THE SVADESHI MILLS COMPANY LIMITED
ANNUAL REPORT 2000-2001
TO THE MEMBERS OF THE SVADESHI MILLS COMPANY LIMITED
We have audited the attached balance sheet of The Svadeshi Mills Company
Limited as at 31st March, 2001, and also the profit and loss account of the
Company for the year ended on that date, annexed thereto and report that:-
(I) As stated in note-3, Schedule N, the books of account, records and
documents are not accessible and these financial statements have been
prepared by the Company based on records available with the Company. We
have accordingly not been able to carry out our normal audit procedures and
checks and our comments below are based on an examination of the records
produced to us.
(II) As required by the Manufacturing and Other Companies (Auditor's
Report) Order, 1988 issued by the Company Law Board in terms of Section
227(4A) of the Companies Act, 1956, we annex hereto a statement on the
matters specified in paragraphs 4 and 5 of the said Order to the extent
applicable to the Company.
(III) Subject to and further to our comments above and in the Annexure
referred to in paragraph II:
(i) as indicated in note-3, Schedule N, the financial statements are
prepared on a going concern basis even though the Company has accumulated
substantial losses, and the Board for Industrial and Financial
Reconstruction has recommended the winding up of the Company and the Bombay
High Court has appointed the Official Court Receiver;
(ii) pending completion of the exercise of obtaining supporting documents
and confirmations from parties, and reconciliations referred to in note-
13(a), of Schedule N, we are unable to comment on the transactions, and the
impact of the adjustments, which may be required, on the profit and loss
account and balance sheet;
(iii) we are unable to express an opinion on the loss that may arise in
respect of capital work in progress and capital advances aggregating Rs.
1890 lakhs, referred to in note-12, Schedule N;
(iv) no provision has been made for the loss in respect of certain imported
capital equipment lying in customs and included under capital work in
progress at a cost of Rs. 257 lakhs, and demurrage, detention and other
charges, if any relating thereto which have not been ascertained, as
explained in note-11, Schedule N;
(v) no provision has been made for the diminution in the value of
investment of Rs. 11.79 lakhs and other amounts aggregating Rs. 1027.98
lakhs due from Coromandel Garments Limited, referred to in note-9, Schedule
(vi) no provision has been made for doubtful debts and advances as the same
has not been ascertained as referred to in note-10, Schedule N;
(vii) provision for slow moving and obsolete items of stock and reduction
in realizable values of the stock has not been determine; we are unable to
express an opinion on the requirement for provisions, if any and valuation
(viii) the Company has not completed balance confirmation procedures in
respect of debtors, loans and advances and creditors and the balances are
subject to adjustment, if necessary;
(ix) in view of the absence of the required information and explanations we
are unable to express an opinion in respect of completeness of certain
liabilities and contingencies, the recoverability of unprovided sundry
debtors and loans and advances and accuracy of their balances;
(x) the liability for remuneration and retirement benefits in respect of
existing employees of the Company have not been ascertained but have been
provided in the books on an estimated basis; we are unable to comment on
the adequacy thereof;
(xi) in the absence of the records as stated in paragraph (I) above,
quantitative information has not been fully disclosed.
(IV) In view of the matters referred to above and in particular the
inability to access the complete books and records, we are unable to state
(a) we have obtained all the information and explanations which to the best
of our knowledge and belief were necessary for the purposes of our audit;
(b) in our opinion, proper books of account have been kept by the Company
so far as appears from our examination of the books made available to us;
(c) the balance sheet and the profit and loss account dealt with by this
report are in agreement with the books of account:
(d) in our opinion, the Company has not complied with Accounting Standards
2,3,4,5,9,10,13, 15 and 16 issued by the Institute of Chartered Accountants
of India and the impact on the accounts due to non compliance with the
Standards has not been computed;
(e) on the basis of the written representations received from the directors
other than Mr.R.M.Pande (Life Insurance Corporation of India's nominee) and
Mr.R.S.Rathore (Board for Industrial and Financial Reconstruction's
nominee) and taken on record by the Board of Directors, we report that none
of the said directors are disqualified as on 31st March, 2001 from being
appointed as directors in terms of clause (g) of sub-section (1) of Section
274 of the Companies Act, 1956;
(f) in view of the significance of the matters referred to in paragraph (I)
to (IV) (d) above we are unable to express an opinion that the accounts
give the information required by the Companies Act, 1956 in the manner so
required and give a true and fair view;
(i) in the case of the balance sheet of the state of affairs of the Company
as at 31st March, 2001 and
(ii) in the case of the profit and loss account of the loss of the Company
for the accounting year ended on that date.
For A. F. FERGUSON & CO.
Mumbai, 30th October, 2001.
ANNEXURE TO THE AUDITORS' REPORT TO THE MEMBERS OF THE SVADESHI MILLS
Annexure referred to in paragraph (II) of our report to the Members on the
accounts for the year ended 31st March, 2001.
1. We have not been able to examine the fixed assets register, however in
the earlier year the Company had generally maintained proper records of its
fixed assets, excluding furniture and fixtures purchased prior to 1st
January, 1975. In case of very old assets, itemwise cost had been allocated
by the Management and accepted by us. As explained to us, physical
verification of a portion of the fixed assets has been conducted by the
Management during the year and no material discrepancies have been noticed
on such verification, however we are unable to make any comment in this
regard in the absence of appropriate evidence.
2. None of the fixed assets has been revalued during the year.
3. According to the information given to us the stocks of finished goods,
raw materials, stores and spares have been physically verified during the
year by the Management at reasonable intervals prior to closure of
operations, however, we have not seen any evidence thereof.
4. We are unable to comment on the procedures of verification of stocks
followed by the Management as the same were not observed by us.
5. We are unable to comment on the discrepancies noticed between the
physical stocks as verified and the book records and whether the same have
been properly dealt with in the books of account.
6. Since we have not been able to examine the stock records, we are unable
to comment that the valuation of the stocks is fair and proper in
accordance with the normally accepted accounting principles and is on the
same basis as in the preceding year.
7. We are informed that the Company has not taken any loans from companies,
firms or other parties listed in the register maintained under Section 301
of the Companies Act, 1956, where the rate of interest and other terms and
conditions are prima facie prejudicial to the interest of the Company.
8. We are informed that the Company has not granted any loans to companies,
firms or other parties listed in the register maintained under Section 301
of the Companies Act, 1956. In view of the provisions of Section 370 of the
Companies Act, 1956 not being applicable vide the Companies (Amendment)
Act, 1999 loans from / given to companies under the same management, if
any, have not been commented upon.
9. We have not been able to verify the records but are informed by the
Company that, the parties to whom loans or advances in the nature of loans
have been given by the Company are, where stipulations have been made,
repaying the principal amounts as stipulated, and are also regular in
payment of interest where applicable except that loan and other
outstandings from Coromandel Garments Limited, a wholly owned subsidiary,
were not recovered as stated in Note-9, Schedule N.
10. In the absence of access to records we are unable to comment whether
the internal control procedures for the purchase of stores, raw materials,
plant and machinery, equipment and other assets and sale of goods are
commensurate with the size of the Company and the nature of its business.
11. According to the information and explanations given to us, there are no
transactions of purchase of goods and materials and sale of goods,
materials and services in pursuance of contracts or arrangements entered in
the register maintained under Section 301 of the Companies Act, 1956 and
aggregating Rs.50,000 or more in respect of each party.
12. As explained to us, the Company has a procedure for determination of
unserviceable or damaged stores, raw materials and finished goods, however,
such identification has not been done during the last three years and
consequently no provision has been made.
13. On the basis of the records available, the Company has not accepted
deposits from the public to which Section 58A of the Companies Act, 1956 or
the Companies (Acceptance of Deposits) Rules, 1975 apply.
14. We have not been able to verify the records, however, according to the
information and explanations given to us, reasonable records have been
maintained by the Company for the sale and disposal of scrap. As explained
to us, the Company's activities do not generate any by-products.
15. The Company had an internal audit system, however, we are unable to
comment thereon in the absence of any records / reports.
16. We have not been able to review the books of account maintained by the
Company pursuant to the Order made by the Central Government for
maintenance of Cost Records under Section 209(1)(d) of the Companies Act,
1956 and are unable to comment thereon.
17. As we could not examine the records of the Company, we are unable to
comment whether there have been delays in the deposits of the Provident
Fund and Employees' State Insurance (E.S.I.C.) dues with appropriate
authorities The outstandings as at 31st March, 2001 were Rs. 78.33 lakhs
for Provident Fund and Rs.181.96 lakhs for E.S.I.C.
18. According to the information and explanations given to us on the basis
of available information there were no undisputed amounts payable in
respect of income-tax, wealth-tax, sales-tax, customs duty and excise duty
which have remained outstanding as at 31st March, 2001 for a period of more
than six months from the date they became payable, except sales-tax
amounting to Rs. 43.02 lakhs and customs duty in respect of capital
equipment with customs as referred to in Notes 11 and 12, Schedule N.
19. According to the information and explanations given to us and the
records available to us, no personal expenses of employees or directors
have been charged to revenue account, other than those payable under
contractual obligations or in accordance with generally accepted business
20. The Company is a sick industrial company within the meaning of clause
(O) of Sub-section (1) of Section 3 of the Sick Industrial Companies
(Special Provisions) Act, 1985 and the Board for Industrial and Financial
Reconstruction has recommended to the Bombay High Court for its winding up
as stated in Note-3 Schedule N.
21. In respect of the service activity of the Company, consisting of
processing charges for third parties, we have not been able to examine the
records for the current year, however as explained to us, in earlier years:
(a) the Company had a system of recording receipts, issues and consumption
of materials and stores and allocation of the materials and man-hours
consumed to relative departments and
(b) The Company had a system of authorisation at proper levels with
necessary control on the issue of stores and allocation of stores and
labour to departments and there was a system of internal control
commensurate with the size of the Company and the nature of its business
for control of the total material and labour consumed in the relevant
22. In respect of the trading activity of the Company, we are informed that
no items were determined as damaged during the year however, we have not
been able to examine the records in relation thereto.
For A. F. FERGUSON & CO.
Mumbai, 30th October, 2001