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Modern Denim Ltd.

BSE: 500451 Sector: Industrials
NSE: MODERNDENM ISIN Code: N.A.
BSE 05:30 | 01 Jan Modern Denim Ltd
NSE 05:30 | 01 Jan Modern Denim Ltd

Modern Denim Ltd. (MODERNDENM) - Auditors Report

Company auditors report

To

The Members of Modern Denim Limited

Report on the Audit of the Consolidated Financial Statements

Qualified Opinion

1. We have audited the standalone financial statements of Modern Denim Limited (the Company) which comprise the balance sheet as at March 31 2019 and the statement of Profit and Loss (statement of changes in equity) and the statement of cash flows for the year then ended and notes to the financial statements including a summary of significant accounting policies and other explanatory information.

2. In our opinion and to the best of our information and according to the explanations given to us except for the effects of the matter described in the Basis for Qualified Opinion section of our report the aforesaid financial statements give a true and fair view in conformity with the accounting principles generally accepted in India of the state of affairs of the Company as at March 31st 2019 and loss (changes in equity) and its cash flows for the year ended on that date.

Basis for Qualified Opinion

3. As per Ind AS 109 Financial Instruments the company has not recognised interest on financial liabilities on effective interest method. Interest on financial liabilities for the year in respect of cumulative redeemable preference shares amounting to ? 133.51 lacs including Dividend Distribution Tax Payable thereon (Previous year ? 133.51 lacs) has not been provided (Note No. 28.3). The total amount of interest on financial liabilities not provided till 31st March 2019 amounts to ? 3070.84 lacs (upto previous Balance Sheet date ? 2937.33 lacs) (Note No. 14.2) in view of accumulated losses. The Company was expecting waiver / relief under rehabilitation scheme submitted to BIFR and after abatement of BIFR the Company is in the process of filing a Compromise Arrangement and Amalgamation Scheme u/s 230-232 of the Companies Act 2013 to Hon'ble NCLT. Had the Company provided interest on financial liabilities in current year Finance Cost & Loss for the year would have been higher by ? 133.51 lac and Other Current Financial Liabilities & negative balance of Retained Earning under the head Other Equity would have been higher by ? 3070.84 lacs (upto previous Balance Sheet date ? 2937.33 lacs). A similar qualification had been given in the previous year's Auditor's Report.

4. As per Ind AS 109 Financial Instruments the company has not recognised interest on financial liabilities on effective interest method. Provision for interest on certain Secured and Unsecured Borrowings amounting to ? 61.70 lacs (Previous year ? 119.38 lacs) (Note No. 28.1 &28.2) has not been made in accounts as the Company was expecting waiver / relief under rehabilitation scheme submitted to BIFR and after abatement of BIFR the Company is in the process of filing a Compromise Arrangement and Amalgamation Scheme u/s 230-232 of the Companies Act 2013 to Hon'ble NCLT having its impact on reducing the Loss for the Year. The total amount of Interest not provided till 31st March 2019 amounts to ? 1827.80 lacs (upto previous Balance Sheet date ?1766.10 lacs) (Note No. 19.2 &19.3). Had the Company provided for the Interest Other Current Financial Liabilities would have been higher and balance in Retained Earning under the head Other Equity would have been lower by ? 1827.80lacs (upto previous Balance Sheet date ? 1766.10 lacs) and Finance Cost would have been higher and Loss for the Year would have been higher by ? 61.70 lacs (Previous Year ? 119.38 lacs). A similar qualification had been given in the previous year's Auditor's Report.

5. As per Ind AS 109 Financial Instruments the company has not recognised interest on financial liabilities on effective interest method. Provision for interest amounting to ?6436.17 lacs on Secured Assigned term loan for which the Company has received notice from the Assignee recalling original principal amount of ?5186.00 lacs along with interest thereon upto the date of payment has not been made as the Company was expecting waiver / relief under rehabilitation scheme submitted to BIFR and after abatement of BIFR the Company is in process of filing a Compromise Arrangement and Amalgamation Scheme u/s 230-232 of the Companies Act 2013 to Hon'ble NCLT (Refer Note No. 17.3). Had the Company provided for the interest upto 31/03/2017 Other Current Financial Liabilities would have been higher and balance in Retained Earning under the head Other Equity would have been lower by ? 6436.17 lacs. Had the Company provided for the Principal Current Borrowings would have been higher and balance in Retained Earning under the head Other Equity would have been lower by ? 4759.08 lacs.A similar qualification had been given in the previous year's Auditor's Report.

6. As per Ind AS 109 Financial Instruments the Company has not measured Non-Current Borrowing of ? 4681.00 lacs (P.Y. ? 3964.00 lacs) initially at fair value. Had the Company fair valued the same; Interest Income Finance Cost & Non-current Borrowings would have been higher and Other Current Finance Liabilities would have been lower by ? 206.80 lacs (P.Y. ? 159.91 lacs). However there is no effect in Statement of Profit & Loss for the year as well as Debit balance of Other Equity (Refer Note no. 14.5 23.1 & 28.4).

7. We further report that considering items mentioned at para 3 to 6 above the loss for the year would have been ? 643.47 lacs (as against the reported figure of loss of ? 448.26 lacs) Other current financial liabilities would have been ? 12929.28 lacs (as against the reported figure of ? 2017.47 lacs) Non-current Borrowings would have been ? 5754.00 (as against the reported figure of ?5331.00 lacs) Current Borrowings would have been ? 6231.84 lacs (as against the reported figure of ? 1472.76 lacs) Other Income would have been ? 254.37 lacs (as against the reported figure of ?47.57 lacs) Finance Cost would have been ? 402.01 lacs (as against the reported figure of ? nil lacs) and negative balance of Other Equity would have been ? 24302.31 lacs (as against the reported figure of ? 8208.42 lacs).

8. Except for the above mentioned qualifications at para 3 to 6 these financial statements are prepared and presented in accordance with all the applicable and effective Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules 2015 even though the same has been referred as complied in Note -1 Statement of Compliance in Significant Accounting Policy in Notes forming part of Financial Statements.

Material uncertainty related to Going Concern

9. We draw attention to Note 41 of the standalone financial statements disclosing the material uncertainties that may affect the company from being able to continue as a going concern which are as under. a. The Board for Industrial and Financial Reconstruction (BIFR) had declared the company as a sick company and after abatement of BIFR the Company is in process of filing a Compromise Arrangement and Amalgamation Scheme u/s 230-232 of the Companies Act 2013 to Hon'ble NCLT. b. The Company's net worth is fully eroded and has a negative net worth of ? 4458.22 Lacs.

The company has neither the intention to liquidate nor the intention to cease its operation nor is compelled to do so. The financial statements have therefore been prepared on going concern basis. Our opinion is not qualified in respect of this matter.

Key Audit Matters

10. Key audit matters are those matters that in our professional judgment were 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 a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters.

11. We have determined that there are no key audit matters to be communicated in our report.

Information other than the Financial Statements and Auditor's Report thereon

12. The Company's Board of Directors are responsible for the other information.

The other information comprises the information included in the Annual Report but does not include the financial statements and our auditor's report thereon. The Annual Report is expected to be made available to us after the date of this auditor's report.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements our responsibility is to read the other information identified above when it becomes available and in doing so consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

When we read the Annual Report if we conclude that there is a material misstatement therein we are required to communicate the matter to those charged with governance and as may be legally advised.

Responsibilities of Management for the Financial Statements

13. The Company's Board of Directors are responsible for the matters stated in section 134(5) of the Companies Act 2013 (the Act) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position financial performance (changes in equity) and cash flows of the Company in accordance with the accounting principles generally accepted in India including the accounting Standards specified under section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate implementation and maintenance of accounting policies; making judgments and estimates that are reasonable and prudent; and design implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the accuracy and completeness of the accounting records relevant to the preparation and presentation of the financial statement that give a true and fair view and are free from material misstatement whether due to fraud or error.

14. In preparing the financial statements management is responsible for assessing the Company's ability to continue as a going concern disclosing as applicable matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations or has no realistic alternative but to do so. 15. Those Board of Directors are also responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

16. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Paragraph 40(b) of this SA explains that the shaded material below can be located in an Appendix to the auditor's report. Paragraph 40(c) explains that when law regulation or applicable auditing standards expressly permit reference can be made to a website of an appropriate authority that contains the description of the auditor's responsibilities rather than including this material in the auditor's report provided that the description on the website addresses and is not inconsistent with the description of the auditor's responsibilities below.

As part of an audit in accordance with SAs we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the financial statements whether due to fraud or error design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion forgery intentional omissions misrepresentations or the override of internal control.

 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act 2013 we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 Conclude on the appropriateness of management's use of the going concern basis of accounting based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists we are required to draw attention in our auditor's report to the related disclosures in the financial statements or if such disclosures are inadequate to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However future events or conditions may cause the Company to cease to continue as a going concern.

 Evaluate the overall presentation structure and content of the financial statements including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 We communicate with those charged with governance regarding among other matters the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit.

 We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and

 Other matters that may reasonably be thought to bear on our independence and where applicable related safeguards.

17. From the matters communicated with those charged with governance we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when in extremely rare circumstances we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

18. As required by the Companies (Auditor's Report) Order2016 (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 the Order.

19. As required by Section 143(3) of the Act we report that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph in our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

c) The Balance Sheet the Statement of Profit and Loss the Cash Flow Statement and Statement of Changes in Equity dealt with by this Report are in agreement with the books of account.

d) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph in our opinion the aforesaid standalone Ind AS financial statements comply with the Indian Accounting Standards prescribed under section 133 of the Act.

e) The matters described in the Basis for Qualified Opinion paragraph above in our opinion may have an adverse effect on the functioning of the Company.

f) On the basis of the written representations received from the directors as on 31st March 2019 and taken on record by the Board of Directors none of the directors is disqualified as on 31st March 2019 from being appointed as a director in terms of Section 164(2) of the Act.

g) The Qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the basis for Qualified Opinion paragraph above.

h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls refer to our separate Report in Annexure B.

i) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinion 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 its financial position in its standalone Ind AS financial statements.(Refer Note 35 to the financial statements);

ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses;

iii. There is no default in transferring amounts required to be transferred to the Investor Education and Protection Fund by the company during the year ended on 31st March 2019. (Refer Note 14.1 14.2 17.2 17.6 19.2 & 19.3 to the financial statements).

For Samir M Shah &Associates
Chartered Accountants
[FRN No. 122377W]
Place : Ahmedabad(Samir M Shah)
Date : 30th May 2019Partner
(M. No.111052)

Annexure A to the Independent Auditors' Report of even date on the Standalone Financial Statements of Modern Denim Limited

Referred to in paragraph 18 of our Report of even date to the Members of MODERN DENIM LIMITED for the year ended 31st March 2019.

1. In respect of Property Plant and Equipments:

a. The Company has maintained proper records showing full particulars including quantitative details and situation of Fixed Assets other than Furniture and Fixtures and Office Equipment for which detailed records are not maintained.

b. As per the information and explanations given to us fixed assets were physically verified during the year by the Management in accordance with a programme of verification which in our opinion provides for physical verification of all the fixed assets at reasonable intervals.

According to the information and explanations given to us no material discrepancies were noticed on such verification.

c. As explained to us the title deeds of all the immovable properties are held in the name of the company.

2. In respect of its Inventories:

a. The inventory has been physically verified during the year by the management. In our opinion the frequency of verification is reasonable.

b. The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c. On the basis of our examination of the records of inventory we are of opinion that the Company is maintaining proper records of inventory.

The discrepancies noticed on verification between the physical stocks and books records were not material.

3. In respect of Loans and Advances granted during the year.

As per information and explanation given to us the Company has not granted loans to company covered under the register maintained under section 189 of the Companies Act 2013 and therefore the clauses (iii) (a) to (c) of the Companies (Auditor's Report) Order2016 are not applicable.

4. Loans Investments and guarantees:

According to the information and explanation given to us the company had neither given any loan guarantee or security nor made any investments during the year to the parties covered under the register maintained under section 185 and 186 of the Companies Act 2013 and therefore clauses (iv) of companies (Auditor's Report) Order 2016 is not applicable.

5. During the year the company has not accepted any deposits and hence the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules framed there under are not applicable to the company. Therefore clauses (v) of companies (Auditor's Report) Order 2016 is not applicable.

6. According to the information and explanations given to us the company is not required to maintain cost records as required by the central government under sub section (1) of section 148 of the Companies Act 2013 even though books of accounts relating to materials labour and other items of cost maintained by the company pursuant to the Rules made by the Central Government for the maintenance of cost records under Section 148 (1) of the Companies Act 2013 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. We have not however made a detailed examination of the records with a view to determine whether they are accurate or complete.

7. In respect of Statutory Dues: a. According to the records of the Company the Company is by and large regular in depositing with appropriate authorities undisputed statutory dues including provident fund employee's state insurance income-tax sales-tax wealth-tax Service Tax Goods and Service Tax Custom Duty Excise Duty Cess and other statutory dues applicable to it.

b. According to the information and explanations given to us no undisputed amounts payable in respect of income tax wealth tax service tax Goods and Service Tax sales tax customs duty and excise duty were outstanding as at 31st March 2019 for a period of more than six months from the date they became payable. c. According to the records of the company there are no amounts required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act 1956 (1 of 1956) and rules made there under.(Refer Note 14.1 14.2 17.2 17.6 19.2 & 19.3).

8. The Company has defaulted in repayment of instalments of dues to Debenture holders amounting to ? 644.92 lacs since 1997.

9. The company has not accepted any fresh deposits during the year as per the information and explanation given to us in respect of deposits accepted in earlier years the compliance with the provisions of section 73 to 76 or any other relevant provisions of the Company Act 1956 and rules framed there under are subject to the order passed by the Company law Board on 17.04.2002 whereby the Company is required to make repayment of deposits and payment of interest thereon in accordance with the revival scheme approval by the Board for Industrial and Financial Reconstruction (BIFR) under the provisions of Sick Industrial Companies (Special Provisions) Act 1985 and after abatement of BIFR the Company is in the process of filing a Compromise Arrangement and Amalgamation Scheme u/s 230-232 of the Companies Act 2013 to Hon'ble NCLT.

10. Based upon the audit procedures performed and information and explanations given by the management we report that no fraud by the Company or any fraud on the company by it's officer or employees has been noticed or reported during the course of our audit.

11. In our opinion and according to the information and explanations given to us the company had paid managerial remuneration which is in accordance with the requisite approvals mandated by the provisions of section 197 read with schedule V of The Companies Act 2013.

12. In our opinion and according to the information and explanations given to us the provisions of special statute applicable to chit funds and Nidhi / mutual benefit funds / societies are not applicable to the company. Hence clause (xii) of the Company's (Auditor's Report) Order 2016 is not applicable 13. In our opinion and according to the information and explanations given to us the transactions entered by the company with related parties are in compliance with the provisions of section 177 and 188 of The Companies Act 2013 and details thereof are properly disclosed in the financial statements.

14. In our opinion and according to the information and explanation given to us no preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and hence clause (xiv) of the Company's (Auditor's Report) Order 2016 is not applicable.

15. The company had not entered in to any non-cash transactions with the directors or persons connected with them during the year and hence clause (xv) of Company's (Auditor's Report) Order 2016 is not applicable.

16. In our opinion and according to the information and explanation given to us the company is not registered under section 45-IA of Reserve Bank of India Act 1934 hence clause (xvi) of Company's (Auditor's Report) Order 2016 is not applicable

For Samir M Shah & Associates
Chartered Accountants
[F.R.N: 122377W]
Place : Ahmedabad(Samir M Shah)
Date : 30th May 2019Partner
[M. No. 111052]

Annexure B to the Independent Auditors' Report of even date on the Standalone Financial Statements of Modern Denim Limited

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 financial reporting of Modern Denim Limited as of 31st March 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management's Responsibility for Internal Financial Controls

The Company's management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business including adherence to Company's policies the safeguarding of its assets the prevention and detection of frauds and errors the accuracy and completeness of the accounting records and the timely preparation of reliable financial information as required under the Companies Act 2013.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the Guidance Note) and the Standards on Auditing issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act 2013 to the extent applicable to an audit of internal financial controls both applicable to an audit of Internal Financial Controls and both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting also included obtaining an understanding of internal financial controls over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor's judgment including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company's internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A Company's internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Company's internal financial control over financial reporting includes those policies and procedures that: (1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the Company's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting including the possibility of collusion or improper management override of controls material misstatements due to error or fraud may occur and not be detected. Also projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion the Company has in all material respects an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March 2019 based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

For Samir M Shah & Associates
Chartered Accountants
[F.R.N: 122377W]
Place : Ahmedabad(Samir M Shah)
Date : 30th May 2019Partner
[M. No. 111052]