Your Directors are pleased to present their Eighty-second Annual Report on the business and operations of your Company along with the Audited Financial Statements both Stand-alone and Consolidated for the financial year ended 31 March 2019.
Abbreviations `Act' refers to the Companies Act 2013 `Listing Regulations' refers to SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 `the Company' `CG'refers to CG Power and Industrial Solutions Limited `SEBI' refers to the Securities and Exchange Board of India
Significant Matters Relevant to the Year Under Review
With an aim to preserve and enhance corporate value an Operations Committee (Ops Committee) under the Chairmanship of one of the independent directors of your Company was constituted by the Board of the Company in March 2019.
While working on conducting the financial and operational analysis prior to seeking refinancing of certain facilities the Ops Committee was made aware of certain unauthorised transactions by some employees including certain identified senior personnel (CIP) of your Company.
The Ops Committee was also made aware of a letter received by your Company from a particular financing company regarding certain interest payment failure which it was unable to either trace or ascertain from the financials or the records of your Company. Further on getting a request by a bank to replace a post-dated cheque (PDC) the validity of which was about to expire the Managing Director immediately brought the same to the notice of the Ops Committee. Neither the Ops Committee nor the Managing Director could relate this to any obligations of your Company.
To make further assessments in this regard an independent law firm (Legal Firm) was appointed by your Company's Risk and Audit Committee (RAC) and Ops Committee to conduct an investigation on certain transactions that were brought to the notice of the Ops Committee. The Legal
Firm also took assistance of an independent accounting and consultancy firm for the purposes of the said investigation.
In the meanwhile during the course of the audit of your Company one of the joint statutory auditors (viz. M/s S R B C & CO LLP) sought information and explanations from your Company regarding some other transactions as part of a notice issued to your Company under Section 143(12) of the Companies Act 2013. These additional transactions were also included in the scope of review of the Legal Firm. The Legal Firm was thus asked to investigate nine (9) such transactions.
Pursuant to the investigation mentioned above the Legal Firm submitted their Phase I report dated 5 August 2019 (Report) to the RAC of your Board in its meeting held on 6 August 2019. The RAC passed it on to the Ops Comittee to prepare an analysis of this Report.
On 19 August 2019 the Ops Committee presented to the RAC an analysis of the Report including its recommendations regarding the transactions set out in the Report (Report Transactions). Moreover some additional suspect unauthorised and undisclosed transactions and entries that were identified during further verification (Additional Transactions) were also brought to the attention of the RAC.
On the same day i.e. 19 August 2019 the RAC also received from management the compilation of unaudited stand-alone and consolidated financial position and profit and loss of your Company for the year ended 31 March 2019 and restated financial information and profit and loss for the year ended 31 March 2018 and statement of financial position as on 1 April 2017 after taking into consideration potential impact of the Report Transactions and Additional Transactions along with summary of each of these transactions (Management Compiled Financial Information). The Management Compiled Financial Information was presented by management to provide disclosure of the unaudited financial information for the year ended 31 March 2019.
The RAC after its review and taking due consideration of (i) the analysis of the Report and recommendations of the Ops Committee and (ii) the Management Compiled Financial Information made its recommendations to your Board regarding the necessary disclosures and immediate further actions required to be undertaken to protect interests of your Company and all its stakeholders.
Your Board noted and considered the RAC's inputs and recommendations and made disclosures as set out in the stock exchange intimation issued by the Company dated 19 August 2019 (19 August Disclosures).
Subsequent to the 19 August
Disclosures your Company (i) mandated a detailed independent forensic investigation into the affairs of the Company (Phase 2 Investigation); and (ii) submitted its updated response to M/s S R B C & Co LLP pursuant to the notice issued under Section 143(12) of the Companies Act 2013. Your Company also submitted the Management Compiled Financial Information to the joint statutory auditors for their audit.
On 30 August 2019 based on the documents so submitted and other financial information your Company completed the audit process for the financial year ended 31 March 2019.
The audited financial statements so completed does not contain an opinion of the Statutory Auditors because of matters described in the Basis for Disclaimer of Opinion included in the Auditors' Reports which are included in this Annual Report.
Moreover given the nature and financial magnitude of the observations that are outlined below neither your Board nor the statutory auditors can presently claim that the stand-alone and consolidated financial statements for the financial year ended 31 March 2019 represent a true and fair view of the financial position of your Company
We urge upon the Members to carefully read the Auditors' Reports including the Basis for Disclaimer of Opinion as well as the Notes to Accounts of both the stand-alone and consolidated financial statements of your Company for the financial year ended 31 March 2019.
For convenience of the Members a synopsis of the Basis for Disclaimer of Opinion of certain matters as set out in the Auditors' Report of your Company's consolidated annual accounts for the financial year ended 31 March 2019 is given hereunder. Your Board's response to each of these observations is given in italics.
Matters Stated in Basis for Disclaimer of Opinion
01 Notes 3A(a) 3A(b) 3A(j) 3A(l) 3A(r) and 3A(s) of the Consolidated Financial Statements describe reinstatements of certain liabilities by the Group relating to prior years. Certain unauthorised / unapproved banking transactions in the nature of loans taken from banks financial institutions and a connected party aggregating I 1401.39 crores were not disclosed in the consolidated financial statements of prior years by off-setting against certain related and unrelated party balances. Further interest expenses of I 94.66 crores which were serviced by the Holding Company with respect to these unauthorised loans were accounted under different heads in the Consolidated Statement of Profit and Loss and were misrepresented in the financial statements of prior years.
Board's Response: Your Company has now recorded these loans in previous years and has restated the interest expenses as financial expenses with the consequential impact to different heads in the Consolidated Statement of Profit and Loss for the year ended 31 March 2018. Moreover your Board of Directors has initiated an independent forensic investigation (Phase 2 Investigation) relating to these unauthorised and misrepresented transactions.
02 Notes 3A(a) 3A(b) 3A(j) 3A(l) 3A(n) 3A(r) and 3A(s) of the Consolidated Financial Statements describe certain transactions entered into by the Group with related and unrelated parties aggregating I 1534.68 crores which were not disclosed in the financial statements of prior years by off-setting such transactions against undisclosed borrowings.
Board's Response: These have been now recorded and reinstated in the respective prior years.
03 As explained in note 3A(y) of the Consolidated Financial Statements the Group also has loans including interest receivables and advances recoverable from related and unrelated parties as reinstated on 31 March 2019 aggregating I 3023.08 crores for which further interest income aggregating I 556.97 crores is currently not recorded as at 31 March 2019.
Board's Response: Your Company is in the process of further investigating the commercial substance nature and business rationale of such transactions. It is also in the process of obtaining balance confirmations and completing reconciliation procedures with these related and unrelated parties as at 31 March 2019 as well as in respect of prior years. Upon completion of such investigation reconciliation and confirmation these balances may need to be restated by your Company.
04 Note 3A(i) of the Consolidated Financial Statements describes that bank balances were overstated and advances receivable from related parties were understated by I 400 crores and I 300 crores as at 31 March 2018 and 1 April 2017 respectively.
Board's Response: These have now been reinstated by your Company.
05 Notes 3A(c) and 3A(p) of the Consolidated Financial Statements describe that the Group wrote back in the Consolidated Statement of Profit and Loss certain amounts that were previously expensed off. These amounts were presented as amounts charged off in relation to inventories / trade advances / unbilled dues from customers / loans given to related unrelated parties and connected parties aggregating I 860.16 crores. These amounts which were charged off and wrongly stated in the financial statements were misrepresented to your Board of Directors. Moreover these were wrongly grouped in the consolidated financial statements of prior years.
Board's Response: The amounts thus written off were extended to and are recoverable from related and unrelated parties. Your Board of Directors has initiated the independent Phase 2 Investigation to assess the underlying basis nature and amount of such transactions.
06 Note 3A(f) of the Consolidated Financial Statements describes that your Company's CIPs had provided postdated cheques (PDCs) and comfort letters to banks in relation to certain borrowings availed by related parties in prior years. Following a default in the contractual and repayment terms of such borrowings availed by the related parties one bank attempted to encash a PDC of I 210 crores which was dishonoured upon presentation by another bank of your Company. The bank then issued a notice to your Company to honour the liabilities and have claimed repayment on these. The total outstanding amount of such borrowings as at 31 March 2019 is I 392 crores.
Board's Response: Your Board of Directors has categorically stated that it was not informed of the issuance of such PDCs and comfort letters and also that these actions were in violation of the clearly laid down Rules of Procedure (RoP) of your Company. These transactions are subject to further investigations to ascertain legality of the claim on your Company. Pending this the claim has been disclosed as a contingent liability of your Company instead of being accounted in the books of accounts.
07 Notes 3A(c) 3A(m) and 3A(o) of the Consolidated Financial Statements describe certain trade receivables balances amounting to I 120 crores against which provision for doubtful trade receivables of I 108 crores was made in the current year and I 12 crores was made in prior years / periods. Moreover advances were given to related and unrelated parties amounting to I 310.55 crores by subsidiaries located in Dubai and Singapore. These underlying sale transactions and recording of provisions have been found to be suspicious in nature and not in the normal course of business of your Company.
Board's Response: Your Board of Directors confirm that detailed investigation is in process to assess the underlying basis and rationale of such transactions. However given the amounts involved and that these were approved by certain Key Managerial Persons company personnel and certain non-executive director it prima facie appears that material fraud may have been perpetrated. However this requires further investigation identification and conclusion of culpability which is currently in progress through the independent Phase 2 Investigation.
As stated in notes 3A(a) 3A(b) 3A(p) 3A(q) and 3A(y) of the Consolidated Financial Statements the Group had entered into various transactions with certain identified group companies (termed as `connected parties') where some of Group employees had beneficial ownerships; and where some senior management personnel of the Group were directors of these connected parties.
Board's Response: Your Board after completion of its independent Phase 2 Investigation ought to be able to assess the nature of the relationship with these connected parties.
09 As stated in note 3A(w) of the Consolidated Financial Statements your Board of Directors has instructed your Company's management to undertake detailed investigation relating to matters of possible non-compliance with respect to Sections 129 134 166 180 185 186 188 197 and other related provisions of the Companies Act 2013; the Income Tax Act 1961; the Foreign Exchange Management Act 1999; the Prevention of Money Laundering Act 2002; the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (as amended); and other applicable laws and regulations. In doing so your Board has also instructed management to engage external consultants lawyers forensic experts and other specialists as required for this investigation.
10 Note 3A(g) of the Consolidated Financial Statements which states that management has not accounted contractual royalty expense amounting to Rs 41.75 crores for the six months period ended 31 March 2019.
Board Response: The royalty agreement is held in abeyance and the Company is determining the legality of royalty contract.
Attention of the members is also drawn to other matters stated in the Statutory Auditors Reports both on Stand-alone and Consolidated Financial Statements which are covered in detail in the respective Statutory Audit Report forming part of this Annual Report.
The Company is undergoing a detailed Phase 2 Investigation and also in the process of obtaining balance confirmations and completing reconciliation procedures with the related and unrelated parties. Upon completion of such investigation and confirmation appropriate adjustments
01 and Tax (PBIT) of the Business UnitsConsolidated Net Sales and Profit Before Interest
|Consolidated Net Sales|
treatments as may be required shall be considered. Management will also make an assessment in relation to the extent of required provision against the assets and/ or recognition of further liabilities.
Given the ongoing independent Phase 2 Investigation it should be stated that there is no certainty on whether any further revision(s) to the accounts under Section 131 of the Companies Act 2013 may be required in the future. Besides as stated earlier given the nature and financial magnitude of the observations outlined above neither your Board nor the statutory auditors can presently claim that the standalone and consolidated financial statements for the financial year ended 31 March 2019 represent a true and fair view of the financials of your Company.
Certain other matters need to be stated here.
First your Board of Directors through a circular resolution dated 29 August 2019 passed by majority consent resolved to remove Mr Gautam Thapar as the Chairman of the Board with immediate effect. This decision has been taken in the interests of your Company and its stakeholders in discharge of the fiduciary responsibilities of your Board.
Second following directions contained in the ad-interim ex-parte order dated 17 September 2019 passed by the SEBI as disclosed by your Company on 18 September 2019 your Company requested Mr Gautam Thapar to step down as the Director of the Company and as the director of PT CG Power Systems Indonesia (an unlisted material subsidiary of the Company). To this in a letter dated 7 October 2019 Mr Thapar stated that his term as a director ended on 30 September 2019.
In this regard it should be noted that Mr Gautam Thapar was liable to retire by rotation at the 82nd Annual General Meeting and had given his oral consent to be considered for being re-appointed as a director. Though the due date for holding the 82nd Annual General Meeting was 30 September 2019 your Company received extension of two months and fteen days from the due date from the Registrar of Companies Mumbai vide its order dated 23 September 2019.
Given the contents of the 7 October 2019 letter where Mr Thapar has clearly stated his intention of ceasing to be the director of the Company your Company through its letter dated 14 October 2019 requested Mr Thapar to tender a formal letter of resignation along with reasons for the resignation if any by 5:00 pm on 16 October 2019-failing which your Company would treat the letter dated 7 October 2019 received from him as his final and conclusive resignation from the directorship of the Company. On this matter your Company received a letter from the legal representatives of Mr Gautam Thapar reiterating the contents of his earlier letter dated 7 October 2019.
Consequently Mr Thapar ceased to be a director on the Board of Directors of the Company with effect from 9 October 2019 (i.e. the date on which your Company received his letter dated 7 October 2019).
Third your Board at its meeting held on 30 August 2019 terminated the employment of Mr V R Venkatesh as the Chief Financial Officer of your Company for cause with immediate effect. This termination of employment was due to the grave nature of misconduct and breach of trust on
02 Financial Highlights (L crores)
|Net Revenue from Operations||5356||5106||7998||8130|
|Less: excise duty||NA||98||NA||99|
|Net Sales and Services||5356||5008||7998||8031|
|Less: Finance cost||337||302||383||350|
|Profit before Exceptional Items & Tax||134||295||(292)||(427)|
|Exceptional items (net) - income / (loss)||(1518)||(133)||(167)||(135)|
|Profit/(loss) Before Tax||(1384)||162||(459)||(562)|
|Less: Tax Expense / (Credit)||11||76||33||102|
|Profit/(loss) from continuing operations||(1395)||86||(492)||(664)|
|Less: Minority Interest||NA||NA||4||(4)|
|Share of profit/(loss) in Associates and Joint Venture||NA||NA||-||(2)|
|Profit/(loss) after minority interest and share of Associate and Joint Venture||(1395)||86||(488)||(670)|
|Profit/(loss) before tax from discontinued operations||(34)||(102)||(27)||(84)|
|Tax expenses / (Credit) from discontinued operations||(12)||(35)||(11)||(35)|
|Net Profit/(loss) from discontinued operations||(22)||(67)||(16)||(49)|
|Total Profit/(loss) for the year||(1417)||19||(504)||(719)|
Note: Figures of FY2018 have been regrouped / restated wherever necessary to correspond with the figures of FY2019.
Mr Venkatesh's part including his having knowingly undertaken actions which were detrimental to the interests of your Company and its stakeholders.
Fourth your Board at a meeting held on 30 September 2019 accepted the resignation of Mr K N Neelkant the CEO and Managing Director of your Company. Consequently Mr Neelkant ceased to be a director of the Company with effect from 30 September 2019.
The Year in Retrospect
The stand-alone and consolidated financial statements of your Company represent the continuing operations for the year ended 31 March 2019. The discontinued operations have been presented under a separate head.
After considering the impact of restatement of financials your Company achieved a stand-alone Net revenue from operations of I 5356 crores during the year under review compared to I 5008 crores during the previous year recording a growth of 6.9%. The consolidated net revenue from operations of your Company during FY2019 stood at I 7998 crores compared to I 8031 crores in the previous year implying a de-growth of 0.4%.
Details of Segment Revenue and Profit before Interest and Tax of the respective Business Units at a consolidated level in comparison with the previous financial year are given in Table 1. The financial performance of your Company for the year ended 31 March 2019 compared to the previous year is given in Table 2.
Kindly note Table 1 and Table 2 are presented after considering impact of restatement of financial statements as detailed in the notes to accounts.
Detailed review of the operations and financial performance of your Company and each of its Business Units is contained in the section titled `Management Discussion and Analysis' of this Annual Report.
Divestments and Other Developments
In relation to the sale of your Company's business in Hungary comprising CG Electric Systems Hungary ZRT (`ESHU') certain definitive agreements were executed with Ganz Villamossagi Zrt. and Alester Holdings Limited for sale of assets (excluding the switchgear business) and shares of ESHU respectively for an enterprise value of Euro 38 Million. However since certain conditions subsequent that were agreed to be performed between the parties were not met these agreements were terminated with effect from 30 April 2019.
As on 31 March 2019 your Company's discontinued businesses were as follows:
Distribution Franchisee Business (Jalgaon)
CG Sales Network France SA. CG Power Solutions Saudi Arabia Ltd. CG Power Solutions Americas LLC. CG Power Systems Canada Inc. CG Power Equipments Limited
Directors and Key Managerial Personnel
BOARD OF DIRECTORS
As on the date of this report your Company's Board of Directors consists of six Directors comprising a Whole Time Executive Director and five Non-Executive Directors of which four are Independent Directors.
Mr Sudhir Mathur is the Whole Time Executive Director.
Ms Ramni Nirula Mr Jitender
Balakrishnan Mr Ashish Kumar Guha and Mr Narayan K Seshadri are Independent in terms of Regulation 16 of the Listing Regulations and Section 149 of the Act; Dr Omkar Goswami is a Non-Executive Director. Your Board consists of professionals with diverse functional expertise industry experience educational qualifications ethnicity and gender mix relevant to fulfilling your Company's objectives and strategic goals.
At a Board meeting held on 25 September 2019 the Board unanimously appointed Mr Ashish Kumar Guha as the Chairman of the Board of Directors.
CHANGE IN COMPOSITION OF THE BOARD
Board on the recommendation of the Nomination and Remuneration Committee of your Company Mr Sudhir Mathur and Mr Narayan K Seshadri were appointed as Additional Directors (Non-Executive Independent) on the Board of Directors of your Company with effect from 1 October 2018 and 8 March 2019 respectively. In accordance with section 161 of the Act 2013 they hold office up to the date of the ensuing Annual General Meeting.
Further the Board of Directors of your Company at its meeting held on 10 May 2019 appointed Mr Sudhir Mathur-who was during that time the Non-Executive Independent Director-as a Whole Time Executive Director of your Company with effect from 10 May 2019 subject to the approval of Members of the Company.
A notice from a Member proposing the candidatures of Mr Mathur and Mr Seshadri for their appointment as Directors was received by your Company.
Accordingly your Directors recommend appointment of Mr Sudhir Mathur as Whole Time Executive Director and Mr Narayan K Seshadri as Non-Executive Independent Director in the ensuing Annual General Meeting. Attention of Members is invited to relevant disclosures made in the Notice of the ensuing Annual General Meeting and the Explanatory Statement thereto with respect to their appointments
Mr Sanjay Labroo (Non-Executive Independent Director) Mr B Hariharan (Non-Independent Non-Executive Director) Dr Valentin von Massow (Independent Non-Executive Director) Mr K N Neelkant (Managing Director & CEO) and Mr Gautam Thapar (Non-Executive Director) ceased to be Directors of your Company with effect from 1 October 2018 8 March 2019 5 August 2019 30 September 2019 and 9 October 2019 respectively.
RETIREMENT BY ROTATION
In terms of the provisions of Section 152 of the Act and the Rules made thereunder and Article 114 of the Articles of Association of the Company Dr Omkar Goswami retire by rotation at the ensuing Annual General Meeting of the Company and is eligible for re-appointment.
Dr Omkar Goswami who has served as an Independent Director from 2004 to 2014 and then as a Non-Executive Director on your Board from 2014 to 2019 has decided to step down as a fiduciary at the ensuing Annual General Meeting of your Company. He therefore does not offer himself for reappointment. Your Board places on record its appreciation for the services extended by Dr Goswami.
INDEPENDENT DIRECTORS' DECLARATION
Your Company has received declarations from all its Independent Directors confirming that they meet the criteria of independence as laid down under Section 149 of the Act and Regulation 16 of the Listing Regulations.
In the opinion of the Board Independent Directors of your Company fulfil the conditions of independence as specified in the Act and Listing Regulations and are independent of the management.
During FY2019 your Board of Directors met six times to discuss and decide business strategies and performance in addition to items reported to the Board in accordance with the provisions of the Act Listing Regulations and other statutory provisions. The intervening gap between the meetings was within the period prescribed under the Act Listing Regulations and Secretarial Standard-1 on Board Meetings issued by the Institute of Company Secretaries of India (SS-1). Details of Board Meetings held and the attendance of Directors are given in the section titled Report on Corporate Governance which forms part of this Annual Report.
Your Board has established statutory and non-statutory Committees in compliance with the requirements of the Act and Listing Regulations. These are:
(i) the Risk and Audit Committee
(ii) the Nomination and Remuneration Committee
(iii) the Corporate Social Responsibility Committee and
(iv) the Stakeholders' Relationship Committee.
Details of composition of the statutory Committees their terms of reference number of meetings held and attendance of Committee members thereof during the financial year is given in the section titled `Report on Corporate Governance' forming part of this Annual Report.
During the year under review your Board constituted a Re-classification Committee to review the current classification of various businesses in the Financial Statements as Continued Operations and Discontinued Operations. The Re-classification Committee comprising Mr Gautam Thapar Mr K N Neelkant Mr B Hariharan and Mr J Balakrishnan held one meeting during the year on 11 December 2018. The Re-classification Committee was dissolved on 11 June 2019.
All but one recommendation made by the Risk and Audit Committee (RAC) during the year under review were accepted by your Board of Directors. The only one where the RAC had approved that certain businesses continue to be treated as `discontinued businesses' was reviewed by your Board and the overall consensus was that these be brought back as `continuing businesses'. This decision taken by your Board is reflected in the annual financial statements with respect to `continuing' and `discontinued' businesses for the year ending 31 March 2019.
The Hungary Business Divestment Committee consisting of Mr Sanjay Labroo Ms Ramni Nirula Mr B Hariharan and Mr K N Neelkant met on 2 July 2018. This Committee was dissolved on 11 June 2019.
As mentioned earlier in this Directors' Report with an aim to preserve and enhance corporate value an Operation Committee under the Chairmanship of one of the independent directors of the Company was constituted in March 2019. The members of the Operation Committee were originally Mr Narayan K Seshadri Mr Sudhir Mathur and Mr K N Neelkant. Subsequently the committee comprised of the Mr Seshadri and Mr Mathur.
At a Board meeting held on 25 September 2019 your Board of Directors dissolved the Operations Committee and in its place constituted the Special Situation Committee (SSC) comprising Mr Narayan K Seshadri (as Chairman of the SSC) Mr Ashish Kumar Guha and Mr Sudhir Mathur as members. The broad terms of reference of the SSC is to focus on operational improvement strategic review of international businesses capital re-structuring including raising capital and dealing with the regulatory bodies.
The Board has also dissolved the following committees:
01 Business Divestment Committee w.e.f 11 June 2019.
02 Securities Transfer Committee w.e.f 21 June 2019.
KEY MANAGERIAL PERSONNEL
Pursuant to Section 203 of the Act the Key Managerial Personnel of the Company as on the date of this report are:
Mr Sudhir Mathur Whole Time Executive Director
Ms Shikha Kapadia Company Secretary. Ms Kapadia has resigned from the services and her resignation is effective from 31 December 2019.
As mentioned earlier at a Board meeting of your Company held on 30 August 2019 your Board terminated the employment of Mr V R Venkatesh the erstwhile CFO of your Company for cause with immediate effect. This termination of employment was due to the grave nature of the misconduct and breach of trust on Mr Venkatesh's part including his having knowingly undertaken actions which were detrimental to the interests of your Company and its stakeholders.
Moreover as also mentioned earlier at a Board meeting held on 30 September 2019 Mr K N Neelkant the CEO and Managing Director tendered his resignation which was accepted by the Board. He ceased to be a Managing Director & CEO as well as a director on the Board with effect from 30 September 2019.
Remuneration policy and criteria for determining attributes qualification independence and appointment of directors
Your Company has formulated a Remuneration Policy governing the appointment and remuneration of Directors Key Managerial Personnel Senior Management and other employees of the Company. The Policy contains criteria for determining qualifications positive attributes independence of Directors and provisions relating to loans and advances to employees of the Company. It aims to attract and retain high calibre personnel from diverse educational fields and varied experiences to serve on the Board of your Company. The Remuneration Policy is provided as Annexure 6 to this Report. Your Company believes that diversity at Board level is critical to maintain competitive advantage to understand customers and stakeholders from different perspectives and to reap the benefits of a broader experience in decision making. With this in mind your Company has adopted a Board Diversity Policy.
Performance Evaluation of the Board of Directors
In line with the requirements of the Act and the Listing Regulations an annual evaluation of performance of the Board its Committees and individual Directors was carried out during the year under review. Pursuant to the provisions of Schedule IV of the Act and Regulation 25 of the Listing Regulations the Independent Directors of your Company at a meeting held on 19 March 2019 evaluated the performance of Non-Independent Directors and the Board as a whole; performance of the Chairman; and also assessed the quality quantity and timeline of flow of information between the Management and the Board.
However it should be noted that this evaluation occurred on 19 March 2019-which was before the Legal Firm appointed by your Board's RAC submitted its Report on the nine suspicious transactions that it was asked to investigate. Subsequent to submission of this Report your Board has made the following changes: a) Removed Mr Gautam Thapar as the Chairman of your Company with effect from 29 August 2019; b) Accepted the resignation tendered by Mr K N Neelkant the CEO and Managing Director as on 30 September 2019.
Familiarization Programme for Independent Directors
Pursuant to Regulation 25 of the Listing Regulations your Company familiarises its Independent Directors with their roles rights responsibilities as well as the Company's business and operations. Moreover Directors are regularly updated on the business strategies and performance management structure and key initiatives of businesses at every Board meeting. Details of the programme can be viewed under the following link available on the Company's website: http://www.cgglobal.com/frontend/ finalnonproduct.aspxcnl2=yrnPqECUvhk=
The Avantha group which is currently classified as promoter and promoter group of the Company holds 8574 equity shares of the Company (i.e. <0.01% shareholding) as of 30 September 2019. The Company understands that the Avantha group is promoted by Mr Gautam Thapar.
Your Company has noted the order of SEBI dated 17 September 2019 (SEBI Order) which inter alia states the following:
(i) Funds diverted from your Company were fraudulently transferred to its Promoter company i.e. Avantha Holdings and entities related/ connected with the Company viz. Avantha International Acton Ballarpur International Mirabelle and Solaris without the knowledge of the Company and without any approval from its Board... the aforementioned entities as recipients of the fraudulent transfer of funds of the Company amounting to I1223.80 Crore and are prima facie liable for the manipulation in respect of the financials of CG Power.
(ii) The examination prima facie indicates a serious misstatement of accounts and diversion of funds from a listed Company and/or its subsidiaries/ associates which are in violation of the provisions of the SEBI Act PFUTP Regulations 2003 and the LODR Regulations.
(iii) Mr Gautam Thapar along with entities related/connected with the Company viz. Avantha Holdings Limited Acton Global Private Limited and Solaris Industrial Chemicals Limited have prima facie violated Sections 12A(a) (b) and (c) of the SEBI Act and Regulations 3(b) (c) and (d) 4(1) and 4(2)(f) and (r) of the PFUTP Regulations 2003.
(iv) Mr Gautam Thapar has prima facie violated Regulations 4(2)(f)(i)-(ii) 4(2)(f) (iii)(3) and (6) of the LODR Regulations.
Given these and other circumstances in the knowledge of the Board the Board considers any association of your Company with the Avantha group specifically as its promoter and promoter group as prejudicial to the interests of your Company and its stakeholders. Your Company assures you that it will take actions as necessary to protect its interests in this regard.
Subsidiaries Joint Ventures and Associate Companies
As on 31 March 2019 your Company had three Indian subsidiaries twenty five foreign subsidiaries and one associate Company. During the year under review CG Power & Industrial Solutions Middle East FZCO was incorporated as a wholly owned step-down subsidiary of the Company in UAE. Details are provided in Annexure 5 to this Report in Form MGT-9 (Extract of Annual Return).
Pursuant to the Companies (Indian Accounting Standards) Rules 2015 and Regulation 33 of the Listing Regulations the financial statements of the Company reflect the consolidation of accounts of your Company its subsidiaries associates and joint venture companies with a significant caveat.
The consolidated financial results in this Annual Report include unaudited financial results and other unaudited financial information with respect to four (4) subsidiaries that form part of the continued operations of your Company. The financial statements and other financial information of these subsidiaries reflect total assets of I 4501.68 crores as at 31 March 2019 and total revenues of I 0.04 crores for the year ended on that date.
In addition the financial results of an associate company which forms part of the `continuing operations' of your Company is unaudited and accounts for your Company's share of consolidated net profit of I 0.12 crores for the year ending 31 March 2019.
These unaudited financial statements and other unaudited financial information were furnished by management to the statutory auditors of your Company. The auditors were unable to comment on the impact on total assets and total revenues since these subsidiaries had not been subjected to an audit.
Pursuant to Section 136 of the Act the audited/unaudited annual accounts of each of your Company's subsidiaries associates and joint venture entities are placed on the website of you Company and not enclosed in this Annual Report. If any Member so desires your Company will make available the said annual accounts on written request. Physical copies of these documents are also available at your Company's Registered Office for inspection during normal business hours on all working days excluding Saturdays up to the date of the ensuing Annual General Meeting and at the venue of the Annual General Meeting.
In terms of Section 129 of the Act statement containing salient features of the financial statements of the Company's subsidiaries/associates/joint ventures companies in Form AOC-1 is given in the notes to the financial statements in this Annual Report.
Pursuant to Regulation 16 of the Listing Regulations a Policy for determining material subsidiary of the Company as approved by the Board of Directors is available on the website of the Company under http://www.cgglobal.com/pdfs/policies/ Policy-determining-Mat-Subsidiaries.pdf
Related Party Transactions
The related party transactions during the year are disclosed in the financial statements in this Annual Report (refer note no. 46 and note no. 41 of standalone and consolidated financial statement forming part of this Annual Report).
The Company's India Related Party Transactions Policy can be downloaded from the website of the Company under http://www.cgglobal.com/pdfs/policies/ India%20Related%20Party%20 Transactions%20Policy.pdf
It should be understood that the nature of related party transactions undertaken during the year are under review as part of the forensic-Phase 2 Investigation. Therefore pending the findings of the Phase 2 Investigation and BSE Forensic Audit (as defined hereinafter) the Company is unable to confirm the completeness of the related party transactions and whether some of these were undertaken at an arm's length basis and/or in the ordinary course of business. Hence disclosure of particulars of contracts / arrangements entered into by the Company with related parties referred to in sub-section (1) of Section 188 of the Act have not been included for the year under review.
An omnibus approval has been granted by the RAC of the Board based on the criteria determined and approved by the Board of Directors of the Company as well as by the RAC for transactions that are of repetitive nature with related parties. Such omnibus approvals are subjected to renewal by the RAC every year and are monitored by the RAC on a quarterly basis.
Having said so the RAC in its meeting on 30 August 2019 has suggested that a new related party policy should be framed-or appropriate amendments be made in the existing related party transactions policy. While doing such amendments or framing the new policy the requirements at the respective entity levels the nature and frequency of such transactions should be kept under consideration. It was also suggested that such policy should not be limited to the requirement of law but that it should be able to address all relevant issues in order to strengthen the process.
The RAC also suggested that the related party transactions should be audited every quarter by the Company's internal auditor; and once in six (6) months by the external auditor.
Particulars of Loans Guarantees and Investments
Particulars of loans guarantees given and investments made by your Company during FY2019 pursuant to the provisions of Section 186 of the Act and Schedule V of the Listing Regulations are given in the notes to the financial statements in this Annual Report.
Business Responsibility Report
Pursuant to Regulation 34 of the Listing Regulations the Business Responsibility Report highlighting the initiatives taken by the Company in the areas of environment social economic and governance is available on the website of the Company under http://www.cgglobal.com/frontend/ finalnonproduct.aspxcnl2=Nu/tTrrPlMI=
Enterprise Risk Management (ERM) Framework
Your Company has a ERM framework to identify risks conduct risk assessment and suggest mitigation procedure to the Board of Directors to ensure that management controls measurable risks through a properly defined framework.
These risks cover business strategy technology financial operations systems IT legal regulatory and human resources.
The RAC reviews the key risks associated with the businesses of the Company and their mitigation measures.
In light of the ongoing investigations and significant financial restatements that have occurred both at the standalone and consolidated levels the RAC has decided to conduct a thorough review of your Company's existing ERM framework and where necessary suggest changes to improve the system.
Internal Financial Controls
The Statutory Auditors have in their report to your Board of Directors on the Internal Financial Controls Over Financial Reporting (ICOFR) under Clause (i) of Sub-section 3 of Section 143 of the Act have made certain observations and disclaimed their ICOFR opinion. The auditors' disclaimed ICOFR opinion is summarised below for both the standalone and consolidated financial statements: The Board of Directors of the Holding Company and of its subsidiaries incorporated in India are responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Holding Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India.
These responsibilities include the design implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business including adherence to the respective company's policies the safeguarding of its assets the prevention and detection of frauds and errors the accuracy and completeness of the accounting records and the timely preparation of reliable financial information as required under subsection 3 of Section 143 of the Companies Act 2013.
Regarding the standalone Ind AS financial statements one of the joint statutory auditor (S R B C & Co. LLP) has stated Because of the matters described in the Basis for Disclaimer of Opinion in the main audit report we were not able to obtain sufficient appropriate audit evidence to provide a basis for our opinion on whether the Company had adequate internal financial controls over financial reporting with reference to these Standalone Ind AS financial statements as at March 31 2019 and whether such internal financial controls were operating effectively. Similarly regarding the consolidated Ind AS financial statements one of the joint statutory auditor (S R B C & Co. LLP) has stated Due to the possible effects of the matters described in the Basis for Disclaimer of Opinion paragraph in our main audit report we are unable to obtain sufficient appropriate audit evidence to provide a basis for our opinion on whether the Holding Company and Subsidiaries incorporated in India had adequate internal financial control over financial reporting with reference to these Consolidated Financial Statements as at March 31 2019 and whether such internal financial controls were operating effectively. Accordingly we do not express an opinion on Internal Financial Controls Over Financial Reporting with reference to these Consolidated Ind AS Financial Statements. Similar observations were made by other joint statutory auditor-K K Mankeshwar & Co.
Your Company's management both independently as well as in light of the observations of the Statutory Auditors summarised immediately above recognises that internal financial controls were not operating effectively and requires to be strengthened. It is reviewing the internal controls testing and monitoring system. Going forward your Company will do its utmost to ensure that the systems are designed to provide reasonable assurance with regard to maintaining of proper internal controls monitoring of operations protecting assets from unauthorised use or losses compliances with regulations and the reliability of financial reporting.
Research and Development (R&D)
During the year under review your Company's R&D activities continued to focus on development of indigenous and energy efficient products.
Your Company's Traction Machines and System Division at Mandideep developed self-propelled inspection car which is used by railways to undertake regular inspection of tracks overhead equipment level crossings and stations to ensure proper upkeep safety and for better passenger amenities. It developed a complete propulsion system with underslung electrics for self-propelled inspection cars. The under-slung propulsion enabled clearing of the entire on-board space thus increasing seating capacity. This technology is economical because of lesser fuel consumption due to reduced engine capacity as compared to locomotive.
The Switchgear division of your Company developed wall mounted condenser bushings which are used to lead the electrical power through the walls from one point to adjacent location. These bushings are used by utilities and equipment manufacturers in power generating stations and in high voltage test laboratories. It relinquishes the need of power source at every location in the factory or shop. Each bushing's comprises of special grade insulating paper aluminium foils EHV grade mineral oil and accessories.
The Drives & Automation unit in India developed VSE Elevator drive that is equipped with a complete time sequence function specially designed for elevator control. It is easy to use with built-in elevator parameters and functions that are suitable for all installation requirements. The drive works smoothly with all elevator types and includes excellent tuning features for the safest most efficient and most comfortable passenger experience without vibration and jerks. Further it is energy efficient and all its parts are recyclable.
Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo
Details as required under Section 134 of the Act read with the Companies (Accounts) Rules 2014 are given in the prescribed format as Annexure 1 to this Report.
Environment Health & Safety (EHS)
CG's Environment Health & Safety (EHS) strategies are directed towards achieving the greenest and safest operations across all its units at various locations. All units are encouraged to consistently improve operational efficiencies minimize consumption of natural resources and reduce water energy and carbon emissions while maximizing production volumes.
The Company propagates `Zero Harm Culture' towards employees environment and other stakeholders. The same is reflected in our Corporate EHS policy and Cardinal Rules. Through our Corporate EHS Policy we aim at not only to comply with legal requisites of safeguarding our employees environment and the society at large but also to set high internal standards for compliance. To monitor compliances sharing best practices in EHS Corporate EHS Review is being conducted on monthly basis through Goto meeting with Unit heads and EHS Coordinators of all entities.
All CG units in India are certified for quality systems with ISO 9001:2015 Certification/ISO 14001:2015 Environmental Management System Certification and OHSAS 18001:2007 Certification. Some of our facilities have already been upgraded to ISO 45001 and the remaining are in process to be upgraded to ISO 45001. The Company's business at Indonesia was certified for Integration Management System (IMS) for ISO 9001:2015 ISO 14001:2015 and OHSAS 18001:2007. All units in India have clearance to operate from State Pollution Control Board Authorities and are complying over and above the conditions laid down in consent to operate.
Regular trainings on EHS awareness and sustainable growth are conducted at all manufacturing locations and Regional sales offices. National Safety Week and World Environment Day campaigns are conducted under guidance of Directorate of Industrial Safety and Health and State Pollution Control Board. Fire safety week are also observed in India under the guidance of the Fire Adviser Ministry of Home Affairs Government of India.
EHS Key Performance Indicators (KPIs) are linked with SMART goals of all units and individuals for their Annual Performance Management process. Quarterly audits are conducted to review the EHS implementation and process compliances across all locations of the Company. Corrective actions generated from these audits and various EHS events are captured and tracked for closure in an online Event Reporting System portal.
The Company shall continue its efforts towards conservation of natural resources and focus on achieving highest level of employee health and well-being for an injury-free workplace.
Corporate Social Responsibility (CSR)
Your Company is committed towards inclusive growth and has implemented various CSR activities in the areas of education skill development and upliftment of underserved communities during the year under review.
Details of the composition of the CSR Committee CSR Policy and projects undertaken by the Company during FY2019 are given in the section titled `Annual Report on CSR initiatives' in Annexure 2 of this Report.
Material Changes and Commitments Affecting Financial Position of the Company
Given the developments that led to the August 19 Disclosures and the annual accounts put forth to the stock exchanges on 30 August 2019 your Company is currently unable to comment on the material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year of the Company i.e. 31 March 2019 and the date of this Report.
Your Board believes that it is prudent to await the Phase 2 Investigation Report that has been initiated by the Company and BSE Forensic Audit (as defined hereinunder). Based on these Report and after due interface with the Statutory Auditors your Company should arrive at a clearer picture of what material changes and commitments may affect the financial position of the Company and to what extent.
Material Orders of Regulators / Courts / Tribunals
SEBI has passed an interim order dated 17 September 2019 which states the below finding/orders:
01 Examined the Preliminary Investigation Report of the nine (9) transactions examined by the independent law firm (Legal Firm) and the Statutory Auditors' report and noted that these prima facie indicate a serious misstatement of accounts and diversion of funds from a listed Company and/or its subsidiaries/associates which are in violation of the provisions of the SEBI Act PFUTP Regulations 2003 and the Listing Regulations.
02 Noted that the ex-Chairman of the Company Mr Gautam Thapar the Chief Financial Officer (CFO) Mr V R Venkatesh (who was dismissed from the Company with cause on 30 August 2019) the ex-CFO Mr Madhav Acharya the ex-Non-Executive Director and Director Finance of the Avantha Group Mr B Hariharan along with the Promoter Company and entities related/ connected with the Company viz. Avantha Holdings Limited Acton Global Private Limited and Solaris Industrial Chemicals Limited had prima facie violated Sections 12A(a) (b) and (c) of the SEBI Act and Regulations 3(b) (c) and (d) 4(1) and 4(2)(f) and (r) of the PFUTP Regulations 2003.
03 Noted that Mr Gautam Thapar Mr Madhav Acharya and Mr B Hariharan had prima facie violated Regulations 4(2)(f)(i)-(ii) 4(2)(f)(iii)(3) and (6) of the Listing Regulations.
04 Noted that Mr Gautam Thapar Mr Madhav Acharya and Mr B Hariharan had prima facie violated Regulation 26(3) of the Listing Regulations on account of having violated the provisions of the Code of Conduct for employees of CG Power.
05 Noted that Mr V R Venkatesh had prima facie violated Regulation 4(2)(f)(i)(2) and Regulation 26(3) of the Listing Regulations.
06 Noted that Mr V R Venkatesh and Mr Madhav Acharya had prima facie violated Regulation 33(2)(a) of the Listing Regulations.
07 Noted that the transactions were purportedly carried out by certain Company personnel (both current and past) including certain Non-Executive Directors KMPs etc.
08 Noted that these transactions were prima facie designed to divert / siphon off money from your Company which rightfully belongs to its shareholders. And that such acts had resulted in the shareholders of CG Power losing the value of their shareholding which amounts to a `fraud on its public investors.
09 Ordered that MR Gautam Thapar MR V R Venkatesh Mr Madhav Acharya and Mr B Hariharan be restrained from accessing the securities market and be further prohibited from buying selling or otherwise dealing in securities in any manner whatsoever either directly or indirectly till further orders.
10 That Mr Gautam Thapar Mr V R Venkatesh Mr Madhav Acharya and B. Hariharan be restrained from being associated with any intermediary registered with SEBI or any listed entity or its material unlisted subsidiary till further orders.
11 That Avantha Holdings Limited Acton Global Private Limited and Solaris Industrial Chemicals Limited be directed to retain funds/other assets to the extent of receivables shown as outstanding to CG Power and Industrial Solutions Limited. To the extent of their liability these entities be restrained from disposing selling or alienating in any other manner their assets or diverting funds till further orders.
12 That CG Power and Industrial Solutions Limited is directed to take all necessary steps to recover the amounts due to the Company along with due interest expeditiously and take necessary action including legal actions to safeguard the interest of the investors of the Company.
13 BSE Limited to appoint an independent independent auditor/ audit firm for conducting a detailed forensic audit of the books of accounts of the Company from the Financial Year 2015-16 onwards (BSE Forensic Audit).
BSE Limited has appointed M/s MSA Probe Consulting Private Limited for conducting the BSE Forensic Audit. The said BSE Forensic Audit commenced on 15 October 2019 and is currently ongoing.
Registrar & Share Transfer Agent
The Company has appointed Datamatics Business Solutions Limited (DBSL) formerly Datamatics Financial Services Ltd) as its Registrar & Share Transfer Agent who is registered with SEBI. The contact details of DBSL are mentioned in section titled Report on Corporate Governance of this Annual Report.
Dividend Distribution Policy
Pursuant to Regulation 43A of the Listing Regulations the Company has formulated a Dividend Distribution Policy as provided in Annexure 7 of this Report. It is also available on the website of the Company under: http://www.cgglobal.com/frontend/ finalnonproduct.aspxcnl2=yrnPqECUvhk=
The Company has not accepted any deposits from public or its members during the year under review as per Sections 73 and 76 of the Act and no deposits exist as on date.
Particulars of Employees
Disclosures pertaining to remuneration and other details as required under Section 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are given in Annexure 3 to this Report.
In accordance with the provisions of Section 197(12) of the Act read with Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 the names and other particulars of the employees covered under the said rule are available at the Registered Office of your Company for inspection during working hours up to the date of the ensuing Annual General Meeting and any member interested in obtaining a copy thereof may write to the Company Secretary of the Company.
Complaints Relating to Sexual Harassment
The Company has adopted Prevention of Sexual Harassment Policy for protection against sexual harassment and have also constituted Internal Complaint Committee in compliance with the Sexual Harassment of Women at Workplace (Prevention Prohibition and Redressal) Act 2013 The Internal Complaint Committee has been constituted region-wise presided by a woman employee and comprising of five to seven Company employees with an external member to whom employees can address their complaints.
During the year under review no incident of sexual harassment was reported.
The Company has set up a vigil mechanism viz. a Whistle Blower Policy as per the provisions of Section 177 of the Act and Regulation 18 of the Listing Regulations to enable its employees to report violations genuine concerns unethical behaviour and irregularities if any noticed by them which could adversely affect the Company's operations. None of the Whistle Blowers was denied access to the Risk and Audit Committee (RAC) of the Board.
The Head of Internal Audit submits a report to the Chairman of the RAC on a quarterly basis on all complaints referred to the Management Committee nominated by the CEO and Managing Director of the Company with the status of investigations and actions taken by the Management Committee.
Auditors and Audit Reports
At the 81st Annual General Meeting of the Company M/s S R B C & CO LLP Chartered Accountants (Firm Registration No. 324982E/E300003) and M/s K K Mankeshwar & Co. Chartered Accountants (Firm Registration No.106009W) were appointed as Joint Statutory Auditors of the Company for a term of five years up to the conclusion of 86th Annual General Meeting of the Company.
Details culled out from of the Statutory Auditors' Reports (of both M/s S R B C & Co. LLP and M/s K K Mankeshwar & Co.) along with comments from your Board have been presented in earlier sections of this Directors' Report.
As per the requirement of Section 148(1) of the Act the Company is required to maintain cost accounts and records. Accordingly the Company has maintained cost accounts and records for FY2019 as applicable for its product range.
The Company had appointed M/s Ashwin Solanki & Associates Cost Accountants Mumbai (Firm Registration No.100392) to audit the cost records related to the Company's products for FY2019. The cost audit report for FY2018 has been filed with the Registrar of Companies Mumbai within the prescribed statutory deadline.
Upon recommendation of the RAC the Board has appointed a new Cost Auditor-M/s R. Nanabhoy & Co as Cost Auditor of the Company for FY2020 at a remuneration of I 700000/-(Rupees seven lacs only) per annum plus out-of-pocket expenses and taxes as applicable. The remuneration payable to M/s R. Nanabhoy & Co for FY2020 is recommended for rati cation by the Members at the ensuing Annual General Meeting.
Your Company had appointed M/s. Parikh & Associates Practising Company Secretaries Mumbai (Firm Registration No. P1988MH009800) to undertake the Secretarial Audit of the Company for FY 2019. The Company has generally complied with the Secretarial Standards and the Secretarial Audit Report for FY 2019 in Form MR-3 is annexed as Annexure 4 to this Report.
The Comments of your Directors in relation to the observations made by the Secretarial Auditor in unnumbered paragraph 2 of the Secretarial Audit Report are provided below: Subsequent to the August 19 Disclosures your Company has mandated a forensic - Phase 2 Investigation to inter-alia determine the complete and accurate financial position of the Company and the legal implications of the issues involved. The said investigation which is currently ongoing shall also review matters in relation to potential non-compliances with Section 185 Section 186 and certain other applicable provisions of the Act and Listing Regulations and other statutes and regulations as applicable. The Company shall also be evaluating the implications of these potential non-compliances and the remedies available. Furthermore the BSE Forensic Audit has also commenced which is currently in process.
With respect to observation of the Secretarial Auditor relating to adequacy of systems and processes to monitor and ensure compliances the Board noted that systems devised to ensure compliance with the provisions of all applicable laws which were adequate have been breached due to override by some members of management. The Board has instituted corrective overhaul of such systems.
No dividend has been recommended or paid for the year ended 31 March 2019.
The Reserves on standalone basis at the beginning of the year amounted to I 4029 crore and the end of the year stood at I 2388 crore.
As on 31 March 2019:
The authorised share capital of the Company was I 4076000000/-(Rupees four hundred seven crore and sixty lakh) divided into 2038000000 equity shares of I 2/-(rupees two) each.
The subscribed and paid-up share capital of the Company stood at I 1253492284/-(Rupees one hundred and twenty five crore thirty four lakh ninety two thousand two hundred and eighty four) consisting of 626746142 equity shares of I 2/-(Rupees two) each.
The Company's equity shares are listed and traded on BSE Limited and National Stock Exchange of India Limited.
The Company issued Global Depository Receipts (GDRs) in 1996 and the underlying shares for each GDR were issued in the name of The Bank of New York the Depository. Each GDR of the Company is equivalent to five equity shares. As on 31 March 2019 155190 GDRs were outstanding which represent 775949 underlying equity shares of the Company.
Extract of Annual Return
The extract of the Annual Return in Form MGT-9 is annexed as Annexure 5 of this Report.
Directors' Responsibility Statement
To the best of their knowledge and belief and according to the information and explanations available with them the Directors make the following statements in terms of Section 134(3)(c) of the Companies Act 2013:
The Annual Accounts have been prepared in conformity with the applicable Accounting Standards along with proper explanations relating to material departures. However considering the significant monetary diversions that have occurred as outlined in the Report the independent auditors' reports and in the notes to accounts and the restatements that needed to be made on account of these transactions these Annual Accounts cannot be said to represent a true and fair view.
The Accounting Policies selected and applied on a standalone and a consolidated basis including for requisite accounting of all transactions identified and disclosed by the Company on vide the August 19 Disclosures and subject to outcomes of the forensic-Phase 2 Investigation no provisioning is being made against certain assets and non-inclusion of certain liability non-adoption of accounts in certain subsidiaries basis of preparation as stated in Note No. 2 of the consolidated financial statements and Note No. 2 of the standalone financial statements judgements exercised and estimates provided may need to be revised for establishing reasonableness and prudence to provide a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit / loss of the Company for the financial year.
Established rules of procedure of the Company requirements of maintenance of accounting records measures put in place for safeguarding assets of the Company appear to have been breached by some members of the management resulting in potentially fraudulent transfer of assets consequent to which forensic-Phase 2 Investigation has been initiated and new measures to strengthen the system are being carried out.
Based on the strength of the business of the Company and subject to fund raising initiatives being achieved these financial statements have been prepared on a going concern basis.
Laid down internal financial controls to be followed by the Company which were adequate have been breached due to management override. The Board has instituted corrective overhaul of the internal financial controls.
The systems devised to ensure compliance with the provisions of all applicable laws which were adequate have been breached due to override by some members of management. The Board has instituted corrective overhaul of such systems.
The Board of Directors wish to convey its gratitude and appreciation to all employees of the Company for their tremendous efforts as well as their exemplary dedication and contribution to the Company's performance. The Directors would also like to thank the employee unions shareholders customers dealers suppliers bankers government and all other business associates for their continued support extended to the Company and the Management.
On behalf of the Board of Directors
Ashish Kumar Guha
CHAIRMAN (DIN: 00004364)
Mumbai 10 November 2019