| 1. We have audited the attached Balance Sheet of MH MILLS AND
INDUSTRIES LIMITED as at 31st March, 2008, and also the Profit and Loss
Account and the cash flow statement for the period eighteen months
ended on that date annexed thereto. These financial statements are the
responsibility of the companys management. Our responsibility is to
express an opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with the auditing standards
generally accepted in India. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements 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.
3. As required by the Companies (Auditors Report) Order, 2003 issued
by the Central Government of India in terms of sub-section (4A) of
section 227 of the Companies Act, 1956, we enclose in the Annexure, a
statement on the matters specified in paragraphs 4 and 5 of the said
Order.
4. Further to our comments in the Annexure referred to above, we
report that;
i. We have obtained all the information and explanations which to
the best of our knowledge and belief were necessary for the purpose of
our audit.
ii. 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;
iii. The Balance Sheet and Profit and Loss Account and Cash Flow
statement dealt with by this Report are in agreement with the books of
account;
IV. (a) In our opinion, the Balance Sheet and Profit and Loss Account
and Cash Flow statement dealt with this Report comply with the
Accounting Standards referred to in Sub-section (3C) of section 211 of
the Companies Act, 1956; except for Accounting Standard-6 on
"Depreciation Accounting" read with Note No.4, and Accounting Standard
15 on "Accounting for Employee benefits" read with Note No.3.
Further to our comments above, your attention is invited to:
a) Note No.4 of schedule 19 relating to non provision of depreciation
under section 205(2)(b) of the Companies Act 1956 resulting in the
reserve and surplus and the net block of fixed assets being higher by
the amount of Rs.7,04,80,696/-.
b) Note no. 3 of Schedule 19 relating to non-provision of present
liability of future payment of Gratuity as per actuarial valuation due
to which loss for the period is understated by Rs. 1,24,43,554/-,
further liabilities and Balance of Profit and Loss A/c is understated
by Rs. 6,98,15,250/-. However Gratuity amounting to Rs. 38,11,388/-
paid during the period is charged to Profit and Loss A/c.
c) Note No. 12(k) of Schedule 19 relating to non-provision of penal
interest liability amounting to Rs. 38.58 Lacs on overdue installment
to ARCIL and other lenders due to which loss for the period and
provision is understated by Rs. 38.58 Lacs.
IV. (b) Further to above, your attention is also invited to Note No 12
of Schedule 19 for the noncompliance of requirements as stipulated in
scheme of arrangement under section 391 to 394 of The Companies Act,
1956 approved by the Honorable High Court of Gujarat in Company
Petition Number 25 of 2006.
v. On the basis of the written representations received from the
directors, as on March 31, 2008 and taken on record by the Board of
Directors, we report that none of the directors of the company are
disqualified as on March, 31 2008 from being appointed as director in
terms of clause (g) of sub-section (1) of section 274 of the Companies
Act, 1956.
vi. In our opinion and to the best of our information and according to
the explanations given to us, the said accounts give the information
required by the Companies Act, 1956, 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 31st March, 2008.
(b) In the case of the Profit and Loss Account, of the Loss for the
eighteen months period ended on that date.
(c) In the case of the Cash Flow statement, of the cash flows for the
eighteen months period ended on that date.
Referred to in paragraph 3 of our report of even date.
(i) (a) The company has maintained proper records showing full
particulars including quantitative details and situation of fixed
assets however in the case of transferor company namely The Maneklal
Harilal Mills Limited such records have been maintained in respect of
fixed assets purchased after 31-12-1955, in respect of assets acquired
prior to 01-01-1956 these records are not maintained.
(b) All the assets have not been physically verified by the management
during the year but there is a regular programme of verification which,
in our opinion, is reasonable having regard to the size of the company
and the nature of its assets. No material discrepancies were noticed on
such verification.
(c) During the year, the company has not disposed off any major part of
the Fixed Assets.
(ii) (a) The inventory has been physically verified during the year by
the management. In our opinion, the frequency of verification is
reasonable.
(b) The procedures of physical verification of inventories followed by
the management are reasonable and adequate in relation to the size of
the company and the nature of its business.
(c) On the basis of our examination of the records of the company, we
are of the opinion that the company is maintaining proper records of
inventory. The discrepancies noticed on verification between the
physical stocks and the book records were not material.
(iii) (a) The Company has not granted any loans secured or unsecured
to/from companies, firms or other parties in the register maintained
under section 301 of the Act. Hence the provisions of the clause (a),
(b), (c) and (d) are not applicable to the company. (e) The Company
has not taken any loans secured or unsecured to/from companies, firms
or other parties in the register maintained under section 301 of the
Act. Hence the provisions of the clause (f), (g) and (h) are not
applicable to the company.
(iv) In our opinion and according to the information and explanations
given to us, there are adequate internal control procedures
commensurate with the size of the company and the nature of its
business with regard to purchase of inventory, fixed assets and with
regard to the sale of goods. During the course of our audit, no major
weaknesses have been noticed in the internal controls.
(v) (a). Based on the audit procedures applied by us and according to
the information and explanations provided by the management, we are of
the opinion that there are no transactions covered under section 301 of
the companies Act, 1956. Hence the provision of this clause (a) and (b)
is not applicable to the company.
(vi) In our opinion and according to the information and explanations
given to us, the company has not accepted any deposit from the public
during the period covered by our audit and hence the provisions of
Section 58A, 58AA and any other relevant provisions of the Companies
Act, 1956 are not applicable to the company. Further, according to the
information furnished to us, the Company Law Board, or National Company
Law Tribunal or Reserve Bank of India or any Court or any other
Tribunal has passed no order on the company.
(vii) In our opinion, the internal audit system of the Company is
commensurate with its size and nature of its business.
(viii) The Central Government has prescribed maintenance of Cost
records under Section 209 (1) (d) of the Companies Act,1956 in respect
of manufacturing activities of the company. We have broadly reviewed
the accounts and records of the company in this connection and are of
the opinion that, prima facie, the prescribed accounts and records have
been made and maintained. We have not, however made a detailed
examination of the same.
(ix) (a) According to the records of the company, the company is
generally regular in depositing with appropriate authorities undisputed
statutory dues including provident fund, investor education protection
fund, employees state insurance, income-tax, sales-tax, wealth tax,
custom duty, excise duty, cess and other material statutory dues
applicable to it.
In terms of scheme of arrangement approved by the Honorable High Court
of Gujarat the company has to make payment of Statutory and Contingent
Liabilities on account of Electricity Duty, duty on generation of
power, property tax, land revenue and sales tax deferment to the tune
of Rs. 6.09 Crs. The company due to insufficient Cash Accruals has not
made payment of said Statutory dues and Statutory liabilities of
contingent nature. The company is in process of submitting
rehabilitation scheme under section 17 of The Sick Industrial Companies
Act (Special Provision) 1985.
According to the information and explanations given to us, no
undisputed amounts payable in respect of provident fund, investor
education protection fund, employees state insurance, Income-tax,
wealth tax, custom duty, excise duty were outstanding as at 30th
September, 2008 for a period of more than six months from the date they
become payable except the following,
Name of the Nature of dues
Statute
Ahmedabad Municipal Municipal Tax
Corporation
Govt, of India Textile
Committee cess
Govt, of Gujarat Sales Tax
Amount Period to Due date
outstanding which amt.
Rs. relates
82,15,937 April, 2001 to 01/07/2003
March,2006
10,37,242 April,2003 to At the end of
March,2006 the quarter
1,54,74.807 May.2005 May,2005 to
May 2007
(b) According to the records of the company, there are no dues of sales
tax, custom duty, wealth tax, excise duty/cess, income-tax, which have
not been deposited on account of any dispute.
(x) The accumulated losses of the company are more than fifty percent
of its, net worth.The Company has incurred cash losses of
Rs.5,93,40,797/-during the financial year covered by our audit. The
Company has incurred cash loss of Rs. 8,37,77,231/- in immediately
preceding financial year.
(xi) Based on our audit procedures and on the information and
explanations given by the management, we are of the opinion that the
company has defaulted in repayment of dues to a financial institution
or banks. As per scheme of arrangement as approved by the Honorable
High Court of Gujarat, the company was required to make the payment of
restructured debts to ARCIL/other lenders in 10 equal quarterly
installments of Rs.82.30 lacs. In view of this the company was required
to make payment of six installments for the period under review. Out of
outstanding dues of Rs. 493.8 lacs for the period under review the
company has made payment of Rs. 41.18 lacs and thereby resulting into
default in repayment of Rs.452.62 lacs/-. Also the company has
defaulted in payment of penal interest of Rs.38.58 lacs as a
consequence of non payment of installments. The company had not made
the provision of penal interest amounting to Rs. 38.58 Lacs and due to
this the loss for the period and provision is understated by Rs. 38.58
Lacs.
The details of defaults as stated above are as under.
Nature of Default Amount of Default Period of Default
(Rs. In Lacs)
Loan Installment to financial
Institutions and Bank 41.12 31/12/06
Loan Installments to financial
Institutions and Bank 82.30 31/03/07
Loan Installments to financial
Institutions and Bank 82.30 30/06/07
Loan Installments to financial
Institutions and Bank 82.30 30/09/07
Loan Installments to financial
Institutions and Bank 82.30 31/12/07
Loan Installments to financial
Institutions and Bank 82.30 31/03/08
Interest @15% on overdue installments 38.57 31/12/06 to
of Rs. 452.62 lacs 31/3/08
(xii) The company has not granted any loans against security by way of
pledge of shares debentures and other securities.
(xiii) The company is not a chit fund or a nidhi mutual benefit
fund/society. Therefore, the provisions of this clause of the Companies
(Auditors Report) Order, 2003 are not applicable to the company.
(xiv) The company is not dealing in or trading in shares, securities,
debentures and other investments. Accordingly, the provisions of this
clause of the Companies (Auditors Report) Order, 2003 are not
applicable to the Company.
(xv) In our opinion and explanations given to us the company has not
given any guarantee during the year for loans taken by others from
financial institutions or banks. However in the past the company had
given guarantees for loans taken by others from financial institution
and the terms and conditions thereof are not prima-facie prejudicial to
the interest of the Company.
(xvi) The term loans have been applied for the purpose for which they
were raised.
(xvii) Based on the information and explanations given to us and on an
overall examination of the balance sheet of the company, we report that
no funds raised on short-term basis have been used for long-term
investment by the company.
(xviii)The company has made preferential allotment of shares to the
parties and companies covered under section 301 of the Companies Act.
On the basis of records produced before us and as per the fair
valuation certificate given by Religare Securities Limited Category I
Merchant Banker approved by SEBI, we are of the opinion that the
preferential allotments of the shares are not prejudicial to the
interest of the company.
(xix) During the period covered by our audit report, the company has
not issued any debentures.
(xx) The company has not raised any money out of public issue.
(xxi) We report that no fraud on or by the company has been noticed or
reported during the course of our audit.
For TALATI & TALATI
Chartered Accountants
Sd/-
Place : Ahmedabad (UMESH H. TALATI)
Date : 07/07/2008 Partner
Mem.No. 34834 |