To The Members of DigjamLimited (under CIRP) Report on the Audit of the FinancialStatements
Disclaimer of opinion
We were engaged to auditthe accompanying financial statements of Digjam Limited("the Company") under CIRP which comprise the Balance Sheet as at March 312020 the Statement of Profit and Loss (including Other Comprehensive Income) theStatement of Changes in Equity and the Statement of Cash Flows for the year ended on thatdate and a summary of the significant accounting policies and other explanatoryinformation (hereinafter referred to as "the financial statements").
We do not express an opinion on the accompanying financial statements of the company.Because of the significance of matter discussed in the Basis for disclaimer of Opinionsection of our report we have not been able to obtain sufficient and appropriate auditevidence to provide a basis for an audit opinion on these financial statements.
Basis for Disclaimer of opinion
I. As per Note 3A 3B and 38to the financial statements the carrying value of theCompany's Property Plant and Equipment and Intangible Assets are Rs. 16817 lacs and Rs.2.95lacs respectively. In accordance with Ind AS-36 "Impairment of Assets" anentity shall assess at the end of each reporting period whether there is any indicationthat an asset may be impaired if such indication exists the entity shall estimate therecoverable amount of the asset. In view of the uncertainty of resumptions of theCompany's operations the management is required to make an assessment of impairment tothe carrying value of its assets. Pending resolution of Corporate Insolvency ResolutionProcess ("CIRP) at the year end we have been informed that the Management has notperformed an assessment to determine any impairment to the carrying value of these assets.Consequently we are unable to conclude if any impairment needs to be recognized to thecarrying value of these assets and its consequential effects on the financial statements.
II. As referred in Note 5 and Note 36 to the financial statements the company'sinventories as at 31st March 2020are carried at Rs.2216.43 lacs being thelower of cost and net realizable value based on management/Resolution Professional'sestimates. Amid Covid-19 it was impracticable for us to attend the management's physicalinventory count that was carried out at the year end also even after performingalternative audit procedures we have not been able to obtain sufficient and appropriateaudit evidence to test the methods and assumptions used by the management in determiningthe net realizable values and therefore we are unable to conclude if the value ofinventories is fairly stated in the financial statements.
III. We draw attention to Note 34 and Note 40 to the financial statements whichindicate that the company's production has been suspended since October 2018.
The company has incurred a net loss of Rs. 1744.68 lacs during the year ended 31stMarch 2020 and as of that date the company's current liabilities exceeded its currentassets by Rs. 12185.11 lacs. The Note further refers to the current status of theCorporate Insolvency Resolution Process which is initiated on 26th April 2019 and theresolution plan was approved by NCLT subsequent to the year end on 27th May 2020 pendingthe resolution of the above uncertainties the Company has prepared the aforesaidstatement on a going concern basis. However the resolution plan is yet to be implementedtill the date of audit report. This indicates existence of a material uncertainty that maycast significant doubt on the Company's ability to continue as a going-concern andtherefore that it may be unable to realize its assets and discharge its liabilities inthe normal course of business.
IV. We draw attention to Note 6 and Note 39 to the financial statements. As stated inthe Note the company has trade receivable amounting to Rs. 181.14 lacs as at 31stMarch 2020. In view of suspension of operations since a long period uncertainty ofresumption of future operations and absence of most of the confirmation as at the yearend we have not been able to obtain sufficient and appropriate audit evidence regardingthe recoverability of the balance trade receivables of Rs. 181.14 lacs and therefore areunable to conclude on the reasonableness of the carrying value of the trade receivablesand the consequential effects if any on the financial statements.
V. We draw attention to Note 37 to the financial statements the Company has notprovided for the Interest on borrowings inter corporate deposits and interest payable toMSME after 26th April 2019 in the view of Moratorium as per Section 14 of theCode. The same is not in compliance with Ind AS -23 "Borrowing Costs". Had theprovision for interest been recognized finance cost and total expenses would have beenhigher consequently Loss and total comprehensive Loss would have been higher. It wouldfurther affect the other financial liability and other equity. We areunable to concludethe amount of consequential effects if any on the financial statements.
Material Uncertainty Related to Going Concern
We draw attention to Note 34 and Note 40 to the financial statements which indicatethat the company's production has been suspended since October 2018. The company hasincurred a net loss of Rs. 1744.68 lacs during the year ended 31st March 2020and as of that date the company's current liabilities exceeded its current assets by Rs.12185.11 lacs. The Note further refers to the current status of the Corporate InsolvencyResolution Process which is initiated on 26th April 2019 and the resolution plan wasapproved by NCLT subsequent to the year end on 27th May 2020 pending the resolution ofthe above uncertainties the Company has prepared the aforesaid statement on a goingconcern basis.
However the resolution plan is yet to be implemented till the date of audit report.This indicates existence of a material uncertainty that may cast significant doubt on theCompany's ability to continue as a going-concern and therefore that it may be unable torealize its assets and discharge its liabilities in the normal course of business.
1. That the financial statements of the prior period were audited by the predecessorauditor and the predecessor auditor's report dated 04th February 2020 stated aDisclaimer of opinion.
2. As refer to Note 17 to the financial statements the Company has a pending statutorydue (including TDS TCS GST and employee statutory obligations) amounting to Rs.258.72lacs as at the year-end 31st March 2020
3. For actuarial valuation of the Gratuity liability and Privilege Leave liability werelied on actuarial valuation report of Management's Expert.
4. The company has not complied with the provisions of Section 138 of the Companiesact 2013 as company has initiated the Internal audit process for the half year ended 31stMarch 2020.
5. The Company has made an adhoc provision of Rs. 3.00 lacs under the headmiscellaneous expenses.
Information Other than the Financial Statements and Auditorfs Report Thereon
In the ongoing Corporate Insolvency Resolution Process(CIRP) The ResolutionProfessional (RP) is responsible for the preparation of the other information. The otherinformation comprises the information included in the Management Discussion and AnalysisBoard's Report including Annexures to Board's Report Business Responsibility ReportCorporate Governance and Shareholder's Information but does not include the standalonefinancial statements and our auditor's report thereon. These reports are expected to bemade available to us after the date of this auditor's report. Our opinion on thestandalone financial statements does not cover the other information and we do not expressany form of assurance and conclusion thereon. In connection with our audit of thestandalone financial statements our responsibility is to read the other information andin doing so consider whether the other information is materially inconsistent with thestandalone financial statements or our knowledge obtained during the course of our auditor otherwise appears to be materially misstated. If based on the work we have performedwe conclude that there is a material misstatement of this other information we arerequired to report that fact. We have nothing to report in this regard.
Managementfs Responsibility for the Standalone Financial Statements
The Hon'ble National Company Law Tribunal Ahmedabad Bench ("NCLT") admittedan insolvency and bankruptcy petition filed by M/s Oman Inc. (HUF) operational creditoragainst Digjam Limited ("the Company") and appointed Mr. Parag Sheth to act asInterim Resolution Professional (IRP) with the directions to initiate appropriate actioncontemplated with extent provisions of the Insolvency and Bankruptcy Code 2016 and otherrelated rules. Pursuant to ongoing Corporate Insolvency Resolution Process (CIRP) powersof the Board of Directors have been suspended and these responsibilities are now vestedwith Resolution Professional (RP). In the view of ongoing Corporate Insolvency ResolutionProcess(CIRP) The Resolution Professional (RP) is responsible for the matters stated insection 134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the financial position financialperformance total comprehensive income changes in equity and cash flows of the Companyin accordance with the accounting principles generally accepted in India including theIndian Accounting Standards specified under section 133 of the Act read with relevantrules issued thereunder. This responsibility also includes maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for preventing and detecting frauds and other irregularities;selection and application of appropriate accounting policies; making judgments andestimates that are reasonable and prudent; and design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theaccuracy and completeness of the accounting records relevant to the preparation andpresentation of the financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so. However in view of the Corporate Insolvency Resolution Processhaving been commenced before NCLT as under section 20 of the Code it is incumbent uponthe Resolution Professional to manage the operations of the Company as a going concern andfor the reason specified in note 34 to financial statements; the accounts have beenprepared on going concern basis.
Auditorfs Responsibilities for the Audit of the Standalone Financial Statements
Our responsibility is to express an opinion on the financial statements based onconducting the audit in accordance with Standards on Auditing issued by the Institute ofChartered Accountants of India (ICAI). Because of the matter(s) described in the Basis forDisclaimer of Opinion paragraph however we were not able to obtain sufficientappropriate audit evidence to provide a basis for an audit opinion We are independent ofthe company in accordance with the Code of Ethics issued by the Institute of CharteredAccountants of India (ICAI) together with the Ethical requirements that are relevant toaudit of the financial statements under the provisions of the act and rules madethereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics issued by the Institute of Chartered Accountantsof India (ICAI).
Report on Other Legal and Regulatory Requirements
1. As required by Section 143(3) of the Act based on our audit we report that:
a) As described in the Basis for Disclaimer of opinion we were unable to obtain allthe information and explanations which to the best of our knowledge and belief werenecessary for the purposes of our audit.
b) Due to possible effects of the matter described in the Basis for Disclaimer ofOpinion section we are unable to state that whether proper books of account as requiredby law have been kept by the Company so far as it appears from our examination of thosebooks.
c) Due to possible effects of the matter described in the Basis for Disclaimer ofOpinion section we are unable to state that whether the Balance Sheet the Statement ofProfit and Loss including Other Comprehensive Income Statement of Changes in Equity andthe Statement of Cash Flow dealt with by this Report are in agreement with the relevantbooks of account.
d) Due to possible effects of the matter described in the Basis for Disclaimer ofOpinion section we are unable to state whether; the aforesaid financial statements complywith the Ind AS specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014.
e) The matters stated in Basis for Disclaimer of Opinion section above in our reportmay have adverse effect on the functioning of the company.
f) On the basis of the written representations received from the directors as on March31 2020 taken on record by the Resolution Professional none of the director isdisqualified as on March 31 2020 from being appointed as director in terms of section164(2) of the Act. However in the view of corporate resolution process ("CIRP")from April 26th 2019 the powers of Board of Directors stand suspended as per section 17of the code and such powers are being exercised by the Resolution Professional.
g) The reservation relating to the maintenance of the accounts and other mattersconnected therewith are as states in the Basis for Disclaimer of Opinion section above.
h ) 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 A". Our report expresses adverse opinion on theadequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting for the reasons stated therein.
i) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended In our opinionand to the best of our information and according to the explanations given to us theremuneration paid by the Company to its directors during the year is in accordance withthe provisions of section 197 of the Act.
j) 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 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigations on its financialposition in its financial statements.
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the company.
2. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government in terms of Section 143(11) of the Act we give in"Annexure B" a statement on the matters specified in paragraphs 3 and 4 of theorder.
Annexure to the Independent Auditorfs Report
(Referred to in paragraph 1(h) under Report on Other Legal and RegulatoryRequirements' section of our report to the Members of Digjam Limited of even date) Reporton the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act"). We haveaudited the internal financial controls over financial reporting of DIGJAM LIMITED (underCIRP) ("the Company") as of March 31 2019 in conjunction with our audit of thefinancial statements of the Company for the year ended on that date.
Managementfs Responsibility for Internal Financial Controls
The Board of Directors of the Company is responsible for establishing and maintaininginternal financial controls based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting issued by the Institute of Chartered Accountants of India. Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to respective company's policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act 2013.
Our responsibility is to express an opinion on the internal financial controls overfinancial reporting of the Company based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting (the "Guidance Note") issued by the Institute of Chartered Accountantsof India and the Standards on Auditing prescribed under Section 143(10) of the CompaniesAct 2013 to the extent applicable to an audit of internal financial controls. ThoseStandards and the Guidance Note require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting was established and maintained and if suchcontrols operated effectively in all material respects. Our audit involves performingprocedures to obtain audit evidence about the adequacy of the internal financial controlssystem over financial reporting and their operating effectiveness. Our audit of internalfinancial controls over financial reporting included obtaining an understanding ofinternal financial controls over financial reporting assessing the risk that a materialweakness exists and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. 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. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our audit opinion onthe internal financial controls system over financial reporting of the Company.
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.
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.
Basis for Adverse opinion
According to the information and explanations given to us and based on our audit thefollowing material weaknesses have been identified in the Company's internal financialcontrols over financial reporting as at 31st March 2020.
1. The company did not have appropriate internal control for assessment ofrecoverability of trade receivables.
2. The company did not have appropriate internal control for assessment of netrealizable value of inventories.
3. The company did not have appropriate internal control process to assess theappropriateness of using the going concern assumption.
4. The company did not have internal controls for assessment of impairment if any tothe carrying value of Property Plant and Equipment and Intangible assets.
5. The company has not provided for interest on loans inter corporate deposits andInterest payable to MSME after 26th April 2020. Same is not in compliance with Ind AS 23"Borrowing costs".
A material weakness' is a deficiency or combination of deficiencies in internalfinancial control over financial reporting such that there is a reasonable possibilitythat a material misstatement of the company's annual or interim financial statements willnot be prevented or detected on a timely basis.
In our opinion to the best of our information and according to the explanations givento us because of the effects/possible effects of the material weaknesses described inBasis for Adverse Opinion section above on the achievement of the objectives of thecontrol criteria the Company has not maintained adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were not operating effectively as at March 31 2020 based on the internalcontrol over financial reporting criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India. We have considered the material weakness identified and reportedabove in determining the nature timing and extent of audit tests applied in our audit ofthe financial statements of the Company for the year ended 31st March 2020 and thematerial weakness has affected our opinion on the said financial statements of the companyand we have issued a Disclaimer of Opinion on the financial statements of the Company
Annexure B to the Independent Auditorfs Report
(Referred to in paragraph 2 under Report on Other Legal and RegulatoryRequirements' section of our report to the Members of Digjam Limited of even date) (i)Inrespect of the Company's fixed assets:
(a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The Company has a program of verification to cover all the items of fixed assets ina phased manner which in our opinion is reasonable having regard to the size of theCompany and the nature of its assets. Pursuant to the program certain fixed assets werephysically verified by the management during the year. According to the information andexplanations given to us no material discrepancies were noticed on such verification.
(c) According to the information and explanations given to us the records examined byus and based on the examination of the conveyance deeds / registered sale deed provided tous we report that the title deeds comprising all the immovable properties of land andbuildings which are freehold are held in the name of the Company as at the balance sheetdate except for the following:
|Particulars of the land ||Gross block as at 31st March 2020 ||Net block as at 31st March 2020 ||Remarks |
|Freehold land at Jamnagar Gujarat ||Rs. 5.91 lacs ||Rs. 5.91 lacs ||The documents for the land are yet to be mutated from the former names of the Company viz. Birla VXL Limited (DigjamWoollen Mills) to Digjam Limited. |
In respect of immovable properties of land and building none have been taken on leaseby the company. So reporting under this clause is not applicable.
ii. As explained to us the inventories were physically verified during the year by theManagement at reasonable intervals and no material discrepancies were noticed on physicalverification.
iii. According the information and explanations given to us the Company has notgranted any loans secured or unsecured to companies firms Limited LiabilityPartnership or other parties covered in the register maintained under section 189 of theCompanies Act 2013.
iv. The Company has not granted any loan made investments or providing guarantees andsecuritiesand therefore the provisions of the clause 3(iv) of the Order in notapplicable.
v. According the information and explanations given to us the Company has not accepteddeposits during the year and does not have any unclaimed deposits as at March 31 2019 towhich the directions issued by the Reserve Bank of India and the provisions of section 73to 76 and any other relevant provisions of the Act and Companies (Acceptance of Deposit)Rules 2014 as amended would apply therefore the provisions of the clause 3 (v) of theOrder are not applicable to the Company.
vi. The maintenance of cost records has not been specified by the Central Governmentunder section 148(1) of the Companies Act 2013. We have prima facie reviewed the costrecord maintained by the Company pursuant to the Companies (Cost Records and Audit) Rules2014 as amended and we are of the opinion that the prescribed cost records have beenmade and maintained. We have not made a detailed examination of the cost records with theview to determine whether they are accurate or complete.
vii. According to the information and explanations given to us in respect of statutorydues :
(a) The Company hadnot been regular in depositing undisputed statutory dues includingProvident Fund Employees' State Insurance Income Tax Goods and Service Tax CustomsDuty Cess and other material statutory dues applicable to it with the appropriateauthorities.
(b) The undisputed amounts payable in respect of Provident Fund Employees' StateInsurance Income Tax Goods and Service Tax Customs Duty Cess and other materialstatutory dues in arrears as at March 31 2020 for period of more than six months from thedate they became payable are as follows:
|Particulars ||Amount outstanding as on 31st March 2020 ||Remark |
|Professional tax on salary ||Rs. 10.67 lacs ||Pending since March 2019 |
(c) Details of dues of Income Tax Sales Tax Service Tax Excise Duty and Value AddedTax which have not been deposited as at March 31 2020 on account of dispute are givenbelow:
|Nature of the statute ||Nature of dues ||Forum where Dispute is pending ||Period to which the amount relates ||Amount involved (Rs. In lacs) ||Amount unpaid (Rs. In lacs) |
|Finance Act 1994 ||Service Tax ||Customs Excise and Service Tax Appellate Tribunal ||18.04.2006 to 31.07.2006 ||11.47 ||10.99 |
|Finance Act 1994 ||Service Tax ||Customs Excise and Service Tax Appellate Tribunal ||Oct 2009 to Sept 2014 ||115.16 ||106.52 |
|Finance Act 1994 ||Service Tax ||Customs Excise and Service Tax Appellate Tribunal ||Oct 2014 to July 2017 ||28.21 ||26.09 |
viii. In our opinion and according to the information and explanation given to us theCompany has defaulted in the repayment of loans or borrowings to banks and financialinstitutions. The Company has not taken any loans or borrowings from the government or hasnot issued any debentures. The details regarding the defaults are as under:
|Name of lender ||Amount of default of repayment as at 31st March 2020 (Rs. In lacs) ||Period of default upto 31st March 2020 |
|Uco Bank ||3786.72 ||Since May 2018 |
|State Bank of India ||1157.29 ||Since May 2018 |
ix. The Company has not raised moneys by way of initial public offer or further publicoffer (including debt instruments). The Resolution Professional on behalf of the Companyhas raised money by the way of term loans regarded as interim finance as per Insolvencyand Bankruptcy Code 2016 and the said loans were utilized for the purpose for which theywere raised.
x .Tothe best of our knowledge and according to the information and explanations givento us no fraud by the Company or no material fraud on the Company by its officers oremployees has been noticed or reported during the year.
xi. In our opinion and according to the information and explanations given to us theCompany has paid / provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to the Act.
xii. The Company is not a Nidhi Company and hence reporting under clause 3 (xii) of theOrder is not applicable to the Company.
xiii. In our opinion and according to the information and explanations given to us theCompany is in compliance with Section 177 and 188 of the Companies Act 2013 whereapplicable for all transactions with the related parties and the details of related partytransactions have been disclosed in the standalone financial statements as required by theapplicable accounting standards.
xiv. During the year the Company has not made any preferential allotment or privateplacement of shares or fully or partly paid convertible debentures and hence reportingunder clause 3 (xiv) of the Order is not applicable to the Company.
xv. In our opinion and according to the information and explanations given to usduring the year the Company has not entered into any non-cash transactions with itsDirectors or persons connected to its directors and hence provisions of section 192 of theCompanies Act 2013 are not applicable to the Company.
xvi. The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.