KAYTEE COTSYNTH INDUSTRIES LIMITED
ANNUAL REPORT 2004-2005
Kaytee Cotsynth Industries Limited
We have audited the attached Balance Sheet of Messrs KAYTEE COTSYNTH
INDUSTRIES LIMITED, as at 31st March, 2005 and also the annexed Profit &
Loss Account of the Company for the year ended on that date annexed thereto
and Cash Flow Statement for the period 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.
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 from material misstatement. 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.
We report that:
1. 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.
2. In our opinion, proper Books of Account as required by the law have been
kept by the Company so far as it appears from our examination of those
books, except for non provision of Depreciation, Interest, Salaries, Wages
& Provident Fund, and Electricity Charges as stated in para 1.3 of note 1,
notes 5 (a) & (b), (c), (d) & (e) and non provision of Gratuity, bonus &
Leave. encashment as stated in notes 9 A, B & C of Schedule 18
3. The Balance Sheet and Profit & Loss Account dealt with by the Report are
in agreement with the books of account.
4. Subject to para 1.3 of note 1 regarding non provision of Depreciation,
note no. 5 (a) & (b), (c), (d) & (e) regarding non provision of Interest,
Salaries, Wages & Provident Fund, Electricity Charges & Doubtful Debts,
note no. 9 A, B & C regarding non provision of Gratuity, Bonus and Leave
encashment and note no. 13 regarding non provision for Impairment of Assets
under Schedule 18, in our opinion the Balance Sheet and Profit and Loss
Account dealt with by this report comply with the Accounting Standards
referred to in sub section (3 C) of Section 211 of the Companies Act, 1956,
to the extent applicable.
5. On the basis of the written representations received from the Directors
as on 31st March, 2005 and taken on record by the Board of Directors and
further certified by the Company, we report that none of the Directors are
prima facie disqualified from being appointed as a Director in terms of
clause (g) of sub section (1) of Section 274 of the Companies Act, 1956.
6. As referred to in Note no. 10 of Schedule 18, despite the Company's net
worth being fully eroded due to losses (without considering our remarks in
paragraph 4 above with corresponding effects in the loss for the year and
period end net assets to the extent indicated in para 7 below and despite
significant overdue loans etc., the accounts have been prepared on going
concern basis. The Company's ability to continue as going concern is partly
dependent on the ultimate outcome of the OTS proposal, which as informed to
us is pending with the consortium of Banks.
7. In our opinion and to the best of our information and according to the
explanations given to us, the said accounts read with para 1.3 of Note 1
regarding non provision of Depreciation, Note 4, (a) & (b), (c), (d) & (e)
regarding non provision of Interest, Salaries, Wages & Provident Fund,
Electricity Charges & Debts considered doubtful of recovery, Note 8
regarding non creation of Debenture Redemption Reserve, Note 9 A, B & C
regarding non provision f Gratuity, Bonus & Leave encashment and Note 10
regarding preparation of accounts on the fundamental accounting assumption
of 'going concern' in Schedule 18 and other notes thereon, give the
information required by the Companies Act, 1956, in the manner so required
and give a true and fair view:
i) In the case of the Balance Sheet of the state of affairs of the Company
as at 31st March, 2005
ii) In the case of the Profit & Loss Account of the `Loss' for the year
ended on that date.
iii) In the case of Cash Flow Statement of the cash flows of the Company
for the year ended on that date.
8. As required by the Companies (Auditor's Report) Order, 2003 issued by
the Central Government in terms of Section 227 (4A) of the Companies Act,
1956 and on the basis of such checks of books and records of the Company as
were considered appropriate and on the basis of information and
explanations given to us during the course of our audit, we further state
on the matters specified in Paragraphs 4 of the said order to the extent
applicable to the Company as follows:
a. The Company has generally maintained proper records showing full
particulars including quantitative details and situation of fixed assets.
However these records need. updating.
b. As informed to us the fixed assets have been physically verified by the
Management at reasonable intervals. According to the information given to
us, no material discrepancies have been noticed by the management on such
physical verification as compared to available records.
c. The Company has not disposed off any substantial part of fixed assets
during the year so as to affect its going concern status.
ii. a. Except for the stocks of the Finished Goods, the stocks of Stores,
Spares, and Raw Materials were lying in the mills' premises at Charadva.
The mill is not in operation from 1st October, 2000 and hence the said
stocks lying thereat have not been verified physically. The stocks of
finished goods lying at Mumbai sales depot have been physically verified
during the year by the management. In our opinion, the frequency of such
verification at Mumbai during the year is reasonable. No Discrepancies were
noticed on verification between the physical stocks of Finished Goods and
b. According to the information and explanations given to us, the procedure
of physical verification of stocks of finished goods as followed by the
management are adequate in relation to the size of the Company and nature
of its business.
c. On the basis of examination of the inventory, records of the Company, we
are of the opinion that the Company is maintaining proper records of
inventory. No Discrepancies, were noticed on verification between the
physical stocks of Finished Goods and the books/records.
iii a. According to the information and explanations given to us, the
Company has not granted any loans, secured or unsecured, to companies,
firms or other parties covered in the register maintained under Section 301
of the Companies Act, 1956. In respect of interest free loans granted to
the employees, we have been explained that the same would be recovered from
the amounts due to them.
b. As the Company has not granted any loans, secured or unsecured to
companies, firms or other parties covered in the register maintained under
Section 301 of the Companies Act, 1956, the Clause (iii)(b) of the Order
relating to the rate of interest and terms and conditions being prima facie
prejudicial to the interest of the Company, is not applicable.
c. Clause (iii)(c) relating to receipt of principal and interest is not
d. Clause (iii)(d) relating to recovery of the principal and interest is
e. According to the information and explanations given to us, the Company
has not taken any loans, secured or unsecured, from companies firms or
other parties covered in the register maintained under Section 301 of the
Companies Act, 1956.
f. Clause (iii)(f) relating to relating to the rate of interest and terms
and conditions being prima facie prejudicial to the interest of the
Company, is not applicable.
g. Clause (iii)(g) relating to payment of principal and interest is not
iv. In our opinion and according to the explanations given to us, there is
an adequate internal control system commensurate with the size of the
company and the nature of its business, for the purchase of inventory and
fixed assets and for the sale of goods and services.
v. (a) On the basis of the information and explanations given to us and
representations made, we are of the opinion that the particulars of
contracts or arrangements referred to in section 301 of the Companies Act,
1956 have been entered in the register required to be maintained under
(b) There were no transactions made, in pursuance of such contracts or
arrangements, as per information and explanations given to us.
vi. According to the information and explanations given to us, no deposits
from the public within the meaning of Reserve Bank of India Directives and
Section 58A, 58AA or any other relevant provisions of the Act and the rules
framed thereunder have been accepted by the Company.
vii. No Internal Audit was carried out during the-year under audit.
viii. In view of suspension of manufacturing activities since October 2000
and absence of personnel, no records have been maintained by the Company
pursuant to the Order made by the Central Government for the maintenance of
Cost Records u/s. 209 (1) (d) of the Companies Act, 1956, in respect of the
Company's product viz., Cotton Yarn.
ix. (a) Since the Company does not have any employees, the question of
depositing with appropriate authorities undisputed statutory dues;
including Provident Fund, Investor Education Protection Fund, & E. S. I
contribution does not arise. The Company is regular in depositing other
dues viz. Income-tax, Sales-tax, Wealth tax, Service tax, Customs Duty,
Excise Duty, Cess & other material statutory dues applicable to it.
(b) According to the information and explanations given to us, except for
Sales Tax Liability of Rs. 23.54 Lacs & Excise Duty of Rs. 3.38 Lacs, there
were no undisputed amounts payable in respect of Income Tax, Sales tax,
Wealth Tax, Service. tax, Custom Duty, Excise Duty and Cess which have
remained unpaid as on the last date of accounting year for a period of more
than six months from the date they became payable.
(c) According to the information and explanations given to us, the Company
has not deposited Sales Tax demands amounting to Rs. 2,196.57 Lacs which
were disputed in appear and were remanded back for fresh hearing which are
pending before D.C. Appeals. However, the Hon'ble Gujarat High Court has
granted stay on recovery of these demands till the outcome of reference
pending before B.I.F.R.
x. The accumulated losses at the end of the financial year are more than
fifty percent of its net worth. The Company has incurred cash losses in the
financial year under audit and so also in the immediately preceding
xi. The Company has defaulted in repayment of installments due to the banks
and financial institutions. However, we have been explained by the Company
that its references/appeal before B.I.F.R./A.A.I.F.R. and restructuring
proposal before the Banks are pending and that in the absence of
availability of funds all the dues including principal amount and interest
accrued thereon payable to secured lenders as explained in note no. 5 of
Schedule 18 are remaining unpaid.
xii. As explained 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
xiii. As the Company is not a chit fund, nidhi, mutual benefit fund or
society, the provisions of clause 4 (xiii) of the Companies (Auditors'
Report) Order, 2003 are not applicable to the Company.
xiv. As the Company is not dealing or trading in shares, securities,
debentures & other investments, provisions of clause 4 (xiv) of the
Companies (Auditor's Report) Order, 2003 are not applicable to the Company.
xv. According to information & explanations given to us and representations
made by management, the Company has not given any guarantee for loans taken
by others from banks or financial institutions, the terms & conditions
whereof are prejudicial to the interest of the Company.
xvi. Based on the examination of the books of account and related records,
the Company has, prima facie, applied the term loans for the purpose for
which they were obtained.
xvii. According to information & explanations given to us and on an overall
examination of the financial statements of the Company and after placing
reliance on the reasonable assumptions made by the Company for
classification of the long term and short term usages of the funds, we are
of the opinion that, prima facie, the Company has not applied short term
borrowings for long term use, except cross usage, if any, resulting or
caused due to transfer of excess drawings in cash credit accounts to term
loan account on restructuring of credit facilities.
xviii. The Company has not made any preferential allotment of shares during
xix. The Company has not issued any debentures during the year.
xx. The Company has not raised any money byway of public issue during the
xxi. According to the information & explanations given to us and to the
best of our knowledge and belief, no material fraud on or by the Company
has been noticed or reported by the Company during the year.
For B. S. MEHTA & CO.
(D. I. SHAH)
M. No. 37326
Place : Mumbai
Dated : 5th September, 2005