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State Trading Corporation of India Ltd.

BSE: 512531 Sector: Others
NSE: STCINDIA ISIN Code: INE655A01013
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VOLUME 24924
52-Week high 299.00
52-Week low 104.50
P/E 192.16
Mkt Cap.(Rs cr) 1,199
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

State Trading Corporation of India Ltd. (STCINDIA) - Auditors Report

Company auditors report

To the Members of

The State Trading Corporation of India Limited

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of THE STATETRADING CORPORATION OF INDIA LIMITED ("the Company") which comprise theBalance Sheet as at 31st March 2016 the Statement of Profit and Loss the Cash FlowStatement for the year then ended and a summary of the significant accounting policiesand other explanatory information in which are incorporated the Returns for the yearended on that date audited by the branch auditors of Company’s eight branches atAhmedabad Bangalore Bhopal Chennai Cochin Hyderabad Kolkata and Mumbai.

Management’s Responsibility for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Company in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecified under Section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls 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 accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made thereunder.

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

An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures 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 the internal financial control relevant to the Company’spreparation of the financial statements that give a true and fair view in order to designaudit procedures that are appropriate in the circumstances. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of theaccounting estimates made by the Company’s Directors as well as evaluating theoverall 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 on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Act in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India of the state of affairs of the Companyas at 31st March 2016 and its profit and its cash flows for the year ended onthat date.

Emphasis of Matters

We draw attention to the following matters in the Notes to the financial statements:

a) Reference is invited to Note no.18.1 relating to contracts of scraps wheretransactions of purchases and sales and recoveries had not taken place in terms ofcontracts. Pending outcome of legal steps initiated for recovery full provision of Rs.87.39 crore was made in earlier year. However the company was successful in gettingarbitration award of Rs. 110.00 crore in its favour along with 12% interest per annum from1st May 2006 till realization of award which has been objected by the party and hearing ispending in this case before Hon’ble High Court New Delhi.

b) Reference is invited to Note no. 19.1 regarding long term trade receivable Rs.568.44 crore on account of export of pharma products to foreign buyers on back to backbasis. As there is default in the payment against export bills by the buyers which haveultimately gone into liquidation litigation process have been initiated by the Company aswell as by Indian Associates and their bankers. A claim of Rs. 527.86 crore has beenadmitted by the liquidator and decree for

Rs. 63 crore by Mumbai High Court. There is however corresponding credit balance of Rs.568.44 crore under trade payables. Management does not anticipate any liability on thisaccount.

c) Reference is invited to note no. 22.1 regarding trade receivable of Rs. 122.77Crore due from Jhagadia Copper Limited. The Business Associate is under liquidation. Theentire amount is secured by pledge of stocks to the company (procured under advancelicense with export obligation) and the company has also solely staked claim on anindustrial (mortgaged) land of about 90 acres at Alibagh Maharashtra before Hon’ableGujarat High Court. Management does not anticipate any liability on this account.

d) Reference is invited to Note no 22.2 & 27.1 regarding trade receivable of Rs.1740.42 crore and recognition of income of Rs. 228.33 crore during the year from one ofthe business associates who have stopped operation of their plant due to extremevolatility of prices. Consequent upon Conciliation Agreement dated 15.11.2011 and furthersettlement agreement dated 17.05.2012 the entire dues were payable to the company by10.11.2012. During the year the Business Associate remitted an amount of Rs. 144.90 croreon the directions of Hon’ble Supreme Court. The decree was noted to be final andlegal case for enforcement of decree is under conisderaiton of Hon’ble Supreme Court.The management is hopeful of full recovery.

e) Reference is invited to Note no. 25.1 regarding claims recoverable include Rs. 2.72crore towards carrying costs for delayed lifting of pulses by State Governments. Claim forthe same was lodged during the year 2011-12 and the same is being followed up with theState Governments. Since there is credit balance available with the Company no provisionis considered necessary.

f) Reference is invited to Note no. 45(b) regarding contingent liability of Rs. 82.57crore payable to foreign supplier as per arbitral award for which the Company has filedappeal in the Hon’ble Delhi High Court and simultaneously lodged the claim withMinistry of Consumer Affairs as transaction was under taken on their behalf. In view ofthe above no provision is considered necessary.

g) Reference is invited to Note no.19.2 regarding long term trade receivable of Rs.787.65 crore under the Credit Linked Insurance Scheme (CLIS) for export of gold jewelleryetc. against which corresponding credit balance of Rs. 342.18 crore are available leavingnet receivable of Rs. 445.47 crore. Actions against the Business Associate have beeninitiated. The matter is being pursued legally and company is hopeful of recovery. As ameasure of abundant caution full provision of Rs. 445.47 Crore being net receivable hasbeen made.

h) Reference is invited to Note no. 22.3 regarding trade receivable of Rs. 20.56 crorerecoverable from one of the Business Associates for goods sold in earlier years. Theentire overdue is secured by pledge of stocks of Rs. 4.17 crore and Rs. 39 crore stock offamily concern of the Associate in favour of the Company. The Company’s receivablesare being monitored by court and Company has received Rs. 10.50 crore during the currentyear. Court has directed the company and the associate to submit their up to date accountfor recovery of balance dues. Hence no provision is considered necessary.

i) Reference is invited to Note no. 19.6 regarding long term trade receivable of Rs.58.55 crore due from one of the Business Associates for goods sold in earlier years. Theentire balance overdue is secured by pledge of stocks in favour of the Company. TheCompany has invoked risk sale clause of the agreement and twice floated tenders for saleof pledged stocks – both faced interim injunction for stay out of which the firstone got vacated. The Company has also filed winding up petition and criminal complaintsi.e. case u/s 138 of Negotiable Instruments Act and contempt application for misleadingthe court against the business associate. The management is hopeful of the full recovery.

j) Reference is invited to Note no. 19.8 regarding long term trade receivable of Rs.10.21 crore recoverable from MARKFED Govt. of Maharashtra (GOM) towards supply of RBDPalmolien under PDS Scheme during the year 2010-11 and 2011-12. All amounts relating tothis supply were received by the Company except the outstanding balance of Rs. 10.21 crorepending for final reconciliation at their end. Matter is being constantly taken up withMARKFED Govt. of Maharashtra for recovery. The management is hopeful of the fullrecovery.

k) Reference is invited to Note no. 19.4 regarding long term trade receivables of Rs.12.05 crore recoverable from one of the Business Associate for goods sold in the earlieryears. The entire overdue is secured by duly insured pledged stocks in favour of theCompany valuing Rs. 10.19 crore under CWC custody. Further cases u/s 138 of NegotiableInstruments Act for Rs. 8.62 crore have been filed against the Associate. Provision of Rs.1.86 crore has been created during the current financial year for the unsecured portion.

l) Reference is invited to Note no. 22.4 regarding trade receivables of Rs. 10.28crore recoverable from one of the Business Associates for sale of coal. The BusinessAssociate has paid an amount of Rs. 0.10 crore during the year. The entire dues aresecured by mortgage of free hold land. The Business Associate has undertaken to repay alldues along with interest on receipt of CDR package. Company has filed legal and criminalcase against Business Associate. In view of this no provision is considered necessary.

m) Reference is invited to Note no. 12.5 regarding non adjustment in financial booksof fixed assets having net book value of Rs. 0.64 crore destroyed due to flood during theyear at Chennai Branch against which an adhoc claim of Rs. 0.26 crore has been receivedfrom insurance company.

n) Reference is invited to Note no. 55(b) the reconciliation of physical verificationof fixed assets at Corporate office with books is under process impact thereof could notbe ascertained. o) Reference is invited to Note no. 47 & 48 relating to pendingreconciliation/ confirmation of balances in parties accounts claims recoverable advancesand current and other liabilities and consequential adjustment that may arise onreconciliation.

Our opinion is not modified in respect of these matters.

Other Matter

We did not audit the financial statements/information of eight branches included in thestandalone financial statements of the Company whose financial statements/financialinformation reflect total assets of Rs. 1414.30 crore as at 31st March 2016and total revenues of Rs. 4461.99 crore for the year ended on that date as considered inthe standalone financial statements. The financial statements/information of thesebranches have been audited by the branch auditors whose reports have been furnished to usand our opinion in so far as it relates to the amounts and disclosures included in respectof these branches is based solely on the report of such branch auditors and managementreplies to the observations of the branch auditors.

Our opinion is not modified in respect of these matters.

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 based on our observations reports received from branch auditorsin respect of branches not visited by us and explanations received from management wegive in the Annexure ‘A’ statement on the matters specified in paragraphs 3 and4 of the Order to the extent applicable.

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

(a) W e 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 except certainrecords/information at Mumbai branch legal case details at Ahmedabad branch and balanceconfirmation of parties as mentioned in para no. (o) above under Emphasis of Matters.

(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 and proper returnsadequate for the purposes of our audit have been received from the branches not visited byus however the system of maintaining stock records by branch with respect to goods keptwith third party need to be ensured.

(c) The reports on the accounts of the branch offices of the Company audited underSection 143(8) of the Act by the branch auditors have been sent to us alongwith managementreplies to the observations of the branch auditors and have been properly dealt with by usin preparing this report.

(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 and with the returnsreceived from the branches not visited by us.

(e) In our opinion the aforesaid standalone financial statements comply with theAccounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014.

(f) Being a Government Company section 164(2) of Companies Act 2013 regarding whetherany director is disqualified from being appointed as a director is not applicable to theCompany in view of notification no. G.S.R.463 (E) dt. 05.06.2015.

(g) W ith respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in Annexure ‘B’ and (h) W ith respect to the other matters tobe included in the Auditor’s Report in accordance with Rule 11 of the Companies(Audit and Auditors) Rules 2014 in our opinion and to the best of our information andaccording to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financialposition in its financial statements as referred to in Note No. 18.1 19.1 to 19.06 22.1to 22.4 45 & 46 to the financial statements.

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

iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company except a sum of Rs. 0.03 croretowards interim dividend for financial year 2008-09 declared on 23.01.2009 and depositedin April 2016.

3. Company has not complied with the provisions of section 149 of the Companies Act2013 read with regulation 17 of Securities and Exchange Board of India (ListingObligations and Disclosure requirements) Regulations 2015 with regard to appointment ofIndependent Directors and Women Director.

4. As required by C&AG of India through directions issued under Section 143(5) ofthe Act we give a report in the attached Annexure ‘C’.

For P. Jain & Company
Chartered Accountants
Firm Regn. No.000711C
Sd/-
(Pankaj Jain)
Place : New Delhi Partner
Date : 28th May 2016 M. No. 097279

ANNEXURE ‘A’ TO INDEPENDENT AUDITOR’S REPORT

(Re: The State Trading Corporation of India Limited

Referred to in Paragraph 1 under the heading of "Report on Other Legal andRegulatory Requirements" of our report of even date

1. (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets except that absence of proper taggingat Mumbai Branch and updation of fixed asset register at Corporate Office.

(b) The fixed assets were physically verified by the management during the year exceptphysical verification of fixed assets at Corporate Office which is under process. We havebeen informed that no material discrepancies were noticed on such physical verificationwherever done.

(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the Company except for immovable properties referred to in Annexure-E.

2. As explained to us verification of inventories undertaken by the Company throughsurveyor from time to time. In respect of the goods in the custody of third partiescertificate is obtained from the Clearing & Handling Agents or the warehousingcorporation or from the concerned parties. During the year goods stored under the custodyof Central Warehousing Corporation amounting to Rs. 24.22 crore were found theft in caseof M/s Akshata Mercantile Private Limited and goods amounting to Rs. 13.6 crore were foundtheft in case of M/s Dankuni Steels Pvt. Ltd.

3. As informed to us the Company has not granted any loans secured or unsecured tocompanies firms limited liability partnerships or other parties covered in the registermaintained under section 189 of the Companies Act 2013 (‘the Act’).Accordingly clauses (iii)(a) (b) & (c) of paragraph 3 of the Order are notapplicable to the Company.

4. According to the information and explanations given to us the Company has not givenany loans or made any investments or provided any guarantees or security to the partiescovered under sections 185 and 186 of the Act. Accordingly paragraph 3 (iv) of the Orderis not applicable to the Company.

5. The Company has not accepted any deposits from the public during the year andconsequently the directives issued by Reserve Bank of India the provisions of sections73 to 76 of the Act and rules framed there under are not applicable to the Company.However certain old amount are outstanding in advances from customers/credit balance incustomer account which as explained to us is immaterial and is subject to reconciliationand adjustment if any.

6. As informed by the management the Central Government has not prescribed themaintenance of cost records under section 148 (1) of the Act for the Company.

7. (a) According to the records of the Company undisputed statutory dues includingprovident fund employees’ state insurance income-tax sales-tax service tax dutyof customs duty of excise value added tax cess and other statutory dues have beengenerally regularly deposited with the appropriate authorities. There were no undisputedamounts payables in respect of the aforesaid dues which were outstanding as at 31st March2016 for a period of over six months from the date they became payable.

(b) According to the information and explanations given to us there are followingdisputed statutory dues aggregating Rs. 69.00 crore on account of Income tax Rs. 2327.35crore on account of Sales tax/VAT and Rs. 33.37 crore on account of Service tax.

Name of the statute Nature of dues Amount (Rs. in Crore) Period to which the amount relates Forum where dispute is pending
Income Tax
Income Tax Act Income Tax 3.26 2009-10 DCIT Delhi
Income Tax Act Penalty 2.13 2009-10 ITAT Delhi
Income Tax Act Income Tax 50.22 2010-11 CIT(A) Delhi
Income Tax Act Income Tax 6.19 2011-12 CIT(A) Delhi
Income Tax Act Income Tax 5.47 2012-13 CIT(A) Delhi
Income Tax Act Income Tax 1.73 2008-09 DCIT Delhi
Sales Tax
TNGST/AST/CST (Chennai Branch) Sales Tax (incl. penalty) 0.84 1974-75 1975-76 1986-87 1989-90 & 1991-92 Hon’ble Madras High Court
Central Sales Tax Act (Chennai Branch) Central Sales Tax 0.01 1987-88 Appellate Tribunal
Bihar Sales Tax Act (Kolkata Branch) Sales Tax 0.01 1989-90 Sales Tax Appellate Tribunal
Central Sales Tax Act (Kolkata Branch) Central Sales Tax 0.07 1981-82 Assessing Officer
Orrisa Sales Tax Act (Kolkata Branch) Sales Tax 0.01 1988-89 Commissioner (Appeals) Orrissa
Central Sales Tax Act (Kolkata Branch) Central Sales Tax 0.02 1993-94 to 1995-96 Hon’ble Assam High Court
Central Sales Tax Act (Kolkata Branch) Central Sales Tax 0.23 2003-04 Joint Commissioner Sales Tax
Delhi VAT Act Sales Tax 1017.43 2006-07 Special Commissioner VAT
Delhi VAT Act Sales Tax 0.34 2007-08 DVAT Appellate Tribunal
Delhi VAT Act Sales Tax 0.02 2010-11 VAT Officer
Delhi VAT Act Sales Tax 2.33 2008-09 VAT Officer
Maharashtra Sales Tax Act BST (Sales Tax) 13.85 1992-93 1993-94 Maharashtra Sales Tax
(Mumbai Branch) 1996-97 & 2000-01 Tribunal
Maharashtra Sales Tax Act (Mumbai Branch) BST /CST/ MVAT *462.22 2003-04 2004-05 2006-07 & 2009-10 to 2011-12 Joint Commissioner Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch) CST/ MVAT *539.66 2005-06 Deputy Commissioner Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch) CST #290.31 2008-09 Deputy Commissioner Sales Tax

* including Rs. 579.91 crore against which stay order has been received # under processof filing an appeal

Name of the statute Nature of dues Amount (Rs. in Crore) Period to which the amount relates Forum where dispute is pending
Service Tax
Finance Act 1994 (Kolkata Branch) Service Tax 7.29 2005-06 & 2006-07 CESTAT*
Finance Act 1994 Service Tax 7.96 2007-08 to 2013-14 Commissioner Service Tax
Finance Act 1994 Service Tax 16.67 01.10.2004 to Service Tax Appellate Tribunal
(Mumbai Branch) 31.03.2012 Mumbai
Finance Act 1994 Service Tax **1.45 01.04.2012 to Service Tax Assessing Authority
(Mumbai Branch) 31.03.2014 Mumbai

* Appeal to be filed

** Show cause notice received

8. In our opinion and according to the information and explanations given to us theCompany has not defaulted in repayment of loans or borrowing to banks except default of 3days at Mumbai branch as mentioned below. The Company does not have any loans or borrowingfrom any financial institution or government or dues to debenture holders during the year.

Name of the bank/financial institution Amount of installment due Due date Date of payment Delay (days)
Exim Bank 10 Crore 01.01.2016 04.01.2016 3 days

9. The Company did not raise any money by way of initial public offer or further publicoffer (including debt instruments) and term loans during the year. Accordingly paragraph3 (ix) of the Order is not applicable to the Company.

10. According to the information and explanations given to us no material fraud by thecompany or on the Company by its officers or employees has been noticed or reported duringthe course of our audit.

11. In our opinion and according to the information and explanations given to us theCompany has paid / provided for managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of Section 197 read with Schedule V to the Act.However certain reimbursements made are subject to confirmation by Board of Directors.

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

13. According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with the related parties aregenerally in compliance with sections 177 and 188 of the Act where applicable and detailsof such transactions have been disclosed in the financial statements as required by theapplicable accounting standards.

14. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.

15. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with him. Accordingly paragraph 3 (xv)of the Order is not applicable to the Company.

16. The Company is not required to be registered under section 45-1A of the ReserveBank of India Act 1934

For P. Jain & Company
Chartered Accountants
Firm Regn. No.000711C
Sd/-
(Pankaj Jain)
Place : New Delhi Partner
Date : 28th May 2016 M. No. 097279

Annexure-‘B’ to the Independent Auditors’ Report

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 TheState Trading Corporation of India Limited ("the Company") as on 31stMarch 2016 in conjunction with our audit of the financial statements of the Company forthe year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reportingissued by the Institute of Chartered Accountants of India (‘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 the Companies Act 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting(the "Guidance Note") 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 the Institute 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 judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

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

Meaning of Internal Financial Controls over Financial Reporting

A company’s internal financial control over financial reporting is a 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 reflect thetransactions 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

(i) W ith respect to Mumbai branch of the Company the branch auditor has reportedcertain material weaknesses in Internal financial control over financial reporting such asinadequate- IT & general controls internal control system with regards to pledgedinventory customer acceptance & credit evaluation internal audit coverage largefinancial exposure in litigated matters & pending statutory litigation involving taxdemands.

(ii) Reference is invited to Note no. 47 & 48 relating to pending reconciliation/confirmation of balances in parties accounts claims recoverable advances and current andother liabilities and consequential adjustment that may arise on reconciliation.

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 subsidiary Company’s annual orinterim financial statements will not be prevented or detected on a timely basis.

In our opinion the Company has except for effects of the material weaknessesdescribed above on achievement of the objectives of the control criteria in all materialrespects an adequate internal financial controls system over financial reporting and suchinternal financial controls over financial reporting were operating effectively as at 31stMarch 2016 based on the internal control over financial reporting criteria establishedby the Company considering the essential components of internal control stated in theGuidance Note on Audit of Internal Financial Controls Over Financial Reporting issued bythe Institute of Chartered Accountants of India.

Other Matters

Our aforesaid report under Section 143(3)(i) of the Act on the adequacy and operatingeffectiveness of the internal financial controls over financial reporting insofar as itrelates to eight branches at Ahmedabad Bangalore Bhopal Chennai Cochin HyderabadKolkata and Mumbai is based on the corresponding reports of the auditors of such branchesand management replies to the observations of the branch auditors.

For P. Jain & Company
Chartered Accountants
(Firm Regn. No. 000711C)
Sd/-
Place : New Delhi (Pankaj Jain)
Date : 28th May 2016 Partner
M. No. 097279

Annexure-‘C’ to the Independent Auditors’ Report

Directions indicating the areas to be examined by the Statutory Auditors during thecourse of audit of annual accounts of The State Trading Corporation of India Limited(Standalone) for the year 2015-16 issued by the Comptroller & Auditor General of Indiaunder Section 143(5) of the Companies Act 2013.

Sl. No. Area Examined Observation/Finding
1 Whether the company has clear title/lease deeds for freehold and leasehold land for which title/lease deeds are not available. Refer Annexure ‘D’ below.
2 Whether here are any cases of waiver/write off of debts/loans/interest etc. if yes the reasons there for and amount involved. Rs. 1.40 crore written off as these were old cases remote possibility of recovery necessary approval have been taken from the competent authority.
3 Whether proper records are maintained for inventories lying with third parties & assets received as gift/grant from the Government or other authorities. As reported by Mumbai branch auditor no stock records are maintained by the branch for stock lying with third party. Records are maintained at the godown by the custodian.

Annexure ‘D’

S. No. Location of Property Property Description Document Found Area
1 New Delhi Land & Building at Jawahar Vyapar Bhawan Tolstoy Marg (Office Building) Agreement for lease 2.559 Acre
2 New Delhi STC /MMTC Housing Colony Aurbindo Marg Agreement (true copy) Not yet bifurcated between STCMMTC & HHEC
3 Mumbai 6 no. flats at Sai Darshan Appartment Santacruz (W) Confirmation Deed 3984 Sq. ft.
4 New Delhi 8 no. flats at AGVC Complex Execution of Lease Deed pending 14424 Sq. ft.

ANNEXURE ‘E’ TO INDEPENDENT AUDITOR’S REPORT

Re: The State Trading Corporation of India Limited

Referred to in Paragraph 1(c) of our report on Companies (Auditor’s Report) Order2016 ("the Order") issued by the Central Government of India in terms ofsub-section (11) of section 143 of the Act

S. No. Location of Property Property Description Audit observation Area Gross Block after revaluation (Rs. in crore)
1 New Delhi (i) Land & Building at Jawahar Vyapar Bhawan Tolstoy Marg (Office Building) Process of issuance of sub divided lease deeds in the name of company and its co-owners is pending. 2.559 Acre 548.33 (land) 185.91 (Building)
(ii) STC /MMTC Housing Colony Aurbindo Marg
2 New Delhi 8 no. flats at AGVC Complex Execution of Lease Deed pending. 14424 Sq. ft. 28.42
3 Mumbai 6 no. flats at Sai Darshan Appartment Santacruz (W) Registration of conveyance deeds is pending. 3984 Sq. ft. 33.19

Compliance Certificate

We have conducted the audit of Standalone financial statements of The State TradingCorporation of India Ltd. for the year ended March 31 2016 in accordance with thedirections/sub-directions issued by the Comptroller and Auditor General of India undersection 143(5) of the Companies Act 2013 and on the basis of compliance certificatesreceived from eight branch auditors we certify that to the best of knowledge and beliefwe have complied with all the directions/ sub-directions issued to us.

For P. Jain & Company
Chartered Accountants
Firm Regn. No. 000711C
Sd/-
(Pankaj Jain)
Place : New Delhi Partner
Date : 28.05.2016 M. No. 097279