To the members of Nitco LtdReport on the Audit of the Standalone Financial Statements1. Qualified Opinion
We have audited the Separate financial statements (also known as Standalone Financial Statements) of NITCO Limited ("the Company”), which comprise the Balance Sheet as at 31st March 2024, the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and a summary of material accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the aforesaid Standalone Financial Statements give the information required by the Companies Act, 2013 ("the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act read with Companies (Indian Accounting Standards) Rules, 2015, as amended and other accounting principles generally accepted in India, of the state of affairs (financial position) of the Company as at 31st March 2024, and its losses (financial performance including Other Comprehensive Income), the Changes in Equity and its Cash Flows for the year ended on that date.
2. Basis for Qualified OpinionMaterial Uncertainty Related to Going Concern
The Company continues to incur losses resulting in an erosion of its net worth and its current liabilities exceeds current assets as of 31st March 2024.
We draw your attention to Note 38 b (iv) of the Standalone Financial Statement as regards revocation of the existing restructured facilities (excluding the NCD and RPS facility) by JM Financial Asset Restructuring Company Limited (acting in its capacity as trustee of JMFARC-LVB Ceramics September 2014 - Trust). - (Financial Creditor), vide letter dated 19 September 2022, whereby dues amounting to Rs. 2,42,762.93 Lakhs has been restated (the amount appearing in books as on 31st March 2024 is Rs. 74,395.73Lakhs).
On 15 th November 2022, the Financial Creditor has made an Application under Section 7 of Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with National Company Law Tribunal (NCLT) to initiate corporate insolvency resolution process.
Further, on 3rd November 2023, the Hon'ble Debt Recovery Tribunal - l, Mumbai has passed an order against the Company & in favour of JMFARC Ltd (acting in its capacity as trustee of JMFARC- Corporation Bank Ceramics September 2015- Trust) w.r.t filing of Miscellaneous Application under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act and issued recovery certificate to the tune of Rs. 7,138.82 Lakhs alongwith interest 3 14.45 percent per annum compounded with monthly rests.
We are informed that the Company is seeking appropriate legal advice and will take all appropriate steps to protect its interest in both the aforesaid matters. Accordingly, no adjustments have been made to the carrying values of the liabilities and their presentation and classifications in the standalone financial statement and are accounted on going concern basis.
On 20th April, 2024 the Company has received communication from JMFARC notifying that pursuant to the Assignment Agreement dated 20th April, 2024, JMFARC has assigned the financial assets of the Company together with all underlying rights, titles, interests, securities, guarantees etc. thereof in favour of Authum Investment & Infrastructure Limited ("AIIL”)
Due to revocation of existing facilities of JMFARC and their filing of application with NCLT to initiate Corporate Insolvency Resolution Process, alongwith issuance of recovery certificate ofRs. 7,138.82 Lakhs by the Debt Recovery Tribunal in their favour, we have concluded that material uncertainty exists relating to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. The Company has received a communication regarding the assignment of the financial assets of the Company to AIIL and is in the process of renegotiating the terms with AIIL. The Company is pursuing various avenues to raise funds, continue business operations and monetize its assets. The Company is in the process to conclude re-negotiation and obtain a replacement financing. Pending the outcome of the negotiations, we are not able to quantify the possible effects of this qualification on the Company’s loss for the year and Company’s financial position as at 31 March 2024.
Based on our audit conducted, we have concluded that material uncertainty exists relating to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.
Our opinion is modified in respect of this matter.Non Provision of Interest on Outstanding Loan of LIC
We draw attention to Note 38 b(v) to the Standalone Financial Statement, Company has not provided interest on the outstanding loan of LIC of Rs. 1,887.26 lakhs (Principal outstanding), as it is hopeful of its restructuring. This unilateral discontinuing of interest accrual by the Company is not in compliance with Ind AS 109 and has resulted in understatement of interest expense and consequential loss for the year of the Standalone Company to the extent ofRs. 2,850.65 Lakhs.
Our opinion is modified in respect of this matter.
3. Emphasis of Matter
i. We draw attention to Note no. 38 (b)(ii) to the Standalone Financial Statement which states that Additional Director General Foreign Trade (ADGFT) had levied penalty of Rs. 17,000.00 lakhs which is confirmed by the Appellate bench of DGFT, New Delhi. Management has received legal opinion that the order is bad in law. Hence no provision for the demand is made in the books.
ii. We draw attention to Note no. 38 (b)(iii) to the Standalone Financial Statement which states that Revenue Department had raised a demand for unearned income of Rs. 6,967.03 Lakhs and no provision for the demand was made in the books as Company had received interim relief against the order from Bombay High Court. During the year, the Company has received an order from Revenue Department quashing this demand in favour of the Company
iii. We draw attention to Note no. 7 to the Standalone Financial Statement which states that the Company had given Capital advances of Rs. 855.22 lakhs (previous year Rs. 995.98 Lakhs) to Saumya Buildcon Pvt Ltd (SBPL). The management has received balance confirmation from SBPL and has also reviewed SBPL's financial statements to assess their ability to repay the advance. Based on this review, the Management expects advance to be fully recovered in FY 2025 and hence no provision has been made in the books of accounts for the same.
iv. We draw attention to Note no. 43 to the Standalone Financial Statement, the balance with respect to certain bank balances, borrowings from banks & financial institutions, other current assets and liabilities are subject to confirmation and the balances are currently reported in the standalone financial statement as per the books of accounts.
v. We draw attention to Note No.12(i) to the Standalone Financial Statement which states that Management has advanced money to Nitco Realties Private Limited by way of investments and loans which was further advanced by NRPL to its various subsidiary and other entities for acquiring land. Due to conditions of Real Estate market and financial crunch in company some of the proposed real estate project did not materialise. The management believes that the loans given by the Company to NRPL are recoverable and also the value of its Equity Investment is adequately supported. Accordingly, no provision for impairment in the value of its equity investment and expected credit loss for loans given is recorded by the Company.
Our opinion is not modified in respect of these matters.
4. Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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Key audit matter
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Our Response
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1) Assessment of impairment in valuation of investments and loan given to subsidiaries and Property, Plant and Equipment at Alibaug and Silvasa
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Our audit procedures included, among others the following:
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• The carrying values of the company's Investments in subsidiaries and Property, Plant and Equipment are assessed annually by management for potential indicators of impairment.
• For the above impairment testing, management has determined the value in use and the fair value less cost to sell as applicable.
• We have identified the assessment of potential impairment of investments and loans given to subsidiaries and Property, Plant and Equipment at Alibaug and Silvasa location as a key audit matter.
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• We have evaluated the key judgements / assumptions underlying management's assessment of potential indicators of impairment;
• We have studied available financial information including considerations of the economic conditions of the plant at Alibaug and audited financial statements of the subsidiaries;
• We have evaluated the current approximate market price of the land, real estate properties at Alibaug and Silvasa and also where the subsidiaries have invested for computing the recoverable amount;
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Impairment assessment involves significant degree • of management judgement in determining the key assumptions and expected future cash flows. • Valuation of underlying assets especially land with subsidiaries were done from Independent Valuer. •
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We have checked the Valuation report of underlying assets done by Independent Valuer;
We evaluated the independence, competence of the independent valuer;
We read and assessed the relevant disclosures made within the standalone Ind AS financial statements.
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2)
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Litigation, Claims and Contingent Liabilities
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Company is exposed to variety of different • laws, regulations and interpretations thereof. Consequently, in the normal course of business, Provisions and Contingent Liabilities may arise from legal proceedings, constructive obligations and commercial claims. •
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We understood the processes, evaluated the design and implementation of controls and tested the operating effectiveness of the Company's controls over the recording and re-assessment of uncertain legal positions, claims and contingent liabilities.
We held discussions with senior management including the
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Management applies significant judgement when considering whether and how much to provide for the potential exposure of each matter.
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person responsible for legal and compliance to obtain an understanding of the factors considered by management in classification of the matter as 'probable', 'possible' and 'remote'.
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These estimates could change substantially over time • as new facts emerge as each legal case or matters progresses.
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Examined the Company's legal expenses on sample basis and read the minutes of the board meetings in order to ensure completeness.
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Given the different views possible, basis the • interpretations, complexity and the magnitude of potential exposures and the judgement necessary to estimate the amount of provision required or determine required disclosures.
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With respect to tax matters (direct and indirect), discussed with the Company's tax officers and obtained their views and strategies on significant cases, as well as the related technical grounds relating to their conclusions based on applicable tax laws.
Assessing the decisions and rationale for provisions held or for decisions not to record provisions or make disclosures.
For those matters where management concluded that no provisions should be recorded, considering the adequacy and completeness of the Company's disclosures.
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5. Information Other than the Standalone Financial Statements and Auditor’s Report thereon
The Company's Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the Board's Report including Annexures to Board's Report, Management Discussion and Analysis, Report on Corporate Governance, but does not include the Standalone Financial Statements and our auditor's report thereon. Our opinion on the Standalone Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Standalone Financial Statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
6. Management’s Responsibility for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these Standalone Financial Statements that give a true and fair view of the financial position, financial performance, Changes in Equity and Cash Flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Standalone Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the Standalone Financial Statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the Company's financial reporting process.
7. Auditor’s Responsibility for the audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the Standalone Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the Standalone Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion, The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the Standalone Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the Standalone Financial Statements, including the disclosures, and whether the Standalone Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Standalone Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
8. Report on Other Legal and Regulatory Requirements
As required by the Companies (Auditor's Report) Order, 2020 ("the Order”) issued by the Central Government in terms of Section 143(11) of the Act, we give in "Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order.
As required by Section 143(3) of the Act, based on our audit, we report that:
a) We have sought and obtained all the information and explanations, except for the physical verification of inventory at Alibaug factory, which to the best of our knowledge and belief were necessary for the purposes of our audit.
b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.
c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Changes in Equity and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.
d) In our opinion, the aforesaid Standalone Financial Statements comply with the Ind AS prescribed under section 133 of the Act.
e) On the basis of the written representations received from the directors as on 31st March, 2024 taken on record by the Board of Directors, none of the directors are disqualified as on 31st March, 2024 from being appointed as a director in terms of Section 164 (2) of the Act.
f) With respect to the adequacy of the internal financial controls with reference to financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls with reference to financial statements.
g) As there was no managerial remuneration paid during the year, the provisions under Section 197(16) of the Act are not applicable.
h) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its Standalone Financial Statements -Refer Note 38 (b) to the Standalone Financial Statements;
ii. The Company did not have any long-term contracts including derivative contracts for which there were no material foreseeable losses;
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
iv. (a) As represented to us by the management and to the best of its knowledge and belief, no funds have been advanced or lend or invested during the year (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (Intermediaries”), with the understanding whether recorded in writing or otherwise that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(b) As represented to us by the management and to the best of its knowledge and belief, no funds have been received by the Company during the year from any person(s) or entity(ies), including foreign entities ("Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(c) Based on such audit procedures, we have considered reasonable and appropriate in the circumstances, nothing has come to our notice that causes us to believe that the above representations under sub-clause (i) and (ii) of Rule 11(e) as provided under (a) and (b) above, contain any material misstatement.
v. The Company has not declared or paid any dividend during the year as per Section 123 of the Companies Act, 2013 and hence clause (f) of Rule 11 of the Companies (Audit & Auditors) Rules, 2014 is not applicable.
vi. Based on our examination which included test checks, the Company has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software.
Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with.
As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 01,2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31,2024.
For M M NISSIM & CO. LLP
Chartered Accountants
Firm Reg.No.107122W / W100672
N Kashinath
Partner
Membership No.036490
UDIN: 24036490BKGTSS2843
Place: Mumbai
Date: 29th May, 2024
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