TO THE MEMBERS OF MIDEAST INTEGRATED STEELS LIMITED
Report on the Audit of the Standalone Financial Statements Qualified
1. We have audited the accompanying standalone financial statements of M/s MideastIntegrated Steels Limited ("the Company") which comprise the Balance Sheet asat March 31 2019 the Statement of Profit and Loss (including Other ComprehensiveIncome) the Statement of Changes in Equity and the Statement of Cash Flows for the yearended on that date and a summary of the significant accounting policies and otherexplanatory information (hereinafter referred to as "the standalone financialstatements").
2. In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matter 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 31 2019and total comprehensive loss (comprising of the loss and other comprehensive loss)changes in equity and its cash flows for the year ended on that date.
Basis for Qualified Opinion
3. 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 Financial Statements section of ourreport. We are independent of the Company in accordance with the Code of Ethics issued bythe Institute of Chartered Accountants of India (ICAI) together with the independencerequirements that are relevant to our audit of the standalone financial statements underthe provisions of the Act and the Rules made thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the ICAI's Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our qualified audit opinion on the standalone financial statements.
1. In pursuance to the judgement dated 2nd August 2017 of Honorable Supreme Court ofIndia in the matter of Writ Petition (Civil) No. 114 of 2014 between Common Cause v/sUnion of India & Others there is a penalty imposed of Rs 924 crores along withinterest on the company for excess production of Iron Ore during 2000-01 to 2010-11. TheCompany was supposed to make the payment of this compensation on or before 31st December2017 failing which the mines of the Company are closed down wef 1st January 2018. TheCompany has filed a Curative petition' (Civil) on 28th March 2018 beforethe Honorable Supreme Court of India challenging the Judgement and which we have beeninformed is still pending. Hence no provision has been made for the same in the books ofaccounts. However in our opinion this penalty has been crystalized and accordingly aprovision should have been made in the books to the extent of Rs 924 crores along withinterest upto date.
2. Balance confirmations and bank statements have not been provided to us for somebanks accounts and loans. Details are as per Annexure III attached herewith.
3. The deferred tax working has not been shared with us hence we are unable to commentupon the correctness of the same as on 31st March 2019.
4. The Company has an investment of Rs 179.88 crores in its Subsidiary Maithan IspatLimited. Based on the financials of its subsidiary the Net worth is negative and theliabilities exceed the assets of the subsidiary company. In the absence of any impairmenttesting done we are unable to comment on the investment value taken in the Company'sbooks.
Emphasis of Matter
1. Balances of Debtors creditors loans & advances received & given anddeposits received & given are subject to confirmations and reconciliations.
2. In the absence of complete details and documentation for additions made to CapitalWork in progress we are unable to comment on the same.
3. In our opinion a provision for doubtful debts of Rs 8.87 crores needs to be madeagainst the balances of non moving old Debtors & Creditors (where advances have beengiven by the Company) as on 31st March 2019. No litigation has been initiatedby the Company on these balances.
4. In the absence of complete stock valuation details we are unable to comment on thestock valuation taken as on 31st March 2019.
Key Audit Matters
4. 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 and in forming our opinion thereon and we do not provide a separate opinionon these matters. There are no matters determined to be the key audit matters to becommunicated in our report.
Information Other than the Standalone Financial Statements and Auditor's Report Thereon
5. The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis Board's Report including Annexures to Board's Report BusinessResponsibility Report Corporate Governance and Shareholder's Information but does notinclude the standalone financial statements and our auditor's report 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.
Since we have not been provided with the other information we will not be able toreport on the same.
Responsibilities of management and those charged with governance for the StandaloneFinancial Statements
6. 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 ofthe Company and for preventing anddetecting 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.
7. 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 Financial Statements
8. 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.
9. 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 financialstatements that individually or in aggregate makes it probable that the economicdecisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in (i) planningthe scope of our audit work and in evaluating the results of our work; and (ii) toevaluate the effect of any identified misstatements in the financial statements.
10. We communicate with those charged with governance regarding among other mattersthe planned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
11. We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards.
12. From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the standalone financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
Report on Other Legal and Regulatory Requirements
13. 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 I" a statement on the matters specified in paragraphs 3 and 4 of theOrder
14. As required by Section 143(3) of the Act based on our audit subject to thequalified opinion given above 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 31 2019 from being appointed as a director in terms of Section 164 (2) of theAct.
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 II".
g. 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 to the best of our information and according to the explanationsgiven to us the remuneration paid by the Company to its directors during the year is inaccordance with the provisions of section 197 of the Act.
h. 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 subject to the qualified opinion given above:
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 if required to be transferred tothe Investor Education and Protection Fund by the Company.
ANNEXURE I TO AUDITORS' REPORT
[Referred to in above the Auditor's Report of even date for M/s Mideast IntegratedSteels Limited on the Financial Statements for the year ended 31st March 2019]
1 (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) As per the information and explanation given to us fixed assets are physicallyverified by the management according to a phased programme designed to cover all thelocations which in our opinion is reasonable having regard to the size of the company andthe nature of its assets. As informed to us the management during the year had physicallyverified the fixed assets at certain locations.
(c) According to the information and explanation given to us the title deeds ofimmovable properties are held in the name of the company.
2 As per the information provided to us Inventory has been physically verified by themanagement during the year. The discrepancies noticed on verification between the physicalstocks and the book records were not material.
3 According to information and explanation given to us the Company has grantedunsecured loans to parties covered in the register maintained under Section 189 of theAct however in our opinion:
The terms and conditions of the grant of such loans are prejudicial to thecompany's interest as no interest is being charged on the same upto year ended 31stMarch 2019.
There is no schedule of repayment of principal and payment of interest that hasbeen stipulated.
4 In our opinion and according to information and explanation given to us the companyhas in respect of loans investments guarantees and security provisions complied withsection 185 and 186 of the Companies Act 2013.
5 According to the information and explanation given to us the company has notaccepted any public deposits within the meaning of sections 73 to 76 or any otherrelevant provisions of the Companies Act 2013. Hence the provisions of clause 3(v) arenot applicable to the company.
6 Pursuant to the rules made by the Central Government the maintenance of Cost Recordshave been prescribed u/s. 148(1) of the Companies Act 2013. We are of the view that primafacie the prescribed accounts and records have been maintained. We have however not madea detailed examination of the records with a view to determine whether they are accurateor complete.
7 (a) According to the books and records as produced and examined by us in accordancewith generally accepted auditing practices in India and also management representationsundisputed statutory dues in respect of Provident fund employees' state insurance IncomeTax Sales Tax Service tax Custom duty Excise duty Value added tax Cess and otherstatutory dues if any applicable to it has been regularly deposited with theappropriate authorities.
(b) According to the records of the Company the disputed dues in respect of ExciseDuty Service Tax Sales Tax Entry Tax and Customs duty as at March 31st 2019 have notbeen deposited with appropriate authorities and no provision has been made for the same.Details are as follows:
|Sr. No. ||Dues pertaining to ||Amount (In Crores) March 2019 ||Amount (In Crores) March 2018 ||Forum where dispute is pending |
|1 ||Excise Duty ||114.26 ||28.77 ||Various Authorities |
|2 ||Service Tax ||3.00 ||3.87 ||Various Authorities |
|3 ||Sales and Entry Tax ||24.84 ||24.68 ||Various Authorities |
|4 ||Income Tax ||5.77 ||5.77 ||Various Authorities |
| ||Total ||147.87 ||63.09 || |
8 In our opinion and according to the information and explanation given to us and thebooks of accounts verified by us the company has defaulted in repayment of dues to afinancial institution bank Government or dues to debenture holders details are asbelow:
|Sr. No. ||Bank / Financial Institution ||Default Amount ||Currency ||Default made for the month of |
|1 ||SREI Equipment Finance Limited ||1826000 ||INR ||March 2019 |
|2 ||BanyanTree Bank Limited (Loan no 0024) ||312500 ||USD ||December 2018 |
|3 ||BanyanTree Bank Limited (Loan no 0126) ||58333 ||USD ||March 2019 |
|4 ||BanyanTree Bank Limited (Loan no 0046) ||66667 ||USD ||December 2018 |
9 As per information given to us no money was raised by way of initial public offer orfurther public offer (including debt instruments). As per the information and explanationgiven to us the fresh term loans taken by the Company during the year have been appliedfor the purpose for which those were raised.
10 During the course of our examination of the books of account carried in accordancewith the generally accepted auditing standards in India we have neither come across anyinstance of fraud on or by the Company either noticed or reported during the year norhave we been informed of such case by the Management.
11 According to the information and explanation given to us and the books of accountsverified by us the Managerial remuneration has been paid or provided in accordance withthe requisite approvals mandated by the provisions of section 197 read with Schedule V tothe Companies Act.
12 The Company is not a Nidhi Company hence the provision of clause 3(xii) are notapplicable to the company.
13 According to the information and explanation given to us and the record producedbefore us all transactions with the related parties are in compliance with sections 177and 188 of Companies Act 2013 where applicable and the details have been disclosed inthe Financial Statements etc. as required by the applicable accounting standards.
14 According to information and explanation given to us the Company during the yearhas not made any preferential allotment or private placement of shares or fully or partlyconvertible debentures hence the provision of clause 3(xiv) are not applicable to thecompany.
15 According to the information and explanation given to us and the books of accountsverified by us the company has not entered into any non-cash transactions with directorsor persons connected with him.
16 The company is not required to be registered under section 45-IA of the Reserve Bankof India Act 1934.
ANNEXURE II TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE FINANCIALSTATEMENTS OF M/S MIDEAST INTEGRATED STEELS LIMITED AS ON 31st MARCH 2019
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")
To the Members of M/s Mideast Integrated Steels Limited
We have audited the internal financial controls over financial reporting of M/s MideastIntegrated Steels Limited ("the Company") as of March 31 2019 in conjunctionwith our audit of the standalone financial statements of the Company for the year ended onthat 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 the Company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.
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 as specified under section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of Internal Financial Controls and bothissued by the Institute of Chartered Accountants of India. 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 judgment 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 audit opinion on the internal financial controls system overfinancial 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 authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized 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 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.
In our opinion the Company has in all material respects an internal financialcontrols system over financial reporting however they need to be strengthened andcomprehensively documented based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting issued by the Institute of Chartered Accountants of India.
ANNEXURE III TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE FINANCIALSTATEMENTS OF M/S MIDEAST INTEGRATED STEELS LIMITED AS ON 31st MARCH 2019
Details for Qualification in the Audit report - Point no 2:
Details of banks and loans where balance confirmations and bank statements have notbeen provided to us for verification:
|Srn ||Particulars ||Account number ||Closing Amount as per books (Rs) |
|1 ||Punjab National Bank ||XXXXXXXXXX1037 ||668550 |
|2 ||Central Bank of India (EEFC) ||XXXXXX4776 ||9778 |
|3 ||ICICI Bank ||XXXXXXXX2008 ||7262055 |
|4 ||ICICI Bank ||XXXXXXXX1275 ||1420257 |
|5 ||ICICI Bank ||XXXXXXXX3764 ||2204 |
Loans by Other financial institutions:
|Srn ||Particulars ||Closing Amount as per books (Rs) |
|1 ||SREI Equipment Finance Limited ||(51912169) |
For and on behalf of
Arun Todarwal & Associates LLP
ICAI Reg No: W100291
M. No.: 032822
Dated : 21st June 2019