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Mahanagar Telephone Nigam Ltd.

BSE: 500108 Sector: Telecom
NSE: MTNL ISIN Code: INE153A01019
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VOLUME 259048
52-Week high 13.32
52-Week low 4.49
P/E
Mkt Cap.(Rs cr) 581
Buy Price 9.35
Buy Qty 9.00
Sell Price 9.40
Sell Qty 39.00
OPEN 9.81
CLOSE 9.79
VOLUME 259048
52-Week high 13.32
52-Week low 4.49
P/E
Mkt Cap.(Rs cr) 581
Buy Price 9.35
Buy Qty 9.00
Sell Price 9.40
Sell Qty 39.00

Mahanagar Telephone Nigam Ltd. (MTNL) - Auditors Report

Company auditors report

TO

THE MEMBERS OF

MAHANAGAR TELEPHONE NIGAM LIMITED

Report on the Audit of the Standalone Ind-AS Financial Statements

Qualified Opinion

We have audited the accompanying standalone Ind-AS financial statements of MAHANAGARTELEPHONE NIGAM LIMITED (“the Company”) which comprise the Balance Sheet as atMarch 312019 the Statement of Profit and Loss (including Other Comprehensive Income)the Statement of Changes in Equity and the Statement of Cash Flows for the year ended onthat date and a summary of the significant accounting policies and other explanatoryinformation (hereinafter referred to as “the standalone financial statements”).

In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matters described in the basis for QualifiedOpinion Section of our report the aforesaid standalone financial statements give theinformation required by the Companies Act 2013 (“the Act”) in the manner sorequired and give a true and fair view in conformity with the Indian Accounting Standardsprescribed under section 133 of the Act read with the Companies (Indian AccountingStandards) Rules 2015 as amended (“Ind AS”) and other accounting principlesgenerally accepted in India of the state of affairs of the Company as at March 312019the profit and total comprehensive income changes in equity and its cash flows for theyear ended on that date.

Basis for Qualified Opinion

We conducted our audit of the standalone financial statements in accordance with theStandards on Auditing specified under section 143(10) of the Act (SAs). Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Standalone Ind AS Financial Statements section ofour report. We are independent of the Company in accordance with the Code of Ethics issuedby the Institute of Chartered Accountants of India (ICAI) together with the independencerequirements that are relevant to our audit of the standalone Ind AS financial statementsunder the provisions of the Act and the Rules made there under 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 qualified audit opinion on the standalone Ind ASfinancial statements.

(i) The Net Worth of the Company has been fully eroded; The Company has incurred netcash loss during the current year ended March 31 2019 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“Incipient Sick CPSE”. Department of Telecommunication (DOT) has also confirmedthe status vide its issue no. I/3000697/2017 through file no. 19-17/2017 - SU-II.

However the standalone Ind-AS financial statements of the Company have been preparedon a going concern basis keeping in view the majority stake of the Government of India andaccompanying management note. (Also refer note no. 76 to the standalone Ind-AS financialstatements)

(ii) Bharat Sanchar Nigam Limited (BSNL):

a) The Company has certain balances receivables from and payables to Bharat SancharNigam Limited (BSNL). The net amount recoverable of' 3352.67 Crores out of which Rs.2505.46 Crores is subject to reconciliation and confirmation. In view of nonreconciliation and non confirmation and also in view of various pending disputes regardingclaims and counter claims we are not in a position to ascertain and comment on thecorrectness of the outstanding balances and resultant impact of the same on the standaloneInd-AS financial statements of the Company. (Also refer point no. (a) of note no. 63 tothe standalone Ind-AS financial statements).

b) 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. 144.66 Crores has not been carried forward orineligible credits amounting to Rs. 51.65 Crores excessively carried forward to TRANS-1under GST laws resulting in overstatement of current assets and understatement of loss tothat extent.

(iii) The Company has certain balances receivables from and payables to Department ofTelecommunication (DOT). The net amount recoverable of' 669.34 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 ofthe Company. (Also refer point no. (a) of note no. 68 to the standalone Ind-AS financialstatements).

(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 thedifference in license fee arising from working out the same on accrual basis as aforesaidfor the period up to financial year 2011-12 by way of contingent liability of' 140.36Crores instead of actual liability resulting in understatement of current liabilities andunderstatement of loss to that extent. (Also refer note no. 79 to the standalone Ind-ASfinancial statements).

(v) The Company had allocated the overheads towards capital works in a manner which isnot in line with the accepted accounting practices and Indian Accounting Standard - 16“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.3637 and 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 133of the Act. In view of uncertainty in achievement of future projections made by theCompany we are unable to ascertain and comment on the provision required in respect ofimpairment in carrying value of cash generating units and its consequent impact on theloss for the year accumulated balance of reserve and surplus and also the carrying valueof the cash generating units. (Also refer note no. 70 to the standalone Ind-AS financialstatements).

(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) (a) In Delhi Wireless Unit reconciliation of balances of subscriber's depositsas per subsidiary records with financial books (WFMS) is still in progress and the impactif any of the differences arising out of such reconciliation on standalone Ind-ASfinancial statements cannot be ascertained and quantified at present.

(b) Unlinked credit of Rs. 51.04 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).

(ix) Property Plant and Equipment are generally capitalized on the basis of completioncertificates issued by the engineering department or bills received by finance departmentin respect of bought out capital items or inventory issued from the Stores. Due to delaysin issuance of the completion certificates or receipt of the bills or receipt of inventoryissue slips there are cases where capitalization of the Property Plant and Equipmentgets deferred to next year. The resultant impact of the same on the statement of profitand loss by way of depreciation and amount of Property Plant and Equipment capitalized inthe balance sheet cannot be ascertained and quantified.

(x) 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 classification capitalization andamortization not backed by relevant records. In the absence of relevant records impact ofsuch classification on the standalone Ind-AS financial statements cannot be ascertainedand quantified.

(xi) Department of Telecommunication (DOT) had raised a demand of' 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 of the issue by the Company regarding surrender ofa part of the spectrum crystallization of issue by the DOT in view of the claim beingcontested by the Company and because of the matter being sub-judice in the Apex Court onaccount of dispute by other private operators on the similar demands the amount payableif any is indeterminate. Accordingly no liability has been created for the demand madeby DOT on this account and Rs. 3205.71 Crores 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. 58 to the standaloneInd-AS financial statements).

(xii) In Mumbai Unit the Company has been awarded a long duration contract from Larsen& Turbro (L&T) for design development implementation & Maintenance of CCTVbased surveillance system for Mumbai City. The Company has not recognized profit/loss onthe basis of percentage of completion method of accounting as prescribed under IndianAccounting Standard (Ind-AS) - 18 on “Revenue”. In the absence of anyworking/detail we are not in a position to comment on the impact thereof on thestandalone Ind-AS financial statements. (Also refer note no. 77 to the standalone Ind-ASfinancial 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) (iii) (v) (vi) (vii)(viii)(a) (ix) (x) (xi) and (xii) on the standaloneInd-AS financial statements of the Company for the year ended on 31st March 2019.

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 by us.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 Act 1961.

(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) 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).

(v) Disclosure of consumption of imported and indigenous stores and spares andpercentage 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.

(vi) 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 the Company and DOTare continued to be shown as recoverable from DOT and payable to GPF in the standaloneInd-AS financial statements and further explained in point no. (d) of Note no. 68 to thestandalone Ind-AS financial statements.

(vii) 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.

(viii) The License agreement between Company and DOT does not have any guidance onchange in method of calculation of Adjusted Gross Revenue (AGR) due to migration to Ind-ASfrom I-GAAP. Provisioning and payment of liability in respect of license fees and spectrumusage charges payable to DOT has been done on the basis of Ind-AS based financialstatements. The amount of difference in computation of Adjusted Gross Revenue (AGR) isunder consideration of DOT.

(ix) 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.

(x) Income arising on account of Revenue Sharing with BSNL in respect of lease circuitsprovided has not been recognized in terms of Memorandum of Understanding (MOU) betweenBSNL and MTNL. As per MOU revenue and expenditure will be based on the price offered tothe customers after applying the discount if any at the time of acquiring the business.However Revenue has been recognized on the basis of available information which is eitherbased on the Company Card Rates or Old rates of BSNL. In Some Cases BSNL has given theinformation in respect of updated rated but the same has not been considered at the timeof booking of revenue sharing with BSNL. In the absence of relevant updated records weare not in a position to comment on the impact thereof on the standalone Ind-AS financialstatements.

(xi) Dues from the Operators being on account of revenue sharing agreements are nottreated as debtors and consequently are not taken into account for making provision fordoubtful debts. (Also refer clause no. (k) of note no. 3 to the standalone Ind-ASfinancial statements).

Our opinion is not modified in respect of these matters.

Material uncertainty related to going concern

We draw attention to Note no. 76 in the financial statements which indicates that thecompany has accumulated losses and its net worth has been fully/ substantially eroded thecompany has incurred net loss/net cash loss during the current and previous year(s) andthe company's current liabilities exceeded its current assets as at the balance date.These events or conditions along with other matter as set forth in Note 76 indicate thata material uncertainty exists that may cast significant doubt on the company's ability tocontinue as a going concern.

Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.

In addition to the matters described in the basis of qualified opinion section we havedetermined the matters described below to be the key audit matters to be communicated inour report.

Sr. No. Key Audit Matter How our audit Addressed the key Audit Matter
1. Material Uncertainty relating to Going Concern: There is use of Going Concern Assumption basis of accounting in financial statement but a material uncertainty exists. We have analyzed the management projection are submitted to Department of Telecom (DOT).
We received the expected revenue and corresponding expenses EBITDA and other expected Capex expenditure outflows.( Refer note no. 76 )
2. Accuracy of recognition measurement presentation and disclosures of revenues and other related balances in view of adoption of Ind AS 115 “Revenue from Contracts with Customers” (new revenue accounting standard) We assessed the Company's process to identify the impact of adoption of the new revenue accounting standard.
Our audit approach including controls testing and substantive procedures covering in particular:
There is an inherent risk around the accuracy of revenue recorded given the complexity of systems and the impact of changing pricing models to revenue recognition (tariff structures incentive arrangements discounts etc.) Testing the IT environment in which billing rating and other relevant support systems reside including the change control procedures in place around systems that bill material revenue streams.
The application of the new revenue accounting standard is complex and involves a number of key judgements and estimates. Testing the end to end reconciliation from business support systems to billing and rating systems to the general ledger. This testing includes validating material journals processed between the billing system and general ledger.
Additionally new revenue accounting standard contains disclosures which involve collation of information in respect of disaggregated revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. Performing tests on the accuracy of customer bill generation on sample basis and testing of a sample of the credits and discounts applied to customer bills: and
Refer Notes no. 56 to the Standalone Ind-AS Financial Statements. Testing receipts for a sample of customers back to customer invoice.
3. Accuracy of revenues and onerous obligations in respect of fixed price contracts involves critical estimates. Our audit approach was a combination of test of internal controls and substantive procedures which included the following:
Estimated effort is a critical estimate to determine revenues and liability for onerous obligations. This estimate has a high inherent uncertainty as it requires consideration of progress of the contract efforts incurred till date and efforts required to complete the remaining contract performance obligations. • Evaluated the design of internal controls relating to recording of efforts incurred and estimation of efforts required to complete the performance obligations.
• Tested the access and application controls pertaining to time recording allocation and budgeting systems which prevents
Refer Notes no. 56 to the Standalone Ind-AS Financial Statements. unauthorized changes to recording of efforts incurred.
• Selected a sample of contracts and through inspection of evidence of performance of these controls tested the operating effectiveness of the internal controls relating to efforts incurred and estimated.
• Selected a sample of contracts and performed a retrospective review of efforts incurred with estimated efforts to identify significant variations and verify whether those variations have been considered in estimating the remaining efforts to complete the contract.
• Reviewed a sample of contracts with unbilled revenues to identify possible delays in achieving milestones which require change in estimated efforts to complete the remaining performance obligations.
• Performed analytical procedures and test of details for reasonableness of incurred and estimated efforts.
4. Uncertain Taxation Matters: We have obtained details of completed tax
The Company has material uncertain tax matters under dispute which involves significant judgment to assessments and demands up to March 31 2019 from management.
determine the possible outcome of these disputes. Refer Notes no. 48 and 61 to the Standalone Ind-AS Financial Statements. We assessed the management's underlying assumptions in estimating the tax provisions and the possible outcome of the disputes.
We also considered legal precedence and other rulings including in the company's own cases in evaluating management's position on these uncertain tax positions.
5. Recoverability of Indirect Tax Receivables: Principal Audit Procedures:
As at March 312019 non-current assets in respect of indirect tax and others include Cenvat recoverable amounting to INR 153.5 crores which are pending adjudication. We have assessed and reviewed the nature of the amounts recoverable the sustainability and the likelihood of recoverability upon final resolution.
Refer Note no 12 and 20 to the Standalone Ind-AS Financial Statements.
6. Impairment Loss: We evaluated the appropriateness of management's
For the CGUs the determination of recoverable amount being the higher of fair value less costs to sell and value -in-use requires judgement on the part of management in both identifying and then valuing the relevant CGUs. identification of the groups CGUs and testing the impairment assessment process including indicators of impairment. We analyzed key assumptions in management's valuation model used to determine recoverable
Recoverable amounts are based on management 's view of variables such as future average revenue per user average customer numbers and customers churn timing and approval of future capital spectrum amount including assumptions of project adjusted EBITDA projected capital expenditure projected license and spectrum payments long term growth rates and discount rates.
and obtaining expenditure and the most appropriate discount rate. We compared historical forecasting to actual results and
Refer to Note no. 70 of standalone Ind-AS Financial statements. We performed testing of the mathematical accuracy of the cash flow and analyzed key assumptions. Based on our procedures we consider management's key assumptions to be within a reasonable range.
We validated the appropriateness of the related disclosures in note no. 70 of the Standalone Ind- AS financial statements.
7. Discontinued Operations and Assets Held for Sale: We analyzed in management's estimates of the releasable value.
Assests of CDMA continues to be treated as held for sale and discontinued operations as at the balance sheet date. Based on our procedures we noted no exceptions and consider management's approach and assumptions to be reasonable.
Refer to note no. 51 of standalone Ind-AS Financial statements.
8. The Company holds investments comprising investments in Associates Joint Ventures and subsidiaries of Rs. 106.13 Crores We assessed the net assets values of the investments as at 31 March 2019 with the Company's investment carrying values.
Investments in Associates Joint Ventures and subsidiaries accounted forat cost less any provision for impairment Investments are tested for impairment annually. If impairment exists the recoverable amounts of the investment in Associates Joint Ventures sand subsidiaries are estimated in order to determine the extent of the impairment loss if any. Any such impairment loss is recognized in the income statement. Refer to Note no.8 of standalone Ind-AS Financial statements. As a result of our work we agreed with management that the carrying values of the investments held by the Company are supportable in the context of the Company financial statements taken as a whole.
9. Deferred Tax Assets: In respect of the deferred tax assets we analyzed to assess the recoverability of losses from a tax perspective through performing the following:
- significant judgement is required in relation to the recognition and recoverability of deferred tax assets Refer to note no. 40 of standalone Ind-AS Financial statements. • Understanding how losses arose and where they are located including to which subgroups they are attributed.
• Considering whether the losses can be reversed based on the ability to generate profits in excess of past losses;
• Comparing historical forecasting to actual results;
• Considering the impact of recent regulatory developments as applicable;
• Assessing any restrictions on future use of losses; and
• Determining whether any of the losses will expire.
In addition we assessed the application of Ind-AS 12 - Income Taxes including:
• Understanding the triggers for recognition of deferred tax assets;
• Considering the effects of tax planning strategies;
• Testing the mathematical accuracy of the cash flow models and challenging and agreeing the key assumptions in the management plan and likelihood of generating future taxable profits to support the recoverability of the deferred tax asset.
We also reviewed the disclosures made in respect of the utilization period of deferred tax assets.
Refer to note no. 40 of standalone Ind-AS Financial statements.
10. Provisions and contingent liabilities We analyzed the current status of the tax cases.
There are a number of legal regulatory and tax cases against the Group. For legal regulatory and tax matters our procedures included the following:
High level of judgement is required in estimating the level of provisioning required. • Testing key controls over litigation regulatory and tax procedures;
Refer to note no. 48 of standalone Ind-AS Financial statements. • Performing substantive procedures on the underlying calculations supporting the provisions recorded;
• Where relevant reading external legal opinions obtained by management;
• Meeting with regional and local management and reading relevant Group correspondence;
• Discussing open matters with the Group litigation regulatory general counsel and tax teams;
• Assessing management's conclusions through understanding precedents set in similar cases; and
• Circularization where appropriate of relevant third party legal representatives and direct discussion with them regarding certain material cases.
Based on the evidence obtained and the related disclosures in note no. 48 of the Standalone Ind-AS financial statements conclude that the disclosure was sufficient.

Information Other than the Standalone Financial Statements and Auditor's Report Thereon

The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the Company'sAnnual Report but does not include the standalone financial statements and our auditor'sreport thereon.

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

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

If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.

Responsibilities of the Management and those charged with governance for the Standalone

Ind-AS 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 responsible for overseeing the Company's financial reportingprocess.

Auditor's Responsibilities for the Audit of the Standalone Ind-AS 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 auditor's 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 auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's 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.

Materiality is the magnitude of misstatements in the standalone financial statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatements in the financial statements.

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

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

From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's 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.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report ) Order 2016 ( “theOrder”) issued by the Central Government of India in term of sub section (11) ofsection 143 of the Companies Act 2013 we give in the ‘'Annexure A'' a statement onthe matters specified in paragraph 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 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.

c) 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.

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

e) On the basis of the written representations received from the directors as on March31 2019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 312019 from being appointed as a director in terms of Section 164 (2) of theAct.

f) The going concern matter described in material uncertainty related to going concernparagraph above in our opinion may have an adverse effect on the functioning of thecompany.

g) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in “Annexure C”. Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.

h) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended:

In our opinion and according to the information and explanations given to us theremuneration paid by the Company to its directors during the current year is in accordancewith the provisions of section 197 read with the schedule V of the Companies Act 2013.theremuneration paid to any director is not in excess of the limit laid down under section197 of the Act. The ministry of corporate affairs has not prescribed other details undersection 197 (16) which are required to comment upon by us.

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

i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements.

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.

iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(CA SANJAY MEHRA) (CA ALOK JAIN )
PARTNER PARTNER
Membership No.: 085389 Membership No.: 095345
PLACE : NEW DELHI
DATED : 30th May 2019

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 2019.

(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 maintained fixed assets records showing full particulars includingquantitative details and situation of 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 the said programme ofverification by the management during the year. The accuracy reliability and completenessof the fixed assets verification procedure could not be verified by us.

(c) Title deeds of some of the immovable properties recorded in the books of theCompany are in the name of Govt. of India P&T and President of India since theoperation of Delhi & Mumbai of Department of Telecom was converted as MTNL. Details ofsuch properties are given hereunder:

(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') except the following:

Name of the Company Outstanding Balance Amount Overdue for more than 90 days
Millennium Telecom Limited 6060175 6060175

Repayment of principal and payment of interest is not regular.

(iv) The Company has not entered any transaction involving compliance with theprovisions of Section 185 and 186 of the Companies Act 2013. Thus paragraph 3(iv) of theOrder is not applicable

(v) The Company has not accepted any deposits from the public within the meaning ofSection 73 to Section 76 or any other relevant provisions of the Companies Act 2013 orrules 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 2018-19.

(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 goods and service tax duty of customsduty of excise value added tax cess and other material statutory dues whereverapplicable have generally been regularly deposited with the appropriate authoritiesthough there has been a slight delay in few cases.

According to the information and explanations given to us no undisputed amountspayable in respect of provident fund employees' state insurance income tax sales taxservice tax goods and service tax duty of customs duty of excise value added tax cessor other statutory dues were in arrears as at 31st March 2019 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 & 201011 (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 1.42 2008-12 Commissioner of Central Excise and Service Tax
TOTAL 32.08

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 Nil 2000-08 Hon'ble Supreme Court of India
Total Nil

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 170.08 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 540.39

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 0.54 2007-08 Joint Commissioner of Sales Tax (Appeal) - IV Mumbai
Luxury Tax Act 1987 0.94 2008-09 Joint Commissioner of Sales Tax (Appeal) - IV Mumbai
Luxury Tax Act 1987 0.21 2009-10 Joint Commissioner of Sales Tax (Appeal) - IV Mumbai
Luxury Tax Act 1987 0.44 2010-11 Joint Commissioner of Sales Tax (Appeal) - IV Mumbai
Luxury Tax Act 1987 0.79 2011-12 Joint Commissioner of Sales Tax (Appeal) - IV Mumbai
Luxury Tax Act 1987 2.07 2012-13 Joint Commissioner of Sales Tax (Appeal) - IV Mumbai
Total 4.99

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 Nil 2004-05 Commissioner of Central Excise
Central Excise Act 1944 Nil 2006-07 Commissioner of Central Excise
Central Excise Act 1944 Nil 2013-14 Commissioner of Central Excise
Central Excise Act 1944 Nil 2006-07 Commissioner of Central Excise
Central Excise Act 1944 Nil 2005-06 Commissioner of Central Excise
Total Nil

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 2019.

(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 noncash 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 IndiaAct 1934. Hence Clause 3 (xvi) of the Order is not applicable to the Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(CA SANJAY MEHRA) (CA ALOK JAIN )
PARTNER PARTNER
Membership No.: 085389 Membership No.: 095345
PLACE : NEW DELHI
DATED : 30th May 2019

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 2019.

Directions indicating the areas to be examined by the Statutory Auditors during thecourse of audit of annual accounts of Mahanagar Telephone Nigam Limited (Standalone) forthe year 2018-19 issued by the Comptroller & Auditor General of India under section143(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 respectivelyRs. 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 Due to non recoverability (Refer note no. 39) 18.32
Waiver of Penalty & Interest Nil
TOTAL 18.32
3 Whether proper records are maintained for inventories lying with third parties & assets received as gift from Govt. or other authorities. a. There are no inventories lying with third parties. b. The Company has not received any assets as gifts from Government or other authorities during the year.
4 Amount of Revenue Share (License Fee and Spectrum Usage Charges) appearing in the Financial Statements should be thoroughly checked for its correctness. The details have been verified by us.
5 Whether the company has system in place to process all the accounting transactions through IT systemRs. 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. Yes Majority of the accounting transactions are done through the IT system. Although manual intervention is prevalent. Adequate security measures for manual intervention need to be strengthened with supervisory sanction only and properly documented.
6 Whether there is any restructuring of an existing loan or cases of waiver/write off of debts/loans/interest etc. made by lender to a company due to the company's inability to repay the loanRs. If yes the financial impact may be stated. As certified by the management and those charged with governance we have been informed that there is no restructuring of loan/ wavier/ write off of debts/ loan/ interest during the 2018-19.
7 Whether funds received/ receivable from the specific schemes from central/ state agencies were properly accounted for/ utilized as per its term and conditionsRs. List the case of deviation. Yes Company received the Swachh Action Plan contribution during 2018-19'56.39Lakh out of which Rs. 32.72Lakh is pending utilization with the company.
8 Whether the amount of revenue of share (License fees and Spectrum Usage charges) recognized in the financial statement in accordance with the DoTRs. If so detailed statement & calculation sheet may be attached Yes AGR Audit Report will be provided separately

We have conducted of the audit of accounts of Mahanagar Telephone Nigam Limited for theyear ended 2018-19 in accordance with the directions issued by the C&AG of India undersection 143(5) of the Companies Act 2013 and certify that we have complied with the alldirections issued to us.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(CA SANJAY MEHRA) (CA ALOK JAIN )
PARTNER PARTNER
Membership No.: 085389 Membership No.: 095345
PLACE : NEW DELHI
DATED : 30th May 2019

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 2019 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 Reportingissued by the Institute of Chartered Accountants of India (‘ICAI'). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation 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 the Standards on Auditing issued by ICAI and deemedto be prescribed under section 143(10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls both applicable to an audit ofInternal Financial Controls and both issued by the Institute of Chartered Accountants ofIndia. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the standalone Ind-AS financial statements whether due to fraudor 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 systemover 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 312019:

(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 not have appropriate internal control system for ensuringcapitalization of Property Plant and Equipment as and when the same is ready for use dueto delayed issue of completion certificate by engineering department or due to delay inreceipt of bills from the vendors for bought out items or due to delay of inventory issueslip by stores. Hence the date of capitalization is not reliable. This could potentiallyresult into delayed capitalization and corresponding impact on the operational results dueto 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 312019 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 312019standalone 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
(CA SANJAY MEHRA) (CA ALOK JAIN )
PARTNER PARTNER
Membership No.: 085389 Membership No.: 095345
PLACE : NEW DELHI
DATED : 30th May 2019