FROM PUBLISHED ACCOUNTS

ILLUSTRATION OF AUDIT REPORT WITH ‘DISCLAIMER OF
OPINION’ AND ‘EMPHASIS OF MATTER’

RELIANCE INFRASTRUCTURE LTD. (31^ST MARCH, 2019)

From auditors’ report

Basis for Disclaimer of Opinion

We refer to Note 40 to the standalone financial statements which
describes that the Company has investments in and has various amounts
recoverable from a party aggregating Rs. 7,082.96 crores (net of provision of
Rs. 3,972.17 crores) (Rs. 10,936.62 crores as at 31^st March, 2018,
net of provision of Rs. 2,697.17 crores) comprising inter-corporate deposits
including accrued interest / investments / receivables and advances. In
addition, the Company has provided corporate guarantees during the year
aggregating to Rs. 1,775 crores (net of corporate guarantees aggregating to Rs.
5,010.31 crores cancelled subsequent to the balance sheet date) in favour of
the aforesaid party towards borrowings of the aforesaid party from various
companies including certain related parties of the Company.

According to the management of the Company, these amounts have been
mainly given for general corporate purposes and towards funding of working
capital requirements of the party which has been engaged in providing
Engineering, Procurement and Construction (EPC) services primarily to the
Company and its subsidiaries, its associates and its joint venture. We were
unable to obtain sufficient appropriate audit evidence about the relationship
of the aforementioned party with the Company, the underlying commercial
rationale / purpose for such transactions relative to the size and scale of the
business activities with such party and the recoverability of these amounts.
Accordingly, we were unable to determine the consequential implications arising
therefrom and whether any adjustments, restatement, disclosure or compliances
are necessary in respect of these transactions, investments and recoverable
amounts in the standalone financial statements of the Company.

Material uncertainty related to going concern

We draw attention to Note 41 to the standalone financial statements. The
factors, more fully described in the aforesaid Note, relating to losses
incurred during the year and certain loans for which the Company is guarantor,
indicate that a material uncertainty exists that may cast significant doubt on
the Company’s ability to continue as a going concern.

Emphasis of matter

(a)       We draw attention to Note 38 to the standalone financial
statements regarding the Scheme of Amalgamation (the Scheme) between Reliance
Infraprojects Limited (wholly owned subsidiary of the Company) and the Company
sanctioned by the Hon’ble High Court of Judicature at Bombay vide its order
dated 30^th March, 2011, wherein the Company, as determined by the
Board of Directors, is permitted to adjust foreign exchange gain credited to
the standalone statement of profit and loss by a corresponding credit to
general reserve which overrides the relevant provisions of Indian Accounting
Standard 1 Presentation of financial statements. Pursuant to the Scheme,
foreign exchange gain of Rs. 192.24 crores for the year ended 31^st March,
2019 has been credited to the standalone statement of profit and loss and an
equivalent amount has been transferred to the general reserve.

(b)           We draw attention to Note 39 to the
standalone financial statements, wherein pursuant to the Scheme of Amalgamation
of Reliance Cement Works Private Limited with Western Region Transmission
(Maharashtra) Private Limited (WRTM), wholly owned subsidiary of the Company,
which was subsequently amalgamated with the Company with effect from 1^st April,
2013, WRTM or its successor(s) is permitted to offset any extraordinary /
exceptional items, as determined by the Board of Directors, debited to the
statement of profit and loss by a corresponding withdrawal from General
Reserve, which overrides the relevant provisions of Indian Accounting Standard
1 Presentation of financial statements. The Board of Directors of the
Company in terms of the aforesaid Scheme determined an amount of Rs. 6,616.02
crores for the year ended 31^st March, 2019 as exceptional items
comprising various financial assets amounting to Rs. 5,354.88 crores and loss
on sale of shares of Reliance Power Limited (RPower), an associate company,
pursuant to invocation of a pledge of Rs. 1,261.14 crores. The aforesaid amount
of Rs. 6,616.02 crores for the year ended 31^st March, 2019 has been
debited to the standalone statement of profit and loss and an equivalent amount
has been withdrawn from General Reserve.

Had the accounting treatment described in paragraphs (a) and (b) above
not been followed, loss before tax for the year ended 31^st March,
2019 would have been higher by Rs. 6,423.78 crores and General Reserve would
have been higher by an equivalent amount.

(c)           We draw attention to Note 7(a) to the
standalone financial statements which describes the impairment assessment
performed by the Company in respect of its investment of Rs. 5,231.18 crores
and amounts recoverable aggregating to Rs. 1,219.63 crores in RPower as at 31^st
March, 2019 in accordance with Indian Accounting Standard 36 Impairment
of assets / Indian Accounting Standard 109 Financial instruments.
This assessment involves significant management judgment and estimates on the
valuation methodology and various assumptions used in determination of value in
use / fair value by independent valuation experts / management as more fully
described in the aforesaid note. Based on management’s assessment and the
independent valuation reports, no impairment is considered necessary on the
investment and the recoverable amounts.

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

Auditor’s Responsibilities for the Audit of the Standalone Financial
Statements

Our responsibility is to conduct an audit of the standalone financial
statements in accordance with Standards on Auditing and to issue an auditor’s
report. However, because of the matter described in the Basis for Disclaimer of
Opinion section of our report, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on these
standalone financial statements.

We are independent of the Company in accordance with the Code of Ethics
and provisions of the Act that are relevant to our audit of the standalone
financial statements in India under the Act, and we have fulfilled our other
ethical responsibilities in accordance with the Code of Ethics and the
requirements under the Act.

Report on other legal and regulatory requirements

(1)        As required by the
Companies (Auditors’ Report) Order, 2016 (the Order) issued by the Central
Government in terms of section 143 (11) of the Act, and except for the possible
effects, of the matter described in the Basis for Disclaimer of Opinion
section, 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) (A)             As required by
section 143(3) of the Act we report that:

(i)         As described in the
Basis for Disclaimer of Opinion section, we were unable to obtain all the
information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit.

(ii)        Due to the effects /
possible effects of the matter described in the Basis for Disclaimer of Opinion
section, we are unable to state whether proper books of accounts as required by
law have been kept by the Company so far as it appears from our examination of
those books.

(iii)       The
standalone balance sheet, the standalone statement of profit and loss
(including other comprehensive income), the standalone statement of changes in
equity and the standalone statement of cash flows dealt with by this report are
in agreement with the books of accounts.

(iv)       Due to the effects /
possible effects of the matter described in the Basis for Disclaimer of Opinion
section, we are unable to state whether the financial statements comply with
the Indian Accounting Standards specified under section 133 of the Act.

(v)        The matter described in
the Basis for Disclaimer of Opinion section and going concern matter described
in the material uncertainty related to going concern 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 31^st
March, 2019 taken on record by the Board of Directors, none of the directors is
disqualified as on 31^st March, 2019 from being appointed as a
director in terms of section 164(2) of the Act.

(vii)      The reservation relating
to maintenance of accounts and other matters connected therewith are as stated
in the Basis for Disclaimer Opinion section.

(viii)     With respect to the
adequacy of the internal financial controls with reference to standalone
financial statements of the Company and the operating effectiveness of such
controls, refer to our separate Report in ‘Annexure B’.

(B)       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, in our opinion and to the best
of our information and according to the explanations given to us:

(i)         Except for the possible
effects of the matter described in the Basis for Disclaimer of Opinion section,
the Company has disclosed the impact of pending litigations as at 31^st
March, 2019 on its financial position in its standalone financial statements –
Refer Note 32 to the standalone financial statements.

(ii)        Except for the possible
effects of the matter described in the Basis for Disclaimer of Opinion section,
the Company did not have any long-term contracts including derivative contracts
for which there were any material foreseeable losses.

(iii)       Other than for dividend
amounting to Rs. 0.05 crore pertaining to the financial year 2010-2011 which
could not be transferred on account of pendency of various investor legal
cases, there has been no delay in transferring amounts, required to be
transferred, to the Investor Education and Protection Fund by the Company.

(C)       With respect to the
matter to be included in the Auditors’ Report under section 197(16) of the Act:
In our opinion and according to the information and explanations given to us,
the remuneration paid by the Company to its directors during the current year
is in accordance with the provisions of section 197 of the Act. The
remuneration paid to any director is not in excess of the limit laid down under
section 197 of the Act. The Ministry of Corporate Affairs has not prescribed
other details under section 197(16) of the Act which are required to be
commented upon by us.

From Notes to Financial Statements

7(a)      The Company has an
investment of Rs. 5,231.18 crores as at 31^st March, 2019 which
represents 33.10% shareholding in Reliance Power Limited (RPower), an associate
company. Further, the Company also has net recoverable amounts aggregating to
Rs. 1,219.63 crores from RPower as at 31^st March, 2019. RPower has
incurred a net loss (after impairment of certain assets) of Rs. 2,951.82 crores
for the year ended 31^st March, 2019 and its current liabilities
exceeded its current assets by Rs. 12,249.17 crores as at that date. Management
has performed an impairment assessment of its investment in RPower as required
by Indian Accounting Standard 36 Impairment of assets / Indian
Accounting Standard 109 Financial instruments, by considering inter
alia the valuations of the underlying subsidiaries of RPower which are
based on their value in use (considering discounted cash flows) and valuations
of other assets of RPower / its subsidiaries based on their fair values, which
have been determined by external valuation experts and / or management’s
internal evaluation.

The determination of the value in use / fair value involves significant
management judgement and estimates on the various assumptions including
relating to growth rates, discount rates, terminal value, time that may be
required to identify buyers, negotiation discounts, etc. Further, management
believes that the above assessment based on value in use / fair value
appropriately reflects the recoverable amount of the investment as the current
market price / valuation of RPower does not reflect the fundamentals of the
business and is an aberration. Based on management’s assessment and the independent
valuation reports, no impairment is considered necessary on this investment and
recoverable amounts.

38.  Scheme of amalgamation of
Reliance Infraprojects Limited (RInfl) with the Company

The Hon’ble High Court of Judicature of Bombay had sanctioned the Scheme
of Amalgamation of Reliance Infraprojects Limited (RInfl) with the Company on
30^th March, 2011 with the appointed date being 1^st April,
2010. As per the clause 2.3.7 of the Scheme, the Company, as determined by its
Board of Directors, is permitted to adjust foreign exchange / hedging /
derivative contract losses / gains debited / credited in the Statement of
Profit and Loss by a corresponding withdrawal from or credit to General
Reserve.

Pursuant to the option exercised under the above Scheme, net foreign
exchange gain of Rs. 192.24 crores for the year ended 31^st March,
2019 (net loss of Rs. 11.68 crore for the year ended 31^st March,
2018) has been credited / debited to the Statement of Profit and Loss and an
equivalent amount has been transferred to General Reserve. The Company has been
legally advised that crediting and debiting of the said amount in the Statement
of Profit and Loss is in accordance with Schedule III to the Act. Had such
transfer not been done, the Loss before tax for the year ended 31^st
March, 2019 would have been lower by Rs. 192.24 crores and General Reserve
would have been lower by Rs. 192.24 crores. The treatment prescribed under the
Scheme overrides the relevant provisions of Ind AS 1: Presentation of
financial statements.

39. Exceptional items     

In terms of the Scheme of Amalgamation of Reliance
Cement Works Private Limited with Western Region Transmission (Maharashtra)
Private Limited (WRTM), wholly owned subsidiary of the Company, which was
subsequently amalgamated with the Company w.e.f. 1^st April, 2013,
during the year ended 31^st March, 2019 an amount of Rs. 6,616.02
crores (31^st March, 2018 – Rs. 411.50 crores) has been withdrawn
from General Reserve and credited to the Statement of Profit and Loss against
the exceptional items of Rs. 12,797.36 crores (Rs. 127.31 crores for the year
ended 31^st March, 2018) as stated above which was debited to the
Statement of Profit and Loss. Had such withdrawal not been done, the loss
before tax for the year ended 31^st March, 2019 would have been
higher by Rs.  6,616.02 crores (31^st
March, 2018 – Rs. 411.50 crores) and General Reserve would have been
higher by an equivalent amount. The treatment prescribed under the Scheme
overrides the relevant provisions of Ind AS 1 Presentation of financial
statements.

40.       The Reliance Group of
companies, of which the Company is a part, supported an independent company in
which the Company holds less than 2% of equity shares (EPC Company) to inter
alia undertake contracts and assignments for a large number of varied
projects in the fields of power (thermal, hydro and nuclear), roads, cement,
telecom, metro rail, etc. which were proposed and / or under development by the
Group. To this end, along with other companies of the Group, the Company funded
EPC Company by way of EPC advances, subscription to debentures and preference
shares and inter-corporate deposits. The aggregate funding provided by the
company as on 31^st March, 2019 was Rs. 7,082,96 crores (previous
year Rs. 10,936.62 crores) net of provision of Rs. 3,972.17 crores (Rs.
2,697.17 crores). In addition, the Company has provided corporate guarantees
during the year aggregating (net of subsequent cancellation) to Rs. 1,775
crores.

The activities of EPC Company have been impacted by the reduced project
activities of the companies of the Group. In the absence of the financial
statements of the EPC Company for the year ending 31^st March, 2019
which are under compilation, it has not been possible to complete the
evaluation of the nature of relationship, if any, between the independent EPC
Company and the Company. At present, based on the analysis carried out in
earlier years, the EPC Company has not been treated as a related party.

Similarly, in the absence of full visibility on the assets and
liabilities of EPC Company and considering the reduced ability of the holding
company of the Reliance Group of Companies to support the EPC Company, the
Company has provided / written-off further Rs. 2,042.16 crores during the year
(Nil for the financial year ended 31^st March, 2018) in respect of
the outstanding amount advanced to the EPC Company and the same has been
considered as an exceptional item. Given the huge opportunity in the EPC field,
particularly considering the Government of India’s thrust on the infrastructure
sector coupled with increasing project and EPC activities of the Reliance
Group, the EPC Company with its experience will be able to achieve substantial
project activities in excess of its current levels, thus enabling the EPC Company
to meet its obligations. The Company is reasonably confident that the provision
will be adequate to deal with any contingency relating to recovery from the EPC
Company.

41.       During the year, the
Company has incurred net losses (after impairment of assets) of Rs. 913.39
crores. Further, in respect of certain loan arrangements of certain
subsidiaries / associates, certain amounts have fallen due and / or have been
reclassified as current liabilities by the respective subsidiary / associate
companies. The Company is guarantor in respect of some of the loans / corporate
guarantee arrangements and consequently, the Company’s ability to meet its
obligations is significantly dependent on material uncertain events including
restructuring of loans, achievement of debt resolution and restructuring plans,
time-bound monetisation of assets as well as favourable and timely outcome of
various claims. The Company is confident that such cash flows would enable it
to service its debt, realise its assets and discharge its liabilities,
including devolvement of any guarantees / support to the subsidiaries and
associates in the normal course of its business. Accordingly, the standalone
financial statement of the Company has been prepared on a going concern basis.

From Directors’ Report

Auditors and Auditor’s Report

M/s Pathak H.D. & Associates, Chartered
Accountants, were appointed as statutory auditors of the Company to hold office
for a term of 4 (four) consecutive years at the 87^th Annual General
Meeting of the Company held on 27^th September, 2016 until the
conclusion of the 91^st Annual General Meeting of the Company. The
Company has received confirmation from M/s Pathak H.D. & Associates,
Chartered Accountants, that they are not disqualified from continuing as
auditors of the Company. M/s BSR & Co. LLP, Chartered Accountants, who were
appointed as statutory auditors of the Company at the 88^th Annual
General Meeting of the Company, vide their letter dated 9^th August,
2019, have resigned as one of the statutory auditors of the Company with effect
from 9^th August, 2019. The other duly appointed statutory auditor,
M/s Pathak H.D. & Associates, who are statutory auditors of the Company
since the last nine financial years, i.e. from the financial year 2011 and
whose term is valid until the conclusion of the Annual General Meeting for the
year ended 31^st March, 2020, are continuing as the sole statutory
auditors of the Company.

The Auditors in their report to the members have given a Disclaimer of
Opinion for the reasons set out in the paragraph titled Basis of Disclaimer of
Opinion. The relevant facts and the factual position have been explained in
Note 40 of the Notes on Accounts. It has been explained that the Reliance Group
of companies, of which the Company is a part, supported an independent company
in which the Company holds less than 2% of equity shares (EPC Company) to inter
alia undertake contracts and assignments for a large number of varied
projects in the fields of power (thermal, hydro and nuclear), roads, cement,
telecom, metro rail, etc. which were proposed and / or under development by the
Group. To this end, along with other companies of the Group, the Company funded
EPC Company by way of EPC advances, subscription to debentures and
inter-corporate deposits.

The activities of EPC Company have been impacted by
the reduced project activities of the companies of the Group. While the Company
is evaluating the categorisation of the nature of relationship, if any, with
the independent EPC Company, based on the analysis carried out in earlier
years, the EPC Company has not been treated as a related party. Given the huge
opportunity in the EPC field, particularly considering the Government of
India’s thrust on the infrastructure sector coupled with increasing project and
EPC activities of the Reliance Group, the EPC Company with its experience will
be able to achieve substantial project activities in excess of its current
levels, thus enabling the EPC Company to meet its obligations. The Company is
reasonably confident that the provision will be adequate to deal with any
contingency relating to recovery from the EPC Company.

The observations and comments given by the Auditors in their report,
read together with notes on financial statements, are self-explanatory and
hence do not call for any further comments under section 134 of the Act.