Punjab Fibres Ltd. के अकाउंट के लिये नोट

Mar 31, 2009

1. Contingent liabilities not provided for in the books of account of the company :

i) Value of capital contracts remaining to be executed (net of advances) is Rs.3.81 lakhs (previous year Rs.3.81 lakhs).

ii) Claims lodged by some of the vendors of the land for enhancement of compensation have been decided in favour of the company during the year under review.

iii) Claims in respect of salary etc. for the two terminated employees not acknowledged as debt by the Company as the amount is indeterminate. The matter is pending in the Labour Court.

iv) Certain cases of employees claiming wages, salaries, gratuity etc. are sub-judice and shall be accounted for on cash basis.

v) The demand of Rs.1,1 7,13,520/- along with penalty as raised by the Directorate General of Anti-Evasion (Central Excise), New Delhi had been set aside by the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT). However, an appeal was filed by the Commissioner, Customs & Central Excise, Noida against the CEGAT's said order in the Hon'ble High Court at Delhi and the case is pending.

vi) The Regional PF Commissioner, Meerut has raised a demand for Rs.30,71,259/- towards dues for the period from March, 1990 to March, 1993. The said demand pertains to infancy period and is being contested by the Company before the Allahabad High Court.

vii) Due to inadequacy of funds the Company was unable to honour two cheques for an aggregate of Rs.25,000/- each issued to M/s. Milan Goods Transport Corporation, Nagda (M.P.). The party had initiated legal proceedings u/s 138 of the Negotiable Instruments Act, 1861.

viii) Two cheques for Rs.30,00,000/- each issued to M/s. N.B. International, Kolkata towards security against purchase of raw materials on company's behalf, had been illegally presented by them for payment and had been returned unpaid. The party has initiated legal proceedings u/s 138 of the Negotiable Instruments Act, 1861. One of the cases has been dismissed on 1 7.02.2009 and the other is being defended appropriately.

ix) a) The Sales Tax Department, Noida had raised a demand of Rs.7,38,860/- for the year 2002-03. The said demand included an amount of Rs.7,32,700/- which had arisen for non-issuance of Form H and the relevant pre-export documents by M/s. N.B. International, Kolkata pertaining to the company's sale of merchant exports of Rs.73,27,000/-. Due to dispute with the party, no adjustments have been made in the books of accounts.

The company being a sick industrial company, the recovery of above demand of Rs.7,38,860/- has been stayed by the Hon'ble Board for Industrial and Financial Reconstruction for the time being.

b) The Sales Tax Department, Noida has raised a demand of Rs.4,78,334/- for the year 2003-04. The said demand includes an amount of Rs.3,95,112/- which has arisen for non-issuance of Form H and the relevant pre-export documents by M/s. N.B. International, Kolkata pertaining to the company's sale of merchant exports of Rs.39,51,121/-. The said demand of Rs.4,78,334/- further includes an amount of Rs.70,523/- which has arisen for non-issuance of Form F by the Sales Tax Department, Kolkata against stock-transfer of goods by the company valuing Rs.7,05,234/-. Due to dispute with the party, no adjustments have been made in the books of accounts.

The company being a sick industrial company, the recovery of above demand of Rs.4,78,334/- has been stayed by the Hon'ble Board for Industrial and Financial Reconstruction for the time being.

c) The Sales Tax Department, Noida had raised a demand of Rs.74,79,389/- for the year 1997-98 which, upon an appeal by the Company, had been set aside by the Deputy Commissioner (Appeals), Sales Tax Department, Noida vide order dated 21.10.2000. However, the appeal preferred by the Department before the Sales Tax Tribunal, Noida against the said order dated 21.10.2000 had been decided whereby the case was remanded to the Sales Tax Department, Noida and thereafter the demand was confirmed vide its ex-parte order dated 26.07.2008. The Company again preferred an appeal before the Joint Commissioner (Appeals) 2nd, Commercial Tax, Noida and the case has been decided on 10.02.2009 whereby the entire demand stands withdrawan.

d) The Sales Tax Department, Greater Noida had proceeded ex-parte assessment for the year 2004-05 and raised a demand of Rs.5,03,495/- towards sales tax dues and Rs.15,10,484/- towards penalty thereon. The Company has filed an appeal against the said assessment which was dismissed by the Joint Commissioner (Appeals) 2nd, Commercial Tax, Noida. The company has preferred an appeal against the said dismissal before the Sales Tax Tribunal and the same is pending. Meanwhile, upon an applciation made by the Company, the Appellate Authority for Industrial & Financial Reconstruction has restrained the Sales Tax Department to proceed with the threatened recovery of said penalty by way of attachment/auction of company's assets for the time being.

e) The Sales Tax Department, Noida had raised a demand of Rs.32,13,236/- for the year 1998-99 which, upon an appeal by the Company, had been set aside by the Deputy Commissioner (Appeals), Sales Tax Department, Noida vide order dated 21.05.2001. However, the appeal preferred by the Department before the Sales Tax Tribunal, Noida against the said order dated 21.05.2005 has been decided on 15.12.2008 whereby the said appeal stands dismissed.

x) The Employees' State Insurance Corporation, Chandigarh has initiated legal proceedings under the provisions of Employees' State Insurance Act, 1948 for recovery of arrears of their dues. The company has since paid to the ESI Corporation the entire outstanding amount of employees' share aggregating to Rs.3,46,536/-. The complaint cases filed by the Department were decided in favour of the company by the Sub-Divisional Judicial Magistrate on 09.08.2006 and 12.05.2007. The Department, however, preferred an appeal against the said order dated 12.05.2007 before the Hon'ble High Court of Punjab & Haryana at Chandigarh which has also been dismissed on 04.12.2008.

xi) The Provident Fund Organization, Noida has initiated legal proceedings under the provisions of Employees' Provident Fund & Misc. Provisions Act, 1952 for recovery of Rs. 12,06,147/- being amount of Employees' contributions for the period June, 2001 to March, 2003. The company has paid the amount of Rs. 12,06,147/- being the employees' contributions and moved the Hon'ble Allahabad High Court for quashing of the said legal proceedings and the same is pending decision.

xii) a) The Punjab State Electricity Board, Ropar (PSEB) had initiated legal proceedings for recovery of Rs.22,80,338/- as principal amount on account of energy charges and Rs.9,57,742/- as interest thereon @ 18% p.a. for the period from 20.05.2003 to 19.09.2005 with future interest for the period thereafter. The case is pending and being defended appropriately.

b) Consequent upon threats from PSEB to dismantle/remove the feeder line at company's plant at Village Rail Majra, Punjab, a temporary injunction has been granted by the Court of Law against suit filed by the Company in this behalf and the PSEB authorities have been restrained from dismantling the said independent feeder line/connection, pipes, wires, poles etc. which had been earlier sanctioned and laid at the cost of the company. The case is pending and being pursued appropriately.

c) Despite temporary injunction granted by the Court of Law, the PSEB had removed certain pipes, wires, poles etc.pertaining to the Company's independent feeder line/connection which compelled the Company to file another case seeking directions for restoration of the said independent feeder line/connection and the same is pending.

xiii) The District Provident Fund Officer, Hoshiarpur had filed 8 complaint cases in the Court of Law for recovery of arrears of PF dues. Prior to the initiation of such legal proceedings, the company had submitted a proposal to the PF authorities for settlement of such dues but the same was not responded by them. These complaint cases were decided on 24.01.2009 against the company and appeals there against have been preferred before the District & Sessions Judge, Saheed Bhagat Singh Nagar which are pending decision.

xiv) a) The Employees' Provident Fund Organization, Jalandhar (EPFO) had moved a petition before the Punjab & Haryana High Court at Chandigarh challenging the Order dated 21.04.2005 passed by the Appellate Authority for Industrial & Financial Reconstruction (AAIFR) restraining the EPFO from carrying out sale of assets to recover their alleged dues. The case is pending and being defended appropriately.

b) The Employees' Provident Fund Organization, Jalandhar (EPFO) had again issued a notice dated 31.03.2008 threatening to sell the Company's assets at Village Rail Majra, Punjab for recovery of their alledged dues amounting to Rs.1,10,85,723/-. Upon an application made by the Company, the Appellate Authority for Industrial & Financial Reconstruction, vide order dated 01.05.2008, has restrained the said EPFO from carrying out sale of assets for the time being.

xv) a) The Commissioner of Central Excise, Chandigarh had raised a demand of Rs.21,53,094/- with penalty of the equivalent amount and interest thereon pertaining to the period June, 1995 to July, 1998. The Company had filed an appeal before the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT) against the said demand and deposited an amount of Rs.4,00,000/- under protest. The case had been decided in favour of the Company subject to payment of nominal excise duly payable on manufacture of cotton yarn which remained to be quantified by the concerned authorities. Subsequently, the Commissioner of Central Excise, Chandigarh has filed an appeal along with an application for condonation of delay before the Hon'ble Supreme Court of India against the order of the CEGAT and the case was dismissed on 16.07.2008 for non- prosecutions. The Department has, however, moved an applciation for restoration of the appral and the case is pending decision.

b) The Commissioner of Central Excise, Chandigarh had also raised a demand of Rs.4,48,964.80/- and penalty of Rs.2,00,000/- pertaining to the period August, 1998 to February, 2000. Subsequently, the said demand had been set aside by the Commissioner (Appeals), Central Excise, Chandigarh in the manner similar to the decision of CEGAT pertaining to the immediate preceding period. However, the appeal filed thereafter before the CEGAT by the Commissioner of Central Excise, Chandigarh against the said order of the Commissioner (Appeals), Central Excise, Chandigarh, had also been dismissed. The appeal against the said dismissal order of the CEGAT filed by the Commissioner of Central Excise, Chandigarh before the Hon'ble Supreme Court of India stands tagged with their earlier appeal for the immediate preceding period as referred to hereinabove and the case was dismissed on 16.07.2008 for non-prosecurtion. The appellants are understood to have been instructed by the court to file restoration application and the case is pending.

c) The Commissioner of Customs and Central Excise, Noida had issued a Show Cause Notice raising a demand of Rs.1,60,05,397/- along with penalty and interest thereon, towards differential excise duty for the period from 01.08.2000 to 18.02.2003. Reply to the Show Cause Notice had since been filed and the case is being defended appropriately.

d) The Commissioner of Central Excise, Chandigarh had issued a Show Cause Notice raising a demand of Rs. 1,27,14,116.12 along with penalty and interest thereon, towards differential excise duty for the year 2000-01 and 2001-02. Reply to the Show Cause Notice had since been filed and the case is being defended appropriately.

2. i) a) Term loans from Financial Institutions are secured by a first mortgage of all immovable properties, both present and future, pertaining to company's plant at (i) Village Rail Majra, Pb. (Unit-I) and; (ii) B-2, Phase-II, Surajpur Indl. Area, U.P. (Unit-II) and a charge by way of hypothecation of all moveable assets of the aforesaid units subject, however, to prior charge on moveables created in favour of the bankers for securing working capital finance. The loans are further guaranteed by the Managing Director and the then Whole-time Director of the Company.

b) Financial Institutions have the right to exercise option for conversion of a part of their loans into equity share capital of the company, at par.

c) During the year 1998-99 the Company entered into a One-Time Settlement with the Financial Institutions for clearance of their total outstanding dues. In terms of the settlement, the principal loan amount along with 50% of the unpaid interest accrued up to 31.12.1998 calculated at simple rate of interest was payable and was accordingly provided in the books of account. No further interest in addition to the above was payable up to completion of all the installments in full and final. However, on immediate receipt and encashment of the first installment of Rs.100 lakhs, the Financial Institutions proceeded to unilaterally modify the terms of settlement and on being protested, revoked the agreement. The Company forthwith conveyed its non-acceptance to this unilateral and arbitrary act of the Institutions and has since adjusted the above said payment against the principal loan amount outstanding in company's books of account. In view of the aforesaid no provision on account of interest is made.

The losses are understated to the extent aforementioned.

ii) Cash credit facilities from banks are secured by hypothecation of stock of raw materials, stock-in-process, finished goods, stores & spares and book debts. These are further secured by a second charge on fixed assets in respect of Unit-II at Surajpur (U.P.) and third charge on fixed assets in respect of Unit-I at Rail Majra (Pb.) in addition to personal guarantees of the Managing Director and the then Whole-Time Director.

iii) Interest free loans from the Director of Industries (Pb.) are secured by second charge on land, buildings and plant & machinery at company's works at Village Rail Majra (Pb).

iv) Interest on the undernoted is not provided in books of account due to inadequacy of profit and the company having become sick under the provisions of SICA envisaging relief and concessions including waiver of interest in restructuring/rehabilitation scheme:-

a) Rs.2318.09 lakhs (previous year Rs.2116.24 lakhs) calculated on the basis of simple document rate of interest on the principal amount of loans from Financial Institutions.

b) Rs.2575.68 lakhs (previous year Rs.2317.39 lakhs) calculated at simple rate of interest on the principal amount of Cash Credit Loans from Banks and;

c) Rs.86.40 lakhs (previous year Rs.77.76 lakhs) calculated at simple rate of interest on principal amount of Interest Free Loans from the Director of Industries, Punjab.

The losses are understated to the extent aforementioned.

v) Similarly, interest is not provided on loans from the Promoters & their Associates due to inadequacy of profit. The same amounts to Rs.8028.78 lakhs (previous year Rs.6511.35 lakhs) calculated at the weighted average rate of interest on institutional loans compounded on quarterly rest basis. This is as per the terms of sanction stipulated by IFCI along with other participating institutions.

The losses are understated to the extent aforementioned.

vi) Interest and damages on the undernoted are not provided in books of account due to inadequacy of profit and the company having become sick under the provisions of SICA envisaging relief and concessions including waiver of interest and damages in restructuring/rehabilitation scheme:-

a) Rs.195.71 lakhs towards interest and Rs.383.92 lakhs towards damages by way of penalty on arrears of provident fund dues, and

b) Rs.59.24 lakhs towards interest and Rs.55.53 lakhs towards damages on arrears of ESI dues.

The losses are understated to the extent aforementioned.

3. The Joint Excise & Taxation Commissioner, Patiala had initiated suo moto revisional proceedings against the Company for the assessment years 1982-83 to 1984-85 and raised demand of Rs.18.53 lakhs approx. towards purchase tax @ 4% along with interest and penalties instead of concessional rate of 2% already assessed and paid. Upon dismissal of Company's revision petitions by the Sales Tax Tribunal, it moved the Hon'ble Punjab & Haryana High Court and the said revisional proceedings of the Joint Excise & Taxation Commissioner, Patiala were set aside. Subsequently the State of Punjab had filed Special Leave Petitions in the Hon'ble Supreme Court of India which were dismissed in default. The State of Punjab had, however, subsequently moved an application for restoration of said appeals which had been admitted and the case was decided against the company. The company had moved a Review Petition before the Hon'ble Supreme Court of India which had been decided against the company during the year 2005-06. However, the company has not made any provision for this liability including interest/penalties thereon. As such the losses are understated to that extent. The amount of this liability is unascertainable as the company has not received any firm demand from the authorities.

4. The company has filed an appeal before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) against the order of the Commissioner (Appeals) Central Excise, Chandigarh in respect of demand of unpaid excise duty amounting to Rs.13,19,872/-and penalty thereon of the equivalent amount and the case had been decided against the Company. The company has not made any provision for Rs.13,19,872/- on account of penalty on the excise duty payable amounting to Rs. 15,78,453/- and interest thereon. As such the losses are understated to that extent.

5. Based on independent reports by approved valuers, land, buildings and plant & machinery including electrical fittings at Works were revalued during 1984-85, 1989-90 1994-95, 1997-98 and 2000-2001. The surplus arising on revaluation was credited to the 'Capital Revaluation Reserve'. The incremental annual differential depreciation of the current year on account of such revaluation amounting to Rs.1 7,62,001 /- (previous year Rs.27,60,647/-) has been charged to the Profit & Loss Account as per the requirement of Accounting Standard 5 issued by the Institute of Chartered Accountants of India.

6. Advances recoverable in cash or in kind in schedule 9 of loans & advances include:

i) the suit of the Company against illegal assessment/demand of Rs.30,94,867/- raised by the Uttar Pradesh State Electricity Board (UPSEB) towards arrears of electricity charges, partly decreed in favour of the Company during 1997-98. As the Court has disallowed refund of the deposit of Rs.7,90,042/- (Previous year Rs.7,90,042/-) made under protest with UPSEB, the Company has filed an appeal in the Allahabad High Court against the said order of the Distt. Court which is pending decision. However, the same has been shown under the head 'Advances Recoverable' in the Schedule of 'Current Assets, Loans and Advances'.

ii) the material issued amounting to Rs.10,24,990/- to M/s. Banwari Lal Suresh Kumar, Ex-building Contractor in the year 1979-80 and 1980-81. The company's appeal in the Court of Distt. Session Judge, Chandigarh against the order of the Sub-Judge 1st Class, Chandigarh granting a decree for compensation against damages suit filed by the contractor for an amount of Rs.15,20,580/- in their favour along with interest till the date of payment, was dismissed and consequently the company filed an appeal in the Hon'ble High Court of Punjab & Haryana at Chandigarh. The case was admitted subject to payment of Rs.10.50 lakhs against adequate security stipulated to be furnished by the recipient. The Company having become sick under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, it has filed an application in the Court of Sub- Judge, 1st Judge, Chandigarh for stay of recovery proceedings of the aforesaid amount of Rs.10.50 lakhs. Matter being sub-judice, no adjustment has been made in the books of account. As such the losses are understated to that extent.

iii) As a result of fire that broke out at Surajpur Plant twice during 2004-05, Buildings and Plant & Machinery were damaged for which necessary claims had been filed with the National Insurance Company Ltd. The company has protested unilateral settlement of these claims by the insurance company and moved a complaint each before the District Consumer Disputes Redressal Forum and the State Consumer Disputes Redressal Commission both at Chandigarh. The complaint before the State Consumer Disputes Redressal Commission has since been decided in favour of the company but the Insurance company has preferred an appeal before the National Consumer Disputes Redressal Commission which is pending decision. Further, the case before the District Consumer Disputes Redressal Forum has also been decided in favour of the company but the Insurance company has preferred an appeal before the State Consumer Disputes Redressal Commission which is pending decision. Necessary adjustments in the books of account in respect of these claims will be made when the cases are finally decided.

7. i) The sales tax liability has been provided for as per returns filed. The additional liability, if any, shall be provided for as and when assessments are completed. In view of the losses in the company no provision of income tax has been made.

ii) The sales tax authorities have raised demands and penalties amounting to Rs.19,15,503/- (previous year Rs.19,15,503/-) against which an amount of Rs.43,000/- (previous year Rs.43,000/-) had been deposited by the company in the previous years under protest. The same is shown as recoverable in the Schedule of 'Current Assets, Loans and Advances' as the company has disputed the said demands and penalties.

iii) The income tax assessment of the Company has been completed up to the assessment year 2007-08. The total demand raised by the Income Tax Department up to the said assessment year has been paid. The amount so paid is included in Income Tax Payments Pending Adjustments in Schedule 9 of Loans & Advances. Additions made by the Assessing Officer have been disputed in Appeals and adjustment will be made at the time of final settlement.

iv) The Company had paid excise duty of Rs.12,335/- under protest under Rule 233-B of the Central Excise Rules during the earlier years and the matter is pending. The amount has been shown as recoverable in the Schedule of 'Current Assets, Loans and Advances'.

8. The debit and credit balances in the accounts of suppliers, customers and others are subject to confirmation and reconciliation.

9. The company has been declared as a sick industrial company under Sick Industrial Companies (Special Provisions) Act, 1985 by the Hon'ble Board for Industrial & Financial Reconstruction vide its Order dated 06.11.2006 with directions to the Operating Agency (IDBI) to prepare a rehabilitation/revival scheme for the company.

10. The company had entered into an Memorandum of Understanding (MOU) with Rayat Educational & Research Trust (Regd.) for sale of surplus land at company's plant at Rail Majra, Punjab and received a sum of Rs.10.00 lakhs which has been shown as an advance in the Schedule of 'Current Liabilities and Provisions'. The MOU was subject to specific approval of the secured lenders. As the secured lenders did not approve of the said sale of surplus land, the party continued insisting for renewal of the MOU time and again and thereafter proceeded to file a suit for permanent injunction before the Courts at Balachaur, Punjab. The case was contested by the company when the same was dismissed with directions to refer it to the Arbitrator. Thereafter arbitration proceedings were initiated by the party and the matter is pending before the Sole Arbitrator.

11. In accordance with AS - 22 on 'Deferred Taxes' issued by the ICAI, there is no deferred tax liability as the depreciation allowable under the Income Tax Act, 1961 is less than the amount of depreciation charged in the books of account. As such, there is a deferred tax asset which has not been recognized because the company being a sick industrial company, has huge accumulated losses and the chances of its recovery in future are bleak.

12. The manufacturing activities at company's plants remained suspended during the year under review. Hence, there are no reportable segments as per AS-1 7 issued by the ICAI on segment accounting.

13. In the absence of information from the vendors with regards to their registration (filing of memorandum) under The Micro, Small Medium Enterprises Development Act, 2006, no disclosure has been made in this regard.

14. Since a minimum remuneration as approved by the members has been paid to the Managing Director, computation of net profit under Section 349 of the Companies Act, 1956, in the absence of profits, has not been worked out.

15. The figures for the previous year have been regrouped and rearranged wherever found necessary to make them comparable with those of current year.

16. Schedule 1 to 17 form part of the Balance Sheet and the Profit & Loss Account and have been duly authenticated.

17. In the opinion of the Board, the current assets, loans and advances unless specified otherwise, if realized in the ordinary course of business, have the value atleast equal to the amount of which they are stated in the Balance Sheet. The provisions for all the known liabilities are adequate and not in excess of the amount considered reasonably necessary.

---

Mar 31, 2008

1. Contingent liabilities not provided for in the books of account of the company :

i) Value of capital contracts remaining to be executed (net of advances) is Rs.3.81 lakhs (previous year Rs.3.81 lakhs).

ii) Claims lodged by some of the vendors of the land for enhancement of compensation have been decided in favour of the company during the year under review.

iii) Claims in respect of salary etc. for the two terminated employees not acknowledged as debt by the Company as the amount is indeterminate. The matter is pending in the Labour Court.

iv) Certain cases of employees claiming wages, salaries, gratuity etc. are sub-judice and shall be accounted for on cash basis.

v) The demand of Rs.1,17,13,520/- along with penalty as raised by the Directorate General of Anti-Evasion (Central Excise), New Delhi had been set aside by the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT). However, an appeal was filed by the Commissioner, Customs & Central Excise, Noida against the CEGAT's said order in the Hon'ble High Court at Delhi and the case is pending.

vi) The Regional PF Commissioner, Meerut has raised a demand for Rs.30,71,259/- towards dues for the period from March, 1990 to March, 1993. The said demand pertains to infancy period and is being contested by the Company before the Allahabad High Court.

vii) Due to inadequacy of funds the Company was unable to honour two cheques for an aggregate of Rs.25,000/- each issued to M/s. Milan Goods Transport Corporation, Nagda (M.P.). The party had initiated legal proceedings u/s 138 of the Negotiable Instruments Act, 1861.

viii) Two cheques for Rs.30,00,000/- each issued to M/s. N.B. International, Kolkata towards security against purchase of raw materials on company's behalf, had been illegally presented by them for payment and had been returned unpaid. The party has initiated legal proceedings u/s 138 of the Negotiable Instruments Act, 1861. These cases are being defended appropriately.

ix) a) The Sales Tax Department, Noida had raised a demand of Rs.7,38,860/- for the year 2002-03. The said demand included an amount of Rs.7,32,700/- which had arisen for non-issuance of Form H and the relevant pre-export documents by M/s. N.B. International, Kolkata pertaining to the company's sale of merchant exports of Rs.73,27,000/-. Due to dispute with the party, no adjustments have been made in the books of accounts.

The company being a sick industrial company, the recovery of above demand of Rs.7,38,860/- has been stayed by the Hon'ble Board for Industrial and Financial Reconstruction for the time being.

b) The Sales Tax Department, Noida has raised a demand of Rs.4,78,334/- for the year 2003-04. The said demand includes an amount of Rs.3,95,112/- which has arisen for non-issuance of Form H and the relevant pre-export documents by M/s. N.B. International, Kolkata pertaining to the company's sale of merchant exports of Rs.39,51,121/-. The said demand of Rs.4,78,334/- further includes an amount of Rs.70,523/- which has arisen for non-issuance of Form F by the Sales Tax Department, Kolkata against stock-transfer of goods by the company valuing Rs.7,05,234/-. Due to dispute with the party, no adjustments have been made in the books of accounts.

The company being a sick industrial company, the recovery of above demand of Rs.4,78,334/- has been stayed by the Hon'ble Board for Industrial and Financial Reconstruction for the time being.

c) The Sales Tax Department, Noida had raised a demand of Rs.74,79,389/- for the year 1997-98 which, upon an appeal by the Company, had been set aside by the Deputy Commissioner (Appeals), Sales Tax Department, Noida vide order dated 21.10.2000. However, the appeal preferred by the Department before the Sales Tax Tribunal, Noida against the said order dated 21.10.2000 has been decided whereby the case has been remanded to the Sales Tax Department, Noida and the same is pending.

d) The Sales Tax Department, Greater Noida had proceeded ex-parte assessment for the year 2004-05 and raised a demand of Rs.5,03,495/- towards sales tax dues and Rs.15,10,484/- towards penalty thereon. The Company has filed an appeal against the said assessment and the same is pending. Meanwhile, upon an application made by the Company, the Appellate Authority for Industrial & Financial Reconstruction has restrained the Sales Tax Department to proceed with the threatened recovery of said penalty by way of attachment/auction of company's assets for the time being.

e) The Sales Tax Department, Noida had raised a demand of Rs.32,13,236/- for the year 1998-99 which, upon an appeal by the Company, had been set aside by the Deputy Commissioner (Appeals), Sales Tax Department, Noida vide order dated 21.05.2001. However, the appeal preferred by the Department before the Sales Tax Tribunal, Noida against the said order dated 21.05.2005 is pending decision.

x) The Employees' State Insurance Corporation, Chandigarh has initiated legal proceedings under the provisions of Employees' State Insurance Act, 1948 for recovery of arrears of their dues. The company has since paid to the ESI Corporation the entire outstanding amount of employees' share aggregating to Rs.3,46,536/-. The cases are, however, being defended appropriately and a petition has been made to the Hon'ble Punjab & Haryana High Court at Chandigarh for quashing the said recovery proceedings and the same is pending decision.

xi) The Provident Fund Organization, Noida has initiated legal proceedings under the provisions of Employees' Provident Fund & Misc. Provisions Act, 1952 for recovery of Rs.12,06,147/- being amount of Employees' contributions for the period June, 2001 to March, 2003. The company has paid the amount of Rs.12,06,147/- being the employees' contributions and moved the Hon'ble Allahabad High Court for quashing of the said legal proceedings and the same is pending decision.

xii) a) The Punjab State Electricity Board, Ropar (PSEB) had initiated legal proceedings for recovery of Rs.22,80,338/- as principal amount on account of energy charges and Rs.9,57,742/- as interest thereon @ 18% p.a. for the period from 20.05.2003 to 19.09.2005 with future interest for the period thereafter. The case is pending and being defended appropriately.

b) Consequent upon threats from PSEB to dismantle/remove the feeder line at company's plant at Village Rail Majra, Punjab, a temporary injunction has been granted by the Court of Law against suit filed by the Company in this behalf and the PSEB authorities have been restrained from dismantling the said independent feeder line/connection, pipes, wires, poles etc. which had been earlier sanctioned and laid at the cost of the company. The case is pending and being pursued appropriately.

xiii) The District Provident Fund Officer, Hoshiarpur had filed 8 complaint cases in the Court of Law for recovery of arrears of PF dues. Prior to the initiation of such legal proceedings, the company had submitted a proposal to the PF authorities for settlement of such dues but the same was not responded by them. The legal cases are, however, being defended appropriately.

xiv) a) The Employees' Provident Fund Organization, Jalandhar (EPFO) had moved a petition before the Punjab & Haryana High Court at Chandigarh challenging the Order dated 21.04.2005 passed by the Appellate Authority for Industrial & Financial Reconstruction (AAIFR) restraining the EPFO from carrying out sale of assets to recover their alleged dues. The case is pending and being defended appropriately.

b) The Employees' Provident Fund Organization, Jalandhar (EPFO) had again issued a notice dated 31.03.2008 threatening to sell the Company's assets at Village Rail Majra, Punjab for recovery of their alledged dues amounting to Rs.1,10,85,723/-. Upon an application made by the Company, the Appellate Authority for Industrial & Financial Reconstruction, vide order dated 01.05.2008, has restrained the said EPFO from carrying out sale of assets for the time being.

xv) a) The Commissioner of Central Excise, Chandigarh had raised a demand of Rs.21,53,094/- with penalty of the equivalent amount and interest thereon pertaining to the period June, 1995 to July, 1998. The Company had filed an appeal before the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT) against the said demand and deposited an amount of Rs.4,00,000/- under protest. The case had been decided in favour of the Company subject to payment of nominal excise duly payable on manufacture of cotton yarn which remained to be quantified by the concerned authorities. Subsequently, the Commissioner of Central Excise, Chandigarh has filed an appeal along with an application for condonation of delay before the Hon'ble Supreme Court of India against the order of the CEGAT and the case is pending decision.

b) The Commissioner of Central Excise, Chandigarh had also raised a demand of Rs.4,48,964.80/- and penalty of Rs.2,00,000/- pertaining to the period August, 1998 to February, 2000. Subsequently, the said demand had been set aside by the Commissioner (Appeals), Central Excise, Chandigarh in the manner similar to the decision of CEGAT pertaining to the immediate preceding period. However, the appeal filed thereafter before the CEGAT by the Commissioner of Central Excise, Chandigarh against the said order of the Commissioner (Appeals), Central Excise, Chandigarh, had also been dismissed. The appeal against the said dismissal order of the CEGAT filed by the Commissioner of Central Excise, Chandigarh before the Hon'ble Supreme Court of India stands tagged with their earlier appeal for the immediate preceding period as referred to hereinabove and the cases are pending decision.

c) The Commissioner of Customs and Central Excise, Noida had issued a Show Cause Notice raising a demand of Rs.1,60,05,397/- along with penalty and interest thereon, towards differential excise duty for the period from 01.08.2000 to 18.02.2003. Reply to the Show Cause Notice had since been filed and the case is being defended appropriately.

d) The Commissioner of Central Excise, Chandigarh had issued a Show Cause Notice raising a demand of Rs.1,27,14,116.12 along with penalty and interest thereon, towards differential excise duty for the year 2000-01 and 2001-02. Reply to the Show Cause Notice had since been filed and the case is being defended appropriately.

2. i) a) Term loans from Financial Institutions are secured by a first mortgage of all immovable properties, both present and future, pertaining to company's plant at (i) Village Rail Majra, Pb. (Unit-I) and; (ii) B-2, Phase-II, Surajpur Indl. Area, U.P. (Unit-II) and a charge by way of hypothecation of all moveable assets of the aforesaid units subject, however, to prior charge on moveables created in favour of the bankers for securing working capital finance. The loans are further guaranteed by the Managing Director and the then Whole-time Director of the Company.

b) Financial Institutions have the right to exercise option for conversion of a part of their loans into equity share capital of the company, at par.

c) During the year 1998-99 the Company entered into a One-Time Settlement with the Financial Institutions for clearance of their total outstanding dues. In terms of the settlement, the principal loan amount along with 50% of the unpaid interest accrued up to 31.12.1998 calculated at simple rate of interest was payable and was accordingly provided in the books of account. No further interest in addition to the above was payable up to completion of all the installments in full and final. However, on immediate receipt and encashment of the first installment of Rs.100 lakhs, the Financial Institutions proceeded to unilaterally modify the terms of settlement and on being protested, revoked the agreement. The Company forthwith conveyed its non-acceptance to this unilateral and arbitrary act of the Institutions and has since adjusted the above said payment against the principal loan amount outstanding in company's books of account. In view of the aforesaid no provision on account of interest is made.

The losses are understated to the extent aforementioned.

ii) Cash credit facilities from banks are secured by hypothecation of stock of raw materials, stock-in-process, finished goods, stores & spares and book debts. These are further secured by a second charge on fixed assets in respect of Unit-II at Surajpur (U.P.) and third charge on fixed assets in respect of Unit-I at Rail Majra (Pb.) in addition to personal guarantees of the Managing Director and the then Whole-Time Director.

iii) Interest free loans from the Director of Industries (Pb.) are secured by second charge on land, buildings and plant & machinery at company's works at Village Rail Majra (Pb).

iv) Interest on the undernoted is not provided in books of account due to inadequacy of profit and the company having become sick under the provisions of SICA envisaging relief and concessions including waiver of interest in restructuring/rehabilitation scheme:-

a) Rs.2116.24 lakhs (previous year Rs.1913.85 lakhs) calculated on the basis of simple document rate of interest on the principal amount of loans from Financial Institutions.

b) Rs.2317.39 lakhs (previous year Rs.2058.37 lakhs) calculated at simple rate of interest on the principal amount of Cash Credit Loans from Banks and;

c) Rs.77.76 lakhs (previous year Rs.69.12 lakhs) calculated at simple rate of interest on principal amount of Interest Free Loans from the Director of Industries, Punjab.

The losses are understated to the extent aforementioned.

v) Similarly, interest is not provided on loans from the Promoters & their Associates due to inadequacy of profit. The same amounts to Rs.6511.35 lakhs (previous year Rs.5202.70 lakhs) up to 31st March, 2008 calculated at the weighted average rate of interest on institutional loans compounded on quarterly rest basis. This is as per the terms of sanction stipulated by IFCI along with other participating institutions.

The losses are understated to the extent aforementioned.

vi) Interest and damages on the undernoted are not provided in books of account due to inadequacy of profit and the company having become sick under the provisions of SICA envisaging relief and concessions including waiver of interest and damages in restructuring/rehabilitation scheme:-

a) Rs.108.85 lakhs towards interest and Rs.134.69 lakhs towards damages by way of penalty on arrears of provident fund dues, and

b) Rs.29.89 lakhs towards interest and Rs.49.61 lakhs towards damages on arrears of ESI dues.

The losses are understated to the extent aforementioned.

3. The Joint Excise & Taxation Commissioner, Patiala had initiated suomoto revisional proceedings against the Company for the assessment years 1982-83 to 1984-85 and raised demand of Rs.18.53 lakhs approx. towards purchase tax @ 4% along with interest and penalties instead of concessional rate of 2% already assessed and paid. Upon dismissal of Company's revision petitions by the Sales Tax Tribunal, it moved the Hon'ble Punjab & Haryana High Court and the said revisional proceedings of the Joint Excise & Taxation Commissioner, Patiala were set aside. Subsequently the State of Punjab had filed Special Leave Petitions in the Hon'ble Supreme Court of India which were dismissed in default. The State of Punjab had, however, subsequently moved an application for restoration of said appeals which had been admitted and the case was decided against the company. The company had moved a Review Petition before the Hon'ble Supreme Court of India which had been decided against the company during the year 2005-06. However, the company has not made any provision for this liability including interest/penalties thereon. As such the losses are understated to that extent. The amount of this liability is unascertainable as the company has not received any firm demand from the authorities.

4. The company has filed an appeal before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) against the order of the Commissioner (Appeals) Central Excise, Chandigarh in respect of demand of unpaid excise duty amounting to Rs.13,19,872/-and penalty thereon of the equivalent amount and the case had been decided against the Company. The company has not made any provision for Rs.13,19,872/- on account of penalty on the excise duty payable amounting to Rs.15,78,453/- and interest thereon. As such the losses are understated to that extent.

5. Based on independent reports by approved valuers, land, buildings and plant & machinery including electrical fittings at Works were revalued during 1984-85, 1989-90 1994-95, 1997-98 and 2000-2001. The surplus arising on revaluation was credited to the 'Capital Revaluation Reserve'. The incremental annual differential depreciation of the current year on account of such revaluation amounting to Rs.27,60,647/- (previous year Rs.25,40,858/-) has been charged to the Profit & Loss Account as per the requirement of Accounting Standard 5 issued by the Institute of Chartered Accountants of India.

6. Advances recoverable in cash or in kind in schedule 9 of loans & advances include:

i) the suit of the Company against illegal assessment/demand of Rs.30,94,867/- raised by the Uttar Pradesh State Electricity Board (UPSEB) towards arrears of electricity charges, partly decreed in favour of the Company during 1997-98. As the Court has disallowed refund of the deposit of Rs.7,90,042/- (Previous year Rs.7,90,042/-) made under protest with UPSEB, the Company has filed an appeal in the Allahabad High Court against the said order of the Distt. Court which is pending decision. However, the same has been shown under the head 'Advances Recoverable' in the Schedule of 'Current Assets, Loans and Advances'.

ii) the material issued amounting to Rs.10,24,990/- to M/s. Banwari Lal Suresh Kumar, Ex-building Contractor in the year 1979-80 and 1980-81. The company's appeal in the Court of Distt. Session Judge, Chandigarh against the order of the Sub-Judge 1st Class, Chandigarh granting a decree for compensation against damages suit filed by the contractor for an amount of Rs.15,20,580/- in their favour along with interest till the date of payment, was dismissed and consequently the company filed an appeal in the Hon'ble High Court of Punjab & Haryana at Chandigarh. The case was admitted subject to payment of Rs.10.50 lakhs against adequate security stipulated to be furnished by the recipient. The Company having become sick under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, it has filed an application in the Court of Sub-Judge, 1st Judge, Chandigarh for stay of recovery proceedings of the aforesaid amount of Rs.10.50 lakhs. Matter being sub- judice, no adjustment has been made in the books of account. As such the losses are understated to that extent.

iii) As a result of fire that broke out at Surajpur Plant twice during 2004-05, Buildings and Plant & Machinery were damaged for which necessary claims had been filed with the National Insurance Company Ltd. The company has protested unilateral settlement of these claims by the insurance company and moved a complaint each before the District Consumer Disputes Redressal Forum and the State Consumer Disputes Redressal Commission both at Chandigarh. Necessary adjustments in the books of account in respect of these claims will be made when the cases are finally decided.

7. i) The sales tax liability has been provided for as per returns filed. The additional liability, if any, shall be provided for as and when assessments are completed. In view of the losses in the company no provision of income tax has been made.

ii) The sales tax authorities have raised demands and penalties amounting to Rs.19,15,503/- (previous year Rs.19,15,503/-) against which an amount of Rs.43,000/- (previous year Rs.43,000/-) had been deposited by the company in the previous years under protest. The same is shown as recoverable in the Schedule of 'Current Assets, Loans and Advances' as the company has disputed the said demands and penalties.

iii) The income tax assessment of the Company has been completed up to the assessment year 2006-07. The total demand raised by the Income Tax Department up to the said assessment year has been paid. The amount so paid is included in Income Tax Payments Pending Adjustments in Schedule 9 of Loans & Advances. Additions made by the Assessing Officer have been disputed in Appeals and adjustment will be made at the time of final settlement.

iv) The Company had paid excise duty of Rs.12,335/- under protest under Rule 233-B of the Central Excise Rules during the earlier years and the matter is pending. The amount has been shown as recoverable in the Schedule of 'Current Assets, Loans and Advances'.

8. The company had made arrangement with M/s. Sonal Industries Pvt. Ltd. for manufacture of yarns on Job-Work basis. The amount of Rs.10,17,168/- paid by them towards purchase of stores and spares on behalf of the company during the year under review has since been adjusted in the books of account as expenses on consumption of stores and spares and charged to Profit and Loss Account.

The job-work charges of M/s. Sonal Industries Pvt. Ltd. have been increased during the year under review ranging from Re.0.10 to Re.0.20 per count/per kg. as per the provisions of agreemententered into with them by the company as a result of which an amount of Rs.59,38,203/- became recoverable and that the said amount has been adjusted against their credit balance.

9. The debit and credit balances in the accounts of suppliers, customers and others are subject to confirmation and reconciliation.

10. The company has been declared as a sick industrial company under Sick Industrial Companies (Special Provisions) Act, 1985 by the Hon'ble Board for Industrial & Financial Reconstruction vide its Order dated 06.11.2006 with directions to the Operating Agency (IDBI) to prepare a rehabilitation/revival scheme for the company.

11. The up-front payment of Rs.1,00,79,955/- made during 1998-99 to the IFCI against 'One Time Settlement' of entire dues of financial institutions viz; IFCI, IDBI & KMBL (formerly ICICI) included pro-rata share of IFCI - Rs.83,47,577/-, IDBI - Rs.13,29,180/- and KMBL - Rs.4,03,198/-. The IFCI, besides having revoked the OTS arrangement unilaterally and arbitrarily, has also not yet released the pro-rata shares of IDBI and KMBL. However, during the year under review, the Company has adjusted the said up- front payment on pro-rata basis as aforesaid and their principal outstandings have been accordingly reflected in the books of the Company.

12. The company had entered into an Memorandum of Understanding (MOU) with Rayat Educational & Research Trust (Regd.) for sale of surplus land at company's plant at Rail Majra, Punjab and received a sum of Rs.10.00 lakhs which has been shown as an advance in the Schedule of 'Current Liabilities and Provisions'. The MOU was subject to specific approval of the secured lenders. As the secured lenders did not approve of the said sale of surplus land, the party continued insisting for renewal of the MOU time and again and thereafter proceeded to file a suit for permanent injunction before the Courts at Balachaur, Punjab. The case was contested by the company when the same was dismissed with directions to refer it to the Arbitrator. Thereafter arbitration proceedings were initiated by the party and the matter is pending before the Sole Arbitrator.

13. In accordance with AS - 22 on 'Deferred Taxes' issued by the ICAI, there is no deferred tax liability as the depreciation allowable under the Income Tax Act, 1961 is less than the amount of depreciation charged in the books of account. As such, there is a deferred tax asset which has not been recognized because the company being a sick industrial company, has huge accumulated losses and the chances of its recovery in future are bleak.

14. The company is principally engaged in the production of textile yarns on job-work basis. Accordingly, there are no other reportable segments as per AS-17 issued by the ICAI on segment accounting.

15. In the absence of information from the vendors with regards to their registration (filing of memorandum) under The Micro, Small Medium Enterprises Development Act, 2006, no disclosure has been made in this regard.

16. Since a minimum remuneration as approved by the members has been paid to the Managing Director, computation of net profit under Section 349 of the Companies Act, 1956, in the absence of profits, has not been worked out.

17. The figures for the previous year have been regrouped and rearranged wherever found necessary to make them comparable with those of current year.

18. Schedule 1 to 17 form part of the Balance Sheet and the Profit & Loss Account and have been duly authenticated.

19. In the opinion of the Board, the current assets, loans and advances unless specified otherwise, if realized in the ordinary course of business, have the value atleast equal to the amount of which they are stated in the Balance Sheet. The provisions for all the known liabilities are adequate and not in excess of the amount considered reasonably necessary.