evergreen textiles ltd Auditors report

SHRISHMA FINE CHEMICALS AND PHARMACEUTICALS (KARNATAKA) LIMITED ANNUAL REPORT 2004-2005 AUDITORS REPORT TO THE MEMBERS OF SHRISHMA FINE CHEMICALS AND PHARMACEUTICALS (KARNATAKA) LIMITED. We have audited the attached Balance Sheet of SHRISHMA FINE CHEMICALS & PHARMACEUTICALS (KARNATAKA) LIMITED (the company) as at 31st March 2005 and the Profit and Loss Account of the Company for the year ended on that date annexed thereto and also Cash Flow Statement for the year ended on that date. 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. 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 misstatement. 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 presentation of the Financial Statements. We believe that our audit provides a reasonable basis for our opinion. I. As required by the Companies (Auditors Report) Order, 2003 as amended by the Companies (Auditors Report) (Amendment) Order, 2004 issued by the Central Government of India in terms of Section 227(4A) of the Companies Act, 1956, we nave given in the annexure a statement on the matter specified in paragraph 4 and 5 of the said order, to the extent they are applicable to the Company. II. Further to our comments in the annexure referred to in paragraph 1 above, we report that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit, except that the valuation of stocks of raw materials, process stock, stores and spares and finished goods as on 31st March, 2005 are as determined by the management. (b) 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 the books. (c) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account. (d) In our opinion, the profit and Loss Account and balance sheet comply with the Accounting Standards referred to in and section (3C) of Section 211 of the Companies Act, 1956 to the extent they are applicable to the Company, except that as explained in accounting policy 1.d, the valuation of inventory has been done without determining its cost, which is in non compliance with AS-2 on `valuation of inventories. (e) In our opinion and to the best of our information and according to the explanation given to us, the accounts give the information required by the Companies Act, 1956, in the manner so required, except that as mentioned in Note 12. the details of amounts due to small scale industrial unit creditors are not available. (f) The Company had defaulted in 1993 in redemption of its debentures, which have still remained Partly unredeemed. None of the Directors of the Company as on 31st March 2005, was a director in 1993. In light of these facts and as per a legal advice obtained by the Company and based upon the written representations received from the Directors (except one) and taken on record by the Board of Directors of the Company, none of the Directors, (except one), is prima facie, disqualified from being appointed as a Director in terms of clause (g) of sub section (1) of Section 274 of the Companies Act, 1956. (g) The Companys rehabilitation scheme submitted to the BIFR was not approved because of elapse of time and IDBI the Operating Agency has been asked to get new revival proposals and the Company has also been asked to re-submit its proposal. In the meanwhile, operations of the Company continue as in the past and the management is confident of maintaining the position until final decision is taken by BIFR. However, the networth of the Company is fully eroded due to heavy losses year after year. In view of above, we are unable to comment whether the company can be considered as a Going Concern. In view of this, we are unable to judge whether the Company can be considered as a Going Concern and whether it would be in position to meet its liabilities. (h) We further report that: (i) No provision has been made in the accounts in respect of (a) depreciation on fixed assets amounting to Rs. 77.13 lakhs, as mentioned in Note No. 2, (b) of disputed excise duty demand of Rs. 16.66 lakhs as mentioned in No. 5.3, (c) of certain obligations as mentioned in Note No. 3, approximate amount Rs. 137.18 lakhs plus interest @ 18% p.a. thereon, as mentioned in Note No. 6 and (d) of interest of Rs. 1612.43 lakhs, as mentioned in Note No.7. (ii) As mentioned in Note No.8, the Company has recalculated with retrospective effect from 1995 interest on certain borrowings at a concessional rate of interest proposed in the rehabilitation scheme before the BIFR, which was, due to time lapse, rejected by BIFR and a new Rehabilitation Package is to be prepared by the Company. Accordingly, interest of Rs. 82.28 lakhs has been written back in the Profit and Loss account for the year 2000-2001. (iii) Full credit of concessions offered by the Financial Institutions and Banks amounting to Rs. 686.26 Lakhs has been given in the accounts of the Company for the period 1993-94, However, the stipulations laid down by them are yet to be complied with by the Company. (iv) Due to the above, the loss for the period is understated by Rs.1843.40 lakhs, the relevant liabilities are understated by Rs.1766.27 lakhs and the net block of fixed assets is overstated by Rs. 77.13 lakhs. (v) The amounts due from/to Sundry Debtors and Creditors, of loans and advances given, dues to Banks and Financial Institutions and others in respect of outstanding loans and interest thereon, and certain balances in current and margin accounts with banks are subject to confirmations. (vi) As explained in Note No. 1.d, the valuation of stock of finished goods and the process stock has been done based on selling price, without determining the cost of individual item. (vii) No provision is made towards debenture redemption reserve due to losses. (viii) Out of the contingent liability disclosed in note no. 5.1, details in respect of Rs. 65.64 lakhs have not been furnished to us. Subject to the above observations, the said accounts give a true and fair view in conformity with the accounting principles generally accepted in India. (a) In so far it relates to Balance Sheet, of the state of affairs of the Company as at 31st March, 2005, (b) In so far it relates to the Profit & Loss Account, of the loss for the period ended on that date. (c) In the case of Cash Flow Statements, of the Cash Flow for the year ended on that date. For HARIBHAKTI & CO. Chartered Accountants CHETAN DESAI Partner Membership Number: 17000 Place: Mumbai Dated: October 24, 2005 ANNEXURE REFERRED TO IN PARAGRAPH 3 OF AUDITORS REPORT OF EVEN DATE TO THE MEMBERS OF SHRISHMA FINE CHEMICALS & PHARMACEUTICALS (KARNATAKA) LIMITED ON THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2005. 1. FIXED ASSETS: 1. The Company is in the process of compiling necessary details to maintain adequate records in respect of its fixed assets and no physical verification of such assets was carried out by management during the year. 2. We are unable to comment upon the discrepancies, if any, in the absence of physical verification. 3. During the year, the Company has not disposed off major part of its fixed assets. II. INVENTORY: 4. We are informed that the inventories of the Company have been physically verified by the Management during the year. 5. As explained to us, the procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. 6. The Company has maintained proper records of inventory. The discrepancies between the physical stocks and the book stocks noticed on physical verification as mentioned in paragraph 4 above have been properly dealt with in the books of account. III. LOANS AND BORROWINGS: 7. The Company has not taken / granted any loan from / to a Company covered in the register maintained under Section 301 of the Act, 1956. 8. According to the records of the Company, it has defaulted in repayment of its dues to financial institutions, banks and to debenture holders of amounts aggregating Rs. 458.91 lacs, Rs. 447 lacs and Rs. 729.88 respectively. The default has continued since period prior to 1994 since when the company is under the control of new management. The amounts are subject to confirmations from fending banks and institutions. 9. The company has not taken any term loan during the year. IV. INTERNAL CONTROLS: 10. The existing internal control procedures for the purchases of inventory, purchase of fixed assets and for sale of goods needs to be strengthened to be commensurate with the size of the company and the nature of its business. 11. The Company does not have an internal audit system. 12. As per the information and explanations given to us and on the basis of examination of records, no fraud on or by the Company was noticed or reported during the year. V. LEGAL COMPLIANCE: 13. The Company has not accepted any deposits under the provisions of Section 58A and 58AA of the Act and the rules framed there under. 14. We are informed that the Company is required to maintain cost records by the order made by the Central Government under section 209(1)(d) of the Companies Act, 1956. However such records are under compilation. 15. In respect of debentures issued by company prior to 1994, the debenture trust deed and documents for creation of securities have not been made available for our review. VI. STATUTORY DUES: 16. According to the books and records as produced and examined by us in accordance with generally accepted auditing practices in India and also based on Management representations, undisputed statutory dues have generally been regularly deposited, by the Company during the year with the appropriate authorities in India except in case of Provident Fund liability of Rs.40,815/-, ESIC Rs.6,648/-, Income Tax Rs.1,06,164/- and sales tax amounting to Rs.26.99 lacs. 17. As at March 31, 2005, there have been no disputed dues which have not been deposited with the respective authorities in respect of Income Tax, Wealth tax, Excise Duty and Cess, except disputed excise duty dues for Rs.1666000/- which are pending before CEGAT. VII. FINANCIAL POSITION: 18. The Company has accumulated losses, which are more than fifty percent of its networth. The company has incurred cash loss in the financial year and also in the immediately preceding such financial year. 19. On the basis of review of utilisation of funds which is based on overall examination of the balance sheet of the company, related information as made available to us and as represented to us by the Management, funds raised on short term basis have not been used for long term purpose. VIII. MISCELLANEOUS: 20. According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered. 21. According to the information and explanations giver, to us, the nature of services rendered in pursuance of arrangements entered into the register maintained under Section 301 of the Companies Act, 1956 and aggregating to Rs. 500000/- or more in respect of each party were not entered with any other party and hence, the rates charged were not comparable. 22. The Company has not dealt or traded in shares, securities, debentures or other investments during the year. 23. The Company has not given any guarantee for loans taken by others from banks or financial institutions. 24. As the clause nos. (i) (c), (iii) (b),(iiii) (c), (iii) (d), (xii), (xiii), (xviii) and (xx) are not applicable to the Company, these are not commented upon. For HARIBHAKTI & CO. Chartered Accountants CRETAN DESAI Partner Membership Number 17000 Place: Mumbai Dated: October 24, 2005