SATCHMO HOLDINGS LIMITED Report on the audit of the Standalone Financial Results Adverse Opinion
We have audited the Standalone financial statements of SATCHMO HOLDINGS LIMITED ("the Company") which comprise the Balance Sheet as at March 31, 2025, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year ended on that date, and a summary of the significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Adverse Opinion paragraph below, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 ("the Act") in the manner so required and due to the significance of matter described in the Basis for Adverse Opinion paragraph given below, the accompanying standalone financial statements do not give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2025, and its profit, changes in equity and its cash flows for the year ended on that date.
Basis for Adverse Opinion
The Company has incurred losses over the years resulting in negative net worth and negative working capital. The default in payment of dues to banks and financial institutions and creditors etc. are the identified events that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern. The Statement does not adequately disclose this fact.
The Company has stepped back / separated from certain projects under development and has transferred those projects to other developers/ landowners through the Memorandum of Understanding (MOU) or Business Transfer Agreement (BTA). Although these transactions have reduced the liability of the Company to banks and financial institutions, the ability of the Company to continue as a going concern continues to remain uncertain in view of the negative net worth.
As the Company has not recognized this fact and has prepared the standalone financial statements on a going concern assumption basis without carrying out any adjustments, in our opinion, the Statement may not give a true and fair view. (Refer to Note 44 of the Standalone financial statements).
Other matters that require a modification to the opinion;
1) Year-end balance confirmation in respect of trade receivables, trade payables, vendor advances, advances from customers and other advances have not been provided for our verification and record for all the parties. In the absence of such confirmation, we are unable to ascertain any consequential effect of the above to the financial results for the year. As explained, necessary mails have been sent to some of the parties for confirmation. However, no replies have been received in this regard except in few cases.
2) As per the records of the Company and information and explanations provided to us, the Company has been irregular in depositing the undisputed statutory dues, including provident fund, income-tax, value-added tax, Goods and Services tax, cess, etc. The Company is yet to deposit to the Income Tax Department the tax deducted from vendors amounting Rs. 128 lakhs and is an assessee in default by virtue of Income Tax Act.
The Company also has a receivable balance of Rs. 678.39 Lakh and a payable balance of Rs. 201.42 Lakh (excluding interest and disputed VAT liability under appeal) from/ to various government authorities. Due to such statutory non-compliance, we are unable to comment on the actual recoverability and payment of the dues against such balances.
3) Necessary documents with respect to certain advance payments to vendors and receipts from vendors/customers and movement in balance during the period were not made available for our verification which include a balance payable to a former subsidiary
amounting Rs 624 lakhs out of which Rs 40 lakhs was received during the year the purpose and details of which were not made available to us by the management (Refer Note No. 29 b. and 29.c. of the consolidated financial statements). Consequently, we are unable to comment on such transactions and balances.
4) Inventories amounting to Rs 1,441 Lakh (Net of "Payable to land owner for land under JDA") has not been tested impairment for ascertaining the realizable value as on 31st March, 2025. To the extent of any possible diminution of value not accounted for, the standalone financial statements may not give a true and fair view as per the requirement of Ind AS 2 (Refer to Note 7 of the Standalone financial statements).
5) The Company had written off old debit balances and also written back old payables in the year ended 31st March, 2025 amounting Rs 129 lakhs and Rs 3342 lakhs respectively as the same are considered unrealizable and without any claim for payment over a considerable period of time. Supporting documents were mostly not made available to us as audit evidence for our verification and record in regard to such write offs/write backs as mentioned. (Refer to Note 27 of the Standalone Financial Statements)
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013 (the Act). 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 together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Companies Act, 2013 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 adverse opinion.
Emphasis of Matter
We draw attention to the facts mentioned below:
a) The Company had entered into One-time Settlements (OTS) with JCF ARC ( J C Flowers Asset Reconstruction Pvt Ltd ) (assigned by YES Bank) and HDFC Limited vide Letters dated 14th April, 2023 and 6th June, 2023 respectively as per which, the Company had to repay the amounts mentioned in the settlement letters in a time-bound manner. In the event the Company defaulted on the mentioned timelines or any other payment terms, the said settlement approvals would stand revoked. However, the Company had defaulted on the timelines of the payment under OTS with respect to both the lenders. Subsequently, the Company had received a notice on 23rd November, 2023 from JCF ARC revoking the above-mentioned OTS and was called upon to repay outstanding dues along with applicable interest charges, costs, etc. with effect from the date of notice aforementioned (Refer to Note 13(i) and (ii) of the Standalone financial statements).
On this basis, the Company has disclosed Rs. 8,507 Lakh under Current Borrowing (being the OTS outstanding balance of JCF ARC and HDFC) and Rs. 48,233 Lakh under Disputed Liability (being the difference between original loan and interest liability and OTS outstanding balance) as on 31st March, 2025. (Refer to Note 14(i) of the Standalone financial statements).
The Company is in communication with the lenders for seeking an extension for the balance payment therefore has not booked any further liability on the basis of such demand from JCF ARC as informed by the management.
No information / document is made available regarding the revocation in case of HDFC Limited.
The Company had, on 22nd July, 2024, informed SEBI as per Regulation 30 of SEBI (LODR) Regulations, 2015 about the institution of proceeding under section 7 of the Insolvency and Bankruptcy Code, 2016 by JC Flower Asset Reconstruction Company (Financial Creditor) against the Company (Corporate Debtor) before the National Company Law Tribunal regarding their outstanding due against the term loan amounting Rs.38,595 Lakhs.
Based on the above, the complaint was registered with NCLT on 12th September 2024 and the Tribunal had issued an interim Order on 1st October, 2024 under section 7 of the Insolvency and Bankruptcy Code, 2016 for serving notice to the Respondent Company and the responsible person of Satchmo Holdings Limited which may have an impact on the going concern status of the Company in the foreseeable future. The Company was heard by the NCLT and the Order was delivered on 27th November, 2024 where the Respondent ( the Company) was granted three weeks' time to file objection and one week time granted to Petitioner ( J.C.Flowers Asset Reconstruction Pvt Ltd ) to file rejoinder. As per the Order delivered the matter was listed on 07th January 2025
and presently, the subject matter stands listed for hearing on June 6, 2025 after adjournments on 14th April, 2025 and 21st April, 2025. Further information on the status of this NCLT matter was not made available.
b) The Company had, during the current financial year, signed a share purchase agreement for divesting its equity investment in Northroof Ventures Private Limited and full sale consideration has already been received in the first quarter of the financial year. However, the other conditions as per the agreement are still in the process of execution as the shares are held as lien by JC Flower Asset Reconstruction Company, a creditor. Once all the liabilities are settled, we are informed that share transfer execution shall be completed.
As of the reporting date, the balance receivable from Northroof Ventures Private Limited is Rs. 1,033 Lakhs, which has been impaired due to the negative net worth of Northroof Ventures Private Limited. (Refer to Note 10(ii) of the Standalone financial statements).
c) During the financial year, the Company had entered into a memorandum of understanding with a new developer on 28th March, 2025 for transferring its development rights, interest and entitlements relating to projects Plaza ( situated at Ali Asker Road measuring 106513 square feet ) and Soho ( situated at Commissariat Road, near Bangalore Centre measuring 89300 square feet) and advances of Rs 300 lakhs and Rs 50 lakhs was received on 29th March, 2025 towards the said projects Plaza and Soho respectively from the new developer. (Refer to Note 4.2 of the Standalone financial statements)
In this context it is pertinent to mention that the Company is yet to decide on the JDA Rights acquired in 2022-23 in the Project at Commissariat Road in exchange for advance receivable along with its subsidiaries for an amount of Rs. 10,311 Lakh. This Right has been classified as a Right of Use asset at the acquisition cost, and based on the management estimate, the carrying cost is below the net realizable value. The Company is yet to ascertain the period for necessary amortization. (Refer to Note 4.1. i) and ii) of the Standalone financial statements)
d) The Company has not renewed the registration of project "Rio" under the provisions of Real Estate (Regulation and Development) Act, 2016 since 31st March 2019, resulting in non-compliance under the relevant rules and regulations of the Real Estate (Regulation and Development) Act, 2016.
e) According to the information and explanation provided to us, Gratuity plan of the Company is unfunded as at 31st March, 2025 and the Company has made provision for the entire Gratuity Liability. Employee Gratuity Liability is being met as and when they fall due. As no assets are maintained by the Company, there is a liquidity risk that the Company may run out of cash resources which may further affect the financial position of the Company. (Refer to Note 32 of the Standalone financial statements)
f) Revenue relating to invoices raised on maintenance charges for a project aggregating Rs 1932 lakhs was not recognised due to uncertainty in collection of the expected consideration and ongoing reconciliation of the balances with the respective customers. (Refer to Note 17(ii) of the Standalone financial statements)
g) Certain Managerial personnel duly appointed by members have intimated the Board that they would be foregoing their remuneration from their respective date of appointment in order to comply with the provisions of section 197(1) of the Companies Act, 2013 since lender's approval prior to such appointment was not obtained. Accordingly, no managerial remuneration has been accounted for in the books of account in respect of those personnel. The board has noted the "Letter of Undertaking" received from the personnel for non-acceptance of salary and other remuneration.
Our opinion is not modified in respect of the above matters.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current year. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matters described in the Basis for Adverse Opinion section of our report, we have determined the matters described below to be the key audit matters to be communicated in our report.
|
Key Audit Matter
|
Response to Key Audit Matter
|
|
Institution of proceeding under section 7 of the Insolvency and Bankruptcy Code, 2016 by JC Flower Asset Reconstruction Company (Financial Creditor)
The Company had entered into One-time Settlements (OTS) with JCF ARC (assigned by YES Bank) and HDFC Limited vide Letters dated 14th April, 2023 and 6th June, 2023 respectively as per which, the Company had to repay the amounts mentioned in the settlement letters in a time-bound manner. The Company had defaulted on the mentioned timelines or any other payment terms, the said settlement approvals stood revoked by way of a notice on 23rd November, 2023 from JCF ARC and the Company was called upon to repay outstanding dues along with applicable interest charges, costs, etc. with effect from the date of notice aforementioned, as elaborated in clause (a) of the Emphasis of Matter paragraph .
|
The auditors have been seeking information from the Management on the status of the proceeding and the complaint with NCLT. The Company had shared the status of the dates of hearing before NCLT as and when adjourned.
We had requested for the plan of action for settlement of the dues and were provided the copies of the MOUs entered with a new developer on 28th March, 2025 for transferring its development rights, interest and entitlements relating to projects Plaza and Soho. The management had informed that part of the JCF dues would be settled through consideration from the transfer and from realization out of transfer from one of their existing projects.
The Auditors were informed of arrangement wherein the JCF matter with NCLT will be settled at the amount agreed on OTS ( which stands revoked presently ) which is lower than Rs 386 crores outstanding as recorded with NCLT. However document substantiating the aforesaid communication was not made available raising doubts about the course of action to be adopted for repayment of dues and of the continuity of the entity in the foreseeable future.
|
|
Maintenance income pending reconciliation included under Other Liability (Note 17)
|
Audit Procedures adopted
|
|
Contract Liability of Rs 1928 lakhs under 'Other Liability' in Note 17 to the Standalone Financials has not been recognised as revenue in the books for which reconciliation is pending. The related debit i.e., trade receivable in Note 8 shows a balance of Rs 1871 lakhs as considered good and represents the amount of consideration due.
|
The auditors had communicated this matter with the Head of Finance in charge of governance who had explained that the amount is in regard to maintenance charges billed on customers relating to one project and is pending reconciliation.
|
Responsibilities of the Management and Those Charged with Governance for the Statements
These standalone financial results have been prepared on the basis of the standalone financial statements. The Company's Board of Directors are responsible for the preparation of these financial results that give a true and fair view of the net profit for the year ended March 31, 2025 and other comprehensive income and other financial information of the Company in accordance with the recognition and measurement principles laid down in Indian Accounting Standard prescribed under Section 133 of the Act read with relevant rules issued thereunder and other accounting principles generally accepted in India and in compliance with Regulation 33 of the Listing Regulations. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial results that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial results, the Board of Directors are 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 the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Results
Our objectives are to obtain reasonable assurance about whether the standalone financial results 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 results.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial results, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal financial control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.
• Conclude on the appropriateness of the Board of Directors' 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 auditors' report to the related disclosures in the statements 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 auditors' report.
• Evaluate the overall presentation, structure and content of the standalone financial results, including the disclosures, and whether the standalone financial results represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the standalone financial results that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone financial results may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the standalone financial results.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Other Matters
a) During the previous financial year, the GST department had reinstated the GST registration vide form Reg 22 dated May 12, 2023. Pursuant to this, the Company has ascertained certain GST liabilities for previous years and deposited to the department. However, the Company has received an order subsequently for cancellation of GST registration on account of failing to furnish the returns for prescribed periods.
On verification of documents and according to the explanation provided to us, the Company is raising GST invoices in order to deposit GST liability to the department as and when GST registration will stand valid.
The Company had begun depositing amounts towards GST dues on announcement of Amnesty Scheme on 16th January, 2025 from the Department of Commercial Taxes, Government of Karnataka regarding waiver of interest and penalty or both relating to demands under Section 73 of the CGST Act pertaining to Financial Years 2017-18, 2018-19 and 2019-20.
b) The Company earlier on February 23, 2022 had amended the main Objects of the Company's Memorandum of Association and post amendment of the Object Clause, the Company is to predominantly focus on trading in land and plotted development, Service business comprising wide areas of facilities / manpower / catering / restaurants activities, related Internet Technology Services and long term investment and trading in equities. During the last quarter on January 28, 2025 a new Company, Satchmo Foods Private Limited was incorporated as a wholly owned subsidiary of the Company to deal in the business of manufacturing, supply, distribution of food products and services.
c) We have been informed by the management that the Company has advanced monies to a related party as per a special resolution taken by the Company in terms of the relevant provisions of the Companies Act, 2013 and necessary disclosure has been given in the financial statements. (Refer to Note 29 b of the Standalone financial statements)
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of
sub-section (11) of section 143 of the Companies Act, 2013, we give in the "Annexure - A", a statement on 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 that:
a) Except for the effects of the matters described in the Basis for Adverse Opinion paragraph above read with the Emphasis of Matter and Other Matters paragraphs, 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) Except for the effects of the matters described in the Basis for Adverse Opinion paragraph above read with the Emphasis of Matter and Other Matters paragraphs, in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.
c) The Balance Sheet, the Statement of Profit and Loss including other comprehensive income, the statement of changes in equity and statement of cash flows dealt with by this Report are in agreement with the books of account.
d) Except for the effects of the matters described in the Basis for Adverse Opinion paragraph above read with the Emphasis of Matter and Other Matter paragraphs, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with relevant rules issued thereunder.
e) The matters stated in the Basis for Adverse Opinion section above, in our opinion, may have an adverse effect on the functioning of the Company.
f) On the basis of written representations received from the directors as on 31st March, 2025 taken on record by the Board of Directors, none of the directors is disqualified from being appointed as director in terms of Section 164(2) of the 'Act' as on 31st March, 2025.
g) 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 a qualified opinion on the adequacy and operating effectiveness of the Company's internal financial controls over financial reporting for the reasons stated therein.
h) In terms of the provisions of section 197(16) of the Companies Act, 2013 and according to the information, representation and explanation given to us by the management, no managerial remuneration has been paid/provided during the year apart from remuneration paid to one executive director in his operational capacity working also as Chief Financial Officer of the Company.
i) 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) Amendment Rules, 2021, as amended, in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer note no. 34;
ii. According to the information and explanation given by the management, the Company did not have any long-term contracts including derivative 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 Company.
iv. (a) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(b) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the 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 indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(c) Based on the audit procedures we have considered reasonable and appropriate in the circumstances; nothing has come to our notice that has caused us to believe that the representations under sub-clause (a) and (b) contain any material misstatement.
v. No dividend is declared or paid by the Company during the year and hence, compliance with section 123 of the Companies Act, 2013 is not applicable to the Company.
vi. Based on our examination which included test checks, the Company has changed the accounting software ( from SAP to Tally Prime Gold ) from 1st April 2024 for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with.
Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable to the Company with effect from April 1, 2023, and reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirement for record retention is in place (both for the previous and existing Accounting Software) for the financial year ended March 31, 2025.
For KAMG & ASSOCIATE
Chartered Accountants (Firm's Registration No. 311027E)
(Amitabha Niyogi) Partner
Membership No 056720 UDIN: 25056720BMJTAO8768
Place : Bengaluru Date : 30.04.2025
| 