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Hindustan Construction Company

BSE: 500185|NSE: HCC|ISIN: INE549A01026|SECTOR: Construction & Contracting - Civil
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Auditor's Report (Hindustan Construction Company) Year End : Mar '17

Report on the Standalone Financial Statements

1. We have audited the accompanying standalone financial statements of Hindustan Construction Company Limited (''the Company''), which comprise the Balance Sheet as at 31March 2017, the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Standalone

Financial Statements

2. The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (''the Act'') with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs (financial position), profit or loss (financial performance including other comprehensive income), cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (''Ind AS'') specified under Section 133 of the Act.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding 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.

Auditor''s Responsibility

3. Our responsibility is to express an opinion on these standalone financial statements based on our audit.

4. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

5. We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether these standalone financial statements are free from material misstatement.

6. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial controls relevant to the Company''s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

7 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on these standalone financial statements.

Basis for Qualified Opinion

8. As stated in Note 33(a) to the standalone financial statements, the Company''s non-current investments as at 31 March 2017 include investments aggregating Rs. 630.83 crore in two of its subsidiaries; and non-current loans, other non-current financial assets and other current financial assets as at that date include dues from such subsidiaries aggregating Rs.512.42 crore, Rs.38.17 crore and Rs.4.77 crore, respectively, being considered good and recoverable by the management considering the factors stated in the aforesaid note including valuation report from an independent valuer. However, these subsidiaries have accumulated losses and their net worth is fully eroded. Further, these subsidiaries are facing liquidity constraints due to which it may not be possible to realize projections made as per business plans. In the absence of sufficient appropriate evidence, we are unable to comment upon the carrying value of these investments and recoverability of the aforesaid dues and the consequential impact, if any, on the accompanying standalone financial statements. Our audit opinion on the standalone financial statements for the year ended 31 March 2016 was also qualified in respect of this matter.

Qualified Opinion

9. In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including Ind AS specified under Section 133 of the Act, of the state of affairs (financial position) of the Company as at 31March 2017, and its profit (financial performance including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.

Emphasis of Matters

10. We draw attention to:

a) Note 33(b) to the standalone financial statements regarding the Company''s non-current investment in a subsidiary company, non-current loans, other non-current financial assets and other current financial assets due from such subsidiary aggregating Rs.2.24 crore, Rs.1,124.36 crore, Rs.141.14 crore and Rs.2.47 crore, respectively, as at 31 March 2017 The consolidated net-worth of the aforesaid subsidiary has been fully eroded; however, based on certain estimates and other factors, including subsidiary''s future business plans, growth prospects and valuation report from an independent valuer, as described in the said note, management believes that the realizable amount is higher than the carrying value of the investment, non-current loans, other non-current financial assets and other current financial assets due to which these are considered as good and recoverable. Our opinion is not qualified in respect of this matter.

b) Note 34 to the standalone financial statements regarding uncertainties relating to recoverability of unbilled work-in-progress (other current financial assets), non-current trade receivables and current trade receivables aggregating Rs.911.80 crore, Rs.123.39 crore and Rs.90.30 crore, respectively, as at 31 March 2017, raised in the earlier years in respect of projects suspended or substantially closed and where the claims are currently under negotiations / discussions / arbitration. Pending the ultimate outcome of these matters, which is presently unascertainable, no adjustments have been made in the accompanying standalone financial statements. Our opinion is not qualified in respect of this matter.

c) Note 26.1 and 26.3 to the standalone financial statements regarding remuneration of Rs.10.66 crore paid for each of the financial years ended 31 March 2014 and 31 March 2016 to the Chairman and Managing Director (CMD), which is in excess of the limits prescribed under the provisions of the erstwhile Companies Act, 1956/ the Companies Act, 2013, respectively and for which the Company has filed an application for review / an application, respectively with the Central Government; however approval in this regard is pending till date. Our opinion is not qualified in respect of this matter.

Other Matters

11. a) The Company had prepared separate sets of statutory financial statements for the year ended 31 March 2016 and 31 March 2015 in accordance with Accounting Standards prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended) on which we issued auditor''s reports to the shareholders of the Company dated 28 April 2016 and 30 April 2015, respectively. These financial statements have been adjusted for the differences in the accounting principles adopted by the Company on transition to Ind AS, which have also been audited by us. Our opinion is not qualified in respect of this matter.

b) We did not audit the separate financial statements of six joint operations, included in these standalone financial statements, whose financial statements reflect total assets of Rs.53.93 crore and net assets of Rs.16.14 crore as at 31 March 2017, total revenues of Rs.45.58 crore and net cash inflows amounting to Rs.4.23 crore for the year ended on that date, as considered in these standalone financial statements. The Company had prepared separate set of statutory financial statements of these joint operations for the years ended 31 March 2017, 31 March 2016 and 31 March 2015 in accordance with accounting principles generally accepted in India and which have been audited by other auditors under generally accepted auditing standards applicable in India. These financial statements have been adjusted for the differences in the accounting principles adopted by the Company on transition to Ind AS. Our opinion in so far as it relates to the amounts and disclosures in respect of these joint operation is solely based on report of the other auditors and the conversion adjustments prepared by the management of the Company, which have been audited by us. Our opinion is not qualified in respect of this matter.

Report on Other Legal and Regulatory Requirements

12. As required by the Companies (Auditor''s Report) Order, 2016 (''the Order'') issued by the Central Government of India in terms of Section 143(11) of the Act, we give in the Annexure I, a statement on the matters specified in paragraphs 3 and 4 of the Order.

13. Further to our comments in Annexure I, as required by Section 143(3) of the Act, we report that:

a) we have sought and except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

b) except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, 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 standalone financial statements dealt with by this report are in agreement with the books of account;

d) except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the aforesaid standalone financial statements comply with Ind AS specified under Section 133 of the Act;

e) the matters described in paragraphs 8, 10(a) and 10(b) under the Basis for Qualified Opinion/ Emphasis of Matters paragraphs, in our opinion, may have an adverse effect on the functioning of the Company;

f) on the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as at 31 March 2017 from being appointed as a director in terms of Section164(2) of the Act;

g) the qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph;

h) we have also audited the internal financial controls over financial reporting (IFCoFR) of the Company as at 31 March 2017 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date and our report dated 4 May 2017 as per Annexure II expressed a qualified opinion;

i) 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, as detailed in Notes 6.1, 32 A(i) to (iii)and 34 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position;

ii. except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the Company, as detailed in Note 18.1to the standalone financial statements, has made provision, as required under the applicable law or Ind AS, for material foreseeable losses, if any, on long-term contracts including derivative contracts;

iii. there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company;

iv. the Company, as detailed in Note 13.1 to the standalone financial statements, has made requisite disclosures in these standalone financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8 November 2016 to 30 December 2016. Based on the audit procedures performed and taking into consideration the information and explanations given to us, in our opinion, these are in accordance with the books of account maintained by the Company.

Annexure I

Based on the audit procedures performed for the purpose of reporting a true and fair view on the financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, and to the best of our knowledge and belief, we report that:

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of its fixed assets.

(b) The fixed assets have been physically verified by the management during the year and no material discrepancies were noticed on such verification.

In our opinion, the frequency of verification of the fixed assets is reasonable having regard to the size of the Company and the nature of its assets.

(c) The title deeds of all the immovable properties (which are included under the head ''Property, plant and equipment'') are held in the name of the Company.

(ii) In our opinion, the management has conducted physical verification of inventory at reasonable intervals during the year and no material discrepancies between physical inventory and book records were noticed on physical verification.

(iii) The Company has granted unsecured loans to six companies covered in the register maintained under Section 189 of the Act; and with respect to the same:

(a) in our opinion the terms and conditions of such loans are not, prima facie, prejudicial to the Company''s interest;

(b) the schedule of repayment of the principal and the payment of the interest has not been stipulated and hence we are unable to comment as to whether repayments/receipts of the principal amount and the interest are regular;

(c) in the absence of stipulated schedule of repayment of principal and payment of interest, we are unable to comment as to whether there is any amount which is overdue for more than 90 days and whether reasonable steps have been taken by the Company for recovery of the principal amount and interest.

(iv) In our opinion, the Company has complied with the provisions of Sections 185 and 186 of the Act, to the extent applicable, in respect of loans, investments, guarantees and security.

(v) In our opinion, the Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Accordingly, the provisions of clause 3(v) of the Order are not applicable.

(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under sub-section (1) of Section 148 of the Act in respect of Company''s products/services and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

(vii) (a) Undisputed statutory dues including provident fund, employees'' state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, cess and other material statutory dues, as applicable, have not been regularly deposited with the appropriate authorities and there have been significant delays in a large number of cases. Undisputed amounts payable in respect thereof, which were outstanding at the year-end for a period of more than six months from the date they became payable are as follows:

Statement of arrears of statutory dues outstanding for0020more than six months

Name of the statute

Nature of dues

Amount (Rs. in Crore)

Period to which the amount relates

Due

Date

Date of Payment

The

Sales

1.99

December

20

Not paid

Sales

Tax/ Value

2015

January

till date

Tax Act

Added

2016

Tax/

March to

various

Entry Tax

August

due

2016

dates

(b) There are no dues in respect of duty of customs and duty of excise that have not been deposited with the appropriate authorities on account of any dispute. The dues outstanding in respect of income-tax, sales-tax, service-tax and value added tax on account of disputes, are as follows:

Statement of Disputed Dues

Name of the statute

Nature of dues

Amount (Rs. in Crore)

Amount Paid Under Protest (Rs. in Crore)

Period to

which the

amount

relates

Forum where dispute is pending

The Income Tax Act, 1961

Income Tax

24.63

24.63

A.Y 2006-07 to 2010-11

Income Tax

Appellate

Tribunal

The

Sales Tax Act

Sales Tax/ Value Added Tax/ Entry Tax

0.16

0.15

A.Y 2008-09, 2010-11

Supreme Court

4.70

-

A.Y 1997-98 and 2012-13

High Court

45.76

0.49

A.Y 1996-97 to A.Y 2000-01, A.Y 2005-06, A.Y 2006-07 and A.Y 2013-14

Taxation

Tribunal

91.82

3.28

A.Y 2002-03, A.Y 2004-05 to A.Y. 2013 to A.Y 201314

Commissioner level up to Appellate Authority

The

Finance

Act,

1994

Service tax including interest and

penalty, as applicable

2.84

April 2003 to December 2003

High Court

2.97

January 2006 to March 2006

Taxation

Tribunal

313.94

December 2008 to March 2013

Commissioner level up to Appellate Authority

(viii) The are no loans or borrowings payable to government. The Company has defaulted in repayment of following dues to the financial institution, banks and debenture holders during the year, which were paid on or before the Balance Sheet date.

(Rs. in crore)

Debenture

Holders

Days

Principal

Interest

Total

AXIS - Non-

0 to 30 days

-

0.77

0.77

Convertible

31 to 90 days

4.78

3.06

784

Debentures

91 to 180 days

4.78

4.52

9.30

LIC - Non-

0 to 30 days

-

0.83

0.83

Convertible

31 to 90 days

2.50

1.70

4.20

Debentures

91 to 180 days

-

0.03

0.03

181 to 365 days

-

0.04

0.04

(Rs. in crore)

Banks

Days

Principal

Interest

Total

Axis Bank

0 to 30 days

-

1.51

1.51

31 to 90 days

8.36

6.06

14.42

91 to 180 days

8.36

757

15.93

Bank of Baroda

0 to 30 days

-

0.26

0.26

31 to 90 days

1.24

0.06

1.30

91 to 180 days

0.78

0.65

1.43

Bank of Maharashtra

0 to 30 days

-

0.22

0.22

31 to 90 days

2.01

0.39

2.40

91 to 180 days

-

0.77

0.77

Canara Bank

0 to 30 days

-

2.47

2.47

31 to 90 days

9.63

3.15

12.78

91 to 180 days

9.63

732

16.95

Central Bank of India

0 to 30 days

-

0.51

0.51

31 to 90 days

5.62

0.85

6.47

91 to 180 days

4.51

1.31

5.82

Federal Bank

0 to 30 days

-

0.16

0.16

31 to 90 days

0.99

0.24

1.23

91 to 180 days

0.63

0.10

0.73

IDBI Bank

0 to 30 days

-

1.97

1.97

31 to 90 days

10.76

786

18.62

91 to 180 days

10.76

9.83

20.59

Indian

Overseas

Bank

0 to 30 days

-

0.72

0.72

31 to 90 days

3.81

0.32

4.13

91 to 180 days

2.40

1.89

4.29

Oriental Bank of Commerce

31 to 90 days

6.92

0.43

735

Punjab

National Bank

0 to 30 days

-

0.62

0.62

31 to 90 days

2.50

1.44

3.94

91 to 180 days

0.67

0.62

1.29

State Bank of Hyderabad

0 to 30 days

-

0.39

0.39

31 to 90 days

2.61

1.56

4.17

91 to 180 days

1.19

1.95

3.14

State Bank of Mysore

0 to 30 days

-

0.83

0.83

31 to 90 days

5.44

3.41

8.85

91 to 180 days

2.50

4.07

6.57

State Bank of Travancore

0 to 30 days

0.38

0.02

0.40

31 to 90 days

0.80

0.05

0.85

91 to 180 days

-

0.03

0.03

Syndicate

Bank

0 to 30 days

-

1.83

1.83

31 to 90 days

12.87

4.65

1752

91 to 180 days

-

4.05

4.05

Union Bank of India

0 to 30 days

1.25

0.37

1.62

31 to 90 days

1.97

0.19

2.16

91 to 180 days

-

1.00

1.00

(Rs. in crore)

Banks: Contd.

Days

Principal

Interest

Total

United Bank of India

0 to 30 days

-

2.49

2.49

31 to 90 days

750

2.79

10.29

91 to 180 days

750

766

15.16

Export Import Bank of United States

31 to 90 days

0.77

0.77

Standard

Chartered

Bank

31 to 90 days

4.59

4.59

Development Bank of Singapore

31 to 90 days

3.38

0.23

3.61

91 to 180 days

-

0.45

0.45

Financial Institution

Industrial Finance Corporation of India

0 to 30 days

-

1.20

1.20

31 to 90 days

3.75

2.42

6.17

91 to 180 days

3.75

4.40

8.15

Export Import Bank of India

0 to 30 days

-

3.72

3.72

31 to 90 days

19.94

14.89

34.83

91 to 180 days

19.94

18.61

38.55

Life Insurance Corporation of India

31 to 90 days

-

0.03

0.03

91 to 180 days

-

0.02

0.02

181 to 365 days

-

0.03

0.03

National Bank of Agricultural and

Development

0 to 30 days

-

0.57

0.57

31 to 90 days

3.90

1.50

5.40

91 to 180 days

-

0.19

0.19

SREI

Equipment

Finance

Limited

0 to 30 days

-

0.95

0.95

31 to 90 days

5.78

1.19

6.97

91 to 180 days

-

3.10

3.10

The Company has defaulted in repayment of following dues to the financial institutions, banks and debenture holders during the year, which were not paid as at the Balance Sheet date.

(Rs. in crore)

Debenture

Holders

Days

Principal

Interest

Total

LIC - Non

Convertible

Debentures

31 to 90 days

2.50

2.44

4.94

91 to 180 days

2.50

1.63

4.13

181 to 365 days

2.50

2.44

4.94

(Rs. in crore)

Banks

Days

Principal

Interest

Total

Bank of Baroda

31 to 90 days

0.46

0.98

1.44

91 to 180 days

0.00

0.65

0.65

181 to 365 days

2.50

0.00

2.50

Bank of Maharashtra

31 to 90 days

0.45

0.49

0.94

91 to 180 days

0.00

0.32

0.32

Canara Bank

31 to 90 days

5.73

704

12.77

91 to 180 days

5.73

4.69

10.42

Central Bank of India

31 to 90 days

2.60

1.17

3.77

91 to 180 days

0.00

1.22

1.22

Federal Bank

31 to 90 days

0.37

0.39

0.76

91 to 180 days

0.00

0.68

0.68

Indian

Overseas

Bank

31 to 90 days

1.41

2.55

3.96

91 to 180 days

0.00

1.70

1.70

Oriental Bank of Commerce

31 to 90 days

1.67

0.21

1.88

91 to 180 days

0.00

0.39

0.39

Punjab

National Bank

31 to 90 days

0.67

0.42

1.09

Syndicate

Bank

31 to 90 days

2.87

3.62

6.49

91 to 180 days

0.00

2.41

2.41

Union Bank of India

31 to 90 days

0.72

1.30

2.02

91 to 180 days

0.00

0.87

0.87

United Bank of India

31 to 90 days

4.44

716

11.60

91 to 180 days

4.44

4.77

9.21

Export Import Bank of United States

31 to 90 days

3.21

0.25

3.46

91 to 180 days

3.21

0.17

3.38

181 to 365 days

8.75

0.50

9.25

Standard

Chartered

Bank

31 to 90 days

2.29

0.83

3.12

91 to 180 days

2.29

0.56

2.85

181 to 365 days

0.00

1.67

1.67

Development Bank of Singapore

31 to 90 days

1.69

0.68

2.37

91 to 180 days

1.69

0.45

2.14

181 to 365 days

0.00

0.68

0.68

(Rs. in crore)

Financial

Institution

Days

Principal

Interest

Total

Industrial Finance Corporation of India

31 to 90 days

2.25

2.36

4.61

91 to 180 days

2.25

1.57

3.82

Life Insurance Corporation of India

31 to 90 days

0.00

0.34

0.34

91 to 180 days

0.00

0.23

0.23

181 to 365 days

0.00

0.34

0.34

National Bank of Agricultural and

Development

91 to 180 days

0.00

0.81

0.81

SREI

Equipment

Finance

Limited

31 to 90 days

1.70

2.76

4.46

91 to 180 days

1.70

1.84

3.54

(ix) The Company did not raise moneys by way of initial public offer or further public offer (including debt instruments) during the year. In our opinion, the term loans were applied for the purposes for which the loans were obtained.

(x) No fraud by the Company or on the Company by its officers or employees has been noticed or reported during the period covered by our audit.

(xi) Managerial remuneration has been paid and provided by the Company in accordance with the requisite approvals mandated by the provisions of Section 197 of the Act read with Schedule V to the Act.

(xii) In our opinion, the Company is not a Nidhi Company. Accordingly, provisions of clause 3(xii) of the Order are not applicable.

(xiii) In our opinion, all transactions with the related parties are in compliance with Sections 177 and 188 of the Act, where applicable, and the requisite details have been disclosed in the standalone financial statements, as required by the applicable Ind AS.

(xiv) During the year, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures except for allotment of equity shares and optionally convertible debentures during the year to the lenders pursuant to the Scheme for Sustainable Structuring of Stressed Assets (S4A Scheme) adopted by the Joint Lender''s Forum as stated in notes 15(h)(iii) and 16.1 to the standalone financial statements. In respect of the same, in our opinion, the Company has complied with the requirements of Section 42 of the Act and Rules framed there under. Further, in our opinion, the amounts so raised have been used for the purposes for which the funds were raised.

(xv) In our opinion, the Company has not entered into any non-cash transactions with the directors or persons connected with them covered under Section 192 of the Act.

(xvi) The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.

For Walker Chandiok & Co LLP

Chartered Accountants

Firm''s Registration No.: 001076N/N500013

per Adi P. Sethna

Partner

Membership No.:108840

Place : Mumbai

Date : 4 May 2017

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