| We have audited the accompanying standalone financial statements of
WINSOME DIAMONDS AND JEWELLERY LIMITED ("the Company"), which comprise
the Balance Sheet as at 31st March 2015, the Statement of Profit and
Loss, and Cash Flow Statement for the year then ended and a summary of
significant accounting policies and other explanatory information.
2. Management's Responsibility for the Financial Statements
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
fairview 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.
3. Auditor's Responsibility
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
thereunder.
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 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 control system over financial reporting and the operating
effectiveness of such controls. An audit also includes evaluating the
appropriateness of 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 the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion on the financial
statements.
4. Basis for Qualified Opinion
A. In accordance with Accounting Standard - 11 (Standard on The
Effects of Changes in Foreign Exchange Rates), the Company is required
to report the monetary items using the closing rate. Accordingly the
Company is required to value the monetary assets and liabilities viz
foreign currency trade receivables, trade payables and foreign currency
loan at the foreign exchange rate prevailing as on the date of the
balance sheet. The Company has not carried out such valuations as at
the year end. Accordingly the exchange loss for the year is overstated
thereby resulting in the total loss for the year being
overstated/profit understated by Rs. 214,54,39,618(net).Trade
receivables are understated by Rs. 723,73,84,562, trade payables are
understated by Rs. 796,76,830 as on the balance sheet date and foreign
currency loan is understated by Rs.74,67,778(Refer Note No. 7, 8 (A5),
14(b),19(c) and 23(b)).
B. The Company has made long term investments in Forever Precious
Diamonds and Jewellery Ltd. (Forever) amounting to Rs. 141,17,10,802,
thereby resulting in it holding a 49 % stake in the equity of that
company. The said investments continue to be valued at cost. As stated
in Note No. 12 A 1 & 2, in the view of the management, provision for
diminution in value of investments as per the requirements of
Accounting Standard -13 (Accounting for Investments) is not considered
necessary and hence not made. We have been provided with the financial
statements of Forever for the year ended 31stMarch 2014. We have
observed that there are no significant business operations in Forever.
Further the auditors of Forever have qualified the financial statements
and termed the company as a non-going concern. In view of the above the
Company should have provided the diminution in value of investments
amounting to Rs. 141,17,10,801. Accordingly the loss for the year have
been understated and investments overstated by Rs. 141,17,10,801.
C. Due to the defaults of the Company to the banks, the Company's
accounts have been classified as NPAs by the banks. Most of the banks
have not charged interest on the Company's borrowings/loans, while some
banks have been charging interest at higher rates. The company till
last year/ period was providing for interest at 12.5 % on all
outstanding which was the average rate of rupee export finance. During
the year under review no provisions have been made for such interest at
the year end and provisions made during the year have been reversed at
year end. Accordingly Interest for the year is understated resulting in
total loss of the Company is understated by Rs. 565,86,78,505. (Refer
Note 23 (a)).
5. Basis for Disclaimer of Opinion
A. In respect of Trade Receivables amounting to Rs. 4,743,24,55,740
the auditors have not received any confirmations of balances even after
requesting for the confirmations. The management has obtained
confirmation of balances from the respective parties only as on 31st
March, 2013 and none thereafter. There have been defaults on the
payment obligations by the debtors on the due dates. Various attempts
have been made by the management and lenders for recovery, however such
attempts have not resulted into any significant collections or getting
commitment from the parties regarding schedule of payments which are
acceptable to the management / lenders. In view of the above we are
unable to comment on the realisability of the debts and any provision
to be made for unrealisability in the carrying amounts of these
balances and the consequential impact, on the financial statements.
(Refer Note 14 and Note 16to the financial statements)
B. As mentioned in Note No 1 regarding preparation of accounts on a
Going Concern basis and the reasons stated therein and Note No. 27 of
the financial statements detailing the developments that have happened
in the last 2 years, the Company's operating results have been
materially affected due to various factors including non availability
of finance in view of the consortium bankers recalling the financial
facilities granted. These events cast significant doubts on the ability
of the Company to continue as a going concern since the volumes of
business have also drastically dropped in the last 2 years. The
appropriateness of the going concern assumption is dependent on the
Company's ability to raise adequate finance from alternate means and/
or recoveries from overseas debtors to meet its short term and long
term obligations as well as to establish consistent business
operations.
In absence of any convincing audit evidences, no positive steps taken
by the management, non recovery of trade receivables on due date,
non-payment of liabilities including statutory dues, financial
difficulties faced by the company due to recalling of bank finance
facilities and in view of multiple uncertainties stated above, we are
unable to determine the possible effects on the financial statements.
We are also unable to conclude on the ability of the company to carry
on as a going concern.
6. Disclaimer of Opinion
Because of the significance of the matters described in the Basis for
Disclaimer of Opinion paragraph, specifically relating to the multiple
uncertainties created due to factors such as non recovery of trade
receivables on due dates, non payments of liabilities including
statutory dues, financial difficulties faced by the Company due to
recalling of bank finance, we have not been able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion.
Accordingly, we do not express an opinion on the financial statements.
7. Emphasis of Matter
A. The Company has not appointed any Internal Auditors for the year
and accordingly no internal audits were carried out for the entire
year. (Refer note no. 27(ii))
B. The Company has not carried out any valuation of the stocks of
Diamonds and Pearls which are lying with them/in the joint custody with
the bank. To that extent the increase or decrease in the value of
diamond pearl stocks as at year end, as required to be done as per the
requirements of AS-2 Valuation of Inventories, has not been done. The
impact on the profit/loss of the company due the said non valuation has
not been determined. (Refer note no. 27(iii))
8. Report on Other Legal and Regulatory Requirements
1. ) As required by The Companies (Auditors Report) Order, 2015 ("the
Order") issued by the Central Government of India in terms of
subsection(11) of section 143 of the Act, we give in the Annexure, a
statement on the matters specified in paragraphs 3 and 4 of the said
order.
2. ) As required by section 143(3) of the Companies Act 2013,
we report that:
(a) As described in the Basis for Disclaimer of Opinion Paragraph, we
were unable to obtain all the information and explanations which to the
best of 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;
(c) the Balance Sheet, Statement of Profit and Loss, and the Cash Flow
Statement dealt with by this Report are in agreement with the books of
account
(d) Except for the effects of the matter described in the Basis for
Qualified / Disclaimer Opinion / Emphasis of Matter paragraphs 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.
(e) On the basis of written representations received from the directors
as on 31st March, 2015, and 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 Section 164(2) of the Act.
(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, in our opinion and to the best of our information and
according to the explanations given to us :
(i) Total pending litigations which would impact the financial position
of the company are enclosed herewith in Annexure A. The management is
unable to ascertain the amount of liabilities to the company on the
said litigations.
(ii) The Company did not have any long term contracts including
derivative contracts for which there were any material foreseeable
losses.
(iii) Amounts which were required to be transferred to the Investor
Education and Protection fund were duly transferred to the fund by the
Company within the due dates.
(Referred to in para 8 (1) of our auditor's report of even date on the
accounts for the year ended 31st March, 2015 of WINSOME DIAMONDS
AND JEWELLERY LIMITED.
On the basis of such checks as we considered appropriate and in terms
of information and explanations given to us, we state that:
1. (a) The Company has maintained proper records, showing full
particulars including quantitative details and situation of fixed
assets.
(b) As explained to us, the fixed assets were being physically verified
by the management at each branch in accordance with a phased programme
of verification. The said procedure was being followed in the past was
reasonable considering the size and nature of its business and no
material discrepancies were noticed in the past years. However during
the current year in case of some branches where the operations have
ceased / suspended, complete verification has not been done.Material
discrepancies, if any will be highlighted once the physical
verification would be completed. (Refer to note Nos. 10 & 11.)
2. (a) In June 2013, the banks had placed the stock of diamonds
belonging to the Head Office and the Mumbai Branch office of the
Company valued at Rs. 39,35,00,031 in the joint custody of the Company
and the banks.The banks had done a test check valuation of the said
stock as on 30th September, 2013 where officers of the Company were
also present. The said valuation has been then forwarded to the
company.Since November 2013 the stocks of Chennai SEZ & Cochin SEZ were
also valued and put in the joint custody of the banks. Confirmation of
the stocks lying with the bank has been confirmed by the management on
the basis of the letter obtained from the bank as on that date. For
the current year under consideration, the stock lying in joint custody
of the banks at HO, Cochin & Chennai the management hasnot carried out
any physical verification of such inventory. Physical verification of
inventory at other branches has been done by the management at regular
intervals.
(b) The procedures of physical verification of inventories, other than
that in the joint custody of the banks, as followed by the management
is reasonable and adequate in relation to the size of the Company and
the nature of its business.
(c) As stated by the management, the Company is maintaining proper
records of inventory. The discrepancies noticed on verification between
the physical stocks and the book records, were not material. Since
majority of the inventory is held in the joint custody of the
consortium of banks, which was not available for our verification, we
have relied on the certificate of the bank and the Company and hence we
are unable to comment on the stock of inventory as at the year ended
March 31, 2015.
3. (a) As per the information and explanations given to us and the
records produced before us for our verification, the Company has not
granted unsecured loan to companies, firms or other parties covered in
the register maintained under section 189 of the Companies Act,
2013.Accordingly, clause 3 (iii) (a) & (b) of the Order is not
applicable to the Company.
4. In our opinion and according to the explanations given to us, there
are adequate internal control systems commensurate with the size of the
company and the nature of its business with regards to purchases of
inventory, fixed assets and sale of goods and services. During the
course of the audit we have not observed any continuing failure to
correct major weaknesses in internal control.
5. The Company has not accepted deposits from the public. As the
company has not accepted deposits, the questions of verifications of
the directives of the Reserve Bank of India and the relevant
provisions of the Companies Act and the rules framed thereunder and
their compliance does not arise.
6. In the Present case, the Central Government has not prescribed the
maintenance of Cost Records under section 148(1) of the Companies Act,
2013. Accordingly clause 3 (vi) of the Order is not applicable to the
Company. As such the question of reviewing the books of account to be
maintained by the Company pursuant to such an order does not arise.
7. (a) According to the records of the company, undisputed statutory
dues including provident fund, investor education and protection fund,
employees state insurance dues, income-tax, sales tax, wealth tax,
service tax, customs duty, excise duty, cess and other material
statutory dues applicable have generally been paid though delayed. In
some cases specially towards the end of the year there have been delay
in the same being deposited with the appropriate authorities.
The details of undisputed amounts due and outstanding for a period
exceeding 6 months are as below :
Value Added Tax at Surat & Bangalore: Rs. 1,70,026
(b) According to the information and explanations given to us and the
records of the Company as examined by us, except for the amounts
mentioned below, there are no disputed dues of income-tax, sales-tax,
VAT, service tax, customs duty, excise duty, wealth tax and cess, which
have not been deposited.
Name of the Nature Amount(Rs.) Period to Forum
Statute of dues which the where
amount dispute is
relates pending
Income Tax Income 40,32,046/- A.Y2010 CIT(A)
Act,1961 Tax 1
Income Tax Income 9,87,022/- A.Y2011 Request for
Act,1961 Tax 12 Rectification
u/s 154 and
CIT(A)
Income Tax Income 2,06,903/- A.Y2013 CIT(A)
Act,1961 Tax T4
Total demand 52,25,971/-
Less: Refunds 66,87,937/-
due, but yet to
be received
Taxpayable Nil
(c) The Company has transferred the amount required to be transferred
to investor education and protection fund in accordance with the
relevant provisions of the Act and rules made there under. The same
have been transferred within the stipulated time.
8. The Company does not have accumulated losses. The Company has
incurred cash losses in the financialyear covered by our audit. The
Company has also incurred cash losses in the immediately preceding
financial period.
9. The Company has defaulted in payment of loans to banks during the
year preceding the previous financial period and continued in this
financial year. The details of such default are as under:
Bank Name Total Amount Date Default
Defaulted started
Axis Bank - Term Loan 7,918,400 08/04/2013
Axis Bank 474,155,520 02/04/2013
Bank of India 906,139,200 06/04/2013
Bank of Maharashtra 2,937,920,826 02/04/2013
Canara Bank 6,722,236,1931 18/03/2013
Bank Name Total Amount Date Default
Defaulted started
Central Bank of India 7,465,886,346 28/03/2013
EXIM Bank 714,743,985 05/04/2013
I D B I Bank 1,147,875,362 06/04/2013
Oriental Bank of Commerce 1,636,021,974 08/04/2013
Punjab National Bank 10,521,187,766 26/03/2013
Standard Chartered Bank 4,061,589,537 25/03/2013
State Bank of Hyderabad 1,277,706,509 08/04/2013
State Bank of Mauritius 463,330,128 18/04/2013
Union BankofIndia 2,803,341,974 21/03/2013
Vijaya Bank 1,448,174,130 02/04/2013
TOTAL 42,588,227,8501
The above defaults are the primary amounts as on the date of the
defaults continuing from the previous periods. The said defaults do not
consider any levies of interest and penal interest charged by the banks
/ provided by the company after the date of the defaults or its
subsequent reversals by some banks. The payments made by the company to
the banks after the above dates are also not considered as we are not
in a position to ascertain whether the repayments are against interest
/ penalty or primary defaults.Some of the Banks have not confirmed the
balances outstanding to them even after writing to them and in some
cases the banks have stopped issuing physical bank statements and the
company and the auditors have relied on e-statements generated from the
web portals of the banks.
The Company does not have any outstanding dues by way of debentures.
10. As informed to us, the Company had given guarantees of USD 5.5 mn
for credit facilities availed by its erstwhile overseas subsidiary,Su-
Raj Diamonds and Jewellery DMCC, from banks.The Company had divested
its entire equity holding in the said subsidiary in the past. However
the said guarantee had not been released since then, and the status of
the guarantee was not available with the Company. The tenure of the
guarantee has expired as on 31st March, 2015 and hence the same has
been considered as discharged. Thus the company has not given any
guarantees for loans taken by others from banks orfinancial
institutions as on the balance sheet date.
11. On the basis of the review of the utilization of funds on overall
basis and related information as made available to us by the Company,
prima facie no fresh loans have been raised by the company during the
year and the term loans raised in the past by the Company were applied
for the purpose for which they had been raised.
12. We have been informed by the management, that the Banks who have
lent funds to the Company, outstanding as at the balance sheet date
amounting to Rs. 41,699,434,422/-,have lodged complaints against the
Company and some of its ex directors, with the Central Bureau of
Investigation (CBI), Mumbai Police and Enforcement Directorate (ED). On
the basis of the said complaints and subsequent F.I.R.s, the CBI,
Mumbai Police and ED have been carrying out investigations, which are
in progress. The Company has been subjected to searches by the CBI. The
Company is yet to be served with a copy of the F.I.R.
For R.C. RESHAMWALA & CO.
CHARTERED ACCOUNTANTS FRN 108832W
RAJNIKANT.C. RESHAMWALA
PARTNER
MUMBAI: 30th May,2015 MEMB. NO. 005502
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