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Notes to Accounts of Koutons Retail India Ltd.

Mar 31, 2012

(*) The above loans of SOB, PNB, ICICI, AXIS, SBT, HDFC and PSB (working & term loans are secured by the following securities :-

Primary security is all current assets, fixed assets acquired with term loan. Collalateral security for all above loans is as below

Mortgage of immovable properties owned by *he company are Plot No. 23, Sector - 7, IMT Manesar, Plot no. 535, Sector - 37, Gurgaon, Plot No, 14, Block 17B, Dev Nagar, Karol Bagh, New Delhi and building No. T-60, DCM School Road, Karol Bagh, New Delhi and further immovable property owned by the borrower, promoters and their wives are Plot No. 274-275, Udyog Vihar, Sector - 37, Phase VI, Gurgaon, Plot No. 539 & 539A, Udyog Vihar, Sector - 37, Phase - VI, Gurgaon, T-59, DCM School Road, KaroJ Bagh, New Delhi, Khasra No. 10, Ahmedpur Brahman, Sarsawa, Saharanpur, UP, Khasra No. 15, Ahmedpur Brahman, Sarsawa, Saharnpur, UP Khasra No.8/1,8/2, Ahmedpur Brahman, Sarsawa, Saharnpur, UP. The loans from 1DB1 Band are secured against properties owned by M/s. Klone Avinash Infrastructure Pvt. Ltd., Gurmeet Singh Sawhney, Bhupinder Singh Sawhney and Davinder Pal Singh Kohli are Khasra No. 14, Khasra No. 46/3,47/3,48,46/1,46/2 and Khasra No. 8/1, & 8/2, Gram Megh, Chhapper, Paragana Tehsil, Distt. Saharnpur, (U.P.)

The loans from BO) Bank are secured agianst proerties owned by M/s. Klone Avinash Infrasturcture Pvt. Ltd. Are Khasra Nos. 337,344,345,354,343,346,377, 378, 408,409,413, 224, 230, 232, 236, 237, 238, 227, 224, 218, 231, 235, 381, 382, 384,412, 347, 348,376 & 379 Dara Shivpuri, Berun, Near Gram Kajipura Dar Abadi Tirupati Garden, Saharanpur (U.P.) Further all the above loans are secured by personal guarantees of Directors and their wives.

{*} The above loans of IOB, PNB, ICICI, AXIS, SBT, HDFC and PSB (workings term loans are secured by the following securities

Primary security is all current assets, fixed assets acquired with term loan. Collalateral security for all above loans is as below

Mortgage of immovable properties owned the company are Plot No. 23, Sector - 7, IMT Manesar, Plot no. 535, Sector - 37, Gurgaon, Plot No. 14, Block 17B, Dev Nagar, Karol Bagh, New Delhi and building No. T-60, DCM School Road, Karol Bagh, New Delhi and further immovable property owned by the borrower, promoters and their wives are Plot No. 274-275, Udyog Vihar, Sector - 37, Phase VI, Gurgaon, Plot No. 539 & 539A, Udyog Vihar, Sector - 37, Phase - VI, Gurgaon, T-59, DCM School Road, Karol Bagh, New Delhi, Khasra No. 10, Ahmedpur Brahman, Sarsawa, Saharanpur, UP, Khasra No. 15, Ahmedpur Brahman, Sarsawa, Saharnpur, UP Khasra No.8/1,8/2, Ahmedpur Brahman, Sarsawa, Saharnpur, UP. The loans from IDBI Band are secured against properties owned by M/s. Klone Avinash Infrastructure Pvt. Ltd., Gurmeet Singh Sawhney, Bhupinder Singh Sawhney and Davinder Paf Singh Kohfi are Khasra No. 14, Khasra No. 46/3,47/3,48,46/1,46/2 and Khasra No. 8/1, & 8/2, Gram Megh, Chhapper, Paragana Tehsil, Distt. Saharnpur, (U.P.)

The loans from BOI Bank are secured agianst proerties owned by M/s, Klone Avinash Infrasturcture Pvt. Ltd. Are Khasra Nos. 337,344,345,354,343,346,377, 378,408,409,413,224, 230, 232, 236, 237, 238, 227, 224, 218, 231, 235, 381, 382, 384,412, 347, 348,376 & 379 Dara Shivpuri, Berun, Near Gram Kajipura

Dar Abadi Tirupati Garden, Saharanpur (U.P.) Further all the above loans are secured by personal guarantees of Directors and their wives.

1. In the opinion of the Board of Directors of the company and to the best of their knowledge and belief the realizable value of current assets, loans & advances if realized in the ordinary course of business, will not be less than the amount at which they are stated in the Balance Sheet as at 31st March, 2012.

2. The Balances of the debtors, creditors, loans & advances (both given & taken) and inventory lying with franchisees, transporters and job workers are subject to confirmation and reconciliation.

3. The name of the Micro, Small and Medium Enterprises suppliers defined under the "The Micro Small and Medium Enterprises Development Act, 2006"except in the case of a few suppliers, mentioned below, could not be identified, as the necessary information is not in the possession of the Company.

4. The Company had made investment of Rs. 1.95 crore in the share capital of DBG Retail Holdings Ltd., a wholly owned subsidiary company in F.Y. 2007-08. In view of the long term investment of the company in the said company, a provision equal to the accumulated losses in the wholly owned subsidiary company has been made in the books of accounts.

5. The company has issued NCD in two trenches, one with 10.15% redeemable at Par, on 6/04/2009 for Rs. 5,000 lacs (Balances as on 31-03-2012 Rs. 2856.45 lacs) and another NCD with 13.00% redeemable at Par on 16/07/2009 for Rs. 5,000 lacs (Balance as on 31-03-2012 Rs. 4800.00 lacs) and both are secured by post dated cheques for Principal and Interest and further secured by charge on land owned by the company in Gujrat state.

The company could not redeem the above debentures on due dates. The Company has not provided for penal interest or liquidated damages on loans and debentures defaulted for payment on due dates. Some of the agreements with the lenders has stipulated penal interest/liquidated damages .In view of the ongoing negotiations in which the Company has asked for waiver of these the Management does not consider it necessary to provide for this.

6. The Company has taken certain office premises, showrooms and retail commercial outlets on non-cancellable operating lease. The future minimum lease rentals payable at the Balance Sheet date, in respect of the non-cancellable operating lease, are as follows:

7. SEGMENT REPORTING

i. Primary- Business Segment

The Company''s business consists of and is organized as single segment of Textiles in terms of Accounting Standard 17 and as such there are no separate reportable segments.

ii. Secondary-Geographical Segment

There are no secondary segments identified in terms of Accounting Standard 17.

8. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by weighted average number of equity shares outstanding during the period. The weighted average numbers of equity shares outstanding during the period are adjusted for the events of bonus issue, if any.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.

9. Disclosure pursuantto Accounting Standard-lS(Revised) "Employee Benefits"

i. DETAILS OF DEFINED CONTRIBUTION PLAN

The Company has recognized Rs. 8.93 lacs (Previous year Rs. 19.61 lacs) as provident fund in the Profit & Loss Account for the year ended 31st March 2012 under Defined Contribution Plans.

ii. DETAILSOF DEFINED BENEFIT PLAN

a) GRATUITY

The company makes annual contribution to the employees'' group-cum life assurance scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lumpsum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days salary for service more than 5 years, payable for each completed year of service or part thereof in excess of 6 months. Vesting occurs upon completion of 5 years of service.

The present value of the defined benefit obligation and the related current service cost were measured using the Projected unit credit method, with actuarial valuations being carried out at each balance sheet date.

b) LEAVE ENCASHMENT

Provision for leave entitlement is accrued and provided for at the end of the financial year on the estimates made by the management but the same is not being determined on actuarial basis of valuation.

10. Contingent liabilities not provided for:

(Rs. in lacs) Particulars As at 31.03.12 As at 31.03.11

i) Bank Guarantee O/S - -

ii) Claims against the company not acknowledged as debts 5,224.48

in respect of past disputed liabilities of DVAT /HVAT. 3314.26

iii) There are 88 cases which have been filed against the company under section 138 of Negotiable Instrument Act by 19 parties. The amount involved is Rs. 10098.89 lacs. There are 23 parties who have filed civil suit for recovery against the company for an amount of Rs. 1759.75 lacs.

iv) Various workmen have filed 8 labour cases against the Company for recovery of an amount of Rs. 4.76 lacs and the same are pending before different authorities as on 31.03.12.

v) 10 parties have filed Ten suits U/s 433(e), 434 of the Companies Act 1956 in the High Court of Delhi against the company for winding up and recovery of Rs. 1958.17 lacs and the same are pending for adjudication. In one casethe Ld. Delhi High Court has admitted the petition for winding up but in further proceedings has said put the order in abeyance till 11.02.2013.

vi) State government of U.P. has filed a case against the company for recovery of underpaid stamp duty and same are pending before Commissioner (Stamp) Meerut as on 31.03.2012.

* Based on the discussions with the solicitor/ legal opinion taken, the management believes that company has strong chance of success in the above mentioned cases and hence no provision against is considered necessary.

11. Related Party Disclosure

As per Accounting Standard 18, issued by The Institute of Chartered Accountants of India, the disclosures of transactions with related parties for the year ended 31st March, 2012 as defined in Accounting Standard are given as below:

c) Wholly Owned Subsidiary Company

i) DBG Retail Holdings Ltd.

d) Companies under the same Management

i) Klone Infrastructure Private Ltd.

ii) K & S Knitwears Private Ltd.

iii) PBP Marketing Private Ltd.

iv) Klone Avinash Infrastructure Private Ltd.

v) Gartex Concept Clothings Ltd.

vi) Venezia Leathers Ltd.

vii) S.R. Resorts Pvt. Ltd.

viii) JEG Hospitality Holdings Ltd.

ix) Vian Hospitality Pvt. Ltd.

x) JogurApparelsand Clothing Pvt. Ltd.

12. Sundry Debtors includes Rs. 348.67 Crores outstanding for more than six month and are subject to confirmation. As the debtors more than one year old but no provision for bad & doubtful debts has been made as the management is of the view that all the debtors are realizable and company is making efforts for the same.

13. There are some bank accounts wherein the credit entries are not traceable for Rs. 1,72,61,944/-. The said amount has been reduced from the total of list of debtors.

14. The Company has imprest with employees amounting to Rs. 88,60,770/-. So this amount is recoverable and as most of the employees have left the job. The company is pursuing with the employees for the recovery of said amount and is confident of recovery so no provision has been made for this amount.

15. The management has conducted physical verification of stocks lying in its warehouse at various intervals and has reviewed these inventories for its realisability on the basis of business enquiries and has found that the stock is realizable at full value, so no provision is necessary for lowering the valuation, in the opinion of the management. The stock lying with transporters and job workers is still lying with them and company has taken legal measures against them by sending legal notices and is in the process of filling of legal suit for recovery of stocks. As per the opinion of lawyer all these stocks can be recovered, so no provision for doubtful recovery is required in the books.

16. Advances given to suppliers are quite old. These advances are fully recoverable and management is in the process of negotiations with these parties for recovery and no provision for non recovery is required in the opinion of the management.

17. During the year total 769 stores have been closed by the Company on considerations of ecomonic viability. 140 stores have been closed after the close of the financial year. The fixed assets and inventories of these stores are lying in the stores and shall be adjusted against the dues of the franchisees/ property owners. The process of reconciliation of available assets/ stocks with the balances in books is on and may require financial adjustment for losses on account of non realisability / physical shortage of certain assets. As the process is underway, the Management has decided to provide for the resultant loss in this regard after the exercise is complete and accounts are reconciled .Meanwhile Company has provided for loss of Rs. 35.50 Lacs on account of fixed assets lying in respect of stores for which the reconciliation exercise was completed. Further the sales, expenses have been provided upto the period till sales are received from individual store.

18. A few lenders / creditors have filed cases for liquidation of the Company to recover their dues. Due to operational losses and cash flow mismatches the Company has not been able to pay its debts on time. The Ld. Delhi High Court has admitted the winding up petition in one case but in further proceeding has put the order in abeyance till 11.02.2013.

19. During the year the scheme of CDR was approved and master restructuring agreement (MRA) was signed on 25.02.2012. As per the terms of CDR the total loan of Rs. 425/- Crores, out of which share of CDR members amounted to Rs. 357/- Crores. The said amount was restructured into cash credit limits of Rs. 252.77 Crores, working capital term loan limits of Rs. 67.76 Crores and OCRPS of Rs. 36.47 Crores. The cash credit limits and working capital terms loans limits carry an interest of 10.75% and working capital term loan to be paid on quarterly in 10 years. The OCRPS is to be fully redeemed on 31 December 2021 an interest payable is 0.1% P.A. The Lenders holding OCRPS has the option of conversion of OCRPS into equity at any time within three years of the effective date as SEBI determined price & regulation. Some of the lenders has not been implemented the said scheme.

20. Inline with the accounting policy adopted by the Company is this regard, Deferred Tax Assets to the extent of Rs. 63.06 Cr has been recognized on the business losses incurred during the year and the unabsorbed deprecation allowance which is to be carried forward to be set off against future taxable income. The adoption of the accounting policy and the recognition of deferred tax assets is after careful consideration by the Audit Committee and the Board of Directors in view of the business plan worked out in the scheme of CDR and the estimates of future taxable income of the Company, based on the business plan of the company.

21. The export of Rs. 370.25 lacs made is outstanding for a period of more than six months.

22. The management is of the view that going concern concept for the company is applicable in view of the business plan made by the management for the future implementation

23. The income tax appeals filed by the company has been rejected by the first appellate authority confirming the demand of Rs. 48.84 Crores. Against this the income department has made attachment of four immovable properties (Plot No. 535, Sector 37, Gurgaon, Plot No. 539 & 539A, Sector 37, Gurgaon, Shop No. 115, DLF City Centre Mall, Shalimar Bagh, New Delhi and building no. 23, Sector 7, IMT Manesar, Gurgaon) owned by the company. The company is in the process of filling of second appeal before ITAT, New Delhi against the said order.

24. The figures of the previous year are regrouped /reclassified wherever necessary to make them comparable with that of the current year.

 
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