To the Members of Arcotech Limited
Report on the Audit of the Ind AS Financial Statements
We have audited the accompanying Ind AS financial statements of Arcotech Limited("the Company") which comprise the Balance Sheet as at March 31 2020 theStatement of Profit and Loss including the statement of Other Comprehensive Income theCash Flow Statement and the Statement of Changes in Equity for the year then ended andnotes to the financial statements including a summary of significant accounting policiesand other explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matter described in the Basis for QualifiedOpinion section of our report the aforesaid financial statements give the informationrequired by the Companies Act 2013 ("the Act") in the manner so required andgive a true and fair view in conformity the accounting principles generally accepted inIndia including Indian Accounting Standards ("Ind AS") prescribed under section133 of the Act read with the Companies (Indian Accounting Standards) Rules as amended andother accounting principles generally accepted in India of the state of affairs(financial position) of the Company as at March 312020 its loss (financial performanceincluding other comprehensive income) the changes in equity and it cash flows for theyear ended on that date.
Basis for Qualified Opinion
The restructuring of the company business is under consideration by the lenders..Consequent to the filing of restructuring proposal with the lenders TEV (techno economicviability) study of the operations of the Company was conducted by the outside agencieswhere in certain reliefs/ concessions have been envisaged to make the project viable.Included in there is relief in interest rates effective from 01.11.2018. The company hasprovided interest at the rates mentioned in TEV and has therefore not provided interest ofRs. 3507.91 lakhs for the current financial year and has reversed the interest for theprevious financial year ( from 01.11.2018 to 31.03.2019) amounting to Rs. 1101.48 lakhs.
Emphasis of Matter
The Company has incurred net loss after tax of Rs 5871.42 lacs during the financialyear ended 31 March 2020 (Previous Year net loss after tax of Rs 9214.73 lacs). Theturnover of Company during the financial year ended 31 March 2020 is Rs 7548.97 lacs(Previous Year Rs 45211.10 lacs). The current liabilities exceed current assets. Had thecompany provided for the interest and not reversed the earlier years interest as mentionedBasis for Qualified Opinion above the net loss would have increased.
The restructuring of the Company's business is under consideration by the lenders. Inview of the management's expectation of successful outcome of above proposal and revivalof its business the financial statements have been prepared on going concern basis.However in view of above uncertainties we are unable to comment on the ability of thecompany to continue as a "going concern" and the consequential adjustments tothe accompanying financial statements if any that might have been necessary had thefinancial statements been prepared under liquidation basis.
Our opinion is not modified in respect of this matter.
The Company is recognizing deferred tax assets on losses. The matters discussed aboverelating to going concern create doubt and uncertainty relating to recoverability ofdeferred tax assets. On the basis of our review as elaborated in key audit matters and asper explanation given to us and according to management assessment Company will be inposition to generate future profits against which these losses will be setoff.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters. Wehave determined the matters described below to be the key audit matters to be communicatedin our report:
|S. Key Audit Matter ||Auditor's Response |
|1. Material Uncertainty related to Going Concern ||Principal Audit Procedures |
|The Company has incurred a net loss after tax of Rs 5871.42 lacs during the financial year ended 31 March 2020 (Previous Year net loss after tax of Rs 9214.73 lacs). The turnover of Company during the financial year ended 31 March 2020 is Rs 7548.97 lacs (Previous Year Rs 45211.10 lacs). The current liabilities exceed current assets. Had the company provided for the interest and not reversed the earlier years interest as discussed in Basis for Qualified Opinion above the net loss would have increased. ||The restructuring of the Company's business is under consideration by the lenders. In view of the management's expectation of successful outcome of above proposal and revival of its business the financial statements have been prepared on going concern basis. However in view of above uncertainties we are unable to comment on the ability of the company to continue as a "going concern" and the consequential adjustments to the accompanying financial statements if any that might have been necessary had the financial statements been prepared under liquidation basis. |
| ||The lenders had mandated a credit rating agency to review the restructuring plan of the company which has received a RP4 rating. This rating as per RBI circular allows the company to be restructured as this is a investable grade rating. |
|2. Impairment of property plant and equipment ||Principal Audit Procedures |
|Carrying value of property plant and equipment totalling Rs. 18081.65 lacs as disclosed in Note: 2 represent significant balances recorded in the financial statement. The evaluation of the recoverable amount of these assets requires significant judgment in determining the key assumptions supporting the expected future cash flows of the business and the utilization of the relevant assets. ||Our audit procedures to assess the carrying value of PPE and related assets included the following: |
| ||> In conjunction with valuation reports of PPE and techno economic viability report of third party specialists given by the company we assessed and verified: |
| || The estimated useful lives and residual values of PPE and related assets with reference to the company's historical experience and future operating plans and retirement of PPE policies adopted by valuation reports and techno economic viability report given by third party specialists; |
| || Discussing indicators of possible impairment of PPE and related assets with management of the company and where such indications were identified assessing whether management had performed impairment testing in accordance with the requirements of the prevailing Indian accounting standards; |
| ||We also performed sensitivity analysis on recoverable amount for impairment testing and found that recoverable amount is higher than carrying amount of PPE. |
|3. Judgment in valuation of deferred income tax positions ||Principal Audit Procedures |
|The company has recognised deferred income tax assets and deferred income tax liabilities of Rs. 8873.16 lacs and Rs. 3234.95 lacs respectively as at 31.03.2020. The net deferred tax assets in the balance sheet as at 31.03.2020 is Rs. 5638.21 lacs. Under Ind-AS12 the Company is required to measure annually deferred tax position. This area was significant to our audit because of the related complexity and subjectivity of the assessment process which is based on assumptions taken by the management that are affected by expected future cash flows & expected future market or economic conditions. Refer Note 16 of the Financial Statements as on 31.03.2020. ||Our audit procedures included amongst others using techno economic viability report of third party specialists given by the management to assist us in evaluating the assumptions and methodologies used for the recoverability of deferred tax assets related to operations of the company by reviewing their future profitability management's forecasts and local tax developments. We also focused on the adequacy of the Company's disclosures on deferred income tax positions and assumptions used. We also discussed with the senior management and evaluate the discussions with them about the future expected cash flows and expected future market complexity or economic conditions . The Company's disclosures concerning income taxes are included in note given as per the financial statements. |
| ||The Company is recognizing deferred tax assets on losses. |
| ||The matters discussed in para 1 of key audit matters creates doubt and uncertainty relating to recoverability of deferred tax assets. In terms of the above review and as per explanations given to us and according to management assessment Company will be in position to generate future profits against which these losses will be setoff. |
|4. Evaluation of uncertain tax positions The Company has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes. ||Principal Audit Procedures |
|Refer Note 33 of the Financial Statements as on 31.03.2020. ||Obtained details of completed tax assessments and demands at the year ended March 31 2020 from management. We involved our team to verify the management's underlying assumptions in estimating the tax provision and the possible outcome of the disputes. Our team also considered legal precedence and other rulings in evaluating management's position on these uncertain tax positions. Additionally we considered the effect of new information in respect of uncertain tax positions as at April 1 2019 to evaluate whether any change was required to management's position on these uncertainties. |
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the Directors Report but does not include the Ind AS financialstatements and our auditor's report thereon.
Our opinion on the Ind AS financial statements does not cover the other information andwe do not express any form of assurance or conclusion thereon.
In connection with our audit of the Ind AS financial statements our responsibility isto read the other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated. If based on the work we haveperformed we conclude that there is a material misstatement of this other information weare required to report that fact.When we will read the director's report if we concludethat there is a material misstatement therein we are required to communicate the matterto those charged with governance and if the other information is not corrected aftercommunicating with those charged with governance seek to have the uncorrected materialmisstatement appropriately brought to the attention of users for whom the audit report isprepared.
Responsibilities of Management for the Ind AS Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these Ind AS financial statementsthat give a true and fair view of the financial position financial performance includingother comprehensive income cash flows and changes in equity of the Company in accordancewith the accounting principles generally accepted in India including the IndianAccounting Standards (Ind AS) specified under section 133 of the Act read with [theCompanies (Indian Accounting Standards) Rules 2015 as amended in 2019. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of 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; andthe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the Ind AS financial statementsthat give a true and fair view and are free from material misstatement whether due tofraud or error.
In preparing the Ind AS financial statements management is responsible for assessingthe Company's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so.
The Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Ind AS Financial Statements
Our objectives are to obtain reasonable assurance about whether the Ind AS financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these Ind AS financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the Ind ASfinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concernbasis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.
Evaluate the overall presentation structure and content of the Ind ASfinancial statements including the disclosures and whether the Ind AS financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.
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 "Annexure A" a statement on the mattersspecified in paragraphs 3 and 4 of the Order.
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 tothe best of our knowledge and belief were necessary for the purposes of our audit;
(b) In our opinion proper books of account as required by law have been kept bythe Company so far as it appears from our examination of those books.
(c) The Balance Sheet the Statement of Profit and Loss including the Statementof Other Comprehensive Income the Cash Flow Statement and Statement of Changes in Equitydealt with by this Report are in agreement with the books of account.
(d) In our opinion the aforesaid Ind AS financial statements comply with theAccounting Standards specified under Section 133 of the Act read with Companies (IndianAccounting Standards) Rules 2015 as amended in 2019.
(e) On the basis of the written representations received from the directors ason March 31 2020 taken on record by the Board of Directors none of the directors isdisqualified as on March 31 2020 from being appointed as a director in terms of Section164 (2) of the Act;
(f) With respect to the adequacy of the internal financial controls overfinancial reporting of the Company with reference to these Ind AS financial statements andthe operating effectiveness of such controls refer to our separate Report in"Annexure B" to this report;
(g) In our opinion the managerial remuneration for the year ended March 312020 has been paid / provided by the Company to its directors in accordance with theprovisions of section 197 read with Schedule V to the Act;
(h) 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 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigations on its financialposition in its financial statements- Refer Note 33 to the financial statements.
ii. The Company did not have any long-term contracts including derivativecontracts for which there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and
Protection Fund by the Company.
For Amit Joshi & Associates Chartered Accountants
FRN No. 004898N
(Sanjay Joshi) Partner M. No. 084687
Place : New Delhi
Date : 31.07.2020
Annexure A'to the Auditor's Report on the accounts of Arcotech Limited for theyear ended March 31 2020 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 of the Companies Act 2013
(i) a. The company is maintaining proper records showing full particularsincluding quantitative details and situation of fixed assets.
b. Fixed assets have been physically verified by the management at reasonable intervalsduring the year and there is a programme of verification which in our opinion isreasonable having regard to the size of the company and the nature of its assets. Thediscrepancies noticed on such verification were not material.
c. According to the information and explanations given by the management the titledeeds of the immovable properties are held in the name of the company.
(ii) Physical verification of inventory has been conducted at reasonable intervals bythe management and no material discrepancies have been noticed
(iii) The company has not granted any loans secured or unsecured to companies firmslimited liability partnerships or other parties covered in the register maintained undersection 189 of the Companies Act 2013. Consequently clauses (iii)(a)(iii)(b) and(iii)(c) of paragraph 3 of the order are not applicable.
(iv) In respect of loans investments guarantees and security wherever applicablethe provisions of section 185 and 186 of the Companies Act 2013 have been complied with.
(v) The Company has not accepted deposits during the year within the meaning ofsections 73 to 76 or any other relevant provisions of the Companies Act 2013 and therules framed there under. Consequently this clause of paragraph 3 of the order is notapplicable.
(vi) We have broadly reviewed the cost records maintained by the company pursuant tothe Companies (Cost Records and Audit) Rules 2014 prescribed by the Central Governmentunder section 148(1) of the Companies Act 2013 and are of the opinion that prima faciethe prescribed cost records have been maintained. We have however not made a detailedexamination of the cost records with a view to determine whether they are accurate orcomplete.
(vii) a. According to the information and explanations given to us and the records ofthe company examined by us in our opinion the company has not been regular in depositingundisputed statutory dues including provident fund employee's state insurance incometax sale tax goods & service tax duty of customs duty of excise value added taxcess and other material statutory dues with the appropriate authorities and there were noarrears of such dues at the end of the year which have remained outstanding for a periodof more than six months from the date they became payable except income tax and otherdues amounting to Rs 1209.07 lacs and Rs 70.84 lacs respectively..
b. The dues outstanding in respect of income tax sales tax service tax duty ofcustoms duty of excise and value added tax on account of any dispute are as follows :
|Name of the Statue ||Nature of dues ||Amount (Rs. in Lacs) ||Period to which amount relates ||Forum where dispute is pending |
|Income Tax Act1961 ||Income Tax Demand ||547.01 ||AY 2012-13 ||CIT (Appeals) New Delhi |
|Income Tax Act1961 ||Income Tax Demand ||519.58 ||AY 2013-14 ||CIT (Appeals) New Delhi |
|Income Tax Act1961 ||Income Tax Demand ||535.78 ||AY 2014-15 ||CIT (Appeals) New Delhi |
|Income Tax Act1961 ||Income Tax Demand ||590.91 ||AY 2015-16 ||ITAT New Delhi |
|Income Tax Act1961 ||Income Tax Demand ||304.95 ||AY 2016-17 ||ITAT New Delhi |
|Income Tax Act1961 ||Income Tax Demand ||2509.29 ||AY 2017-18 ||CIT (Appeals) New Delhi |
(viii) According to the records of the company and the information and explanationsgiven to us there was delay in repayment of term loans amounting to Rs 5907.55 lacs andinterest of Rs 1155.39 lacs up to 776 days as on March 31 2020.The company does not haveany debentures and loan from government.
(ix) a. According to the records of the company and the information and explanationsgiven to us the company has not raised moneys by way of initial public offer or furtherpublic offer including debt instruments during the year. Consequently this clause ofparagraph 3 of the order is not applicable.
b. According to the information and explanations given to us no term loans have beenraised during the year .
(x) During the course of our examination of the books and records of the companycarried out in accordance with the generally accepted auditing practices in India we haveneither come across any instance of fraud on or by the company by its officers oremployees noticed or reported during the year nor have we been informed of any such caseby the management.
(xi) According to the information and explanation given to us we report that themanagerial remuneration has been paid/provided in accordance with requisite approvalsmandated by the provisions of the section197 read with Schedule V to the Companies Act2013.
(xii) The company is not a Nidhi Company. Consequently clause 3(xii) of paragraph 3 ofthe order is not applicable.
(xiii) According to the records of the company and the information and explanationsgiven to us all transactions with related parties during the year are in compliance withthe provisions of section 177 and 188 of the Companies Act 2013 where applicable and thedetails have been disclosed in the financial statements as required by the applicableaccounting standards.
(xiv) According to the records of the company and the information and explanationsgiven to us the company has not made any preferential allotment or private placement ofshares or fully or partly paid convertible debentures during the year. Consequently clause3(xiv) of paragraph 3 of the order is not applicable
(xv) According to the records of the company and the information and explanations givento us the company has not entered into any non cash transactions with directors orpersons connected with him. Consequently clause 3(xv) of paragraph 3 of the order is notapplicable.
(xvi) According to the records of the company and the information and explanationsgiven to us the company is not required to be registered under section 45IA of theReserve Bank of India Act 1934.
For Amit Joshi & Associates Chartered Accountants FRN No. 004898N
(Sanjay Joshi) Partner M. No. 084687 Place :New Delhi Date :31.07.2020
ANNEXURE B' TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE FINANCIALSTATEMENTS OF ARCOTECH LIMITED
Report on the Internal Financial Controls under Clause (i) of Sub-Section 3 of Section143 of the Companies Act 2013("the Act")
We have audited the internal financial controls over financial reporting of ArcotechLimited ("the Company") as of March 31 2020 in conjunction with our audit ofthe Ind AS financial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining 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. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Companies Act 2013.
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 operate 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 includeobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemover financial 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 Ind AS 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 Ind ASfinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition use ordisposition of the company's assets that could have a material effect on the Ind ASfinancial 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.
In our opinion the Company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at March 31 2020 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofinternal Financial Controls over Financial Reporting issued by the Institute of CharteredAccountants of India.
|For Amit Joshi & Associates |
|Chartered Accountants |
|FRN : 004898N |
|Sanjay Joshi |
|M. No. 084687 |
|Place : New Delhi |
|Date : 31.07.2020 |