LANYARD FOODS LIMITED
ANNUAL REPORT 2001-2002
We have audited the attached Balance Sheet of LANYARD FOODS LIMITED as at
31st March, 2002 and also the Profit and Loss Account of the Company for
the period ended on that date, annexed thereto. 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.
(a) Further to our observations & qualifications in subsequent paragraph,
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 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 statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
(b) Our observations/qualifications/comments are given below;
1. The financial statements are prepared on the assumption that the company
is a going concern. The Company has significant surmounting losses, which
has exceeded the networth of the company. Any adverse judgement against the
legal cases referred in note 10(d) of Schedule U and cases referred in our
observation / comments in subsequent paragraph number 4,5,6, 7 and 8 filed
against the company may affect the going concern concept of the company.
There are loss of key persons in accounts, finance and marketing department
in head office and various branches, hence our audit report is based with
such limitation on account of lack of information.
2. No provision has been made for interest payable on outstanding imports
bills of foreign creditors as on 31st March, 2002 for Rs.33,80,82,853/=
(including Previous Year Rs. 20,89,94,501/=), hence to that extent the loss
for the year is understated. Such non - provision will amount to change in
accounting policy, as accounts are prepared on accrued basis as per past
practice. The said interest amount is subject to final adjustment,
settlement and with independent reconciliation and confirmation of
principal amount, as the legal case is pending.
3. No provision has been made for interest payable on outstanding secured
loans of Ratio India Finance Private Limited for Rs.6,57,68,105/=(Including
previous year Rs. 3,46,29,923/=), hence to that extent the loss for the
year is understated. Such non - provision will amount to change in
accounting policy, as accounts are prepared on accrued basis as per past
practice This provision is subject to final settlement and adjustment.
4. No provision has been made for interest payable on outstanding secured
(i) State Bank Of Saurashtra for Rs.2,06,51,927 (Previous year Rs. Nil)
(ii) Punjab National Bank for Rs.1,03,79,120 (Previous year Rs. Nil)
Such non - provision will amount to change in accounting policy, as
accounts are prepared on accrued basis as per past practice. Owing to the
pending legal cases, no confirmation and bank statements were received from
State Bank of Saurashtra and Punjab National Bank in Mumbai as well as
various branches, hence the various debit and credit balances of the said
banks are shown as per accounts The aforesaid interest amount and
outstanding principal amount of banks are subject to further adjustments as
the company is disputing the principal outstanding amount. The final
adjustment entries will be passed at the time of final judgement of court.
5. The State Bank of Saurashtra and Punjab National Bank have filed the
application with Debt Recovery Tribunal (DRT), Mumbai under Section 19(3)
of the Recovery of Debts to Banks and Financial Institutions Act, 1993
against their working capital loan of Rs.16,75,80,547=17 and
In view of the same the interim Order passed by Debt Recovery Tribunal on
30th October, 2000, the temporary injunction granted to the Punjab National
Bank inter alia restraining the company, port trust authorities and agents
of the company from parting with possession of oil/goods lying at Kandla,
JNPT and other ports. The temporary injuction of Hon'ble Tribunal further
orders the company to restrain in any manner disposing of, alienating,
transferring, encumbering, parting with possession of or creating any right
title or interest in favour of any third party in or in respect of the
movable or immovable properties including properties involved in the
present agreement of loan.
The company has subsequently filed an affidavit with DRAT allowing the
company to dispose of the edible oil lying at above mentioned ports and in
turn the DRAT has considered the company's request and accordingly as per
DRAT Order, the company has disposed of the part of oils lying at the
Kandla Port for Rs. 2,90,37,271/= (Previous Year Rs. 2,62,67,010/=) and
deposited the said amount in the Court upto 31.03.2002. The said deposit of
money will be released as per the final judgment passed by the Debt
Recovery Appellate Tribunal, Mumbai.
6. The Company had filed the petition before The Hon'ble High Court of
Mumbai on account of dismiss of appeal by Hon'ble Board for Industrial and
financial Reconstruction (AAIFR) and Hon'ble Board for Industrial and
Financial Reconstruction (BIFR).
7. Criminal suit is filed against directors by surveyor under various
Section Of Indian Penal Code and Criminal recovery Procedure Code in
respect of import of goods of Rs. 53,15,97,000/= through foreign creditors.
(Previous Year 53,15,97,000).
8. Case is filed by the Shweta International Pte Limited (Foreign Creditor)
for recovering their dues for the goods supplied to the company. The
outstanding dues as on 31st March, 2002 is for Rs.140,05,89,537.24 as per
accounts after crediting exchange translation amount at year end. The said
amount is subject to the independent reconciliation and confirmation. The
final adjustment entries will be passed after final settlement.
9. In absence of the maintenance of item wise fixed asset register, the
company could not arrive the Written down value of individual assets The
said irregularity will violate the adherance of guideline issued by
the, Department of Company's affairs circular No. ibid that a company
following the SLM need not provide any depreciation - on assets the WDV
when it is already 5% of the original cost.
(c) As required by the Manufacturing and other Companies (Auditors Report)
order 1988 issued by the Central Government of India in terms of Section
227 (4A) of the Companies Act, 1956, we enclose in the annexure a statement
on the matters specified in the paragraph 4 and 5 of the said order, to the
extent applicable to the Company.
Further to our comments in the Annexure referred to above, we report that:
i) Subject to our comments mentioned in paragraph (b)(1) above, 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.
ii) During the year, there were no business activities in branches located
at Bangalore, Chennai, Karwar, Manglore, Kochi (Factory). The operation of
Kandla branch was administered from Mumbai office. In view of the same, we
have not visited the said branches, however proper documents and
information for the audit have been received from the respective branches.
Subject to these, in our opinion, proper books of Accounts as required by
Law have been kept by the Company so far as appears from our examinations
of those books.
iii) The Balance Sheet and Profit & Loss Account dealt with this report are
in agreement with the books of account.
iv) (a) The Company has not followed the Accounting Standard 15 issued by
the Institute of Chartered Accountants relating to the Accounting for
Retirement Benefits in the financial statements of employees pertaining to
provisioning of accuring liability of leave encashment at the time of
retirement on actuary basis and as per past consistent policy it had not
provided and paid the leave encashment benefits to the employee.
(b) The Accounting Standard 22 was not followed relating to Accounting for
Taxes on Income as Company could not ascertain the Deferred Tax liability
on account of method of depreciation arised due to timing difference.
Subject to these, in our opinion, the Profit and Loss Account and Balance
Sheet comply with the Accounting standards referred to in Sub Section (3c)
of Section 211 of the Companies Act, 1956 to the extent applicable to the
v) On the basis of the written representations received from the directors,
as on 31st March, 2002, and taken on record by the Board of Directors, We
report that none of the directors is disqualified as on 31st March, 2002
from being appointed as a director in terms of clause (g) of sub-section
(1) of Section 274 of the Companies Act, 1956.
vi) In our opinion and according to the best of information and according
to the explanations given to us, the said accounts give the information
required by the Companies Act, 1956, in the manner so required and give a
true and fair view in conformity with accounting principles generally
accepted in India:
(i) In so far as it relates to the Balance Sheet of the state of affairs of
the Company as at 31st March, 2002; and
(ii) In so far as it relates to the Profit & Loss account of the "Loss" of
the Company for the period ended on that date,
For DESAI & PORWAL
PLACE: MUMBAI M.J. DESAI
DATE : 28th June 2002 PARTNER
DESAI & PORWAL
53, VASANI CENTER, 4TH FLOOR
28, BABU GENU ROAD,
OFF. PRINCESS STREET,
MUMBAI 400 002.
Annexure to the Auditor's Report
(Referred to in Paragraph [C] of our Report of even date)
(i) The Company has not maintained updated records showing full particulars
quantitative details and situation of fixed assets. The fixed assets had
not been physically verified by the management.
(ii) None of the fixed assets have been revalued during the year;
(iii) The stocks of finished goods, traded goods (except goods lying with
consignment agent, bonded warehouse and in transit) packing materials, raw
materials have been physically verified during the year by the management.
In our opinion, the frequency is reasonable having regard to the size of
the Company & nature of its business;
(iv) The procedures of physical verification of stocks followed by the
management are reasonable and adequate in relation to the size of the
Company and the nature of its business;
(v) The discrepancies noticed between the physical stocks and book stocks
are not very significant, which have been properly dealt with in the books
(vi) We are of the opinion that the valuation of Stock, is fair and proper
in accordance with the generally accepted accounting principles, applied on
the same basis as in the Previous year.
(vii) (a) During the year the company has transacted with the company, in
which directors are interested and maintained the interest free current
account in the nature of loans. However at the year end the amount due to
such companies are GBK Exports Limited for Rs. 86,15,474/= and SDV Oil
(b) The company has taken advance from Sha Dwarkadas Vallabhdas & Co., a
partnership firm, in which director is interested which was to be taken
over by SDV Oil Limited, however the said take over was not materialized
due to financial and legal constraint of partnership firm. Hence company
has taken necessary steps and reduced its balance to Rs.65000.
Subject to above, the Company has not taken any loans secured or unsecured
from companies, firms or other parties listed in the Register maintained
under Section 301 of the Companies Act, 1956. In terms of Sub-Section (6)
of Section 370 of the Companies Act, 1956, provision of Section 370 are no
longer applicable to a company since 31st October, 1998.
(viii) Subject to note 3 of Schedule U, the Company has not given any loans
secured or unsecured to companies, firms or other parties listed in the
Register maintained under Section 301 of the Companies Act, 1956. In terms
of Sub-Section (6) of Section 370 of the Companies Act, 1956, provision of
Section 370 are no longer applicable to a company since 31st October, 1998.
(ix) (a) In respect of the Interest free loans and advances have been given
to employees are being recovered as per stipulation except for Rs. 25,739/=
(Previous year Rs. 28,815/=).
(b) From the various branches the company had given various advances of
Rs.1,03,74,148/= for various services and others in the nature of interest
free loans, however some of which are not recoverable as per stipulation.
The Company had made the provision for such advances.
(x) On the basis of checks carried out during the course of audit and as
per explanations given to us, we are of the opinion that there are adequate
internal control procedures commensurate with the size of the Company and
the nature of its business with regard to purchases of traded goods, raw
material, plant and machinery, equipment, other assets and sale of goods.
(xi) In our opinion, the transactions of purchase of goods and materials
and sale of goods, materials and services made in pursuance of contracts or
arrangements entered in the register maintained under section 301 of the
Companies Act, 1956 and aggregating during the year to Rs. 50,000/= or more
in respect of each party have been made at prices which are reasonable
having regard to prevailing market prices for such goods and materials or
the prices at which transactions for similar goods or materials have been
made with other parties.
(xii) The company has a regular procedure for determination of
unserviceable or damaged goods in consumer division and adequate provision
has been made in the accounts for the loss arising on the items so
(xiii) The Company has not accepted any deposits from the Public.
(xiv) In our opinion, reasonable records have been maintained by the
Company for sale and disposal of realizable contaminated oils,
garbage/scrap. The Company does not generate any by-products.
(xv) In our opinion, the company has no internal audit system, commensurate
with the size and nature of its business.
(xvi) As per the information given to us, the Central Government has not
prescribed maintenance of cost records under Section 209 [d] of the
Companies Act, 1956, in respect of any of the company's products.
(xvii) The Company is regular in depositing Provident Fund and Employee's
State Insurance dues with the appropriate authorities.
(xviii) An amount of Rs. 3,67,92,657/= towards sales tax, Agriculture
Products Market Cess Rs.34,114 and Income Tax (TDS) RS.29,643 are
undisputed and outstanding for more than six months as at 31st March, 2002.
Subject to these and according to the information and explanations given to
us and the books and records examined by us, there are no undisputed
amounts, payable in respect of income tax outstanding as at 31st March,,
2002 for a year exceeding six months from the date they become payable.
(xix) The company has a policy of authorizing expenditure based on
reasonable checks and controls. This policy is intended to ensure that
expenses are authorized on the basis of contractual obligations or accepted
business practices having regard to the companies business needs and
exigencies. In terms of these observations, we have not come across any
expenses charged to revenue account, which in our opinion and judgement and
to the best of our knowledge and belief could be regarded as personal
(xx) The net worth of the Company has been completely eroded due to
surmounting losses rendering the Company to status of a sick industrial
company within the meaning of clause (o) of sub-section (1) of Section 3 of
the Sick Industrial Companies (Special Provisions) Act, 1985. The Company
has applied In the High court against the AFR (Higher authorities of BIFR
office) order rejecting the company's case for registering itself as Sick
(xxi) In respect of the Company's trading activity, we are informed that
there are no damaged stocks lying at the end of the year. According to the
information given to us, the damaged stock determined during the year have
been fully disposed at best prevailing market price.
For DESAI & PORWAL
PLACE: MUMBAI M.J. DESAI
DATE : 28th June 2002 PARTNER