THE MEMBERS OF MODERN STEELS LIMITED
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of Modern Steels Limited whichcomprise the Balance Sheet as at March 31 2019 the Statement of Profit and Loss(including Other Comprehensive Income) the Statement of Changes in Equity and Statementof Cash Flows for the year ended and a summary of significant explanatory information.
We have audited the standalone financial statements of Modern Steels Limited ("theCompany") which comprises the balance sheet as at March 31 2019 and the statementof Profit and Loss (statement of changes in equity) and the statement of cash flows forthe year then ended and notes to the financial statements including a summary ofsignificant accounting policies and other explanatory information.
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 forQualifiedOpinion section of our report and Emphasis of Matters the aforesaidfinancial statements give a true and fair view in conformity with the accountingprinciples of the state of affairs of the Company as at March 31st 2019 andprofit/loss (changes in equity) and its cash flows for the year ended on that date.
BASIS FOR QUALIFIED OPINION
1. As prescribed in Sec-197 and Schedule V of Companies Act2013 if there are noprofits or profits are inadequate and where the company has defaulted in payment of duesto any bank or public financial institution the prior approval of the bank or publicfinancial institution concerned shall be obtained by the Company before approving the sameby special resolution at general meeting.
Neither the required resolution has been passed nor the prior approval has beenobtained from the bankers since having defaulted in paying their dues. Therefore theCompany is not eligible to pay director's remuneration due to non-compliance of conditionsprescribed in schedule V of the Companies Act 2013. During the year the Company hasgiven the director remuneration to Mr. Krishan Kumar Goyal (Chairman and ManagingDirector) amounting to Rs. 3905614 and Mr. R.K. Sinha (Director) amounting to Rs.3515350.
Apart from the managerial remuneration for year ended 31st March 2019 asmentioned above the company has paid director remuneration of Rs. 9233084 till 31stMarch2018 without complying the provisions of Schedule V of the Companies Act 2013.
We conducted our audit in accordance with Standards on Auditing (SAs) specified undersection 143(10) of the Companies Act 2013. Our responsibilities under those Standards arefurther described in the Auditor's Responsibilities for the Audit of the FinancialStatements section of our report. We are independent of the Company in accordance with theCode of Ethicsaccounting policies and other issued by the Institute of CharteredAccountants of India together with the ethical requirements that are relevant to our auditof the financial statements under the provisions of the Companies Act 2013 and we havefulfilled our other ethical responsibilities in accordance with these requirements and theICAI's Code of Ethics. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our qualified opinion.
EMPHASIS OF MATTER
1. Interest provisioning on facilities from Consortium banks
The Company's various credit facilities have been declared "Non-PerformingAssets" by its respective banks. There is a usual practice that banks discontinue toaccount for as "income" in respect to the accrued interest on such assetssubsequent to the declaration of these as "Non-performing assets".
The bankers of the Company too have not accounted as "income" in respect tothe interest subsequent to NPA declaration date. In order to achieve the desiredcongruency on this issue & uncertainty of the amount liable to be paid the managementof the Company has not provided for such interest i.e. interest on credit facilities(including on assigned debts of SBI and Canara Bank) subsequent to the date of declarationof theses credit facilities as non-performing. Such interest amounts to Rs.2677
Lakhs for the current financial year which has resulted in the understatement ofcurrent liabilities and losses to that extent.
2. Assignment of debt of SBI and Canara Bank to ARC
Two lender banks of the company viz. State Bank of India (SBI) and Canara Bank haveassigned their loans and other facilities along with underlying financial documentstogether with all the rights title and interest to Edelweiss Asset Reconstruction CompanyLimited acting in its capacity as trustee of the EARC Trust- SC 306 for the benefits ofthe holders of the Security Receipts issued by the trustee there under. During thereporting period there has been no written agreement between the Company and EdelweissAsset Reconstruction Company Limited to crystalise the amount payable and interest thereonto them hence the said debt till then is continued to be shown as payable to SBI andCanara Bank instead of Edelweiss Asset Reconstruction Company Limited.
3. One Time Settlement (OTS) with PNB
The Company has proposed its OTS offer to Punjab National Bank (PNB). The bank hasapproved the same. The Company has complied with all the terms and conditions except forrepayment period.
The Company has however requested to the bank for extension of the period ofrepayment of OTS amount.
The preparation of the financial statements is done on going concern basisconsequently assets and liabilities are being carried at their book value. We drawattention to the financial statements which indicates that the company had accumulatedlosses and has also incurred losses during the financial year ended 31st March2019. As on date the Company's current liabilities exceeded its current assets and theCompany's net worth has also been eroded. There are negative operating cash indicated byhistorical financial statements adverse key financial ratios and inability to complywith the term loan agreements. These conditions indicate the existence of a materialuncertainty that may cast doubt about the Company's ability to continue as a goingconcern.
MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 with respect to the preparation and presentation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance including other comprehensive income changes in equityand cash flows of the Company in accordance with the Indian Accounting Standards (Ind AS)prescribed under section 133 of the Act read with the Companies (Indian AccountingStandards) Rules 2015 as amended and other accounting principles generally accepted inIndia.
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 financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
Our responsibility is to express an opinion on these standalone financial statementsbased on our audit.
We have taken into account the provisions of the Act the accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made there under. We conducted our audit in accordancewith the
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 financial statements are free from materialmisstatement. An audit involves performing procedures to obtain audit evidence about theamounts and the disclosures in the financial statements. The procedures selected depend onthe auditor's judgment including the assessment of the risks of material misstatement ofthe financial statements whether due to fraud or error. In making those risk assessmentsthe auditor considers internal financial control relevant to the Company's preparation ofthe financialstatements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances but not for the purpose of expressing anopinion on whether the Company has in place an adequate internal financial controls systemover financial reporting and the operating effectiveness of such controls. An audit alsoincludes evaluating the appropriateness of the accounting policies used and thereasonableness of the accounting estimates made by the Company's Directors as well asevaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the standalone financial statements.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Act we give in the Annexure a statement on the matters specified in the paragraph 3and 4 of the Order to the extent applicable.
2. As required by Section 143(3) of the Act we report that: a. We have sought andobtained all the information and explanations which to the best of our knowledge andbelief were necessary for the purposes of our audit; b. In our opinion proper books ofaccount as required by law have been kept by the Company so far as appears from ourexamination of those books. c. The Balance Sheet the Statement of Profit and Lossincluding Other Comprehensive IncomeStatement of Changes in Equity and the Statement ofCash Flow dealt with by this Report are in agreement with the books of account. d. In ouropinion the aforesaid standalone financial statements comply with the Indian AccountingStandards prescribed under section 133 of the Act. e. On the basis of the writtenrepresentations received from the directors as on March 31 2019 taken on record by theBoard of Directors none of the directors is disqualified as on March 31 2019 from beingappointed as a director in terms of Section 164(2) of the Act. f. With respect to theother matters to be included in the Auditor's Report in accordance with Rule 11 of theCompanies (Audit and Auditors) Rules 2014 in our opinion and to the best of ourinformation and according to the explanations given to us:
The Company has disclosed the impact of pending litigations on its financialposition in its financial statements;
The Company has made provision as required under the applicable law or Indianaccounting standards for material foreseeable losses if any on long-term contractsincluding derivative contracts;
There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company
ANNEXURE TO THE AUDITORS' REPORT
The Annexure referred to in our report to the members of the company for the year ended31 March 2019. To the best of our knowledge and belief and information & explanationgiven to us we further report that:-
1. a) The company has maintained proper records to show full particulars includingquantitative details & situation of its fixed assets.
b) As explained to us the fixed assets have been physically verified by the managementat reasonable intervals which in our opinion is appropriate having regards to size of thecompany and nature of its assets. No material discrepancies have been noticed during theyear.
c) The title deeds of immovable properties are held in the name of the Company.
2. a) The inventory of the company has been physically verified by the management atreasonable intervals during the year.
b) No material discrepancies were noticed.
3. The company has not granted loans secured or unsecured to Companies Firms or otherparties covered in the Register maintained u/s 189 of the Companies Act 2013 during theyear.
4. In respect of loans investments guarantee and security the provisions of section185 and 186 of the Companies Act 2013 have been complied with.
5. The company has accepted loans from directors amounting to Rs 0.75 crore. Thecompany has complied with the directives issued by the Reserve Bank of India & withthe provisions of Section 73 to 76 of the Companies Act 2013 and the rules framed thereunder with regard to the deposits accepted from the public. No order has been passed bythe Company Law Board or National Company Law Tribunal or Reserve Bank of India or anycourt or any other Tribunal.
6. On the basis of records produced to us we are of the opinion that prima facie thecost records prescribed by the Central Government of India under section 148(1) of the Acthave been made & maintained & also cost audit will be conducted in due course oftime. We have not carried out any detailed examination of such account & records.
7. (a) According to the books and records as produced and examined by us in accordancewith generally accepted auditing practices in India and also based on Managementrepresentations undisputed statutory dues in respect of Provident Fund Employee's StateInsurance dues Investor Education and Protection Fund Income Tax Service Tax CessGoods and Services Tax and other material statutory dues have generally been regularlydeposited by the Company during the year with the appropriate authorities in India andthere were no arrear outstanding in respect of above for a period of more than six monthas on 31.03.2019.
(b) According to the records of the Company examined by us and the information andexplanations given to us there are no dues of Goods and Service Tax sales tax incometax customs duty service tax excise duty and cess which have not been deposited onaccount of any dispute other than the following amounting to Rs1.42 crore. The details areas under:-
|NATURE OF DUES/NAME OF STATUTES ||FORUM WHERE DISPUTE IS PENDING ||YEAR ||DISPUTED AMOUNT |
| || || ||( Rs ) |
|EXCISE DUTY || || || |
|CENTRAL EXCISE ACT 1944 ||COMMISSIONER (APPEALS) CHANDIGARH ||2007-08 ||256533 |
|CENTRAL EXCISE ACT 1944 ||COMMISSIONER (APPEALS) CHANDIGARH ||2007-08 to 2008-09 ||259085 |
|CENTRAL EXCISE ACT 1944 ||COMMISSIONER (APPEALS) CHANDIGARH ||2004-05 to 2006-07 ||8956212 |
|CENTRAL EXCISE ACT 1944 ||CESTAT NEW DELHI ||2002-03 to 2004-05 ||1587580 |
|CENTRAL EXCISE ACT 1944 ||CESTAT NEW DELHI ||2008-09 ||110550 |
|CENTRAL EXCISE ACT 1944 ||COMMISSIONER (APPEALS) CHANDIGARH ||2004-05 ||516272 |
| ||CUSTOMS DUTY || || |
|CUSTOMS ACT 1962 ||CESTAT AHMEDABAD ||2004-05 ||2535450 |
8. During the year ended 31 March 2019 the Company has defaulted on timely payment ofprincipal and payment of interest on term loans and cash credits. The lender wise detailswith respect to interest and principal in default as on 31.03.2019 is as under:
| || || || ||Rs in lakhs |
|S.No ||Particulars ||Amount in lakhs ||Nature of Due ||Date of Default |
|1. ||State Bank of India ||12081 ||Principal ||01/02/2016 |
| || ||31 ||Interest || |
|2. ||Punjab National Bank ||4315 ||Principal ||01/04/2016 |
| || ||219 ||Interest || |
|3. ||Canara Bank ||1890 ||Principal ||30/09/2016 |
| || ||24 ||Interest || |
*It does not include Interest amounting to Rs7269 lakhs not provided for inbooks.
The debts of SBI and Canara has however been assigned to ARC i.e Edelweiss AssetReconstruction Company Limited. As there is no written agreement between the Company andARC therefore the above debts has been recorded in books with respective banks. TheCompany did not raise money by way of initial public offer or further public offer(including debt instruments and term loans during the year).
9. As per the information and explanation given to us and on the basis of examinationof records no material fraud on or by the Company was noticed during the course of ouraudit.
10. The Company has not paid managerial remuneration in accordance with the requisiteapproval mandated by the provisions of section 197 read with schedule V to the CompaniesAct. The details of the same have been mentioned in the Basis of Qualified opinion sectionof Audit Report.
11. In our opinion considering the nature of activities carried on by the Companyduring the year the provisions of any special/statute applicable to Nidhi Company are notapplicable to it.
12. All transactions with related parties are in accordance with section 177 and 188 ofthe Companies Act 2013 and details have been disclosed in the financial statements asrequired by the applicable accounting standards.
13. The Company has not made any preferential allotment or private placement of sharesor fully or partly convertible debentures during the year under review.
14. The Company has not entered into any non cash transactions with directors orpersons connected with him during the year under review.
15. The Company is not required to be registered under section 45-IA of the ReserveBank of India 1934.
Annexure to the Independent Auditor's Report of even date to the members of ModernSteels Limited on the financial statements for the year ended 31st March 2019Independent Auditor's report on the Internal Financial Controls under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")
1. In conjunction with our audit of the financial statements of Modern Steels Limited("the Company") as of and for the year ended 31st March 2019 we have auditedthe internal financial controls over financial reporting (IFCoFR) of the company as ofthat date.
Management's Responsibility for Internal Financial Controls
2. The Company's Board of Directors is responsible for establishing and maintaininginternal financialcontrols 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 the Company'sbusiness including adherence to 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 Act.
3. Our responsibility is to express an opinion on the Company's IFCoFR based on ouraudit. We conducted our audit in accordance with the Standards on Auditing issued by theInstitute of Chartered Accountants of India (ICAI) and deemed to be prescribed underSection 143(10) of the Act to the extent applicable to an audit of IFCoFR and theGuidance Note on Audit of Internal Financial Controls Over Financial Reporting (the"Guidance Note") issued by the ICAI. Those Standards and the Guidance Noterequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate IFCoFR were established and maintained and ifsuch controls operated effectively in all material respects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the IFCoFR and their operating effectiveness. Our audit of IFCoFR included obtaining anunderstanding of IFCoFR assessing the risk that a material weakness exists and testingand evaluating the design and operating effectiveness of internal control based on theassessed risk. The procedures selected depend on the auditor's judgement including theassessment of the risks of material misstatement of the financial statements whether dueto fraud or error.
5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's IFCoFR.
Meaning of Internal Financial Controls over Financial Reporting
6. A Company's IFCoFR is a process designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with Generally Accepted Accounting Principles. A Company'sIFCoFR 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
7. Because of the inherent limitations of IFCoFR including the possibility ofcollusion or improper management override of controls material misstatements due to erroror fraud may occur and not be detected. Also projections of any evaluation of the IFCoFRto future periods are subject to the risk that IFCoFR may become inadequate because ofchanges in conditions or that the degree of compliance with the policies or proceduresmay deteriorate.
8. In our opinion the Company has in all material respects adequate internalfinancial controls over financial reporting and such internal financial controls overfinancial reporting were operating effectively as at 31st March 2019 based onthe internal control over financial reporting criteria established by the Companyconsidering the essential components of internal control stated in the Guidance Note onAudit of Internal Financial Controls over Financial Reporting issued by the Institute ofChartered Accountants of India.
| ||For AARYAA & ASSOCIATES |
| ||Chartered Accountants |
| ||(Firm Registration No. 015935N) |
| ||CA HARSHARANJIT SINGH CHAHAL |
|Place: Chandigarh ||Partner |
|Date: 30th May 2019 ||Membership no. 091689 |