To the Members of Malwa Cotton Spinning Mills Limited.
Report on the Financial Statements:
1. We have audited the accompanying financial statements of Malwa Cotton Spinning Mills
Limited (‘the Company) which comprise the Balance Sheet as at 31st March
2017, the Statement of Profit and Loss and the Cash Flow Statement for the year then
ended, and a summary of the significant accounting policies and other explanatory
information.
Managements Responsibility for the Financial Statements:
2. The Companys Board of Directors is responsible for the matters stated in section
134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation
and presentation 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 principles generally accepted in India, including the Accounting Standards
specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts)
Rules, 2014. This responsibility also includes maintenance of adequate accounting records
in accordance with the provisions of the Act for safeguarding the assets of the Company
and for preventing and detecting frauds and other irregularities; selection and
application of appropriate accounting policies; making judgments and estimates that are
reasonable and prudent; and design, implementation and maintenance of adequate internal
financial controls, that were operating effectively for ensuring the accuracy and
completeness of the accounting records, relevant to the preparation and presentation of
the financial statements that give a true and fair view and are free from material
misstatement, whether due to fraud or error.
Auditors Responsibility:
3. Our responsibility is to express an opinion on these financial statements based on
our audit.
4. We have taken into account the provisions of the Act, the accounting and auditing
standards and matters which are required to be included in the audit report under the
provisions of the Act and the Rules made there under.
5. We conducted our audit in accordance with the Standards on Auditing specified under
section 143(10) of the Act. 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 misstatement.
6. 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
auditors 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 financial control relevant to the Companys preparation of the
financial statements that give a true and fair view in order to design audit procedures
that are appropriate in the circumstances. An audit also includes evaluating the
appropriateness of the accounting policies used and the reasonableness of the accounting
estimates made by the Companys Directors, as well as evaluating the overall presentation
of the financial statements.
We believe that audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion on the financial statements.
Emphasis on Matter:
We draw attention to:
i) The Company has not been able to redeem 9% cumulative redeemable preference share
capital. The unredeemed preference capital of Rs. 2,725 lacs have been shown under the
schedule of Share Capital. (Refer disclosure under the Note 3 to the financial statement).
ii) The Company has not complied with the following accounting standards referred to in
section 133 of Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules,
2014:
(a) AS-15- "Employee Benefits" in respect of non provision for liability of
gratuity, leave encashment and other compensated absences in accordance with provision of
said accounting standard.
(b) AS-17-"Segment Reporting"- in respect of results of sewing thread segment
has not been disclosed in accordance with requirement of said accounting standard.
Basis for Adverse Opinion
7. We draw attention to note no.37 in the financial statements. The Company has
incurred a net loss of Rs. 2,958.76 lacs during the year 31st March, 2017 which
together with brought forward losses of Rs.34,959.18 lacs exceeds the net worth of the
company, and as of that date, the companys current liabilities exceeded its current
assets by Rs. 29,578.67 lacs and its total liabilities exceeded its total assets by Rs.
27,540.89 lacs. The Consortium banks have recalled their debts to the company. These
events cast significant doubt on the ability of the company to continue as a going
concern. The appropriateness of the going concern assumption is dependent on the companys
ability to establish consistent profitable operations and generate positive cash flows as
well as raising adequate finance to meet its short term and long term obligations. Based
on the mitigating factors stated in the said note, the management of the company believes
that the going concern assumption is appropriate. However, we do not agree with the
management in this respect.
8. We report that:
i) The company has not arranged to make available the confirmations and/or
reconciliations to verify the balances stated in the financial statements in respect of:
i .Trade Receivables Rs. 1,729.12 lacs
ii. Loans & Advances: Rs. 2,423.02 lacs
iii. Trade payables: Rs. 4,802.43 lacs,
We have also not been able to perform any alternative procedures with regard to
verification of the aforesaid balances and thereby have been unable to obtain sufficient
appropriate audit evidence regarding the aforesaid accounts .We are unable to comment upon
the difference, if any, which may arise upon the receipt of confirmations and/or the
carrying out of such reconciliation.
ii) The management of the company has represented to us that the recoverable amount of
assets within the meaning of Accounting Standard 28 "Impairment of Assets" is
more than their carrying value and as such no amount needs to be recognized in the
financial statements for impairment loss. In the absence of the workings of impairment
having been prepared and made available to us for our review, we are unable to comment on
whether; the company needs to make a provision in respect of impairment loss on such
assets and the amount of such provision.
iii) The company has not made provision in respect of balances recoverable from Trade
Receivables, Loans and Advances and Other Recoverable including from employees, which are
doubtful in nature amounting to Rs.3,666.86 lacs as on the date of the financial
Statements.
iv) a) The Company has not provided Interest on borrowings amounting to Rs 2,794.91
lacs (previous year Rs 2,803.66 lacs).
b) The Company has also not provided interest on borrowing amounting of Rs 8,370.41
lacs pertaining upto the preceding year and aggregating to Rs 11,165.32 lacs upto date.
v) No provision has been made in respect of liability of gratuity, leave encashment and
other compensated absences for the year. The amount could not be determined in absence of
actuarial valuation to be carried out by an Independent actuary.
vi) The company has written back Rs 1121.66 lacs out of the total loan outstanding of
Rs 2124.66 lacs payable to IDBI Ltd on the basis of letter dated 07th April,
2016 issued by Assets Reconstruction Company (India) Limited (Arcil) as in Principal
approval towards one time settlement of dues at Rs 1003.00 lacs in response to the
proposal for settlement of dues submitted by the company to all lenders. The said write
back has been shown as exception item of income in the statement of profit and loss.
In principal approval by Arcil towards proposal for settlement of dues of IDBI is
subject to the payment of the settled amount with in a period of one year from the date of
sanction i.e. April 7, 2016 and also subject to the approval of one time settlement from
all lenders.
Neither has the company got approval for settlement of dues payable to other lenders
nor has paid the settled amount within one year to Arcil as stipulated in the above said
sanction letter.
Therefore, the write back of Rs.1,121.66 lacs of the loan not payable according to that
in principle approval letter is not in accordance with the terms and conditions of the
sanction letter.
vii) The Company has not made a provision of Rs 963.07 lacs for the decline other than
temporary in the carrying amount of non-current investment in the equity instruments of
Malwa Industries Ltd.
viii) We further report that, except for the effect, if any, of the matters stated in
paragraph (i), (ii) and (v) above which are not ascertainable, had the impact of our
observation made in paragraph (iii) and
(iv) above been considered, then loss for the year ended 31st March, 2017 would have
been Rs.19,875.67 lacs (against the reported figure of Rs.2,958.76 lacs) and reserves and
surplus would have been (Rs.47,972.70 lacs) (against the reported figure of
(Rs31,055.79lacs) and current assets would have been Rs.1,749.01 lacs)(against the
reported figure of Rs.5,091.741lacs) and current liabilities would have Rs 45,835.73 lacs
(against the reported figure of Rs 34,670.41lacs).
ix) The earning (loss) per share for the year ended 31 March, 2017 would have been
(Rs.251.43) against reported earning (loss) per share of (Rs.41.16).
Adverse Opinion
9. In our opinion and to the best of our information and according to the explanations
given to us, subject to our comments in paragraph Basis For Adverse opinion Conclusion
above the aforesaid financial statements give the information required by the Act in the
manner so required and do not give a true and fair view in conformity with the accounting
principles generally accepted in India, of the state of affairs of the company as 31st
March, 2017 its losses and its cash flows for the year ended on that date.
Report on Other Legal and Regulatory Requirements
10. As required by the Companies (Auditors Report) Order, 2016 ("the Order")
issued by the Central Government of India in terms of sub-section (11) of section 143 of
the Act, we give in the Annexure- A, which forms part of this report, a statement on the
matters specified in paragraphs 3 and 4 of the Order.
11. As required by section 143(3) of the Act, we report that:
a. We have sought and obtained all the information and explanations, except as stated
in note 8 above, 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, except as stated in note 8 above, as
required by law have been kept by the Company so far as it appears from our examination of
those books;
c. The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement
dealt with by this report are in agreement with the books of account;
d. In our opinion, the aforesaid Financial Statements comply with the Accounting
Standards specified under section 133 of the Act, read with Rule 7 of the Companies
(Accounts) Rules, 2014, except
a) AS-15- "Employee Benefits" in respect of non provision for liability of
gratuity, leave encashment and other compensated absences in accordance with provision of
said accounting standard.
b) AS-17- "Segment Reporting "- in respect of results of sewing thread
segment has not been disclosed in accordance with requirement of said accounting standard.
e. On the basis of written representations received from the directors as on 31st March
2017 taken on record by the Board of Directors, none of the directors is disqualified as
on 31st March, 2017 from being appointed as a director in terms of sub-section (2) of
section 164 of the Act; and
f. With respect of adequacy of the internal financial controls over financial reporting
of the company and the operating effectiveness of such controls refer to our separate
report in Annexure - B.
g. With respect to the other matters to be included in the Auditors Report in
accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion
and to the best of our information and according to explanations given to us:
i) The Company has disclosed the impact of pending litigations on its financial
position in its financial statements, except where impact is not ascertainable.
ii) The Company did not have any long term contracts including derivative contracts for
which there were any material foreseeable losses.
iii) There were no amounts which were required to be transferred to the Investor
Education and Protection Fund by the Company.
iv) The Company has provided requisite disclosures in its financial statements as to
holdings as well as dealings in Specified Bank Notes during the period from 8 November,
2016 to 30 December, 2016 and these are in accordance with the books of account maintained
by the Company (Refer Note No. 42 of financial statements).
|
|
|
For S.C. Vasudeva & Co. |
|
Chartered Accountants |
|
(Reg. No.000235N) |
|
(Sanjiv Mohan) |
| Ludhiana |
Partner |
| 30th May, 2017 |
M.No. 086066 |
Annexure - A to the Auditors Report
The Annexure referred to in Independent Auditors Report to the members of the Company
on the financial statements for the year ended 31st March 2017, we report that:
(i) a. The Company has maintained proper records showing full particulars, including
quantitative details and situation of fixed assets.
b. According to the information and explanations given to us, the fixed assets except
furniture and fittings and office equipments have been physically verified by the
management during the year under the supervision of internal auditors of the company (an
independent firm of Chartered Accountants). In respect of furniture and fittings and
office equipments, the company has adopted a policy of physical verification of these
assets at least once in every three year. The last verification of entire block of these
assets have been physically verified by the management during the year ended 31st
March 2015. The discrepancies noticed on physical verification of fixed assets which were
not material, have been properly dealt in the books of account. In our opinion the
frequency of physical verification of fixed assets is reasonable having regard to the size
of the Company and nature of its business.
c. According to information and explanations given to us and on the basis of our of
records of the company the title deeds of immovable properties are held in the name of the
company.
(ii) a) According to the information and explanations given to us, the inventories have
been physically verified by the management at the end of the year. In our opinion the
frequency of verification is reasonable.
b) According to the information and explanations given to us, discrepancies noticed on
physical verification of inventory as compared to the book records were not material and
have been dealt with in the books of accounts.
(iii) According to the information and explanations given to us, we report that the
Company has not granted any loans, secured or unsecured to companies, firms, limited
liability partnership or other parties covered in the register maintained under section
189 of the Companies Act, 2013. Therefore the provisions of paragraph (iii) (a), (b) and
(c) of the Order are not applicable to the Company.
(iv) According to the information and explanations given to us, the Company has not
granted loans to directors or any other person in whom director is interested and also has
not made loans, guarantees or provided security in connection with loan to any person or
other body corporates and has not acquired securities of any other body corporate.
Therefore, the provisions of section 185 and section 186 of the Companies Act, 2013 are
not applicable to the company. Thus paragraph 3(iv) of the Order is not applicable to the
company.
(v) According to the information and explanations given to us, the Company has not
accepted deposits cover under the provisions of sections 73 to 76, other relevant
provisions of the Companies Act, 2013 and the
rules framed there under. According to the information and explanations given to us, no
order under the aforesaid sections has been passed by the Company Law Board, National
Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal on the
Company.
(vi) We have broadly reviewed the books of account maintained by the company pursuant
to the rules made by the Central Government for the maintenance of cost records under
section 148 of the Act and are of the opinion that prima facie, the prescribed accounts
and records have been made and maintained. We have, however not made a detailed
examination of such records with a view to determine whether they are accurate or
complete.
(vii) (a) According to the information and explanations given to us and on the basis of
the records of the Company examined by us, in our opinion, the Company has not been
regular in depositing undisputed statutory dues including provident fund, employees state
insurance, labour welfare fund, income tax, sales tax, service tax, duty of custom, duty
of excise, value added tax, cess and other statutory dues with the appropriate
authorities. According to the information and explanations given to us, undisputed dues in
respect of provident fund, employees state insurance, labour welfare fund, sales tax (VAT
and CST), tax deducted at source and tax collected at source which were outstanding as on
the last day of the financial year concerned for a period of more than six months from the
date they became payable are as follows:
| Nature of Statute |
Nature of Dues |
Amount (Rs. in Lacs) |
Period to which the amount relates |
Due Date |
Date of Payment |
| Income Tax Act, 1961 |
Tax deducted at Source |
33.36 |
F.Y 2014-15, 2015- 16 and 2016- 17 |
Various |
Not yet paid |
| Income Tax Act, 1961 |
Tax collected at Source |
0.52 |
F.Y2014-15, 2015- 16 and 2016- 17 |
Various |
Not yet paid |
| Employees Provident Fund and Miscellaneous Provisions Act, 1952 |
Provident Fund |
140.94 |
F.Y 2012-13, 2013-14, 201415 ,2015-16and 2016-17 |
Various |
Not yet paid |
| Employees State Insurance Act, 1948 |
Employee State Insurance |
158.96 |
F.Y 2011-12, 2012-13, 201314, 2014-15 ,2015-16 and 2016-17 |
Various |
Not yet paid |
| Punjab Labour Welfare Fund Act, 1965 |
Labour Welfare fund |
3.63 |
F.Y 2012-13, 2013-14, 201415,2015-16 and 2016-17 |
Various |
Not yet paid |
| Punjab Value Added Tax Act, 2005/ Central Sales Tax Act, 1956 |
VAT/CST |
87.45 |
F.Y 2013-14, 2014-15, 201516 and 2016-17 |
Various |
Not yet paid |
(b) According to the information and explanations there are no dues of income tax, duty
of custom which have not been deposited with the appropriate authorities on account of any
dispute. However according to information and explanations given to us, the following dues
of sales tax (VAT / CST / Entry Tax), duty of excise, service tax has not deposited by the
company on account of dispute.
| Sr. No. Name of the Statute |
Nature of Dues |
Period to which the amount relates |
Disputed Amount (Rs. In lacs) |
Forum where the dispute is pending |
| 1 The Punjab General Sales Tax Act, 1948 |
Sales Tax |
2003 |
58.83 |
The Honble High Court of Punjab and Haryana, Chandigarh |
| 2 The Punjab Value Added Tax Act, 2005 |
Value Added Tax |
2005, 2008, 2009 and 2011. |
744.32 |
The Deputy Excise & Taxation Commissioner (Appeals) Patiala |
| 3 The Central Sales Tax, 1956 |
Central Sales Tax |
2003 |
4.53 |
The Honble High Court of Punjab and Haryana, Chandigarh |
| 4 The Central Sales Tax, 1956 |
Central Sales Tax |
2005, 2008, 2009 and 2011. |
119.04 |
The Deputy Excise & Taxation Commissioner ( Appeals) Patiala |
| 5 Himachal Pradesh Tax on entry of goods into Local Area Act, 2010 |
Entry Tax |
2011, 2012, 2013, 2014 and 2015 |
89.67 |
The Honble High Court of Himachal Pradesh. |
| 6 Himachal Pradesh Sales Tax Act. |
Sales Tax |
2005 |
0.49 |
Himachal Pradesh Tax Tribunal. |
| 7 Himachal Pradesh Value Added Tax Act, 2005 |
VAT |
2006 |
0.23 |
Himachal Pradesh VAT Tribunal. |
| 8 Central Excise Act, 1944. |
Excise Duty |
1995,1999 and 2005. |
3.87 |
Custom, Excise and Service Tax Appellate Tribunal |
| 9 Central Excise Act, 1944. |
Excise Duty |
2005, 2006, 2007, 2012 2013 |
2.77 |
Additional Commissioner, Shimla. |
| 10 Central Excise Act, 1944. |
Excise Duty |
2009 |
27.85 |
Additional Commissioner, Chandigarh. |
| 11 Central Excise Act, 1944. |
Excise Duty |
2011 and 2012. |
36.03 |
Commissioner of Central Excise, Chandigarh. |
| 12 The Finance Act, 1994 (Chapter V) |
Service Tax |
1996 |
2.3 |
Commissioner of Central Excise, (Appeals) |
| 13 Central Excise Act, 1944. |
Excise Duty |
2013 |
1.16 |
Commissioner of Central Excise, Sangrur. |
| 14 Central Excise Act, 1944. |
Excise Duty |
2014 |
0.41 |
Commissioner of Central Excise, Sangrur. |
| 15 Central Excise Act, 1944. |
Excise Duty |
2007 - 2013 |
42.24 |
Additional Commissioner of Central Excise, Sangrur. |
| 16 Central Excise Act, |
Excise Duty |
2002 |
11.91 |
Assistant Commissioner of |
| 1944. |
|
|
|
Central Excise, Sangrur. |
| 17 Central Excise Act, 1944. |
Excise Duty |
2015 |
0.33 |
Superintendent, Central Excise, Barnala. |
(viii) According to the information and explanations given to us, the company has
defaulted in repayment of loans and borrowings to a financial institutions, banks or
government. The Company has not issued any debenture during the year or in the preceding
year. The details of the defaults are as under:
| Sr.No. Particulars |
Amount (Rs. In Lacs ) |
Nature of Dues |
Period of Default of repayment |
| 1 IFCI Ltd. |
7,862.57 |
Term loan - Principal |
Refer Note 9 (a)and (b) below |
| 3,647.05 |
Term loan - Interest |
| 604.43 |
Cash Credit - Principal and Interest |
| 2 ARCIL (IDBI Bank Ltd). |
1,834.55 |
Term loan - Principal |
Refer Note 9 (a)and (b) below |
| 802.30 |
Term loan - Interest |
| 179.16 |
Cash Credit - Principal and Interest |
| 3 SIDBI |
214.53 |
Term loan - Principal |
Refer Note 9 (a)and (b) below |
| 90.03 |
Term loan - Interest |
| 4 Punjab National Bank |
3,165.07 |
Term loan - Principal |
Refer Note 9 (a)and (b) below |
| 1,178.95 |
Term loan - Interest |
| 12,714.72 |
Cash Credit - Principal and Interest |
| 5 State Bank of India |
2,290.40 |
Term loan - Principal |
Refer Note 9 (a)and (b) below |
| 903.91 |
Term loan - Interest |
| 4,161.70 |
Cash Credit - Principal and Interest |
| 6 Vijaya Bank |
377.76 |
Term loan - Principal |
Refer Note 9 (a)and (b) below |
| 148.42 |
Term loan - Interest |
| 1,682.25 |
Cash Credit - Principal and Interest |
| 7 J & K Bank |
141.07 |
Term loan - Principal |
Refer Note 9 (a)and (b) below |
| 53.49 |
Term loan - Interest |
| 639.47 |
Cash Credit - Principal and Interest |
a) The long term and short term borrowings recalled by the consortium banks not paid by
the company have been considered as defaulted for the purpose of above disclosures.
b) Interest includes interest accrued on long term and short term borrowings not
provided in the statement of profit and loss. (Refer note no.38)
c) The effect of the sanction letter issued by ARCIL explained in Note No 39 for one
time settlement has not been considered for the purpose of above disclosure.
(ix) In our opinion and according to the information and explanations given to us, the
Company has not taken any term loan during the year. The Company has not raised money by
way of initial public offer or further public offer (including debt instruments) during
the year. Thusthe provisions of paragraph 3 (ix) of the Order are not applicable to the
Company.
(x) According to the information and explanations given to us, no fraud on or by the
company or on the company by its officers or employees has been noticed or reported during
the course of our audit.
(xi) According to the information and explanations given to us and based on the records
of the company, the provision of the section 197 read with schedule V (with regard to the
managerial remuneration) to the Companies Act, 2013 is not applicable. Therefore the
provisions of paragraph 3 (xi) of the Order are not applicable to the Company.
(xii) According to the information and explanations given to us, the company is not a
Nidhi Company. Therefore the provisions of paragraph 3(xii) of the order are not
applicable.
(xiii) According to the information and explanations given to us, and based on our
examinations of the records of the company, transactions with the related parties are in
compliance with section 177 and section 188 of the Act, where applicable and the details
of the transactions have been disclosed in the financial statements as required by the
applicable accounting standards.
(xiv) According to the information and explanations given to us, the company has not
made preferential allotment or private placement of shares or fully or partly convertible
debentures during the financial year under audit. Thus the provisions of paragraph 3 (xiv)
of the order are not applicable.
(xv) According to information and explanations given to us, and based on our
examination of the records of the company, the company has not entered into non-cash
transactions with directors or persons connected with them. Accordingly, provisions of
paragraph 3 (xv) of the Order are not applicable.
(xvi) According to the information and explanations given to us, the company is not
required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.
|
For S.C. Vasudeva & Co, |
|
Chartered Accountants |
|
Firm Reg. No.000235N |
|
|
|
(Sanjiv Mohan) |
| Ludhiana |
Partner |
| 30th May, 2017 |
M. No. 086066 |
+91-9892691696
