To the Members of Malwa Cotton Spinning Mills Limited.
Report on the Financial Statements:
1. We have audited the accompanying financial statements of Malwa Cotton Spinning MillsLimited (the Company') which comprise the Balance Sheet as at 31st March2017 the Statement of Profit and Loss and the Cash Flow Statement for the year thenended and a summary of the significant accounting policies and other explanatoryinformation.
Management's Responsibility for the Financial Statements:
2. The Company's Board of Directors is responsible for the matters stated in section134(5) of the Companies Act 2013 ("the Act") with respect to the preparationand presentation of these financial statements that give a true and fair view of thefinancial position financial performance and cash flows of the Company in accordance withthe accounting principles generally accepted in India including the Accounting Standardsspecified under section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
3. Our responsibility is to express an opinion on these financial statements based onour audit.
4. We have taken into account the provisions of the Act the accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made there under.
5. We conducted our audit in accordance with the Standards on Auditing specified undersection 143(10) of the Act. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.
6. An audit involves performing procedures to obtain audit evidence about the amountsand the disclosures in the financial statements. 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. In making those risk assessments theauditor considers internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating theappropriateness of the accounting policies used and the reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof the financial statements.
We believe that audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the financial statements.
Emphasis on Matter:
We draw attention to:
i) The Company has not been able to redeem 9% cumulative redeemable preference sharecapital. The unredeemed preference capital of Rs. 2725 lacs have been shown under theschedule of Share Capital. (Refer disclosure under the Note 3 to the financial statement).
ii) The Company has not complied with the following accounting standards referred to insection 133 of Companies Act 2013 read with rule 7 of the Companies (Accounts) Rules2014:
(a) AS-15- "Employee Benefits" in respect of non provision for liability ofgratuity leave encashment and other compensated absences in accordance with provision ofsaid accounting standard.
(b) AS-17-"Segment Reporting"- in respect of results of sewing thread segmenthas not been disclosed in accordance with requirement of said accounting standard.
Basis for Adverse Opinion
7. We draw attention to note no.37 in the financial statements. The Company hasincurred a net loss of Rs. 2958.76 lacs during the year 31st March 2017 whichtogether with brought forward losses of Rs.34959.18 lacs exceeds the net worth of thecompany and as of that date the company's current liabilities exceeded its currentassets by Rs. 29578.67 lacs and its total liabilities exceeded its total assets by Rs.27540.89 lacs. The Consortium banks have recalled their debts to the company. Theseevents cast significant doubt on the ability of the company to continue as a goingconcern. The appropriateness of the going concern assumption is dependent on the company'sability to establish consistent profitable operations and generate positive cash flows aswell as raising adequate finance to meet its short term and long term obligations. Basedon the mitigating factors stated in the said note the management of the company believesthat the going concern assumption is appropriate. However we do not agree with themanagement in this respect.
8. We report that:
i) The company has not arranged to make available the confirmations and/orreconciliations to verify the balances stated in the financial statements in respect of:
i .Trade Receivables Rs. 1729.12 lacs
ii. Loans & Advances: Rs. 2423.02 lacs
iii. Trade payables: Rs. 4802.43 lacs
We have also not been able to perform any alternative procedures with regard toverification of the aforesaid balances and thereby have been unable to obtain sufficientappropriate audit evidence regarding the aforesaid accounts .We are unable to comment uponthe difference if any which may arise upon the receipt of confirmations and/or thecarrying out of such reconciliation.
ii) The management of the company has represented to us that the recoverable amount ofassets within the meaning of Accounting Standard 28 "Impairment of Assets" ismore than their carrying value and as such no amount needs to be recognized in thefinancial statements for impairment loss. In the absence of the workings of impairmenthaving been prepared and made available to us for our review we are unable to comment onwhether; the company needs to make a provision in respect of impairment loss on suchassets and the amount of such provision.
iii) The company has not made provision in respect of balances recoverable from TradeReceivables Loans and Advances and Other Recoverable including from employees which aredoubtful in nature amounting to Rs.3666.86 lacs as on the date of the financialStatements.
iv) a) The Company has not provided Interest on borrowings amounting to Rs 2794.91lacs (previous year Rs 2803.66 lacs).
b) The Company has also not provided interest on borrowing amounting of Rs 8370.41lacs pertaining upto the preceding year and aggregating to Rs 11165.32 lacs upto date.
v) No provision has been made in respect of liability of gratuity leave encashment andother compensated absences for the year. The amount could not be determined in absence ofactuarial valuation to be carried out by an Independent actuary.
vi) The company has written back Rs 1121.66 lacs out of the total loan outstanding ofRs 2124.66 lacs payable to IDBI Ltd on the basis of letter dated 07th April2016 issued by Assets Reconstruction Company (India) Limited (Arcil) as in Principalapproval towards one time settlement of dues at Rs 1003.00 lacs in response to theproposal for settlement of dues submitted by the company to all lenders. The said writeback has been shown as exception item of income in the statement of profit and loss.
In principal approval by Arcil towards proposal for settlement of dues of IDBI issubject to the payment of the settled amount with in a period of one year from the date ofsanction i.e. April 7 2016 and also subject to the approval of one time settlement fromall lenders.
Neither has the company got approval for settlement of dues payable to other lendersnor has paid the settled amount within one year to Arcil as stipulated in the above saidsanction letter.
Therefore the write back of Rs.1121.66 lacs of the loan not payable according to thatin principle approval letter is not in accordance with the terms and conditions of thesanction letter.
vii) The Company has not made a provision of Rs 963.07 lacs for the decline other thantemporary in the carrying amount of non-current investment in the equity instruments ofMalwa Industries Ltd.
viii) We further report that except for the effect if any of the matters stated inparagraph (i) (ii) and (v) above which are not ascertainable had the impact of ourobservation made in paragraph (iii) and
(iv) above been considered then loss for the year ended 31st March 2017 would havebeen Rs.19875.67 lacs (against the reported figure of Rs.2958.76 lacs) and reserves andsurplus would have been (Rs.47972.70 lacs) (against the reported figure of(Rs31055.79lacs) and current assets would have been Rs.1749.01 lacs)(against thereported figure of Rs.5091.741lacs) and current liabilities would have Rs 45835.73 lacs(against the reported figure of Rs 34670.41lacs).
ix) The earning (loss) per share for the year ended 31 March 2017 would have been(Rs.251.43) against reported earning (loss) per share of (Rs.41.16).
9. In our opinion and to the best of our information and according to the explanationsgiven to us subject to our comments in paragraph Basis For Adverse opinion Conclusionabove the aforesaid financial statements give the information required by the Act in themanner so required and do not give a true and fair view in conformity with the accountingprinciples generally accepted in India of the state of affairs of the company as 31stMarch 2017 its losses and its cash flows for the year ended on that date.
Report on Other Legal and Regulatory Requirements
10. 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 ofthe Act we give in the Annexure- A which forms part of this report a statement on thematters specified in paragraphs 3 and 4 of the Order.
11. As required by section 143(3) of the Act we report that:
a. We have sought and obtained all the information and explanations except as statedin note 8 above which to the best of our knowledge and belief were necessary for thepurposes of our audit;
b. In our opinion proper books of account except as stated in note 8 above asrequired by law have been kept by the Company so far as it appears from our examination ofthose books;
c. The Balance Sheet the Statement of Profit and Loss and the Cash Flow Statementdealt with by this report are in agreement with the books of account;
d. In our opinion the aforesaid Financial Statements comply with the AccountingStandards specified under section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014 except
a) AS-15- "Employee Benefits" in respect of non provision for liability ofgratuity leave encashment and other compensated absences in accordance with provision ofsaid accounting standard.
b) AS-17- "Segment Reporting "- in respect of results of sewing threadsegment has not been disclosed in accordance with requirement of said accounting standard.
e. On the basis of written representations received from the directors as on 31st March2017 taken on record by the Board of Directors none of the directors is disqualified ason 31st March 2017 from being appointed as a director in terms of sub-section (2) ofsection 164 of the Act; and
f. With respect of adequacy of the internal financial controls over financial reportingof the company and the operating effectiveness of such controls refer to our separatereport in Annexure - B.
g. 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 in our opinionand to the best of our information and according to explanations given to us:
i) The Company has disclosed the impact of pending litigations on its financialposition in its financial statements except where impact is not ascertainable.
ii) The Company did not have any long term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii) There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
iv) The Company has provided requisite disclosures in its financial statements as toholdings as well as dealings in Specified Bank Notes during the period from 8 November2016 to 30 December 2016 and these are in accordance with the books of account maintainedby the Company (Refer Note No. 42 of financial statements).
| || |
| ||For S.C. Vasudeva & Co. |
| ||Chartered Accountants |
| ||(Reg. No.000235N) |
| ||(Sanjiv Mohan) |
|Ludhiana ||Partner |
|30th May 2017 ||M.No. 086066 |
Annexure - A to the Auditors' Report
The Annexure referred to in Independent Auditors' Report to the members of the Companyon the financial statements for the year ended 31st March 2017 we report that:
(i) a. The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
b. According to the information and explanations given to us the fixed assets exceptfurniture and fittings and office equipments have been physically verified by themanagement during the year under the supervision of internal auditors of the company (anindependent firm of Chartered Accountants). In respect of furniture and fittings andoffice equipments the company has adopted a policy of physical verification of theseassets at least once in every three year. The last verification of entire block of theseassets have been physically verified by the management during the year ended 31stMarch 2015. The discrepancies noticed on physical verification of fixed assets which werenot material have been properly dealt in the books of account. In our opinion thefrequency of physical verification of fixed assets is reasonable having regard to the sizeof the Company and nature of its business.
c. According to information and explanations given to us and on the basis of our ofrecords of the company the title deeds of immovable properties are held in the name of thecompany.
(ii) a) According to the information and explanations given to us the inventories havebeen physically verified by the management at the end of the year. In our opinion thefrequency of verification is reasonable.
b) According to the information and explanations given to us discrepancies noticed onphysical verification of inventory as compared to the book records were not material andhave been dealt with in the books of accounts.
(iii) According to the information and explanations given to us we report that theCompany has not granted any loans secured or unsecured to companies firms limitedliability partnership or other parties covered in the register maintained under section189 of the Companies Act 2013. Therefore the provisions of paragraph (iii) (a) (b) and(c) of the Order are not applicable to the Company.
(iv) According to the information and explanations given to us the Company has notgranted loans to directors or any other person in whom director is interested and also hasnot made loans guarantees or provided security in connection with loan to any person orother body corporates and has not acquired securities of any other body corporate.Therefore the provisions of section 185 and section 186 of the Companies Act 2013 arenot applicable to the company. Thus paragraph 3(iv) of the Order is not applicable to thecompany.
(v) According to the information and explanations given to us the Company has notaccepted deposits cover under the provisions of sections 73 to 76 other relevantprovisions of the Companies Act 2013 and the
rules framed there under. According to the information and explanations given to us noorder under the aforesaid sections has been passed by the Company Law Board NationalCompany Law Tribunal or Reserve Bank of India or any Court or any other Tribunal on theCompany.
(vi) We have broadly reviewed the books of account maintained by the company pursuantto the rules made by the Central Government for the maintenance of cost records undersection 148 of the Act and are of the opinion that prima facie the prescribed accountsand records have been made and maintained. We have however not made a detailedexamination of such records with a view to determine whether they are accurate orcomplete.
(vii) (a) According to the information and explanations given to us and on the basis ofthe records of the Company examined by us in our opinion the Company has not beenregular in depositing undisputed statutory dues including provident fund employees' stateinsurance labour welfare fund income tax sales tax service tax duty of custom dutyof excise value added tax cess and other statutory dues with the appropriateauthorities. According to the information and explanations given to us undisputed dues inrespect of provident fund employees' state insurance labour welfare fund sales tax (VATand CST) tax deducted at source and tax collected at source which were outstanding as onthe last day of the financial year concerned for a period of more than six months from thedate they became payable are as follows:
|Nature of Statute ||Nature of Dues ||Amount (Rs. in Lacs) ||Period to which the amount relates ||Due Date ||Date of Payment |
|Income Tax Act 1961 ||Tax deducted at Source ||33.36 ||F.Y 2014-15 2015- 16 and 2016- 17 ||Various ||Not yet paid |
|Income Tax Act 1961 ||Tax collected at Source ||0.52 ||F.Y2014-15 2015- 16 and 2016- 17 ||Various ||Not yet paid |
|Employees' Provident Fund and Miscellaneous Provisions Act 1952 ||Provident Fund ||140.94 ||F.Y 2012-13 2013-14 201415 2015-16and 2016-17 ||Various ||Not yet paid |
|Employees' State Insurance Act 1948 ||Employee State Insurance ||158.96 ||F.Y 2011-12 2012-13 201314 2014-15 2015-16 and 2016-17 ||Various ||Not yet paid |
|Punjab Labour Welfare Fund Act 1965 ||Labour Welfare fund ||3.63 ||F.Y 2012-13 2013-14 2014152015-16 and 2016-17 ||Various ||Not yet paid |
|Punjab Value Added Tax Act 2005/ Central Sales Tax Act 1956 ||VAT/CST ||87.45 ||F.Y 2013-14 2014-15 201516 and 2016-17 ||Various ||Not yet paid |
(b) According to the information and explanations there are no dues of income tax dutyof custom which have not been deposited with the appropriate authorities on account of anydispute. However according to information and explanations given to us the following duesof sales tax (VAT / CST / Entry Tax) duty of excise service tax has not deposited by thecompany on account of dispute.
|Sr. No. Name of the Statute ||Nature of Dues ||Period to which the amount relates ||Disputed Amount (Rs. In lacs) ||Forum where the dispute is pending |
|1 The Punjab General Sales Tax Act 1948 ||Sales Tax ||2003 ||58.83 ||The Hon'ble High Court of Punjab and Haryana Chandigarh |
|2 The Punjab Value Added Tax Act 2005 ||Value Added Tax ||2005 2008 2009 and 2011. ||744.32 ||The Deputy Excise & Taxation Commissioner (Appeals) Patiala |
|3 The Central Sales Tax 1956 ||Central Sales Tax ||2003 ||4.53 ||The Hon'ble High Court of Punjab and Haryana Chandigarh |
|4 The Central Sales Tax 1956 ||Central Sales Tax ||2005 2008 2009 and 2011. ||119.04 ||The Deputy Excise & Taxation Commissioner ( Appeals) Patiala |
|5 Himachal Pradesh Tax on entry of goods into Local Area Act 2010 ||Entry Tax ||2011 2012 2013 2014 and 2015 ||89.67 ||The Hon'ble High Court of Himachal Pradesh. |
|6 Himachal Pradesh Sales Tax Act. ||Sales Tax ||2005 ||0.49 ||Himachal Pradesh Tax Tribunal. |
|7 Himachal Pradesh Value Added Tax Act 2005 ||VAT ||2006 ||0.23 ||Himachal Pradesh VAT Tribunal. |
|8 Central Excise Act 1944. ||Excise Duty ||19951999 and 2005. ||3.87 ||Custom Excise and Service Tax Appellate Tribunal |
|9 Central Excise Act 1944. ||Excise Duty ||2005 2006 2007 2012 2013 ||2.77 ||Additional Commissioner Shimla. |
|10 Central Excise Act 1944. ||Excise Duty ||2009 ||27.85 ||Additional Commissioner Chandigarh. |
|11 Central Excise Act 1944. ||Excise Duty ||2011 and 2012. ||36.03 ||Commissioner of Central Excise Chandigarh. |
|12 The Finance Act 1994 (Chapter V) ||Service Tax ||1996 ||2.3 ||Commissioner of Central Excise (Appeals) |
|13 Central Excise Act 1944. ||Excise Duty ||2013 ||1.16 ||Commissioner of Central Excise Sangrur. |
|14 Central Excise Act 1944. ||Excise Duty ||2014 ||0.41 ||Commissioner of Central Excise Sangrur. |
|15 Central Excise Act 1944. ||Excise Duty ||2007 - 2013 ||42.24 ||Additional Commissioner of Central Excise Sangrur. |
|16 Central Excise Act ||Excise Duty ||2002 ||11.91 ||Assistant Commissioner of |
|1944. || || || ||Central Excise Sangrur. |
|17 Central Excise Act 1944. ||Excise Duty ||2015 ||0.33 ||Superintendent Central Excise Barnala. |
(viii) According to the information and explanations given to us the company hasdefaulted in repayment of loans and borrowings to a financial institutions banks orgovernment. The Company has not issued any debenture during the year or in the precedingyear. The details of the defaults are as under:
|Sr.No. Particulars ||Amount (Rs. In Lacs ) ||Nature of Dues ||Period of Default of repayment |
|1 IFCI Ltd. ||7862.57 ||Term loan - Principal || |
Refer Note 9 (a)and (b) below
|3647.05 ||Term loan - Interest |
|604.43 ||Cash Credit - Principal and Interest |
|2 ARCIL (IDBI Bank Ltd). ||1834.55 ||Term loan - Principal || |
Refer Note 9 (a)and (b) below
|802.30 ||Term loan - Interest |
|179.16 ||Cash Credit - Principal and Interest |
|3 SIDBI ||214.53 ||Term loan - Principal || |
Refer Note 9 (a)and (b) below
|90.03 ||Term loan - Interest |
|4 Punjab National Bank ||3165.07 ||Term loan - Principal || |
Refer Note 9 (a)and (b) below
|1178.95 ||Term loan - Interest |
|12714.72 ||Cash Credit - Principal and Interest |
|5 State Bank of India ||2290.40 ||Term loan - Principal || |
Refer Note 9 (a)and (b) below
|903.91 ||Term loan - Interest |
|4161.70 ||Cash Credit - Principal and Interest |
|6 Vijaya Bank ||377.76 ||Term loan - Principal || |
Refer Note 9 (a)and (b) below
|148.42 ||Term loan - Interest |
|1682.25 ||Cash Credit - Principal and Interest |
|7 J & K Bank ||141.07 ||Term loan - Principal || |
Refer Note 9 (a)and (b) below
|53.49 ||Term loan - Interest |
|639.47 ||Cash Credit - Principal and Interest |
a) The long term and short term borrowings recalled by the consortium banks not paid bythe company have been considered as defaulted for the purpose of above disclosures.
b) Interest includes interest accrued on long term and short term borrowings notprovided in the statement of profit and loss. (Refer note no.38)
c) The effect of the sanction letter issued by ARCIL explained in Note No 39 for onetime settlement has not been considered for the purpose of above disclosure.
(ix) In our opinion and according to the information and explanations given to us theCompany has not taken any term loan during the year. The Company has not raised money byway of initial public offer or further public offer (including debt instruments) duringthe year. Thusthe provisions of paragraph 3 (ix) of the Order are not applicable to theCompany.
(x) According to the information and explanations given to us no fraud on or by thecompany or on the company by its officers or employees has been noticed or reported duringthe course of our audit.
(xi) According to the information and explanations given to us and based on the recordsof the company the provision of the section 197 read with schedule V (with regard to themanagerial remuneration) to the Companies Act 2013 is not applicable. Therefore theprovisions of paragraph 3 (xi) of the Order are not applicable to the Company.
(xii) According to the information and explanations given to us the company is not aNidhi Company. Therefore the provisions of paragraph 3(xii) of the order are notapplicable.
(xiii) According to the information and explanations given to us and based on ourexaminations of the records of the company transactions with the related parties are incompliance with section 177 and section 188 of the Act where applicable and the detailsof the transactions have been disclosed in the financial statements as required by theapplicable accounting standards.
(xiv) According to the information and explanations given to us the company has notmade preferential allotment or private placement of shares or fully or partly convertibledebentures during the financial year under audit. Thus the provisions of paragraph 3 (xiv)of the order are not applicable.
(xv) According to 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. Accordingly provisions ofparagraph 3 (xv) of the Order are not applicable.
(xvi) According to the information and explanations given to us the company is notrequired to be registered under section 45-IA of the Reserve Bank of India Act 1934.
| ||For S.C. Vasudeva & Co |
| ||Chartered Accountants |
| ||Firm Reg. No.000235N |
| || |
| ||(Sanjiv Mohan) |
|Ludhiana ||Partner |
|30th May 2017 ||M. No. 086066 |