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Dewan Housing Finance Corporation Ltd.

BSE: 511072 Sector: Financials
NSE: DHFL ISIN Code: INE202B01012
BSE 00:00 | 11 Jun Dewan Housing Finance Corporation Ltd
NSE 05:30 | 01 Jan Dewan Housing Finance Corporation Ltd
OPEN 16.70
PREVIOUS CLOSE 16.70
VOLUME 588501
52-Week high 43.00
52-Week low 12.01
P/E
Mkt Cap.(Rs cr) 524
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 16.70
CLOSE 16.70
VOLUME 588501
52-Week high 43.00
52-Week low 12.01
P/E
Mkt Cap.(Rs cr) 524
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Dewan Housing Finance Corporation Ltd. (DHFL) - Auditors Report

Company auditors report

To The Members of

Dewan Housing Finance Corporation Limited

Report on the Audit of the Standalone Financial Statements

DISCLAIMER OF OPINION

We were engaged to audit the standalone financial statements of Dewan Housing FinanceCorporation Limited (“the Company”) which comprises of the Balance Sheet as atMarch 31 2020 the Statement of Profit and Loss (including Other Comprehensive Income)the Statement of Changes in Equity and the Cash Flow Statement for the year then endedand a summary of the significant accounting policies and other explanatory information.

We do not express an opinion on the accompanying standalone financial statements of theCompany. Because of the significance of the matter described in the Basis for Disclaimerof Opinion section of our report we have not been able to obtain sufficient appropriateaudit evidence to provide a basis for an audit opinion on these standalone financialstatements.

BASIS FOR DISCLAIMER OF OPINION

The predecessor joint statutory auditors had issued a Disclaimer Report basis theobservations forming part of their report for the financial year ended 31st March 2019.Their observations together with the observations noted during the year ended March 312020 are as below:

1. We refer to Note No. 52 of the standalone financial statements regarding that theAdministrator the Advisors (refer to the Members of the Committee of Advisors) and thepresent Key Managerial Personnel (“KMP” / “Present Management”) havenot been able to analyse in depth the accuracy validity completeness or authenticity ofthe information and figures mentioned in the standalone financial statements as they havejoined after 20th November 2019; and have been involved in the affairs of the Company forless than four months in the entire financial year 2019-20 and also owing to the lockdownwhich commenced from March 23 2020 due to COVID-19 causing the office-shut down till theclosure of the financial year 2019-20 which subsequently got extended till May 31 2020.Further as a part of Corporate Insolvency Resolution Process (CIRP) the Company aTransaction Audit to determine avoidable transactions in terms of Section 43 45 49 50and 66 of Insolvency and Bankruptcy Code (IBC) and an exercise to determine theliquidation value and fair valuation of the Company is underway. These activities couldnot be conclusively completed till the signing of the financial statement in view of thedisruption caused due to the lockdown restrictions. The outcome of such Transaction Auditmay provide additional facts/information about the past data with respect to the Company.The Administrator has signed the standalone financial statements solely for the purpose ofcompliance and discharging his duties during CIRP period of the Company and in accordancewith the provisions of the IBC read with the regulations and rules thereunder and basedon the explanations clarifications certifications representations and statement made bythe existing staff of the Company in relation to the data pertaining to the period priorto the joining of the Present Management and does not have knowledge of the past affairsfinances and operations of the Company.

2. We refer to Note No. 51 of the standalone financial statements regarding variousgood governance initiatives undertaken by the Present Management including various effortsto strengthen of the financial policies and processes functioning of the IT system; loan/ security documentation legal audit internal financial controls and updating riskcontrol matrices risk and fraud risk management through in-house resources andengagement of external professional experts/consultants. These initiatives have beenundertaken soon after the Present Management became effective. While substantial progressis stated to have been made by concluding some initiatives undertaken by the presentmanagement certain initiatives could not be fully concluded and implemented by 31st March2020 due to the necessary time required for the same; and also because of lockdown andmobility restrictions introduced in view of COVID-19 and the lockdown imposed by State andUnion Government.

In view of the foregoing we have not been able to obtain sufficient and appropriateevidence in support of the outcomes of the said initiatives and their impact upon theoverall governance / control environment within the Company.

3. We also refer to the “Written Representations” by Present Management andits limitations and inability thereof in confirming or non-confirming the assertions(refer para 1 above) forming part of the standard “Written Representation” asrequired by us in accordance with the guidelines issued by the Institute of CharteredAccountants of India (the ICAI”).

4. We refer to multiple issues of financial significance as highlighted by thepredecessor joint statutory auditors in their report for the year ended 31st March 2019together with the suspected irregularities as reported and under media scrutiny. Theseissues are presently investigated by the concerned agencies namely Ministry of CorporateAffairs (MCA); Serious Fraud Investigation Office (SFIO) Enforcement Directorate (ED)and Central Bureau of Investigation (CBI). As of the date of this report investigationsare ongoing and not yet concluded and pending outcome of ongoing investigations thePresent Management believes that adjustments of the impact of these matters on thestandalone financial statements including with regard to any adjustments to the carryingvalues of the loans restatement of receivables/payables related parties and otherdisclosures and compliances as applicable can be made only when the same become known indefinitive terms following the conclusion of the said investigations together with theoutcome of the ongoing transactions audits performed by independent agencies/firmsappointed by the Administrator. Further we also understand that various regulatoryauthorities / lenders are currently carrying out their own investigations which are yet tobe completed/ concluded; and they may make a determination on whether any fraud or anyother non-compliance/ illegalities have occurred in relation to the allegations andmatters under public scrutiny. We have been informed by the Present Management that theseinvestigations and audits are not yet completed; with no outcomes being communicated bythe concerned agencies / firms to the Present Management and accordingly no adjustmentsare made in standalone financial statements in respect of the said reported matters.

In view of the above and pending outcome of ongoing investigation we have not beenable to comment on the completeness and appropriateness of the balances in relation tothese subjected matters as quoted in the standalone financial statements and theconsequential impact that the outcomes of the investigations and transaction audits mayhave on the standalone financial statements and the provisions made by the PresentManagement during this year.

5. We refer to Note No. 59 of the standalone financial statements regarding theinvestments / advances by way of unsecured Inter Corporate Deposit (ICD) aggregating Rs565269 lakh which were outstanding as at March 31 2019. Of these ICDs aggregating of Rs93835 lakh have since been repaid by the borrowers and ICDs aggregating to Rs 130661lakh have been converted during the period of previous management into term loans duringthe period prior to 20th November 2019 resulting in an outstanding of Rs 378624 lakhunder ICDs including interest receivable as of 31st March 2020. The recoverability orotherwise of the remaining amount is yet to be ascertained and hence the appropriateprovision amounting to Rs 225032 lakh has been made as a prudent measure. Due tonon-availability of the recovery data the company has considered the Loss Given Defaultpercentage (LGD)% as specified in the guidelines issued by the RBI in the circular“Implementation of the Internal Rating Based (IRB) Approaches for Calculation ofCapital Charge for Credit Risk” as a proxy LGD%. This is also based on the industrypractice followed in the cases where the companies do not have the trend of recoveryexperience. Present Management has stated that these provisions may undergo changes uponthe actual realization on case to case basis and has citied its limitations in confirmingw.r.t to completeness; correctness and authenticity of the figures as quoted in thestandalone financial statements.

In view of the foregoing we have not been able to comment upon the completeness;correctness and adequacy / inadequacy of such provisions and their consequential effect onthe carrying values of the subjected accounts and impact on the standalone financialstatements.

6. We refer to the observations made by the predecessor joint statutory auditors inrespect of certain loans and Pass-through Certificates (PTC) granted or invested by theCompany:

i. Multiple accounting entries were initially recorded in certain customer accounts forreceipts despite the cheques or negotiable instrument not having been deposited in thebank(s) as reported in financial year 2018-19 and these were subsequently reversed. Suchinstances have now been informed to have been constantly reviewed by the PresentManagement.

ii. Deficiencies in documentation of Project / Mortgage loans for which the PresentManagement has initiated a legal audit that is ongoing and it has expressed its inabilityto express any view on the documentation adequacy / completeness till the conclusion ofthe same.

7. We refer to Note No. 60 of the standalone financial statements regarding thewholesale loan portfolio aggregating Rs 4958544 lakh (pursuant to classification of thisportfolio to “held for sale” in the previous year ended 31st March 2019) havebeen “fair valued” as at 31st March 2020 at Rs 3073231 lakh with theresulting fair value loss aggregating Rs 1885313 lakh. The basis of valuation of theportfolio is stated to have been changed during the year ended 31st March 2020 bydiscounting the cash flow assessed by the external registered valuer as against thecontractual cash flow used by the erstwhile management in the previous year and presentmanagement for the year ended 31st March 2020. Further as the outcome of valuationexercise to be completed in CIRP this may undergo change.

8. We refer to Note No. 62 of the standalone financial statements regarding that thereexists mis-match amounting to Rs 301868 lakh that is yet to be identified and mapped toindividual parties and the underlying securities available if any out of the availablesurplus security covers and for which Present Management has initiated transaction auditwhich is still in process. Provisions have been made in standalone financial statementsfor the same due to nonavailability of internal confirmations; and all the relevant andauthenticate data in completeness (as stated). These provisions may undergo changes uponthe actual realization on case to case basis. Further the Present Management has citiedits limitations in confirming w.r.t completeness; correctness and authenticity of thefigures as quoted in standalone financial statements.

In view of the foregoing we have not been able to obtain sufficient appropriate auditevidence to support the values of the loans and we have not been able to determine ifthese matters would have an impact on the standalone financial statements including withregard to any adjustments to the carrying value of the loans restatement related partiesand other disclosures and compliances as applicable.

9. We refer to the observations made by National Housing Bank (NHB) in its inspectionfor the year ended March 31 2018 as per the provisions of the National Housing Bank Act1987 in respect Project Loans. Accounting Adjustments / Provisions are made in thestandalone financial statements as recommended in the NHB's Inspection Report as per NHB'sGuidelines. Some of the key factors such as credit worthiness of parties historical /past records market value of underlying certain securities / assets etc. that couldinfluence the values of such provisions are not factored into while arriving at thevalues of such provisions due to non-availability of all the relevant and authenticatedata in completeness (as stated). These provisions may undergo changes upon the actualrealization on case to case basis. Further the Present Management has citied itslimitations in confirming w.r.t completeness; correctness and authenticity of the figuresas quoted in standalone financial statements.

Further the loss aggregating Rs 1357515 lakh (including comprehensive Income)incurred by the Company during the year ended 31st March 2020 has rendered the Companynot able to comply with the regulatory requirements of NHB in respect of the Net OwnedFund (NOF) and which also resulted in multiple contraventions of the provisions of NHBAct 1987 Directions and Guidelines thereon. Although the aforesaid non-compliance may inordinary course result in potential action against the Company by NHB in this regard wehave not been able to commenting on the same since the Company is presently undermoratorium imposed by the Hon'able NCLT which prevents any actions against the Company

In view of the stated observations made by the NHB and of the non-compliance with theNHB's provisions by the Company we have not been able to obtain sufficient appropriateaudit evidence in support of; and comment upon the completeness; correctness and adequacy/ inadequacy of such provisions and their consequential effect on the carrying values ofthe subjected accounts penal actions if any and impact on standalone financialstatements including with regard to any adjustments to the carrying value of the loansrestatement related parties and other disclosures and compliances as applicable subjectto the moratorium declared by NCLT Order in respect of the Company.

10. We refer to Note No. 44(c) of the standalone financial statements regarding thatthe Present Management has revisited the underlying assumptions required to calculate theprovisions for ECL on the retail loan portfolio to remediate the deficiencies in theunderlying assumptions as followed in the previous year to measure ECL provisions to beconsidered in standalone financial statements as on 31st March 2020. However due toinherent deficiencies and non-availability of the historical data which is being used forthe purpose of calculating provisioning based on Expected Credit Loss (ECL) some of thekey factors such as historical / past records; relevant underlying securities / assetsetc. that could influence the values of such provisions are still to be fully factoredinto while arriving at the values of such provisions due to non-availability of all therelevant and authenticate data in completeness (as stated). These provisions may undergochange upon the actual realization on case to case basis. Further the Present Managementhas citied its limitations in confirming w.r.t completeness; correctness and authenticityof the figures as quoted in the standalone financial statements.

In view of the foregoing we have not been able to obtain sufficient appropriate auditevidence in support of; and comment upon the completeness; correctness and adequacy /inadequacy of such provisions and their consequential effect on the carrying values of thesubjected accounts and impact on standalone financial statements including with regard toany adjustments to the carrying value of the loans restatement related parties and otherdisclosures and compliances as applicable.

11. We refer to Note No. 58 of the standalone financial statements regarding that noprovision is made by the Company pursuant to its admission under the IBC (i.e 3rdDecember 2019) in respect of it's obligation for interest on all the borrowings basisthe opinion from legal advisors. The interest not so provided for amounts to Rs 236133lakh and the loss for the year ended as on 31st March 2020 are accordingly understatedrespectively to that extent.

As a legal opinion is confirmed in finality by the competent authority only whenconcluding the matter we have not been able to comment upon the position being taken bythe Present Management in this regard.

12. We refer to Note No. 56 & 57 of the standalone financial statements regardingthat the Company has recognized net deferred tax asset of Rs 505215 lakh as at 31stMarch 2020. The Company is required to perform an assessment as required by Ind AS 12 -‘Income Taxes' which requires the Company to determine the probability of futuretaxable income to utilize the deferred tax asset. In the light of the above and pendingthe outcome of the CIRP we have not been able to comment on the same.

13. We refer to Note No. 63 of the standalone financial statements regarding that theCompany has incurred expenditure aggregating Rs 10517 lakh for development of customisedsoftware for its operations and recording of transactions which has been carried asintangible asset under development as at March 31 2020. The Company has not performed animpairment assessment as required by Ind AS 36 - ‘Impairment of Assets' whichrequires the Company to determine whether the economic benefit in respect of thisintangible asset shall be available to the Company in subsequent periods taking intoconsideration the uncertainty in respect of its plan to monetize its assets securefunding from the bankers / investors restructure its liabilities and recommence itsoperations. In view of foregoing we have not been provided sufficient appropriateevidence about the carrying value of the intangible asset under development andadjustments required if any to standalone financial statements.

14. In view of the possible effects of the matters described in paragraphs 1 to 13above we have not been able to comment on the Company's compliance of the covenants inrespect of all borrowings and consequential implications including disclosures if any.

15. In view of the foregoing we have not been able to obtain sufficient appropriateevidence to support the values of the loans and we have not been able to determine ifthese matters would have an impact on the standalone financial statements including withregard to any adjustments to the carrying value of the loans assets restatement relatedparties and other disclosures and compliances as applicable. We were further not able tocomment whether the loans referred in above paragraphs have been properly secured andhence these loans may have been granted including terms and conditions there-of in amanner that is prejudicial to the interest of the Company or its members for the reasonsstated therein. We have been informed by the Present Management that appropriateclassifications for such loans has been made by them now along with the requiredprovisioning in this regard.

16. We refer to Note No. 53 of the standalone financial statements regarding that thedifferences as noticed in some instances between the claims submitted by the Creditors ofthe Company during CIRP in which in some instances the amount of claim admitted or to beadmitted by the Present Management may differ from the amount reflecting in the books ofaccount of the Company. Pending final outcome of the CIRP no adjustments including of theeffects arising due to changes in foreign exchange rates and claims admitted as on thedate of acceptance of claims have been made in the standalone financial statements andbooks of account for the differential amounts if any. Further as stated in note 66 of thestandalone financial statements regarding that certain balances of banks tradereceivables trade payable other payables are subject to confirmation including anyadjustment to the carrying value of the assets and liabilities and their presentation andclassification. However in the opinion of the management these will not have anysignificant impact on the losses for the year and on the net worth of the Company as onthe balance sheet date.

17. Also Refer our comments under ‘Material uncertainty related to Going Concern'below.

18. We refer to Note No. 55 of the standalone financial statements regarding that inaccordance with RBI regulatory package the Company has offered moratorium to its eligiblecustomers based on an approved policy. The management has informed us that variousmeasures have been taken to reduce the impact of moratorium on the portfolio of theCompany. However since the extent to which COVID-19 will impact Company's financialperformance is dependent on future developments.

MATERIAL UNCERTAINTY RELATED TO GOING CONCERN

The Company has incurred loss aggregating Rs 1357515 lakh (including comprehensiveIncome) during the year ended 31st March 2020 and has accumulated losses due to whichits net worth has been fully eroded. However these standalone financial statements aredrawn on going concern basis under the ongoing Corporate Insolvency Resolution Process(CIRP) the outcome of which cannot be presently ascertained including matters also listedherein. Therefore company's ability to remain as a “going concern” depends uponoutcome of the ongoing CIRP.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE STANDALONEFINANCIAL STATEMENTS

The Company's Board of Directors/Resolution Professional / Management is responsiblefor the matters stated in section 134(5) of the Companies Act 2013 (“the Act”)with respect to the preparation of these standalone financial statements that give a trueand fair view of the financial position financial performance changes in equity and cashflows of the Company in accordance with the accounting principles generally accepted inIndia including the accounting Standards specified under section 133 of the Act. 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 appropriateimplementation and maintenance of accounting policies; making judgments and estimates thatare reasonable and prudent; and design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statement that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

In preparing the standalone financial statements Board of Directors / ResolutionProfessional / Management is responsible for assessing the Company's ability to continueas a going concern disclosing as applicable matters related to going concern and usingthe going concern basis of accounting unless management either intends to liquidate theCompany or to cease operations or has no realistic alternative but to do so.

Those Board of Directors / Resolution Professional / Management are also responsiblefor overseeing the Company's financial reporting process.

However in case of the Company the Reserve Bank of India (RBI) vide its letter andpress release dated November 20 2019 (“RBI Order”) issued under Section 45IE ofthe Reserve Bank of India Act 1934 superseded the Board of Directors of the Companyowing to governance concerns and defaults by the Company in meeting various paymentobligations and appointed an Administrator to run the Company. Subsequently in accordancewith the order dated December 3 2019 of the National Company Law Tribunal (Mumbai Bench)(“NCLT Order”) the Corporate Insolvency Resolution Process (“CIRP”)of the Company commenced under IBC the RBI appointed Administrator among other thingsto run the Company as a “going concern” during CIRP as also incumbent upon theResolution Professional under section 20 of the Code to manage the operations of theCompany as a going concern. Accordingly the standalone financial statements for the yearended 31st March 2020 have been prepared on going concern assumptions.

The above standalone financial statements of the Company have been taken on record bythe Administrator while discharging the powers of the Board of Directors of the Companywhich have been conferred upon him by the RBI Order superseding the Board of Directors ofthe Company and in accordance with the NCLT Order dated 3rd December 2019 solely for thepurpose of ensuring regulatory compliance.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS

Our responsibility is to conduct an audit of the Company's standalone financialstatements in accordance with Standards on Auditing and to issue an auditor's report.However because of the matters described in the Basis for Disclaimer of Opinion sectionof our report we were not able to obtain sufficient appropriate audit evidence to providea basis for an audit opinion on these standalone financial statements.

We are independent of the Company in accordance with the ethical requirements inaccordance with the requirements of the Code of Ethics issued by ICAI and the ethicalrequirements as prescribed under the laws and regulations applicable to the entity.

OTHER MATTER

The standalone financial statements of the Company for the year ended 31st March 2019were audited by the predecessor joint statutory auditors who have expressed a disclaimerof opinion on those standalone financial statements.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by Section 143(1) we report that we have not been able to commentwhether the loans referred in paragraph 6(ii) above have been properly secured and hencethese loans may have been granted in a manner that is prejudicial to the interest of theCompany or its members for the reasons stated therein. Further in respect to loansreferred to in paragraphs 4 5 and 6(ii) above we have not been able to comment whetherthe terms on which these have been made are prejudicial to the interest of the Company orits members for the reasons stated therein.

2. As required by the Companies (Auditor's Report) Order 2016 (“the Order”)issued by the Central Government in terms of Section 143(11) of the Act we give in“Annexure B” a statement on the matters specified in paragraphs 3 and 4 of theOrder which is subject to the possible effect of the matters described in the Basis forDisclaimer of Opinion section above and the material weakness described in the Basis ofDisclaimer of Opinion in our separate Report on the Internal Financial Controls overFinancial Reporting.

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

a) As described in the Basis for Disclaimer of Opinion section above we have soughtbut were not able to obtain all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit.

b) Due to the possible effects of the matter described in the Basis for Disclaimer ofOpinion section above we are unable to state whether proper books of account as requiredby law have been kept by the Company so far as it appears from our examination of thosebooks

c) Due to the possible effects of the matters described in the Basis for Disclaimer ofOpinion section above we are unable to state whether the Balance Sheet the Statement ofProfit and Loss including Other Comprehensive Income Statement of Changes in Equity andthe Cash Flow Statement dealt with by this Report are in agreement with the relevant booksof account.

d) Due to the possible effects of the matter described in the Basis for Disclaimer ofOpinion section above we are unable to state whether the aforesaid standalone financialstatements comply with the Indian Accounting Standards prescribed under section 133 of theAct read with Companies (Indian Accounting Standards) Rules 2015 as amended.

e) The matter described in the Basis for Disclaimer of Opinion section above and in theMaterial uncertainty related to Going Concern section above in our opinion may have anadverse effect on the functioning of the Company.

f) We are unable to state whether any director is disqualified as on March 31 2020from being appointed as a director in the terms of Section 164 (2) of the Act as we havebeen explained that the Holding Company has not received any written representation fromany director in this respect.

g) The reservation relating to the maintenance of accounts and other matters connectedtherewith are as stated in the Basis for Disclaimer of Opinion section above.

h) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in “Annexure A”. Our report expresses disclaimer of opinion onthe Company's internal financial controls over financial reporting for the reasons statedtherein.

i) Due to the possible effects of the matters described in the Basis for Disclaimer ofOpinion section above we are unable to comment whether the managerial remuneration hasbeen paid / provided in accordance with the requisite approvals mandated by the provisionsof section 197 read with Schedule V to the Companies Act 2013.

j) 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. Due to the possible effects of the matters described in the Basis for Disclaimer ofOpinion section above we are unable to state whether the Company has disclosed the impactof pending litigations on its financial position in its standalone financial statements -Refer Note 39 to the standalone financial statements;

ii. Due to the possible effects of the matter described in the Basis for Disclaimer ofOpinion section above we are unable to state whether the Company has made provision asrequired under the applicable law or accounting standards for material foreseeablelosses if any on long-term contracts including derivative contracts;

iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund (IEPF) by the Company except general delayranging from 1 to 16 days in transferring unclaimed public deposits and Rs 59 lakh was duefor payment to the IEPF under Section 125 of the Companies Act 2013 as at the year-end inrespect of Unclaimed Matured Deposits which was not deposited into IEPF pursuant to stayorder issued by Honourable Bombay High Court and after RBI initiated the CIRP processagainst the Company.

DINESH KUMAR BACHCHAS
Partner
Membership No. 097820
For and on Behalf of
K.K. MANKESHWAR & CO.
Chartered Accountants
FRN:106009W
UDIN: 20097820AAAAHJ4433
New Delhi dated the
20th June 2020

Annexure “A” to the Independent Auditors' Report

(Referred to in paragraph 2(h) under ‘Report on Other Legal and RegulatoryRequirements' of our report of even date)

Report on the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 (“the Act”)

We were engaged to audit the internal financial controls over financial reporting ofDewan Housing Finance Corporation Limited (“the Company”) as of March 312020 inconjunction with our audit of the standalone financial statements of the Company for theyear ended on that date.

MANAGEMENT'S RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS

The Company's Present Management is responsible for establishing and maintaininginternal financial controls based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls over FinancialReporting issued by the Institute of Chartered Accountants of India (‘ICAF). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to respective company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act 2013.

AUDITOR'S RESPONSIBILITY

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit conducted in accordance with theGuidance Note on Audit of Internal Financial Controls Over Financial Reporting (the“Guidance Note”) issued by the Institute of Chartered Accountants of India andthe Standards on Auditing prescribed under Section 143(10) of the Companies Act 2013 tothe extent applicable to an audit of internal financial controls.

Because of the matter described in Basis for Disclaimer of Opinion paragraph below wewere not able to obtain sufficient appropriate audit evidence to provide a basis for anaudit opinion on internal financial controls system over financial reporting of theCompany.

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 standalone 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 standalonefinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorisations of management of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorised acquisition use or dispositionof the company's assets that could have a material effect on the standalone financialstatements.

BASIS FOR DISCLAIMER OF OPINION

During the financial year 2019-20 on November 20 2019 the Reserve Bank of India(RBI) vide its letter and press release (“RBI Order”) issued under Section45IEofthe Reserve Bank of India Act 1934 superseded the Board of Directors of theCompany owing to governance concerns and defaults by the Company in meeting variouspayment obligations and appointed an Administrator to run the Company and thereafter alsoconstituted a three-member Advisory Committee to assist the Administrator of the Companyin discharge of his duties. Subsequently the National Company Law Tribunal (Mumbai Bench)vide its order dated December 3 2019 (“NCLT Order”) among other thingsadmitted the Application filed by the RBI commenced the Corporate Insolvency ResolutionProcess (“CIRP”) of the Company under IBC and confirmed the appointment of theAdministrator appointed by the RBI to perform all the functions of Resolution Professionalto complete the CIRP. The Key Managerial Personnel (“KMPs” or “PresentManagement”) team comprises of the Administrator; the Chief Executive Officer(“CEO”) the Company Secretary (“CS”) and the Chief Financial Officer(“CFO”).

The Present Management has undertaken good governance initiative soon after it becameeffective inclusive of strengthening of Internal Financial Controls and updating RiskControl Matrices Risk and Fraud Risk Management specifically in context of InternalControls over Financial Reporting. While substantial progress is stated to have been madeby concluding some as well the initiative pertaining to straightening updating andrevising the internal financial controls and risk control matrices could not be fullyconcluded and implemented by 31st March 2020 due to the time essentially required; andalso because of lockdown and mobility restrictions introduced in view of Covid-19 byState and Union Government.

Further due to possible effects of the matters described in the Basis for Disclaimerof Opinion paragraphs of our Audit Report on the standalone financial statements for theyear ended March 31 2020 the Company has a deficient / inadequate system of internalfinancial control over financial reporting with regard to assessment of possible materialadjustments that could/ arise may be required to be made to the recorded values of assetsand liabilities.

In view of the foregoing we are unable to obtain sufficient appropriate audit evidenceso as to provide a basis for our opinion as to whether the Company had adequate ofinternal financial control over financial reporting and that whether such internalfinancial controls were operating effectively as at March 312020.

DISCLAIMER OF OPINION

Because of the significance of the matter described in the Basis for Disclaimer Opinionparagraph above we are unable to obtain sufficient appropriate audit evidence to providea basis for our opinion whether the Company had adequate internal financial controls overfinancial reporting and whether such internal financial controls were operatingeffectively as at 31 March 2020. Accordingly we do not express an opinion on theCompany's internal financial controls over financial reporting.

We have considered the disclaimer reported above in determining the nature timing andextent of audit tests applied in our audit of the standalone financial statements of theCompany for the year ended 31st March 2020 and this report affects our report dated 20thJune 2020 which expressed a disclaimer of opinion on the standalone financial statementsof the Company.

DINESH KUMAR BACHCHAS
Partner
Membership No. 097820
For and on Behalf of
K.K. MANKESHWAR & CO.
Chartered Accountants
FRN:106009W
UDIN: 20097820AAAAHJ4433
New Delhi dated the
20th June 2020

Annexure “B” to the Independent Auditors' Report

(Referred to in paragraph 2 under ‘Report on Other Legal and RegulatoryRequirements' section of our report of even date and to be read subject to the possibleeffects of the matters described in the Basis for Disclaimer of Opinion section above)

(i) in respect of its fixed assets:

a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.

b) According to the information and explanations given to us and the records examinedby us the fixed assets were physically verified during the year by the Management howeverno details of the discrepancy/ reconciliation outcome of the same with the fixed assetsrecord maintained by the Company are made available and in view of the same we have notbeen able to comment upon the completeness of the physical verification and thediscrepancies arising thereof.

c) According to the information and explanations given to us and the records examinedby us and based on the examination of the registered sale deed transfer deed / conveyancedeed provided to us we report that the title deeds comprising all the immovableproperties of land and buildings which are freehold are held in the name of the Companyas at the balance sheet date.

According to the information and explanations given by the management the title deedsof immovable properties included in property plant and equipment are pledged with thelenders and not available with the Company which are based on the confirmation provided tous by the Management as received from trustee of lenders are held in the name of theCompany.

In respect of immovable properties of land and buildings that have been taken on leaseand disclosed as fixed asset in the standalone financial statements the lease agreementsare in the name of the Company where the Company is lessee in the agreement.

(ii) The Company does not have any inventory and hence reporting under clause 3(ii) ofthe Order is not applicable.

(iii) Due to the possible effects of the matter described in the Basis for Disclaimerof Opinion section above in main report we have not been able to comment whether theCompany has granted any loans secured or unsecured to companies firms LimitedLiability Partnership or other parties covered in the register maintained under Section189 of the Act during the year. In view of the foregoing we have been not able to commenton the Clause 3(iii)(a)3(iii) (b) and 3(iii)(c) of the said Order.

Also refer our comments in paragraph 1 of ‘Reporting on other legal and regulatorymatters' section

(iv) According to the information and explanations given to us the Company hascomplied with the provisions of Sections 185 and 186 of the Act in respect of grant ofloans and making investments and providing guarantees and securities as applicableexcept for the possible effects of the matter described in the Basis for Disclaimer ofOpinion section above in main report on which we have not been able to comment and inrespect of the following:

Particulars Relationship Amount ( Rs in lakh) Remarks
Loan Wholly owned Subsidiary 134 As explained this represents the initial incorporation expenses incurred bythe Holding Company treated / accounted for as interest free loan to the subsidiary attracting provisions / violation of Section 186(7) in the year of expense. However interest has been charged in the subsequent years and the subsidiary has fully repaid this loan during the year.

(v) As per the Ministry of Corporate Affairs notification dated March 31 2014 theprovisions of Sections 73 to 76 or any other relevant provisions of the Act and theCompanies (Acceptance of Deposits) Rules 2014 as amended with regard to the depositsaccepted are not applicable to the Company and hence reporting under Clause 3(v) of theOrder is not applicable.

(vi) According to the information and explanations given to us the Central Governmenthas not prescribed the maintenance of cost records under section 148(1) of the Act inrespect of the services rendered by the Company and hence reporting under clause 3(vi) ofthe order is not applicable.

(vii) According to the information and explanations given to us in respect of statutorydues:

(a) According to the information and explanations given to us and the records of theCompany examined by us in our opinion the Company is generally regular in depositingundisputed statutory dues including provident fund employees' state insurance incometax goods & service tax cess and other material statutory dues as applicable withthe appropriate authorities except tax deducted at source dues which have not beenregularly deposited in view of the stay order issued by Honourable Bombay High Court andafter RBI initiated the CIRP process against the Company. There were no arrears in respectof said statutory dues at 31st March 2020 for a period of more than six months from thedate became payable.

(b) According to the information and explanations given to us and the records of theCompany examined by us the particulars of dues of income-tax sales-tax service-taxduty of customs and duty of excise or goods and services tax as at 31st March 2020 whichhave not been deposited on account of a dispute are as follows:

Name of Statute Nature of dues Amount ( Rs in Lakh) Period for which the amount related Forum where dispute is pending
Income Tax Bad debts on account of National Spot Exchange Limited transactions 850.00 A.Y 2014-15 ITAT- U/s 250
Penalty under Income Tax Claiming the premium on Zero coupon bond 10167.00 A.Y 2014-15 CIT(A) - U/s- 271(1 )(c)

(viii) The Company has defaulted in repayment of loans and borrowings to the banks;financial institutions and in repayment of dues to debenture-holders during the year.Pursuant to the continuing defaults of the Company a CIRP commenced under the IBC w.e.f03rd December 2019. Accordingly no payments could be made thereafter to the banks;financial institutions and debenture holders until the resolution process is concluded.The details of outstanding amounts as on 03rd December 2019 (inclusive of interest for theperiod up to 03rd December 2019) as per books of account are as given below:

Particulars Outstanding Amount ( Rs in Lakh) Period of Default
Allahabad Bank 12360.10 Refer note below
Andhra Bank 67624.01
Bank of Baroda 134408.30
Bank of India 407498.24
Bank of Maharastra 59635.55
Canara Bank 215075.88
Central Bank of India 107639.45
Corporation Bank 48923.09
Dena Bank 54922.21
Federal Bank Limited 18656.88
Hdfc Bank Limited 53161.52
I D B I Bank Limited 99654.13
Indian Bank 128605.91
Indian Overseas Bank 64892.04
Karnataka Bank Limited 17121.05
Oriental Bank of Commerce 112621.76
Punjab & Sind Bank 75098.99
Punjab National Bank 122166.43
South Indian Bank 11571.90
State Bank of India 541717.67
Syndicate Bank 159852.04
Uco Bank 51857.49
Union Bank of India 234402.60
United Bank of India 58903.94
Vijaya Bank 12753.29
National Housing Bank 243102.42
Non- Convertible Debentures 4580392.38
National Bank for Agriculture and Rural Development 10258.00
External Commercial Borrowing 301888.07

Note: Following the commencement of CIRP under IBC w. e. f. 03rd December 2019 theborrowings including interest are overdue and in continuing default as on 31st March 2020therefore we are unable to provide the periods of default.

(ix) The Company has not raised any moneys by way of initial public offer furtherpublic offer (including debt instruments) and term loans. Accordingly the provision ofClause 3(ix) of the Order is not applicable to the Company.

(x) We refer the matters in main report described in the Basis for Disclaimer ofOpinion section in main report above referring to multiple issues of financialsignificance as highlighted by the predecessor joint statutory auditors in their AuditorsReport; the suspected irregularities as reported and under media scrutiny pendingconclusion / outcomes of the investigation undertaken by concerned agencies namelyMinistry of Corporate Affairs (MCA); Serious Fraud Investigation Office (SFIO)Enforcement Directorate (ED) and Central Bureau of Investigation (CBI) together with thepending conclusion /outcomes of the ongoing transactions audits performed by independentagencies/firms appointed by the Administrator which are underway and informed to have notbeen concluded till the date of the balance sheet. In view of the foregoing and with theoutcomes of the said matters not known in definitive terms we have not been able tocomment whether any fraud by the company or any fraud on the company by its officers andemployees has been noticed or reported during the year.

(xi) Due to the possible effects of the matters described in the Basis for Disclaimerof Opinion section above we are unable to comment whether the managerial remuneration hasbeen paid / provided in accordance with the requisite approvals mandated by the provisionsof section 197 read with Schedule V to the Companies Act 2013.

(xii) The Company is not a Nidhi Company and hence reporting under clause 3(xii) of theOrder is not applicable.

(xiii) Due to the possible effects of the matters described in the Basis for Disclaimerof Opinion section above in main report we are unable to comment whether transactionswith the related parties are in compliance with section 177 and 188 of Companies Act 2013where applicable and the details have been disclosed in the notes to the standalonefinancial statements etc. as required by the applicable accounting standards.

(xiv) In our opinion and according to the information and explanation given to us theCompany has not made any preferential allotment or private placement of shares or fully orpartly convertible debentures during the year under review and hence reporting underclause 3(xiv) of the Order is not applicable to the Company.

(xv) Except for the possible effects of the matters described in the Basis forDisclaimer of Opinion section above in main report we are unable to comment whether theCompany has entered into non-cash transactions with its directors or directors of itssubsidiary or associate companies or persons connected with them.

(xvi) In our opinion and according to the information and explanation given to us theCompany is not required to be registered under section 45-IA of the Reserve Bank of IndiaAct 1934.

DINESH KUMAR BACHCHAS
Partner
Membership No. 097820
For and on Behalf of
K.K. MANKESHWAR & CO.
Chartered Accountants
FRN: 106009W
UDIN: 20097820AAAAHJ4433
New Delhi dated the
20th June 2020

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