To the Members of
Manipal Finance Corporation Limited Manipal
Report on the Audit of the Financial Statements
We have audited the accompanying financial statements of Manipal Finance CorporationLimited (CIN: L65910KA1984PLC005988) ("the Company") which comprises theBalance Sheet as at 31st March 2019 the Statement of Profit and Loss the Cash FlowStatement for the year then ended notes to the financial statements including a summaryof significant accounting policies and other explanatory information (hereinafter referredto as "the Financial Statements").
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effect of the matter described in the Basis of QualifiedOpinion paragraph the aforesaid Financial Statements give the information required by theCompanies Act 2013 (the "Act") in the manner so required and give a true andfair view in conformity with the Accounting Standards prescribed under Section 133 of theAct read with the Rule 7 of the Companies (Accounts) Rules 2014 i.e. the Companies(Accounting Standard) Rules 2006 read with Companies (Accounting Standard) AmendmentRules 2016 and other accounting principles generally accepted in India of the state ofaffairs of the Company as at March 31 2019 the profit and its cash flows for the yearended on that date.
Basis for Qualified Opinion
1. We draw attention to Note No. 24.02 of the financial statements. The Company hasincurred losses and its majority of funds are blocked in Non Performing Assets raising adoubt about the Company to continue as a going concern. The Company has presented a schemeof arrangement for restructure of liabilities as detailed in Note No. 5.2.01 of thefinancial statements and subsequently withdrawn the same for reasons given therein. TheCompany is exploring the possibility of presenting the new scheme of arrangement asdetailed in the aforesaid Notes. The account however have been prepared on a "goingconcern basis" in view of management perception as detailed in Note No. 24.02 asaforesaid. However we are unable to comment on the ultimate realisability of Company'sassets including the Fixed Assets under lease. Accordingly we are also unable to commenton the Company's ability to settle its debts/liabilities (including Deposits Subordinateddebts and Secured Redeemable Debentures.)
2. We draw the attention to Note 5.2.01 of the Financial Statements. The Company hasstopped (i) repayment of matured debentures & matured subordinated debts and (ii)payment of interest on debentures and subordinated debts from 1st day of July 2002 andproposed a scheme of arrangement before the Hon'ble High Court of Karnataka as referredto in the aforesaid Note (which is since withdrawn and we are informed that the Company isexploring the possibility of presenting a new scheme of arrangement). Further the Companyhas also stopped repayment of deposits matured for repayment from the aforesaid date. Allthe debts of the Company i.e. debentures subordinated debts and deposits are matured forrepayment. The Company has provided for interest on deposits/debentures/debts up to 30thJune 2002 and not thereafter.
There are also many instances of settlement of debentures debts and public deposits atthe discounted rates with partial/full waiver of interest which has been done with mutualconsent. We are also informed that the remaining depositors/debenture holders/debt holdershave approached the Company for settlement of the dues and the Company is in the processfor the same.
As per the information given to us various consumer courts (including the AppellateAuthorities/Courts acting under the Consumer Protection Act) have passed the orders forthe repayment of certain deposits/debentures/debts with interest and other costs. Thedetailed information on these orders have not been made available to us. However we areinformed that the Company has settled the dues of such customers in many cases which alsoincludes settlement at discounted rates with partial/full waiver of interest and many ofthe remaining such persons have approached the Company for settlement.
We draw attention to the Statement made by the Management of the Company in Note No.5.2.01 of the Financial Statement which is as follows: "Considering the facts thatthe Company has settled the dues of depositors/debenture holders/debt holders at thediscounted rates as stated above that the remaining customers have approached the Companyfor settlement of their dues that the orders issued by the various consumer courtsincluding the appellate authorities/courts therein that the Company has settled the manyof such consumer court cases that the total debts of the Company have reducedconsiderably because of settlement as aforesaid and that the Company is exploring thepossibility of framing the new scheme of arrangement it is not feasible for the Companyto ascertain accurately its liability on any given date".
Considering all the facts as given above we qualify our opinion that it is notfeasible for us to ascertain accurately the liability of the Company as on the date of theBalance Sheet.
We conducted our audit of the Financial Statements in accordance with the Standards onAuditing (SAs) specified under Section 143(10) of the Companies Act 2013. Ourresponsibilities under those Standards are further described in the Auditors'Responsibilities for the Audit of the Financial Statements section of our report. We areindependent of the Company in accordance with the Code of Ethics issued by the Instituteof Chartered Accountants of India (ICAI) together with the ethical requirements that arerelevant to our audit of the Financial Statements under the provisions of the CompaniesAct 2013 and the Rules thereunder and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the Code of Ethics. We believethat the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion on the Financial Statements.
Emphasis of Matter:
1. We draw the attention to Note 2.01 of the Financial Statements. The Company duringthe year with a view towards restructuring its liabilities has settleddeposits/debentures/subordinated debts at discounted rates. The same has been done withdue consent of the parties to deposits debentures and debts. The interest write backarising out of such settlement is considered as Extraordinary Income in the Statement ofProfit and Loss. Principal write back arising out of such settlement is considered ascapital receipt and taken directly to Capital Reserve (viz: Capital Reserve 2) in theBalance Sheet. This has been done as per the accounting policy followed by the Company asstated in Note No. 24.01 (I). The Company had made similar settlements during the earlieryears also by giving the similar accounting treatment. Our opinion is not modified inthis matter.
2. We draw the attention to Note 24.11 of the Financial Statements. The Company hasearned Profit during the year and also during immediate previous financial year i.e. yearending 31st March 2018 due to exceptional income as disclosed in Note 21 and ExtraordinaryIncome as stated in Note 22. Our opinion is not modified in this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.
Except for the matter described in the 'Basis for Qualified Opinion' and 'Emphasis ofMatter' section we have determined that there are no other key audit matters tocommunicate in our report.
Other Information (other than the Financial Statements and Auditors' Report thereon)
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Board's Report including Annexuresto Board's Report Corporate Governance Report (including shareholders information) andSchedule to Balance Sheet of a Non-Banking Financial Company (as required in terms ofParagraph 9BB of Non-Banking Financial Companies Prudential Norms (Reserve Bank)Directions 1998) but does not include the financial statements and our auditors' reportthereon. The above information is expected to be made available to us after the date ofthis auditors' report.
Our opinion on the financial statements does not cover the other information and wewill not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information identified above when it becomes available and in doing soconsider whether the other information is materially inconsistent with the financialstatements or our knowledge obtained in the audit or otherwise appears to be materiallymisstated.
When we read the Board's Report including Annexures to Board's Report the CorporateGovernance Report (including shareholders information) and Schedule to Balance Sheet of aNon-Banking Financial Company (as required in terms of Paragraph 9BB of Non-BankingFinancial Companies Prudential Norms (Reserve Bank) Directions 1998) if we conclude thatthere is a material misstatement therein we are required to communicate the matter tothose charged with governance.
Responsibility of Management for the Financial Statements
The Company's Board of Directors is responsible for the matters in Section 134(5) ofthe Companies Act 2013 ("the Act") with respect to the preparation andpresentation of these financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Company in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecified under Section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding of the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the financial statements the Board of Directors 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 unlessthe Board of Directors either intends to liquidate the Company or to cease operations orhas no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the company's financialreporting process.
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditors' report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these Financial Statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatements of the FinancialStatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to providebasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under Section 143(3)(i)of the Act we are also responsible for expressing our opinion on whether the Company hasadequate internal financial controls system in place and the operating effectiveness ofsuch controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditors' report to the related disclosures inthe Financial Statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditors'report. However future events or conditions may cause the Company to cease to continue asa going concern.
Evaluate the overall presentation structure and content of the FinancialStatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the Financial Statements thatindividually 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 the independence and to communicate withthem all 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 financial statements of the currentperiod and are therefore the key audit matters. We describe these matters in our auditor'sreport unless law or regulation precludes public disclosure about the matter or when inextremely rare circumstances we determine that a matter should not be communicated in ourreport because the adverse consequences of doing so would reasonably be expected tooutweigh 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 ("the Order")issued by the Central Government of India in terms of sub-section (11) of Section 143 ofthe Companies Act 2013 we give in the "Annexure A" a statement on the mattersspecified in paragraphs 3 and 4 of the Order to the extent applicable.
2. As required by the Master Direction DNBS PPD.03/66.15.001/2016-17 dated 29.09.2016(RBI/DNBS/2016-17/48) issued by the Reserve Bank of India Department of Non-BankingSupervision Central Office we will be giving a statement of matters specified in paragraph3(A) & 3(B) of the order at a later date.
3. In terms of press release issued by Reserve Bank of India dated 27.06.2001 we statethat:
a) The Certificate of Registration as issued by the Reserve Bank of India is not inforce since same was cancelled during December 2004.
b) The Company has not obtained credit rating.
c) The capital adequacy ratio is negative and accordingly the Company's Loans advancesand investments are above the credit exposure limits.
d) The Company has not filed the prudential returns and annual returns as per reviseddirectives. However the Company has filed such returns as per the directives as prevailedtill 31st March 2011 i.e. prudential returns on half yearly basis and annual return once ayear.
e) The public deposits are matured for repayment but remained unpaid by the Company.However the company has settled some of the deposits at discounted rates without interest.The Company has not provided/paid interest on deposits after 30th June 2002.
f) The Company has not created floating charge in favour of the depositors on thestatutory liquid assets invested.
g) The Company has not closed any of its branches during the year. Therefore thequestion of making any comments therein does not arise.
4. 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 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 and Cash Flow Statement dealtwith by this Report are in agreement with the books of account.
(d) In our opinion the aforesaid financial statements comply with the AccountingStandards specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014.
(e) Our Qualifications as given under paragraph titled "Basis for qualifiedopinion" may have adverse effect on the functioning of the Company if the managementperception as detailed in Note 24.02 of financial statement does not materialize. Howeverour observation as given under paragraph titled "Emphasis of matter" will nothave adverse effect on the functioning of the Company.
(f) The qualification/observations relating to the maintenance of accounts and othermatters connected therewith are as stated in the "Basis for Qualified Opinionparagraph" and "Emphasis of Matter paragraph" above.
(g) The Management of the Company is of the opinion that its directors are notdisqualified u/s 164(2) of the Companies Act 2013 for the reasons as stated in Note 24.06of the financial statements. Accordingly the directors have given the writtenrepresentations that they are not disqualified to be the directors of the Company u/s164(2) of the Companies Act 2013 which has been taken on record by the Board ofDirectors. Accordingly we are not expressing opinion on the aforesaid aspect.
(h) 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 B". Our report expresses a qualified opinion on theadequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.
(i) With respect to the other matters to be included in Auditors' Report in accordancewith the requirements of Section 197(16) of the Act as amended:
The Company has not paid any managerial remuneration to its directors other thansitting fees. In our opinion and to the best of our information and according to theexplanations given to us the remuneration (i.e. sitting fees) so paid by the Company toits directors during the year is in accordance with the provisions of Section 197 of theAct.
(j) With respect to the other matters to be included in the Auditors' Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has stated vide 24.05 and 24.13 of the financial statement that theimpact of pending litigations on its financial position is not ascertainable for thereasons as stated in the aforesaid notes.
ii. The Company did not have any long-term contracts including derivatives contractsfor which there were any material foreseeable losses which has been confirmed by themanagement vide Note 24.14 of the financial statement.
iii. The Company has not transferred any amount to the credit of Investor Education andProtection Fund during the year under audit for the reason as given by the managementvide Note 5.2.01 and 24.15 of financial statement. Accordingly commenting on delay intransferring the amounts to the aforesaid fund does not arise.
| ||For SRIRAMULU NAIDU & CO. |
| ||Chartered Accountants |
| ||Firm Registration Number: 008975S |
| ||Sd/- |
| ||CA Sriramulu Naidu |
|Place : Manipal ||Partner |
|Date : 30th May 2019 ||Membership Number: 018244 |
| || |