Kohinoor Foods Ltd.
|BSE: 512559||Sector: Agri and agri inputs|
|NSE: KOHINOOR||ISIN Code: INE080B01012|
|BSE 00:00 | 03 May||Kohinoor Foods Ltd|
|NSE 05:30 | 01 Jan||Kohinoor Foods Ltd|
|BSE: 512559||Sector: Agri and agri inputs|
|NSE: KOHINOOR||ISIN Code: INE080B01012|
|BSE 00:00 | 03 May||Kohinoor Foods Ltd|
|NSE 05:30 | 01 Jan||Kohinoor Foods Ltd|
TO THE MEMBERS OF KOHINOOR FOODS LIMITED Qualified Opinion.
We have audited the accompanying Standalone Ind AS financial statementsof Kohinoor Foods Limited ("the Company") which comprise the Balance Sheet asat March 31st 2020 the Statement of Profit and Loss (including Other ComprehensiveIncome) the Cash Flow Statement and the Statement of Changes in equity for the year thenended and a summary of the significant accounting policies and other explanatoryinformation.
In our opinion and to the best of our information and according to theexplanations given to us except for the effects/possible effects of the mattersdescribed in paragraph under 'Basis for Qualified Opinion' the aforesaid Ind ASfinancial statements give the information required by the Act in the manner so requiredand give a true and fair view in conformity with the accounting principles generallyaccepted in India including the Ind AS of the financial position of the Company as atMarch 31st 2020 and profit/loss including other comprehensive income its cash flows andthe changes in equity for the year ended on that date.
Basis for Qualified opinion
1. In reference to Note No. 41in the standalone financial statementdiscloses the management's assessment of the company's ability to continue as goingconcern. The management's assessment of going concern is based on Resolution plansubmitted to the Banks by company and the interest shown by prospective investors in thecompany. However in view of default in repayment of borrowings default in payment ofundisputed statutory dues one time settlement proposal declined by banker significantdecline of revenue continuous losses negative cash flows and negative net worthresignation of KMP and senior management and due to financial constraints materialuncertainty exists about the company's ability to continue as going concern and thedecision of the management of the company to prepare the accounts of the company on goingconcern basis. There may arise a need to adjust the realizable value of assets andliabilities in the event of failure of assumption as to going concern.
2. Loss of the company is understated by Rs 8296.18 lakhs(approx.) due to non-provisioning of interest on bank loans during the financial year2019-20 (Rs5452.28 lakhs (approx.) for the year ended March 31st 2019) and Rs 13748.46lakh (approx.) from the date on which the account of the company was classified as NPA tothe period covered under audit. Further no provision has been made towards penal interestany other penalty etc. as may be charged by lenders. In the absence of complete statementof account from the bank the above amount has been arrived as per calculation made by thecompany. With the limited information the aggregate amount not provided in books ofaccount of the company is not ascertainable with accuracy.
3. In reference to note no. 30 to the statement related to bad debtswe have been informed by the management that the company has received arbitration awardsfrom the Hon'ble Arbitral Tribunal comprising of sole arbitrator Justice S.G. Shah inrespect of agents through whom sales were made to various debtors. On the basis of aboveaward the company has written-off the balances of some debtors amounting to Rs 14572.27lakhs. Besides this the company has also written off
Rs 3020.55 lakh as bed debts due from domestic/ export debtorswhich were long outstanding and payment from which could not be realized.
Further as per informed by the management "The debtors are facingfinancial difficulties due to present covid19 situation and they do not expect to realizemore than 25% of the amount due". So management made an ad hoc provision of Rs 5316.36lacs for bad and doubtful debts on remaining debtors.
The management of the company has provided balance confirmation of somedebtors. However as per explanation given by management "The company has disputewith its debtors due to quality issue of rice".In light of these circumstancesthird-party confirmation directly from debtors are more reliable than evidence providedinternally by the entity. In the absence of above third-party confirmation goods returnby debtors dispute with debtors write -off significant debtors as bad debts and verysmall recovery of amount from debtors till the date of audit we are unable to comment onrealizability of amount due from debtors and its possible effect on Standalone Financialstatement of the company.
4. The management of company has provided some confirmation of accountsof creditors. In light of the present circumstances of the audit audit evidence in theform of external confirmations received directly by the auditor from confirming partiesmay be more reliable than evidence generated internally by the entity. In the absence ofabove third-party confirmation directly from creditors we are unable to comment on actualliability to creditors (including squared up accounts) and its possible effect onfinancial statement of the company.
5. In reference to revenue recognition during the financial year therewas sales return of Rs 8205.96 lakhs due to inferior quality of rice. Due to thelarge quantity of sales return it appears that the company has not satisfied itsperformance obligation by not transferring a promised goods and hence still retainingsignificant risk and reward associated with goods. Thus it cannot be identified at whichpoint of time performance obligation is satisfied due to uncertainty about transfer ofrisk & reward absence of customer specification absence of acceptance of goods bycustomer and absence of sales return policy. Given these circumstances revenuerecognition by the company is not in line with Ind AS 115 for Revenue Recognition Furthercustomer's ability to pay the consideration deteriorates significantly it indicate thesignificant changes in fact and circumstances entity should re-assess the criteria foraccounts for contract with customer In such cases it is not be probable that theeconomic benefits associated with the transaction will flow to the company until theconsideration is received by its buyers and the uncertainty is removed we are unable tocomment its impact on standalone financial statement.
6. During the period under audit the company entered into sale andpurchase transactions with the same parties and has recognised Revenue without negatingthe effect of re-purchase of goods from debtors and re-sale of goods to creditors. As perinformation and explanation given by management each transaction is a separatetransaction and not related to each other as quality of goods sold and purchased aredifferent. However we have not been provided any quality wise record of sale &purchase and hence in the absence of such record we are unable to comment whether suchre-purchased goods from debtor is purchase or sales return and its impact on StandaloneFinancial statement.
7. The investment of the company in M/S. Indo European Food Limited aUK based subsidiary company is amount of 3 4959.42 Lacs. In reference to note no2.2 of standalone financial statements of M/S. Indo European Food Limited a UK basedsubsidiary company read with auditor opinion on Materiality uncertainty related to goingconcern which indicate that there are material uncertainties identified that may castsignificant doubt on the company's ability to continue as a going concern hence we areunable to comment on its impact on carrying amount of investment.
8. An amount of Rs 1346.65 lakh has been outstanding from itsU.K. based subsidiary company Indo-European Food Limited since long. It includes a standby letter of credit amounting to 3749.86 Lakh (GBP 798837/-) invoked by OBC bankon the account of default made by Indo-European Food Limited. Due to materialuncertainties identified that may cast significant doubt on the company's ability tocontinue as a going concern we are unable to comment on realizability of such amount.
9. We were not provided with the balance confirmation andreconciliation if any of some bank accounts appearing in books of accounts of thecompany. In the absence of having aforementioned confirmation and reconciliation theimpact thereof is unascertainable and therefore is not being commented upon in thisreport.
10. Refer to note no. 16 to the statement of financial statementcorporate guarantee invoked by PNB bank Hongkong against loan given to one of itssubsidiary company Kohinoor food USA Inc. The company has made provision against the abovecorporate guarantee for an amount of Rs 3605.41 Lakhs (USD 4783816). However inthe absence of audited balance sheet of Kohinoor food USA Inc. and confirmation from PNBBank Hongkong we are unable to comment on extent of provision required and itsconsequential impact on financial statement.
Emphasis of Matters
We draw your attention to the following matters in the Notes to thefinancial statements:
(1) As stated in Note38 to the standalone financial statements thecompany has not made Provision for the demand raised by various authorities as the mattersare pending before various appellate forum. We are unable to comment upon possible impactin the standalone financial statement for the year ended 31th March 2020.
(2) As stated in Note No 12 in the standalone financial statement thecompany has allotted 1830000 equity shares on conversion of warrant into equity sharesissued on preferential basis to its promoters. The company has filed application forlisting of 1830000 equity shares to both the stock exchange (NSE & BSE). As perinformation provided by management such application is closed by BSE due to non-submissionof documents by the company and due to which these shares are not yet dematerialised. Theconsequential effect the above on the standalone financial statement is notascertainable.
(3) We draw attention to Note No. 16 of Standalone financial statementof the company that the lead consortium bank "Oriental Bank of Commerce" havefiled an application against company under section 7 of the Insolvency and Bankruptcycode 2016 before National Company Law Tribunal (NCLT) Chandigarh bench and the matter isadjourned to next date 14th September 2020. Further certain operational creditors M/S.Norton Rose Fulbright M/S. Uma Polymers International Cargo Terminal &Infrastructure (P) Ltd International Cargo Terminal & Rail Infrastructure (P) Ltd andJPS Plastic have also filed an application against company under section 9 of theInsolvency and Bankruptcy code 2016 before National Company Law Tribunal (NCLT)Chandigarh bench. The NCLT has fix the next date of hearing on 21st September 2020 29thSeptember 2020 15th September 2020 15th September 2020 and 01st September 2020respectively.
(4) In reference to note no. 28 to the standalone financial statementwhich explain management's assessment of impairment of assets due to Covid-19 pandemicsituation. As per assessment of the management the recoverable amount of assets is higherthan its carrying value and hence no impairment of assets need to be recorded in thefinancial statement.
Our opinion is not modified in respect of these matters.
Key Audit Matters.
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the financial statements of the current period.These matters were addressed in the context of our audit of the financial statements as awhole and in forming our opinion thereon and we do not provide a separate opinion onthese matters. In addition the matters described in the "basis for qualifiedopinion" and "emphasis of matter" paragraph are by their nature are keyaudit matters.
Responsibility of Management's and Those Charged with Governance forthe Standalone Financial Statements.
The Company's Board of Directors is responsible for the matters statedin Section 134 (5) of the Companies Act 2013 ("the Act") with respect to thepreparation of these standalone Ind AS financial statements that give a true and fair viewof the financial position financial performance including other comprehensive incomecash flows and changes in equity of the Company in accordance with the Indian AccountingStandards (Ind AS) prescribed under section 133 of the Act read with the Companies (IndianAccounting Standards) Rules 2015 as amended and other accounting principles generallyaccepted in India. This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate implementation and maintenance of accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the Ind AS financial statements that give a true and fairview and are free from material misstatement whether due to fraud or error.
In preparing the financial statement management is responsible forassessing the company's ability to continue as a going concern disclosing asapplication matters related to going concern and using the going concern basis ofaccounting unless management either intends to liquidate the company or to ceaseoperations or has no realistic alternative but to do so.
Those board of directors are also responsible for overseeing thecompany's financial reporting process.
Our objectives are to obtain reasonable assurance about whether thefinancial 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 financial statements.
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 of India in terms of sub -section (11) of section 143 of the Act we give in the Annexure A a statement on theMatters specified in the paragraph 3 and 4 of the Order.
2. As required by Section 143 (3) of the Act we report that:
a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit; except as stated in para under the head "Basis for Qualified Opinion".
b) Except for the effects/possible effects of the matters described inthe "Basis for Qualified Opinion" paragraph above in our opinion proper booksof account as required by law have been kept by the Company so far as it appears from ourexamination of those books;
c) The standalone financial statement dealt within the report are inagreement with the books of account and return;
d) Except for the effects/possible effects of the matters described inthe "Basis for Qualified Opinion" paragraph in our opinion the aforesaidstandalone financial statements comply with the Ind AS specified under Section 133 of theAct read with Rule 7 of the Companies (Accounts) Rules;
e) The matters described in the "Basis for Qualified Opinion"paragraph above in our opinion may have an adverse effect on the functioning of theCompany.
f) On the basis of the written representations received from thedirectors and taken on record by the Board of Directors none of the directors isdisqualified as on March 31st 2020 from being appointed asa director in terms of Section164 (2) of the Act;
g) With respect to the adequacy of the internal financial controls overfinancial reporting of the Company and the operating effectiveness of such controls referto our separate report in "Annexure B"; and
h) With respect to the other matters to be included in the Auditor'sReport in accordance with Rule 11of the Companies (Audit and Auditors) Rules 2014 in ouropinion and to the best of our information and according to the explanations given to us:
I. The Company has disclosed the impact of pending litigations on itsfinancial position in its financial statements. Refer Note 38 to the financial statements;
ii. Except as matter described under "basis for qualifiedopinion" and "Emphasis of matter" paragraph the company has madeprovision as required under the applicable law or Ind AS for material foreseeablelosses if any on long-term contracts including derivative contracts- Refer Note 15 and20to the financial statements;
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company.
Annexure - A to the Auditors' Report
The Annexure referred to in Independent Auditors' Report to the membersof the Company on the standalone financial statements for the year ended 31th March 2020we report that:
(i) (a) According to explanation given to us the Company hasmaintained proper records showing full particulars including quantitative details andsituation of fixed assets.
(b) According to explanation given to us fixed assets have beenphysically verified by the management at reasonable intervals and no materialdiscrepancies were noticed on such verification. However we were not provided anyphysical verification report.
(c) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the title deeds of immovableproperties are held in the name of the Company.
(ii) According to information and explanation given to us physicalverification of inventory has been conducted at reasonable intervals by the management.However due to lockdown imposed because of covid19 the company could not carry thephysical verification of stock at the end of financial year. The above said inventoriesare based upon the physical inventories taken as at 31-05-2020 by actual count and weightand adjusted for the movement after 31st march 2020 till the date of physicalverification. Further according to information and explanation given to us no materialdiscrepancy was noticed in such verification by management.
(iii) According to information and explanation given to us the Companyhas not granted unsecured loans to company covered in the register maintained undersection 189 of the Companies Act 2013 ('the Act').
(iv) In our opinion and according to the information and explanationsgiven to us the Company has complied with the provisions of section 185 and 186 of theAct with respect to the loans and investments made.
(v) According to information and explanation given to us and on thebasis of examination of records we understand that the company has received advance fromcustomer for supply of goods which has been outstanding for more than three hundred andsixty five days and fall under the definition of deposit u/s 73 to 76 read with ruleframed thereunder. However the company has not complied with regulation u/s 73 to 76 andrule framed thereunder.
(vi) To the best of our knowledge and explanation given to us the costrecords specified by the Central Government under subsection (1) of section 148 of theCompanies Act have been made and maintained by the company. However we have not made adetailed examination of the cost records with a view to determine whether they areaccurate or complete.
(vii) (a) According to the information and explanations given to us andon the basis of our examination of the books of accounts the Company is not regular indepositing undisputed statutory dues including provident fund employees' state insuranceincometax sales tax service tax duty of customs duty of excise value added taxGoods and service tax cess and other statutory dues to the appropriate authority. Howeverthe arrears of outstanding statutory dues as on the last day of the financial year isconcerned for the period of less than six months from the date they become payable.
(b) According to information and explanations given to us thefollowing dues of income tax sales tax service tax duty of excise and value added taxhave not been deposited by the Company on account of disputes:
(viii) Based on our audit procedure and as per the information andexplanation given to us we are of the opinion that the company has defaulted in repaymentof loan or borrowing to bank and financial institution.The lender wise default is asunder:
*excluded amount of interest not provided in books of accounts
(ix) The Company did not raise any money by way of initial public offeror further public offer (including debt instruments) however the company has raised termloan during the year under audit.
(x) According to the information and explanations given to us nomaterial fraud by the Company or on the Company by its officers or employees has beennoticed or reported during the course of our audit.
(xi) According to the information and explanations given to usmanagerial remuneration paid or provided in accordance with requisite approvals mandatedby the provisions of section 197 read with Schedule V to the Companies Act.
(xii) In our opinion and according to the information and explanationsgiven to us the Company is not a nidhi company. Accordingly paragraph 3 (xii) of theOrder is not applicable.
(xiii) According to the information and explanations given to us andbased on our examination of the records of the Company transactions with the relatedparties are in compliance with sections 177 and 188 of the Act where applicable anddetails of such transactions have been disclosed in the financial statements as requiredby the applicable Ind accounting standards.
(xiv) According to the information and explanations give to us andbased on our examination of the records during the year the company has not madepreferential allotment/private placement of shares.
(xv) According to the information and explanations given to us andbased on our examination of the records of the Company the Company has not entered intononcash transactions with directors or persons connected with him. Accordinglyparagraph 3 (xv) of the Order is not applicable.
(xvi) The Company is not required to be registered under section 45-IAof the Reserve Bank of India Act 1934.
Annexure B to the Auditors' Report
Report on the Internal Financial Controls under Clause
(I) of Sub-section 3 of Section 143 of the Companies Act 2013("the Act")
We have audited the internal financial controls over financialreporting of Kohinoor Foods Limited ("the Company") as of 31th March 2020 inconjunction with our audit of the standalone financial statements of the Company for theyear ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing andmaintaining internal financial controls based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India ('ICAI').These responsibilities include the design implementation and maintenance of adequateinternal financial controls that were operating effectively for ensuring the orderly andefficient conduct of its business including adherence to 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 Company's internalfinancial controls over financial reporting based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls over FinancialReporting (the "Guidance Note") and the Standards on Auditing issued by ICAIand deemed to be prescribed under section 143 (10) of the Companies Act 2013 to theextent applicable to an audit of internal financial controls both applicable to an auditof Internal Financial Controls and both issued by the Institute of Chartered Accountantsof India. 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 aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgment including the assessment of therisks of material misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Company's internal financialcontrols system over financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A company's internal financial control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls Over FinancialReporting
Because of the inherent limitations of internal financial controls overfinancial reporting including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls overfinancial reporting to future periods are subject to the risk that the internal financialcontrol over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.
Basis for Qualified Opinion
We draw attention to paragraph of "Basis for Qualifiedopinion" of our main report and the same to be read with our comments as statedbelow:
According to information and explanations given to us and based on ouraudit the following material weakness has been identified as at March 31st 2020.
1. The Company's did not have an appropriate internal control systemfor (a) Customer acceptance; (b) Customer credit evaluation; (c) Establishing customercredit limit for sales;
(d) Acceptance of goods by customers and transfer of risk & rewardat the time of sales.
This could potentially result in the company recognising revenuewithout establishing reasonable certainty of ultimate collection.
2. The company did not have any internal control system forfollow-up/recovery/adjustment of old outstanding receivables and payables includingbalance confirmation and reconciliation.
A 'Material weakness' is a deficiency or a combination of deficiencyin internal financial control over financial reporting such that there is a reasonablepossibility that a material misstatement of the company's annual financial statement willnot be prevented or detective on timely basis.
In our opinion except for the effects/possible effects of basis forqualified opinion the Company has maintained in all material respects adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31th 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.
We have considered the material weaknesses identified and reportedabove in determining the nature timing and extent of audit tests applied in our audit ofthe March 31 2020 standalone financial statements of the Company and these materialweaknesses does not affect our opinion on the standalone financial statements of theCompany.