KRM INTERNATIONAL LIMITED
ANNUAL REPORT 2005-2006
KRM International Limited
We have audited the attached Balance Sheet of KRM International Limited as
at 31st March, 2006 and the Profit and Loss Account for the year ended on
that date annexed thereto and Cash Flow Statement for the year ended on
that date. 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.
1. We have 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 statement 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) Order 2004, issued by the Central
Government of India in terms of sub-section (4A) of Section 227 of the
Companies Act 1956, we enclose in the Annexure hereto a statement on the
matters specified in paragraphs 4 & 5 of the said Order.
3. Further to our comments in the Annexure referred to in paragraph 2
above, we report that:
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 account, as required by law, have been
kept by the company, so far as appears from our examination of those books
i) Incomplete Fixed assets register, as far as location of the assets is
concerned in respect of Furniture & Fixtures and Office Equipments.
ii) Stock records which does not give details of day to day stock,
consumption of material and rate of inventory.
iii) Cost Records to give details required u/s 209(1) (d) of the Companies
iv) Register Under Section 301 of Companies Act, 1956.
c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt
with by this report are in agreement with the books of account;
d] In our opinion, the attached Balance Sheet and Profit & Loss Account and
Cash Flow Statement dealt with by this report comply with the mandatory
Accounting Standards referred in sub-section (3C)of Section 211 of the
Companies Act, 1956, except
1). Accounting Standard - 2 Valuation of Inventories
i). The company has valued Stores and Spares, at cost instead of cost or
net realizable value whichever is lower.
2). Accounting Standard - 9 - Revenue recognition.
i). Incomes in the nature of income from investments are accounted on cash
3). Accounting Standard - 11 - Accounting for effects of changes in foreign
i). The export sales are accounted on amount realised on discounting of
bills with bankers.
4). Accounting Standard - 22 - Accounting for Taxes on Income
The company has not followed the Accounting Standard since the management
does not foresee any taxable profits in the near future and the losses of
the past are also substantial.
e) The company has failed to redeem its debentures on the due date. This
failure has continued for a period of more than two years and hence we
report that the directors are disqualified from being appointed as
directors of the company as on 31.03.2006 under clause (g) of sub-section
(1) of Section 274 of the Companies Act 1956.
f) In our opinion and to the best of our information and according to the
explanations given to us, the said accounts read together with the
Significant Accounting Policies and other notes thereon, and subject to
Note no. A1 of Schedule 18 regarding preparation of accounts on the basis
that the company is a going concern, we are unable to express an opinion
since the basis stated in the clause is only a view of the management.
Note No. A5 Clause 4 Schedule 18 regarding valuation of Stores and Spares
which has been valued at cost instead of lower of cost or net realizable
value. In the absence of data we are unable to quantify the overstatement
or understatement in stock valuation.
Note No. B8 of Schedule 18 regarding defraud of Rs. 10.00 lakhs by a third
party in 1993 -1994 not accounted as irrecoverable
Note No. 139 of Schedule 18 regarding non-provision on diminution of value
of investment of Rs. 5.53 lakhs. To this extent the loss in understated.
Note No. B13 Clause E of Schedule 18 regarding shrinkage and trimming
waste, we rely on the opinion of the management in the absence of complete
Note No. B14 of Schedule 18 regarding the amounts due from Small Scale
Industries. The details are given on the basis of and to the extent of
information available with the company.
Note No. B17 of Schedule No.18 regarding non-provision of interest on IDBI
NCD Loan & Terming for the year 2005-06. Hence the loss is understated to
Note No. B19 of Schedule 18 regarding Sundry Debtors, Sundry Creditors, and
Loans from IDBI & KSFC and other Loans and Advances which are subject to
reconciliation and confirmation.
Give a true and fair view
i) In so far as it relates to Balance Sheet, of the state of affairs of
Company as at 31st March, 2006;
ii) In so far as it relates to the Profit and Loss account, of the Loss of
the company for the year ended on that date; and
iii) In so far as it relates to the Cash Flow Statement, of the cash flows
of the Company for the year ended on that date.
For SHARMA & PAGARIA
Date : 30-10-2006 (PAWAN PAGARIA)
Place : Bangalore Partner
M. No.: 201781
Annexure to the Auditor's Report
(Referred to in paragraph (3) of our report of even dates
1. In respect of its fixed assets:
a) We have been informed that the fixed assets register showing full
particulars including quantitative details and situations is updated,
except in respect of Furniture & Fixtures and Office Equipment as far as
location is concerned. Further we are informed that the physical
verification of these assets will be carried only after completion of the
fixed assets register and any discrepancy if any, will be adjusted
b) We are unable to state whether there is any material discrepancy between
physical count and fixed assets records.
c) During the year substantial part of the fixed asset has been disposed of
by the Company, though as per information & explanation given by the
management the disposal of assets does not effect the going concern status
of the Company.
2. In respect of its inventories:
Physical verification of finished products, stores, spare parts and raw
materials has been conducted by the management only at the close of
accounting period. In our opinion, having regard to the nature and location
of stocks, the frequency of verification need to be more in commensurate
with size and operation of the company. In our opinion and according to the
information and explanations given to us, the procedures of verification of
stocks followed by the management need to be streamlined by drawing up a
periodical programme of verification and reporting so as to be reasonable
and adequate in relation to the size of the company and nature of its
According to the information given to us, no material discrepancies were
noticed on physical verification of stocks as compared to book records.
3. The company has not taken any loans, secured or unsecured, to / from
companies, firms or other parties covered in the register maintained under
section 301 of the Companies Act, except the following
a) Interest free loans from Director. In our opinion, interest free loans
taken from directors is not prima facie prejudicial to the interest of the
company. The other terms and conditions of such loan have not been
stipulated. The loan taken from Directors are as follows:
Name of the Directors Maximum Balance Closing Balance
1) Shashi Kumar Modi Rs. 1,14,07,000/- Rs. 1,14,07,000/-
2) Sunil Kumar Modi Rs. 66,11,161/- Rs. 65,61,161/-
b) The other terms and conditions of such loan have not been stipulated.
c) In respect of loans taken, terms of repayment of interest and repayment
of principal amounts have not been stipulated in writing.
d) The Company has granted interest free loan to the subsidiary company,
Bipin Textile Processing Limited, listed in the register maintained under
Section 301 of the Companies Act, 1956. The company is not collecting
interest from this company. The amount of advance to the subsidiary at the
year end was Rs. 298.07 Lakhs Maximum Balance Rs.298.07 lakhs (on account
of sale of building and other assets to subsidiary of Rs. 261.25 lakhs) Non
collection of interest from the company, is in our opinion prejudicial to
the interest of the Company.
e) The other terms and conditions have not been stipulated.,
f) In respect of loans granted terms for payment of interest and repayment
of principal amounts have not been stipulated in writing.
4. In our opinion and according to the information and explanations given
to us, and as per our checks with respect to internal control system we are
of the view that the same is not sufficient commensurate with the size of
the company and nature of its business with regard to purchase of stores,
raw materials including components, plant and machinery, equipment and
other assets and for the sale of goods and services.
5. In respect of transactions covered under section 301 of the Companies
a) The Company has not maintained Register U/s 301 of the Companies Act,
b) We are unable to comment on transaction above Rs.5,00,000.00/- with
parties listed in the Register U/s 301.
6. Based on our scrutiny of the company's records and according to the
information and explanations provided by the management, in our opinion,
the company has not accepted any deposits so far upto 315' March 2006,
except interest free loan from Directors.
7. In our opinion, the Company does not have a formal internal audit system
commensurate with its size and nature of its business.
8. We have been informed, that the central Government has prescribed
maintenance of cost records under section 209 (1) (d) of the Companies Act,
1956 for the product 'FOOTWEAR' of the company and the company has abided
the order of Central Govt. as per section 2338 (1) of the company's act of
1956 and appointed a cost auditor to conduct the cost audit. The Company
has not properly maintained accounts and records prescribed by the central
Government under Section 209 (1) (d) of the companies Act, 1956, during the
course of the audit.
9. In respect of statutory dues:
a) According to the records of the company, the company is irregular in
depositing undisputed statutory dues of Provident Fund, and Employee State
Insurance, Tax Deducted at Source and Sales Tax.
b) Details of arrears of statutory dues as at 31st March 2006 which are
outstanding for a period of more than six months from the date they become
payable as follows:
T.D.S Payable Rs. 14.58 lacs
ESI Contractor Rs. 0.11 lacs
ESI Contribution Rs. 0.23 lacs
Saes Tax Rs. 2.00 lacs
Professional Tax Rs. 0.23 lacs
Provident Contribution Rs. 0.03 lacs
c) According to the information and explanation given to us, there are no
dues of sales tax, income tax, custom duty, wealth tax, excise duty cess on
account of any dispute, other than the following:
Customs duty payable Rs.3.14 lacs for which the case is pending with CEGAT
10. The Company has accumulated losses exceeding fifty percent of its net
worth as at 31st March 2006. The Company has incurred a cash loss of Rs.
303.07 lacs in the current financial year and Rs. 181.46 lacs in the
immediately preceding financial year. In arriving at the accumulated losses
and net worth as above, we have considered the qualifications which are
quantifiable in the audit reports of the years to which these losses
11. According to the information and explanation given to us, the Company
has defaulted in repayment of dues to
Name of the Institutions Nature of Due Since Default amount
Debentures issued to KSFC Principal 2000-2001 Rs. 30.00 lacs
Debentures issued to KSFC Principal 2000-2001 Rs. 30.00 lacs
Debentures interest to KSFC 2000-2001 Rs. 8.35 lacs
Debentures interest to KSFC 2001-2002 Rs. 17.36 lacs
Debentures interest to KSFC 2002-2003 Rs. 20.42 lacs
Debentures interest to KSFC 2003-2004 Rs. 26.42 lacs
Debentures interest to KSFC 2004-2005 Rs. 31.02 lacs
Debentures interest to KSFC 2005-2006 Rs. 37.60 lacs
Note: As informed by the management the company will make the timely
payment of the amounts due to the IDBI avail the OTS. In view of this the
company has not provided interest due to IDBI to the extent of Rs. 764.25
lakhs for the year.
12. According to the information and explanation given to us, the company
has not granted any loans and advances on the basis of security by way of
pledge of shares, debentures and other investments.
13. In our opinion, the Company is not a chit fund or a nidhi / mutual
benefit fund / society. Therefore, clause 4(xiii) & 4(iv) of the Companies
(Auditor's Report) Order 2003 is not applicable to the Company.
14. In our opinion, the company is not dealing in or trading in shares,
securities debentures and other investments. Accordingly the provisions of
clause 4(xiv) of the Companies (Auditor's Report) Order, 2003 are not
applicable to the company.
15. According to the information and explanations given to us, the Company
has not given any guarantees for loans taken by its subsidiaries and
associates from bank or financial institutions.
16. Based on information and explanations given to us by the Management, no
fresh term loans were obtained by the company during the year.
17. According to the information and explanations given to us and on an
overall examination of the balance sheet of the company, we report that the
no funds raised during the year on short-term basis have been used for
18. According to the information and explanations given to us, the company
has not made preferential allotment of shares during the year.
19. Based on books and records produced to us by the management, securities
have been created in respect of debentures issued to Industrial Development
Bank of India, through for the debentures issued to Karnataka Financial
Institution the security has not created by the Company.
20. The company has not raised any money through a public issue during the
21. According to the information and explanations given to us, no fraud on
or by the company has been noticed or reported during the course of our
For SHARMA & PAGARIA
Date : 30.10.2006 (PAWAN PAGARIA)
Place : Bangalore PARTNER
M. No. 201781