Emco Ltd. - Quarterly/Annual Result Disclosures and Notes dated 30 Jun 2019

1. The unaudited standalone financial results have been prepared, reviewed and approved by the CFO and thereafter taken on record by the Insolvency Resolution Professional at their meetings held on 05 August 2020. The Statutory Auditors of the Company have carried out a Limited Review of the results for the quarter ended 30 June 2019.



2. The Honourable National Company Law Tribunal, Mumbai (‘NCLT’) on 22 July 2019 admitted the Corporate Insolvency Resolution Process (‘CIRP’) application filed against the Company and appointed Mr. Kedarram Ramratan Laddha as the Interim Resolution Professional (‘IRP’) in terms of the Insolvency and Bankruptcy Code, 2016 (‘the Code’). Further, the committee of creditors constituted during the CIRP in its first meeting held on 16 September 2019, has appointed Mr. Sundaresh Bhat as the RP to manage the affairs of the Company. In view, of the pendency of the CIRP, the power and responsibilities of the Board of Directors shall vest with the RP under the provision of the Code.



3. The Company adopted Indian Accounting Standards ('Ind AS') from 01 April 2016 and accordingly these financial results have been prepared in accordance with the recognition and measurement principles laid down in the Ind AS 34. "Interim Financial Reporting" prescribed under section 133 of the Companies Act, 2013 read with the relevant rules issued there under and other accounting principles generally accepted in India.



4. The Company is in the business of manufacturing Transformers and execution of projects related to power transmission and as such there are no separate reportable operating segments as defined by Ind AS 108- "Operating Segments. For management purposes the Company has only one reportable segment as follows: Transmission and Distribution Segment within Power Sector.



5. On account of loans being reclassified as Non-Performing Assets (NPA) by all lenders, interest has been provided for in the books of accounts at the rates as used for the previous year 31 March 2019 plus the penal interest as applicable for each facility availed by the company.



6. In view of uncertain nature of projects, complex situations, performance issues, deterioration in client relationship, delays in contracts execution, probability of liquidated damages likely to devolve, unsettled or unaccepted claims, BG invocations, arbitrations, pending legal disputes, non-availability of balance confirmation from customers and vendors, penalties levied by various governmental authorities, outcome of the CIRP. etc., there is a high probability of substantial write down in the amount’s receivables and other current assets in the subsequent quarters. The management, will assess the situation at the close of each quarter and will give impact of any further impairment, as may be required.



7. Effective 01 April 2019 the company has adopted Ind AS 116 ‘Leases’ under the modified simplified approach without adjustment of comparatives. The standard is applied to contracts that remain as at 01 April 2019. The application of the Standard did not have any material impact on the profit for the quarter ended 30 June 2019.



8. The above Statement of Unaudited Standalone Financial Results for the quarter ended June 30 2019 ("the Statement") has been reviewed by the Insolvency Resolution Professional Mr. Sundaresh Bhat (IBBI Registration no. IBBI/IPA-001/IP-P00077/2017-18/10162) based on data provided by the Accounts Department and supervised by Mr. Ganesh Tawari (CFO) of EMCO Limited). It is pertinent to note that the Resolution Professional made all practicable and reasonable efforts from time to time to facilitate information/data from the officials of the Company in relation to the preparation of the financial results of the company and also the information required by the auditors for the purpose of carrying out the review of the financial results of the company. It is to be noted that the results for quarter ended 30th June 2019 as well as information provided to the auditors for the purpose of review of the same, pertain to the period prior to the appointment of the Resolution Professional and therefore, while facilitating the collection and dissemination of the said information, the Resolution Professional has relied upon and assumed the accuracy/veracity of the data/information provided by the officials of the company, suspended directors, and the records of the company made available to the Resolution Professional, which the Resolution Professional has assumed are in conformity with the applicable law and present a true and fair view of the position of the company as of the dates and for the period indicated therein. The RP has not personally verified the information provided by the officials of the company and has placed confidence in the data/information provided to him for previous periods. Accordingly, the Resolution Professional shall be absolved from the accuracy, veracity and sufficiency or completeness of such information. Readers and users of these statements/results are advised to do their due diligence before arriving at any conclusions. The Resolution Professional has signed the Financials results to facilitate the CIRP Process and facilitate the statutory requirements without any liability of the same.



9. In respect of Company’s Bank balances & Borrowings from banks and financial institutions balance confirmation as at 30 June 2019 has been received from all the banks except for some Dormant/inactive accounts.



10. As a part of CIRP, financial creditors, operational creditors, workmen and employees of the company were called upon to submit their claims to the RP in terms of the applicable provisions of Insolvency and Bankruptcy Code, 2016. Claims submitted by financial creditors, operational creditors, workmen and employees have been verified and admitted by the RP. No accounting impact in the books of account has been made in respect of the excess, short or non-receipt of claims for the financial creditors, operational creditors, workmen and employees



11. Initiation of Corporate Insolvency Resolution Process (CIRP):

Jet Road lines (India) Pvt. Ltd., in its capacity as the operational creditor of EMCO Limited (‘EMCOL’ or 'Corporate Debtor'), filed an application under Section 9 of the Insolvency and Bankruptcy Code (‘IBC’), 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 before the Hon'ble Adjudicating Authority, i.e. National Company Law Tribunal, at Mumbai ('Hon'ble NCLT Mumbai') for initiation of Corporate Insolvency Resolution Process ('CIRP') for the Corporate Debtor under the provisions of the Insolvency and Bankruptcy Code 2016. The said Application of Jet Roadlines has since been admitted by the Hon’ble NCLT Mumbai vide its order dated 22 July 2019 (“Order”) and the CIRP has commenced from the date of the order.



The Hon'ble NCLT Mumbai vide its order dated 22 July 2019 ('CIRP Commencement Order') inter alia appointed, Mr. Kedarram Ramratan Laddha having registration number IBBI/IPA- 001/TPP00586/2017-18/11115 as the Interim Resolution Professional ("IRP") of the Corporate Debtor to conduct the CIRP and to exercise all powers and subject and carry out all duties as envisaged under the provisions of the IBC.



The Committee of Creditors constituted by the IRP, at its first meeting convened on 16 September 2019, resolved with requisite majority to replace the IRP with Mr. Sundaresh Bhat, Insolvency Professional having IBBI registration no. IBBI/IPA-001 /IP-N00077/2017-18/10162 as the Resolution Professional of EMCOL. In accordance with Section 22(b) of IBC, an application for confirmation of Mr. Sundaresh Bhat as the RP of EMCOL was filed with the Hon'ble NCLT Mumbai. The Hon'ble NCLT Mumbai vide its order dated 14 October 2019 (written order made available on 11 November 2019) ('RP Confirmation Order'), confirmed the appointment of Mr. Sundaresh Bhat as the Resolution Professional of EMCOL.



12. Consolidation

The Company has not prepared and presented Consolidated Ind AS Statement for the quarter ended 30 June 2019 as required under Section 129 sub-section 3 of the Companies Act, 2013 due to non-availability of financial information of subsidiaries.



13. Assets

The management is in the processes of testing all its assets like, Property Plant & Equipment, Intangibles, Capital Work in Progress, Capital Advances, Investments, Loans and Advances, Indirect Tax receivable and all the other assets like Security Deposit etc. for impairment. Provision for impairment, if any, for any item will be created in the subsequent quarters.



14. Expected credit loss (ECL) for trade receivables:

The management has assessed all its trade receivables on quantitative parameters like age of the receivables, past default trends, etc. and on the qualitative parameters like the financial health of the customer, sectoral performance, etc.



Trade receivable are outstanding and standing at INR 32,043.55 Lakhs. The management is in the process of assessing the recoverability of these advances and necessary impact of such assessment will be provided for in the subsequent quarters.



15. Deferred tax assets:

Deferred tax assets amounting to INR 26,967.43 Lakhs is written off during the quarter in the absence of reasonable certainty that future taxable profits will be available against which this asset can be used.



16. MAT credit entitlement:

MAT credit entitlement of INR 501.08 Lakhs is written off during the quarter as it is not probable that taxable profit will be available during the specified period against which the credit can be utilized.



17. Write off of unbilled revenue (contract asset):

Basis its assessment of unbilled revenue and lack of certainty on collectability of this amount, unbilled revenue to the extent of INR 5,419.85 Lakhs is written off by the management.



18. Solar Plant Sale

For the purpose of setting up the Solar Power plant, Company obtained ECB facility of USD 6.50 million from Axis Bank in 2011. The terms and conditions were reviewed/modified/renewed from time to time. Axis Bank had created charge on assets of Project (Power Plant), whose yearly revenue was in the range of INR 6-8 Crs, to secure due repayment of outstanding dues. Charge was created on all movable fixed assets installed and lying at the power plant and immovable property (Land).



Company committed default in payment of amount and as a result Company was classified as Non- Performing Asset (NPA) in the books of Bank from April 2018. Owing to continuous defaults, bank initiated legal action for recovery of its dues against Company and issued demand notice dated 15 January 2019 under SARFAESI Act calling upon the borrower to repay outstanding amount of INR 1,462.45 Lakhs as on 31st December 2018 within a period of 60 days.



Company could not repay the amount within 60 days of notice and hence Bank proceeded with the provisions of the act and put the secured assets for sale through E-Auction Notice dated 28 March 2019 at Reserve price of INR 1,710.00 Lakhs. It was based on the valuation report submitted by BKC Advisors Pvt Ltd. dated 22 March 2019 which gave the Fair Value of the entire Solar Assets at INR 1,962.17 Lakhs, Realisable value at INR 1,710.14 Lakhs and Distress Value at 1,534.11 Lakhs. E-Auction date of assets was kept at 30 April 2019. E-Auction was conducted on the said date and assets were successfully sold at price of INR 1,715.00 Lakhs as against the book value of INR 3,424.10 Lakhs (Net of Creditors).



Since all assets and liabilities has been transferred in relation to Solar Power Plant, the sale is treated as Slump Sale as per provisions of Income Tax Act, 1961.



As per Ind AS 105, ‘Non-current assets held for sale and discontinued operations’



A discontinued operation is a component of an entity that can be distinguished operationally and financially for financial reporting purposes from the rest of the entity and:

• Represents a separate major line of business or geographical area of operation

• Is part of a single coordinated plan to dispose of a separate major line of business or major geographical area of operation

• Is a subsidiary acquired exclusively with a view for resale



Though the plant is a component which can be distinguished separately for operation and financial purposes, the Solar Power Plant cannot be classified as major line of business because it is not a substantial component of the Profit and Loss statement of the Company. This can be further substantiated as the turnover from the Solar Power Plant for the year March 31, 2019 is INR 684.01 Lakhs which is less than 10% of the total turnover (INR 21,300.76 Lakhs) of the Company.



Since Solar Power Plant is not considered as discontinuing operation, disclosures pertaining to Ind AS 105 are not required.



The loss on sale of the Asset INR 1709.10 Lakhs has been shown as an exceptional item on the face of Profit and Loss statement.



19. Employee Provisions:

Employee/workmen dues recorded in the books of accounts are based on the company policy and after considering their attendance and leave records. The accuracy of the amount has not been authenticated and thus it is to be noted that the amount provided might be restated while finalizing books of accounts as on 31 March 2020.



20. Inventory

Inventory amounting to INR 10,384.21 Lakhs is stated at book value. The management is in the process of assessing realisable value of stock and necessary impact of such assessment will be provided for at the year-end i.e. March 31, 2020.



21. Gratuity and Leave Encashment

Provisions for post-employment benefits – Gratuity, leave encashment made in the books of account are not in line with Ind AS 19.



Provisions for employee benefits such as Leave Encashment and Gratuity has been provided as per policy of the company i.e. on a proportionate basis of the previous year provision adjusted for movement in head count and increments in salary and the actuarial valuation will be done at the year-end i.e. 31 March 2020.



The management intends to conduct actuarial valuation for the Gratuity and Leave Encashment as on 31 March 2020 in line with the IND AS requirements.



22. Contract Liabilities

Contract liabilities amounting to INR 89.16 Lakhs pertains to the provision created in the earlier years for certain ongoing sub-station projects. Management after assessing has decided to write-back the same.



23. Bank Guarantees

Advance Bank Guarantee invoked during the quarter is INR 766.11 Lakhs. Out of this, INR 76.99 Lakhs is charged to Statement of Profit and Loss and balance amount of INR 632.79 Lakhs has been adjusted against the customer advances.



Performance Bank Guarantee invoked during the quarter is INR 1,387.22 Lakhs. Out of this INR 901.02 Lakhs is charged to statement of profit and loss and balance amount of INR 486.20 Lakhs is retained as receivable based on management assessment of these amounts.



24. Write off of Trade Receivable pertaining to Bank Guarantee

Basis the assessment of management and lack of certainty on collectability of trade receivables pertaining to Bank guarantee invoked of INR 119.63 Lakhs have been written off during the quarter.



25. Employee Stock Option Plan (ESOP):

The Company had granted stock options under the following employee stock option scheme:

30,00,000 Equity Shares are reserved for allotment of equity shares under Employee Stock Option Scheme 2011. During the year Nil Equity Shares have been issued and allotted to the eligible employees against exercise of Options under ESOS 2011.

30,00,000 Equity Shares are reserved for allotment of equity shares under Employee Stock Option Scheme 2015. During the year NIL Equity Shares have been issued and allotted to the eligible employees against exercise of Options under ESOS 2015.

Each option when exercised would be converted into one fully paid-up equity share of ` 2 each of the Company. The options granted under ESOP 2011 and options granted under the ESOP 2015 scheme carry no rights to dividends and no voting rights till the date of exercise.

As of the end of the Quarter there is no information on the outstanding options remaining to be vested, vested but not exercised and vested and lapsed. The stock option of INR 55.97 Lakhs will be evaluated at the year-end i.e. 31 March 2020.



26. Going Concern:

All the manufacturing activities of all the plants of the Company have been discontinued due to Non availability of funds. Also, since there has been no improvement in the position of the funds it casts material uncertainty about the functionality of all the plants soon.



The Company has accumulated losses of INR 85,481.90 Lakhs and the Company has registered total comprehensive loss of INR 42,385.52 Lakhs during the quarter ended 30 June 2019 and of INR 33,910.91 Lakhs for the previous year (FY 2018-19) (including provision for finance cost and depreciation).



All the above-mentioned conditions indicate the existence of material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. However, the Statement of the Company have been prepared on a going concern basis on the below mentioned grounds



a) The RP is working towards a workable resolution plan to resolve financial position with the lenders within the prescribed time limit and to continue its certain projects on sub-contract basis to keep its PQ’s, capabilities and brand intact.



b) The Company has made every endeavour to protect and preserve the value of the property and initiate a resolution process by inviting prospective Resolution applicants without much loss of time which will further enable the investors to start the company without major value deterioration.



27. Contingent Liability

I) Contingent Liabilities 30-Jun-19 31-Mar-19

(to the extent not provided for)

a) Bank Guarantees outstanding as at the year-end (gross) –(Secured) 9,556.91 28,787.98

b) Guarantee for Subsidiary Company* - 8,990.15

c) TDS Defaults** 128.26 -

II) Legal Disputes

a) Disputed amount of Sales Tax. 2,304.74 1,710.08

b) Claim made by workmen for re-instatement. Matter Subjudice. Amount not ascertainable Amount not ascertainable

c) Disputed amount of Income Tax. 19.43 19.43

d) Disputed amount of Excise duty 1,493.91 2,506.77

e) Disputed amount of Service tax. 193.92 193.92

f) Claims against Company not acknowledged as debt 547.63 933.96

Total 14,244.80 43,142.27



*Corporate guarantee provided for EMCO Overseas Pte Ltd has been invoked due to non-payment of dues by subsidiary and outstanding amount USD 89.24 lacs has been claimed by PNB International at the time of submission of claims to Resolution Professional and the same has been accepted by RP. Hence, provision to the extent of USD 89.24 lacs has been created in the books, however subsequent interest has not been provided.

**TDS Prosecution notices has been served on the Company u/s 276B/276BB of Income Tax Act, 1961, during the financial year 2019-20 after the Company went in to CIRP (Corporate Insolvency Resolution Process) on account of failure to pay TDS to the Central Government as required under the provisions of Chapter XVII B within stipulated period as prescribed under Income Tax Act, 1961 and IT Act Rules, 1962 for various previous Assessment years.



28. Figures of the previous period have been regrouped and reclassified, wherever required.