MH Mills & Industries Ltd Auditor Reports

MH MILLS AND INDUSTRIES LIMITED ANNUAL REPORT 2006-2008 AUDITORS REPORT To, The Members MH Mills And Industries Limited, Ahmedabad. 1. We have audited the attached Balance Sheet of MH MILLS AND INDUSTRIES LIMITED as at 31st March, 2008, and also the Profit and Loss Account and the cash flow statement for the period eighteen months 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 the 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 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 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the, Companies Act, 1956, we enclose the 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 above, we report that: i. We have obtained all the information and explanations which to the best of our 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 tar as appears from our examination of those books. iii. The Balance Sheet and Profit and Loss Account and Cash Flow statement dealt with by this Report are in agreement with the books of account. iv. (a) In our opinion, the Balance Sheet and Profit and Loss Account and Cash Flow statement dealt with this Report comply with the Accounting Standards referred to in Sub-section (3C) of section 211 of the Companies Act, 1956; except for Accounting Standard-6 on Depreciation Accounting read with: Note No.4, and Accounting Standard 15 on Accounting for Employee benefits read with Note No.3. Further to our comments above, your attention is invited to: a) Note No.4 of schedule 19 relating to non provision of depreciation under section 205(2)(b) of the Companies Act, 1956 resulting in the reserve and surplus and the net block of fixed assets being higher by the amount of Rs.7,04,80,696/-. b) Note no. 3 of Schedule 19 relating to non-provision of present liability of future payment of Gratuity as per actuarial valuation due to which loss for the period is understated by Rs. 1,24,43,554/-, further liabilities and Balance of Profit and Loss A/c is understated by Rs.6,98,15,250/-. However Gratuity amounting to Rs. 38,11,388/- paid during the period is charged to Profit and Loss A/c. c) Note No. 12(k) of Schedule 19 relating to non-provision of penal interest liability amounting to Rs. 38.58 lacs on overdue installment to ARCIL and other lenders due to which loss for the, period and provision is understated by Rs. 38.58 Lacs. (iv) (b) Further to above, your attention is also invited to Note No 12 of Schedule 19 for the non-compliance of requirements as stipulated in scheme of arrangement under section 391 to 394 of the Companies Act, 1956 approved by the Honorable High Court of Gujarat in Company, Petition Number 25 of 2006. v. On the basis of the written representations received from the directors, as on March, 31, 2008 and taken on record by the Board of Directors, we report that none of the directors of the company are disqualified as on March, 31 2008 from being appointed as 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 give the information 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: (a) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2008. (b) In the case of the Profit and Loss Account, of the Loss for the eighteen months period ended on that date. (c) In the case of the Cash Flow statement, of the cash flows for the eighteen months period ended on that date. For TALATI & TALATI Chartered Accountants Sd/- (UMESH H. TALATI) Partner Mem. No.: 34834 Place: Ahmedabad Date : 07/07/2008 ANNEXURE TO THE AUDITORS REPORT Referred to In paragraph 3 of our report of even date. (i) (a) The company has maintained proper records showing full particulars including quantitative details and situation of fixed assets however in the case of transfer or company namely the Maneklal Harilal Mills Limited such records have been maintained in respect of fixed assets purchased after 31- 12-1955, in respect of assets acquired prior to 01-01-1956 these records are not maintained. (b) All the assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification. (c) During the year, the company has not disposed off any major part of the Fixed Assets. (ii)(a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable. (b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business. (c) On the basis of our examination of the records of the company, we are of the opinion that the company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material. (iii) (a) The Company has not granted any loans secured or unsecured to /from companies, firms or other parties in the register maintained under section 301 of the Act. Hence the provisions of the clause (a), (b), (c) and (d) are not applicable to the company. (b) The Company has not taken any loans secured or unsecured to/ from companies, firms or other parties in the register maintained under section 301 of the Act. Hence the provisions of the clause (f), (g) and (h) are not applicable to the company. (iv) In our opinion and according to the information and explanations given to us, there are adequate Internal control procedures commensurate with the size of the company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to the sale of goods. During the Course of our audit, no major weaknesses have been noticed in the internal controls. (v) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that there are no transactions covered under section 301 of the companies Act, 1956, Hence the provision of this clause (a) and (ix) is not applicable to the company. (vi) In our opinion and according to the information and explanations given to us, the company has not accepted any deposit from the public during the period covered by our audit and hence the provisions of Section 58A, 58AA and any other relevant provisions o1 the Companies Act, 1956 are not applicable to the company. Further, according to the information furnished to us, the Company Law Board, or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal has passed no order on the company. (vi) In our opinion, the internal audit system of the Company is commensurate with its size and nature of its business. (viii) The Central Government has prescribed maintenance of Cost records under Section 209 (1) (d) of the Companies Act, 1956 in respect of manufacturing activities of the company. We have broadly reviewed the accounts and records of the company in this connection and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We have not, however made a detailed examination of the same. (ix) (a) According to the records of the company, the company is generally regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education protection fund, employees state insurance, income-tax, sales-tax, wealth tax, custom duty, excise duty, cess and other material statutory dues applicable to it. In terms of scheme of arrangement approved by the Honorable High Court of Gujarat the company has to make payment of Statutory and Contingent Liabilities on account of Electricity Duty, duty on generation of power, property tax, and revenue and sales tax deferment to the tune of Rs. 6.09 Crs. The company due to insufficient Cash Accruals has not made payment of said Statutory dues and Statutory liabilities of contingent nature. The company is in process of submitting rehabilitation scheme under section 17 of the Sick Industrial Companies Act (Special Provision) 1985. According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, investor education protection fund, employees state insurance, Income-tax, wealth tax, custom duty, excise duty were outstanding as at 30th September, 2008 for a period of more than six months from the date they become payable except the following. Name of the Amount Period to Due date Statute & outstanding which amt. Nature of dues Rs. relates Ahmedabad Municipal: Municipal Tax 82,15,937 April, 2001 to 01/07/2003 Corporation March, 2006 Govt. of India: Textile 10,37,242 April, 2003 to At the end of Committee cess March, 2006 the quarter Govt. of Gujarat: Sales Tax 1,54,74,807 May, 2005 May, 2005 to May 2007 (b) According to the records of the company, there are no dues of sales tax, custom duty, wealth tax, excise duty/cess, income-tax, which have not been deposited on account of any dispute. (x) The accumulated losses of the company are more than fifty percent of its, net worth. The Company has incurred cash losses of Rs. 5,93,40,797/- during the financial year covered by our audit. The Company has incurred cash loss of Rs. 8,37,77,231/- in immediately preceding financial year. (xi) Based on our audit procedures and on the information and explanations given by the management, we are of the opinion that the company has defaulted in repayment of dues to a financial institution or banks. As per scheme of arrangement as approved by the Honorable High Court of Gujarat, the company was required to make the payment of restructured debts to ARCIL other lenders in 10 equal quarterly installments of Rs. 82.34 lacs. In view of this the company was required to make payment of six installments for the period under review. Out of outstanding dues of Rs. 493.8 lacs for the period under review the company has made payment of Rs. 41.18 lacs and thereby resulting into default in repayment of Rs. 452.62 lacs. Also the company has defaulted in payment of penal interest of Rs. 38.58 lacs as a consequence of non payment of installments. The company had not made the provision of penal Interest amounting to Rs. 38.58 lacs and due to this the loss for the period end provision is understated by Rs. 38.58 lacs. The details of defaults as stated above are as under. Nature of Default Amount of Default Period of Default (Rs. In Lacs) Loan Installment to financial Institutions and Bank 41.12 31/12/06 Loan Installments to financial Institutions and Bank 82.30 31/03/07 Loan Installments to financial Institutions and Bank 82.30 30/06/07 Loan Installments to financial Institutions and Bank 82.30 30/09/07 Loan Installments to financial Institutions and Bank 82.30 31/12/07 Loan Installments to financial Institutions and Bank 82.30 31/03/08 Interest @ 15% on overdue installments 38.57 31/12/06 to of Rs. 452.62 lacs 31/3/08 (xii) The company has not granted any loans against security by way of pledge of shares, debentures and other securities. (xiii) The company is not a chit fund or a nidhi mutual benefit fund /society. Therefore, the provisions of this clause of the Companies (Auditors Report) Order, 2003 are not applicable to the company. (xiv) The company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of this clause of the Companies (Auditors Report) Order, 2003 are not applicable to the Company. (xv) In our opinion and explanations given to us the company, has not given any guarantee during the year for loans taken by others from financial Institutions or banks. However in the past the company had given gurantees for loans taken by others from financial institution and he terms and conditions thereof are not prima-facie prejudicial to the interest of the Company. (xvi) The term loans have been applied for the purpose for which they were raised. (xvii) Based on 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 own used for long-term investment by the company. (xviii) The company has made preferential allotment of shares to the parties and companies covered under section 301 of the Companies Act. On the basis of records produced before us and as per the fair valuation certificate given by Religare Securities Limited Category / Merchant Banker approved by SEBI, we are of the opinion that the preferential allotments of the shares are not prejudicial to the interest of the company. (xix) During the period covered by our audit report, the company has not issued any debentures. (xx) The company has not raised any money out of public issue. (xxi) We report that no fraud on or by the company has been noticed or reported during the course of out audit. For TALATI & TALATI Chartered Accountants Sd/- (UMESH H. TALATI) Partner Mem. No.: 34834 Place: Ahmedabad Date : 07/07/2008