The Members of
Gammon Infrastructure Projects Limited
Report on the Audit of the Consolidated Financial Statements
We have audited the accompanying Consolidated Financial Statements of GammonInfrastructure Projects Limited (hereinafter referred to as the "HoldingCompany") and its subsidiaries (The Holding Company and its Subsidiaries togetherreferred to as "the Group") its Associates and Jointly Controlled Entitieswhich comprise the Consolidated Balance Sheet as at March 31 2019 and the ConsolidatedStatement of Profit and Loss Consolidated Statement of Changes in Equity and ConsolidatedStatement of Cash Flows for the year then ended and notes to the consolidated financialstatements including a summary of Significant Accounting Policies and other explanatoryinformation (hereinafter referred to as the "Consolidated FinancialStatements").
In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effects of the matter described in Basis of QualifiedOpinion paragraph the aforesaid Consolidated Financial Statements give the informationrequired by the Act in the manner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India of the consolidated state ofaffairs of the Company as at March 31 2019 and consolidated loss consolidated changes inequity and its consolidated cash flows for the year ended on that date.
Basis for Qualified Opinion
a) Attention is invited to Note 33 (a) to the Consolidated Ind AS Financial Statementsin respect of tolling bridge project in Andhra Pradesh where the SPV had served a noticeof termination of the concession to Andhra Pradesh Road Development Corporation (APRDC)and followed up with a subsequent communication for correcting technical breach in thenotice of termination. The Management has elaborated the sequence and its action relatingto the project in the said note and has asserted that in the event of termination thetermination payments would be adequate to recover the exposure to the project by theGroup. The management has made a claim of Rs. 112337 lacs as termination payments fromAPRDC. One of the Lenders has filed for Corporate Insolvency resolution proceeding againstthe SPV before the Hon'ble National Company Law Tribunal (NCLT). Total Exposure of theGroup is Rs. 99325.41 lacs. In the absence of any confirmation of the termination amountfrom APRDC the NCLT hearing decision of the OTS by the lenders we are unable to commenton the possible impairment required against the exposure of the Company.
b) Attention is invited to Note 33 (b) to the Consolidated Ind AS Financial Statementsrelating to the project in the SPV Indira Containers Terminal Pvt Ltd. There existsmaterial uncertainty relating to the future of the project where the exposure of the Groupin the SPV/project is Rs. 69570.74 lacs (funded and non-funded). The draft settlementagreement between the SPV Ministry of Shipping (MoS) Mumbai Port Trust (MbPT) has beenrejected by MbPT. The Company and the SPV are in discussion with MbPT and MoS toreconsider the project. The credit facility are marked as NPA by the lenders. The Companyhas also received notice to invoke pledged shares against which the Company is in activediscussions with bank. Pending conclusion of matters of material uncertainty related tothe project the notice to invoke pledge of shares and decision of the OTS by the lendersbeing in preliminary stage we are unable to comment whether any provision is requiredtowards possible impairment towards the said exposure.
c) Attention is invited to Note no. 34 to the Consolidated Ind AS Financial Statementswhere the Company has defaulted in fulfilling its obligation under the one-time settlement(OTS) with IFCI Limited. The Company was required to pay the entire outstanding bySeptember 30 2017. The Company has been unable to discharge the liability and has notbeen able to get further extension for the payment of the outstanding although it isactively engaged with IFCI Limited for obtaining the extension and/or non-reversal of thebenefits of the OTS. In terms of the original arrangement the benefits received under theone-time settlement were to be reversed. Although the management is hopeful of obtainingthe extension and / or non-reversal of the benefits of the OTS pending the acceptance byIFCI Limited we are unable to state whether the Company has to account for the reversal ofbenefits of Rs. 4884.10 lacs in its financial statements. The company has howeverprovided interest at the rate of 11.50% p.a. as per the agreement. The interest payable onthe outstanding amount before reversal of the aforesaid benefit as on balance sheet dateis Rs. 320.38 lacs.
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Companies Act 2013. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theFinancial Statements section of our report. We are independent of the Group in accordancewith the Code of Ethics issued by the Institute of Chartered Accountants of India togetherwith the ethical requirements that are relevant to our audit of the Consolidated FinancialStatements under the provisions of the Companies Act 2013 and the Rules thereunder andwe have fulfilled our other ethical responsibilities in accordance with these requirementsand the Code of Ethics. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our Qualified Opinion.
Material Uncertainty relating to Going Concern
We invite attention to Note 33 of the Consolidated Ind AS Financial Statements for theyear ended March 31 2019 wherein status of various SPV projects which are stressed dueto delay in completion cost overrun liquidity crunch and have legal issues arbitrationproceedings or negotiations. The successful progress and completion depend on favourabledecisions on outstanding litigations being received by the Management. We also inviteattention to Note 36 of the Statement where the Company has stated that as of March 312019 the Company's current liabilities exceeded current assets by Rs. 192562.94 lacs.There is a continuing mismatch including defaults in payment of its financial obligationsto its subsidiary Company. These conditions along with the fact of the Auditors' Reportof some of the SPV carrying a separate paragraph on Material Uncertainty related to GoingConcern referred to in Note 36 of the Statement indicate the existence of MaterialUncertainty which may impact the Company's ability to continue as a going concern. Ourreport is not qualified on this matter.
Emphasis of Matter
Without qualifying our opinion we draw attention to the following matters;
a. Attention is invited to Note no 33 (c) of the Statement relating to slow progressofwork for one of the road project at Madhya Pradesh. These delays have resulted inincrease in project cost resulting in cost overrun in the project. The SPV has alsoreceived the cure period notice from MPRDC in terms of defaults under the ConcessionAgreement for delay no-project work and maintenance work being carried out at site andto clear the defaults against which the company has submitted their response. The creditfacility of the SPV has been marked as NPA by the lenders. Total exposure of the Companyis the SPV/Project is Rs. 97108.47 lacs. The Management believes that the trafficinitially assessed would be the same and would cover the exposure consequent to the costoverrun. We have relied on the management assertion on this matter. The management alsobelieves that the project would achieve PCOD in a short time.
b. We invite attention to Note 33 (d) of the Consolidated Ind AS Financial Statementsan annuity project of the Company where the SPV has accounted for the asset as a financialasset. The SPV will have cost overrun on account of issue beyond the scope of the SPV andattributable to the Grantor. This will not result in any changes in the Annuity from thegrantor. However this amount would be treated separately as receivable from the Grantorbased on certification of delay period attributable to the Grantor certified by theIndependent Engineer. The SPV expects a sizeable claim on this amount and has obtainedlegal support for the validity of its claim from an Independent Expert on claim andlitigation. The management contends that in view of the strong case it has on the claimmatter as aforesaid there will be no impairment necessary towards the financial asset ortowards the investment of the Company. The SPV has submitted a One-Time Settlement (OTS)proposal to the consortium of Lenders and the same is under consideration of the Lendersexcept 2 (two) of the consortium lenders who have granted their approval for the proposal.These 2 (two) consortium lenders have assigned their share of debt to an AssetReconstruction Company (ARC). The exposure of the Company in the SPV is Rs. 124618.78lacs including non-fund exposure. Pending conclusions no adjustments have been made in thefinancial statements.
c. We invite attention to Note 33 (e) of the Consolidated Ind AS Financial Statementsregarding unilateral termination and closure of Concessions in a bridge project which issubject to pending litigations/arbitrations at various forums which may impact thecarrying values of investments and loans and advances given to the subsidiary. Pendingconclusion on these legal matters no adjustments have been made in the financialstatements.
d. We invite attention to Note 33 (f) of the Consolidated Ind AS Financial Statementsin relation to intention to exit one of the hydro power projects at Himachal Pradesh andseeking a claim of an amount against the amount spent on the project. The Company'ssubsidiary has cited reasons for non-continuance on account of reasons beyond its control.The subsidiary is negotiating with its client for an amicable settlement on beneficialterms and has also invoked arbitration. The SPV has received a letter from GoHP datedSeptember 4 2018 intimating that their office has begun the process for finalisation ofthe panel of Arbitrators and the nomination in this regard shall be intimated to the SPVshortly. The Company's exposure towards the said project includes investment and loans andadvances of Rs. 6787.12 lacs. Pending conclusion between the parties no adjustments havebeen made in the financial statements.
e. We invite attention to Note no 33 (g) of the Consolidated Ind AS FinancialStatements relating to the Hydropower project in Sikkim. As detailed in the note thereare various factors affecting the progress of the project. The management as detailed inthe note is confident that it will be able to pursue the project viably and does notforesee any need for impairment. Considering the assertion of the management noadjustments have been made towards any possible impairment. The exposure of the Company inthe SPV is Rs. 10828.57 lacs.
f. We invite attention to Note no 35 of the Consolidated Ind AS Financial Statementswherein during the previous year Western Coalfields Limited (WCF) had encashed BankGuarantee amounting 1514.01 lacs given in favour of Aparna Infraenergy India PrivateLimited (one of the SPV's sold to BIF India Holding Pte ltd on February 29 2016).Subsequent to encashment Company has filed an application for converting earlierinjunction application to suit for recovery of damages. The management is hopeful ofgetting favourable decision on the matter and recovery of damages based on legal advice onthe matter. Pending the outcome the Company has shown guarantee encashment amount asreceivable from Western Coal Fields.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the consolidated 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.
Apart from what is mentioned in our paragraph titled Basis of Qualified Opinion andparagraph titled Material Uncertainty related to Going Concern there are no other mattersdescribed to be the key audit matters to be communicated in our report.
The Holding Company's Board of Directors is responsible for the Other Information. The"Other Information" comprises the Report of the Board of Directors CorporateInformation Company at a Glance Message from Chairman Management Discussion andAnalysis Report on Corporate Governance and other Information and data required by theprovisions of Companies Act but does not include the Standalone and Consolidated FinancialStatements and our Independent Auditors' Report thereon. The Other Information asaforesaid is expected to be made available to us after the date of this Auditor's Report.
Our opinion on the Consolidated Financial Statements does not cover the OtherInformation and we do not and will not express any form of assurance or conclusionthereon.
In connection with our audit of the Consolidated Financial Statements ourresponsibility is to read the Other Information identified above and in doing soconsider whether the Other Information is materially inconsistent with the consolidatedfinancial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated.
When we read the "Other Information" which will be made available to us afterthe date of this report if we conclude that there is a material misstatement therein weare required to communicate the matter to those charged with governance and takeappropriate actions in accordance with the Standards on Auditing.
Responsibilities of Management and those Charged with Governance for the ConsolidatedFinancial Statements
The Holding Company's Board ofDirectors is responsible for the preparation andpresentation of these Consolidated Financial Statements in terms of the requirements ofthe Companies Act 2013 ("the Act") that give a true and fair view of theconsolidated financial position consolidated financial performance consolidated changesin equity and consolidated cash flows of the Group including its Associates and JointlyControlled Entities in accordance with the accounting principles generally accepted inIndia including the accounting Standards specified under section 133 of the Act. Therespective Board of Directors of the companies included in the Group and of its associatesand jointly controlled entities are responsible for the maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding of the assets of theGroup and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error which have been used for the purpose ofpreparation of the consolidated financial statements by the Directors of the HoldingCompany as aforesaid.
In preparing the consolidated financial statements the respective Board of Directorsof the companies included in the Group and of its associates and jointly controlledentities is responsible for assessing the ability of the Group and of its Associates andJointly Controlled Entities to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Group or to cease operations or has norealistic alternative but to do so.
The respective Board of Directors of the companies included in the Group and of itsassociates and jointly controlled entities are also responsible for overseeing thefinancial reporting process of the Group and of its Associates and Jointly ControlledEntities.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit we also:
1. Identify and assess the risks of material misstatement of the financial statementswhether due to fraud or error design and perform audit procedures responsive to thoserisks and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error as fraud may involve collusion forgeryintentional omissions misrepresentations or the override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances. Under section 143(3)(i) of theCompanies Act 2013 we are also responsible for expressing our opinion on whether thecompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
3. Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
4. Conclude on the appropriateness of management's use of the going concern basis ofaccounting 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 financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Company to cease to continue asa going concern.
5. Evaluate the overall presentation structure and content of the consolidatedfinancial statements including the disclosures and whether the consolidated financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the interim condensed standalonefinancial statements that individually or in aggregate make it probable that theeconomic decisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in (i) planningthe scope of our audit work and in evaluating the results of our work; and (ii) toevaluate the effect of any identified misstatements in the financial statements
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the Key Audit Matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
a. We did not audit the financial statements / financial information of 26subsidiaries whose financial statements / financial information reflect total assets ofRs. 508610.90 lacs as at 31st March 2019 total revenues of Rs. 53478.61lacs and net cash flows amounting to Rs. 466.74 lacs for the year ended on that datebefore giving effect to elimination of intra-group transactions as considered in thepreparation of the consolidated financial statements. The consolidated financialstatements also include the Group's share of net profit/loss of Rs. 19.55 Lacs for theyear ended 31st March 2019 as considered in the consolidated financialstatements in respect of 1 jointly controlled entity and 1 associates whose financialstatements / financial information have not been audited by us. These financial statements/ financial information have been audited by other auditors whose reports have beenfurnished to us by the Management and our opinion on the consolidated financialstatements in so far as it relates to the amounts and disclosures included in respect ofthese subsidiaries jointly controlled entities and associates and our report in terms ofsub-section (3) of Section 143 of the Act in so far as it relates to the aforesaidsubsidiaries jointly controlled entities and associates is based solely on the reportsof the other auditors.
Our opinion on the consolidated financial statements and our report on Other Legal andRegulatory Requirements below is not modified in respect of the above matters withrespect to our reliance on the work done and the reports of the other auditors.
Report on Other Legal and Regulatory Requirements
As required by Section 143(3) of the Act we report that:
a. We / the other auditors whose reports have relied upon have sought obtained all theinformation and explanations which to the best of our knowledge and belief were necessaryfor the purposes of our audit of the aforesaid consolidated financial statements.
b. In our opinion except for the possible effects of the matter described in Basis ofQualified Opinion paragraph proper books of account as required by law relating topreparation of the aforesaid consolidated financial statements have been kept so far as itappears from our examination of those books and the reports of the other auditors.
c. The Consolidated Balance Sheet the Consolidated Statement of Profit and Loss theConsolidated Cash Flow Statement and the Consolidated Statement of Changes in Equity dealtwith by this Report are in agreement relevant books of account maintained for the purposeof preparation of the consolidated financial statements.
d. In our opinion except for the possible effects of the matter described in Basis ofQualified Opinion paragraph the aforesaid Consolidated Financial Statements comply withthe Accounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014.
e. On the basis of the written representations received from the directors of theHolding Company as on 31st March 2019 taken on record by the Board ofDirectorsofthe Holding Company and the reports of the statutory auditors of its subsidiarycompanies associate companies and jointly controlled companies incorporated in Indianone of the directors of the Group companies its associate companies and jointlycontrolled companies incorporated in India is disqualified as on 31st March2019 from being appointed as a director in terms of Section 164(2) of the Act.
f. The matters described in paragraphs under the Basis for Qualified Opinion andMaterial Uncertainty Relating to Going Concern paragraph in our opinion may have anadverse effect on the functioning of the Group.
g. With respect to the adequacy of internal financial controls over financial reportingof the Group and the operating effectiveness of such controls refer to our separatereport in "Annexure A".
h. With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:
i. The consolidated financial statements disclose the impact of pending litigations onthe consolidated financial position of the Group its associates and jointly controlledentities - Refer Note 32 to the consolidated financial statements.
ii. Provision has been made in the consolidated financial statements as required underthe applicable law or accounting standards for material foreseeable losses. The Group hasnot entered into any derivative contracts;
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Holding Company and its subsidiarycompanies associate companies and jointly controlled companies incorporated in India.
For Nayan Parikh & Co.
Firm Registration No. 107023W
M. No. 36410
Mumbai Dated: May 29 2019
Annexure A To Auditor's Report
Report on the Internal Financial Controls with reference to Financial Statements underClause (i) of Subsection 3 of Section 143 of the Companies Act 2013 ("the Act")
In conjunction with our audit of the consolidated financial statements of the HoldingCompany as of and for the year ended March 31 2019 we have audited the internalfinancial controls with reference to financial statements of Gammon InfrastructureProjects Limited (hereinafter referred to as the Holding Company') and itssubsidiaries joint venture and associate which are companies incorporated in India asof that date.
Management's Responsibility for Internal Financial Controls
The respective Board of Directors of the companies included in the Group and of itsassociates and jointly controlled entities is responsible for establishing and maintaininginternal financial controls based on the internal control with reference to financialstatements criteria established by the Holding Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls over Financial Reporting issued by the Institute of Chartered Accountants ofIndia (ICAI'). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of its business including adherence tocompany's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013.
Our responsibility is to express an opinion on the internal financial controls withreference to financial statements of the Holding Company Subsidiaries Associates andJointly controlled entities which are companies incorporated in India based on ouraudit. We conducted our audit in accordance with the Guidance Note on Audit of InternalFinancial Controls over Financial Reporting (the "Guidance Note") and theStandards on Auditing issued by ICAI and deemed to be prescribed under section 143(10) ofthe Companies Act 2013 to the extent applicable to an audit of internal financialcontrols both applicable to an audit of Internal Financial Controls and both issued bythe Institute of Chartered Accountants of India. Those Standards and the Guidance Noterequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate internal financial controls with reference toFinancial Statements was established and maintained and if such controls operatedeffectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system with reference to Financial Statements and theiroperating effectiveness. Our audit of internal financial controls with reference toFinancial Statements included obtaining an understanding of internal financial controlswith reference to Financial Statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgment including the assessment of the risks of material misstatement of the financialstatements whether due to fraud or error.
We believe that the audit evidence and the audit evidence obtained by the otherauditors in terms of their reports referred to in the Other Matters paragraph below issufficient and appropriate to provide a basis for our audit opinion on the HoldingCompany's internal financial controls system with reference 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 financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial control withreference to Financial Statements includes those policies and procedures that (1) pertainto the maintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls with reference to FinancialStatements.
Because of the inherent limitations of Financial controls with reference to FinancialStatements including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls with reference toFinancial Statements to future periods are subject to the risk that the internal financialcontrol with reference to Financial Statements may become inadequate because of changes inconditions or that the degree of compliance with the policies or procedures maydeteriorate.
In our opinion the Holding Company its subsidiaries associates and jointlycontrolled entities which are companies incorporated in India have in all materialrespects an adequate internal financial controls system with reference to FinancialStatements and such internal financial controls with reference to financial statementswere operating effectively as at March 31 2019 based on the internal control overfinancial reporting criteria established by the Holding Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting issued by the Institute of Chartered Accountants ofIndia.
Our aforesaid reports under section 143(3)(i) of the Act on the adequacy and operatingeffectiveness of the internal financial controls with reference to financial statements inso far as it relates to financial statements of 26 subsidiaries which are companiesincorporated in India is based on the corresponding reports of the auditors of suchcompanies incorporated in India
For Nayan Parikh & Co.
Firm Registration No. 107023W
M. No. 36410
Mumbai Dated: May 29 2019