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Modern Denim Ltd.

BSE: 500451 Sector: Industrials
NSE: MODERNDENM ISIN Code: N.A.
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Modern Denim Ltd. (MODERNDENM) - Auditors Report

Company auditors report

To

The Members of

Modem Denim Limited

1. Report on the Standalone Financial Statements

We have audited the accompanying Standalone financial statements of Modem Denim Limited("the Company") which comprise the Balance Sheet as at March 31 2017 and theStatement of Profit and Loss and Cash Flow Statement for the year then ended and a summaryof significant accounting policies and other explanatory information.

2. Management's Responsibility for the Standalone Financial Statements The Company'sBoard of Directors is responsible for the matters stated in Section 134(5) of theCompanies 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 Section133 of the Act read with Rule 7 of file Companies (Accounts) Rules 2014. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatement whether due to fraud orerror.

3. Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on ouraudit.

We have taken into 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 there under. We have conducted our audit inaccordance with the Standards on Auditing specified under Section 143(10) of the Act.Those Standards require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free frommaterial 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 of thefinancial statements whether due to fraud or error. In making those risk assessments theauditor considers internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances but not for the purpose of expressing anopinion on whether the Company has in place an adequate internal financial controls systemover financial reporting and the operating effectiveness of such controls. An audit alsoincludes evaluating the appropriateness of the accounting policies used and thereasonableness of the accounting estimates made by the Company's Directors as well asevaluating 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 qualified audit opinion on the standalone financial statements.

4. Basis for Qualified Opinion

a) Dividendfor the year in respect of cumulative redeemable preference shares amountingto F110.75 lacs excluding Dividend Distribution Tax Payable thereon (Previous year F110.75 lacs) has not been provided. The total amount of Dividend not provided till 31stMarch 2017 amounts to F 2325.75 lacs (upto previous Balance Sheet date F 2215.00 lacs)(Note No. 1.3) have not been provided in view of accumulated losses. The Company wasexpecting waiver / relief under rehabilitation scheme submitted to BIFR and afterabatement of BIFR Company has submitted rehabilitation / revival scheme to NCLT and expectwaiver / relief. Had the Company provided for the Dividend on cumulative redeemablepreference shares Other Current Liabilities would have been higher and balance inStatement of Profit and Loss under the head Reserve & Surplus would have been lower byF2325.75 lacs (upto previous Balance Sheet date F 2215.00 lacs). A similar qualificationhad been given in the previous year's Auditor's Report.

b) Provision for interest on certain Secured and Unsecured Borrowings amounting to F128.95 lacs (Previous year ? 53.07 lacs) (Note No. 19.1 & 19.2) has not been made inaccounts as the Company was expecting waiver /relief under rehabilitation scheme submittedto BIFR and after abatement of BIFR Company has submitted rehabilitation / revival schemeto NCLT and expect waiver / relief having its impact on reducing the Loss for the Year.The total amount of Interest not provided till 31st March 2017 amounts to f1646.72 lacs(upto previous Balance Sheet date F 1517.77 lacs) (Note No. 4.2 & 4.9). Had theCompany provided for the Interest Other Current Liabilities would have been higher andbalance in Statement of Profit and Loss under the head Reserve & Surplus would havebeen lower by F1646.72 lacs (upto previous Balance Sheet date F 1517.77 lacs) and InterestExpenses would have been higher and Loss for the Year would have been higher by F 128.95lacs (Previous Year F53.07 lacs) A similar qualification had been given in the previousyear's Auditor's Report.

c) Provision for interest amounting to T6436.17 lacs on Secured Assigned term loan forwhich the Company has received noticefrom the Assignee recalling original principal amountof F 5186 lacs alongwith interest thereon upto the date of payment has not been made asthe Company expects waiver/relief under rehabilitation/revival scheme submitted to NCLTafter abatement of BIFR (Refer Note No. 4.4). Had the Company provided for the interestOther Current Liabilities would have been higher and balance in Statement of Profit andLoss under the head Reserve & Surplus would have been lower by F 6436.17 lacs andinterest expenses would have been higher and Profit for the Year would have been lower byF6436.17 lacs. Had the Company provided for the Principal Other Current Liabilities wouldhave been higher and balance in Statement of Profit and Loss under the head Reserve &Surplus would have been lower by F 4759.08 lacs and Profit for the year would have beenlower by F4759.08 lacs.

d) Compound interest. Penal interest and liquidated damages in respect of allborrowings have not been provided amount of which is unascertainable pendingconfirmations / reconciliation. (Note No. 4.12). The company was expecting waiver/reliefunder rehabilitation scheme submitted to BIFR and after abatement of BIFR Company hassubmitted rehabilitation / revival scheme to NCLT and expect waiver / relief. A similarqualification had been given in the previous year's Auditor's Report.

e) The accounts of the Company have been prepared on a going concern basis though theBoard for Industrial and Financial Reconstruction (BIFR) had declared the company as asick company and after abatement of BIFR Company has submitted rehabilitation/revivalscheme to NCLT. (Note No. 27). The Financial statements do not include any adjustmentsrelating to the recoverability and classification ofrecorded asset amounts andclassification of liability that may be necessary if the Company is unable to continue asa going concern. A similar qualification had been given in the previous year's Auditor'sReport.

f) Pursuant to restructuring of some of the borrowings the Company has taken credit ofF NIL lacs (Previous yearF 4582.86 lacs) to Statement of Profit and Loss as exceptionalitems during the year pending fulfillment of future obligations. Total Credit taken bythe Company upto 31st March 2017 which are subject to fulfillment of future obligationsamounts to F8115.50 lacs (Previous year F8115.50 lacs). Had the Company not taken suchpreditto the Statement of Profit and Loss under the head Reserve &‘Surplus theBalance in the Statement of Profit and Loss would have been lower and Current Liabilitieswould have been higher to that extent. A similar qualification had been given in theprevious year's Auditor's Report.

We further report that without considering items mentioned at para (d) and (e) abovethe effect of which could not be determined had the observations made by us in para (a)(b) (c) and (f) above been considered the loss for the year would have been F 11165.13lacs (as against the reported figure ofprofit of F 159.07 lacs) Other current liabilitieswould have been F 24710.55 lacs (as against the reported figure of F 6186.41 lacs) andDebit balance of Reserves & Surplus would have been F 27568.56 lacs (as against thereported figure of F9044.42 lacs).

5. 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 matter described in the Basis for QualifiedOpinion paragraph above the aforesaid financial statements give the information requiredby the Act in the manner so required and give a true and fair view in conformity with theaccounting principles genially accepted in India:

a) In the case of the Balance Sheet of the state of affairs of the Company as at March31 2017;

b) In the case of the Statement of Profit and Loss of the Profit for the year ended onthat date; and

c) In the case of the Cash Flow Statement of the cash flows for the year ended on thatdate.

6. Report on Other Legal and Regulatory Requirements

a) As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of Section 143(11) of Companies Act2013 we give in the Annexure "A" on the matters specified in paragraphs 3 and 4of the Order to the extent applicable.

b) As required by Section 143(3) of the Act we report that:

i. We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

ii. Except for the effects of the matter described in the Basis for Qualified Opinionparagraph in our opinion proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books.

iii. The Balance Sheet Statement of Profit and Loss and Cash Flow Statement dealt withby this Report are in agreement with the books of account.

iv. Except for the effects of the matter described in the Basis for Qualified Opinionparagraph in our opinion the Balance Sheet Statement of Profit and Loss and Cash FlowStatement comply with the accounting standards specified under Section 133 of the Actread with Rule 7 of the Companies (Accounts) Rules 2014.

v. The matters described in the Basis for Qualified Opinion paragraph above in ouropinion may have an adverse effect on the functioning of the Company.

vi. On the basis of written representations received from the directors as on March 312017 and taken on record by the Board of

Directors none of the directors is disqualified as on March 31 2017 from beingappointed as a director in terms of section 164 (2) of the Act.

vii. The Qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the basis for Qualified Opinion paragraph above.

viii. 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 B".

ix. 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:

A. The Company has disclosed the impact of pending litigations on its financialposition in its financial statements. (Refer Note 25).

B. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.

C. There is no default in transferring amounts required to be transferred to theInvestor Education and Protection Fund by the company during the year ended on March312017.(Refer Note 3.1 & 4.8).

D. The Company has provided requisite disclosures in the financial statements as toholdings as well as dealings in Specified BankNotes during the period from 8th November2016 to 30th December 2016. Based on audit procedures and relying on the managementrepresentation we report that the disclosures are in accordance with books of accountmaintained by the Company and as produced to us by the Management. (Refer Note 33).

For J. T. Shah & Company

Chartered Accountants

[FRN No. 109616W]

(J.T. Shah)

Partner

(M. No.3983)

Place : Ahmedabad

Date : 29th May 2017

ANNEXURE "A" TO INDEPENDENT AUDITORS' REPORT

Referred to in paragraph 6(a) of our Report of even date to the Members of

MODERN DENIM LIMITED for the year ended 31st March 2017.

1. In respect of Property Plant and Equipments;

a. The Company has maintained proper records showing lull particulars includingquantitative details and situation of Fixed Assets other than Furniture and Fixtures andOffice Equipment for which detailed records are not maintained.

b. As per the information and explanations given to us fixed assets were physicallyverified during the year by the Management in accordance with a programme of verificationwhich in our opinion provides for physical verification of all the fixed assets atreasonable intervals. According to the information and explanations given to us nomaterial discrepancies were noticed on such verification.

c. As explained to us the title deeds of all the immovable properties are held in thename of the company.

2. In respect of its Inventories:

a. The inventory has been physically verified during the year by the management In ouropinion the frequency of verification is reasonable.

b. The procedures of physical verification of inventories followed by the managementare reasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

c. On the basis of our examination of the records of inventory we are of opinion thatthe Company is maintaining proper records of inventory. The discrepancies noticed onverification between the physical stocks and books records were not material.

3. In respect of Loans and Advances granted during the year.

As per information and explanation given to us the Company has not granted loans tocompany covered under the register maintained under section 189 of the Companies Act 2013and tbereforethe clauses (iii) (a) to (c) of the Companies(Auditor's Report) Order2016are not applicable.

4. Loans Investments and guarantees:

According to the information and explanation given to us the company had neither givenany loan guarantee or security nor made any investments during the year. Hence theprovisions of section 185 and 186 are not applicable. Therefore clauses (iv) of companies(Auditor's Report) Order 2016 is not applicable.

5. During the year the company has not accepted any deposits and hence the directivesissued by the Reserve Bank of India and the provisions of sections

73 to 76 or any other relevant provisions of the Companies Act and the rules framedthere under are not applicable to the company. Therefore clauses

(v) of companies (Auditor's Report) Order 2016 is not applicable.

6. According to the information and explanations given to us the company is notrequired to maintain cost records as required by the central government under sub section(1) of section 148 of the Companies Act 2013 even though books of accounts relating tomaterials labour and other items of cost maintained by the company pursuant to the Rulesmade by the Central * Government for the maintenance of cost records trader Section 148(1) of the Companies Act 2013 and we are of the opinion that prima facie the prescribedaccounts and records have been made and maintained. We have not however made a detailedexamination of the records with a view to determine whether they are accurate or complete.

7. In respect of Statutory Dues:

a. According to the records of the Company the Company is by and large regular indepositing with appropriate authorities undisputed statutory dues including providentfrrad employee's state insurance income- tax sales-tax wealth-tax Service Tax customduty excise duty cess and other statutory dues applicable to it.

b. According to the information and explanations given to us no undisputed amountspayable in respect of income tax wealth tax service tax sales tax customs duty andexcise duty were outstanding as at 31st March 2017 for a period of more than six monthsfrom the date they became payable.

c. According to the records of the Company the dues of excise duty which have notbeen deposited on account of disputes and the forum where the dispute is pending are asunder.

Name of the Statute Nature of the Dues Amount (Rs. In lacs) Fornm where dispute Is pending
the Central - Excise duty 0.34 The Central Excise and Service
Excise Act 1944 Penalty 24.42 Tax Appellate Tribunal (Ahmedabad)
The Central - Excise duty 0.91 The Central Excise and Service
Excise Act 1994 Penalty 15.82 Tax Appellate Tribunal (Ahmedabad)
Total 41.49

d. According to the records of the company there are no amounts required to betransferred to investor education and protection fund in accordance with the relevantprovisions of the Companies Act 1956 (1 of 1956) and rules made there under.(Refer Note3.1 & 4.8).

8. The Company has defaulted in repayment of installments of dues to Debenture holdersamounting to ? 646.13 lacs since 1997.

9. The company has not accepted any fresh deposits during the year as per theinformation and explanation given to us in respect of deposits accepted in earlier yearsthe compliance with the provisions of section 73 to 76 or any other relevant provisions ofthe Company Act 1956 and rules framed there under are subject to the order passed by theCompany law Board on 17.04.2002 whereby the Company is required to make repayment ofdeposits and payment of interest thereon in accordance with the revival scheme approval bythe Board for Industrial and Financial Reconstruction (BIFR) under the provisions of SickIndustrial Companies (Special Provisions) Act 1985 and after abatement of BIFR theCompany has submitted rehabilitation / revival scheme to NCLT.

10. Based upon the audit procedures performed and information and explanations given bythe management we report that no fraud by the Company or any fraud on the company by it'sofficer or employees has been noticed or reported during the course of our audit.

11. In our opinion and according to the information and explanations given to us thecompany had paid managerial remuneration which is in accordance with the requisiteapprovals mandated by the provisions of section 197 read with schedule V of The CompaniesAct 2013.

12. In our opinion and according to the information and explanations given to us theprovisions of special statute applicable to chit funds and Nidhi / mutual benefit funds /societies are not applicable to the company. Hence clause (xii) of the Company's(Auditor's Report) Order 2016 is not applicable

13. In our opinion and according to the information and explanations given to us thetransactions entered by the company with related parties are in compliance with theprovisions of section 177 and 188 of The Companies Act 2013 and details thereof areproperly disclosed in the financial statements.

14. In our opinion and according to the information and explanation given to us nopreferential allotment or private placement of shares or fully or partly convertibledebentures during die year under review and hence clause (xiv) of the Company's(Auditor's Report) Order 2016 is not applicable.

15. The company had not entered in to any non-cash transactions with the directors orpersons connected with him during the year and hence clause (xv) of Company's (Auditor'sReport) Order 2016 is not applicable.

16. In our opinion and according to the information and explanation given to us thecompany is not registered under section 45-IA of Reserve Bank of India Act 1934 henceclause (xvi) of Company's (Auditor's Report) Order 2016 is not applicable

For J. T. Shah & Company

Chartered Accountants

[FRNNo. 109616W]

(J.T. Shah)

Partner

(M. No.3983)

Place: Ahmedabad

Date: 29thMay2017

ANNEXURE"B" TO INDEPENDENT AUDITORS' REPORT

Referred to in paragraph 6(b)(viii) of our Report of even date to the Members of MODERNDENIM LIMITED for the year ended 31st March 2017.

Report on the Internal Financial Controls under Clause (1) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of MODERNDENIM LIMITED as of 31st March 2017 in conjunction with our audit of the standalonefinancial 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 responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to company's policies the safeguarding of its assets the preventionand detection of frauds and errors the accuracy and completeness of the accountingrecords and the timely preparation of reliable financial information as required underthe.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 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 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 controls systemover 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 authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or ; timely detection of unauthorized 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 ofthe inherent limitations of internal financial controls over financial reportingincluding the possibility of collusion or improper management ovetride of controlsmaterial 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.

Opinion

In our opinion the Company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31st March 2017 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.

For J. T. Shah & Company

Chartered Accountants

[FRNNo. 109616W]

(J.T. Shah)

Partner

(M. No.3983)

Place : Ahmedabad

Date : 29th May 2017