Independent Auditors Report to the Members of Murli Industries Limited
1. Report on the Financial Statements
We have audited the accompanying financial statements of MURLI INDUSTRIES LIMITED,which comprise the Balance Sheet as at 31st March 2014, and the Statement of Profit andLoss for the period of nine months ended, and a summary of the significant accountingpolicies and other explanatory information.
2. Managements Responsibility for the Financial Statements
The Companys Management is responsible for the preparation of these financialstatements that give a true and fair view of the financial position, financial performanceand cash flows of the Company in accordance with the accounting principles generallyaccepted in India including Accounting Standards referred to in subsection (3C) of section211 of the Companies Act, 1956. This responsibility includes the design, implementationand maintenance of internal control relevant to the preparation and presentation of thefinancial statements that give a true and fair view and are free from materialmisstatement, whether due to fraud or error.
3. Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with the Standards on Auditing issued by theInstitute of Chartered Accountants of India. Those Standards require that we comply withthe ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement. An auditinvolves performing procedures to obtain audit evidence about the amounts and thedisclosures in the financial statements. The procedures selected depend on theauditors judgment, including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those risk assessments,the auditor considers the internal control relevant to the Companys preparation andfair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of the accounting estimates made by theManagement, as well as evaluating the overall presentation of the financial statements. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our audit opinion.
4. Basis of Qualified Opinion
i. As mentioned in note no. 48, forming an integral part of the financial statements ofthe company have been prepared on the going concern basis notwithstanding the fact thatthe networth of the company is completely eroded and the company has a negative networthof ( Rs 418.14 crores) as on balance sheet date. (Note No. 49) The company may berestrained from any excavation of limestone from mines since 'Royalty on limestone'amounting to Rs 9.33 Crores remains to be paid to the government. (Note No.51) The SalesTax Department has attached the movable & immoveable properties & assets of theCement Unit of the company, for the recovery of its Statutory Sales Tax Dues (includinginterest) worth Rs 63.08 Crores. All such moveable & immovable assets are listedseparately by the Sales Tax Department and prohibited their transfer, sale, mortgage,gift, transfer etc. At the same time Royalty on Limestone & Sales Tax is refundableunder Mega Project PSI, 2007 subject to payment of liability. (Note No. 57) The consortiumbanks have also recalled their debts to the company. The borrowings outstanding to theconsortium banks as at 31.03.2014 have been classified as long term without takingcognizance of the recall of loans by bank. This is deviation from requirements of the newSchedule VI of the Companies Act. The appropriateness of the going concern basis isinteralia dependent on the company's ability to infuse requisite funds for meeting itsobligations, rescheduling of its debts, other liabilities and resuming normal operations,(Note No.50) & on the decision and order of the BIFR.
ii. As mentioned in note no. 31 and 32, the company has not complied with AccountingStandards-15 (Employee Benefits) & Accounting Standards-11(Effects of changes inForeign exchange Rates). Amount remains to be unascertained for both.
iii. As mentioned in note no. 39, the balances of trade receivables and payables,lenders, loans and advances & deposits are subject to confirmation / reconciliationand subsequent adjustments if any. As such, we are unable to express any opinion as toeffect thereof on the financial statements of the period under audit.
iv. As mentioned in note no. 44, regarding recognition of deferred tax credit onaccount of unabsorbed losses and depreciation, up till date is Rs 226.95 crores( lastbalance sheet date Rs 226.95 Crores). This does not satisfy the virtual certainty test forrecognition of deferred tax credit as laid down in Accounting Standard-22. As such we donot express our opinion on the reasonability of recognition of the income.
v. The company has written off a sum of Rs 43.39 Crores (also refer Pt. No. (ii) (c) ofthe Annexure to the Auditor's Report) pertaining to the stock of Soya bean have beenwritten off under the head 'Quality Rebate & Shortages' in the profit & lossaccount.
vi. Advances given to suppliers of machineries amounting to Rs 11.06 Crores should havebeen written off on account of the violations of the conditions mentioned under theagreement and as informed by supplier of machinery.
vii. The Company has Capitalized expenses to the tune of Rs 25.40 Crores in PulpMill Unit till the date of last balance sheet, which also appears as on the balancesheet date, the same should have been written off to the Profit & Loss Account. As aresult of above the negative reserves of the company on the balance sheet date isunderstated by Rs 25.40 Crores. viii. The company has no policy of ascertaining impairmentlosses, which is in contravention of Accounting Standard 28. As such, we are unable toexpress any opinion as to effect thereof on the financial statements of the period underaudit.
ix. All loan accounts of the company from Banks except vehicle loan accounts have beentreated as Non Performing Assets (NPAs) by the respective banks due to non payment ofdues, the consortium banks have recalled their debts to the company. The company hasrecorded the interest on these accounts for the period till 31st March 2014 @10.50% p.a.instead of the actual payable amount which varies from 10.50% to 18% p.a. The differencebetween the exact interest as chargeable by the bank and interest accounted for by thecompany remains unquantifiable. As such non current liabilities are overstated and currentliabilities are understated. The amount of over/ under statement remains to beunascertained.
x. The Company has liability outstanding in respect of FCCB (Foreign CurrencyConvertible Bonds) issued of US$ 5.5 million the due date of payment of which was 6th ofFeb, 2012. The lenders have not exercised option for conversion. Hence the amount ispayable at the agreed enhanced value. The amount outstanding in respect of the same isbeing shown in the balance sheet at original conversing rate of Rs 43.94 per US$ as at thetime of actual receipt of the amount. The actual liability due in respect of the same asper terms comes to 149.81% of US$5.5 Million i.e. US$ 8.27 Million and the rate as on 31stMarch 2014 being Rs 59.9376 per US$ ( Rs 59.52 per US $ as on 30.06.2013), the liabilityin respect of the same is understated by Rs 25.22 Crores ( Rs 24.88 Crores as on30.06.13). As such loss of the company is under stated to that extent. The redemptionreserve in respect of repayment of the same has also not been created.
The company has a liability of 7.52 Million USD($) as external commercial borrowingwhich has been booked @ 45.05 per USD($), the interest liability on the same is LIBOR +3.9% (4.2% +3.9%), the liability on account of the same comes to Rs 3.65 Crores. Moreoverthe liability on account of difference in foreign exchange has also not been accounted foramounting to Rs 11.19 Crores ( Rs / USD as on 31.03.2014 is 59.9356). Total liability onthis account amounting to Rs 14.84 Crores has not been provided.
xi. Accounting Standard -5, Net Profit or loss for the period, Prior Period Items &change in accounting policies requires the company to disclose the nature & amount ofPrior period items to be disclosed separately in a manner that their impact on currentprofit or loss can be perceived. The company has not complied with the provisions therebyinflating the current period's losses by Rs 23.78 crores.
xii. The company has recognized the Mega Vat Receivable under the head 'Short TermLoans & Advances' even though the pre-condition as mentioned under the EligibilityCertificate of its being paid prior to its claim has not been complied with.
The consequential effect of sub para [i, ii, iii, viii, ix & xii] above on theassets and liabilities as at 31st March 2014 and loss for the period of nine months ended31st March 2014 are not ascertainable. Had the effect of above as stated in sub para [iv,v, vi, vii, x & xi] been given, the loss for the period under audit would have beenincreased by Rs 31.01Crores towards the current financial year of nine months & Rs252.35 Crores pertaining to prior periods and the negative networth would have beenincreased by Rs 283.86 Crores.
5. Qualified Opinion
In our opinion and to the best of our information and according to the explanationsgiven to us, except for the matters described in the Basis of Qualified Opinion Paragraphas mentioned above read together with the other notes, give information required by theCompanies Act, 1956 in the manner so required and give a true and fair view in conformitywith the principles generally accepted in India;
i. In the case of the Balance Sheet, of the state of affairs of the Company as on 31stMarch, 2014;
ii. In the case of the Profit and Loss Account, of the loss for a period of nine monthsended on that date; and
iii. In the case of cash flow statement, of the cash flows for a period of nine monthsended on that date.
6. Emphasis of Matter
Attention is drawn to :
a. The company has not shown the amounts of loans maturing shortly under the sub-head"Current Maturities of Long Term Loans" under "Other CurrentLiabilities", but the same are shown under the head "Long Term Borrowings"under "Non Current Liabilities" Similarly the company has not disclosed thedetails of loans and their terms and conditions including repayment etc includingdefaults. This is deviation from requirements of the new Schedule VI of the Companies Act.
b. The company has an investment of Rs 0.05 Crores in each of four, wholly ownedsubsidiaries namely Murli Cement Limited, Murli Cement (Karnataka) Limited, Murli Cement(Maharashtra) Limited, Murli Cement (Rajasthan) Limited. The company has not complied withAccounting Standard 21 by presenting the Consolidated Financial Statements. As explainedthese companies have not started operations as such Consolidated Financial Statements havenot been prepared.
c. The non-current assets of the company as on balance sheet date include a sum of Rs33.03 Crores ( Rs 31.07 Crores as on last balance sheet dated 30.06.2013) spent onRajasthan, Karnataka, Gujarat which includes land. These should have been part of fixedassets.
d. The apparent casting error of Re 1 is on account of rounding off effect, appropriateformula for which is being implemented in the sysytem.
7. Report on Other Legal and Regulatory Requirements
A. As required by the Companies (Auditors Report) Order, 2003 ("theOrder") issued by the Central Government of India in terms of sub-section (4A) ofsection 227 of the Act, we give in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the Order.
B. As required by Section 227(3) of the Act, we report that:
a. We have obtained all the information and explanations which to the best of ourknowledge 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 theCompany so far as it appears from our examination of those books.
c. The Balance Sheet and the Statement of Profit and Loss, dealt with by this Reportare in agreement with the books of account.
d. In our opinion, the Balance Sheet and the Statement of Profit and Loss comply withthe Accounting Standards referred to in sub-section (3C) of section 211 of the Act.
e. On the basis of the written representations received from the directors as on 31stMarch, 2014 taken on record by the Board of Directors, none of the directors isdisqualified as on 31st March, 2014 from being appointed as a director in terms of clause(g) of sub-section (1) of section 274 of the Act;
|FOR DEMBLE RAMANI & CO.|
|Registration No. 102259W|
|Dated: 29th May, 2014||Partner|
ANNEXURE TO THE AUDITORS REPORT
(AS REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE)
(I) a) The company has not maintained proper records showing full particulars,including quantitative details and situation of fixed assets.
b) Physical verification of the same has not been carried out by the management.
c) During the period under audit, the Company has not disposed off any of its assets.
(ii) a) As explained to us, Physical verification of inventory has been conducted bythe management at reasonable intervals.
b) As also certified by management and according to the information and explanationsgiven to us the procedures of physical verification of inventories followed by themanagement are reasonable and adequate in relation to the size of the company and natureof its business.
c) As informed by the management the company is in process of making adequate recordsof inventory. Except for Soyabean, pending updating of records and reconciliation, bookbalances as at March 31, 2014 have been adopted. As of now the company is having records,which are not adequate. Material discrepancies were noticed at the time of physicalverification. It is observed that the management has written off a sum of Rs 43.39 Croreson account of shortage observed in the raw material (soya bean) stock. As per thedocuments produced by the management and the explanations given by them, the processcarried out for the physical verification of the stock is commensurate with the size &nature of the company; but as far as the valuation of the same is considered, themanagement was unable to explain the exact basis for the valuation hence we are unable toexpress our opinion on the same and hence there is a diversion to compliance of AccountingStandard 2.
(iii) a) The company has granted interest free unsecured loan to companies, firms orother parties covered in the register maintained u/s.301 of the Act. The amount involvedis Rs 7.98 Crores and the number of party involved are four.
b) The rate of interest and other terms and conditions of the unsecured loans given bythe Company mentioned in (a) above are prima facie prejudicial to the interest of theCompany, since these loans are interest free and no specific terms have been specified fortheir repayment.
c) As per the information and explanation given by the management, there are nospecific terms and conditions for repayment of principal and interest due there on.
d) As there is no specific repayment due dates, there are no over dues shown.
e) The company has taken unsecured loan from companies, firms and other partiesconcerned in the register maintained u/s 301 of the Act. The amount involved in thetransactions is Rs 7.28 Crores & number of parties involved is 34.
f) As per the information and explanations given by the management, there are nospecific terms and conditions for repayment of principal and interest due thereon; hence,prima facie it seems that the terms of accepting the loan are not prejudicial to theinterest of the company.
(iv) In our opinion and according to the information and explanations given to us, theinternal control systems needs to be strengthened considering the size of the company andthe nature of its business.
(v) a) The company has entered into the Register of Contracts & arrangementsreferred to in section 301 of the Companies Act, 1956.
b) The transactions in pursuance of such contracts have been made at prices which arereasonable having regard to prevailing market prices at the relevant time.
(vi) The company has not accepted any deposits during the period under audit fromPublic within the meaning of Section 58A, Section 58AA or any other relevant provisions ofthe Companies Act, 1956 and the rules made there under.
(vii) The company has not appointed internal auditor for period of this audit report.This is a violation of section 227 of the Companies Act, 1956 and further the company is alisted company. We are unable to ascertain whether the company has monitored internalcontrol policies and processes. In absence of internal audit system, the completeness,adequacy and independence will have a bearing of efficacy of internal control system andaudit risk.
(viii) We have broadly reviewed the cost records maintained by the company pursuing tothe Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Governmentu/s. 209(1)(d) of the Companies Act, 1956 and our of the opinion that primafacie theprescribed cost records have been maintained. However, no cost auditors report hasbeen provided to us. We have, however, not made a detailed examination of the cost recordswith a view to determine whether they are accurate or complete.
(ix) According to the information and explanation given to us in respect of statutorydues : a) The company has generally not been regular in depositing the undisputedstatutory dues which are as follows:
|Statute||Amount ( Rs Crores)|
|Employees Share of Provident Fund||0.31|
|Employer's Share of Provident Fund||0.89|
|VAT & CST||46.54|
b) Details of dues of Income-tax, Sales Tax, Custom Duty, Excise Duty and Cess whichhave not been deposited as on 31st March, 2014 on account of disputes are given below:
|Sr. No. Particulars||Amount (Rs. in crores)||Pending Since||Forum|
|1 Central Excise & Customs||0.12||2002||High Court, Nagpur|
|2 Commission on FCCB||0.43||2008||CESTAT, Mumbai|
|3 Central Excise & Customs||0.39||2008||CESTAT, Mumbai|
|4 Central Excise & Customs||2.37||2007||High Court, Nagpur|
|5 Central Excise & Customs||3.43||2009||CESTAT, Mumbai|
|6 Central Excise & Customs||0.28||2010||CESTAT, Mumbai|
|7 SEBI||Not Ascertainable||2011-2012||SEBI|
|8 Income Tax (A.Y -07-08)||0.67||2011-2012||ITAT|
|9 Income Tax (A.Y -08-09)||20.02||2011-2012||CIT(A)|
|10 Income Tax (A.Y -09-10)||4.48||2011-2012||CIT(A)|
|11 Interest on VAT||5.65||2011-2012||Appeal (for interest)|
|12 Central Excise & Customs||1.77||2013|
(x) At the end of the period under audit, the company has accumulated losses of Rs432.56 crores. The cash losses of the company during the period of nine months under auditare Rs 183.14 crores. The networth of the company is completely eroded and the company hasa negative networth of ( Rs 418.14 crores) as on balance sheet date.
(xi) The company has defaulted in repayment of dues to financial institutions and banksamounting to Rs 1435.01 crores.
(xii) The company has not granted any loans and/or advances on the basis of securitiesby way of pledge of shares, debentures and other securities.
(xiii) The provisions of any special statute applicable to chit fund and nidhi/mutualbenefit fund/societies are not applicable to the company.
(xiv) The company is not a dealer or trader in shares, securities, debentures and otherinvestments.
(xv) The Company has given Guarantee to SICOM Ltd. on behalf of Nandlal EnterprisesLtd. for an Inter Corporate Deposit of Rs 20 crores. The company has assigned rights onthe limestone mining lease awarded to the company, admeasuring 42.16 hectares of land. Theterms of the guarantee are prejudicial to the interest of the company.
(xvi) As per the information and explanations given, the company has received forcedloan amounting to Rs 4.08 Crores, during the year on account of encashment of BankGuarantee by WCL on cancellation of fuel supply agreement.
(xvii) As in the past the company has continued to use short term loans for long termpurposes.
(xviii) During the period under audit the company has not made preferential allotmentof shares to parties or companies covered in the Register maintained u/s 301 of the Act.
(xix) The company has outstanding FCCBs (bonds) amounting to Rs 24.17 crores (as perbalance sheet amount) which have already become due in February 2012 which are notsecured. The details in respect of same are pointed out in sub point no "x" inBasis of Qualified Opinion.
(xx) The company has not raised any money through a public issue during the periodunder audit.
(xxi) Based on the audit procedures performed and information and explanations given bythe management, we report that no fraud on or by the company has been noticed or reportedduring the period under audit.
|FOR DEMBLE RAMANI & CO.|
|Registration No. 102259W|
|Dated : 29th May, 2014||Partner|
Nandlal B Maloo , Chairman & Managing Director
Bajranglal Maloo , Executive Director
Lalchand Maloo , Executive Director
Sunil Kumar Maloo , Executive Director
Company Head Office / Quarters:
101 Jai Bhawani Society,
Central Avenue Wardhman Nagar,
Phone : Maharashtra-91-712-2768912 / Maharashtra-
Fax : Maharashtra-91-712-2761145 / Maharashtra-
E-mail : firstname.lastname@example.org
Web : http://www.murliindustries.com