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McNally Bharat Engineering Company Ltd.

BSE: 532629 Sector: Engineering
NSE: MBECL ISIN Code: INE748A01016
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OPEN 3.69
PREVIOUS CLOSE 3.70
VOLUME 10870
52-Week high 9.00
52-Week low 2.30
P/E
Mkt Cap.(Rs cr) 68
Buy Price 3.70
Buy Qty 2521.00
Sell Price 3.69
Sell Qty 2270.00
OPEN 3.69
CLOSE 3.70
VOLUME 10870
52-Week high 9.00
52-Week low 2.30
P/E
Mkt Cap.(Rs cr) 68
Buy Price 3.70
Buy Qty 2521.00
Sell Price 3.69
Sell Qty 2270.00

McNally Bharat Engineering Company Ltd. (MBECL) - Auditors Report

Company auditors report

To The Members of

McNally Bharat Engineering Company Limited

REPORT ON THE STANDALONE IND AS FINANCIAL STATEMENTS

We have audited the accompanying standalone Ind AS financial statements of McNallyBharat Engineering Company Limited ("the Company") which comprise the BalanceSheet as at March 31 2018 the Statement of Profit and Loss (including OtherComprehensive Income) the Cash Flow Statement and the Statement of Changes in Equity forthe year then ended and a summary of the significant accounting policies and otherexplanatory information (herein after referred to as "standalone Ind AS financialstatements").

MANAGEMENT'S RESPONSIBILITY FOR THE STANDALONE IND AS FINANCIAL STATEMENTS

The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone Ind AS financial statements that give a true and fair view of thefinancial position financial performance including other comprehensive income cash flowsand changes in equity of the Company in accordance with the Indian Accounting Standards(Ind AS) prescribed under section 133 of the Act read with the Companies (IndianAccounting Standards) Rules 2015 as amended and other accounting principles generallyaccepted in India.

This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the standalone IndAS financial statements that give a true and fair view and are free from materialmisstatement 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.

In conducting our audit we have taken into account the provisions of the Act theaccounting and auditing standards and matters which are required to be included in theaudit report under the provisions of the Act and the Rules made thereunder.

We 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 Standardsrequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the standalone Ind AS financial statements are freefrom material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the standalone Ind AS financial statements. The procedures selecteddepend on the auditor's judgment including the assessment of the risks of materialmisstatement of the standalone Ind AS financial statements whether due to fraud or error.In making those risk assessments the auditor considers internal financial controlrelevant to the Company's preparation of the standalone Ind AS financial statements thatgive a true and fair view in order to design audit procedures that are appropriate in thecircumstances. An audit also includes evaluating the appropriateness of the accountingpolicies used and the reasonableness of the accounting estimates made by the Company'sDirectors as well as evaluating the overall presentation of the standalone Ind ASfinancial statements.

We believe that the audit evidence obtained by us is sufficient and appropriate toprovide a basis for our qualified audit opinion on the standalone Ind AS financialstatements.

BASIS FOR QUALIFIED OPINION

We draw attention to:

(i) Note 32(A) on the standalone Ind AS financial statements regarding payment ofexcess managerial remuneration for

which the Company is yet to seek approval from the Central Government to regularize thesame in terms of section 197(3) read with Schedule V to the Act amounting to ' 40.82 lacspaid/payable to erstwhile one whole time director for the financial year ended March 312018.

(ii) Note 32(B) on the standalone Ind AS financial statements regarding payment ofexcess managerial remuneration for which approval in terms of section 197(3) read withSchedule V to the Act is pending from the Central Government amounting to ' 220.03 lacspaid/ payable to the managing director for the financial year ended March 31 2018 and '121.87 lacs paid/payable to two erstwhile whole time directors for the financial yearended March 31 2017.

This matter was also qualified by the predecessor auditor in the report for thefinancial year ended March 31 2017 as reported ' 76.80 lacs.

Pending Central Government approval we are unable to comment on the consequentialeffect of the above matters on the standalone Ind AS financial statements.

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 matter described in the Basis forQualified Opinion paragraph above the aforesaid standalone Ind AS financial statementsgive the information required by the Act in the manner so required and give a true andfair view in conformity with the Ind AS and other accounting principles generally acceptedin India of the state of affairs of the Company as at March 31 2018 and its loss totalcomprehensive income its cash flows and the changes in equity for the year ended on thatdate.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. 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 the Cash Flow Statement and Statement of Changes in Equity dealt with by thisReport are in agreement with the books of account.

d) in our opinion the aforesaid standalone Ind AS financial statements comply with theIndian Accounting Standards prescribed under section 133 of the Act.

e) on the basis of the written representations received from the directors of theCompany as on March 31 2018 taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2018 from being appointed as a director in termsof Section 164(2) of the Act.

f) 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 A". Our report expresses a qualified opinion on theadequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting for the reasons stated therein.

g) 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 Ind AS 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.

Independent Auditors' Report (Contd.)

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

2. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government in terms of Section 143(11) of the Act we give in"Annexure B" a statement on the matters specified in paragraphs 3 and 4 of theOrder.

For DELOITTE HASKINS & SELLS LLP

For V. SINGHI & ASSOCIATES

Chartered Accountants Chartered Accountants

Firm Registration Number: Firm Registration Number:

117366W/W-100018 311017E

A. Bhattacharya V. K. Singhi

Place: Kolkata Partner Partner

Date: May 29 2018 Membership Number: 054110 Membership Number: 050051

McNally Bharat Engineering Company Limited

Annexure "A" to the Independent Auditors' Report

(Referred to in paragraph 1(f) under 'Report on Other Legal and RegulatoryRequirements' of our report of even date)

Report on the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of McNallyBharat Engineering Company Limited ("the Company") as of March 31 2018 inconjunction with our audit of the standalone Ind AS financial statements of the Companyfor the year ended on that date.

MANAGEMENT'S RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS

The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal 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. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe Act.

AUDITOR'S RESPONSIBILITY

Our responsibility is to express an opinion on the internal financial controls overfinancial reporting of the Company based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting (the "Guidance Note") issued by the Institute of Chartered Accountantsof India and the Standards on Auditing prescribed under Section 143(10) of the Act to theextent applicable to an audit of internal financial controls. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate internal financial controlsover financial reporting was established and maintained and if such controls operatedeffectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system 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 judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our qualified 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 financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the 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

Annexure "A" to the Independent Auditors' Report (Contd.)

are subject to the risk that the internal financial control over financial reportingmay become inadequate because of changes in conditions or that the degree of compliancewith the policies or procedures may deteriorate.

BASIS FOR QUALIFIED OPINION

According to the information and explanations given to us and based on our auditmaterial weakness has been identified in the Company's internal financial controls overfinancial reporting as at March 31 2018 relating to compliance with laws and regulationsdid not operate effectively which resulted in payment of excess managerial remunerationwithout complying the requirements of Section 197(3) read with Schedule V to the Act.

A 'material weakness' is a deficiency or a combination of deficiencies in internalfinancial control over financial reporting such that there is a reasonable possibilitythat a material misstatement of the company's annual or interim financial statements willnot be prevented or detected on a timely basis.

QUALIFIED OPINION

In our opinion to the best of our information and according to the explanations givento us except for the possible effects of the material weakness described in Basis forQualified Opinion paragraph above on the achievement of the objectives of the controlcriteria the Company has maintained in all material respects adequate internalfinancial controls over financial reporting and such internal financial controls overfinancial reporting were operating effectively as of March 31 2018 based on the internalcontrol over financial reporting criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.

We have considered the material weakness identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the standalone IndAS financial statements of the Company for the year ended March 31 2018 and the materialweakness does affect our opinion on the said standalone Ind AS financial statements of theCompany.

For DELOITTE HASKINS & SELLS LLP

For V. SINGHI & ASSOCIATES

Chartered Accountants Chartered Accountants

Firm Registration Number: Firm Registration Number:

117366W/W-100018 311017E

A. Bhattacharya V. K. Singhi

Place: Kolkata

Partner

Partner

Date: May 29 2018 Membership Number: 054110 Membership Number: 050051

McNally Bharat Engineering Company Limited

Annexure "B" to the Independent Auditors' Report

(Referred to in paragraph 2 under 'Report on Other Legal and Regulatory Requirements'section of our report of

even date)

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation

of fixed assets.

(b) The Company has a program of physical verification of Property Plant and Equipmentto cover all the items in a phased manner over a period of three years which in ouropinion is reasonable having regard to the size of the Company and the nature of itsassets. Pursuant to the program certain fixed assets were physically verified by theManagement during the year. According to the information and explanations given to us nomaterial discrepancies were noticed on such verification.

(c) The Company does not own any immovable property as disclosed in Note 3 on Propertyplant & equipment to the financial statements. Therefore the provisions of Clause3(i)(c) of the said Order is not applicable to the Company.

(ii) As explained to us the inventories were physically verified during the year bythe Management at reasonable intervals and no material discrepancies were noticed onphysical verification.

(iii) The Company has granted unsecured loans to companies covered in the registermaintained under Section 189 of the Act. The Company has not granted any secured/unsecuredloans to firms Limited Liability Partnerships or other parties covered in the registermaintained under Section 189 of the Act.

(a) In respect of the aforesaid loans the terms and conditions under which such loansare granted are not prejudicial to the Company's interest.

(b) In respect of the aforesaid loans no schedules of repayment of principal have beenstipulated by the Company. Therefore in absence of stipulation of repayment terms we donot make any comment on the regularity of repayment of principal and payment of interest.

(c) In respect of the aforesaid loans in absence of schedules of repayment we areunable to comment on the overdue ageing of the repayments.

(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Sections 185 and 186 of the Act in respect ofgrant of loans making investments and providing guarantees and securities as applicable.

(v) According to the information and explanations given to us the Company has notaccepted any deposit from the public within the meaning of Sections 73 74 75 and 76 ofthe Act and the Rules framed thereunder to the extent notified.

(vi) The maintenance of cost records has been specified by the Central Government undersection 148(1) of the Act. We have broadly reviewed the same as maintained by the Companypursuant to the Companies (Cost Records and Audit) Rules 2014 as amended prescribed bythe Central Government under sub-section (1) of Section 148 of the Act and are of theopinion that primafacie the prescribed cost records have been made andmaintained. We have however not made a detailed examination of the cost records with aview to determine whether they are accurate or complete.

(vii) According to the information and explanations given to us in respect of statutorydues:

(a) The dues of Employees' State Insurance Cess and Value Added Tax have not beenregularly deposited during the year with the appropriate authorities .The Company hasgenerally been regular in depositing other undisputed statutory dues including ProvidentFund Service tax Custom Duty Excise Duty Sales Tax and other material statutory duesapplicable to it to the appropriate authorities.

(b) There were arrears in undisputed amounts payable in respect of Employees' StateInsurance Cess and Value Added Tax as at March 31 2018 for a period of more than sixmonths from the date they became payable are as follows:

Annexure "B" to the Independent Auditors' Report (Contd.)

Name of Statute Nature of Dues Amount (?) Period to which the amount Relates Due Date Date of subsequent Payment
Employee's State Insurance Scheme 1948 ESI 1476 Apr 16 21-May-16 23-May-18
880 May 16 21-Jun-16 23-May-18
1593 Jun 16 21-Jul-16 23-May-18
1261 Jul 16 21-Aug-16 23-May-18
386 Aug 16 21-Sep-16 23-May-18
471 Sep 16 21-Oct-16 23-May-18
166 Oct 16 15-Nov-16 23-May-18
166 Nov 16 15-Dec-16 23-May-18
620 Jan 17 15-Feb-17 23-May-18
The Uttar Pradesh Value Added Tax Act 2008 UP WCT 117755 Oct 15 21-Nov-15 28-May-18
45518 Jun 17 21-Jul-17 30-Apr-18
Tamil Nadu Value Added Tax Act 2006 TM WCT 202850 Jun 17 21-Jul-17 28-May-18
The Chhattsgarh Value Added Sales Tax Act 2003 CH WCT 316880 Jun 17 21-Jul-17 2-May-18
Madhya Pradesh VAT Act 2002 MP WCT 45872 May 17 21-Jun-17 2-May-18
184571 Jun 17 21-Jul-17 2-May-18
Jharkhand Value Added Tax Act 2005 JH WCT 1300362 Jun 17 21-Jul-17 28-May-18
GST (Compensation to States) Act 2017 GST Compensation Cess 115975 Sep 17 20-Oct-17 21-May-18

c) Details of dues of Sales Tax Service Tax Excise Duty and Value Added Tax whichhave not been deposited as on March 31 2018 on account of disputes are given below:

Statute Forum where dispute is pending Period to which the amount relates to Amount involved (' in lacs)
Sales Tax/Value Added Tax Acts Assistant Commissioner/ Additional Commissioner/ Deputy Commissioner/ Commissioner/ Joint Commissioner (Appeal) 2003-04 to 2013-14 3974.24
Appellate and Revisional Board 2005-06 to 2014-15 3363.30
Sales Tax Appellate Tribunal 1994-95 4.16
The Central Excise Act 1944 Commissioner of Central Excise 1989-1993 129.51
The Finance Act 1994 Assistant Commissioner/ Additional Commissioner of Service Tax 2003-04 to 2005-06 2786.98

(viii) In our opinion and according to the information and explanations given to usthe Company has not defaulted in the repayment of loans or borrowings to financialinstitutions banks. The Company has not taken any loan from the Government and not issuedany debentures during the year.

(ix) The Company has not raised moneys by way of initial public offer or further publicoffer (including debt instruments).

McNally Bharat Engineering Company Limited

Annexure "B" to the Independent Auditors' Report (Contd.)

Further the term loans have been applied by the Company during the year for thepurposes for which they were raised.

(x) To the best of our knowledge and according to the information and explanationsgiven to us no fraud by the Company and no fraud on the Company by its officers oremployees has been noticed or reported during the year.

(xi) In our opinion and according to the information and explanations given to us theCompany has paid/provided managerial remuneration during the year in excess of the limitsand approvals prescribed under section 197 read with Schedule V to the Act to thefollowing managerial personnel:

Managerial

Position

Excess amount of remuneration paid/ provided (' in lacs) Financial year ending Treatment of the excess remuneration in the respective year financial statements Steps taken by the Company for securing refund
Managing

Director

220.03 2017-18 Recognised as expense in the Statement of Profit & Loss. Application filed with Central Government for approval of excess remuneration paid/ payable.
Whole Time Director 40.82 2017-18 Recognised as expense in the Statement of Profit & Loss. The Company is yet to seek approval from the Central Government for excess remuneration paid/ payable.

(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of theCARO 2016 Order is not applicable.

(xiii) In our opinion and according to the information and explanations given to usthe Company is in compliance with Section 177 and 188 of the Act where applicable forall transactions with the related parties and the details of related party transactionshave been disclosed in the Standalone Ind AS financial statements as required by theapplicable accounting standards.

(xiv) According to the information and explanations given to us the Company has madepreferential allotment of equity shares share warrants and compulsorily convertiblepreference shares during the year under review.

In respect of the above issue we further report that:

a) the requirement of Section 42 of the Act as applicable have been complied with;and

b) the amounts raised have been applied by the Company during the year for the purposesfor which the funds were raised.

(xv) In our opinion and according to the information and explanations given to us theCompany has not entered into any non-cash transactions with its directors or personsconnected with him during the year and hence provisions of section 192 of the Act are notapplicable.

(xvi) The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934. Accordingly clause (xvi) of the CARO 2016 Order is notapplicable.

For DELOITTE HASKINS & SELLS LLP

For V. SINGHI & ASSOCIATES

Chartered Accountants Chartered Accountants

Firm Registration Number: Firm Registration Number:

117366W/W-100018 311017E

A. Bhattacharya

V. K. Singhi

Place: Kolkata Partner Partner

Date: May 29 2018 Membership Number: 054110 Membership Number: 050051