Emco Ltd. - Quarterly/Annual Result Disclosures and Notes dated 30 Jun 2020

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 17 May 2021. The Statutory Auditors of the Company have carried out a Limited Review of the results for the quarter ended 30 June 2020.



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. Initiation of Corporate Insolvency Resolution Process (CIRP):

Jet Roadlines (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.

Further, NCLT vide order dated 02 January 2020, excluded the period of time between 22 July 2019 to 15 August 2019 and pronounced new date of commencement of CIRP of the Company as 16 August 2019 (“ICD”)

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.

However, in view of resolution plans not being received, the COC has resolved on 19th October,2020 to liquidate the company. Consequently, an application for the liquidation of the company has been filed with the NCLT on 21 October 2020 and the matter is sub judice.



6. 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.

The Company has accumulated losses of INR 2,08,901.66 Lakhs and the Company has registered net loss of INR 6,514.67 Lakhs during the quarter ended 30 June 2020 and of INR 1,59,290.62 Lakhs for the previous year ended 31 March 2020 (including provision for finance cost and depreciation).

The Resolution Professional and the COC have attempted to find an acceptable resolution plan to continue the company as a going concern. However, in view of no resolution plans being received, the COC have resolved on 19th October 2020 to liquidate the company. Consequently, an application for the liquidation of the company has been filed with the NCLT on 21 October 2020 and the matter is sub judice.

The Company also has accumulated losses resulting in substantial erosion of its net worth and has incurred net cash losses in the current quarter and in preceding financial years. The current liabilities of the Company exceeded its current assets as at the balance sheet date and with suspension of operations at all the Plants since March 2019, while no resolution plans have been received for any kind of revival under Corporate Insolvency Resolution Process, the company is non-operational and is not a going concern.

All the above events cast significant uncertainty on the ability of the company to continue as a going concern in the foreseeable future and hence the unaudited financial results of the company are prepared on a non - going concern basis.



7. 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. The management, will assess the situation at the close year end and will give impact of any further impairment, as may be required.



8. Basis of preparation

The results of the company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 as amended by the Companies (Indian Accounting Standards) (Amendment) Rules, 2016 and the relevant provisions of the Companies Act, 2013 ("the Act").

The results are not prepared on going concern assumption as the liquidation application is filed per decision of COC meeting dated 19th October 2020.



9. As the financial results of the company are prepared on the non-going concern assumption, all the leases existing as on 1 April 2019 are treated as short term leases by the company. Accordingly, the company has availed exemption as per para 5 of Ind AS 116 'Leases'. Rent if any, paid on this short-term lease is accounted as an expense on straight line basis in the statement of profit and loss. As the company is not a going concern, the advance rentals shown above under the heading 'Leasehold land' is currently transferred and shown as asset held for sale. The leasehold land can be assigned to third party with the prior approval of Lessor.



10. The above Statement of Standalone unaudited results for the Quarter ended June 30, 2020 ("the Statement") has been reviewed by the Insolvency Resolution Professional Mr. Sundaresh Bhat (IBBI Registration no. IBBI/IPA-001/IPP00077/2017-18/10162) 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 statements of the company and also the information required by the auditors for the purpose of carrying out the audit of the results of the company. It is to be noted that any data pertaining to the financial statements up to the half year ended 30 September 2019 provided to the auditors for the purpose of audit, 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 year 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 of the previous years. Accordingly, the Resolution Professional shall be absolved from the accuracy, veracity and sufficiency or completeness of such information. Readers and users of these statements/statements are advised to do their due diligence before arriving at any conclusions. The Resolution Professional has signed the results to facilitate the CIRP Process and facilitate the statutory requirements without any liability of the same.



11. In respect of Company’s Bank balances & Borrowings from banks and financial institutions balance confirmation as of 30 June 2020 has been received from all the banks except for few fixed deposits, dormant and inactive accounts.



12. Consolidation

The Company has not prepared and presented Consolidated Ind AS Statement for the quarter ended 30 June 2020 as required under Section 129 sub-section 3 of the Companies Act, 2013 due to non-availability of financial information of subsidiaries.



13. Due to preparation of financial results on a non- going concern basis all the assets and liabilities are classified as current except, amount receivable from statutory authorities.



14. 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.



Employee cost other than CIRP employees i. e. employee cost not considered as CIRP cost, is not provided in the books of accounts for the quarter ended 30 June 2020 due to Covid 19 related ongoing lock down.



Only COC approved salaries of CIRP critical employees form part of CIRP Cost. During the CIRP period, all dues pertaining to employees whose salary is treated as CIRP cost like employee’s share of Provident Fund, Employees State Insurance Scheme, Profession Tax and TDS has been deducted and paid as applicable.



All claims for outstanding salaries and wages pertaining to employees/workmen whose salary/wages is not treated as CIRP cost will be dealt with in accordance with the provision of Insolvency and Bankruptcy Code, 2016.



15. Statutory Dues



The company has provided interest on outstanding Provident Fund, Employee State Insurance Scheme, Labour Welfare Fund & Profession Tax only to the extent of notices received from respective authorities.



Interest on TDS defaults was provided only for post CIRP period and not for dues outstanding prior to that date.



The company has not fully paid Statutory dues pertaining to provident fund, ESIC & other material statutory dues relating to employees and workmen who have not been paid their salary and wages.



The company has not calculated and provided for contribution to provident fund based on the supreme court ruling to include all fixed components to derive the amount of contribution to the fund. The company has not conducted an impact study on account of the retrospective application of the said ruling. Impact of these non-compliance and their respective interest and penalties are not quantified and provided for in the books of accounts. All the outstanding statutory dues prior to the CIRP date will be dealt with in accordance with the provision of the IBC, 2016



16. Gratuity and Leave Encashment



The company makes provision for defined benefits plans like gratuity and compensated absences. These provisions are done by the company on annually on actual basis as the financial results are not prepared on a going concern basis as the company has filed a liquidation application and the same will be payable as per the provisions of Insolvency and Bankruptcy Code, 2016.



No provision for these benefits is made for the quarter ended 30 June 2020.



17. Interest

On account of loans being reclassified as Non-Performing Assets (NPA) by all lenders, interest has been provided for in the books of accounts:

Pre CIRP date interest is calculated on the basis of actual claim received from the financial creditors and included in the respective facility.

Post CIRP date interest is calculated at the rates charged by banks on actual basis and where interest is not charged by the bank, the same is provided at the rates used by the banks prior to CIRP date including penal interest as applicable for each facility availed by the company.



18. As the company has filed liquidation application with the honourable NCLT and the financial results are prepared on a non-going concern basis, entire amount of unclaimed dividend is to be transferred to Investor Education and Protection Fund (IEPF). IEPF return has not been filed for the current year.



19. Non-Compliance of applicable laws and regulations:



As a consequence of the matters described above and various other matters discussed in these results, the company is not in compliance with various laws and regulations even before the CIRP started, including certain requirement of the Companies Act, 2013, FEMA, Factories Act, 1948 etc. Management is in the process of evaluating the financial and other consequences arising from such non-compliance and of making a comprehensive assessment of other non-compliances, to determine the impact/consequences, including financial and operational impact, of such non compliances on the company. Pending final determination and assessment thereof, no adjustments have been made to these results.



20. Company has foreign trade receivable of INR 1,728.29 Lakhs and foreign trade payables of INR 249.16 Lakhs outstanding for more than 180 days. This is in violation of the provision of Foreign Exchange Management Act (‘FEMA’). The compounding fees that may devolve on the company on account of this non-compliance is currently not quantifiable.



21. For the quarter ended 30 June 2020, the management has not identified MSME vendors pertaining to the CIRP period and accordingly no interest has been paid/ provided for any delay in payments made to MSME vendors during the quarter or on outstanding balances payable to MSME vendors as per the MSME Act.



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