electrex india ltd Auditors report

ELECTREX (INDIA) LIMITED ANNUAL REPORT 2005-2006 AUDITORS REPORT To, The Members of ELECTREX (INDIA) LIMITED. 1. We have audited the attached Balance Sheet of M/s. Electrex (India) Limited as at March 31, 2006 and also the Profit & Loss account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with Auditing Standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditors Report) (Amendment) Order, 2004 issued by the Central Government in terms of Section 227(2A) of the Companies Act, 1956, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said order. 4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that: 4.1 We have obtained all information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. 4.2 In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. 4.3 The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are In agreement with the above books of account. 4.4 In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement comply with the Accounting Standards referred to in sub- section(3C) of Section 211 of the Companies Act, 1956 to the extent applicable to the Company except Accounting Standard-23 an Impairment of Assets. 4.5 The directors are disqualified from being appointed as director in terms of Section 274(1)(g) of the Companies Act, 1956 as there is default in repayment of principal and interest fixed deposits and debentures (Refer Note 17 of Schedule S). 4.6 Reference is invited to Note No. 5, 6, 7 and 8 of Schedule S relating to various legal cases filed against the Company and its promoters and the erosion of the total networth of the Company. We are not inn position to company on the outcome of these cases and the resultant impact of the same on the accounts of the Company. The accounts of the Company have been prepared on going concern basis inspite of the same. 4.7 Attention is invited to the following paras of Schedule S of notes forming part of the Accounts: 4.7.1 Note No. 9 with regard to non-reconciliation/non-availability of confirmation of various debit and credit balances outstanding as on 31.06.2006 and the resultant impact thereof (amount not ascertainable). 4.7.2 Note No. 9 and 10 with regard to not making provision towards old outstanding balances of debtors and advances (amount not ascertained). 4.7.3 Note No. 12 with regard to non-provision of depreciation on moulds and jigs and plant and machinery an account of higher obsolescence of the same pending determination (amount not ascertained). 4.7.4 Note No. 27 with regard to not carrying out any exorcise to calculate the amount of impairment loss of assets and to make provision towards the same (amount not ascertained). 4.7.5 Note No. 11 with regard to non-provision of interest/lease rental/discounting charges/hire charges on amounts borrowed from Financial Institutions/Banks/NBFCs/others amounting to Rs.8193.40 Lac for the year (Rs.32535.11 Lac up to 21.3.2006) on estimated basis. 4.7.6 We further report that, without considering items mentioned at para 4.4, 4.5 and para 4.7.1 to pare 4.7.4 above, the effect of which could not be determined, had the observations made by us in para 4.7.5 above been considered, the loss for the year would have been Rs.9042.65 Lac (as against we reported figure of Rs.649.26 Lac), accumulated losses would have been Rs.61251.66 Lac (as against the reported figure of Rs.28716.55 Lac) and loan funds (including acceptances and lease rentals) would have been Rs.59,147.11 Lac (as against the reported figure of Rs.26612 Lac). 4.3 In our opinion and to the best of out information and according to the explanations given to us, the said accounts, subject to our comments In paragraph 4.4, 4.5, 4.5 and 4.7 above read together with the Significant Accounting Policies and notes thereon as per Schedule S, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: i) In the case of Balance Sheet of the state of affairs of the Company, as at 31st March, 2006; ii) In the case of the Profit and Loss Account of the loss for the year ended on that date: and iii) In the case of Cash Flow Statement, on the cash flows for the year ended on that date. For T.R. Chadha & Co. Chartered Accountants Place: Mumbai (Vikas Kumar) Date : 28.08.2003 Partner Annexure to the Auditors Report referred to in paragraph [3] of our report of even date on the Accounts of ELECTREX (INDIA) LTD for the year ended March 31, 2006 1. Fixed Assets: a) The Company has maintained records showing particulars including the quantitative details and situation of fixed assets (excluding for office equipments, furniture and fixtures). The same does not contain the details with regard to the purchase of assets upto September 1989 along with the date of purchase and the name of the supplier as the records in this regard are stated to ho destroyed in fire in past years. These fixed assets were however valued by tile valuers appointed by the bank. b) As per the information and explanations given to us, the Company has physically verified its assets during the year, which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. The reconciliation of the same with book records is in process and the discrepancies the same, if any will be adjusted after reconciliation. c) During the year, the Company has disposed off vehicles. However, the same did not affect the going concern nature of the company. 2. Inventories: a) The management has carried out the physical verification of inventories at year-end. b) Taking into consideration the nature of business, we are of the opinion that the procedure of physical verification is reasonable and adequate in relation to the size of the Company and the nature of its business. However, the frequency at physical verification of inventories needs to be increased. c) Though the Company is maintaining proper records of inventory, the same needs to be improved with regard to timely recording of the entries. The discrepancies noticed on verification between the physical stocks and records were not material in relation to the operation of the Company and the same have been properly dealt with in the books of account. 3. Secured or Unsecured Loans Granted or Taken: a) An amount of Rs.493.76 Lac is receivable as on 31.03.2006 from one company covered in the register maintained under section 301 of the Companies Act, 1956, which was advanced to this company in earlier years. b) In respect of the loans/advances granted, no interest has been charged from them and the details with regard to the terms and conditions of such advance are not available. Accordingly, we are nil to a position to comment as to whether the same is prejudicial to the interest of the Company or not. The Company has informed that this amount mainly represents investment as part of a joint venture. c) In respect of the loans granted, the Company has not stipulated any repayment schedule. Accordingly, we are not in a position to comment as to whether the same is overdue or not. d) An amount of Rs.68.40 Lacs payable as on 31.03.2006 towards loan taken from four directors in earlier years. e) In respect of loans taken, those are interest free and accordingly are prima facie not prejudicial to the interest of the Company. f) In respect to the loans taken, these are payable on demand and therefore, the question of overdue amounts does not arise. 4. Internal Control System: According to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and the nature of its business, with regard to purchase of inventory, fixed assets and with regard to sales of goods. However the same needs to be improved to make it more effective. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal controls. 5. Transactions under Section 301 According to the information and explanation given to us, there are no transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956. Accordingly, clause 5(a) and 5(b) of Para 4 of the Companies (Auditors Report) Order are not applicable to the Company. 6. Public Deposits: The Company has not accepted any fixed deposits during the year under audit. According to in formation and explanations given to us and based on the test checks carried out by us, the Company has complied with the provisions of Section 58A, 58AA or any other relevant provisions of the Act and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted in earlier years excepting the clause relating to maintenance of liquid assets, the repayment of principal amount and payment of interest in time, delay in filing of deposit return and non filing of statement in lieu of advertisement. The total amount due for payment which has not been repaid as per terms and is outstanding as on 31.03.2006 aggregates to Rs.1278.82 Lac with regard to principal and Rs.429.48 Lac for interest (excluding 1.10.2001 to 31.03.2006, which is not provided - Refer Note no M of Schedule S). 7. Internal Audit System: In our opinion, the Companys internal audit system is generally commensurate with the size and nature of its business. However, the scope and coverage of she same needs to be employed. 8. Cost Records: As explained to us by the management, the Central Government has not prescribed the maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956. 9. Statutory Dues: a) The undisputed statutory dues including provident fund, employees state insurance, sales tax, tax deducted at source, fringe benefit tax, cess and other material statutory dues applicable to the Company have not been regularly deposited with the appropriate authorities and there were regular delays/non deposit/non deduction of the same. b) According to the information and explanations given to us, no undisputed amounts is payable in respect of sales tax, income tax, wealth tax, Service tax, custom duty, excise duty and cess were in arrears, as at 31.03.2006 for a period of more than six months from the date they became payable excepting Sales Tax, Tax deducted at source, professional tax and employees state insurance amounting to Rs.868.92 Lac, Rs.200.47 Lac, Rs.1.51 Lac and Rs.0.90 Lac respectively. c) There are no disputed contingent sales tax/ Income tax/ custom duty/ wealth tax/ excise duty/ cess outstanding as on 31.03.2006 except the following: Name of the statute Nature of dues Amount Forum where Rs. in Lacs pending Income Tax Act, 1961 Income Tax (AY 137.57 Remanded back to 97-98) Assessing Officer Income Tax Act, 1961 Income Tax (AY 112.52 Income Tax Appellate 98-99) Tribunal Provident Fund Penalty and 28.91 EPF Appellate Interest Tribunal Total 279.00 10. The accumulated losses of the Company are more than 50% of the net worth of the Company as on 31.03.2006 and it has insured a cash loss in this financial year and in the immediately preceding financial year. 11. The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders. The amount overdue towards principal to financial institutions, banks and debenture holders as on 31.03.2006 amounts to Rs.2820 Lac, Rs.5410.33 Lac and Rs.3873.35 Lac respectively From February 1998 onwards. In addition to above, the interest on the above amounting to Rs.2365.59 Lac, Rs.94.15 Lac and Rs.3511.06 Lac respectively are in default towards financial institutions, banks and debenture holders respectively, which are provided in the accounts. No interest is provided in this accounts towards the same from 1.10.2001 onwards (Refer note 11 of Schedule S). 12. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. 13. As explained, (he Company is not a chit fund or a nidhi/mutual benefit fund/society, Accordingly, the provisions of clause 13 of Para 4 of the Companies (Auditors Report) Order are not applicable to the Company. 14. As explained and verified, the Company is not dealing or trading in shares, securities, debentures and other investments. The shares held by the Company arc in its own name. 15. As per information provided to us, the Company had given guarantee of Rs.926.56 Lac in earlier years for bans taken by others from bank or financial institutions. The terms and conditions of the same have not been made available to us and accordingly we cannot comment whether the same is prejudicial to the interest of the Company or not. 16. The Company has not availed any Hum lean during the year. 17. According to the information and explanation given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis during the year have been used for long- term investment. 18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act. Accordingly, the compliance of clause 18 of Para 4 of the Companies (Auditors Report) Order is net applicable to the Company. 19. As explained to us, the security or charge has been created for all the debentures being reflected as secured loans. However, we were not being provided the complete supporting of the same and accordingly we cannot comment on the same. Further, the Company has not created debenture Redemption Reserve towards the amount due for redemption in view of the losses incurred. 20. The Company has not raised any money by public during the year. 21. According to the Information and explanation given to us, no fraud on or by the Company has been noticed or reported during the year. For T.R. Chadha & Co. Chartered Accountants Place: Mumbai (Vikas Kumar) Date : 28.08.2006 Partner