We have audited the attached Balance Sheet of Messrs KAYTEE COTSYNTH
INDUSTRIES LIMITED, as at 31st March, 2007 and also the annexed Profit
& Loss Account of the Company for the year ended on that date annexed
thereto and Cash Flow Statement for the period 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.
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 from 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 statements
presentation. We believe that our audit provides a reasonable basis for
We report that:
1. We have obtained all the information and explanations, which to the
best of our knowledge and belief, were necessary for the purpose of our
2. In our opinion, proper Books of Account as required by the law have
been kept by the Company so far as it appears from our examination of
those books, except for non provision for Interest, Salaries, Wages &
Provident Fund & Electricity Charges as stated in notes 5
(a), (b) & (c) and (d) & (e) respectively and non provision of
Gratuity, Bonus & Leave encashment as stated in notes 8 A, B & C of
Schedule 17 respectively.
3. The Balance Sheet and Profit & Loss Account dealt with by the
Report are in agreementwith the books of account.
4. Subject to note nos. 5 (a), (b) & (c), and (d) & (e) regarding non
provision of Interest, Salanes, Wages & Provident Fund & Electricity
Charges, note no. 8 A, B & C regarding non provision of Gratuity, Bonus
and Leave encashment and note no. 12 regarding non provision for
Impairment of Assets under Schedule 17, in our opinion the Balance
Sheet and Profit and Loss Account dealt, with by this report comply,
with the Accounting Standards referred to in sub section (3 C) of
Section 211 of the Companies Act, 1956, to the extent applicable.
5. On the basis of the written representations received from the
Directors as on 31st March, 2007 and taken on record by the Board of
Directors and further certified by the Company, we report that none of
the Directors are prima fa.de disqualified from being appointed as a
Director in terms of clause (g) of sub section (1) of Section 274 of
the Companies Act, 1956.
6. As referred to in Note no. 9 of Schedule 17, despite the Companys
net worth being fully eroded due to losses (without considering our
remarks in paragraph 4 above with corresponding effects in the loss for
the year and period end, net assets to the extent indicated in para 7
below) despite abatement of references by BIFR and despite significant
overdue loans etc., the accounts have been prepared on going concern
aasis as followed hitherto. In view of possession of assets taken and
disposal of movable assets of the Company by Secured Lenders as stated
in note no. 3, in the absence of concrete developments, we are unable
to comment as to the Companys ability to continue as going concern.
7. In our opinion and to the best of our information and according to
the explanations given to us, the said accounts read with Note 5 (a),
(b) & (c), and (d) & (e) regarding non provision of Interest, Salaries,
Wages & Provident Fund and Electricity Charges, Note 5 (b) regarding
non creation of Debenture Redemption Reserve, Note 8 A, B & C regarding
non provision of Gratuity, Bonus & Leave encashment and Note 9
regarding preparation of accounts on the fundamental accounting
assumption of going concern in Schedule 17 and other notes thereon,
give the information required by the Companies Act, 1956, in the manner
so required and give a true and fair view:
i) In the case of the Balance Sheet of the state of affairs of the
Company as at 31st March, 2007
ii) In the case of the Profit & Loss Account of the Profit for the
year ended on that date.
iii) In the case of Cash Flow Statement of the cash flows of the
Company for the yearendedon that date
8. As required by the Companies (Auditors Report) Order, 2003 issued
by the 1 Central Government in terms of Section 227 (4A) of the
Companies Act, 1956 arid on the basis of such checks of books and
records of the Company as were considered appropriate and on the basis
of information and explanations given to us during the course of our
audit, we further state on the matters specified in Paragraphs 4 of the
said order to the extent applicable to the Company as follows:
i. a. The Company had generally maintained proper records showing
full particulars including quantitative details and situation of fixed
assets. However these records which needed updating and being in
possession of Secured Lenders could not be verified by us.
b. As stated above, in view of possession of assets lying with Secured
Lenders and disposal of movable part thereof it was not possible for
the management to physically verify the same. In view of the foregoing,
the question of commenting on any material discrepancies noticed by the
management does not arise.
c. In view of possession & disposal of securitised assets by Secured
Lenders the question of disposal of any substantial part of fixed
assets by the Company during the year so as to affect its going concern
status does not arise.
ii. a. The Stocks of Finished Goods, Stores & Spares and Raw
Materials lying in the mills premises at Charadva since suspension of
production activities w.e.f. 1-10-2000 were taken possession of by
Secured Lenders under Securitisation Act. The mill was not in
operation since then and hence the said stocks lying thereat had not
been verified physically. The stocks of finished goods lying at Mumbai
sales depot were not physically verified during the year by the
management. In view of adjusting the book value of these inventories
against sale consideration of movable assets by the Secured Lenders;
effects of which have been carried out in accounts of the current year
as explained in note no. 3, the question of commenting on frequency of
verification and discrepancy between physical stocks and book records
does not arise.
b. In view of the foregoing, the question of commenting on the
procedure of physical verification of stocks of finished goods to be
followed by the management and adequacy thereof in relation to the size
of the Company and nature of its business also does not arise.
c. In view of the foregoing developments, in the absence of
maintenance and availability of records of the Company and physical
custody thereof by the Company, we are unable to comment as to
propriety & discrepancy, if any, between the physical stocks of
Finished Goods and the books/records.
iii a. According to the information and explanations furnished to us,
the Company has not granted any loans to Companies, Firms or Other
Parties covered in the Register maintained under Section 301 of the
Companies Act, 1956. In respect of interest free loans granted to the
employees, we have been explained that the same woulcl be recovered
from the amounts due to them.
b. As the Company has not granted any loans, the question of commenting
as to reasonableness of rate of interest arid other terms and
conditions on which such loans are granted does not arise.
c. Clause (iii)(c) relating to receipt of principal and interest is
d. Clause (iii)(d) relating to recovery of the principal and interest
is not applicable.
e. According to the information and explanations given to us, the
Company has not taken any loans, secured or unsecured, from Companies,
Firms or Other Parties covered in the register maintained under Section
301 of the Companies Act, 1956.
f. Clause (iii)(f) relating to the rate of interest and terms and
conditions being prima facie prejudicial to the interest of the
Company, is not applicable.
g. Clause (iii)(g) relating to repayment of principal and interest is
iv. In the absence of any purchase of inventory and/or fixed assets and
sale of goods or services, the question of comment as to adequacy of
internal control system in respect thereof does not arise.
v. (a) On the basis of the information and explanations given to us
and representations made, we are of the opinion that the particulars of
contracts or arrangements referred to in section 301 of the Companies
Act, 1956 have been entered in the register required to be maintained
under that section.
(b) There were no transactions made, in pursuance of such contracts or
arrangements, as per information and explanations given to us.
vi. According to the information and explanations given to us, no
deposits from the public within the meaning of Reserve Bank of India
Directives and Section 58A, 58 AA or any other relevant provisions of
the Act and the Rules framed thereunder have been accepted by the
vii. No Internal Audit was carried out during the year under audit.
viii. In view of suspension of manufacturing activities since October
2000 and absence of personnel, no records have been maintained by the
Company pursuant to the Order made by the. Central Government for the
maintenance of Cost Records u/s. 209 (1)
(d) of the Companies Act, J956, in respect of the Companys product
viz., Cotton Yarn.
ix. (a) Since the Company does not have any employees, the question of
depositing with appropriate authorities undisputed statutory dues;
including Provident Fund, Investor Education Protection Fund, & E. S. I
contribution does not arise. The Company is regular in depositing other
dues viz. Income-tax, Sales-tax, Wealth-tax, Service-tax, Customs Duty,
Excise Duty, Cess & other material statutory dues applicable to it.
(b) According to the information and explanations given to us, except
for unpaid Sales-tax Liability of Rs. 23.54 Lacs & Excise Duty of Rs.
3.38 Lacs, there were no undisputed amounts payable in respect of
Income-tax, Sales-tax, Wealth-tax, Service-tax, Custom Duty, Excise
Duty and Cess which have remained unpaid as on the last date of
accounting year for a period of more than six months from the date they
(c) According to the information and explanations given to us, the
Company has not deposited Sales Tax demands amounting to Rs. 2,196.57
Lacs which were disputed in appeals and were remanded back for fresh
hearing which are pending before D.C. Appeals.
x. The accumulated losses at the end of the financial year are more
than fifty percent of its net worth. The Company has not incurred cash
losses in the financial year under audit however it has incurred cash
losses in the immediately preceding financial year.
xi. The Company had defaulted in repayment of instalments due to the
banks and financial institutions. Barring realisation of a sum of Rs.
9.50 Crores by a Secured Lender by sale of movable part of assets
acquired under Securitisation Act, the balance still remains unpaid.
xii. As explained to us, the Company has not granted any loans and
advances on the basis of security by way of pledge of shares,
debentures and other securities.
xiii. As the Company is not a chit fund,\ nidhi, mutual benefit fund or
society, the provisions of clause 4 (xiii) of the Companies (Auditors
Report) Order, 2003 are not applicable to the Company.
xiv. As the Company is not dealing or trading in shares, securities,
debentures & other investments, provisions of clause 4 (xiv) of the
Companies (Auditors Report) Order, 2004 are not applicable to the
xv. According to information & explanations given to us and
representations made by management, the Company has not given any
guarantee for loans taken by others from banks or financial
institutions, the terms & conditions whereof are prejudicial to the
interest of the Company.
xvi. Based on the examination of the books of account and related
records and in the absence of any fresh borrowings or utilisation
thereof during the year, the Company had, prima facie, applied the term
loans for the purpose for which they were obtained.
xvn. According to information & explanations given to us and on an
overall examination of the financial statements of the Company and
after placing reliance on the reasonable assumptions made by the
Company for classification of the long term and short term usage of the
funds, we are of the opinion that, prima facie, the Company has not
applied short term borrowings for long term use, except cross usage, if
any, resulting or caused due to transfer of excess drawings in cash
credit accounts to term loan account on restructuring of credit
xviii. The Company has not made any Preferential allotment of shares
during the year.
xix. The Company has not issued any Debentures during the year.
xx. The Company has not raised any money by way of Public Issue during
xxi. According to the information & explanations given to us and to the
best of our knowledge and belief, no material fraud on or by the
Company has been noticed or reported by the Company during the year.
For B. S. MEHTA & CO.
M. No. : 037326
Place : Mumbai
Dated : 5th September, 2007