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Hindustan Organic Chemicals Ltd.

BSE: 500449 Sector: Industrials
NSE: HOCL ISIN Code: INE048A01011
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VOLUME 41906
52-Week high 35.40
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P/E
Mkt Cap.(Rs cr) 145
Buy Price 21.55
Buy Qty 4.00
Sell Price 0.00
Sell Qty 0.00
OPEN 21.30
CLOSE 21.30
VOLUME 41906
52-Week high 35.40
52-Week low 16.55
P/E
Mkt Cap.(Rs cr) 145
Buy Price 21.55
Buy Qty 4.00
Sell Price 0.00
Sell Qty 0.00

Hindustan Organic Chemicals Ltd. (HOCL) - Auditors Report

Company auditors report

INDEPENDENT AUDITOR’S REPORT

To the Members of HINDUSTAN ORGANIC CHEMICALS LIMITED Report on the FinancialStatements

We have audited the accompanying Standalone financial statements of HINDUSTAN ORGANICCHEMICALS LIMITED ("the Company") which comprise the Balance Sheet as at March31 2016 the Statement of Profit and Loss Cash Flow Statement for the year then endedand a summary of significant accounting policies and other explanatory information inwhich are incorporated the returns for the year ended on that date audited by theIndependent branch auditors of the company’s unit at Kochi.

Management’s Responsibility for the Standalone 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 Standalone financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Company in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecified under Section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these Standalone financial statementsbased on our audit. We have taken into account the provisions of the Act the accountingand auditing standards and matters which are required to be included in the audit reportunder the provisions 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 judgment including the assessment of the risks of material misstatement ofthe financial statements whether due to fraud or error. In making those risk assessmentsthe auditor considers internal financial control relevant to the Company’spreparation of the financial statements that give a true and fair view in order to designaudit procedures that are appropriate in the circumstances but not for the purpose ofexpressing an opinion on whether the Company has in place an adequate internal financialcontrols system over financial reporting and the operating effectiveness of such controls.An audit also includes evaluating the appropriateness of the accounting policies used andthe reasonableness of the accounting estimates made by the Company’s Directors aswell as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit qualified opinion on the Standalone financial statementsBasis for Qualified Opinion

(A) No provisions have been made in the standalone financial statements for thefollowing amounts (refer respective notes in the notes to the financial statements)

(i) Penal Interest of Rs. 1475.51 lakhs (previous year ended 31s March 2015Rs. 1268.87 lakhs) on overdue loan from Government of India.

(ii) Loss on account of Misappropriation of Company’s funds amounting to Rs. 64.81lakhs (Previous year ended 31s March 2015 Rs. 64.81 lakhs) pending finalreport from CBI and outcome of the civil suit.

(iii) Liability of wage revision for the period 1.1.1997 to 31.12.2000 Rs. 1887.79lakhs (previous year ended 31s March 2015 Rs.1887.79 lakhs) at Rasayani unit

(iv) Liability of the wage Revision for the period 1.1.2007 to 31.3.2008 Rs.161.55lakhs (previous year ended 31 March 2015 Rs.161.55 lakhs) to the officers and Rs.148.26lakhs (previous year ended 31s March 2015 Rs.148.26 lakhs) to staff at Rasayaniunit.

The above first four matters were also qualified in Audit report on the financialstatements for the year ended March 31 2015.

Had the above effects of the items referred above been considered the loss for theyear would have been higher by 3737.92 Lakhs (Previous year ended 31s march2015 - Rs 3531.28 Lakhs)

(B) In absence of adequate profit Redemption reserve for redemption of 25% ofPreference Shares Capital amounting to Rs. 6750 lacs due for redemption during thefinancial year 2015-16 is not provided in the books.

(C) The Balances of trade payables loans & advances and other current assets andother debit/ credit balances are pending for confirmations and reconciliations (note no.43). The effect of the same on the loss is not ascertainable. This matter was alsoqualified in Audit report on the financial statements for the year ended March 31 2015.

(D) In absence of current status of pending litigations and financial impact thereofliabilities under such cases are not ascertainable and the foreseeable loss of the same isnot considered while preparing financial results.

(E) The Kochi unit of the company has entered into long term supply contract with GasAuthority of India (GAIL) for supply of Liquefied Natural Gas in 2011 for the period of 15years ending in 2026. Material foreseeable losses on this contract are not quantifiable inthe current scenario.

(F) The Company has not provided any provision during the year for diminution in thevalue of investments in subsidiaries and also no provision is made against overdue ofloans given to them since long.

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 matters described in the Basis for QualifiedOpinion paragraph above the aforesaid Standalone financial statements give theinformation required by the Act in the manner so required gives a true & fair view inconformity with the accounting principles generally accepted in India of the state ofaffairs of the company as at 31st march 2016 and its Losses and its Cash flowfor the year ended on that date.

Emphasis of Matter

Attention is drawn to note 47 to the standalone financial statements which states thatthe Company has been declared as SICK unit by BIFR during the year vide its order dated 22ndJuly 2015. The net worth of the Company is fully eroded. The Company has incurred cashlosses in the current and in previous years. The Company’s current liabilitiesexceeded its current assets as at the balance sheet date. These conditions indicate theexistence of a material uncertainty that may cast significant doubt on the Company’sability to continue as a going concern. However the financial statements of the Companyhave been prepared on a going concern basis because the Company’s management hassubmitted board approved revival plan to administrative ministry and the same is underprocess.

In the absence of adequacy of funds the Company has not paid salaries to employeesdues to many vendors statutory dues and defaulted to its lenders for more than a year.Further due to inadequate working capital and economic viability of the products some ofthe plants of the Company are not utilized appropriately which may lead to obsolesce dueto nonworking since long and frequent shutdown in running plants.

Our opinion is not modified in respect of this matter.

Other Matter

We did not audit the financial statements / information of Kochi Unit included in thestandalone financial statement of the Company whose financial statement / financialinformation reflecting the total assets of Rs. 9929.54 Lakhs (excluding inter-branchbalance) as at 31st March 2016 and total Revenues of Rs. 8726.57 lakhs forthe year ended on that date as considered in the standalone financial statement. Thefinancial statements/ information of this unit has been audited by the Independent branchauditors whose report has been furnished to us and our opinion in so far as it relates tothe amounts and disclosures included in respect of this unit is based solely on the reportof such branch auditor.

Our opinion is not modified in respect of this matter.

The matters described in the Basis for Qualified Opinion paragraph above and the goingconcern matter described in the Emphasis of Matter paragraph above in our opinion mayhave an adverse effect on the functioning of the Company Report on Other Legal andRegulatory Requirements

1. As required by the Companies (Auditor’s Report) Order 2016 ("theOrder") as amended issued by the Central Government of India in terms ofsub-section (11) of section 143 of the Act we give in the "Annexure I" astatement on the matters specified in paragraphs 3 and 4 of the Order to the extentapplicable.

2. As required by the directions and sub-directions issued by the Office of theComptroller and Auditor General of India under Section 143(5) of the Act we give in"Annexure II" a statement on the matters referred to in those directions

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

a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit;

b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books;

c) The report on the accounts of the branch office of the Company audited under section143(8) of the Act by branch auditors have been sent to us and have been properly dealtwith by us in preparing this report.

d) The Balance Sheet the Statement of Profit and Loss and the Cash Flow Statementdealt with by this Report are in agreement with the books of account

e) In our opinion the aforesaid Standalone financial statements comply with theAccounting Standards specified under section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014.

f) The conditions specified in section 164(2) of the act in respect of qualificationsof directors are not applicable to the company being a Government company.

g) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure III".

h) 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 impact of the pending litigations on the financialposition in its financial statement which are contingent in nature (Refer Note no 44 tothe financial statements)

ii. The Kochi unit of the company has entered into long term supply contract with GasAuthority of India (GAIL) for supply of Liquefied Natural Gas in 2011 for the period of 15years ending in 2026. Material foreseeable losses on this contract are not quantifiable inthe current scenario.

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

For JMT & Associates
Chartered Accountants
FRN: 104167W
Sd/-
CA Jayesh Shah
Place: Mumbai Partner
Date: 20.05.2016 Membership number: 39910

"Annexure I" to the Independent Auditors’ Report to the Members ofHindustan Organic Chemicals Limited

As referred to in paragraph 1 under the heading ‘Report on Other Legal &Regulatory Requirement’ of our report of even date and as required by the Companies(Auditors’ Report) Order 2016 issued by Central Government in terms of sub section(11) of section 143 of the Companies Act 2013 (‘the Act’) and on the basis ofsuch checks as we considered appropriate and according to the information and explanationgiven to us. We further report that:

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

(b) In case of Kochi unit The Fixed Assets have not been physically verified by themanagement during the current year.

In case of Rasayani unit the Company has carried out Impairment study by independentexternal agency and incorporated provisions as report in their report. In our opinion theverification is reasonable however it is recommended to implement regular program forverification of fixed assets on periodic basis.

(c) The title deeds of immovable properties are held in the name of the company.

2. (a) The management has conducted the physical verification of inventory atreasonable intervals during the year.

In our opinion the physical verification of inventory followed by the management arereasonable and adequate in relation to the size of the company and the nature of thebusiness

(b) In case of Rasayani unit the verification for non-working plants’ storageswere not taken by dip measurement instead reliance placed on the meter reading devicesinstalled. The Company has maintained proper records of inventory. As explained to us thediscrepancies between the physical inventory and the physical records noticed on physicalverification were not material.

3. As explained to us the Company has granted secured loans to its subsidiary -Hindustan Flurocarbons Ltd. and unsecured advance in the nature of loan to its jointventure subsidiary company - HOC- Chematur Ltd. Covered in the register maintained undersection 189 of the Act.

The loan to Hindustan Fluorocarbons Ltd. is interest free to the extent of Rs. 2744.06lakhs under BIFR agreement and has varying interest rates of 10.25% to 14.5% on amount ofRs.453.01 lakhs. Both the principal amount and the interest on this loan has not beenreceived by company as per stipulation. The Company has not provided any provision againstdoubtful of recovery during the current year.

The advance to HOC- Chematur Ltd. of Rs. 1067.46 lakhs is interest free and there is nostipulation as to repayment of principal. The advance has been fully written off againstprovision made in previous year as it is doubtful of recovery.

In both the above cases except follow up the company has not taken any other stepsfor recovery of dues.

4. According to the information and explanations to us by the management the companyhas not entered into any transaction regarding the provisions of section 185 & 186 ofthe Companies Act 2013 except for guarantee given by the Holding Company of Rs.1103 Lakhsfor the loans taken by subsidiary - Hindustan Fluorocarbons Ltd. from bank. Based on theinformation and explanations given the terms and conditions of this guarantee are notprejudicial to the interest of the Holding Company.

5. The Company has not accepted any deposits from the public and hence the directivesissued by the Reserve Bank of India and the provisions of Sections 73 to 76 or any otherrelevant provisions of the Act and the Companies (Acceptance of Deposit) Rules 2015 withregard to the deposits accepted from the public are not applicable.

6. We have broadly reviewed the books of accounts maintained by the company inpursuance to the rules made by the Central Government for maintenance of cost recordsunder sub-section (1) of Section 148 of the Act for the certain products of the companyand are of the opinion that prima facie and prescribed accounts and records have beenmaintained. We have not however made a detailed examination of the records with a view todetermine whether they are accurate or complete.

7. According to the information and explanations given to us by the management and onthe basis of our examination of the books of account carried on by us and records theCompany has been generally regular in depositing undisputed statutory dues includingProvident Fund Service Tax Duty of Customs Duty of Excise excep Employees StateInsurance Income-Tax Sales tax Value added Tax cess etc. The company has no beenregular in depositing provident fund dues and tax deducted at source withthe appropriate authorities during the year There is no undisputed arrears ofstatutory dues outstanding as at 31s March 2016 for the period of more than 6Months from the date they became payable except for as stated below:

Rasayani Unit

Sr. No. Name of Statute Nature of Dues Outstanding Amount (Rs in lakhs)
1 The Employees’ Provident Funds And Miscellaneous Provisions Act 1952 Employees Provident Fund contribution 2273.37
2 The Employees’ Provident Funds And Miscellaneous Provisions Act 1952 Employees Pension Fund contribution 154.83
3 Works Contract Tax Act 1989 Works Contract Tax 1.29
4 Income Tax Act 1961 Tax deducted at source 190.59
3 Gram Panchayat Gram Panchayat Tax 47.00
Total 2667.07

Kochi Unit

Sr. No. Name of Statute Nature of Dues Outstanding Amount (Rs in lakhs)
1 The Employees’ Provident Funds And Miscellaneous Provisions Act 1952 Employees Provident Fund contribution 537.18
2 Income Tax Act 1961 TDS - Salary 93.35
3 Excise Act Excise duty 114.89
4 Professional Tax Professional Tax 4.49
Total 749.91

(b) According to the information and explanation given to us there are no disputeddues of income tax sales tax service tax duty of customs duty excise duty value addedtax and cess which have not been deposited as at 31s March 2016 other thanthose shown below:

Rasayani Unit

Sr. No. Name of Statute Nature of Dues Period to which the dispute relates Amount of Dispute (Rs. in lakhs) Forum where dispute is pending
1 Central Excise Act 1944 Molten Sulphur Classification Feb-97 to Jun-98 15.53 Customs Excise and Service Tax Appellate Tribunal
2 Central Excise Act 1944 Molten Sulphur Classification Sept-94 to Jan-97 22.76 Customs Excise and Service Tax Appellate Tribunal
3 Central Excise Act 1944 Shortage of Inputs 1998-01 18.66 Pending at high court
4 Central Excise Act 1944 Shortage of Inputs July-01 to Sept.-02 5.85 Commissionarate
5 Central Excise Act 1944 ARO Case (Aniline Valuation) July03 to May06 19.29 Customs Excise and Service tax appellate
6 Central Excise Act 1944 Clearance of SSA to Fertilizer Manufacturing Units Sept.96 to Mar.00 112.78 Pending remanded by CEGAT but Central Excise department filed appeal in High Court
7 Central Excise Act 1944 N2O4 Exemption Jan.06 to Feb.08 104.63 Customs Excise and Service Tax Appellate Tribunal
8 Central Excise Act 1944 Duty on clearance on Molten Sulphur Nov.98 to Dec.98 5.05 Deputy commissioner central excise
9 Central Excise Act 1944 Duty on clearance on Molten Sulphur Dec.98 to Jan.99 2.59 Deputy commissioner central excise
10 Finance Act 1944 Wrong credit avails on Angels bar and HR coils and Plates May-07 to July 10 1.44 Appeal filed before Assistant commissioner Central Excise
11 Finance Act 1944 Cleaning gardening and rent a cab services Oct.9 to Nov. 11 8.88 Deputy Commissioner Central Excise
12 Finance Act 1944 Service tax on canteen services Feb.07 to Mar.11 66.96 Commissioner of Central Excise Custom and Service Tax.
13 Finance Act 1944 Capital goods Bills of entry 27.11.2013 to 18.12.14 17.58 Appeal filed before Hon’ble Comm.C excise Appeals Mumbai.II
14 Finance Act 1994 Flood case Jan.2007 9.34 Appeal is to be filed in CESTATE
15 Finance Act 1994 Reversal Penalty and int. payment as O-inO Oct.13 to Mar.15 10.95 Assistant commissioner Central Excise.
16 Finance Act 1994 Molten Sulphur 1999 7.62 Commissioner of Central Excise Appeals Mumbai - II
17 Finance Act 1994 Shortage of inputs 13.64 Commissioner of Central Excise
18 Finance Act 1994 Reversal of cenvat credit 2006-07 18.66 Commissioner of Central Excise se
19 Finance Act 1994 Service tax credit works 2015-16 17.80 Joint commissioner Central Excise
20 Finance Act 1994 Contract Service 8.90 Appeal is to be ffled before Hon’ble Comm. Central Excise Appeals Mumbai - II
21 Income Tax Act 1961 Penalty u/s 271(1)(c) A.Y 1999-00 91.07 Bombay High Court
22 Income Tax Act 1961 Penalty u/s 271(1)(c) A.Y 1999-00 57.55 Bombay High Court
23 Income Tax Act 1961 Penalty u/s 271(1)(c) A.Y 2003-04 607.25 Bombay High Court
24 Income Tax Act 1961 Penalty u/s 271(1)(c) A.Y 2004-05 63.23 Bombay High Court
25 Income Tax Act 1961 Disallowance of Expenses A.Y. 2011-12 404.71 Bombay High Court. Awaiting for hearing.
26 Income Tax Act 1961 Disallowance of Expenses A.Y. 2012-13 81.03 Bombay High Court. Awaiting for hearing.
27 Income Tax Act 1961 Disallowance of Expenses A.Y. 2013-14 106.51 Bombay High Court. Awaiting for hearing.
Total 1900.26

Kochi Unit

Sr. No. Name of Statute Nature of Dues Period to which the dispute relates Amount of Dispute (Rs. in lakhs) Forum where dispute is pending
1 ESI Corporation ESI contribution of employees 1.04.92 to 31.10.92 2.17 Employees Insurance Court (Industrial)
2 Finance Act 1994 Availing of CEVAT credit on service tax on transportation of final products to Rasayani Depot 04/03 to 12/06 41.47 CESTAT Bangalore
3 Finance Act 1994 Insurance renewal/ Tyreretrading charge 07/11 to 05/12 3.17 CESTAT Bangalore
4 Finance Act 1994 Bus Car transportation to employees 11/11 to 06/12 1.16 Commissioner of Central Excise Appeals Ernakulam
5 Finance Act 1994 Insurance renewal/Tyrere- tradingcharge 04/11 to 03/13 10.96 Commissioner of Central Excise Appeals Ernakulam
6 Finance Act 1994 Outdoor Catering/ Insurance renewal &Tyrere-trading charge 04/06 to 01/13 83.33 Department filed appeal to CESTAT Bangalore
7 Employees Provident Fund Employees Family Pension Scheme- Damage for default payment 1995 to 1997 18.05 Appeal filed before High Court Kerala
8 Central Sales Tax Act 1956 Levy of interest- CST 2005-06 155.23 Tribunal Dept. of Commercial Taxes Ernakulam
9 KVAT Act 2003 Levy of interest- KVAT 2005-06 152.63 Tribunal Dept. of Commercial Taxes Ernakulam
10 KVAT Act 2003 KVAT Act 2003 - Demand U/S 25(1) 2011-12 714.58 Commissioner of commercial taxes - Thiruvanathapuram
11 Central Sales Tax Act 1956 Input Tax due from April 12 to March 13 2012-13 73.36 D.C (Appeals) Dept. of Commercial Taxes Ernakulam
Total 1256.11

8. In our opinion & according to the information and explanation given to us inabsence of adequacy of funds the company has made default in repayment of dues to banksand government loan as per stipulation and further the company is declared as SICKunder BIFR The revival proposal of Company is submitted with administrative Ministry andthe same is under process. Details for the default made by the company are as follows:

S.No Year Government Loan (Rs in Lakhs) Canara Bank Loan (Rs in Lakhs)
1 2002-03 61.60
2 2003-04 152.60
3 2004-05 212.60
4 2005-06 268.50
5 2006-07 328.50
6 2007-08 328.50

 

S.No Year Government Loan (Rs in Lakhs) Canara Bank Loan (Rs in Lakhs)
7 2008-09 448.50
8 2009-10 804.50
9 2010-11 749.10
10 2011-12 749.10
11 2012-13 687.50
12 2013-14 828.50
13 2014-15 768.50
14 2015-16 412.00 58.43
Total 6800.00* 58.43**

‘Annual Installments for various loans ** Monthly Installments of Rs. 5.33 Lakhs

9. In our opinion and according to the information and explanations given to us theCompany has not raised money by way of public issue/ follow-on offer (including debtinstruments)/term loan. The company has received Government loan during the year and thesame was applied for the purpose for which it was raised.

10. Based on the audit procedures performed and the information & explanationsgiven by the management we report that no fraud by the company or on the company by itsofficers or employees has been noticed or reported during the year.

11. Based upon the audit procedures performed and the information and explanationsgiven by the management the managerial remuneration has been paid or provided inaccordance with the requisite approvals mandated by the provisions of section 197 readwith Schedule V to the Companies Act.

12. In our opinion the Company is not a Nidhi Company. Therefore the provisions ofclause 3 (xii) of the Order are not applicable to the Company.

13. In our opinion all transactions with the related parties are in compliance withsection 177 and 188 of Companies Act 2013 and the details have been disclosed in theFinancial Statements as required by the applicable accounting standards.

14. Based upon the audit procedures performed and the information and explanationsgiven by the management the company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures during the year underreview. Accordingly the provisions of clause 3 (xiv) of the Order are not applicable tothe Company and hence not commented upon.

15. Based upon the audit procedures performed and the information and explanationsgiven by the management the company has not entered into any non-cash transactions withdirectors or persons connected with him. Accordingly the provisions of clause 3 (xv) ofthe Order are not applicable to the Company and hence not commented upon.

16. In our opinion the company is not required to be registered under section 45IA ofthe Resen/e Bank of India Act 1934 and accordingly the provisions of clause 3 (xvi) ofthe order are not applicable to the Company and hence not commented upon.

For JMT & Associates
Chartered Accountants
FRN:104167W
Sd/-
CA Jayesh Shah
Place: Mumbai Partner
Date: 20.05.2016 Membership number: 39910

Annexure III" to the Independent Auditor’s Report of even date on theStandalone Financial Statements of HINDUSTAN ORGANIC CHEMICALS LIMITED

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of HINDUSTANORGANIC CHEMICAL LIMITED as at March 31 2016 in conjunction with our audit of thestandalone financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

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". 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 assetsthe prevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.

Auditors’ Responsibility

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 Reportingand the Standards on Auditing issued by ICAI and deemed to be prescribed under section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of Internal Financial Controls and bothissued by the Institute of Chartered Accountants of India. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate internal financial controlsover financial reporting was established and maintained and if such controls operatedeffectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe 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 judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

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 controlssystem over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

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 the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;

(2) Provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and

(3) Provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the company’s assets that could havea material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

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.

Opinion

In our opinion the Company does have an adequate internal financial controls systemover financial reporting and such internal financial controls over financial reportingwere operating effectively as at March 31 2016 in material aspects based on the internalcontrol over financial reporting criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India except as reported below:

• The Company needs to improve system of maintaining status of litigations orlegal cases and periodic confirmations from legal consultants/in-charges should be placedin board meeting to ensure adequate provisioning under pending cases.

• The Company should improve system of follow up with all creditors/debtors toensure periodic reconciliation with parties because very few confirmations received duringthe year.

• The Company needs to implement program for physical verification of all movableand immovable assets on periodic basis in addition to impairment study done by externalindependent agency.

• The Company should conduct Quarterly internal audit because no internal auditreports are placed in board meeting during the year due to delay in appointment ofinternal auditors.

For JMT & Associates
Chartered Accountants
FRN: 104167W
Sd/-
CA Jayesh Shah
Place: Mumbai Partner
Date: 20.05.2016 Membership number: 39910