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Hindustan Petroleum Corporation Ltd.

BSE: 500104 Sector: Oil & Gas
NSE: HINDPETRO ISIN Code: INE094A01015
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VOLUME 114391
52-Week high 312.00
52-Week low 163.30
P/E 3.62
Mkt Cap.(Rs cr) 38,549
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OPEN 276.00
CLOSE 274.55
VOLUME 114391
52-Week high 312.00
52-Week low 163.30
P/E 3.62
Mkt Cap.(Rs cr) 38,549
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Hindustan Petroleum Corporation Ltd. (HINDPETRO) - Auditors Report

Company auditors report

To the members of hindustan petroleum corporation limited

Report on the audit of the standalone ind as financial statements

Opinion

We have audited the accompanying standalone indian accounting standard (“indas”) financial statements of hindustan petroleum corporation limited (“thecompany”) which comprise the balance sheet as at march 31 2020 the statement ofprofit and loss (including other comprehensive income) the statement of changes in equityand the statement of cash flows for the year ended on that date and notes to thefinancial statements including a summary of the significant accounting policies and otherexplanatory information (hereinafter referred to as “the standalone financialstatements”) in which are included the ind-as financial statements for the yearended on that date audited by the branch auditor of the visakh refinery located atvisakhapatnam.

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 accounting principles generally accepted in india ofthe state of affairs of the company as at march 31 2020 its profit and othercomprehensive income changes in equity and its cash flows for the year ended on thatdate.

Basis for opinion

We conducted our audit of the standalone financial statements in accordance with thestandards on auditing specified under section 143(10) of the act (“the sas”).Our responsibilities under those standards are further described in the auditorsresponsibilities for the audit of the standalone financial statements section of ourreport. We are independent of the company in accordance with the code of ethics issued bythe institute of chartered accountants of india (the “icai”) together with theethical requirements that are relevant to our audit of the standalone financial statementsunder the Provisions of the act and the rules made thereunder and we have fulfilled ourother ethical responsibilities in accordance with these requirements and the icai's codeof 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.

Emphasis of matter

We invite attention to the following:

A) note no. 59 regarding Provision for impairment made to the extent of rs 227.40 croretowards loans given to consumers under prime minister ujjwala yojna (pmuy) out of thetotal outstanding loans of rs 1966.21 crore the above impairment has been computed basedon the estimates of default as assessed by the management.

B) note no. 62 regarding the outbreak of covid-19 pandemic and the assessment made bythe management on its business and financials for the year ended march 31 2020 thisassessment and the outcome of the pandemic is as made by the management and is highlydependent on the circumstances as they evolve in the subsequent periods.

C) note no. 3 regarding reduced depreciation due to changes in the estimates ofresidual value of the catalyst on account of precious metal content and note no. 61regarding restating the values of precious metal contents in respect of certain catalystswhich have already been charged to profit & loss account. The assessment of recoveryof the precious metal out of the catalyst and resultant change in the estimate is as madeby the management.

D) note no. 68 a & 68 h regarding Provision towards shortfall in the provident fundtrust and post retirement medical benefit fund trust to the extent of rs 180.14crore & rs 69.65 crore respectively arising out of the default over interestobligations and probable principal amounting to rs 243 crore & rs 99.50crore respectively in the case of non-convertible debentures of certain companies whichincludes il&fs & dhfl basis best available estimate of the management. Theestimate is dependent upon the outcome of matters pending with judicial authorities andrecognition of company's claim in these matters.

Our opinion is not modified in respect of above matters.

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. We have determined the matters described below to bethe key audit matters to be communicated in our report:

1. Evaluation of uncertain indirect tax positions

The company has material uncertain indirect tax positions including matters underdispute which involves significant judgment to determine the possible outcome of thesedisputes. The company has disputes pending at various levels of tax authorities over thepast several years. As on march 312020 the company has total such disputed demandsamounting to rs 9571.95 crore (refer note no. 2.16 and para (VII) (b) annexure iof this report).

Auditors responses principal audit procedures

• we have evaluated the appropriateness of the design and tested the operatingeffectiveness of the management's controls over the tax litigation matters.

• perused details of completed tax assessments and demands for the year endedmarch 31 2020 from management.

• we reviewed the management's underlying assumptions in estimating the taxProvision and the possible outcome of the disputes. The legal precedences and otherrulings were considered in evaluating management's position on these uncertain taxpositions.

• we have perused the applications made and discharge certificates obtained duringthe year by the company under 'sabka vishwas (legacy dispute resolution) scheme rules2019'.

• further we have relied upon the management judgements and estimates for possibleoutflow and opinion of internal experts of the company in relations to such disputed taxpositions.

2. Evaluation of direct tax position and opting under of new tax regime

The company has open direct tax positions including matters under dispute for differentassessment years and the matters are at different stages with tax authorities/courts.During the year the company has decided to opt for vivad se vishwas scheme (vsvs) forwhich a tax liability of rs 764.87 crore has been assessed by the management. Thesaid amount net of Provision already held and the Provision towards disputed tax mattersnot considered necessary as assessed by the management has been provided for. The companyhas also decided to opt for new tax regime and thereby excess of deferred tax liability rs2012.50 crore has been reversed due to re-measurement in accordance with ind as 12.[refer note no. 44(e)]

Auditors responses principal audit procedures

• obtained details of completed tax assessments and demands upto the year endedmarch 31 2020 from management.

• we reviewed the management's underlying assumptions in estimating the taxProvision and the possible outcome of the disputes. The legal precedences and otherrulings were considered in evaluating management's position on these direct tax positions.

• additionally we considered the effect of the outcomes of the appellate ordersreceived during the year in respect of uncertain tax positions as at april 1 2019 toevaluate whether any change was required to management's position on these uncertainties.

• we have reviewed the management data compiled to offer the disputed liabilitiestowards vsvs scheme and the basis at which these are considered as eligible for settlementunder the scheme.

• we have been explained that requisite declaration and documentation as requiredunder the vsvs scheme shall be completed by the management within the prescribedtimelines. We have also advised the management to obtain suitable opinion in the matterswhere Provision has been reversed and keep on records.

• in the case of company's decision to opt for new tax regime we have reviewedthe computation of remeasurement of net deferred tax liabilities and reviewed themanagement assessment towards reversal of the Provision no longer required. We have beeninformed that the management will do necessary compliance of intimating the tax departmentfor such option before the due date thereof.

• we have verified the orders from tax and appellate authorities for the previousyears and relied on management judgments in evaluating the tax Provisions for the currentfinancial year.

3. Recoverability of pre-deposits relating to tax and non tax matters and balances withcustoms and excise

As at march 31 2020 the company has non-current assets i.e. Pre-deposits pertainingto various tax and non-tax matters namely vat excise duty custom duty etc. Withadjudicating authorities amounting to rs 445.29 crore that are pending for/relating to cases pending for more than 3 years and there are receivables from customs andexcise department amounting to rs 107.26 crore pending for more than 3 years forwhich there are no balance confirmations from the respective authorities available onrecords.

Auditors responses principal audit procedures

• we have evaluated the appropriateness of the design for recording and trackingthe recoverability of pre-deposits pertaining to the old tax and non-tax cases.

• we have discussed and reviewed the nature of the amounts recoverable vis-a-visthe underlying cases. We further discussed the sustainability of the cases on a samplebasis and the likelihood of recoverability or otherwise upon final resolution from therespective authorities.

• we enquired with the management about these cases vis-a-vis the current positionand the efforts taken by the management to recover the deposits placed or obtaining thebalance confirmations from the respective authorities.

• we have also advised the management to approach and continue to pursue with thecustom authorities for early settlement of receivable claims pending for earlier years .(refer note no. 10.1). •

• further we have relied on the management estimations and judgements withreference to inherent uncertainties involved while determining the outcome of these cases.

4. Evaluation of disputed claims against the company under various non-tax matters

The company has disputed claims against it which are pending at various courts/ forumsand are at various stages in the judicial process. The management has exercisedsignificant judgement in assessing the possible outflow in such matters and accordingly anamount of rs 1100.40 crore has been disclosed for which the company iscontingently liable while possibility of any outflow in matters having claims amounting tors 431.01 crore has been considered remote. (refer note no. 52).

Auditors responses principal audit procedures

• read and analysed select key correspondences internal/ external legal opinions/consultations by management for key disputed non tax matters.

• reviewed and verified other legal pronouncements wherever available in similarmatters in the case of the company/ other corporates.

• discussed with appropriate senior management and evaluated management'sunderlying key assumptions in estimating the Provisions.

• assessed management's estimate of the possible outcome of the disputed cases andrelied on the management judgements in such cases.

5. Assessment for impairment of investment in wholly owned subsidiary and variousfinancial assistance provided to them

The company has wholly owned subsidiary named prize petroleum corporation ltd. (ppcl).Ppcl has a wholly owned subsidiary namely prize petroleum international pte ltd. (thestep-down subsidiary/ ppipl) incorporated in singapore. The company has an equityinvestment of rs 248.07 crore in its 100% subsidiary prize petroleum companylimited. The management has carried out impairment assessment for the investment and atotal amount of rs 162.98 crore stands provided for towards the investment. Theassessment has been made by the management based on future cash flow assumptions. Hpcl hasalso given corporate guarantee on behalf of ppipl for obtaining borrowings from aconsortium of banks. Due to uncertainty in the exploration and production of oil and gaswith reference to its reserves and gas prices there is a possibility of the corporateguarantee being invoked and a Provision of rs 318.00 crore has been made in theaccounts towards such probable obligation based on management assumptions as estimates.(refer note no.57 & 58).

Auditors responses principal audit procedures

• we reviewed the process followed by the company to assess the valuation ofinvestments and the consistency of such process over the years.

• we analysed impairment tests performed by the management and verified that thecriteria used to perform these tests are consistent with those established in applicablereporting regulations and relied on management estimates.

• in estimating the impairment of investments we have reviewed that managementhas followed the discounting of future cash flows of the revenue streams of ppcl . •

• we reviewed the management estimates and assumptions especially on productionprofile scenarios and gas prices in respect of impairment of the corporate guarantee incase of prize petroleum international pte ltd.

• further we made enquiries with the technical expert (petroleum engineer) of thesubsidiary to substantiate the production profiles of the production blocks running overthe future periods.

• we considered the Provision made by the company and adequacy of the disclosuresin the financial statements in respect of this matter.

Information other than the standalone financial statements and auditors report thereon

The company's board of directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the managementdiscussion and analysis directors rs report including annexures to directors rs reportcorporate governance and shareholder's information but does not include the standalonefinancial statements and our auditors report thereon. The other information as above isexpected to be made available to us after the date of this auditors 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 financial statements our responsibility is to readthe other information identified above when it becomes available and in doing soconsider whether the other information is materially inconsistent with the standalonefinancial statements or our knowledge obtained during the course of our audit orotherwise appears to be materially misstated. When we read the other information if weconclude that there is a material misstatement therein we are required to communicate thematter to those charged with governance.

Management's responsibility for the standalone financial 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 financial statementsthat give a true and fair view of the financial position financial performance totalcomprehensive income changes in equity and cash flows of the company in accordance withthe ind as and other accounting principles generally accepted in india. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe Provisions of the act for safeguarding 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 accountingrecords relevant to the preparation and presentation of the standalone financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.

In preparing the standalone financial statements 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 unlessmanagement either intends to liquidate the company or to cease operations or has norealistic alternative but to do so.

The board of directors are also responsible for overseeing the company's financialreporting process.

Auditors 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 auditors report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith sas will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.

As part of an audit in accordance with sas we exercise professional judgment andmaintain 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 financial controls relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the act 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.

• 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 auditors report to the related disclosures in thestandalone 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 ourauditors report. However future events or conditions may cause the company to cease tocontinue 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.

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 standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditors report unless law or regulation precludes public disclosure about thematter or when 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.

Other matters

A) we did not audit the financial statements of one branch viz. Visakh refineryincluded in the standalone financial statements of the company whose financial statementsreflect total assets of rs 20994.15 crore as at 31st march 2020 and the totalrevenue of rs 41259.62 crore for the year ended on that date as considered in thebranch's financial statements. The financial statements of this branch have been auditedby the branch auditor whose report dated 05/06/2020 has been furnished to us and ouropinion in so far as it relates to the amounts and disclosures included in respect of thisbranch is based solely on the report of such branch auditor.

B) we refer to note no. 49 in respect of 21 unincorporated joint operations involved inexploration activities of which majority are under relinquishment. The standalonefinancial statements include company's proportionate share in assets and liabilities as onmarch 31 2020 income and expenditure for the year ended march 31 2020 amounting to rs7.65 crore and rs 37.63 crore rs 8.07 crore and rs 31.09 crore respectively. In respectof these joint operations the financial information has been incorporated based on datareceived from the respective operators. Our opinion in respect thereof is solely based onthe management certified information.

We have placed reliance on technical/ commercial evaluation by the management inrespect of categorization of wells allocation of cost incurred on them liability fordecommissioning costs liability for nelp and nominated blocks for under performanceagainst agreed minimum work programme.

Our opinion is not modified in respect of these matters.

Report on other legal and regulatory requirements

1. As required by the companies (auditor's report) order 2016 ('the order') issued bythe central government of india in terms of section 143(11) of the act we give in the annexurei a statement on the matters specified in paragraph 3 and 4 of the order to theextent applicable.

2. As required under section 143(5) of the act based on our audit as aforesaid wegive in the annexure II a report on the directions including additional directionsissued by the comptroller and auditor general of india ('c&ag') action taken thereonand its impact on the accounts and standalone financial statements of the company.

3. As required by section 143(3) of the act based on our audit 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 account as required by law have been kept by thecompany so far as it appears from our examination of those books and proper returnsadequate for the purposes of our audit have been received from branches not visited by us.

C) the report on the accounts dated june 05 2020 of the visakh refinery of thecompany audited under section 143(8) of the act by the branch auditors has been providedto us and has been properly dealt with by us in preparing this report.

D) the balance sheet the statement of profit and loss (including other comprehensiveincome) statement of changes in equity and the statement of cash flow dealt with by thisreport are in agreement with the relevant books of account.

E) i n our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements comply with the indianaccounting standard specified under section 133 of the act read with companies (indianaccounting standard) rules 2015 as amended.

F) as per notification no. G.s.r 463(e) dated june 5 2015 the government companiesare exempted from the Provisions of section 164(2) of the act accordingly we are notrequired to report whether any of the directors of the company are disqualified in termsof Provisions contained in the said section;

G) with respect to the adequacy of the internal financial controls with reference tofinancial statements and the operating effectiveness of such controls refer to ourseparate report in “annexure III”.

H) with respect to the other matters to be included in the auditors report inaccordance with the requirements of section 197(16) of the act as amended: as pernotification no. G.s.r 463(e) dated june 5 2015 the government companies are exemptedfrom the Provisions of section 197 of the act and hence we are not required to report asto whether the remuneration paid by the company to its directors during the year is inaccordance with the Provisions of section 197 of the act.

I) with respect to the other matters to be included in the auditors 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 has disclosed the impact of pending litigations on its financialposition in its standalone financial statements - refer note no. 52 to the standalonefinancial statements read with para 1 2 and 4 of key audit matters here in above.

II. The company has made Provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts - refer note no.52 to the standalone financial statements.

III. There has been no delay in transferring amounts required to be transferred tothe investor education and protection fund by the company.

For r. Devendra kumar & associates For m.p. Chitale & co.
Chartered accountants Chartered accountants
Firm regn. No. 114207w Firm regn. No. 101851w
Sd- Sd-
Neeraj golas Anagha thatte
Partner Partner
Membership no. 074392 Membership no. 105525
Udin: 20074392aaaaaf3488 Udin: 20105525aaaaea4545
Place: mumbai
Date: june 16 2020

Annexure i to the independent auditors report

(referred to in paragraph 1 under ‘report on other legal and regulatoryrequirements section of our report

Of even date to the members of hindustan petroleum corporation limited)

I. In respect of the company's fixed assets:

A) the company has maintained proper records showing full particulars includingquantitative details and situation of property plant and equipment (fixed assets).

B) the property plant and equipment (ppe) of the company other than lpg cylinders andpressure regulators with customers are physically verified by the management in a phasedprogram of three years cycle. In our opinion the programme is reasonable having regard tothe size of the company and the nature of its assets. In our opinion and as per theinformation given by the management the discrepancies observed were not material and havebeen appropriately accounted in the books of account.

C) on the basis of the information to the extent compiled by the company pending thereconciliation of the available records title deeds/lease deeds for immovable propertiesheld as property plant & equipment are not available with the company in the case of 4properties with gross block rs 0.03 crore and in the case of 14 properties withgross block rs 2.27 crore where property tax receipts are held by the company tosubstantiate the title to such properties. In other cases based on verification ofrecords on random basis the title deeds are held in the name of the company. For thepurpose of reporting under this clause where ever title deeds of immovable propertieswere not available we have relied on other substantive evidences like allotment lettersnoting in municipal/revenue records conveying title to the company over the property.

II. According to the information and explanations given to us during the year theinventories have been physically verified at reasonable intervals by the management. Thediscrepancies noticed on physical verification as compared to the book records were notmaterial having regard to size and nature of operations and have been properly dealt within the books of account.

III. As per notification no. G.s.r 463(e) dated june 5 2015 the governmentcompanies are exempted from the Provisions of section 188 of the act in respect ofcontracts or arrangements entered into between the government companies. The company hasnot granted loans secured or unsecured to companies firms limited liabilitypartnerships or other parties covered in the register maintained under section 189 of theact. Hence the question of reporting under sub-clauses (a) (b) & (c) of the clause3(III) of the order does not arise.

IV. The company has not granted any loans or provided any guarantees or security tothe parties covered under section 185 of the act. The company has complied with theProvisions of section 186 of the act in respect of investments made or loans or guaranteeor security provided to the parties covered under section 186 of the act.

V. According to the information and explanations given to us the company has notaccepted any deposits from the public within the meaning of sections 73 to 76 of the actand the rules framed there under. We are informed by the management that no order has beenpassed by the company law board or national company law tribunal or reserve bank of indiaor any court or any other tribunal in this regard.

VI. We have broadly reviewed accounts and records maintained by the companypursuant to rules made by the central government for the maintenance of cost records undersection 148(1) of the act in respect of company's products to which the said rules aremade applicable and are of the opinion that prima facie the prescribed accounts andrecords have been made and maintained. We have however not made a detailed examinationof the records with a view to determine whether they are accurate or complete.

VII. (a) according to the information and explanations given to us and according tothe records of the

Company examined by us in our opinion the company is generally regular in depositingwith the appropriate authorities undisputed statutory dues including provident fundemployees rs state insurance income-tax sales tax service tax goods & service taxduty of custom duty of excise value added tax cess and any other statutory dueswherever applicable.

According to the information and explanations given to us no undisputed amountspayable in respect of aforesaid dues were outstanding as on march 31 2020 for a period ofmore than 6 months from the date they became payable.

(b) according to the information and explanations given to us the particulars ofstatutory dues that have not been deposited on account of disputes are as under:

Statute Forum pending Period to which amount relates Total
Customs Tribunal* 1998-2009 0.92
Customs total 0.92
Central excise Appellate authority** 2000-2018 7.89
High court 1994-2015 18.12
Supreme court 2003-2011 211.38
Tribunal* 1996-2017 1711.69
Central excise total 1949.08
Sales tax/entry tax/octroi Appellate authority** 1976-2017 3205.40
High court 1981-2017 787.53
Supreme court 1998-2003 1.64
Tribunal* 1988-2015 3535.34
Assessing authority*** 1996-2016 2.51
Sales tax/entry tax/octroi total 7532.42
Service tax Appellate authority** 2010-2015 2.76
High court 2004-2006 0.60
Supreme court 2004-2012 3.25
Tribunal* 2002-2015 82.92
Service tax total 89.53
Grand total 9571.95

* tribunal represents sales tax appellate tribunal central excise and service taxappellate tribunal (cestat).

** appellate authority represents deputy commissioner (a) joint commissioner (a)additional commissioner (a) commissioner (a).

*** assessing authority represents assessing officer assistant commissioner deputycommissioner.

VIII. According to the information and explanations given to us the company hasnot defaulted in repayment of loans or borrowing to financial institutions banksgovernment or dues to debenture holders.

Ix. The company has not raised money by way of initial public offer or furtherpublic offer (including debt instruments). According to the information and explanationsgiven to us and on the basis of the records examined by us the company has prima facieapplied the term loan for the purpose for which it was obtained.

X. During the course of our examination of the books and records of the companycarried out in accordance with the generally accepted auditing practices in india andaccording to the information and explanations given to us no instances of material fraudby the company or on the company by its officers and employees have been noticed orreported during the year.

Xi. As per notification no. G.s.r 463(e) dated june 5 2015 the governmentcompanies are exempted from the Provisions of section 197 of the act accordingly thequestion of reporting whether the payment of managerial remuneration by the company is inaccordance with the requisite approvals mandated by the Provisions of section 197 readwith schedule v to the act does not arise.

XII. The company is not a chit fund or a nidhi company. Hence the question ofreporting under clause 3(xii) of the order does not arise.

XIII. As per notification no. G.s.r 463(e) dated june 5 2015 the governmentcompanies are exempted from the Provisions of section 188 of the act in respect ofcontracts or arrangements entered into between the government companies. The company hascomplied with the Provisions of section 177 and section 188 of the act in respect oftransactions with the related parties and the details have been disclosed in thestandalone financial 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 audit.

Xv. According to the information and explanations given to us the company has notentered into any non-cash transactions with directors or persons connected with himcovered under the Provisions of section 192 of the act.

XVI. The company is not required to be registered under section 45-ia of thereserve bank of india act 1934.

For r. Devendra kumar & associates For m.p. Chitale & co.
Chartered accountants Chartered accountants
Firm regn. No.114207w Firm regn. No.101851w
Sd- Sd-
Neeraj golas Anagha thatte
Partner Partner
Membership no. 074392 Membership no. 105525
Udin: 20074392aaaaaf3488 Udin: 20105525aaaaea4545
Place: mumbai
Date: june 16 2020

Annexure II to the independent auditors report

(referred to in paragraph 2 under “report on other legal and regulatoryrequirements” of our report of even date to the members of hindustan petroleumcorporation limited)

Based on the verification of records of the company and based on information andexplanations given to us we give below a report on the directions/ additional directionsissued by the comptroller and auditor general of india in terms of the section 143(5) ofthe act.

Sr. No. Directions under section 143(5) of the act Auditors comments
1. Whether the company has system in place to process all the accounting transactions through it system? If yes the implications of processing of accounting transactions outside it system on the integrity of the accounts along with the financial implications if any may be stated. As per the information and explanations furnished to us the company has an enterprise resource planning erp system in the name of “jd edwards (jde) ” to process the accounting transactions. There are large number of other applications including workflow applications and portals to address specific requirements. Most of these applications/ modules have real time integration with erp (jde) system for smooth accounting/ recording of transactions. As a part of our general review of it controls we have carried out the review of major controls in existence in the applications with regard to integrity of data flowing to jde. Basis our sample verification nothing significant has come to our attention that causes us to believe that there are material gaps pertaining to it controls.
Further we have also relied on the exercise conducted by the management with the help of consultant to check the design of internal controls and its operating effectiveness including the it systems and control.
Further management has conducted the system audit with the help of the consultants which has not reported any significant gaps.
Apart from above there are few other accounting process being undertaken through excel spreadsheet like inventory valuation interest calculation of treasury funding activities matching of open credits in the case of trade accounts receivables matching of suppliers accounts wherein sufficient controls for data integrity have been observed in our review of general it controls. There is however a need of automation of such processes to ensure complete data integrity.
2. Whether there is any restructuring of an existing loan or cases of waiver/ write off of debts/ loans/ interest etc. Made by a lender to the company due to the company's inability to repay the loan? If yes the financial impact may be stated. No such instances have been noticed during the financial year 2019-20.
3. Whether funds received/ receivable for specific schemes from central/ state agencies were properly accounted for/ utilized as per its term and conditions? List the cases of deviation. As per the information and explanations furnished to us the funds received/receivable by the company for specific schemes from central/state agencies to the extent these are recorded in the books of accounts and records produced before us were properly accounted. We are informed that in the case of schemes of central government i.e. Pmuy dbtl other subsidies etc. Claims for reimbursements duly certified by chartered accountants are filed with petroleum planning and analysis cell (ppac) for reimbursement and hence these are not considered as grants and no utilisation certificates are filed. In the case of certain state specific scheme utilisation certificates are furnished by the company separately to the respective agencies. During the course of our test checks of the records available at head office of the company in respect of such claims for reimbursement recorded in the books which are approved by ppac nothing has come to our notice that causes us to believe that there has been any violation of terms and conditions in relation to these claims. The separate audit of these claims filed with ppac is carried out by separate firms of chartered accountants.

Additional directions issued by c&ag as applicable to hindustan petroleumcorporation limited for the year 2019-20

Sr. No. Additional directions under section 143(5)of the act Auditors comments
1. Whether any investments have been made by hpcl's provident fund and post-retirement medical benefit (prmb) trust in il&fs? If so the exposure and liabilities of the company in the capacity of principal employer and probability of liabilities in future years with regard to exposure for investments made in il&fs or group companies by hpcl pf trust and hpcl prmb trust may be elaborated. Hpcl provident fund trust and post retirement benefit trust have investments in the non convertible debentures of il&fs amounting to rs 45.00 crore & rs 50.00 crore respectively. Based on best estimates of the management the probable liability to the company as employer towards shortfall in interest and principal obligation has been assessed by the management and an amount of rs 31.50 crore & rs 35.00 crore respectively has been provided for during the year. Reference is also invited to observation in para (d) of emphasis of matter of our audit report and note no. 68 a & 68 h of the standalone financial statements.

 

For r. Devendra kumar & associates For m.p. Chitale & co.
Chartered accountants Chartered accountants
Firm regn. No.114207w Firm regn. No.101851w
Sd- Sd-
Neeraj golas Anagha thatte
Partner Partner
Membership no. 074392 Membership no. 105525
Udin: 20074392aaaaaf3488 Udin: 20105525aaaaea4545
Place: mumbai
Date: june 16 2020

Annexure III to the independent auditors report

(referred to in paragraph 3(g) under “report on other legal and regulatoryrequirements” of our report of even date)

Report on the internal financial controls with reference to financial statements underclause (i) of sub-section 3 of section 143 of the companies act 2013 (“theact”)

We have audited the internal financial controls with reference to financial statementsof hindustan petroleum corporation limited ('the company') as of march 31 2020 inconjunction with our audit of the standalone ind as financial statements of the companyfor the year ended on that date.

Management's responsibility for internal financial controls

The company's management is responsible for establishing and maintaining internalfinancial controls based on the internal financial control with reference to standalonefinancial statements criteria established by the 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 and maintenance ofadequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of its business including adherence to company's policiesthe safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the 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 and asprescribed under section 143(10) of the companies act 2013 to the extent applicable toan audit of internal financial controls. Those standards and the guidance note requirethat 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 tostandalone financial statements included obtaining an understanding of internal financialcontrols with reference to standalone financial statements assessing the risk that amaterial weakness exists and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. The procedures selecteddepend on the auditors judgment including the assessment of the risks of materialmisstatement of 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 controls with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of standalone ind as financial statements for externalpurposes in accordance with generally accepted accounting principles. A company's internalfinancial control over financial reporting includes those policies and procedures that (1)pertain to the maintenance of records that in reasonable detail accurately and fairlyreflect 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 thestandalone ind as financial 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.

Opinion

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 march 312020 based on the criteria established by the 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.

Other matters

Our aforesaid report 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 branch office of the company viz. Visakh refinery audited by thebranch auditor appointed under section 143(8) of the act is based on the report of thebranch auditor which has been sent to us and has been properly dealt with by us inpreparing this report.

For r. Devendra kumar & associates For m. P. Chitale & co.
Chartered accountants Chartered accountants
Firm regn. No.114207w Firm regn. No.101851w
Sd- Sd-
Neeraj golas Anagha thatte
Partner Partner
Membership no. 074392 Membership no. 105525
Udin: 20074392aaaaaf3488 Udin: 20105525aaaaea4545
Place: mumbai
Date: june 16 2020

.