APS - STAR INDUSTRIES LIMITED
We have audited the Balance Sheet of APS - STAR Industries Ltd., as at 30th
June 1995 and the attached Profit and Loss Account for the period ended on
that date wherein are incorporated the accounts of its U.S.A Representative
Branch Office which has not been audited nor visited by us and report that
1. Attention is invited to note 2(b) regarding the amalgamation of Star
Industrial and Textile Enterprises Limited (SITEL) with the company
effective retrospectively from 1st March 1994 and its treatment as an
amalgamation by acquisition in the books of accounts based on the legal
advice received by the company. The company has in consequence restated the
corresponding figures for the previous year giving effect to the entries
relating to amalgamation and incorporating the operating results of SITEL
for the month of March 1994. In view of the retrospective nature of the
scheme of amalgamation the company's sale during the period of 10,00,000
equity shares of the erstwhile SITEL, prior to the approval of the scheme
of amalgamation have been treated as having been disposed off as of the
date of the amalgamation and the loss arising thereon has been added to the
goodwill on acquisition. The company has however not amortised the goodwill
as recommended by the Institute of Chartered Accountants of India for the
current period nor the restated previous year. Similarly the company has
not amortised amalgamation expenses. We are informed that these too will be
amortised prospectively. The company has further not made provision for
taxation, estimated at Rs. 13,500 in respect of the year ended 31-3-94 in
anticipation of the expected tax benefits arising out of the amalgamation
under the provisions of section 72A of the Income Tax Act, 1961 pending
approval by the Central Board of Direct Taxes. We express no opinion on the
2. Notwithstanding, the loss for the year and the excess of current
liabilities over current assets, as explained to us the company has
prepared the accounts on a going concern basis in view of its restructuring
plans and the expected induction of funds (refer to Current operation,
Restructuring and Modifying the amalgamation scheme in the directors
3. Attention is invited to note 19 regarding the treatment of assets sold
and required under finance leases.
4. The company did not have a company secretary as prescribed by section
383A of the Companies Act, 1956 for part of the period under audit. We are
informed that efforts are continuing to appoint a suitable replacement.
5. The company has on account of the amalgamation with the erstwhile STAR
INDUSTRIAL & TEXTILE ENTERPRISES LIMITED (SITEL) referred to above,
recorded certain assets and liabilities initially recorded in the books of
SITEL. Pending confirmation and reconciliation of the amounts and the
status, as successor, the company has recorded the same at the values
stated in the books of STAR INDUSTRIAL AND TEXTILE ENTERPRISES LIMITED,
sans qualification. We express no opinion on the same. The company has also
disclosed claims not acknowledged as debts by the erstwhile SITEL, stepping
into the shoes (position) of the same.
6. The non provision for tax and interest of the previous year in respect
of capital gain on an unit V sold by erstwhile company.
A) In respect of the turnkey project in Algeria :-
i) D.A 1,313,568 (Rs 1,865,792) being the balance due to the company from
sums remitted on invocation of the performance guarantee of the company and
claimed by the Banque National D'Algeria not acknowledged as debt by the
ii) (a) Claims against the subcontractor Som Dutt Builders Ltd. Rs.
315,426,390 and claims against the company Rs. 250,000,000 including Rs.
238,173,518 not acknowledged as debt pending in arbitration.
(b) The invocation by the company of the performance guarantee given by the
subcontractor stayed by the Delhi High Court against which the company as
successor is in appeal.
iii) The reconciliation of assets imported into Algeria on a temporary
basis, their re-export and sale and the takeover of the liability for
customs duty, amount indeterminate, by the customer.
iv) The legal advice tendered to the company in respect of the restriction
of its liability resulting from the invocation of the company's performance
guarantee to Rs. 2,098,848 as confirmed by its bankers and the additional
liability provided in its books of Rs. 18,972,125 as sought to be recovered
by ECGC. We are informed that the company has not been made available
records maintained by the bank and therefore the interest if any,
chargeable on this account could not be ascertained. We offer no comment on
whether any underprovision results.
v) The claim of the company against the Banque National D'Algeria for Dm.
233,390 (equivalent to Rs. 4,710,581) and Rs. 1,107,121 in respect of the
delays in remitting deferred receivables due to the company.
B) As a result of the delays in externalisation of funds and the delays in
settlement of claims beyond the due date the company has borne additional
interest on the postshipment loans availed of by it against the deferred
receivables and interest. The company has raised claims for excess interest
borne on the ECGC and through its bankers on the National Bank of Commerce,
Tanzania the guarantors of the deferred receivables. The company has not
accounted the claims made on the National Bank of Commerce, Tanzania.
In order to obtain the monies due to it the company had to appoint a
collecting agency and has sought to recover a proportion of the recovery
expenses from ECGC.
The above transaction is part of a chain and has a consequential effect on
other particularly we are informed that ECGC being the party providing
cover to the company also for the contracts referred to in paras 6A (iv)
and the effects on the dealings with that corporation and may have a
bearing on, the proceedings before various authorities.
C) The company could produce before us only a few balance confirmations for
sundry debtors loans and advances, sundry creditors deposits and other
personal accounts and advances given to employees against wages, salaries,
7. Subject to our above observations :
A) 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.
B) Except to the extent as stated in clause 6A (iii) and treatment of
accrued leave salaries and wages (see below) referred to above in our
opinion proper books of accounts as required by law have been kept by the
company so far as it appears from our examination of the books.
C) The Balance Sheet and Profit and Loss account dealt with are in
agreement with books of account.
D) Subject to our observations in paragraphs 2 to 8 above an according to
the information and explanations given to us the said accounts subject to :
And read with other notes thereon give the information required by the
Companies Act, 1956 in the manner so required and give a true and fair
(a) In the case of Balance sheet of the state of affairs of the company as
at 30th June 1995.
(b) In the case of the Profit and Loss Account of the loss for the period
ended on that date.
for NANUBHAI & CO.
Abhay D. Desai
Place : Mumbai,
Dated : 12th June, 1996.