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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
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VOLUME 2901
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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 0.80
52-Week low 0.00
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 Yarns 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 312020 the Statement of Profit and Loss (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 in paragraphunder 'Basis of Qualified Opinion' the aforesaid Ind AS financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India including the IndAS of the financial position of the Company as at March 312020 and profit/lossincluding other comprehensive income its cash flows and the changes in equity for theyear ended on that date.

2. Basis for Qualified Opinion.

i. In view of accumulated losses of the Company as at the end of March 312020 the networth of the Company as at that date being negative continuous losses negative cashflows 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 as refer to note no.3.11 to standalone financial statement(a) proposed rehabilitation plan of the Company isunder discussions with majority of lenders and (b) future business plans of the Companyand expected cash flows therefrom will suffice to service restructured debts of theCompany there would arise a need to adjust the realizable value of assets and liabilitiesin the event of failure of assumptions as to going concern and in the absence of impactof aforesaid assumptions having been un-ascertained we are unable to comment thereon.

ii. The Financial Statement for the year ended on March 312020 are understated due to:

(a) Non provisioning of interest expenses on borrowings of Rs. 12890.29 Iakhs for theyear ended on March 31 2020 (Rs. 11168.88 Lakhs for the year ended on March 312019) andRs. 52703.29 Lakhs being aggregate amount of interest unprovided till the year ended March312020 (Rs. 39813.00 Lakhs till the year ended March 31 2019) 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. 521.57 Lakhs (Rs.492.12 Lakhs as at March 31 2019) including of overseas overdue trade receivables.Further Re-instatement of few debtors advance from customers on exchange fluctuation isnot recognized in line with Ind AS - 21 "The Effects of changes in Foreign ExchangeRates" the effect of which we are unable to comment.

iii. Refer to note no.2(D)and note no. 9 to the standalone financial statement duringthe end of financial year company measured its inventories of finished goods at netrealizable value which is below than their cost. During the financial year companyutilized its production below their capacity and fixed overhead allocated to each unit ofproduction is increased as a consequence of low production resulting is that cost ofinventories of finished good per unit increased due to idle capacity allocation of fixedoverheads on inventory of finished goods is not in line with Ind AS 2"Inventories".

iv. As stated in note no. 3.3and 10 of standalone financial statement investment inUSD 4819980 in Arise Money Market Fund. As per information given to us the balanceabove is as per rate of exchange prevailing at the time of investment and is subject toadjustment in rate of foreign exchange and accruals on money market investments. Inrespect of its reliability/receipt we are unable to comment. The non-accounting ofinvestment at fair value and nonrecognition of exchange fluctuation in respect thereto isnot in line with Ind AS 109 "Financial Instruments" and Ind AS-21 "TheEffects of Changes in Foreign Exchange Rates" which has the effect of understatementof investment by Rs. 1078.39lakhs as at March 31st 2020 (Rs. 793.73 lakhs as at March 31st2019) overstatement of losses by Rs.284.65 lakhs for the year ended March 31st 2020.(Rs.199.63 lakhs as at March 31st 2019) respectively.

v. Regarding provisions in case of investments in subsidiaries written off/writtenback and adjustment/ set off of payment of receivables/payables 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 they arecommensurate with the size of the Company and the nature of its business moreparticularly in areas of purchases and consumption of materials charging of expensesallocation of overheads set-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 refer to note no. 3.5 to standalone financial statement in earlier yearmanagement has 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 per informationgiven to us the company has made advance payment of Rs. 2268.50 Lakhs to Edelweiss AssetsReconstruction Company for advance against restructuring of loan. Loan outstanding fromEdelweiss Assets Reconstruction Company amounting of Rs. 47071.08 Lakhs.

ii. As stated in Note 3.1(A) &(B) to the standalone financial statements thecompany has not made provision for the demand raised by various authorities as the mattersare pending before various appellate forum. We are unable to comment upon possible impactin the standalone financial statements for the year 31st March 2020.

iii. As refer to note no. 3.10 to the standalone financial statement as stated inexceptional item to the standalone Financial statement the company has made provisioningagainst loans and advances interest receivable (including other current assets)outstanding since long amounting of Rs. 1414.10 lakhs.

iv. We draw attention to the users of the financial statement of the company ended on31st March 2020 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. The Company Petition filed by Edelweiss Asset Reconstruction Company Limitedagainst the Company for initiation of Corporate Insolvency Resolution Process (CIRP) underInsolvency and Bankruptcy Code (IBC) 2016 has been rejected by National Company LawTribunal Chandigarh Bench vide its Order dated 17.03.2020.

Our opinion is not modified in respect of these matters.

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. Inaddition the matters described in the basis for qualified opinion and emphasis of matterparagraph are by their nature are key audit matters.

5. Responsibilities of Management and Those Charged with Governance for the standaloneFinancial Statements.

The Company's Board of Directors is responsible for the matters stated in Section 134(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 preparing the financial statement management is responsible for assessing thecompany's ability to continue as a going concern disclosing as application mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the company or to cease operations or has no realisticalternative but to do so.

Those board of directors are also responsible for overseeing the company's financialreporting 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 a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud 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) issued bythe 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 statement comply with theIndian Accounting Standards prescribed under Section 133 of the Act.

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

f) On the basis of written representations received from the directors as on March312020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 312020 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 to the standalonefinancial 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 erm contractsincluding derivative contracts;

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 Partner Place : New Delhi (Camp at Chandigarh)
Membership No.:089125 UDIN:20089125AAAABR7753 Date : 30-July-2020

"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 have beenphysically verified by the management at reasonable intervals. However we have not beenprovided complete physical verification report.

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.The nature of the amountis trade advance from customers which are of more than 365 days.

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 to whichthe said Rules apply and are of the opinion that prima facie the prescribed records havebeen made and maintained. However; we have not made a detailed examination of the saidrecords with a view to determine whether they are accurate or complete.

vii. a) According to the information and explanations given to us the company is notregular in depositing undisputed statutory dues including provident fund employees' stateinsurance income-tax sales- tax service tax goods and service tax duty of customsduty of excise value added tax cess and any other statutory dues to the appropriateauthority. The arrear of outstanding statutory dues as on the last day of the financialyear concerned for a period of more than six months from the date they became payableare indicated below:

Name of the statue Nature of the dues Amount(Rs.) Period to which amount relates Due date Date of payment
Employee State Insurance Act 1948 Employee State Insurance Fund 382780 July 2019 15 August 2019 20 May 2020
Employee State Insurance Act 1948 Employee State Insurance Fund 350615 August 2019 15 September 2019 20 May 2020
Employees' Provident Funds & miscellaneous Provisions Act 1952 Employee State Insurance Fund 1081874 July 2019 15 August 2019 1 May 2020
Employees' Provident Funds & miscellaneous Provisions Act 1952 Employee State Insurance Fund 1018410 August 2019 15 September 2019 20 May 2020

b) According to the information and explanations given to us the following dues ofincome tax sales tax service tax duty of excise and Value added tax have not beendeposited by the company on account of disputes:

Name of the Statute Nature of Dues Amount (Rs. in Lakhs) Period to which relates Forum where dispute is pending
Income Tax Income Tax 182.71 2005-2007 ITAT Chandigarh
Act 1961 Income Tax 3.03 2010-2011 CIT (Appeals) Chandigarh
Central/ State Sales Tax/VAT 5.80 1999-2000 Joint Director Excise and Taxation Chandigarh
Sales Tax -do- 2.25 1993-1994 High Court
-do- 17.80 2003-2004 Deputy Excise and Taxation Commissioner (Appeal)
-do- 38.78 2008-2009 Sales Tax Tribunal
-do- 2.45 2017-2018 DETC cum Joint Director (Enf.) Patiala
-do- 13.84 2010-2011 Sales Tax Tribunal
-do- 12.76 2011-2012 Sales Tax Tribunal
Central Excise Excise Duty 7.63 2008-2009 CESTAT New Delhi
Act -do- 5.04 2010-2011 CESTAT New Delhi
-do- 13.42 2011-2012 CESTAT New Delhi
Punjab State Power Corporation Limited Power 14.25 2017-2018 Punjab State Power Corporation Ltd

*This para to be read with note no. 3.1(A) and 3.1(B) to the financial statements.

viii. 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:

SI. Name of Bank No. Total Default Amount* (Rs. Lakhs) Maximum Delay (in days) Remark
1. Bank of India 2514.00 2465 Term Loan
2. Bankof Maharashtra 2506.00 2375 Term Loan
3. Indian Overseas Bank 2045.00 2283 Term Loan
4. IClCl Bank Ltd. 611.00 2465 Working Capital Term Loan and FITL
5. Oriental Bank of Commerce 1965.00 2465 Term Loan
6. Canara Bank 12782.66 2190 TermLoanandWorking Capital Loan - Assigned to EARC
7. Punjab National Bank 14813.88 2266 TermLoanandWorking Capital Loan - Assigned to EARC
8. State Bankof Patiala 9789.44 2134 TermLoanandWorking Capital Loan - Assigned to EARC
9. Dena Bank 3973.01 2373 Term Loan - Assigned to EARC
10. UCO Bank 4244.62 2192 Term Loan - Assigned to EARC
11. United Bankof India 1467.46 2373 Term Loan - Assigned to EARC

EARC = Edelweiss Asset Reconstruction Company Ltd.

*Total default amount excludes the interest that is not provided in the books.

ix. According to the information and explanation given to us the Company did not raiseany money by way of initial public offer or further public offer (including debtinstruments) and term loans during the year.

x. To the best of our knowledge and according to the information and explanations givento us we have neither come across any instances of fraud by the Company or any fraud onthe Company by its officers or employees noticed or reported during the year.

xi. 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.

xii. The Company is not a Nidhi company.

xiii. 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.

xiv. The Company has not made any preferential allotment or private placement of sharesof fully or partly convertible debentures during the year under review.

Accordingly we are not offering any comment with respect to compliance of requirementof section 42 of the Act and utilization of the money.

xv. 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.

xvi. 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 UDIN:20089125AAAABR7753 Date : 30-July-2020

ANNEXURE 'B TO INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE

STANDALONE FINANCIAL 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 312020 in conjunction with our auditof 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 safeguarding ofits 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 process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A Company's internal financial control over financialreporting includes those policies and procedures that

(i) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of Ind AS financial statements in accordance with generally acceptedaccounting principles and that receipts and expenditures of the Company are being madeonly in accordance with authorizations of management and directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the Company's assets that could have amaterial effect on the Ind AS financial 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 312020:

1. The Company did not have appropriate internal control system fora) Adjustment/Setoff 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 and 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/possibleeffects of the material weaknesses described above and on the achievement of theobjectives of control criteria the Company has

in all material respects an adequate internal financial controls system over financialreporting and such internal financial controls over financial reporting were operatingeffectively as at March 31 2020 based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting 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 2020standalone 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 : 30-July-2020
UDIN:20089125AAAABR7753

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

Statement of Impact of Audit Qualifications for the Financial Year ended March 312020[See Regulation 33/52 of the SEBI (LODR) (Amendment) Regulations 2016]

Sl. No. .Particulars Audited Figure (as reported before adjusting for qualifications) Adjusted Figures (audited figures after adjusting for qualifications)*
1 Turnover/ Total income 10805 10805
2 Total Expenditure 14212 27624
3 Net Profit/(Loss) (4801) (18213)
4 Earnings Per Share (6.79) (25.76)
5 Total Assets 28385 27863
6 Total Liabilities 63122 115825
7 Net Worth (34737) (87962)
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 Standalone audited financial results:
(I) In view of accumulated losses of the Company as at the end of March 312020 the net worth of the Company as at that date being negative the decision of management of the Company 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 of lenders and
(b) future business plans of the Company and expected cash flows therefrom will suffice to service restructured debts of the Company there would arise a need to adjust the realizable value of assets and liabilities in the event of failure of assumptions as to going concern and in the absence of impact of aforesaid assumptions having been unascertained we are unable to comment thereon
(ii) The results for the quarter ended on March 312020 and the year ended on March 312020 are understated due to:
(a) Non provisioning of interest expenses on borrowings of Rs. 3384.63 Lakhs for the quarter ended and Rs. 12890.29 Lakhs for the year ended on March 31 2020 (Rs. 2905.99 Lakhs for the quarter ended and Rs. 11168.88 Lakhs for the year ended on March 31 2019 and Rs. 52703.28 Lakhs being aggregate amount of interest unprovided till the year ended March 31 2020 (Rs. 39813.00 Lakhs till the year ended March 31 2019) and further amount towards penal interest penalty etc. as may be charged by the lenders. (In the absence of statement of account the above amount has been arrived at as per estimates of the Company and the aggregate unprovided amount in books of account of the Company is not ascertainable with accuracy).
(b) Non provisioning against long outstanding receivables of Rs. 521.57 Lakhs (Rs. 492.12 Lakhs as at March 312019) including of overseas overdue trade receivables.Further the accounting for exchange fluctuation in respect of overseas trade receivables and export advances is not in line with Ind AS-21 "The Effects of Changes in Foreign Exchange Rates" and accordingly we are unable to comment its impact on financial statement.
(iii) Non provisioning against loans and advances (including other current assets) Nil (Rs. 1331.29 Lakhs as at March 312019).
(iv) As stated in note no. 10 of standalone financial statement investment in money market USD 4819980 in Arise Money Market Fund. As per information given to us the balance above is as per rate of exchange prevailing at the time of investment and Is subject to adjustment in rate of foreign exchange and accruals on money market investments. In respect of its realisability/receipt we are unable to comment. The non-accounting of investment at fair value and non-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 Foreign Exchange Rates" respectively which has the effect of understatement of investment by Rs. 1078.39 lakhs as at March 31st 2020 (Rs. 793.73 lakhs as at March 31st 2019) overstatement of losses by Rs. 284.65 lakhs for the year ended March 31st 2020. (Rs. 199.63 lakhs as at March 31st 2019)
(v) Regarding provisions in case of investments in subsidiaries written off/written back and adjustment/set off of payment of receivables/payable from/to overseas parties/suppliers which is pending necessary approval of the competent authority.
(vi) The Internal Control Systems need to be further strengthened in order that they are commensurate with the size of the Company and the nature of its business more particularly in areas of purchases and consumption of materials charging of expenses set-off of balances and invoicing of sale of goods and services.
(vii) Confirmation of balances and reconciliation thereof with respective parties are pending which include balances pertaining to accounts receivable and payable (including Associate Company/ies) bank balances secured loans other liabilities loans and advances recoverable and contingent liabilities. All balances have been certified by the management of the Company. In the absence of the Company having aforementioned details the impact thereof is unascertainable and therefore not being commented. Further strengthening of internal controls by the Company will provide greater reliability
(viii) As per the audit report of previous auditors for the year ended 31st March 2018 they noticed and found fraud in the nature of shortage/misappropriation of goods stored at its Ludhiana Branch during the financial year 2017-18 by its employee/s against which the management took action by lodging F.I.R. with the concerned Police Station and investigation in the matter is pending. The misappropriation of goods has been valued at Rs. 70.00 Lakhs against which some of the parties to whom goods were sold by the concerned employees have confirmed having received the goods and also confirmed to the Company as having made payment against the same. The Company also filed its claim to insurance company under Employee Fidelity Insurance effect whereof has been accounted in the books of account of the Company considering the ongoing recovery process of its claims. As per information given to us by management of the Company the matter is still pending and its status is same as it in previous financial year.
(b) Type of Audit Qualification Qualified Opinion
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 there is 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 Auditor Management vie 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. in respect of borrowings of the Company from banks - As stated in Note No. 3.24 of the Audited Financial Statement due to continuous losses and financial tightness the Company has not been able to fully pay due installments & interest on term loan on due dates which resulted into classification of credit facilities as Non-Performing Assets couple with recall of facilities by lenders of the Company & certain overdue amount is continuing/ unpaid till date (as detailed in note no. 3.24 of audited financial statement for the year ended March 312020). Interest on term loans and working capital including overdue amount penal interest etc. (amount unascertained) has not been provided and as the same will be provided / accounted for as and when paid/settled as the company is in process 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 with the underlying rights title and interests in financial assistances granted to the Company to an Asset Reconstruction Company (ARC).
(ii)(b)Regarding non-provision against long outstanding receivables-As also explained in Note No. 3.8(a) of Audited Financial Statements management view is that the receivables for period over one year of Rs 521.57 Lakhs till 31.03.2020 (Rs. 492.12 Lakhs till 31.03.2019) including of overseas overdue trade receivables. Further the accounting for exchange fluctuation in respect of overseas trade receivables and export advances is not in line with Ind AS-21 "The Effects of Changes in Foreign Exchange Rates" and accordingly we are unable to comment its impact on financial statement.
(iii) Regarding non accounting of investment at fair value and non-recognition of exchange fluctuation in respect thereto the management is of view that the money lying outside India is part of GDRs proceeds of the Company and is earmarked for utilization for setting up a Yarn Dying Plant which could not be implemented for want of support of lenders. The Management of the Company is engaged in firming an active plan for implementation of its proposal for setting up of a Yarn Dying Plant and upon its finalization the aforesaid amount will be utilized for investment and on that date effect of any gain shall be accounted in the books of account of the Company.
(iv) In previous year with regard to noticed fraud in the nature of shortage and misappropriation of goods stored at its Ludhiana Branch by the employee/s of the Company the effect whereof has been accounted in the books of account of the Company considering the ongoing recovery process and its claim.
(e) For Audit Qualification(s) where the impact is not quantified by the Auditor:
Management's estimation on the impact of audit qualification Not ascertainable
If management is unable to estimate the impact reasons for the same With regard to Auditors Qualification No. (i) (iii) (iv) (v) and (vi)-:- (i) Regarding net worth of the Company becoming negative and preparation of financial statements on going concern basis - Consequent to erosion of entire net worth the Company filed Reference before the Hon'ble Board for Industrial and Financial Reconstruction (BIFR) under Sick Industrial Company (Special Provisions) Act 1985 (SICA) which was registered. The Company was in discussions with its lenders for evolving a scheme of rehabilitation of its financial debts which continued during the period when the reference of the Company was under consideration before BIFR and also presently after the SICA has been repealed. Considering the proposed rehabilitation and future business plans of the Company present business scenario stable government policies for the business and expected cash flow in the near future as assessed by the Management accounts of the Company are prepared on 'Going Concern' basis.
(iii) Regarding pending receipt of part money out of GDR issue - As also explained in Note no. 3.3 of the of the Audited Financial Statements that out of the proceeds 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 needs of the Company and a balance amount of USD 4819980 (INR 2568.41 Lakhs) continues to remain invested in an overseas Money Market Fund outside India as on 31.03.2020 pending utilization 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 the agreement w.e.f. 15-06-2015. The GDR had been de-listed from LuxSE w.e.f. 16.06.2015. The Company is in process to appoint new depository and seek relisting of GDR on LuxSE or any other overseas stock Exchange.
(iv) Regarding provisions in case of investments in subsidiaries written off/written back and adjustment/set off of payment of receivables/payable from/to overseas parties/suppliers which is pending necessary approval of the competent authority. The management is in the process of obtaining necessary approvals from the competent authority
(v) Regarding further strengthening the system of internal controls - Necessary steps have been initiated by the Company to further strengthen the system of internal controls w.r.t. purchases and consumption of inventory booking of expenses set off of balances for the sale of goods and services etc.
(vi) Regarding pending confirmation / reconciliation of balances of certain receivables (including overseas overdue receivables) bank balances payable (including of an Associate Company/ies) secured loans other liabilities loans and advances etc; and contingent liability - The management is of the opinion that adjustment if any arising out of such reconciliation would not be material. Further necessary steps have been initiated to further strengthen system of internal controls w.r.t. accounting of expenses accounting of income (including sale of licenses and provision written back) payroll payments and of balance reconciliation/confirmation.
(iii) Auditors' comments on (i) or (ii) above Refer details of audit qualification [para II(a) above]

(iii) Signatories

• Chairman and Managing Director of the Company : Manish Bagrodia
• Chief Financial Officer : Sanjay Sharma
• Audit Committee Chairman : Rajiv Chadha
DIN 08793211
• Statutory Auditor : For Khandelia & Sharma
Chartered Accountants
Firm Registration No. 510525C
(Arun Khandelia)
Partner
Membership No. 089125

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