Shamken Cotsyn Ltd Auditor Reports

SHAMKEN COTSYN LIMITED ANNUAL REPORT 2006-2007 AUDITORS REPORT To The Members of M/s SHAMKEN COTSYN LIMITED, NEW DELHI We have audited the attached Balance Sheet of M/s. SHAMKEN COTSYN LTD., NEW DELHI, (hereinafter referred to as the Company) as at 31st March 2007 and also the Profit and Loss Account 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. We have conducted our audit in accordance with 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 the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides reasonable basis for our opinion. As required by the Companies (Auditors Report) Order, 2003 as amended by the companies (Auditors Report) amendment order 2004, issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, and on the basis of such checks of the books and records of the company as we considered appropriate and according to the information and explanation given to us, We enclose in the Annexure a statement on the matters specified in paragraphs 4 & 5 of the said Order. 1) Attention is specifically Invited to the following clauses of the above mentioned Annexure Clause I- Concerning records of fixed assets register and physical verification occasioned with their inaccessibility and consequent constraint on forming opinion. Relevant impact on account as well as operating result could not be ascertainable in quantum. Clause II- Concerning inventory physically taken inaccessibility of corroborative evidence and therefore, consequent constraint on forming opinion. Relevant impact on account as well as operating result could not be dwelt in quantum. ii) The company has not provided for interest payable on working capital loans and Term loans amounting to Rs. 1913.80 Lakhs as calculated by the management during the year under review. In case this interest had been provided in the books amounting to Rs. 1913.80 Lakhs it would have increased the loss of the company in addition to the Depicted loss of Rs.354.59 Lakhs would stand increased to Rs.2268.39 Similarly the depicted accumulated losses as on 31.03.2007 amounting to Rs.4634.00 lakhs would stand increased to Rs.10895.39 Lakhs. III) Further persisting capitalization of expenditure on projects discontinued, in earlier period(s) has resulted in overstatement of the Gross Fixed Assets of the company by Rs.4813.86 lakhs and an understatement of accumulated losses by Rs.4813.86 lakhs. And accordingly the accumulated losses of the company as on 31.3.2007 would stand further enhanced from Rs.10895.39 lakhs amounting to Rs.15709.25 lakhs. IV) The losses of the company exceed its net-worth and therefore the company is classified as a sick industrial company as per provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. Despite this, the company has prepared its accounts as a going concern. Further to our comments in the Annexure referred to above, and subject to the 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 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 Companies Act, 1956. e) On the basis of written representations received from the directors, as on 31st March, 2007, and taken on record by the Board of Directors, we report that directors are disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956. f) Subject to the effect of the qualifications given in the preceding paragraphs, 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 accounting principles generally accepted in India: (i) In the case of the Balance Sheet, of the State of Affairs of the Company as at 31st March, 2007 and; (ii) I n the case of the Profit & Loss Account, of LOSS for the year ended on that date, (iii) In the case of Cash Row Statement of the cash flows for the year ended on that date. For and on behalf of For Rakesh Chauhan & Associates Chartered Accountants Sd/- (Rakesh Chauhan) M.No.: 90531 Prop. Race: New Delhi Date: 30th October, 2007. ANNEXURE TO THE AUDITORS REPORT (Referred to In Paragraph (3) of the Auditors Report of even date to the members of M/s SHAMKEN COTSYN LIMITED on the financial statements for the year ended 31st March 2007) i (a) The company has represented, to maintain proper records showing full particulars including quantitative details and situation of fixed assets. In our opinion the company has not yet maintained proper records showing full particulars including quantitative details and situation of the fixed assets for the year. However, the same register of fixed assets has not been produced before us for verification. In the absence of its accessibility we are constrained to comment on their compatibility with physical existence or otherwise. i (b) Fixed assets represented to have been physically verified by the management during the period in phased periodical manner however in the absence of accessibility of relevant documentation relating to fixed assets verification we are constrained to comment on the matter. i. (c) The Company has represented, to have made no sale/disposal of a substantial part of fixed assets during the period. Under review, as such reliance is placed in the absence of any such substantial sale / disposal of fixed assets, the status of the company as going concern was not impaired. ii (a) As per management, the stocks of the finished goods, stores and spare parts, represented, to have been physically verified by the management at reasonable intervals during the period. However in the absence of accessibility of relevant documentation relating to inventory verification we are constrained to comment on the matter. Further our opinion is restrained on procedures followed for physical verification and maintenance of inventory records of the company. iii (a) The company has granted secured/unsecured loans to the companys, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. the maximum amount involved during the year was Rs.4.33 lakhs and year end balance of such loan was Rs.4.33 lakhs. iii (b) The rate of interest, wherever applicable and other terms and conditions are not prima facie prejudicial to interest of the company in view of reliance placed on the assurances of the management. iii (c & d) Reliance is placed on companys claim that there is no over due amount in respect of loans taken / granted by the company. iii. (e) The company has taken interest free loan from one company covered in the register maintained under section 301 of the Companies Act, 1958. The maximum amount involved during the year was Rs. 11.75 lakhs and the year-end balance of loan taken from such company was Rs. 11.75 lakhs. The amount is interest free and against promoters contribution. Hence the clauses 3 (f) and 3 (g) are not applicable. iv. Having regard to the explanation that certain items purchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations, there are adequate internal control procedures 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. Further, on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system. However in generality, the system faded, somehow, leading to erosion of net worth, financial exigencies and ongoing litigation pending adjudication in respect of recovery of debts. v. Based on the representations made by the company and relied upon, we are of the opinion that the transactions that need to be entered into the register maintained u/s 301 of the Companies Act, 1956 have been so entered. According to representations made, the transactions materialized in pursuance of contracts or arrangements entered in the registers maintained under section 301 and exceeding the value of Rs.5 lacs in respect of any party during the period have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time. vi. During the year under review, the Company has not accepted fresh public deposits within the meaning of Section 58A of the Companies Act, 1956. However, deposits, received in preceding periods, still continue to be outstanding in breach. However, management has not complied with the orders of the Company Law Board in some cases. vii. In our opinion, the Company needs to have a review of its internal audit system commensurate with the size and the nature of its business. viii. The Company is required to maintain cost records as prescribed under Section 209(1)(d) of the Companies Act, 1956. The company has represented to have maintained proper cost records as required. However, in the absence of its accessibility we are constrained to comment on the matter. ix. a) According to the records of the company, the company is generally regular in depositing the undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income-tax, sales-tax, wealth tax, service tax, customs duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities though there has been a slight delay in a few cases. b) The company represented that there was disputed demand of Rs.391.05 lacs payable on account of Income tax for the assessment Year 2002-03 and 2003- 04 against which appeal has been partly allowed by making addition of Rs.18.52 lacs pending remand and demand notice. x. The accumulated losses of the company have exceeded fifty percent of its Net worth as at 31st March 2007, The company has earned a cash profit of Rs. 62.38 Lacs in the current reporting year and incurred a cash loss of Rs. 170.39 Lacs in the immediately preceding reporting period. xi. The Company has defaulted in repayment of loans (either secured or unsecured) including term loans from Financial Institutions or Bank or Debenture holder. The banks/financial institutions have levied restraints and put moratorium in the operations of bank accounts of the company. However, one time settlement (OTS) under negotiation is being efforted to be attained. xii. The Company has not granted any loans and advances on the basis of security byway of pledge of shares, debentures and other securities, in lieu of reliance placed on corroboration of the management. xiii. The Company is not a Chit Fund, Nidhi or mutual benefit Society. Hence the requirements of clause (xiii) of paragraph 4 of the Order are not applicable to the Company. xiv. The company is not a dealer or trader in shares, securities, debentures and other investments as pronounced by the management xv. The Company has not, during the year under review, given any guarantee for loans taken by others from Bank or Financial Institutions in lieu of reliance placed on corroboration of the management. xvi. No fresh term loans have been reported to have been raised and received by the company during the period under review. Therefore our opinion could not be composed in respect of funds raised. xvii. The company remained encountered with constraints on account of operations of Bank Accounts, lied under moratorium. Therefore, no opinion could be composed in respect of funds raised being used for short-term /long term inter-se. xviii. The company has not made preferential allotment of shares to companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956 in lieu of reliance placed on assurance of the management xix. The Company has not issued any debentures. Hence the requirements of clause (xix) of paragraph 4 of the Order are not applicable to the Company. xx. The company has not raised any money by public issues during the reporting period. xxi. No fraud committed by the company, related to the year under audit, was represented. However, some pertaining to earlier period(s), instituted during the period, under review, are pending adjudication, relating to debt recovery. The other matters, referred to in the order have not been reported upon, as they are not applicable to the Company. For and on behalf of Rakesh Chauhan & Associates Chartered Accountants Sd/- (Rakesh Chauhan) (M. No.: 90531) Prop. Place: New Delhi Date : 30th October, 2007.