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Auditor Report of Nath Pulp & Paper Mills Ltd.

Mar 31, 2014

We have audited the accompanying financial statements of NATH PULP AND PAPER MILLS LIMITED (the Company), which comprise the Balance Sheet as at March 31, 2014, the Statement of Profit and Loss and Cash Flow Statement for the year ended on that date, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s Management is responsible for the preparation of these 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 Standards notified under the Companies Act, 1956 (the Act) read with the General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013 and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the 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 financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors'' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, 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 audit opinion.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, the said financial statements subject to what is stated in paragraph 2 (e) to (g) below having consequential impact, (presently not ascertainable) on the profit for the year (after exceptional items), accumulated losses and current assets and read together with our comments in the annexure hereto, Note No. 27.06 regarding Company not appointing a Whole time Company Secretary as provided in the Act, Note No. 27.14 regarding default made by the Company in repayment of installments to Financial Institutions and the right to revoke the concessions granted under the scheme and non-provision of liability on account of interest/premium and Note No. 27.15 regarding recognition of overdue payment of the financial institutions as on 31s1 March,2014 as Long term borrowings instead of current liabilities as required under Revised schedule VI, other notes appearing in the said Notes to financial statements and those appearing elsewhere in the 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:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2014;

ii) in the case of the Statement of Profit & Loss, of the profit of the Company for the year ended on that date; and

iii) in the case of the Cash Flow Statement, of the 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, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A)of section 227 of the Act, we enclose in the annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable.

2. As required by section 227(3) of the Act, further to our comments in the Annexure referred to in paragraph 1 above, particularly what is mentioned, we report that:-

(a) Subject to what is stated in at paragraph (g) below, we 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 appears from our examination of those books.

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

(d) Except for the matter disclosed in the Note No. 27.06, 24.14, and 27.15, In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report comply with the accounting standards notified under the Companies Act, 1956 (the Act) read with the General Circular 15/2013 dated 13ffi September, 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013.

(e) The accumulated losses of the Company exceed its net worth. The financial statements have, however, been prepared by the management on a going concern basis, as explained in Note No. 27.11 of notes on financial statements. Should, however, the Company be unable to continue as a going concern , the extent of effect of the resultant adjustments on the assets and liabilities as at the end of the year and profit after exceptional items, for the year has not been ascertained presently.

(f) In respect of inter-corporate Loans / Advances, prima-facie, the company has not complied with section 372A of the Act, in as much as these are interest free loans for which approval of the financial institutions has not been obtained (Refer Note No. 27.09 of notes on financial statements). Maximum amount outstanding during the year Rs 17,496,186 and amount outstanding as at the close of the year Rs 14,107,654.

(g) The accounts of certain parties in respect of creditors, debtors and financial Institutions are subject to confirmation, reconciliation and consequent adjustments, if any. (Refer Note No. 27.07and 27.15 of notes on financial statements)

(h) We are unable to express an opinion as to when and to what extent the Deferred Tax Assets recognized of Rs. 235,959,531 would reverse, as there is no virtual certainty as contemplated in Accounting Standard (AS) 22 of "Account for Taxes an Income" issued by Companies (Accounting Standard) Rules, 2006. (Refer Note No. 28.04 of notes on financial statements).

(i) On the basis of written representations received from directors as on March 31, 2014, and taken on record by the Board of Directors, wherever applicable, we report that none of the directors is disqualified as on March 31, 2014 from being appointed as a director of the Company in terms of clause (g) of sub-section (1) of Section 274 of the Act.

(j) Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 nor it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

ANNEXURE REFERRED TO IN AUDITORS'' REPORT OF EVEN DATE ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2014 OF NATH PULP & PAPER MILLS LIMITED.

1. On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of audit, we state that:

a) The Company is in process of updating records in respect of its fixed assets showing full particulars including quantitative details and situation of fixed assets.

b) The assets have been physically verified by the management in accordance with the phased programme of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the Company and nature of fixed assets. No material discrepancies have been noticed on such verification.

2. a) The inventory has been physically verified by the Management at reasonable intervals during the year.

b) The procedures of physical verification of the inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventory. The discrepancies noticed on such physical verification of inventory as compared to books records were not material.

3. a) The Company has granted interest free unsecured loan to four parties covered in the register maintained under

Section 301 of the Act. The maximum amount involved during the year was Rs 16,946,210 and the year end balance of loans granted to such parties was Rs 13,557,678. Reference is invited to Note No. 27.09 of notes to financial statements.

b) The Company has taken interest free unsecured loans from three parties covered in the register maintained under Section 301 of the Act. The amount received during the year was Rs 5,722,442 and the year end balance of loan taken from such party was 15,344,087.

c) Other terms and conditions of the aforesaid loans given / taken are prima facie, not prejudicial to the interest of the Company.

4. In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and nature of its business for the purchase of inventory and fixed assets and for sale of goods. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the internal control system.

5. a) According to the information and explanations given to us, we are of the opinion that particulars of contracts/arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

b) According to the information and explanations given to us, no transaction made in pursuance of contract or arrangements referred to in Section 301 of the Act exceeded the value of rupees five lacs during the year.

6. In our opinion, the Company has not accepted deposits from the public during the year, with the provisions of Sections 58A and 58AA of the Act and rules framed thereunder.

7. In our opinion, Company has an internal audit system commensurate with the size of the Company and nature of its business.

8. We have broadly reviewed the cost records maintained by the Company pursuant to the order of the Central Government under Section 209(1) (d) of the Act and are of the opinion that, prima facie, the prescribed records have been made and maintained. We are, however, not required to make a detailed examination of the records with a view to determine whether they are accurate or complete. Refer note no. 27.10

9. a) The Company is not regular in depositing undisputed statutory dues of Provident Fund, Income Tax, Service Tax, and other applicable statutory dues with appropriate authorities. However, there are no statutory dues outstanding as at the last day of the financial year for a period of more than six months from the date they became payable. The Company is regular in depositing Customs Duty, Excise Duty and other applicable Cesses.

b) According to the records of the Company, there are no dues of Income Tax, Sales Tax, Service tax, Customs Duty, Wealth Tax, Excise Duty, Cess which have not been deposited on account of any dispute except the following:

Particulars Forum where the dispute Amount Period to which the is pending Amount Relates

Sales Tax Joint Commissioner 7,353,940 1989-1990 of Sales Tax (Appeal) Sales Tax, 2,568,662 1990-1991 Aurangabad. 7,444,447 1991-1992

Excise Duty Customs, Excise & 3,244,508 2006-2007 Service Tax Appellate Tribunal Mumbai.

10. The accumulated losses of the Company as at March 31, 2014 are more than fifty percent of its net worth. Subject to our comments in paragraph 2(e) of our main report of even date, the Company has not incurred cash losses during the financial year ended on that date or in the immediately preceding year.

11. The Company has received sanctioned Rehabilitation scheme by Hon''ble BIFR vide sanction order dt. 14/02/12. Considering the same, the Company has defaulted as at the year-end in repayment of dues to financial institutions. Reference is invited to Note No. 3 and 27.14 of notes to financial statements. The Company has filed Modified Draft Rehabilitation Scheme to Hon''ble BIFR on 17th September, 2013, which is under consideration.

12. During the year, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. As the Company is not a nidhi / mutual benefit fund / society, the provisions of clause 4(xiii) of the Order is not applicable to the Company.

14. As the Company is not dealing or trading in shares, securities, debentures and other investments, the provision of clause 4(xiv) of the Order is not applicable to the Company.

15. During the year, company has not given any guarantee for loans taken by others from banks and financial institutions.

16. According to the information and explanations given to us, and in our opinion, the term loans were applied for the purpose for which they were obtained.

17. According to the information and explanations given to us and on an overall examination of the cash flow statement and Balance Sheet of the Company, in our opinion, the funds raised on short-term basis have, prima facie, not been used for long-term investment.

18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act.

19. The company has not issued any debentures/bonds during the year.

20. The Company has not raised any money by way of public issue during the year.

21. During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the management.

For R. B. Sharma & Co. Chartered Accountants FR No. 109971W

CA Umesh Sharma M. No. 104605 [Partner] Place: Aurangabad Date: 30/05/2014


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of NATH PULP AND PAPER MILLS LIMITED, which comprise the Balance Sheet as at March 31, 2013, the Statement of Profit and Loss and Cash Flow Statement for the year ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these 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 Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the said financial statements subject to what is stated in paragraph 2 (e) to (g) below having consequential impact, (presently not ascertainable) on the profit for the year (after exceptional items), accumulated losses and current assets and read together with our comments in the annexure hereto, Note No. 27.06 regarding Company not having a Company Secretary as provided in the Act, Note No. 27.14 regarding default made by the Company in repayment of installments to Financial Institutions and the right to revoke the concessions granted under the scheme and non-provision of liability on account of interest/premium and Note No. 27.15 regarding recognition of overdue payment of the financial institutions as on 31st March,2013 as Long term borrowings instead of current liabilities as required under Revised schedule VI, other notes appearing in the said Notes to financial statements and those appearing elsewhere in the financial statements give the information required by the Act in the manner so required and give a true and fare view in conformity with the accounting principles generally accepted in India:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2013;

ii) in the case of the Statement of Profit & Loss, of the profit of the Company for the year ended on that date; and

iii) in the case of the Cash Flow Statement, of the 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, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A)of section 227 of the Act, we enclose in the annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable.

2. As required by section 227(3) of the Act, further to our comments in the Annexure referred to in paragraph 1 above, particularly what is mentioned, we report that:-

(a) Subject to what is stated in at paragraph (g) below, we 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 appears from our examination of those books.

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

(d) In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub section (3C) of Section 211 of the Act,

(e) The accumulated losses of the Company exceed its net worth. The financial statements have, however, been prepared by the management on a going concern basis, as explained in Note No. 27.11 of notes on financial statements. Should, however, the Company be unable to continue as a going concern, the extent of effect of the resultant adjustments on the assets and liabilities as at the end of the year and profit after exceptional items, for the year has not been ascertained presently.

(f) In respect of inter-corporate Loans / Advances, prima-facie, the company has not complied with section 372A of the Act, in as much as these are interest free loans for which approval of the financial institutions has not been obtained (Refer Note No. 27.09 of notes on financial statements). Maximum amount outstanding during the year 28,193,937 and amount outstanding as at the close of the year ? 16,972,884.

(g) The accounts of certain parties in respect of creditors and debtors are subject to confirmation, reconciliation and consequent adjustments, if any. (Refer Note No. 27.07 of notes on financial statements)

(h) We are unable to express an opinion as to when and to what extent the Deferred Tax Assets recognized of? 235,436,931 would reverse, as there is no virtual certainty as contemplated in Accounting Standard (AS) 22 of "Account for Taxes an Income" issued by Companies (Accounting Standard) Rules, 2006. (Refer Note No. 28.04 of notes on financial statements).

(I on the basis of written representations received from directors as on March 31, 2013, and taken on record by the Board of Directors, wherever applicable, we report that none of the directors is disqualified as on March 31, 2013 from being appointed as a director of the Company in terms of clause (g) of sub-section (1) of Section 274 of the Act.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF AUDITORS'' REPORT OF EVEN DATE ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2013 OF NATH PULP & PAPER MILLS LIMITED.

1. On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of audit, we state that:

a) The Company is in process of updating records in respect of its fixed assets showing full particulars including quantitative details and situation of fixed assets,

b) The assets have been physically verified by the management in accordance with the phased programme of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regards to the size of the Company and nature of fixed assets. No material discrepancies have been noticed on such verification.

2. a) The inventory has been physically verified by the management at reasonable intervals during the year.

b) The procedures of physical verification of the inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventory. The discrepancies noticed on such physical verification of inventory as compared to books records were not material.

3. a) The Company has granted interest free unsecured loan to five parties covered in the register maintained under Section 301 of the Act. The maximum amount involved during the year was ? 27,463,100 and the year end balance of loans granted to such party was ?16,422,908. Reference is invited to Note No. 27.09 of notes to financial statements.

b) The Company has taken interest free unsecured loans from three parties covered in the register maintained under Section 301 of the Act. The maximum amount involved during the year was 15,879,789 and the year end balance of loan taken from such party was ?5,623,610.

c) Other terms and conditions of the aforesaid loans given / taken are, prima facie, not prejudicial to the interest of the Company.

4. In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and nature of its business for the purchase of inventory and fixed assets and for sale of goods. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the internal control system.

5. a) According to the information and explanations given to us, we are of the opinion that particulars of contracts/arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

b) According to the information and explanations given to us, no transaction made in pursuance of contract or arrangements referred to in Section 301 of the Act exceeded the value of rupees five lacs during the year.

6. In our opinion, the Company has not accepted deposits from the public during the year, with the provision of Sections 58A and 58AA of the Act and rules framed there under.

7. In our opinion, Company has an internal audit system commensurate with the size of the Company and nature of its business.

8. We have broadly reviewed the cost records maintained by the Company pursuant to the order of the Central Government under Section 209(1) (d) of the Act and are of the opinion that, prima facie, the prescribed records have been made and maintained. We are, however, not required to make a detailed examination of the records with a view to determine whether they are accurate or complete. Refer note no. 27.10

9. a) The Company is not regular in depositing undisputed statutory dues of Provident Fund, Income Tax, Service Tax, and other applicable statutory dues with appropriate authorities. However, there are no statutory dues outstanding as at the last day of the financial year for a period of more than six months from the date they became payable. The Company is regular in depositing Customs Duty, Excise Duty and other applicable Cesses.

b) According to the records of the Company, there are no dues of Income Tax, Sales Tax, Service tax, Customs Duty, Wealth Tax, Excise Duty, Cess which have not been deposited on account of any dispute except the following:

Particulars Forum where the dispute is pending Amount? Period to which the Amount Relates

Sales Tax Joint Commissioner of Sales Tax 7,353,940 1989-1990

(Appeal) Sales Tax, Aurangabad. 2,568,662 1990-1991

7,444,447 1991-1992

Excise Duty Customs, Excise & Service Tax 3,244,508 2006-2007

Appellate Tribunal Mumbai.

10. The accumulated losses of the Company as at March 31, 2013 are more than fifty percent of its net worth. Subject to our comments in paragraph 2(e) of our main report of even date, the Company has not incurred cash losses during the financial year ended on that date or in the immediately preceding year.

11. The Company has received sanctioned Rehabilitation scheme by Hon''ble BIFR vide sanction order dt.

14/02/12. Considering the same, the Company has defaulted as at the year-end in repayment of dues to financial institutions. Reference is invited to Note No. 3 and 27.14 of notes to financial statements.

12. During the year, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. As the Company is not a nidhi / mutual benefit fund / society, the provisions of clause 4(xiii) of the Order is not applicable to the Company.

14. As the Company is not dealing or trading in shares, securities, debentures and other investments, the Provision of clause 4(xiv) of the Order is not applicable to the Company.

15. During the year, company has not given any guarantee for loans taken by others from banks and financial institutions.

16. According to the information and explanations given to us, and in our opinion, the term loans were applied for the purpose for which they were obtained.

17. According to the information and explanations given to us and on an overall examination of the cash flow statement and Balance Sheet of the Company, in our opinion, the funds raised on short-term basis have, prima facie, not been used for long-term investment.

18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act.

19. The company has not issued any debentures /bonds during the year.

20. The Company has not raised any money by way of public issue during the year.

21. During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practice in India and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the management.

For R. B. Sharma & Co.

Chartered Accountants

FRN 109971W

CA Umesh Sharma M. No. 104605

[Partner]

Place: Aurangabad

Date: 30th May, 2013


Mar 31, 2009

1. We have audited the attached Balance Sheet of NATH PULP & PAPER MILLS LIMITED as at March 31, 2009, the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto.

These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment) Order 2004 issued by the Central Government in terms of sub-section (4A) of Section 227 of the Companies Act. 1956 (hereinafter referred to as the "Act"), we annex hereto a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:-

(a) Subject to what is stated in at paragraph (g) below, we 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 appears from our examination of those books.

(c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account.

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards prescribed by companies (Accounting Standards) Rules 2006. to the extent applicable, except to the extent of non disclosure of gratuity liability in the manner as mentioned in Accounting Standard 15 (Revised) on Employees Benefit (Refer Note no 23 in Schedule 20 attached to

the Financial Statements.)

(e) The accumulated losses of the Company far exceed its net worth. The accounts have, however, been prepared by the management on a going concern basis, as explained in Note No. 3 in Schedule 20. Should, however, the Company be unable to continue as a going concern , the extent of effect of the resultant adjustments on the assets and liabilities as at the end of the year and profit (after exceptional items and provision for frienge benefit tax) for the year has not been ascertained presently.

(f) In respect of intercorporate Loans / Advances, prima-facie, the company has not compiled with section 372 of the Act, inasmuch as these are interest free loans and approval of the financial institutions has not been obtained. However, as explained by the management, in view of the scheme of arrangement under section 391 of the Act being pending before the Hon ble Bombay High Court, the compliance with regard to approval of institutions may not be required, as mentioned in Note No 18 of Schedule 20. Maximum amount outstanding during the year Rs 8,973,675 and amount outstanding as at the close of the year Rs. 1,395,200.

(g) The accounts of certain parties in respect of secured and unsecured loans taken, creditors, debtors, loans and advances given and certain bank balances are subject to confirmation, reconciliation and consequent adjustments, if any. (Refer Note No. 7 of Schedule 20)

(h) On the basis of written representations received from directors as on 31 st March, 2009, and taken on record by the Board of Directors, wherever applicable, we report that none of the directors is disqualified as on 31st March, 2009 from being appointed as a director of the Company in terms of clause (g) of sub-section (1) of section 274 of the Act. Reference is, however, invited in this respect to Note No. 4 of Schedule 20 dealing with the managements view in this matter.

(i) In our opinion and to the best of our information and according to the explanations given to us, the said accounts subject to what is stated in paragraph 4 (e) to (g) above having consequential impact, (presently not determinable) on the profit for the year,( after exceptional items and provision for frienge benefit tax) accumulated losses and current assets and read together with our comments in the annexure hereto, Note no 5 in Schedule 20 regarding appointment of Company Secretary, Note No 8 regarding dividend account pertaining to earlier years, which is under reconciliation with the bankers, Note no 9 regarding assignment of secured loans to a third party and default in repayment thereof, Note No.16 regarding accounting as other income of Rs. 7,674,962, being the gain on settlement of deferred sales tax liability, Note No. 19 regarding capitalisation of certain expenses aggregating to Rs. 2,499,810 for the revamping of machinery and other notes appearing in the said Schedule and those appearing elsewhere in the accounts 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:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2009;

ii) in the case of the Profit & Loss Account, of the profit of the Company for the year ended on that date; and

iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.



ANNEXURE REFERRED TO IN PARAGRAPH 3 OF AUDITORS REPORT OF EVEN DATE ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2009 OF NATH PULP & PAPER MILLS LIMITED.



On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of audit, we state that:

1. a) The Company has maintained proper records showing full particulars including quantitative details and

situation of fixed assets.

b) The assets have been physically verified by the management in accordance with the phased programme of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the Company and nature of fixed assets. No material discrepancies have been noticed in respect of the assets physically verified during the year.

c) No substantial part of the fixed assets has been disposed off during the year.

2. a) The inventory has been physically verified by the management at reasonable intervals during the year.

b) The procedures of physical verification of the inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventory. The discrepancies noticed on such physical verification of inventory as compared to book records were not material. Attention is, however, invited to note no. 10 regarding write off Stocks of Unusable / Unserviceable Raw Materials amounting to Rs. 75,266,813 because of deterioration in the quality of the material as evaluated by the management appearing, in Schedule 20 attached to the Financial Statements.

3. a) The Company has granted interest free unsecured loan to two companies covered in the register

maintained under Section 301 of the Act. The maximum amount involved during the year was Rs. 7, 578,475 and the year-end balance of loans granted to such parties was Rs.Nil. ( Refer Note no 18 in Schedule 20 attached to the Financial Statement).

b) The Company has taken interest free unsecured loans from five companies covered in the register maintained under Section 301 of the Act. The maximum amount involved during the year was Rs.52,054,604 and the year end balance of loan taken from such parties was Rs. 46,396,753 .

c) Other terms and conditions of the aforesaid loans given / taken are, prima facie, not prejudicial to the interest of the Company.

4. In our opinion and according to the information and explanations given to us, having regard to the explanation that the items of purchases and sales are of special nature and suitable alternative sources do not exist for obtaining comparable quotations, there is adequate internal control system commensurate with the size of the Company and nature of its business for the purchase of inventory and fixed assets and for sale of goods. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the internal control system. Reference is, however, invited to para 7 below.

5. a) According to the information and explanations given to us, we are of the opinion that particulars of

contracts/arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

b) According to the information and explanations given to us, no transaction made in pursuance of contract or arrangements referred to in Section 301 of the Act exceeded the value of rupees five lacs during the year.

6. In our opinion, the Company has complied with the provision of Sections 58A and 58AA of the Act and rules framed thereunder with regard to the deposits accepted from the public except that it did not repay

- the over due principal amount & interest thereon as also did not create security in respect of redeemable bonds-balance outstanding as at the close of the year Rs. 295,220.

7. In our opinion, Company has an internal audit system commensurate with the size of the Company and nature of its business.

8. We have broadly reviewed the cost records maintained by the Company pursuant to the order of the Central Government under Section 209(1) (d) of the Act and are of the opinion that, prima facie, the prescribed records have been made and maintained. We are, however, not required to make a detailed examination of the records with a view to determine whether they are accurate or complete.

9. (a) The Company is generally regular in depositing undisputed statutory dues as Provident Fund, Income Tax, Sales Tax, Value Added Tax, Service Tax, Custom Duty, Excise Duty, Cess and other applicable statutory dues with appropriate authorities, except that, the Company is irregular in depositing Income Tax deducted at source (TDS) and fringe benefit tax, with the authorities. There have been delays upto 352 days. Income Tax TDS Rs. 1,768,142 and Fringe Benefit Tax Rs 396,146 were outstanding as at the last day of the financial year for a period of more than six months from the date they became payable. With regard to the arrears of the Investor Education and Protection Fund, reference is invited to Note No. 8 in Schedule 20 attached to the Financial Statements.

(b) According to the records of the Company, there are no dues of Income Tax, Sales Tax, Service tax, Customs Duty, Wealth Tax, Excise Duty, Cess which have not been deposited on account of any dispute except the following:

Particulars Forum where the dispute is pending Amt. in Rs. Period to

which the Amount Relates

Sales Tax Joint Commisioner of Sales Tax (Appeals) 7,353,940 1989-1990 Aurangabad 2,568,662 1990-1991

7,444,447 1991-1992

Excise Duty Customs, Excise and Service Tax Appellate Tribunal, 3,297,335 2006-2007 Mumbai

10. The accumulated losses of the Company as at March 31 2009 are more than fifty percent of its net worth. Subject to our comments in paragraph 4(e) of our main report of even date, the Company has not incurred cash losses during the financial year ended on that date or in the immediately preceding year.

11. Considering that the Scheme of Arrangement/Compromise between the Company and its Secured

Creditors has been approved by the 3/4 of Secured Creditors in value and number and subject to the fact that the petition has been filed before the Honble Bombay High Court (pending approval), the Company has no default existing as at the year end in repayment of dues to financial institutions, banks or debenture holders, as stated in Note No. 9 of Schedule 20 of Significant Accounting Policies and Notes to Accounts.

12. During the year, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. As the Company is not a nidhi / mutual benefit fund / society, the provisions of clause 4(xiii) of the Order is not applicable to the Company.

14. As the Company is not dealing or trading in shares, securities, debentures and other investments, the provision of clause 4(xiv) of the Order is not applicable to the Company.

15. During the year, company has not given any guarantee for loans taken by others from banks and financial institutions.

16. According to the information and explanations given to us, and in our opinion, the term loans were applied for the purpose for which they were obtained.

17. According to the information and explanations given to us and on an overall examination of the cash flow statement and Balance Sheet of the Company, in our opinion, the funds raised on short-term basis have, prima facie, not been used for long-term investment.

18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

19. In the case of Privately Placed Secured Redeemable Bonds for Rs.904,020 (now balance Rs.295,220) issued in an earlier year, the security is still to be created as referred to in Schedule 4(c) attached to the Financial Statements.

20. The Company has not raised any money by way of public issue during the year.

21. During, the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the management

For LODHA & CO.

Chartered Accountants



A.M.HARIHARAN

Place: Mumbai Partner

Dated: 29.09.2009 Membership No.38323

 
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