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Mahanagar Telephone Nigam Ltd.

BSE: 500108 Sector: Telecom
NSE: MTNL ISIN Code: INE153A01019
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VOLUME 1531
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VOLUME 1531
52-Week high 27.50
52-Week low 15.00
P/E
Mkt Cap.(Rs cr) 1,263
Buy Price 19.95
Buy Qty 100.00
Sell Price 20.10
Sell Qty 1348.00

Mahanagar Telephone Nigam Ltd. (MTNL) - Auditors Report

Company auditors report

TO

THE MEMBERS OFMAHANAGAR TELEPHONE NIGAM LIMITED

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements ofMahanagarTelephone Nigam Limited ("the Company’) which comprise the Balance Sheetas at 31st March 2016 the Statement of Profit and Loss and the Cash Flow Statement forthe year then ended and a summary of significant accounting policies and otherexplanatory 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 the financial position financialperformance and cash flows of the Company in accordance with the accounting principlesgenerally accepted in India including the Accounting Standards specified under Section133 of the

Act read with Rule 7 of the Companies (Accounts) Rules 2014. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding the assets of the Company and for preventing and detecting fraudsand other irregularities selection and application of appropriate accounting policies;making judgements and estimates that are reasonable and prudent; and designimplementation and maintenance of adequate internal financial controls that are operatingeffectively for ensuring the accuracy and completeness of the accounting records relevantto the preparation and presentation of the financial statements that give a true and fairview and are free from material misstatement 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 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 theAct. 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 theauditor’s 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 financial statements that give a true and fairview in order to design audit procedures that are appropriate in the circumstances. Anaudit also includes evaluating the appropriateness of the accounting policies used and thereasonableness of accounting estimates made by the Company’s Directors as well asevaluating 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 . onthe standalone financialstatements

Basis for Qualified Opinion

(i) The Company has certain balances receivables from and payables to BSNL. The netamount recoverable of Rs.3098.39 crores is subject to reconciliation and confirmation. Inview of non reconciliation and non confirmation and also in view of various pendingdisputes regarding claims and counter claims we are not in a position to ascertain andcomment on the correctness of the outstanding balances and resultant impact of the same onthe financial statements of the Company. (Also refer point no. 13 (a) of note no.34 to thefinancial statements).

(ii) The Company has certain balances receivables from and payables to Department ofTelecommunication (DOT). The net amount recoverable of Rs.8059.67 crores is subject toreconciliation and confirmation. In view of non reconciliation and non confirmation weare not in a position to ascertain and comment on the correctness of the outstandingbalances and resultant impact of the same on the financial the Company. (Also refer pointno. 19 (a) of note no.34 to the financial statements).

(iii) Upto financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNLwas worked out on accrual basis as against the terms of License agreements requiringdeduction for expenditure from the gross revenue to be allowed on actual payment basis.From financial year 2012-13 the license fee payable to the DOT has been worked outstrictly in terms of the license agreements. The Company continues to reflect thedifference in license fee arising from working out the same on accrual basis as aforesaidfor the period upto financial year 2011-12 by way of contingent liability of Rs.140.36crores instead of actual liability resulting in under statement of current liabilities andunder statement of loss to that extent. (Also refer point no. 5 of note no.34 to thefinancial statements).

(iv) The Company continues to allocate the overheads towards capital works in a mannerwhich is not in line with the accepted accounting practices and Accounting Standard -10"Accounting for Fixed Assets" under Section 133 of the Act read with Rule 7 ofthe Companies (Accounts) Rules 2014 the same results into overstatement of capital workin progress/ fixed assets and under statement of loss. The actual impact of the same onthe financial statements for year is not ascertained and quantified. (Also refer note no.25 and 28 to the financial statements).

(v) Except for the impairment loss of assets of CDMA units no adjustment has beenconsidered on account of impairment loss if any during the year with reference to AS-28"Impairment of Assets" specified under Section 133 of the Act read with Rule 7of the Companies (Accounts) Rules 2014. In view of uncertainty in achievement of futureprojections made by the Company we are unable to ascertain and comment on the provisionrequired in respect of impairment in carrying value of cash generating units and itsconsequent impact on the loss for the year accumulated balance of reserve and surplus andalso the carrying value of the cash generating units. (Also refer point no. 29 of noteno.34 to the financial statements). (vi) Amount receivables from and payables to thevarious parties are subject to confirmation and reconciliation. Pending such confirmationand reconciliations the impact thereof on the financial statements is not ascertainableand quantifiable. (Also refer point no. 16 of note no.34 to the financial statements).

(vii) Dues from the operators are not taken into account for making provision fordoubtful debts. Also in respect of Delhi Unit no provision for doubtful debts is made fordisputed cases outstanding for less than one year in Basic and for less than 180 days inGSM/CDMA. In the absence of any working the impact thereof on the financial statementscannot be ascertained and quantified. (Also refer point no. 3(b) of note no.1 to thefinancial statements).

(viii) (a) In Delhi Unit reconciliation of balances of subscriber’s deposits asper subsidiaryrecordswithfinancial books (WFMS) is still in progress and the impact ifany of the differences arising out of such reconciliation at present. (Also refer pointno. 15(a) of note onfinancialstatementscannotbe ascertained and quantified no.34 to thefinancial statements).

(b) Unlinked credit of Rs.13.79 crores on account of receipts from subscribers againstbilling by the Company which could not be matched with corresponding receivables areappearing as liabilities in the balance sheet. To that extent trade receivables and othercurrent liabilities are overstated. (Also refer point no. 15(c) of note no.34 to thefinancial statements).

(ix) In the absence of detailed information i.e. break up of amount received withrelation to the individual invoices raised through MACH invoice wise reconciliation ofthe roaming debtors is pendingin Delhi Unit.

Pending such reconciliation the impact of the same on the financial statements cannotbe ascertained and quantified. (Also refer point no. 17 of note no.34 to the financialstatements).

(x) Fixed assets are generally capitalised on the basis of completion certificatesissued by the engineering department or bills received by finance department in respect ofbought out capital items. Due to delays in issuance of the completion certificates orreceipt of the bills there are cases where capitalisation of the fixed assets getsdeferred to next year. The resultant impact of the same on the statement of profit andloss by way of depreciation and amount of fixed assets capitalised in the balance sheetcannot be ascertained. (xi) Certain Land and Buildings transferred to MTNL from DOT inearlier years have been reflected as leasehold. In the absence of relevant records we arenot in a position to comment on the classification capitalization and amortisation of thesame as leasehold and also the consequential impacts if any of such classificationcapitalization and amortisation not backed by relevant records. In the absence of relevantrecords impact of such classification on the financial statements cannot be ascertainedand quantified.

(xii) Department of Telecommunication (DOT) had raised a demand of Rs.3313.15 crores in2012-13 on account of one time charges for 2G spectrum held by the Company for GSM andCDMA for the period of licence already elapsed and also for the remaining valid period oflicence including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA has been revised by Rs.107.44crores on account of rectification of actual usage. Also as explained pending finality ofthe issue by the Company regarding surrender of a part of the spectrum crystallisation ofissue by the DOT in view of the claim being contested by the Company and because of thematter being sub-judice in the Apex Court on account of dispute by other private operatorson the similar demands the amount payable if any is indeterminate. Accordingly noliability has been created for the demand made by DOT on this account and Rs.3205.71crores has been disclosed as contingent liability.

In view of the above we are not in a position to comment on the correctness of thestand taken by the Company and the ultimate implications of the same on the financialstatements of the Company. (Also refer point no.4 of note no.34 to the financialstatements).

(xiii) Other current assets include claim of Income tax refund for F.Y. 1999-2000 ofRs.101.54 crores arising from pending appeal effect / rectification under Section 154 ofIncome Tax Act 1961 by income tax department.

This includes tax amount of Rs.60.30 crores and interest accrued thereon amounting toRs.41.24 crores. In the absence of complete records we are not in a position to commenton the correctness and recoverability of the same and consequential impact on thefinancial statements of the Company.

(xiv) The balances appearing in the advance tax/income tax receivable / tax deducted atsource / interest on income tax and provisions for taxes are subject to reconciliationwith the tax records. Pending reconciliations we are not in a position to comment on thecorrectness of the same and consequential impact of the same on the financial statementsof the Company.

(xv) In Delhi Unit there is no laid down process / system to reconcile the service taxliability with the total revenue or with the debtors or under reverse charge mechanism. Inaddition there is no reconciliation process with respect to service tax payment or ofoutstanding service tax recoverable. In the absence of any such working / reconciliationwe are not in a position to comment on the correctness of the service tax liability

/ service tax recoverable and the consequent impact thereof on the financial statementsof the Company. (xvi) Pending identification and details of the assets lost/destroyed byfire/theft in earlier years against which insurance claims amounting to Rs.24.52 croreshave been lodged in Mumbai Unit the same continue to appear in the schedule of FixedAssets under the head Gross Block Accumulated Depreciation and Net Block. In the absenceof details of such assets we are not in a position to comment on the impact there of onthe financial statements of the Company (Also refer point no.7(b) of note no.34 to thefinancial statements).

(xvii) In respect of fixed assets of Delhi Unit and Corporate Office depreciationcharged is not fully in line with the requirements of Schedule II to the Companies Act2013. In the absence of required details we are not in a position to comment on impactthere of on the financial statements of the Company.

In the absence of information the effect of which can not be quantified we are unableto comment on the possible impact of the items stated in the point nos.(i) (ii) (iv)(v) (vi) (vii) (viii)(a) (ix) (x) (xi) (xii)(xiii) (xiv) (xv) (xvi) and (xvii)on the standalone financial statements of the Company for the year ended on 31st March2016.

We further state that without considering the impact of items stated in preceding parathe effect of which could not be determined had the observations made by us in point nos(iii) and (viii)(b) been considered in the standalone financialstatements loss for theyear would have been Rs.2146.10 crores as against the reported figure ofRs.2005.74 croresin the Statement of Profit and Loss and Trade receivables under the head Current Assetswould have been Rs.323.50 crores as against the reported figure Rs.337.29 crores OtherCurrent Liabilities would have been Rs.4405.97 crores as against the reported figure ofRs.4279.40 crores in the Balance Sheet.

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 matters described in the Basis forQualified Opinion paragraph the standalone 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 of the state of affairs of theCompany as at 31st March 2016 and its losses and its cash flows for the year ended onthat date.

Emphasis of Matters

We draw attention to the following notes on the standalone financial statements beingmatters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us. Ouropinion is not qualified in respect of these matters: (i) Point no. 26 of note no.34 tothe financial statements regarding non provision of diminution in the value of investmentsin joint ventures/subsidiary as these diminutions are considered temporary in nature.

(ii) Point no. 8(a) of note no.34 to the financial statements regarding the adequacy orotherwise of the provision and / or contingency reserve held by the Company with referenceto pending dispute with the Income

Tax Department before the Hon’ble Courts regarding deduction claimed by theCompany u/s 80 IA of the Income Tax Act1961. (iii) Point no.12(a) of note no.34 to thefinancial statements regarding accounting of claims and counter claims of MTNL with M/SM&N Publications Ltd. in a dispute over printing publishing and supply of telephonedirectories for MTnL in the year when the ultimate collection / payment of the samebecomes reasonably certain.

(iv) Classification of trade receivables as unsecured without considering the securitydeposit which the Company has received from the subscribers. (Also refer note no.19 to thefinancial statements).

(v) Amount receivable from BSNL has been reflected as loans and advances instead ofbifurcating the same into trade receivables and other receivables. (Also refer note no. 19to the financial statements).

(vi) Disclosure of consumption of imported and indigenous stores and spares andpercentage to the total consumption as required by Schedule III of the Companies Act 2013has not been made by the Company in the financial statements.

(vii) The financial statements of the Company reflect that net worth of the Company hasvirtually eroded TheCompany has incurred net cash loss during the current year as well asin the previous year and the current liabilities exceeded the current assetssubstantially. all these conditions indicate the existence of material uncertainty thatmay cast significant doubts about the Company’s ability to continue as a goingconcern. However the financial statements of the Company have been prepared on a goingconcern basis for the reasons statedinthepointno . 38ofnoteno 34tothefinancialstatements

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order 2016 ("theOrder") issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the Act we give in the Annexure - ‘A’ a statement on the mattersspecified in paragraphs 3 of the Order to the extent applicable.

2. As required by Section 143(5) of the Act we give in Annexure B a statement on thematters specified the Comptroller and Auditor-General of India for the Company.

3. 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 bestof our knowledge and belief were necessary for the purpose of our audit except for thematters described in point nos.(i) (ii) (iv) (v) (vi) (vii) (viii)(a) (ix) (x)(xi) (xii)(xiii) (xiv) (xv) (xvi) and (xvii) of the paragraph on Basis of QualifiedOpinion given above ;

(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books except for our commentsunder the head ‘Basis for Qualified Opinion’ stated above; (c) The BalanceSheet the Statement of Profit and Loss and the Cash Flow Statement dealt with bythisReport are in agreement the books of account;

(d) In our opinion and based on our comments in point nos. (iv) (v) (x) (xi) (xii)(xvi) and (xvii) of the paragraph on Basis for Qualified Opinion given above comply withthe Accounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014 except for AS-6 regarding Depreciation Accounting AS-10regarding Accounting of Fixed Assets AS-28 regarding Impairment of Assets and AS 29 onProvisionsContingent Liabilities and Contingent Assets;

(e) In view of the Government notification No. GSR 463 (E) dated 5th June 2015government companies are exempt from the applicability of Section 164 (2) of the Act;

(f) With respect to the adequacy of internal financial controls over financialreporting of the Company and operating effectiveness of such controls refer to ourseparate report in "Annexure C": (g) The qualification relating to themaintenance of accounts and other matters connected therewith are as stated in the Basisfor Qualified Opinion paragraph above.

(h) With respect to the other matters to be included in the Auditors 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. theCompany has disclosed the impact of pending litigations wherever quantifiable on itsfinancial position in its financial statements. Refer point no. 1 and 12 of Note no. 34 tothe financial statements. ii. the Company is not required to make any provision for anymaterial foreseeable losses under any law or accounting standards on long terms contracts.Also the Company is not dealing into derivatives contracts. Refer point no. 36 of Note no.34 to the financial statements. iii. There has been no delay in transferring any amount tothe Investor Education and Protection Fund during the year. Refer point no 35 of NoteNo .34tothefinancial statements

For V. K. DHINGRA & CO. For MEHRA GOEL & CO
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Regn. No. 000250N Firm Regn. No. 000517N
(V.K. DHINGRA) (R. K. MEHRA)
PARTNER PARTNER
M. NO. 014467 M. NO. 006102
PLACE : NEW DELHI
DATED : May 30 2016

ANNEXURE-A

ANNEXURE TO THE INDEPENDENT AUDITORS’ REPORT

REFERRED TO IN OUR INDEPENDENT AUDITORS’ REPORT OF EVEN DATE TO THE MEMBERS OFMAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE FINANCIAL STATEMENTS FOR THE YEARENDED 31ST MARCH 2016.

(i) (a) Delhi unit has maintained records of fixed assets. However in MS unit-Delhiidentification number are not mentioned. It has been noticed that records of the EstatesDepartment in respect of land and building do not match with the records as per financialbooks. In case of Mumbai unit (both basic and WS) fixed assets registers have beenmaintained w.e.f. 01.04.2002. However the fixed assets records maintained by the Mumbaiunit are not updated and reconciled with the financial records. Also identificationnumbersare not mentioned in respect of most of the items. The corporate office has maintainedfixed assets records showing full particulars including quantitative details and situationof fixed assets.

(b) As per the accounting policy of the company fixed assets are required to bephysically verified by the management on rotation basis once in three years which in ouropinion is reasonable and adequate in relation to the size of the Company and the natureof its business. As certified by the management Land & Vehicles and Apparatus &Plants were physically verified in accordance with programme of verification by themanagement during the year and no material discrepancies were noticed on suchverification.

(c) Title deeds of most of the immovable properties recorded in the books of theCompany are not held in the name of the Company. Details of such properties are givenhereunder:

(Rs. in Crores)
PARTICULARS DELHI UNIT MUMBAI UNIT
Free Hold Land
-Total number of Cases 1 29
-Gross Block 0.06 Rs. 3.85
Lease Hold Land
-Total number of Cases 89* 17
-Gross Block 219.53 Rs. 2.17
-net Block 156.46 Rs. 1.36
Building
-Total number of Cases 53** 3
-Gross Block 32.37 Rs. 3.57
-net Block 4.92 Rs. 2.85

* In respect of 43 cases out of 89 where the lease hold land acquired from DOT havebeen capitalised by the MTNL and no data is available in respect of depreciation and netWDV of such assets as the same is not identifiable from the fixed assets register.

** No information is available in respect of lease hold buildings allotted by thevarious govt. authorities to MTNL but the same has been capitalised by the MTnL and due tonot availability of information the aforesaid cases has not been included in the abovedetails.

(ii) In our opinion physical verification of inventory has been conducted by themanagement at intervals except Sub-stores of Basic Unit Delhi and store of WS Unit Delhiduring the year. Discrepancies noticed on physical verification of inventory as comparedto book records were not material and have been properly dealt with in the books ofaccounts.

(iii) The Company has not granted any secured or unsecured loans to companies firms limited liability partnerships or other parties covered in the register maintained undersection 189 of the Companies Act 2013 (‘the Act’). Thus paragraph 3(iii) ofthe Order is not applicable

(iv) The Company has not entered any transaction involving compliance with theprovisions of Section 185 and 186 of the Companies Act 2013. Thus paragraph 3(iv) of theOrder is not applicable

(v) The Company has not accepted any deposits from the public within the meaning ofSection 73 to Section 76 or any other relevant provisions of the Companies Act 2013 orrules framed thereunder.

(vi) As per information and explanation given to us Company is required to maintainthe cost records under Section 148(1) of the Companies Act 2013. As explained the Companyhas not yet maintained the required cost records for 2015-16.

(vii) a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company amounts deducted/ accrued in the books ofaccount in respect of undisputed statutory dues including provident fund employee’sstate insurance income tax sales tax service tax duty of customs duty of excisevalue added tax cess and other material statutory dues wherever applicable have beenregularly deposited during the year by the Company with the appropriate authorities.According to the information and explanations given to us no undisputed amounts payablein respect of provident fund employee’s state insurance income tax sales taxservice tax duty of customs duty of excise value added tax cess or other materialstatutory dues were in arrears as at 31 March 2016 for a period of more than six monthsfrom the date they became payable.

(b) According to the information and explanations given to us there are no dues ofIncome tax Sale tax service tax duty of customs duty of excises value added taxwhich have not been deposited with the appropriate authorities on account of any disputeexcept for the following dues:

Delhi Unit i. Sales Tax

Name of the Statute Amount (Rs. in Crores) L.S.T (Net) Period Authority where Forum where the dispute is pending
Delhi Value Added Tax Act 2004 12.21 2007-08 Delhi Value Added Tax Tribunal
Delhi Value Added Tax Act 2004 62.60 2009-10 & 2010- 11 (CWG 2010) Delhi Value Added Tax Tribunal
Central Sales Tax Act 1956 0.04 2012-13 Addl. Comm. Sales Tax
TOTAL 74.85

ii. Service Tax

Name of the Statute Amount (Rs. in Crores) (Net) Period Forum where the dispute is pending
Finance Act 1994 8.98 2005-06 Commissioner of Central Excise and Service Tax
Finance Act 1994 22.03 2007-08 Custom Excise and Service Tax Appellate Tribunal
TOTAL 31.01

iii. Labour Cess

Name of the Statute Amount (Rs. in Crores) (Net) Period Forum where the dispute is pending
Building and other Construction Workers Welfare Cess Act 1996. 9.73 1996 to 2001 Deputy Labor Commissioner

Mumbai Basic Unit

Sales Tax:

Name of the Statute Amount under dispute (Rs. in Crores) (Net) Year to which amount relates Forum where the dispute is pending
BST ACT 0.36 1993-94 Maharashtra Sales Tax Tribunal Mumbai
BST ACT 1.91 1998-99 Maharashtra Sales Tax Tribunal Mumbai
BST ACT 3.52 1999-2000 Maharashtra Sales Tax Tribunal Mumbai
BST ACT 5.48 2000-01 Maharashtra Sales Tax Tribunal Mumbai
BST ACT 10.16 2001-02 Maharashtra Sales Tax Tribunal Mumbai
BST ACT 216.11 2003-04 Maharashtra Sales Tax Tribunal Mumbai
BST ACT 101.57 2004-05 Maharashtra Sales Tax Tribunal Mumbai
BST ACT 6.11 2011-12 Jt. Commissioner of Sales Tax Mumbai
Total 345.22

Luxury Tax

Name of the Statute Amount under dispute (Rs. in Crores) (Net) Year to which amount relates Forum where the dispute is pending
BST ACT 1.57 2011-12 Deputy Commissioner of Sales Tax Mumbai

Mumbai MS Unit

Central Excise:

Name of the Statute Amount Under dispute not deposited (Rs. in Crores) Year to Which Amount Relates Forum where the dispute is pending
Central Excise Act 0.29 2004-05 Custom Excise and Service Tax Appellate Tribunal
Central Excise Act 0.26 2005-06 Custom Excise and Service Tax Appellate Tribunal
Central Excise Act 0.32 2006-07 Custom Excise and Service Tax Appellate Tribunal
Total 0.87

(viii) The Company has not defaulted in the repayment of dues to banks or debentureholders. The Company has not taken any loan from any financial institution or Government.

(ix) The Company has neither made any public offer ( including debt instruments )during the year nor has taken any term loan during the year. Accordingly paragraph 3 (ix)of the Order is not applicable.

(x) Based on audit procedures applied and according to the information and explanationsgiven to us we report that no fraud on or by the Company has been noticed or reportedduring the course of our audit for the year ended on 31st March 2016 except for thefollowing case:

Nature of Fraud Amount (Rs. in Crores) Remarks
Misappropriation of cable store item in Moti nagar Cable Store under area GM (West) new Delhi not yet ascertained Case is under examination.

(xi) In view of the Government notification No. GSR 463 (E) dated 5th June 2015government companies are exempt from the applicability of Section 197 of the Companies Act2013. Accordingly clause 3 (xi) of the Order is not applicable to the Company.

(xii) In our opinion and according to the information and explanations given to us thecompany is not a nidhi company. Hence Clause 3 (xii) of the Order is not applicable tothe Company.

(xiii) In our opinion and as per the information and explanation given to us thecompany has not entered into any transaction requiring compliance with Section 177 and 188of the Companies Act 2013.Hence Clause 3 (xiii) of the Order is not applicable to theCompany.

(xiv) Based on the information and explanation given to us the Company has not madeany preferential allotment or private placement of shares or fully or partly convertibledebentures during the year under review requiring compliance with Section 42 of theCompanies Act 2013. Hence Clause 3 (xiv) of the Order is not applicable to the Company.

(xv) Based on the information and explanation given to us the Company has not enteredinto any non-cash transactions with directors or persons connected with him. Hence Clause3 (xv) of the Order is not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to usCompany is not required to register under Section 45 -IA of the Reserve Bank of India Act1934. Hence Clause 3 (xvi) of the Order is not applicable to the Company.

For V. K. DHINGRA & CO. For MEHRA GOEL & CO
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Regn. No. 000250N Firm Regn. No. 000517N
(V.K. DHINGRA) (R. K. MEHRA)
PARTNER PARTNER
M. NO. 014467 M. NO. 006102
PLACE : NEW DELHI
DATED : May 30 2016

ANNEXURE - B

ANNEXURE TO THE INDEPENDENT AUDITORS’ REPORT

REFERRED TO IN OUR INDEPENDENT AUDITORS’ REPORT OF EVEN DATE TO THE MEMBERS OFMAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE FINANCIAL STATEMENTS FOR THE YEARENDED 31ST MARCH 2016.

Directions indicating the areas to be examined by the Statutory Auditors during thecourse of audit of annual accounts of Mahanagar Telephone nigam Limited (Standalone) forthe year 2015-16 issued by the Comptroller

& Auditor General of India under section 143(5) of the Companies Act 2013.

Based on the information and explanations given to us we report as under:

Areas Examined Observation / Finding
1 Whether the company has clear title/lease deeds for freehold and leasehold respectively? If not please state the area of freehold and leasehold land for which title/lease deeds are not available. The Company does not have clear title/lease deeds in a number of cases. Summarized position of such cases is as under:
DELHI UNIT
The Company does not have clear title deeds in respect of 1 land property at Minto Road Delhi and classified as freehold. Also Company does not have any lease deed in respect of 89 cases of land properties spread across Delhi and classified as Leasehold.
MUMBAI UNIT
The Company does not have clear title deeds in respect of 29 cases of land properties spread across Mumbai and classified as freehold. Also Company does not have lease deeds in respect of 17 cases of land properties spread across Mumbai and classified as Leasehold.
2 Please report whether there are any cases of waiver / write off of debts / loans / interest etc. if yes the reason therefore and the amount involved. The details of cases of waiver / write off of debts / loans / interest by the Company during the year are as under:
Particulars (Rs. in Crores)
Write off of debts 28.36
Due to non recoverability
Waiver of penalty & 0.00
interest
TOTAL 28.36
3 Whether proper records are maintained for inven- tories lying with third parties & assets received as gift from Govt. or other authorities. a. There are no inventories lying with third parties.
b. The Company has not received any assets as gifts from Government or other authorities during the year.

ANNEXURE - C

ANNEXURE TO THE INDEPENDENT AUDITORS’ REPORT

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

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 MahanagarTelephone Nigam Limited ("the Company") as of 31st March 2016 in conjunctionwith our audit of the 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 internalfinancialcontrols based on the internal control over financialreporting 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 (‘ICAI’). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company’s policies the safeguardingof its assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under theCompanies 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") and the Standards on Auditing issued by ICAI and deemedto be prescribed under section 143(10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls both applicable to an audit ofInternal Financial Controls and both issued by theInstitute of Chartered Accountants ofIndia. Those Standards and the Guidance note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated 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 judgment 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 processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal financial control overfinancial reporting includes those policies and procedures that : (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflectthetransactions and dispositions of the assets of the company;(2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures 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 weaknesses have been identified as at March 31 2016: (i) The companydid not have an appropriate internal control system for identification of overheads to becapitalized with the cost of fixed assets which could potentially result into under /overcapitalization of fixed assets and corresponding impact on the operational results of theCompany.

(ii) The company did not have appropriate internal control system for ensuringcapitalization of fixed assets as and when the same is ready for use due to delayed issueof completion certificate by engineering department or due to delay in receipt of billsfrom the vendors for bought out items. This could potentially result into undercapitalisation and corresponding impact on the operational results due to lower charge ofdepreciation.

(iii) The company did not have an appropriate internal control system to ensure thatprovisions made pending receipt of bills from vendors/contractors at the quarter end andyear end are duly reversed when actual bills are received and accounted for. This couldpotentially result in the same being accounting twice.

(iv) The company did not have an integrated ERP system. Different software packagesused by the company are interfaced through software links or manual intervention leavinggaps between them. This could potentially result into impaired financial reporting.

(v) The company did not have an appropriate internal control system for reconciliationof vendor/contractor accounts which could potentially result in some changes in thefinancial statements.

(vi) The company did not have an appropriate internal control system for deduction and/or deposit of statutory dues like service tax and works contract tax resulting into orwhich could potentially result in non deduction and/ or deposit of statutory dues withconsequential impact in financial statements.

(vii) The company did not have effective internal audit system so as to cover all majorareas with extensive scope. This could potentially result into weak checks and balancesand unreported financial irregularities ultimately resulting into distorted financialreporting.

(viii) The company did not have appropriate internal control systems to reconcile thefinancial accounts pertaining to income tax and service tax with the relevant tax recordsand returns. This could potentially result into under/ overstatement of such amounts inthe financial statements.

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 except for the effects / possible effects of the material weaknessesdescribed above on the achievement of the objectives of the control criteria the Companyhas maintained in all material respects adequate internal financial controlsoverfinancialreporting and such internal financial controls over financial reporting wereoperating effectively as of March 31 2016 based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India. We haveconsidered the material weaknesses identified and reported above in determining thenature timing and extent of audit tests applied in our audit of the March 31 2016financial statements of the Company and these material weaknesses do not affect ouropinion on the financial statements of the Company.

For V. K. DHINGRA & CO. For MEHRA GOEL & CO
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Regn. No. 000250N Firm Regn. No. 000517N
(V.K. DHINGRA) (R. K. MEHRA)
PARTNER PARTNER
M. NO. 014467 M. NO. 006102
PLACE : NEW DELHI
DATED : MAY 30 2016