1. We have audited the attached Balance Sheet of Hindustan Organic
Chemicals Limited as at 31st March 2007, the Profit and Loss Account
and also the Cash Flow Statement of the Company tor the year ended on
that date annexed thereto, in which is incorporated the Balance Sheet,
Profit and Loss Account and Cash Flow Statement of the Branch audited
by other auditors appointed by the Central Government. In preparing
this Report, we have considered the report on the accounts of the
branch, audited by the Branch Auditors together with the particulars
and information relating thereto, furnished to us by the management.
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 In terms of Section 227(4A) of trie Companies
Act, 1956, we enclose in the Annexure a statement on the matters
specified in the paragraphs 4 and 5 of the said Order.
4. Further to our comments in the annexure referred to above, we
i. We have obtained all the information and explanations, which to the
best of our knowledge and belief were necessary for the purposes of our
ii. 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 of the Company.
iii. The Balance Sheet, Profit and Loss Account and Cash Flow Statement
dealt with by this report are in agreement with the books of account of
iv. 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, except AS -13 - Accounting for Investments -
regarding non-provision of diminution in the value of Current
v. As per Notification No. GSR 829(E) dated 21.10.2003. provisions of
section 274(1 )(g) of the Companies Act, 1956 regarding
disqualification of the directors are not applicable to the Company
being government Company.
vi. The financial statements have been prepared on going concern basis,
despite Its accumulated losses exceeding the net worth and further
viability of future operations Is subject to review by the Board for
Industrial and Financial Reconstruction (BIFR) and continued flow of
financial support from banks, financial institutions and the Government
vii. Reference is invited to the following Notes on Accounts In Part B
of Schedule 22 with regard to non-provision / pending charge to the
Profit and Loss Account:
a. Note no. 2(c) regarding penal interest of Rs. 36.60 lakhs on
overdue loan from Government of India,
b. Note no. 8 regarding liabilities of wage revision for the period
01.01.1997 to 31.12.2000 of Rs. 2308.08 lakhs,
c. Note no 19(1)(a)(iv) regarding Claims of JNPT which Include
minimum guaranteed throughput charges of Rs. 102.50 lakhs payable to
viii. Reference Is also invited to the following Notes on Accounts In
Part B of Schedule 22 with regard to pending accounting treatment, the
precise Impact of which on the Balance Sheet and the Profit and Loss
Account could not be ascertained for the reasons stated therein:
(a) Note no. 1(b) and 2(a) regarding non-provision of interest on
overdue principal amount of matured bonds and fixed deposits. The above
amount Is not ascertained and thus we are unable to quantify the Impact
of the same on the Profit for the year.
(b) Note no. 18 regarding pending confirmations and reconciliation of
balances of Sundry Debtors, Sundry -Creditors, Loans and Advances and
other debit/credit balances.
Ix. We further report that the Company has not made the provision for
diminution in the value of Current Investment as on 31.03.2007 of Rs.
0.20 Lakh as required by Accounting Standard -13- Accounting for
x. In respect of suspected fraud in import of cumin during 2002-2003 at
Kochl unit, three officers of the Company were suspended and pending
the final report from CBI, the impact, if any, on the accounts of the
Company could not be quantified.
xi. We further report that effect of Items mentioned at 4(viii) and
4(ix) above could not be determined and had the provision been made for
the items referred in para 4(vii) and para 4(ix) above, Profit for the
year would have been lower by Rs. 3357.38 lakhs and Accumulated loss as
at the year end would be higher by the same amount. Further, the
Current Liabilities would have been higher by Rs. 3357.38 Lakhs.
xii. Subject to our comments in para 4(xi) above, in our opinion and to
the best of our information and according to the explanations given to
us, the said accounts read together with the significant accounting
policies and notes on accounts appearing in Schedule 22, 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
. generally accepted in India;
i) in the case of Balance Sheet, of the state of affairs of the Company
as at 31st March, 2007;
ii) in the case of Profit and Loss Account, of the profit for the year
ended on that date; and
iii) in the case of the Cash Flow Statement, of the cash flows for the
year ended on that date.
ANNEXURE TO THE AUDITORS REPORT
(Referred to in paragraph 3 of the Auditors Report to the members of
the Hindustan Organic Chemicals Limited on the accounts for the year
ended on 31st March 2007)
i (a) The Kochi unit has maintained proper records showing full
particulars including quantitative details and situation of fixed
assets. The records at Rasayanl unit are not complete with regard to
Identification of the assets and exact location of the assets.
(b) According to the information and explanations given to us the
physical verification of major items of fixed assets was carried out
during the year at Kochi unit and no material discrepancies were
noticed on such verification. As Informed, at Rasayanl Unit, no
physical verification has been carried out during the year. In our
opinion, having regard to the size of the unit and the nature of its
business the physical verification of fixed assets at Rasayanl unit
needs to be carried out , every year.
(c) During the year the Company has not disposed off substantial part
of its fixed assets, which has effect on the Company as a . going
ii (a) The management has carried out physical verification of
inventories at reasonable Intervals during the year.
(b) in our opinion 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) The Company is maintaining proper records of inventory.
Discrepancies noticed on such physical verification were not material
and the same were properly dealt with in the books of account.
iii (a) As informed to us, the Company has neither granted nor taken
any loans secured or unsecured to/from companies, firms or other
parties covered in the register maintained under, section 301 of the
Companies Act, 1956 as such provisions of the clause 4 (iii) is not
iv In our opinion and according to the information and explanations
given to us, there is an adequate internal control system for the
purchase of inventories and fixed assets and for the sale of goods and
services commensurate with the size of the Company and the nature of
its business. During the course of our audit, we have not observed any
continuing failure to correct major weaknesses in internal control
v According to the information and explanations given to us, there were
no transactions that need to be entered into the register maintained
under section 301 of the Companies Act, 1956.
vi In our opinion and according to the information and explanation
given to us, the Company has complied with the directives issued by the
Reserve Bank of India and the provisions of Section 58A and 58AA or any
other relevant provisions of the Act and the rifles framed there under,
to the extent applicable except rule 3A of the Companies (Acceptance of
Deposits) Rules, 1975 regarding Investment In liquid assets. We have
been informed by the management that no order has been received by the
Company, from Company Law Board, National Company Law Tribunal or
Reserve Bank of India or any court or any other tribunal under section
58A and 58AA.
vii The Company has appointed firms of Chartered Accountants for
conducting internal audit. In our opinion the internal audit system of
the Company is fairly adequate commensurate with the size of the
Company and nature of its business except at Rasayani Unit. At
Rasayani Unit the system of Internal audit needs to be substantially
strengthened and the scope of the internal audit of the company needs
to be enlarged.
viii We have broadly reviewed the books of account maintained by the
Company in pursuance to the rules made by the Central Government for
the maintenance of the cost records under Section 209(1)(d) of the
Companies Act, 1956 for certain products of the Company 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 records with a view to determine whether they are accurate or
ix (a) The Company is generally regular in depositing undisputed
statutory dues including provident fund, investor education and
protection fund, employees state insurance, income tax, sales tax,
wealth tax, service tax, customs duty, excise duty, Cess and other
statutory dues wherever applicable with the appropriate authorities..
According to the information and explanations given to us, no
undisputed amount payable In respect of income tax; sales tax, wealth
tax, service tax, customs duty, excise duty, cess and other statutory
dues were in arrears as at 31st March, 2007 for a period of more than
six months from the date they became payable.
According to the records of the Company, details of outstanding dues of
income tax, sales tax, wealth tax, service tax, customs duty, excise
duty and cess which have not been deposited on account of any dispute
are given below.
x During the year, the Company has not incurred cash losses. However,
it has incurred cash losses during the Immediately preceding financial
year. The accumulated losses of the Company as at the year-end are
exceeding Its net worth and the Company has been declared sick under
the Sick Industrial Companies (Special Provisions) Act, 1985.
xi The Company has defaulted in repayment of dues to financial
institution, banks and bondholders, the details of which are given
Bond Series Amount of Default
(Rs. In Lacs)
Bond Series - I 898.82
Bond Series - II 544.89
Bond Series - VI 469.54
Bond Series - VII (I) 488.42
Bond Series - VIII (I) 429.62
Bond Series - IX 175.91
xii Based on our examination of records and the information and
explanations given to us, the Company has not granted any loans or
advances on the basis of security by way of pledge of shares,
debentures or other securities.
xiii The Company is not a chit fund or a nidhi, mutual benefit fund/
society, therefore the provisions of clause 4(xiii) of the Companies
(Auditors Report) Order 2003 are not applicable to the Company.
xiv In our opinion, the Company is not dealing or trading in shares,
securities, debentures and other investments. Accordingly, provisions
of clause 4(xiv) of the Order are not applicable to the Company.
xv The Company has given a guarantee of Rs. 1577.00 lakhs to the
financial institutions and banks on behalf of Hindustan Fluorocarbons
Limited, a subsidiary company. In our opinion, the terms and conditions
of the said guarantee are prima facie, not prejudicial to the interest
of the Company
xvi According to information and explanations given to us, term loan
raised during the year by the Company have been applied for the purpose
for which the said loan was obtained.
xvii According to the information and explanations given to us and on
an overall examination of the Balance Sheet of the Company, we are of
the opinion that no funds raised on short-term basis have been used for
xviii The Company has not made any preferentialallotment of shares to
parties and companies covered in the Register maintained under Section
301 of the Companies Act, 1956.
xix The Company has raised Rs. 100 Crore by way of Issuing Bonds during
the year, in respect of which Security is created. However, in respect
of following bonds issued in earlier years, for which the Company has
not created securities.
Particulars of Bonds Series Maturity Principal O/s.
Date as on 31st March,
2007(Rs. In Lacs)
14.50% taxable Secured bonds II 07.08.02 350.00
13.50% taxable Secured bonds VI 29.06.02 283.00
13.50% taxable Secured bonds VII (I) 14.12.02 290.00
13.50% taxable Secured bonds VIII (I) 30.07.04 260.00
13.50% taxable Secured bonds IX 30.06.05 125.00
xx The Company has not raised any funds by way of public issue during
xxi Based upon the audit procedure performed for the purpose of
reporting the true and fair view of the financial statement and as per
the information and explanations given by the management we report that
no fraud is noticed or reported by the Company during the year, .
For Gala & Gala
Mumbai. ( Rajesh Chheda )
Dated : 20th June, 2007. Partner
Membership No. 104748