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Ricoh India Ltd.

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Annual Report

For Year :
2016 2015 2014 2013 2012 2011 2010 2009 2008

Auditor's Report

1. Report on the Standalone financial statements

We were engaged to audit the accompanying standalone financial statements of Ricoh India 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 significant accounting policies and other explanatory information.

2. 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 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. 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.

3. Auditor’s Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. 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. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

4. Basis for Disclaimer of Opinion

A. Scope of investigation and impact on opening balances

Attention is invited to Note 45 of the standalone financial statements which describes in a general and overall manner the irregularities and suspected fraudulent transactions noted during the year. In view thereof, the Company appointed an external firm along with an internal team (comprising representatives of other Ricoh companies) to carry out the investigation. Reports of the aforesaid investigations have been made available for our sighting (on a non-copy basis).

As a result of the external and the internal investigation, the Company has recorded significant adjustments in the current year financial statements as referred to in Note 45. These relate to recognition of adjustments / transactions which had remained out of books in earlier periods, disclosure of bank borrowings/ bills discounted, reversal of circular sale and purchase transactions with certain parties with minimal value addition considered fictitious by the management, correction of inventory values and provisions of receivable balances considered doubtful of recovery.

Investigations mentioned above have concluded that revenue and cost have been overstated by Rs. 130,476 lacs (including Rs. 65,495 lacs pertaining to the current year) and by Rs. 110,544 lacs (including Rs. 58,983 lacs pertaining to the current year) respectively from the inception of business with identified suspected parties. The difference between revenues and costs of the current year has been presented on a net basis as a part of other income of current year. Further, uncollected account receivable balances amounting to Rs. 17,542 lacs pertaining to these parties have been considered doubtful of recovery and provided for as on 31 March 2016. Attention is also invited to Note 45 which summarize the overall impact of findings/ adjustments as a result of investigations.

Based on our initial findings, our reading of the Report on preliminary findings dated 20 April 2016 of the external investigation team and communications sent by the Company to various regulatory authorities, we have a reason to believe that suspected offence involving a violation of applicable law, which may tantamount to fraud, may have been committed. Accordingly, we made the necessary reporting to Central Government of suspected offence involving fraud being committed or having been committed as required by Rule 13( 1 )(ii) of the Companies (Audit and Auditors) Rules, 2014 [as amended by the Companies (Audit and Auditors) Amendment Rules, 2015] on 30 June 2016.

The Company has also requested Securities Exchange Board of India (SEBI) to consider conducting an investigation to ascertain if the incorrect standalone financial statements had any impact on the securities market and the investors, particularly under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003.

In view of the limitations pertaining to investigations elaborated in Note 45 of the financial statements read with our comments mentioned below in para 4.B to 7, we are unable to comment on the appropriateness of amounts pertaining to each period, consequential impact thereof on the opening balances as at 1 April 2015, the persons involved and the amount of fraud/ misappropriation, and consequential impact on these standalone financial statements and appropriateness of related disclosures.

B. Non-availability of information/ documentation/ satisfactory explanations/ justification

B.1 For most of the documents, originals were not available and hence we have had to carry out our audit procedures on photo copies of those documents, to the extent made available to us.

B.2 In relation to Statement of Profit and Loss, we were not able to complete our audit procedures due to non-availability of required information/ documentation/ satisfactory explanations. This includes non-availability of audit evidence to support certain sale and purchase transactions such as carriers’ receipts, goods received notes, proof of delivery, customer acknowledgment, effective cut-off and sales return procedures; and non-availability of significant information pertaining to other income, employee benefit expenses, other expenses, related disclosures in notes to accounts etc.

Further, in respect of revenue contracts due to non-availability of complete documentations / sufficient information, the management has accounted for such contracts on the basis of significant assumptions Accordingly, in view of aforementioned limitations, we are unable to comment on appropriate accounting of revenue recognized for these contracts, completeness of provisions towards onerous contracts, evaluation of potential impact of the irregularities and suspected fraudulent transactions on such contracts.

B.3 In respect of inventories:

i. the Company has not maintained proper records including reconciliation of goods purchased/sold in terms of quantity and value. Further, the reasons for material discrepancies noted during the physical verification have not been investigated;

ii. confirmation for inventories lying with third parties and documentation for movement of goods from one location to another currently valued at Rs. 4,761 lacs was not available;

iii.Net Realizable Value (NRV) analysis in respect of goods valued at Rs. 8,608 lacs has not been provided.

Therefore, we are unable to comment on possible adjustment of these, if any, to the carrying value of inventories.

B.4 In respect of receivables for machines given on lease, we were not able to complete our procedures due to no availability of complete documentation / details e.g. absence of lease contracts, / details and reconciliation of amount collected till 31 March 2016/amount due as at year-end and analysis of nature of lease such as operating lease vs finance lease etc. Further, basis checking of limited number of samples made available to us, we have observed inaccuracies/ inconsistencies in details used for computation of lease receivable as at year end such as fair value of lease, lease terms, computation of interest rate implicit in the lease etc.

In view of abovementioned observations, we are unable to comment on the carrying value of lease receivables balances and appropriateness of lease income recognized for the year.

B.5 During the current year, the Company has performed physical verification of certain fixed assets. As per the physical verification report provided to us, fixed assets of gross value of Rs. 2,661 lacs against total gross value of Rs. 13,914 lacs have been physically verified. Further, basis this physical verification report, the Company has written off assets having carrying value of Rs 700 lacs (Gross value Rs. 2,988 lacs) to the Statement of profit and loss. Similarly, assets physically found and not appearing in FAR, have been recorded at zero value in the fixed assets register. In the absence of complete reconciliation of assets physically verified with fixed assets register, we are unable to comment on appropriateness of amounts written off and carrying value of assets recorded at zero value. Further, as the management

has not performed a complete physical verification of all fixed assets, we are unable to comment on the existence of such assets and consequential adjustments, if any, and the impact thereof on the carrying value of such fixed assets.

B.6 We were not able to complete our balance confirmation procedures in relation to customers and vendors due to incomplete / incorrect addresses resulting in non-delivery for balance confirmation letters for certain selected parties, non-receipt of responses from most of the parties and un reconciled/ unexplained differences for confirmations received. In view of these read along with our comments mentioned in para B.2 above and considering that the Company does not have process in place to perform periodical reconciliation of balance with customers and vendors, we are unable to comment on recoverability of account receivable balances and advance given to suppliers and completeness of account payable balances.

B.7 In respect of following account balances, we were not able to complete our audit procedures due to non-availability of information/ documentation/ satisfactory explanations:

Account balance

Included under

Amount in Rs. lacs

Dealer Deposits

Other Long-term liabilities

339

Provision for sales commission

Short term provisions

546

Provision for dealer commission

Short term provisions

730

Security Deposits

Long term Loans and Advances

6,897

Accrued revenue

Other current assets

1,385

Deposit/ balance with Excise and Sales tax authorities

Short-term Loans and Advances

2,510

Advance tax (Net of Provision for income tax)

Long term Loans and Advances

776

In view of above, we are unable to comment on appropriateness of these balances.

B.8 The Company has not made the following disclosures required by the Schedule III of the Companies Act, 2013 and those required by the applicable accounting standards:

i. Warranty expense, provision for warranty and related disclosure

ii. Components of Deferred tax

iii. Consumption of stores and spares

iv. Specific disclosures required by AS-7 ‘Construction contracts

v. Complete disclosure for Operating leases

In view of our observations in paras A to B.8 above, we are unable to determine the adjustments, if any, that are necessary in respect of the Company’s assets, liabilities as on balance sheet date, income and expenses for the year, the elements making up the Cash Flow Statement and disclosures in the notes to accounts.

5. Disclaimer of Opinion

Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the standalone financial statements.

6. Emphasis of matter

We draw attention to Note 1.1 to the standalone financial statements, wherein it is stated that the Company’s net worth has been completely eroded by its accumulated losses as at the end of the financial year. However, in view of continued financial support, which is also evidenced by significant capital infusion subsequent to the year end, from a fellow subsidiary (second largest shareholder), management is of the view that the Company shall be able to continue as a going concern. Accordingly, the management considers it appropriate to prepare these standalone financial statements on a going concern basis.

7. Report on Other Legal and Regulatory Requirements

(i) As required by the Companies (Auditor’s Report) Order, 2016 (‘the Order’), issued by the Central Government of India in terms of sub- section (11) of Section 143 of the Act and except for the effects, if any, of the matters described in the basis for disclaimer of opinion paragraph, we enclose in the “Annexure A”, a statement on the matters specified in paragraphs 3 and 4 of the Order.

(ii) As required by Section 143(3) of the Act, we report that:

a. as described in the Basis for Disclaimer of Opinion paragraph, we were unable to obtain all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

b. due to the possible effects of the matters described in the Basis for Disclaimer of Opinion paragraph, we are unable to state whether proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

c. the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account as maintained;

d. due to the possible effects of the related matters described in the Basis for Disclaimer of Opinion paragraph, we are unable to state whether the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

e. on the basis of written representations received from the directors as on 31 March 2016, and 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 Section 164 (2) of the Act. However, as informed to us, the aforementioned representation has not been received from the ex-Managing Director of the Company. Accordingly, we are unable to comment as to whether such director is disqualified as on 31 March 2016 from being appointed as a director in terms of Section 164 (2) of the Act; and

f. with respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in “Annexure B”, and

g. 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. In view of the related matters described in para 4 Basis for Disclaimer of Opinion, we are unable to state whether Note 28 to the standalone financial statements discloses the complete impact of pending litigations on the financial position in the standalone financial statements of the Company;

ii. In view of the related matters described in para 4 Basis for Disclaimer of Opinion, we are unable to state whether the Company has made provision, 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 A to the Independent Auditor’s Report

The Annexure A referred to in Independent Auditor’s Report to the members of Ricoh India Limited on the financial statements for the year ended 31 March 2016, we report that:

(i) (a) As described in the basis of disclaimer of opinion para 4.B.5 of main report, the fixed assets records of the Company have been updated as at 31 March 2016 based on partial physical verification. Therefore, the Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets in respect of assets physically verified. However, fixed asset records are not updated for adjustments, if any, in respect of assets not physically verified.

(b) During the current year, the Company has performed physical verification of certain fixed assets. In our opinion, the Company needs to strengthen its process for conducting physical verification of fixed assets at reasonable intervals. As explained and represented to us, the Company is considering ongoing fixed asset verification processes on a sample basis. As described in the basis of disclaimer of opinion para 4.B.5 of main report, the shortages have been written-off and the excesses have been recorded at zero value. Since all the fixed assets were not covered by the exercise and the shortages and excesses were not mutually reconciled, we are unable to comment as to whether the material discrepancies noted on such verification have been properly dealt with and on the reasonableness of such verification.

(c) Photocopies of title deeds of immovable properties have been examined by us (other than five properties- having a net book value of Rs. 14 lacs as at 31 March 2016 for which even the photocopies have not been made available). Accordingly, we are unable to comment as to whether the immovable properties are held in the name of the Company or not.

(ii) The inventories, except goods-in-transit and stocks lying with third parties, have been physically verified by the management subsequent to year end. In our opinion, the frequency of such verification needs to be enhanced to make it reasonable. As informed to us, material discrepancies noted on verification carried out subsequent to the year end, between the physical stocks and the book records have been properly adjusted in the books of account as at 31 March 2016. For stocks lying with third parties and goods-in-transit, refer to our comment in note 4.B.3 in main audit report.

(iii) Except for the effects of the matters described in the basis of disclaimer of opinion para 4A of main report, according to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to companies, firms, limited liability partnerships or other parties covered in the register maintained under section 189 of the Act.

(iv) Except for the effects of the matters described in the basis of disclaimer of opinion para 4A of main report, according to the information and explanation given to us, the Company has not given any loans, or made any investments, or provided any guarantee, or security as specified under Section 185 and 186 of the Companies Act, 2013.

(v) Except for the effects of the matters described in the basis of disclaimer of opinion para 4A of main report, as per the information and explanation given to us, the Company has not accepted any deposits as mentioned in the directives issued by the Reserve Bank of India and the provisions of Section 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed there under.

(vi) According to the information and explanations given to us, the Central Government has not prescribed the maintenance of cost records under Section 148(1) of the Companies Act, 2013 for any of any activities / services rendered by the Company. Accordingly, paragraph 3(vi) of the Order is not applicable.

(vii) (a) According to the information and explanations given to us; on the basis of our examination of the records of the

Company; and appearing in the books of the accounts as statutory dues paid/payable, except for the effects of the matters described in the basis of disclaimer of opinion paragraph of main report, amounts deducted/accrued in the books of account in respect of undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales tax, service tax, duty of customs, value added tax, cess and other material statutory dues have not generally been regularly deposited with the appropriate authorities though the delays in deposit have not been serious. As explained to us, the Company did not have any dues on account of duty of excise.

According to the information and explanations given to us; on the basis of our examination of the records of the Company; and appearing in the books of the accounts as statutory dues paid/payable, except for the effects of the matters described in the basis of disclaimer of opinion paragraph of main report, no amounts payable in respect of undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales tax, service tax, duty of customs, value added tax, cess and other material statutory dues were in arrears as at 31 March 2016 for a period of more than six months from the date they became payable.

(b) Except for the effects of the matters described in the basis of disclaimer of opinion paragraph of main report, in particular para 7 (g)(i) and according to the information and explanations given to us, there are no dues of income tax, sales tax, service tax and value added tax which have not been deposited with the appropriate authorities on account of any dispute except as mentioned below. As explained to us, the Company did not have any dues on account of duty of excise.

Name of the Statute

Nature of the dues

Amount demanded (Rs. In lacs)

Amount paid under protest (Rs. In lacs)

Period to which it relates to

Forum where dispute is pending

Income Tax Act, 1961

Income Tax including interest and penalty, where ever specified

305.28

-

Assessment year (A.Y) 1999-00 and A.Y. 2006-07

Bombay High Court

Income Tax Act, 1961

Income Tax including interest and penalty, where ever specified

500.48

-

A.Y. 2002-03, A.Y. 2003 - 04, A.Y. 2005-06 and A.Y. 2009-10

Income Tax Appellate Tribunal (ITAT)1

Income Tax Act, 1961

Income Tax including interest and penalty, where ever specified

972.71

-

Various year between A.Y. 2006-07, and A.Y. 2013-14

Appellate Authority – up to Commissioner’s Level2

Finance Act, 1994

Service tax including interest and penalty, where ever specified

80.49

-

December 2008 to September 2010

Customs, Excise and Service Tax Appellate Tribunal, Delhi

Finance Act, 1994

Service tax including interest and penalty, where ever specified

9.60

-

October 2003 to March 2004

Appellate Authority up to Commissioner’s level

Central Sales Tax Act and Local Sales Tax Act

Sales tax including interest and penalty, where ever specified

65.34

2.45

FY 2013 -2014

Allahabad High Court

Central Sales Tax Act and Local Sales Tax Act

Sales tax including interest and penalty, where ever specified

1,440.11

350.32

Various years between FY 1984 -85 to FY 2012 -13

Tribunals of various states

Central Sales Tax Act and Local Sales Tax Act

Sales tax including interest and penalty, where ever specified

7,879.46

626.13

Various years between FY 1981 -82 to FY 2013 -14

Appellate Authority up to Commissioner’s level

(viii) According to the information and explanations given to us and on the basis of our examination of the records of the company, the Company has not defaulted in repayment of loans or borrowing to a financial institution, bank or dues to debenture holders during the year. The Company did not have any outstanding dues to government during the year or as at 31 March 2016.

(ix) According to the information and explanations given to us, the Company has not raised any money by way of initial public offer or further public offer (including debt instruments) and term loans during the year. Accordingly, paragraph 3 (ix) of the Order is not applicable.

(x) Attention is invited to note 4A in main audit report wherein it is stated that we have a reason to believe that suspected offence involving a violation of applicable law, which may tantamount to fraud, may have been committed. However, due to the limitations pertaining to investigations elaborated in note 45 of the financial statements read with our comments mentioned in para 4.B to 7 of main report, we are unable to comment on the appropriateness of amounts pertaining to each period over which such transactions continued, the persons involved and the amount of fraud/misappropriation. According to the information and explanations given to us, no other material fraud by the Company or on the Company by its officers or employees has been noticed or reported during the course of our audit.

(xi) according to the information and explanations give to us and based on our examination of the records of the Company, the Company has paid / provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act. However, this is subject to the potential financial impact of findings of investigations which has not been considered for computing the overall limits for payment of managerial remuneration.

(xii) According to the information and explanations given to us, the Company is not a Nidhi Company. Accordingly, paragraph 3(xii) of the Order is not applicable.

(xiii) Except for the effects of the matters described in the basis of the disclaimer of opinion paragraph of the main report, particularly the impact, if any, of the irregularities and suspected fraudulent transactions which at present is not fully ascertainable, in our opinion and according to the information available as at present and explanations given to us and on the basis of our examination of the records of the Company, the transactions with the related parties are in compliance with sections 177 and 188 of the Companies Act, 2013 where applicable and the details have been disclosed in the financial statements as required by the accounting standards.

(xiv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year. Accordingly, paragraph 3(xiv) of the Order is not applicable.

(xv) Except for the effects of the matters described in the basis of the disclaimer of opinion paragraph of the main report, particularly the impact, if any, of the irregularities and suspected fraudulent transactions which at present is not fully ascertainable, according to the information available as at present and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him.

(xvi) According to the information and explanations given to us, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act 1934.

Annexure B to the Independent Auditor’s Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Act

We were engaged to audit the internal financial controls over financial reporting of the Company as of 31 March 2016 in conjunction with our audit of the financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) issued by the Institute of Chartered Accountants of India (‘ICAI’). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Standards on Auditing, issued by ICAI, to the extent applicable to an audit of internal financial controls. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting were established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included an examination of whether internal financial controls over financial reporting existed, assessing the risk that a material weakness exists, and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the standalone financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Adverse Opinion

As described in para 4 of our main report, a large number of irregularities and suspected fraudulent transactions were noted during the year. As described in detail in the aforesaid para these irregularities and suspected fraudulent transactions clearly illustrate that the Company has not established adequate internal financial controls and that whatever financial controls have been established were not operating effectively. While reference may be made to the aforesaid paragraph, the following significant aspects of material weaknesses in internal control system are particularly noteworthy as identified in the investigation reports and by our audit procedures:

a) Deficiencies in maintenance of books of accounts and documentation including non-availability of original documents, recording of unsupported and back dated transactions, out of book adjustment entries etc.

b) Recording of circular sale and purchase transactions considered fictitious by the management, non-maintenance of appropriate inventory records including quantitative reconciliation of goods purchased and sold and physical verification of inventory at regular interval.

c) Non maintenance of complete records and documentation for machines given on lease at transaction level and fixed asset records.

d) Absence of an appropriate internal control system to perform periodical reconciliations of advances / balances of customers and vendors.

A ‘material weakness’ is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company''s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, because of the matters described in the basis of disclaimer of opinion paragraph of main report and in view of the material weaknesses described above, the Company has not maintained adequate and effective internal financial controls over financial reporting as of 31 March 2016.

We have considered the material weaknesses identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the 31 March 2016 standalone financial statements of the Company and these material weaknesses have inter-alia affected our opinion on the financial statements of the Standalone company and we have issued a disclaimer of opinion on the financial statements.

For B S R & Co. LLP

Chartered Accountants

Firm Registration Number: 101248W/W-100022

Vikram Advani

Partner

Membership Number: 091765

Place: New Delhi Date: 18 November 2016