pasupati fabrics ltd Auditors report

PASUPATI FABRICS LIMITED ANNUAL REPORT 2007-2008 AUDITORS REPORT To The members of Pasupati Fabrics Limited We have audited the attached Balance Sheet of Pasupati Fabrics Limited as at 31st March, 2008, the Profit and Loss Account and also 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. 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. 1. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the annexure, a statement on the matters specified in paragraphs 4 and 5 of the said order. 2. 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 purposes 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. (c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement referred to in this report are in agreement with the books of account. (d) In our opinion and to the best of our information and according to the explanations given to us during our audit, 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 except AS-2, in relation to non provision of Excise Duty on Finished Goods lying in Stock (Refer Note No. 8 of Schedule 19). (e) On the basis of the written representations received from the Directors except from Shri Vijay Kumar Jain who has since resigned with effect from 24 September 2007 as on 31 s March, 2008 and taken on record by the Board of Directors, we report that none of the Director(s) is disqualified as on 31st March, 2008 from being appointed as a Director in terms of Section 274(1)(g) of the Companies Act, 1956. (f) The Central Government has not notified any cess payable by companies under section 441 A of companies Act, 1956. (g) Attention is invited to the following points:- i) The loans and advances considered doubtful and not provided for Rs.5,85,45,665/- (schedule 5 Part B) include the following: Amount (Rs.) Advances against professional Fees 2,33,19,152 Advances against purchase of software 2,40,00,000 Advances against purchase of cotton 59,11,025 Advances against purchase of machinery 37,31,918 Other Advances 15,83,570 Total 5,85,45,665 These advances are outstanding for a considerable time for which necessary supporting documents are yet to be obtained and thus we are unable to comment on the recoverability of the same. ii) Inventories of stores & spares parts Rs.102.33 lacs include slow-moving Rs.13.70 lacs and non-moving Rs.45.03 lacs for which the realizable value may be less than that what has been stated in Balance Sheet. Further as the factory is not producing its products to its installed capacity for almost a year upto the date of signing of Balance Sheet, the balance stock also has been deteriorated in quality for use. III)(a) Capital work in progress- building represents amount incurred on pillars erected for construction of administrative block in factory which was not completed and hence since been demolished and consequently the value of fixed assets have been overstated by Rs.11,10,1341- (b) Capital work in progress:- plant & machinery Rs.71,05,052/- represents part of the machinery purchased which is not usable in itself unless & until complete machine is purchased and installed and is being shown as capital work in progress. No provision has been made for either obsolescence or impairment in the value, if any, for these machines due to passage of time. iv) There is a divergent trend in job work charges during the year as compared to previous year, Sale of made up has reduced to 49.43% whereas there is no corresponding decrease in stitching charges. v) Due to lack of quality control in production, the fabric manufactured is below the specifications and as such has been sold as rejected material. vi) There is non compliance of internal control in respect of (i) 4 cars sold for Rs.15.40 lacs with written down value amounting to Rs. 34.91 lacs as on the date of sale to a company (ii) sale of fresh and rejected goods to a selective party at comparative low price, for which the market quotations were not available. vii) The Production is considerably reduced with effect from 24th September 2007, however the Financial Statements have been prepared on a going concern basis. (h) In our opinion and to the best of our information and according to the explanations given to us, subject to our observations given in point no. (g) supra note no. 13 (a) regarding non-receipt of call money on share transferred of fully paid-up and effect of relief of Rs.15026.15 lacs accounted for in the financial year ended 31st March, 2004, which may be revoked consequent to default in payment of installments/ interest to financial institution/bank, and its consequential effect on financial statements and read together with the Significant Accounting Policies and other notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view. (i) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2008; and (ii) In the case of Profit and Loss Account, of the loss of the Company for the year ended on that date. (iii) In the case of Cash Flow Statement, of the cash flows for the year ended on that date. for N.D. KAPUR & CO., Chartered Accountants (CA. RAVINDER KAPUR) Partner Place: New Delhi Membership No.6459 Dated: 30th August, 2008 ANNEXURE REFERRED TO IN PARAGRAPH (1) OF THE AUDITORS REPORT TO THE MEMBERS OF PASUPATI FABRICS LIMITED ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH, 2008. (i)(a) The Company is maintaining proper records showing full particulars, including quantitative details and situation of all fixed assets. (b) The Company had designed a programme to verify the fixed assets physically in a phased manner so as to cover all the fixed assets at least once in a period of 3 years, however during the year the Company has not fully physically verified the fixed assets as per the phased programme, (c) In our opinion and according to the information and explanations given to us substantial part of Fixed Assets has not been disposed of by the Company during the year. (ii)(a) As explained to us, inventories have been physically verified by the Management at the close of the Financial Year. In our opinion, the frequency of such verification is reasonable. (e) The procedures of physical verification of inventories followed by the Management are, in our opinion, reasonable and adequate in relation to the size of the Company and the nature of its business. (f) The company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records which were not material, have been properly dealt with in the books of account. (iii)(a) The company had granted an interest free unsecured advance to a party as covered in the register maintained u/s 301 of the Act. The number of parties involved is one and the amount involved in the transactions, is Rs.32.87 Lacs, which has been recovered during the year. (b) The Loan outstanding at the beginning of the year from a company covered in the register maintained u/s 301 was interest free loan and during the year the company has taken loan from the said company which is also interest free and therefore the advances outstanding at the beginning of the year has not been considered to be prima facie prejudicial to the interest of the company. (c&d) No amount is due from any said companies at the close of the year. (e) The company has taken unsecured interest free loan from companies covered in the register maintained under section 301 of the Act. The number of parties is one and amount involved is Rs.32.13 lacs. (f) As the loans taken are interest free and unsecured and there are no formal stipulations as such, the same loans are not prima facie prejudicial to the interest of the company. (g) In the absence of any formal terms & conditions, the terms of payment of principal amount are not ascertainable. (iv) In view of our observations in respect to the excessive rejection, lower realization of finished goods, sale of motor cars at lower than written down value without inviting quotations etc. and consequently the internal control procedure for the purchase of inventories & fixed assets and for the sale of goods is required to be revamped and strengthened to make the same commensurate with the size of the company and nature of its business and the current management is taking necessary steps to streamline the same. (v)(a) As per the minutes of the Board of Directors held on 29th January 2008, the Board has noted that there were certain transactions in which directors were interested and these transactions were not placed before the Board for last few years. (b) In view of our comments in para 4(v)(a) supra we are unable to comment whether the transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time. (vi) The Company has not accepted deposit from the Public, and as such the directive issued by the Reserve Bank of India and the provision of sections 58A and 58AA of the Companies Act, 1956 or any other relevant rules and provision of the Act and the rules framed thereunder are not applicable to the Company. (vii) As pointed out in para (iv) supra, it is felt that internal audit scope needs to be revamped and strengthened to make it more effective. (viii) The Company has not shown to us the cost records 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 (ix)(a) The Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, employees state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess and other material statutory dues applicable to it except Provident Fund dues the details of which are as under :- S. Nature of Dues Amount Due Date Remarks No. 1. Provident Fund (Employer 2466649/- April to October Not Paid Contribution) 2007 (b) According to the information and explanations given to us and the records of the Company examined . by us, the particulars of dues of income tax, sales tax, wealth tax, service tax, customs duty, excise duty and cess as at 31st March, 2008 after considering the reliefs allowed subsequently in appeals till the date of adoption of accounts which have not been deposited on account of dispute, are as follows:- (Rs. in lacs) Sr. Nature of Nature of A B C No. the Statute the Dues 1. Entry Tax Entry Tax 0.16 2003-2004 Appeal Pending of Diesel with D.C. Mathura (UP) 2. Against Entry Tax 4.25 2004-2005 Appeal Pending Purchase with D.C. Diesel Mathura (UP) 3. Central Sale Tax 0.65 2003-2004 Paid without Sale Tax Form-C Rs. 0.65 4. Against Purchase 9.46 2003-2004 Deputy Purchase Tax Commissioner Kosi Form 3B Kalan, Mathura (UP). 5. Against Purchase 23.81 2004-2005 Deputy Purchase Tax Commissioner Kosi Form 313 Kalan, Mathura (UP). A = Amount (Net of Payments made) B = Period to which amount relates C = Forum where Dispute is pending (x) The accumulated loss of the Company as at the end of the Financial Year are more than 50% of its net worth and has incurred cash losses during the year as well as in the immediately preceding Financial Year. (xi) The company has defaulted in the payment of following interest/installment dues to a Financial Institution and a Bank on the restructured Term Loans. (Rs. in lacs) Name of the Nature of Period Upto Amount Term Lender the Dues Industrial Development Interest 31.03.2008 2377.44 Bank of India Installment 31.03.2008 2747.68 State Bank of India Interest 31.03.2008 1562.57 Installment 31.03.2008 1803.00 (xii) During the year, the Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities. (xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. therefore, the provisions of Paragraph 4(xiii) of the Order are not applicable to the Company. (xiv) In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments, therefore, the provisions of Paragraph 4(xiv) of the Order are not applicable to the Company. (xv) As per information and explanations given to us by the Management, the Company has not given any guarantee for the loans taken by others from banks or financial institutions. (xvi) In our opinion and according to the information and explanations given to us, on an overall basis, the term loans have been applied for the purposes for which they were obtained. (xvii) According to the information and explanations 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 have been used for long-term investment. (xviii) The Company has not made any preferential allotment of shares to any party during the year. (xix) During the financial year, the Company did not issue any debentures; hence the provisions of Paragraph 4(xix) of the Order regarding creation of security or charge for debentures are not presently applicable to the Company. (xx) The Company has not raised any money by way of public issues during the year. Accordingly, the provisions of Paragraph 4(xx) of the Companies (Auditors Report) Order, 2003 on the end use of money are not presently applicable to the Company. (xxi) During the course of our examination of the books and the records of the company carried out in accordance with auditing practices generally accepted in India and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the company, noticed or reported during the year, nor have we been informed of such case by the management. for N.D. KAPUR & CO., Chartered Accountants (CA. RAVINDER KAPUR) Partner Place: New Delhi Membership No.6459 Dated: 30th August, 2008