To the Members of Morarjee Textiles Limited
Report on the Audit of the Standalone Ind AS Financial Statements
We have audited the accompanying standalone Ind AS financial statements of MorarjeeTextiles Limited ("the Company") which comprise the Balance Sheet as at March31 2020 the Statement of Profit and Loss (including Other Comprehensive Income) theStatement of Changes in Equity and the Statement of Cash Flows for the year then endedand notes to the standalone Ind AS financial statements including a summary of significantaccounting policies and other explanatory information (hereinafter referred to as"standalone Ind AS financial statements").
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone Ind AS financial statements give the informationrequired by the Companies Act 2013 ("the Act") in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India including the Indian Accounting Standards ("Ind AS") prescribed undersection 133 of the Act of the state of affairs of the Company as at March 31 2020 itsloss (including other comprehensive income) changes in equity and its cash flows for theyear ended on that date.
Basis for Opinion
We conducted our audit in accordance with Standards on Auditing (SAs) specified undersection 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone Ind ASFinancial Statements section of our report. We are independent of the Company inaccordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia ("ICAI") together with the ethical requirements that are relevant to ouraudit of the standalone Ind AS financial statements under the provisions of the Act andRules thereunder and we have fulfilled our other ethical responsibilities in accordancewith these requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion on thestandalone Ind AS financial statements.
Material Uncertainty Related to Going Concern
We draw attention to Note 48 in the standalone Ind AS financial statements whichindicates that the Company has incurred a net loss of Rs 2609 lakhs during the year ended
March 312020. Further there are delays in repayment of debt obligation. Theseconditions along with other matters as set forth in the said note indicate that a materialuncertainty exists that may cast doubt on the Company's ability to continue as a goingconcern. Based on the favorable factors mentioned in the said note the management has areasonable expectation that the Company has adequate resources to continue its operationalexistence for the foreseeable future and therefore the standalone Ind AS financialstatements has been prepared on going concern basis.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone Ind AS financial statements of the currentyear. These matters were addressed in the context of our audit of the standalone Ind ASfinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.
|Key audit matter ||How our audit addressed the key audit matter |
|Valuation of Inventory: ||Our audit procedures in respect of this area included but not limited: |
|Total inventory valuation as on March 31 2020 is Rs 8544.82 lakhs (March 31 2019: Rs 10489.40 lakhs) || |
|Inventory of Company comprises of finished goods and Work in Progress (WIP) and Raw Material. As described in Note 8 to the standalone Ind AS financial statements cost of Inventory represents the costs of materials conversion cost and related production costs at each stage till date. It is held at the lower of cost and net realisable value (NRV). Some of the finished goods and WIP (Grey Cloth) are slow moving. ||We understood and tested the design and operating effectiveness of controls as established by the management for valuation of inventory and identifying slow moving inventory and determination of net realizable value of inventory as on date. |
|Considering the materiality of the amount involved and degree of management judgment in valuation we have identified valuation of inventory as a key audit matter for the current year audit. ||We observed the physical inventory verification procedures carried out by the management on monthly basis as well as year-end physical verification done in May 2020 due to lockdown. |
| ||We performed year end cut-off procedures to validate the actual stocks carried in the inventory as at year end. |
| ||We tested the adequacy of the key assumptions and estimates used to determine cost allocation at each stage of production and consistency in such allocation including mathematical accuracy of the calculations. |
| ||We performed NRV testing by comparing subsequent sale/order value. We also evaluated judgment used by the management for arriving at the diminution in value of slow moving inventory. |
| ||The above audit procedures enabled us to conclude on the valuation of inventory held by the company as on the date of Balance Sheet. |
Emphasis of Matter
We draw attention to the following matters in the notes to the standalone Ind ASfinancial statements:
1. As stated in Note 13(i) to the standalone Ind AS financial statements carry forwardof GST input tax credit amounting to Rs 4011 lakhs as on March 312020 for the reasonstated in the said note.
2. As stated in Note 47 to the standalone Ind AS financial statements which describesthe uncertainties and the management's assessment of the financial impact on the Companydue to COVID-19 pandemic situation for which a definitive assessment of the impact ishighly dependent upon the circumstances as they evolve in the subsequent period.
Our opinion is not modified in respect of these matters.
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Management Discussion &Analysis Corporate Governance and Director's Report but does not include the standaloneInd AS financial statements consolidated Ind AS financial statements and our auditor'sreport thereon.
Our opinion on the standalone Ind AS financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone Ind AS financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the standalone Ind AS financialstatements or our knowledge obtained in the audit or otherwise appears to be materiallymisstated.
If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Standalone IndAS Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these standalone Ind AS financialstatements that give a true and fair view of the financial position financial performance(including other comprehensive income) changes in equity and cash flows of the Company inaccordance with the accounting principles generally accepted in India including Ind ASprescribed under section 133 of the Act read with the Companies (Indian AccountingStandards) Rules 2015 as amended. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingof the assets of the Company and for preventing and detecting frauds and otherirregularities; selection and application of appropriate 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 standalone Ind AS financial statements that give atrue and fair view and are free from material misstatement whether due to fraud or error.
In preparing the standalone Ind AS financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Ind AS Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone Ind ASfinancial 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 this standalone Ind AS financial statements. As part of an audit inaccordance with SAs we exercise professional judgment and maintain professionalskepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the standalone Ind ASfinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)
(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls with reference to financial statements inplace and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone Ind AS financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.
Evaluate the overall presentation structure and content of the standalone IndAS financial statements including the disclosures and whether the standalone Ind ASfinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone Ind AS financialstatements of the current year and are therefore the key audit matters. We describe thesematters in our auditor's report unless law or regulation precludes public disclosure aboutthe matter or when in extremely rare circumstances we determine that a matter should notbe communicated in our report because the adverse consequences of doing so wouldreasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
(1) As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of section 143(11) of the Act we givein "Annexure 1" a statement on the matters specified in paragraphs 3 and 4 ofthe Order to the extent applicable.
(2) 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 bestof our knowledge and belief were necessary for the purposes of our audit;
b. In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books;
c. The Balance Sheet the Statement of Profit and Loss (including Other ComprehensiveIncome) the Statement of Changes in Equity and the Statement of Cash Flows dealt with bythis report are in agreement with the books of account;
d. In our opinion the aforesaid standalone Ind AS financial statements comply with theInd AS prescribed under section 133 of the Act read with the Companies (Indian AccountingStandards) Rules 2015 as amended;
e. The matter described under the Material Uncertainty Related to Going Concern /Emphasis of Matter section above in our opinion may have an adverse effect on thefunctioning of the Company;
f. On the basis of the written representations received from the directors as on March31 2020 and taken on record by the Board of Directors none of the directors isdisqualified as on March 31 2020 from being appointed as a director in terms of section164(2) of the Act;
g. With respect to the adequacy of the internal financial controls with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate report in "Annexure 2";
h. With respect to the other matter to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act:
In our opinion and to the best of our information and according to the explanationsgiven to us the remuneration paid/ provided by the Company to its directors during theyear is in accordance with the provisions of section 197 of the Act;
i. 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 the explanations given to us:
(i) The Company has disclosed the impact of pending litigations on its financialposition in its standalone Ind AS financial statements - Refer Note 37 on ContingentLiabilities to the standalone Ind AS financial statements;
(ii) The Company did not have any long-term contracts including derivative contractsfor which 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.
ANNEXURE 1 TO THE INDEPENDENT AUDITOR'S REPORT
[Referred to in paragraph 1 under 'Report on Other Legal and Regulatory Requirements'section in the Independent Auditor's Report of even date to the members of MorarjeeTextiles Limited on the standalone Ind AS financial statements for the year ended March312020
Based on the audit procedures performed for the purpose of reporting a true and fairview on the standalone Ind AS financial statements of the Company and taking intoconsideration the information and explanations given to us and the books of account andother records examined by us in the normal course of audit we report that:
(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) During the year the fixed assets of the Company have been physically verified bythe management and no material discrepancies were noticed on such verification. In ouropinion the frequency of verification is reasonable having regard to the size of theCompany and the nature of its assets.
(c) The title deeds of immovable properties recorded as fixed assets in the books ofaccount of the Company are held in the name of the Company.
(ii) The inventory except goods-in-transit and stocks lying with third parties havebeen physically verified by the management during the year. In our opinion the frequencyof verification is reasonable. For stocks lying with third parties at the year end thesehave substantially been confirmed by them. As informed no material discrepancies werenoticed on physical verification carried out during the year.
(iii) As informed the Company has not granted any loans secured or unsecured tocompanies firms Limited Liability Partnerships or other parties covered in the registermaintained under section 189 of the Act. Accordingly clause 3(iii)(a) 3(iii)(b) and3(iii)(c) of the Order is not applicable to the Company.
(iv) The Company has complied with the provisions of sections 185 and 186 of the Act inrespect of grant of loans making investments and providing guarantees and securities asapplicable.
(v) In our opinion and according to the information and explanations given to us theCompany has not accepted any deposits from the public within the provisions of sections 73to 76 of the Act and the rules framed there under. Accordingly the provisions of clause3(v) of the Order are not applicable.
(vi) The maintenance of cost records has been specified by the Central Government undersub-section (1) of section 148 of the Act and rules thereunder. We have broadly reviewedsuch records and are of the opinion that prima facie the prescribed accounts and recordshave been made and maintained. We have not however made a detailed examination of therecords with a view to determine whether they are accurate or complete.
(vii) (a) The Company is regular in depositing with appropriate authorities undisputedstatutory dues including provident fund employee's state insurance income tax goods andservices tax (GST) customs duty cess and any other material statutory dues applicable toit. During the year 2017-18 sales tax value added tax service tax and duty of excisesubsumed in GST and are accordingly reported under GST.
According to the information and explanations given to us no undisputed amountspayable in respect of provident fund employee's state insurance income tax GST customsduty cess and any other material statutory dues applicable to it were outstanding atthe year end for a period of more than six months from the date they became payable.
(b) According to the information and explanations given to us the dues outstandingwith respect to income tax sales tax service tax value added tax GST customs dutyexcise duty on account of any dispute are as follows:
|Name of the Statute ||Nature of Dues * ||Amount (Rs in lakhs) ||Financial Year ||Forum where Dispute is Pending ||Remarks |
|Central Excise Act 1944 ||Excise duty ||6.22 ||FY 1979-80 to FY 1985-86 ||Commissioner of Income ||None |
| || ||0.09 ||FY 1990-91 ||Tax (Appeals) || |
| || ||146.49 ||FY 1993-94 to FY 1995-96 || || |
| || ||218.61 ||FY 1999-00 to FY 2001-02 || || |
|Central Excise Act 1944 ||Excise Duty ||2.10 ||FY 1990-91 to FY 1991-92 ||CESTAT ||None |
| || ||488.27 ||FY 1995-96 to FY 2002-03 || || |
|Central Excise Act 1944 ||Excise Duty ||3.19 ||FY 1997-98 to FY 2001-02 ||High Court ||None |
|Central Excise Act 1944 ||Excise Duty ||133.97 ||FY 2008-09 to FY 2009-10 ||High Court Nagpur ||None |
|Central Excise Act 1944 ||Excise Duty ||296.14 ||FY 1981-84 ||Supreme Court ||None |
|Maharashtra Value Added Tax Act 2002 ||Sales Tax ||1.95 ||FY 2006-07 ||Joint Commissioner of Sales Tax (Appeals) ||None |
*Includes amounts of interest and penalty where ascertainable.
(viii) During the year the Company has not defaulted in repayment of loans orborrowings* to financial institution(s) bank(s) government(s) or dues to debentureholder(s) except for details given below:
|Sr. No ||Particulars ||Amount of default as at March 312020 (Rs in lakhs) ||Period of Default ||Remarks |
| || || ||Due Date ||Date of Payment || |
| ||Name of the Lenders: || || || || |
|1 ||Axis Bank Limited || || || || |
| ||Principal ||248.50 ||31.12.2019 ||31.03.2020 || |
| ||Interest ||124.13 ||31.12.2019 ||31.03.2020 || |
| || ||127.22 ||31.01.2020 ||- ||Not yet paid |
| || ||120.32 ||29.02.2020 ||- ||Not yet paid |
|2 ||Tata Capital Financial Services Limited || || || || |
| ||Principal ||51.50 ||30.09.2019 ||25.10.2019 || |
| || ||51.50 ||31.12.2019 ||31.01.2020 || |
| ||Interest ||24.34 ||31.01.2020 ||28.02.2020 || |
|3 ||Indian Bank (erstwhile Allahabad Bank) || || || || |
| ||Principal ||887.00 ||31.08.2019 ||30.11.2019 || |
| || ||842.29 ||30.11.2019 ||26.02.2020 || |
|4 ||Federal Bank Limited || || || || |
| ||Principal ||200.00 ||31.10.2019 ||23.01.2020 || |
| || ||250.00 ||30.11.2019 ||18.02.2020 || |
|5 ||Kotak Mahindra Bank Limited || || || || |
| ||Principal ||71.07 ||31.03.2020 ||27.04.2020 || |
| ||Interest ||23.71 ||31.03.2020 ||27.04.2020 || |
The Company has availed all loan facilities under RBI COVID moratorium whichwere due in the month March 312020 except Kotak Mahindra Bank Limited.
(ix) In our opinion and according to the information and explanations given to us theCompany has prima facie utilized the moneys raised by way of term loans during the yearfor the purposes for which they were raised.
As informed the Company has not raised any moneys by way of initial public offerfurther public offer (including debt instruments).
(x) During the course of our examination of the books and records of the Companycarried out in accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyinstance of fraud by the Company or any fraud on the Company by its officers or employeesnoticed or reported during the year nor have we been informed of any such instance by themanagement.
(xi) According to the information and explanations given to us managerial remunerationhas been paid / provided in accordance with the requisite approvals mandated by theprovisions of section 197 read with Schedule V to the Act.
(xii) In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company. Therefore clause 3(xii) of the Order is not applicable tothe Company.
(xiii) According to the information and explanations given to us all transactionsentered into by the Company with the related parties are in compliance with sections 177and 188 of Act where applicable and the details have been disclosed in the standaloneInd AS financial statements as required by the applicable accounting standards. (ReferNote no. 50 to the Standalone Ind AS Financial Statements).
(xiv) The Company has not made any preferential allotment or private placement ofshares or fully or partly convertible debentures during the year. Therefore clause 3(xiv)of the Order is not applicable to the Company.
(xv) According to the information and explanations given to us the Company has notentered into any non-cash transactions with directors or persons connected with themduring the year and hence provisions of section 192 of the Act 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.
ANNEXURE 2 TO THE INDEPENDENT AUDITOR'S REPORT
[Referred to in Paragraph 2(g) under 'Report on Other Legal and RegulatoryRequirements' section in our Independent Auditor's Report of even date to the members ofMorarjee Textiles Limited on the Standalone Ind AS Financial Statements for the year endedMarch 312020]
Report on the Internal Financial Controls with reference to Financial Statements underclause (i) of sub-section 3 of section 143 of the Companies Act 2013 ("theAct").
We have audited the internal financial controls with reference to financial statementsof Morarjee Textiles Limited ("the Company") as of March 31 2020 in conjunctionwith our audit of the Standalone Ind AS Financial Statements of the Company for the yearended on that date.
Management's Responsibility for Internal Financial Controls
The Company's Management is responsible for establishing and maintaining internalfinancial controls based on the internal control with reference to financial statementscriteria established by the Company considering the essential components of internalcontrol stated in the Guidance
Note on Audit of Internal Financial Controls over Financial Reporting ("theGuidance Note") issued by the Institute of Chartered Accountants ofIndia("ICAI"). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of its business including adherence tocompany's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.
Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note and the Standards on Auditing specified under section143(10) of the Act to the extent applicable to an audit of internal financial controlsboth issued by the ICAI. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate internal financial controls with reference to financial statements wasestablished and maintained and if such controls operated effectively in all materialrespects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to financial statements and their operatingeffectiveness.
Our audit of internal financial controls with reference to financial statementsincluded obtaining an understanding of internal financial controls with reference tofinancial statements assessing the risk that a material weakness exists and testing andevaluating the design and operating effectiveness of internal control based on theassessed risk. The procedures selected depend on the auditor's judgement including theassessment of the risks of material misstatement of the financial statements whether dueto fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls withreference to financial statements.
Meaning of Internal Financial Controls with reference to Financial Statements
A company's internal financial controls with reference to financial statements 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 controlswith reference to financial statements includes those policies and procedures that (1)pertain to the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of the assets of the company;(2) providereasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorisations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorised acquisition use ordisposition of the company's assets that could have a material effect on the financialstatements.
Inherent Limitations of Internal Financial Controls with reference to FinancialStatements
Because of the inherent limitations of internal financial controls with reference tofinancial statements 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 withreference to financial statements to future periods are subject to the risk that theinternal financial controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
In our opinion the Company has in all material respects an adequate internalfinancial controls with reference to financial statements and such internal financialcontrols with reference to financial statements were operating effectively as at March312020 based on the internal controls with reference to financial statements criteriaestablished by the Company considering the essential components of internal controlsstated in the Guidance Note issued by the ICAI.
For Haribhakti & Co. LLP
ICAI Firm Registration No. 103523W / W100048
Membership No. 034828
Mumbai: June 26 2020.