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Winsome Yarns Ltd.

BSE: 514348 Sector: Industrials
NSE: WINSOME ISIN Code: INE784B01035
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VOLUME 20
52-Week high 1.94
52-Week low 1.02
P/E
Mkt Cap.(Rs cr) 7
Buy Price 1.02
Buy Qty 1.00
Sell Price 1.02
Sell Qty 44.00

Winsome Yarns Ltd. (WINSOME) - Auditors Report

Company auditors report

To the members of Winsome Yarns Limited

1. Report on Standalone Ind AS Financial Statements.

We have audited the accompanying Standalone Ind AS financial statements of WinsomeYarns Limited ("the Company") which comprise the Balance Sheet as at March 312018 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.

2. Management's Responsibility for the Financial 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 Ind AS financial statements that give a true and fair view of the financialposition financial performance including other comprehensive income cash flows andchanges in equity of the Company in accordance with the Indian Accounting Standards (IndAS) prescribed under section 133 of the Act read with the Companies (Indian AccountingStandards) Rules 2015 as amended and other accounting principles generally accepted inIndia.

This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the Ind ASfinancial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

3. Auditor's Responsibility.

Our responsibility is to express an opinion on these Ind AS financial statements basedon our audit.

In conducting our audit we have taken into account the provisions of the Act theaccounting and auditing standards and matters which are required to be included in theaudit report under the provisions of the Act and the Rules made thereunder and the Orderissued under section 143(11) of the Act.

We conducted our audit of the Ind AS financial statements in accordance with theStandards on Auditing specified under Section 143 (10) of the Act. Those Standards requirethat we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the Ind AS financial statements. The procedures selected depend on theauditor's judgment including the assessment of the risks of material misstatement of theInd AS financial statements whether due to fraud or error. In making those riskassessments the auditor considers internal financial control relevant to the Company'spreparation of the Ind AS financial statements that give a true and fair view in order todesign audit procedures that are appropriate in the circumstances. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of theaccounting estimates made by the Company's Directors as well as evaluating the overallpresentation of the Ind AS financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Ind AS financial statements.

4. Basis of Qualified Opinion.

i) In view of accumulated losses of the Company as at the end of March 31 2018 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 2018 and the year ended on March 312018 are understated due to: a) Non provisioning of interest expenses on borrowings of Rs.2515.42 Lakhs for the quarter ended and Rs. 9671.90 Lakhs for the year ended on March 312018 (Rs. 8389.14 Lakhs for the year ended on March 31 2017) and Rs. 28644.12 Lakhsbeing aggregate amount of interest unprovided till the year ended March 31 2018 (Rs.18972.22 Lakhs till the year ended March 31 2017) and further amount towards penalinterest penalty etc. as may be charged by the lenders. (In the absence of statement ofaccount the above amount has been arrived at as per estimates of the Company and theaggregate unprovided amount in books of account of the Company is not ascertainable withaccuracy).

b) Non provisioning against long outstanding receivables of Rs. 9609.58 Lakhs (Rs.9785.28 Lakhs as at March 31 2017) including of overseas overdue trade receivables of Rs.5989.20 Lakhs (Rs. 6173.48 Lakhs as at March 31 2017). The accounting for exchangefluctuation in respect of overseas trade receivables is not in line with Ind AS-21"The Effects of Changes in Foreign Exchange Rates" and accordingly overseastrade receivables is understated by Rs. 255.58 Lakhs (Rs. 223.89 Lakhs as at March 312017).

c) Non provisioning against loans and advances (including other current assets) of Rs.1569.63 Lakhs (Rs. 1611.71 Lakhs as at March 31 2017). iii) Part amount of USD 5072110(Rs. 2679.34 Lakhs) out of GDR's issued by the Company which funds had been raised forsetting up of Yarn Dying Plant are invested in money market instruments outside India. Asthe funds were raised for earmarked purposes the availability thereof to the Company andutilization of the same is subject to Company's undertaking active plans forimplementation of the proposed investment. 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. In respect of itsrealisability/receipt we are unable to comment. The non-accounting of investment at fairvalue and non-recognition of exchange fluctuation in respect thereto is not in line withInd AS 109 "Financial Instruments" and Ind AS-21 "The Effects of Changes inForeign Exchange Rates" respectively which has the effect of understatement ofinvestment by Rs. 686.63 Lakhs as at March 31 2018 and overstatement of losses by Rs.10.63 Lakhs for the year ended on March 31 2018. iv) Regarding provisions in case ofinvestments in subsidiaries written off/written back and adjustment/ set off of paymentof receivables/payables from/to overseas parties/suppliers which is pending necessaryapproval of the competent authority.

v) 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 expensesset-off of balances and invoicing of sale of goods and services.

vi) Confirmation of balances and reconciliation thereof with respective parties arepending which include balances pertaining to accounts receivable and payable (includingAssociate Company/ies) bank balances including other bank balances secured loansFinancial and other current liabilities financial assets and other current assetsrecoverable and contingent liabilities. All balances have been certified by the managementof the Company. In the absence of the Company having aforementioned details the impactthereof is unascertainable and therefore not being commented. Further strengthening ofinternal controls by the Company will provide greater reliability. vii) During the courseof our audit for the year ended March 31 2018 the management of the Company informed tous that they noticed and found fraud in the nature of shortage/misappropriation of goodsstored at its Ludhiana Branch by its employee/s against which the management took actionby lodging F.I.R. with the concerned Police Station and investigation in the matter ispending. The misappropriation of goods has been valued at Rs. 70 Lakhs against which someof the parties to whom goods were sold by the concerned employees have confirmed havingreceived the goods and also confirmed to the Company as having made payment against thesame. The Company also filed its claim to insurance company under Employee FidelityInsurance effect whereof has been accounted in the books of account of the Companyconsidering the on going recovery process of its claims.

5. Opinion.

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 4 above under 'Basis of Qualified Opinion' paragraph the aforesaid IndAS financial statements give the information required by the Act in the manner so requiredand give a true and fair view in conformity with the accounting principles generallyaccepted in India including the Ind AS of the financial position of the Company as atMarch 31 2018 and financial performance including other comprehensive income its cashflows and the changes in equity for the year ended on that date.

6. Report on Other Legal and Regulatory Requirements.

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 (vi) 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 (ii)(b) and para (iii) [Ind AS -21 "TheEffects of Changes in Foreign Exchange Rates" and Ind AS 109 "FinancialInstruments" under the "Basis of Qualified Opinion"] in our opinion theaforesaid Ind AS financial statements comply with the Indian Accounting Standardsprescribed under Section 133 of the Act.

e) The matters described in the "Basis of Qualified Opinion" paragraph abovein our 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 March 312018 taken on record by the Board of Directors none of the directors is disqualified ason March 31 2018 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) The Company has made provision as required under the applicable law or AccountingStandards for material foreseeable losses if any on long term contracts includingderivative contracts ; except to the extent and as explained in Note no. 3.2 of thestandalone financial statements.

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

"ANNEXURE A" TO INDEPENDENT AUDITOR'S REPORT

(Annexure referred to in paragraph 6 on Report on Other Legal and RegulatoryRequirements) i) (a) The Company is maintaining proper records showing full particularsincluding quantitative details and situation of fixed assets.

(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 and in case of leasehold immovableproperties lease deed has been executed in the name of the Company.

ii) As explained to us inventories of the Company (including inventories lying withthe third parties and in transit) have been physically verified by the management atreasonable intervals during the year. In our opinion and according to the information andexplanation given to us the procedure of physical verification of inventories followed bythe management need to be strengthen in relation to the size of the Company and nature ofits business. However as per the information and records made available no materialdiscrepancies were noticed on such verification.

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 representationprovided by the management and based upon audit procedures performed the Company has notgiven any loans provided any guarantee or security in connection with any loan and/ oracquiring securities of any other body corporate.

v) The Company has not accepted any deposits within the meaning of sections 73 to 76 orany other relevant provisions of the Act and the rules framed thereunder. Accordinglyprovisions of clause 3 (v) of the Order is not applicable.

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. We however 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 and on the basis ofour examination of the books of account the Company has been generally regular indepositing with appropriate authorities undisputed statutory dues including providentfund investor education and protection fund employees' state insurance income-taxsales tax goods and service tax service tax customs duty excise duty cess and otherstatutory dues applicable to it.

According to the information and explanations given to us no undisputed amountspayable in respect of aforesaid dues were outstanding as at March 31 2018 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 Statute Nature of dues Amount (Rs. in Lakhs) Period to which relates Forum where dispute is pending
Income tax Act Income tax 182.71 2005-2007 ITAT Chandigarh
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/VAT 4.35 1999-2000 Joint Director Excise and Taxation Chandigarh
Sales Tax -do- 2.25 1993.1994 Sales Tax Tribunal Punjab
-do- 13.36 2003-2004 Deputy Excise and Taxation Commissioner (Appeal)
-do- 29.08 2008-2009 -do-
-do- 1.84 2017-2018 DETC cum Joint Director (Enf.) Patiala
Central Excise Duty 7.63 2008-09 CESTAT New Delhi
Excise Act -do- 5.04 2010-11 CESTAT New Delhi
-do- 13.42 2011-12 CESTAT New Delhi
Punjab State Power Corporation Limited Power 10.83 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 (vi) of this Report under "Basis for Qualified Opinion"

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 Government or debenture holders during the year. The lender wise default isas under:

Sl. No. Name of Bank Total default amount (Rs. Crores) Maximum delay (in days) Remarks
1. Allahabad Bank 0.84 1370 Short term loan
2. Bank of India 25.14 1735 Term loan
3. Bank of Maharashtra 25.06 1645 Term loan
4. Indian Overseas Bank 20.45 1553 Term loan
5. ICICI Bank Ltd. 6.11 1735 Working capital term loan and FITL
6. Oriental Bank of Commerce 19.65 1735 Term loan
7. Canara Bank 127.83 1460 Term loan and working capital loan - Assigned to EARC
8. Punjab National Bank 148.14 1536 Term loan and working capital loan - Assigned to EARC
9. State Bank of Patiala 97.89 1404 Term loan and working capital loan - Assigned to EARC
10. Dena Bank 39.73 1643 Term loan - Assigned to EARC
11. UCO Bank 42.44 1462 Term loan - Assigned to EARC
12. Union Bank of India 14.67 1643 Term loan - Assigned to EARC

EARC = Edelweiss Asset Reconstruction Company Ltd. ix) According to the information andexplanation given to us the term loans were applied for the purposes for which the loanswere obtained. The Company did not raise any money by way of initial public offer orfurther public offer and term loans during the year.

x) To the best of our knowledge and according to the information and explanations givento us except for the matter stated in note no. 3.5 to the Ind AS financial statements wehave neither come across any instances of fraud by the Company or any fraud on the Companyby 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 paid/provided for managerialremuneration during the year under review. The Company is in receipt of approval of theCentral Government for payment of managerial remuneration under section 197 read withSchedule V of the Act for the period from 01.07.2014 to 30.06.2017. Accordingly themanagerial remuneration paid/provided from 01.07.2017 to 31.03.2018 is without approval ofthe Central Government. The Company has already made an application for approval of theCentral Government on 14.08.2017 in respect of managerial remuneration paid/providedwhich application of the Company is pending. However the Company has since recieved theamount of managerial remuneration so Paid to its Managing Director.

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 weare not offering any comment with respect to compliance of requirement of section 42 ofthe 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.

ANNEXURE 'B TO INDEPENDENT AUDITOR'S REPORT OF EVEN DATE ON THE STANDALONE IND ASFINANCIAL 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 2018 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 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 ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of Ind AS financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of theCompany's assets that could have a material 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 4 "Basis for Qualified Opinion" of ourmain report and the same to be read with our comments as stated below: According to theinformation and explanation given to us and based on our audit the following materialweaknesses have been identified as at March 31 2018:

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 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/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 2018 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 2018standalone financial statements of the Company and these material weaknesses does notaffect our opinion on the standalone financial statements of the Company.

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 31 2018[See Regulation 33/52 of the SEBI (LODR) (Amendment) Regulations 2016]

(Rs. in Lakhs)
I. Particulars Audited Figure (as reported before adjusting for qualifications) Adjusted Figures (audited figures after adjusting for qualifications)*
1 Turnover/ Total income 33488 33498
2 Total Expenditure 35579 56430
3 Net Profit/(Loss) (1782) 22622
4 Earnings Per Share (2.52) (31.82)
5 Total Assets 46437 35944
6 Total Liabilities 64886 (93530)
7 Net Worth (18449) (57586)
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 auditedfinancial results: (i) In view of accumulated losses of the Company as at the end of March31 2018 the net worth of the Company as at that date being negative the decision ofmanagement of the Company to prepare the accounts of the Company on going concern basisfor reasons that (a) proposed rehabilitation plan of the Company is under discussionswith majority of lenders and (b) future business plans of the Company and expected cashflows therefrom will suffice to service restructured debts of the Company there wouldarise a need to adjust the realizable value of assets and liabilities in the event offailure of assumptions as to going concern and in the absence of impact of aforesaidassumptions having been un-ascertained we are unable to comment thereon.

(ii) The results for the quarter ended on March 31 2018 and the year ended on March31 2018 are understated due to: (a) Non provisioning of interest expenses on borrowingsof Rs. 2515.42 Lakhs for the quarter ended and Rs. 9671.90 Lakhs for the year ended onMarch 31 2018 (Rs. 2182.41 Lakhs for the quarter ended and Rs. 8389.14 Lakhs for the yearended on March 31 2017) and Rs. 28644.12 Lakhs being aggregate amount of interestunprovided till the year ended March 31 2018 (Rs. 18972.22 Lakhs till the year endedMarch 31 2017) and further amount towards penal interest penalty etc. as may becharged by the lenders. (In the absence of statement of account the above amount has beenarrived at as per estimates of the Company and the aggregate unprovided amount in booksof account of the Company is not ascertainable with accuracy).

(b) Non provisioning against long outstanding receivables of Rs. 9609.58 Lakhs (Rs.9785.28 Lakhs as at March 31 2017 and Rs. 9794.95 Lakhs as at December 31 2017)including of overseas overdue trade receivables of Rs. 5989.20 Lakhs (Rs. 6173.48 Lakhs asat March 31 2017 and Rs. 5987.96 Lakhs as at December 31 2017). The accounting forexchange fluctuation in respect of overseas trade receivables is not in line with IndAS-21 "The Effects of Changes in Foreign Exchange Rates" and accordinglyoverseas trade receivables is understated by Rs. 255.58 Lakhs (Rs. 233.89 Lakhs as atMarch 31 2017) (c) Non provisioning against loans and advances (including other currentassets) of Rs.1569.63 Lakhs (Rs. 1611.71 Lakhs as at March 31 2017 and Rs 1469.05 Lakhsas at December 31 2017).

(iii) Part amount of USD 5072110 (Rs. 2679.34 Lakhs) out of GDR's issued by theCompany which funds had been raised for setting up of Yarn Dying Plant are invested inmoney market instruments outside India. As the funds were raised for earmarked purposesthe availability thereof to the Company and utilization of the same is subject toCompany's undertaking active plans for implementation of the proposed investment.

The balance above is as per rate of exchange prevailing at the time of investment andis subject to adjustment in rate of foreign exchange and accruals on money marketinvestments. In respect of its realisability/ receipt we are unable to comment. Thenon-accounting of investment at fair value and non-recognition of exchange fluctuation inrespect thereto is not in line with Ind AS 109 "Financial Instruments" and IndAS-21 "The Effects of Changes in Foreign Exchange Rates" respectively which hasthe effect of understatement of investment by Rs. 686.63 Lakhs as at March 31 2018 andoverstatement of losses by Rs. 10.63 Lakhs for the year ended on March 31 2018.

(iv) 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.

(v) 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 expensesset-off of balances and invoicing of sale of goods and services.

(vi) 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

(vii) During the course of our audit for the quarter and year ended March 31 2018 themanagement of the Company informed to us that they noticed and found fraud in the natureof shortage/misappropriation of goods stored at its Ludhiana Branch 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 taken inbooks of accounts considering the ongoing recovery process and its claim.

(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 there is change inamount)

In case of point no (ii)(b) and (ii)(c) - Appeared since F.Y. 2003-04 (However thereis change in amount) In case of point no (iii) - Appeared since F.Y. 2013-14 In case ofpoint 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) (ii)(c)(iii) and (vii):-ii)(a) Regarding non-provision of interest expenses penal interestpenalty 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 tightnessthe Company has not been able to fully pay due installments & interest on term loan ondue dates which resulted into classification of credit facilities as Non-PerformingAssets couple with recall of facilities by lenders of the Company & certain overdueamount is continuing/ unpaid till date (as detailed in note no. 3.24 of audited financialstatement for the year ended March 31 2018).

Interest on term loans and working capital including overdue amount penal interestetc. (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 ofdiscussion/applying for getting loans to be restructured by the lenders/ARC. Six of bankshave assigned and transferred the total debts due from the Company along with theunderlying rights title and interests in financial assistances granted to the Company toan Asset

Reconstruction Company (ARC). ii)(b) Regarding non-provision against receivables andloans and advances - As also explained in Note No. 3.8(a) of Audited Financial Statementsmanagement view is that the receivables includes outstanding amount of overseasreceivables for period over one year of Rs 5989.20 Lakhs till 31.03.2018 (Rs. 6173.48Lakhs till 31.03.2017) where the Company is in process of filing necessary papers withappropriate authority for extension of time [read with note no.3.9]. In this regardsmanagement is confident about full recovery / realisability considering the pastperformance of the customer and recovery initiative taken by the Company. Also asexplained in Note No. 3.8(b) of Audited Financial Statements the trade receivablesinclude certain overdue Trade Receivables/Other Receivables of Rs. 3620.38 Lakhs till31.03.2018 (Rs. 3611.80 Lakhs till 31.03.2017 for which the management is confident aboutfull recovery/ realisability. ii)(c) Regarding overdue amount of Loans and Advances readwith Note no. 3.11 (including Other Current Assets) of Rs.1569.63 Lakhs (Rs.1611.71 Lakhsas at March 31 2017) (including Refunds / Claims Receivables of Rs.53.50 Lakhs TUFSsubsidy Rs. 899.05 Lakhs capital advances of Rs. 250 Lakhs) in the opinion of theManagement the aforesaid balance are fully realisable and hence considered good. TheCompany has also initiated necessary steps for recovery of overdues.

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) With regard to noticed fraud in the nature of shortage and misappropriation ofgoods stored at its Ludhiana Branch by the employee/s of the Company the effect whereofhas been accounted in the books of account of the Company considering the ongoingrecovery 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 regard to Auditors Qualification No. (i) (iii) (iv) (v) and (vi)-:-

(i) Regarding net worth of the Company becoming negative and preparation of financialstatements on going concern basis - Consequent to erosion of entire net worth the Companyfiled Reference before the Hon'ble Board for Industrial and Financial Reconstruction(BIFR) under Sick Industrial Company (Special Provisions) Act 1985 (SICA) which wasregistered. The Company was in discussions with its lenders for evolving a scheme ofrehabilitation of its financial debts which continued during the period when thereference of the Company was under consideration before BIFR and also presently after theSICA has been repealed. Considering the proposed rehabilitation and future business plansof the Company present business scenario stable government policies for the business andexpected cash flow in the near future as assessed by the Management accounts of theCompany are prepared on 'Going Concern' basis.

(iii) Regarding pending receipt of part money out of GDR issue - As also explained inNote no. 2.3 of the of the Audited Financial Statements that out of the proceeds of GDRsraised in F.Y. 2010-2011 an amount of USD 6954515 (INR 3721.05 Lakhs) stood remitted toIndia which had been utilised for augmentation of working capital needs of the Companyand a balance amount of USD 5072110 (INR 2679.34 Lakhs) continues to remain invested inan overseas Money Market Fund outside India as on 31.03.2018 pending utilization of suchproceeds. The Company is filing all due returns regularly with RBI. Also the Depository ofGDR 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 toappoint new depository and seek relisting of GDR on LuxSE or any other overseas stockExchange.

(iv) 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. Themanagement is in the process of obtaining necessary approvals from the competent authority(v) Regarding further strengthening the system of internal controls - Necessary steps havebeen 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 thesale of goods and services etc.

(vi) Regarding pending confirmation / reconciliation of balances of certain receivables(including overseas overdue receivables) bank balances payable (including of anAssociate 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 Pradeep Kumar For K. R. & Co.
Managing Director President (Corporate Finance) & Chief Financial Officer Audit Committee Statutory Auditors
DIN : 00046944 Chairman Chartered Accountants
DIN : 03052477 F.R. No. 025217N
Place: Chandigarh (Kamal Ahluwalia)
Date: May 18 2018 Partner
Membership No. 093182