Auditors Label Dunlop As Sick Firm Under Sica

Auditors Lodha & Company have held that the Manu Chabbria-controlled Dunlop India Ltd has become a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985. Besides, the management has said that its external commercial borrowing plan is in jeopardy following banks' reluctance to help it with guarantees.

According to the auditors' report 1997, accumulated losses of the company, have exceeded its entire networth and the company has become a sick industrial company within section 3(1)(o) of SICA. The management is taking steps for its revival and accordingly, `pending final decision in this respect and other rehabilitative measures to be implemented, the accounts of the company have been prepared on the basis that the company is a going concern', the auditors have stated.

 

"However, the company's ability to continue as a going concern is dependent upon the rehabilitation measures which are yet to be implemented and its future profitability and financial viability, on which we are unable to express any opinion presently," the auditors stated.

Meanwhile, the cautious approach adopted by foreign lenders in the wake of south-east Asian currency devaluation has put the company's ECB plans of raising $25 million (an estimated Rs 95 crore) in jeopardy. Besides, the management's efforts to leverage non-performing assets suffered a setback due to a sharp fall in real estate prices and lack of demand/availability of funds for large real estates.

For the nine months period ended December 1997, the company posted a net losses of Rs 231.84 crore.

The rationale behind changing the accounting year to a nine-month period to December 1997 was suspension of work at its Sahagunj and Ambattur units coupled with the Board for Industrial & Financial Reconstruction (BIFR) request that the company submit provisional accounts till December 31, 1997 in March this year. The company had been referred to the BIFR on January 14 in view of its failing financial health due to a critical shortage of working capital and the consequent erosion of net worth, according to the company.

Dunlop India's management has chalked out a manpower rationalisation programme envisaging reduction of 3,000 surplus employees on an all-India level. This will be done through a voluntary retirement scheme and involves an estimated total outflow of Rs 45 crore.

In the absence of relevant details and information, the auditors have been unable to express their opinion on certain points and their impact on the company's profits. Some of these are:

The possible diminution in value of investments aggregating to Rs 45.25 crore issued by Shaw Wallace Properties Ltd in exchange of investments in erstwhile subsidiaries since amalgamated with the said company and loans and advances aggregating Rs 47.69 crore which are outstanding for a considerable period of time and adequacy of the provisions for contingencies amounting to Rs 55 crore made against these;

Unreconciled bank overdraft balance of Rs 48.49 crore and current account balances of Rs 5.63 crore pending reconciliation with balances as per bank statements, and

Non-reconciliations/confirmations of certain other debit and credit balances and non-determination of extent of adjustments/impacts arising therefrom.