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Design Auto Systems Ltd.

BSE: 520125 Sector: Auto
NSE: N.A. ISIN Code: INE993B01016
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Design Auto Systems Ltd. (DESIGNAUTOSYS) - Auditors Report

Company auditors report

DESIGN AUTO SYSTEMS LIMITED ANNUAL REPORT 2006-2007 AUDITORS' REPORT TO THE MEMBERS OF DESIGN AUTO SYSTEMS LIMITED We have audited the attached Balance Sheet of DESIGN AUTO SYSTEMS LIMITED as at 31st March, 2007 Profit & Loss Account and also the Cash Flow Statement for the period from 01.07.2006 to 31.03.2007 annexed there to. 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. 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 test basis, evidence supporting the amounts and disclosures in 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. 1. As required by the Companies (Auditor's Report) (Amendment) Order, 2004, issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956, we annex hereto a statement on the matters specified in paragraphs 4 and 5 of the said order. 2. Further to our comments in the Annexure referred to in paragraph 1 above: a) 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; b) In our opinion, proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of these books; c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts; d) In our opinion the said Profit & Loss Account, the Balance Sheet and Cash Flow Statement comply with the accounting standards referred to in Section 211 (3C) of the Companies Act, 1956 except in cash of Accounting Standard-15 and recording accounting of retirement benefits; (Refer note 1 (vi) of Sch.18) & Accounting Standard-13 recording accounting of investments; (Refer note 1(iv) of Sch. 18), the decline in value of investments other than temporary, if any, could not be ascertained in respect of quoted non-trade and unquoted non trade equity shares for want of quotations/ desired information. e) On the basis of written representations received from the Directors of the Company as at 31st March, 2007 & taken on record by the Board of Directors, we report that no Director is disqualified from being appointed as Director of the Company under clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; and f) The balances of Sundry Debtors, Sundry Creditors and Loans and Advances are subject to confirmation from the respective parties (refer note No. 12 of schedule '18' of Notes on Accounts). In our opinion sundry Debtors amounting to Rs.9257748 and Advances of Rs.2042171 are doubtful of recovery. Hence loss for the year is understated by Rs.11299919 and the Sundry Debtors are overstated by Rs. 9257748 and Advances are overstated by Rs. 2042171. g) The company is continuing its corporate guarantee of Rs.150 Lacs to Bank of Baroda against loans to Design Auto Distributions Ltd., without obtaining prior permission from Central Government as per the provisions of section 295 of Companies Act, 1956. The Company is continuing advances to Sterling Auto Pvt. Ltd. outstanding at the year end of Rs. 1957038, in which Mr. Sarvesh Garg is a Director, without obtaining prior approval from Central Government as per the provisions of section 295 of Companies Act, 1956. h) As per terms and conditions of CDR Package the company is liable for payment of interest sacrifice amount, the payment of which will due at the end of CDR period (Refer Note No 6 of Notes on Accounts in Schedule '18'). In our opinion the liability is crystallised on year to year basis within the CDR period. The company has not made provision for interest sacrifice amount for the period of Rs. 144.00 Lacs in the accounts and total amount remains unprovided Rs. 804.74 Lacs. Therefore the Loss for the year is understated by Rs.144.00 Lacs and Secured Loans are understated by Rs. 804.74 Lacs. i) As per the modified CDR package, the provision for differential interest of IDBI portion of FITL II loan was required to be made but not made by the company. (Refer note no. 7 of notes on accounts of schedule-18). The company has estimated the amount of provision at Rs. 3548311, therefore the loss for the year & secured loans are understated by Rs.3548311. j) In our opinion and to the best of our information and according to the explanations given to us, the said accounts read with the notes thereon in Schedule No. 18 give the information required by the Companies Act, 1956, in the manner so required and subject to the remarks in para (f) to (i) give a true and fair view: i) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2007, and; ii) In the case of Profit & Loss Account, of the Loss for the period ended on that date. iii) In the case of Cash Flow Statement, of the cash flows for the period ended on that date. For S.N. KABRA & COMPANY Chartered Accountants S.N. KABRA Proprietor Place: Indore Date : 12th September, 2007 ANNEXURE TO AUDITORS REPORT 1. (a) The Company has maintained proper, records showing full particulars including quantitative details and situation of its fixed assets. (However it has not been updated properly. (b) We have been informed that the fixed assets of the Company are physically verified by the Management according to a phased program designed to cover all the items at reasonable interval, which in our opinion, is reasonable having regard to the size of company and the nature of its assets, and no material discrepancies were noticed on such verification. (c) During the period no substantial parts of fixed assets have been disposed off by the company. 2.(a) The inventory has been physically verified during the period by the management. In our opinion the frequency of verification is reasonable. (b) In our opinion, the procedures of physical verification of inventory followed by the Management are reasonable and adequate in relation to the size of the Company and nature of its business. (c) The Company is maintaining proper records of inventory. The discrepancies in the physical stocks and the book stock noticed on physical verification as mentioned in paragraph 2(a) above were not material. 3. (a) As per the information & explanation given to us and the records produced to us for our verification the company/has granted unsecured loan to a company covered in the register maintained under section of the Companies Act, 1956. The maximum amount involved during the period was Rs.1957038 and closing balance was same. (b) In our opinion, the rate of interest and other terms and conditions on which loan have been granted to Companies, Firms or other parties listed in the register maintained u/s 301 of the Companies Act, 1956 are not prima facie prejudicial to the interest of the company except the loan of Rs.1957038 given as above. (c) In respect of the aforesaid loans, the company is regular in receiving the principal amount as stipulated and has been regular in receiving interest, wherever applicable. (d) In respect of the aforesaid loans, there is no overdue amount more than Rupees One Lakh from the parties listed in register maintained u/s 301 of the Companies Act, 1956 except in case of one company mentioned above. (e) As per the information & explanation given to us, and the records produced to us for our verification the Company has taken interest free unsecured loan from two Companies & one other party covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 21121442 and the year-end balance was Rs.20760192. (f) In our opinion, other terms and conditions on which unsecured loans have been taken from Companies, Firms or other parties listed in the register maintained u/s 301 of the Companies Act, 1956 are not prima facie prejudicial to the interest of the company. (g) In respect of the aforesaid loans, the company is regular in repaying the principal amounts as stipulated and has been regular in payment of interest, where applicable. The parties are repaying the principal amounts as stipulated and are also regular in payment of interest, where applicable. 4. In our opinion, and according to the information and explanations given to us there are internal control procedures with regard to purchase of inventory, fixed assets and with regard to the sale of goods and services and the same needs to be further strengthened to make them commensurate with the size of the Company and nature of its business. 5. (a) According to the information & explanation given to us, we are of the opinion that the provisions of Section 58A of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975, were applicable with regard to the deposits accepted by it from the public. Since the Company has not defaulted in repayments of deposits, compliance of Section 58AA or obtaining any order from the National Company Law Tribunal, does not arise. 6. In our opinion, the Company has an internal audit system but the same needs to be improved further to make them commensurate with its increasing size and nature of its business. 7. As per the information and explanation given to us, maintenance of cost records has not been prescribed by the Central Government under Section 209 (1)(d) of the Companies Act, 1956 for the products manufactured by the Company. 8. According to the books and records as produced and examined by us in accordance with generally accepted auditing practices in India and also based on Management representations, (undisputed statutory dues) in respect of Provident Fund, Employees State Insurance, Investor Education Protection Fund, Income Tax, Wealth Tax, Sales Tax, Excise Duty, Custom Duty, Cess and other material statutory dues have generally been regularly deposited by the Company during the year with the appropriate authorities in India except following Dues. Statutes Nature of demand Amount (In Rs.) Period Sales tax Tax/interest/penalty 947404 2001-02 Provident Fund Employer & Employee Contribution 3488891 2006-07 FBT Tax Provision 362000 2005-06 VAT Taxes on Sales 3725621 2005-07 9. According to the records of the Company and the information and explanation given to us upon our enquiries in this regards disputed dues in respect of Sales tax, Company Law and Income tax unpaid as at the last day of the period, are as follows: Statutes Nature of demand Forums Amount (In Rs.) Period (i) Sales tax Tax/Interest/Penalty Tribunal 3214200 1998-99 Tax/Interest/Penalty Tribunal 627300 1999-00 (ii) Company Additional fees ROC, Law M.P. 2688944 2001-02 (iii) Income Tax Tax ITAT 128290 1994-95 10. In our opinion the accumulated losses of the company are not more than 50% of its net worth The Company has incurred the cash losses during the period amounting to Rs.6294884 and it has also incurred cash loss of Rs. 41714299 in the immediately preceding financial period. 11. According to the records of the company it has not defaulted in repayment of its dues to any financial institution or bank during the period except the dues of IIBI amounting Rs. 14.69 Lacs. 12. The Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities. 13. In our opinion, considering the nature of activities carried on by the Company during the period, the provisions of any special statute applicable to chit fund/ nidhi /mutual benefit fund/ societies are not applicable to it. 14. The Company has not dealt or traded in shares , securities, debentures or other investments during the period but sold certain Shares held as investment. 15. In our opinion, and according to the information and explanations given to us the Company has given Corporate guarantee for Working Capital loans taken by Design Auto Distributions Limited from banks, terms and conditions whereof are not prejudicial to the interest of the company. 16. According to the information & explanation given to us the Company has not obtained any term loan during the year under review. 17. According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, short term funds amounting Rs. 133.74 Lacs, have been invested in creation of Fixed Assets. 18. The Company has not raised any money by public issue during the period. 19. As per the information and explanations given to us and on the basis of examination of records, no material fraud on or by the Company was noticed or reported during the period. For S.N. KABRA & CO Chartered Accountants Place: Indore S.N. KABRA Date : 12th September, 2007 Proprietor