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PSL Ltd.

BSE: 526801 Sector: Metals & Mining
NSE: PSL ISIN Code: INE474B01017
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OPEN 3.71
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VOLUME 11450
52-Week high 8.00
52-Week low 2.73
P/E
Mkt Cap.(Rs cr) 48
Buy Price 3.72
Buy Qty 1878.00
Sell Price 3.84
Sell Qty 3850.00
OPEN 3.71
CLOSE 3.79
VOLUME 11450
52-Week high 8.00
52-Week low 2.73
P/E
Mkt Cap.(Rs cr) 48
Buy Price 3.72
Buy Qty 1878.00
Sell Price 3.84
Sell Qty 3850.00

PSL Ltd. (PSL) - Auditors Report

Company auditors report

AUDITORS’ REPORT

To

The Members of PSL Limited Report on the Financial Statements

We have audited the accompanying financial statements of PSL Limited (‘theCompany’) which comprises of the Balance Sheet as at 31st March 2016 theStatement of Profit and Loss Account and the Cash Flow Statement for the year ended on thesaid date and a summary of significant accounting policies and other explanatoryinformation.

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& presentation of these standalone financial statements that give a true and fair viewof the financial position financial performance and cash flows of the Company inaccordance with the accounting principles generally accepted in India including theAccounting Standards specified under Section 133 ofthe Act read with Rule 7 oftheCompanies (Accounts) Rules

2014. This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialreporting 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 materialmisstatements whether due to fraud or error.

Auditors’ 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 theprovision of the Act and 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 the ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amount anddisclosures in the financial statements. The procedures selected depend on theauditor’s judgment including the assessment of the risk of material misstatement ofthe financial statements whether due to fraud or error. In making those risk assessmentsthe auditor considers internal control relevant to the Company’s preparation and fairpresentation of the financial statements in order to design audit procedures that areappropriate in the circumstances but not for the purpose of expressing an

opinion on the effectiveness of the Company’s internal control. An audit alsoincludes evaluating the appropriateness of the accounting policies used and thereasonableness of the accounting estimates made by the Management as well as evaluatingthe overall presentation of the financial statements.

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

Opinion

In our opinion and to the best of the information and according to the explanationsgiven to us the aforesaid financial statements give the information required by the Actin the manner so required and give true and fair view in conformity with the accountingprinciples generally accepted in India.

(i) in the case of the Balance Sheet of the state of affairs of the Company as at 31stMarch 2016.

(ii) in the case of the Statement of Profit and Loss of the Loss of the Companyfor the year ended on that date and

(iii) in the case of the Cash Flow Statement of the cash flows of the Company for theyear ended on that date.

Emphasis of Matter

We draw attention to:

1. Long Term Borrowings: Note No. 4 of Balance Sheet and Schedules.

Default In Payment to Banks

Based on our audit procedure and as per the information and explanation given to usthe company has defaulted in repayment of loans and interest to the banks and financialinstitutions as on 31st March 2016.

2. Consequent upon the financial stress that the company had to suffer it filed anapplication before Corporate Debt Restructuring (CDR) Cell on 6th March 2013for restructuring of its entire debts as on 1st January 2013. After detaileddeliberations at various meeting of company’s creditors at the CDR Cell arestructuring package for the Company was finally approved by CDR Empowered Group on 23rdSeptember 2013. Since then different terms and conditions included in the subjectpackage are being complied with.

In terms of the aforesaid Letter of Approval for the CDR package:

a) The promoters of the Company were required to make a total contribution of Rs.146.81 Crore by way of subscribing to the equity capital of the Company/ unsecured loan sothat the said contribution constitutes 25% of the total sacrifice computed for theaforesaid restructuring.

b) Since a portion of outstanding debts of various lenders of the company wascompulsorily required to be converted

into equity shares and assignment of the debt of one of the Lender of the Companynamely Yes Bank Limited to Edelweiss Assets Reconstructions Company (EARC) had takenplace the said EARC had executed a Deed of Accession to Master Restructuring Agreement(MRA). Accordingly for the debt amount of Rs.2.72 Crores 1046150 equity shares wereallotted by the company at the rate of Rs.26/- per share. However since afterrecomputation of EARCs debt it was observed that even the remaining debt of Rs.2.28 Croreswas also required to be converted into equity share of the company the process ofallotment of 876926 equity shares to the said EARC’s on preferential allotment basiswas initiated by the company as a result of which the in-principle approval from BombayStock Exchange (BSE) has been procured.

c) The Board of the Directors has in accordance with the SEBI (ICDR) Regulations bypassing a resolution in circulation on 5th February 2015 also duly ratified on10th February 2015 considered and approved subject to the approval of themembers of the company the proposal of issuance of a total of 49742306 Equity Sharesof face value of Rs.10/- (Total Ten only) each at a total price of Rs.26/- (Rupees TwentySix only) per equity share (including premium of Rs.16/-) to the Promoters/Promoters GroupEntities of the promoters group hereinafter collectively referred to "ProposedAllottees" of the Company as mentioned at Point a) and b) above calculated inaccordance with the Regulation 76 of Chapter VII of the SEBI (ICDR) Regulations for anaggregate value of Rs.129.33 Crores (Rupees One Hundred Twenty Nine Crores Thirty ThreeLacs only).

i) The equity shares shall be subject to lock-in for a period in accordance with theprovisions of the SEBI (ICDR) Regulations.

ii) The equity shares now to be issued shall rank pari passu with the existing equityshares of the Company in all respects.

d) The pre-preferential shareholding of Punj International (P) Ltd. and Punj Investment(P) Ltd. are pledged with ICICI Bank with effect from 18-2-2013.

e) The Company had allotted 1046150 equity shares to Edelweiss Assets ReconstructionCompany Limited under CDR Scheme on 30.12.2014 which was locked in from 31-12-2014 to5-2-2016. These shares are now further locked-in from 5-4-2016 to 31-12-2016.

f) For issuance of aggregate of 50619232 equity shares to the promoter group (as statedin C above) and to one of the creditors (as stated in b above) the company has procuredan in-principle approval from Bombay Stock Exchange (BSE). However the said shares areproposed to be allotted by the company in near future only after receipt of the similarapproval from National Stock Exchange (NSE)

g) As some of the conditions of the CDR package could not be implemented in letter andspirit various banks which had advanced its facilities to the company have chosen totreat their outstanding dues to the company as Non Performing Assets (NPA)

3. As the company has been continuously facing acute financial crunch due to lowturnover and profitability in the last few years the Company’s Net Worth got erodedand became negative as a result of high quantum of accumulated losses. Due to suchprevalent situation the company had become a Sick Industrial Company in terms of Section 3(1)(o) of Sick Industrial Company Act (SICA) and therefore on 19th June 2015a reference was made by it to the Board for Industrial and Financial Restructuring (BIFR).A said reference was admitted on 8th September 2015 the company has beenrestrained from disposing off or eliminating in any manner the fixed asset of the companywithout the prior consent of BIFR.

4. The financial statements being prepared on a going concern basis notwithstandingthe fact that the Company’s network is eroded a reference is made to the Board ofIndustrial and Financial Restructuring (BIFR) some of the conditions of the CDR packagecould not be implemented in letter and spirit various banks which had advances itsfacilities to the company have chosen to treat their outstanding dues to the company asNon Performing Assets (NPA) and four lenders have declared the Company’s account asfraud or Red Flag account (RFA) in their books. These events cast significant doubt on theability of the Company to continue as a going concern. The appropriateness of the saidbasis is inter-alia dependent on the Company’s ability to infuse requisite funds formeeting its obligations (including statutory liabilities and those in respect of contractsentered into for purchase of goods and assets) rescheduling of debt/other liabilities andresuming normal operations.

5. Lender Banks’ Balance Confirmation as on 31st March 2016:

We have been informed by the officials of the company that although the company hasrequested its various bankers to issue their confirmation letters confirming the balanceswith respect to various Bank Accounts/Bank Guarantee/Letter of Credit/Corporate Guaranteegiven by company for its subsidiaries company as on 31st March 2016 but thesame have not yet been issued. Pending balance confirmation book balances as on 31stMarch 2016 have been taken in the accounts of the Company.

6. Due to non-implementation of CDR package there is a Cash and Capital Crunch and theCompany is under stress due to reduction in turnover slow-down in economic environmentincrease in the cost of production as well as due to idle labour lack of sufficientorders and reduced net realization in comparison to the increase cost of sales.

7. It is noticed that the business of the Company is at stand still and not muchproduction activity is carried out except negligible production which has been carried outin Vizag Chennai and Jaipur factories. Hence the overall sales of the Company are alsovery low.

8. The Company has reported a Net Loss of Rs.46.85 Crores for the 3 months ended or 31stMarch 2016 against preceding 3 months net loss of Rs. 84.4 Crores ended on 31stDecember

2015.

9.1 The Company has not provided for the interest amounting to Rs.627.21 Crores for theperiod from 1st January 2013 to 31st December 2014 which was to bebuilt up as funded interest term loan (FITL) on the Working Capital Term Loan and CashCredit.

9.2 The Company has also not provided for the interest amounting to Rs.364.66 Croresfor the year 1-4-2015 to 31-3

2016. This would also increase the loss of the year.

9.3 The financial performance had deteriorated substantially in last 12 months. Themanufacturing cost has gone up. There is weakness in demand. The Company continue to dealwith a range of uncertainties. The interest payments exceeded its operating income. TheCompany is not able to service its debts.

9.4 The loss of the year is Rs.1355.98 Crores.

10. Outstanding loan of Aditya Birla Finance Limited (ABFL)

Although one of company’s creditors namely ABFL has chosen for transactionspecific membership of CDR Group it has yet to execute the Master Restructuring Agreementalready executed by super majority of CDR Lenders. Consequent upon ABFL’s complaintto Economic Offences Wing (EOW) the latter advised some of the bankers of the company fora debit freeze of the amount lying to company’s credit in some such bank accounts. Asa result approximately Rs. 100 million which could have been used by the company for itsOperating Expense Insurance Payment and payment of Loan to Company’s lenders gotfrozen. However the Company has initiated legal steps for de-freezing the said amount.

11. Due to flood during the month of November 2015 the Company’s Chennai factoryhas incurred loss of materials and machinery worth Rs.4.32 Crores. The claim received fromInsurance Co. amounting to Rs.2.15 Crores and balance amount Rs.2.17 Crores yet to bereceived by the Company.

12. Inventory Current Assets:

a) The closing inventory as on 31st March 2016 is Rs.156.38 Crores.

b) Closing inventory as on 31st March 2016 includes CWIP of Rs.17.07Crores and was valued at cost. The valuation of stock was not done as per AccountingStandard 2 "Valuation of Inventory" issued by ICAI. It was explained that theitems of stock on hand are of specific nature and tailor made for individual customerorders and accordingly valued at cost.

c) During the year some old and non-moving stock was sold as a distress sale and havingrealized Rs.25.78 Crores. The Company has provided for resultant loss on sale of old andnon-moving stock and also made provision for remaining stock / non-moving stock totalingto Rs. 1006.48 Crores during the year. As certified by the management balance stock isRs.156.38 Crores as of 31.03.2016 (valued at cost).

13. Depreciation:

The Company has not carried out detailed assessment of the useful life ofCompany’s assets and hence depreciation charge has not been adjusted accordingly asper the notification to Schedule II of the Companies Act 2013.

14. Operations Maintenance and Management Agreement with Jindal Tubular (India) Ltd.

a) As per the Operations Maintenance and Management Agreement with Jindal Tubular(India) Limited they have taken over operations of the following three units of theCompany on the dates shown against them:-

With effect from
Vizag 15.06.2015
Jaipur 16.07.2015
Varsana 03.08.2015

b) It will not be out of place to mention that Jindal Tubular (India) Limited hasshifted from Varsana. Complete Pipe Mill on line and complete Coating Plant on linetogether with sheds Trailors Cranes etc. to their unit Ambapura Madhya Pradesh fortheir manufacturing purpose. This is contrary to the Agreement. This matter is pendingwith the Excise Department.

c) The Company has handed over the Jaipur facility to Jindal Tubular (India) Limited(JTIL) under OMMA. JTIL had taken a provisional excise license. The Excise Department hasinformed that the land on which Jaipur facility has been located is given on lease by theGovt. of Rajasthan to the Company and as per lease agreement the company can neithersub-let/sale any part of land nor can make anyone financial and technical partner withoutprior permission of the State Government. On the basis of this Excise authorities issueda show cause notice and informed that any entity seeking excise registration has to haveland possession in any manner. Without possession of land by JTIL the provisional exciseregistration shall stand cancelled/revoked. Currently JTIL and the company arecollectively representing the case before excise authorities. JTIL has informed that incase of non-confirmation or revocation of excise registration they may not be able tooperate and indicated their inability to continue at Jaipur facility under OMMA. Thematter is under negotiation.

d) Jindal Tubular (India) Limited have submitted the provisional unaudited BalanceSheet and Profit & Loss Account for the year ended 31st March 2016 andshown a loss of Rs.17.26 Crores. Besides this they have claimed legacy payment from PSLamounting to Rs.5.32 Crores. However the PSL Statements are showing outstanding of Rs.2.95Crores including Rs.2.32 Crores on account of Legacy dues. The Company has not acceptedtheir claim and the accounts are under reconciliations.

e) It appears that due to "Net Revenue" being a loss PSL will not beentitled for any revenues.

15. Debtors: Note No. 16 of Balance sheet and Schedules

i) The Company has Sundry Debtors of Rs.287.23 Crores as on March 31 2016.

Less than Six Months 3.53 Crores
More than Six Months. 283.70 Crores
Total 287.23 Crores

ii) During the year practically no recovery has been made from the clients. There isno certainty of arbitration matters and disputes with the parties. The Company has notproduced confirmation of balances from sundry debtors confirming the amount outstanding ason March 31 2016. In the absence of adequate evidence and information made available tous supporting the recoverability of this amount we are further unable to comment on thefinancial impact of this matter on the profit / loss for the year ended on 31stMarch 2016. We are of the opinion that an amount of Rs.253.26 Crores being 100 percentprovision need to be made towards bad and doubtful debts for sundry debtors outstandingfor more than 3 years. Had this provision been made the loss for the year would have beengreater by Rs.253.26 Crores.

16. Sundry Creditors & Loans and Advances:

In the absence of pending confirmation of balances from Trade Payables Other Loans& Advances as on 31.03.2016 provision for any adverse variation in the balances isnot quantified.

17. Due to Micro and Small Supplies:

This information is not provided by the Company.

18. The management has decided not to provide for Gratuity Leave Encashment for theperiod of 1st April 2014 to 31st March 2016 because currentprovision is considered sufficient by the management for this purpose.

19. There is an existence of adequate internal financial controls and its operationaleffectiveness in the Company.

20. Based on the audit procedures applied by us and according to the information andexplanations provided by the management we are of the opinion that the particulars ofcontracts or arrangements that need to be entered into the

register maintained under section 189 of the Companies Act 2013 have so been entered.

21. In our opinion and according to the information and explanations given to us thetransactions made in pursuance of contracts or arrangements entered in the registermaintained under Section 189 of the Companies Act 2013 have been made at prices which arereasonable having regard to prevailing market prices at the relevant time.

22. The Estate Office Kandla Port Trust under Public Premises (Evacuation ofunauthorized) passed order on 27/03/2014 for the evacuation of the Kandla PCD-I premisesbecause lease period was over the Estate Office has taken over the possession of theland. Since the lease amount is under dispute the lease payments have not been made andnot provided in the accounts.

23. Investment in Subsidiaries

A) Foreign Subsidiaries:

i) PSL FZE (Sharjah) (Step down Subsidiary) of Pipeline Systems Ltd. Mauritius

a) The Company had invested Rs. 141.63 Crores in a wholly owned 'subsidiary namelyPipeline Systems Ltd. Mauritius. Due to cumulative losses in the subsidiary the value ofinvestment is eroded. The Company has not provided for the same.

b) The share certificate of PSL FZE Sharjah held by PSL Ltd. indirectly through theabove said Company amounting to 100% of the Equity Share Capital of the Company have beenpledged in favour of National Bank of Oman S.A.O.G. acting as Security Agent of ICICI BankLimited Bahrain.

c) During the year PSL FZE has incurred loss of AED 36.45 Mio. Based on the auditprocedure and the information obtained we have observed some of the loans were rolledover / rescheduled by the bank. Also in some cases company was not able to make thepayment on due date of installment due to the banks and banks claim was settled byclaiming against the Standby Letter of Credit arranged by Parent company PSL LimitedIndia.

d) PSL FZE has executed a project received from SWLL. Bank of Baroda has givenguarantee in favour of State Bank Bahrain to issue performance guarantee in favour of theclient to the extent of USD 4.5 million. This is contingent liability of PSL FZE as on31-3-2016.

e) A creditor has filed a suit for his dues of USD 2258175. The matter is sub-judice.

ii) PSL has given Corporate Guarantee covering facilities sanctioned by lender bankersfor working capital of 104.76 Million AED Mio against Plant & Machinery assignment ofreceivable and inventory against the security of the subordination of unsecured loansadvances by PSL fixed assets on pari passu basis.

iii) Term Loan Rs.121.61 AED

Term Loan was secured by ICICI SBLC of USD 34.50 Million. As on date Credit Suisse hasclaimed the SBLC and the Loan from Credit Suisse has been paid off by ICICI Bank and theterm loan is now due to ICICI Bank Bahrain.

iv) PSL USA INC (USA)

PSL NA LLC (USA) (Step down Subsidiary)

The Company had invested Rs. 130.34 Crores in a wholly owned subsidiary namely PSL USAInc. Due to cumulative losses in the step down subsidiary the value of investment iseroded. The Company has not provided for the same.

Also the outstanding debtors includes receivable amounting to Rs. 22.30 Crores from thesubsidiary which is not provided for.

v) Due to continuous losses suffered by the company’s step down subsidiary namelyPSL North America LLC it was directly affecting the financial position of PSL/USA/Inc.(the holding Company of PSL North America LLC). The Company voluntary petitioned forrelief under chapter XI of the Title 11 of United States code were filed in United StatesBankruptcy court for the district of Delaware. All the assets of PSL North America LLCwere put to sale/sold to a company for USD 100 Million. The impairment of loss/profit onsales of assets will be ascertained / recognized in the current year by the Company.

vi) The audited financial statements have not been received by the Company from foreignsubsidiary companies and we have relied on the financial statements of the management.Based on our review conducted as above and subject to the possible effects of the matterdescribed above nothing has come to our attention that causes us to believe that theaccompanying Statement prepared in accordance with applicable accounting standards asspecified u/s 133 of the Companies Act 2013 reads with Rule 7 of the Companies (Account)Rules 2014 and other recognized accounting practices and policies has not disclosed theinformation required to be disclosed in terms of regulation 63 of the SEBI (ListingObligations and disclosure Requirements) Regulations 2015 including the manner in whichit is to be disclosed or that it contains any material misstatement.

B) Indian Subsidiaries:

1) PSL Infrastructure & Ports Pvt. Ltd.

• Total investment in PSL Infrastructure and Ports Pvt. Limited is Rs.28.21Crores.

• The company was awarded the construction of Jetty at Kandla Port. Till date thecompany has incurred construction Expenses of Rs 64.85 Crores.

• Due to restrictions imposed by CDR package of PSL Ltd the parent company couldnot inject/ contribute funds for the construction of the jetty.

• The Kandla Port authorities have given notice for the cancellation of theagreement. The matter is in dispute and under Arbitration. At present project isincomplete.

2) PSL Corrosion Control Services Ltd.

• Due to high cost of working the margins are going down.

• In our opinion and explanation given to us the Company has given Guarantees forloan taken by its subsidiaries from banks/financial institution the terms and conditionsof such guarantees are not prejudicial to the interest of the Company.

3) PSL Gas Distribution (P) Ltd.

• The company was incorporated on 31st December 2010 and has notcommenced any business activity.

24. Impairment of Assets:

The Management has not carried out any evaluation of impairment of these assets and noprovision for impairment has been recorded as required by Accounting Standard-28.

25. Due to this provision for diminution / impairment in the value of its investmentsin the above subsidiary companies is not considered.

26. Based on information and explanations given to us by the management term loanswere applied for the purpose for which the loans were obtained. However there is no newloan availed by the company during the year.

27. According to the information and explanations given to us & based on thedocuments & records produced to us the Company has not granted loans or advances onthe basis of security by way of pledge of shares debentures & other securities.

28. The bankers have appointed a firm of Chartered Accountants to check the books ofaccounts of the Company for the last four years. The audit is in progress. TheCompany’s Management is of the view that the above investigations/ proceedings wouldnot result in any additional material provisions / write-offs / adjustments (other thanthose already provided for / written-off or disclosed) in the financial statements of theCompany. As per the Company’s Management any adjustments if required in thefinancial statements of the Company would be made as and when the outcomes of the abovematters are concluded.

29. Corporate Social Responsibility

Since average net profits of the Company made during the three immediately precedingfinancial years is negative

therefore the Company has not earmarked specific funding for Corporate SocialResponsibility and sustainable activities as required under the provision of section 135of the Act.

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 I a statement on the matters specified inparagraphs 3 and 4 of the Order.

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

a) Except the matters described in Emphasis of Matter Paragraphs 1 to 12 and Annexure APara Nos. 7 in our opinion may have an adverse effect on the functioning of the Companyaforesaid standalone financial statements comply with the Accounting Standards specifiedunder section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules 2014.

b) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

c) 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;

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) On the basis of written representations received from the directors as on 31stMarch 2016 taken on record by the Board of Directors none of the directors

is disqualified as on 31st March 2016 from being appointed as director in terms ofSection 164(2) of the Act;

f) With respect to the adequacy of the internal financial controls over financialreporting of Company and the operating effectiveness of such controls refer to ourseparate report in "Annexure B"; and

g) 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 standalone financial statements - Refer Note Nos. 1 to 12 and Annexure A-7to the financial statements;

ii) the Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses.

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

For Suresh C. Mathur & Co.
Chartered Accountants
(Firm Regn. No. 000891N)
Place: New Delhi (Suresh C. Mathur)
Dated: 24th May 2016 PARTNER
M. No. 1276

ANNEXURE - A TO THE AUDITORS’ REPORT

Referred to in paragraph 1 under the heading ‘Report on Other Legal and RegulatoryRequirements’ of our Report of even date on the financial statements for the yearended on 31st March 2016 of PSL Limited

1. a) The Company has computerized Assets Register. It is to be updated. All thefactory units have kept details of their fixed assets at their level.

b) During the year physical verification was done by the management of all the factoryunits of the Company. As the computerized Asset Register is not updated the fullparticulars including total quantitative details could not be ascertained. Pendingcompletion of reconciliations which has not been completed discrepancies if any cannot beascertainable. Pending updating of records and reconciliation books balances as at31-3-2016 have been adopted.

c) In our opinion the frequency of verification is reasonable having regard to the sizeof the Company and the nature of its assets.

d) The title deeds of the immovable properties are held in the name of the Company.

2. Subject to our remark in Item No. 1 in "Emphasis of Matter" the physicalverification of inventory has been conducted at reasonable intervals by the management;and the procedures of physical verification of inventory followed by the management isreasonable and adequate in relation to the size of the Company and nature of its business.The stock is maintained on Excel Sheets. On line package is not installed and notintegrated with books of accounts. The Company is maintaining proper records of inventoryand any material discrepancies noticed on physical verification have been properly dealtwith in the books of account.

3. The Company has not granted loans secured/unsecured to companies firms or otherparties covered in the register maintained under section 189 of the Companies Act 2013

4. The Company has complied in respect of loan investments guarantees and securitiesas required under provision of sections 185 and 186 of the Companies Act 2013.

5. The Company has not accepted any deposits from the public within the meaning ofSection 73 to 76 ofthe Act and the Rules framed there under. Therefore the provisions ofSection 73 and 74 of the Act and any other relevant provisions of the Companies Act 2013and the Rules framed there under with regard to deposits accepted from the public are notapplicable to the Company.

6. We have broadly reviewed the books of account maintained by the Company pursuant tothe rules made by the Central Government of India regarding the maintenance of costrecords under sub-section (1) of Section 148 of the Act and are of the opinion that primafacie the prescribed accounts and records have been maintained. We have however not madea detailed examination of the records with a view to determine whether they are accurateor complete. The cost audit is completed up to the year ended 31st March 2013.The Cost Audit Report is mandatory u/s 148(1) of the Companies Act 2013.

7. According to the records of the Company the Company is not regular in depositingundisputed Statutory dues including Provident Fund Employees State Insurance Income TaxSales Tax Service Tax Duty of Excise valued added tax Cess and any other statutorydues with the appropriate authorities however there is some delay in depositing Govt.dues due to financial difficulties. According to the information and explanations given tous no undisputed amounts payable in respect of Income Tax Sales Tax Customs DutyService Tax Excise Duty and Cess were outstanding at the financial reporting periodending on 31st March 2016 for a period of more than six months from the datethey became payable.

7. a) As on 31st March 2016 according to the records of the Company thefollowing are the particulars of disputed dues on account of Excise duty Customs IncomeTax Service Tax Sales Tax & DGFT and have not been deposited.

CASES FILED AGAINST THE COMPANY

Sl. No. Financial Institution Purpose
1. Syndicate Bank' Notice u/s 138 of NI Act 1881 regarding Dishonour of the Cheque No. 355113 for Rs.125000000/- drawn on State Bank of India
2. Syndicate Bank Notice u/s 138 of NI Act 1881 regarding Dishonour of the Cheque No. 355114 for Rs.125000000/- drawn on State Bank of India
3. Kotak Mahindra Bank Notice u/s 138 ofNI Act 1881 regarding Dishonour of two Cheques No. 753765 & 753766 for Rs.50000000/- each drawn on ICICI Bank
4. Kotak Mahindra Bank Notice u/s 138 ofNI Act 1881 regarding Dishonour of two Cheques No. 483804 & 539241 for Rs.50000000/- each drawn on ICICI Bank
5. Kotak Mahindra Bank Notice u/s 138 ofNI Act 1881 regarding Dishonour of two Cheques No. 483805 & 539242 for Rs.50000000/- each drawn on ICICI Bank
6. Aditya Birla Finance Ltd. Notice regarding recall of outstanding credit facility extended vide sanctioned letter dated 30/05/2012. A case was registered by Economic offences wing (EOW) on the Company as well as the Directors under CrPC. The matter is under investigation.

Kotak Mahindra Bank

The Bank has initiated action under SARFAESI Act 2002 u/s 14 of the said Act prayingpossession of property at Mouje Nanicherai Distt. Kutch which property had been earliermortgaged in favour of Kotak Mahindra Bank to secure the repayment of certain loanamounts.

The District Magistrate passed the Order in favour of Bank. The Company is filingappeal.

Indian Bank Nariman Point Mumbai

Issued Notice to the Company and Directors to pay Rs.645790389/- and Bank GuaranteeRs.32190190/- due to them and threatened to initiate legal proceedings.

Federal Bank

The Federal Bank has given a show cause notice in pursuance of the proceedings fordeclaring the Company as Willful defaulter. This is objected by the Company as unwarrantedand non-tenable. The matter is under dispute.

Standard Chartered Bank

Given Notice u/s 433 and 434 of the Companies Act to pay outstanding dues and toinitiate winding up proceedings against the Company.

7. b) Legal Matters

a) Initially five complaints were filed by two banks under the relevant provisions ofNegotiable Instruments Act but after the order of Addl. Sessions Court of Bombay one hasbeen scrapped and only four are now pending for disposal.

b) Winding up Petition filed by JSW:

The winding up petition filed by JSW was withdrawn on 29.6.2015 as on direction ofBombay High Court an aggregate amount of Rs.25 Crores was paid by the Company. The BombayHigh court has also directed the parties to execute necessary security documents in HighCourt in favour of JSW along with other CDR Lenders of the Company with respect tocreation of

charge over the movable fixed assets of the company on 15.6.2015. Further charge hasalso been created over the immovable assets of the company at Vizag Kakinada Varsana andDaman on 17.8.2015 by executing necessary security documents in favour of CDR Lenders andJSW.

c) A Petition has been filed before the High Court of Gujarat at Ahmedabad challengingcompensation Bill raised by Kandla Port Trust (KPT) in respect of five plots of land ofPCD-I unit located in East of NH No. 08A Kandla Road Gandhidham and two plots of land ofPCD-II in Plot No. 5&6 in Block D Sector 12 Gandhidham. Stay has been granted infavour of Company with regard to 5 of the 7 plots.

d) Termination of concession agreement executed by Kandla Port Trust in respect of PSLInfrastructure and Ports Private Limited. The matter is pending before arbitrationTribunal.

e) FIR’s have been registered against the Company Managing Director Whole TimeDirectors and an official. This matter is pending before Delhi High Court for quashing ofsaid FIR. Two separate writ petitions are pending before Delhi High Court for quashing ofsubject FIR registered against the directors. Interim orders passed earlier shallcontinue.

f) Aggrieved by the Order of Metropolitan Magistrate - the Company had earlier filed aRevision Petition before the Court of Additional Sessions Judge Patiala House New Delhiwhich was dismissed vide orders dated 22nd July 2015. Based on the advice ofAdvocate the Company has now filed a Criminal Miscellaneous Petition being Cr. M.C. No.5072 of 2015 under Section 482 of CRPC in the Delhi High Court challenging the order dated22nd July 2015 of ASJ.

g) Another supplier of company had on 10-3-2015 filed a company petition No. 434 of2015 against the Company under Section 433(e) and (f) read with Section 434 and 439 ofCompanies Act 1956 before the Bombay High Court. The matter is pending.

h) A Civil Suit was filed by Chaitanya Blasting Works against the Company before thecourt of Additional District Judge at Vishakhapatnam for recovery of Rs.1.25 Crores alongwith interest @ 24% per annum along with an application for attachment before judgment ofcompany’s stock lying at Gurrampalen Vishakhapatnam which was dismissed by the Courtof Addl.(ADJ) vide order dated 5-10-2015. The Chataniya Blasting Work has now challengedthe order of ADJ by filing a petition under Article 227 of the Constitution of India inthe High Court of Judicature at Hyderabad. This matter is pending.

8. The Company has defaulted in repayment of loan and borrowings to financialinstitution bank and Govt. The lenders balance confirmations were not available.

9. The Company has not raised money by way of initial public offer (including debtinstruments) and term loans were applied for the purposes for which those are raised.

10. Based upon the audit procedures performed for the purpose of reporting the true andfair view of the financial statements and as per the information and explanations given bythe management we report that no fraud on or by the Company has been noticed or reportedduring the course of our audit.

11. The Company is not a Nidhi Company and Nidhi Rules 2015 is not applicable.

12. The Company has disclosed all transaction with the related parties are incompliance with section 177 and 188 of Companies Act 2013 were applicable and the detailshave

been disclosed in the Financial Statements etc. as required by the applicableaccounting standards.

13. The Company has not allotted any fully paid up shares to the Lenders / Creditorsduring the year. The proposed allotments are pending awaiting approval of StockExchanges.

14. The Company has not entered into any non-cash transactions with directors orpersons connected with him.

15. The Company is not required to be registered u/s 45-IA of the Reserve Bank of IndiaAct 1934. This is not applicable to the Company.

Reasons for Unfavourable Report

Due to non-implementation of CDR package the financial position of the company hassuffered a Setback. The production has fallen resulting in heavy losses. Due to financialcrunch and non availability of funds there are some delays in depositing the governmentdues. . There are defaults in repayment of bank loans. The debtors have stopped payment oftheir dues. The creditors have started filing legal suits for their recovery and windingup proceedings. The net worth has eroded. The BIFR application is pending. We havereported the matters in the Emphasis of matters in paragraph nos. 1 to 12 of our report ofeven date.

For Suresh C. Mathur & Co.
Chartered Accountants
(Firm Regn. No. 000891N)
Place: New Delhi (Suresh C. Mathur)
Dated: 24th May 2016 PARTNER
M. No. 1276