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.
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
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
(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
(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.
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
(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
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
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
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
(c) The company is maintaining records of stock of shares and
securities and there were no discrepancies noticed by them on their
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
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
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
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
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.
Firm''s Registration Number : 000262N
Place : New Delhi Partner
Dated : 30th May, 2013 Membership No. 91607