TO THE MEMBERS OF
SARLA PERFORMANCE FIBERS LIMITED
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements ofSarla Performance Fibers Limited (the Company) which comprise the BalanceSheet as at 31st March 2020 the Statement of Profit and Loss (including OtherComprehensive Income) the Statement of Changes in Equity and the Statement of Cash Flowsfor the year then ended and notes to the standalone financial statements including asummary of significant accounting policies and other explanatory information (hereinafterreferred to as the standalone financial statements).
In our opinion and to the best of our information and according to theexplanations given to us except for the possible effects of the matter described in theBasis for Qualified Opinion section of our report the aforesaid standalone financialstatements give the information required by the Companies Act 2013 (the Act)in the manner so required and give a true and fair view in conformity with the IndianAccounting Standards prescribed under Section 133 of the Act read with the Companies(Indian Accounting Standards) Rules 2015 as amended (Ind AS) and otheraccounting principles generally accepted in India of the state of affair (financialposition) of the Company as at 31st March 2020 the profit and totalcomprehensive income (financial performance) changes in equity and its cash flows for theyear ended on that date.
Basis of Qualified Opinion
The Company has an exposure to its Wholly owned SubsidiarySarlaflex Inc.' of INR. 8670 lakhs towards investments in equity preferenceshares and unsecured loans. The Company also has indirect exposure in Sarlaflex Inc. byway of unsecured loans amounting to INR. 6738 lakhs through its wholly owned subsidiarySarla Overseas Holdings Limited.
Sarlaflex Inc has suspended manufacturing operations since December2017 and has a negative net worth as on 31st March 2020. These conditionsraise substantial doubt about its ability to continue as a going concern.
In the absence of any impairment testing by management during the yearwe are unable to comment on the impact if any on carrying costs of investments loanstotal comprehensive income and retained earnings in the standalone financial statements.(refer note 7 and note 9 of standalone financial statements).
Our report for previous year was also qualified in respect of the abovematter.
We conducted our audit of the standalone financial statements inaccordance with the Standards on Auditing (SAs) specified under section 143(10) of the Actexcept as mentioned in Emphasis of Matters para below. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit ofthe standalone financial statements section of our report. We are independent of theCompany in accordance with the Code of Ethics issued by the Institute of CharteredAccountants of India (ICAI) together with the independence requirements that are relevantto our audit of standalone financial statements under the provisions of the Act and theRules made thereunder and we have fulfilled our other ethical responsibilities inaccordance with these requirements and the ICAI's Code of Ethics. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for ourqualified opinion on standalone financial statements.
Emphasis of Matters
On account of our inability to conduct a physical verification as on 31stMarch 2020 owing to the lockdown restrictions imposed by the Government as well asabsence of the said verification procedures undertaken by the Company we have relied ondetails as provided by the management and related adjustments to confirm the existence andcondition of inventory at the year end.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements for thefinancial year ended 31st March 2020. These matters were addressed in thecontext of our audit of the standalone financial statements as a whole and in forming ouropinion thereon and we do not provide a separate opinion on these matters. For each matterbelow our description of how our audit addressed the matter is provided in that context.
We have determined the matters described below to be the key auditmatters to be communicated in our report. We have fulfilled the responsibilities describedin the Auditor's Responsibilities for the audit of the standalone financialstatements' section of our report including in relation to these matters.Accordingly our audit included the performance of procedures designed to respond to ourassessment of the risks of material misstatement of the standalone financial statements.The results of our audit procedures including the procedures performed to address thematters below provide the basis for our qualified audit opinion on the accompanyingstandalone financial statements.
|Sr. no ||Key Audit Matter ||Auditor's Response |
|1. ||Litigations Provisions and contingent liabilities ||Principal Audit Procedures |
| ||The Company has litigations which also include matters under dispute involving significant management judgement and estimates on the possible outcome of the litigations and consequent provisioning thereof or disclosure as contingent liabilities. ||As part of audit process we obtained from the management details of matters under disputes including ongoing and completed tax assessments demands and litigations. |
| ||Refer Note 45.1 to the standalone financial statements. ||Our audit approach for the above consists of the following audit procedures: |
| || ||Evaluation and testing of the design of internal controls followed by the Company relating to litigations and open tax positions for indirect taxes and process followed to decide provisioning or disclosure as Contingent Liabilities; |
| || ||Discussed with Company's legal team and taxation team for sufficient understanding of on-going and potential legal matters impacting the Company. |
We have determined that there are no other key audit matters tocommunicate in our report.
Information Other than the Standalone Financial Statements andAuditor's Report Thereon
The Company's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the Board'sReport including Annexures to Board's Report Corporate Governance Report andShareholder's information but does not include the standalone financial statementsand our auditor's report thereon.
Our opinion on the standalone financial statements does not cover theOther Information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statementsour responsibility is to read the other information and in doing so consider whether suchother information is materially inconsistent with the standalone financial statements orour knowledge obtained in the audit or otherwise appears to be materially misstated.
If based on the work we have performed we conclude that there is amaterial misstatement of this other information we are required to report that fact. Wehave nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance forthe Standalone Financial Statements
The Company's Board of Directors is responsible for the mattersstated in section 134(5) of the Act with respect to the preparation of these standalonefinancial statements that give a true and fair view of the financial position financialperformance total Comprehensive Income changes in equity and cash flows of the Companyin accordance with the Ind AS and other accounting principles generally accepted in Indiaincluding the Indian Accounting Standards specified under section 133 of the Act. 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 standalone financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the financial statements Management and Board ofDirectors are responsible for assessing the Company's ability to continue as a goingconcern disclosing as applicable matters related to going concern and using the goingconcern basis of accounting unless Board of Directors either intends to liquidate theCompany or to cease operations or has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the StandaloneFinancial Statements
Our objectives are to obtain reasonable assurance about whether thestandalone financial statements as a whole are free from material misstatement whetherdue 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 auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.
Obtain an understanding of internal financial controls relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. Undersection 143(3)(i) of the Companies Act 2013 we are also responsible for expressing ouropinion on whether the company has adequate internal financial controls with reference tostandalone financial statements in place and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of Management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the standalone financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditionsmay cause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thestandalone financial statements including the disclosures and whether the standalonefinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standalonefinancial statements of the current period and are therefore the key audit matters. Wedescribe these matters in our auditor's report unless law or regulation precludespublic disclosure about the matter or when in extremely rare circumstances we determinethat a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order2016 (the Order) issued by the Central Government of India in terms ofsub-section (11) of section 143 of the Act we give in the Annexure A astatement on the matters specified in paragraphs 3 and 4 of the Order to the extentapplicable.
2. As required by Section 143(3) of the Act we report that:
a) We have sought and except for the possible effects of the matterdescribed in the Basis for Qualified Opinion paragraph obtained all the information andexplanations which to the best of our knowledge and belief were necessary for the purposesof our audit;
b) Except for the possible effects of the matter described in the Basisfor Qualified Opinion paragraph in our opinion proper books of account as required bylaw have been kept by the Company so far as it appears from our examination of thosebooks;
c) The Balance Sheet the Statement of Profit and Loss including OtherComprehensive Income the Statement of Changes in Equity and the Cash Flow Statement dealtwith by this Report are in agreement with the relevant books of account;
d) Except for the possible effects of the matter described in the Basisfor Qualified Opinion paragraph in our opinion the aforesaid standalone financialstatements comply with the Ind AS specified under Section 133 of the Act read with Rule 7of the Companies (Accounts) Rules 2014;
e) The matters described under the Basis for Qualified Opinionparagraph in our opinion may have an adverse effect on the functioning of the Company;
f) On the basis of the written representations received from thedirectors as on 31st March 2020 taken on record by the Board of Directorsnone of the directors is disqualified as on 31st March 2020 from beingappointed as a director in terms of Section 164(2) of the Act;
g) With respect to the adequacy of the internal financial controls withreference to standalone financial statements of the Company and the operatingeffectiveness of such controls refer to our separate Report in Annexure B.Our report expresses an unmodified opinion on the adequacy and operating effectiveness ofthe Company's internal financial controls with reference to financial statements;
h) With respect to the other matters to be included in theAuditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors)Rules 2014 as amended in our opinion and to the best of our information and accordingto the explanations given to us:
i. The Company has disclosed the impact of pending litigations on itsfinancial position in its standalone financial statements Refer Note 45.1 to thestandalone financial statements;
ii. Except for the possible effects of the matter described in theBasis for Qualified Opinion paragraph the Company has made provision as required underthe applicable law or Indian accounting standards for material foreseeable losses ifany on long term contracts including derivative contracts;
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company.
3. With respect to the matter to be included in theAuditors' Report under Section 197(16) of the Act: In our opinion and to the best ofour information and according to the explanations given to us the remuneration paid bythe Company to its directors during the year is in accordance with the provisions ofsection 197 of the Act.
ANNEXURE A TO INDEPENDENT AUDITOR'S REPORT
[Referred to in paragraph 1 under Report on Other Legal andRegulatory Requirements' in the Independent Auditor's Report of even date to themembers of Sarla Performance Fibers Limited (the Company) on the standalonefinancial statements for the year ended 31st March 2020]
(i) (a) The Company is in the process of updating its fixed assetsregister in respect of addition to assets during the year to depict full particularsincluding quantitative details and situation of fixed assets.
(b) The Company has a regular program of physical verification of fixedassets under which fixed assets are verified in a phased manner over a period of threeyears which in our opinion is reasonable having regard to the size of the Company andthe nature of its assets. In accordance with this program certain fixed assets wereverified during the year and no material discrepancies were noticed on such verification;
(C) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the title deeds of immovableproperty are held in the name of the company except in the following case:
|Particulars ||Number of Cases ||Gross Block (INR. In Lakhs) ||Net Block (INR. in Lakhs) ||Remarks |
|Freehold Land ||1 ||3029 ||3029 ||Document of title in the name of two directors of the company. As informed to us the Company is in the process of getting the title deeds registered in its name. |
(ii) As explained to us the inventories were physically verifiedduring the year by the management at reasonable intervals and no material discrepancieswere noticed on physical verification;
(iii) 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 paragraphs 3(iii)(a) 3(iii)(b) and3(iii)(c) of the Order are not applicable;
(iv) According to the information and explanations given to us theCompany has complied with the provisions of Section 185 of the Act. The Company has madeequity and preference share investments has given interest free unsecured loans to itswholly owned subsidiary. According to information and explanations given to us saidinvestments made and loans given are for business purpose and are within the limit of Sec186(2) of the Act;
(v) According to the information and explanations given to us theCompany has not accepted any deposits from public within the provisions of Sections 73 to76 of the Act read with The Companies (Acceptance of Deposits) Rules 2014 and otherrelevant provisions of the Act and therefore provisions of paragraph 3(v) of the Orderare not applicable to the Company;
(vi) We have broadly reviewed the cost records maintained by theCompany pursuant to the Companies (Cost Records and Audit) Rules 2014 as specified bythe Central Government under sub section (1) of Section 148 of the Act and are of theopinion that prima facie the prescribed cost records have been made and maintained. Wehave however not made a detailed examination of the same with a view to determiningwhether they are accurate or complete;
(vii) According to the information and explanations given to us inrespect of statutory dues:
(a) The Company has been regular in depositing undisputed statutorydues including provident fund employees' state insurance income-tax sales-taxservice tax Goods and Service tax duty of customs duty of excise value added tax cessand any other material statutory dues applicable to it to the appropriate authorities;
(b) There were no undisputed amounts payable in respect of providentfund employees' state insurance income-tax sales-tax service tax Goods andService tax duty of customs duty of excise value added tax cess and other materialstatutory dues applicable to it were outstanding as on the last day of the financialyear for a period of more than six months from the date they became payable;
(c) Details of income-tax sales-tax service tax Goods and Servicetax duty of customs duty of excise value added tax have not been deposited as on 31stMarch 2020 on account of any dispute are as under:
|Name of the Statute ||Forum where dispute is pending ||Period to which the amount relates ||Amount Involved (INR. In lakhs) ||Amount Unpaid (INR. In lakhs) |
|Central Excise Act 1944 ||Supreme Court of India ||FY 1995-96 1996-97 ||150 ||75 |
|Central Excise Act 1944 ||CESTAT ||FY 1995-96 ||45 ||45 |
|Custom Act 1962 ||CESTAT ||FY 2011-12 2016-17 ||1158 ||768 |
(viii) According to the information and explanations given to us basedon our examination of books and records the Company has not defaulted in the repayment ofloans or borrowing to banks. The Company does not have any loans and borrowings fromfinancial institutions government and has not issued any debentures;
(ix) The Company did not raise any money by way of initial public offeror further public offer (including debt instruments) during the year. According to theinformation and explanations given to us money raised by way of term loans during theyear have been applied for the purpose for which those were raised except for ExternalCommercial Borrowings amounting to INR. 3459 lakhs which are parked in Fixed Depositspending utilisation thereof;
(x) During the course of our examination of the books and records ofthe Company carried out in accordance with the generally accepted auditing practices inIndia and according to the information and explanations given to us no instances of fraudby the Company or on the Company by its officers or employees have been noticed orreported during the year;
(xi) According to the information and explanations given to us theCompany has paid / provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of Section 197 read with schedule V to the Act;
(xii) According to the information and explanations given to us theCompany is not a Nidhi Company. Accordingly paragraph 3(xii) of the Order is notapplicable;
(xiii) According to the information and explanations given to ustransactions with the related parties are in compliance with Sections 177 and 188 of theCompanies Act 2013 where applicable for all transactions with related parties and thedetails of such transactions have been disclosed in the standalone financial statementsetc. as required by the applicable Indian Accounting Standards;
(xiv) According to the information and explanations given to us theCompany has not made any preferential allotment or private placement of shares or fully orpartly convertible debentures during the year. Accordingly paragraph 3(xiv) of the Orderis not applicable;
(xv) According to the information and explanations given to us duringthe year the Company has not entered into non-cash transactions with directors or personsconnected with them;
(xvi) The Company is not required to be registered under Section 45-IAof the Reserve Bank of India Act 1934.
ANNEXURE B TO INDEPENDENT AUDITOR'S REPORT
[Referred to in paragraph 2(f) under Report on Other Legal andRegulatory Requirements' in the Independent Auditor's Report of even date to themembers of Sarla Performance Fibers Limited (the Company) on the standalonefinancial statements for the year ended 31st March 2020]
Report on the Internal Financial Controls under Clause (i) ofSub-section 3 of Section 143 of the Act
We have audited the internal financial controls with reference tofinancial statements of Sarla Performance Fibers
Limited (the Company) as of 31st March 2020 inconjunction with our audit of the standalone financial statements of the Company for theyear ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's Management is responsible for establishing andmaintaining internal financial controls based on the internal control criteria establishedby the Company considering the essential components of internal controls stated in theGuidance Note on Audit of Internal Financial Controls over Financial Reporting issued bythe Institute of Chartered Accountants of India (ICAI'). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to Company's policies the safeguarding of its assetsthe prevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Act.
Our responsibility is to express an opinion on the Company'sinternal financial controls with reference to financial statements based on our audit. Weconducted our audit in accordance with the Guidance Note on Audit of Internal FinancialControls over Financial Reporting (the Guidance Note) and the Standards onAuditing specified under Section 143(10) of the Act to the extent applicable to an auditof internal financial controls both issued by the ICAI. Those Standards and the GuidanceNote require that we comply with ethical requirements and plan and perform the audit toobtain reasonable assurance about whether adequate internal financial controls withreference to financial statements were established and maintained and if such controlsoperated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence aboutthe adequacy of the internal financial controls with reference to financial statements andtheir operating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weakness existsand testing and evaluating the design and operating effectiveness of internal controlbased on the assessed risk. The procedures selected depend on the auditor's judgmentincluding the assessment of the risks of material misstatement of the financialstatements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Company's internalfinancial controls with reference to financial statements.
Meaning of Internal Financial Controls with reference to financialstatements
A company's internal financial controls with reference tofinancial statements is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles. Acompany's internal financial control with reference to financial statements includesthose policies and procedures that: 1. pertain to the maintenance of records that inreasonable detail accurately and fairly reflect the transactions and dispositions of theassets of the company;
2. provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of thecompany; and
3. provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition use or disposition of the company's assetsthat could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls with reference tofinancial statements
Because of the inherent limitations of internal financial controls withreference to financial statements including the possibility of collusion or impropermanagement override of controls material misstatements due to error or fraud may occurand not be detected. Also projections of any evaluation of the internal financialcontrols with reference to financial statements to future periods are subject to the riskthat the internal financial control with reference to financial statements may becomeinadequate because of changes in conditions or that the degree of compliance with thepolicies or procedures may deteriorate.
In our opinion the Company has in all material respects an adequateinternal financial controls with reference to financial statements and such internalfinancial controls with reference to financial statements were operating effectively as at31st March 2020 based on the internal control with reference to financialstatements criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the ICAI
| ||For C N K & Associates LLP |
| ||Chartered Accountants |
| ||Firm Registration Number: 101961W/W-100036 |
| ||Himanshu Kishnadwala |
| ||Partner |
| ||Membership No.: 37391 |
| ||UDIN: 20037391AAAADP9073 |
|Place: Mumbai || |
|Date: 24th July 2020 || |