harshvardhan chemicals minerals ltd Auditors report

HARSHVARDHAN CHEMICALS AND MINERALS LIMITED ANNUAL REPORT 2001-2002 AUDITORS REPORT To The Members We have audited the attached Balance Sheet of Harshvardhan Chemicals & Minerals, Ltd., as at 31st March, 2002 and also the Profit & Loss Account for the year ended on that date annexed thereto. The preparation of these financial statements are the responsibility of the Companys management. Accordingly, our audit is limited only to the examination of the books of accounts records and vouchers produced before us end is based on management representations and Other Information that were made available to us during the course of our audit. Our responsibility is to express an opinion on these financial statement 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 statement 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 financial statement, presentation. We believe that our audit provides a reasonable basis for our opinion. 1. The Company is sick Industrial Company within, the meaning of clause (o) of Sub Section 3 of the Sick Industrial Companies (Special Provision) Act, 1985. In response to the reference filed by the Company, the Honble Board for Industrial & Financial Reconstruction (BIFR) has vide its order dated 31.12.1997 has approved the rehabilitation scheme prepared by ICICI as the Operating Agency (OA). The Company failed to achieved operational parameters envisaged in the Scheme where by it has not been able to make its net worth positive hence the scheme declared as "failed" by BIFR vide its order dated 21.03.2000. On make Companys revised proposal through Operating Agency (ICICI), the BIFR has published Draft Rehabilitation Scheme (DRS) vide is order dated 08.08.2001, envisaging substantial reduction in term liabilities and Infusion of funds for working capital requirements. Further, the Company has incurred net loss Rs.282 Lacs during the year ended 31.03.2002 and Companys accumulated losses as on 31.03.2002 are Rs.3080 Lacs as against paid up capital and free reserves of Rs.986 lacs. The accounts have been prepared on the basis that the Company is a going concern, however, In view of above factors, the ability of the Company to continue as going concern is dependent upon approval of Revised Scheme by BIFR and its successful implementation. 2. As required by the Manufacturing and Other Companies (Auditors Report) Order 1968 issued by the Company Law Board in terms of Section 227 (4A) of the Companies Act, 1958 we hereto enclose in the Annexure a statement on the matters specified in paragraphs 4 & 5 of the said order. 3. Further to our comments In the Annexure referred to in paragraphs (2) above we report that: (a) We have obtained all the Information and explanations which to the best our knowledge and belief were necessary for the purpose of our audit. (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 those Books subject to (i) Note No 5 of schedule 21 regarding cash basis of accounting for certain items. (ii) Note No 8 & 10 of schedule 21 regarding accounting of Interest payable on unsecured & secured loans on cash basis instead of accrual basis. (iii) Note No 14 of schedule 21 regarding accounting of unavailed leave salary and gratuity liability to staff and (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 attached Balance Sheet and Profit & Loss Account are in compliance with the Accounting standards refereed to in section 211 (3C) of the Companies Act, 1956, except: (i) Accounting Standard 15 in regard to unavailed leave salary and gratuity liability to staff referred to in note no 14 of schedule 21. (e) The Company has field to redeem its debenture and to pay declared dividend on due date and the failure exceeds one year as at 31st March, 2002 in our Opinion, disqualification attracted on the Director other than nominee directors for the appointment in any Public Company in terms of Clause (g) of Sub Section (1) Of Section 274 of the Companies Act, 1956. (f) In our opinion and to the basis of our information and according to the explanations given to us, the said account together with notes thereon give the Information required by the Companies Act, 1956 in the manner so required and are in conformity with the generally accepted accounting principles in India, subject to the following remarks: (i) Note No. 4 of Schedule 21 regarding confirmation/reconciliation and adjustments, if any, of the balance under the head secured loans, sundry debtors, sundry creditors, loans & advances, calls in arrears end, certain bank account. (ii) Note No. 5 of Schedule 21 regarding cash basis of accounting. (iii) Note No. 8 of Schedule 21 regarding non provision of interest an unsecured loans amount not ascertainable. (iv) Note NO.10 of Schedule 21 regarding non provision of interest on secured loans amounting to Rs.196.93 Lacs. (v) Note No. 11 of Schedule 21 regarding repayment of term loan amounting to Rs.36 Lacs to Allahabad Bank while no documentary proof has been available with the Company. (vi) Note No. 12 of Schedule 21 regarding non provision of Doubtful debts amounting to Rs.60.78 Lacs. (vii) Note No. 13 of Schedule 21 regarding non provision of old debts amounting to Rs.25.61 Lacs. (viii) Note No.14 of Schedule 21 regarding non Provision of liability in respect of unavailed leave salary and gratuity to staff, amount unascertained. (ix) Note No. 15 of Schedule 21 regarding disclosure of non convertible debentures without creation of trust deed under the head Secured Loans". (x) Note No. 20 & 21 of Schedule 21 regarding non compliance of section 205A of companies Act and disclosure of current liabilities for unpaid dividend of Rs.16.40 Lacs and interest on 14% Convertible Debentures of Rs.13.56 Lacs under the head Unsecured Loans. (xi) Note NO. 24 of schedule 21 regarding personal expenditure amounting to Rs.8.14 Lacs charged to profit & Loss account. (xii) Note No. 26 of Schedule 21 regarding under provision of directors remuneration amounting to Rs.0.80 Lacs. (g) We further report that without considering items mentioned in f(i) to (iii), & f (viii) above, the effect of which could not be determined and commented upon, had the observations made by us in para f (iv), (vi), (vii), (xi), (xii) above been considered the loss for the year would be Rs.558.36 Lacs (Rs.375.90 Lacs) as against the reported figure of loss Rs.282.38 Lacs (Rs.178.97 Lacs) with the consequent Impact on: (i) The debt balance in Profit & Loss account would have been Rs.3552.89 lakhs as against Rs.3080.08 lakhs reported. (ii) Secured loans from Bank and Financial Institution would have been Rs.3482.73 lakhs as against Rs.3088.87 lakhs reported. (iii) Sundry Debtors (Net of Provision) would have been Rs.20.99 lakhs as against Rs.107.38 lakhs reported. (iv) Loans & Advance would have been Rs.34.76 lakhs as against Rs.27.42 Lakhs reported. In view of the above remarks, the Profit and Loss Account does not reflect true and fair view of the "loss" for the year ended 31st March, 2002 and the Balance Sheet does not reflected the true and fair view of the state of affairs of the company as at 31st March, 2002. For R.SURANA & co., chartered Accountants. Udaipur, 31st August, 2002. RAJESH SURANA Partner ANNEXURE REFERRED TO IN PARAGRAPH 2 0F OUR REPORT OF EVEN DATE 1. The fixed assets records of the company are not maintained to show full particulars including quantitative details and situation of fixed assets. Physical verification of assets has not been conducted by the management during the year. 2. None of the fixed assets has been re-valued during the year. 3. The Stock of Raw & Packing materials, finished goods have not been physically verified by the management during the year. 4. In the absence of Physical verification report, we are unable to comment on discrepancies as compared to books records. 5. In our opinion, the valuation of stocks is fair and proper in accordance with the normally accepted accounting principles and is on the same basis as in the previous year. 6. The terms and conditions on which loans are taken from companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1958 are Prima facie not prejudicial to the interest of the company. We have been informed that there are no companies under the same management within the meaning of Section 370 (1-B) (Non Operative) of the Companies Act, 1956. 7. The terms and conditions of unsecured loans granted by the Company to the companies, firms or other parties listed in the register maintained under 301 of the Companies act, 1956 are prima facie not prejudicial to the interest of the company. We have been informed that there are no companies under the same management within the meaning of Section 370 (1-B) (Non Operative) of the Companies act, 1956. 8. The parties to whom the loans and advances in the nature of loans have been given by the company including to staff members which are interest free are repaying the principal amounts and are also regular in payment of interest wherever applicable. 9. In our opinion and according to the information and explanations given to us, there is adequate internal control procedure commensurate with the size of the company and nature of its business for the purchase of stores, raw materials including components, plant and machinery, equipment and other assets and for the sale of goods. 10. According to the information given to us, the transactions of purchase and sale of goods, and materials and services made in pursuances of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rs.50,000/- or more in respect of each party, have been made at prices which, in our opinion, are reasonable having regard to prevailing market prices of such goods, materials and services or the prices at which similar transactions have been made with other parties, as the case may be. 11. As explained to us, the company has a procedures for the determination of unserviceable or damaged stores, raw material and finished goods. The Company has determined the unserviceable or damaged raw material and adequate provision thereof has been made in the accounts. 12. The Company has not accepted any deposit from the public to which the provisions of Section 58A of the Companies Act, 1956 and the Companies (Acceptance of Deposit) Rules, 1975 apply. 13. Then is no generation of scrap in the manufacturing process. We have been informed that the companys operations do not generate any by products. 14. The Company did not have a system of Internal audit during the year under review. 15. We have broadly reviewed the books of accounts maintained by the company Pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 in respect of its Fertiliser and Sulphuric Acid activities and are of the opinion that prima facie the prescribed accounts and records have been maintained. We have not, however, made a detailed examination of records with a view to determine whether they are accurate and complete. 16. There wars instance of delay in depositing Provident Fund dues with the appropriate authorities. Accordingly, Rs.110955 payable to Provident Fund authorities Including recoveries made from the employees as at 31st March, 2002. We are Informed that the company is not covered under Employees State Insurance (ESI) Scheme. 17. According to information and explanations given to us there are no undisputed amounts payable in respect of Income Tax, Wealth Tax, Custom Duty and Excise Duty were outstanding as at 31st March, 2002 for a period of more than six months from the date they became payable, other than entry tax liability of Rs. 1101094 & Sales Tax Rs. 325565, 18. Medical Expenses in excess of terms of appointment of Directors amounting to Rs.8,14,161 incurred during the year are in the nature of personal expenses and have been charged to Profit & Loss account. All other expenses are payable under contractual obligations, or in accordance with generally accepted business practices. 19. The Company has been declared by BIFR as Sick Industrial company within the meaning of Clause (o) of Sub Section (1) 3 of Sick Industrial Companies (Special Provisions) Act, 1985 (1) of 1986). For R. SURANA & CO., Chartered Accountants Udaipur, 31st August, 2002 RAJESH SURANA Partner