velvette international pharma products ltd Auditors report

VELVETTE INTERNATIONAL PHARMA PRODUCTS LIMITED ANNUAL REPORT 2004-2005 AUDITORS REPORT To The Members 1. We have audited the attached Balance Sheet of M/s. Velvette International Pharma Products Limited, Chennai as at 31st March, 2005 and the Profit and 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. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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. 3. As required by the Companies (Auditors Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of `The Companies Act, 1956 and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanation given to us, we give in the attached 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: (i) The Company has made available the draft account only recently and a comprehensive audit could not be there after be carried out in the absence of comprehensive details/information and explanation which to the best of our knowledge and belief were necessary for the purpose of our Audit. (ii) In our opinion, proper Books of Accounts as required by law have been kept by the company, so far as appears from our examination of those books. (iii) The Balance Sheet and Profit and Loss Account and Cash Flow Statement of the company referred to in this report are in agreement with the books of account. (iv) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement referred to in this report comply with the applicable accounting standards referred to in sub section (3C) of Section 211 of the Companies Act, 1956.subject to specific quantifications listed in para vi of this report. (v) On the basis of written representations received from the Directors and taken on record by the Board of Directors of the Company, we report that none of the Directors is disqualified as on 31st March, 2005 from being appointed as a Director in terms of Clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956. (vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with significant accounting policies and Notes forming part of Accounts and subject to: a) Note No. 2 regarding non-provision of Interest and penal interest on secured loans. b) Note No. 3 regarding non provision of diminution in the value of investments in joint venture with M/s. Nivaran TMOL Herbal, Remedies P Ltd(amount unascertainable) as stated in said note, since in the opinion of the board,the investment is long term in nature. c) Note No. 4 regarding non reconciliation of Public issue account. d) In the absence of comprehensive details, adequate supporting evidence for certain items of expenditure under various head of account, it has not been feasible to ascertain the genuiness of the expenses and also if any personal expenses of Managing Director, Whole time Director and Executives have been included in the accounts and if so quantum thereof. e) Note No. 9 regarding non availability of confirmation of balances from Sundry Debtors, Creditors, Parties under Loans and Advances and Banks, where in the effect of Loss is not quantifiable for want of details except in the case of non provision of Interest of Rs. 227.37 Lacs on Bills Discounting with SIDBI, IDBI & H P Loan from TIIC. to which extent the loss has been understated. f) The liability on account of shortfall between the realizable value of vehicles seized and repossessed by the H.P. Financiers including Refinanciers and the amount that would become ultimately payable, has not been quantified and provided for.(Note No.12) g) The accounts for the financial year 2002-03 & 2003-04 have not yet been adopted by the shareholders of the company. give the information as 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, 2005; (ii) In the case of Profit and Loss Account, of the Loss for the year ended on that date; and (iii) In the case of the Cash Flow Statement, of the Cash flows of the company for the year ended on that date. For LAKSHMINIWAS & JAIN., Chartered Accountants (K. KISHORE) Partner Place: Chennai Date : 3rd October, 2005 ANNEXURE TO THE AUDITORS REPORT OF VELVETTE INTERNATIONAL PHARMA PRODUCTS LIMITED FOR THE YEAR ENDED 31ST MARCH, 2005: (Referred to it Paragraph (03) of our report of even date) 1. (a) The company has maintained proper records showing full particulars including quantitative details and situation of its fixed assets which need to be updated. (b) According to Information and Explanation given to us, the management has physically verified the fixed assets of the company at reasonable interval, during the year and no material discrepancies have been noticed on physical verification. (c) According to the information and explanation given to us, a substantial part of fixed assets has not been disposed off by the company during the year. 2. (a) According to the information and explanations given to us, the management has physically verified the inventory at reasonable interval during the year except in the case of stock of finished goods lying with C & F agents. (b) In our opinion and according to the information and explanations given to us, the procedure of the physical verification of inventories followed by the management are reasonable and adequate in relation to the size and nature of its business. (c) The company is maintaining proper records of inventory. As explained to us, no significant discrepancy was noticed on physical verification of inventory as compared to book records and was properly dealt with in the books of account. 3. (a) The company has granted unsecured loan / advance in the nature of loan to a company, which is a related party and listed in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year and the year-end balance of such loans aggregates to Rs. 44.39 lakhs. (b) There are no stipulations regarding interest and repayment time of principal for above advance. (c) In respect of the above said advance, there is no recovery from that company till the date of Balance sheet. (d) The company has not taken any loans, secured or unsecured, from companies, firms, and other parties required to be listed in the register maintained under Section 301 of the Companies Act, 1956. 4. In our opinion and according to the information and explanation given to us during the course of Audit, internal control procedures need to be strengthened in order to make them commensurate with the size of the company and the nature of its business with regard to purchase of Inventory, Plant and Machinery, Equipment and Other Assets and for the sale of goods. 5. (a) According to information and explanation given to us, we are of 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. (b) On the basis of selective verification and according to the information and explanations given to us, the transactions of purchase of goods and materials and sale of goods, materials and services made in pursuance of contract or arrangement required to be entered in the Register maintained under section 301 of the Companies Act, 1956 and exceeding the value of Rs.5,00,000/- in respect of any party during the year have been made at prices which are reasonable having regard to the prevalent market prices for such goods or the prices at which transactions for similar goods, have been made with other parties at the relevant time. 6. In our opinion and according to information and explanations given to us, the company has not complied with the provisions of sections 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to short term borrowings from private finance parties repayable in equal monthly installments inclusive of finance charges. 7. The company has no internal audit system, but the informal internal control system exists to take care of the interest of the company. 8. The central government has not prescribed for the maintenance of Cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956. Therefore the provision of clause 4(iii) of the Companies (Auditors Report) Order, 2003 is not applicable to the company. 9. (a) According to the records of the company, there were no arrears of undisputed statutory dues as at 31st March, 2005, which were outstanding for a period of more than six months from the date they became payable and the company has been regular in depositing with delay undisputed statutory dues including Provident Fund, ESI, Wealth Tax, Income Tax except the dues towards TDS Payable of Rs. 7,95,741/- and Sales Tax of Rs. 672,723/-. (b) According to information and explanation given to us and records of the company there are dues of sales tax/ customs tax / excise duty which have not been deposited on account of disputes with statutory authorities, the details of which are given below Statute & Nature Dues Amount Forum which Period (In Lacs) Dispute is Pending Tamilnadu General Sales Tax Act 1994-95 CST Tax & Penalty 142.66 Sales tax Appellate Tribunal 1996-97 CST Tax & Penalty 113.38 Madras High Court Karnataka General Sales Tax Act 1995-96 CST Tax & Penalty 2.21 First appellate authority Kerala General Sales Tax Act 1997-98 CST Tax & Penalty 15.98 First appellate Authority Central Excise Act, 1944 Tariff Classification Excise duty 85.00 The Customs Excise & Service Tax Appellate Tribunal 10. In our opinion, accumulated losses of the company are more than 50% of its net worth as at the end of the financial year. The company has not incurred cash losses in the financial year covered by our audit. However the Company has incurred cash loss during the immediately preceding financial year. 11. As per records made available, according to the information and explanations given to us and based on our audit procedures, we are of the opinion that the company had defaulted in repayment of dues to financial institutions and banks as 31.03.2005 (including carried over from previous year read with note reference given below) amounting to Rs. 282.65 lakhs and Rs. 732.81 lakhs respectively. However, in the absence of confirmation / reconciliation read together with note no.2(a) to 2(e) of Schedule XVII, we are unable to comment on period / amount of default. 12. The company has not granted Loans & Advances on the basis of security by way of pledge of shares, debentures or any securities. 13. The company is not a chit fund, nidhi or mutual benefit fund/society. Therefore the provisions of clause 4(xiii) of the Companies (Auditors Report) Order, 2003 are not applicable to the company. 14. The company has not dealt or traded in Shares, Securities, Debentures and other Investments during the year. However it has maintained proper records in respect of shares held as long-term investments and are held in the name of the company. 15. According to the information and explanation given to us, the company has not given any guarantee for loan taken by others from Bank or financial institutions. 16. The company neither raised any fresh term loan during the year nor any unutilized amount was left on this account, as at the beginning of the year. 17. According to the information and explanations given to us and on an overall examination of the Balance Sheet of the company, we report that the funds raised on short-term basis have not been used for long-term investments and vice-versa. 18. During the year the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956. Therefore the provisions of clause 4 (xviii) of the Companies (Auditors Report) Order, 2003 are not applicable to the company. 19. The company has not issued any debentures. Therefore the provision of clause 4(xix) of the Companies (Auditors Report) Order, 2003 is not applicable to the company. 20. The company has not raised any money by public issue during the year. 21. Based upon the audit procedures performed and based on the available information and explanations given by the management we report that no fraud on or by the company has been noticed or reported during the course of our audit subject to insufficient supporting evidence for certain expenses mentioned earlier in this report. For LAKSHMINIWAS & JAIN., Chartered Accountants, (K. KISHORE) Partner Place: Chennai Date : 3rd October, 2005.