THE MEMBERS OF
KARUTURI GLOBAL LIMITED BANGALORE
Report on the Financial Statements
We have audited the accompanying financial statements of Karuturi Global Limited("the Company") (formerly known as Karuturi Networks Limited) which comprisethe balance sheet as at 31 March 2016 the statement of profit and loss and the cash flowstatement for the year then ended and a summary of significant accounting policies andother explanatory information.
Managements Responsibility for the Financial Statements
The Companys Board of Directors are responsible for the matters in action 134 (5)of the Companies Act 2013 ("the Act") with respect to the preparation of thesefinancial statements that give a true and fair view of the financial position financialperformance and cash flows of the Company in accordance with the accounting principlesgenerally accepted in India including the Accounting Standards specified under Section133of the Act read with Rule7 of the Companies (Accounts) Rules 2014 This responsibilityalso includes the maintenance of adequate accounting records in accordance with theprovision of the Act for safeguarding of the assets of the Company and for preventing anddetecting the frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of internal financial control that were operatingeffectively for ensuring the accuracy and completeness of the accounting records relevantto the preparation and presentation of the financial statements that give a true and fairview and are free from material misstatement whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on ouraudit.
We have taken in to 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 the re 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 anddisclosures in the financial statements The procedures selected depend on theauditors 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 Companyspreparation of the financial statements that give true and fair view in order to designaudit procedures that are appropriate in the circumstances An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of theaccounting estimates made by Companys Directors as well as evaluating the overallpresentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the financial statements.
Basis for Qualified Opinion
The Company has made turnover of Rs.1424.94 Lakhs of total sales and Purchases of Rs1221.07 Lakhs during the year which comprises of local transaction of flowers plantsbudwoods& rootstocks Demonstrable controls over the local transactions of sales of Rs1292.26 Lakhs and purchases of Rs 1180.86 Lakhs needs improvement and as there were noaudit procedure for us to satisfy our self we are unable to comment the impact on incomeand expenses position in statement of profit and loss for the year.
Attention is invited to point no 2.29 forming part of the Financial Statement("Notes") regarding treatment of accumulated balance of Foreign CurrencyMonetary Translation Reserve (FCMTR) Wherein during the year the advance given to itswholly owned subsidiary Karuturi Overseas Limited has been converted to equity and theresulting foreign exchange gain was transferred to statement of profit and loss account tothe tune of Rs 1488.85 Lakh as an income As per para 15 read with para 31 and para 32 ofthe Accounting Standards 11 "The Effect of changes in foreign exchange rates"the accumulated amount in FCMTR account can be recognised as income only at the time ofdisposal of net investment in the non-integral foreign operations In our opinion the saidtransaction does not tantamount to disposal of net investment and hence the abovetransaction results in departure from Accounting Standard 11 as referred in section 133of the Companies Act 2013 resulting in overstatement of income to that extent.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matters specified in paragraph 1 & 2 of theBasis for Qualified Opinion Paragraph the aforesaid financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India;
I) in the case of the Balance Sheet of the state of affairs of the Company as at March31 2016;
ii) in the case of the Statement of Profit and Loss of the profit for the year endedon that date; and
iii) in the case of the Cash Flow Statement of the cash flows for the year ended onthat date.
Emphasis of Matters
We draw attention to the following matters in the Notes to the financial statements:
(a) Attention drawn to Note 2.3B forming part of Financial Statement(Notes) regarding the Companys Foreign Currency Convertible Bonds(FCCBs) liability which in carried at Rs 40721.04 Lakhs in the Balance sheet as at March31 2016 The FCCB loan was due for repayment on 19th October 2012 and the Company hasdefaulted in repayment of the same The Company is not in a position to comply theconditions laid by RBI while approving the restructuring proposal during 2013-14 and hencecompany has discontinued providing interest since 2014-15 The company has not disclosedany strategic plan as to how the above liability will be discharged.
(b) Attention invited to note no 2.12 in notes regarding the Non-Current Investmentwhich includes investment in subsidiaries total amounting to Rs 63532.87 Lakhs which arestated at cost However the realisable value of these investments could not be ascertainedas audited accounts of these entities are not received.
(c) Attention invited to note no 3.2 regarding outcome of various contingentliabilities and corporate guarantees given by the company and the possible exposure of thesame on the Companys financial statement and regarding the position of the companytowards the court proceedings of Sale of its subsidiary Karuturi Telecom Private limitedalong with seizure of bank account by the Income Tax Department.
(d) The company has failed to appoint CFO & Whole Time Company Secretary asprescribed under the Companies Act 2013 Company has not disclosed any strategic plan tocomply the same.
Our opinion is not modified in respect of these matters.
Report on other Legal and Regulatory Requirements
1 As required by the Companies (Auditors Report) Order 2015 (The Order) issuedby the Central Government of India in terms of Section143(11) of the Act we giveannexure a statement on the matters specified in paragraph 3 and 4 of the order.
2 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 best ofour knowledge and belief were necessary for the purposes of our audit
b in our opinion proper books of account as required by law have been kept by theCompany of are as 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 In our opinion the afore said financial statements comply with the AccountingStandards specified under Section133 of the Act read with Rule 7 of the Companies(Accounts)Rules2014 except to para 2 mentioned in basis of qualified opinion
e The going concern matter described in sub-paragraph (b) under the Emphasis of Mattersparagraph above in our opinion may have an adverse effect on the functioning of theCompany
f On the basis of written representations received from the directors as on 31March2016 taken on record by the Board of Directors none of the director is disqualified ason 31 March 2016 from being appointed as a director in terms of Section164(2) of the Actg With respect to the other matters included in the Auditors Report and to our bestof our information and according to the explanations given to us:
1) The Company has disclosed the impact of pending litigations on its financialposition in its financial statements Refer Note3.2 to the financial statements;
2) The Company did not have any long-term contracts including derivatives contracts forwhich there were any material fore seeable losses;
3) There has been no delay in transferring amounts required to be transferred to theInvest or Education and Protection Fund by the Company;
For SBHAT & Associates
Chartered Accountants FRN:014925S
Membership No 228143
Date : 31st May 2016
Place : Bangalore
Annexure to Independent Auditors Report
(Referred to in paragraph 1 of our report of even date)
(I) (a) The company has not maintained the complete records showing the fullparticulars including quantitative details and situation of fixed assets.
(b) As explained to us the management has not verified the fixed assets during theyear and adopted mechanism to verify the assets once in three years The system of fixedasset verification program adopted by the management which in our opinion is reasonablehaving regard to the size of the Company and the nature of assets The frequency ofphysical verification is reasonable and no discrepancies observed during verificationshave been properly dealt in the books of accounts;
(ii) (a) As explained to us the inventories have been physically verified by themanagement on quarterly basis In our opinion the frequency of such verification isreasonable However to strengthen the controls external verification as a part of Internalaudit shall be carried out.
(b) As per the information given to us the procedures of physical verification ofinventory followed by the management are in our opinion reasonable and adequate inrelation to size of the Company and the nature of its business
(c) The company is maintaining certain records of inventory In our opinion such recordsneed improvements to ensure controls As explained to us and certified by the managementthere were no material discrepancies noticed on physical verification of inventory carriedout at the end of the year as compared to the book records having regard to size of theoperations of the company.
(iii) (a) According to the information and explanation given to us the company has notgranted any loans secured or unsecured to companies firms or other parties covered inthe register maintained under section 189 of the Companies Act 2013.
(b) The terms of repayment stipulates that the unsecured loans are repayable on demandInterests due annually/quarterly.
(c) The company has not granted any loans covered under section189 of the act duringthe year.
(iv) In our opinion and according to the information and explanation given to us theinternal controls system is not commensurate with the size of the company and nature ofits business with regard to purchase and sale of inventory During the course of audit wehave observed the following weakness in internal control system of the company;
(a) The supporting documents for purchases and sales such as Purchase orders Goodsreceipts notes sales orders and delivery challans were not available in certain caseswhich are duly acknowledged by the internal auditors.
(b) The company has annual internal audit system covering the verification oftransactions and controls However in our opinion the internal audit system needsimprovement in frequency as well as the scope of audit.
(c) The outstanding receivables and payables span across for more than 180 days for anamount of Rs 990.59 Lakhs in case of receivables and Rs 299.52 Lakhs in case of payableDue to lack of reliable internal controls and alternate audit procedures the impact ofthe same cannot be ascertained by us.
(v) During the year company has not accepted any deposit falling under section 73 to76 of the Act and rules framed there under and the directives of the Reserve bank ofIndia.
(a) The amount of Rs 360.93 lakhs have been transferred to Flower express FZE which isthe holding company of M/s Karuturi Limited Kenya for meeting the legal and otherexpenses relating to receivership etc The said amount has been transferred throughDirectors account as the companies bank accounts are seized by income taxauthorities.
(vi) According to information and explanations given to us the Central Government hasnot prescribed the maintenance of cost records under Section 148(1) of the Act.
(vii)(a) According to information and explanations given to us the undisputed duestowards TDS Sales Tax Wealth Tax Provident Fund ESI and service tax have not beenregularly deposited.
(b) According to the information and explanations given to us the undisputed duestowards TDS Sales Tax Wealth Tax Provident Fund ESI and service tax which areoutstanding for more than 6 months from the date they have become due are as follows:
|Name of the statute ||Nature of the dues ||Amount ||Period to which the amount relates |
| || ||(in Lakhs) || |
|Income Tax Act 1961 ||Tax Deducted at Source ||240.13 ||AY 2015-16 and prior to that |
|Karnataka VAT Act 2003 ||Value Added Tax ||2.49 ||AY 2013-14 |
|Karnataka VAT Act 2003 ||Value Added Tax ||1.71 ||AY 2014-15 |
|Finance Act 1994 ||Service Tax ||0.21 ||AY 2010-11 |
|Finance Act 1994 ||Service Tax ||2.27 ||AY 2010-11 |
|Finance Act 1994 ||Service Tax ||37.42 ||AY 2011-12 |
|Finance Act 1994 ||Service Tax ||0.09 ||AY 2011-12 |
|Finance Act 1994 ||Service Tax ||2.27 ||AY 2012-13 |
|Finance Act 1994 ||Service Tax ||1.05 ||AY 2014-15 |
|Income Tax Act 1961 ||Tax Deducted at Source ||15.06 ||AY 2016-17 |
|Finance Act 1994 ||Service Tax ||0.69 ||AY 2015-16 |
|Karnataka VAT Act 2003 ||Value Added Tax ||0.63 ||AY 2015-16 |
|Finance Act1994 ||Service Tax ||0.50 ||AY 2016-17 |
(c) According to the information and explanations given to us the company hasdefaulted in payment of Tax Deducted at Source on the provision of interest on FCCB duringthe assessment years 2013-14 to 2014-15 amounts to Rs 656.62 Lakhs Company has notprovided for interest during the year.
(d) According to the information and explanation given to us and based on the recordsof thecompany the dues outstanding in respect of income tax sales tax wealth taxservice tax and other statutory duties on account of any dispute are as follows:
|Name of the Statute ||Nature of the dues ||Amount ||Period to which the amount relates ||Pending before the Authority |
|Finance Act1994 ||Service Tax ||172.62 ||A.Y2006-07 ||Commissioner/CESTAT(Appeals) |
|Income Tax Act 1961 ||Income Tax ||863.44 ||A.Y2005-06 ||Commissioner(Appeals)Bangalore |
|Income Tax Act 1961 ||Income Tax ||792.72 ||A.Y2006-07 ||Income Tax Appellate Tribunal |
| || || || ||Bangalore |
|Income Tax Act 1961 ||Income Tax ||1850.91 ||A.Y2007-08 ||Commissioner(Appeals)Bangalore |
|Income Tax Act 1961 ||Income Tax ||19303.07 ||A.Y2008-09 ||Income Tax Appellate Tribunal Bangalore and Commissioner (Appeals) Bangalore |
|Income Tax Act 1961 ||Income Tax ||3254.27 ||A.Y2009-10 ||Commissioner(Appeals)Bangalore |
|Income Tax Act 1961 ||Income Tax ||4830.70 ||A.Y2010-11 ||Commissioner(Appeals)Bangalore |
|Income Tax Act 1961 ||Income Tax ||3610.04 ||A.Y2011-12 ||Commissioner(Appeals)Bangalore |
|Karnataka Tax on entry of goods act 1979 ||Entry tax ||0.97 ||A.Y2005-06 ||Joint Commissioner of Commercial Taxes Audit-13VATDVO-1 |
|Karnataka Tax onentry of goods act1979 ||Entry tax ||3.87 ||A.Y2007-08 ||Joint Commissioner of Commercial Taxes Audit-13 VATDVO-1 |
|Karnataka Tax on entry of goods act1979 ||Entry tax ||1.57 ||A.Y2008-09 ||Joint Commissioner of Commercial Taxes Audit-13 VATDVO-1 |
(e) According to the information and explanations given to us the company has notdelayed in transfer of the amounts due to Investor Education and Protection Fund.
(viii)In our opinion as at 31st March 2016 the accumulated losses of the company arenot more than fifty percent of its net worth Further the company has not incurred cashlosses during the financial year ended on that date or in the immediately precedingfinancial year.
(ix) According to the information and explanations given to us the company has notdefaulted in repayment of dues to the banks and debenture holders except the following :(a) The company has defaulted in repayment of dues to Foreign Currency ConvertibleBonds(FCCB) holders amounting to Rs 40721.04 Lakhs which became due for repayment on 19thOctober 2012.
(x) According to the information and explanations given to us the terms and conditionson which the company has given guarantees for loans taken by subsidiaries from banks orfinancial institutions are not prejudicial to the interest of the company.
(xi) According to the information and explanations given to us and on an overallexamination of the balance sheet of the company and due to the accounting transactionspassed in the books of account we are not able to comment on whether funds raised onshort term basis have been used for long-term investment.
(xii)During the course of our examination of the books and records of the companycarried out in accordance with generally accepted auditing practices in India andaccording to the information and explanation given to us we have neither come across anyfraud on or by Company noticed or reported during the year nor have been informed of suchcase by management.
|For S BHAT AND ASSOCIATES ||Shrinivas Bhat |
|Chartered Accountants ||Partner |
|FRN: 014925S ||M.No 228143 |
|Place : Bangalore || |
|Date : 31/05/2016 || |
Annexure - B to the Auditors Report
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 KaruturiGlobal Limited ("the Company") as of 31 March 2016 in conjunction with our auditof the standalone financial statements of the Company for the year ended on that date.
Managements Responsibility for Internal Financial Controls
The Companys 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) Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to companys policies the safeguardingof its assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013.
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 issued by ICAI and deemedto be prescribed under section 143(10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls both applicable to an audit ofInternal Financial Controls and both issued by the Institute of Chartered Accountants ofIndia Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively 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 auditors 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 Companys 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 process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures 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
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 Alsoprojections of any evaluation of the internal financial controls over financial reportingto future periods are subject to the risk that the internal financial control overfinancial reporting may become inadequate because of changes in conditions or that thedegree of compliance with the policies or procedures may deteriorate.
Basis for Qualified Opinion
The standard operating procedures and internal controls procedures are not establishedin the area of Sales Purchases and related party transactions as evidenced in the basisof qualified opinion paragraph in audit report and in the annexure A The lack of documentsand controls over Sales and Purchases were significant and deviations were observed whichwere reported in Audit report and Annexure A above.
In our opinion the Company has in all material respect except to the mattersmentioned in the basis for qualified opinion paragraph an adequate internal financialcontrols system over financial reporting and such internal financial controls overfinancial reporting were operating effectively as at 31 March 2016 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.
|For S BHAT AND ASSOCIATES ||Shrinivas Bhat |
|Chartered Accountants ||Partner |
|FRN: 014925S ||M.No 228143 |
|Place : Bangalore || |
|Date : 31/05/2016 || |