To The Members of
Dewan Housing Finance Corporation Limited
Report on the Audit of Consolidated Ind AS Financial Statements
DISCLAIMER OF OPINION
We were engaged to audit the accompanying Consolidated Ind AS financial statements ofDewan Housing Finance Corporation Limited ("the Parent" or "theCompany") and its subsidiaries (the Parent and its subsidiaries together referred toas "the Group") which includes the Group's share of profit / loss in itsassociates and joint ventures which comprise the Consolidated Balance Sheet as at March31 2019 and the Consolidated Statement of Profit and Loss (including Other ComprehensiveIncome) the Consolidated Statement of Cash Flows and the Consolidated Statement ofChanges in Equity for the year then ended and a summary of significant accountingpolicies and other explanatory information.
We do not express an opinion on the accompanying Consolidated Ind AS financialstatements of the Group. Because of the significance of the matter described in the Basisfor Disclaimer of Opinion section of our report we have not been able to obtainsufficient appropriate audit evidence to provide a basis for an audit opinion on theseConsolidated Ind AS financial statements.
BASIS FOR DISCLAIMER OF OPINION
1. We refer to note 51 of the Consolidated Ind AS financial statements with regards tothe Unsecured Inter-corporate Deposits (ICD) outstanding as at March 31 2019 aggregating` 565269 lakh. As stated in the note there are significant deficiencies in the grantand rollover of ICD inter-alia non-availability of evaluation of credit worthiness ofthe borrowers commercial rationale forming basis of granting of the ICD. The note alsostates that the Company is working towards remediating these deficiencies and that noadjustment is required to the carrying value thereof. We have not been provided sufficientappropriate audit evidence to support the management's assessment and hence are unable toevaluate on the recoverability of the ICD and the consequential effect on Consolidated IndAS financial statements. Also refer our comments in paragraph 1.a of Report on OtherLegal and Regulatory Requirements' section below.
2. We refer to note 50 of the Consolidated Ind AS financial statements that states theallegations of fraud that were made by the newsportal Cobrapost.com (the Allegations)inter alia alleging diversion of funds. As stated in the note the Audit Committeeappointed an independent firm of Chartered Accountants to investigate the Allegations andreport to them. We provided to the Audit Committee our suggestions on the scope andcoverage as well as additional areas that needed to be covered to ensure comprehensivenessof the coverage of the investigation and our observations on the findings by Independentfirm of Chartered Accountants in the report. These have not been taken into considerationin the final report of the independent firm of Chartered Accountants. As stated in thenote the Management is in the process of determining the actions to address our commentsand has stated that adjustments if any to the carrying values of the loans advanced willbe made upon conclusion of these actions. The report of the independent firm of CharteredAccountants has not been adopted or approved by the Audit Committee. Further weunderstand that various regulatory authorities / lenders are currently carrying out theirown investigation and they may make a determination on whether any fraud or any othernon-compliance/ illegalities have occurred in relation to the Allegations.
We are therefore unable to determine if these allegations would have an impact on theseConsolidated Ind AS financial statements including whether any adjustments to the carryingvalue of loans granted any restatement of prior years' financial statements relatedparties and other disclosures and compliances are required. Also refer our comments inparagraph 1.a of Report on Other Legal and Regulatory Requirements' section below.
3. In respect of certain loans and Pass-through Certificates (PTC) aggregating `3245240 lakh and ` 25700 lakh respectively granted or invested by the Company duringthe year and in earlier years and outstanding as at March 31 2019: a. As stated in note53 of the Consolidated Ind AS financial statements multiple accounting entries wereinitially recorded in certain customer accounts for receipts despite the cheques ornegotiable instrument not been deposited in the bank(s) and these have been subsequentlyreversed. The gross value of such loans aggregate ` 1648717 lakh (includes certain loansaggregating ` 1311283 lakh which are also included in paragraph 3.b). Also refer ourcomments in paragraph 1.b of Report on Other Legal and Regulatory Requirements'section below. b. We have not been provided sufficient information and explanations to ourenquiries in relation to credit legal and technical evaluation and evidence for end usemonitoring as stated in the loan agreement and specified by the Finance Committeewherever applicable in respect of project loans and mortgage loans aggregating `2407772 lakh (Includes loans aggregating ` 1311283 lakh also included in paragraph3.b). Also refer our comments in paragraph 1.a of Report on Other Legal andRegulatory Requirements' section below. c. As stated in note 55 the management haselected to measure loans aggregating ` 3162815 lakh (includes certain loans aggregating` 2662781 lakh which are also included in paragraph 3.a and 3.b) and Pass-through
Certificates (PTC) aggregating ` 25700 lakh at Fair Value Through Profit or Loss(FVTPL) based on internal valuations which involve management's judgement and assumptions.We have not been provided sufficient appropriate audit evidence and all of the necessaryinformation and explanations in respect of the fair values changes of ` 325345 lakh(gross of reversal of provision) and ` 6800 lakh so recognized in the Statement of Profitand Loss on these loans and PTC respectively.
In view of the foregoing we have been unable to obtain sufficient appropriate auditevidence to support the values of the loans and PTC and we are unable to determine ifthese matters would have an impact on these Consolidated Ind AS Financial Statementsincluding whether any adjustments to the carrying value of the loans and PTC restatementof prior years' financial statements related parties and other disclosures andcompliances are required.
4. We refer to note 57 of the Consolidated Ind AS Financial Statements regarding theobservations made by National Housing Bank (NHB) in its inspection for the year endedMarch 31 2018 as per the provisions of the National Housing Bank Act 1987. Pendingmanagement evaluation and response to the observations of the NHB we are unable todetermine if these observations would have an impact on these Consolidated Ind ASFinancial Statements including whether any adjustments to the carrying value of the loansgranted any restatement of prior years' financial statements related parties and otherdisclosures and compliances are required.
5. We refer to note 56 of the financial statements. As stated in the note during thecourse of the audit deficiencies have been identified in the historical data used for thepurpose of calculating provisioning based on the Expected credit loss (ECL) model inrespect of loans carried at amortized cost. We are unable to comment on the assumptionsmade in the ECL model and consequently to determine if this matter would have an impact onthese Consolidated Ind AS Financial Statements including the adequacy of the ECLprovision.
6. As stated in note 58 the Company has recognized net deferred tax asset of ` 44281lakh as at March 31 2019. The Company is required to perform an assessment as required byInd AS 12 Income Taxes' which requires the Company to determine theprobability of future taxable income to utilize the deferred tax asset. However we havenot been provided sufficient appropriate evidence to validate the Company's assessmentabout the carrying value of the deferred tax asset and consequential adjustments requiredif any to these Consolidated Ind AS financial statements.
7. As stated in note 59 the Company has incurred expenditure aggregating ` 10401 lakhfor development of customised software for its operations and recording of transactionswhich has been carried as intangible asset under development as at March 31 2019. TheCompany has not performed an impairment assessment as required by Ind AS 36 Impairment of Assets' which requires the Company to determine whether the economicbenefit in respect of this intangible asset shall be available to the
Company in subsequent periods taking into consideration the uncertainty in respect ofits plan to monetize its assets secure funding from the bankers / investors restructureits liabilities and recommence its operations. In view of foregoing we have not beenprovided sufficient appropriate evidence about the carrying value of the intangible assetunder development and adjustments required if any to these Consolidated Ind AS financialstatements.
8. In view of the possible effects of the matters described in paragraphs 1 to 7 abovewe are unable to comment on the Company's compliance of the covenants in respect of allborrowings and consequential implications including disclosures if any to theseConsolidated Ind AS financial statements.
9. Also refer our comments under Material uncertainty related to Going Concern'below.
MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
We refer to note 54 of the Consolidated Ind AS financial statements the Company hasincurred loss aggregating `103605 lakh during the year and has net current liabilitiesof ` 75475 lakh as at March 31 2019. Further the Company's credit rating has beenreduced to default grade' subsequent to the year-end which may substantially impairits ability to raise or generate funds to repay its obligations. The matters described inthe Basis for Disclaimer of Opinion section above and para 1 of Report on Other Legal andRegulatory Requirements section below may also have an impact on the Company's ability tocontinue as a going concern. All these developments raise a significant doubt on theability of the Company to continue as a going concern and therefore it may be unable torealise its assets and discharge its liabilities including potential liabilities in thenormal course of business. The Company is in the process of monetizing its assets and hassubmitted a draft resolution plan to the consortium of bankers for restructuring itsborrowings and also there have been discussions for stake sale by the promoters to astrategic partner with further equity infusion. The ability of the Company to continue asa going concern inter alia is dependent upon its ability to monetize its assets securefunding from the bankers or investors restructure its liabilities and recommence itsoperations which are not wholly within control of the Company.
The Management has prepared these Consolidated Ind AS financial statements using goingconcern basis of accounting based on their assessment of the successful outcome of abovereferred actions and accordingly no adjustments have been made to the carrying value ofthe assets and liabilities and their presentation and classification in the Balance Sheet.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATEDIND AS FINANCIAL STATEMENTS
The Parent's Board of Directors is responsible for the matters stated in section 134(5)of the Act with respect to the preparation of these Consolidated Ind AS FinancialStatements that give a true and fair view of the consolidated financial positionconsolidated financial performance including other comprehensive income consolidated cashflows and consolidated changes in equity
the Management and our opinion on the consolidated financial statements in so far asit relates to the amounts and disclosures included in respect of these subsidiaries andjoint ventures and our report in terms of subsection (3) of Section 143 of the Act in sofar as it relates to the aforesaid subsidiaries and joint ventures is based solely on thereports of the other auditors.
REPORTING ON COMPARATIVES IN CASE OF FIRST IND AS FINANCIAL STATEMENTS
The comparative financial information of the Group for the year ended March 31 2018 andthe transition date opening balance sheet as at April 1 2017 included in theseConsolidated Ind AS financial statements are based on the statutory financial statementsprepared in accordance with the Companies (Accounting Standards) Rules 2006 audited byone of the joint auditors whose report for the year ended March 31 2018 and March 312017 dated April 30 2018 and May 3 2017 respectively expressed an unmodified opinion onthose Consolidated financial statements and have been restated to comply with Ind AS. Wewere engaged to jointly audit the adjustments made to the previously issued said financialinformation prepared in accordance with the Companies (Accounting Standards) Rules 2006to comply with Ind AS. In view of the matters reported in paragraphs 2 3 4 and 5 of theBasis for Disclaimer of Opinion' section above we are unable to comment whether anyfurther Ind AS adjustments are required to the balances in respect of the years endedMarch 31 2018 and 2017.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. As required by Section 143(1) we report that:
a. We are unable to comment whether the loans referred in paragraph 3.b in the Basisfor Disclaimer of Opinion section above have been properly secured and hence these loansmay have been granted in a manner that is prejudicial to the interest of the Company orits members for the reasons stated therein. Further in respect to loans referred to inparagraphs 1 2 and 3.b in the Basis for Disclaimer of Opinion section above we areunable to comment whether the terms on which these have been made are prejudicial to theinterest of the Company or its members for the reasons stated therein.
b. We refer to the matter described in paragraph 3.a in the Basis for Disclaimer ofOpinion section above regarding multiple accounting entries which were initially recordedin certain customer accounts for receipts despite the cheques or negotiable instrumentsnot been deposited in the bank(s) and subsequently reversed which initial recording arerepresented merely by book entries and in our opinion may be prejudicial to the interestof the Company.
2. As required by Section 143(3) of the Act based on our audit and on theconsideration of the reports of the other auditors on the separate financial statements ofthe subsidiaries and joint ventures referred to in the Other Matters section above wereport to the extent applicable that:
a) As described in the Basis for Disclaimer of Opinion section above we have soughtbut were unable 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 and the reports of the other auditors.
c) The Consolidated Balance Sheet the Consolidated Statement of Profit and Lossincluding Other Comprehensive Income the Consolidated Cash Flow Statement andConsolidated Statement of Changes in Shareholders' Equity dealt with by this Report are inagreement with the relevant books of account for the purpose of preparation of theconsolidated financial statements.
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 Consolidated Ind ASfinancial statements comply with the Indian Accounting Standards prescribed under section133 of the Act.
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 Group.
f) On the basis of the written representations received from the directors of theParent taken on record by the Board of Directors of the Company and the reports of thestatutory auditors of its subsidiary companies associate companies and joint venturecompanies incorporated in India none of the directors of the Group companies itsassociate companies and joint venture companies incorporated in India is disqualified ason March 31 2019 from being appointed as a director in terms of Section 164 (2) of theAct.
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" which is based on the auditors' reports of theParent subsidiary companies associate companies and joint venture companies incorporatedin India. Our report expresses adverse opinion on the Group's internal financial controlsover financial reporting for the reasons stated therein.
i) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended theremuneration paid by the Parent to its directors during the year is in accordance with theprovisions of section 197 of the Act.
j) Other than the possible effects of the matter described in the Basis for Disclaimerof Opinion paragraph above with respect to the other matters to be included in theAuditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules2014 as amended in our opinion and to the best of our information and according to theexplanations given to us:
i. The Group has disclosed the impact of pending litigations on its financial positionin its Consolidated Ind AS financial statements;
ii. The Group has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts;
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Parent and its subsidiary companiesassociate companies and joint venture companies incorporated in India except that therehas been a delay ranging from 1 to 16 days in transferring unclaimed public depositsaggregating ` 7 lakh.
|For CHATURVEDI & SHAH LLP |
|Chartered Accountants |
|(Firm's Registration No. 101720W/W-100355) |
|Jignesh Mehta |
|Membership No. 102749 |
|UDIN - 19102749AAABPU2017 |
|For DELOITTE HASKINS & SELLS LLP |
|Chartered Accountants |
|(Firm's Registration No. 117366W/W- 100018) |
|Abhijit A. Damle |
|Membership No. 102912 |
|UDIN - 19102912AAAABS8038 |
|Mumbai dated: July 22 2019 |