| 1 Guarantees given by the Bankers (other than against secured loans) on
behalf of the company Rs. 1,60,000 (Previous year Rs. 1,60,000) to DGFT
under EPCG Scheme.
2 Estimated amount of contracts remaining to be executed on capital
account and not provided for Rs. 4387606/- (Previous year Rs 4387606/-)
3 In the opinion of the Board, the current assets, loans and advances
have a value on realization in the ordinary course of business at least
equal to the amount at which they are stated in the Balance Sheet and
the provision for all known liabilities are adequate and not in excess
of the amount reasonably required.
4 i) The Company had imported Jeweltery manufacturing machinery in the
year 1995-96 under the EPCG scheme of the Government of India. The
Director General of Foreign Trade in FY 1999-2000 raised a demand
notice, asking the Company to deposit the entire duty saved and
interest thereon @ 24% per annum.
ii) In the EXIM policy there is a provision for an extended export
obligation period of 12 years for units registered with the Board for
Industrial & Financial Reconstruction (BIFR). Since, the company is
registered with the BIFR and has been declared sick, it is entitled to
have its export obligation period extended to 1.3.2007.The companys
application is pending before the DGFT. In view of the fact that the
company had already provided a liability towards interest, to the tune
of Rs. 214.25 lakhs up to 31.3.2001 (on simple interest basis), and the
company is eligible to fulfill its export obligation up to 1.3.2007,
the company has, decided not to provided further liability towards
interest on custom duty demand from 1.4.2001 to 31.3.2005, which would
have amounted 10 Rs 147.28 Lakhs.
iii) The DGFT is seized of the matter pertaining to extension of Export
Obligation (EO) till 1.3.2007 and also to ascertain the balance EO, if
any, after adjusting all shipping bills filed by the company so far.
5 Some of the Debit and credit balances are subject to
confirmation/reconciliation.
6 The Company had been pursuing the SBI, its main banker, for a one
time settlement of its alleged dues. After protracted and extensive
negotiations the Bank agreed to a settlement amount, the bank asked the
company to arrange for an upfront deposit of Rs 50 Lakhs towards the
one time settlement to show its earnestness of going through with the
settlement once the bank completed the paperwork. The company had
earlier deposited Rs 10 Lakhs with the bank and provided the balance in
the form of pay orders worth Rs 40 lakhs in August 2002. The Bank
committed that the paperwork for the settlement would be completed with
in a period of 8 weeks and not later than 12 weeks under any
circumstances. The bank also committed that the pay orders would not be
encashed until all the approvals to the settlement were in place.
The agreed amount of the settlement was Rs 400 lacs plus Rs13.50 lakhs
towards alleged DPG commission.
Subsequently, the Bank, vide its letter dated 7.1.2003, imposed some
additional conditions came back with a counter offer to the company and
asked the company to submit the board resolution confirming the same.
The banks counter offer was as follows;
a) Entire amount Rs 400 lakhs would be deposited (subject to adjustment
of Rs 50 lakhs already deposited as initial amount) with in 90 days of
the sanction by the bank being conveyed to the company, where after
interest @ 15% with monthly rests would be charged/recovered from the
date of the sanction being conveyed for the overdue period, in the
event of default.
b) Rs 13.50 lacs payable towards overdue DPG commission would be
deposited with in 2 weeeks of receipt of banks acceptance of OTS offer,
as stated above.
c) Margin money FDR aggregating to Rs 16 lakhs or so held in respect of
the bank guarantees issued would also be appropriated by the bank
towards compromise settlement, in addition to the aforesaid compromise
offer amount.
d) Rs 3.50 lakhs would be reimbursed to the bank by EJL with in 15 days
of the sanction being conveyed towards legal expenses incurred by the
bank.
e) Also the company would organize with DGFT New Delhi for return of
original bank guarantees bonds/documents for Rs 77.75 lakhs duly
discharged by the aforesaid department, as these bank guarantees have
already expired in the Bank s records.
The company was required to send its confirmation in the matter
together with a board resolution. The company vide its letter dated
13-1 -2003, accepted the counter offer given by the bank. Official of
the bank informed the company that that the settlement was through and
all that was left was the paperwork, which was a mere formality. The
company was therefore shocked when the bank vide its letter dated
24.3.03 conveyed to the company that the OTS offer received from the
company was recently put up for consideration of Banks Appropriate
Authority, and the same has not been found acceptable in view of the
sacrifice involved on the part of the bank.
The company is of the opinion that the settlement has already been
arrived at, as (1) the company made the offer, (2) the bank accepted
the offer and asked for an upfront payment of Rs 50 Lakhs, (3) the bank
acted upon the contract by encashing the drafts of the initial deposit,
(4) the bank gave the counter offer, (5) and finally the company
accepted the counter offer.
The Banks assessment that the Companys offer was not acceptable in
view of the sacrifice on the part of the bank is an afterthought. The
bank should have considered this before it accepted the companys
offer, asked for a deposit of Rs 50 lakhs, encashed the pay order and
gave its counter offer.
The company therefore decided to give the effect of this settlement in
its books of accounts for the year 2002- 03, and hence showed the
liability towards the bank at Rs 367 lakhs, the amount which was
payable as per offer accepted by the SBI R&R Branch New Delhi, and
wrote back the difference amount of Rs. 624.65 lacs to its Profit &
Loss Account.
The company had roped in a strategic investor for the purposes of
funding of the said agreed settlement. The SBI had promised the
investor in July/August 2002 that it would complete the settlement
within B weeks, and not later than 12 weeks under any circumstances.The
investor gave an ultimatum to the Bank in August 2003 that if the
agreed settlement is not completed/executed with in a reasonable time
frame he will exit the venture. The Bank drove away the investor and
refunded an amount of Rs 40 Lakhs that was deposited in the No-lien
account.
The company has received preliminary legal advice that the State Bank
of I India is estopped from going back on the agreed settlement after
it has interalia acted on the agreed settlement by encashing the pay
orders, the bank giving a counter offer and the company accepting the
Banks counter offer. In the event the company is unable to resolve the
issue with the SBI, the company will take all steps to hold the bank
accountable for its defaults towards the company, as well as claim
damages on this account as per legal advice.
The loans availed by the Company from the State Bank of India were
secured by a charge on the assets of the Company. In light ofthe fact
that the Company and the Bank agreed to a one time settlement in FY
2002-03 and the agreed settlement was acted upon by all parties and the
Bank thereafter reneged on the agreed settlement, the Banks Claims
vis-a-vis alleged securities and recourse to the borrower and/or
alleged guarantors is a subject matter of dispute and will be contested
by the Company
7 Company has availed the sales tax exemption as per the Haryana Sales
Tax Act. This exemption expired on 28.9.2002. After this date, the
company is paying sales tax as per the provisions of the act. However,
as per the terms of rules framed under Haryana SalesTax Act, the unit
shall have to continue its production at least for next five years not
below the level of average production for the preceding five years. In
case, unit violates this conditions it may be liable to make, in
addition to the full amount of tax benefit availed of by it during the
period of exemption, payment of interest chargeable under the Act as if
no exemption was ever available to it. The Techno Economic Viability
conducted by an agency appointed by SBI in 2003-04 has categorically
stated the company set up the latest facility for manufacture of gold
and studded jewellery and also that the company has been able to
establish its brand. The Techno economic viability study has pointed
out that the companys primary handicap is the shortage of working
capital. It is a matter of record that the Company was sanctioned a
working capital limit of Rs 525 lacs and the Bank failed to disburse
the sanctioned working capital limit of Rs 525 lacs. The company
continues to strive to resolve its issue with the Bank and in the event
that the company is able to overcome the working capital hurdle, it is
quite hopeful of fulfilling the total production condition imposed
under Haryana SalesTax Act, and therefore no provision has been made
towards this.
8 Directors Remuneration Amount in Rs.
Current year Previous year
Salary and Allowances Nil 456000
9 The company operates in Single Business Segment of Jewellery and
hence segment reporting as defined in Accounting Standard-17, Segment
Reporting, issued by the Institute of Chartered Accountant of India is
not applicable to the company.
10 Related Party Disclosure, in terms of Accounting Standard-18 issued
by I nstitute of Chartered Accountants of India is given below:
(Amount in Rs.)
Nature of Purchase Sale of Labour Balances
Relationship of Goods Goods Charges outstanding
Received as on 31-03-04
Enterprises in which
directors are interested 1261330 4350000 1287354 2139917Cr
11. The company has adopted the Accounting Standard-22 Accounting for
taxes on Income issued by the Institute of Chartered Accountants of
India. The company has unabsorbed Depreciation and carried forwarded
Business Losses giving rise to the creation of Deferred tax assets.
However, on the principle of prudent business practice, the same has
been recognized to the extent of Deferred tax liability. The Deferred
Tax asset & liability comprise of the following timing differences as
on 31-03-2005:
Deferred Tax Liability Amount (In Rs. Lacs)
Higher depreciation claimed undertax laws 45.71
Total 45.71
Deferred Tax Assets
Unabsorbed Depreciation 45.71
(Balance amount to the extent of Deferred Tax Liability)
Total 45.71
12 Eamings Per Share (As required by the AS-20 issued by the lnstitute
of Chartered Accountant so India)
Current year (Rs) Previous year (Rs)
(A) Net profit after tax as per
Profit and Loss a/c (Numerator) -56621905 -9745360
(B) Weighted average of no. of
Equity shares (Denominator) 7173300 7173300
(C) Basic/Diluted EPS (A/B) -7.89 -1.36
13 There is no dues to small scale industrial undertakings to whom the
company owes a sum outstanding for more than 30 days as on March
31,2005 on the basis of available information with the company and to
the extent identified by the Management.
14 The company has not provided the liability of Bonus as the same
shall be accounted for on payment basis.
15 As per Citibank letter dated October 22,2003, the alleged liability
towards Citibank was Rs 343046/-.The company has filed a case against
Citibank for damages and against this liability of Rs 343046/-
deposited a sum of Rs 350000/- with the Registrar, Delhi High Court
Delhi. In its books of accounts the company has squared up the account
of Citi Bank NA and shown the balance as amount lying with the
Registrar, Delhi High Court Delhi.
16 The company has already been declared sick, during the year
1999-2000, with in the meaning of clause (0) of sub section (3) of Sick
Industrial Companies (special provisions) Amendment Act, 1992 vide BIFR
letter dated 25-10-2002. The BIFR in its hearing dated 7-5-2003, has
considered the matter and gave its directions. In the meantime, a
Techno Economic viability study conducted by an agency appointed by the
SBI in 2003-04 has stated that the Company set up the latest facility
for manufacture of gold and studded jewellery and also that the Company
has been able to establish its brand. The TEVS has also noted that the
companys primary handicap is the shortage of working capital. The
Company has requested to the bank to hold a structured meeting to
discuss the TEVS, but the bank has failed to do so. Now the company has
approached the Bl FR to change the Operating Agency.
17 Inventory as at 31.3.2005 includes new diamond Jewellery containing
diamond 56.73 carats and 1 Set gold 373.540 grams, valued at Rs
1415977, lying with Sales tax department Jammu. Matter is pending with
Honble Jammu and Kashmir High court Jammu. As the company is hopeful
of getting the demand raised by the concerned department quashed by the
Jammu sales tax department in Honble Jammu and Kashmir High Court, no
provision for this amount has been made.
18 Interms of the conditions set out for recognition and measurement of
animpairmentloss, in the Accounting Standard AS-28, issued by the
Institute of Chartered Accountants of India, if the recoverable amount
of an asset is less than its carrying amount the carrying amount of the
asset should be reducedtoits recoverable amount.
The company has set up the facilities for production of Gold and
Diamond Jewellery in 1995. Total investment in plant & machinery as at
31.3.2005, is Rs 1061.02 Lakhs. However due to shortage of working
capital, which was mainly attributable to the state bank of India, the
company could not achieve its true potential. Later on the bank filed
the case for recovery of its dues. Subsequently it was declared sick
during the year 1999-2000. Dueto continuing litigation with bank and
being a sick company the company faced enormous problems in arranging
working capital, which results in non usage of its installed plant &
machinery. The techno economic study conducted by the state bank of
India in 2003-04 has pointed out that the primary handicap is the
shortage of working capital. During the course of Techno Economic
viability study, the bank has got the valuation of its fixed assets
done by M/s Nemani Garg Agarwal & Co, Chartered Accountants New Delhi.
As per their report the valuation of the plant & machinery as at
31.3.2002 is Rs 1,72,45,400/-. As per the valuation report the valuer
appointed by the bank, he has taken into account the following fact;
"Prospective buyer of the plant will incur expenditure to get the
machineries thoroughly overhauled, replacement of missing cumdamaged
items/accessories in machines and change/repair of electrical
equipments. Testing eqyipements will require maintenance. All measuring
and testing equipments will have to be repaired and recalibrated.
Functional obsolescence in the laboratory equipment is very high due to
requirement of accuracy and precision. Considering the nature of Plant
& Machinery, it is felt that they could be utilized only for specific
purpose of making gold chains, gold bangles, and diamond studded with
gold base. Effect of outstanding export obligation/custom penalties etc
would also have to be kept in consideration. He would consider all
these factors and the circumstances under which the plant is being
sold, before proposing an offer."
Since, the availability of working capital have further worsened later
on, in the opinion of the company the carrying amount of the plant and
machinery exceeds its recoverable amount.
For the purpose of arriving at the amount of impairment loss, the
carrying cost of machinery as at 31.3.2005 was Rs 625,14,551/-. Based
on the facts mentioned in the valuation report, the company is of the
opinion that no future cash inflows from the machinery will accrue.
Based on the valuation of plant & machinery done for the purpose of
techno economic viability study carried out by the bank the value of
plant & machinery as at 31.3.2002 was Rs 17245400/-, which was further
amended as under:
Amount (Rs)
Value of plant & machinery as at 31.3.2002
As per valuation report 1,72,45,400/-
Less Depreciation for the period
from 1.4.2002 to 31.3.2005 4.75% 24,57,470/-
Add: Machinery purchased after
valuation date(Net of Dep) 69,272/-
Recoverable amount as at 31.3.2005 1,48,57,202/-
Book value as at 31.3.2005 6,25,14,551/-
Impairment loss recognized 4,76,57,349/-
19 AS per the provisions of The Employees Provident Fund and
Miscellaneous Provisions Act 1956, the company, being a sick industrial
company as defined in clause (0) of sub section (1) of section 3 of
Sick Industrial Companies (Special Provisions) Act 1985, is entitled to
deposit employer contribution equivalent to 10% in place of normal
contribution of 12%. Thus the company has provided liability on this
account @ 10%.
20 The company is in the process of appointing a Company Secretary as
required under section 383A of the Companies Act, 1956.
21 Figures have been rounded off to the nearest rupee.
22 Previous year figures have been regrouped/rearranged wherever
necessary.
23 Additional information pursuantto part-II of Schedule VI of the
Companies Act, 1956 to the extent applicable:
Licenced/Installed Capacity
- Gold Jewellery Kilograms 45,000 kgs.perannum
- Studded Jewellery Carats 1,50,000 carats per annum |