| 1. We have audited the accompanying financial statements of Malwa
Cotton Spinning Mills Limited ('the Company'), which comprise the
Balance Sheet as at March 31, 2015, the Statement of Profit and Loss
and the Cash Flow Statement for the year then ended, and a summary of
the significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements:
2. The Company's Board of Directors is responsible for the matters
stated in section 134(5) of the Companies Act, 2013 ("the Act") with
respect to the preparation of these financial statements that give a
true and fair view of the financial position, financial performance and
cash flows of the Company in accordance with the accounting principles
generally accepted in India, including the Accounting Standards
specified under section 133 of the Act, read with Rule 7 of the
Companies (Accounts) Rules, 2014. This responsibility also includes
maintenance of adequate accounting records in accordance with the
provisions of the Act for safeguarding 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 financial statements that give a true and fair view
and are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility:
3. Our responsibility is to express an opinion on these financial
statements based on our audit.
We have taken into account the provisions of the Act, the accounting
and auditing standards and matters which are required to be included in
the audit report under the provisions of the Act and the Rules made
there under.
We conducted our audit in accordance with the Standards on Auditing
specified under section 143(10) of the Act. Those Standards require
that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free from material misstatement. An audit involves performing
procedures to obtain audit evidence about the amounts and the
disclosures in the financial statements. The procedures selected depend
on the auditor's judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers
internal financial control relevant to the Company's preparation of the
financial statements that give a true and fair view in order to design
audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on whether the Company has in
place an adequate internal financial controls system over financial
reporting and the operating effectiveness of such controls. An audit
also includes evaluating the appropriateness of the accounting policies
used and the reasonableness of the accounting estimates made by the
Company's Directors, as well as evaluating the overall presentation of
the financial statements.
We believe that subject to matters stated in para 5 below we have
obtained the audit evidence which is sufficient and appropriate to
provide a basis for our audit opinion on the financial statements.
Emphasis on Matter:
4. We draw attention to the mater disclosed in the notes to the
financial statement:
i) The Company has not been able to redeem 9% cumulative redeemable
preference share capital. The unredeemed preference capital of Rs.
2,750 lacs have been shown under the schedule of Share Capital. (Refer
disclosure under the Note 1 to the financial statement).
ii) Sundry debtors for the current year are shown at gross amount
whereas in the preceding year were shown net of advance of Rs.
5,108.26. Therefore sundry debtors are not comparable to this extent.
Basis for Qualified Opinion
5. We report that:
i) We draw attention to note no. 37 in the financial statements. The
Company has incurred a net loss of Rs. 3,688 lacs during the year ended
31st March, 2015, which together with brought forward losses of Rs.
21,885 lacs exceeds the net worth of the company, and as of that date,
the company's current liabilities exceeded its current assets by Rs.
19,525 lacs and its total liabilities exceeded its total assets by Rs.
22,248 lacs. The Consortium banks have recalled their debts to the
company. These events cast significant doubt on the ability of the
company to continue as a going concern. The appropriateness of the
going concern assumption is dependent on the company's ability to
establish consistent profitable operations and generate positive cash
flows as well as raising adequate finance to meet its short term and
long term obligations. Based on the mitigating factors stated in the
said note, the management of the company believes that the going
concern assumption is appropriate. However, we do not agree with the
management in this respect.
ii) The company has not arranged to make available the confirmations
and/or reconciliations to verify the balances stated in the financial
statements in respect of:
i .Trade Receivables Rs. 5,535.30 lacs
ii. Loans & Advances: Rs. 1,472.64 lacs
iii. Trade payables: Rs. 5,325.88 lacs,
We have also not been able to perform any alternative procedures with
regard to verification of the aforesaid balances and thereby have been
unable to obtain sufficient appropriate audit evidence regarding the
aforesaid accounts .We are unable to comment upon the difference, if
any, which may arise upon the receipt of confirmations and/or the
carrying out of such reconciliation.
iii) The management of the company has represented to us that the
recoverable amount of assets within the meaning of Accounting Standard
28 "Impairment of Assets " is more than their carrying value and as
such no amount needs to be recognized in the financial statements for
impairment loss. In the absence of the workings of impairment having
been prepared and made available to us for our review, we are unable to
comment on whether; the company needs to make a provision in respect of
impairment loss on such assets and the amount of such provision.
iv) Refer note no.36 of the financial statements, the company has not
made provision in respect of balances recoverable from Trade
Receivables, Loans and Advances and Other Recoverable including for
employees, which are doubtful in nature amounting to Rs. 4,144.31 lacs
as on the date of the financial Statements.
v) Refer note no.38 of the financial statements, the Company has not
provided for the Interest on borrowings amounting to Rs.2,978.52 lacs.
The Company has also not provided interest of Rs. 2935.08 lacs on it's
borrowings pertaining to the preceding year.
vi) We further report that, except for the effect, if any, of the
matters stated in paragraph (i) and (ii) above which are not
ascertainable, had the impact of our observation made in paragraph (iv)
and (v) above been considered, then loss for the year ended 31st March,
2015 would have been Rs.13,746 lacs (against the reported figure of
Rs.3,688 lacs) and reserves and surplus would have been Rs. 35,821
lacs (against the reported figure of Rs. 25,763 lacs) and current
assets would have been ((Rs. 1,219 lacs) (against the reported figure
of Rs. 8,839 lacs).
vii) The earning (loss) per share for the year ended 31 March, 2015
would have been Rs.(177.61) against reported earning (loss) per share
of Rs.(50.37).
Opinion
6. In our opinion and to the best of our information and according to
the explanations given to us, subject to our comments in paragraph 5
above the aforesaid financial statements give the information required
by the Act in the manner so required and give a true and fair view in
conformity with the accounting principles generally accepted in India:
a. In the case of the Balance Sheet, of the state of affairs of the
Company as at March 31, 2015;
b. In the case of the Statement of Profit and Loss, of the loss for
the year ended on that date; and
c. In the case of the Cash Flow Statement, of the cash flows for the
year ended on that date.
Report on Other Legal and Regulatory Requirements
7. (i) As required by the Companies (Auditor's Report) Order, 2015
("the Order") issued by the Central Government of India in terms of
sub-section (11) of section 143 of the Act, we give in the Annexure,
which forms part of this report, a statement on the matters specified
in paragraphs 3 and 4 of the Order, to the extent applicable.
(ii) As required by section 143(3) of the Act, we report that:
a. We have sought and obtained all the information and explanations,
except as stated in note 5 above, which to the best of our knowledge
and belief were necessary for the purposes of our audit;
b. In our opinion, proper books of account, except as stated in note 5
above, 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 and the Cash
Flow Statement dealt with by this report are in agreement with the
books of account;
d. In our opinion, the aforesaid Financial Statements comply with the
Accounting Standards specified under section 133 of the Act, read with
Rule 7 of the Companies (Accounts) Rules, 2014, except non disclosure
of segment results separately in respect of sewing thread segment in
accordance with the requirement of Accounting Standard (AS) - 17 on "
Segment Reporting" notified by the Company (Accounting Standard) Rules,
2006.
e. On the basis of written representations received from the directors
as on 31st March 2015 taken on record by the Board of Directors, none
of the directors is disqualified as on 31st March, 2015 from being
appointed as a director in terms of sub-section (2) of section 164 of
the Act; and
f. 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, we have to state that in our opinion and to the best of
our information and according to explanations given to us:
i) The Company has disclosed the impact of pending litigations on its
financial position in its financial statements, except where impact is
not ascertainable.
ii) 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.
Annexure to the Independent Auditor's Report
(Referred to in paragraph 7(i) under 'Report on Other Legal and
Regulatory Requirements' section of even date)
(i) a) The Company has maintained proper records of fixed assets,
showing full particulars, including quantitative details and situation
of these fixed assets.
b) According to the information and explanations given to us, the fixed
assets except furniture and fittings and office equipments have been
physically verified by the management during the year under the
supervision of internal auditors of the company (an independent firm of
Chartered Accountants). In respect of furniture and fittings and
office equipments, the company has adopted a policy of physical
verification of these assets at least once in every three year. The
entire block of these assets have been physically verified by the
management during the year ended 31st March 2015. The discrepancies
noticed on physical verification of fixed assets which were not
material, have been properly dealt in the books of account. In our
opinion the frequency of physical verification of fixed assets is
reasonable having regard to the size of the Company and nature of its
business.
(ii) a) According to the information and explanations given to us, the
inventories have been physically verified by the management at the end
of the year. In our opinion the frequency of verification is
reasonable.
b) Based on information and explanations given to us and the records
produced to us, in our view, the procedures of physical verification of
inventories followed by the management during the year are reasonable
and adequate in relation to the size of the Company and the nature of
its business.
c) The Company is maintaining proper records of inventories. As per the
information given to us, the discrepancies noticed on physical
verification of inventories as compared to book records were not
material and has been properly dealt with in the books of account.
(iii) According to the information and explanations given to us and
based on such tests which we considered necessary, we report that the
Company has not granted any loans, secured or unsecured to firms,
companies, or other parties covered in the register maintained under
section 189 of the Companies Act. Therefore the provisions of
paragraph (iii) (a) and (b) of the above order are not applicable to
the Company.
(iv) In our opinion and according to the information and explanations
given to us, there is an adequate internal control system, considered
adequate, commensurate with the size of the Company and the nature of
its business with regard to the purchase of inventory and fixed assets
and for to sale of goods and services. During the course of our audit,
we have not observed any continuing failure to correct major weaknesses
in internal control systems.
(v) According to the information and explanations given to us, the
Company has not accepted deposits covered under the provisions of
sections 73 to 76, other relevant provisions of the Companies Act and
the rules framed there under. According to the information and
explanations given to us, no order under the aforesaid sections has
been passed by the Company Law Board or the Reserve Bank of India or
any Court or any other Tribunal on the Company.
(vi) According to the information and explanations given to us, we are
of the opinion that prima-facie the prescribed accounts and records
have been made and maintained pursuant to the sub-section (1) of
section 148 of the Act, specified by the Central Government. We have,
however, not made a detailed examination of the records with a view to
determine whether they are accurate or complete.
(vii) (a) According to the information and explanations given to us and
on the basis of the records of the Company examined by us, in our
opinion, the Company has not been regular in depositing undisputed
statutory dues including provident fund, employees' state insurance,
professional tax, income tax, vat, service tax, and other statutory dues
with the appropriate authorities.
(b) In our opinion and according to the information and explanations
given to us, undisputed dues in respect of provident fund, employees'
state insurance, labour welfare fund, sales tax (VAT and CST), tax
deducted at source and tax collected at source which were outstanding
at the yearend for a period of more than six months from the date they
became payable are as follows:
Nature of Statute Nature of Dues Amount (Rs. Period to which
in Lacs) the amount
relates
Income Tax Act, 1961 Tax deducted at 20.91 F.Y 2013-14 and
Source 2014-2015.
Income Tax Act, 1961 Tax collected at 0.41 F.Y 2014-15
Source
Employees' Provident Provident Fund 194.37 F.Y 2012-13,
Fund and Miscellaneous 2013-14 and
Provisions Act, 1952 2014-2015.
Employees' State Employee State 186.13 F.Y 2011-12,
Insurance Act, 1948 Insurance 2012-13, 2013-
14, and 2014-
2015.
Punjab Labour Welfare Labour Welfare 1.24 F.Y 2012-13,
Fund Act, 1965 fund 2013-14 and
2014-2015.
Punjab Value Added Tax VAT/CST 36.62 F.Y 2013-14 and
Act, 2005/ Central Sales 2014-2015.
Tax Act, 1956
Nature of Statute Due Date Date of Payment
Income Tax Act, 1961 Various Not yet paid
Income Tax Act, 1961 Various Not yet paid
Employees' Provident Various Not yet paid
Fund and Miscellaneous
Provisions Act, 1952
Employees' State Various Not yet paid
Insurance Act, 1948
Punjab Labour Welfare Various Not yet paid
Fund Act, 1965
Punjab Value Added Tax Various Not yet paid
Act, 2005/ Central Sales
Tax Act, 1956
(c) According to the information and explanations given to us, the
disputed statutory dues aggregating to Rs.778.93 lacs that have not
been deposited on account of matters pending before the appropriate
authorities in respect of sales tax, service tax and excise duty are
given below:
Sr. Name of the Statute Nature of Dues Period to which
No. the amount
relates
1. The Punjab General Sales Tax 2003
Sales Tax Act, 1948
2. The Punjab Value Value 2005, 2008, 2009
Added Tax Act, 2005 Added Tax and 2011.
3. The Central Sales Tax, Central 2003
1956 Sales Tax
4. The Central Sales Tax, Central 2005, 2008, 2009
1956 Sales Tax and 2011.
5. Himachal Pradesh Tax Entry Tax 2011, 2012, 2013,
on entry of goods into 2014 and 2015
Local Area Act, 2010
6. Himachal Pradesh Sales Tax 2005
Sales Tax Act.
7. Himachal Pradesh VAT 2006
Value Added Tax Act,
2005
8. Central Excise Act, Excise Duty 1995,1999 and
1944. 2005.
9. Central Excise Act, Excise Duty 2005, 2006,
1944. 2007,2012 and
2013
10. Central Excise Act, Excise Duty 2009
1944.
11. Central Excise Act, Excise Duty 2011 and 2012.
1944.
12. The Finance Act, 1994 Service Tax 1996
(Chapter V)
13. Central Excise Act, Excise Duty 2013
1944.
14. Central Excise Act, Excise Duty 2014
1944.
15. Central Excise Act, Excise Duty 2007 - 2013
1944.
16. Central Excise Act, Excise Duty 2002
1944.
17. Central Excise Ac, Excise Duty 2015
1944
Sr. Name of the Statute Disputed Forum where the dispute
No. Amount is pending
(Rs. In lacs)
1. The Punjab General 58.83 The Hon'ble High Court
Sales Tax Act, 1948 of Punjab and
Haryana,Chandigarh
2. The Punjab Value 378.72 The Deputy Excise &
Added Tax Act, 2005 Taxation Commissioner (
Appeals) Patiala
3. The Central Sales Tax, 4.53 The Hon'ble High Court
1956 of Punjab and
Haryana,Chandigarh
4. The Central Sales Tax, 117.56 The Deputy Excise &
1956 Taxation Commissioner (
Appeals) Patiala
5. Himachal Pradesh Tax 89.70 The Hon'ble High Court
on entry of goods into of Himachal Pradesh.
Local Area Act, 2010
6. Himachal Pradesh 0.49 Himachal Pradesh Tax
Sales Tax Act. Tribunal.
7. Himachal Pradesh 0.23 Himachal Pradesh VAT
Value Added Tax Act,
2005 Tribunal.
8. Central Excise Act, 3.87 Custom, Excise and
1944. Service Tax Appellate
Tribunal
9. Central Excise Act, 2.77 Additional Commissioner,
1944. Shimla.
10. Central Excise Act, 27.85 Additional Commissioner,
1944. Chandigarh.
11. Central Excise Act, 36.03 Commissioner of Central
1944. Excise, Chandigarh.
12. The Finance Act, 1994 2.30 Commissioner of Central
(Chapter V) Excise, (Appeals)
13. Central Excise Act, 1.16 Commissioner of Central
1944. Excise, Sangrur.
14. Central Excise Act, 0.41 Commissioner of Central
1944. Excise, Sangrur.
15. Central Excise Act, 42.24 Additional Commissioner
1944. of Central Excise,
Sangrur.
16. Central Excise Act, 11.91 Assistant Commissioner
1944. of Central Excise,
Sangrur.
17. Central Excise Ac, 0.33 Superintendent, Central
1944 Excise,Barnala.
According to information and explanation given to us, there are no
disputed statutory dues ending in respect of income tax, wealth tax and
cess.
(d) According to the information and explanations given to us, there
was no amount required to be transferred to Investor Education and
Protection Fund in accordance with the relevant provisions of the
Companies Act, 1956 (1 of 1956) and rules made there under. The
undisputed dues in respect of wealth tax, income tax, custom duty,
excise duty and cess have been regularly deposited with appropriate
authorities.
(viii) In our opinion and according to the information and explanations
given to us, the accumulated losses at the end of financial year are
more than fifty percent of its net worth. Further, the company has
incurred cash losses during the financial year covered under audit and
in the immediately preceding financial year.
(ix) According to the information and explanations given to us, the
company has defaulted in repayment of dues to banks and financial
institutions. The details of the defaults are as under:
Sr.No. Particulars Amount(Rs in Nature of Dues
Lacs)
1. IFCI Ltd. 7,862.57 Term loan - Principal
2,292.78 Term loan - Interest
509.80 Cash Credit - Principal and
Interest
2. IDBI Bank Ltd. 1,834.55 Term loan - Principal
486.98 Term loan - Interest
149.98 Cash Credit - Principal and
Interest
3. SIDBI 214.53 Term loan - Principal
52.89 Term loan - Interest
4. Punjab 3,165.07 Term loan - Principal
National Bank 664.46
10,688.46 Cash Credit - Principal and
Interest
5. State Bank of India 2,290.40 Term loan - Principal
516.01 Term loan - Interest
3,484.32 Cash Credit - Principal and
Interest
6. Vijaya Bank 377.76 Term loan - Principal
83.73 Term loan - Interest
1,399.49 Cash Credit - Principal and
Interest
7. J & K Bank 141.07 Term loan - Principal
29.99 Term loan - Interest
528.64 Cash Credit - Principal and
Interest
Sr.No. Particulars Period of Default of
repayments
1. IFCI Ltd. Refer Note 9 (a)and (b) below
2. IDBI Bank Ltd. Refer Note 9 (a)and (b) below
3. SIDBI Refer Note 9 (a)and (b) below
4. Punjab
National Bank Refer Note 9 (a)and (b) below
5. State Bank of India Refer Note 9 (a)and (b) below
6. Vijaya Bank Refer Note 9 (a)and (b) below
7. J & K Bank Refer Note 9 (a)and (b) below
a) The long term and short term borrowings recalled by the consortium
banks not paid by the company have been considered as defaulted for the
purpose of above disclosures.
b) Interest includes interest accrued on long term and short term
borrowings not provided in the statement of profit and loss. (Refer
note no.38)
(x) According to the information and explanations given to us, the
company has given guarantee for loans taken by others from banks and
financial institutions. In our opinion and according to the information
and explanations given to us, the terms and conditions of such
guarantee are not prima-facie prejudicial to the interest of the
company.
(xi) In our opinion and according to information and explanations given
to us and on an overall examination of the balance sheet of the
company, we report that Rs. 1,692.18 lacs raised on short-term basis
has been used for repayment of long term borrowings, purchase of fixed
assets and funding of cash losses.
(xii) According to the information and explanations given to us, no
fraud on or by the Company has been noticed or reported during the
course of our audit.
For S.C. Vasudeva & Co.
Chartered Accountants
(Reg. No. 000235N)
Place: Ludhiana (Sanjiv Mohan)
Dated: May 30, 2015 Partner
M. No. 86066
| 