DCM Shriram Industries

1.  We have audited the attached balance sheet of DCM Shriram
 Industries Limited as at March 31, 2009 and also, the profit and loss
 account and cash flow statement for the year ended on that date.  These
 financial statements are the responsibility of the Companys
 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. Those 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
 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 Central Government of India in terms of section 227(4A) of the
 Companies Act, 1956, we annex hereto a statement on the matters
 specified in paragraphs 4 and 5 of the said Order.
 
 4.  Further to our comments in the annexure referred to in paragraph 3
 above, 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 appears from our examination of the
 books;
 
 c) the balance sheet, profit and loss account and cash flow statement
 dealt with by this report are in agreement with the books of account;
 
 d) in our opinion, the balance sheet, profit and loss account 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;
 
 e) on the basis of written representations received from the directors
 and taken on record by the Board of Directors, we report that none of
 directors of the Company is disqualified as at March 31, 2009 from
 being appointed as director of the Company in terms of section 274(1
 )(g) of the Companies Act, 1956;
 
 f) without qualifying our opinion, we draw attention to note 16 of
 schedule 11 relating to accounting for cane purchase liability for
 sugar season 2007-08 at Rs 110 per quintal instead of State Advised
 Price of Rs. 125 per quintal fixed by the Uttar Pradesh State
 Government. Pending completion of legal proceedings in the matter, the
 effect thereof on these accounts cannot be determined at this stage;
 
 g) various issues arisen/arising out of the reorganisation arrangement
 will be settled and accounted for as and when the liabilities/benefits
 are finally determined. The effect of these cannot be determined at
 this stage (refer to note 2 (b) of Schedule 11);
 
 The matter referred to in paragraph (g) to the extent covered here
 above was also subject matter of qualification in our audit report on
 the financial statements for the year ended March 31, 2008.
 
 Subject to the foregoing, in our opinion and to the best of our
 information and according to the explanations given to us, the said
 accounts read together with 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:
 
 a) in the case of the balance sheet, of the state of affairs of the
 Company as at March 31, 2009;
 
 b) in the case of the profit and loss account, of the profit of the
 Company 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.
 
 ANNEXURE TO THE AUDITORS REPORT
 
 Annexure referred to in paragraph 3 of the Auditors Report to the
 Members of DCM Shriram Industries Limited on the accounts for the year
 ended March 31,2009.
 
 (i) (a) The Company is maintaining proper records to show full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) As explained to us, the Company has a programme of physically
 verifying all its fixed assets over a period of three years, which in
 our opinion is reasonable having regard to the size of the Company and
 the nature of its fixed assets. In accordance with this programme, some
 of the fixed assets were physically verified by the management during
 the year. The discrepancies noticed on such verification between the
 physical balances and the fixed assets records were not material and
 have been properly dealt with in the books of account.
 
 (c) In our opinion and according to the information and explanations
 given to us, a substantial part of the fixed assets has not been
 disposed off by the Company during the year.
 
 (ii) (a) During the year, the inventories have been physically verified
 by the management. In our opinion, the frequency of verification is
 reasonable.
 
 (b) In our opinion 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 the nature of its business.
 
 (c) On the basis of our examination of the record of inventories, we
 are of the opinion that, the Company is maintaining proper records of
 inventories. The discrepancies noticed on physical verification of
 inventories as compared to book records were not material and have been
 properly dealt with in the books of account.
 
 (iii) (a) According to the information and explanations given to us,
 the Company has not granted any loan, secured or unsecured to
 companies, firms and other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956 (hereinafter referred to
 as the Act). For this purpose, the Company has taken the view that the
 transactions which are subjected to the provisions of section 299 (6)
 of the Act are not required to be entered in this register.
 Notwithstanding the Companys views regarding the provisions of section
 299(6) of the Act, out of the loan of Rs. 1277.92 lacs outstanding as
 at March 31, 2008 granted by the Company to a promoted company as per
 the Scheme of Rehabilitation approved by Board for Industrial and
 Financial Reconstruction (BIFR), Rs. 735.98 lacs have been received
 back during the year leaving a balance at the end of the year of Rs.
 541.94 lacs.
 
 (b) In our opinion and according to the information and explanations
 given to us and also in view of the rehabilitation scheme sanctioned by
 the Board for Industrial and Financial Reconstruction (BIFR) on May 24,
 2007, in respect of the concerned promoted company, the rate of
 interest and other terms and conditions of loan granted by the Company,
 as referred to in para (iii) (a) above are not, prima facie,
 prejudicial to the interest of the Company.
 
 (c) As perthe information and explanations given to us and also as per
 Rehabilitation Scheme sanctioned by the BIFR, in respect of the
 concerned promoted company, the loan was repayable in 15 equal
 quarterly installments commencing from October 2009. However, during
 the year, the promoted company has prepaid Rs. 850 lacs (including
 interest of Rs. 114.02 lacs).
 
 (d) As per the information and explanations given to us and records of
 the Company, there are no overdue amounts in respect of above loan, and
 interest thereon.
 
 (e) According to the information and explanations given to us, the
 Company has during the year not taken any loans, secured or unsecured
 from companies, firms and other parties covered in the register
 maintained under section 301 of the Act. Accordingly, paragraphs (f)
 and (g) of the Companies (Auditors Report) Order, 2003 (hereinafter
 referred to as the Order) are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there is an adequate internal control system commensurate
 with the size of the Company and the nature of its business with regard
 to the purchase of inventories and fixed assets and with regard to the
 sale of goods and services.  Further, on the basis of our examination
 and according to the information and explanations given to us, no major
 weakness in the aforesaid internal control system has been noticed.
 
 (v) According to the information and explanations given to us, during
 the year, the particulars of contracts/ arrangements referred to in
 section 301 of the Act have been entered in the register required to be
 maintained under that section. For this purpose, the Company has taken
 the view that the transactions which are subjected to the provisions of
 section 299 (6) of the Act are not required to be entered in this
 register. Notwithstanding the Companys views regarding the provisions
 of section 299(6) of the Act, in respect of certain transactions,
 exceeding the value of Rs. 5 lacs entered into with such party during
 the year have been made at prices which are reasonable having regard to
 prevailing market prices at the relevant time.
 
 (vi) In our opinion and according to the information and explanations
 given to us, the Company has complied with the directives issued by the
 Reserve Bank of India and the provisions of section 58A and section
 58AA of the Companies Act, 1956 or any other relevant provisions of the
 Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules,
 1975 with regard to the deposits accepted from public. As per the
 information and explanations given to us, no order under the aforesaid
 sections has been passed by the Company Law Board or National Company
 Law Tribunal or Reserve Bank of India or any Court or any other
 Tribunal on the Company.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the books of account 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 are of the opinion that, prima facie, the prescribed
 accounts and records have been made and maintained. We have not,
 however, made a detailed examination of the records with a view to
 determine whether they are accurate or complete.
 
 (ix) (a) As explained to us, the statutory dues payable by the Company
 comprises mainly of provident fund, investor education and protection
 fund, employees state insurance, income-tax, sales tax, wealth tax,
 customs duty, excise duty, cess, entry tax, service tax and purchase
 tax. According to the records of the Company and information and
 explanations given to us, the Company has been regularly depositing the
 aforesaid undisputed statutory dues with the appropriate authorities
 except for a few instances of delays in deposit of tax deducted at
 source, sales tax and provident fund. There are no undisputed statutory
 dues outstanding for a period of more than six months from the date
 they become payable as at the year end.
 
 (b) According to the information and explanations given to us and the
 records of the Company, the following are the particulars of disputed
 dues on account of excise duty, customs duty, income-tax and sales tax
 matters that have not been deposited by the Company as at March 31,
 2009 :
 
 S. 
 No.  Name of the                   Nature of              Amount* 
      Statute                       the dues              (Rs. lacs)
 
 1.         Central                Excise duty              1.84
 
            Excise Laws            Modvat Credit            3.22
 
                                                            4.88
 
                                   Service tax             18.84
 
                                                          198.01
 
                                                            8.18
 
                                                           19.60
 
                                                            1.07
 
                                                            1.17
 
                                                            1.44
 
 2            Customs Law           Customs duty          143.16
 
 3            Income Tax            Income Tax            196.70
              Act, 1961
 
 4            Sales Tax Laws        Sales tax               2.22
     
                                    Purchase tax            2.54
 
                                                            8.22
 
 Amount        Period to                    Forum where
 paid under    which the                     dispute is
 protest          amount                        pending
 (Rs. lacs)      relates
 
 -               1981-82            Assistant Commissioner
 
 -               1995-96            
 
 -               August 06 to      Commissioner (Appeals)
                 December 06    
 
 -               2001-02 to         
                 2004-05            
 -               2004-05,           
                 2005-06            Customs, Excise & Service
 
 -               April 04 to       Tax Appellate Tribunal
                 December 04    
 
 -               2001-02 to        
                 2003-04            
 
 -               2007-08             Deputy Commissioner
 
 -               2006-07             Deputy Commissioner
 
 -               January 08 to      Deputy Commissioner
                 October 08
 
 -               2006-07             Commissioner (Appeals),
                                     Customs Duty, Ahmedabad
 
 62.52           2005-06             Commissioner of Income Tax
                                     (Appeals)
 
 0.78            2005-06             Joint Commissioner (Appeals),
                                     Commercial Tax
 
 1.37            2001-02            
 
 8.22            2001-02             Tax Board
 
 * amount as per demand orders including interest and penalty wherever
 indicated in the demand.
 
 Further, in respect of following matters, the concerned authority is in
 appeal against favourable orders received by the Company:
 
 S. 
 No.    Name of the Statute         Nature                     Amount
                                                           (Rs. lacs)
 
 1            Central            Excise duty                   1.48
              Excise laws
 
                                                               6.66
 
                                                              12.08
 
                                                               2.88
  
                                                               5.09
 
                                                               5.59
 
                                                               6.97
 
                                                               3.54
 
                                   Modvat Credit              15.15
 
                                   Service Tax                 2.01
 
 2             Customs Law         Customs Duty              302.54
 
 3             Sales Tax Laws      Sales Tax                   3.65
 
                                                               0.26
 
                                                               2.79
 
                                                               4.28
 
                                                              12.18
 
                                                               5.48
 
                                                              20.13
 
                                                              42.45
 
                                                              33.42
 
                                                               3.97
 
                                                              65.00
 
 Period to              Forum where department
 which the                  has preferred appeal
 amount relates
 
 1993-94,       }
 
 1994-95        }
 
 2004-05,       } Customs, Excise & Service
 
 2005-06        } Tax Appellate Tribunal
 
 2005-06        }
 
 2003-04 to     }
 
 2005-06        }
 
 2007-08        }
 
 1972-73        } Collector, Central
 
 1977-78        } Excise
 
 1998-99          High Court
 
 1995-96          High Court
 
 January 05 to   Customs, Excise & Service Tax
 
 June 05         Appellate Tribunal
 
 2000-01          Assistant Commissioner
 
 1976-77        }
 
 1978-79        }
 
 1979-80        }
 
 1982-83        } High Court
 
 1984-85        }
 
 1998-99        }
 
 1989-90        }
 
 1992-93        }
 
 1995-96        }
 
 1997-98        }
 2000-01          Supreme Court of India
 
 We have been further informed that there are no dues in respect of
 wealth tax and cess which have not been deposited on account of any
 dispute.
 
 (x) The Company does not have accumulated losses as at March 31, 2009.
 Further, the Company has not incurred cash losses during the financial
 year ended March 31, 2009 and in the immediately preceding year ended
 March 31, 2008.
 
 (xi) According to the records of the Company examined by us and on the
 basis of information and explanations given to us, the Company has not
 defaulted in the repayment of dues to financial institutions, banks or
 debentureholders during the year.
 
 (xii) As the Company has not granted any loans and advances on the
 basis of security by way of pledge of shares, debentures and other
 securities, paragraph 4(xii) of the Order is not applicable.
 
 (xiii) As the Company is not a chit fund / nidhi / mutual benefit funds
 / society to which the provisions of special statute relating to chit
 fund are applicable, paragraph 4(xiii) of the Order is not applicable.
 
 (xiv) As the Company is not dealing or trading in shares, securities,
 debentures and other investments, paragraph 4(xiv) of the Order is not
 applicable.
 
 (xv) In our opinion and 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 Or financial
 institutions are not prejudicial to the interest of the Company.
 
 (xvi) In our opinion and according to the information and explanations
 given to us, the term loans taken during the year have been applied for
 the purposes for which they were obtained.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we report
 that the short term funds have not been used to finance long term
 investments.
 
 (xviii) During the previous year, the Company had issued 4000 warrants,
 carrying an entitlement to subscribe to 3 equity shares of Rs. 10 each
 at a premium of Rs. 80 per share, on preferential basis in accordance
 with the SEBI (Disclosure & Investor Protection) guidelines, 2000 to
 the parties covered in the register maintained under section 301 of the
 Act. Pursuant to the terms of these warrants, the Company had issued
 6600 equity shares in the previous year and further issued 5400 equity
 shares during the current year on a preferential basis to the parties
 covered in the register maintained under section 301 of the Act. In our
 opinion and as per the information and explanations given to us the
 price at which the equity shares have been issued is not prejudicial to
 the interest of the Company.
 
 (xix) The Company has not issued any debentures during the year.  (xx)
 The Company has not raised money by way of public issue during the
 year.
 
 (xxi) Based upon 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 course of our audit
 for the year ended March 31, 2009.
 
 
 3. LOAN FUNDS (Continued) SECURED
 
 I.  Debentures
 
 a) i) 2,00,000 (2007-08 - 2,00,000) and 1,00,000 (2007-08 - 1,00,000)
 privately placed 12.50% secured
 
 redeemable non convertible debentures of Rs. 100 each allotted w.e.f.
 April 24,1992 and July 14,1992 respectively, redeemable at par in 28
 equal quarterly instalments commencing from October 15, 2004.  The
 instalments due for redemption have been redeemed. Due within a year
 Rs. 42.85 lacs (2007-08
 
 - Rs. 42.85 lacs).
 
 ii) 70,000 (2007-08 - 70,000) and 15,000 (2007-08 -15,000) privately
 placed 12.50% secured redeemable non convertible debentures of Rs. 100
 each allotted w.e.f. April 24,1992 and July 14,1992 respectively,
 redeemable at par in 28 equal quarterly instalments commencing from
 December 31, 2005. The instalments due for redemption have been
 redeemed. Due within a year Rs. 12.14 lacs (2007-08 - Rs.  12.14 lacs).
 
 iii) 8,98,000 (2007-08 - 8,98,000) privately placed 12.50% secured
 redeemable non convertible debentures of Rs. 100 each allotted w.e.f.
 June 18, 2001, redeemable at par in 26 equal quarterly instalments
 commencing from April 15,2005. The instalments due for redemption have
 been redeemed. Due within a year Rs. 138.15 lacs (2007-08 - Rs. 138.15
 lacs).
 
 These debentures are secured by a first mortgage over all the immovable
 properties and a first charge by way of hypothecation of all the
 movable properties of the Company excluding all assets of Daurala
 Organics, a unit of the Company, both present and future (save and
 except book debts), subject to prior charges created / to be created in
 favour of the Companys bankers for securing borrowings for working
 capital requirements, the charges ranking pari-passu with the mortgages
 and charges created / to be created in favour of existing first charge
 holders for their respective term loans / debentures. Debentures in
 (a)(iii) above are also secured / to be secured by second charge on
 current assets of the Company excluding those of Daurala Organics, a
 unit of the Company.
 
 b) i) 2,42,047 (2007-08 - 2,42,047) - Part-C of Rs. 50 each, being the
 non convertible portion of 12.50%
 
 secured redeemable partly convertible debentures of Rs. 135 each and
 2,42,047 (2007-08 - 2,42,047) 12.50% secured redeemable non convertible
 debentures of Rs. 60 each, allotted w.e.f. February 22, 1994 redeemable
 in 28 equal quarterly instalments commencing from October 15, 2004. The
 instalments due for redemption have been redeemed. Due within a year
 Rs. 38.03 lacs (2007-08
 
 - Rs. 38.03 lacs).
 
 ii) 63,918 (2007-08 - 63,918) - Part-C of Rs. 50 each, being the non
 convertible portion of 12.50% secured redeemable partly convertible
 debentures of Rs. 135 each and 63,918 (2007-08 - 63,918) 12.50% secured
 redeemable non convertible debentures of Rs. 60 each, allotted w.e.f.
 February 22, 1994, redeemable in 28 equal quarterly instalments
 commencing from December 31, 2005.  The instalments due for redemption
 have been redeemed. Due within a year Rs. 10.04 lacs (2007-08 - Rs.
 10.04 lacs).
 
 These debentures are secured by way of second charge / mortgage in
 favour of the trustees on all or any of the immovable and/or movable
 properties of the Company excluding all assets of Daurala Organics and
 sugar factory at Daurala Sugar Works, units of the Company, both
 present and future, upon such terms and conditions and in such form and
 manner as the Board may determine in consultation with the Trustees but
 specifically excluding the current assets, receivables, inventories,
 book debts (present and future) and such other specific items of
 machinery and equipments or any other assets as are specifically
 charged to any other lenders or authorities.
 
 II.  Banks
 
 a) Cash credits are secured by hypothecation of stocks/stores, both
 present and future. Some of these are further secured by hypothecation
 of book debts/ receivables and also by way of second pari-passu
 mortgage and charge on the fixed assets, both present and future.
 
 b) Rs. 5706.74 lacs (2007-08 - Rs. 6216.74 lacs) are secured by a first
 mortgage and charge on all the immovable and movable properties of the
 Company excluding all assets of Daurala Organics a unit of the Company,
 subject to prior charges created / to be created in favour of the
 Companys bankers for securing the borrowings for working capital
 requirements, the charges ranking pari-passu with the charges
 created/to be created in favour of existing first charge holders for
 their respective term loans / debentures. Due within a year Rs. 2613.33
 lacs (2007-08 - Rs. 2280.00 lacs).
 
 c) Rs. 1122.62 lacs (2007-08 - Rs. 1397.62 lacs) secured by first
 charge on pari-passu basis on the plant and machinery and other
 specific assets of Shriram Rayons, a unit of the Company. Due within a
 year Rs.  275.00 lacs (2007-08 - Rs. 275.00 lacs).
 
 d) Nil (2007-08 - Rs. 430.40 lacs) are secured by a first mortgage and
 charge on all the immovable and movable properties (save and except
 book debts) of Daurala Organics, a unit of the Company, subject to
 prior charges created / to be created in favour of the Companys
 bankers for securing the borrowings for working capital requirements,
 the charges ranking pari-passu with the charges created/to be created
 in favour of existing first charge holders for their respective term
 loans. Due within a year Nil (2007-08 - Rs. 430.40 lacs).
 
 e) Rs. 2136.00 lacs (2007-08 - Rs. 1778.95 lacs) are secured, by
 residual charge on fixed assets of sugar division of the Company. Due
 within a year Rs. 89.00 lacs (2007-08 - Nil).
 
 f) Rs. 50.11 lacs (2007-08 - Rs. 83.89 lacs) are secured by
 hypothecation of specific assets. Due within a year Rs. 29.03 lacs
 (2007-08 - Rs. 41.77 lacs).
 
 III.  Others
 
 a) Rs. 835.13 lacs (2007-08 - Rs. 1212.45 lacs) from financial
 institutions secured by a first mortgage and charge on all the
 immovable and movable properties of the Company excluding all assets of
 Daurala Organics, a unit of the Company, subject to prior charges
 created / to be created in favour of the Companys bankers for securing
 the borrowings for working capital requirements, the charges ranking
 pari-passu with the charges created/to be created in favour of existing
 first charge holders for their respective term loans / debentures. Out
 of these Rs. 700.59 lacs (2007-08 - Rs. 981.02 lacs) relating to a
 financial institution is further secured / to be secured by second
 charge on current assets of the Company excluding those of Daurala
 Organics, a unit of the Company. Due within a year Rs. 352.75 lacs
 (2007-08 - Rs. 377.33 lacs).
 
 b) Rs. 101.91 lacs (2007-08 - Rs. 139.17 lacs) from financial
 institutions secured by a mortgage on all the immovable properties and
 a first charge by way of hypothecation of all the movable properties of
 the Company excluding all assets of Daurala Organics a unit of the
 Company, both present and future (save and except book debts), subject
 to prior charges created/to be created in favour of the Companys
 bankers for securing borrowings for working capital requirements, the
 charges ranking pari-passu with the charges created/to be created in
 favour of existing first charge holders for their respective term
 loans/debentures. Due within a year Rs. 37.26 lacs (2007-08 - Rs. 37.26
 lacs).
 
 c) Rs. 70.01 lacs (2007-08 - Rs. 95.74 lacs) from financial
 institutions secured by way of second charge / mortgage on all
 immovable and movable properties of the Company excluding the assets of
 Daurala Organics and sugar factory at Daurala Sugar Works, units of the
 Company, both present and future, upon such terms and conditions and in
 such form and manner as the Board may determine in consultation with
 the Trustees but specifically excluding the current assets,
 receivables, inventories, book debts (present and future) and such
 other specific items of machinery and equipment or any other assets as
 are specifically charged to any other lenders or authorities. Due
 within a year Rs. 25.73 lacs (2007-08 - Rs. 25.73 lacs).
 
 d) Rs. 1122.90 lacs (2007-08 - Rs. 1080.12 lacs) from the Sugar
 Development Fund is secured by exclusive second charge on immovable and
 movable assets of sugar factory at Daurala Sugar Works, a unit of the
 Company. Due within a year Nil (2007-08 - Nil).
 
 IV.  Finance Lease
 
 Rs. 32.97 lacs (2007-08 - Rs. 55.60 lacs) are secured by hypothecation
 of specific assets. Due within a year Rs. 23.14 lacs ( 2007-08 - Rs.
 22.64 lacs).
 
                                             For A.F. FERGUSON & CO. 
                                              Chartered Accountants
 
                                                    Manjula Banerji 
 Place : New Delhi                                          Partner
 Date: 27th June, 2009                        Membership No: 086423