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The Members of Varun Industries Limited.
Report on the Financial Statements
We have audited the accompanying financial statements of Varun Industries Limited (The Company"), which comprise the Balance Sheet as at March 31, 2013, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.
Managements 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 Principles generally accepted in India, including the accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 (The Act"). 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 misstatement, whether due to fraud or error.
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 misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and 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 control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by 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.
Basis for Qualified Opinion
i) a) The companys proposal for Corporate Debts Restructure (CDR) has been approved by CDR Empowered Group vides letter dated December 28,2012 and confirming minutes letter dated January 23,2013. Master Restructuring Agreement was executed on March 29, 2013 upon certain terms & conditions to be complied with by the company before the CDR proposal becomes effective. The company is under process to comply the conditions mentioned in letter of Approval given by CDR Cell and Master Restructuring Agreement signed with consortium of banks. The company has restructured its short term borrowings to Working Capital term Loan and Funded Interest Term Loan according to Letter of Approval of CDR Cell. Before the CDR scheme becoming effective, company has provided interest on such loans as per Master restructuring agreement instead of contracted rate (original sanction letter) of interest. Due to this, there is short provision of Rs. 51.33 Cro/e towards bank interest. To this effect, the reported loss and liability towards banks have been understated. Attention is drawn to note no. 5.1 & note no. 6.2 of notes to accounts.
b) The company has signed the Master Restructure Agreement on March 29,2013 with CDR lenders to avail further funds by company after CDR Scheme being effective, would exceed the borrowing powers of Board of Directors conferred in terms of resolution pursuant to section 293 (1) (d) of the Companies Act, 1956. The company would require prior approval of shareholders in general meeting for the same.
ii) The Company has entered into settlement deed dated April 15, 2012 with two overseas debtors agreeing to allow the discount of Rs. 160.60 crore and to defer the balance export realization oft 1460.97 crore for five years (including one year for moratorium period). The discount was accounted for in the accounts of the previous year and the realization of such dues has been deferred for five years. As per explanation and information given by the management, the necessary permission for deferment of such realization will be sought after CDR scheme becomes finally effective, therefore the impact of same is not ascertainable as company may be directed by the concerned authorities to compound the irregularity.
iii) The balances of debtors, creditors, loans and advances, Deposits, other receivables and payables are being subject to confirmation and reconciliation as books of accounts not verified with confirmations of third party to whom we have sent letters to confirm the closing balance. This opinion is based on i) Some of request letters for conforming closing balance, have been returned with note of company closed/shifted/address not matching ii) there are variance in the balances confirmed by the parties iii) reply from parties not received.
The consequent resulting in balances for necessary adjustments, either of a revenue nature or otherwise if any, upon which we are unable to comment at this stage, will be made in the period they are finally settled / reconcile with the parties as informed by the management.
iv) The contingent liabilities are not ascertainable regarding i) ongoing cases in various Courts / Tribunal, resulting an additional liability may arise at the time of decision of such judicial authorities, ii) Penalties for non-payment of Statutory Dues, non filing of Statutory Returns and Reports as the same will be decided by the concern authorities at their discretion and time.
In our opinion and to the best of our information and according to the explanations given to us, except for possible effects of the matter described in the Basis for Qualified Opinion Paragraph the 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 of the Company as at March 31,2013;
b) in the case of Statement of Profit and Loss, of the loss for the year ended on that date; and
c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.
Matter of Emphasis
Without qualifying our opinion in respect of following matters, we draw attention to:
a) Note no. 1.2 on significant accounting policies regarding going concern assumption. The financial statements of the company have been prepared on a going concern assumption basis, notwithstanding the fact that its net worth is substantially eroded due to accumulated losses. The appropriateness of the said basis is interalia dependent on the companys ability to recover trade receivables/infuse funds for meeting its obligations.
b) Note no. 19 of notes forming parts of accounts, regarding Interest income of Rs. 132.41 Crore, from overseas debtors have been recognized to revenue, whose export realization have been deferred as mentioned in para ii of Basis of qualified opinion in this report.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditors Report) Order, 2003 ("the Order") issued by the >Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.
2. As required by section 227(3) of the Act, 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, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account;
d) except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement 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 March 31, 2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.
For CHUNNILAL & COMPANY
Firm Registration No.101947W
CA. Chunnilal Choudhary
Membership No.: 037784
Dated: May 30, 2013
The Annexure referred to in paragraph 1 of our Report of even date to the members of Varun Industries Limited on the accounts of the company for the year ended March 31,2013.
On the basis of such checks as we considered appropriate and according to the information and explanation given to us during the course of our audit, we report that:
1. (a) The company has maintained proper records showing full particulars including quantitative details and situation of its fixed assets.
(b) As explained to us, fixed assets have been physically verified by the management in a phased periodical manner which in our opinion is reasonable, having regard to the size of the company and nature of its assets. No material discrepancies were noticed on such physical verification.
(c) In our opinion and according to the information and explanations given to us, certain fixed assets have been disposed off during the year and which are not substantial/major parts of the fixed assets, therefore it has no effect on going concern status of the company.
2. (a) As explained to us, inventories have been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable.
(b) In our opinion and according to the information and explanation given to us, 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) In our opinion and on the basis of our examination of the records, the Company is generally maintaining proper records of its inventories. No material discrepancy was noticed on physical verification of stocks by the management as compared to book records.
3 (a) According to the information and explanations given to us and on the basis of our examination of the books of account, the Company has granted loans of Rs. 4,26,43,941/- to its subsidiary companies listed in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount outstanding during the year was Rs. 4,26,93,941/- and year end balance of such loans was Rs. 4,26,93,941/-.
(b) As per the explanation given by the management, no interest has been charged to subsidiary companies as the said loans were given interest free loans and terms and conditions on which loans have been granted to the companies listed in register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the company, as the money have been advanced to subsidiary companies for further advancement of business of group companies.
(c) According to the information and explanations given to us and on the basis of our examination of the books of account, the Company has taken loans of Rs. 20,66,71,296/- from directors listed in the register maintained under Section 301 of the Companies Act, 1956.
(d) As per the explanation given by the management, no interest has been paid to such directors as the said loans were interest free loans and terms and conditions on which loans have been taken by company are not, prima facie, prejudicial to the interest of the company. The loans are repayable on demand as explained by the management.
4. In our opinion and according to the information and explanations given to us, there is generally an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventories & fixed assets and payment for expenses & for sale of goods. During the course of our audit, no major instance of continuing failure to correct any weaknesses in the internal controls has been noticed.
5. Based on the audit procedures applied by us and according to the information and explanations provided by the management, there are no contracts or arrangements referred to in section 301 of the Act that needs to be entered in the register required to be maintained under said section.
6. In our opinion and according to the information and explanation given to us, the Company has not accepted any deposits from the public and therefore the provisions of section 58 A and 58 AA of the Companies Act, 1956 & Rules made there under are not applicable to the Company.
7. As per information & explanations given by the management, and in our opinion the Company has an internal audit system commensurate with, its size and the nature of its business.
8. We have broadly reviewed the books of accounts and records maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under the provisions of Section 209(1)(d) of the Companies Act, 1956 in respect of steel products and other products, 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 the records with a view to determining whether they are accurate or complete. As per information and explanation given by the management, the cost auditor has been appointed by the company. To the best of our knowledge and according to the information and explanations given to us, the Central Government has not prescribed the maintenance of cost records for any other product of the Company.
9. a) As explained to us, the company did not have any dues on account of Investor Education and Protection fund.
b) According to the information & explanations given to us, the followings were undisputed amounts payable in respects of Provident Fund, Sales Tax, Profession Tax, Service Tax, Excise Duty, Income Tax; Wealth Tax and other material statutory dues were in arrears as at March 31, 2013 for a period of more than six months from the date they became payable;
|NAME OF THE STATUTE||NATURE OF DUES||AMOUNT (in Rs.)||PERIOD TO WHICH AMOUNT RELATES||NO. OF DAYS DELAYS AS ON 31/03/2013|
|Income Tax Act, 1961||TDS||1,18,37,263||March 2012 to Sept. 2012||236 Days to 358 Days|
|Wealth Tax Act 1957||Wealth Tax||3,89,020||Asst. Year 2012-2013||182 Days|
|Central Sales Tax Act, 1956||CST||2,93,696||April 2012 to Sept. 2012||161 Days to 344 Days|
|The Central Excise Act, 1944||Service Tax||54,50,319||March 2012 to Sept. 2012||176 Days to 365 Days|
|The Central Excise Act, 1944||Excise Duty||2,27,208||July 2012||238 Days|
|Employees Provident Fund Act, 1952||Provident Fund||2,54,101||Aug. 2012 & Sept. 2012||167 Days & 197 Days|
|Maharashtra Value Added Tax Act, 2002||MVAT||42,81,132||April 2012 to Sept. 2012||161 Days to 314 Days|
|Maharashtra Value Added Tax, 2002||WCT||7,88,960||March 2012 & June 2012||344 Days & 253 Days|
|Maharashtra Professional Tax Act, 1975||Professional Tax Employees||45,434||Sept. 2012||161 Days|
c) According to the information and explanations given to us, the following statutory dues towards Income Tax and Sales Tax which have not been deposited with the concerned authorities on account of disputes:
|NATURE OF STATUTE||NATURE OF DUES||AMOUNT INVOLVED Rs. IN CRORE||PERIOD TO WHICH THE AMOUNT RELATES||FORUM WHERE DISPUTE IS PENDING|
|Income Tax Act, 1961||Income Tax||31.78||FY 2007-08, 2008-09 & 2009-10||ITAT|
|Income Tax Act, 1961||Income Tax||13.58||FY 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 & 2006-07.||Rectification applications are pending before Assessing Officer|
|Madhya Pradesh Vat Act, Central Sales Tax Act & Entry Tax||VAT, CST, Entry Tax||0.02 3.17 2.09||FY 2007-08, 2008-09 & 2009-10||First Appellate Authority|
10. The accumulated losses of the company at the end of the financial year are more than fifty percent of its net worth. The company has incurred cash losses of Rs. 69.30 crore (after considering the effect of the qualification) during the financial year and Rs. 138.61 crore in the immediately preceding financial year.
11. (a) Based on our audit procedure and on the basis of information and explanations given by the management, we are of the opinion that the Company has defaulted in repayment of Principal dues of Rs. 12.70 crore and Interest of Rs. 5.35 crore of various banks and financial institution for the period of 30 days to 330 days.
(b) The loans of Rs. 14.00 crore from IFCI Venture Capital Fund Ltd. (IFCI) have been settled in books of accounts by transferring balance to Mr. Kiran N. Mehta (CMD) on account of invocation of shares by IFCI at market price at the time of invocation. As explanation and information given by management, the matter is under judicial process of Hon. DRT and Courts. Therefore, overdue towards principal and interest could not be determined due to dispute and it depends on the judgment of the concern authority.
12. According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.
13. The Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provision of this clause of the Companies (Auditors Report) Order, 2003 (as amended) is not applicable to the Company.
14. Based on the records examined by us and according to information and explanations given to us, the Company has not dealt in to trading in Shares, Mutual funds & other Investments. Further investments specified are held in their own name.
15. According to the information and explanations given to us, the terms and conditions on which the company has given guarantees for loans taken by others from banks are not prejudicial to the interest of the company.
16. Based on our audit procedures and on the information given by the management, we report that the company has not raised any term loans during the year except restructuring of working capital facilities in to Working capital Term Loan of Rs. 1352.30 crore and Funded Interest Term Loan of Rs. 115.13 crore under CDR Scheme.
17. Based on the information and explanations given to us and on an overall examination of the Balance Sheet of the Company as at March 31, 2013 funds raised on short term basis have, prima facie, not been used during the year for long term investment.
18. Based on the audit procedures performed and the information and explanations given to us by the management, we report that the Company has received the sum of Rs. 15,54,75,000/- towards allotment of equity shares on preferential basis to parties or companies covered in the register maintained under section 301 of the Act as one of the critical condition mentioned under Letter of Approval as approved by CDR cell. The allotment is pending at the end of the year.
19. The Company has no outstanding debentures during the period under audit.
20. The Company has not raised any money by public issue during the year.
21. In our opinion and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year.
For CHUNNILAL & COMPANY
Firm Registration No.101947W
CA. Chunnilal Choudhary
Membership No.: 037784
Place : Mumbai.
Dated :May 30, 2013