To the Members of
Gammon Infrastructure Projects Limited
Report on the Standalone Ind AS Financial Statements
("the Company") which comprise the Balance Sheet as at March 31 2018 theStatement of Profit and Loss including Other Comprehensive Income the Statement of CashFlow and Statement of Changes in Equity for the year then ended and a summary ofsignificant accounting policies and other explanatory information (hereinafter referred toas "Standalone Ind AS Financial Statements").
Management's Responsibility for the Standalone Ind AS Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese Standalone Ind AS Financial Statements that give a true and fair view of thefinancial position financial performance including other comprehensive income and cashflows of the Company in accordance with the accounting principles generally accepted inIndia including the Companies (Indian Accounting Standards) Rules 2015 (Ind AS)specified under Section 133 of the Act read with relevant rules thereon. 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 appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accounting recordsrelevant to the preparation and presentation of the Standalone Ind AS Financial Statementsthat give a true and fair view and are free from material misstatement whether due tofraud or error.
Our responsibility is to express an opinion on these Standalone Ind AS FinancialStatements based on our audit. We have taken into account the provisions of the Act theaccounting and auditing standards and matters which are required to be included in theaudit report under the provisions of the Act and the Rules made thereunder. We conductedour audit in accordance with the Standards on Auditing specified under Section 143(10) ofthe Act. Those Standards require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance about whether the Standalone Ind ASFinancial Statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the Standalone Ind AS Financial Statements. The procedures selected dependon the auditor's judgment including the assessment of the risks of materialmisstatement of the financial statements whether due to fraud or error. In making thoserisk assessments the auditor considers internal financial control relevant to theCompany's preparation of the Standalone Ind AS Financial Statements that give a true andfair view in order to design audit procedures that are appropriate in the circumstances.An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of the accounting estimates made by Company's directors as well asevaluating the overall presentation of the Standalone Ind AS Financial Statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our qualified audit opinion on the Standalone Ind AS FinancialStatements.
Basis of Qualified Opinion
a) Attention is invited to note 18(a) of the Standalone Ind AS Financial Statementsrelating to the excess managerial remuneration paid of Rs. 497.17 lacs for the period uptoMarch 2017 for the reasons detailed in the aforesaid note. The Company had once againsubmitted its representation to the Ministry to reconsider its decision and allow thewaiver of recovery of the excess remuneration paid aggregating to Rs. 388.45 lacs for theperiod upto March 2016. If the Company's representation is not accepted then the companywould be required to recover the excess remuneration from the managerial personnel and tothat extent the Profit will be higher by an amount of Rs. 388.45 lacs. Pending the same noadjustments have been made to the financial results.
Subject to the outcome of the representation made to the MCA we are unable toascertain the impact on Profits on this account for the quarter and the year ended March31 2018. Similarly for the previous period ended March 31 2017 the remuneration inexcess of the limits computed under the provisions of Section 197 read with Schedule V tothe Companies Act 2013 is Rs. 108.72 lacs for which the Company has made an application tothe MCA for approval of the same. Pending these approvals no adjustments have been madeto the financial results for the remuneration of the said period. This matter wasqualified in the auditors' report dated June 18 2017 by the previous auditors' on thefinancial statements for the year ended March 31 2017.
Attention is invited to Note no 29 of the Standalone Ind AS Financial Statements inrespect of status of the Tolling Road Project in Andhra Pradesh where termination noticewas received from NHAI on 26th August 2016 and consequently NHAI took over possession oftoll plaza. Based on the subsequent negotiation and discussion with NHAI they agreed torevoke the termination notice vide its letter dated 16th January 2017 subject tocompleting of financial closure and fulfilling of other commitments specified in theletter within the stipulated timeframe. The Company could not fulfil the said conditions.Ultimately on 8th September 2017 the Company made an application to NHAI for mutual exitfrom the project.
The decision of NHAI in response to the aforesaid letter of mutual exit is pending. Incase the mutual exit proposal is accepted then the exposure of the Company is likely to becapped at Rs.7246.13 lacs as the Bank Guarantee would be released as requested by theCompany in its letter dated 8th September 2017. In case the proposal is not accepted thenthe entire exposure of Rs. 15666.13 lacs of the Company in the SPV needs to be tested forimpairment.
Accordingly the decision of NHAI is more likely to have adverse impact on theStatement of Profit and Loss. No effects have been given in the financial statements ofthe SPV pending the decision of NHAI. The Auditors of the SPV have in their audit reporton the financial statements of the SPV for the year ended on 31st March 2018 carried aparagraph on Material Uncertainty related to Going Concern. The decision of the NHAI isawaited for determining the possible impairment and giving necessary effects. Pending thedecision of NHAI we are unable to quantify the impairment that would be required in thematter and consequent impact on the Standalone Financial Statements.
b) Attention is invited to Note no. 30 to the Standalone 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. 3776.69 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 158.13 lacs.
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 Standalone Ind AS Financial Statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India including the Ind ASunder section 133 of the financial position of the Company as at March 31 2018 itsfinancial performance including other comprehensive income its cash flows and thestatement of changes in equity for the year ended on that date.
Material Uncertainty relating to Going Concern.
We invite attention to Note 31 of the Standalone Ind AS Financial Statements whereinthe Company has stated that as of that date the Company's current liabilities exceededcurrent assets resulting in continued mismatch despite the sale of some of the SPVs in theprevious periods. There is therefore a continuing mismatch including defaults in paymentof its financial obligations. The management is taking active steps to tide over thepresent situations for which based on detailed evaluation of the current situation plansare formulated and active discussions are underway with various stakeholders. Theseconditions along with matters arising out of pending conclusions of decisions in respectof some of the SPVS set forth in the Note 32 of the Standalone Ind AS Financial Statementsand the fact of the Auditors' Report of some of the SPV carrying a separate paragraph onMaterial Uncertainty related to Going Concern as mentioned in Note 31 of the StandaloneInd AS Financial Statements indicate the existence of significant uncertainty over thecash flows expected and the Company's ability to continue as a going concern. Our reportis not qualified on this matter.
Emphasis of Matter
Without qualifying our opinion we draw attention to the following matters;
a) We invite attention to Note 32(a) of the Standalone 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. TheCompany's exposure towards the said project (funded and non-funded) is Rs.2856.96 lacs.Pending conclusion on these legal matters no adjustments have been made in the financialstatements.
b) We invite attention to Note 32(b) of the Standalone Ind AS Financial Statements inrelation 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 Company's exposure towards the said projectincludes investment and loans and advances of Rs. 7119.23 lacs. Pending conclusionbetween the parties no adjustments have been made in the financial statements.
c) We invite attention to Note 32(c) of the Standalone Ind AS Financial Statements inconnection with an amount invested (including deposits and advances given) in thesubsidiary of Rs. 13831.00 lacs (funded and non-funded). As mentioned in the said note adraft supplementary agreement has been discussed between the parties under which theproject would go for a re-bid and the SPV has a Right Of First offer. The management ishopeful that it will successfully match the bid and win the concession and continue tooperate the facility which would be operationally viable under the revised terms.
The management has during the year acquired further stake from the JV partner and hasobtained control over the SPV and holds 74% of the equity of the SPV Company. The auditorsof the SPV have included a separate paragraph on Material Uncertainty related to GoingConcern. Pending execution of the supplementary agreement and the conclusion of the Re-bid no adjustments have been made in the financial statements.
d) We invite attention to Note 32(d) of the Standalone Ind AS Financial Statements inrespect of a tolling bridge project in Andhra Pradesh where the monthly toll collectionsare not sufficient to pay the interest and the resultant defaults in the loan repaymentresulting in the facility being marked NPA. The SPV had earlier submitted a proposal underthe Scheme for Sustainable Structuring of Stressed Assets (S4A) to the Lenders which wascleared by the Lenders for approval of the Overseeing Committee (OC) set up by the IndianBanking Association (IBA) in consultation with the Reserve Bank of India (RBI). The SPVprovided its response to the observations of the Lenders and the OC on the S4A proposaland was awaiting the OC/lenders' approval. In the interim RBI vide its circular dated12th February 2018 discontinued with immediate effect all restructuring schemes forstressed assets (including S4A). As per this circular all schemes including S4A whichhave been invoked but not implemented shall be governed by the new circular. Thus therestructuring proposal proposed by the Company is no longer being pursued by the Lenders.Subsequently the Company has issued a cure period notice to Andhra Pradesh RoadDevelopment Corporation (APRDC or the Client) on 26th February 2018 under clause 37.2.1 ofthe Concession Agreement to cure the breaches of APRDC which includes provision of Revenueshortfall loan along with other mentioned breaches. Pending receipt of the response to thenotice for cure period no adjustments have been made in the financial statements. Theauditors of the SPV have included a separate paragraph on Material Uncertainty related toGoing Concern on the matter. The Company's exposure towards the project/SPV is Rs.95578.24 lacs (funded and non-funded).
e) We invite attention to Note 32(e) of the Standalone Ind AS Financial Statements anannuity 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 SPV had also separately applied to the lenders for Scheme for 5:25Flexible Structuring Scheme for which sanction from two banks among consortium members hadbeen received and sanction from rest bankers were expected in near future. However inview of the RBI circular dated 12th February 2018 all restructuring schemes for stressedassets (including 5/25 Flexible Structuring Scheme) have been discontinued and theapplication became infructuous. The management contends that in view of the strong case ithas on the claim matter as aforesaid there will be no impairment necessary towards thefinancial asset or towards the investment of the Company. The exposure of the Company inthe SPV is Rs. 130254.07 lacs including non-fund exposure. Pending conclusions noadjustments have been made in the financial statements.
f) We invite attention to Note no 32(f) of the Standalone Ind AS Financial Statementsrelating to the Hydropower project in Sikkim. As detailed in the note there are variousfactors affecting the progress of the project. The management as detailed in the note isconfident that it will be able to pursue the project viably and does not foresee any needfor impairment. Considering the assertion of the management no adjustments have been madetowards any possible impairment. The exposure of the Company in the SPV is Rs. 9622.91lacs.
g) We invite attention to Note 33 of the Standalone Ind AS Financial Statementswherein during the year Western Coalfields Limited (WCF) had encashed Bank Guaranteeamounting Rs 1514.01 lacs given in favour of Aparna Infraenergy India Private Limited(one of the SPV's sold to BIF India Holding Pte ltd on February 29 2016). Subsequent toencashment Company has filed an application for converting earlier injunction applicationto suit for recovery of damages. The management is hopeful of getting favourable decisionon the matter and recovery of damages based on legal advice on the matter. Pending theoutcome the Company has shown guarantee encashment amount as receivable from Western CoalFields and not debited the same to the statement of Profit and loss for the year endedMarch 31 2018.
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 of India in terms of sub-section (11) of section 143 ofthe Act we give in the Annexure A a statement on the matters specified in paragraphs 3and 4 of the said Order.
2. As required by section 143 (3) of the Act we report that:
(a) we have sought and except for the possible effects of the matter described in Basisof Qualified Opinion paragraph obtained all the information and explanations which to thebest of our knowledge and belief were necessary for the purposes of our audit;
(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 have been kept bythe Company so far as it appears from our examination of those books;
(c) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome the Cash Flow Statement and Statements of Changes in Equity dealt with by thisReport are in agreement with the books of account;
(d) In our opinion except for the possible effects of the matter described in Basis ofQualified Opinion paragraph the aforesaid Standalone Ind AS Financial Statements complywith the Accounting Standards specified under Section 133 of the Act read with relevantrules thereon;
(e) The matters described in paragraphs under the Basis for Qualified Opinion and theMaterial Uncertainty related to Going Concern paragraph in our opinion may have anadverse effect on the functioning of the Company;
(f) On the basis of written representations received from the directors as on March 312018 and taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2018 from being appointed as a director in terms of section 164(2) of theAct except Mr. Abhijit Rajan.
(g) With respect to the adequacy of the internal financial controls with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate report in "Annexure B"; and
(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 Standalone Ind AS Financial Statements disclose the impact of pendinglitigations on the financial position in its financial statements Refer Note 28 tothe Standalone Ind AS Financial Statements;
ii. The Company has made provisions as required under the applicable law or accountingstandards for material foreseeable losses on long term contracts. The Company has notentered into any derivative contracts.
iii. There are no amounts that are required to be transferred to the Investor Educationand Protection Fund during the year
For Nayan Parikh & Co
Firm Registration No. 107023W
K N Padmanabhan
M. No. 36410
Mumbai Dated: - June 13 2018
To the Independent Auditors' Report on the Standalone Ind AS Financial StatementsGammon Infrastructure Projects Limited
(i) ((a) The Company has generally maintained proper records showing full particularsincluding quantitative details and situation of its Fixed Assets.
(b) Fixed Assets have been physically verified by the management during the year and nomaterial discrepancies were identified on such verification.
(c) There is no immovable property in the name of the company and hence clause 3(i)(c)of Companies (Auditors Report) Order 2016 is not applicable to the Company.
(ii) As the company does not hold any inventory during the year clause 3(ii) ofCompanies (Auditors Report) Order 2016 is not applicable to the Company.
(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to companies firms Limited LiabilityPartnerships or other parties covered in the register maintained under Section 189 of theCompanies Act 2013. Accordingly the provisions of clause 3(iii) (a) 3(iii) (b) and3(iii) (c) of the Order are not applicable to the Company.
(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 Companies Act 2013with respect to loans investments guarantees and security given by the Company.
(v) The Company has not accepted any deposit from the public pursuant to sections 73 to76 or any other relevant provisions of the Companies Act 2013 and rules framedthereunder. As informed to us there is no order that has been passed by Company Law Boardor National Company Law Tribunal or Reserve Bank of India or any Court or any otherTribunal in respect of the said sections. Accordingly the provision of clause 3(v) is notapplicable to the Company.
(vi) We have broadly reviewed the books of account maintained by the Company pursuantto the rules made by the Central Government for the maintenance of cost records underSection 148(1) of the Companies Act 2013 related to infrastructure developers businessand are of the opinion that prima facie the specified accounts and records have been madeand maintained. We have not however made a detailed examination of the same.
(vii) (a) The Company is generally regular in depositing undisputed statutory duesincluding Provident fund Employees State Insurance Income Tax Sales Tax Service TaxCess Work Contract Tax Goods and Service Tax and other statutory dues with theappropriate authorities during the year. According to the information and explanationsgiven to us no undisputed amount payable in respect of the aforesaid dues wereoutstanding as at March 31 2018 for a period of more than six months from the date ofbecoming payable. .
(b) According to the information and explanations given to us there are no dues ofIncome Tax or Sales Tax or Wealth Tax or Service Tax or duty of Customs or duty of Exciseor Value Added Tax or Cess which have not been deposited on account of any dispute exceptas given herein below.
|Name of the Statute ||Nature of dues ||Rs in lacs ||Period for which it relates ||Forum where dispute is pending |
|Income Tax Act 1961 ||Demand under u/s 153A ||310.10 ||A.Y. 2007-08 to A.Y. 2011-12 ||Commissioner of Income-Tax (Appeals) |
| ||Demand of Penalty u/s 271(1)(c) ||1715.40 ||A.Y. 2007-08 to A.Y. 2011-12 || |
(viii) According to the information and explanations given to us and based on thedocuments and records produced to us the company has defaulted in repayment of dues toBank of India aggregating to Rs. 17.46 lacs for Interest. the details of default havebeen disclosed in the IND AS Standalone Financial Statement vide note 12(e). The companyhas not borrowed any fund from financial institutions and by way of debenture.
(ix) The company has not raised any money by way of public issue / follow-on offer(including debt instruments) during the year. The Company has also not raised any termloans during the year. Therefore the clause 3(ix) of the Companies (Auditors Report) Order2016 is not applicable to the Company.
(x) According to the information and explanations given to us and to the best of ourknowledge and belief no fraud by the Company or on the Company by its Officers oremployees has been noticed or reported during the year.
(xi) As regards the Managerial remuneration the Company has paid excess managerialremuneration paid of Rs. 497.17 lacs for the period upto March 2017 for the reasonsdetailed in the aforesaid note. The Company had once again submitted its representation tothe Ministry to reconsider its decision and allow the waiver of recovery of the excessremuneration paid aggregating to Rs. 388.45 lacs for the period upto March 2016.
If the Company's representation is not accepted then the company would be required torecover the excess remuneration from the managerial personnel and to that extent theProfit will be higher by an amount of Rs. 388.45 lacs.
Pending the same no adjustments have been made to the financial results. Subject to theoutcome of the representation made to the MCA we are unable to ascertain the impact onProfits on this account for the quarter and the year ended March 31 2018. Similarly forthe previous period ended March 31 2017 the remuneration in excess of the limitscomputed under the provisions of Section 197 read with Schedule V to the Companies Act2013 is Rs. 108.72 lacs for which the Company has made an application to the MCA forapproval of the same. Pending these approvals no adjustments have been made to thefinancial results for the remuneration of the said period. This matter was qualified inthe auditors' report dated June 18 2017 by the previous auditors' on the financialstatements for the year ended March 31 2017.
(xii) The Company is not a Nidhi Company hence clause 3(xii) of Companies (AuditorsReport) Order 2016 is not applicable to the Company.
(xiii) All transactions with the related parties are in compliance with sections 177and 188 of the Companies Act 2013 in so far as our examination of the proceedings of themeetings of the Audit Committee and Board of Directors are concerned. The details ofrelated party transactions have been disclosed in the Standalone Ind AS FinancialStatements as required by the applicable Accounting Standard.
(xiv) The company has not made any preferential allotment / private placement of sharesor fully or partly convertible debentures during the year under review and hence theclause 3(xiv) of the Companies (Auditors Report) Order 2016 is not applicable to theCompany.
(xv) The company has not entered into any non-cash transactions with directors orpersons connected with him and hence the clause 3(xv) of the Companies (Auditors Report)Order 2016 is not applicable to the Company.
(xvi) The nature of business and the activities of the Company are such that theCompany is not required to obtain registration under section 45-IA of the Reserve Bank ofIndia Act 1934.
For Nayan Parikh & Co
Firm Registration No.107023W
K N Padmanabhan
Membership No. 36410
Mumbai Dated: June 13 2018