Zicom Electronic Security Systems Ltd.
|BSE: 531404||Sector: Engineering|
|NSE: ZICOM||ISIN Code: INE871B01014|
|BSE 00:00 | 02 Aug||Zicom Electronic Security Systems Ltd|
|NSE 05:30 | 01 Jan||Zicom Electronic Security Systems Ltd|
|BSE: 531404||Sector: Engineering|
|NSE: ZICOM||ISIN Code: INE871B01014|
|BSE 00:00 | 02 Aug||Zicom Electronic Security Systems Ltd|
|NSE 05:30 | 01 Jan||Zicom Electronic Security Systems Ltd|
To the Members of Zicom Electronic Security Systems Limited Report on the Audit of theStandalone Financial Statements Disclaimer Opinion
We were engaged to audit the Ind AS Standalone Financial Statements of Zicom ElectronicSecurity Systems Limited (the Company) which comprise the Balance Sheet as at31stMarch 2020 the Statement of Profit and Loss (including other ComprehensiveIncome) the Statement of Changes in Equity) and the Statement of Cash Flows for the yearended on that date and notes to the Ind AS Financial Statements including a summary ofsignificant accounting policies and other explanatory information (hereinafter referred toas Standalone Financial Statements).
We do not express an opinion on the accompanying Standalone Financial Statements of theentity. Because of the significance of the matters described in the Basis for Disclaimerof Opinion section of our report we have not been able to obtain sufficient appropriateaudit evidence particularly to ascertain the impact on the Standalone financial statementsof the Company of the final outcome of the matters described in the Basis for Disclaimerof Opinion section mentioned herewith to provide a basis for an audit opinion on theseStandalone Financial Statements.
Basis for Disclaimer of Opinion
1) Refer Note No. 28.12 of Audited Standalone Financial Statement of the Companywhich states that the Company has not provided for interest amounting to Rs 3100 Lakhsfor the year on its outstanding loans from Banks and Financial Institution as themanagement of the Company is in advanced negotiation with bankers for one time settlement(OTS) of its entire dues and therefore in the opinion of the management liability asreflected in the Standalone financial statement is sufficient to meet proposed OTS.However in the absence of OTS approval letter from each Lender confirming the final OTSamount we are unable to ascertain the extent of liability that may arise on the Companyand whether the liability as reflected in the Standalone financial statement aresufficient due to difficulty in predicting the outcome that may arise in future inestimating the potential impact on the Standalone Financial Statements. Further since thesaid loans are NPA balance appearing under the Head Borrowings of the said loans amountingto Rs 12303 Lakhs is also unconfirmed.
2) Refer Note No. 28.27 of Standalone Financial Statement of the Companyregarding the Hon'ble National Company Law Tribunal Mumbai Bench (NCLT) vide its orderdated March 18 2020 (received by the Interim Resolution Professional on 11th August2020) had directed the commencement of Corporate Insolvency Resolution Process (CIRP) inrespect one of the subsidiary company of the Company being Zicom SaaS Private LimitedCompany under the provisions of Insolvency and Bankruptcy Code 2016 (Code). The Companyhas an Investment of Rs 2500 Lakhs in the said subsidiary Company. We are unable toascertain whether the said investment in subsidiary Company requires any diminution due todifficulty in predicting the outcome of the said IBC proceedings that may arise in futureand in estimating the potential impact on the Standalone Financial Statements in the saidrespect.
Further the Company has also received an amount of Rs 2085 Lakhs deposit for brandfrom the said subsidiary Company we are unable to ascertain due to difficulty inpredicting the outcome that may arise in future and its impact on the Standalone financialstatement that may arise that whether the said transaction of brand purchase would now becompleted by the said subsidiary company as it is now under CRIP or the Company would haveto refund the entire amount.
3) Refer Note No. 28.26 of Audited Standalone Financial Statement of the Companyregarding the Company during the year under review has not made provision for doubtfultrade receivables amounting to Rs 216 Lakhs as the management is hopeful of its recovery.However we are unable to comment whether the said balance would be recoverable inview ofthe fact that it is pending since long time and also majority of it are disputed by theparties due to various reasons and hence we cannot comment amount on amount recoverablefrom the said parties.
4) Refer Note No. 28.15 Audited Standalone Financial Statement of the Companywhich states that the Company has been incurring constant losses the Company'saccumulated losses aggregate to Rs 40290 Lakhs resulting in complete erosion of its networth. Further as of that date company's liabilities exceeded its assets. These factorsalong with other matters as set forth in said note raise substantial doubt about thecompany's ability to continue as a going concern in the foreseeable future. However thecompany's Standalone financial statement has been prepared on going concern basis.
5) The Company during the year under review has defaulted/ delayed in thepayments as well as there has been defaults/ delay in filing of returns of statutory duescomprising of Goods and Service Tax (GST) further set off taken in books are ineligible inview of non- payment to vendors as well as non filing of return Service Tax CentralSales Tax Value Added Tax Professional Tax Provident Fund Employee State InsuranceLabour Welfare Fund Tax Deduction at Source. Further due to the said nonpayment and otherirregularities Company has received various notices from statutory authorities which isshown under the head Contingent Liabilities having significant amount of Rs 5291 Lakhs andhence we are unable to ascertain consequential impact of the same on the auditedstandalone financial statement of penalties prosecutions that may arise on the Company onaccount of such delay/defaults in statutory dues due to difficulty in predicting theoutcome that may arise in future.
6) Refer Note No. 25.19 of Audited Standalone Financial Statement of the Companywhich states that certain balances under the heads Trade Receivables Borrowings LoansTrade Payables Other Current Assets and Other Current Liabilities are subject toconfirmations from the respective parties and consequential reconciliation if any theimpact of the same which may arise in future is presently unascertainable.
Emphasis of Matter
1) Refer Note No. 28.16 of Audited Standalone Financial Statement of the Companyregarding During the year under review the Company has written off doubtful recovery ofdebtors amounting to Rs. 816.37 Lakhs; advance to suppliers amounting to Rs. 29.84 Lakhsand deposits amounting to Rs.47.76 Lakhs as the same were outstanding for a long time andthe management was doubtful of its recovery/performance. Further the company has alsowritten back advances received from customers to the extent of Rs. 72.29 Lakhs TradePayable of Rs. 9.59 Lakhs and other payable amount of Rs. 143.45 Lakhs as the said amountare very old payable and as per management estimate no longer payable. The Net effect ofthe same is given under the head Other Expenses- Sundry Balance Written off (Net).
2) Refer Note No. 28.14 of Audited Standalone Financial Statement of the Companywhich states that based on the management estimates there are no future economic benefitsexpected from the said goodwill which has arise on account of acquisition of a thensubsidiary of the Company in 2010. Hence goodwill has been reversed during the year underreview amounting to Rs 909 Lakhs. Further the Company has also impaired certain tangibleasset comprising of Plant & Equipment which were obsolete and no longer usableamounting to Rs 62 Lakhs. The effect of the said is given under the head Other Expenes-Impairment of Asset.
3) Refer Note No. 28.28 of Audited Standalone Financial Statement of the Companyregarding management's current assessment of the Company's assets and liabilities in viewof prevailing Covid-19 pandemic and nationwide lockdown and conclusion based on suchassessment that the carrying value of the assets are recoverable and no uncertainty existson meeting the liabilities in the foreseeable future. The impact of the global healthpandemic may be different from that estimated as at the date of approval of theseStandalone financial statements. Considering the continuing uncertainty as explained themanagement will continue to closely monitor any material changes to future economicconditions.
4) Refer Note No. 28.13 of Audited Standalone Financial Statement of the Companyregarding Central Bank of India had invoked shares of the Company pledged by promoterGroup Company in respect of loan taken by the Company. As the said loan was Non performingAsset bank had invoked and sold 500000 shares held by a promoter group Company andadjusted against outstanding loan balance of the Company. Balance payable to the promotergroup Company on account of such invocation has been shown under the head borrowings fromrelated party and impact of such invocation has disclosed under the head exceptional itemamounting to Rs 333 Lakhs.
Our opinion is not disclaimed in respect of matters described in Emphasis of matter.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial 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 FinancialStatements that give a true and fair view of the financial position financialperformance total Comprehensive Income changes in equity and cash flows of the Companyin accordance with the Ind AS and other accounting principles generally accepted in India.This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding of the assets of the Company and forpreventing 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 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 also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our responsibility is to conduct an audit of the entity's Standalone FinancialStatements in accordance with Standards on Auditing and to issue an auditor's report.However because of the matters described in the Basis for Disclaimer of Opinion sectionof our report we were not able to obtain sufficient appropriate audit evidence to providea basis for an audit opinion on these Standalone Financial Statements. We are independentof the entity in accordance with the ethical requirements of the Code of Ethics issued byICAI and as prescribed under the laws and regulations applicable to the entity. We havefulfilled our other ethical responsibilities in accordance with these requirements.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 (theOrder) issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the Companies Act 2013 we give in the Annexure A a statementon the matters specified in paragraphs 3 and 4 of the Order to the extent applicable.
2. As required by Section 143(3) of the Act we report that:
a) As described in the Basis for Disclaimer of Opinion paragraph we sought but wereunable to obtain all the information and explanations in regards to the matters describedin Basis of Disclaimer Opinion which to the best of our knowledge and belief werenecessary for the purpose 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. However this is to beread along with the significance of the matters described in the Basis forDisclaimer of Opinion paragraph and the corresponding implications on the StandaloneFinancial Statements of the Company.
c) The Balance Sheet Statement of Profit and Loss Statement of Changes in Equity andCash Flow Statement dealt with by this Report are in agreement with the books of account.
d) In our opinion the aforesaid Standalone financial statements for matters other thenBasis of disclaimer opinion comply with the Accounting Standards specified under Section133 of the Act read with Rule 7 of the Companies (Accounts) Rules 2014. This is to beread along with the significance of the matters described in the Basis forDisclaimer of Opinion paragraph and the corresponding implications on the StandaloneFinancial Statements of the Company.
e) The matters described in the Basis for Disclaimer of Opinion paragraph above in ouropinion may have an adverse effect on the functioning of the Company.
f) On the basis of the written representations received from the Directors as on31stMarch 2020 taken on record by the Board of Directors none of the Directors isdisqualified as on 31stMarch 2020 from being appointed as a director in terms of Section164 (2) of the Act.
g) 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 disclaimer opinion on theadequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.
h) The reservation relating to the maintenance of accounts and other matters connectedtherewith are as stated in the Basis for Disclaimer of Opinion paragraph above.
i) In our opinion and to the best of our information and according to the explanationsgiven to us no remuneration is paid by the Company to its directors during the year andhence the provisions of section 197 (16) of the Act are not applicable.
j) 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 implications of pending litigations on its financialposition in its Standalone Financial Statements. However the same should be read with thepossible effects of the matters described in the Basis for Disclaimer of Opinionparagraph; ii. The Company did not have any long term contracts including derivativescontract for which there were any material foreseeable losses; and
iii. There were no amount which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
Annexure A to the Auditors' Report
In terms of the information and explanations given to us and the books and recordsexamined by us and on the basis of such checks as we considered appropriate we furtherreport as under:
1. Property Plant and Equipment's
a) As per the information and explanation given to us the Company has maintained properrecords showing full particulars including quantitative details and situation ofProperty Plant and Equipment's. b) As explained to us the Property Plant andEquipment's have been physically verified by the management as per a phased programme ofverification. In our opinion the frequency of verification is reasonable having regard tothe size of the Company and the nature of its fixed assets. The discrepancies noticed onsuch verification were not material and have been properly dealt with in the Company'sbooks of accounts. c) According to the information and explanation given to us and on thebasis of our examination of the records of the Company the title deeds of immovableproperties are held in the name of the Company.
As explained to us the management has conducted physical verification of inventory atreasonable intervals during the year.
In our opinion the procedures of physical verification of inventory followed by themanagement needs to be strengthened in relation to the size of the Company and the natureof its business.
In our opinion the Company is maintaining proper records of inventory. Thediscrepancies noticed on such verification between physical inventories and the bookrecords which were material in relation to the operations of the Company have beenproperly dealt with in the Company's books of account.
3. Loans to parties of Directors' interest
According to the information and explanations provided to us and as per the recordsexamined by us during the year the Company has not granted any unsecured loans to bodiescorporate representing the parties listed in the register maintained under Section 189 ofthe Act.
4. Loans/Guarantees/Investments in / Provision of Security to certain parties
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 Act with respectto the loans and investments made.
5. Acceptance of Deposits
According to the information and explanations given to us the Company has not accepteddeposits as per the directives issued by Reserve Bank of India and the provisions ofSections 73 to 76 or any other relevant provisions of the Act and the rules framed thereunder.
6. Maintenance of Cost Records
The Central Government has not prescribed maintenance of cost records under section (1)of section 148 of the Act. The Company during the year under review does not have anymanufacturing facility and hence the said clause was not applicable.
7. Undisputed & Disputed Statutory Dues
(a) According to the information and explanations given to us and as per the recordsverified by us the Company is not regular in depositing the undisputed statutory duesinvolving Provident Fund Investor Education and Protection Fund Professional TaxEmployee State Insurance Customs Duty Value Added Tax Income Tax Service Tax CustomsDuty Goods & Service Tax and other statutory dues with the appropriate authoritiesand the arrears under the above heads which were due for more than six months from thedate they become payable as at the close of the year are
1) Value Added Taxes amounting to Rs 17.12 Lakhs
2) Dividend Distribution Tax amounting to Rs 49.35 Lakhs and
3) Income Tax (TDS) amounting to Rs 81.34 Lakhs
4) Provident Fund amounting to Rs 7.67 Lakhs
5) Professional Tax amounting to Rs 0.82 Lakhs
6) Employee State Insurance amounting to Rs 0.08 Lakhs.
(b) As per explanations provided to us and according to the records of the Company thefollowing are the particulars of disputed dues on account of Income Tax that have not beendeposited:
8. Loans from Banks/Financial Institutions/ Government/Debentures
Based on our audit procedures books of account and as explained to us we are of theopinion that during the year the Company has defaulted in repayment of dues to any banksas well as financial institution the same is given in table below. Further No debentureswere issued or were outstanding during the year. Further as stated in the IndependentAuditors report that the Company has not provided for interest amounting to Rs 3100 Lakhsfor the year on its outstanding loans from Banks and Financial Institution.
9. Proceeds of Public issue (including debt instruments) /Term Loans
The Company has not raised any money during the year through initial / further publicoffer (including debt instruments). Also the Company has not availed any term loansduring the current or earlier years and hence the matter of application of the samedoesn't arise.
10. Frauds on or by the Company
During the course of our examination of the books and records of the Company carriedout in accordance with the generally accepted auditing practices in India and accordingto the information and explanations given to us we have neither come across any instanceof fraud on or by the company or its officers noticed or reported during the year norhave we been informed of such case by the management.
11. Managerial Remuneration
During under our review the Company has not provided managerial remuneration and henceprovision of section 197 is not applicable to the Company.
12. Nidhi Companies
The Company is not a Nidhi company during the year under review and hence the criteriaas stipulated under Nidhi Rules 2014 is not applicable to the Company.
13. Related Party Transactions
As per the information and explanations given during the course of our verification inour opinion all transactions with the related parties made by the Company were incompliance with Sections 177 and 188 of the Act to the extent applicable to the Companyduring the year. The relevant details in respect of the same have been appropriatelydisclosed as per the requirements of the Accounting Standard.
14. Preferential Issue
During the year the Company has not made any preferential allotment or privateplacement of shares or convertible debentures and hence the requirements of Section 42 ofthe Act are not applicable.
15. Non-cash Transactions with Directors etc.
As per the information and explanations provided to us during the year the Companyhas not entered into any non-cash transactions with directors or persons connected withthe directors within the purview of Section 192 of the Act.
16. Provisions of 45-IA of the Reserve Bank of India Act1934
As per the information and explanations provided to us and based on the overalloperations of the Company the Company is a Non-banking Finance Company within thedefinition of Section 45-IA of the Reserve Bank of India Act 1934 and has been registeredas such with the RBI.
Annexure B to the Auditors' Report
Report on the Internal Financial Controls under Section 143(3)(i) of the Companies Act2013 (the Act)
We have audited the internal financial controls over financial reporting of ZicomElectronic Security Systems Limited (the Company) as of 31st March2020 in conjunction with our audit of the Standalone financial statements of the Companycomprising Balance Sheet as at 31st March 2020 the Statement of Profit and Loss(including other Comprehensive Income) the Statement of Changes in Equity) and theStatement of Cash Flows for the year ended on that date and notes to the Standalonefinancial statements including a summary of significant accounting policies and otherexplanatory information (hereinafter referred to as the Standalone FinancialStatements).
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 ICAI). 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.
Auditors' Responsibility :
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingand the Standards on Auditing issued by the ICAI deemed to be prescribed under section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of Internal Financial Controls and bothissued by the ICAI. Those standards and the Guidance Note 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 included obtaining anunderstanding of internal financial controls over financial reporting assessing the riskthat a material weakness exists and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. The procedures selecteddepend on the auditor's judgment including the assessment of the risks of materialmisstatement of the Standalone 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 of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Company; (2) Providereasonable assurance that transactions are recorded as necessary to permit preparation ofStandalone financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) Providereasonable assurance regarding prevention or timely detection of unauthorized acquisitionuse or disposition of the company's assets that could have a material effect on theStandalone financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting :
Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion the Company does not have in all material respects an adequateinternal financial controls system over financial reporting and such internal financialcontrols over financial reporting were not operating effectively as at March 31st2020 there have been lapses with regards to Trade Receivable and Loans and AdvancesStatutory Dues based on the internal control over financial reporting criteria establishedby the Company and hence we have considered disclaimer of opinion considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.