Report on the Audit of the Standalone Financial Statements
1. Qualified Opinion
We have audited the Separate financial statements (also known as Standalone Financial Statements) of NITCO Limited ("the Company”), which comprise the Balance Sheet as at 31st March 2023, the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion section of our report the aforesaid Standalone Financial Statements give the information required by the Companies Act, 2013 ("the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act read with Companies (Indian Accounting Standards) Rules, 2015, as amended and other accounting principles generally accepted in India, of the state of affairs (financial position) of the Company as at 31st March 2023, and its losses (financial performance including Other Comprehensive Income), the Changes in Equity and its Cash Flows for the year ended on that date.
2. Basis for Qualified Opinion
Material Uncertainty Related to Going Concern
The Company continues to incur losses resulting in an erosion of its net worth and its current liabilities exceeds current assets as of 31st March 2023.
We draw your attention to Note 38 (b)(iv) to the financial statements as regards to revocation of the restructuring of existing facilities (excluding the NCD and RPS facility) by JM Financial Asset Restructuring Company Limited (acting in its capacity as trustee ofJMFARC-LVB Ceramics September 2014 - Trust). - (Financial Creditor), vide letter dated 19th September 2022, whereby dues amounting to Rs. 2,42,762.93 Lakhs has been restated (the amount appearing in books as on 31st March 2023 is Rs. 66,082.26 Lakhs).
On 15 th November 2022, the Financial Creditor has made an Application under Section 7 of Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with National Company Law Tribunal (NCLT) to initiate corporate insolvency resolution process. We are informed that the Company is seeking appropriate legal advice and will take all appropriate steps to protect its interest in the aforesaid matter. Accordingly, no adjustments have been made to the carrying values of the liabilities and their presentation and classifications in the financial statements and are accounted on going concern basis.
Based on our audit conducted, we have concluded that a material uncertainty exists relating to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and to that extent, the audit report is qualified.
We conducted our audit of the Standalone Financial Statements in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditor's Responsibilities 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 the Institute of Chartered Accountants of India (ICAI) together with the independence requirements that are relevant to our audit of the Standalone Financial Statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI's Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion on the Standalone Financial Statements.
3. Emphasis of Matter
i. We draw attention to Note no. 38 (b)(v) to the Standalone Financial Statement which states that the company has not provided for interest on the outstanding loan of LIC of Rs. 1,887.26 lakhs (Principal outstanding), as they are hopeful of its restructuring same in line ofJMFARC.
ii. We draw attention to Note no. 38 (b)(ii) to the Standalone Financial Statement which states that Additional Director General Foreign Trade (ADGFT) had levied penalty of Rs. 17,000.00 lakhs which is confirmed by the Appellate bench of DGFT, New Delhi. No provision for the demand is made in the books. Management has received legal opinion that the order is bad in law.
iii. We draw attention to Note no. 38 (b)(iii) to the Standalone Financial Statement which states that Revenue Department has raised a demand of Rs 5,105.88 lakhs. No provision for the demand is made in the books as company has received interim relief against the order from Bombay High Court.
iv. We draw attention to Note no. 7 to the Standalone Financial Statement which states that Management has not made provision for impairment of Rs. 995.99 lakhs with respect to capital advance given to Saumya Buildcon Pvt Ltd.
v. We draw attention to Note no. 5 and Note 12 to the Standalone Financial Statement which states that Management has not done provision for impairment of Rs. 6,579.69 lakhs with respect to money advanced to Nitco Realties Private Limited by way of investments and loans.
Our opinion is not modified in respect of these matters.
4. Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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Key audit matter
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Our Response
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1)
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Assessment of impairment in valuation of Our audit procedures included, among others the following: investments and loan given to subsidiaries and Property, Plant and Equipment at Alibaug and Silvasa
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•
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The carrying values of the company's Investments •
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We have evaluated the key judgements / assumptions underlying
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in subsidiaries and Property, Plant and Equipment
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management's assessment of potential indicators of impairment;
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are assessed annually by management for potential •
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We have studied available financial information including
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indicators of impairment.
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considerations of the economic conditions of the plant at Alibaug
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•
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For the above impairment testing, management
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and audited financial statements of the subsidiaries;
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has determined the value in use and the fair value •
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We have evaluated the current approximate market price of the
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less cost to sell as applicable.
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land, real estate properties at Alibaug and Silvasa and also where
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•
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We have identified the assessment of potential
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the subsidiaries have invested for computing the recoverable
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impairment of investments and loans given to
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amount;
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subsidiaries and Property, Plant and Equipment at •
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We have checked the Valuation report of underlying assets done by
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Alibaug and Silvasa location as a key audit matter.
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Independent Valuer;
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•
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Impairment assessment involves significant degree •
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We evaluated the independence, competence of the independent
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of management judgement in determining the key
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valuer;
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assumptions and expected future cash flows. •
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We read and assessed the relevant disclosures made within the
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•
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Valuation of underlying assets especially land with subsidiaries were done from Independent Valuer.
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standalone Ind AS financial statements.
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2)
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Litigation, Claims and Contingent Liabilities
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•
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Company is exposed to variety of different •
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We understood the processes, evaluated the design and
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laws, regulations and interpretations thereof.
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implementation of controls and tested the operating effectiveness
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Consequently, in the normal course of business,
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of the Company's controls over the recording and re-assessment of
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Provisions and Contingent Liabilities may arise
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uncertain legal positions, claims and contingent liabilities.
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from legal proceedings, constructive obligations •
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We held discussions with senior management including the person
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and commercial claims.
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responsible for legal and compliance to obtain an understanding
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•
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Management applies significant judgement when
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of the factors considered by management in classification of the
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considering whether and how much to provide for
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matter as 'probable', 'possible' and 'remote'.
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the potential exposure of each matter. •
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Examined the Company's legal expenses on sample basis and read
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•
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These estimates could change substantially over
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the minutes of the board meetings in order to ensure completeness.
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time as new facts emerge as each legal case or •
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With respect to tax matters (direct and indirect), discussed with the
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matters progresses.
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Company's tax officers and obtained their views and strategies on
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•
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Given the different views possible, basis the
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significant cases, as well as the related technical grounds relating to
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interpretations, complexity and the magnitude of
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their conclusions based on applicable tax laws.
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potential exposures and the judgement necessary •
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Assessing the decisions and rationale for provisions held or for
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to estimate the amount of provision required or
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decisions not to record provisions or make disclosures.
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determine required disclosures. •
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For those matters where management concluded that no provisions should be recorded, considering the adequacy and completeness of the Company's disclosures.
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5. 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 other information. The other information comprises the information included in the Board's Report including Annexures to Board's Report, Management Discussion and Analysis, Report on Corporate Governance, but does not include the Standalone Financial Statements and our auditor's report thereon. Our opinion on the Standalone Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained 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 material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
6. Management’s Responsibility for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these Standalone Financial Statements that give a true and fair view of the financial position, financial performance, Changes in Equity and Cash Flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and 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 financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Standalone Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the Standalone Financial Statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the Company's financial reporting process.
7. Auditor’s Responsibility for the audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the Standalone Financial Statements as a whole are free from material misstatement, whether due to fraud or 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 audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the Standalone Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion, The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the Standalone Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the Standalone Financial Statements, including the disclosures, and whether the Standalone Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Standalone Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
8. Other Matters
The standalone financial statements for the year ended 31st March 2022 have been audited by erstwhile auditor who have expressed an unmodified opinion on those statements based on their audit for the year ended 31st March 2022.
9. Report on Other Legal and Regulatory Requirements
As required by the Companies (Auditor's Report) Order, 2020 ("the Order”) issued by the Central Government in terms of Section 143(11) of the Act, we give in "Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order.
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, except for the physical verification of inventory at Alibaug factory, which to the best of 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 the Company so far as it appears from our examination of those books.
c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Changes in Equity and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.
d) In our opinion, the aforesaid Standalone Financial Statements comply with the Ind AS prescribed under section 133 of the Act.
e) On the basis of the written representations received from the directors as on 31st March, 2023 taken on record by the Board of Directors, none of the directors are disqualified as on 31st March, 2023 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 with reference to financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls with reference to financial statements.
g) As required by section 197(16) of the Act, based on our audit, we report that the Company has paid and provided for remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
h) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and 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 financial position in its Standalone Financial Statements - Refer Note 38 (b) to the Standalone Financial Statements;
ii. The Company did not have any long-term contracts including derivative contracts for which there were no material foreseeable losses;
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
iv. (a) As represented to us by the management and to the best of its knowledge and belief, no funds have been advanced or lend or invested during the year (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (Intermediaries”), with the understanding whether recorded in writing or otherwise that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(b) As represented to us by the management and to the best of its knowledge and belief, no funds have been received by the Company during the year from any person(s) or entity(ies), including foreign entities ("Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(c) Based on such audit procedures, we have considered reasonable and appropriate in the circumstances, nothing has come to our notice that causes us to believe that the above representations under sub-clause (i) and (ii) of Rule 11(e) as provided under (a) and (b) above, contain any material misstatement.
v. The Company has not declared or paid any dividend during the year as per Section 123 of the Companies Act, 2013 and hence clause (f) of Rule 11 of the Companies ( Audit & Auditors) Rules, 2014 is not applicable.
vi. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of account using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 1,2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended March 31,2023
For M M NISSIM & CO. LLP
Chartered Accountants
Firm Reg.No.107122W / W100672
N Kashinath
Partner
Membership No.036490
UDIN: 23036490BGXRZB1197
Place: Mumbai
Date: 30th May, 2023
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