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Adhunik Yarns Ltd.

BSE: 514452 Sector: Industrials
NSE: N.A. ISIN Code: N.A.
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Adhunik Yarns Ltd. (ADHUNIKYARNS) - Auditors Report

Company auditors report

ADHUNIK YARNS LIMITED ANNUAL REPORT 2007-2008 AUDITORS' REPORT To The Members of ADHUNIK YARNS LIMITED 1. We have audited the attached Balance Sheet of ADHUNIK YARNS LIMITED as at 31st March 2008, the Profit & Loss Account and also Cash Flow Statement for the year ended on that date, annexed thereto. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. 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 statements are free of material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles and significant estimates made by the 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 (Auditor's Report) Order, 2003 (hereinafter referred to as 'the CARO 2003') issued by the Central Government of India in terms of section 227(4A) of the Companies Act, 1956, (hereinafter referred to as 'the Act') 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, except referred to elsewhere in the report, 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, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report comply with the mandatory Accounting Standards referred to in sub-section (3-C) of section 211 of the Act except: (a) AS-1 as referred to In Note No,. 12 of schedule 17 that the financial statements have been prepared on the concept that the company will continue as a going concern, though: aa) On disposing off the Vapi unit and plant and machines of Navapur unit, manufacturing operations at both the units were closed down by the company; ab) The company is not In a position to honour its commitment towards various liabilities; ac) The company has continuously incurred losses and thereby the accumulated loss has exceeded the net worth of the company and a substantial loss is carried forward as on 31st March 2008; ad) The Board for Industrial and Financial Reconstruction (hereinafter referred to as 'the BIFR') has also, formed an opinion, on prima facie, that the company be wound up and forwarded the matter to the concerned High Court, since the company has reached OTS with secured creditors, the winding up proceedings are under still in suspension (refer note no. 12 of Schedule 17); and ae) Further impairment of the assets, as reported in the following paragraphs and also in annexure to report, cannot be ruled out on realization/recovery. Hence it cannot be said whether the company will continue to be so. Accordingly financial statements for the year under consideration do not include any adjustments relating to recorded amounts and classification of assets; or to amounts and classification of liabilities that may be necessary if the company is unable to continue as a going concern. (b) AS-2 as referred to in point no. 5 of schedule 16 of Significant Accounting Policies for valuation of inventories, the valuation is not as per Accounting Standard, consequential impact of the same is not ascertainable; (c) AS-13 as referred to in Note no. 11 of schedule 17, no provision has been made for diminution in the value of investments in the equity shares of (a) Adhunik Synthetics Ltd, a sick industrial undertaking within the meaning of Section 3 (1) (o) of the SICA, 1985 and BIFR also directed to issue show cause notice to wound up u/s 20(1) of the Act, Rs. 28.69 lacs and (b) Adhunik Fintrade Ltd. a company having, as the available information, substantial accumulated losses Rs. 1.94 lacs; (d) AS-15 as referred to in Note No. 10 of schedule 17 for provision for the liability if any on account of gratuity, for want of actuarial valuation, to the employees of the company is not ascertainable; (e) AS-28, as referred to in Note no. 18 of Schedule 17, the company has not recognized and measured the loss of impairment of its assets, which, in view of the long outstanding amount as referred to in note no. 15 of Schedule 17; and (f) AS-24, as referred to in note no. 19 of Schedule 17, requires a separate disclosure of discontinuing operations as the company had discontinued the manufacturing operations of both the reporting segments; (v) Attention of members is invited to: (a) Note no. 2 of schedule 17, no independent confirmation of balances of Sundry Debtors, Sundry Creditors, Loans and Advances and other balances have been produced before us and consequential impact, if any, could not be ascertained; (b) Note no. 5 of schedule 17, lower charge of depreciation, as a result, up to date depreciation charge is lower by Rs. Nil net of Rs. 10.91 lacs provided for the year under review; (c) Note no. 9 of schedule 17, no provision has been made for interest accrued and due on the unpaid installments which have already become due pertaining to Sales Tax Incentives received in the form of unsecured loans, the amount could not be ascertained in absence of proper information available with the company; (d) Note no. 14 of schedule 17, non-provision of listing fees for Madras Stock Exchange, amount is not ascertainable for want of information with the company; and (e) Note no. 13 of schedule 17, the company has not yet filed relevant forms for satisfaction of charges with Registrar of Companies, in respect of secured creditors where as the company has fully discharged their dues; (vi) We, further report that, overall impact of the above referred remarks, without considering items mentioned at (iv)(a) to (f), (v)(a), (c), (d), and (e) above, the effect of which could not be determined, the loss for the year would have been lower by Rs 10.91 lacs and the debit balance in Profit & Loss Account would have been higher by Rs Nil; (vii) Based on the representation made, two directors of the company namely Shri Radheshyam Poddar and Shri Pradeep Poddar who are already the directors of an other public company which has failed to redeem its debentures on due dates, are disqualified as on 31st March, 2008, to be appointed as a director of any other public company, as referred to in Section 274 (1) (g) of the Act on the said date; (viii) As informed to us, the company has not complied with the conditions of the Corporate Governance as stipulated under Clause 49 of the Listing Agreement, as compulsorily applicable to it; (ix) Minutes Books of Meetings of the Board of Directors and Shareholders and other Statutory Registers required to be maintained under the Act by the company, were not produced to us for our verification; (x) Note No. 7 of Schedule 17 for non-availability of the relevant information with the company, the information of creditors registered as Micro, Small or Medium Enterprises under Micro, Small and Medium Enterprises Development Act, 2006 could not be complied; (xi) In our opinion and to the best of our knowledge and according to the information and explanations given to us, the said accounts, subject to the foregoing, and read together with the accounting policies and other notes thereon, give the information required by the Act, in the manner so required and give a true and fair view: (a) In the case of Balance Sheet, of the state of affairs of the company as at 31st March 2008; (b) In the case of Profit & Loss Account, of the loss for the year ended on that date; and (c) In case of Cash Flow Statement, of the cash flows for the year ended on that date. For and on behalf of R.S. AGRAWAL & ASSOCIATES Chartered Accountants R.S. Agrawal Partner Membership No. 33216 Mumbai 11th August 2008 ANNEXURE REFERRED IN PARAGRAPH (3) OF AUDITOR'S REPORT OF EVEN DATE ON THE ACCOUNTS FOR THE YEAR ENDED 31st MARCH, 2008 OF ADHUNIK YARNS LIMITED ON THE BASIS OF SUCH CHECKS AS WE CONSIDER APPROPRIATE AND IN TERMS OF THE INFORMATION AND EXPLANATION GIVEN TO US, WE STATE THAT: (i) a) The company has not maintained proper records showing full particulars, including quantitative details and situation of fixed assets; as fixed assets register was not produced to us for our verification; b) As informed to us, the management has not, during the year, physically verified the fixed assets. Hence, discrepancies, if any, in the fixed assets, could not be ascertained; further the fixed assets of the company were not insured for any risk; and c) Refer note no. 12 of Schedule 17, the company has, during the year, sold substantial fixed assets. The company has also not so far made any plans to replace the fixed assets that have been sold. These factors, along with other matters as set forth in note no. 12 of Schedule 17, raise substantial doubt about the company's ability to continue as a going concern in foreseeable future. (ii) a) As informed to us, the inventory of finished goods is physically verified at the close of the year only by the management. In our opinion, the verification of inventory only at the close of the year cannot be said to be reasonable; b) The procedures of physical verification of inventories followed by the management are, in our opinion, needs to be strengthened in relation to the size of the company and the nature of its business as no records evidencing the physical verification were produced to us except confirming the same as done; and c) The company for inventory has maintained no specific records that can be said proper. As informed to us no material discrepancies have been noticed on physical verification of finished stock whereas in the absence of physical verification by management of other items of store, spare parts, packing material, colour, chemicals etc lying at the units of the company, where manufacturing operations were shut down, discrepancies could not be determined as compared to book records/statements and hence can not be commented upon; (iii) a) As informed to us, the company has, during the year, not granted loans, secured or unsecured to companies, firms and other parties covered in the register maintained under section 301 of the Act; and; b) As the company has not granted any loans, therefore, the reporting requirements under provisions of sub clauses (b), (c) and (d) of the clause 4 (iii) of the CARO 2003 are not applicable; c) During the earlier years the company has taken trade advances/deposits in the nature of unsecured loan from four parties covered in the register maintained under section 301 of the Act. The maximum amount involved during the year was Rs. 298.59 lacs and the year end balance was Rs. 290.79 lacs, which are included in sundry creditors Rs. 270.09 lacs & Rs. 20.70 lacs in unsecured loans; d) The aforesaid loans taken were interest free, except from one party year end balance is Rs. 2.13 lacs, so the rate of interest and other terms and conditions of the aforesaid loans taken were prima facie not prejudicial to the interest of the company; and e) Out of the aforesaid loans a sum of Rs. 270.09 lacs, the payment of principal amount of that, however it is informed that there was/is no stipulation, still, in our opinion, are not regular as the same are outstanding since long. Therefore this sum, looking at the financial condition of the company, is, prudently, overdue as the creditor company is a sick industrial undertaking declared by BIFR. For other loans, taken during the year, in the absence of any stipulation, we are not in the position to comment upon the payment of principal amount. (iv) In our opinion and according to the information and explanations given to us, internal control system followed by the management need to be strengthened commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods. During the course of audit, no major weakness has been noticed in these internal controls system. (v) a) The company has not produced the register required to be maintained under section 301 of the Act, for our verification, hence it cannot be said whether the particulars of contracts or arrangements referred to in above mention section to be entered into such register have been so entered; and b) In our opinion and according to the information and explanations given to us, there were no transactions made, exceeding the value of Rs.5 lacs in respect of any party during the year in pursuance of contracts or arrangements, the particulars thereof are required to be entered in the register maintained under section 301 of the Act 1956; (vi) As informed to us, the company has accepted deposit from the public (from a relative of the directors and a firm of relatives of directors), contrary to the directives issued by the Reserve Bank of India and provisions of section 58A of the Companies Act 1956 and Rules framed there under. As informed to us, no order has been passed by the Company Law Board or National Company Law or Reserve Bank of India or any Court or any other Tribunal; (vii) We are informed that the company has no internal audit system; (viii) We are informed that the accounts and records pursuant to the Rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Act, have not been maintained by the company; (ix) a) The company is not regular in depositing with the appropriate authorities undisputed statutory dues including Provident Fund, Employees' State Insurance, Investors Education and Protection Fund, Income-tax, Sales-tax, cess and other material Statutory Dues applicable to it. There were no arrears as at 31st March 2008 for a period of more than six months from the date they became payable except: aa) Particulars Amount provided in the books (Rupees) Employee State Insurance 4264.00 Income tax -TDS 750.00 Gram Panchayat Tax 529062.00 Provident Fund 137198.00 ab) The company has also not credited 'Investors Education and Protection Fund' by unclaimed share application money which on allotment became due for refund, if any, as informed to us that necessary information are not with the company; b) According to the information & explanations given to us, the dues in respect of power charges that have not been deposited with the appropriate authorities on account of dispute and the forum where the disputes are pending are given below:- Name of the Statute Amount Period to which the Forum where (In Rupees) amount relates dispute is pending Gujarat Electricity Board 4147795 1993-94 Civil Judge, Valsad, Senior Division. Income Tax Act, 1956 -(*) AY 2005-2006 The Commissioner (Appeals) of Income Tax (*) Being loss reduced from Rs. 152.08 lacs to Rs. 21.26 lacs (x) The company has incurred cash losses in the year under review and also in the immediately preceding financial year, without considering the relief from secured creditors in interest and principle amount being exceptional item credited to profit and loss account, and its accumulated losses at the end of the year under review are more than fifty per cent of its net worth; (xi) The company has not defaulted in repayments of dues to a financial institution during the year. There is no dues to the banks or debenture- holders; (xii) The company has not granted any loans and advances on the basis of 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 reporting requirements of clause 4(xiii) of the CARO 2003 are not applicable; (xiv) The company is not dealing or trading (except for investments purposes) in shares, securities, debentures and other investments. Accordingly, the reporting requirements of clause 4 (xiv) of the CARO 2003 are not applicable. The company in its own name holds all the investments; (xv) The company has, as informed to us, not given any guarantee for loans taken by others from bank or financial institutions and hence reporting requirements of clause 4( (xv) of the CARO 2003 are not applicable; (xvi) The company has not obtained any term loans during the year and hence reporting requirements of clause 4 (xvi) of the CARO 2003 are not applicable; (xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that due to heavy losses incurred by the company in the year under review and also in earlier years, the funds raised on short term basis have been used for long purposes to the extent of Rs. 264.21 lacs at the end of the year; (xviii) The company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act; (xix) As informed to us, the company has not issued any debentures and hence the reporting requirements of clause 4 (xix) of the CARO 2003 are not applicable; (xx) The company has not raised money through public issue during the year. Hence, reporting requirements of clause 4 (xx) of the CARO 2003 are not applicable; and (xxi) According to representation made to us and to the best of our knowledge and belief, no fraud on or by the company, has been noticed or reported by the company during the course of our audit. For and on behalf of R.S. AGRAWAL & ASSOCIATES Chartered Accountants R.S. Agrawal Partner Membership No. 33216 Mumbai 11th August 2008

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