Independent Auditors Report to the Members of Murli Industries Limited
1. Report on the Financial Statements
We have audited the accompanying financial statements of MURLI INDUSTRIES LIMITED,which comprise the Balance Sheet as at 30th June 2013, and the Statement of Profit andLoss for the period of fifteen months then ended, and a summary of the significantaccounting policies and other explanatory information.
2. Managements Responsibility for the Financial Statements
The Companys Management is responsible for the preparation of these financialstatements that give a true and fair view of the financial position, financial performanceand cash flows of the Company in accordance with the accounting principles generallyaccepted in India including Accounting Standards referred to in subsection (3C) of section211 of the Companies Act, 1956. This responsibility includes the design, implementationand maintenance of internal control relevant to the preparation and presentation of thefinancial statements that give a true and fair view and are free from materialmisstatement, whether due to fraud or error.
3. Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with the Standards on Auditing issued by theInstitute of Chartered Accountants of India. Those Standards require that we comply withthe ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement. An auditinvolves performing procedures to obtain audit evidence about the amounts and thedisclosures in the financial statements. The procedures selected depend on theauditors judgment, including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those risk assessments,the auditor considers the internal control relevant to the Companys preparation andfair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of the accounting estimates made by theManagement, as well as evaluating the overall presentation of the financial statements. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our audit opinion.
4. Basis of Qualified Opinion
i. As mentioned in note no. 48, the financial statements of the company have beenprepared on the going concern basis notwithstanding the fact that the networth of thecompany is completely eroded and the company has a negative networth of (Minus Rs.189.82crores) as on balance sheet date. The appropriateness of the said basis is interaliadependent of the Companys ability to infuse requisite funds for meeting itsobligations, reschedulement of its debts and resuming normal operations.
ii. As mentioned in note no. 31 and 32, the company has not complied with AccountingStandards-15 (Employee Benefits) & Accounting Standards-11(Effects of changes inForeign exchange Rates).
iii. As mentioned in note no. 39, the balances of trade receivables and payables,lenders and loans and advances are subject to confirmation / reconciliation and subsequentadjustments if any. As such, we are unable to express any opinion as to effect thereof onthe financial statements of the period under audit.
iv. As mentioned in note 43, the Company has Capitalized expenses to the tune ofRs.3.16 Crores incurred in Pulp Mill Unit, instead of charging these expensesto Profit & Loss A/c. As a result of above the loss of the Company for the period offifteen months ended 30th June, 2013 is understated by Rs. 3.16 Crores.
v. As mentioned in note 44 regarding recognition of deferred tax credit on account ofunabsorbed losses and depreciation during the year amounting to Rs. 88.76 crores (lastyear 138.19 crores) total amount recognized up till date is Rs. 226.95 crores. This doesnot satisfy the virtual certainty test for recognition of deferred tax credit as laid downin Accounting Standard-22. As such we do not express our opinion on the reasonability ofrecognition of the income. As such loss after tax for the period under audit isunderstated by Rs.88.76 crores. The networth of the company is overstated by Rs.226.95crores as on balance sheet date.
vi. As mentioned in note 45, the company has not ascertained impairment loss on accountof inoperative Pulp Unit from last some years.
vii. The company has no policy of ascertaining impairment losses, which is incontravention of Accounting Standard 28. As such, we are unable to express any opinion asto effect thereof on the financial statements of the period under audit.
viii. All loan accounts of the company from Banks except from IDBI Bank and vehicleloan accounts have been treated as Non Performing Assets (NPAs) by the respective banksdue to non payment of dues. The company has recorded the interest on these accounts forthe period till 30th June 2013 @10.50% p.a. instead of the actual payable amount whichvaries from 10.50% to 18% p.a. The difference between the exact interest as chargeable bythe bank and interest accounted for by the company remains unquantifiable. As such noncurrent liabilities are overstated and current liabilities are understated. The amount ofover/ under statement remains unascertained.
ix. The Company has liability outstanding in respect of FCCB (Foreign CurrencyConvertible Bonds) issued of US$ 5.5 million the due date of payment of which was 6th ofFeb, 2012. The lenders have not exercised option for conversion. Hence the amount ispayable at the agreed enhanced value. The amount outstanding in respect of the same isbeing shown in the balance sheet at original conversation rate of Rs.43.94 per US$ as atthe time of actual receipt of the amount. The actual liability due in respect of the sameas per terms comes to 149.81% of US$5.5 Millon i.e. US$ 8.27 Million and the rate as on30th June 2013 being Rs.59.52 per US$, the liability in respect of the same is understatedby Rs.24.88 Crores. As such loss of the company is under stated to that extent. Theredemption reserve in respect of repayment of the same has also not been created.
x. Accounting Standard 5, Net Profit or loss for the period, Prior Period Items& change in accounting policies requires the company to disclose the nature &amount of Prior period items to be disclosed separately in a manner that their impact oncurrent profit or loss can be perceived. The Company has not complied with the provisionsthereby inflating the current periods losses by Rs. 7.16 crores.
xi. As per the requirements of Accounting Standard 26 "IntangibleAssets", any deferred revenue expenditure is to be written off in the Profit &loss Statement, since they do not meet the definition of an "asset" under AS-26,The Company has not written off its expenses amounting to Rs.12.90 Crores.
The consequential effect of sub para[ii, iii, vi, vii & viii ] above on the assetsan liabilities as at 30th June 2013 and loss for the period of fifteen months ended 30thJune 2013 are not ascertainable. Had the effect of above as stated in sub para [iv,v, ix,x & xi ] have been given, the loss for the period under audit would have been higherby Rs.122.54 Crores.
5. Qualified Opinion
In our opinion and to the best of our information and according to the explanationsgiven to us, except for the matters described in the Basis of Qualified Opinion Paragraphas mentioned above read together with the other notes, give information required by theCompanies Act, 1956 in the manner so required and give a true and fair view in conformitywith the principles generally accepted in India;
i. In the case of the Balance Sheet, of the state of affairs of the Company as on 30thJune, 2013;
ii. In the case of the Profit and Loss Account, of the loss for a period of fifteenmonths ended on that date; and
iii. In the case of cash flow statement, of the cash flows for a period of fifteenmonths ended on that date.
6. Emphasis of Matter
Attention is drawn to :
a. The company has not shown the amounts of loans maturing shortly under the sub-head"Current Maturities of Long Term Loans" under "Other CurrentLiabilities", but the same are shown under the head "Long Term Borrowings"under "Non Current Liabilities" Similarly the company has not disclosed thedetails of loans and their terms and conditions including repayment etc includingdefaults. This is deviation from requirements of the new Schedule VI of the Companies Act.
b. The company has an investment of Rs. 0.05 Crores in each of four, wholly ownedsubsidiaries namely Murli Cement Limited, Murli Cement (Karnataka) Limited, Murli Cement(Maharashtra) Limited, Murli Cement (Rajasthan) Limited. The company has not complied withAccounting Standard 21 by presenting the Consolidated Financial Statements. As explainedthese companies have not started operations as such Consolidated Financial Statements havenot been prepared.
c. The non-current assets of the company include a sum of Rs. 31.07 Crores spent onRajasthan, Karnataka which includes land. These should have been part of fixed assets.
7. Report on Other Legal and Regulatory Requirements
A. As required by the Companies (Auditors Report) Order, 2003 ("theOrder") issued by the Central Government of India in terms of sub-section (4A) ofsection 227 of the Act, we give in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the Order.
B. As required by Section 227(3) of the Act, we report that:
a. We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit.
b. In our opinion, proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.
c. The Balance Sheet and the Statement of Profit and Loss, dealt with by this Reportare in agreement with the books of account.
d. In our opinion, the Balance Sheet and the Statement of Profit and Loss comply withthe Accounting Standards referred to in sub-section (3C) of section 211 of the Act.
e. On the basis of the written representations received from the directors as on 30thJune, 2013 taken on record by the Board of Directors, none of the directors isdisqualified as on 30th June, 2013 from being appointed as a director in terms of clause(g) of sub-section (1) of section 274 of the Act.
| ||FOR DEMBLE RAMANI & CO. |
| ||Chartered Accountants |
| ||Registration No. 102259W |
|NAGPUR ||Anand Deshpande |
|Dated: 29th August, 2013 ||Partner |
| ||M. No.033618 |
ANNEXURE TO THE AUDITORS REPORT
(AS REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE)
(I) a) The company has not maintained proper records showing full particulars,including quantitative details and situation of fixed assets.
b) Therefore, physical verification of the same has not been carried out;
c) During the period under audit, the Company has not disposed off any of its assets
(ii) a) As explained to us, Physical verification of inventory has been conducted bythe management at reasonable intervals.
b) As also certified by management and according to the information and explanationsgiven to us the procedures of physical verification of inventories followed by themanagement are reasonable and adequate in relation to the size of the company and natureof its business.
c) As per the documents produced by the management and the explanations given by them,the process carried out for the physical verification of the stock is commensurate withthe size & nature of the company; but as far as the valuation of the same isconsidered, the management was unable to explain the exact basis for the valuation hencewe are unable to express our opinion on the same and hence there is a diversion tocompliance of Accounting Standard 2.
(iii) a) The company has granted interest free unsecured loan to companies, firms orother parties covered in the register maintained u/s.301 of the Act. The amount involvedis Rs.2.44 Crores and the number of party involved are two.
b) The rate of interest and other terms and conditions of the unsecured loans given bythe Company mentioned in (a) above are prima facie prejudicial to the interest of theCompany, since these loans are interest free and no specific terms have been specified fortheir repayment.
c) As per the information and explanations given by the management, there are nospecific terms and conditions for repayment of principal and interest due thereon.
d) As there is no specific repayment due dates, there are no over dues shown.
e) The company has taken unsecured loan from companies, firms and other partiesconcerned in the register maintained u/s 301 of the Act. The amount involved in thetransactions is Rs.6.81 Crores & no. of parties involved is 34.
f) As per the information and explanations given by the management, there are nospecific terms and conditions for repayment of principal and interest due thereon; hence,prima facie it seems that the terms of accepting the loan are not prejudicial to theinterest of the company.
(iv) In our opinion and according to the information and explanations given to us, theinternal control systems needs to be strengthened considering the size of the company andthe nature of its business.
(v) a) The company has entered into the Register of Contracts & arrangementsreferred to in section 301 of the Companies Act, 1956.
b) The transactions in pursuance of such contracts have been made at prices which arereasonable having regard to prevailing market prices at the relevant time.
(vi) The company has not accepted any deposits during the period under audit fromPublic within the meaning of Section 58A, Section 58AA or any other relevant provisions ofthe Companies Act, 1956 and the rules made there under.
(vii) The company has not appointed internal auditor for period of this audit report.This is a violation of section 227 of the Companies Act, 1956 and further the company is alisted company. We are unable to ascertain whether the company has monitored internalcontrol policies and processes. In absence of internal audit system, the completeness,adequacy and independence will have a bearing of efficacy of internal control system andaudit risk.
(viii) We have broadly reviewed the cost records maintained by the company pursuing tothe Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Governmentu/s. 209(1)(d) of the Companies Act, 1956 and our of the opinion that primafacie theprescribed cost records have been maintained. However, no cost auditors report hasbeen provided to us. We have, however, not made a detailed examination of the cost recordswith a view to determine whether they are accurate or complete.
(ix) According to the information and explanation given to us in respect of statutorydues :
a) The company has generally not been regular in depositing the undisputed statutorydues e.g. Provident Fund, Excise Duty including VAT amounting to Rs.43.37 Crores.
b) Details of dues of Income-tax, Sales Tax, Custom Duty, Excise Duty and Cess whichhave not been deposited as on 30th June, 2013 on account of disputes are given below:
|Sr. No. ||Particulars ||Amount (Rs. in crores) ||Pending Since ||Forum |
|1 ||Central Excise & Customs ||0.12 ||2002 ||High Court, Nagpur |
|2 ||Commission on FCCB || |
|2008 ||CESTAT, Mumbai |
|3 ||Excise || |
|2008 ||CESTAT, Mumbai |
|4 ||Central Excise & Customs ||2.37 ||2007 ||High Court, Nagpur |
|5 ||Central Excise & Customs || |
|2009 ||CESTAT, Mumbai |
|6 ||Central Excise & Customs || |
|2010 ||CESTAT, Mumbai |
|7 ||SEBI ||Not Ascertainable ||2011-2012 ||SEBI |
|8 ||Income Tax (A.Y -07-08) ||0.67 ||2011-2012 ||ITAT |
|9 ||Income Tax (A.Y -08-09) ||20.02 ||2011-2012 ||CIT(A) |
|10 ||Income Tax (A.Y -09-10) ||4.48 ||2011-2012 ||CIT(A) |
(x) At the end of the period under audit, the company has accumulated losses ofRs.204.25 crores. The cash losses of the company during the period of fifteen months underaudit are Rs. 243.07 crores. The networth of the company is completely eroded and thecompany has a negative networth of (Minus Rs.189.82 crores) as on balance sheet date.
(xi) The company has defaulted in repayment of dues to financial institutions andbanks; details of which have been shown below:
| ||Default Amount || |
|Name of the Financial Institute/Bank Nature of facilities || |
|Interest (Rs.Crores) ||Default since |
|Term Loans ||79.47 ||109.10 ||FY 2012-13 |
|Financial Institutions (Suit Filed) ||96.50 ||15.69 ||Jan-11 |
(xii) The company has not granted any loans and/or advances on the basis of securitiesby way of pledge of shares, debentures and other securities.
(xiii) The provisions of any special statute applicable to chit fund and nidhi/mutualbenefit fund/societies are not applicable to the company.
(xiv) The company is not a dealer or trader in shares, securities, debentures and otherinvestments.
(xv) The Company has given Guarantee to SICOM Ltd. on behalf of Nandlal EnterprisesLtd. for an Inter Corporate Deposit of Rs. 20 crores. The company has assigned rights onthe limestone mining lease awarded to the company, admeasuring 42.16 hectares of land. Theterms of the guarantee are prejudicial to the interest of the company.
(xvi) In our opinion and as per the information and explanations given, "No newTerm Loans" have been raised during the period under audit.
(xvii) As in the past the company has continued to use short term loans for long termpurposes.
(xviii) During the period under audit the company has not made preferential allotmentof shares to parties or companies covered in the Register maintained u/s 301 of the Act.
(xix) The company has outstanding FCCBs (bonds) amounting to Rs24.17 crores (as perbalance sheet amount) which have already become due in February 2012 which are notsecured. The details in respect of same are pointed out in sub point no "viii"in Basis of Qualified Opinion.
(xx) The company has not raised any money through a public issue during the periodunder audit.
(xxi) Based on the audit procedures performed and information and explanations given bythe management, we report that no fraud on or by the company has been noticed or reportedduring the period under audit.
| ||FOR DEMBLE RAMANI & CO. |
| ||Chartered Accountants |
| ||Registration No. 102259W |
|NAGPUR ||Anand Deshpande |
|Dated- 29-08-2013 ||Partner |
| ||M. No.033618 |