The Members PSL LIMITED
Report on the Standalone Ind AS financial statements
Corporate insolvency Resolution Process ("CIRP")
The Honble National Company Law Tribunal Ahmedabad ("NCLT") by anorder dated 15th February 2019 admitted the Corporate insolvency Resolution Process("CIRP") consequent upon an application filed by PSL Limited u/s 10 of IBC Codeand appointed Mr. Nilesh Sharma as the Interim Resolution Professional ("IRP")in term of the Insolvency and Bankruptcy Code 2016 ("Code") to manage theaffairs of the Company as per the provisions of the Code. The CIRP is ongoing.
We have audited the accompanying standalone financial statements of PSL LIMITED("the Company") which comprise the Balance Sheet as at March 31 2019 theStatement of Profit and Loss (including Other Comprehensive Income) the Statement ofChanges in Equity and the Statement of Cash Flows for the year ended on that date and asummary of the significant accounting policies and other explanatory information(hereinafter referred to as "the standalone financial statements").
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("the Act") in the manner so required and give a trueand fair view in conformity with the Accounting Standards specified under Section 133 ofthe Act and other accounting principles generally accepted in India of the state ofaffairs of the Company as at 31st March 2019 and its loss and its cash flows for the yearended on that date.
Basis for Opinion
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 AuditorsResponsibilities 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 ICAIs Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit 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 financial statements for the financial year ended March31 2019. These matters were addressed in the context of our audit of the financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. For each matter below our description of how our auditaddressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to becommunicated in our report. We have fulfilled the responsibilities described in theAuditors responsibilities for the audit of the financial statements section of ourreport including in relation to these matters. Accordingly our audit included theperformance of procedures designed to respond to our assessment of the risks of materialmisstatement of the financial statements. The results of audit procedures performed by usincluding those procedures performed to address the matters below provide the basis forour audit opinion on the accompanying financial statements.
Emphasis of matter
i. As a consequence to acute financial stress being faced by the Company in recentyears the Companys net worth has been eroded due to accumulated losses. Keeping inview the current status of companys operations it is likely that the accumulatedlosses are further enhanced creating a further adverse impact on its net worth.
ii. The Honble National Company Law Tribunal Ahmedabad ("NCLT") by anorder dated 15th February 2019 admitted the Corporate insolvency Resolution Process("CIRP") consequent upon an application filed by PSL Limited u/s 10 of IBC Codeand appointed Mr. Nilesh Sharma as the Interim Resolution Professional ("IRP")in term of the Insolvency and Bankruptcy Code 2016 ("Code") to manage theaffairs of the Company as per the provisions of the Code. The CIRP is ongoing.
iii. The financial statement has been prepared on a going concern basis notwithstandingthe fact that the Companys net worth is eroded. The financial performance of theCompany had deteriorated substantially. The manufacturing cost has gone up. There isinadequacy of demand. The Company continues to deal with a range of uncertainties. Theinterest amount exceeded its operating income. The Company is not able to service itsdebts.
iv. These events cast significant doubt on the ability of the Company to continue as agoing concern under the present circumstances. The appropriateness of the said basis isinter-alia dependent on the Companys ability to infuse requisite funds for meetingits obligations (including statutory liabilities and those in respect of contracts enteredinto for purchase of goods and assets) rescheduling of debt/other liabilities andresuming normal operations.
v. The company has not carried out detailed assessment of the useful life ofCompanys assets and hence depreciation has not been adjusted as per thenotification to Schedule II of the Companies Act 2013. We are therefore unable to commenton the impact on statement of Profit & Loss Account.
vi. It has been observed that the Company is unable to deposit the provident fundamount with PF authorities in time as a result of which Rs. 2.18 Crs is the amount whichyet to be deposited.
vii. Actuarial valuation certificate has not been obtained for gratuity and otherpost-employment benefits.
viii. The Company has reported a Net Loss of Rs. 98.08 Crores for the year ended on31st March 2019 as against the net loss of Rs. 152.75 Crores for the previous year endedon 31st March 2018. During the year the loss is largely due to the depreciation.
ix. Since most of the banks which had extended financial facilities to the company havealready treated the outstanding from the company as "Non-Performing Assets"they as a usual practice have discontinued making provisions of interest on such loss asaccrued income in their books. In order to achieve the desired congruency on this issuethe Company has also not provided for any interest amounting to Rs. 434.54 Crores on suchoutstanding facilities for the year ended 31st March 2019 due to various banks. Had thesaid interest been provided in the books in the normal course the current year losses ofRs. 98.08 Crores would have raised to Rs. 532.62 Crores.
x. Sometime back Kandla Port Trust had cancelled the lease of different plots at Kandlaleased by them to the company due to non-payment of their heavy invoices for bills forcompensation and had also taken physical possession of the land. However on the companyapproaching Gujarat High Court and Honble High Court having granted stay of KandlaPort Trust orders the Company has not provided for any liability that may arise on thisaccount.
a. The closing inventory as on 31st March 2019 of Rs. 26.20 Crores (valued atrealizable value) excludes disputed Working In Progress of a Building at Coimbatore forRs.17.07 Crores which is currently in arbitration stage b. The Company has done physicalinventories on 31st March 2019 and they have certified the realizable value as on 31stMarch 2019 on physical / saleable ground.
xii. Operations Maintenance and Management Agreement with Jindal Tubular (India)Limited.
a. Although companys three plants earlier handed over to Jindal Tubular (India)Limited (JTIL) in mid 2015 were returned to the company during September to November2016 JTIL has yet to return to the company one Pipe Mill having capacity of 75000MT oneIPC plant having capacity of 18000Sqr Meter and other spares and consumable shifted by itcontrary to the provisions of their agreement with the company.
As per the advice of Edelweiss JTIL is transferring Rs 0.098 Crores after deductingtax of Rs 0.002 Crores every month to Companys bank account though there was noagreement for the same.
b. Jindal Tubular (India) Limited has claimed Non legacy and legacy payment from PSLamounting to Rs.4.37 Crores. The Company has not accepted their claim and the accounts areunder reconciliations.
c. The Excise Department has issued following notices to the company directing to showcause as to why the Cenvat credit taken on the capital goods and machineries removed fromthe factory premises of notices under the provisions of Rule 3(5A)(a) Rule 2 and Rule4(5)(a)(ii) of Cenvat Credit Rules 2004 should not be demanded and recovered underSection 11A with interest u/s 11AA and penalty u/s 11AC of the Central Excise Act 1944read with Rule 14 of the Cenvat Credit Rules 2004
|Sl. No. Show Cause Notice ||Amount in Rs Crores |
|1. Varsana 1 ||0.72 |
|2. Varsana 2 Coating ||4.86 |
|3. Varsana 2 Pipe Mill ||5.52 |
|Total Rs. ||11.10 |
The Company has submitted that the allegations made in the show cause notices are notcorrect in law as well on facts. The matter is pending before the appellant authority.
xiii. Settlement with JSW
The Company has created pari passu charge with respect to some of the immovable andmovable properties of the Company in favour of JSW and CDR lenders by way of mortgage bydeposit of title deeds in favour of IDBI Trusteeship Services Limited in pursuance of theBombay High Court Order.
xiv. Lender Banks Balance Confirmation as on 31st March 2019
We have been informed by the officials of the company that although the company hasrequested its various bankers to issue their confirmation letters confirming the balanceswith respect to various Bank Accounts/Bank Guarantee/ Letter of Credit/Corporate Guaranteegiven by company for its subsidiaries company as on 31st March 2019 but the same have notyet been received the said confirmations. Pending the receipt of balance confirmationsbook balances as on 31st March 2019 have been taken in the accounts of the Company.
xv. Sundry Debtors:
a. The break up of Companys Sundry Debtors amounting to Rs. 9.53 Crores as on31st March 2019 is as follows: -
|Less than Six Months ||Rs. 6.29 Crores |
|More than Six Months ||Rs. 3.24 Crores |
b. The Company has not produced confirmation of balances from sundry debtors confirmingthe amount outstanding as on 31st March 2019. In the absence of adequate evidence andinformation made available to us supporting the recoverability of this amount we arefurther unable to comment on the financial impact of this matter on the profit / loss forthe year ended 31st March 2019.
xvi. Trade payable & Loans and Advances:
In the absence of pending confirmation of balances from Trade Payables Tradereceivable and Other Loans & Advances as on 31.03.2019 provision for any adversevariation in the balances is not quantified.
xvii. Impairment of Assets: The Management has not carried out evaluation ofimpairment of assets and no provision for impairment has been recorded as required byIndian Accounting Standard.
xviii. Investment in Subsidiaries:
A. Foreign Subsidiaries:
i) PSL FZE (Sharjah) (Step down Subsidiary of Pipeline Systems Limited Mauritius(Subsidiary of the Company)).
a) The Company had invested Rs. 141.63 Crores in a wholly owned `subsidiary namelyPipeline Systems Limited Mauritius which in turn had invested AED 150000 in PSL FZEbeing its subsidiary. However due to cumulative losses in the subsidiary theaforesaid investment is eroded. The Company has not provided for the diminution in thevalue of investment as per Indian Accounting Standard issued by institute of CharteredAccountants of India. PSL Limited has also not provided for amounts due from PSL FZE beingdoubtful of recovery on account of losses incurred by PSL FZE.
b) The shareholding of PSL FZE Sharjah held by PSL Limited indirectly through theabove said Company amounting to 100% of the Equity Share Capital of the Company have beenpledged in favour of National Bank of Oman S.A.O.G. acting as Security Agent of ICICI BankLimited Bahrain.
c) During the year PSL FZE has incurred loss of 40.703 Million AED. The Company was notable to make the payment on due date of installment due to the banks. The bank balanceconfirmations were not available.
d) PSL FZE has executed a project received from SWCC. Bank of Baroda has givenguarantee in favour of State Bank of India Bahrain to issue performance guarantee infavour of the client to the extent of USD 4.5 million. This is contingent liability of PSLFZE as on 31-3-2019.
e) A creditor namely Petromac Abudhabi-UAE has filed a suit for his dues of USD 2.26million. The matter is sub-judice.
f) PSL has given Corporate Guarantee covering facilities sanctioned by lender bankersfor working capital outstanding of 114.96 Million AED against Plant & Machineryassignment of receivable and inventory as the security and the subordination of unsecuredloans advances by PSL Ltd. and assets on pari passu basis with one of the banker.
g) Term Loan 154.89 million AED - The Term Loan due to ICICI Bank Bahrain is securedby charge on the fixed asset of PSL FZE and Corporate Guarantee issued by PSL Limited.
ii) PSL USA INC (USA) PSL NA LLC (USA) (Step down Subsidiary)
a) The Company had invested Rs. 130.34 Crores in a wholly owned subsidiary namely PSLUSA Inc. Due to cumulative losses in the stepdown subsidiary the value of investment iseroded.
b) Due to continuous losses suffered by the companys step-down subsidiary namelyPSL North America LLC it was directly affecting the financial position of PSL USA Inc.(the holding Company of PSL North America LLC). The Company voluntary petitioned forrelief under chapter XI of the Title 11 of United States code were filed in United StatesBankruptcy court for the district of Delaware.
B. Indian Subsidiaries: i) PSL Infrastructure & Ports Pvt. Ltd.
- Total investment in PSL Infrastructure and Ports Private Limited is Rs. 28.21 Crores.
- The company was awarded the construction of Jetty at Kandla Port. Till date thecompany has incurred construction Expenses of Rs. 65.11 Crores.
- Due to restrictions imposed by CDR package of PSL Ltd the parent company could notinject/ contribute funds for the construction of the jetty.
- The development agreement for Jetty at Kandla Port was cancelled in earlier year. TheCompany has won the arbitration claim partly with respect cancellation of the saiddevelopment agreement. However the award was challenged by the Kandla Port Trust. Now thematter has been transferred to district court Gandhidham
ii) PSL Corrosion Control Services Limited. The total Revenue for the year stood at Rs.108.33 Crores against previous year of Rs.79.19 Crores. The Net Profit before tax is Rs.7.51 Crores against previous year of Rs. 0.84 Crores. In our opinion and explanation givento us the Guarantees given by the Company for Loan taken by its subsidiaries from banks /financial institution and the terms and conditions of such guarantees are not prejudicialto the interests of the Company.
iii) PSL Gas Distribution (P) Ltd.
The company was incorporated on 31st December 2010 and has not commenced any businessactivity.
xix. Legal Matters:
a. Initially five complaints were filed by two banks Syndicate Bank and Kotak MahindraBank Ltd. under the relevant provisions of Negotiable Instruments Act but after the orderof Addl. Sessions Court of Bombay one complaint has been scrapped with respect to some ofthe Directors and matters are now pending for disposal. These matters are still pending in16th/63rd MM Court Andheri Mumbai and the next date of hearing are fixed.
Next date of Syndicate Bank hearing on 10.06.2019 & Kotak Mahindra Bank is on18.07.2019.
b. Five Petitions have been filed before the High Court of Gujarat at Ahmedabadchallenging compensation Bill raised by Kandla Port Trust (KPT) in respect of five plotsof land of PCD-I unit located in East of NH No. 08A Kandla Road Gandhidham and twopetitions w.r.t. two plots of land of PCD-II in Plot No. 5&6 in Block D Sector 12Gandhidham. Stay has been granted in favour of Company with regard to 5 of the 7 plots.Interim orders earlier passed by the court restraining KPT from implement in thecompensation bills continue to operate. The matters are pending High Court.
c. Companys petition against Andhra Pradesh Industrial Infrastructure Corporation(APIIC).
Having felt aggrieved by the decision of APIIC to resume the possession of two plotsearlier allotted by it to the company has filed writ petitions in Hyderabad High Courtchallenging APIICs decision. While the Honble High Court having examined thecompanys grievance has granted a stay in companys favour the matter is stillpending for final adjudication.
Information Other than the Standalone financial statements and Auditors ReportThereon
The Companys Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis Boards Report including Annexures to Boards Reportbut does not include the standalone financial statements and our auditors reportthereon.
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.
Managements Responsibility for the Standalone financial statements
The Companys Board of Directors is responsible for the matters in section 134(5)of the Companies Act 2013 ("the Act") with respect to the preparation of thesestandalone financial statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Accounting Standards specified underSection 133 of the Act.. This responsibility also includes the maintenance of adequateaccounting records in accordance with the provision of the Act for safeguarding of theassets of the Company and for preventing and detecting the frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of internal financial control that were operating effectively for ensuringthe accuracy and completeness of the accounting records relevant to the preparation andpresentation of the standalone financial statements that give a true and fair view and arefree from material misstatement whether due to fraud or error.
In preparing the standalone financial statements management is responsible forassessing the Companys ability to continue as a going concern disclosing asapplicable matters related to going concern and using the going concern basis ofaccounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so.
The Board of Directors are responsible for overseeing the Companys financialreporting process.
Auditors Responsibility 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 auditors report that includes our opinion. Reasonableassurance is a high level of assurance but is not a guarantee that an audit conducted inaccordance with SAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if individuallyor in the aggregate they could reasonably be expected to influence the economic decisionsof 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 skepticism throughout the audit. We also:
a) Identify and assess the risks of material misstatement of the standalone financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
b) 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.
c) Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
d) Conclude on the appropriateness of managements 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 theCompanys ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditors report to therelated disclosures in the standalone financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditors report. However future events or conditionsmay cause the Company to cease to continue as a going concern.
e) Evaluate the overall presentation structure and content of the standalone financialstatements including the disclosures and whether the standalone 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 standalone financial statements may be influenced. Weconsider quantitative materiality and qualitative factors in (i) planning the scope of ouraudit work and in evaluating the results of our work; and (ii) to evaluate the effect ofany identified misstatements in the standalone financial statements.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding 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 if any 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 auditors report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso 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 (Auditors Report) Order 2016 ("theOrder") issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the act we give in the Annexure A a statement on the matters specified inparagraphs 3 and 4 of the Order.
2. As required by Section 143 (3) of the Act we report that:
a) we have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.
b) in our opinion proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books.
c) The standalone Balance Sheet the standalone Statement of Profit and Loss includingthe Statement of Other Comprehensive Income the standalone Cash Flow Statement andstandalone Statement of Changes in Equity dealt with by this Report are in agreement withthe books of account;
d) Except the matters described in Emphasis of Matters Paragraphs (i) to (xix) andannexure A Para No. vii(a) in our opinion may have an adverse effect on the functioningof the Company the aforesaid standalone financial statements comply with the IndianAccounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014.
e) on the basis of written representations received from the directors as on 31 March2019 taken on record by the Board of Directors none of the directors is disqualified ason 31 March 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 B". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Companys internal financial controlsover financial reporting.
g) With respect to the other matters to be included in the Auditors Report inaccordance with the requirements of section 197(16) of the Act as amended: In our opinionand to the best of our information and according to the explanations given to us theremuneration paid by the Company to its directors during the year is in accordance withthe provisions of section 197 of the Act.
h) with respect to the other matters to be included in the Auditors Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rule 2014 in our opinionand to the best of our information and according to the explanations given to us :
i. the Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements Refer Notes to the financialstatements;
ii. the Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses.
iii. unpaid dividend which is required to be transferred to the Investor Education andProtection Fund by the Company however the same has not been transferred by the Company.
| ||FOR AND ON BEHALF OF |
| ||V. PAREKH & ASSOCIATES |
| ||CHARTERED ACCOUNTANTS |
| ||FIRM REGN NO. 107488W |
|MUMBAI ||RASESH V. PAREKH PARTNER |
|DATED : 28TH MAY 2019 ||MEMBERSHIP NO. 38615 |