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Winsome Yarns Ltd.

BSE: 514348 Sector: Industrials
NSE: WINSOME ISIN Code: INE784B01035
BSE 00:00 | 22 Jun Winsome Yarns Ltd
NSE 05:30 | 01 Jan Winsome Yarns Ltd
OPEN 0.80
PREVIOUS CLOSE 0.80
VOLUME 2901
52-Week high 0.95
52-Week low 0.79
P/E
Mkt Cap.(Rs cr) 6
Buy Price 0.80
Buy Qty 10.00
Sell Price 0.80
Sell Qty 4034.00
OPEN 0.80
CLOSE 0.80
VOLUME 2901
52-Week high 0.95
52-Week low 0.79
P/E
Mkt Cap.(Rs cr) 6
Buy Price 0.80
Buy Qty 10.00
Sell Price 0.80
Sell Qty 4034.00

Winsome Yarns Ltd. (WINSOME) - Auditors Report

Company auditors report

To the Members of Winsome Yarn Limited

Report on the Audit of the Standalone Financial Statement

1. Qualified Opinion

We have audited the accompanying Standalone Ind AS financial statements of WinsomeYarns Limited ("the Company") which comprise the Balance Sheet as at March 312019 the Statement of Profit and Lass (including Other Comprehensive Income) the CashFlow Statement and the Statement of Changes in equity for the year then ended and asummary of the significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects/possible effects of the matters described Inparagraph under ‘Basis of Qualified Opinion’ the aforesaid Ind AS financialstatements give the information required by the Act in the manner so required and give atrue and fair view in conformity with the accounting principles generally accepted inIndia including the Ind AS of the financial position of the Company as at March 31 2019and profit/loss including other comprehensive income its cash flaws and the changes inequity for the year ended on that date.

2. Basis for Qualified Opinion

i. In view of accumulated losses of the Company as at the end of March 31 2019the net worth of the Company as at that date being negative continuous losses negativecash flows and due to financial constraints material uncertainty exists about the companyability to continue as going concern The decision of management of the Company to preparethe accounts of the Company on going concern basis for reasons that (a) proposedrehabilitation plan of the Company is under discussions with majority of lenders and (b)future business plans of the Company and expected cash flows there from will suffice toservice restructured debts of the Company there would arise a need to adjust therealizable value of assets and liabilities in the event of failure of assumptions as togoing concern and in the absence of impact of aforesaid assumptions having beenun-ascertained we are unable to comment thereon.

ii. The Financial Statement for the year ended on March 31 2019 are understateddue to:

a) Non provisioning of interest expenses on borrowings of Rs. 11168.88 Lakhs for theyear ended on March 31 2019 (Rs. 9671.90 Lakhs for the year ended on March 31 2018) andRs. 39813.00 Lakhs being aggregate amount of interest unprovided till the year ended March31 2019 (Rs. 28644.12 Lakhs till the year ended March 31 2018) and further amounttowards penal interest penalty etc. as may be charged by the lenders. (In the absence ofstatement of account the above amount has been arrived at as per estimates of theCompany and the aggregate unprovided amount in books of account of the Company is notascertainable with accuracy).

b) Non provisioning against long outstanding receivables of Rs. 492.12 Lakhs (Rs.9609.58 Lakhs as at March 31 2018) including of overseas overdue trade receivables.Further the accounting for exchange fluctuation in respect of overseas trade receivablesand export advances is not in line with Ind AS-21 "The Effects of Changes in ForeignExchange Rates" and accordingly we are unable to comment its impact on financialstatement.

iii. Non provisioning against loans and advances (including other current assets)of Rs. 1331.29 Lakhs (Rs. 1569.63 Lakhs as at March 31 2018).

iv. The principles of Ind AS - 12 states that the carrying amount of a deferredtax asset shall be reviewed at the end of each reporting period However the holdingcompany has not provided any document related to review of deferred tax assets amountingto Rs. 44.36 Lakhs in its standalone financial statement as on 31st March 2019. In theabsence of such review of deferred tax assets we are unable to comment upon possibleimpact on the standalone financial statement.

v. As stated in note no. 10 of standalone financial statement the company haveinvestment in money market 4862.11 redeemable shares of USD 1000 each in Arise MoneyMarket Fund. As per information given to us the balance above is as per rate of exchangeprevailing at the time of investment and is subject to adjustment in rate of foreignexchange and accruals on money market investments. ln respect of its reliability /receiptwe are unable to comment The non-accounting of investment at fair value andnon-recognition of exchange fluctuation in respect thereto is not in line with Ind AS 109"Financial Instruments" and Ind AS-21 "The Effects of Changes in ForeignExchange Rates" respectively which has the effect of understatement of investment byRs. 793.73lakhs as at March 31 2019 (Rs. 686.63 lakhs as at March 31st 2018) overstatementof losses by Rs. 199.63 lakhs the year ended March 31st 2019. (Rs.10.63 lakhs as at March31st 2018).

vi. Regarding provisions in case of investments in subsidiaries writtenoff/written back and adjustment/ set off of payment of receivables/payables from/tooverseas parties/suppliers which is pending necessary approval of the competentauthority.

vii. The Internal Control Systems need to be further strengthened in order thatthey are commensurate with the size of the Company and the nature of its business moreparticularly in areas of purchases and consumption of materials charging of expensesset-off of balances and invoicing of sale of goods and services.

viii. Confirmation of balances and reconciliation thereof with respective partiesare pending which include balances pertaining to accounts receivable and payable(including Associate Company/ies) bank balances secured loans other liabilities loansand advances recoverable and contingent liabilities. All balances have been certified bythe management of the Company. In the absence of the Company having aforementioneddetails the impact thereof is unascertainable and therefore not being commented.Further strengthening of internal controls by the Company will provide greaterreliability.

ix. As per the audit report of previous auditors for the year ended 31st March2018 they noticed and found fraud in the nature of shortage/misappropriation of goodsstored at its Ludhiana Branch during the financial year 2017-18 by its employee/s againstwhich the management took action by lodging F.I.R. with the concerned Police Station andinvestigation in the matter is pending. The misappropriation of goods has been valued atRs. 70 Lakhs against which some of the parties to whom goods were sold by the concernedemployees have confirmed having received the goods and also confirmed to the Company ashaving made payment against the same. The Company also filed its claim to insurancecompany under Employee Fidelity Insurance effect whereof has been accounted in the booksof account of the Company considering the ongoing recovery process of its claims As perinformation given to us by management of the Company the matter is still pending and itsstatus is same as it in previous financial year.

3. Emphasis of Matter

We would like to draw attention to the following matters as stated in the notes to thefinancial statement:

i. As stated in Note no. 8 in the standalone financial statement as perinformation given to us the company has made advance payment of Rs. 2268.50 Lakhs toEdelweiss Assets Reconstruction Company for advance against restructuring of loan. Loanoutstanding from Edelweiss Assets Reconstruction Company amounting of Rs.47049.46 Lakhs.

ii. As stated in exceptional item in the standalone financial statement thecompany has made provision for bad debts amounting of Rs. 9016.05 Lakhs as exceptionalitems.

iii. We draw attention to the users of the financial statement of the company endedon 31st March 2019 that the lender Edelweiss Assets Reconstruction Company Limited andIndian Overseas Bank has filed an application against company under section 7 of theInsolvency & Bankruptcy Code 2016 before National Company Law Tribunal ChandigarhBranch.

4. Key Audit Matters.

Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. There matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters. lnaddition the matters described in the basis for qualified opinion paragraph are by theirnature key audit matters.

5. Responsibilities of Management and Those Charged with Governance for thestandalone 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 standalone lnd AS financial statements that give a true and fair view of thefinancial position financial performance including other comprehensive income cash flowsand changes in equity of the Company in accordance with the Indian Accounting Standards(Ind AS) prescribed under section 133 of the Act read with the Companies (IndianAccounting Standards) Rules 2015 as amended and other accounting principles generallyaccepted in India. This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting frauds and other irregularities selection andapplication of appropriate implementation and maintenance of 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 Ind AS financial statements that give a true and fairview and are free from material misstatement whether due to fraud or error. In preparingthe financial statement management is responsible for assessing the company’sability to continue as a going concern disclosing as application matters related togoing concern and using the going concern basis of accounting unless management eitherintends to liquidate the company oA e operations or has no realistic alternative but todo so.

Those boards of directors are also responsible for overseeing the company’sfinancial reporting process.

6. Auditor’s Responsibilities for the Audit of Financial Statements

Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor’s report that includes our opinion. Reasonable assurance is ahigh level of assurance but is not a guarantee that an audit conducted in accordance withSAs will always detect a material misstatement when it exists. Misstatements can arisefrom fraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.

7. Report on Other Legal and Regulatory Requirement

i. As required by the Companies (Auditor’s Report) Order 2016 (the Order) issuedby the Central Government of India in terms of section 143(11) of the Act we give in the"Annexure A" a statement on the matters specified in paragraphs 3 and 4 of theOrder.

ii. 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 except as statedin para under the head "Basis of Qualified Opinion".

b) Except for the effects/possible effects of the matters described in the "Basisof Qualified Opinion" paragraph above in our opinion proper books of account asrequired by law have been kept by the Company in so far as it appears from our examinationof those books.

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

d) Except for the matter described in para under the "Basis for QualifiedOpinion" in our opinion the aforesaid Ind AS financial statements comply with theIndian Accounting Standards prescribed under Section 133 of the Act.

e) The matters described in the "Basis of Qualified Opinion" paragraph abovein opinion may have an adverse effect on of the Company.

f) On the basis of written representations received from the directors as on March 312019 taken on record by the Board of Directors none of the directors is disqualified ason March 31 2019 from being appointed as a director in terms of section 164(2) of theAct.

g) 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".

h) With respect to the other matters to be included in the Auditor’s Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules2014 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 financial statements- Refer Note no. 3.1 [read with Note no.3.2(A)(b)(i) 3.2(A)(d) and 3.2(B)] to the standalone financial statement.

ii. Except as matter described under paragraph of "basis for qualifiedopinion" as required under the applicable law or Accounting Standards The Companyhas made provision for material foreseeable losses if any on long term contractsincluding derivative contracts except to the extent and as explained in Note no 3.2 ofthe standalone financial statements.

iii. There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.

For Khandelia & Sharma
Chartered Accountants
Firm Registration No 510525C
CA. Arun Khandelia Place : New Delhi (Camp at Chandigarh)
Partner Date : 27-May-2019
Membership No. 089125

"ANNEXURE A" TO INDEPENDENT AUDITOR’S REPORT

(Annexure referred to in paragraph 6 on Report on Other Legal and RegulatoryRequirements).

i. a) As per information and explanation given to us the Company is maintaining properrecords showing full particulars including quantitative details and situation of fixedassets.

b) As per information and explanation given to us the fixed assets related toManufacturing operations of the Company have been physically verified by the management ina phased manner which in our opinion need to further strengthen having regard to the sizeof the Company and nature of its assets. No material discrepancies were noticed on suchverification.

c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable freeholdproperties are held in the name of the Company. However we have not been providedcomplete title deed of immovable property situated at Derabassi (Punjab) location.

ii. According to the information explanation and representation provided by themanagement physical verification of inventory has been conducted at reasonable intervalsby the management. However we did not provide any occasion to overview the physical stocktaking Further according to information and explanation given to us no materialdiscrepancy was noticed in such verification by management.

iii. As informed to us 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 provisions of clause 3 (iii) of theOrder is not applicable.

iv. According to the information explanation and representation provided by themanagement and based upon audit procedures performed the Company has not given any loansprovided any guarantee or security in connection with any loan and/ or acquiringsecurities of any other body corporate.

v. As explanation given to us and on the basis of our examination of the records theCompany has accepted deposits from public in violation of provisions of section 73 to 76of companies act 2013 read with rule 3 of companies (acceptance of deposits) Rules 2014.

vi. We have broadly reviewed the books of account maintained by the Company pursuant tothe Rules made by the Central Government for the maintenance of cost records undersub-section (1) of section 148 of the Act in respect of the Company’s products towhich the said Rules apply and are of the opinion that prima facie the prescribed recordshave been made and maintained. However; we have not made a detailed examination of thesaid records with a view to determine whether they are accurate or complete.

vii. a. According to the information and explanations given to us and on the basis ofour examination of the books of account and with reference to our Basis for qulifiedopinion the Company has been generally regular in depositing with appropriate authoritiesundisputed statutory dues including provident fund investor education and protectionfund employees’ state insurance income-tax sales tax goods and service taxservice tax customs duty excise duty cess and other statutory dues applicable to itexcept as specified in note no. 3.20 of standalone financial statement dues of EmployeeState Insurance of Rs. 30.02 Lakhs and PWF of Rs. 1.97 Lakhs.

According to the information and explanations given to us no undisputed amountspayable in respect of aforesaid dues were outstanding as at March 31 2019 for a periodof more than six months from the date they became payable.

b. According to the information and explanations given to us there are no dues ofincome tax sales tax service tax duty of customs duty of excise value added taxgoods and service tax power board demand and cess that have not been deposited by theCompany with appropriate authorities on account of dispute except dues of income taxsales tax and excise duty that have not been deposited with the appropriate authorities onaccount of dispute and the forum where these disputes pending are given below:

Name of the Nature of Amount Period to Forum where dispute is pending
Statute Dues (Rs. in lakhs) which relates
Income Income Tax 182.71 2005-2007 ITAT Chandigarh
TaxAct 1961 Income Tax 94.43 2007-08 High Court Punjab and Haryana
Income Tax 3.03 2010-11 CIT (Appeals) Chandigarh
Income Tax Nil* 2011-12 to 2013-14 ITAT Chandigarh
Income Tax Nil* 2015-16 CIT (Appeals) Chandigarh
Central/State Sales Tax Sales Tax/VAT 5.80 1999-2000 Joint Director Excise and Taxation Chandigarh
-do- 2.25 1993-1994 Sales Tax Tribunal Punjab
-do- 17.80 2003-2004 Deputy Excise and TaxationCommissioner (Appeal)
-do- 38.78 2008-2009 -do-
-do- 2.45 2017-18 DETC cum Joint Director (Enf.) Patiala
-do- 13.84 2010-11 Sales Tax Tribunal
-do- 12.76 2011-12 Sales Tax Tribunal
Central Excise Excise Duty 7.63 2008-09 CESTAT New Delhi
Act -do- 5.04 2010-11 CESTAT New Delhi
-do- 13.42 2011-12 CESTAT New Delhi
Punjab State Power Corporation Ltd Power 14.25 2017-18 Punjab State Power Corporation Limited

* Demand raised by the Income Tax Department is Nil.

This Para to be read with note no. 3.1(A) and 3.1(B) to the financial statements andpara (x) of this Report under "Basis for Qualified Opinion".

vii. In our opinion based on audit procedures performed and according the informationand explanation given to us the Company has defaulted in repayment of loans andborrowings to bank. However the Company has not taken loans from any bank financialinstitution and Government or debenture holders during the year. The lender wise detailsof default is as under:

Sl. No. Name of Bank Total default amount (Rs. Crores) Maximum delay (in days) Remarks
1. Bank of India 2514.00 2100 Term Loan
2. Bank of Maharashtra 2506.00 2010 Term Loan
3. Indian Overseas Bank 2045.00 1918 Term Loan
4. IClCl Bank Ltd. 611.00 2100 Working Capital Term Loan and FITL
5. Oriental Bank of Commerce 1965.00 2100 Term Loan
6. Canara Bank 12761.04 1825 Term Loan and Working Capital Loan - Assigned to EARC
7. Punjab National Bank 14813.88 1901 Term Loan and Working Capital Loan - Assigned to EARC
8. State Bank of Patiala 9789.44 1769 Term Loan and Working Capital Loan - Assigned to EARC
9. Dena Bank 3973.01 2008 Term Loan - Assigned to EARC
10. UCO Bank 4244.62 1827 Term Loan - Assigned to EARC
11. United Bank of India 1467.46 2008 Term Loan - Assigned to EARC

EARC = Edelweiss Asset Reconstruction Company Ltd.

viii) According to the information and explanation given to us the term loans wereapplied for the purposes for which the loans were obtained. The Company did not raise anymoney by way of initial public offer or further public offer and term loans during theyear.

ix) To the best of our knowledge and according to the information and explanationsgiven to us we have neither come across any instances of fraud by the Company or anyfraud on the Company by its officers or employees noticed or reported during the year.

x) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not paid managerialremuneration during the year under review for which requisite approval is required by theprovisions of section 197 read with schedule V of the companies act 2013.

xi) The Company is not a Nidhi company.

xii) According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with the related parties are incompliance with sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the Ind AS standalone financial statements as requiredby the applicable accounting standards.

xiii) The Company has not made any preferential allotment or private placement ofshares of fully or partly convertible debentures during the year under review.Accordingly we are not offering any comment with respect to compliance of requirement ofsection 42 of the Act and utilization of the money.

xiv) On the basis of records made available to us and according to the information andexplanation given to us the Company has not entered into any non-cash transactions withdirectors or persons connected with him.

xv) The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.

For Khandelia & Sharma
Chartered Accountants
Firm Registration No 510525C
CA. Arun Khandelia
Partner Place : New Delhi (Camp at Chandigarh)
Membership No. 089125 Date : 27-May-2019

ANNEXURE ‘B TO INDEPENDENT AUDITOR’S REPORT OF EVEN DATE ON THE STANDALONEFINANCIAL STATEMENTS OF WINSOME YARNS LTD.

Report on the Internal Financial Controls under Clause (I) of sub-section 3 of thesection 143 of the Act.

We have audited the internal financial controls over financial reporting of WinsomeYarns Limited ("the Company") as of March 31 2019 in conjunction with ouraudit of the Ind AS 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 laying down and maintaining internalfinancial controls based on ‘the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance note on Audit of Internal Financial Controls Over Financial Reporting(Guidance Note) issued by the Institute Chartered Accountants of India (ICAI). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Company’s policies the safeguardingof its assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013 (the Act).

Auditor’s Responsibility

Our responsibility is to express an opinion on the Company’s internal financialcontrols over financial reporting based on our audit.

We conducted our audit in accordance with the Standards of Auditing to the extentapplicable to an audit of internal financial controls and the Guidance Note both issuedby the ICAI. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain the reasonable assurance aboutwhether adequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor’s judgment including the assessment of the risks ofmaterial misstatement of the Ind AS financial statements whether due to 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 internal financial controls system overfinancial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A Company’s internal financial control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A Company’s internal financial control overfinancial reporting includes those policies and procedures that (i) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the Company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation of Ind ASfinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the Company are being made only in accordance withauthorizations of management and directors of the Company; and (iii) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition use ordisposition of the Company’s assets that could have a material effect on the Ind ASfinancial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

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

Basis of Qualified Opinion

We draw attention to the paragraph 2 "Basis for Qualified Opinion" of ourmain report and the same to be read with our comments as stated below:

According to the information and explanation given to us and based on our audit thefollowing material weaknesses have been identified as at March 31 2019:

1. The Company did not have appropriate internal control system for

a) Adjustment/Set off and written off/write back payment of receivables/payables.

b) Credit control policy and procedure.

c) No policy or procedure for receipt of balance confirmation of receivablesparticularly overseas overdue receivables bank balances payables (including of anassociate company) secured loans and other liabilities loans and advances.

2. The company did not have any extensive internal control system for followup/recovery/adjustment of old outstanding receivables and payables including balanceconfirmation and reconciliation.

Material weakness is a deficiency or a combination of deficiencies in internalfinancial control over financial reporting such that there is a reasonable possibilitythat a material misstatement of the Company’s annual financial statements will not beprevented or deleted on a timely basis.

In our opinion except for the effects/possible effects of the material weaknessesdescribed above and on the achievement of the objectives of control criteria the Companyhas in all material respects an adequate internal financial controls system overfinancial reporting and such internal financial controls over financial reporting wereoperating effectively as at March 31 2019 based on the internal control over financialreporting 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.

We have considered the material weaknesses identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the March 31 2019standalone financial statements of the Company and these material weaknesses does notaffect our opinion on the standalone financial statements of the Company.

For Khandelia & Sharma
Chartered Accountants
Firm Registration No 510525C
CA. Arun Khandelia
Partner Place : New Delhi (Camp at Chandigarh)
Membership No. 089125 Date : 27-May-2019

STATEMENT OF IMPACT OF AUDIT QUALIFICATIONS (FOR AUDIT REPORT WITH MODIFIED OPINION)SUBMITTED ALONG-WITH ANNUAL AUDITED FINANCIAL RESULTS–STANDALONE BASIS – WINSOMEYARNS LIMITED

Statement of Impact of Audit Qualifications for the Financial Year ended March 31 2019[See Regulation 33/52 of the SEBI (LODR) (Amendment) Regulations 2016]

(Rs. in Lakhs)

I. Sl. No. Particulars Audited Figure (as reported before adjusting for qualifications) Adjusted Figures (audited figures after adjusting for qualifications)*
1 Turnover/ Total income 25229 25229
2 Total Expenditure 27715 40707
3 Net Profit/(Loss) (11487) (24479)
4 Earnings Per Share (16.25) (34.62)
5 Total Assets 33327 31504
6 Total Liabilities 63263 103076
7 Net Worth (29936) (71752)
8 Any other financial item(s) (as felt appropriate by the management) - -

* all adjustments are without tax effect.

II. Audit Qualifications

(a) Details of Audit qualification

Reference is invited to Para (4) of Independent Auditor’s Report on Standaloneaudited financial results:

(i) In view of accumulated losses of the Company as at the end of March 31 2019 thenet worth of the Company as at that date being negative the decision of management of theCompany to prepare the accounts of the Company on going concern basis for reasons that(a) proposed rehabilitation plan of the Company is under discussions with majority oflenders and (b) future business plans of the Company and expected cash flows therefromwill suffice to service restructured debts of the Company there would arise a need toadjust the realizable value of assets and liabilities in the event of failure ofassumptions as to going concern and in the absence of impact of aforesaid assumptionshaving been un-ascertained we are unable to comment thereon

(ii) The results for the quarter ended on March 31 2019 and the year ended on March31 2019 are understated due to:

(a) Non provisioning of interest expenses on borrowings of Rs. 2905.99 Lakhs for thequarter ended and Rs. 11168.88 Lakhs for the year ended on March 31 2019 (Rs. 2512.42Lakhs for the quarter ended and Rs. 9671.90 Lakhs for the year ended on March 31 2018)and Rs. 39813.00 Lakhs being aggregate amount of interest unprovided till the year endedMarch 31 2019 (Rs. 28644.12 Lakhs till the year ended March 31 2018) and further amounttowards penal interest penalty etc. as may be charged by the lenders. (In the absence ofstatement of account the above amount has been arrived at as per estimates of theCompany and the aggregate unprovided amount in books of account of the Company is notascertainable with accuracy).

(b) Non provisioning against long outstanding receivables of Rs. 492.12 Lakhs (Rs.9609.58 Lakhs as at March 31 2018) including of overseas overdue trade receivables.Further the accounting for exchange fluctuation in respect of overseas trade receivablesand export advances is not in line with Ind AS-21 "The Effects of Changes in ForeignExchange Rates" and accordingly we are unable to comment its impact on financialstatement.

(iii) Non provisioning against loans and advances (including other current assets) ofRs.1331.29 Lakhs (Rs. 1569.63 Lakhs as at March 31 2018).

(iv) As stated in note no. 10 of standalone financial statement investment in moneymarket 4862.11 redeemable shares of USD 1000 each in Arise Money Market Fund. As perinformation given to us the balance above is as per rate of exchange prevailing at thetime of investment and is subject to adjustment in rate of foreign exchange and accrualson money market investments. In respect of its realisability/ receipt we are unable tocomment. The non-accounting of investment at fair value and non-recognition of exchangefluctuation in respect thereto is not in line with Ind AS 109 "FinancialInstruments" and Ind AS-21 "The Effects of Changes in Foreign ExchangeRates" respectively which has the effect of understatement of investment by Rs.793.73 lakhs as at March 31st 2019 (Rs. 686.63 lakhs as at March 31st2018) overstatement of losses by Rs. 199.63 lakhs for the year ended March 31st2019. (Rs. 10.63 lakhs as at March 31st 2018)

(v) Regarding provisions in case of investments in subsidiaries written off/writtenback and adjustment/set off of payment of receivables/payable from/to overseasparties/suppliers which is pending necessary approval of the competent authority.

(vi) The Internal Control Systems need to be further strengthened in order that theyare commensurate with the size of the Company and the nature of its business moreparticularly in areas of purchases and consumption of materials charging of expensesset-off of balances and invoicing of sale of goods and services.

(vii) Confirmation of balances and reconciliation thereof with respective parties arepending which include balances pertaining to accounts receivable and payable (includingAssociate Company/ies) bank balances secured loans other liabilities loans andadvances recoverable and contingent liabilities. All balances have been certified by themanagement of the Company. In the absence of the Company having aforementioned detailsthe impact thereof is unascertainable and therefore not being commented. Furtherstrengthening of internal controls by the Company will provide greater reliability

(viii) As per the audit report of previous auditors for the year ended 31stMarch 2018 they noticed and found fraud in the nature of shortage/misappropriation ofgoods stored at its Ludhiana Branch during the financial year 2017-18 by its employee/sagainst which the management took action by lodging F.I.R. with the concerned PoliceStation and investigation in the matter is pending. The misappropriation of goods has beenvalued at Rs. 70.00 Lakhs against which some of the parties to whom goods were sold by theconcerned employees have confirmed having received the goods and also confirmed to theCompany as having made payment against the same. The Company also filed its claim toinsurance company under Employee Fidelity Insurance effect whereof has been accounted inthe books of account of the Company considering the ongoing recovery process of itsclaims. As per information given to us by management of the Company the matter is stillpending and its status is same as it in previous financial year.

(b) Type of Audit Qualification

Qualified Opinion

(c) Frequency of Qualification

• In case of point no (i) (iv) and (v) – Appeared since F.Y. 2014-15

• In case of point no (ii)(a) – Appeared since F.Y. 2013-14 (However thereis change in amount)

• In case of point no (ii)(b) and (ii)(c) – Appeared since F.Y. 2003-04(However there is change in amount)

• In case of point no (iii) – Appeared since F.Y. 2013-14

• In case of point no (vi) – Appeared since F.Y. 2003-04

• In case of point no. (vii)—Appeared in F.Y. 2017-18

(d) For Audit Qualification(s) where the impact is quantified by the AuditorManagement views With regard to Auditors Qualification No. (ii)(a) (ii)(b) (iii) (iv)and (viii):-

(ii) (a) Regarding non-provision of interest expenses penal interest penalty etc. inrespect of borrowings of the Company from banks - As stated in Note No. 3.24 of theAudited Financial Statement due to continuous losses and financial tightness the Companyhas not been able to fully pay due installments & interest on term loan on due dateswhich resulted into classification of credit facilities as Non-Performing Assets couplewith recall of facilities by lenders of the Company & certain overdue amount iscontinuing/ unpaid till date (as detailed in note no. 3.24 of audited financial statementfor the year ended March 31 2019). Interest on term loans and working capital includingoverdue amount penal interest etc. (amount unascertained) has not been provided and asthe same will be provided / accounted for as and when paid/settled as the company is inprocess of discussion/applying for getting loans to be restructured by the lenders/ARC.Six of banks have assigned and transferred the total debts due from the Company along withthe underlying rights title and interests in financial assistances granted to the Companyto an Asset Reconstruction Company (ARC).

(ii) (b) Regarding non-provision against long outstanding receivables-As alsoexplained in Note No. 3.8(a) of Audited Financial Statements management view is that thereceivables for period over one year of Rs. 492.12 Lakhs till 31.03.2019 (Rs. 9609.58Lakhs till 31.03.2018) including of overseas overdue trade receivables. Further theaccounting for exchange fluctuation in respect of overseas trade receivables and exportadvances is not in line with Ind AS-21 "The Effects of Changes in Foreign ExchangeRates" and accordingly we are unable to comment its impact on financial statement.

(iii) Regarding non accounting of investment at fair value and non-recognition ofexchange fluctuation in respect thereto the management is of view that the money lyingoutside India is part of GDRs proceeds of the Company and is earmarked for utilization forsetting up a Yarn Dying Plant which could not be implemented for want of support oflenders. The Management of the Company is engaged in firming an active plan forimplementation of its proposal for setting up of a Yarn Dying Plant and upon itsfinalization the aforesaid amount will be utilized for investment and on that date effectof any gain shall be accounted in the books of account of the Company.

(vii) In previous year with regard to noticed fraud in the nature of shortage andmisappropriation of goods stored at its Ludhiana Branch by the employee/s of the Companythe effect whereof has been accounted in the books of account of the Company consideringthe ongoing recovery process and its claim.

(e) For Audit Qualification(s) where the impact is not quantified by the Auditor:

(i) Management’s estimation on the impact of audit qualification Not ascertainable

(ii) If management is unable to estimate the impact reasons for the same With regardto Auditors Qualification No. (i) (iii) (iv) (v) and (vi)-:-

(i) Regarding net worth of the Company becoming negative and preparation offinancial statements on going concern basis - Consequent to erosion of entire net worththe Company filed Reference before the Hon’ble Board for Industrial and FinancialReconstruction (BIFR) under Sick Industrial Company (Special Provisions) Act 1985 (SICA)which was registered. The Company was in discussions with its lenders for evolving ascheme of rehabilitation of its financial debts which continued during the period whenthe reference of the Company was under consideration before BIFR and also presently afterthe SICA has been repealed. Considering the proposed rehabilitation and future businessplans of the Company present business scenario stable government policies for thebusiness and expected cash flow in the near future as assessed by the Management accountsof the Company are prepared on ‘Going Concern’ basis.

(iii) Regarding pending receipt of part money out of GDR issue – As alsoexplained in Note no. 3.3 of the of the Audited Financial Statements that out of theproceeds of GDRs raised in F.Y. 2010-2011 an amount of USD 7164490 (INR 3873.75 Lakhs)stood remitted to India which had been utilised for augmentation of working capital needsof the Company and a balance amount of USD 4862110 (INR 2568.41 Lakhs) continues toremain invested in an overseas Money Market Fund outside India as on 31.03.2019 pendingutilization of such proceeds. The Company is filing all due returns regularly with RBI.Also the Depository of GDR issue had resigned w.e.f. 29.10.2014 and terminated theagreement w.e.f. 15-06-2015. The GDR had been de-listed from LuxSE w.e.f. 16.06.2015. TheCompany is in process to appoint new depository and seek relisting of GDR on LuxSE or anyother overseas stock Exchange.

(iv) Regarding provisions in case of investments in subsidiaries writtenoff/written back and adjustment/ set off of payment of receivables/payable from/tooverseas parties/suppliers which is pending necessary approval of the competentauthority. The management is in the process of obtaining necessary approvals from thecompetent authority.

(v) Regarding further strengthening the system of internal controls –Necessary steps have been initiated by the Company to further strengthen the system ofinternal controls w.r.t. purchases and consumption of inventory booking of expenses setoff of balances for the sale of goods and services etc.

(vi) Regarding pending confirmation / reconciliation of balances of certainreceivables (including overseas overdue receivables) bank balances payable (including ofan Associate Company/ies) secured loans other liabilities loans and advances etc; andcontingent liability - The management is of the opinion that adjustment if any arisingout of such reconciliation would not be material. Further necessary steps have beeninitiated to further strengthen system of internal controls w.r.t. accounting of expensesaccounting of income (including sale of licenses and provision written back) payrollpayments and of balance reconciliation/confirmation.

(iii) Auditors’ comments on (i) or (ii) above

Refer details of audit qualification [para II(a) above]

III. Signatories

Manish Bagrodia Anand Balkishan Sharma Kaushal Kashyap
Chariman and Managing Director Chief Financial Officer Audit Committee Chairman
Statutory Auditors
For Khandelia & Sharma
Chartered Accountants
Firm Registration No. 510525C
Arun Khandelia
Partner Place : Chandigarh
Membership No. 089125 Date : 27-May-2019