Kemrock Industries & Exports Ltd Auditor Reports

on Financial Statements

To

The Members of

Kemrock Industries and Exports Limited

REPORT ON THE FINANCIAL STATEMENTS

We have audited the attached Balance Sheet of KEMROCK INDUSTRIES AND EXPORTS LIMITED (the ‘Company’) as on 30^th September 2013, the Statement of Profit and Loss and the Cash Flow Statement for the 15 month period then ended and a summary of the significant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 (the ‘Act’) and in accordance with the Accounting Principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatements, whether due to fraud or error.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) In the case of the Balance Sheet, of the state of affairs on the Company as at 30^th September 2013.

(b) In the case of the Statement of Profit and Loss, of the loss of the Company for the 15 months period ended on that date; and

(c) In the case of the Cash Flow Statement, of the cash flows of the Company for the 15 months period ended on that date.

EMPHASIS OF MATTER

1. We draw attention to Note 5 of the accompanying financial statements in respect of material uncertainty about the Company’s ability to continue as a going concern which is in part dependent on the successful outcome of the discussions with Financial Institutions/Financers, regarding fresh funding, takeover of existing funding, re-scheduling and/or restructuring of loans by existing Lenders. Our opinion is not qualified in respect of this matter.

2. We draw attention to capitalization of Lease Hold Land (Period: 30 years), amounting to Rs. 295.31 Crores (Out of which Rs. 2.46 Crores were amortized during the audit period. The documents evidencing the allotment of the said land was received by the Company in July 2013. However, pending execution of allied requisite agreements/deeds, physical possession of the said land has not been handed over to the Company. We are of the opinion that the stipulated lease hold period of 30 years shall initiate upon execution of requisite documents and handover of physical possession of the said land. Hence, the Net Block is understated, Depreciation and Amortization is overstated and loss is overstated by an amount of Rs.2.46 Crores.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by the Company’s (Auditor’s Report) Order, 2003 (the ‘Order’), as amended by Companies (Auditors’ Report) (Amendment) Order, 2004 issued by the Central Government of India in terms of subsection (4A) of section 227 of the Act and according to the information and explanations given to us and on the basis of such checks as we considered appropriate, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Act.

2. As required in terms of sub-section (3) of Section 273 of the Act, we report that:

(i) We have obtained all information and explanations which, to the best of knowledge and belief, were necessary for the purpose of our audit.

(ii) 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 these books.

(iii) The Balance Sheet and Profit and loss account dealt with by this report are in agreement with the books of account.

(iv) In our opinion, the Balance Sheet and Profit & Loss Account dealt with by this report comply with the Accounting Standards referred to in Sub-section (3C) of Section 211 of the Act.

3. On the basis of the written representations received from the Directors, as on 30^th September 2013 and taken on record by the Board of Directors, we report that none of the Director is disqualified as on 30^th September 2013 from being appointed as a Director in terms of clause (g) of Sub-section (1) of Section 274 of the Act.

	For R. A. Amin & Co.
	Chartered Accountants
	FRN: 100334W
	Hiren Amin
Place: Vadodara	Proprietor
Date: 16th January, 2014	M.N. 111009

Annexure Referred to in paragraph 1 under ‘Report on Other Legal and Regulatory Requirements’ section of our report of even date

Re: Kemrock Industries and Exports Limited (‘the Company’)

1. FIXED ASSETS

(a) The company has maintained proper records showing full particulars including quantitative details and situations of fixed assets of the company. However, maintenance of further elaborate records in respect of capitalization of materials utilized in Research and Developments, Trial runs, Prototypes and Certifications is advisable and recommended.

(b) As explained to us, the Company has a programme for physical verification of fixed assets in accordance with which the fixed assets have been physically verified during the year by the Management. In our opinion, the frequency of physical verification is reasonable. Having regard to the size of the operations of the Company and on the basis of explanations received, in our opinion, the net discrepancies found on physical verification were not material.

(c) The Company has not disposed off any fixed assets during the year.

(d) The disclosure requirements as required by AS-10 are made in the necessary area.

2. INVENTORIES

(a) As informed to us the stock of finished goods, stores and spare parts and raw material of the Company have been physically verified by the management at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, the procedure of physical verification of inventory followed by the management is reasonable and adequate in relation to the size of the company and nature of its business.

(c) In our opinion and according to the information and explanations given to us, the Company is maintaining proper records of inventory. As explained to us, there was no material discrepancies noticed on physical verification of inventories as compared to the book records.

(d) Pending updating of records and reconciliation, book balances as at 30^th September 2013 have been adopted.

(e) The disclosure requirements as required by AS-2 are made in the necessary area.

3. LOANS

In respect of the loans, secured or unsecured, granted or taken by the Company to / from Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956:

(a) The Company has given loans to 7 Subsidiaries. In respect of the said loans, the maximum amount involved during the year was Rs. 23.64 Crores and the year-end balance is Rs. 23.33 Crores. The Company has taken loans from 4 Subsidiaries. In respect of the said loans, maximum amount involved during the year was Rs. 59.21 Crores and the year-end balance is Rs.55.59 Crores

(b) In our opinion and according to the information and explanations given to us, terms and conditions for such loans are prima facie not prejudicial to the interest of the Company. However, each such loan is interest free.

(c) The loans given / taken by the Company is long term loans. According to the information and explanations given to us, no repayment was due in respect of the principal portion till the balance sheet date.

4. INTERNAL CONTROL SYSTEM

In our opinion and according to the information and explanations given to us, having regard to the explanations that a few items purchased are of special nature and suitable alternative suppliers are not readily available for obtaining comparable price quotations, there are adequate internal control systems commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the internal control system.

5. CONTRACTS (OR) ARRANGEMENTS

(a) To the best of our knowledge and belief and according to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements that need to be entered into the register maintained under Section 301 of the Companies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 and exceeding the value of Rupees Five Lakhs in respect of any party during the year have been made at prices which appear reasonable as per information available with the Company.

6. PUBLIC DEPOSITS

The Company has not accepted any deposits from the public and hence compliance with the directives issued by the Reserve Bank of India and Companies Act, 1956 and the Rules framed there under are not applicable. Accordingly, the provisions of clause 4(vi) of the Order are not applicable.

7. INTERNAL AUDIT SYSTEM

The Company has an internal audit system. However, there is substantial scope for strengthening and increasing the coverage so as to be commensurate with the size and nature of its business.

8. COST AUDIT RECORDS

We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under Section 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima facie the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate of complete.

9. STATUTORY DUES

(a) According to the information and explanations given to us, undisputed amounts payable in respect of statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income Tax, Value Added Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to the Company have not been regularly deposited with the appropriate authorities and there are multiple instances of serious delays. Undisputed amounts payable in respect of Provident Fund (Rs. 39.43 Lakhs), Professional Tax (Rs. 9.30 Lakhs), Value Added Tax/ Central Sales Tax (Rs. 41.18 Lakhs), Service Tax (Rs. 149.31 Lakhs), Tax Collected at Source/Tax Deducted at Source (Rs. 291.61 Lakhs) and Wealth Tax (Rs. 0.50 Lakhs) were outstanding for a period of more than six months from the date they became payable (excluding applicable interest in all cases).

(b) Details of dues of Income Tax, Value Added Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty and Cess which have not been deposited as on 30^th September 2013 on account of disputes are given below:

Name of the Statute	Nature of Dues	Amount(Rs. in Lakhs)	Period to which the amount relates	Forum where Dispute is pending
Service Tax	Applicability of Service Tax on Intellectual Property	32.17	2009 – 2010	Additional Commissioner
Central Excise Act	Payment of Cess on DTA Sales	72.83	2009 – 2010	Commissioner
Service Tax / Central Excise Act	Cenvat Credit Eligibility	2.73	2009 – 2010	Assistant Commissioner
Central Excise Act	Refund of Duty inadvertently paid on sales to unit situated in SEZ	5.57	2009 – 2010	Commissioner
Service Tax	Service Tax Refund under Notification 41 of 2007	1.54	2011 – 2012	Assistant Commissioner
Central Excise Act	Availment of Cenvat Credit on Capital Goods	40.37	2010 – 2011	Joint Commissioner
Service Tax / Central Excise Act	Availment of Cenvat Credit of Service Tax paid on Courier Services	0.92	2011 – 2012	Superintendent
Service Tax / Central Excise Act	Availment of Cenvat Credit of Service Tax paid on CHA Services	33.42	2010 – 2011	Joint Commissioner
Service Tax / Central Excise Act	Availment of Cenvat Credit of Service Tax paid on CHA Services	7.20	2011 – 2012	Joint Commissioner
Service Tax / Central Excise Act	Availment of Cenvat Credit of Service Tax paid on CHA Services	9.05	2011 – 2012	Additional Commissioner
Service Tax / Central Excise Act	Availment of Cenvat Credit of Service Tax paid on CHA Services	2.48	2011 – 2012	Assistant Commissioner
Income Tax Act	Income Tax including interest / penalty	66.89	2007 – 2008	Tribunal
Income Tax Act	Income Tax including interest / penalty	36.45	2009 – 2010	Tribunal
Income Tax Act	Income Tax including interest / penalty	3.98	2005 – 2006	Tribunal

10. ACCUMULATED LOSSES

The Company has accumulated losses as at the end of the financial year and has not incurred cash losses in the current financial year.

11. DUES TO FINANCIAL INSTITUTIONS / BANKS

Based on our audit procedures and as per the information and explanations given by the Management, the Company has defaulted in repayment of loans and interest to banks and financial institutions. The total amount of interest due and unpaid amounted to Rs. 208.39 crores. The over dues relates to the period January 2012 to September 2013.

12. LOANS BY PLEDGE OF SHARES

Based on our examination of the records and the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. CHIT FUND COMPANY

In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provisions of clause (xiii) of Paragraph 4 of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company.

14. TRADING IN SHARES

In our opinion and according to the information and explanations given to us, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause (xiv) of Paragraph 4 of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company.

15. GUARANTEES

In our opinion and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions. Therefore, the provisions of clause (xv) of Paragraph 4 of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company.

16. TERM LOANS APPLICATION

In our opinion and according to the information and explanations given to us by the Management, term loans taken during the period covered under this audit, have been applied for the purpose for which they were obtained, wherever specified by the Bank in the relevant sanction letters. According to the information and explanations given to us, amounts have been given as advance to foreign entity ‘Hazel Business Corporation’.

17. BORROWED FUNDS USAGE

In our opinion and according to the information and explanation given to us and on an overall examination of the Balance Sheet of the Company, we report that generally no funds raised on short term basis have been used for long term investment by the Company.

18. PREFERENTIAL ALLOTMENT OF SHARES

According to the information and explanations given to us, 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 (xviii) of Paragraph 4 of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company.

19. DEBENTURES

In our opinion and according to the information and explanations given to us, during the period covered by our audit report, the Company has not issued debentures. Therefore, the provisions of clause (xix) of Paragraph 4 of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company.

20. PUBLIC ISSUE

In our opinion and according to the information and explanations given to us, the company has not raised any money from public issues. Therefore, the provisions of clause (xx) of Paragraph 4 of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company.

21. FRAUD AND INTENTIONAL MISREPRESENTATIONS

To the best of our knowledge and belief and according to the information and explanations given to us, no material fraud on or by the Company has been noticed or reported during the course of our audit.

	For R. A. Amin & Co.
	Chartered Accountants
	FRN: 100334W
	Hiren Amin
Place: Vadodara	Proprietor
Date: 16th January, 2014	M.N. 111009