Mahanagar Telephone Nigam

1.  We have audited the attached Balance Sheet of Mahanagar Telephone
 Nigam Limited as at March 31, 2009, the Profit and Loss Account and the
 Cash Flow Statement of the Company for the year ended on that date,
 annexed thereto, in which, the accounts of 3 units namely Delhi unit,
 Mumbai unit and Mobile Service Unit (Delhi & Mumbai both) are
 incorporated, which are audited by the branch auditors appointed by the
 Comptroller & Auditor General of India. These financial statements are
 the responsibility of the companys management. Our responsibility is
 to express an opinion on these financial statements based on our audit.
 
 2.  We conducted our audit in accordance with the Auditing Standards
 generally accepted in India. These standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and. disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by the management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 3.  As required by the Companies (Auditors Report) Order 2003, as
 amended by the Companies (Auditors Report) Order, 2004 (together the
 Order), issued by the Central Government of India in terms of Section
 227 (4A) of the Companies Act, 1956, and on the basis of such checks as
 we considered appropriate and according to the information and
 explanation given to us, we give in the Annexure, a statement on the
 matters specified in paragraphs 4 and 5 of the said Order, to the
 extent applicable to the company.
 
 4.  Further to our comments in the Annexure referred to in paragraph 3
 above and subject to:
 
 a) Note No.4 regarding claim of the company for deduction under section
 80IA of the Income Tax Act, 1961 pending at various appollate
 authorities.We are unable to comment on the impact as the outcome of
 these cases is not ascertainable at this stage.
 
 b) Note No. 16 regarding the Issue of pension, gratuity and leave
 encashment liability on account of absorbed employees Is yet to be
 settled with the DOT which may have substantial favourable impact on
 the profitability of the company.( Refer Note No. 16)
 
 c) Note No.22 regarding non implementation of II wage revision pending
 pension issue with the DOT.We are unable to comment on the impact of
 the same on the accounts of the company.
 
 d) Note No. 15 regarding the amounts recoverable from DOT and BSNL are
 subject to reconciliation and confirmation and in view of various
 pending disputes regarding each others claims we are unable to comment
 on the impact of the same on the profitability of the company.
 
 e) The Delhi mobile service Unit has not made provision in the accounts
 for the balance of Rs 141.75 millions outstanding for more than 3 years
 in respect of dues from operators. Thus, the profit of the company is
 overstated by Rs. 141.75 millions and Claims Recoverable have been
 overstated by the same amount.
 
 f) The Delhi Unit has not made provision in the accounts for the
 balance of Rs 24.14 millions outstanding for more than 3 years in
 respect of dues from operators. Thus, the loss of the company is
 understated by Rs. 24.14 millions and debtors have been overstated by
 the same amount.
 
 g) Note No.18 regarding non provision of certain claims of the BSNL on
 account of signalling charges.Transit tariff, MP Bills.lUC Claims and
 IUC claims of MTNL rebutted by BSNL,Service Connection billing& TAX
 charges recoverable and payable, pending identification, reconciliation
 and settlement of these and other similar claims of the company the
 impact of the same is not ascertainable.
 
 h) Note No.7 regrading non provision of stamp duty for the properties
 where the conveyance/ lease deed is yet to be executed, and the amount
 is unascertalnable.
 
 i) Note No.38 regarding non provision of impairment of assets in terms
 with Accounting Standard 28.
 
 j) Non valuation of vacant land and Guest Houses/Inspection quarters at
 fair market value as at the year end for the purpose of wealth tax
 provisions.
 
 k) Non provision of LTC/ encashment of LTC not availed by the
 employees, amount unascertained.
 
 l) Note No.19 regarding non confirmation and reconciliation of amounts
 receivable and payable from various parties.
 
 m) Note No 14(b) regarding balance in subscribers deposits account of
 Rs.4526.22 Million and interest accrued thereon of Rs. 58.49 Million,
 unlinked receipts from subscribers Rs. 82.31 Million are subject to
 reconciliation.Balance of sundry debtors as per Ageing Summary is short
 by Rs. 62.24 Million with comparison to balance is general ledger
 though the same has been fully provided for.The reconciliation of
 metered and billed calls in various units is in process. The
 reconciliation of leased, operational and billed circuits is in
 progress.The final impact of above on the accounts is presently not
 ascertainable) and the same may have an impact on the Profitability of
 the company. [Refer Note No. 15(b)].
 
 n) During the year no reconciliation of roaming receivables has been
 carried out. The impact of non-reconciliation of roaming debtors on
 profitability if any is unascertainable
 
 o) The system of issuance of completion certificates by engineering
 department needs to be strengthened/The Impact due to the delay in
 issuance of completion certificate on Fixed Assets and Depreciation is
 not ascertainable.
 
 p) The balance of amount payable to GPF Trust Is subject to
 confirmation, reconciliation and subsequent adjustments.
 
 q) Note No.12 regarding the Bank Reconciliation Statements as at 31st
 March, 2009 include the unmatched/ unlinked credits and debits
 aggregating Rs. 55.25 million and Rs. 63.23 million respectively, which
 have not been properly accounted, In the absence of adequate
 particulars. The impact of such entries on the Accounts cannot be
 ascertained. (Refer Note 10 in Schedule-T)
 
 r) In absence of agreement between the company and DOT/BSNL for
 interest recoverable/ payable on current account,no provision has been
 made for Interest payable/ receivable on balances during the year.
 
 s) Note No.21 regarding retaining of outstanding liability of Rs, 470.1
 Million on account of decommissioned assets pending arbitration case.
 
 t) Note No.9(d) regarding Claims receivables include Rs.22.50 Million
 towards ADC charges receivable from certain operators accounted for on
 conservative basis In the financial year 2007-08 and which may have a
 favourable Impact on the results on settlement/acceptance.  [Refer Note
 14 in Schedule U (b)].
 
 u) Note No. 28 regarding the requisite Information & details for the
 identification of Micro, Small & Medium enterprises as such we are
 unable to comment upon the compliance of section 15 & 22 of the Micro
 Small & Medium Enterprises Development Act-2006.
 
 v) The unit has not made following disclosures required under Schedule
 VI of the Companies Act, 1956 as per references given after each items:
 
 i) Consumption of stores and spares (Para no.3 (x) (a) of part II)
 
 ii) Consumption of imported and indigenous stores and spares and
 Percentage to the total consumption (Para no.4 D (C) of Part II)
 
 iii) The classification of sundry debtors as unsecured without
 considering the security deposit mat the unit has received from
 subscribers.
 
 iv) Debtors figures outstanding for more than six months and upto six
 months are ascertained by the management and relied upon by the
 auditors.
 
 The overall impact of quantifiable qualification In above para 4 (e) &
 (f) is that the Provisions of the unit is understated by Rs. 165.89
 Millions and the claims recoverable has been overstated by equivalent
 amount. Impact of matters referred to in the preceding remaining paras
 on the profit for the year is unascertainable.
 
 We report that:
 
 i) We have obtained all the information and explanations, which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit; ii) In our opinion, proper Books of Account, as required by law,
 have been kept by the Company, so far as appears from our examination
 of those books except that the following items referred to in paragraph
 
 I (i) of Significant Accounting Policies are consistently accounted on
 cash basis, instead of on accrual basis as required under section 209
 of the Companies Act, 1956 :
 
 a) Interest Income / Liquidated Damages, when realisability is
 uncertain.
 
 b) Annual recurring charges of amount up to Rs.0.10 Millions each for
 overlapping period.
 
 c) Revenue on account of service connections is being accounted for
 when the recovery for the same is established.  -
 
 iii) The Balance Sheet, Profit and Loss Account and the Cash Flow
 Statement dealt with by this report, are in agreement with the books of
 account;
 
 iv) In our opinion, the Balance Sheet, Profit and Loss Account and the
 Cash Flow Statement dealt with by this report comply with the
 Accounting Standards referred to in sub-section (3C) of Section 211 of
 the Companies Act, 1956 except AS - 2 regarding Valuation of
 Inventories (Refer Significant Accounting Policy No.3);AS - 4 regarding
 Contingencies and Events Occurring after the date of Balance Sheet;AS
 -5 regarding Net Profit or Loss for the Period, Prior Period Items and
 Changes in Accounting Policies [Refer Significant Accounting Policy No.
 1 (i) and ii(a)];AS- 6 regarding Depreciation Accounting [Refer
 Significant Accounting Policy No. 2(v)J;- AS -9 regarding Revenue
 Recognition [Refer Accounting Policy No 1 (ii); AS-10 regarding
 Accounting of Fixed Assets (Refer Significant Accounting Policy No.
 3);AS -15 regarding Accounting for Retirement Benefits in the Financial
 Statements of Employers (Refer Note No.32 );AS -28 regarding Impairment
 of Assets (Refer Note No.38 );AS-29 on Provisions for Contingent
 Liabilities and Contingent Assets.-
 
 v) Since the company is a Government company, clause (g) of sub-section
 (1) of section 274 of the Companies Act, 1956 regarding obtaining
 written representations from the directors of the company, is not
 applicable to the Company in terms of Notification No.GSR-829 (E) dated
 21.10.2003);
 
 vi) Attention is further invited to the following without making them a
 subject matter of qualification: -
 
 a) NoteNo.11 regarding overdues of Rs.1000 million by one of the Govt,
 company which have considered good on the basis of comfort letter
 issued by the concerned Ministry.
 
 b) Nonavailability of information about thi transactions required to be
 entered in the registers mainatained under section 301 of the Companies
 Act, 1961.
 
 c) Note No.6 (c) Pending the decision of the review petition before the
 Honble Supreme Court Of India of a sum of Rs.32.29 millions, payable
 in terms of earlier directions of Honble Supreme Court of India to
 various Companies, has not been provided for by the company.
 
 d) Note No.17 regarding non provision of diminution in the value of
 investments in subsidiaries and joint venture considering the
 diminution as temporary in nature.
 
 e) The amount of service tax included in debtors and adjusted from
 deposit is not generated from the system and is done on manual basis.
 Service Tax ageing is also not available.
 
 f) Revenue from pre paid services has been recognised on the basis of
 SIM activated and its usage output generated through system and
 certified by the management being a technical matter.
 
 g) Expenditure on replacement of assets, equipments, instruments arid
 rehabilitation work is capitalised If it results in enhancement of
 revenue earning capacity as stated in Significant Accounting Policy
 2(III). This being a technical matter, we have placed reliance on the
 opinion of the management
 
 h) Note 5 (b) regarding Income Tax Reconciliation resulting In prior
 period income amounting to Rs. 2536.44 Millions on account of interest
 on Income Tax Refunds.
 
 i) Non - compliance of various clauses of Clause - 49 of the Listing
 Agreement relating to Corporate Governance, as per detail given
 hereunder:
 
 i) The Board of Directors should have an optimum combination of
 executive and non - executive directors with not less than 50% of the
 board of directors comprising of non executive directors.  The company
 has four functional directors including Managing Director and has only
 2 non functional directors.
 
 ii) The Audit Committee constituted by the company has only one
 independent director in place six, as required by law.
 
 vii) In our opinion, and to the best of our information and according
 to the explanations given to us, the said accounts read with the
 significant Accounting Policies and together with the notes thereon,
 give the information required by the Companies Act, 1956, in the manner
 so required and also give, subject to our observations in paragraph 4
 foregoing, a true and fair view in conformity with the accounting
 principles generally accepted in India.
 
 (a) in the case of Balance Sheet, of the State of Affairs of the
 Company as at 31st March, 2009;
 
 (b) in the case of the Profit & Loss Account, of the Profit of the
 Company for the year ended on that date; and
 
 (c) In the case of the Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 
 ANNEXURE - I TO THE AUDITORSREPORT
 
 (REFERRED TO IN PARAGRAPH - 3 OF OUR REPORT OF EVEN DATE)
 
 As required by the Companies (Auditors Report) Order, 2003, issued by
 the Central Government of India in terms of section 227(4A) of the
 Companies Act, 1956 and as per the information and explanations given
 to us, the books and records examined by us in the normal course of
 audit, the reports received from the Branch Auditors and to the best of
 our knowledge and belief, we further report that:
 
 1.  (a) Delhi unit has maintained records of fixed assets./n case of
 MumbaiUnit and MS unitMumbai,
 
 fixed assets registers maintained w.e.f. 01.04.2002 are adequate in so
 far as these give full particulars of quantitative details. In MS unit
 - Delhi, records of fixed assets have been maintained.Corporate Office
 has maintained fixed assets register showing full particulars including
 quantitative details.
 
 (b) As per the Accounting Policy of the company, Fixed Assets are
 required to be physically verified by the Management on rotation basis,
 once in three years. As certified by the management, the office
 machinery and equipment, electrical appliances, Furniture & Fixtures
 and line and wires were physically verified in accordance with
 programme of verification by the management in this year and relied bo
 by us. In our opinion, the area of physical verification needs to be
 further strengthened.
 
 (c) The company has not disposed off any substantial part of its fixed
 assets during the year and as such there is no effect on the going
 concern.
 
 2.  (a) In our opinion, physical verification of inventory has been
 conducted by the management at reasonable intervals.
 
 (b) In our opinion, the procedure of physical verification of the
 inventory followed by the management needs to be further strengthened
 and frequency needs to be increased. According to the information and
 explanations given to us, the physical verification of all the items of
 stores was earned out during the year by Delhi and Mumbai units.
 However, at MS unit, Delhi, physical verification was conducted only
 foi SIM cards but Detailed physical verification were not made
 available for the verification of auditors.
 
 (c) The Company is maintaining proper records of Inventory. As per the
 information provide to us, discrepancies noticed on physical
 verification of inventory were not material and have been properly
 dealt with in the books of accounts.
 
 3. According to the information and explanations given to us, the
 Company has neither granted nor taken any loans, secured or unsecured,
 to or from companies, firms or other parties covered in the register
 maintained u/s 301 of the Companies Act, 1956. Consequently, clauses
 (iii)(b), (iii)(c), (iii)(d), (iii)(e), (iii)(f) and (iii)(g) of
 paragraph 4 of the order are not applicable.
 
 5.  In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the Company and the nature of its
 business for the purchase of inventory and fixed assets and for the
 sale of goods / servicesT/ie Unit Auditors have shown their inability
 to comment on the procedures with respect to the purchases under
 tenders floated and evaluated by corporate office. However, in our
 opihion the internal control procedures needs to be further
 strengthened in this regard. The system regarding reconciliation &
 confirmation of deposit to various departments, reconciliation between
 the exchanges generated calls & billed calls, reconciliation of the
 balance in subscriber deposit account with subsidiary record, needs to
 be strengthened. The overall internal control systems on revenue
 billing needs to be strengthened, as the amount of service tax is not
 generated from the system and service tax aging is also not available.
 System of reconciliation of IUC payable needs to be strengthened, as
 the amount, generated as per the System for payable in certain cases
 has to be reconciled with some operators. Further in our opinion there
 should be a system of cross checking of IUC billing to operators.
 
 6.  The Company has not made purchase of material from companies, firms
 or other parties listed in the register required to be maintained under
 section 301 of Companies Act 1956, aggregating during the year to Rs.
 5,00,000/- or more in value in respect of each party.77je company has,
 however, obtained and provided the services from / to the companies,
 firms or other parties listed in the register required to be maintained
 under section 301 of the Companies Act, 1956. The above transactions,
 though required to be entered in the register required to be maintained
 under section 301 of the Companies Act, 1956, have not been entered.
 
 7.  As informed to us, the Company has not accepted any deposits from
 the public during the year within the meaning of section 58 A of the
 Companies Act, 1956 and the rules framed there under. Therefore, the
 directives issued by the Reserve Bank of India are not applicable.
 
 8.  In our opinion, the Internal Audit System of the company
 commensurate with the size of the Company and the nature of its
 busihess-However, the authority and independence, extent of coverage of
 the areas of operations, frequency/ quality of reporting / timeliness
 of the reporting and the follow up of internal audit observations need
 to be strengthened.
 
 9.  The Central Government has prescribed the maintenance of cost
 records under clause (d) of sub section (1) of section 209 of Companies
 Act, 1956 w.e;f. 01.04.2003. The company has maintained the required
 Cost Records for the year 2007-2008 and the same records for the year
 under audit would be prepared after the audit of the final account. We
 have not carried out any detailed verification of these cost records.
 
 9. (a) There were no undisputed amounts payable in respect of Statutory
 Dues including Contributory Provident Fund, Investor Education and
 Protection Fund, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Excise
 Duty, Cess and any Other Statutory Dues outstanding as at 31.03.2009,
 for a period of more than six months from the date they become payable
 except service tax payable on amount lying in unlinked credits accounts
 in units (amount not ascertainable). As informed to us, the provisions
 of Employees State Insurance Act are not applicable tofhe company.
 There has generally been no delay in depositing CPF contribution to the
 trust. GPF contribution, in respect of employees on deemed deputation,
 is generally remitted regularly to DOT cell. GPF contribution, in
 respect of absorbed DOT employees, has been deposited with the GPF
 Trust after registration of the trust with Income Tax Department.
 
 (b) According to the information and explanation given to us, there are
 no dues in respect of Custom Duty, Excise Duty and Cess that have not
 been deposited with the appropriate authorities on account of any
 dispute. However, the Company has not deposited Sales Tax / VAT Dues,
 Service Tax and Income Tax Dues on account of disputes as under:
 
 (i) Local Sales Tax and Central Sales Tax/ VAT:
 
 (i) Sales Tax
                                                                    
 Name of the      Amount (Rs)    Amount (Rs)     Period     Authority 
                                                          where pending
 Statute             L.S.T         C.S.T
 
                                               
 Delhi Sales 
 Tax Act            268131        92302769      1988-89    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act            162120        20517000      1989-90    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act            1006001       15337192      1990-91    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act           11660806       63932673      1991-92    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act            1437418       144392134     1992-93    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act           16996691           76491     1993-94    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act            1032760       201103762     1994-95    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act             827253        88446906     1995-96    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act              71319               0     1996-97    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act                  0                     1997-98    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act                  0         0102613     1998-99    High court          
 
 Delhi Sales 
 Tax Act               1461          545178     1999-00    High court
 
 Delhi Sales 
 Tax Act              88527            5000     2000-01    High court
 
 Delhi Sales 
 Tax Act            2036407           15200     2001-02    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act             371932               0     2002-03    Addl. Comm. 
                                                           Sales Tax,
 
 Delhi Sales 
 Tax Act            1255424               0     2003-04    Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act                  0       180544146   1987-88 to   Addl. Comm. 
                                                            Sales Tax
                                              1993-94.
 
 Delhi Sales 
 Tax Act            72041344          4234    2004-05      Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act             4459877             0    2005-06      Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act             1286637             0    2006-07      Addl. Comm. 
                                                           Sales Tax
 
 Delhi Sales 
 Tax Act             1046779             0    2007-08      Addl. Comm. 
                                                           Sales Tax
 
 TOTAL             100753865     807425298
 
 The unit has already deposited Rs. 154511466 out of the total disputed
 liability stated above.
 
 (ii) Service Tax
 
 Name of the Statute      Amount (Rs)       Period     Authority where 
                                                       pending
                          Service Tax
 
 Service Tax Act          220600000         2007-08    Excise Comm.
 
 Delhi Unit has already deposited Rs. 15, 45,11,466.90, out of the total
 disputed liability as above.
 
 Name of the   Nature of Dues   Amount under    Year to       Forum where
 Statute                        dispute not     which      the dispute is
                                deposited       amount            pending
                                                relates
 
 BST Act      Assessed Amount    54,602,898     2002-03    Jt. Commr. of 
                                                           Sales Tax
                                                           Appeals
 
 BST Act      Assessed Amount   101,628,984     20O1-02    Jt. Commr. 
                                                           of Sales Tax
                                                           Appeals
 
 BST Act      Assessed Amount    54,829,094     2000-01    MSTT
 
 BST Act      Assessed Amount    40,201,675     1999-00    MSTT
 
 BST Act      Assessed Amount    59,424,662     1998-99    MSTT
 
 BST Act      Assessed Amount    53,193,370     1996-97    DC
 
 BST Act      Assessed Amount     3,552,968     1993-94    MSTT
 
 Finance      Service Tax:        4,100,000     2003-04    CESTAT
 Act1994      WSS-Cause    
              Notice.               
 
 Lease Act    Assessed Dues     682,019,710     2003-04    Jt. Commr. 
                                                           of Sales Tax
 (Now under                                                Appeals
 MVAT)
 
              Total Rs.       1,053,553,361        
 
 10.  The company has not incurred any losses in the current year and in
 the financial year immediately preceding such financial year.
 
 11.  The Company has neither taken any loans from a financial
 institution / bank nor issued any debentures.  Accordingly, clause 4
 (xi) of the order is not applicable.
 
 12.  The Company has not granted loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 Accordingly, clause 4 (xii) of the order is not applicable.
 
 13.  The Company is not a Chit Fund or a Nidhi Mutual Benefit Fund /
 Society.  Accordingly, clause 4(xiii) of the order is not applicable.
 
 14.  The Company is not dealing in or trading in shares, securities,
 debentures and other investments.  Accordingly, clause 4(xiv) of the
 Order is not applicable.
 
 15.  According to the information and explanation given to us, the
 Company has not given any guarantees for loans taken by others from
 banks or financial institutions. Accordingly, clause 4(xv) of the Order
 is not applicable.
 
 16.  The Company has not obtained any Term Loans. Accordingly, clause
 4(xvi) otthe Order is not applicable.
 
 17.  The Company has not raised any Long Term or Short Term Loan.
 Accordingly, Clause 4(xvii) of the Order is not applicable.
 
 18.  The Company has not made any preferential allotment of shares to
 parties and companies covered in the register maintained under section
 301 of the Act.
 
 19.  The Company has not issued any debentures. Accordingly, clause
 4(xix) of the Order is not applicable.
 
 20.  The Company has not raised any money by public issues during the
 year. Accordingly, clause 4(xx) of the Order is not applicable.
 
 21.  According to the information arid explanations given to us, ho
 major fraud on or by the company has been noticed or reported during
 the year. The details with regard to status of frauds till 31.03.2009
 have not been provided to Delhi unit auditors and as such provision in
 this regard ,if any, has not been made.
 
 
 
                                               For Bansal Sinha & Co.
                                                Chartered Accountants
 
 Place : New Delhi                                 (Ravinder Khullar)
 
 Dated : August 1,2009                                        Partner
                                                 Membership No. 82928