TO THE MEMBERS OF SVC INDUSTRIES LIMITED
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements of SVC INDUSTRIESLIMITED ("the Company") which comprise the Balance Sheet as at March 312019 the Statement of Profit and Loss (including other comprehensive income)theStatement of Cash Flow Statement and the Statement of Changes in Equity for the year thenended and a summary of the significant accounting policies and other explanatoryinformation (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 Indian Accounting Standards prescribed-under section133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015 asamended ("Ind AS") and other accounting principles generally accepted in Indiaof the state of affairs of the Company as at March 31 2019 and its loss totalcomprehensive income its cash flows and the changes in equity for the year ended on thatdate.
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 Auditor'sResponsibility for the Audit of the 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 ethical requirementsthat are relevant to our audit of the standalone financial statements under the provisionsof the Act and the Rules made there under and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the ICAI's Code of Ethics. Webelieve that the audit evidence obtained by us is sufficient and appropriate to provide abasis 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 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.
Description of Key Audit Matters
|The key audit matters ||How the matter was addressed in our audit |
|A. Evaluation of uncertain financial liabilities || |
|As described in Note No. 14.1 to 14.6 Note No. 25 and Note No. 29 the Company has outstanding financial liabilities having book value of Rs. 5610.20 lakhs as on 31.03.2019 towards Non- convertible debentures and loan from state financial institutions. ||Our audit procedure on eval- uation of uncertain financial liabilities included |
| || Obtained understanding of key uncertain financial liabilities and their status before various judicial authorities; |
|Recovery petition filed by the lenders are pending before the Debt Recovery Tribunal (DRT). The amount claimed in these petitions are much higher than the book value of the liabilities. || Read and analysed key corr- espondences between lenders and the Company regarding the uncertain financial liabilities; |
|The Management has appro- ached these lenders for one- time settlement of these finan- cial liabilities and is hopeful to close the matter by mutual agreement in due course. || Discussed with appropriate senior management and val- uated management's under- lying key assumptions in estimating the uncertain financial liabilities; and |
| || Assessed management's estimate of the possible out comeof the negotiation by way of one-time settlement with lenders; |
|Meanwhile as the Company is in the process of negotiation by way of one-time settlement with the lenders a reliable estimate cannot be made of the amount likely to be paid in satisfaction of these financial liabilities. || |
|B. Scrap sale of old hazardous equipment || |
|As described in Note No. 26 the Company received approval from its Shareholders in their meeting held on 22.02.2018 for removal of its rustic old hazar- dous and obsolete chemical filled equipment by way of scrap. ||Our audit procedure on scrap sale of old hazardous equipm- ent included |
| || Testing the control over the entire process from tendering till sale of the scrapped material; |
|For the entire process of tend- ering breaking scrap salvaging and sales thereof the Company had appointed M/s Matex Net Pvt Ltd a recognized non- performing assets auctioneer ISO 9001 & ISO 27001 com- pany as agency which super- vised complete scrapping sal- vaging of saleable scrap and sales thereof. || Obtaining Company's agree- ment with M/s. Matex Net Private Limited and understan- ding the entire process of ten- dering breaking scrap salva- ging and sale thereof: |
|As at the year end the Com- pany sold of much of its scra- pped hazardous equipment and profit on sale of those assets was credited in profit and loss account for the year. || Verification of professional payment made to M/s Matexat each stage of scrapping salv- aging and sales of scrapped material; and |
| || Verification of process of sales through GST/E-way bill and under complete supervision of professionals from M/s Matex Net Pvt. Ltd. |
Information Other than the Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Management Discussion and Analysisand Board's Report including Annexures to Board's Report (the "reports") butdoes not include the standalone financial statements and our auditor's report thereon. Thereports are expected to be made available to us after the date of this auditor's report.
Our opinion on the standalone financial statements does not cover the other informationand we do not and will 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 identified above when it becomes available and in doingso consider whether the other information is materially inconsistent with the standalonefinancial statements or our knowledge obtained during the course of our audit or otherwiseappears to be materially misstated.
When we read the reports if we conclude that there is a material misstatement thereinwe are required to communicate the matter to those charged with governance as requiredunder SA 720 'The Auditor's responsibilities Relating to Other Information'.
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 includingother comprehensive income cash flows and changes in equity of the Company in accordancewith the 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 of the Company and for preventingand detecting 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 financialstatement that give a true and fair view and are free from material misstatement whetherdue 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 Company's Board of Directors is also responsible for overseeing the Company'sfinancial reporting process.
Auditor's 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 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.
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 control 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 the 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 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 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 mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by Section 143(3) of the Act based on our audit we report that:
a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.
b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.
c) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome the Statement of Cash Flows and Statement of Changes in Equity 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 the Companies (Indian AccountingStandards) Rules 2015 as amended.
e) On the basis of the written representations received from the directors and taken onrecord by the Board of Directors none of the directors is disqualified as on March 312019 from being appointed as a director in terms of Section 164(2) of the Act.
f) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure A". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.
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:
i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements Refer Note 14.1 to 14.6 25 29 and 31 tothe standalone financial statements;
ii. There are no foreseeable losses on any long-term contract including derivativecontract as required under applicable law or accounting standards;
iii. According to records of the company there are no amounts that are due to betransferred to the Investor Education and Protection Fund in accordance with the relevantprovisions of the Act and rules made there under.
2. As required by the Companies (Auditor's Report) Order 2016 (the "Order")issued by the Central Government in terms of Section 143(11) of the Act we give in"Annexure B" a statement on the matters specified in paragraphs 3 and 4 of theOrder.
ANNEXURE "A" TO THE INDEPENDENT AUDITOR'S REPORT
(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 Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls over financial reporting of SVCIndustries Limited (the "Company") as at March 31 2019 in conjunction with ouraudit of the standalone financial statements of the Company for the year ended on thatdate.
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" (the "GuidanceNote"). These responsibilities include the design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of its business including adherence to company's policiesthe safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act.
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting of the Company based on our audit. We conducted ouraudit in accordance with the Guidance Note and the Standards on Auditing prescribed underSection 143(10) of the Act to the extent applicable to an audit of internal financialcontrols. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such 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 the 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 of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being made only inaccordance with authorisations of management and directors of the company; and -
(3) provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the company's assets that could have amaterial 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 to the best of our information and according to the explanations givento us the Company has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at March 31 2019 based on the criteria forinternal financial control over financial reporting established by the Company consideringthe essential components of internal control stated in the Guidance Note.
ANNEXURE "B"TO THE INDEPENDENT AUDITOR'S REPORT
(Referred to in paragraph 2 under 'Report on Other Legal and Regulatory Requirements'section of our report of even date)
1. (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The Company has a regular programme of physical verification of its fixed assets bywhich fixed assets are verified in a phased manner. In accordance with this programmecertain fixed assets were verified during the year and no material discrepancies except asmentioned in Note No. 26 of notes forming part of the standalone financial statementswere noticed on such verification. In our opinion this periodicity of physicalverification is reasonable having regard to the size of the Company and the nature of itsassets.
(c) According to the information and explanations given to us and on the basis of ourexamination of records of the Company the title deeds of immovable properties are held inthe name of the Company for 236.83 acres and in the name of some of the present andearlier directors for 24.14 acres.
2. According to the information given to us physical verification of inventory wasconducted by the management during the year at reasonable intervals. According to theinformation and explanations given to us no material discrepancies were noticed onphysical verification of inventories.
3. The Company has granted loans to parties covered in the register maintained undersection 189 of the Companies Act 2013. In our opinion and according to the informationand explanations provided to us the terms and conditions of the grant of such loans areprima facie not prejudicial to the Company's interest.
4. According to the information and explanations given to us the Company has compliedwith the provisions of Sections 185 and 186 of the Act in respect of grant of loans andmaking investments as applicable. The Company has not provided any guarantees andsecurities.
5. In our opinion and according to the information and explanations given to us theCompany has not accepted any deposits from the public. The provisions of Sections73 to 76of the Companies Act2013 and the rules framed thereunder are not applicable.
6. Maintenance of cost records under Section 148(1) of the Act as prescribed by theCentral Government is not applicable to the Company as the Company is yet to startcommercial production.
7. (a) According to the information and explanations given to us and on the basis ofour examination of records of the Company the Company is regular in depositing undisputedstatutory dues including Provident Fund Employees' State Insurance Income-tax ValueAdded Tax Service-tax Goods and Service tax and other material statutory dues applicableto the Company with the appropriate authorities.
(b) The disputed statutory dues aggregating to Rs. 22.71 lakhs that have not beendeposited on account of disputed matters pending before appropriate authorities. Out ofthe above a sum of Rs. 2.63 lakh has been deposited under protest. The details ofdisputed statutory dues are as under:
|Nature of dues ||Period ||Amount ||Forum where the dispute is pending |
| || ||Rs.in lakhs || |
|UP Value Added Tax ||2007-08 ||0.82 ||Appellate Tribunal Agra |
|UP Value Added Tax ||2008-09 ||1.81 ||Appellate Tribunal Agra |
|Provident Fund / Demurrage ||1995- 2003 ||20.08 ||Allahabad High Court |
| || ||22.71 || |
8. Due to non-commencement of commercial operations for more than a decade causingnon-servicing of its debts the Company has defaulted on the dues of State Bank of India(NCD of Rs. 15.00 Crore) Canara Bank (NCD of Rs. 14.72 Crore)& PICUP (Loan of Rs.26.38 Crore) for aggregate amount of Rs. 56.10Crore. Company is in negotiations forsettlement of their dues.
9. According to the information and explanation provided to us Company has not raisedmoney by way of initial public offer or further public offer (including debt instruments)and term loans during the year. Accordingly paragraph 3(ix) of the Order is notapplicable.
10. According to the information and explanations given to us no material fraud by theCompany or on the Company by its officers or employees has been noticed or reported duringthe course of our audit.
11. According to the information and explanations given to usthe Company has not paidmanagerial remuneration during the year. Accordingly paragraph 3(xi) of the Order is notapplicable.
12. In our opinion and according to the information and explanations given to us theCompany is not a nidhi company. Accordingly paragraph 3(xii) of the Order is notapplicable.
13. According to the information and explanations given to us and based on ourexamination of records of the Company transactions with related parties are in compliancewith Sections 177 and 188 of the Act where applicable and details of such transactionshave been disclosed in the financial statements as required by the applicable accountingstandards.
14. According to the information and explanations given to us and based on ourexamination of records of the Company the Company has not made any preferential allotmentor private placement of shares or fully or partly convertible debentures during the year.
15. According to the information and explanations given to us and based on ourexamination of records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with them. Accordingly. Paragraph 3(xv)of the Order is not applicable.
16. According to the information and explanations given to us the Company is notrequired to register under Section 45-IA of the Reserve Bank of India Act 1934.
| ||For CHATURVEDI SK & FELLOWS |
| ||Chartered Accountants |
| ||Firm Registration No. 112627W |
| ||Srikant Chaturvedi |
|Place: Mumbai ||Partner |
|Date:15/05/2019 ||Membership No. 070019 |