| 1. We have audited the attached Balance Sheet of MODERN DENIM LIMITED
as at 31st March 2012, the Statement of Profit and Loss and also the
Cash Flow Statement for the year ended on that date annexed thereto.
These financial statements are the responsibility of the Company's
Management. Our responsibility is to express an opinion on these
financial statements based on our audit.
2. We conducted our audit in accordance with auditing standards
generally accepted in India. These 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 also
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 Company Law Board in terms of section 227 (4 A) of the Companies
Act, 1956, we enclose in the Annexure a statement on the matters
specified in paragraphs 4 & 5 of the said order.
4. Further to our comments in the Annexure referred to in paragraph 3
above, we report that:
(i) We have obtained all the information and explanations, which are 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 far as appears from our examination of
those books;
(iii) 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;
(iv) In our opinion the Balance Sheet, Statement of Profit and Loss 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 as stated at para (vi) below.
(v) On the basis of written representations received from the directors
and taken on record by the Board of Directors, we report that none of
the directors is disqualified as on 31st March 2012 from being
appointed as directors in terms of clause (g) of sub-section (1) of
section 274 of the Companies Act 1956;
(vi) We further report that:
(a) Dividend for the year amounting to Rs. 110.75 lacs on cumulative
redeemable preference shares has not been provided. The total amount of
Dividend not provided till 31st March 2012 amounts to Rs. 1772.00 lacs.
(Note No. 1.3)
(b) Provision for interest on certain Secured and Unsecured Borrowings
amounting to Rs. 231.67 lacs has not been made in accounts. The total
amount of Interest not provided till 31st March 2012 amounts to Rs.
1680.09 lacs. (Note No. 4.2, 4.3 & 4.10)
(c) Compound interest, Penal and liquidated damages in respect of all
borrowings have not been provided, amount of which is unascertainable,
pending confirmations/ reconciliation. (Note No. 4.12)
(d) Balances of Trade payables, Trade receivables, Advances and Loans
etc. are subject to confirmation and reconciliation if any. (Note No.
7.2 &12.2)
(e) Amount paid towards restructuring/settlement to various secured
lenders Rs. 2234.66 lacs has been shown under the head Loans &
advances. Non-current Long Term Borrowings and Long-term Loans &
advances are overstated to that extent. (Note No. 10)
(f) The accounts of the Company have been prepared on a going concern
basis though the Board for Industrial and Financial Reconstruction
(BIFR) has declared the company as a sick company. (Note No. 27)
(g) Provisions for impairment loss if any, has not been made, amount of
which is unascertainable. (Note No. 31)
(h) Pursuant to restructuring of some of the borrowings, the Company
has taken credit of Rs. NIL to Statement of Profit and Loss as
exceptional items during the year; pending fulfillment of future
obligations. Total Credit taken by the Company upto 31st March 2012
which are subject to fulfillment of future obligations amounts to Rs.
12391.51 lacs.
We further report that, without considering items mentioned at para
(vi)(c), (vi)(d), (vi)(f) and (vi)(g) of para 4 above, the effect of
which could not be determined, had the observations made by us in para
(vi)(a), (vi)(b), (vi)(e) and (vi)(h) above been considered, the loss
for the year would have been Rs. 102.32 lacs (as against the reported
figure of profit of Rs. 129.35 Lacs), Long term borrowings would have
been Rs. 4477.63 lacs (as against the reported figure of Rs. 6712.29
lacs), Other current liabilities would have been Rs. 22061.95 lacs (as
against the reported figure of Rs. 6218.35 lacs), Long term loans &
advances would have been Rs. 185.08 lacs (as against the reported
figure of Rs. 2419.74 lacs) and Debit balance of Reserves & Surplus
would have been Rs. 31396.15 lacs (as against the reported figure of
Rs. 15552.55 lacs).
(vi) Subject to the above, in our opinion and to the best of our
information and according to the explanations given to us, the said
accounts, read together with the 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 the Balance Sheet, of the state of affairs of the
Company as at 31st March, 2012;
(ii) In the case of the Statement of Profit and Loss, of the Profit of
the Company for the year ended on that date; and
(iii) In the case of the Cash Flow Statement, of the Cash Flows for the
year ended on that date.
ANNEXURE TO THE AUDITORS' REPORT
Referred to in paragraph 3 of our Report of even date to the Members of
MODERN DENIM LIMITED.
1. In respect of Fixed Assets:
a. The Company has maintained proper records showing full particulars
including quantitative details and situation of Fixed Assets other than
Furniture and Fixtures for which detailed records are not maintained.
b. As per the information and explanations given to us, the fixed
assets were physically verified by the management at reasonable
intervals during the year in accordance with a programme of physical
verification and no material discrepancies were noticed on such
verification as compared to the available records.
c. During the year, the Company has not disposed off any
major/substantial part of the fixed assets.
2. In respect of its Inventories:
a. The inventory has been physically verified during the period 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 inventory, we are
of opinion that the Company is maintaining proper records of inventory.
The discrepancies noticed on verification between the physical stocks
and books records were not material.
3. In respect of loans, secured or unsecured, granted or taken by the
company to/ from companies, firms or other parties covered in the
register maintained under section 301 of the Companies Act, 1956.
a. The Company has not granted any loans, secured or unsecured, to the
companies, firms or other parties covered in the register, maintained
under section 301 of the Companies Act, 1956, and therefore the clauses
(iii)(a), (iii)(b), (iii)(c) and (iii)(d) of The Companies (Auditor's
Report) Order, 2003 are not applicable.
b. The Company has not taken any loans, secured or unsecured, from the
companies, firms or other parties covered in the register, maintained
under section 301 of the Companies Act, 1956, and therefore the clauses
(iii)(e), (iii)(f) and (iii)(g) of The Companies (Auditor's Report)
Order, 2003 are not applicable.
4. 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 purchases of inventory, fixed assets and with
regard to the sale of goods. During the course of our audit, no major
weakness has been noticed in the internal controls.
5. In respect of transactions covered under Section 301 of the
Companies Act, 1956:
a. Based on the audit procedures applied by us and according to the
information and explanations provided by management, we are of the
opinion that the contracts or arrangements that need to be entered into
the register maintained under section 301 have been so entered.
b. In our opinion and according to the information and explanations
given to us, the transactions made in pursuance of contracts or
arrangements entered in the registers maintained under section 301 in
respect of any of the parties during the year have been made at prices
which are reasonable having regard to prevailing market prices at the
relevant time.
6. The Company has not accepted any fresh deposits during the year. As
per the information and explanations given to us, in respect of
deposits accepted in earlier years, the compliance with the provisions
of Section 58A 58AA or any other relevant provisions of Companies Act,
1956 and rules framed there under are subject to the order passed by
the Company Law Board on 21/12/2001 whereby the Company is required to
make repayment of deposits and payment of interest thereon in
accordance with the revival scheme to be approved by the Board for
Industrial and Financial Reconstruction (BIFR) under the provisions of
Sick Industrial Companies (Special Provisions) Act, 1985.
7. In our opinion, the Company has an internal audit system
commensurate with the size and nature of its business.
8. We have broadly reviewed the books of account relating to
materials, labour and other items of cost maintained by the Company
pursuant to the rules made by the Central Government for the
maintenance of cost records under Section 209 (1) (d) of the Companies
Act, 1956 and we are of the opinion that prima facie the prescribed
accounts and records have been made and maintained,
9. In respect of statutory dues:
a. According to the records of the Company, the Company is regular in
depositing with appropriate authorities undisputed statutory dues
including provident funds, employee's state insurance, income tax,
sales tax, wealth tax, custom duty, excise duty, cess and other
statutory dues applicable to it.
b. According to the information and explanations given to us, no
undisputed amounts payable in respect of income tax, wealth tax,
service tax, customs duty, sales tax and excise duty were outstanding
as at 31st March, 2012 for a period of more than six months from the
date they became payable.
c. According to the records of the Company, the dues of excise duty
and income tax, which have not been deposited on account of disputes
and the forum where the dispute is pending, are as under:
Name of the Nature of Amount Forum where dispute
Statute the Dues (Rs. In is pending
lacs)
The Central Excise duty 0.34 The Central Excise and
Excise Act, 1944 Penalty 24.42 Service Tax Appellate
Tribunal (Ahmedabad)
The Central Excise duty 0.91 The Central Excise and
Excise Act, 1944 Penalty 15.82 Service Tax Appellate
Tribunal (Ahmedabad)
Income Tax Penalty 128.09 The Commissioner of
Income Tax, Jaipur
Total 169.58
10. The accumulated losses of the Company as at 31st March, 2012 are
more than fifty percent of its net worth. The Company has earned cash
profit during the financial year under review and during the immediate
preceding financial year.
11. The Company has defaulted in repayment of installments of dues to
Financial Institutions, Banks and Debenture holders amounting to Rs.
4749.30 lacs since 1997.
12. Based on our examination of documents and records and 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 provisions of any special statute applicable to Chit Fund,
Nidhi or Mutual benefit Fund/Societies are not applicable to the
Company.
14. The Company is not dealing or trading in shares, securities,
debentures or other investments and hence, the requirements of para 4
(xiv) are not applicable to the Company.
15. As per the information provided to us, the Company has not given
any guarantee for loans taken by others from bank or financial
institutions.
16. The Company has not taken any fresh term loan during the year
under review.
17. The Company has not raised any short term funds during the year
under review.
18. During the year, the Company has not made any preferential
allotment of shares to parties and companies covered in the register
maintained under Section 301 of the Companies Act, 1956.
19. As per the information given to us, the Company has created
security in respect of debentures issued in earlier years except for
the cases where debentures trust deeds are yet to be executed.
20. During the year, the Company has not raised any money by way of
public issues.
21. Based upon the audit procedures performed, information and
explanations given by the management, we report that no fraud on or by
the Company has been noticed or reported during the course of our
audit.
FOR J. T. SHAH & COMPANY
CHARTERED ACCOUNTANTS
(Firm Registration No. I09616W)
(J. T. SHAH)
PARTNER
(Membership No. 3983)
Place: Ahmedabad
Date: 30th June, 2012
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