To the Members of Gokak Textiles Limited
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements of Gokak TextilesLimited ("the Company") 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 standalone financial statements").
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("the Act") in the manner so required and give a trueand fair view in conformity with the Indian Accounting Standards prescribed under section133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015 asamended ("Ind AS") and other accounting principles generally accepted in Indiaof the state of affairs of the Company as at March 31 2020 the Loss (including othercomprehensive income) changes in equity and its cash flows for the year ended on thatdate.
Basis for Opinion
We conducted our audit of the standalone financial statements in accordance with theStandards on Auditing specified under section 143(10) of the Act (SAs). Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Standalone Financial Statements section of ourreport. We are independent of the Company in accordance with the Code of Ethics issued bythe Institute of Chartered Accountants of India (ICAI) together with the independencerequirements that are relevant to our audit of the standalone financial statements underthe provisions of the Act and the Rules made there under and we have fulfilled our otherethical responsibilities in accordance with these requirements and the ICAI's Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit opinion on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.
i. Provisions for Contingencies and Litigations and disclosure of Contingentliabilities
Description of Key Audit Matter:
At March 31 2020 the Company held provisions of Rs 808.91 lakhs in respect of legalclaims and has disclosed total contingent liabilities of Rs 10218.02 lakhs. Theseprovisions are based on judgements and accounting estimates made by management indetermining the likelihood and magnitude of claims. Accordingly unexpected adverseoutcomes could significantly impact the Company's reported loss and balance sheetposition.
Refer Note 45 and Note 48 of financial statements and accounting policies forcontingent liabilities provisions and related disclosures.
We evaluated the design and tested the operating effectiveness of controls inrespect of the determination of the provisions. We determined that the operation of thecontrols provided us with evidence over the completeness accuracy and valuation of theprovisions.
We read the summary of litigation matters provided by management and helddiscussions with the management and their legal counsels. We requested legal letters fromsome of the Company's external legal advisors with respect to the matters included in theaforesaid disclosures. Where appropriate we examined correspondence connected with thecases.
For litigation provisions we tested the calculation of the provisions assessedthe assumptions against third party data where available and assessed the estimatesagainst historical trends.
We considered management's judgements on the level of provisioning anddisclosures in respect of the aforesaid matters which we considered to be appropriate.
ii. Going Concern Assessment Description of Key Audit Matter:
During the year the Company incurred loss before tax (including other comprehensiveincome) of ' 4477.49 lakhs and had accumulated losses of ' 26306.78 lakhs as on March 312020. Further the Company's net worth has been fully eroded as at March 31 2020. Theseconditions indicate requirement of assessment of the Company's ability to continue as agoing concern.
The Company's financial statements have been prepared on a going concern basis on thereporting date. The management's statement in respect of going concern assessment is setout in Note 50 of the financial statements.
We evaluated the appropriateness of management's use of going concern basis ofaccounting in the preparation of financial statements in accordance with Standard onAuditing issued by ICAI in this regard.
We evaluated the management's plans for future actions in relation to its goingconcern assessment to assess whether the outcome of those plans is likely to improve thesituation and whether management's plans are feasible in the circumstances.
We assessed the possible mitigating actions identified by management in theevent that actual cash flows are below forecast.
We discussed and obtained a written letter from the holding Company indicatingits intention and ability to support the Company's financial and operating requirementsthrough infusion of additional capital as and when necessary.
iii. Impairment testing of investment in subsidiary:
Description of Key Audit Matter:
The Company has investment of ' 2499.00 lakhs in the equity shares of Gokak Power& Electricity ('GPEL') which represents 51% of its equity capital. GPEL is engaged inthe business of generation and distribution of hydro power and significant portion ofpower generated by GPEL is used by the Company for its textile factory.
Investments in subsidiaries are valued at cost adjusted for impairment losses if any.In line with "Ind AS 36 Impairment of assets" in the presence of an impairmentindicator the Company carries out an impairment test by comparing the recoverable amountof the investments determined according to the value in use method and their carryingamount.
GPEL has accumulated losses of ' 2418.22 lakhs as on March 312020 which indicates thatthe investment in GPEL may be impaired and requires impairment testing.
The valuation process adopted by management is complex and is based on a series ofassumptions such as the forecast cash flows the appropriate discounting rate (WACC) andthe long-term growth rate. These assumptions are by nature influenced by futureexpectations regarding the evolution of external market conditions.
We analysed the methods and assumptions applied by management to carry out theimpairment test though following procedures:
identification and understanding of the significant controls implemented by theCompany over the impairment testing process;
analysis of the reasonableness of the principal assumptions made to estimatetheir cash flows by obtaining information from management that we deemed to besignificant;
We also examined the adequacy of the information provided by the Company aboutthe impairment test and its consistency with the requirements of Ind AS 36.
analysis of actual data of the year and previous years in comparison with theoriginal plan in order to assess the nature of variances and the reliability of theplanning process;
asessment of the reasonableness of the discount rate (WACC) and the long-termgrowth rate;
verification that the carrying amount of the investment was determined properlyand comparison with the value in use resulting from the impairment test.
Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis Board's Report including Annexures to Board's Report BusinessResponsibility Report Corporate Governance and Shareholder's Information but does notinclude the standalone financial statements and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the standalone financial statements or our knowledgeobtained during the course of our audit or otherwise appears to be materially misstated.
If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Management's Responsibility for the Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these standalone financial statementsthat give a true and fair view of the financial position financial performance totalcomprehensive income changes in equity and cash flows of the Company in accordance withthe Ind AS and other accounting principles generally accepted in India. 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 standalone financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the standalone financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
The Board of Directors are responsible for overseeing the Company's financial reportingprocess.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal financial controls relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Company to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the standalone financial statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in
(i) planning the scope of our audit work and in evaluating the results of our work; and
(ii) to evaluate the effect of any identified misstatements in the financialstatements.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. 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 A" a statement on the matters specified in paragraphs 3 and 4 of theOrder.
2. As required by Section 143(3) of the Act based on our audit 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) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.
c) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome Statement of Changes in Equity and the Statement of Cash Flow dealt with by thisReport are in agreement with the relevant books of account.
d) In our opinion the aforesaid standalone financial statements comply with the Ind ASspecified under Section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014.
e) On the basis of the written representations received from the directors as on March31 2020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2020 from being appointed as a director in terms of Section 164 (2) of theAct.
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". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.
g) 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 opinion and to the best of our information and according to the explanationsgiven to us the remuneration paid by the Company to its director during the year is inaccordance with the provisions of section 197 of the Act.
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 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 standalone financial statements. (refer note 45)
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There are no amounts required to be transferred to the Investor Education andProtection Fund by the Company.
For BATLIBOI & PUROHIT
Chartered Accountants ICAI Firm Reg. No.101048W
ICAI UDIN: 20111749AAAACN3491
Place : Mumbai Date : 29 June 2020
Annexure - A to the Auditors' Report
(referred to in paragraph 1 under 'Report on Other Legal and regulatory requirements'section of our report to the members of Gokak Textiles Ltd of even date)
i. a) The Company has maintained proper records showing full particulars includingquantitative details and situation of Fixed Assets.
b) As informed to us the Company has a regular program for physical verification offixed assets by which all fixed assets are verified in a phased manner over a period ofthree years. In our opinion the periodicity of physical verification is reasonable havingregard to the size of the Company and the nature of its assets. As informed to us certainfixed assets have been verified by the Company as per the program and we were informedthat no material discrepancies were noticed on such verification.
c) Based on the information and explanations given to us and on the basis ofexamination of the records of the Company the title deeds of immovable properties are heldin the name of the Company except :
|Sr. No. Nature of Asset ||No. of Cases ||Whether Leasehold / Freehold ||Gross Block as on March 312020 ||Net Block as on March 312020 ' in lakh ||Remarks |
|1. Land ||1 ||Freehold ||11.35 ||11.35 || The title deeds of the property are in the name of erstwhile entities (Mills Division). |
| || || || || || As per the government records some portion of the land is neither in the name of the Company nor in the name of erstwhile entitles. |
|2. Land ||1 ||Freehold ||11.10 ||11.10 ||The title deeds of the properties are in the name of erstwhile entity (Garment Division). |
|3. Land ||1 ||Leasehold ||1.50 ||Nil ||The lease deed of the land is in the name of erstwhile entity (Mills Division). |
|4. Building ||1 ||owned ||7.78 ||3.69 ||The title deeds of all the properties are in the name of erstwhile entity (Mills Division). |
ii. The management has conducted physical verification of inventory at reasonableintervals during the year. In our opinion the frequency of such verification isreasonable. Discrepancies noticed on physical verification of inventories were notmaterial and have been properly dealt with in the books of account.
iii. The Company has not granted loans secured or unsecured to bodies corporateFirms Limited Liability Partnerships covered in the register maintained under section 189of the Companies Act 2013 ('the Act') Accordingly paragraph 3(iii) of the order is notapplicable to the Company.
iv. In our opinion and according to the information and explanation given to us and therecords examined by us the Company has complied with the provision of section 185 and 186of the Act with respect to investments made and guarantees provided.
v. The Company has not accepted any deposits from the public and hence the directivesissued by the Reserve Bank of India and the provisions of Section 73 to 76 or any otherrelevant provisions of the Companies Act and the Rules framed are not applicable.
vi. The maintenance of cost records has been specified by the Central Government underSection 148(1) of the Act. We have broadly reviewed the books of account maintained by theCompany pursuant to the Rules made by the Central Government for the maintenance of costrecords under section 148 of the Act and are of the opinion that prima facie theprescribed accounts and records have been made and maintained.
vii. a) According to the information and explanations given to us and on the basis ofour examination of the records the Company is generally regular in depositing undisputedstatutory dues including provident fund income-tax duty of customs employees' stateinsurance Goods and service tax professional tax cess and other material statutory duesto the appropriate authorities.
According to the information and explanations given to us there were no undisputedamounts payable in respect of provident fund employees' state insurance income-taxGoods and service tax duty of customs professional tax cess and other materialstatutory dues in arrears as at March 31 2020 for a period of more than six months fromthe date they became payable except for the details given below.
|Name of statute ||Nature of dues ||Amount (in Rs) ||Period to which it relates ||Due date ||Date of payment |
|Profession Tax Act ||Professional tax ||400 ||July 2019 ||20 August 2019 ||25 May 2020 |
According to the information and explanations given to us by the Company and on thebasis of our examination of the books of account and the record there are no dues ofIncome Tax Sales Tax Service Tax Duty of Customs Duty of Excise and Value added taxoutstanding on account of any dispute other than those mentioned below:
|Name of Statute ||Amount (' in lakh) ||Period to which the amount relates ||Forum where dispute is pending |
|The Karnataka Special Tax on Entry of Certain Goods Act 2004 ||114.58 ||October 2004 to March 2007 ||High Court of Karnataka Bangalore |
|The Excise Duty Act 1944 ||32.62 ||2004-05 and 2005-06 ||The Central Excise and Service Tax Appellate Tribunal Mangalore |
|The Employees Provident Fund and Miscellaneous Provision Act 1952 ||28.11 ||January 1990 to December 2001 ||The Employees Provident Fund Appellate Tribunal |
|The Excise Duty Act 1944 ||110.38 ||December 2004 to May 2005 ||The Supreme Court of India |
|Income Tax Act 1961 ||3.99 ||A.Y 2013-14 ||Dy Commissioner of Income tax |
viii. Based on our audit procedures and as per the information and explanations givenby the management we are of the opinion that the Company has not defaulted in repaymentof loans to banks during the year. There were no dues to financial institutionsGovernment or debenture holders.
ix. The Company has not raised money through initial public offer or further publicoffer (including debt instruments) or term loans during the year. Accordingly paragraph3(ix) of the Order is not applicable to the Company.
x. According to the information and explanations given to us no material fraud by theCompany or on the Company by its officers or employees has been noticed or reported duringthe course of our audit.
xi. The Company has paid / provided for managerial remuneration in accordance withrequisite approvals mandated by the provisions of Section 197 read with Schedule V to theAct.
xii. In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company. Accordingly paragraph 3(xii) of the Order is notapplicable.
xiii. According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with the Related Parties are incompliance with sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the standalone Ind AS Financial Statements as requiredby the applicable Indian Accounting Standards.
xiv. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.
xv. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with them. Hence the provision ofsection 192 of the Act are not applicable.
xvi. The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.
For BATLIBOI & PUROHIT
Chartered Accountants Firm Reg. No.: 101048W
Membership No: 111749
ICAI UDIN: 20111749AAAACN3491
Place : Mumbai Date : 29 June 2020
Annexure - B to the Auditors' Report
(referred to in paragraph 2 under 'Report on Other Legal and regulatory requirements'section of our report to the members of the Company of even date)
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 GokakTextiles Ltd ("the Company") as of 31 March 2020 in conjunction with ouraudit of the Standalone Ind AS Financial Statements of the Company for the year ended onthat 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 ('ICAI'). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to Company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.
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 Ind AS 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 of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Company;
(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of Financial Statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the Company are being made only inaccordance with authorisations of management and directors of the Company; and
(3) provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the Company's assets that could have amaterial effect on the Financial
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.
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 31 March 2020 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 BATLIBOI & PUROHIT
Chartered Accountants Firm Reg. No.: 101048W
Membership No: 111749
ICAI UDIN: 20111749AAAACN3491
Place : Mumbai Date :29 June 2020