The auditors of Metropolitan Stock Exchange (MSEI) have made 10 critical comments, including the practice of preparing the financial statements on ‘on going concern’ basis (an assumption that the entity will not be forced to halt operations and liquidate assets in the near term), even though its networth has been substantially eroded due to losses incurred and not carrying out the impairment testing to ascertain the carrying value of fixed assets.

However, the exchange in the annual report justified its stance on all the comments, including the accounting practice of ‘on going basis’ saying its net worth is well above the regulatory requirement of ₹100 crore and it has raised fresh capital of ₹74 crore through a rights issue, besides working to reduce operational costs and improve revenue.

The annual general meeting of the exchange is scheduled for September 30 in Mumbai. For the financial year ended March 31, the exchange trimmed its losses to ₹60 crore, against losses of ₹154 crore incurred in the same period last year.

The auditors feel that the board of directors is not duly constituted with proper balance of public interest directors (PIDs), managing director and shareholder directors.

The exchange said according to SEBI regulation, the company could have only three categories of directors public interest directors, managing director and shareholder director.

After resignation of two shareholder directors in the previous financial year, the company had been making efforts to replace them. However, it was unable to do so as most of its shareholders were trading members or affiliates of trading members who were not eligible to propose shareholder directors in terms of the regulations, it said.

Since the exchange’s shareholding base comprise trading members or those having some association with trading members, it could not appoint a shareholder director, said the annual report.

The exchange clarified that it appointed Pankaj Talwar as shareholder director subject to the approval of shareholders and SEBI, and is in the process of appointing one more shareholder director to comply with the regulation.

The auditors have also observed that the Managing Director (Saurabh Sarkar) was paid remuneration of ₹1.81 crore a year annum which was ₹6 lakh in excess of ₹1.75 crore remuneration approved by the directors, SEBI and shareholders.

The exchange said the remuneration of ₹1.81 crore paid to Sarkar includes ₹19.16 lakh paid to buy out the notice period of his previous employer (United Stock Exchange) to relieve him early and join the exchange. This payment was erroneously shown as remuneration instead of recruitment cost, the exchange clarified.