We have audited the attached Balance Sheet of Harshvardhan Chemicals &
Minerals Ltd., as at 31s5 March, 2002 and also the Profit & Loss
Account for the year ended on that date annexed thereto. The
preparation of these financial statements are the responsibility of the
Companys management. Accordingly, our audit is limited only to the
examination of the books of accounts, records and vouchers produced
before us and is based on management representations and other
information that were made available to us during the course of our
audit. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in India. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statement are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
1. The Company is a sick industrial Company within the meaning of
clause (o) of Sub Section 3 of the Sick Industrial Companies (Special
Provision) Act, 1985. In response to the reference filed by the
Company, the Honble Board for Industrial & Financial Reconstruction
(BIFR) has vide its order dated 31.12.1997 has approved the
rehabilitation scheme prepared by ICICI as the Operating Agency (OA).
The Company failed to achieved operational parameters envisaged in the
Scheme whereby it has not been able to make its net worth positive
hence the scheme declared as "failed" by BIFR vide its order dated
21.03.2000). On the Companys revised proposal through Operating Agency
(ICICI), the BIFR has published Draft Rehabilitation Scheme (ORS) vide
its order dated 08.06.2001, envisaging substantial reduction in term
liabilities and infusion of funds for working capital requirements.
Further, the Company has incurred net loss of Rs. 282 Lacs during the
year ended 31.03.2002 and Companys accumulated losses as on 31.03.2002
are Rs. 3080 Lacs as against paid up capita] and free reserves of Rs.
966 Lacs.
The accounts have been prepared on the basis that the Company is a
going concern, however, in view of above factors, the ability of the
Company to continue as going concern is dependant upon approval of
Revised Scheme by BIFR and its successful implementation.
2. As required by the Manufacturing and Other Companies (Auditors
Report) Order 1988 issued by the Company Law Board in terms of Section
227 (4A) of the Companies Act, 1956 we hereto enclose in the Annexure a
statement on the matters specified in paragraphs 4 & 5 of the said
order.
3. Further to our comments in the Annexure referred to in paragraphs
(2) above we report that;
(a) We have obtained all the information and explanations which to the
best our knowledge and belief were necessary for the purpose of our
audit.
(b) In our opinion, proper books of account as required by Law have
been kept by the company so far as appears from our examination of
those Books subject to
(i) Note No 5 of schedule 21 regarding cash basis of accounting for
certain items.
(ii) Note No 8 & 10 of schedule 21 regarding accounting of interest
payable on unsecured & secured loans on cash basis instead of accrual
basis.
(iii) Note No 14 of schedule 21 regarding accounting of unavailed leave
salary and gratuity liability to staff
and
(c) The Balance Sheet and Profit and Loss Account dealt with by this
report are in agreement with the Books of Account.
(d) In our opinion the attached Balance Sheet and Profit & Loss Account
are in compliance with the Accounting standards referred to in section
211 (3C) of the Companies Act, 1956, except:
(i) Accounting Standard 15 in regard to unavailed leave salary and
gratuity liability to staff referred to in note no 14 of schedule 21.
(e) The Company has failed to redeem its debenture and to pay declared
dividend on due date and the failure exceeds one year as at 31s* March,
2002. In our opinion disqualification attracted on the Directors other
than nominee directors for the appointment in any Public Company in
terms of Clause (g) of Sub Section (1) of Section 274 of the Companies
Act, 1956.
(f) In our opinion and to the best of our information and according to
the explanations given to us, the said account together with notes
thereon give the information required by the Companies Act, 1956 in the
manner so required and are in conformity with the generally accepted
accounting principles in India, subject to the following remarks:
(i) Note No. 4 of Schedule 21 regarding confirmation/reconciliation and
adjustments, if any, of the balance under the head secured loans,
unsecured loans, sundry debtors, sundry creditors, loans & advances,
calls in arrears and, certain bank accounts.
(ii) Note No. 5 of Schedule 21 regarding cash basis of accounting.
(iii) Note No. 8 of Schedule 21 regarding non provision of interest on
unsecured loans amount not ascertainable.
(iv) Note No. 10 of Schedule 21 regarding non provision of interest on
secured loans amounting to Rs 196.93 Lacs.
(v) Note No 11 of schedule 21 regarding repayment of term loan
amounting to Rs 36 Lacs to Allahabad Bank while no documentary proof
has been available with the Company.
(vi) Note No. 12 of Schedule 21 regarding non provision of Doubtful
debts amounting to Rs. 60.78 Lacs.
(vii) Note No. 13 of Schedule 21 regarding non provision of old debts
amounting to Rs 25.61 Lacs.
(viii) Note No. 14 of Schedule 21 regarding non Provision of liability
in respect of unavailed leave salary and gratuity to staff, amount
unascertained.
(ix) Note No. 15 of Schedule 21 regarding disclosure of non convertible
debentures without creation of trust deed under the head `Secured
Loans.
(x) Note No. 20 & 21 of Schedule 21 regarding non compliance of section
205A of companies Act and disclosure of current liabilities for unpaid
dividend of Rs. 16.40 Lacs and interest on 14% Convertible Debentures
of Rs. 13.56 Lacs under the head Unsecured Loans.
(xi) Note No 24 of schedule 21 regarding personal expenditure amounting
to Rs 8.14 Lacs charged to profit & loss account.
(xii) Note No 26 of Schedule 21 regarding under provision of directors
remuneration amounting to Rs 0.80 Lacs.
(g) We further report that without considering items mentioned in f (i)
to (iii) & f (viii) above, the effect of which could not be determined
and commented upon, had the observations made by us in para f (iv),
(vi), (vii), (xi), (xii) above been considered, the loss for the year
would be Rs. 558.36 Lacs (Rs 375.90 Lacs) as against the reported
figure of loss Rs. 282.38 Lacs (Rs 178.97 Lacs) with the consequent
impact on:
(i) The debit balance in Profit & Loss account would have been Rs.
3552.99 lakhs as against Rs. 3080.08 lakhs reported.
(ii) Secured loans form Bank and Financial Institution would have been
Rs. 3482.73 lakhs as against Rs. 3088.87 lakhs reported.
(iii) Sundry Debtors (Net of Provision) would have been Rs. 20.99
lakhs as against Rs. 107.38 lakhs reported.
(iv) Loans & Advance would have been Rs 34.76 Lakhs as against Rs 27.42
Lakhs reported.
In view of the above remarks, the Profit and Loss Account does not
reflect true and fair view of the "loss" for the year ended 31st March,
2002 and the Balance Sheet does not reflect the true and fair view of
the state of affairs of the company as at 31st March, 2002.
ANNEXURE REFERRED TO IN PARAGRAPH 2 OF OUR REPORT OF EVEN DATE
1. The fixed assets records of the Company are not maintained to show
full particulars including quantitative details and situation of fixed
assets. Physical verification of assets has not been conducted by the
management during the year.
2. None of the fixed assets has been re-valued during the year.
3. The Stock of Raw & Packing materials, finished goods have not been
physically verified by the management during the year.
4. In the absence of Physical verification report, we are unable to
comment on discrepancies as compared to book records.
5. In our opinion, the valuation of stocks is fair and proper in
accordance with the normally accepted accounting principles and is on
the same basis as in the previous year.
6. The terms and conditions on which loans are taken from companies,
firms or other parties listed in the register maintained Under section
301 of the Companies Act, 1956 are Prima facie not prejudicial to the
interest of the Company. We have been informed that there are no
companies under the same management within the meaning of Section 370
(1-B) (Non Operative) of tile Companies Act, 1956.
7. The terms and conditions of unsecured, loans granted by the Company
to the companies, firms or other parties listed in the register
maintained under 301 of the Companies Act, 1956 are prima facie not
prejudicial to the interest of the company; We have been informed that
there are no companies under the same management within the meaning of
Section 370 (1-B) (Non Operative) of the Companies Act, 1956.
8. The parties to whom the loans and advances in the nature of loans
have been given by the company including to staff members which are
interest free are repaying the principal amounts and are also regular
in payment of interest wherever applicable.
9. In our opinion and according to the information and explanations
given to us, there is adequate internal control procedure commensurate
with the size of the company and nature of its business for the
purchase of stores, raw materials including components, plant and
machinery, equipment and other assets and for the sale of goods.
10. According to the information given to us, the transactions of
purchase and sale of goods, and materials and services made in
pursuance of contracts or arrangements entered in the register
maintained under section 301 of the Companies Act, 1956 and aggregating
during the year to Rs. 50,000/- or more in respect of each party, have
been made at prices which, in our opinion, are reasonable having regard
to prevailing market prices of such goods, materials and services or
the prices at which similar transactions have been made with other
parties, as the case may be.
11. As explained to us, the company has a procedure for the
determination of unserviceable or damaged stores, raw material and
finished gods. The Company has determined the unserviceable, or damaged
raw material and adequate provision thereof has been made in the
accounts.
12. The Company has not accepted any deposit from the public to which
the provisions of Section 58A of the Companies Act, 1956 and the
Companies (Acceptance of Deposits) Rules, 1975 apply.
13. There is no generation of scrap in the manufacturing process. We
have been informed that the companys operations do not generate any by
products.
14. The Company did not have a system of internal audit during the
year under review.
15. We have broadly reviewed the books of accounts maintained by the
company pursuant to the rules made by the Central Government for the
maintenance of cost records under section 209 (1) (d) of the Companies
Act, 1956 in respect of its Fertiliser and Sulphuric Acid activities
and are of the opinion that prima facie the prescribed accounts and
records have been maintained. We have not, however, made a detailed
examination of records with a view to determine whether they are
accurate and complete.
16. There were instances of delay in depositing Provident Fund dues
with the appropriate authorities. Accordingly, Rs 110955 payable to
Provident Fund authorities including recoveries made from the employees
as at 31st March, 2002. We are informed that the company is not covered
under Employees State Insurance (ESI) Scheme.
17. According to information and explanations given to us there are no
undisputed amounts payable in respect of Income Tax, Wealth Tax, Custom
Duty and Excise Duty were outstanding as at 31st March, 2002 for a
period of more than six months from the date they became payable, other
than entry tax liability of Rs. 1101094 & Sales Tax Rs. 325565.
18. Medical Expenses in excess of terms of appointment of Directors
amounting to Rs 8,14,161 incurred during the year are in the nature of
personal expenses and have been charged to Profit & Loss account. All
other expenses are payable under contractual obligations, or in
accordance with generally accepted business practices.
19. The Company has been declared by BIFR as Sick Industrial company
within the meaning of Clause (o) of Sub Section (1) of Section 3 of
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).
For R. SURANA & CO.,
Chartered Accountants
Udaipur, 31st August, 2002 RAJESH SURANA
Partner |