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DCM Financial
BSE: 511611|NSE: DCMFINSERV|ISIN: INE891B01012|SECTOR: Finance - Leasing & Hire Purchase
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« Mar 12
Auditor's Report (DCM Financial) Year End : Mar '13
Report on the Financial Statements
 
 We have audited the accompanying financial statements of DCM Financial
 Services 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 ended, and a summary of significant accounting
 policies and other explanatory information.
 
 Management''s 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 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.
 
 Auditor''s Responsibility
 
 Our responsibility is to express an opinion on these financial
 statements based on our audit. W e 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 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 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 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) Recognition of rental income of Rs 91.02 lacs during the financial
 year ended 31st March, 2013 in view of uncertainty in realization of
 such income & non provision of doubtful debts against rental receivable
 of Rs 510.82 lacs pertaining to previous years which have not yet been
 realized. The net profit for the year & current assets are overstated
 and cumulative net loss is understated to that extent.
 
 (ii) No provision has been made of Rs 826.38 lacs payable for Interest
 on debentures, term loans and banks, fixed deposits, and inter
 corporate deposits. Net profit for the year & current assets are
 overstated and cumulative net loss is understated to that extent. This
 is in contravention of the Accounting Standard 1 on Disclosure of
 Accounting Policies issued by Ministry of Corporate Affairs, Government
 of India. This has been explained in Note 4.1.f, Note 4.1.g.(i), Note
 4.2.c & 4.2.d, Note 4.3.2, Note 4.3.3, Note 4.4(f) and Note 4.6.
 
 (iii) For redemption of debentures of Rs 2,546.66 Lacs, debenture
 redemption reserve is required to be created. Debenture redemption
 reserve of Rs 2,546.66 lacs has not been created due to insufficient
 profits. This has been explained in Note 2.2.
 
 (iv) The financials have been drawn based on the application for
 acceptance of a fresh scheme of arrangement. The said application is
 pending before the Hon''ble Delhi High Court for approval & acceptance.
 This has been explained in Note 24.
 
 (v) The value of assets charged as security in favour of banks,
 debenture-holders & financial institutions have been depleted over a
 period of time. The depletion has not yet been ascertained. To the
 extent of shortfall, if any, the liability is unsecured, whereas the
 same has been shown as secured.  This has been explained in Note 4.1.d
 and Note 4.2.b & 4.3.1.
 
 (vi) There is a default in repayment of outstanding deposits with
 interest vide order dated 17.07.98 as the Company Law Board had ordered
 payment of interest at contracted rates up to the date of maturity and
 at 10% thereafter. Due to liquidity problems, the company has not fully
 followed the schedule of repayment ordered by the Company Law Board.
 However, a fresh Restructuring Scheme of arrangement for
 re-organization of the share capital of the company and for compromise
 with its creditors including fixed depositors has been made in which
 interest dues will be waived. Assuming that the scheme will be approved
 by the Hon''ble High Court of Delhi, provision of interest payable
 amounting to Rs. 827.06 lacs has been written back in earlier years.
 This has been explained in Note 4.4.(b).
 
 (vii) Fixed Deposits and Bills Payable as per records maintained by the
 Company are Rs. 5645.45 lacs and as per financials books amounting to
 Rs. 5634.75 lacs. Their is a difference of Rs. 10.69 lacs which is
 un-reconciled in the Fixed Deposit Register. The reason is either lack
 of identification of depositors or no claim or confirmation having been
 received by the company.  The provision of such differential amount has
 not been made. This has been explained in Note 4.4.(d) & Note 4.4.(e).
 
 (viii) Due to liquidity crisis in the past, minimum liquid assets @ 15%
 of Fixed Deposits as per RBI directives has not been maintained by the
 company. The company has applied to RBI and Company Law Board for
 exemption from maintaining minimum liquid assets and payment of penal
 interest but the disposal of the application is still pending. This has
 been explained in Note 4.4.(g).
 
 (ix) There is non-provision of NPA''s of Rs 274.56 Lacs & Rs 631.43 Lacs
 respectively towards inter corporate deposits, bills receivable,
 employee advances and long-term trade receivables as required by
 Non-Banking Financial Companies Prudential Norms (Reserve Bank). The
 net profit for the year & current assets are overstated and cumulative
 net loss is understated to the extent of Rs 905.99 lacs This has been
 explained in Note 11.2 & Note 12.1.
 
 (x) The accounts of the company have been prepared on a going concern
 as on an assumption made by the management that (a) The fresh scheme
 would be approved by the Hon''ble Delhi High Court, (b) The promoters of
 the company have provided letter of support, (c) adequate finances and
 opportunities would be available in the foreseeable future to enable
 the company to start operating on a profitable basis and (d) injection
 of Rs. 19.50 crores as promoters quota. This has been explained in Note
 28.
 
 (xi) Balance confirmation of 18 Banks which are restricted and cannot
 be operated without getting prior approval of the Hon''ble Delhi High
 Court , Bills Receivable and Payable, advances recoverable relating to
 lease and hire purchase are not available. The financial impact of this
 is not ascertainable. This has been explained in Note 14.2, 14.3 & 29
 (a).
 
 (xii) Contingent liabilities and Other Commitments
 
 (a) Punjab & Sind bank has filed a recovery suit before the Debt
 Recovery Tribunal (DRT) for recovery of Rs. 1217.52 lacs against which
 the amount payable to them, as per books is Rs. 803.40 lacs. The
 company contends that the dues of the Bank will be settled as per the
 fresh restructuring scheme and consequently no provision for the
 difference of Rs. 414.12 lacs has been made. Since the Company has not
 made payment of interest & principal in accordance with the Fresh
 Restructuring Scheme filed with the Hon''ble High Court, Rs 1217.52
 became payable to PSB. No provision for the difference of Rs. 414.12
 lacs has been made by the Company.
 
 (b) IndusInd Bank has filed a recovery suit before the Debt Recovery
 Tribunal (DRT), of Rs.  1042.42 lacs against which the amount payable
 to them as per books is Rs. 577.00 lacs.  The company contends that the
 dues of the Bank are to be anticipated to be settled as per the fresh
 restructuring scheme and consequently no provision for the difference
 of Rs.  465.42 lacs has been made.
 
 (c) During the year ended 30th June, 2009, the Company had received Rs.
 100.00 lacs from one of the Debtors and the balance recoverable from
 the debtors account was reduced by this amount. Subsequently the
 Hon''ble Punjab and Haryana Court deemed that payment to be an out of
 turn payment and asked the company to deposit the amount. The Company
 had filed a SLP with the Hon''ble Supreme Court of India which has been
 dismissed by them. The Company is liable to deposit the amount
 mentioned above which has yet to be deposited.
 
 (d) There is an award passed by the arbitrator against the company in
 the matter of MS Shoes East Limited on May 28, 2012 for Rs. 51.28 lacs
 i.e. claim amount along with interest of Rs.  307 lacs for an
 underwriting given by the company in the year 1995 for the public issue
 of M/s MS Shoes East Ltd. The same has been contested by Company before
 Hon''ble Delhi High Court.
 
 Qualified Opinion
 
 In our opinion and to the best of our information and according to the
 explanations given to us, except for the effects of the matters
 described in the paragraph on the basis for Qualified Opinion, 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 profit 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
 
 Report on Other Legal and Regulatory Requirements
 
 1.  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.
 
 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.  except for the matter described in the paragraph on the basis for
 Qualified Opinion, 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 matter described in the paragraph on the basis for
 Qualified Opinion, in our opinion, 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 are 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 except under sub clause (B) &
 clause (g) of sub section (1) of Section 274 of the said Act.
 
 Due to defaults in repayment of Fixed Deposits listed in section
 274(1)(g) of the Companies Act, 1956, the company has become a
 disqualifying company and consequently its Directors are disqualified
 from being appointed or re-appointed as Directors of any other company.
 
 ANNEXURE TO AUDITORS'' REPORT
 
 (Referred to in paragraph (1) of our report on other legal and
 regulatory requirements of Independent Auditor''s Report of even date)
 
 Annexure referred to in paragraph (1) of the report on other legal and
 regulatory requirements of Independent Auditor''s Report to the members
 of DCM Financial Services Limited on the financial statements for the
 year ended March 31, 2013
 
 1.  (a) The company is maintaining records showing full particulars,
 including quantitative details and situation of fixed assets at the
 Head Office and branch office.
 
 (b) The fixed assets (other than the assets given on lease/hire
 purchase) have been physically verified by the management in a phased
 manner so that the entire assets lying at the Head Office and branches
 are covered within a period of three years. There is a programme of
 verification of such fixed assets which, in our opinion, is reasonable
 having regard to the size of the company in terms of the number &
 nature of assets & manpower available. As explained to us by the
 management, no material discrepancies were noticed on such verification
 except those explained in Note 9.1 of the financials.
 
 (c) The company has not disposed off a substantial part of its fixed
 assets during the year to affect the status of the company as a going
 concern.
 
 2.  (a) According to the information and explanations given to us,
 physical verification of stock of shares and securities was conducted
 by the management at periodic intervals.
 
 (b) In our opinion, the procedures followed by the company for physical
 verification of stock of shares and securities are reasonable and
 adequate in relation to the size of the company and the nature of its
 business.
 
 (c) The company is maintaining records of stock of shares and
 securities and there were no discrepancies noticed by them on their
 physical verification.
 
 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) To the best of our knowledge and according to the information and
 explanations given to us, the Company has not taken any unsecured loans
 from Companies, firms or other parties covered in the register
 maintained under Section 301 of the Companies Act, 1956, during the
 financial year ending 31st March, 2013.
 
 b) To the best of our knowledge and according to the information and
 explanations given to us, the Company has not granted any unsecured
 loan(s) to any party, firms or Companies covered in the register
 maintained under Section 301 of the Companies Act, 1956, during the
 financial year ending 31st March, 2013.
 
 c) Accordingly, the rest of the sub-clauses are not applicable to the
 Company during the reporting period ending 31st March, 13.
 
 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 for the purchase of inventories and fixed assets and for the
 sale /realization of services and there was no continuing failure to
 correct major weakness in the internal control system.
 
 5.  In respect of transactions covered under Section 301 of the
 Companies Act, 1956 :- (a) According to the information and
 explanations given to us, we are of the opinion that there are no
 transactions which are required to but have not been entered in the
 register maintained under section 301 of the Companies Act, 1956.
 
 b) In our opinion and according to the information and explanations
 given to us, there were no transactions during the year exceeding the
 value of rupees five lakhs in respect of any party made in pursuance of
 contracts or arrangements entered in the register maintained under
 section 301 of the Companies Act, 1956.
 
 6.  In our opinion and according to the information and explanations
 given to us, the company has not accepted deposits during the year. The
 directives issued by the Reserve Bank of India and the provisions of
 section 58A and 58AA of the Companies Act, 1956, to the extent
 applicable, on deposits accepted in the earlier years and outstanding
 deposits at the end of the current year have not been complied with
 particularly relating to the register of depositors which does not
 agree with the general ledger, general provisions regarding default in
 repayment of deposits, default in payment of interest and maintenance
 of liquid assets. A notice has also been issued by the Reserve Bank of
 India for the company to show cause why penal action should not be
 taken against the company as prescribed under the RBI Act.
 
 7.  In our opinion, the company has an internal audit system, which is
 commensurate with its size and nature of its business.
 
 8.  Maintenance of cost records has not been prescribed by the Central
 Government under clause (d) of sub-section (1) of section 209 of the
 Act.
 
 9.  (a) According to the information and explanations given to us and
 en the basis of our examination of the books of accounts, in our
 opinion the company is generally regular in depositing the undisputed
 statutory dues including Provident Fund, Employees State Insurance,
 Income-tax, Sales tax, Wealth tax, Service Tax, Custom Duty, Excise
 Duty, cess and any other statutory dues as applicable with the
 appropriate authorities. According to the information and explanations
 given to us, there were no undisputed amounts payable in respect of the
 above dues which were outstanding as at 31st March, 2013 for a period
 of more than six months from the date of their becoming payable.
 
 (b) There is a disputed demand of Rs. 152.12 lakhs and Rs. 141.74 lakhs
 for the assessment year 2009-10 and 2010-11 respectively for payment of
 income tax under the Income Tax Act, 1961, which is disputed by the
 company as the brought forward losses under the Income Tax Act has not
 been allowed by the Department. The rectification application for
 deletion of the above two demands has been filed by the company which
 is pending before the appropriate authorities.
 
 10.  The company has accumulated losses of more than 50% of its net
 worth as at 31st March, 2013 but has not incurred cash losses during
 the preceding financial year as well as during the current year as per
 the statement of profit & loss. However after considering
 qualifications referred, to in the Independent Auditor''s Report, there
 is a loss in both the said two financials years.
 
 11.  The company has defaulted in the repayment of dues to the
 debenture holders, financial institutions, and banks as explained in
 Note No.  4.1 of Notes to Accounts.
 
 12.  As explained to us by the management, the company has not granted
 any loans or advances on the basis of security by way of pledge of
 shares, debentures and other securities.
 
 13.  The company is not a chit fund, nidhi, mutual benefit fund or a
 society. Accordingly, the provisions of clause (xiii) of the Order are
 not applicable.
 
 14.  According to the information and explanations given to us, during
 the period ended 31st March 2013, the company has not entered into any
 transactions of dealing or trading in shares, securities, debentures
 and other investments for which proper records of such transactions are
 required to be maintained. Shares, securities, debentures and other
 investments have been held by the company in its name except in cases
 of bad deliveries where shares held as stock in trade were not in the
 name of the company. These have been removed from the records during
 the year.
 
 15.  According to the information and explanations given to us, the
 company has not given any guarantees for loans taken by others from
 banks or financial institutions during the year.
 
 16.  According to the information and explanations given to us, no term
 loans were obtained by the company during the year.
 
 17.  According to the information and explanations given to us, no
 short term loans/inter-corporate deposits were raised by the company
 during the year.
 
 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.  Accordingly,
 clause 4(xviii) of the order is not applicable.
 
 19.  The company has not issued any debentures during the year.
 
 20.  The company has not raised any money by public issue during the
 year.
 
 21.  During the course 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 any instance of material fraud on or by
 the company advised or reported during the year nor have we been
 informed of such cases by the management.
 
                              For V. Sahai Tripathi & Co.  
 
                              Chartered Accountants
 
                              Firm''s Registration Number : 000262N
 
                             (Manish Mohan) 
 
 Place : New Delhi            Partner
 
 Dated : 30th May, 2013       Membership No. 91607
Source : Dion Global Solutions Limited
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