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Stone India Ltd.

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Annual Report

For Year :
2016 2015 2014 2013 2012 2011 2010 2009 2008

Auditor's Report

Independent Auditors'' Report

TO THE MEMBERS OF STONE INDIA LIMITED Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of Stone India Limited (“the Company), which comprise the Balance Sheet as at March 31, 2016, Statement of Profit and Loss, and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Standalone Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act) with respect to the preparation of these standalone 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 principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of these standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors'' Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the standalone financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the standalone financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the standalone financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company''s preparation of the standalone financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion on the standalone financial statements.

Basis for Qualified Opinion

i) Attention is drawn to the following notes to the financial statement:

(a) Note 6(b) regarding non-provision of rental on leasehold land demanded by Kolkata Port Trust pending final decision of the matter by Hon''ble High Court at Kolkata;

(b) Note 26(a) regarding managerial remuneration amounting to Rs. 268.54 Lakhs being subject to approval of the Central Government;

(c) Note 13 (a) & 15((b) & (c)) regarding non-ascertainment of shortfall in value of investments in subsidiaries amounting to Rs. 22 Lakhs and Company''s other exposures of Rs. 1215.13 Lakhs (including advances of Rs. 1006.99 Lakhs) against project undertaken by one of its subsidiary and provision required there against;

(d) Note 19(b) regarding defalcation, pending conclusion of the matter, impact thereof as such cannot be commented upon;

(e) Regarding Stock lying with third parties (Note 16 (c)) and certain debit/credit balances including capital advances as per Note 15(a) and certain overdue balance of trade receivables as given in Note 17(b) and certain bank balances which are subject to confirmation/reconciliation and the consequential adjustments thereof not being determined (Note 30);

(f) Note 12(g) regarding non-classification of fixed assets and non- provision and non-ascertainment of depreciation as required in terms of Schedule II to the Companies Act, 2013;

(g) Note 9(b) regarding information about Micro and Small enterprise being not available and as such required disclosures as stated therein and recognition of interest liability, if any in this respect could not be given/made;

ii). Impact with respect to above cannot be ascertained and commented upon by us.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the aforesaid standalone 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, of the state of affairs of the Company as at 31st March, 2016, and its Loss and its 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, 2016 (“the Order), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, and according to information and explanations given to us and also on such checks as we considered appropriate, we give in the ''Annexure A'', a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by Section 143 (3) of the Act, we report that:

a) We have sought and except for matters mentioned in para

(e), (f) and (g) under Basis For Qualified Opinion paragraph, 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 it appears from our examination of those books;

c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account;

d) Except for the matters described in para (c) and (f) in the Basis For Qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and loss and Cash Flow Statement comply with the Accounting Standards specified under section 133 of the Act;

e) The matters described in the Basis for Qualified opinion paragraph above especially those given in Para (a), (c) and

(e) therein, in our opinion, may have an adverse effect on the functioning of the Company.

f) On the basis of the written representations received from the directors as on March 31, 2016, taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2016, from being appointed as a director in terms of section 164(2) of the Act.

g) The qualifications relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph.

h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure B.

i) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. Pending litigations (other than those already recognized in the accounts) having material impact on the financial position of the Company have been disclosed in the standalone financial statement as required in terms of the accounting standards and provisions of the Act (Note 29 & 6(b) of the financial statements)

ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses;

iii. There was no amount due which is required to be transferred to the Investors Education Protection Fund by the Company.

Annexure ''A'' to the Independent Auditors'' Report

Referred to in paragraph 1, under the heading of “Report on Other

Legal and Regulatory Requirements of our Report of even date

i) a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets.

b) The fixed assets of the Company are physically verified by the management over a phased manner, which we consider reasonable considering the size of the Company and nature of its assets. However, during the year, fixed assets have not been physically verified by the management. Discrepancies if any in this respect pending such verification and reconciliation with records are not ascertainable.

c) Based on verification of the title deeds /confirmations etc, as the case may be, produced to us for our verification and according to the information, explanations and representations given to us, except in case of building referred to in Note 12 (a) where as stated in the said note, title deeds are yet to be executed and flat as referred to in Note 12(b) where title deeds could not be produced to us for verification, in our opinion, the title deeds of immovable properties are held in the name of the Company. For the above purpose, deeds and/or other relevant documents have been taken as basis for verification in respect of land (including leasehold land) as well as self constructed building thereupon.

ii. The inventory except those lying with third parties (Note 16(c) of the financial statements) has been physically verified by the management during the year. In our opinion and according to the information and explanations given to us, the frequency of verification, wherever carried out, is reasonable. Pursuant to an exercise for verification and reconciliation thereof initiated in the previous years, even though carried out to a substantial extent, the reconciliation and required adjustment with respect to stock lying with third parties and those at certain locations were in progress at year end. Pending completion of the entire exercise, inventories to the extent of Rs.69.77 Lakhs has been adjusted during the year against provisions made in earlier years and Rs. 397.23 Lakhs being balance amount of the said provisions as given in the Note 16(c) of the financial statements, has been continued in these accounts. Consequential adjustment against respective inventory items, as explained, will be given effect to on determination thereof.

iii. Except for the advances on account of various costs incurred for undertaking Rail Runner and Bio-toilet project by two subsidiaries, as per the records of the company, it has not granted any loans, secured or unsecured, to companies, firms, limited liability partnerships or other parties covered in the Register maintained under Section 189 of the Act. Advances given to subsidiaries for undertaking the said projects are in the nature of contribution towards the project and is therefore long term and strategic in nature and there being no terms of repayment etc. in this respect, we are unable to comment in this regard.

iv. In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of Section 185 and 186 of the Act, with respect to loans and investments made.

v. According to the information and explanations given to us, the Company has not accepted any deposit. Therefore, paragraph 3 (v) of the Order is not applicable to the Company.

vi. On the basis of the records produced, we are of the opinion that prima facie the cost records and accounts specified by the Central Government under section 148(1) of the Act have been maintained for Rail Products. As explained by the management, the same is not required to be maintained for Bio-toilets. However, we have not carried out any detailed examination of such records with a view to determine whether they are accurate or complete.

vii. In respect of statutory dues:

a) According to the information and explanations given to us and as per the records verified by us, there were delays in depositing undisputed statutory dues including in respect of Provident Fund, Employees'' State Insurance (as mentioned in the Note 10(b) of the financial statements), Income tax, Sales tax, Service Tax, Duty of Excise and

Value Added Tax and Cess with appropriate authorities. According to the information and explanations given to us, except those given below, there were no undisputed amounts payable in respect of above dues which were outstanding as at 31st March 2016 for a period of more than six months from the date of those becoming payable:

Name of Statute

Type

Amount in Rs. Lakhs

The Employees'' Provident Fund & MP Act,1952

Accumulated shortfall (Note 35(i)(a) of financial statements)

26.60

The Central Excise Act 1944

Service Tax

9.38

Jharkhand VAT Act, 2005

Value Added Tax

2.38

Tax Deducted at Source

Income

Tax

23.62

Total

61.98

b) According to the information and explanations given to us, there are no dues of Sales tax, Income tax, Duty of Customs, Service Tax, Duty of Excise, Value Added Tax and Cess, which have not been deposited on account of any dispute except the dues as given below:

Name of

Statute

Nature of Tax

Forum where dispute is pending

Period to which related

Amount in Rs. Lakhs

West Bengal Sales Tax Act, 1995

Revisional

Board

2004-05

14.30

West Bengal Value Added Tax, 2003

Additional

Commissioner

2012-13

20.58

Central Sales Tax Act, 1954

Sales Tax

Revisional

Board

2003-04, 2004-05 and 2005-06

31.68

Additional

2006-07

23.72

Commissioner

2012-13

16.59

Central Excise Act, 1944

Service Tax

Appeal to be filed in CESTAT, Kolkata

2005 to 2010

54.70

viii. According to the information and explanations given to us, during the year, the Company has not defaulted in the repayment of loans or borrowings to financial institutions, banks and Government. The Company has not issued any debentures.

ix. The Company has not raised monies by way of Initial Public Offer or further public offer (including debt instruments) and term loans and as such paragraph 3(ix) of the Order is not applicable to the Company.

x. Attention is invited to the Note 19(b) of the financial statements regarding defalcation of company''s fund in earlier years for which administrative and other course of action including recovery of amount involved is under process. Excepting this, during the course of our examination of books of account carried out in accordance with generally accepted auditing practices in India, we have neither come across any incidence of fraud by the company or on the Company by its officers or employees nor have we been informed of any such case by the management.

xi. As stated in Note 26(a) of the financial statements, managerial remuneration has been paid or provided pending approval of the Central Government. This includes the amount covered as per erstwhile provisions of the Companies Act, 1956 and those covered as per the provisions of Section 197 read with Schedule V to the Act.

xii. In our opinion and according to the information and explanations given to us, the Company is not a Nidhi Company. Accordingly, paragraph 3(xii) of the Order is not applicable to the Company.

xiii. According to the information and explanations given to us, the Company''s transactions with its related parties are in compliance with Sections 177 and 188 of the Act, where applicable and details of such have been disclosed in the financial statements as required by the applicable Accounting Standard.

xiv. During the year, the Company has made preferential allotment of equity shares to a promoter group company pursuant to warrants issued in earlier years (under erstwhile Section 81 (1A) of the Companies Act, 1956) entitling the holders thereof to obtain such allotment (as referred to in Note 4(a) of the financial statements). As represented to us, the amount so raised has been used for the purposes for which the funds were raised.

xv. According to the information and explanations given to us, during the year, the Company has not entered into any non-cash transactions specified u/s 192 of the Act with its directors or persons connected with him and therefore provisions of Section 192 of the Act are not applicable to the Company.

xvi. According to the information and explanations given to us, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

''Annexure B'' referred to in our report of even date on the Standalone Financial Statements of Stone India Limited

Report on the Internal Financial Controls under Clause (i) of Subsection 3 of Section 143 of the Companies Act, 2013 (the Act)

We have audited the internal financial controls over financial reporting of Stone India Limited (“the Company) as at March 31, 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management''s Responsibility for Internal Financial Controls

The Company''s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (ICAI). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company''s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

Auditors'' Responsibility

Our responsibility is to express an opinion on the Company''s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note) and the Standards on Auditing, issued by ICAI and prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor''s judgments, including the assessment of the risks of material misstatement of the standalone financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the Company''s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company''s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company''s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company''s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit, the following material weaknesses have been identified as at March 31, 2016:

i. The Company did not have adequate confirmation/ reconciliation procedures in respect of certain debit and credit balances including inventories, capital advances, trade receivables, trade payables and certain bank balances (Note 9(b), 15(a) & (b), 16 (c), 17(b) and 30 of the financial statements).

ii. Evaluation of the useful life of the fixed assets initiated has not been completed and thereby classification of the fixed assets and depreciation thereon have been continued to be provided as per policies followed in earlier year in this respect. (Note 12(g) of the financial statements).

iii. Non determination of the state of the project undertaken by one of the subsidiary and consequential adjustments arising vis-a-vis the Company''s exposure in the said subsidiary (Note 15(b) and 15(c) of the financial statements).

iv. During the year, fixed assets of the Company have not been physically verified by the management and reconciliation/ ascertainment of discrepancies with respect to book records in this respect were not carried out.

v. The framework of Risk Management and its controls are yet to be defined by the Company.

vi. Impact with respect to above cannot be ascertained and commented upon by us.

A ''material weakness'' is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company''s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the possible effects of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has maintained, in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as of March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the ICAI

We have considered the material weaknesses identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the March 31, 2016 standalone financial statements of the Company, and these material weaknesses has affected our opinion on the standalone financial statements of the company and therefore we, where relevant and applicable, have issued qualified opinion on Standalone Financial Statements of the Company.

For Lodha & Co.

Chartered Accountants

Firm ICAI Registration No. : 301051E

R. P. Singh

Place : Kolkata Partner

Date : 30th May, 2016 Membership No. 52438