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Mahanagar Telephone Nigam Ltd.

BSE: 500108 Sector: Telecom
NSE: MTNL ISIN Code: INE153A01019
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OPEN 12.70
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VOLUME 126491
52-Week high 20.80
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Mkt Cap.(Rs cr) 776
Buy Price 12.30
Buy Qty 468.00
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OPEN 12.70
CLOSE 12.46
VOLUME 126491
52-Week high 20.80
52-Week low 11.71
P/E
Mkt Cap.(Rs cr) 776
Buy Price 12.30
Buy Qty 468.00
Sell Price 12.32
Sell Qty 361.00

Mahanagar Telephone Nigam Ltd. (MTNL) - Auditors Report

Company auditors report

TO THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LIMITED

Report on the Standalone Ind-AS Financial Statements

We have audited the accompanying standalone Ind-AS financial statements of MAHANAGARTELEPHONE NIGAM LIMITED ("the Company') which comprise the Balance Sheet as at31st March 2018 and the Statement of Profit and Loss (including Other ComprehensiveIncome) the Cash Flow Statement and the

Statement of Changes in Equity for the year then ended and a summary of significantaccounting policies and other explanatory information.

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 the Stateof Affairs (financial position) profit or loss (financial performance including othercomprehensive income) cash flows and changes in equity of the Company in accordance withthe accounting principles generally accepted in India including the Indian AccountingStandards (Ind- AS) prescribed under Section 133 of the Act. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding the assets of the Company and for preventing and detecting fraudsand other irregularities selection and application of appropriate accounting policies;making judgments and estimates that are reasonable and prudent; and design implementationand maintenance of adequate internal financial controls that are operating effectivelyfor ensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the standalone Ind-AS financial statements that give atrue and fair view and are free from material misstatement whether due to fraud or error.

Auditor's Responsibility

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 there under.

We conducted our audit of the standalone Ind-AS financial statements in accordance withthe Standards on

Auditing specified under Section 143(10) of the Act. Those Standards require that wecomply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the standalone Ind-AS financial statements are free from materialmisstatement.

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 material misstatementof the standalone Ind-AS financial statements whether due to fraud or error. In makingthose risk 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 the accounting policies used andthe reasonableness of accounting estimates made by the 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 for Qualified Opinion

(i) The Net Worth of the Company has been fully eroded; The Company has incurred netcash loss during the current year ended March 31 2018 as well as in the previous year andthe current liabilities exceeded the current assets substantially.

Furthermore Department of Public Enterprises vide its Office Memorandum No.DPE/5(1)/2014-Fin. (Part-IX-A) has classified the status of the Company as "IncipientSick CPSE". Department of Telecommunication (DOT) has also confirmedthe status videits issue no. I/3000697/ 2017 through file no. 19-17/2017 SU-II. However the standaloneInd-AS financialstatements of the Company have been prepared on a going concern basiskeeping in view the majority stake of the Government of India and accompanying managementnote. (Also refer note no. 76 to the standalone Ind-ASfinancialstatements)

(ii) Bharat Sanchar Nigam Limited (BSNL): a) The Company has certain balancesreceivables from and payables to Bharat Sanchar Nigam Limited (BSNL). The net amountrecoverable of Rs 3387.15 Crores is subject to reconciliation and confirmation. In viewof non reconciliation and non confirmationand also in view of various pending disputesregarding claims and counter claims we are not in a position to ascertain and comment onthe correctness of the outstanding balances and resultant impact of the same on thestandalone Ind-AS financial statements of the Company. (Also refer point no. (a) of noteno. 63 to the standalone Ind-AS financial statements) b) Income arising on account ofRevenue Sharing with BSNL in respect of lease circuits provided has not been recognized interms of Memorandum of Understanding (MOU) between BSNL and MTNL. As per MOU revenue andexpenditure will be based on the price offered to the customers after applying thediscount if any at the time of acquiring the business. However Revenue has beenrecognized on the basis of available information which is either based on the Company

Card Rates or Old rates of BSNL. In Some Cases BSNL has given the information inrespect of updated rated but the same has not been considered at the time of booking ofrevenue sharing with BSNL. In the absence of relevant updated records we are not in aposition to comment on the impact thereof on the standalone Ind-AS financial statements.c) The Company has not provided a provision for doubtful claims in respect of lapsedCENVAT Credit due to non-payment of service tax to service providers within the period of180 days and due to transition provision under Goods and Service Tax (GST) where theaforesaid

CENVAT credit amounting to Rs 115.61 Crores has not been carried forward or ineligiblecredits amounting to Rs 50.26 Crores excessively carried forward to TRANS-1 under GST lawsresulting in overstatement of current assets and understatement of loss to that extent. d)The Company has recognized Income and Expenditure arising on account of revenue sharingwith BSNL excluding of Service Tax and Goods and Service Tax (GST) where the demandnote/invoices are raised to and received from BSNL inclusive of the aforesaid taxes butthe accounting treatment of the aforesaid taxes are being recognized by the Company at thetime of settlement with BSNL. In the absence of any information/working the impactthereof on the standaloneInd-ASfinancial quantified . statements cannot be ascertained and

(iii) The Company has certain balances receivables from and payables to Department ofTelecommunication (DOT). The net amount recoverable of Rs 6464.15 Crores is subject toreconciliation and confirmation. In view of non reconciliation and non confirmation weare not in a position to ascertain and comment on the correctness of the outstandingbalances and resultant impact of the same on the standalone

Ind-AS financial statements of the Company. (Also refer point no. (a) of note no.Ind-AS financial statements).

(iv) Up to financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNLwas worked out on accrual basis as against the terms of License agreements requiringdeduction for expenditure from the gross revenue to be allowed on actual payment basis.From financial year 2012-13 the license fee payable to the DOT has been worked outstrictly in terms of the license agreements. The

Company continues to reflect the difference in license fee arising from working out thesame on accrual basis as aforesaid for the period up to financial year 2011-12 by way ofcontingent liability of Rs 140.36 Crores instead of actual liability resulting inunderstatement of current liabilities and understatement of loss to that extent. (Alsorefer note no. 58 to the standalone Ind-AS financial statements).

(v) The Company continues to allocate the overheads towards capital works in a mannerwhich is not in line with the accepted accounting practices and Indian Accounting Standard16 "Property Plant and Equipment" prescribed under Section 133 of the Act thesame results into overstatement of capital work in progress/ property plant and equipmentand understatement of loss. The actual impact of the same on the standalone Ind-ASfinancial statements for year is not ascertained and quantified. (Also refer note no. 36and 39 to the standalone Ind-AS financial statements).

(vi) Except for the impairment loss of assets of CDMA units provided in earlier yearsno adjustment has been considered on account of impairment loss if any during the yearwith reference to Indian Accounting Standard 36 "Impairment of Assets"prescribed under Section 133 of the Act. In view of uncertainty in achievement of futureprojections made by the Company we are unable to ascertain and comment on the provisionrequired in respect of impairment in carrying value of cash generating units and itsconsequent impact on the loss for the year accumulated balance of reserve and surplus andalso the carrying value of the cash generating units. (Also refer note no. 70 to thestandalone Ind-AS financial statements).

(vii) The Company does not follow a system of obtaining confirmations and performingreconciliation of balances in respect of amount receivables from trade receivablesdeposits with Government Departments and others claim recoverable from operators andothers parties and amount payables to trade payables claim payable to operators andamount payable to other parties. Accordingly amount receivables from and payables to thevarious parties are subject to confirmation and reconciliation. Pending such confirmationand reconciliations the impact thereof on the standalone Ind-AS financial statements arenot ascertainable and quantifiable. (Also refer note no. 65 to the standalone Ind-ASfinancial statements).

(viii) Dues from the Operators are not taken into account for making provision fordoubtful debts. In the absence of any working the impact thereof on the standalone Ind-ASfinancial statements cannot be (Also refer clause no. (k) of note no. 3 to the standaloneInd-AS financial ascertainedandquantified. statements).

(ix) (a) In Delhi Wireless Unit reconciliation of balances of subscriber's deposits asper subsidiary records with financial books (WFMS) is still in progress and the impact ifany of the differences arising out of such reconciliation on standalone Ind-ASfinancialstatements cannot be ascertained and quantified at present.

(b) Unlinked credit of Rs 37.68 Crores on account of receipts from subscribers againstbilling by the Company which could not be matched with corresponding receivables isappearing as liabilities in the balance sheet. To that extent trade receivables andcurrent liabilities are overstated. (Also refer note no. 64 and 75 to the standaloneInd-AS financial . statements) (x) Property Plant and Equipment are generally capitalizedon the basis of completion certificates issued by the engineering department or billsreceived by financedepartment in respect of bought out capital items or inventory issuedfrom the Stores. Due to delays in issuance of the completion certificates or receipt ofthe bills or receipt of inventory issue slips there are cases where capitalization of theProperty Plant and Equipment gets deferred to next year. The resultant impact of the sameon the statement of profit and loss by way of depreciation and amount of Property Plantand Equipment capitalized in the balance sheet cannot be ascertained andquantified.

(x) Property Plant and Equipment are generally capitalized on the basis of completioncertificates issued by the engineering department or bills received by financedepartmentin respect of bought out capital items. Due to delays in issuance of the completioncertificates or receipt of the bills there are cases where capitalization of theProperty Plant and Equipment gets deferred to next year. The resultant impact of the sameon the statement of profit and loss by way of depreciation and amount of Property Plantand Equipment capitalized in the balance sheet cannot be ascertained and quantified (xi)Certain Land and Buildings transferred to MTNL from DOT in earlier years have beenreflected as leasehold. In the absence of relevant records we are not in a position tocomment on the classification capitalization and amortization of the same as leaseholdand also the consequential impacts if any of such classificationcapitalization andamortization not backed by relevant records. In the absence of relevant records impact ofsuch classification on the standalone Ind-AS financial be ascertained and quantified.

(xii) Department of Telecommunication (DOT) had raised a demand of Rs 3313.15 Crores in2012-13 on account of one time charges for 2G spectrum held by the Company for GSM andCDMA for the period of license already elapsed and also for the remaining valid period oflicense including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA has been revised by Rs 107.44Crores on account of rectification of actual usage. Also as explained pending finality ofthe issue by the Company regarding surrender of a part of the spectrum crystallization ofissue by the DOT in view of the claim being contested by the Company and because of thematter being sub-judice in the Apex Court on account of dispute by other private operatorson the similar demands the amount payable if any is indeterminate. Accordingly noliability has been created for the demand made by DOT on this account and Rs 3205.71Crores has been disclosed as contingent liability.

In view of the above we are not in a position to comment on the correctness of thestand taken by the Company and the ultimate implications of the same on the standaloneInd-AS financial statements of the Company. (Also refer note no. 57 to the standaloneInd-AS financial statements). (xiii) In Mumbai Unit the Company has been awarded a longduration contract from Larsen & Turbro (L&T) for design developmentimplementation & Maintenance of CCTV based surveillance system for Mumbai City. TheCompany hasnotrecognizedprofit/losson the basis of percentage of completion method ofaccounting as prescribed under Indian Accounting Standard (Ind-AS) 18 on"Revenue". In the absence of any working/detail we are not in a position tocomment on the impact thereof on the standalone Ind-AS financial statements. (Also refernote no. 77 to the standalone Ind-AS financial statements).

(xiv) During the year the Company has booked an income amounting to Rs 136.74 Croresas Other Income on account of difference between the estimated amounts of Pension PayoutOrders (PPO) accounted for in the past years pertaining to Delhi Units and actual arrivedon completion of issuance of PPO's by the Department of Telecommunication (DOT)Government of India (GOI). Similar effect of the same in respect of Mumbai Units has notbeen given during the year ended 31st March 2018 due to non-finalizationof the actualreports by the Company. In the absence of relevant records we are not in a position tocomment on the impact thereof on the standalone Ind-AS financial statements. (Also refernote no. 78 to the standalone Ind-AS financial statements).

In the absence of information the effect of which can't be quantified we are unableto comment on the possible impact of the items stated in the point nos. (i) (ii)(a)(ii)(b) (ii)(d) (iii) (v) (vi) (vii) (viii) (ix)(a) (x) (xi) (xii) (xiii) and(xiv) on the standalone Ind-AS financial statements of the Company for the year ended on31st March 2018.

Qualified Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effects of the matters described in the Basis forQualified Opinion 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 IndianAccounting Standards (Ind-AS) of the state of affairs (financial position) of the Companyas at 31st March 2018 and its loss (financial performance including other comprehensiveincome) its cash flows and the changes in equity for the year ended on that date.

Emphasis of Matters

We draw attention to the following notes on the standalone Ind-AS financial statementsbeing matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis byus. Our opinion is not qualified in respect of these matters:

(i) Impairment in the value of investments in subsidiary joint ventures andassociates are considered temporary in nature by management and no provision forimpairment in value of these investments has been done.

(ii) Refer note no. 61 to the standalone Ind-AS financial statements regarding theadequacy or otherwise of the provision and / or contingency reserve held by the Companywith reference to pending dispute with the Income Tax Department before the Hon'ble Courtsregarding deduction claimed by the

Company u/s 80 IA of the Income Tax Act1961.

(iii) Point no. (a) of note no. 62 to the standalone Ind-AS financial statementsregarding accounting of claims and counter claims of MTNL with M/S M&N PublicationsLtd. in a dispute over printing publishing and supply of telephone directories for MTNLin the year when the ultimate collection / payment of the same becomes reasonably certain.

(iv) Classification of trade receivables as unsecured without considering the securitydeposit which the

Company has received from the subscribers. (Also refer note no. 15 to the standaloneInd-AS financial statements).

(v) Amount receivable from BSNL & Other Operators have been reflected as loans andother financial assets instead of bifurcating the same into trade receivables and otherfinancial assets. (Also refer note no. 9 15 and 18 to the standalone Ind-AS financialstatements). (vi) Disclosure of consumption of imported and indigenous stores and sparesand percentage to the total consumption as required by Division II of Schedule III of theCompanies Act 2013 has not been made by the Company in the standalone Ind-AS financialstatements.

(vii) The Amounts recoverable from Department of Telecommunication (DOT) in respect ofsettlement of General Provident Fund (GPF) of Combined Service Optee absorbed employees inMTNL; wherein DOT has not accepted/sanctioned the full amount of GPF including interestthereon claimed of the Company in respect of which correspondence in going on between theCompany and DOT are continued to be shown as recoverable from DOT and payable to GPF inthe standalone Ind-AS financial statements and further explained in point no. (d) of Noteno. 68 to the standalone Ind-AS financial statements.

(viii) The payables towards license fees and spectrum usage charges have been adjustedwith excess pension payouts to Combined Pensioners Optees recoverable from DOT in respectof which matter is under consideration and correspondence in going on between the Companyand DOT.

(ix) The License agreement between Company and DOT does not have any guidance on changein method of calculation of Adjusted Gross Revenue (AGR) due to migration to Ind-AS fromI-GAAP.

Provisioning and payment of liability in respect of license fees and spectrum usagecharges payable to DOT has been done on the basis of Ind-AS based financial statements.The amount of difference in computation of Adjusted Gross Revenue (AGR) is underconsideration of DOT.

(x) In certain cases of freehold and leasehold land the company is having title deedswhich are in the name of the Company but the value of which are not lying in books ofaccounts of the Company. 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 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 inparagraphs 3 and 4 of the Order to the extent applicable.

2. As required by Section 143(5) of the Act we give in Annexure – ‘B' astatement on the matters specified by the Comptroller and Auditor-General of India for theCompany.

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

(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit except for thematters described in point nos. (i) (ii)(a) (ii)(b) (ii)(d) (iii) (v) (vi) (vii)(viii) (ix)(a) (x) (xi) (xii) (xiii) and (xiv) of the paragraph on Basis ofQualified Opinion given above;

(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 except for our commentsunder the head ‘Basis for Qualified Opinion' stated above;

(c) The Balance Sheet the Statement of Profit and Loss (including Other ComprehensiveInformation) the Cash Flow Statement and the Statement of Changes in Equity dealt with bythis Report are in agreement the books of account;

(d) In our opinion and based on our comments in point nos. (i) (ii)(c) (iv) (v)(vi) (x) (xi) (xii) (xiii) and (xiv) of the paragraph on Basis for Qualified Opiniongiven above the aforesaid standalone

Ind-AS financial statements comply with the Indian Accounting Standards prescribedunder Section 133 of the Act except for Ind-As 1 regarding Presentation of FinancialStatements Ind-AS 16 regarding Property Plant and Equipment Ind-AS 17 regarding LeasesInd-AS 18 regarding Revenue Ind-AS 36 regarding Impairment of Assets and Ind-AS 37 onProvisions Contingent Liabilities and Contingent Assets;

(e) In view of the Government notification No. GSR 463 (E) dated 5th June 2015government companies are exempt from the applicability of Section 164 (2) of the Act; (f)With respect to the adequacy of internal financial controls over financial reporting ofthe Company and operating effectiveness of such controls refer to our separate report in "AnnexureC":

(g) The qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above.

(h) 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 in our opinionand to the best of our information and according to the explanations given to us; i. theCompany has disclosed the impact of pending litigations wherever quantifiable on itsfinancial position in its standalone Ind-AS financial statements. Refer note no. 48 to thestandalone Ind-AS financial statements. ii. the Company is not required to make anyprovision for any material foreseeable losses as required under applicable laws oraccounting standards on long terms contracts. Also the Company is not dealing intoderivatives contracts. Refer note no. 74 to the standalone Ind-AS financial statements.iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund. Refer note No. 73 to the standalone Ind-AS financialstatements.

ANNEXURE-A ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT

REFERRED TO IN OUR INDEPENDENT AUDITORS' REPORT OF EVEN DATE TO THE MEMBERS OFMAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE IND-AS FINANCIAL STATEMENTS FOR THEYEAR ENDED 31ST MARCH 2018.

(i) (a) Delhi unit has maintained records of fixed assets. However in MS unit-Delhiidentification numbers are not mentioned. It has been noticed that records of the EstatesDepartment in respect of land and building do not match with the records as per financialbooks. In case of Mumbai units (both basic and WS) fixed assets registers have beenmaintained w.e.f. 01.04.2002. However the fixed assets records maintained by the Mumbaiunits are not updated and reconciled with the financial records. Also identificationnumbers are not mentioned in respect of most of the items. Corporate office has maintainedfixed assets records showing full particulars including quantitative details and situationof fixed assets.

(b) As per the accounting policy of the Company fixed assets are required to bephysically verified by the management on rotation basis once in three years which in ouropinion is reasonable and adequate in relation to the size of the Company and the natureof its business. As certified by the management Office Machinery and Equipments LeasedPremises and Cables were physically verified in accordance with programme of verificationby the management during the year and no material discrepancies were noticed on suchverification. The accuracy reliability and completeness of the fixed assets verificationprocedure could not be verified by us.

(c) Title deeds of most of the immovable properties recorded in the books of theCompany are not held in the name of the Company. Details of such properties are givenhereunder:

(Rs in Crores)
PARTICULARS DELHI UNIT MUMBAI UNIT
Free Hold Land
-Total Number of Cases 1 23#
-Gross Block 0.06 4.15
Lease Hold Land
-Total Number of Cases 89* 12#
-Gross Block 219.53 2.65
-Net Block 152.03 1.78
Building
-Total Number of Cases 53** 3##
-Gross Block 32.37 1.53
-Net Block 3.89 0.76

In respect of Delhi Units:

* In respect of 43 cases out of 89 where the lease hold land acquired from DOT havebeen capitalized by MTNL and no data is available in respect of depreciation and net WDVof such assets as the same is not identifiable from the fixed assets register.

** No information is available in respect of lease hold buildings allotted by thevarious govt. authorities to MTNL but the same has been capitalized by MTNL and due to nonavailability of information the aforesaid cases has not been included in the abovedetails.

In respect of Mumbai Units:

# In respect of 12 cases where the possession of freehold and leasehold land are lyingwith the Company but the value of which are not lying in books of accounts of Mumbaiunits. Out of which tile deeds of 1 freehold lands and 6 leasehold lands are not in thename of the Company.

## In respect of 5 cases where the possession of freehold and leasehold buildings arelying with the Company but the value of which are not lying in books of accounts of Mumbaiunits. Out of which tile deeds of 1 leasehold building are not in the name of the Company.Further in most of the cases value of the immovable properties as per title deeds arenot matching with books of accounts and in respect of 9 cases court cases are pendingwith the various authorities out of which title deed of 1 freehold land and 1 leaseholdland are not in the name of the Company.

Furthermore in respect of 9 cases of freehold and leasehold land where total areameasuring 21160 square meter have been encroached by the various persons in respect ofwhich matter is either pending in court or perusing with the various authorities forclearing the encroachment. Out of total 9 cases title deed of 2 freehold land measuring1840 square meter and 1 leasehold land measuring 200 square meters are not in the name ofthe Company.

(ii) In respect of Delhi Units:

In our opinion physical verification of inventory has been conducted by the managementat reasonable intervals except in case of Sub-stores of Basic Unit Delhi Store ofWireless Unit Delhi.

In respect of Mumbai Units:

In our opinion physical verification of inventory has been conducted by the managementat reasonable intervals except in case of Area Stores of East-1 HQ Transmission andPlanning Units ANC Area Stores and Sub-Stores of Mumbai Basic Units and inventory ofWireless Unit Mumbai. Further reconciliation of the physically verified inventory withbooks of accounts has not been done by the units except by Material Management (MM) Unit.

Discrepancies noticed on physical verification of inventory as compared to book recordswere not material and have been properly dealt with in the books of accounts.

(iii) The Company has not granted any secured or unsecured loans to companies firmslimited liability partnerships or other parties covered in the register maintained undersection 189 of the Companies Act 2013 (‘the Act'). Thus paragraph 3(iii) of theOrder is not applicable (iv) The Company has not entered any transaction involvingcompliance with the provisions of Section 185 and 186 of the Companies Act 2013. Thusparagraph 3(iv) of the Order is not applicable (v) The Company has not accepted anydeposits from the public within the meaning of Section 73 to Section 76 or any otherrelevant provisions of the Companies Act 2013 or rules framed there under.

(vi) As per information and explanation given to us Company is required to maintainthe cost records under Section 148(1) of the Companies Act 2013. As explained the Companyhas not yet maintained the required cost records for year 2017-18.

(vii) (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company amounts deducted/ accrued in the books ofaccount in respect of undisputed statutory dues including provident fund employees' stateinsurance income tax sales tax service tax duty of customs duty of excise valueadded tax cess and other material statutory dues wherever applicable have generallybeen regularly deposited with the appropriate authorities though there has been a slightdelay in few cases. According to the information and explanations given to us noundisputed amounts payable in respect of provident fund employees' state insuranceincome tax sales tax service tax duty of customs duty of excise value added tax cessor other statutory dues were in arrears as at 31st March 2018 for a period of more thansix months from the date they became payable except in respect of the following:

Name of the Statue Nature of the Dues Amount (in Rs) Period to which the amount relates Due Date Date of Payment
Luxury Tax Act 1987 Luxury Tax 1149680 April 2017 to June 2017 21st day of the following month/quarter Amount has not been paid
TOTAL 1149680

The amounts of Luxury Tax collected and not deposited are lying with the company. Thesame should be deposited along with interest. The amount of Interest has not been providedin the financial statements. Considering the quantum of irregularity the same has notbeen considered in the basis of qualified opinion paragraph.

(b) According to the information and explanations given to us there are no dues ofincome tax sales tax service tax duty of customs duty of excise value added tax whichhave not been deposited with the appropriate authorities on account of any dispute exceptfor the following dues:

In respect of Delhi Units: i. Sales Tax

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Delhi Value Added Tax Act 2004 12.21 2007-08 Delhi Value Added Tax Tribunal
Delhi Value Added Tax Act 2004 62.60 2009-10 & 2010- 11 (CWG 2010) Delhi Value Added Tax Tribunal
Central Sales Tax Act 1956 0.04 2012-13 Addl. Comm. Sales Tax
TOTAL 74.85

ii. Service Tax

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Finance Act 1994 8.45 2005-06 Commissioner of Central Excise and Service Tax
Finance Act 1994 22.13 2006-08 Custom Excise and Service Tax Appellate Tribunal
Finance Act 1994 0.08 2000-03 Commissioner of Central Excise and Service Tax
Finance Act 1994 0.71 2008-12 Commissioner of Central Excise and Service Tax
TOTAL 31.37

iii. Labour Cess

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Building and other Construction Workers Welfare Cess Act 1996. 9.73 1996 to 2001 Deputy Labour Commissioner

In respect of Mumbai Basic Units i. Income Tax:

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Income Tax Act 1961 1.03 2000-08 Hon'ble Supreme Court of India
Total 1.03

ii. Sales Tax:

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Bombay Sales Tax Act 1959 0.17 1993-94 Maharashtra Sales Tax Tribunal Mumbai
Bombay Sales Tax Act 1959 5.27 1996-97 Hon'ble High Court of Bombay
Bombay Sales Tax Act 1959 351.85 1997-98 Hon'ble Supreme Court of India
Bombay Sales Tax Act 1959 216.01 2003-04 Maharashtra Sales Tax Tribunal Mumbai
Bombay Sales Tax Act 1959 101.32 2004-05 Joint Commissioner of Sales Tax Mumbai
Bombay Sales Tax Act 1959 14.97 2009-10 Joint Commissioner of Sales Tax Mumbai
Bombay Sales Tax Act 1959 6.11 2011-12 Joint Commissioner of Sales Tax Mumbai
Bombay Sales Tax Act 1959 26.47 2012-13 Joint Commissioner of Sales Tax Mumbai
Total 722.16

iii. Luxury Tax

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Luxury Tax Act 1987 0.64 2007-08 Joint Commissioner of Sales Tax (Appeal) - IV Mumbai
Luxury Tax Act 1987 1.11 2008-09 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Luxury Tax Act 1987 0.26 2009-10 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Luxury Tax Act 1987 0.51 2010-11 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Luxury Tax Act 1987 0.93 2011-12 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Luxury Tax Act 1987 2.17 2012-13 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Total 5.63

iv. Service Tax:

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Finance Act 1994 0.07 2013-14 Custom Excise and Service Tax Appellate Tribunal
Total 0.07

In respect of Mumbai MS Unit:

Central Excise:

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending
Central Excise Act 1944 0.29 2004-05 Commissioner of Central Excise
Central Excise Act 1944 0.32 2006-07 Commissioner of Central Excise
Central Excise Act 1944 0.53 2013-14 Commissioner of Central Excise
Central Excise Act 1944 0.11 2006-07 Commissioner of Central Excise
Central Excise Act 1944 2.73 2005-06 Commissioner of Central Excise
Total 3.62

In respect of Corporate Office:

Income Tax:

Name of the Statute Amount (Rs in Crores) (Net) Period to which amount relates Forum where the dispute is pending Remarks
Income Tax Act 1961 0.00 1998-2010 Hon'ble High Court of Delhi Income Tax Appellant Tribunal and Commissioner of Income Tax (Appeal) Total disputed demand of Rs 775.75 Crores either paid by the Company or deducted by the Income Tax Department from refund due to the Company
Total 0.00

(viii) The Company has not defaulted in the repayment of loans or borrowings to afinancial institution bank Government or dues to debenture holders.

(ix) The Company has not raised any money by way of initial public offer or furtherpublic offer (including debt instruments) during the year and term loans have beengenerally applied for the purposes for which they were raised.

(x) Based on audit procedures applied and according to the information and explanationsgiven to us we report that no fraud on or by the Company has been noticed or reportedduring the course of our audit for the year ended on 31st March 2018.

(xi) In view of the Government notification No. GSR 463 (E) dated 5th June 2015;Government Companies are exempt from the applicability of Section 197 of the Companies Act2013. Accordingly clause 3 (xi) of the Order is not applicable to the Company.

(xii) In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company. Hence Clause 3 (xii) of the Order is not applicable tothe Company.

(xiii) In our opinion and as per the information and explanation given to us thecompany has not entered into any transaction requiring compliance with Section 177 and 188of the Companies Act 2013. Hence Clause 3 (xiii) of the Order is not applicable to theCompany.

(xiv) Based on the information and explanation given to us the Company has not madeany preferential allotment or private placement of shares or fully or partly convertibledebentures during the year under review requiring compliance with Section 42 of theCompanies Act 2013. Hence Clause 3 (xiv) of the Order is not applicable to the Company.

(xv) Based on the information and explanation given to us the Company has not enteredinto any non-cash transactions with directors or persons connected with him. Hence Clause3 (xv) of the Order is not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to usCompany is not required to register under Section 45 IA of the Reserve Bank of India Act1934. Hence Clause 3 (xvi) of the Order is not applicable to the Company.

ANNEXURE - B

ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT

REFERRED TO IN OUR INDEPENDENT AUDITORS' REPORT OF EVEN DATE TO THE MEMBERS OFMAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE IND-AS FINANCIAL STATEMENTS FOR THEYEAR ENDED 31ST MARCH 2018.

Directions indicating the areas to be examined by the Statutory Auditors during thecourse of audit of annual accounts of Mahanagar Telephone Nigam Limited (Standalone)for the year 2017-18 issued by the Comptroller & Auditor General of India undersection 143(5) of the Companies Act 2013.

Based on the information and explanations given to us we report as under::

Areas Examined Observation / Finding
1 Whether the company has clear title/lease deeds for freehold and leasehold respectively? If not please state the area of freehold and leasehold land for which title/lease deeds are not available. The Company does not have clear title/lease deeds in a number of cases. Summarized position of such cases is as under :
DELHI UNIT
The Company does not have clear title deeds in respect of 1 land property at Minto Road Delhi and classified as freehold. Also Company does not have any lease deed in respect of 89 cases of land properties spread across Delhi and classified as Leasehold.
MUMBAI UNIT
The Company does not have clear title deeds in respect of 23 cases of land properties spread across Mumbai and classified as freehold. Also Company does not have lease deeds in respect of 12 cases of land properties spread across Mumbai and classified as Leasehold.
2 Please report whether there are any cases of waiver / write off of debts / loans / interest etc. if yes the reason therefore and the amount involved. The details of cases of waiver / write off of debts / loans / interest by the Company during the year are as under:
Particulars (Rs in Crores)
Write off of debts 22.73 Due to non recoverability Waiver of penalty & Nil interest
TOTAL 22.73

ANNEXURE - C

ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT

(Referred to in paragraph (f) under ‘Report on Other Legal and RegulatoryRequirements' section of our report of even date)

REPORT ON THE INTERNAL FINANCIAL CONTROLS UNDER CLAUSE (I) OF SUB-SECTION 3 OF SECTION143 OF THE COMPANIES ACT 2013 ("THE ACT")

We have audited the internal financial controls over financial reporting of MahanagarTelephone Nigam Limited ("the Company") as of 31st March 2018 in conjunctionwith our audit of the standalone Ind-AS financial statements of the Company for the yearended 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 control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over

Financial Reporting issued by the Institute of Chartered Accountants of India(‘ICAI'). These responsibilities include the design implementation and maintenanceof adequate 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 Companies Act 2013.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal

Financial 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 over financialreporting was established and maintained and if such controls operated effectively in allmaterial respects. Our audit involves performing procedures to obtain audit evidence aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgment including the assessment of therisks of material misstatement of the standalone Ind-AS financial statements whether dueto fraud or error. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Company's internal financialcontrols system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of standalone Ind-AS financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of standalone Ind-AS financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of thecompany; and

(3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the company's assets that could have amaterial effect on the standalone Ind-AS financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting 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 over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit thefollowing material weaknesses have been identified in the operating effectiveness of theCompany's internal financial controls over financial reporting as at March 31 2018:

(i) The Company does not have an appropriate internal control system for identificationof overheads to be capitalized with the cost of Property Plant and Equipment which couldpotentially result into under /over capitalization of Property Plant and Equipment andcorresponding impact on the operational results of the Company. (ii) The Company does nothave appropriate internal control system for ensuring capitalization of Property Plantand Equipment as and when the same is ready for use due to delayed issue of completionengineering department or due to delay in receipt of bills from the vendors for bought outcertificate items or due to delay of inventory issue slip by stores. Hence the date ofcapitalization is not reliable. This could potentially result into delayed capitalizationand corresponding impact on the operational results due to lower charge of depreciation.

(iii) The Company does not have appropriate internal control system for ensuringde-commissioning and de-capitalization of Property Plant and Equipment in respect ofassets which are no longer in use and held for disposal as scrap. This could potentiallyresult into overstatement of gross block and corresponding impact on the operationalresults due to higher charge of depreciation and lower provision for impairment of assets.

(iv) The Company does not have an appropriate internal control system to ensure thatprovisions made pending receipt of bills from vendors / contractors / operators /government departments at the quarter end and year end are duly reversed when actual billsare received and accounted for. This could potentially result in the same being accountingtwice.

(v) The Company does not have an appropriate internal control system to track openpurchase orders work orders agreements and contracts which have been entered withvendors / contractors / operators / government departments and are lying open. This couldhave a bearing on efficiency of operations and recording of financial liabilities andprovisions pertaining to the same.

(vi) The Company does not have an integrated ERP system. Different software packagesused by the company are interfaced through software links or manual intervention leavinggaps between them.

This could potentially result into impaired financial reporting.

(vii) The Company does not have an appropriate internal control system forreconciliation of vendors / contractors / operators / government departments accountswhich could potentially result in some changes in the standalone Ind-AS financialstatements. The cases identified by us have been appropriately qualified at various placesin our report.

(viii) The Company does not have effective internal audit system so as to cover allmajor areas with extensive scope. The extent and depth of coverage manner of conduct andreporting in respect of internal audit is very weak. This could potentially result intoweak checks and balances and unreported financial irregularities ultimately resulting intodistorted financial reporting.

(ix) The Company does not have an appropriate internal control system forreconciliation of items of unlinked debits and credits because of receipts from thesubscriber and the amount debited by the banks. This could potentially lead unreportedfinancial adjustments ultimately resulting into distorted financial reporting.

(x) The Company does not have an appropriate internal control system for invoicingwhich are due and payable based on manual invoicing. The invoicing systems does not havereliability of measurement and reconciliation of items. This leads to multiple revisionsand errors in invoicing. This could potentially lead errors in revenue recognition.

(xi) The Company does not have appropriate internal control system for ensuring end useof issued inventory. The accounting is done based on the requisition statement of item andnot actual installation or commission of item. This could potentially result intonon-identification of pilferage and also early capitalization of equipments.

(xii) The Company does not have appropriate internal control system for ensuringbilling and recovery of water and electricity charges from the lessee. This couldpotentially result into non-recovery and delayed recovery of such charges causingfinancial loss of the absolute expenses and also finance cost on the delay in realization.This could also result in inaccurate expense values in the financial statements of thecompany.

A ‘material weakness' is a deficiency or a combination of deficiencies ininternal financial control over financial reporting such that there is a reasonablepossibility that a material misstatement of the company's annual or interim financialstatements will not be prevented or detected on a timely basis.

In our opinion except for the effects / possible effects of the material weaknessesdescribed above on the achievement of the objectives of the control criteria the Companyhas maintained in all material respects adequate internal financial controls overfinancial reporting and such internal financial controls over financial reporting wereoperating effectively as of March 31 2018 based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India.

We have considered the material weaknesses identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the March 31 2018standalone Ind-AS financial statements of the Company and these material weaknesses donot affect our opinion on the standalone Ind-AS financial statements of the Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(NIKHIL AGARWAL) (ROOPA GARG)
PARTNER PARTNER
Membership No.: 419806 Membership No.: 500677
PLACE : NEW DELHI
DATED : 30th May 2018