1. We have audited the attached Balance Sheet of MODERN INSULATORS
LIMITED as at 30th September 2009, the Profit & Loss Account and cash
flow statement of the Company for the period from 1st April, 2008 to
30th September, 2009 annexed hereto 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. These 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 the management, as well as evaluating the overall financial
statement pre- sentation. We believe that our audit provides a
reasonable basis for our opinion.
3. As required by Companies (Auditors Report) Order, 2003 as amended
by Companies (Auditors Report) (Amendment) Order, 2004, issued by the
Central Government of India in terms of Section 227 (4-A) of the
Companies Act, 1956, we give in the annexure 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:
(i) We have obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purpose 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
(iii) The Balance Sheet, Profit & Loss Account and Cash Flow Statement
dealt with by this report are in agreement with the books of account.
(iv) In our opinion, the Balance Sheet, Profit & Loss Account and Cash
Flow Statement dealt with by this report, comply with the applicable
accounting standards referred to in sub-section (3C) of section 211 of
the Companies Act, 1956.
(v) (a) Balances of debtors and creditors are subject to
reconciliations/confirmations (Note No.4 of Schedule 14).
(b) In view of insufficient information from the suppliers regarding
their status as SSI units, amount overdue to such undertakings could
not be ascertained. (Note No. 10 (i) of Schedule 14).
(c) Provision for taxation (including interest etc.) estimated at Rs,
2252.65 lacs (including for previous year Rs.927.28 lacs reversed
during the period) has not been made in accounts in view of proposed
amalgamation proceedings awaiting approvals; this has resulted in over-
statement of Reserves & Surplus /profits and understatement of Current
Liabilities & Provisions to this extent. (Note No. 13 of Schedule 14)
(vi) Some of the existing directors of the company are not eligible
from being re-appointed as directors under the proviso to Section 274(1
)(g) of the Companies Act, 1956. However, the Company has obtained an
opinion according to which such directors of the Company can continue
to be in office during their tenure and they can also be re-appointed
as directors on the expiry of their tenure. We have been further
informed that the Company had made representation to the Central
Government (Department of Company Affairs) seeking appropriate
exemption from the applicability of the said section.
(vii) In our opinion and to the best of our information and according
to the explanations given to us, the said accounts subject to our
comments in para (v) above and read with other 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 Balance Sheet, of the state of affairs of the
Company as at 30th September, 2009.
(b) In the case of Profit & Loss Account, of the profit of the Company
for the period from 1st April, 2008 to 30th September, 2009.
(c) In the case of Cash Flow Statement, of the cash flows for the
period from 1st April, 2008 to 30th September, 2009.
Referred to in the report of even date of the Auditors to members of
MODERN INSULATORS LIMITED.
(i) (a) The company has maintained proper records showing full
particulars including quantitative details and situation of fixed
assets except furniture & fixtures for which detailed records are not
(b) As per information and explanations given to us, most of the fixed
assets have been physically verified during the period by management in
accordance with a phased programme of veri- fication at reasonable
intervals. According to the information and explanations given to us,
no material discrepancies were noticed on such verification.
(c) During the period, the company has not disposed off substantial
part of the fixed assets.
(ii) (a) As explained to us, the inventory has been physically verified
during the period by the management. In our opinion, the frequency of
verification is reasonable.
(b) 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 records of inventory, we are
of the opinion that the company is maintaining proper records of
inventory. As explained to us, the discrepancies noticed on physical
verification between the physical stocks and the book records were not
(iii) (a) The company during the period has given interest-free loan of
Rs.1300 lacs to subsidiary company. The company has also given
interest-free advance of Rs.280 lacs to a company covered under section
301 of companies Act, 1956 in view of proposed amalgamation awaiting
approvals. Maximum amounts involved during the period and the period
end balances of such loans and advances are Rs.1580 lacs and Rs.1580
(b) 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 Act. Accordingly, the pro- visions of clauses
4(iii)(f) and 4(iii)(g) of the Order are not applicable. (iv) 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 purchases of
inventory, fixed assets and for the sale of goods. During the course of
our audit, we have not observed any major weakness in internal
controls. (v) (a) Based on audit procedures applied by us and
according to the information and explanations given to us, the
particulars of contracts or arrangements referred to in section 301 of
the Act have been entered in the register required to be maintained
under that section. (b) In our opinion and according to the
information and explanations given to us, there are no transactions
made in pursuance of such contracts or arrangements exceeding Rupees
Five lacs in respect of any party during the period. (vi) The Company
has not accepted any deposits from the public during the period. (vii)
In our opinion, the Company has an internal audit system commensurates
with the size of the company and the nature of its business. (viii)
The Central Government has prescribed the maintenance of cost records
u/s 209(l)(d) of the Companies Act, 1956 in respect of the Yarn product
only. On the basis of the records produced, we are of the opinion that
prima-facie the records and accounts have been maintained as prescribed
by the Central Government u/s 209( l)(d) of the Companies Act, 1956.
However we have not carried out detailed examination of such records
and accounts with a view to ascertain whether they are accurate or
complete. Maintenance of such records has not been prescribed for
insulators. (ix) (a) According to the records of the company, the
company is regular in depositing with appropriate authorities
undisputed statutory dues including provident fund, investor education
and protection fund, employees state insurance, service tax, sales-
tax, custom duty, excise duty and other statutory dues applicable to it
and no undisputed statutory dues as noted above is outstanding for a
period of more than six months from the date they became payable. The
company has not paid/provided income tax (refer clause 4(v)(c) of
(b) According to the information and explanations given to us and
as per the records examined by us, there are no disputed dues
of Income tax/Sales tax/Service tax/Custom duty/Wealth tax/
Excise duty/Cess as at 30th September2009.
(x) The Company does not have accumulated losses as at the end of
the financial period and it has not incurred any cash losses during
the financial period covered by our audit and the immediately
preceding financial year.
(xi) Based on our audit and as per information and explanations given
by the management, there has been no default in repayment of dues
to any financial institution or bank or debenture holders during the
(xii) Based on our examination of books of account and information and
explanations given to us, the company has not granted loans and
advances on the basis of security by way of pledge of shares,
debentures and other securities. (xiii) The provisions of any special
statutes applicable to chit fund, nidhi or mutual benefit fund/society
are not applicable to the company. (xiv) The Company is not dealing or
trading in shares, securities,debentures and other investments and
hence requirement of para 4
(xiv) is not applicable.
(xv) As per information and explanations given to us, the Company has
not given any guarantee for loans taken by others from bank or
financial institutions, the terms and conditions whereof are
prejudicial to the interest of the company.
(xvi) On the basis of records examined by us, we have to state that the
company has prima facie, applied the term loan for the purpose for
which it was obtained. (xvii) According to the information
andexplanations given to us and on an overall examination of the
balance sheet of the company, we report that no funds raised on
short-term basis have been used for long-term investment. (xviii)No
allotment of shares has been made by the company during the period.
(xix) During the period covered by our audit report, the Company has
allotted 200 Zero Coupon Secured Redeemable Debentures of Rs. Ten lacs
each aggregating to Rs. 2000 lacs. Debenture certificates are yet to be
issued, pending mortgage of immovable properties of yarn division.
(xx) During the period the company has not raised any money by way of
(xxi) Based upon the audit procedures performed and information and
explanations given by the management, no fraud on or by the
company has been noticed or reported during the period.
For S.S. KOTHARI & CO.
Place: Mumbai Partner
Date : 31st December, 2009 (Membership No. 10900)