We have audited the accompanying standalone Ind AS financial statements of Jindal Drilling & Industries Limited [‘the Company'], which comprise the Balance Sheet as at 31st March 2024, the Statement of Profit and Loss [including other comprehensive income], the Statement of Cash Flows and the Statement of Changes in Equity for the year then ended and a summary of the significant accounting policies and other explanatory information [hereinafter referred to as ‘standalone Ind AS financial statements'].
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone Ind AS 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 accounting principles generally accepted in India including Indian Accounting Standards[“ Ind AS”] specified under Section 133 of the Act, of, of the state of affairs [financial position] of the Company as at 31st March, 2024, and its Profit [financial performance including other comprehensive income], its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone financial statement in accordance with the Standards on Auditing specified under Section 143[10] of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor's Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India [ICAI] together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act, and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the standalone financial statement of the current period. These matters were addressed in the context of our audit of the standalone financial statement as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.
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Key Audit Matter
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Auditor’s Response
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Provisions and Contingent Liabilities
The Company faces several legal, regulatory, and tax disputes, the outcomes of which are uncertain and could potentially lead to substantial liabilities. Notably, there is a disputed income tax demand amounting to Rs 584.69 Lakhs, which is detailed in Note No. [p] of the Accounting Policy and further elaborated in Note No. 33 to the Standalone Ind AS Financial Statements.
The evaluation of the risks associated with these litigations involves complex assumptions and requires significant judgment to determine the appropriate level of provisioning. This inherently increases the risk that provisions and contingent liabilities may either be inadequately provided for or not fully disclosed.
Due to the complexity and judgment involved in assessing these matters, they are considered to be key audit matters.
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In order to get a sufficient understanding of litigations and contingent liabilities, we have discussed the process of identification implemented by the Management for such provisions through various discussions with Company's legal and finance departments. We read the summary of litigation matters provided by the Company's/Unit's Legal and Finance Team.
We read, where applicable, external legal or regulatory advice sought by the Company. We discussed with the Company's/ Unit's Legal and Finance Team certain material cases noted in the report to determine the Company's assessment of the likelihood, magnitude and accounting of any liability that may arise.
In light of the above, we reviewed the amount of provisions recorded and exercised our professional judgment to assess the adequacy of disclosures in the Standalone Ind AS financial statements.
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Litigation, arbitrations, and claims
As detailed in Note 39A paragraphs [i] and [ii] of the standalone Ind AS financial statements for the year ending March 31, 2024, the Company is involved in significant legal proceedings under arbitration with a government party. These proceedings include a suit for specific performance of a contract related to the supply of drilling services, which is pending before the Hon'ble Supreme Court.
The complexity of these litigation matters means that the management's judgment regarding the recognition and measurement of provisions for these legal proceedings is inherently uncertain. The assessment of such provisions is subject to change as the outcomes of the legal cases evolve.
Given the complexities involved and the inherent uncertainty in the management's judgments, this matter is considered a key audit matter.
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Our audit procedures included:
• Assessing management's position through discussions with the in-house legal expert and external legal opinions obtained by the Company [where considered necessary] on both the probability of success in the aforesaid cases, and the magnitude of any potential loss.
• Discussion with the management on the development in these litigations during the year ended March 31, 24.
• Roll out of enquiry letters to the Company's legal counsel [internal/ external] and study the responses received from them. Also assessed that accounting/disclosure made by the Company are in accordance with the assessment of legal counsel.
• Review of the disclosures made in the financial statements in this regard.
• Obtained representation letter from the management on the assessment of these matters.
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Significant estimate and judgement in hedge accounting including valuations thereof
Refer note no. [m] of accounting policy and note 8 & 37 to the Ind AS standalone financial statements. The company enters into derivative financial instruments which are mainly forward contracts to manage its exposure of foreign currency risk of highly probable forecasted transactions which arise during the normal course of its business. These contracts are measured at fair values leading to derivative financial assets of Rupees 300.49 lakhs as at March 31, 2024. The net movement of cash flow hedge reserve for the year is Rupees 287.08 lakhs net of taxes which is recorded in other comprehensive income. The gain/loss on maturity of such derivative instruments is recorded in the statement of profit and loss along with the relevant hedged item.
Due to the changes in risks and estimates during the lifecycle of the customer contracts in order to apply hedge accounting management is required to demonstrate that the underlying contract is considered to be a highly probable transaction that the hedges are highly effective and maintain appropriate hedge documentation. A degree of subjectivity is also required to determine when hedge accounting is to be considered as ineffective. Fair value movements of the forward contracts are driven by movements in financial markets.
These transactions may have a significant financial effect and have extensive accounting and reporting obligations and accordingly this is considered as a key audit matter.
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Our audit procedures included:
• we obtained understanding of the company's overall hedge accounting strategy forward contract valuation and hedge accounting process from initiation to settlement of derivative financial instruments including assessment of the design and implementation of controls and tested the operating effectiveness of these controls.
• we assessed company's accounting policy for hedge accounting in accordance with Ind AS.
• we tested the existence of hedging contracts by tracing to the confirmations obtained from respective banks.
• we tested management's hedge documentation and contracts on a sample basis.
• we assist in re-performing the year-end fair valuations of derivative financial instruments on a sample basis and compared these valuations with those recorded by the company including assessing the valuation methodology and key assumptions used therein.
• we assessed the disclosure of hedge transactions in the financial statements.
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Identification and disclosures of Related Parties
The Company has related party transactions which include, amongst others, sale and. purchase of goods/services to its joint ventures, common controlled entity, KMP and other related parties and lending and borrowing to its joint ventures.
We focused on identification and disclosure of related parties in accordance with relevant accounting standards as a key audit matter.
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Our audit procedures amongst others included the following:
• Evaluated the design and tested the operating effectiveness of controls over identification and disclosure of related party transactions.
• Obtained a list of related parties from the Company's Management and traced the related parties to declarations given by directors, where applicable, and to Note 35 of the standalone Ind AS financial statements.
• Read minutes of meetings of the Board of Directors and Audit Committee.
• Tested material creditors/debtors, loan outstanding/loans taken to evaluate existence of any related party relationships; tested transactions based on declarations of related party transactions given to the Board of Directors and Audit Committee.
• Evaluated the disclosures in the standalone Ind AS financial statements for compliance with Ind AS 24.
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Refurbishment Expense deferred in contract period
In accordance with Note No. (b) of the accounting policies and Notes 9(A), 15, and 39B of the Ind AS standalone financial statements, the treatment of deferred drilling expenses encompasses deferred preparation costs, and deferred certification costs. Contract preparation before the initiation of drilling services are capitalized and subsequently amortized over the duration of the related drilling contract. Specifically, expenditures related to contract preparations are deferred as they pertain to the company's future performance obligations under each drilling contract. These costs are amortized on a straight-line basis over the contract term.
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Our audit procedures amongst others included the following:
Review Contracts: Obtain and review drilling contracts to understand the terms, including the cost allocation and amortization requirements.
Verify Costs Incurred: Examine invoices, contracts, and other supporting documents to confirm the nature and amount of deferred mobilization, preparation, and certification costs. Examine Classification: Check the classification of deferred refurbishment costs in the financial statements. Ensure these are correctly classified as “Non-Current Assets” or “Other Current Assets” based on their nature and expected realization.
Review Financial Statement Disclosures: Assess the adequacy and accuracy of disclosures related to deferred drilling expenses in the financial statements, including the policies for deferral and amortization.
Verify Compliance: Ensure that the financial statement disclosures comply with relevant Ind AS requirements and provide a clear understanding of the nature and amortization of deferred costs.
Inquire with Management: Discuss with management the rationale behind the deferral of costs and the amortization approach.
Evaluate Controls: Assess the effectiveness of internal controls over the recording and amortization of deferred drilling expenses.
By executing these audit procedures, we can form an opinion on the accuracy and completeness of deferred drilling expenses and ensure they are in accordance with applicable accounting standards and policies.
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Emphasis of Matter
We draw attention to Note no. 39 [i] [a] to the Standalone Financial Statement relating to ONGC Arbitration proceeding and implementation of Arbitration award and Vide Supreme Court of India order dated 27th April 2022, Supreme Court of India has directed as under: -
• Dismissed the Arbitration Award and Appeal order in Bombay High Court with regard to Arbitration initiated by ONGC.
• To constitute a New Arbitration Tribunal between ONGC and JDIL.
• Arbitration Award and Bombay High Court order, in case of Arbitration initiated by JDIL to be kept in abeyance till the Award by the newly constituted Tribunal.
• This case was also transferred to Bombay High Court.
• JDIL has been asked to keep Bank Guarantee alive till the order of Arbitration Award.
On the basis of a legal opinion taken from Law Firm, the Management is of the view that we have strong case for recovery of due from ONGC and hence not making any provision for doubtful debts.
(For detailed notes, refer note no.39)
Our Opinion is not modified in this matter.
Information Other than the Financial Statements and Auditor’s Report thereon
The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Management Discussion and Analysis, Board's Report including Annexures to Board's Report, Business Responsibility report, Corporate Governance and shareholder's information, but does not include the financial statements and our auditor's report thereon. The report containing other information is expected to be made available to us after the date of this auditor's report.
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 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.
Management’s Responsibility for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (‘the Act') with respect to the preparation of these standalone Ind AS financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act read with relevant rules issued thereunder. This responsibility also includes the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind AS 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.
Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditors’ 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 skepticism 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, international omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal financial control relevant to the audit in order to design audit procedures that are appropriate in 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 system in place and operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the 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 statement or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the 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.
Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone financial statements may be influenced. We consider quantitative materiality and qualitative factors in [i] planning the scope of our audit work and [ii] to evaluate the effect of any identified misstatements in the standalone financial statements.
We communicate with those charged with the 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 current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosures 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.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies [Auditors' Report] Order, 2020 [‘the Order'] issued by the Central Government of India in terms of Section 143[11] of the Act, we give in the Annexure A, a statement on the matters specified in the paragraph 3 and 4 of the Order.
2. As required by Section 143[3] of the Act, we report 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.
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, the Statement of Cash Flows and the Statement of Changes in Equity dealt with by this Report are in agreement with the books of account;
d. in our opinion, the aforesaid standalone Ind AS financial statements comply with the Accounting Standards specified under Section 133 of the Act read with relevant rule issued thereunder;
e. on the basis of the written representations received from the directors as on 31 March 2024 taken on record by the Board of Directors, none of the directors is disqualified as on 31 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 over financial reporting 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 over financial reporting; and
g. with respect to the other matters to be included in the Auditor's Report in accordance with the requirements of section 197(16) of the Act, as amended, in our opinion and to the best of our information and according to the explanations given to us, the remuneration paid/provided by the Company to its directors during the year in accordance with the provisions of section 197 of the Act.
h. with respect to the other matters to be included in the Auditors' 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 Ind AS financial statements. Refer to Note 33 to the standalone Ind AS financial statements;
ii. The Company does not have any material foreseeable losses on long term contracts including derivative contracts, Refer note no. 37 in the Standalone financial statement.;
iii. there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company;
iv. (i) the management has represented that, to the best of its knowledge and belief, no funds, have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind funds) by the Holding Company or its subsidiary companies incorporated in India to or in any other persons or entities, 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;
(ii) the management has represented that, to the best of it's knowledge and belief, other than as disclosed in the notes to accounts, no funds have been received by the company 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 in directly 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
(iii) Based on such audit procedures as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representation under sub-clause(iv) (i) and(iv)(ii) contain any material misstatement.
v. The final dividend proposed in the previous year, declared and paid by the Company during the year is in accordance with Section 123 of the Act, as applicable. As stated in Note No 51 (iv) to the standalone financial statement, the Board of Directors of the Company have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with Section 123 of the Act to the extent it applies to declaration of dividend
vi. Based on our examination, which included test checks, the Company has used accounting software for maintaining its books of account for the financial year ended March 31, 2024 which has a feature of recording audit trail (edit log) facility and 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 tempered with.
As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1, 2023, reporting under Rule 11 (g) of the Companies (Audit and Auditors) Rule 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 Kanodia Sanyal & Associates Chartered Accountants FRN: 008396N
(Pallav Kumar Vaish)
Partner
Place: New Delhi Membership no.: 508751
Date: 21st May 2024 UDIN: 24508751BJZZQM2969
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