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Hindustan Construction Company

BSE: 500185|NSE: HCC|ISIN: INE549A01026|SECTOR: Construction & Contracting - Civil
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« Mar 15
Auditor's Report (Hindustan Construction Company) Year End : Mar '16
1.  We have audited the accompanying standalone financial statements of
 Hindustan Construction Company Limited (the Company), which comprise
 the Balance Sheet as at 31 March 2016, the Statement of Profit and Loss
 and the Cash Flow Statement 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 financial position, financial
 performance and cash flows of the Company in accordance with the
 accounting principles generally accepted in India, including the
 Accounting Standards specified under Section 133 of the Act, read with
 Rule 7 of the Companies(Accounts) Rules, 2014 (as amended).  This
 responsibility also includes maintenance of adequate accounting records
 in accordance with the provisions of the Act; safeguarding the assets
 of the Company; 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 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 thereunder.
 
 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 the 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 opinion on the
 standalone financial statements.
 
 Basis for Qualified Opinion
 
 8.  As stated in Note 32 (a) to the standalone financial statements,
 the Company''s long term investments as at 31 March 2016 include
 investments aggregating Rs. 474.37 crore in its subsidiaries, namely,
 HCC Real Estate Limited and Lavasa Corporation Limited; and the long
 term loans and advances, other non-current assets and other current
 assets as at that date include dues from such subsidiaries aggregating
 Rs. 554.17 crore, Rs. 32.51 crore and Rs. 13.35 crore, respectively,
 being considered good and recoverable by the management. However, these
 subsidiaries have accumulated operational losses and their net worth is
 fully/ substantially eroded as at 31 March 2016. Further, such
 subsidiaries are facing liquidity constraints due to which they may not
 be able to realize projections made as per their 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.
 
 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,
 of the state of affairs of the Company as at 31 March 2016, and its
 profit and its cash flows for the year ended on that date.
 
 Emphasis of Matters
 
 10.  We draw attention to:
 
 a) Notes 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.
 
 b) Note 32 (b) to the standalone financial statements regarding the
 Company''s investments in a subsidiary, long term loans and advances,
 other non-current assets and other current assets due from such
 subsidiary Rs. 0.25 crore, Rs. 984.82 crore, Rs. 127.48 crore and Rs.
 18.31 crore, respectively, as at 31 March 2016. The consolidated
 net-worth of aforesaid subsidiary have been fully eroded; however,
 based on certain estimates and the other factors, including
 subsidiary''s future business plans and growth prospects, as described
 in the said note, management considers the decline in the value of
 investment as temporary in nature and believes that long-term loans and
 advances, other non-current assets and other current assets are good
 and recoverable. Our opinion is not qualified in respect of this
 matter.
 
 c) Note 33 to the standalone financial statements regarding
 uncertainties relating to recoverability of uncompleted contracts and
 value of work done (inventory) and long-term trade receivables
 aggregating Rs. 978 crore and Rs. 206 crore, respectively, recognised
 in the earlier years in respect of projects which were suspended or
 substantially closed and where the claims are currently under
 negotiations/ arbitration/ litigation. 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.
 
 Other Matters
 
 11.  We did not audit the financial statements of six unincorporated
 integrated joint ventures, included in the standalone financial
 statements, whose financial statements reflect Company''s share in net
 loss of Rs. 13.66 crore for the year ended 31 March 2016. These
 financial statements have been audited by other auditors whose audit
 reports have been furnished to us, by the management, and our opinion
 on the standalone financial statements of the Company for the year then
 ended, to the extent they relate to the financial statements not
 audited by us as stated in this paragraph, is based solely on the audit
 reports of the other auditors. 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 1 a statement on the
 matters specified in paragraphs 3 and 4 of the Order.
 
 13.  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 the Accounting Standards
 specified under Section 133 of the Act, read with Rule 7 of the
 Companies (Accounts) Rules, 2014 (as amended);
 
 e.  the matters described in paragraphs 8, 10(b) and 10(c) under the
 Emphasis of Matters/ Basis for Qualified Opinion paragraph, 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 as on 31 March 2016and taken on record by the Board of
 Directors, none of the directors is disqualified as on 31 March 2016
 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 of 31 March 2016 in conjunction
 with our audit of the standalone financial statements of the Company
 for the year ended on that date and our report dated 28 April 2016 as
 per Annexure 2 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, in our opinion and to the best of our information and
 according to the explanations given to us:
 
 i.  as detailed in Notes 31A (i) to (iii),33 and 43 to the standalone
 financial statements, the Company has disclosed the impact of pending
 litigations on its standalone financial position;
 
 ii.  except for the possible effects of the matter described in the
 Basis for Qualified Opinion paragraph, the Company has made provisions
 as detailed in Note 10 (b) to the standalone financial statements, as
 required under the applicable law or accounting standards, 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.
 
 Annexure 1
 
 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, we report that:
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of 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 ''fixed assets'') are held in the name of the Company.
 
 (ii) 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 loan 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 grant 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) since the schedule of repayment has not been stipulated, the
 provisions of clause 3 (iii) (c) of the Order are not applicable to the
 Company.
 
 (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) 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 to the Company.
 
 (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
 customs, duty of excise, value added tax, cess and other material
 statutory dues, as applicable, have generally been regularly deposited
 with the appropriate authorities, though there have been delays in few
 cases.  Further, no undisputed amounts payable in respect thereof were
 outstanding at the year-end for a period of more than six months from
 the date they became payable.
 
 (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 any dispute,
 are as follows:
 
 Name      Nature of     Amount     Amount     Period to    Forum where
 of the    dues         (Rs. in     Paid       which the    dispute is
 statute                 Crore)     Under      amount       pending
                                    Protest    relates 
                                   (Rs. in
                                    Crore)
 
 The       Income        24.63      24.63      A.Y 2006-    Income Tax
 Income    Tax                                 2007 to      Appellate
 Tax Act,                                      2010-2011    Tribunal
 1961
 
 The Sales Sales          0.08       0.08      A.Y 2010-    Supreme
 Tax Act   Tax/ Value                          2011         Court
           Added          4.70          -      A.Y. 1997-   High Court
           Tax/ Entry                          1998 and
           Tax                                 2012-2013
 
                          7.57       1.00      A.Y 1996-    Taxation
                                               97 to 2000-  Tribunal
                                               01, 2005- 
                                               2008, A.Y 
                                               2007-08 to 
                                               2009-10
                                               and 2012-13
 
                         93.78       3.33      A.Y 2002-    Appellate
                                               2003, A.Y    Authority- 
                                               2004-2005    up to 
                                               to 2012-     Commissioner
                                               2013         level
 
 The       Service      289.10          -      January      Custom,
 Finance   tax                                 2004 to      Excise and
 Act, 1994 including                           March 2012   Service Tax
           interest                                         Appellate
           and                                              Tribunal
 
           penalty, as    0.18          -      A.Y. 2004    Commissioner
           applicable                          -2007        -Appeal
 
 (viii) There are no loans or borrowings payable to government. The
 Company has defaulted in repayment of following dues to the financial
 institutions, 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
                                                                Amount
 
 AXIS Non-Convertible    0 - 30 days               -      1.10    1.10
 
                        31 - 90 days               -      6.60    6.60
 
                        91 - 180 days           6.00      2.18    8.18
 
 LIC Non-Convertible     0 - 30 days               -      0.92    0.92
 
                        31 - 90 days            2.50      6.39    8.89
 
                        91 - 180 days           2.50      0.90    3.40
 
 Banks
 
 Axis Bank               0 - 30 days               -      3.35    3.35
 
                        31 - 90 days            1.50     10.26   11.76
 
                        91 - 180 days          11.48      3.82   15.30
 
 Bank of Baroda          0 - 30 days               -      0.58    0.58
 
                        31 - 90 days             180      1.99    3.79
 
 Bank of Maharashtra     0 - 30 days               -      0.29    0.29
 
                        31 - 90 days            1.02      1.72    2.74
 
                        91 - 180 days           0.78      0.56    1.34
 
 Canara Bank             0 - 30 days               -      6.72    6.72
 
                        31 - 90 days           12.25     19.96   32.21
 
                        91 - 180 days           9.63      3.26   12.89
 
 Central Bank of India   0 - 30 days               -      0.22    0.22
 
                        31 - 90 days            2.40      1.26    3.66
 
                        91 - 180 days           1.85      0.40    2.25
 
 Federal Bank            0 - 30 days               -      0.65    0.65
 
                        31 - 90 days            0.77      1.30    2.07
 
                        91 - 180 days           0.63         -    0.63
 
 IDBI Bank               0 - 30 days               -      7.45    7.45
 
                        31 - 90 days           14.56     14.73   29.29
 
                                                         (Rs. in crore)
 
 Banks: Contd.
 
                           Days            Principal  Interest   Total
                                                                Amount
 
 Indian Overseas Bank    0 - 30 days               -      0.89    0.89
 
                        31 - 90 days            3.15      5.28    8.43
 
                        91 - 180 days           2.40      1.72    4.12
 
 Oriental Bank of        0 - 30 days            1.25         -    1.25
 
 Commerce               31 - 90 days               -      1.06    1.06
 
                        91 - 180 days              -      0.42    0.42
 
 Punjab National Bank    0 - 30 days               -      1.38    1.38
 
                        31 - 90 days            2.99      2.74    5.73
 
 State Bank of           0 - 30 days               -      0.88    0.88
 
 Hyderabad              31 - 90 days            2.39      3.04    5.43
 
 State Bank of Mysore    0 - 30 days               -      0.93    0.93
 
                        31 - 90 days            5.75      6.40   12.15
 
                        91 - 180 days              -      0.90    0.90
 
 Syndicate Bank          0 - 30 days               -      1.86    1.86
 
                        31 - 90 days            6.50     11.03   17.53
 
                        91 - 180 days           5.00      3.59    8.59
 
 Union Bank of India     0 - 30 days               -      0.93    0.93
 
                        31 - 90 days            2.88      3.20    6.08
 
 United Bank of India    0 - 30 days               -      2.79    2.79
 
                        31 - 90 days            9.75     19.21   28.96
 
                        91 - 180 days           7.50      2.69   10.19
 
 State Bank of           0 - 30 days               -      0.27    0.27
 
 Travancore             31 - 90 days            0.86      0.96    1.82
 
 Toronto Dominion        0 - 30 days               -      0.45    0.45
 
 Bank                   31 - 90 days               -      0.59    0.59
 
 Standard Chartered     31 - 90 days               -      1.64    1.64
 
 Bank                   91 - 180 days              -      0.81    0.81
 
 Development Bank of     0 - 30 days               -      0.71    0.71
 
 Singapore              31 - 90 days            3.26      1.34    4.60
 
 Financial Institutions_
 
 SREI Equipment          0 - 30 days               -      1.08    1.08
 
 Finance Limited        31 - 90 days            0.87      3.20    4.07
 
                        91 - 180 days           5.78      5.31   11.09
 
 National Bank of        0 - 30 days               -      0.44    0.44
 
 Agricultural and       31 - 90 days            2.26      2.62    4.88
 
 Development            91 - 180 days           1.98      0.83    2.81
 
 Life Insurance          0 - 30 days               -      0.03    0.03
 
 Corporation of India   31 - 90 days            0.75      0.06    0.81
 
 Export Import Bank      0 - 30 days               -      4.64    4.64
 
 of India               31 - 90 days           27.86     36.56   64.42
 
 Industrial Finance      0 - 30 days               -      1.35    1.35
 
 Corporation of India   31 - 90 days            1.62      1.37    2.99
 
                        91 - 180 days           7.50      7.93   15.43
 
 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)
 
 Financial Institutions
 
                            Days           Principal  Interest   Total
                                                                Amount
 
 SREI Equipment          0 - 30 days               -      1.01    1.01
 
 Finance Limited        31 - 90 days            1.98         -    1.98
 
 Export Import Bank      0 - 30 days               -       4.8     4.8
 
 of India               31 - 90 days           12.51       4.3   16.81
 
 Industrial Finance
 Corporation of India    0 - 30 days               -      1.27    1.27
 
 Banks
 
                           Days            Principal  Interest   Total
                                                                Amount
 
 Development Bank       31 - 90 days               -      0.23    0.23
 
 of Singapore           91 - 180 days              -         -       -
 
 Standard Chartered      0 - 30 days               -      1.15    1.15
 
 Bank                   31 - 90 days            2.29      0.56    2.85
 
                        91 - 180 days           2.29         -    2.29
 
                                                        (Rs. in crore)
 
 Banks: Contd.
 
                           Days            Principal  Interest   Total
                                                                Amount
 
 Toronto Dominion        0 - 30 days            3.28         -    3.28
 
 Bank                   31 - 90 days               -      0.15    0.15
 
 United Bank of India    0 - 30 days               -      2.70    2.70
 
 Union Bank of India     0 - 30 days                      0.43    0.43
 
                        31 - 90 days            1.25      0.43    1.68
 
 State Bank of           0 - 30 days               -      0.27    0.27
 
 Travancore             31 - 90 days               -      0.13    0.13
 
 State Bank of           0 - 30 days               -      0.04    0.04
 Mysore
 
 State Bank of           0 - 30 days               -      0.57    0.57
 Hyderabad
 
 Punjab National         0 - 30 days               -      0.43    0.43
 
 Bank                   31 - 90 days            1.26      0.43    1.69
 
 IDBI Bank               0 - 30 days               -      2.43    2.43
 
                        31 - 90 days            6.75      4.66   11.41
 
 Federal Bank            0 - 30 days               -      0.25    0.25
 
                        31 - 90 days               -      0.20    0.20
 
 Debenture - Holders
 
 LIC Non-Convertible     0 - 30 days               -      0.88    0.88
 
                        31 - 90 days            2.50      0.88    3.38
 
 (ix) The Company did not raise moneys by way of initial public offer or
 further public offer (including debt instruments). In our opinion, the
 term loans availed during the year 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) In our opinion, managerial remuneration for the year ended 31
 March 2016 has been paid and provided in accordance with the requisite
 approvals mandated by the provisions of section 197 of the Act, read
 with Schedule V to the Act, except for remuneration paid/payable Rs.
 10.66 crore for which the Company''s application for approval, in excess
 of the limit prescribed by Rs. 8.71 crore is pending with the Central
 Government. Pending such approval, excess remuneration paid by the
 Company is held under trust.
 
 (xii) In our opinion, the Company is not a Nidhi Company. Accordingly,
 the provisions of clause 3(xii) of the Order are not applicable to the
 Company.
 
 (xiii) In our opinion all transactions with the related parties are in
 compliance with sections 177 and 188 of Act, where applicable, and the
 requisite details have been disclosed in the financial statements,
 etc., as required by the applicable accounting standards.
 
 (xiv) During the year, the Company has made a private placement of
 equity shares. In respect of the same, in our opinion, the Company has
 complied with the requirement of section 42 of the Act and the amounts
 raised have been used for the purposes for which the funds were raised.
 
 (xv) The Company has not entered into any non-cash transactions with
 directors or persons connected with them.
 
 (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
 
                                      (Formerly Walker, Chandiok & Co) 
 
                                                Chartered Accountants 
 
                             Firm''s Registration No.: 001076N/N500013
 
 
 
                                                    per Adi P. Sethna 
 
                                                              Partner
 
                                                Membership No.:108840
 
 
 
 Place : Mumbai 
 
 Date : 28 April 2016
Source : Dion Global Solutions Limited
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