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Shah Alloys Ltd.

BSE: 513436 Sector: Metals & Mining
NSE: SHAHALLOYS ISIN Code: INE640C01011
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OPEN 18.10
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VOLUME 504
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Mkt Cap.(Rs cr) 36
Buy Price 18.10
Buy Qty 6.00
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OPEN 18.10
CLOSE 18.20
VOLUME 504
52-Week high 24.30
52-Week low 8.75
P/E
Mkt Cap.(Rs cr) 36
Buy Price 18.10
Buy Qty 6.00
Sell Price 19.00
Sell Qty 250.00

Shah Alloys Ltd. (SHAHALLOYS) - Auditors Report

Company auditors report

To the Members of SHAH ALLOYS LIMITED AHMEDABAD

Report on the Financial Statements

We have audited the accompanying financial statements of Shah Alloys Limited ('theCompany') which comprise the Balance sheet as at March 31 2016 the Statement of Profitand Loss the Cash Flow Statement for the year then ended and a summary of significantaccounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese financial statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Accounting Standards specified underSection 133 of the Act read with Rule 7 of the 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.

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 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 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. An audit also includes evaluating theappropriateness of the accounting policies used and the reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof 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

1. The Company has not provided for foreign exchange loss in the financial statementson the Principal amount of 10000000 USD and on the Premium amount of 4825500 USD ofthe Foreign Currency Convertible Bonds(FCCB) which had become due for payment on September22 2011 and remain unpaid as at March 31 2016 which constitutes a departure from theAccounting Standard - 11 "The Effects of Changes in Foreign Exchange Rates"which requires that each foreign currency monetary items should be reported using theclosing rate as at the balance sheet date. Non provision of the foreign exchange loss onthe aforesaid Foreign Currency Convertible Bonds (FCCB) and the Premium amount relates tothe period from September 23 2011 to March 31 2016. The Company's record indicate thathad management done the provision the Exchange loss for the Year ended 31stMarch 2016 would have been higher by ' 55478504/-. Accordingly profits for theYear ended 31st March 2016 has been over-stated by ' 55478504/- andnegative balance of reserves and surplus has been understated by ' 259630086/- as at 31stMarch 2016.

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 generally accepted in India:

1) In case of the Balance Sheet of the state of affairs of the Company as at March 312016

2) In case of the Statement of profit and loss of the profits for the year ended onthat date

3) In case of the Cash flow Statement of the cash flows for the year ended on thatdate.

Emphasis of Matters

We draw attention to the following matters in the Notes to the Financial Statements:

1) Note No 39 to the financial statements regarding the Company having accumulatedlosses and its net worth has been fully eroded. The

Financial Statements indicates that the Company has incurred a net loss during theprevious years and the Company's current liabilities exceeded its current assets as atthe current and previous year balance sheet date. These conditions indicate the existenceof a material uncertainty that may cast significant doubt about the Company's ability tocontinue as a going concern. However the financial statements of the Company have beenprepared on a going concern basis.

2) Note No 34 to the financial statements regarding the transfer/assignment of securedloans with all their rights title and interest in the financial documents by banks to theAsset Reconstruction companies.

3) During the year ended 31st March 2016 the company has carried out atechno-economic assessment for the valuations of its Capital Projects to identify theimpairment loss and provision thereof if any. Based on the said techno-economicassessment of the Capital Projects the Company has provided for ' 35850355/- asper Note 40 to the financial statements The same is in accordance with the notifiedAccounting Standard 28 on Impairment of asset which states that impairment loss isrecognized when the carrying amount of an asset exceeds its recoverable amount.

4) Note 42 to the Financial Statements about the settlement agreement entered into bythe company with effect from 15th June 2015 and 11th August 2015 forthe entire dues in respect of the various facilities and assistance provided respectivelyby Union Bank of India and State bank of India which is now assigned to Invent AssetsSecuritization & Reconstruction Private Limited.

The Company has accounted for the Principal Portion of Waiver of loan facilities asCapital Reserve and Waiver of interest as Income which has been offered in the Statementof Profit and Loss.

The said agreements provides for the settlement of entire dues in respect of financialassistance and facilities with the underlying securities for the payment of '1461500000/- towards full and final settlement against the total liability(Principaland Interest) of ' 6073485227/ - resulting into the waiver of liability(Principal and Interest) for the amount of ' 4611985227/-.

Out of the said waiver of liability (Principal and Interest) for the amount of '4611985227/- the waiver of liability of Principal portion of ' 2139442763/-has been shown as a capital Reserves in the Statement of Assets and Liabilities as at 31stMarch 2016 and waiver of interest liability for ' 2472542464/- has been offeredas Income in the Statement of profit and Loss and has been shown as an Extra ordinary itemin the Results for the period ended 31st March 2016.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

i) As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of subsection (11) of section 143 ofthe Act we give in the Annexure A a statement on the matters specified in the paragraph3 and 4 of the Order to the extent applicable.

ii) 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 bestof our knowledge and belief were necessary for the purposes of our audit.

b) Except for the effects of the matter described in the Basis for Qualified Opinionparagraph above in our opinion proper books of account as required by law have beenkept by the Company so far as it appears from our examination of those books;

c) The Balance sheet the Statement of Profit and loss and the Cash flow statementdealt with by this Report are in agreement with the books of account;

d) Except for the effects of the matter described in the Basis for Qualified Opinionparagraph above in our opinion the aforesaid financial statements comply with theAccounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014;

e) The going concern matter as described in sub-paragraph (1) under the Emphasis ofMatters paragraph above in our opinion may have an adverse effect on the functioning ofthe Company.

f) 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"; and

g) On the basis of the written representations received from the directors as on March31 2016 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2016 from being appointed as a director in terms of Section 164 (2) of theAct; and

h) 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:

i) The Company has disclosed the impact of pending litigations on its financialposition in its financial statements - Refer Note 21 to the financial statements;

ii) The Company did not have any long term contracts including derivative contracts forwhich there were any material foreseeable losses;

iii) There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.

For Talati & Talati
Chartered Accountants
(Firm Reg. No: 110758W)
Umesh Talati
Place : Ahmedabad Partner
Date : May 30 2016 Mem No. : 034834

ANNEXURE A TO INDEPENDENT AUDITORS' REPORT

The Annexure referred to in Independents Auditor's Report to the members of the Companyon the Standalone financial statement for the year ended 31st March 2016 we report that:

1. In respect of its Fixed Assets:

i) The company has maintained proper records showing full particulars includingquantitative details and situation of the fixed assets on the basis of availableinformation.

ii) As explained to us a major portion of the fixed assets has been physicallyverified by the management during the year in accordance with a phased program ofverification adopted by the Company. In our opinion the frequency of verification isreasonable having regard to the size of the company and nature of its assets. As informedto us no material discrepancies were noticed on such physical verification.

iii) According to the information and explanation given to us and on the basis of ourexamination of records of the company the title deeds of the immovable properties heldare in the name of the company.

2. In respect of its inventories:

As explained to us inventories (excluding Goods in Transit and Goods lying at Port)were physically verified by the management at reasonable intervals during the year. In ouropinion the frequency of the verification is reasonable. The discrepancies noticed onverification between the physical stocks and the book records were not material.

3. In respect of Loans Secured or Unsecured granted by the company to companies firmsor other parties covered in the register maintained under section 189 of the CompaniesAct 2013:

According to the information and explanations given to us and on the basis of therecords produced before us the company has not granted any Loan Secured or Unsecured tothe companies or firms or other parties covered in the register maintained under section189 of the Companies Act 2013 and hence sub-clause (a) & (b) & (c) of paragraph 3of the Companies Auditor's Report Order 2016 are not applicable to the Company.

4. The Company has complied with the provision of Section 185 & 186 of CompaniesAct 2013 with respect of loans investments and guaranty made.

5. In our opinion and according to the information and explanations given to us theCompany has not accepted any deposit and hence the provisions of Section 73 to 76 or anyother relevant provisions of the Companies Act and the Companies (Acceptance of Deposits)Rules 2014 with regard to the deposits accepted are not applicable to the Company.Therefore the provisions of Clause (v) of paragraph 3 of the Companies Auditor's ReportOrder 2016 are not applicable to the Company. According to the information andexplanations given to us no order has been passed by Company Law Board or NationalCompany Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

6. We have broadly reviewed the books of account maintained by the Company pursuant tothe Rules made by the Central Government for the maintenance of cost records as specifiedunder Section 148 of the Companies Act 2013 and are of the opinion that prima facie theprescribed accounts and records have been made and maintained. We have however not madea detailed examination of the cost records with a view to determine whether they areaccurate or complete.

7. In respect of the Statutory dues:

i) According to the records of the company undisputed Statutory dues includingprovident fund employees state insurance income-tax sales-tax wealth-tax servicetaxduty of customs duty of excise value added tax cess and any other statutory dueshave not been generally regularly deposited during the year with the appropriateauthorities. On the basis of records produced before us for our verification and accordingto the information & explanation given to us no undisputed amounts payable in respectof the aforesaid dues were outstanding as at 31st March 2016 for a period ofmore than six months from the date of becoming payable.

ii) On the basis of records produced before us for our verification and according tothe information and explanations given to us the details of disputed dues of '270289483/- have not been deposited as on 31st March 2016 on account ofmatters pending before the appropriate authorities. The details of which are as under:

Sr. No. Name of the Statute Nature of the Dues Period to which the amount relates Forum where the dispute is pending Amount involved (in ')
1 Income Tax Act 1961 Income Tax 1997-98 Gujarat High court 130000/-
2 Sales Tax Act Sales Tax 1995-96 Deputy commissioner of Sales Tax (Tribunal) Ahmedabad 699000/-
3 Gujarat Value Added Tax Act 2003 Value Added Tax 2006-07 Deputy Commissioner VAT Ahmedabad 38127791/-
4 Central Excise Act 1944 Excise Duty and Service Tax 1997- 98 1998- 99 and 2004-05 to 2014-15 Central Excise & Service tax Appellate Tribunal / Joint / Deputy Commissioner of Central Excise/ Additional Commissioner of Central Excise 231332692/-

8. Consequent upon the sanction of the restructuring package given under CDR mechanismby banks & financial institution the company was required to start repaying the loanssanctioned by banks/institutions and debenture holders from June 2011 onwards however the

company has made default in repaying the dues as per the terms stipulated in the CDRrework proposal. The Amount and the period of default in respect of Working Capitalfacilities Term Loan WCTL Non-convertible Debentures Funded Interest Term LoansInterest payable on the said facilities are as under:

NAME OF THE BANK/F.I. NATURE OF FACILITY

Amount (in ') of Default as at 31-03-2016

Period Of Default ( No of Days)

IDBI BANK Working Capital

26 10 45 535

1-2131 days

Non Convertible Debenture

6 04 16 667

1 -1736 days

Term Loan

12 08 33 333

1 -1736 days

Funded Interest Term Loan

7 58 75 594

1 -821 days

Interest payable

10 92 66 519

1-2070 days

KARUR VYSYA BANK Term Loan

15 10 41 667

1 -1736 days

Funded Interest Term Loan

4 57 77 676

1 -821 days

Interest payable

6 09 36 463

1-1791 days

AXIS BANK Working Capital

9 46 34 923

1-2101 days

Working Capital Term Loan

5 41 33 333

1 -1736 days

Funded Interest Term Loan

1 22 17 104

1 -821 days

Interest payable

13 07 04 984

1-2101 days

HDFC BANK Term Loan

7 22 86 368

1 -1736 days

Funded Interest Term Loan

2 24 70 581

1 -821 days

Interest payable

7 31 28 186

1-1827 days

BANK OF BARODA Working Capital

49 87 22 365

1-2162 days

Working Capital Term Loan

19 99 79 166

1 -1736 days

Term Loan

2 06 32 292

1 -1736 days

Funded Interest Term Loan

5 00 73 649

1 -821 days

Interest payable

41 30 86 393

1-2131 days

ORIENTAL BANK OF COMMERCE Term Loan

9 45 15 553

1 -1736 days

Funded Interest Term Loan

2 07 86 890

1 -821 days

Interest payable

2 22 40 214

1-1096 days

INDIAN OVERSEAS BANK Non Convertible Debenture

6 04 16 667

1 -1736 days

Funded Interest Term Loan

3 42 07 322

1 -821 days

Interest payable

2 01 09 516

1-2070 days

BANK OF MAHARASHTRA WCTL

5 01 45 821

1 -1736 days

Working Capital

20 10 09 696

1-2221 days

TERM LOAN

1 64 16 732

1 -1736 days

FITL

1 62 87 471

1 -821 days

Interest payable

20 65 56 584

1-2070 days

PUNJAB NATIONAL BANK Working Capital

25 07 36 016

1-2131 days

WCTL

4 62 14 433

1 -1736 days

TERM LOAN

13 74 63 931

1 -1736 days

FITL

4 31 56 034

1 -821 days

Interest payable

39 27 03 456

1-2070 days

L.I.C. OF INDIA TERM LOAN

3 88 34 625

1 -1736 days

FITL

1 85 00 570

1 -821 days

Non Convertible Debenture

48 33 33 333

1 -1736 days

Interest payable

84 02 79 077

1-2070 days

Moreover the Company in September 2006 has raised US $ 10 million through UnsecuredZero Coupon Foreign Currency Convertible Bonds (FCCB) due on 22nd September2011. On full conversion of FCCB the FCCB will be converted in to 2641143 Equity sharesof Rs 10 each at a premium of Rs 165 per share at the option of the Bondholders at anytime before the maturity of the bonds. On Conversion Capital will increase by Rs26411430 and Share Premium by Rs 435788570/-. If Bonds are not converted thecompany will have to repay the bonds at a premium & in US Dollars. The companyhas provided the premium till 22nd September 2011 which has been adjustedagainst Security Premium in accordance with Section 52 of the Companies Act 2013.

However the company has defaulted in repayment of the foreign currency convertiblebond (FCCB) dues on its maturity. The default is subsisting since 1652 days.

9. According to the records of the company the company has neither raised any moniesby way of Initial Public Offer or Further Public Offer nor has the company obtained anyterm loan. Hence in our opinion the requirements of clause (ix) of Paragraph 3 of theOrder do not apply to the Company.

10. Based on the audit procedures performed and representation obtained from managementwe report that no case of material fraud by the Company or on the Company by its officersand employee has been noticed or reported for the year under audit.

11. The Company has provided managerial remuneration 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 to the best of our information and according to theexplanations provided by the management we are of the opinion that the company is not anidhi company. Hence in our opinion the requirements of clause (xii) of Paragraph 3 ofthe Order do not apply to the Company.

13. The Company has complied with Section 177 and 188 of Companies Act 2013 inrespect of transactions with the related parties and relevant details have been disclosedin the financial statements as required by the applicable accounting standards.

14. The Company has not made any preferential allotment or private placement of sharesor full or convertible debentures during the year under review. Hence the provisions ofClause (xiv) of paragraph 3 of the Order are not applicable to the Company.

15. The Company has not entered into any non-cash transactions with directors orpersons connected with him. Therefore the provisions of Clause (xv) of paragraph 3 of theOrder are not applicable to the Company.

16. The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934

For Talati & Talati
Chartered Accountants
(Firm Reg. No: 110758W)
Umesh Talati
Place : Ahmedabad Partner
Date : May 30 2016 Mem No. : 034834

ANNEXURE B TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE STANDALONE FINANCIALSTATEMENTS OF SHAH ALLOYS LIMITED

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 Shah AlloysLimited ('the Company) as of March 31 2016 in conjunction with our audit of thestandalone financial 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 judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error. Webelieve that the audit evidence I/we have obtained is sufficient and appropriate toprovide a basis for my /our audit opinion on the Company's 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.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree 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 March 31 2016 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 Talati & Talati
Chartered Accountants
(Firm Reg. No: 110758W)
Umesh Talati
Place : Ahmedabad Partner
Date : May 30 2016 Mem No. : 034834