risks of material misstatement of the financialstatements whether due to fraud or error. In making those risk assessments the auditorconsiders internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof the financial statements. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our qualified audit opinion on thestandalone financial statements.

Basis for qualified opinion

As more fully explained in Note 49 of the accompanying standalone financial statementsas at March 31 2017 the Company has investment amounting to Rs. 33.19 Crores made in anoverseas subsidiary. Based on the latest available unaudited financial statements of theaforesaid subsidiary as on March 31 2017 the net worth of the subsidiary is fully erodedand the Company may have potential obligation to share further liabilities of the saidsubsidiary which is presently under negotiation and hence undeterminable. Based on thereasons fully explained in the aforesaid note the management is of the view that noprovision is required for diminution in the value of such investment/potential obligationas the Company is evaluating options to restore the carrying value of the investment.However in the absence of sufficient and appropriate audit evidence we are unable tocomment on the carrying value of such investment potential obligation and any otherconsequential impacts if any that may be required in this regard in the standalonefinancial statements.

Qualified opinion

In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effects of the matter described in the Basis forQualified Opinion paragraph above the aforesaid standalone financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India of the state ofaffairs of the Company as at March 31 2017 of its profit and its cash flows for the yearended on that date.

Emphasis of matter We draw attention to:

a. Note 47 of the accompanying standalone financial statement regarding Rs. 259.67Crores investment of the Company in Pass Through Certificates (“PTC”) issued bythe Maytas Investment Trust (“the Trust”) and receivables loans and advancesand investments aggregating to Rs. 199.83 Crores which are dependent upon recovery ofcapacity charges and supplies/ availability of natural gas to a gas based power generatingplant increase in traffic on road investments final award of the claim and positiveoutcome of the litigations in the investee companies etc. Based on internal assessmentlegal advice and fair valuation management does not currently envisage any diminution inthe carrying value of aforesaid assets.

b. Note 48 of the accompanying standalone financial statement regarding amount due fromcustomers (project work-in-progress). The Company had recognised claims in case of variousprojects of which balance as at March 31 2017 aggregates to Rs. 292.24 Crores (includingclaims accounted during the year amounting to Rs. 109.44 Crores) and interest of Rs.188.58 Crores (including interest of Rs. 88.13 Crores recognised during the year endedMarch 31 2017) for non-payment of project dues delays due to handing over of the landdrawings etc. for project execution which are in various stages of arbitration/ appealwith Honourable High Court of New Delhi/ advanced stages of negotiations with customer andhave been recognised based on Honourable Supreme Court order/ arbitration award/completion of arbitration proceedings/ provisions in agreement and supported by theExtension of Time recommended by the Independent Engineers. Further in one of theaforesaid projects the customer has withheld an amount of Rs. 17.30 Crores as liquidateddamages for delays in project completion which is also dependent on the aforesaid judicialproceedings. Based on expert opinion and internal assessment the management is of theview that the claims including interest are tenable and there exist no uncertainty as toultimate collection.

c. Note 29 of the accompanying standalone financial statements regarding InterCorporate Deposits (ICDs) amounting to Rs. 343.78 Crores which is under litigation.

Based on internal evaluation other developments and expert advice management is ofthe opinion that the Company has the ability to ultimately recover the aforesaid ICDs.

The ultimate outcome of the above matters cannot presently be determined pendingapprovals acceptances legal interpretations conclusion of legal proceedings resolutionof uncertainty around availability of gas achievement of traffic projections favourablesettlement of claims and ultimate realisation etc. as referred to in the relevant notesto the accompanying standalone financial statements referred above accordingly noadjustment has been made in the carrying value of the aforesaid assets. Our opinion is notqualified in respect of the aforementioned matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's report) Order 2016 (“the Order”)issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Act we give in the Annexure 1 a statement on the matters specified in paragraphs 3and 4 of the Order.

2. As required by section 143(3) of the Act we report that: a) We have sought andexcept for the matter described in the Basis for Qualified Opinion paragraph obtained allthe information and explanations which to the best of our knowledge and belief werenecessary for the purpose of our audit;

(b) Except for the possible effects of the matter described in the Basis for QualifiedOpinion paragraph in our opinion proper books of account as required by law have beenkept by the Company so far as appears from our examination of those books;

(c) The Balance Sheet Statement of Profit and Loss and Cash Flow Statement dealt withby this Report are in agreement with the books of account;

(d) Except for the possible effects of the matter described in the Basis for QualifiedOpinion paragraph in our opinion the aforesaid standalone financial statements complywith the Accounting Standards specified under section 133 of the Act and the Companies(Accounting Standards) Amendment Rules 2016;

(e) The matter described in the Basis for Qualified Opinion paragraph and Emphasis ofmatter paragraph above in our opinion may have an adverse effect on the functioning ofthe Company;

(f) On the basis of written representations received from the directors as on March 312017 and taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2017 from being appointed as a director in terms of section 164 (2) ofthe Companies Act 2013;

(g) The qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above;

(h) 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 2” to this report; and

(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 27 (a) to the standalone financialstatements;

ii. The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses on long-term contracts – Refer Notes 32and 33 to the standalone financial statements. The Company has no derivative contract;

iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company; and iv. The Company has provided requisitedisclosures in Note 17 to these standalone financial statements as to the holdings ofSpecified Bank Notes on November 08 2016 and December 30 2016 as well as dealings inSpecified Bank Notes during the period from November 08 2016 to December 30 2016.However as stated in Note 17 to these standalone financial statements amounts aggregatingto Rs. 0.18 Crores as represented to us by the Management have been utilized for otherthan permitted transactions

For S.R. BATLIBOI & ASSOCIATES LLP

Chartered Accountants

ICAI Firm Registration Number: 101049W/E300004

per Vikas Kumar Pansari

Partner

Membership Number: 093649

Place: Mumbai

Date: May 29 2017

Annexure 1 to the Independent Auditors' Report

Re: IL&FS Engineering and Construction Company Limited (‘the Company')

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

(b) All fixed assets have not been physically verified by the management during theyear but there is a regular programme of verification which in our opinion is reasonablehaving regard to the size of the Company and the nature of its assets.

Discrepancies identified on such verification which were not material have beenproperly dealt within the books of account.

(c) Based on our audit procedures performed for the purpose of reporting the true andfair view of the financial statements and according to information and explanations givenby the management the title deeds of immovable properties included in fixed assets areheld in the name of the Company.

(ii) The management has conducted physical verification of inventory at reasonableintervals during the year.

Discrepancies noted on physical verification of inventories which were not materialhave been properly dealt with in the books of account.

(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to companies firms limited liabilitypartnerships or other parties covered in the register maintained under section 189 of theCompanies Act 2013. Accordingly the provisions of clause 3(iii)(a) (b) and (c) of theOrder are not applicable to the Company and hence not commented upon.

(iv) In our opinion and according to the information and explanations given to usthere are no loans investments guarantees and securities granted in respect of whichprovisions of section 185 and 186 of the Companies Act 2013 are applicable and hence notcommented upon.

(v) The Company has not accepted any deposits from the public.

(vi) We have broadly reviewed the books of account maintained by the Company pursuantto the rules made by the Central Government for the maintenance of cost records undersection 148(1) of the Companies Act 2013 related to the construction industry andconstruction of roads and other infrastructure projects and are of the opinion that primafacie the specified accounts and records have been made and maintained. We have nothowever made a detailed examination of the same.

(vii) (a) Undisputed statutory dues including provident fund employees' stateinsurance income-tax sales-tax service tax duty of custom duty of excise value addedtax cess and other material statutory dues have generally been regularly deposited withthe appropriate authorities though there has been a slight delay in a few cases.

(b) According to the information and explanations given to us no undisputed amountspayable in respect of provident fund employees' state insurance income-tax service taxsales-tax duty of custom duty of excise value added tax cess and other materialstatutory dues were outstanding at the year end for a period of more than six monthsfrom the date they became payable.

(c) According to the records of the Company the dues outstanding of income-taxsales-tax service tax duty of custom duty of excise value added tax and cess onaccount of any dispute are as follows::

Name of the statute Nature of dues Amount demanded (Rs. In Crores) Paid Under Protest (Rs. In Crores) Period to which the amount relates (Assessment Years) Forum where dispute is pending
AP Value Added Tax 2005 Sales Tax and Penalty 0.86 0.05 2005-06 2006-07 and 2007-08 Sales Tax Appellate Tribunal Hyderabad
AP Value Added Tax 2005 Penalty on Sales Tax 0.36 0.18 2007-08 Appellate Deputy Commissioner Hyderabad
AP Value Added Tax 2005 Sales Tax 27.06 - 2007-08 High Court of Judicature at Hyderabad for the states of Andhra Pradesh and Telangana
Central Sales Tax Act1956 Penalty on Sales Tax 0.50 0.12 2002-03 and 2003-04 Sales Tax Appellate Tribunal Hyderabad
Central Sales Tax Act1956 Penalty on Sales Tax 0.70 0.20 2007-08 Appellate Deputy Commissioner Chhattisgarh
Finance Act 1994 Service Tax 9.70 - 2007-08 and 2008-09 Commissioner of Customs & Central Excise Hyderabad
Finance Act 1994 Penalty on Service Tax 0.28 - 2006-07 and 2007-08 The Customs Excise and Service Tax Appellate Tribunal Bengaluru
West Bengal Vat Act 2003 Sales Tax 0.06 - 2009-10 Joint Commissioner of Commercial Taxes Behrampore
West Bengal Vat Act 2003 Sales Tax 1.52 - 2008-09 West Bengal Appellate & Revisional Board
AP Value Added Tax 2005 Sales Tax 0.92 0.51 2008-09 Appellate Deputy Commissioner Hyderabad
Andhra Pradesh Tax on Professions Trades Callings and Employments Act 1987 Professional Tax 0.06 - 2008-09 Commercial Tax Officer Hyderabad
Finance Act 1994 Service Tax 0.12 - 2010-11 to 2011-12 Superintendent of Service Tax Hyderabad
AP Value Added Tax 2005 Sales Tax 1.85 - 2005-06 2006-07 2007-08 2008-09 and 2009-10 Commercial Tax Officer Hyderabad
AP Value Added Tax 2005 Sales Tax 4.12 - 2009-10 2010-11 2011-12 and 2012-13 Assistant Commissioner of Sales Tax (Enforcement) Hyderabad
AP Value Added Tax 2005 Sales Tax 0.21 0.03 2014-15 Appellate Deputy Commissioner Vishakapatnam
MP Entry Tax Act 1976 Entry Tax 0.27 0.03 2013-14 Asst. Commissioner commercial tax officer (Audit) Jabalpur MP.
Orissa Entry Tax Act 1999 Entry Tax 0.21 0.07 April 01 2010 to March 31 2014 Joint Commissioner of Sales Tax Cuttack
West Bengal Vat Act 2003 Sales Tax 0.11 - 2011-12 Senior Joint Commissioner West Bengal
West Bengal Vat Act 2003 Sales Tax 1.36 0.20 2012-13 Senior Joint Commissioner West Bengal
Finance Act 1994 Service Tax 3.47 0.26 October 2010 to March 15 Principal commissioner of service tax Hyderabad
AP Value Added Tax 2005 Sales Tax 0.11 - 2012-13 Commercial Tax Officer Hyderabad
Central Excise Act 1944 Excise Duty 12.04 0.50 February 2012 to February 2016 Commissioner of central excise Gurgaon
Income Tax Act 1961 Income Tax 1.23 0.62 2007-08
Income Tax Act 1961 Income Tax 12.95 12.95 2008-09
Income Tax Act 1961 Income Tax 14.26 10.79 2009-10 Commissioner of Income Tax (Appeals) Hyderabad
Income Tax Act 1961 Income Tax 6.62 4.66 2010-11
Income Tax Act 1961 Income Tax 2.31 1.04 2011-12

(viii) According to information and explanations given by the management the companydid not have any outstanding loans or borrowings to financial institutions Government anddues to Debenture holders as at the balance sheet date and there were no defaults as atthe balance sheet date.

(ix) According to information and explanations given by the management and on anoverall examination of the balance sheet we report that monies raised by the Company byway of term loans were applied for the purposes for which those were raised.

(x) Based upon the audit procedures performed for the purpose of reporting the true andfair view of the financial statements and according to the information and explanationsgiven by the management we report that no fraud by the company or no fraud by theofficers and employees of the Company has been noticed or reported during the year.

(xi) According to the information and explanations given by the management we reportthat the managerial remuneration has been paid / provided in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to the CompaniesAct 2013.

(xii) In our opinion the Company is not a nidhi company. Therefore the provisions ofclause 3(xii) of the order are not applicable to the Company and hence not commented upon.

(xiii) According to the information and explanations given by the managementtransactions with the related parties are in compliance with section 177 and 188 ofCompanies Act 2013 where applicable and the details have been disclosed in the notes tothe financial statements as required by the applicable accounting standards.

(xiv) According to the information and explanations given by the management theCompany has complied with provisions of section 42 of the Companies Act 2013 in respectof the preferential allotment of shares during the year. Based on our audit proceduresperformed for the purpose of reporting the true and fair view of the financial statementsand according to the information and explanations given by the management we report thatthe amounts raised have been used for the purposes for which the funds were raised.

(xv) According to the information and explanations given by the management the Companyhas not entered into any non-cash transactions with directors or persons connected withhim as referred to in section 192 of Companies Act 2013.

(xvi) According to the information and explanations given to us the provisions ofsection 45-IA of the Reserve Bank of India Act 1934 are not applicable to the Company.

For S.R. BATLIBOI & ASSOCIATES LLP

Chartered Accountants

ICAI Firm Registration Number: 101049W/E300004

per Vikas Kumar Pansari

Partner

Membership Number: 093649

Place: Mumbai

Date: May 29 2017

ANNEXURE 2 TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE STANDALONE FINANCIALSTATEMENTS OF IL&FS ENGINEERING AND CONSTRUCTION COMPANY LIMITED

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 (“the Act”)

We have audited the internal financial controls over financial reporting of IL&FSEngineering and Construction Company Limited (“the Company”) as of March 312017 in conjunction with our audit of the standalone financial statements of the Companyfor 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 Reporting issued by the Institute ofChartered Accountants of India. These responsibilities include the design implementationand maintenance of adequate internal financial controls that were operating effectivelyfor ensuring the orderly and efficient conduct of its business including adherence to theCompany's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013.

Auditor's 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”) and the Standards on Auditing as specified under section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of Internal Financial Controls and bothissued by the Institute of Chartered Accountants of India. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate internal financial controlsover financial reporting was established and maintained and if such controls operatedeffectively in all material respects.

An 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 qualified audit opinion on the internal financial controls overfinancial 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 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 explanations given to us and based on our audit thefollowing material weakness have been identified in the operating effectiveness of theCompany's internal financial controls over financial reporting as at March 31 2017: a.The Company's internal financial controls system over estimation of diminution in thecarrying value of investments and accrual of potential obligation in case of an overseassubsidiary was not operating effectively which could potentially result in misstatement inthe financial statements by way of Company not providing for adjustments/ provisions ifany that may be required.

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 the Company has in all material respects maintained adequate internalfinancial controls over financial reporting as of March 31 2017 based on the internalcontrol over financial reporting criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India and except for the possible effects of the material weaknessdescribed above on the achievement of the objectives of the control criteria theCompany's internal financial controls over financial reporting were operating effectivelyas of March 31 2017.

Explanatory paragraph

We also have audited in accordance with the Standards on Auditing issued by theInstitute of Chartered Accountants of India as specified under Section 143(10) of theAct the standalone financial statements of the Company which comprise the Balance Sheetas at March 31 2017 and the related Statement of Profit and Loss and Cash Flow Statementfor the year then ended and a summary of significant accounting policies and otherexplanatory information. These material weaknesses were considered in determining thenature timing and extent of audit tests applied in our audit of the March 31 2017standalone financial statements of the Company and this report affects our report datedMay 29 2017 on which we have expressed a qualified opinion on those standalone financialstatements .

For S.R. BATLIBOI & ASSOCIATES LLP

Chartered Accountants

ICAI Firm Registration Number: 101049W/E300004

per Vikas Kumar Pansari

Partner

Membership Number: 093649

Place: Mumbai

Date: May 29 2017