To The Members of Samtel Color Limited
Report On the Financial Statements
We have audited the accompanying Financial Statements of Samtel Color Limited("the Company") which comprises the Balance Sheet as at 31st March2016 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
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 preparation ofthese financial statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Accounting Standards specified undersection 133 of the Act read with Rule 7 of the Companies (Accounts) Rules 2014. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatements whether due to fraudor error.
Our responsibility is to express an opinion on these financial statements based on ouraudit.
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 thereunder.
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
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor'sjudgment including the assessment of the risks of the material misstatement of thefinancial statements whether due to error or fraud. In making those risk assessments theauditor considers internal control relevant to the Company's preparation of the financialstatements that give a true and fair view in order to design audit procedures that areappropriate in the circumstances. An audit also includes evaluating the appropriateness ofaccounting policies used and -reasonableness of the accounting estimates made by thecompany's directors as well as you're getting the oral presentation of the financialstatement.
We believe that the audit evidence we have obtained sufficient and appropriate toprovide a basis for our audit of opinion on financial statements.
Basis for Qualified Opinion
(A) The financial statements have been prepared by the Company on the going concernbasis as fully elaborated in Note 37 of the financial statements further we also drawattention on note no. 37 and (48) of Financial Statements
(i) The declaration of the company as a sick industrial company under section 3(1) ofSick Industrial Companies Act 1985 via order of BIFR bench dated 3rd December 2014against case no. 58/2012. During the year the draft rehabilitation scheme in line withprescribed procedure & rules under SICA was filed and :
- as per direction of BIFR dated 6th October 2015 the Company has to submit the updated DRS after incorporation of all the observations made by ICICI ( OA) and the Company has replied/ clarified observation of OA on 16th December 2015. Meanwhile OA has applied on behalf all the applicant under third proviso to the section 15 of SICA for abatement of reference filed by the Company on account of action taken by the OA under Section 13 (4) of SARFAESI Act 2002.
b. ICICI Bank being authorised by other lender Banks/ financial Institutions has takenphysical possession of immovable properties situated at R-9/10 Raj Nagar Ghaziabad (U.P.)and Plot no-6 Sector II Parwanoo Industrial Area Parwanoo ( H.P.) under section 13(4)of SARFAESI Act 2002 as per the direction dated 14th July 2014 of District MagistrateGhaziabad for Rajnagar Property and direction dated 23rd August 2014 by Tahsildar ofdistrict Solan ( H.P) for Parwanoo property on the basis of symbolic possession of all theimmovable properties of the Company pursuant to letter dated 16th April 2014
(ii) The depreciation where useful life and salvage value of assets is in variance withthe useful life and salvage value given in Schedule II of Companies Act 2013 as per thetechnical assessment by an independent professional valuer.
We believe that our audit provides a reasonable basis for our qualified opinion aselaborated hereunder:
(B) We had reported in our audit report for the year ended 31" March 2012 asunder.
(i) The entire net worth of the Company has eroded completely;
(ii) the Company has initiated the bidding process for the Disposal of production lines1 and 4(non -core assets) out of 4 production lines at plant situated at Gautam BuddhaNagar(Uttar Pradesh) after obtaining approval of CDR lenders and consequently impairedthose production lines by Rs. 3866.91 Lacs and related stores & spares by Rs. 512.28Lacs;
(iii) the manufacturing operations at other production lines of plants situated atGhoziabad (Uttar Pradesh) & Parwanoo (Himachol Pradesh) could not be resumed in thefinancial year due to non- participation of labour in production process reasoning totheir over-dues;
(iv) the Company has defaulted in repayment of loons as per CDR scheme and borrowingsof other lenders of elaborated in note no. 38 of the financial statements;
(v) there is diminution in the value of long term investments;
(vi) reconciliation and confirmations of balances of certain mojor creditors andacceptances ore pending;
(vii) non- redemption of 969163 0% redeemable preference shares of RslOO eochamounting to Rs. 969.16 lacs already due for redemption; and (viii) non- payment ofpreference dividend for the period from 31s! March 2008 to 31s'March 2012 aggregating to Rs. 773.61 Locs an 2110116 8% Nan-Convertible CumulativeRedeemable Preference Shares.
(C) We further reported in our audit report for the year ended on 31stMarch 2013 as under:-
(i) In view of the continued failure of the Company to disburse the legitimate dues ofthe workmen Han'ble High Court of Himachal Pradesh (Shimlo) has settled the dispute bypassing an order for the closure of Deflection Yoke unit of Porwanoo (H.P) and therebypay off the corresponding outstanding dues by selling the industrial undertaking/Campanyassets etc.
(ii) the operations have been suspended in all locations by the mid of November 12& have not been resumed till date and consequently management has impaired theproduction lines 3 & 5 located at Goutam Buddh Nagar (UP) & Deflection Yoke unitlocated at Parwanoo (HP) by Ps.27977.06 Iocs and related stores & spares by Rs.410.35 lacs etc.;
(iii) the impairment of assets of production line 2 located at Goutam Buddh Nagar(U.P.) and gun division at Meerut hos not been considered by the management on therationale of its revival plan of running the operations by restructuring them even thoughin our opinion considering the liquidity crunch the probability of running these linesseems remote;
(iv) the balances outstanding as on 31a March 2013 of receivables &inventory are subject to confirmation & physical verification respectively due totemporary suspension of operations & non access to inventories
- row material & finished goods inventory amounting to Rs. 311.90 Lacs and Rs. 55 lacs respectively hove been seized by the excise authorities due to non-payment of excise dues;
(vi) there is non-submission of various statutory returns acknowledged by therespective authorities non-provision/deposition of various overdue statutory liabilitieslike PF/Service Tax/TDS/Excise/ Vat & CST/WCT/TCS/ESI/Gratuity/Bonus/ Preferencedividend & related over dues (interest and penalty) non-deduction of TDS onprovisional expenses; and as explained by management exact amount of which could not beascertained in present scenario;
(vii) there is increase in diminution of investments in current year of Rs.841. 48lac;
(viii) Assets lying with the Provident Fund trust hove been transferred to RegionalProvident Fund Commissioner and those related to Gratuity Trust hove been settled byadjustment of employee's dues. However as per the management related liability hos beenaccounted for completely and there will be no demand over and above the same;
(ix) Company has accounted for its gratuity and leave encashment liability on actualbasis rather than on actuarial valuation method which has been prescribed in AccountingStandard AS-15 "Employee Benefits".
(D) We further report that during the year ended 31" March 2014 the facts andsituation mentioned above continues:-
Further the Company has not complied with the provisions of clause 35 of listingagreement (submission of shareholding pattern) and requirements of SE8I circular no. D& CC/
FITTC/CIR-16/2002 dated 31.12.2002 regarding Reconciliation of Shore Capitol AuditReport for the quarter ended 31" December 2013. This default wos made good on 23June 2014. However due to delay NSE has imposed a penalty of Rs. 9.32 lacs vide noticeno. FINES/ 2013-14/230721-T dated 17 February 2014 which is still unpaid.
(E) We further reports that during the year ended 31st March 2015 the facts andsituotion mentioned above continues Further
(i) the Company has not appointed any Chief Financial officer as per the requirement ofsection 203 of the Companies Act 2013 in respect of the key managerial personnel;
(ii) the balances outstanding in banks (except one operative bank) ore subject toconfirmation;
- during the financial year 2013-14 the Company had provided further diminution in long term investment in Somtel Gloss Limited of Rs. 937.87 lacs diminution of investment in current year has not been considered by the management since as explained to us the realisation value of land during disposal of Samtel Gloss Limited will be higher after setting off all liabilities [refer note no. 37(g)];
- (iv) the shares against subscription money received from Promoters Group company of Rs. 3000 Iacs in terms of CDR Scheme could not be issued due to non-approval from Stock Exchange. After the lapse of extended period as provided in MCA N/N the company may be in default of provision of section 73 to 76 of the Companies Act 2013 read with companies (Acceptance of Deposits) Rules 2014 and relevant Amendment Rules 2015
- (F) In continuation to aforesaid observations we report that:
- The shares against subscription money received from Promoters Group Company of Rs. 3000 lacs in terms of CDR Scheme could not be issued due to non-approval from Stock Exchange. After the lapse of extended period as provided in MCA Notification the Company is in default of provision of section 73 to 76 of the Companies Act 2013 read with Companies (Acceptance of Deposits) Rules 2014 and relevant Amendment Rules 2015
(F) In continuation to aforesaid observations we report that:
The shares against subscription money received from Promoters Group Company of Rs. 5000lacs in terms of CDR Scheme could not be issued due to non-approval from Stock Exchange.After the lapse of extended period as provided in MCA Notification the Company is indefault of provision of section 73 to 76 of the Companies Act 2013 read with Companies(Acceptance of Deposits) Rules 2014 and relevant Amendment Rules 2015
These factors raise substantial doubts as to the Company's ability to continue os goingconcern and therefore the company may not be able to realise its assets and discharge itsliabilities in the normal course of business. The financial statements do not include anyadjustment relating to the recoverability and classification of recorded assets amounts.
Based on the above facts we are of the opinion that going concern assumption has beenaffected and the financials should have been stated at net realisable value.
In our opinion and to the best of our information and according to the explanationsgiven to us except far the effects of the matter described in the Basis for QualifiedOpinion paragraph regarding erosion of net-worth coupled with other events and inabilityin realization of assets and discharge of liabilities based on going concern assumptionsand clauses (1) (2) (6) (7) and (8) of Annexure to Auditor's Report referred inparagraph 1 of "Report on Other Legal and Regulatory Requirements" below beingnon provision of physical verification due to restricted access of fixed assets andinventories unpaid public deposit maintenance of cost records unpaid statutory duescash loss in the current financial year and default in the payment of dues to financialinstitutions and banks the financial statement give the information required by the Actin the manner- So required and gives a true and fair view in conformity with theaccounting principles generally accepted in India of the state of affairs of the Companyas on 31" March 2016 and its loss and its cash flow for the year ended on thatdate.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 ('the Order') issued bythe Central Government of India in terms of section 143 of the Act we give in theAnnexure - A statement on the matters specified in paragraphs 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 explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit;
b. In our opinion proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books;
c. The Balance Sheet Statement of Profit and Loss and Cash Flow Statement dealt withby 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.
e. On the basis of written representations received from the directors as on 31 March2016 and taken on record by the Board of Directors none of the directors is disqualifiedas on 31 March 2016 from being appointed as a director in terms of Section 164(2) of theAct.
f. With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report 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 the explanations given to us:
i) The Company has disclosed the impact of pending litigation on its financial positionin its financial statements- Refer Note 27 to the financial statements;
ii) Based on information & explanation the company is in BIFR and there are nooperation so there is not any material foreseeable losses on long term contractstherefore the Company has not made any provision required under the applicable law oraccounting standards;
iii) As informed to us there is no outstanding balance to be transferred to theInvestor Education and Protection Fund hence this clause is not applicable.
For S. S. KOTHARI MEHTA & CO.
Firm Registration No. 000756N
Membership No. 95960