J.K. PHARMACHEM LIMITED
ANNUAL REPORT 2004-2005
J.K. PHARMACHEM LIMITED
We have audited the attached Balance Sheet of M/s. J.K. PHARMACHEM LIMITED,
Cuddalore, Tamil Nadu, (herein after called the COMPANY) as at September
30, 2005 and the Profit and Loss Account of the Company for the year ended
on that date and cash flow statement of the Company annexed thereto.
These financial statements are the responsibility of the Company's
Management. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in India. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by the management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
3. Attention is invited to the following:
3.1 Interest on debentures for the year amounting to Rs.443.09 lakhs
(previous year Rs.292.86 lakhs) and interest on inter corporate loans
amounting to Rs.36.02 lakhs (previous year NIL) has not been provided in
the accounts and total interest not provided for in the books upto
30.09.2005 is Rs.1193.45 lakhs (upto previous year Rs.764.34 lakhs. [note
3.2 No depreciation on Buildings and Plant and Machinery has been provided
in the books amounting to Rs.969 lakhs (previous years Rs.NIL).
3.3 The accounts have been prepared on the basis of going concern concept
which is subject to grant of concessions by the financial institutions,
availability of remunerative prices and availability of manpower and
support from the suppliers.
3.4 The company has not provided for the provision for the impairment of
assets as required by the Accounting Standard 28-impairment of assets
prescribed by the Institute of Chartered Accountants of India.
3.5 We are not able to comment on the recoverability or otherwise of the
amount of Rs.35.16 lakhs kept under advances recoverable in cash or in kind
as explained in note no 12, being the amount paid to the erstwhile whole
time director over and above the amount approved by the department of
company affairs even though the company has made representation to the
3.6 We further report that without considering the item no 3.3 and 3.4
above, had the observations made by us in paragraph 3.1 and 3.2 above has
been considered, loss for the year, would have been Rs.2539.32 lakhs (as
against the reported figure of Rs.1091.21 lakhs) and the Balance in the
profit and loss account would have been Rs.16406.37 lakhs (as against the
reported figure of Rs.14243.92 lakhs)
4.1 We have obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purposes of our
4.2 The Balance Sheet and Profit and Loss Account dealt with by this
report are in agreement with the books of account;
5.1 In our opinion, proper books of accounts as required by law have been
kept by the company so far, as appears from our examination of those books.
5.2 Subject to non compliance of the Accounting Standard 28 -impairment of
assets prescribed by the Institute of Chartered Accountants of India as
explained in 3.4 Supra, the Balance Sheet and Profit and Loss Account
dealt with by this report have been prepared in compliance with the
Accounting Standards issued by the Institute of Chartered Accountants of
India referred to in Section 211(3C) of the Act, to the extent applicable.
5.3 The company has defaulted to redeem the debentures on due date and the
default has exceeded one year as on 30.09.2005. Hence all the directors of
the company except Mr Kailash Bhansali and Mr. T.S. Surendranath (Financial
Institution Nominees), in our opinion, are being disqualified from being
appointed as directors in terms of Section 274(1)(g) of the Companies Act,
5.4 In our opinion and to the best of our information and according to the
explanations given to us, the said accounts read together with significant
accounting policies and other notes appearing in schedule 13, and subject
to para 3 above, give the information required by the Companies Act, 1956,
in the manner so required and give a true and fair view in conformity with
the accounting principles generally accepted in India:
(i) In the case of the Balance Sheet, of the state of affairs of the
Company as at September 30, 2005;
(ii) In the case of Profit and Loss Account, of the LOSS for the year ended
on that date.
(iii) In the case of the cash flow statement, of the cash flows of the
company for the year ended on that date.
6. As required by the Companies [Auditors' Report] Order 2003 issued by the
Central Government in terms of Section 227(4A) of the Companies Act, 1956
and on the basis of such checks as we considered appropriate and
information and explanation given to us, we further report that:
6.1 The Company has maintained proper records showing full particulars
including quantitative details and situation of its fixed assets.
6.2 We were informed that the physical verification of the fixed assets
was carried out by the management during the year and no material
discrepancies were noticed.
6.3 During the year, the Company has disposed off some of the assets,
which in our opinion, does not affect the going concern assumption.
6.4 The inventories lying with the Company were physically verified during
the year by the management at reasonable intervals, including stocks lying
with third parties.
6.5 In our opinion, the procedure of physical verification of inventory
followed by the management is reasonable and adequate in relation to the
size of the Company and nature of its business.
6.6 The Company is maintaining proper records of inventory. As informed to
us, no material discrepancies have been noticed during the verification.
LOANS TAKEN AND GIVEN:
6.7 The Company has not accepted any deposits from the public.
6.8 The company has not taken any loans, secured or unsecured from
companies, firms or other parties covered in the register maintained under
section 301 of the Companies Act 1956.
6.9 Except for the amount of Rs.35.16 lakhs recoverable from the director
of the company [remuneration paid in excess of the amount approved by the
department of company affairs], the company has not granted any loans,
secured or unsecured to companies, firms or other parties covered in the
register maintained under section 301 of the Companies Act, 1956
6.10 In our opinion and according to the information and explanations
given to us, the company has defaulted in repayment of dues to the
financial institutions of Rs.3632.41 lakhs towards principal and Rs.3669.75
lakhs towards interest.
6.11 In our opinion and according to the information and explanations
given to us, the company has utilized the term loans (taken in earlier
years) for the purposes for which the same were obtained.
6.12 The company has not granted any loans and advances on the basis of
security by way of pledge of shares, debentures and other securities.
SECURITY FOR DEBENTURES:
6.13 The company has not issued any debentures during the year and hence
the question of commenting on the creation of security does not arise.
FURNISHING OF GUARANTEE:
6.14 In our opinion and according to the information and explanations
given to us, the company has given corporate guarantee of Rs.330 lakhs for
loans taken by others from financial institutions, the terms and conditions
of which are not prejudicial to the interest of the company. However the
same has been discharged at the end of the year.
FURTHER ISSUE OF SHARES:
6.15 The company has not raised any money by way of public issue during
6.16 The company has not made any preferential allotment of shares to
parties and companies covered in the register maintained under section 301
of the Companies Act, 1956.
INTERNAL CONTROL AND INTERNAL AUDIT:
6.17 There are adequate internal control procedures commensurate with the
size of the Company and the nature of its business with regard to purchase
of inventory, fixed assets and with regard to the sale/supply of services.
During the course of our audit, no major weakness has been noticed in the
6.18 The Internal audit of the Company is being entrusted to an
independent firm of chartered accountants and the scope and coverage of the
same is in our opinion is commensurate with the size and nature of the
6.19 The Company is generally regular in depositing with appropriate
authorities the undisputed statutory dues including Provident Fund,
Investor Education and Protection Fund, Employees State Insurance, Income
tax, Wealth tax, Service tax, Sales tax, Custom Duty, Excise Duty, Cess and
other statutory dues applicable to it with the appropriate authorities and
according to the information and explanations given to us, there are no
undisputed dues of statutory dues which are outstanding as at September
30, 2005 for a period of more than six months from the date they became
6.20 According to the information and explanations given to us, there are
no dues of Income Tax/Sales Tax/Service Tax/Wealth tax/Excise Duty/Cess
which have not been deposited on account of any dispute, except the
following and which are pending before the concerned authorities,
Sl. Name of the Nature of Period Amount Forum where
No. Statute Dues Rs.in lakhs Dispute is
1 Central Sales Sales tax 1996-97 279.18 STAT
2 -DO- Penalty 1996-97 493.76 STAT
3 -DO- Sales tax 1997-98 474.13 Appeals
4 -DO- Penalty 1997-98 725.15 Appeals
5 Tamilnadu Tax Energy and 2002-04 48.69 Hon'ble High
on Consumption Consumption Court of Madras
or sale of tax
6 Electricity Electricity 2002-04 19.00 Hon'ble High
Act, 1991 Tax Court of Madras
7 Central Excise Excise duty 1995-1996 6.19 CESTAT
Act, 1944 to 1999-2000
8 -DO- Excise duty 1999-2000 16.02 CESTAT
9 -DO- Penalty 1994-1995 5.00 NIL
COST AND OTHER RECORDS:
6.21 We have broadly reviewed the books of accounts maintained by the
company pursuant to the order made by the Central Government for the
maintenance of the cost records under section 209(1)(d) of the Companies
Act, 1956 and are of the opinion that prima facie the prescribed records
have been made and maintained. We have not however made a detailed
examination of the said records.
6.22 In our opinion and according to the information and explanations
given to us, the Company is not dealing or trading in shares, securities,
debentures and other investments. The investments shown in the accounts are
held in the name of the Company.
6.23 The accumulated losses at the end of the year is more than 50% of the
net worth of the Company. However, the Company has incurred cash losses
both during the current financial year as well as in the immediately
preceding financial year, after considering the quantum of qualifications
in the auditors report.
6.24 In our opinion, considering the nature of the activities carried out
by the company during the year, the provisions of any special statute
applicable to chit fund/nidhi/mutual benefit fund/societies are not
applicable to the company.
6.25 Based on the information and explanations given to us, and on an
overall examination of the balance sheet of the Company, in our opinion,
there are no funds raised on short term basis which have been used for long
6.26 On the basis of the books and records of the company verified by us
in the normal course of audit and according to the information and
explanations given to us, no fraud on or by the Company has been noticed or
reported by/to us during the course of our audit.
NON-REPORTING OF CERTAIN CLAUSES:
6.27 In our opinion the reporting on the Clauses 4(iii)(b) to (iii)(d),
4(iii)(f), 4(iii)(g), 4(v) of the CARO 2003 is not applicable and hence not
For LODHA & CO.
G. SUBRAMANIA SARMA
Place : New Delhi
Dated : 30th November 2005