| 1. Report on the Financial Statements
We have audited the accompanying financial statements of MURLI
INDUSTRIES LIMITED, which comprise the Balance Sheet as at 31st March
2014, and the Statement of Profit and Loss for the period of nine
months ended, and a summary of the significant accounting policies and
other explanatory information.
2. Management's Responsibility for the Financial Statements
The Company's 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 Accounting Standards referred to in sub-section (3C) of
section 211 of the Companies Act, 1956. 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.
3. Auditor's Responsibility
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 the
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 the disclosures in the
financial statements. The procedures selected depend on the auditor's
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 the
internal control relevant to the Company's 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 the 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.
4. Basis of Qualified Opinion
i. As mentioned in note no. 48, forming an integral part of the
financial statements of the company have been prepared on the going
concern basis notwithstanding the fact that the networth of the company
is completely eroded and the company has a negative networth of (Rs.
418.14 crores) as on balance sheet date. (Note No. 49) The company may
be restrained from any excavation of limestone from mines since
'Royalty on limestone' amounting to Rs. 9.33 Crores remains to be paid
to the government. (Note No.51) The Sales Tax Department has attached
the movable & immoveable properties & assets of the Cement Unit of the
company, for the recovery of its Statutory Sales Tax Dues (including
interest) worth Rs. 63.08 Crores. All such moveable & immovable assets
are listed separately by the Sales Tax Department and prohibited their
transfer, sale, mortgage, gift, transfer etc. At the same time Royalty
on Limestone & Sales Tax is refundable under Mega Project PSI, 2007
subject to payment of liability. (Note No. 57) The consortium banks
have also recalled their debts to the company. The borrowings
outstanding to the consortium banks as at 31.03.2014 have been
classified as long term without taking cognizance of the recall of
loans by bank. This is deviation from requirements of the new Schedule
VI of the Companies Act. The appropriateness of the going concern
basis is interalia dependent on the company's ability to infuse
requisite funds for meeting its obligations, rescheduling of its debts,
other liabilities and resuming normal operations, (Note No.50) & on the
decision and order of the BIFR.
ii. As mentioned in note no. 31 and 32, the company has not complied
with Accounting Standards-15 (Employee Benefits) & Accounting
Standards-11(Effects of changes in Foreign exchange Rates). Amount
remains to be unascertained for both.
iii. As mentioned in note no. 39, the balances of trade receivables and
payables, lenders, loans and advances & deposits are subject to
confirmation / reconciliation and subsequent adjustments if any. As
such, we are unable to express any opinion as to effect thereof on the
financial statements of the period under audit.
iv. As mentioned in note no. 44, regarding recognition of deferred tax
credit on account of unabsorbed losses and depreciation, up till date
is Rs. 226.95 crores( last balance sheet date Rs. 226.95 Crores). This
does not satisfy the virtual certainty test for recognition of deferred
tax credit as laid down in Accounting Standard-22. As such we do not
express our opinion on the reasonability of recognition of the income.
v. The company has written off a sum of Rs. 43.39 Crores (also refer
Pt. No. (ii) (c) of the Annexure to the Auditor's Report) pertaining to
the stock of Soya bean have been written off under the head 'Quality
Rebate & Shortages' in the profit & loss account.
vi. Advances given to suppliers of machineries amounting to Rs. 11.06
Crores should have been written off on account of the violations of the
conditions mentioned under the agreement and as informed by supplier of
machinery.
vii. The Company has Capitalized expenses to the tune of Rs. 25.40
Crores in 'Pulp Mill Unit' till the date of last balance sheet, which
also appears as on the balance sheet date, the same should have been
written off to the Profit & Loss Account. As a result of above the
negative reserves of the company on the balance sheet date is
understated by Rs. 25.40 Crores.
viii. The company has no policy of ascertaining impairment losses,
which is in contravention of Accounting Standard 28. As such, we are
unable to express any opinion as to effect thereof on the financial
statements of the period under audit.
ix. All loan accounts of the company from Banks except vehicle loan
accounts have been treated as Non Performing Assets (NPAs) by the
respective banks due to non payment of dues, the consortium banks have
recalled their debts to the company. The company has recorded the
interest on these accounts for the period till 31st March 2014 @10.50%
p.a. instead of the actual payable amount which varies from 10.50% to
18% p.a. The difference between the exact interest as chargeable by the
bank and interest accounted for by the company remains unquantifiable.
As such non current liabilities are overstated and current liabilities
are understated. The amount of over/ under statement remains to be
unascertained.
x. The Company has liability outstanding in respect of FCCB (Foreign
Currency Convertible Bonds) issued of US$ 5.5 million the due date of
payment of which was 6th of Feb, 2012. The lenders have not exercised
option for conversion. Hence the amount is payable at the agreed
enhanced value. The amount outstanding in respect of the same is being
shown in the balance sheet at original conversing rate of Rs. 43.94 per
US$ as at the time of actual receipt of the amount. The actual
liability due in respect of the same as per terms comes to 149.81% of
US$5.5 Million i.e. US$ 8.27 Million and the rate as on 31st March 2014
being Rs. 59.9376 per US$ (Rs. 59.52 per US $ as on 30.06.2013), the
liability in respect of the same is understated by Rs. 25.22 Crores
(Rs. 24.88 Crores as on 30.06.13). As such loss of the company is under
stated to that extent. The redemption reserve in respect of repayment
of the same has also not been created.
The company has a liability of 7.52 Million USD($) as external
commercial borrowing which has been booked @ 45.05 per USD($), the
interest liability on the same is LIBOR 3.9% (4.2% 3.9%), the
liability on account of the same comes to Rs. 3.65 Crores. Moreover the
liability on account of difference in foreign exchange has also not
been accounted for amounting to Rs. 11.19 Crores (Rs. / USD as on
31.03.2014 is 59.9356). Total liability on this account amounting to
Rs. 14.84 Crores has not been provided.
xi. Accounting Standard -5, Net Profit or loss for the period, Prior
Period Items & change in accounting policies requires the company to
disclose the nature & amount of Prior period items to be disclosed
separately in a manner that their impact on current profit or loss can
be perceived. The company has not complied with the provisions thereby
inflating the current period's losses by Rs. 23.78 crores.
xii. The company has recognized the Mega Vat Receivable under the head
'Short Term Loans & Advances' even though the pre-condition as
mentioned under the Eligibility Certificate of its being paid prior to
its claim has not been complied with.
The consequential effect of sub para [i, ii, iii, viii, ix & xii] above
on the assets and liabilities as at 31st March 2014 and loss for the
period of nine months ended 31st March 2014 are not ascertainable. Had
the effect of above as stated in sub para [iv ,v, vi, vii, x & xi] been
given, the loss for the period under audit would have been increased by
Rs. 31.01Crores towards the current financial year of nine months & Rs.
252.35 Crores pertaining to prior periods and the negative networth
would have been increased by Rs. 283.86 Crores.
5. Qualified Opinion
In our opinion and to the best of our information and according to the
explanations given to us, except for the matters described in the Basis
of Qualified Opinion Paragraph as mentioned above read together with
the other notes, give information required by the Companies Act, 1956
in the manner so required and give a true and fair view in conformity
with the principles generally accepted in India;
i. In the case of the Balance Sheet, of the state of affairs of the
Company as on 31st March, 2014;
ii. In the case of the Profit and Loss Account, of the loss for a
period of nine months ended on that date; and
iii. In the case of cash flow statement, of the cash flows for a period
of nine months ended on that date.
6. Emphasis of Matter Attention is drawn to :
a. The company has not shown the amounts of loans maturing shortly
under the sub-head "Current Maturities of Long Term Loans" under "Other
Current Liabilities", but the same are shown under the head "Long Term
Borrowings" under "Non Current Liabilities" Similarly the company has
not disclosed the details of loans and their terms and conditions
including repayment etc including defaults. This is deviation from
requirements of the new Schedule VI of the Companies Act.
b. The company has an investment of Rs. 0.05 Crores in each of four,
wholly owned subsidiaries namely Murli Cement Limited, Murli Cement
(Karnataka) Limited, Murli Cement (Maharashtra) Limited, Murli Cement
(Rajasthan) Limited. The company has not complied with Accounting
Standard 21 by presenting the Consolidated Financial Statements. As
explained these companies have not started operations as such
Consolidated Financial Statements have not been prepared.
c. The non-current assets of the company as on balance sheet date
include a sum of Rs. 33.03 Crores (Rs. 31.07 Crores as on last balance
sheet dated 30.06.2013) spent on Rajasthan, Karnataka, Gujarat which
includes land. These should have been part of fixed assets.
d. The apparent casting error of Re 1 is on account of rounding off
effect, appropriate formula for which is being implemented in the
sysytem.
7. Report on Other Legal and Regulatory Requirements
A. As required by the Companies (Auditor's 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.
B. 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 purposes of our
audit.
b. In our opinion, proper books of account as required by law have
been kept by the Company so far as it appears from our examination of
those books.
c. The Balance Sheet and the Statement of Profit and Loss, dealt with
by this Report are in agreement with the books of account.
d. In our opinion, the Balance Sheet and the Statement of Profit and
Loss comply with the Accounting Standards referred to in sub-section
(3C) of section 211 of the Act.
e. On the basis of the written representations received from the
directors as on 31st March, 2014 taken on record by the Board of
Directors, none of the directors is disqualified as on 31st March, 2014
from being appointed as a director in terms of clause (g) of
sub-section (1) of section 274 of the Act;
ANNEXURE TO THE AUDITOR'S REPORT
(AS REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE)
(I) a) The company has not maintained proper records showing full
particulars, including quantitative details and situation of fixed
assets.
b) Physical verification of the same has not been carried out by the
management.
c) During the period under audit, the Company has not disposed off any
of its assets.
(ii) a) As explained to us, Physical verification of inventory has been
conducted by the management at reasonable intervals.
b) As also certified by management and according to the information and
explanations 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 nature of its business.
c) As informed by the management the company is in process of making
adequate records of inventory. Except for Soyabean, pending updating
of records and reconciliation, book balances as at March 31,2014 have
been adopted. As of now the company is having records, which are not
adequate. Material discrepancies were noticed at the time of physical
verification. It is observed that the management has written off a sum
of Rs. 43.39 Crores on account of shortage observed in the raw material
(soya bean) stock.
As per the documents produced by the management and the explanations
given by them, the process carried out for the physical verification of
the stock is commensurate with the size & nature of the company; but as
far as the valuation of the same is considered, the management was
unable to explain the exact basis for the valuation hence we are unable
to express our opinion on the same and hence there is a diversion to
compliance of Accounting Standard 2.
(iii) a) The company has granted interest free unsecured loan to
companies, firms or other parties covered in the register maintained
u/s.301 of the Act. The amount involved is Rs. 7.98 Crores and the
number of party involved are four.
b) The rate of interest and other terms and conditions of the unsecured
loans given by the Company mentioned in (a) above are prima facie
prejudicial to the interest of the Company, since these loans are
interest free and no specific terms have been specified for their
repayment.
c) As per the information and explanation given by the management,
there are no specific terms and conditions for repayment of principal
and interest due there on.
d) As there is no specific repayment due dates, there are no over dues
shown.
e) The company has taken unsecured loan from companies, firms and other
parties concerned in the register maintained u/s 301 of the Act. The
amount involved in the transactions is Rs. 7.28 Crores & number of
parties involved is 34.
f) As per the information and explanations given by the management,
there are no specific terms and conditions for repayment of principal
and interest due thereon; hence, prima facie it seems that the terms of
accepting the loan are not prejudicial to the interest of the company.
(iv) In our opinion and according to the information and explanations
given to us, the internal control systems needs to be strengthened
considering the size of the company and the nature of its business.
(v) a) The company has entered into the Register of Contracts &
arrangements referred to in section 301 of the Companies Act, 1956.
b) The transactions in pursuance of such contracts have been made at
prices which are reasonable having regard to prevailing market prices
at the relevant time.
(vi) The company has not accepted any deposits during the period under
audit from Public within the meaning of Section 58A, Section 58AA or
any other relevant provisions of the Companies Act, 1956 and the rules
made there under.
(vii) The company has not appointed internal auditor for period of this
audit report. This is a violation of section 227 of the Companies Act,
1956 and further the company is a listed company. We are unable to
ascertain whether the company has monitored internal control policies
and processes. In absence of internal audit system, the completeness,
adequacy and independence will have a bearing of efficacy of internal
control system and audit risk.
(viii) We have broadly reviewed the cost records maintained by the
company pursuing to the Companies (Cost Accounting Records) Rules, 2011
prescribed by the Central Government u/s. 209(1)(d) of the Companies
Act, 1956 and our of the opinion that primafacie the prescribed cost
records have been maintained. However, no cost auditor's report has
been provided to us. We have, however, not made a detailed examination
of the cost records with a view to determine whether they are accurate
or complete.
(ix) According to the information and explanation given to us in
respect of statutory dues :
a) The company has generally not been regular in depositing the
undisputed statutory dues which are as follows:
Statute Amount (Rs. Crores)
Service Tax 1.02
Employees Share of Provident Fund 0.31
Employer's Share of Provident Fund 0.89
Professional Tax 0.90
Excise Duty 1.73
VAT & CST 46.54
b) Details of dues of Income-tax, Sales Tax, Custom Duty, Excise Duty
and Cess which have not been deposited as on 31st March, 2014 on
account of disputes are given below:
Sr. Particulars Amount (Rs. in crores) Pending Since
No.
1 Central Excise & Customs 0.12 2002
2 Commission on FCCB 0.43 2008
3 Central Excise & Customs 0.39 2008
4 Central Excise & Customs 2.37 2007
5 Central Excise & Customs 3.43 2009
6 Central Excise & Customs 0.28 2010
7 SEBI Not Ascertainable 2011-2012
8 Income Tax (A.Y -07-08) 0.67 2011-2012
9 Income Tax (A.Y -08-09) 20.02 2011-2012
10 Income Tax (A.Y -09-10) 4.48 2011-2012
11 Interest on VAT 5.65 2011-2012
12 Central Excise & Customs 1.77 2013
Sr. Particulars Forum
No.
1 Central Excise & Customs High Court, Nagpur
2 Commission on FCCB CESTAT, Mumbai
3 Central Excise & Customs CESTAT, Mumbai
4 Central Excise & Customs High Court, Nagpur
5 Central Excise & Customs CESTAT, Mumbai
6 Central Excise & Customs CESTAT, Mumbai
7 SEBI SEBI
8 Income Tax (A.Y -07-08) ITAT
9 Income Tax (A.Y -08-09) CIT(A)
10 Income Tax (A.Y -09-10) CIT(A)
11 Interest on VAT Appeal (for interest)
12 Central Excise & Customs
(x) At the end of the period under audit, the company has accumulated
losses of Rs. 432.56 crores. The cash losses of the company during the
period of nine months under audit are Rs. 183.14 crores. The networth
of the company is completely eroded and the company has a negative
networth of (Rs. 418.14 crores) as on balance sheet date.
(xi) The company has defaulted in repayment of dues to financial
institutions and banks amounting to Rs. 1435.01 crores.
(xii) The company has not granted any loans and/or advances on the
basis of securities by way of pledge of shares, debentures and other
securities.
(xiii) The provisions of any special statute applicable to chit fund
and nidhi/mutual benefit fund/societies are not applicable to the
company.
(xiv) The company is not a dealer or trader in shares, securities,
debentures and other investments.
(xv) The Company has given Guarantee to SICOM Ltd. on behalf of Nandlal
Enterprises Ltd. for an Inter Corporate Deposit of Rs. 20 crores. The
company has assigned rights on the limestone mining lease awarded to
the company, admeasuring 42.16 hectares of land. The terms of the
guarantee are prejudicial to the interest of the company.
(xvi) As per the information and explanations given, the company has
received forced loan amounting to Rs. 4.08 Crores, during the year on
account of encashment of Bank Guarantee by WCL on cancellation of fuel
supply agreement.
(xvii) As in the past the company has continued to use short term loans
for long term purposes.
(xviii) During the period under audit the company has not made
preferential allotment of shares to parties or companies covered in the
Register maintained u/s 301 of the Act.
(xix) The company has outstanding FCCBs (bonds) amounting to Rs. 24.17
crores (as per balance sheet amount) which have already become due in
February 2012 which are not secured. The details in respect of same are
pointed out in sub point no "x" in Basis of Qualified Opinion.
(xx) The company has not raised any money through a public issue during
the period under audit.
(xxi) Based on the audit procedures performed and information and
explanations given by the management, we report that no fraud on or by
the company has been noticed or reported during the period under audit.
FOR DEMBLE RAMANI & CO.
Chartered Accountants
Registration No. 102259W
NAGPUR Anand Deshpande
Dated : 29th May, 2014 Partner
M. No.033618 | 