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CT Cotton Yarn Ltd.

BSE: 500094 Sector: Industrials
NSE: CTCOTTON ISIN Code: INE107D01019
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CT Cotton Yarn Ltd. (CTCOTTON) - Auditors Report

Company auditors report

CT COTTON YARN LIMITED ANNUAL REPORT 2007-2008 AUDITORS' REPORT To, The Members of CT Cotton Yarn Limited 1. We have audited the attached Balance Sheet of CT Cotton Yarn Limited as at 31st March 2008 and also the Profit & Loss Account for the period ended 31st March 2008 (comprised of fifteen months) annexed thereto, and the cash flow statement for the period ended on that date. These financial statements are the sole responsibility of management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. 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 misstatements. 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 statements presentation. We believe that our audit provides a reasonable basis for our opinion. 2. As required by the Companies (Auditor's Report) Order, 2003 as amended by the Companies (Auditor's Report) (Amendment) Order, 2004 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, We give in the Annexure a statement on the matter specified in paragraph 4 and 5 of said order. 3. Further to our comments referred to in paragraph 2 above, we report and invite attention as under: (a) (i) The Company has incurred during the year loss of Rs. 56,388 thousand resulting in accumulated losses of Rs.1,783,719 thousand as at 31st March 2008, which has significantly eroded the net worth of the Company, which prima facie raises substantial doubts about the management's ability to continue as a going concern. (ii) The company has suspended providing of Interest Penal Interest, Penal charges & liquidated damages payable to bankers/Financial Institutions with effect from 1st April 2005. No provision for Interest/Penal Interest, Penal charges & liquidated damages payable to bankers/Financial Institutions has been made during the period covered under audit for delay & default in repayment of their loans. (Amount unascertained) (iii) The bank statements of various accounts including Current Accounts (regarded as non-operative) are not available with the company for any part of the year. The resultant impact thereof on the accounts is presently unascertained. (iv) In the absence of necessary information, we are. not able to comment on the difference amount of Rs. 256 thousand in respect of dividend payable pertaining to earlier years as appearing in the books of accounts of the company. Further, the unclaimed dividend of Rs. 892 thousand transferred to UCO Bank (Unclaimed dividend account) has not been transferred to the general revenue account of the Central Government Account in accordance with the provisions of section 205A of the Companies Act, 1956. (v) Claim for interest recoverable and quality claims of Rs. 39,032 thousand lodged against suppliers and taken into income in earlier years. As per the Management, these claims are under settlement and the confirmation from supplier has not been received so far, in view of this, these claims are contingent in nature. (vi) The company did not take into account the sales tax (both CST & Local) demand including penalty & interest imposed by the Asst. Commissioner Commercial Tax, Gwalior vide his order dated 29th January 2007 for the Assessment Year 2003-2004 for an amount of Rs.15,635 thousands as in the opinion of the management the same is applicable and the company will contest the same legally through filing of Appeals. Hence the same is contingent in nature. (vii) The Company has defaulted in the repayment of dues pertaining to the IFCI Ltd. as a result of which all the Fixed Assets of the Company has been acquired by the IFCI Ltd. vide panchnama dated 13.03.2008 due to the unascertainment of the liability payable to the IFCI Ltd. 4. We further report that if the observation made by us in paragraph 3(a)(v) & (vi) above is considered, the accumulated losses would have been Rs.1,838,386 thousands (as against the reported figure of Rs.1,783,719 thousands). 5. On an overall consideration and in view of remarks made in Para 3 above and further to our comments in the annexure referred to in paragraph 2 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 accounts as required by law have been kept by the company so far as appears from our examination of the said books. iii) The Balance sheet and Profit & Loss Account dealt with this report are in agreement with the books of account. iv) In our opinion, Balance Sheet and Profit & Loss Account comply with accounting standards as referred to in section 211(3C) of the Companies Act, 1956. v) We had requested directors to give written representations regarding their eligibility for appointment as Director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956 but no such representation was received by us and therefore we are unable to express our opinion on the subject. vi) In our opinion and to the best of our information and according to the explanations given to us, the accounts read together with the notes and accounting policies given in Schedule 16 gives the information required by the Companies Act, 1956 in the manner so required and gives a true and fair view subject to the point no. 3 of this report. 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 31st March, 2008. c) In the case of Cash Flow Statement, of the Cash Flow for the year ended on that date. For Deepak Gulati & Associates Chartered Accountants Sd/- Place : New Delhi Deepak Gulati Date : 02.09.2008 Proprietor M.No. 086403 ANNEXURE TO THE AUDITOR'S REPORT (Annexure referred to in paragraph 2 of our Report of even date) (1) In respect of its fixed assets: (a) The company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets on the basis of available information. (b) As explained to us, the fixed assets have been physically verified by the management during the year in a phased periodical manner, which in our opinion is reasonable, having regard to the size of the Company and nature of its assets. No material discrepancies were noticed on such physical verification. (c) During the year whole of the Companies fixed assets have been taken over by the principal financer IFCI Ltd. as per panchnama dated 13.03.2008 and hence on 31.03.2008 there were no assets in physical possession of the Company. (2) In respect of its inventories: (a) As explained to us, inventories have been physically verified by the management at regular intervals during the year, however as on 31st March 2008 the closing stock in hand of the company reduced to Nil as the Company had sold all the stocks lying with the Company. (b) In our opinion and according to the information and explanations given to us, 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) The Company has maintained proper records of inventories. As explained to us, there were no material discrepancies noticed on physical verification of inventory as compared to the books and records. (3) (a) The company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained u/s 301 of the Companies Act, 1956. (b) The company had taken unsecured loan from one company covered in the register maintained u/s 301 of the Companies Act, 1956 to finance the daily operations of the company without interest. The maximum amount involved during that period was Rs.127,663 thousands. (c) In our opinion the rate of interest and other terms & conditions of above loans are not, prima facie, prejudicial to the interest of the Company. (d) The Company is regular in repaying the principle amounts as stipulated and has been regular in payment of interest. (4) 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, for the purchase of inventory and fixed assets, sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls. (5) (a) According to the information and explanations given to us and on the basis of such checks as considered appropriate we are of the opinion that the Company has entered all the transactions required to be entered in the register maintained u/s 301 of the Companies Act, 1956. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements required to be entered in the registered maintained under section 301 of the Companies Act, 1956 has been made at a price which is reasonable having regard to the prevailing market prices at that time. However during the period covered under audit the total value of transactions with any single party covered under section 297 & 299 of the Companies Act, 1956 didn't exceed the threshold limit of Rs.5,00,000/-. (6) The Company has not accepted any deposits from the public and hence directives issued by the Reserve Bank of India and the provisions of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and rules framed there under are not applicable for the year under audit. (7) In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. (8) The Central Government has prescribed maintenance of Cost Records under section 209(1)(d) of the Companies Act, 1956 in respect of certain 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. (9) (a) According to the records of the Company, the Company has been regular in depositing undisputed statutory dues including Income-Tax, Sales-tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other statutory dues as are applicable to the company except Employees' Provident Fund, Employees' State Insurance & Central Sales Tax dues that have not been regularly deposited with the appropriate authorities. According to the information and explanations given to us and according to the records of the Company, undisputed amounts payable in respect of the ESI, EPF, CST inclusive of Entry Tax outstanding as at 31st March 2008 for a period of more than six months from the date of becoming payable were Rs.3,625 thousand, Rs. 7,027 thousand, 5,141 thousand respectively. (b) The disputed statutory dues aggregating to IRS. 115,656 thousand, which have riot been deposited on account of matters pending before, appropriate authorities are as under: Name of the Assessment Nature of the Dues Forum where Amount Statute Year Dispute is (Rs. In pending thousand) Income 2002-03 Penalty u/s 271(1)(c) ITAT, New Delhi 3408 Tax Act, 1961 2003-04 Assessment CIT(A) 90000 u/s 143 (3) Central Excise 1995 Excise Duty & Case referred 1698 Act, 1944 Penalty back by Supreme Court to CESTAT M.P.Commercial - Sales Tax Asst. Comm 5000 Tax Act, 1994 (Commercial) M.P.Commercial 1998-99 Sales Tax Asst.Comm 2665 Tax Act, 1994 1999-00 Sales Tax Asst.Comm 3016 2001-02 Sales Tax Asst.Comm 776 2002-03 Sales Tax Add.Comm 7242 Central Excise Custom Duty CESTAT, N.Delhi 1851 Act, 1944 (10) According to the information and explanations given to us, the accumulated losses at the end of the financial year as on 31st March 2008 are Rs.1,783,719 thousands against its Share Capital Rs. 193,900 thousand. Therefore the accumulated losses exceed the net worth of the Company. The company has incurred cash losses of RS. 16,400 thousands for the year ended as on 31st March 2008. It also has incurred cash losses of Rs.34100 thousands for the year ended as on 31st December 2006. (11) As per the information & explanations given to us, and as per balance sheet of the Company as on 31st March 2008, the company has defaulted in repayment of dues to Banks/ FI'S including IDBI, ICICI and IFCI. It also has defaulted in the repayment of working capital loans including Packing credit and overdrafts of Canara Bank, Bank of Nova Scotia, PNB and SBI. The period and amount of default are as follows: FIS / Banks Nature of Finance Period of Amount Default (in `000) IDBI Term Loan 7 Years 405600* ICICI Term Loan 7 Years 181800* IFCI Term Loan 7 Years 808700* Canara Bank Term Loan 7 Years 10200* Canara Bank Packing Credit 6 Years 134700* Bank of Nova Scotia Packing Credit 6 Years 68900* S.B.I. Packing Credit 6 Years 99800* P.N.B. Packing Credit 6 Years 89100* Bank of Nova Scotia Over Draft 6 Years 1200 S.B.I. Over Draft 6 Years 2200 P.N.B. Over Draft 6 Years 10300 All the above balances are subject to Banks / FI's confirmation. * These figures are as per estimation made by the management without corresponding confirmation for the respective Bankers/FI's. The interest figures are only up to 31st March 2005.The management decided to dispense with providing interest on all loans accounts including working capital loans from 1st April 2005. (12) In our opinion and according to the information and explanation given to us, no loans and advances have been granted by the Company on the basis of security by way of pledge of shares, debentures and other securities. (13) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, clause 4(xiii) of the Companies (Auditor's Report) (Amendment) Order, 2004 is not applicable to the Company. (14) This clause is not applicable to the company. (15) According to the information and explanations given to us, the company has not given any guarantee for loans taken by others from banks or financial institutions. (16) According to the information and explanations given to us, the Company has not obtained any term loan during the period covered under audit. (17) On the basis of review of utilization of fund, which is based on overall examination of the Balance Sheet of the Company as at 31st March 2008, related information as made available to us and as represented to us, we are of the opinion that no short terms funds raised by the company has been utilized for long term investment purposes. (18) During the year, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Companies Act, 1956. (19) No debentures were issued by the company for the financial year ended 31st March, 2008. (20) During the period covered by our report, the Company has not raised any money by way of public issue during the year. (21) In our opinion and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year that causes the financial statements to be materially misstated. For Deepak Gulati & Associates Chartered Accountants Sd/- Deepak Gulati Proprietor M.No. 086403 Place : New Delhi Date : 02.09.2008

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