Report on the Audit of the Standalone Financial Statements

Qualified Opinion

We have audited the accompanying Standalone Financial Statements of Nagarjuna Fertilizers and Chemicals Limited (“the Company”), which comprise the standalone Balance Sheet as at March 31,2022, 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 then ended, and notes to the standalone financial statements, including a summary of the Significant Accounting Policies and other Explanatory Information (“the standalone financial statements”).

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in the Basis for Qualified opinion section of our report, the aforesaid standalone financial statements give the information required by the Companies Act, 2013, as amended (“the Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the State of Affairs of the company as at March 31, 2022, its Loss including other comprehensive income, Changes in Equity and its Cash flows for the year then ended.

Basis for Qualified Opinion

i. We draw attention to Note No: 31 in the standalone financial

statements wherein the company explained the basis and reasons for not testing its Property, Plant and Equipment (PPE) for impairment as at the year end.

The management explained in the said note that having noticed indications that the PPE may have impaired, it has decided to test its PPE for impairment, but could not complete the impairment testing during the year as the report of the valuer who was appointed for this purpose was not received till date. This is not in compliance with Ind AS-36, Impairment of assets. Pending completion of testing the PPE for impairment and identifying the impairment loss, if any, we have not been able to corroborate the Management’s decision of continuing to present the PPE at carrying value and further we are unable to state whether the carrying values of PPE require any adjustments for impairment. Accordingly, we are unable to comment on the appropriateness of the carrying value of PPE and their consequential impact on the financial results and the financial position of the company as at and for the year ended March 31,2022.

ii. We draw attention to Notes No: 14 and 26 in the standalone financial statements wherein the company explained that the lenders (Banks) of the company have not implemented the Corrective Action Plan (CAP) approved by them in the Joint Lenders Forum (JLF) meeting held in 2015 and though the company represented the matter to the lenders for necessary corrective action, the same has not been rectified till date. As a result, the company filed cases against the lenders in the Hon’ble High Court of Telangana, which has restrained the lenders from taking any coercive action against the company.

Further, there is no clear information on when the loans were declared as NPAs by the lenders. Due to these disputes, the lenders have not been sending the interest demands and the loan statements/ confirmation of balances to the company since 4 years. In this background, the company has been accounting the interest on the loans as per the terms of CAP funding sanction letters with a qualification of dispute and furnishing the default details as available with it in the financial statements.

In the absence of independent audit evidence from the lenders on the date(s) from which the loan accounts have been classified as NPAs, outstanding amount of borrowings at the end of every year, interest accrued thereon, period and amount of default in repayment of loans and payment of interest thereon disclosed in the financial statements, we are unable to form an opinion whether any adjustments are required to be made to the outstanding balance of borrowings as at the year end, interest on the borrowings charged to the profit and loss for the year and the period and amount of default in repayment of principal and payment of interest disclosed in the financial statements for the year.

We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing specified under section 143(10) of 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 (ICAI) together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the Rules made 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 qualified audit opinion on the standalone financial statements.

Material uncertainty related to Going Concern

We draw attention to Note No.30 in the standalone financial statements on the disclosure of Material Uncertainty on the company’s ability to continue as a Going Concern and appropriateness of use of Going Concern basis of accounting in preparation of standalone financial statements.

The company has incurred a net loss of Rs.66990.62 lakhs for the year ended March 31, 2022, and the current liabilities exceeded the current assets by Rs.294164.54 lakhs as on March 31,2022. In the last 3 financial years also the company incurred net loss and its current liabilities exceeded its current assets. The company, during the year under review, continued to default in discharging its obligations for repayment of Loans and settlement of other financial and non-financial liabilities including statutory dues on the due dates. Further, no restructuring / resolution plans are under consideration of the lenders as on date. The lenders have been treating the loans to the company as Non Performing Assets since last four years and three of the lenders have filed petitions under the Insolvency and Bankruptcy Code,2016 (IBC) before

the Hon’ble NCLT for initiating Corporate Insolvency Resolution Process (CIRP). Further, one of the operational creditors obtained an order under IBC from the NCLT for commencing CIRP and the same is under stay of operation by the Hon’ble NCLAT as on date.

The above events and conditions indicate material uncertainty which cast a significant doubt on the company’s ability to continue as a going concern, and therefore may be unable to realize its assets and discharge its liabilities including potential liabilities in the normal course of its business. The ability of the company to continue as going concern is solely dependent on the successful restructuring / resolution plans and raising of the required additional funds.

The management of the company assessed various events/ conditions which had a positive impact individually/ collectively on the company’s ability to continue as a going concern and concluded that the use of Going Concern basis of accounting is appropriate for the year. Accordingly, the company’s management has prepared the financial statements for the year under review on going concern basis of accounting and adequately disclosed the material uncertainty of going concern basis in the financial statements. In view of the above, no adjustments have been made to the carrying value of assets and liabilities and their presentation / classification in the financial statements.

Our opinion is not modified in respect of this matter.

Emphasis of Matters:

Attention is invited to the following notes in the standalone

financial statements:

i) Note No:20 on recognition of income from Urea operations including reimbursement claims for additional fixed cost, input escalation/de-escalation, and for production beyond reassessed capacity based on prices and provisions applicable under NPS III, Modified NPS III, pending notification of final prices under New Urea Policy 2015 and consequential adjustments, if any that may arise.

ii) Note No:32.1 on the International Arbitration awards passed against the Company in the previous years for USD 15,275,688, GBP 742,944, EURO 455,000 [aggregating to Rs.12704.88 lakhs, approximately] and Rs.3265.70 lakhs; the impact of which has not been recognized in the Financial Statements, for the reasons stated in the said note.

iii) Note No:32.3 on the petition filed against the company under IBC by one of the operational creditors in the Hon’ble NCLT and its current status.

iv) Note No:28(i) on the expensing of unabsorbed IGST of Rs.3,617.24 lakhs on import of urea for the reasons stated in the note.

v) Note No:28(ii) on the providing of demand for electricity duty of Rs.5,426.41 lakhs for the reasons stated in the note.

vi) Note No:32.2 on the claim for royalty, received from a related party for the period referred to therein, which is under review of the company.

Our opinion is not modified in respect of the above matters.

Information other than the Standalone Financial Statements and Auditor’s Report thereon

The company’s Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the Board’s Report including annexures thereto, Management discussion and analysis, Corporate Governance report and Shareholders’ information, but does not include the standalone financial statements and our auditor’s report thereon.

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 be 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.

The said other information is expected to be made available to us after the date of this audit report. When the other information is furnished to us, we read the same and if we conclude that there is a material misstatement therein, we are required to communicate the same to those charged with governance and the shareholders of the company.

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 Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. 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 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.

The Board of Directors are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities 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 Standards on Auditing 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 the SAs, we exercise professional judgment 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, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the 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 the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by 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 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 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 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 financial statements 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 financial statements.

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.

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 the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure 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.

Other matters

The standalone financial statements of the company for the previous financial year i.e for the year ended March 31, 2021 were audited by predecessor auditors, M.Bhaskara Rao & Co., Chartered Accountants, who have expressed an unmodified opinion vide their audit report dated June 29, 2021.

Report on Other Legal and Regulatory Requirements

1. As required by Section 143(3) of the Act, based on our audit,

we report that:

(i) We have sought and except for the matters described in the Basis for Qualified Opinion Section, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the accompanying financial statements;

(ii) Except for the possible effects of the matters described in the Basis for Qualified Opinion Section, 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;

(iii) The standalone financial statements dealt with by this report are in agreement with the relevant books of account of the company;

(iv) Except for the possible effects of the matters described in the Basis for Qualified Opinion Section, in our opinion, the standalone financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act and the rules made thereunder;

(v) The matters described in the Basis for Qualified Opinion section, material uncertainty related to going concern section and emphasis of matter section, in our opinion, may have an adverse effect on the functioning of the Company;

(vi) On the basis of the written representations received from the directors as on March 31,2022 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2022 from being appointed as a director in terms of Section 164 (2) of the Act;

(vii) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion Section.

(viii) With respect to the adequacy of the internal financial controls with reference to the standalone financial statements of the company and the operating effectiveness of such controls, refer to our separate report in “Annexure A”. Our report expresses a qualified opinion on the adequacy and operating effectiveness of the company’s internal financial controls with reference to the standalone financial statements;

(ix) With respect to the statement to be included in the Auditor’s Report pursuant to section 197(16) of the Act, as amended, we report that:

Based on the examination of documents and records of the company and as per the information and explanations furnished to us, the company has paid remuneration to its managing director during the year without obtaining the prior approval in terms of third proviso to sub-section (1) of section 197 of the Act from the lenders to whom it has defaulted in repayment of loans and payment of interest thereon. Remuneration paid to the Managing Director in excess of the limit laid down under this section is Rs.69.38 lakhs (Refer Note No.33.3 in the standalone financial statements).

(x) With respect to the “other matters” to be included in the Auditor’s Report in accordance with Rule 11 of the

Companies (Audit and Auditors) Rules, 2014, as amended,

in our opinion and to the best of our information and

according to the explanations given to us, our views and

comments on the said other matters are as under:

a. The company, as detailed in Note No.32 in the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31st March 2022.

b. The compan y did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31st March 2022.

c. There has been no requirement to transfer any amounts to the Investor Education and Protection Fund by the company during the year ended 31st March 2022.

d. (i) The management has represented that, to the best of it’s 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;

(ii) The management has represented, that, to the best of it’s 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

(iii) Based on such audit procedures that 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 (i) and (ii) above contain any material misstatement.

e. The company has not declared or paid any dividend during the year.

2. As required by the Companies (Auditor’s Report) Order, 2020 (“the Order / CARO”), issued by the Central Government in terms of section 143 (11) of the Act, we give in “Annexure-B” a statement on the matters specified in paragraphs 3 and 4 of the said Order.

For J V S L & ASSOCIATES

Chartered Accountants (Firm Regn No. 15002S)

J. VENKATESWARLU

Partner

Place: Hyderabad ICAI Ms. No. 022481

Date: 14-06-2022 UDIN: 22022481AKXZJY5518