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Essar Shipping Ltd.

BSE: 533704 Sector: Infrastructure
NSE: ESSARSHPNG ISIN Code: INE122M01019
BSE 00:00 | 11 Jun 13.31 1.21
(10.00%)
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13.20

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13.13

NSE 00:00 | 11 Jun 13.35 1.20
(9.88%)
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OPEN 13.20
PREVIOUS CLOSE 12.10
VOLUME 109053
52-Week high 13.31
52-Week low 6.50
P/E
Mkt Cap.(Rs cr) 275
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 13.20
CLOSE 12.10
VOLUME 109053
52-Week high 13.31
52-Week low 6.50
P/E
Mkt Cap.(Rs cr) 275
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Essar Shipping Ltd. (ESSARSHPNG) - Auditors Report

Company auditors report

To the Members of Essar Shipping Limited

Report on the Audit of the Standalone financial Statements Opinion

We have audited the standalone financial statements of Essar Shipping Limited("the Company") which comprises of the balance sheet as at 31 March 2019 thestandalone statement of Profit and Loss (including Other Comprehensive Income) standalonestatement of cash flows and the standalone statement of changes in equity for the yearthen ended and notes to the standalone financial statements including a summary ofsignificant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("the Act") in the manner so required and give a trueand fair view in conformity with the Indian Accounting Standards prescribed under section133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015 asamended ("Ind AS") and other accounting principles generally accepted in Indiaof the state of affairs of the Company as at 31 March 2019 the loss (financial positionincluding Other Comprehensive Income) changes in equity and its cash flows for the yearended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone financialStatements section of our report. We are independent of the Company in accordance with theCode of Ethics issued by the Institute of Chartered Accountants of India (ICAI) togetherwith the ethical requirements that are relevant to our audit of the standalone financialstatements under the provisions of the Act and the Rules thereunder and we have fulfilledour other ethical responsibilities in accordance with these requirements and the ICAI'sCode of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion on the standalone financial statements.

Material Uncertainty Related to Going Concern

We draw attention to Note No. 29 to the standalone financial statements whichindicates that as on 31 March 2019 the Company has accumulated losses of Rs.5016.11 croreas against capital and reserves of Rs.5214.83 crore. The Company has also defaulted onseveral loans. The Company's current liabilities exceed its current assets as on 31 March2019. This indicates that a material uncertainty exists that may cast doubt on theCompany's ability to continue as a going concern. The Company however has representedthat as mentioned in Note no. 29 necessary steps have been taken to meet liabilities asand when they become due for payment.

Our opinion on the standalone financial statements is not modified for the abovematter.

Emphasis of Matter

We draw attention to Note No. 19 of the standalone audited Ind AS financial statementswherein the Company had recognized revenue in the previous year amounting to Rs. 369.81crore (including accrued interest upto 31 March 2018) based on compensation granted to theCompany by arbitration proceedings for breach of contract terms by a charterer and thesame remains outstanding as on 31 March 2019. The Company is confident of full recovery ofits claims. However pending conclusion of the same no further interest is accrued on theincome.

Our opinion on the standalone financial statements is not modified for the abovematter.

Key Audit Matters

Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. In addition to the matters described in the MaterialUncertainty Related to Going Concern paragraph we have determined the matters describedbelow to be the key audit matters to be communicated in our report:

Key Audit Matter Auditor's Response
Impairment of Investments
The Company had investments of Rs.3324.58 crore in one of its subsidiaries as at 31 March 2019. Following an internal management review including a process of validating various operational assumptions impacting the estimated future cash flows from that subsidiary the Company has assessed these investments. An impairment provision of Rs.1400 crore has been recorded to reduce the carrying value of the investment to its recoverable value on the basis of an independent external valuer's report. Our procedures in relation to management's impairment assessment of investments in subsidiary included:
1. Assessing the assumptions and methodologies used by the external valuer to estimate recoverable value;
2. Evaluating the independent external valuer's competence capabilities and objectivity;
3. Considering the potential impact of possible downside changes in the key assumptions;
4. Compliance with Ind AS 36 on ‘Impairment of Assets'.
We found the key assumptions were supported by the available evidence. Based on the audit procedures performed we found disclosures in Note No. 3 of the standalone financial statements to be appropriate.
Our audit included but was not limited to the following activities:
Uncertainty regarding amounts payable to lenders where there are defaults 1. Requested and obtained external confirmation of
The Company has loans of Rs. 863.74 crore (excluding interest) overdue to various lenders as on 31 March 2019. The management of the Company plans to repay the loans within acceptable timeline to each of these lenders. balances from each of these lenders to confirm the balance outstanding as on 31 March 2019;
2. Obtained and evaluated the Company's plans to repay these loans (with interest) through management letters and the extent of steps taken through the minutes of the board meetings.

Information other than the Standalone financial Statements and Auditor's Report thereon

The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises of the information included in the AnnualReport including it's annexures Corporate Governance and Shareholder's Information butdoes not include the standalone financial statements and our independent auditor's reportthereon. The Company's annual report is expected to be made available to us after the dateof this auditor's report.

Our opinion on the standalone financial statements does not cover the other informationand we will not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the standalone financial statements or our knowledgeobtained during the course of our audit or otherwise appears to be materially misstated.

If based on the work we have performed we conclude that there is a materialmisstatement of this Other Information we are required to report that fact.

Responsibilities of the management and those charged with governance for the Standalonefinancial Statements

The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the financial position financialperformance total comprehensive income changes in equity and cash flows of the Companyin accordance with Ind AS and other accounting principles generally accepted in India.This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding of the assets of the Company and forpreventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the standalonefinancial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

In preparing the standalone financial statements the management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessthe management either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.

The Company's management and Board of Directors are also responsible for overseeing theCompany's financial reporting process.

Auditor's Responsibilities for the Audit of the Standalone financial Statements

Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an independent auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with Standards on Auditing will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and areconsidered material if individually or in aggregate they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these standalone financialstatements.

As part of an audit in accordance with Standards on Auditing we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.

• Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)

(i) of the Act we are not responsible for expressing our opinion on whether thecompany has adequate internal financial control systems in place and the operatingeffectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourindependent auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.

• Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.

Materiality is the magnitude of misstatements in the standalone financial statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the standalone financial statements may be influenced. Weconsider quantitative materiality and qualitative factors in (i) planning the scope of ouraudit work and in evaluating the results of our work; and

(ii) to evaluate the effect of any identified misstatements in the standalone financialstatements.

We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government in terms of Section 143 (11) of the Act and on the basisof such checks of the books and records of the Company as we considered appropriate andaccording to the information and explanations given to us we give in the "AnnexureA" a statement on the matters specified in paragraphs 3 and 4 of the Order.

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

a. We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

b. In our opinion proper books of accounts as required by law have been kept by theCompany so far as it appears from our examination of those books.

c. The Balance Sheet the standalone Statement of Profit and Loss including othercomprehensive income standalone statement of changes in equity and the standalone CashFlow Statement dealt with by this Report are in agreement with the relevant books ofaccounts.

d. In our opinion the aforesaid standalone financial statements comply with the Ind ASspecified under Section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014.

e. The Going Concern matter described under the Material Uncertainty Related to GoingConcern paragraph above in our opinion may have an adverse effect on the functioning ofthe Company.

f. On the basis of the written representations received from the directors as on 31March 2019 taken on record by the Board of Directors none of the directors isdisqualified as on 31 March 2019 from being appointed as a director in terms of Section164(2) of the Act.

g. With respect to the adequacy of the internal financial controls with reference tostandalone financial statements of the Company and the operating effectiveness of suchcontrols refer to our separate report in "Annexure B". Our report expresses anunmodified opinion on the adequacy and operating effectiveness of the Company's internalfinancial controls with reference to standalone financial statements.

h. 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:

In our opinion and to the best of our information and according to the explanationsgiven to us remuneration paid by the Company to its directors during the year is inaccordance with the provisions of section 197 read with Schedule V of the Act.

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

i. The Company does not have any pending litigations on its financial position in itsstandalone financial statements other than as mentioned in Note No. 23 to the standalonefinancial statements.

ii. The Company did not have any long-term contracts including derivative for whichthere were any material foreseeable losses.

iii. The Company is not required to transfer any amount to the Investor Education andProtection Fund during the ended 31 March 2019.

For C N K & Associates LLP

Chartered Accountants

Firm Registration No.: 101961 W/W - 100036

Himanshu Kishnadwala

Partner

Membership No. 37391

Place: Mumbai

Date: 30 May 2019

Annexure - A to the Independent Auditor's Report

(Referred to in paragraph 1 under ‘Report on Other Legal and

Regulatory Requirements' section of our report of even date)

(i) (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of property plant and equipment.

(b) As per the information and explanations provided to us the management has carriedout the physical verification of property plant and equipment during the year inaccordance with a program of verification which in our opinion provides physicalverification of all assets at reasonable intervals. No material discrepancies have beennoticed on such verification;

(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company it has proper title of the immovable propertyin the name of the Company.

(ii) As informed to us the inventory has been physically verified by the Management atreasonable intervals during the year and no material discrepancies have been noticed onsuch verification;

(iii) In our opinion and according to the information and explanations given to us andon the basis of documents verified by us the Company has not granted any loans securedor unsecured during the year to any party covered in the register maintained underSection 189 of the Act. Accordingly clause 3(iii) of the Order is not applicable to theCompany;

(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of section 185 and 186 of the Act in respect ofloans investments guarantees and securities as applicable;

(v) According to the information and explanations provided to us the Company has notaccepted any deposits to which directives of the Reserve Bank of India and provisions ofsections 73 to 76 or any other relevant provisions of the Act and the rules framed thereunder apply. Accordingly the provisions of clause 3 (v) of the Order are not applicableto the Company.

(vi) According to the information and explanations provided to us the Company is notrequired to maintain cost records pursuant to the Companies (Cost Records and Audit)Rules 2014 as amended and prescribed by the Central Government under sub-section (1) ofsection 148 of the Act;

(vii) (a) According to the information and explanation provided to us and the recordsof the Company examined by us in our opinion the Company has generally been regular indepositing undisputed statutory dues including provident fund duty of customs servicetax value added tax and other material statutory dues as applicable with appropriateauthorities. However delays in deposits of tax deducted at source and Goods and ServicesTax and profession tax and provident fund were observed ranging from 1 to 1461 days and 1to 6 days and 18 to 262 days and 1 to 639 days respectively. The extent of arrears ofGoods and Services Tax and provident fund outstanding as at 31 March 2019 for a period ofmore than six months from the date the same became payable is Rs.10.20 crore & Rs.0.21crore respectively.

(b) According to the information and explanations provided to us and the records of thecompany examined by us the particulars of dues of Income Tax Service tax Duty ofCustoms and Duty of Excise or value added tax or cess as at 31 March 2019 which have notbeen deposited on account of a dispute are as follows: (Rs. In crore)

Name of the Statute Nature of Dues Amount Period to which the amount relates Forum where the matter is pending
Income Tax Act 1961 Income Tax 7.29 A.Y. 1993-94 The High Court of Bombay
Income Tax Act 1961 Income Tax 14.99* A.Y. 2011-12 ITAT(A) filed
Income Tax Act 1961 Income Tax 25.38* A.Y. 2012-13 CIT- Appeals
Income Tax Act 1961 Income Tax 41.99 A.Y. 2013-14 ITAT(A) filed
Income Tax Act 1961 Income Tax 45.40 A.Y. 2014-15 CIT- Appeals
Income Tax Act 1961 Income Tax 41.86 A.Y. 2015-16 CIT- Appeals
Foreign Trade (Development and Regulation Act 1992) Custom Duty 27.40 A.Y. 2006-07 The High Court of Bombay

* The income tax department has adjusted refund of Rs 35.71 Cr against the demand ofthe respective assessment years.

(viii) According to the records of the Company examined by us and the information andexplanations given to us except for the loans borrowings and dues mentioned in the belowtable the Company has not defaulted in repayment of loans and borrowings to FinancialInstitution banks government or dues to Debenture holders as at the balance sheet date:

Lender Name Amount of Default as at the balance sheet date Period of Default
Debenture Holders
Life Insurance Corporation 700.00 1 to 1401 days
CSEB (Chattisgarh State Electricity Board) Gratuity and Pension fund Trust 14.00 1 to 535 days
MTNL - Employees Provident Fund Trust 1.25 1 to 641 days
Banks
State bank of Patiala 35.29 1 to 396 days
Syndicate Bank 61.91 1 to 1249 days
Financial Institutions
IGOF 25.00 1 to 1430 days
ILFS 3.50 1 day
Total 840.95

(ix) According to the records of the Company examined by us and the information andexplanation provided to us the Company did not raise any money by way of initial publicoffer or further public offer (including debt instruments);

(x) According to the information and explanations provided to us no fraud by theCompany or on the Company by its officers or employees has been noticed or reported duringthe course of our audit;

(xi) In our opinion and according to the information and explanations provided to usthe Company has paid / provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V of the Act;

(xii) In our opinion and according to the information and explanations provided to usthe Company is not a Nidhi company and accordingly the provisions of clause 3 (xii) ofthe Order are not applicable to the company;

(xiii) According to the records of the Company examined by us and the information andexplanation provided to us all transactions with the related parties are in compliancewith sections 177 and 188 of the Act where applicable and the details thereof have beendisclosed in the standalone financial statements under Note No. 28 to the standalonefinancial statements as required by the applicable Indian accounting standards.;

(xiv) The Company has not made any preferential allotment or private placement ofshares or fully or partly convertible debentures during the year under review undersection 42 of the Act. Accordingly the provisions of clause 3(xiv) are not applicable tothe Company;

(xv) According to the information and explanations provided to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with them. Accordingly clause 3(xv) ofthe Order is not applicable to the Company;

(xvi) According to information and explanation given to us the Company is not requiredto be registered under section 45IA of the Reserve Bank of India Act 1934. Accordinglyclause 3(xvi) of the Order is not applicable to the Company.

For C N K & Associates LLP

Chartered Accountants

Firm Registration No.: 101961 W/W - 100036

Himanshu Kishnadwala

Partner

Membership No. 37391

Place: Mumbai

Date: 30 May 2019

Annexure - B to the Independent Auditors' Report of even date on the standalonefinancial statements of Essar Shipping Limited

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

Opinion

We have audited the internal financial controls with reference to financial statementsof Essar Shipping Limited ("the Company") as of 31 March 2019 in conjunctionwith our audit of the standalone financial statements of the Company for the year ended onthat date.

In our opinion the Company has in all material respects an adequate internalfinancial controls with reference to financial statements and such internal financialcontrols with reference to financial statements were operating effectively as at 31 March2019 based on the internal control with reference to financial statements criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India ("Guidance Note").

Management's Responsibility for Internal Financial Controls

The Company's management and the Board of Directors are responsible for establishingand maintaining internal financial controls based on the internal control with referenceto financial statements criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Companies Act 2013 (hereinafter referred to as "the Act").

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note and the Standards on Auditing issued by ICAI anddeemed to be prescribed under section 143(10) of the Act to the extent applicable to anaudit of internal financial controls with reference to financial statements. ThoseStandards and the Guidance Note require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls with reference to financial statements was established and maintainedand if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to financial statements and their operatingeffectiveness. Our audit of internal financial controls with reference to financialstatements included obtaining an understanding of internal financial controls withreference to financial statements assessing the risk that a material weakness exists andtesting and evaluating the design and operating effectiveness of internal control withrespect to financial statements based on the assessed risk. The procedures selected dependon the auditor's judgment including the assessment of the risks of material misstatementof the standalone financial statements whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls withreference to financial statements.

Meaning of Internal Financial Controls with reference to financial statements

A company's internal financial control with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of standalone financial statements for external purposes inaccordance with generally accepted accounting principles. A company's internal financialcontrol with reference to financial statements includes those policies and procedures that(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation ofstandalone financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisitionuse or disposition of the company's assets that could have a material effect on thefinancial statements.

Inherent Limitations of Internal Financial Controls with reference to financialstatements

Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial control with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.

For C N K & Associates LLP

Chartered Accountants

Firm Registration No.: 101961 W/W - 100036

Himanshu Kishnadwala

Partner

Membership No. 37391

Place: Mumbai

Date: 30 May 2019