Nuchem Ltd Auditor Reports

NUCHEM LIMITED ANNUAL REPORT 2009-2010 AUDITORS REPORT To, the Members of Nuchem Limited 1. We have audited the attached Balance Sheet of Nuchem Limited as at 31st March, 2010 and also the Profit and Loss Account and the Cash Flow Statement of the Company 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 have conducted our audit in accordance with auditing standards oenerally 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 the 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 by the Companies (Auditors Report) (Amendment) Order 2004 (Collectively the Order) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we enclose in 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: (a) 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; (b) 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 those books; (c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement, dealt with by this report, comply with the Accounting Standards referred to in sub - section (3C) of Section 211 of the Companies Act, 1956 except Accounting Standards AS-13 as explained in Clause 4(g) below. (e) The company has defaulted in repayment of principal amount of fixed deposits and payment of interest thereon in respect of deposits pertaining to earlier years. (Reference is drawn to our comments in clause 6 of Annexure to this report). The company has been legally advised that the defaults related to the period prior to enactment of section 274(1)(g) of the Companies Act, 1956 and, therefore, the present directors of the company do not attract any disqualification under section 274(1)(g) of the Companies Act, 1956. Accordingly on representation of the company based on legal opinion taken by it, and written representations received from the directors of the company, as on 31st March, 2010, none of the directors of the company is disqualified to act as a director under Section 274(1)(g) of the Companies Act, 1956. (f) Refer note no. B - 13 of Schedule 17, the company has accounted for net deferred tax assets accumulated upto the end of current accounting year of Rs.1542.49 lacs on timing differences arising on unabsorbed losses, depreciation and other matters under Income tax law. The company has incurred losses in the recent past. In view of this, we are unable to comment on the realisation of such assets against future taxable Income. (g) There is investment of Rs.204.33 lac in Nuchem Infrastructure Limited, a subsidiary company. The companys proportionate share in the losses of subsidiarys accumulated losses is Rs.257.71 lac (Previous year Rs.268.82 lac) as per the latest audited Balance Sheet. Decline in the value of investment in the subsidiary company has not been provided tor in terms of Accounting Standard AS-13 Accounting for Investments notified pursuant to the Companies (Accounting Standards) Rules, 2006. We understand that management has been in the process of disinvestment of subsidiary which includes sale of part of its holding in earlier year. On the basis of report on valuation of assets of subsidiary done by a professional firm and based on this valuation, the management having sold part of its holding in the previous year, the management is of the view that the companys stake in the subsidiary is fully covered by the value of its assets. (h) Reference is drawn to note no. B -6 of Schedule 17, wherein it has been stated that in the process of financial restructuring continuing from the initial relief package and modifications thereof, the company entered into OTS arrangement with most of its term lenders and has already made payment/s as per terms of sanction. Reliefs thereof have been accounted for in earlier years. During the year, the company has further entered into OTS arrangement with one more Institution and payments are being made in terms of sanction. The company is yet to make balance payment of Rs. 185.65 lac. In case of this Institution, relief/s of Rs. 117.57 lac have been considered in earlier years and Rs. 5.78 lac has been considered in the current year. In case of default, leading to revoking of OTS, if any, it would lead to increase in provision for interest for the year of Rs. 120.32 lac, total such unprovided for liability up to the end of the year would be Rs.465.09 lac, apart from amounts treated as waived off of Rs.97.07 lac in earlier years. (i) The company has made disinvestment of 48.96% shareholding of Nuchem Infrastructure Limited (formerly Nuchem Machine Tools Limited), a subsidiary company, profit of Rs.2352.00 lac thereof was recognised in the previous year. The company had received Rs.200 lac against the sale consideration and realisation of the balance amount of Rs. 2348.00 lac is due from March 2010 upto September 2012. Overdue amount as on 31.03.2010 is Rs.254.80 lac. The management is pursuing the matter and in the opinion of the management, this amount will be realised within the stipulated period. We have relied on the opinion of management in this regard. (j) During the year, the company has entered into an agreement to sell in respect of one of its properties at Faridabad. The agreement is subject to necessary approvals and clearances, including from the Banks and Financial institutions, which are yet to be received. Pending the approvals, the sale transaction resulting in a profit of a Rs. 610.68 Lac has not been recognised in this year accounts. 5. We further report that, had the observations made by us at clause 4(g) above been considered, accumulated losses would increase by Rs.204.33 lac and Investment in subsidiary would reduce by Rs.204.33 lac, the impact of observation at 4(f) is not determinable at this stage. 6. Subject to above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts read with the Accounting policies and Notes thereon 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: i. In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2010; 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 Cash Flow Statement, of the cash flows for the year ended on that date. For D.S. Talwar & Co. For S.S. Kothaii Mehta & Co. Chartered Accountants Chartered Accountants Firm Regn.No.- 000993N Firm Regn.No.- 000756N Sd/- V. Talwar Sd/- Arun K. Tulsian Partner Partner Membership No. 7542 Membership No. 89907 Place: Faridabad Dated: 12th November, 2010 ANNEXURE TO AUDITORS REPORT (Annexure referred to in our report of even date) 1.a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets except in respect of furniture and fixtures as evidenced by the records examined by us and the information made available to us. b) The Management has physically verified fixed assets during the period except furniture and fixtures and office equipments. In our opinion, the frequency of such verification is reasonable having regard to size of the company and nature of its assets. Discrepancies noticed on such verification as compared to book records were not material and have been properly adjusted in the books of account. c) There was no substantial disposal of fixed assets during the year, except that during the year, the company has entered into an agreement to sell in respect of one of its properties at Faridabad (refer clause 4(j) above). This has not affected the going concern assumption. 2.a) The inventory, except material lying with third parties, in transit and stock of semi finished goods at MDF Division, has been physically verified by the management during the year. The semi finished stock of MDF Division is physically verified at an interval of two years as per policy. In our opinion, the frequency of such verification is reasonable. b) The procedures for the physical verification of inventory followed by the management are , in our opinion, reasonable and adequate in relation to the size of the Company and nature of its business. c) In our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material and have been properly dealt with in the books of account. 3.a) The Company has not granted any loans, secured or unsecured, to Companies, firms and other parties covered in the register maintained under section 301 of the Companies Act, 1956. b) Since there are no such loans, comments on conditions regarding repayment of the principal amount, interest thereon and overdue amounts are not applicable. c) The Company has taken unsecured interest free loan of Rs 1.40 Lac (Maximum amount outstanding during the year and year end balance Rs 1.40 Lac) from a director and unsecured loan of Rs 468.83 lac(Maximum amount outstanding during the year and year end balance Rs 468.83 Lac) from its subsidiary company. The Company has not taken any other loan, secured or unsecured, from companies, firms and other parties covered in the register maintained under section 301 of the Companies Act, 1956. d) The rate of interest where provided and other terms and conditions are, prima facie, not prejudicial to the interest of the company. e) Payment of principal amount and interest has not become due as on 31st March 2010 in respect of loan from the subsidiary and in other case, the loan is repayable on demand and no demand has been received. f) There is no overdue amount of principal or interest. 4. In our opinion, and according to the information and explanations given to us during the course of audit, there are adequate internal control systems commensurate with size of the Company and the nature of its business with regard to purchase of inventory and fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books and records of the company, carried out in accordance with the generally accepted auditing practices in India, we have neither come across nor have we been informed of any instance of major weaknesses in the aforesaid internal control systems. 5.a) Based upon the audit procedures applied by us and according to the information and explanations given to us by management, the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that Section. b) In our opinion, and according to the information and explanations given to us, each of these transactions made in pursuance of contracts or arrangements required to be entered in the register maintained under Section 301 of the Act and exceeding the value of Rs. five lac in respect of each party during the year, has been made at prices which are reasonable having regard to the prevailing market prices at the relevant time, where such market prices are available. 6. In respect of deposits accepted from public in earlier years in terms of section 58-A of the Companies Act, 1956 and Rules framed thereunder, the company has not been able to make payments towards principal and interest thereon in accordance with the Order dated 20.05.1997 of the Honble Company Law Board (CLB). The matter is before the Court at the instance of Registrar of Companies in view of non compliance of earlier Order dated 20.05.1997. In view of the liquidity position, the Company approached Honble Company Law Board and had been sanctioned revised Order dated 10.06.2005, effective 01.10.2005 envisaging payments over a period of 4 years. In view of continuing losses and its consequent effect on its liquidity position, the company has not been able to make payments as stipulated, the company has re approached Honble Company Law Board seeking more time for making payment of balance amounts as on 30.09.09. As informed, the companys request is under consideration. The amounts including interest outstanding as on 31.03.2010 is Rs. 222.47 tac. 7. In our opinion, the Company has an internal audit system commensurate with the size and nature of its business. 8. The Central Government has prescribed maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 in respect of two of the products of the company namely Formaldehyde and Brooksite . We are of the opinion that, prima facie, the prescribed records have been made and maintained. We are, however, not required to carry out a detailed examination of the same. 9.a) According to the records of the company, undisputed statutory dues including Employees Provident fund, Investor Education and Protection fund, Employees State Insurance, Income-tax, Sales-tax, Wealth-tax, Custom Duty, Excise Duty, Service Tax, Cess and other statutory dues, as applicable, have not been regularly deposited with the appropriate authorities during the year. There are arrears of Rs.51.52 lac, Rs.14.65 lac ,Rs.0.58 lac, Rs.6.99 lac, Rs.2.01 lac and Rs.4.70 lac in respect of Income tax.FBT, VAT, CST, ESI and Service Tax respectively payable as at the end of the year for a period of more than six months from the date they became payable. b) According to the information and explanations given to us and as per the books and records examined by us, there are no dues of income tax, custom duty, excise duty, wealth tax, cess and service tax which have not been deposited on account of any dispute, except the following in respect of disputed sales tax/lncometax alongwith the forum where dispute is pending: Name of the Nature of Amount Period to Forum where dispute Statute dues (Rs. in which the is pending lacs) amount relates Delhi Sales Sales Tax 14.58 1984-85 Appellate Tribunal at Tax Act 1975 Delhi. 12.08 1985-86 - do - 30.17 1986-87 - do - 0.65 1993-94 Deputy Commissioner,(A) Delhi Haryana Value VAT 129.79 2006-07 Joint ETC(A) Faridabad Added Tax Central Sales CST 5.00 1993-94 Deputy Commissioner, (A) Tax Act 1956 Delhi Central CST 0.50 1998-99 Appellate Tribunal at Sales Tax Chandigarh. 3.98 2003-04 Joint ETC(A) Faridabad. 5.37 2005-06 -do- 115.17 2006-07 -do- Trade Tax 0.02 1995-96 The Trade Tax Officer NOIDA 0.09 1996-97 -do- 0.12 1997-98 -do- 0.03 2001-02 -do- Income Tax 15.44 1994-95 CIT(A), FBD 3.28 1997-98 -do- 0.33 2006-07 -do- 0.77 2007-08 -do- 0.76 2008-09 -do- 10. The accumulated losses of the company as at the end of current financial year have exceeded fifty percent of its net worth. The company has incurred cash losses during the current accounting year. There were no cash losses during immediately preceding accounting period. 11. During the year, the company has defaulted in repayment of dues to banks. The total amount of default as on 31.03.2010 has been Rs. 361.23 lac, with date of earliest default in February 2009.The defaults have continued upto the close of the accounting year. 12. According to 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. The Company does not fall within the category of Chit fund / Nidhi / Mutual Benefit fund / Society and hence the related reporting requirements of the Order are not applicable. 14. According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments and hence the related reporting requirements of the Order are not applicable. 15. TheXompany has given corporate guarantee of Rs.112.66 lac to a bank against the working capital facilities taken by a company. The terms and conditions of such guarantee do not, prima facie, appear to be prejudicial to the interest of the company. 16. In our opinion and according to the information and explanations given to us, the term loans raised during the year by the Company have been applied for the purpose for which the said loans were obtained, where such end use has been stipulated by the lenders. 17. According to the information and explanations given to us and as per the books and records examined by us, as on the date of balance sheet, the funds raised by the Company on short term basis have been applied for payment of long term dues under OTS, to the extent of Rs. 1938.93 Lac. 18. The Company has not made any preferential allotment of shares, during the year, to parties and Companies covered in the register maintained under section 301 of the Companies Act, 1956. 19. The company does not have any debentures outstanding as at the year end. 20. The Company has not raised any money by way of public issues during the year. 21. During the course of our examination of the books and records of the Company carried out in accordance with the generally accepted auditing practices in India, we have neither come across any instance of fraud on or by the Company, noticed and reported during the year, nor have we been informed of such case by the management. For D.S. Talwar & Co. For S.S. Kothaii Mehta & Co. Chartered Accountants Chartered Accountants Firm Regn.No.- 000993N Firm Regn.No.- 000756N Sd/- V. Talwar Sd/- Arun K. Tulsian Partner Partner Membership No. 7542 Membership No. 89907 Place: Faridabad Dated: 12th November, 2010