The Members of MPS Infotecnics Limited
Report on the Audit of the Ind AS Financial Statements
We have audited the accompanying stand-alone Ind AS financial statements of MPSInfotecnics Limited ("MPS" or "the Company") which comprise theBalance Sheet as at 31 March 2019 the Statement of Profit & Loss (including OtherComprehensive Income) the Statement of Changes in Equity and the Cash Flow Statement forthe year then ended and a summary of the Significant Accounting Policies and otherexplanatory information (hereinafter referred to as Standalone 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 matters described in the "Basis forQualified Opinion" section below the aforesaid standalone financial statements givethe information 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 31 March 2019the Loss and total comprehensive income changes in equity and its cash flows forthe year ended on that date.
Basis for Qualified Opinion
1. There is no activity / progress in utilisation in respect of Intangible Assets comprisingCapital Work-in-progress (software development) Rs.. 56 cr. (note 1(C) of theFinancial Statements) software rights Rs.. 36 cr. (note 1(B)) and stock-in-trade(source codes) Rs.. 62 cr. (note 1) which are being carried forward in the accounts sincethe last over 3 years.
We are unable to comment on the extent of impairment loss if any.
2. Investments in subsidiaries Rs. 62 cr.
MPS has 3 subsidiaries in Mauritius Hong Kong and Thailand; there have been nooperations in these overseas subsidiaries since the last few years nor is there anyupdated information in respect thereof.
Assets and liabilities of these subsidiaries aggregating to Rs.. 62 cr. appear as"Non-current investments" (note 2) in the accounts for the year at originalcost. No audit of the subsidiaries has been done either by us or by a local audit firm.
In view of the above there is uncertainty in the realization of receivables of thesesubsidiaries aggregating to Rs.. 15.13 cr.
3. Disputed bank balance in overseas Bank Rs.. 35 cr.
Funds raised by MPS from GDR issue in FY 2007-08 were kept in an account with BancoEfisa in Lisbon Portugal to be deployed in terms of the Information Memorandum of the GDRissue.
During FY 2008-09 the Bank debited USD 8883210.75 out of the balance in thisaccount; the company has denied and disputed this debit and initiated legal action undercriminal jurisprudence of Portuguese Law. Based on information arising during theinvestigation MPS has also filed a civil suit against the Bank and its Holding Companyfor recovery of the disputed amount along with interest.
Though the Company's advocates have confirmed that the chances of recovery are veryhigh yet Bank Balances to the extent of Rs. 35 cr. is overstated.
4. Non-payment of fees to Registrar of Companies Rs.. 5.37 cr.
The Company had increased the authorised capital in stages during the period 2010 to13; applicable fees has not been paid to the RoC.
Meanwhile the schedule of fees was increased substantially by the Companies Act 2013 ;MPS's writ petition challenging the revision in fees on the ground that the capital wasincreased prior to the 2013 Amendment has been dismissed by the Delhi High Court.
MPS has filed Special Leave Petition in the Supreme Court in April 2019.
The amount payable Rs. 4.88 cr. (calculated as per Companies Act 1956) appears as"other current liabilities" (note 9 and 14); provision has been made for theadditional fees which is reflected under the head "Other Expenses Rates & Taxes.
5. Default in deposit of Income tax dues Rs. 20.80 Lacs.
The Company has defaulted in deposit of income tax dues aggregating to Rs. 20.80 Lacsfor the AY 2013-14; provision appears under the head "Short Term Provisions"(note 12 ).
We conducted our audit of the standalone financial statements in accordance with theStandards on Auditing specified under section 143(10) of the Act (SAs).
Our responsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of Standalone Financial Statements section of our report.We are independent of the Company in accordance with the Code of Ethics issued by theInstitute 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 appropriate toprovide a basis for our qualified opinion on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.
In addition to the matters described in the Basis for Qualified Opinion section abovewe have determined the matters described below to be the key audit matters to becommunicated in our report.
1. Evaluation of uncertain tax positions:
The Company has material uncertain direct and indirect tax positions including mattersunder dispute which involves significant judgment to determine the possible outcome ofthese disputes. Refer Note 21 under the head "Contingent Liabilities" in theStandalone Financial Statements.
We obtained from the Company's management details of the status as of 31 March 2019concerning tax assessments and demands for current as well as past years. We assessed themanagement's underlying assumptions in estimating the tax provision and the possibleoutcome of the disputes to evaluate whether any change was required to management'sposition on these uncertainties.
2. Company's business model
MPS's existing business model has been impacted by the uncertainty due to its highdependence on
Telecommunication segment which has shown a significant decline due to very toughcompetition from online operators and other service providers such as Vodafone Idea Jioand others who have been providing similar services. This has resulted in losses leadingto difficulty in bank financing and increasing dependence on loans from others.
MPS has diversified into export of telecommunication equipments on trial basis; MPShopes to recover losses and make profit in due course by way of continued exports andbetter purchase prices on volume-buying.
3. National Stock Exchange on directions from SEBI initiated punitive action againstMPS as a "shell company" and placed restrictions on sale of shares by thepromoters; the company vide its letter dated May 4
2019 responded to the observations raised by the forensic auditor appointed by NSE.
4. Default in payment of working capital dues
The cash-credit account of the company with Allahabad Bank was declared as NPA by theBank; against the one-time settlement with the Bank for Rs.. 2.66 Cr the overdue arrearsas on 31 Mar 2019 is Rs.. 2.76 Cr.
No provision has been made for penal interest payable on the defaulted amount.
Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis Report Board's Report including Annexures to Board's ReportBusiness Responsibility Report Corporate Governance and Shareholder's Information butdoes not include 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. We havenothing to report in this regard.
Management's Responsibility for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these standalone financial statementsthat give a true and fair view of the financial position financial performance totalcomprehensive income changes in equity and cash flows of the Company in accordance withthe Ind AS and other accounting principles generally accepted in India.
This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for
safeguarding the assets of the Company and for preventing and detecting fraudsand other irregularities
selection and application of appropriate accounting policies
making judgments and estimates that are reasonable and prudent
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 standalonefinancial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the standalone financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
The Board of Directors are responsible for overseeing the Company's financial reportingprocess.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional scepticism throughout the audit. We also :
Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal financial controls relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Company to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the standalone financial statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced.
We consider quantitative materiality and qualitative factors in ;
(i) planning the scope of our audit work and in evaluating the results of our work; and
(ii) to evaluate the effect of any identified misstatements in the financialstatements.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters.
We describe these matters in our auditor's report unless law or regulation precludespublic disclosure about the matter or when in extremely rare circumstances we determinethat a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.
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 in terms of Section 143(11) of the Act we give in "Annexure1" a statement on the matters specified in paragraphs 3 and 4 of the Order.
2. As required by Section 143(3) of the Act based on our audit we report that: a) Wehave sought and obtained all the information and explanations which to the best of ourknowledge 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 please refer toour separate Report in "Annexure 2". Our report expresses an unmodifiedopinion on the adequacy and operating effectiveness of the Company's internal financialcontrols over financial reporting.
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 financial statements.
ii. There are no long term contracts including derivative contracts.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
(Referred to in paragraph 1 under "Report on other Legal and Regulatoryrequirements" section in 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 fixed assets have been physically verified by the management in a phasedmanner designed to cover all the items over a period of three years which in ouropinion is reasonable having regard to the size of the company and nature of itsbusiness. Pursuant to the program a portion of fixed asset has been physically verifiedby the management during the year and no material discrepancies between the books recordsand physical fixed assets have been noticed.
(c) The company has no immovable properties.
ii) (a) The inventories excluding material in transit have been physically verifiedduring the year by the management. In our opinion the frequency of such verification isreasonable.
(b) There were no discrepancies noticed on physical verification of Inventory ascompared to book records.
iii) The Company has not granted any loans secured or unsecured to the companiesfirms Limited Liability Partnerships or other parties covered in the Register maintainedunder Section 189 of the Act. Accordingly the provisions of clause 3 (iii) (a) to (c) ofthe order are not applicable to the company.
iv) In our opinion and according to the information and explanations given to us thecompany has complied with the provisions of section 185 and 186 of the Companies Act 2013in respect of loans investments guarantees and security.
v) The Company has not accepted any deposits from the public and hence the directivesissued by the Reserve Bank of India and the provisions of Sections 73 to 76 or any otherrelevant provisions of the Act and the Companies (Acceptance of Deposits) Rules 2015 withregard to the deposits accepted from the public are not applicable.
vi) The Central Government has not prescribed the maintenance of cost records undersection 148(1) of the Companies Act 2013. Therefore the provisions of this clause do notapply.
vii) According to information and explanations given to us and on the basis of ourexamination of the books of account and records the company has been generally regularin depositing undisputed statutory dues including Provident Fund Employees' StateInsurance Income Tax Sales Tax Service Tax Duty of Customs Duty of Excise ValueAdded Tax Cess and any other statutory dues with the appropriate authorities. Accordingto the information and explanations given to us no undisputed amounts payable in respectof the above were in arrears as at 31st March 2019 for a period of more than six monthsfrom the date on when they become payable except for the following:
(a) According to the information and explanations given to us there are Service Taxdues aggregating to Rs. 35.53 Lacs- against which the company has paid Rs. 1000000. Thebalance amount of Rs. 2553123 has not been deposited as at 31st March 2019 and has beendisputed by the Company the details of which are mentioned hereunder:
|Name of the Statute ||Nature of Dues ||Period / Year ||Amount Rs. lacs ||Forum before which dispute is pending |
|Service Tax ||Demand raised by the Department ||From 01.07.2012 to 31.03.2013 ||16.94 ||Additional Commissioner Range 47 Nehru Place New Delhi |
|Service Tax ||Demand raised by the Department ||FY 2013-14 ||12.37 ||Additional Commissioner Range 47 Nehru Place New Delhi |
|Service Tax ||Demand raised by the Department ||FY 2014-15 ||6.22 ||Additional Commissioner Range 47 Nehru Place New Delhi |
According to the information and explanations given to us there are Income Tax duesaggregating to Rs. 6.93 cr. which has not been deposited as at 31st March 2019 as under:
|Income Tax ||Demand raised by the Department ||FY 2010-10 ||Rs. 4.65 Cr ||Order has been passed in favour of the company However the department has filed an appeal before the Hon'ble Delhi High Court |
|Income Tax ||Demand raised by the Department ||FY 2011-12 ||Rs. 2.28 Cr. ||Order has been passed in favour of the company however the department has filed an appeal before the Hon'ble Delhi High Court |
i) In our opinion and according to the information and explanations given to us thecompany has defaulted in repayment of dues to Allahabad Bank for an amount of Rs.. 2.76Cr. overdue payable against working capital facilities granted by the Bank.
ii) Based upon the audit procedures performed and the information and explanation givenby the management the company has not raised moneys during the year by way of initialpublic offer or further public offer including debt instruments and term loans.Accordingly the provisions of clause 3 (ix) of the Order are not applicable to thecompany and hence not commented upon.
iii) Based upon the audit procedures performed and the information and explanationgiven by the management we report that no fraud by the company or on the company by itsofficers or employees has been noticed or reported during the year.
iv) Based upon the audit procedures performed and the information and explanation givenby the management no managerial remuneration has been paid or provided ; accordingly theprovisions of section 197 read with Schedule V to the Companies Act are not applicable.
v) The Company is not a Nidhi Company. Therefore the provisions of clause 4 (xii) ofthe Order are not applicable to the Company vi) In our opinion transactions with relatedparties are in compliance with section 177 and 188 of the Companies Act 2013 and thedetails have been disclosed in the Financial Statements as required by the applicableaccounting standard.
vii) Based upon the audit procedures performed and the information and explanationgiven by the management the company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures during the year underreview. Accordingly the provision of clause 3 (xiv) of the Order are not applicable tothe company.
viii) Based upon the audit procedures performed and the information and explanationgiven by the management the company has not entered into any non-cash transactions withdirectors or persons connected with them. Accordingly the provision of clause 3 (xv) ofthe Order are not applicable to the company and hence not commented upon.
ix) In our opinion the company is not required to be registered under section 45-IA ofthe Reserve Bank of India Act 1934 and accordingly provisions of clause 3 (xvi) of theOrder are not applicable to the company and hence not commented upon.
(Referred to in paragraph 1(f) under "Report on Other Legal and RegulatoryRequirements" section of our report of even date)
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls over financial reporting of MPSInfotecnics Ltd. ("the Company") as of 31 March 2019 in conjunction with ouraudit of the stand-alone financial statements of the Company for the year ended on thatdate.
Management's Responsibility for Internal Financial Controls
The Company's Board of Directors is responsible for establishing and maintaininginternal financial controls 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. Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013.
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting 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 CompaniesAct 2013 to the extent applicable to an audit of internal financial controls.
Those Standards and the Guidance Note require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance about whether adequateinternal financial controls over financial reporting was established and maintained and ifsuch controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's 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 audit opinion on the Company's internal financial controls systemover financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of 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.
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 adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31 March 2019 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.
For Nemani Garg Agarwal & Co.
Firm Reg. No. 010192N
Membership no. 037222
Place: New Delhi
Date: 30 May 2019