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State Trading Corporation of India Ltd.

BSE: 512531 Sector: Others
NSE: STCINDIA ISIN Code: INE655A01013
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VOLUME 112097
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P/E 47.88
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OPEN 175.50
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VOLUME 112097
52-Week high 299.00
52-Week low 133.80
P/E 47.88
Mkt Cap.(Rs cr) 1,049
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 FinancialStatements

We have audited the accompanying standalone financial statements of THE STATE TRADINGCORPORATION OF INDIA LIMITED ("the Company") which comprise the Balance Sheetas at 31 st March 201 7 the Statement of Profit and Loss the Cash Flow Statement forthe year then ended and a summary of the significant accounting policies and otherexplanatory information in which are incorporated the Returns for the year ended on thatdate audited by the branch auditors of Company's ten branches at Agra AhmedabadBangalore Bhopal Chennai Cochin Hyderabad Jalandhar 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 and the Companies (Accounting Standards) Amendment Rules 2016. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatement whether due to fraud orerror.

Auditor's Responsibility

Our responsibility is to express an opinion on these 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 undertheprovisions 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 of thefinancial statements whetherdue to fraud orerror. In making those risk assessments theauditor considers the internal financial control relevantto the Company's preparation ofthe financial statements that give a true and fair view in orderto design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof the financial statements.

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

Basis for Qualified Opinion

(i) Reference is invited to Note no. 22.1 and 27.1 Trade receivable includes Rs1904.24crore and other income includes interest of Rs231.93 crore booked during the current yearon over dues from one of the business associates on account of goods supplied in earlieryears. The dues are stated to be secured by EMD of Rs29.73 crore and personal guarantee ofchairman of its holding company. Consequent upon Conciliation Agreement dated 15.11.2011and further settlement agreement dated 1 7.05.2012 the entire dues were payable to thecompany by 10.11.2012. During the year the Business Associate remitted an amount ofRs70.18 crore on the directions of Hon'ble Supreme Court. Considering the poor recoverynon-availability of security dispute by party with respect to interest charged and ageof outstanding dues interest income should not be recognized as per provisions ofAccounting Standard - 9 issued by ICAI. Had the company de-recognized the interest incomenet loss of current year would have been higher by Rs231.93 crore reserve & surplusand trade receivable would have been lowerbyRs231.93 crore.

Considering the overall circumstances surrounding the recoverability of outstandingdues of Rs1904.24 crore we are not in a position to ascertain whether the amount is fullyrecoverable or not. We are informed by the management that petition for execution ofdecree as per Conciliation Agreements under the Arbitration and Conciliation Act 1996 hasbeen filed before the Hon'ble Supreme Court wherein it has been held that decree is final.The party has submitted payment proposal before the Hon'ble Apex Court which is stillsubjudice before the Hon'ble Apex Court. Cases U/s 138 of Negotiable Instruments Act are

also filed by the company before the Hon'ble High Court Delhi. The EnforcementDirectorate and CBI are also investigating into the matter about cheating and fraud doneby the party. We have also been provided affirmative Board Resolution dt. 14.02.201 7 andout come date 30.05.201 7 that all possible efforts are extended for recovery of the duesthrough legal process and company is assured of recovering the dues.

(ii) Reference is invited to Note no.25.1 Rs7.81 crore is recoverable from HHEC andinspite of various assurances HHEC has not made the payment and in its latest letter dt.08.02.201 7 HHEC has stated that Company's position is still precarious as order positionhas notimproved and new business visualized are not forthcoming etc. and HHEC hasapproached its Administrative Ministry for looking into matter and to extend financialsupport. The Company has also not obtained any balance confirmation from HHEC. Consideringthe above provision should be made for the amount recoverable from HHEC. Had the companymade provision of said recoverable net loss of current year would have been higher byRs7.81 crore reserve & surplus and claims recoverable (current assets) would havebeen lower by Rs7.81 crore.

(iii) Mumbai branch auditor has reported that debit balancesappearing in Bhopal branchpertaining to security deposit and loans & advances ofRs0.19 crore has not beenwritten off due to pending approval from Corporate Office. Had the company written offthese balances net loss of current year would have been higher by Rs0.19 crore reserve& surplus and deposits and loans & advances would have been lower by Rs0.19 crore.

Emphasis of Matters

We draw attention to the following matters in the Notes to the standalone financialstatements:

a) Reference is invited to Note no. 18.1 regarding trade advance ofRs87.39 crorerecoverable from one of parties against which the company has initiated legal actionsincluding criminal proceedings. Pending outcome of legal steps initiated for recoveryfull provision ofRs87.39 crore was made in earlieryear. However the company wassuccessful in getting arbitration award of Rs110.00 crore in its favour along with 12%interest perannum from 1st May 2006 till realization of award which has been objected bythe party and hearing is pending before Hon'ble High Court New Delhi.

b) Reference is invited to Note no. 19.1 regarding long term trade receivable Rs568.44crore on account of export of pharma products to foreign buyers on back to back basis. Asthere is default in the payment against export bills by the buyers which have ultimatelygone into liquidation litigation process have been initiated by the Company as well as byIndian Associates and their bankers. A claim ofRs527.86 crore has been admitted by theliquidator and decree forRs62.47 crore by Hon'ble High Court Mumbai. There is howevercorresponding credit balance of ^568.44 crore under trade payables. Management does notanticipate any liability on this account.

c) Reference is invited to Note no. 19.2 regarding long term trade receivable ofRs787.65 crore under the Credit Linked Insurance Scheme (CLIS) for export of goldjewellery etc. against which corresponding credit balance of Rs342.19 crore are availableleaving net receivable of Rs445.46 crore. Actions against the Business Associate have beeninitiated. The matter is being pursued legally and company is hopeful of recovery. Asameasure of abundant caution full provision of Rs445.46 crore being net receivable hasbeen made in earlieryear.

d) Reference is invited to Note no. 19.3 regarding long term trade receivables ofRs41.92 crore on account of export of agro commodities to foreign buyers through Indianbusiness associates against which credit balance of Rs41.92 crore is available under tradepayable. The foreign buyer defaulted in making payment and upon non-receipt of the duesfrom business associate the Company has initiated necessary legal steps against businessassociates for recovery. Considering the legal enforceability of the agreement andcorresponding credit ofRs41.92 crore no provision is considered necessary.

e) Reference is invited to Note no. 19.4 regarding long term trade receivables ofRs9.83 crore (net of provision for diminution in value of stock) recoverable from one ofthe business associates for goods sold in earlier years. The overdue is secured by pledgeof stocks in favour of STC. Upon non-payment of overdue receivables legal actions havebeen initiated against the business associate u/s 138 of Negotiable Instruments Act 1881and civil hearings are in progress. Another PSU company MSTC had made a claim in respectof ownership of some of the pledged stock sold by the STC to business associate. As onbalance sheet date the pledged stock has been valued at Rs9.83 crore by approved valuerand STC is awaiting further direction from Hon'ble Mumbai High Court.

f) Reference is invited to Note no. 19.6 regarding long term trade receivable ofRs48.57 crore due from one of the Business Associates for goods sold in earlier years. TheCompany has filed winding up petition which has now been transferred to NCLT Kolkata.Proceedings u/s 340 of CRPC is under progress at Balasore District Court. The businessassociate has paid a sum of Rs10 crore during the year and another Rs7 crore before theapproval of financial statements. As a measure of abundant caution provision ofRs41.57crore has been made in current year.

g) Reference is invited to Note no. 19.8 regarding long term trade receivable ofRs10.21 crore recoverable from MARKFED Govt of Maharashtra (GOM) towards supply of RBDPalmolien under PDS Scheme during the years 2010-11 and 2011-12. All amounts relating tothis supply were received by the Company except the outstanding balance ofRsl 0.21 crorepending for final reconciliation at their end. Matter is being constantly taken up withMARKFED Govt of Maharashtra for recovery. As a matterof prudence provision of Rs10.21crore has been made in current year.

h) Reference is invited to Note no. 19.9 regarding long term trade receivable ofRs122.95 crore from one of the business associate for goods sold in the earlier yearswhich is overdue. Negotiation with a PSU for selling of the stocks which has acquired theplant and machinery is under progress. As a matter of prudence full provision forRs122.95 crore has been created during the current year.

i) Reference is invited to Note no. 19.11 regarding long term trade receivables of Rs17.28 crore recoverable from one of the business associates for goods sold in earlieryears. Criminal complaints u/s 138 of Negotiable Instruments Act 1881 and contemptapplication filed before Hon'ble High Court New Delhi are under progress against thebusiness associate. As a matter of prudence provision for full amount of Rs1 7.28 crorehas been made in current year.

j) Reference is invited to Note no. 22.2 regarding trade receivables of Rs10.53 crorerecoverable from one of the Business Associates for sale of coal. A provision of Rs3.33crore has been made in the current year. The balance dues are secured by mortgage of freehold land. The Business Associate has undertaken to repay all dues along with interest onreceipt of CDR package. The Company has filed legal and criminal case against BusinessAssociate.

k) Reference is invited to Note no. 22.4 regarding trade receivables of Rs64.23 crorefor urea supplied to Department of Fertilizers (DOF). The payments have been withheld onaccount of quality parameters. The matter has been taken up with DOF and DOF has referredthe matter to Ministry of Law for opinion. Consequently PBG of foreign suppliers amountingtoRs20.56 crore has been invoked. The matter is being continuously pursued with DOF forimmediate settlement of the issues and release of payments. In view of above no provisionis considered necessary.

l) Reference is invited to Note no. 45(b) regarding contingent liability of Rs88.01crore payable to foreign supplier as per arbitral award for which the Company has filedappeal in the Hon'ble High Court New Delhi 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.

m) Reference is invited to Note no. 45(c) regarding contingent liability of Rs74.92crore along with interest payable to a foreign supplier on account of import of Urea inearlier years as per majority arbitration award passed in favour of foreign supplier. Thecompany has filed an appeal against the majority arbitration award in the Hon'ble DelhiHigh Court. In view of above no provision is considered necessary.

n) 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. Ouropinion is not modified in respect of these matters.

Qualified Opinion

In ouropinion and to the best of our information according to the explanations givento us and except for the matters described in the Basis for Qualified Opinion paragraphreferred above the aforesaid 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 31 st March 201 7 and its loss and its cash flows for the year ended onthat date.

Other Matter

We did not audit the financial statements/information of ten branches included in thestandalone financial statements of the Company whose financial statements/financialinformation reflect total assets ofRsl 297.59 crore as at 31 st March 201 7 and totalrevenues of Rs3747.40 crore for the year ended on that date as considered in thestandalone financial statements. The financial statements/information of these brancheshave been audited by the branch auditors whose reports have been furnished to us andouropinion in so far as it relates to the amounts and disclosures included in respect ofthese branches is based solely on the report of such branch auditors and managementreplies to the observations of the branch auditors.

Ouropinion 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 ("the Order")issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Act based on our observations reports received from branch auditors in respect ofbranches not visited by us and explanations received from management we give in theAnnexure 'A' statement on the matters specified in paragraphs 3 and 4 of the Order to theextent applicable.

2. 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 purposes of our audit except certainrecords/information at Mumbai branch and balance confirmation of parties as mentioned inpara no. (n) above under Emphasis of Matters.

(b) Except for the effect of the matters described in the Basis for Qualified Opinionparagraph above in ouropinion proper books of account as required by law have been keptby the Company 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) Except for the effect of the matters described in the Basis for Qualified Opinionparagraph above in our opinion the aforesaid standalone financial statements comply withthe Accounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014 and the Companies (Accounting Standards) Amendment Rules2016.

(f) The matters described in the Basis of Qualified Opinion paragraph above in ouropinion may have an adverse effect on functioning of the company

(g) 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.

(h) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in Annexure 'B' and

(i) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financialposition in its financial statements as referred to in Note No. 18.119.1 to19.0619.0919.1122.122.245 & 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.

iv. The Company has provided requisite disclosures in the financial statements as toholdings as well as dealings in Specified Bank Notes during the period from 8th November2016 to 30th December 2016. Based on audit procedures and relying on the managementrepresentation we report that the disclosures are in accordance with books of accountmaintained by the Company and as produced to us by the Management - Note no. 23.1.

3. 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 R Jain & Company
Chartered Accountants
Firm Regn. No.000711C
Sd/-
Place: New Delhi (Pankaj Jain)
Date : 30th May 201 7 Partner
M. No. 097279

ANNEXURE 'A1 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 tagging at Mumbai Branch proper records notmaintained at Agra branch and updation of fixed asset register at Corporate Office.

(b) The fixed assets were physically verified by the management during the year. Wehave been informed that no material discrepancies were noticed on such physicalverification wherever done except at Mumbai branch where the management is in process ofreconciling the discrepancies noticed on such physical verification and at CorporateOffice where certain assets having book value of Rs8.72 crore pending for verification.

(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- Ewhose title deeds are not held in the company's name.

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.

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 not applicable 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 Order is 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 Actforthe Company.

7. (a) According to the records of the Company undisputed statutory dues includingprovident fund employees' state

insurance income-tax sales-tax service tax duty of customs duty of excise valueadded tax cess and other statutory dues have been generally regularly deposited with theappropriate authorities. There were no undisputed amounts payables in respect of theaforesaid dues which were outstanding as at 31 st March 201 7 for a period of over sixmonths from the date they became payable except Rs0.01 crore professional tax payable atMumbai branch.

(b) According to the information and explanations given to us there are followingdisputed statutory dues aggregating Rs1.73 crore on account of Income tax Rs771.57 croreon account of Sales tax/VAT and Rs49.49 crore on account of Service tax which have notbeen deposited.

Name of the statute (Rs in Crore) Nature of dues Amount Period to which the amount relates Forum where dispute is pending
Income Tax
Income Tax Act Income Tax 1.73 2008-09 DCIT Delhi
Sales Tax
TNGST/AST/CST (Chennai Branch) Sales Tax (inch penalty) 0.83 1974-751975-76 1985-86 to 1987-88 1989-90 & 1991-92 Hon'ble Madras High Court
Central Sales Tax Act (Chennai Branch) Central Sales Tax 0.01 1987-88 Appellate Tribunal
Central Sales Tax Act (Bengaluru Branch) Central Sales Tax 0.08 2014-15 Asstt. Commissioner Commercial Tax
BiharSalesTaxAct (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
Name of the statute (Rs in Crore) Nature of dues Amount Period to which the amount relates Forum where dispute is pending
Sales Tax
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 0.02 2010-11 VAT Officer
Delhi VAT Act Sales Tax 2.33 2008-09 VAT Officer
Maharashtra Sales Tax Act (Mumbai Branch) BST (Sales Tax) 0.69 1992-93 to 1996-97 Maharashtra Sales Tax Tribunal
Maharashtra Sales Tax Act (Mumbai Branch) BST/CST/MVAT *476.75 1993-94 2000-012003-04 2004-052006-07 & 2009-10to 2011-12 Joint Commissioner Sales Tax
Maharashtra Sales Tax Act (Mumbai Branch) CST/WCT *290.52 2008-09&2012-13 Deputy Commissioner Sales Tax

* including ^720.18 crore against which stay order has been received

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 3.54 2014-15 Principal Commissioner Service Tax
Finance Act 1994 (Mumbai Branch) Service Tax 16.54 01.10.2004 to 31.03.2011 Service Tax Appel late Tribunal Mumbai
Finance Act 1994 (Mumbai Branch) Service Tax 0.13 01.04.2011 to 31.03.2012 Service Tax Appellate Authority Mumbai
Finance Act 1994 (Mumbai Branch) Service Tax **14.03 01.04.2012 to 31.03.2014 Service Tax Assessing Authority 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 atMumbai branch as mentioned below. The Company does not have any loans or borrowing fromany financial institution or government or dues to debenture holders during the year.

Name of the bank/ financial institution Amount of instalment/ interest due (Rs In Crore) Due date Date of payment Delay (days)
Exim Bank (Instalment) 10.00 01.04.2016 03.04.2016 2
Exim Bank (Instalment) 10.00 01.07.2016 02.07.2016 1
Exim Bank (Interest) 1.51 02.05.2016 03.05.2016 1
Exim Bank (Interest) 1.48 01.06.2016 07.06.2016 6
Exim Bank (Interest) 1.44 01.08.2016 02.08.2016 1
Exim Bank (Interest) 1.33 01.11.2016 04.11.2016 3

9. The Company did not raise any money byway of initial public offer or further publicoffer (including debt instruments) except renewal of term loan ofRsl 56.28 crore forworking capital from Exim Bank during the year.

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 except a case of conspiracy cheating fraud and misappropriationof stocks during the year 2004 to 2016 by a business associate having outstanding balanceof

Rs1904.24 crore under overseas trade. It was informed that criminal complaint waslodged with Central Bureau of Investigation New Delhi on 14.03.201 7 and the matter isunder investigation.

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 Schedu le V to the Act.

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 1 77 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 R Jain & Company
Chartered Accountants
Firm Regn. No.000711C
Sd/-
(Pankaj Jain)
Partner
M. No. 097279
Place : New Delhi
Date : 30th May 201 7

ANNEXURE-'B' TO THE INDEPENDENT AUDITORS1 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 overfinancial reporting of The StateTrading Corporation of India Limited ("the Company") as on 31 st March 201 7 inconjunction with our audit of the financial statements of the Company for the year endedon 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 overfinancial 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'). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired underthe Companies Act 2013.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols overfinancial 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 overfinancial 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 overfinancial 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 controls systemoverfinancial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control overfinancialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting (IFCFR)

Because of the inherent limitations of internal financial controls overfinancialreporting 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 overfinancialreporting to future periods are subject to the risk that the internal financial controloverfinancial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Basis for Qualified Opinion

(i) Following design gap are noticed in IFCFR such as lawyer's certificate not taken inlitigation cases monitoring and record keeping of pledged/owned inventory not maintainedmanual invoicing and absence of track record for invoicing ageing analysis andreconciliation with vendors not reviewed no policy for credit evaluation and customeracceptance manual

calculations for leaves no HR Software acknowledgement by the user not taken forreceipt of fixed assets of required specification compliance calendar not documentedabsence of review mechanism job responsibilities not defined rules and regulations notauthenticated by authorized signatory IT policy not documented disaster management plannot documented no data backup for divisions other than corporate accounts data backup ofaccounting records not maintained for branches.

(ii) With respect to Mumbai branch of the Company the branch auditor has reportedcertain material weaknesses in internal financial control overfinancial 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 financial reporting system delay in booking of expenses and compliance withstatutory dues etc.

(iii) With respect to Cochin branch of the company the branch auditor has reportedthat payment to caradmom planters during the period upto 08.11.2016 was made by way ofbearer cheques which is against the principal of effective internal financial control.

(iv) 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.

A 'material weakness1 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.

Qualified Opinion

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 201 7 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 ten branches at Agra Ahmedabad Bangalore Bhopal Chennai Cochin HyderabadJalandhar Kolkata and Mumbai is based on the corresponding reports of the auditors ofsuch branches and management replies to the observations of the branch auditors.

For R Jain & Company
Chartered Accountants
(Firm Regn. No. 000711C)
Sd/-
(Pankaj Jain)
Partner
M. No. 097279
Place : New Delhi
Date : 30th May 201 7

ANNEXURE-'C' TO THE INDEPENDENT AUDITORS1 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 2016-1 7 issued by the Comptroller & Auditor General ofIndia under Section 143(5) of the Companies Act 2013.

SI. Area Examined No. 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. Rs0.81 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. Location of Property No. 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 STC MMTC & 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.
5 Mumbai Flat-13 Las Palmas Malbar Hill Share certificate in name of the Company but original agreement not available 2311 Sq.ft.
6 Mumbai 2 Flats- 1001 & 1103 Wallace Apt. Grant Road Share certificate in name of the Company but original agreement not available 2560 Sq. ft.
7 Mumbai Flat-7 Shyam Sadan Khar Share certificate in name of the Company but original agreement not available 750 Sq. ft.
8 Mumbai 3 Flats-5A 9A and 10B Mandar Apartments Ville Parle (E) Share certificate in name of the Company but original agreement not available 2350 Sq. ft.

Annexure 'E' to the Independent Auditors' Report

Title deeds of properties not held in the name of the Company

S. Location of No. 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 2.559 Acre 548.33 (land) 185.91 (Building)
(ii) STC /MMTC Housing Colony Aurbindo Marg pending.
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 pending 3984 Sq. ft. 33.19
4 Mumbai Flat-1 3 Las Palmas Malbar Hill Share certificate in name of the Company but original agreement not available 2311 Sq. ft. 15.97
5 Mumbai 2 Flats- 1001 & 1103 Wallace Apt. Grant Road Share certificate in name of the Company but original agreement not available 2560 Sq. ft. 10.06
6 Mumbai Flat-7 Shyam Sadan Khar Share certificate in name of the Company but original agreement not available 750 Sq. ft. 2.21
7 Mumbai 3 Flats-5A 9A and 1 OB Mandar Apartments Ville Parle (E) Share certificate in name of the Company but original agreement not available 2350 Sq. ft. 4.94