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Bihar Sponge Iron Ltd.

BSE: 500058 Sector: Metals & Mining
NSE: BIHARSPONG ISIN Code: INE819C01011
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VOLUME 150
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P/E
Mkt Cap.(Rs cr) 15
Buy Price 1.61
Buy Qty 2350.00
Sell Price 1.72
Sell Qty 250.00
OPEN 1.61
CLOSE 1.69
VOLUME 150
52-Week high 3.13
52-Week low 1.40
P/E
Mkt Cap.(Rs cr) 15
Buy Price 1.61
Buy Qty 2350.00
Sell Price 1.72
Sell Qty 250.00

Bihar Sponge Iron Ltd. (BIHARSPONG) - Auditors Report

Company auditors report

to

the members of

BIHAR SPONGE IRON LIMITED

Report on the Financial Statements

We have audited the accompanying financial statements of BIHAR SPONGE IRONLIMITED("the Company") which comprise the Balance Sheet as at 31st March 2016the Statement of Profit and Loss the Cash Flow Statement and a summary of thesignificant accounting policies and other explanatory information for the year then ended.

Management's Responsibility for the Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese financial statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Accounting Standards specified underSection 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatement whether due to fraud orerror.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on ouraudit.

We have taken into account the provisions of the Act the accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified underSection 143(10) of the Act. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the financial statements. The procedures selected depend on theauditor's judgement including the assessment of the risks of material misstatement of thefinancial statements whether due to fraud or error. In making those risk assessments theauditor considers internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating theappropriateness of the accounting policies used and the reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our qualified audit opinion on the financial statements.

Basis for Qualified Opinion

As explained in the Notes to the financial statement the company has not providedunder noted liabilities:

i. Non recognition of liability on account of currency fluctuations on foreign currencyloan and interest thereon (as required under Accounting Standard - 11 Revised) amountingto Rs. 273110 thousands as on 31.03.2016 as provided in the BIFR Scheme dt. 29.07.2004and also confirmed by AAIFR/ Single Bench of Jharkhand High Court Ranchi since thecompany against the order of Single Bench of High court has filed Letters PatentAppellate Jurisdiction (LPA) before the Divisional Bench of High Court of JharkhandRanchi (refer other note no. 3(II) appearing in Annexure 1)

ii. Non recognition penalty of Rs. 21528 thousands recovered by South Eastern CoalFields Ltd. in F.Y 2011-12 on account of short lifting of coal quantity in terms of FuelSupply Agreement (FSA) since the matter has been disputed by the Company under writpetition filed before the Hon'ble High Court of Chhattisgarh (refer other note no 5 ofAnnexure I)

iii. No provision has been made in the books of accounts in respect of the undernoteditems of expense in view of Shutdown of the Plant & Suspension of operations since10th August 2013 as well as other reasons contented by the company:-

a. Interest on unsecured loan taken from Promoters and other parties from 10.08.2013 to31.03.2016(amount unascertained) {refer note 7(i)(a) of Annexure I}.

b. Interest on Soft Loan taken from the Government of Jharkhand under the IndustrialRehabilitation Scheme 2003 amounting to Rs. 135747 thousands from 10.08.2013 to31.03.2016 which is subject to representation for waiver and approval thereof by thelender {refer note 7(i)(b) of Annexure I}.

c. Salaries Wages Allowances Contribution to PF including interest on overdue amountas well as employee benefit expenses except for KMP w.e.f. 10.08.2013 to 31.03.2016(amount unascertained) {refer note 7(i)(c) of Annexure I}.

d. Interest on unpaid statutory dues such as P.F. and Family Pension Fund as per therespective acts(amount unascertained){refer note 7(i)(d)of Annexure I}. Taking intoconsideration non provision of likely liabilities mentioned paragraph i ii and iii(b)above

a. Loss for the year would have been more by Rs. 430385 thousands as compared to thedisclosed loss of Rs. 58706 thousands.

b. Accumulated losses would have been Rs.2809415 thousands as compared to disclosedlosses of Rs. 2379030 thousands.

c. The above losses is however subject to ascertainment of liabilities as mentioned inPara iii (a) (c) and (d)as above.

Qualified Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matter described in the Basis of QualifiedOpinion paragraph above the aforesaid financial statements give the information requiredby the Act in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India:

a. in the case of the Balance Sheet of the state of affairs of the Company as at March312016;

b. in the case of the Statement of Profit and Loss of the loss for the year ended onthat date; and

c. in the case of the Cash Flow Statement of the cash flows for the year ended on thatdate.

Emphasis Matters

We draw attention to Note No. 3 of Part III of Annexure 1 of the financial statement'on Rehabilitation Scheme of the Company' the management has explained its reasons forpreparing financial statements on ‘going concern' basis. As at 31.03.2016 theaccumulated loss exceeds the net worth of the company the current liabilities exceed thecurrent assets. The company's operation is under shutdown and production stands suspendedsince over last two & half years. due to non-availabilty of Coal and Steel industrybeing under stress globally leading to material uncertainty that may cast significantdoubt about company's ability to continue as a going concern. However it is stated by themanagement that with reforms being carried out by the new Government there seems revivalof steel industry per se in recent months and business sentiments have improved changingthe business scenario towards good. The management is taking up necessary steps for tie-upof the source of coal for supply of sufficient quantity and quality of coal. The companyis also making alterations and updation in the Modified Draft Rehabilitation Schemesubmitted to BIFR in December 2012 for considerations of further reliefs and concessionas well as financial restructuring so as to make the company economically viable by wipingout the past accumulated loss and the company to operate in normal course of its business.

Our opinion is not modified in respect of this matter since the company is under BIFRand that agency is still to take a decision as to rehabilitate the company.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Companies Act 2013 we give in the Annexure A statement on the matters specified inparagraphs 3 and 4 of the Order to the extent applicable to the company.

2. As required by section 143(3) of the Act we report that:

a. We have sought and except the matters described in the Basis for Qualified Opinionparagraph obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purpose of our audit;

b. Except for the possible effects of the matter described in the Basis for QualifiedOpinion Paragraph above in our opinion proper books of account as required by law havebeen 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 Cash Flow Statement dealtwith by this Report are in agreement with the books of account;

d. Except for the possible effects of the matter described in the Basis of QualifiedOpinion paragraph above in our opinion the aforesaid financial statements comply withthe Accounting Standards specified under section 133 of the Act read with rule 7 of theCompanies (Accounts) Rules 2014.

e. The matter described in the basis for Qualified Opinion paragraph above in ouropinion may have an adverse effect on the functioning of the company.

f. On the basis of written representations received from the Directors as on 31stMarch 2016 taken on record by the Board of Directors we report that none of directors isdisqualified as on 31st March2016 from being appointed as a director in terms of section164(2) of the Act.

g. The qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above.

h. The company has laid down adequate internal financial controls over financialreporting system however in some of areas the internal financial control over financialreporting system is not operating effectiveness of such controls refer to our separatereport in Annexure ‘B'.

i. With respect to the other matters to be included in the Auditor's Report inaccordance with rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:

i. The company has disclosed the possible impact of pending litigations on itsfinancial position in its financial statements -Refer other notes III of Annexure I (1)(i) to (xii) to the financial statements;

ii. The company did not have any long term contracts including derivative contracts forwhich there were any material foreseeable losses.

iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the company.

For Thakur Vaidyanath Aiyar & Co.
Chartered Accountants
[FRNo. 000038N]
M.P. Thakur
Place : New Delhi (Partner)
Dated :25th May 2016 Membership No. 052473

Annexure A referred to in paragraph 1 under the heading "Report on Other Legal andRegulatory Requirements" of independent Auditors' Report of even date on thefinancial statements for the year ended March 312016.

i) Fixed Assets

a) The Company has maintained proper records showing full particulars includingquantitative details and situation of its fixed assets.

b) The Company has a programme of verifying all of the fixed assets over a period ofthree years having regard to the size of the Company and nature of assets which in ouropinion is reasonable. However no physical verification of Fixed Asset have been carriedout by the management since last three years i.e. F.Y. 2013-14 2014-15 & 2015-16 asthe plant is under shutdown and suspension of production hence discrepancies if anybetween the physical balance and book balance and their adjustment in the books ofaccounts at the year end has not been dealt in the books of accounts.

c) The title deeds of immovable properties are held in the name of the company exceptin respect of the freehold land having value of Rs 593 thousands (Previous year Rs 593thousand) for which registration in favour of the company is pending for want of mutationfrom competent authorities. The gross and net carrying value of such fixed asset as on31.03.2016 is Rs 3100 thousands.

ii) inventories

The stock of raw materials stores & spare parts and finished goods have not beenphysically verified by the management at reasonable intervals during the year since theplant has been under shut down and operations suspended w.e.f. 09.08.2013.Since nophysical verification of inventories were carried out during the end of last threefinancial year the discrepancies between book balance & physical balance if any haveneither been ascertained nor the same have been properly dealt in the books of accounts.

iii) Transactions with parties u/s 189 of the Companies Act 2013

The company has not granted any loans secured or unsecured to companies firms LimitedLiability Partnerships or other parties during the year or in earlier years covered in theregister maintained under section 189 of the Companies Act 2013 as such para (a) (b)& (c) of clause are not applicable.

iv) Loans investments Guaranties & Securities etc. covered u/s 185 & 186 ofthe Act.

The company has neither given any loans investments guarantees and security coveredunder section 185 and 186 of the Act during the year under audit nor in earlier year andhence the clause is not applicable.

v) Deposits

The Company has not accepted any deposits during the year or in earlier years which arecovered under the directives issued by the Reserve Bank of India and the provisions ofsection 73 to 76 or any other relevant provisions of the Companies Act 2013 and the rulesframed there under.

vi) Cost Records

The maintenance of cost records has been specified by the Central Government under subsection (1) of Section 148 of the Companies Act 2013. Since there have been no operationsduring the Financial year 2015-16 no records have been made & maintained by thecompany.

vii) Statutory Dues

a) According to the books and records examined by us and information and explanationsgiven to us the company is not regular in depositing the undisputed statutory duesincluding provident fund employees' state insurance income-tax (TDS & TCS)sales-tax service tax cess & any other applicable statutory dues to the appropriateauthorities during the year however the company has been regular in payment of exciseduty and JVAT Liability on Sale of Scrap during the year. The arrears on account of suchstatutory dues as at the end of the financial year 31st March 2016 for a period of morethan six months from the date they become payable are Service Tax: Rs 2740thousandsProvident fund: Rs 6350 thousands: Family Pension Scheme: Rs. 1221 thousands Income Tax(TDS/ TCS) Rs. 1130 thousands Electricity Duty: Rs. 320 thousands and Cess Rs.1thousand.

b) The details of dues of income tax or sales tax or service tax or duty of customs orduty of excise or value added tax etc. which have not been deposited on account ofdispute are given hereunder:

Name of the Statute Forum where Dispute pending Nature of dues Period of Dispute Amount Rs. Thousand
1. The Customs Act 1962 CESTAT Kolkata Custom Duty & Demurrage 1981-92 10427
Charges and interest on imported Stores & spare parts 1994-95 5032
2. JVAT Act 2005 Jt. Commissioner of Commercial Taxes (Appeals) Jamshedpur Tax on non-submission of JVAT Forms 2006-07 2397
3. The C.S.T Act 1956 Jt. Commissioner of Commercial Taxes (Appeals) JSR. Tax on non-submission of 'C' Forms 2006-07 311
4. JVAT Act 2005 Jt. Commissioner of Commercial Taxes (Appeals) Jsr. Tax on JVAT 2010-11 5879
5. JVAT Act 2005 (Amt. paid on appeal Rs.588 thousands). Jt. Comm. of Commercial Taxes (Appeals) Tax on JVAT. 2010-11 24786
Jsr. (Amt. paid on appeal Rs.1500 thousands on 19.10.2012)
6. JVAT Act 2005 Commissioner of Commercial Taxes Jharkhand Ranchi. Tax on JVAT. 2010-11 8140
7. JVAT Act 2005 Commissioner of Commercial Taxes Jharkhand Ranchi. Central Sales Tax 2010-11 3096
8. JVAT Act 2005 Commissioner of Commercial Taxes Jharkhand Ranchi. Central Sales Tax 2011-12 70549
9. JVAT Act 2005 Commissioner of Commercial Taxes Jharkhand Ranchi. Tax on JVAT. 2011-12 13977
10. Income Tax Act 1961 ITAT Patna (in the process for filing) Short deduction of tax at source and collection of Tax at Source with interest and penalty raised by DCIT JSR and confirmed by the commissioner of Income Tax (Appeals) JSR on 28-03-2016. A.Y.2004-05 2715
A.Y 2005-06 2880
A.Y 2008-09 2647

viii) The company has not defaulted in repayment of loans to a financial institutions& banks except the liability on account of currency fluctuation on foreign currencyloan and interest thereon amounting to Rs 273110 thousands disputed by the company andpending before the Hon'ble High Court Jharkhand Ranchi. The soft loan obtained underRehabilitation Scheme 2003 from Government of Jharkhand amounting to Rs 325000thousands principal and interest of Rs 410366 thousands (inclusive of unprovidedinterest of Rs 135747 thousands)which was due after 30.09.2011 as per BIFR Scheme {alsorefer note 3(f)}. There is no debenture in the Company.

ix) The Company has not raised any money by way of initial public offer or furtherpublic offer (including debts instruments) and term loans and hence the application ofsuch money for the specified purposes is not applicable.

x) Based upon the audit procedures performed and on the basis of information andexplanations provided by the management we report that no fraud by the company or anyfraud on the company by its officers or employees has been noticed or reported during theyear under audit.

xi) The managerial remuneration has been paid or provided in accordance with therequisite approvals mandated by the provisions of section 197 read with Schedule V to theCompanies Act 2013.

xii) The company is not a Nidhi Company and hence the clause is not applicable.

xiii) According to the records of the company and information and explanation providedto us all transactions with the related parties are in compliance with sections 177 and188 of Companies Act 2013 where applicable and the details have been disclosed in theFinancial Statements as required by the applicable accounting standards.

xiv) The company has made not any preferential allotment or private placement of sharesor fully or partly convertible debentures during the year under review as such the clauseis not applicable to the company.

xv) As per the records of the company and information and explanation provided to usthe company has not entered into any non-cash transactions with directors or personsconnected with him and hence the clause is not applicable.

xvi) The company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.

For Thakur Vaidyanath Aiyar & Co.
Chartered Accountants
[FRNo. 000038N]
M.P. Thakur
Place : New Delhi (Partner)
Dated :25th May 2016 Membership No. 052473

Annexure ‘B' to independent Auditors' Report

Referred to in paragraph (2)(h) under the head ‘Report on Other Legal andRegulatory Requirements' of the Independent Auditors' Report of even date to the membersof

Bihar Sponge Iron Ltd. on the financial statements for the year ended March 312016

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act ("the Act")

1. We have audited the internal financial controls over financial reporting of BiharSponge Iron Ltd. ("the Company") as of March 312016 in conjunction with ouraudit of the financial statements of the Company for the year ended on that date.

Management's Responsibility for internal Financial Controls

2. The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India (ICAI). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Act.

Auditors' Responsibility

3. Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting(the "Guidance Note") and the Standards on Auditing deemed to be prescribedunder section 143(10) of the Act to the extent applicable to an audit of internalfinancial controls both applicable to an audit of internal financial controls and bothissued by the ICAI. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.

4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemover financial reporting.

Process of internal Financial Controls Over Financial Reporting

6. A company's internal financial control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.

inherent Limitations of internal Financial Controls Over Financial Reporting

7. Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

8. According to the information and explanation given to us and based on our audit thefollowing material weakness have been identified as at March 312016:

The company's internal control system with respect to physical verification of Stores& Spares parts and Fixed Assets have not been operated effectively at the year endMarch 312016 since neither physical verification was carried out nor adjustment fordiscrepancies (including deterioration/ obsolesce) if any between the physical balanceand book balance have been dealt in the books of accounts.

In our opinion because of the possible effects of the material weakness as describedabove on the achievements of the objectives of internal control criteria the company hasnot maintained adequate internal financial control over financial reporting and suchinternal financial controls over financial reporting were not operating effectively withrespect to inventories and fixed assets as on March 312016 ; and

We have considered the material weaknesses identified and reported above in determiningthe nature timing and extent of audit test applied in our audit of the year ended March312016 financial statements of the company and these material weaknesses don't affect ouropinion on the financial statements of the company.

For Thakur Vaidyanath Aiyar & Co.
Chartered Accountants
[FRNo. 000038N]
M.P. Thakur
Place : New Delhi (Partner)
Dated :25th May 2016 Membership No. 052473