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Disclosure in auditor’s report explanatory

INDEPENDENT AUDITOR’S REPORT

To,

The Board of Directors,

Shalby Limited

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Shalby Limited (“the Holding Company”) and its subsidiaries (the Holding Company and its subsidiaries together referred to as “the Group”), which comprise of the Consolidated Balance Sheet as at March 31, 2015, the Consolidated Statement of Profit and Loss and Consolidated Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information ( hereinafter referred to as “ the Consolidated financial statements”).

Management’s Responsibility for the Consolidated Financial Statements                             

The Holding Company’s Board of Directors is responsible for the preparation of these consolidated financial statements in terms of the requirements of the Companies Act, 2013 (“the Act”) that give a true and fair view of the consolidated financial position, consolidated financial performance and consolidated cash flows of the Group 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. The respective Board of Directors of the Companies included in the group are responsible for maintenance of adequate accounting records in accordance with the provision of the Act for safeguarding the assets of the group 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 control, 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, which have been used for the purpose of preparation of the consolidated financial statements by the Directors of the Holding Company, as aforesaid.

Auditor’s Responsibility

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

While conducting the 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 thereunder.

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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.  The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.  In making those risk assessments, the auditor considers internal financial control relevant to the Holding Company’s preparation of the consolidated financial statements that give true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Holding Company has an adequate internal financial controls system over financial reporting in place and operating effectiveness of such controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by Holding Company's Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence obtained by us and the audit evidence obtained by the other auditors in terms of their reports referred to in Other Matters paragraph below is sufficient and appropriate to provide a basis for our qualified audit opinion on consolidated financial statements.

Basis for qualified opinion

1.      In case of one of the subsidiaries of the holding company, it has been reported that the subsidiary company has carried the balances including adverse and stagnant balances of trade payables, trade receivables, loans & advances and borrowings from director as disclosed in the standalone financial statements of such subsidiary company.  The same are subject to reconciliation and confirmation by respective parties.  The management of the subsidiary company has informed that such company has sent letters to all the vendors for balance confirmation.  Accordingly, the impact of such non–reconciliation and non–adjustments, if any, on the consolidated profit for the year is not ascertained. 

2.      Observations in respect of proper records showing particulars of fixed assets, physical verification of assets and inventories and adequacy of internal controls as stated in paragraph 1, 2 and 4 of the Annexure to the Auditor's Report on may have consequential effect on the consolidated financial statements for the year.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effect of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid consolidated 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 consolidated state of affairs of the Group as at 31st March, 2015 and its consolidated profit and their consolidated cash flows for the year ended on that date.

Emphasis of Matters

1.       We draw attention to note 37(a) to the consolidated financial statements for the current financial year with regard to public interest litigation filed before Hon'ble High Court of Madhyapradesh against the company for usage of plot of land, on which the company has executed hospital project at Jabalpur, for the purpose other than those for which the lease has been originally granted to the lessee.

2.       We draw attention to note 37(b) to the consolidated financial statements for the current financial year whereby the attention is drawn to the fact that proceedings of the Company Petition No. 18 /2015 are pending at the Company Law Board, Mumbai against one of the subsidiaries of the holding company and issues covered therein are subjudice.

3.       We draw attention to note 44 to the consolidated financial statements for the financial year ended on 31st March, 2015 in regard to approval of the standalone financial statements of one of the subsidiaries of the holding company for financial year ended on 31st March 2015 with majority of directors acted in favour of approval of these standalone financial statements whereas one director, who is the petitioner to Company Petition No. 18 /2015 dissented for the said business. 

4.       We draw attention to note 45 to the consolidated financial statements regarding decision of the board of directors of one of the subsidiaries of the holding company to write off the outstanding amount of ` 93,28,224/– which included the balances in the name of one of the directors of the such subsidiary company and his relatives and associates.

5.       We draw attention to note 46 to the consolidated financial statements which indicates that one of the subsidiaries of holding company has discontinued its principal business i.e. healthcare services and such subsidiary company has given its assets on lease to the holding company.  Though the principal operations of such subsidiary company have been closed, the standalone financial statements of the said subsidiary company have been prepared on going concern basis for the matters stated in the aforesaid note.

We have not qualified our opinion in the above referred to matters.

Other Matters

The financial statements of certain subsidiaries included in the consolidated financial statements, which reflect total assets of ` 17,73,54,573/– as at 31st March, 2015, total revenue (net) of ` 12,22,46,232/– and net cash inflow amounting to ` 88,71,670/– for the year then ended have been audited by us.

We did not audit financial statements of certain subsidiaries, whose financial statements reflect total assets of ` 1,71,25,971/– as at 31st March, 2015, total revenue of ` 76,76,758/– & net cash outflow amounting to ` 14,30,799/– for the year ended on that date, as considered in consolidated financial statements. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion, on the consolidated financial statements in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, and our report in terms of sub sections (3) & (11) of section 143 of the Act, in so far as it relates to the aforesaid subsidiaries are based solely on the reports of the other auditors.

Report on Other Legal and Regulatory Requirements

1.       As required by the Companies (Auditor’s Report) Order 2015 ("the Order") issued by the Central Government of India in terms of sub section (11) of section 143 of the Act, considering that the wholly owned subsidiary company is incorporated outside India and whose accounts are not audited by us, the matters specified in paragraphs 3 & 4 of the Order in our view are not applicable, based on the comments in the auditor’s report of the Holding company and subsidiary companies, we give in the Annexure, a statement of the matters specified in paragraphs 3 and 4 of the Order to the extent applicable. 

2.      As required by section 143(3) of the Act, we report, to the extent applicable, that:

         (a)     We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the aforesaid consolidated financial statements, except the information as described at point 1 in the basis for Qualified Opinion paragraph.

         (b)     Except for the effect of the matter described in the basis for Qualified Opinion paragraph above, In our opinion, proper books of account as required by law relating to preparation of the aforesaid consolidated financial statements have been kept so far as appears from our examination of those books and the report of the other auditors.

         (c)     The Consolidated Balance Sheet, the Consolidated Statement of Profit and Loss and the Consolidated Cash Flow Statement dealt with by this Report are in agreement with the relevant books of account.

         (d)     In our opinion, the aforesaid consolidated financial statements 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 of the Holding Company as on 31 March, 2015 taken on record by the Board of Directors of the Holding Company and the reports of the statutory auditors of its subsidiary companies, none of the directors of the Group's Companies is disqualified as on 31st March, 2015 from being appointed as a director in terms of Section 164(2) of the Act.

         (f)      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 and in our opinion and to the best of our information and according to the explanations given to us :

                  (i)      The consolidated financial statements disclose the impact of pending litigations on the consolidated financial position of the group– Refer Notes 36 & 37 to the consolidated financial statements;

                  (ii)      The Group did not have any long–term contracts including derivatives contracts for which there were any material foreseeable losses.

                  (iii)     There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Holding Company and its subsidiary companies.

                   

FOR  G. K. CHOKSI & CO.

         [Firm Registration No. 101895W]

         Chartered Accountants

         SHAUNAK V. MUZUMDAR

                     Partner

                Mem. No. 37571

Place : Ahmedabad

Date  :

ANNEXURE TO THE AUDITORS’ REPORT

(Referred to in paragraph 1 under "Report on Other Legal and Regulatory Requirements" section of our Report of even date to the members of Shalby Limited)

Our reporting on the order includes one subsidiary company, which has been audited by other auditor and our report in respect of this entity is based solely on the report of other auditor, to the extent considered applicable for the reporting under the annexure to the auditor's report in the case of the consolidated financial statements.

(i)      (a)     The respective entities have maintained proper records showing full particulars including quantitative details and situation of its fixed assets, except in case of two subsidiary companies  of the holding company such records have not been maintained.

        (b)     The fixed assets have been physically verified by the management of the respective entities during the year at reasonable intervals and no material discrepancies were noticed on such verification, except in case of two subsidiary companies of the holding company the documents substantiating physical verification of fixed assets were not made available for verification.  In the absence of proper records with regard to fixed assets and documents substantiating physical verification of fixed assets, the opinion with regard to discrepancies if any could not be given in case of such subsidiary companies.

(ii)     (a)     In our opinion and the opinion of the other auditors, physical verification of inventory has been conducted by the management of the respective entities at reasonable intervals, except in case of one of the subsidiaries the relevant documents substantiating physical verification of inventory were not made available.

        (b)     In our opinion and the opinion of the other auditors, according to the information and explanations given to us and to other auditors, the procedures of physical verification of inventory followed by the management of the respective entities are reasonable and adequate in relation to the size of the company and the nature of its business, except in case of one of the subsidiaries of holding company, in view of comments at point (ii)(a) above, opinion with regard to adequacy of the procedures of physical verification of inventory in relation to size of the such subsidiary company and nature of its business could not be given.

        (c)     On the basis of examination of records of inventory by us and other auditors, in our opinion and the opinion of the other auditors, the respective entities are maintaining proper records of inventory.  The discrepancies noticed on verification between the physical stocks and the book records were not material.  However opinion with regard to discrepancies if any on physical verification could not be given in the absence of physical verification of inventory by one of the subsidiaries of the holding company.

(iii)     The holding company and subsidiary companies have not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act, 2013 by the respective entities. Accordingly the clause 4(iii)(a) and 4(iii)(b) of the Order are not applicable to the Company.

                 

(iv)    According to information and explanation given to us and other auditors; there is adequate internal control system commensurate with the size of the Company and the nature of its business, with regard to purchase of fixed assets, inventory and with regard to the sale of goods and services, except in case of one of the subsidiaries the internal control system with regard to inventory, fixed assets and with regard to sale of goods and services shows weaknesses which needs to be strengthened so as to commensurate with the size of the such subsidiary company and nature of its business.  The internal control system with regard to expenditures on account of professional fees to paid to doctors and recording of the revenue from patients needs improvement in case of such subsidiary company.

        During the course of our audit and other auditor's audit, no major weakness in such internal control system has been observed, except in case of one subsidiary company there is continuing failure to correct major weaknesses in the internal control system.  

(v)     The holding company and subsidiary companies have not accepted any deposits as defined in The Companies (Acceptance of Deposits) Rules 2014. Accordingly, the provisions of Clause 4(v) of the Order are not applicable to the Company.

(vi)     According to information and explanations given to us and to other auditors, the Central Government has not prescribed maintenance of cost records under sub section (1) of section 148 of the Companies Act, 2013 for subsidiary companies, however the holding company, to which the provisions related to maintenance of such cost records are applicable, has not made and maintained the cost records prescribed under sub section (1) of section 148 of the Companies Act, 2013.

(vii)    (a)     According to the information given to us, the respective entities are generally regular in depositing with appropriate authorities undisputed statutory dues and such entities had no arrears of such outstanding statutory dues as at  31st March, 2015 for a period more than six months from the date they became payable.

        (b)     According to the information and explanations given to us and to other auditors, the subsidiary companies had no disputed outstanding statutory dues as at 31st March, 2015, however the holding company had disputed outstanding statutory dues as stated below:

Name of the Statute

Nature of the Dues

Amount (`)

Period to which the amount relates

Forum where dispute is pending

Income–tax Act, 1961

Demand Notice issued by Asst. Commissioner of Income tax

2 46 08 920

A. Y. 2010–11

CIT (A)

Income–tax Act, 1961

Demand Notice issued by Asst. Commissioner of Income tax

1 34 27 740

A. Y. 2011–12

CIT (A)

Income–tax Act, 1961

Demand Notice issued by Asst. Commissioner of Income tax

20 61 430

A. Y. 2012–13

CIT (A)

Sales Tax

Demand Notice issued by Sales Tax Department

5 26 00 000

F. Y. 2009–10

Assistant Commissioner of Sales Tax

Sales Tax

Demand Notice issued by Sales Tax Department

6 31 30 000

F. Y. 2010–11

Assistant Commissioner of Sales Tax

Sales Tax

Demand Notice issued by Sales Tax Department

7 49 10 000

F. Y. 2011–12

Assistant Commissioner of Sales Tax

Sales Tax

Demand Notice issued by Sales Tax Department

9 18 90 000

F. Y. 2012–13

Assistant Commissioner of Sales Tax

Tax Deducted at Sources

Demand Notice issued by Tax Department

10 58 80 000

A. Y. 2014–15

CIT (A)

         (c)     According to the information and explanations given to us, there are no amounts which are   required to be transferred to the Investor Education and Protection Fund by the Company.

(viii)  The holding company and one subsidiary company have no accumulated losses as at 31st March, 2015.  However the other subsidiary companies, to whom the Order is applicable, have accumulated losses aggregate amounting to ` 8,61,61,867/–.  The holding company has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year.  However, the subsidiary companies, to whom the Order is applicable, have incurred cash losses aggregate amounting to ` 3,82,15,093/– in the current financial year and also incurred cash losses aggregate amounting to ` 2,18,25,332/– in the immediately preceding financial year.

(ix)    In our opinion and in the opinion of other auditors and according to the information and explanation given to us and the other auditors, the holding company and subsidiary companies have not defaulted in repayment of dues to a Financial Institution, Bank or Debenture Holders.

(x)     In our opinion and the opinion of the other auditors and according to the information and explanation given to us and the other auditors, the holding company and subsidiary companies have not given any guarantee for loans taken by others from banks and financial institutions during the year.

(xi)    To the best of our knowledge and belief and according to information and explanations given to us, the holding company has taken various term loans and the same have been applied for the purpose for which the same have been obtained. In our opinion and the opinion of the other auditors and according to the information and explanation given to us and the other auditors, the subsidiary companies have not obtained any term loans during the year.

(xii)   According to the information and explanations given to us and other auditors, no fraud on or by the holding company and subsidiary companies has been noticed or reported during the period under review.

FOR  G. K. CHOKSI  & CO.

           [Firm Registration No. 101895W]

        Chartered Accountants

             SHAUNAK V. MUZUMDAR

                           Partner

                       Mem. No. 37571

Place : Ahmedabad

Date  :

Auditor's qualification(s), reservation(s) or adverse remark(s) in auditors' report

In our opinion and to the best of our information and according to the explanations given to us, except for the effect of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid consolidated 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 consolidated state of affairs of the Group as at 31st March, 2015 and its consolidated profit and their consolidated cash flows for the year ended on that date. Emphasis of Matters 1. We draw attention to note 37(a) to the consolidated financial statements for the current financial year with regard to public interest litigation filed before Hon'ble High Court of Madhyapradesh against the company for usage of plot of land, on which the company has executed hospital project at Jabalpur, for the purpose other than those for which the lease has been originally granted to the lessee. 2. We draw attention to note 37(b) to the consolidated financial statements for the current financial year whereby the attention is drawn to the fact that proceedings of the Company Petition No. 18 /2015 are pending at the Company Law Board, Mumbai against one of the subsidiaries of the holding company and issues covered therein are subjudice. 3. We draw attention to note 44 to the consolidated financial statements for the financial year ended on 31st March, 2015 in regard to approval of the standalone financial statements of one of the subsidiaries of the holding company for financial year ended on 31st March 2015 with majority of directors acted in favour of approval of these standalone financial statements whereas one director, who is the petitioner to Company Petition No. 18 /2015 dissented for the said business. 4. We draw attention to note 45 to the consolidated financial statements regarding decision of the board of directors of one of the subsidiaries of the holding company to write off the outstanding amount of ` 93,28,224/– which included the balances in the name of one of the directors of the such subsidiary company and his relatives and associates. 5. We draw attention to note 46 to the consolidated financial statements which indicates that one of the subsidiaries of holding company has discontinued its principal business i.e. healthcare services and such subsidiary company has given its assets on lease to the holding company. Though the principal operations of such subsidiary company have been closed, the standalone financial statements of the said subsidiary company have been prepared on going concern basis for the matters stated in the aforesaid note. We have not qualified our opinion in the above referred to matters.

Disclosure in auditors report relating to fixed assets

(a) The respective entities have maintained proper records showing full particulars including quantitative details and situation of its fixed assets, except in case of two subsidiary companies of the holding company such records have not been maintained. (b) The fixed assets have been physically verified by the management of the respective entities during the year at reasonable intervals and no material discrepancies were noticed on such verification, except in case of two subsidiary companies of the holding company the documents substantiating physical verification of fixed assets were not made available for verification. In the absence of proper records with regard to fixed assets and documents substantiating physical verification of fixed assets, the opinion with regard to discrepancies if any could not be given in case of such subsidiary companies.

Disclosure in auditors report relating to inventories

(a) In our opinion and the opinion of the other auditors, physical verification of inventory has been conducted by the management of the respective entities at reasonable intervals, except in case of one of the subsidiaries the relevant documents substantiating physical verification of inventory were not made available. (b) In our opinion and the opinion of the other auditors, according to the information and explanations given to us and to other auditors, the procedures of physical verification of inventory followed by the management of the respective entities are reasonable and adequate in relation to the size of the company and the nature of its business, except in case of one of the subsidiaries of holding company, in view of comments at point (ii)(a) above, opinion with regard to adequacy of the procedures of physical verification of inventory in relation to size of the such subsidiary company and nature of its business could not be given. (c) On the basis of examination of records of inventory by us and other auditors, in our opinion and the opinion of the other auditors, the respective entities are maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material. However opinion with regard to discrepancies if any on physical verification could not be given in the absence of physical verification of inventory by one of the subsidiaries of the holding company.

Disclosure in auditors report relating to loans

The holding company and subsidiary companies have not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act, 2013 by the respective entities. Accordingly the clause 4(iii)(a) and 4(iii)(b) of the Order are not applicable to the Company.

Disclosure in auditors report relating to internal control system

According to information and explanation given to us and other auditors; there is adequate internal control system commensurate with the size of the Company and the nature of its business, with regard to purchase of fixed assets, inventory and with regard to the sale of goods and services, except in case of one of the subsidiaries the internal control system with regard to inventory, fixed assets and with regard to sale of goods and services shows weaknesses which needs to be strengthened so as to commensurate with the size of the such subsidiary company and nature of its business. The internal control system with regard to expenditures on account of professional fees to paid to doctors and recording of the revenue from patients needs improvement in case of such subsidiary company. During the course of our audit and other auditor's audit, no major weakness in such internal control system has been observed, except in case of one subsidiary company there is continuing failure to correct major weaknesses in the internal control system.

Disclosure in auditors report relating to maintenance of cost records

According to information and explanations given to us and to other auditors, the Central Government has not prescribed maintenance of cost records under sub section (1) of section 148 of the Companies Act, 2013 for subsidiary companies, however the holding company, to which the provisions related to maintenance of such cost records are applicable, has not made and maintained the cost records prescribed under sub section (1) of section 148 of the Companies Act, 2013.

Disclosure in auditors report relating to accumulated losses

The holding company and one subsidiary company have no accumulated losses as at 31st March, 2015. However the other subsidiary companies, to whom the Order is applicable, have accumulated losses aggregate amounting to ` 8,61,61,867/–. The holding company has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year. However, the subsidiary companies, to whom the Order is applicable, have incurred cash losses aggregate amounting to ` 3,82,15,093/– in the current financial year and also incurred cash losses aggregate amounting to ` 2,18,25,332/– in the immediately preceding financial year.

Disclosure in auditors report relating to default in repayment of financial dues

In our opinion and in the opinion of other auditors and according to the information and explanation given to us and the other auditors, the holding company and subsidiary companies have not defaulted in repayment of dues to a Financial Institution, Bank or Debenture Holders.

Disclosure in auditors report relating to guarantee given

In our opinion and the opinion of the other auditors and according to the information and explanation given to us and the other auditors, the holding company and subsidiary companies have not given any guarantee for loans taken by others from banks and financial institutions during the year.

Disclosure in auditors report relating to term loans used for purpose other than for purpose they were raised

To the best of our knowledge and belief and according to information and explanations given to us, the holding company has taken various term loans and the same have been applied for the purpose for which the same have been obtained. In our opinion and the opinion of the other auditors and according to the information and explanation given to us and the other auditors, the subsidiary companies have not obtained any term loans during the year.

Disclosure in auditors report relating to any material fraud reported during period

According to the information and explanations given to us and other auditors, no fraud on or by the holding company and subsidiary companies has been noticed or reported during the period under review.

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