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Auditor Report of Spentex Industries Ltd.

Mar 31, 2015

We have audited the accompanying standalone financial statements of Spentex Industries Limited ("the Company"), which comprises the Balance Sheet as at March 31,2015, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of 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 standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

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

An audit involves performing procedures to obtain audit evidence about the amounts and the 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 financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone financial statements.

Basis for qualified opinion We draw attention to:

a. Note No. 41 of the standalone financial statements, wherein, we are unable to determine the extent of provision that may be required for diminution in the value of long term investment amounting to Rs.204,469,921/- in Amit Spinning Industries Limited, subsidiary of the company. Uncertainties exist in relation to the recoverability of loans amounting to Rs.320,128,019/-, interest accrued thereon Rs.95,950,582/- and advances amounting to Rs.226,165,468/- due from above subsidiary. Further, we are unable to determine the amount of liability that may arise on account of corporate guarantee mentioned in Note No. 30 of the standalone financial statements on behalf of above subsidiary.

b. Note No. 42 of the standalone financial statements, wherein, we are unable to determine the extent of provision that may be required for diminution in the value of long term investment amounting to Rs.561,011,339/- and Rs.9,323,779/- in Spentex Netherland B.V and Spentex Tashkent Toytepa LLC respectively, subsidiary/step down subsidiary of the company. Uncertainties exist in relation to the recoverability of Rs.95,070,902/- and Rs.70,012,404/- due from above subsidiary/step down subsidiary respectively. Further, we are unable to determine the amount of liability that may arise on account of corporate guarantee mentioned in Note No. 30 of the standalone financial statements on behalf of above subsidiary.

c. We are unable to comment on the recoverability of advance balance of Rs.19,040,000/-, included under the head "Advance against expenses" in Note No. 14 of the standalone financial statements, for which no provision has been made in the books of account.

d. Note No. 44 of the standalone financial statements, wherein, the company has not charged to statement of profit & loss Rs.10,135,376/- and Rs.2,695,093/- shown as claim receivables and export incentive respectively.

We further report that, without considering the impact of paragraph (a) and (b) above the effect of which could not be determined, had the observation made by us in paragraph (c) and (d) above been considered, the loss before tax for the year would have been Rs.653,781,143/- (as against the reported figure of Rs.621,910,674/-), Reserves and Surplus would have been negative Rs.2,210,635,927/- (as against negative reported figure Rs.2,178,765,458/-), Export Incentive included under head "Other Non Current Assets" would have been Rs.19,030,969/- (as against the reported figure of Rs.21,726,062/-), claim receivables included under the head "Other Non Current Assets" would have been Rs.2,774,242/- (as against the reported figure of Rs.12,909,618/-) and advance against expenses included under the head "Long Term Loans and Advances" would have been Rs.99,655,219/- (as against the reported figure of Rs.118,695,219/-) .

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the basis for qualified opinion paragraph, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India of the state of affairs of the Company as at March 31,2015 and its loss and its cash flows for the year ended on that date.

Emphasis of Matter

Without qualifying our opinion, we draw attention to:

a. Note No. 4 of the standalone financial statement, wherein, the Company has not allotted shares against the share application amount of Rs.110,950,000/- which was brought in by the promoters in more than one installments under restructuring scheme approved by the Bankers. However, the company has not complied with the provisions of Section 42 of the Companies Act, 2013 for the reasons stated in the said Note.

b. Note No. 43 of the standalone financial statements which indicates that the Company has accumulated losses and its net worth has been fully eroded, the Company has incurred a net cash loss during the current and previous year(s) and, the Company's current liabilities exceeded its current assets as at the balance sheet date. These conditions, along with other matters set forth in Note No. 43, indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. However, the financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note.

c. Note No. 44 of the standalone financial statements regarding amounts recoverable relating to certain trade receivable, advance balances and export incentive recoverable Rs.6,371,477/-, Rs.27,314,712/- and Rs.17,869,256/- respectively which has been considered good by the management in view of the reasons stated therein. We have relied upon the assertion given by the management as to the recoverability of the said amounts.

d. Note No. 45 of the standalone financial statements requiring deposit/invest a sum of at least 15% of the amount of its debentures maturing during the financial year 2013-14, 2014-15 and 2015-16 in one or more of the prescribed methods vide circular no. 04/2013 dated February 11,2013 issued by Ministry of Corporate Affairs. However, the company has not complied with the requirement of the said circular.

e. Note No. 46 of the standalone financial statements regarding balances of parties under the head trade receivables, trade payables and loans & advances which are subject to confirmation, reconciliation and consequential adjustments, if any.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order, 2015 ("the Order") issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure, a statement on the matters specified in the paragraph 3 and 4 of the Order.

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

a. We have sought and, except for the matters described in the Basis for Qualified Opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

b. Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

c. The balance sheet, the statement of profit and loss and the cash flow statement dealt with in this report are in agreement with the books of account;

d. Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

e. The matter described in the Basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

f. On the basis of written representations received from the directors as on March 31,2015 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2015 from being appointed as a director in terms of section 164(2) of the Act;

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

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

i. The Company has disclosed the impact of pending litigation on its financial position in its financial statements. Refer Note No. 30 and Note No. 40 of the financial statements;

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

iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

Annexure to Independent Auditor's Report

Referred to in paragraph 1 of the Independent Auditors' Report of even date under the heading "Report on Other Legal and Regulatory Requirements" to the members of Spentex Industries Limited on the standalone financial statements as of and for the year ended March 31,2015.

We report that:

1. (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The fixed assets have been physically verified by the management according to a phased programmed designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the company and nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the year and no material discrepancies were noticed on such verification as compared to the book records.

2. (a) Inventories other than inventory lying with third party have been physically verified by the Management at reasonable intervals during the year. In our opinion the frequency of verification is reasonable.

(b) According to information given to us, the procedures for physical verification of the inventories followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

(c) The Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventories as compared to the book records were not material having regard to the size and nature of the operations of the Company and have been properly adjusted in the books of account.

3. The Company has not granted any loan, secured or unsecured to companies, firms or other parties covered in the register maintained under Section 189 of the Act. Accordingly paragraphs 3(iii)(a) and 3(iii)(b) of the Companies (Auditor's Report) Order, 2015 are not applicable to the Company.

4. According to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in internal control system.

5. The Company has not accepted any deposits from the public under the provisions of Sections 73 to 76 of the Act or other relevant provisions of the Act and rules framed there under.

6. We have broadly reviewed the books of account, maintained by the Company in respect of products where, pursuant to the rules made by the Central Government of India, the maintenance of cost records has been prescribed under Section 148(1) of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

7. (a) The Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, employees' state insurance, sales tax, wealth tax, customs duty, excise duty, value added tax, cess and other statutory dues and is generally regular in depositing undisputed statutory dues in respect of income tax and service tax applicable to it. According to the information and explanations given to us, no undisputed amounts payable in respect of aforesaid dues were in arrears as at March 31,2015 for a period of more than six months from the date they became payable except for Service Tax of Rs.27,272/-.

(b) According to the information and explanations given to us and the records of the company examined by us, the particulars of dues of income tax, sales tax, wealth tax, service tax, customs duty, excise duty, value added tax and cess at March 31, 2015, which have not been deposited on account of dispute, are as follows:

Name of the Nature of dues statute

Income Tax

The Income Tax Disallowance of goodwill Act, 1961 amortisation & other expenses

The Income Tax Disallowances of various expenses Act, 1961 viz. sales tax subsidy, etc.

The Income Tax Addition on account of arm's length Act, 1961 price of compensation for corporate guarantee to Associated Enterprises

Sales Tax

The MP Commercial Penalty - Purchase Tax Act, 1994 Tax demand

The MP Commercial Sales Tax Demand Tax Act, 1994

The MP Commercial Sales Tax demand on Tax Act, 1994 sale of DEPB licenses

The MP Commercial Sales Tax Demand Tax Act, 1994

Entry Tax Act, Entry Tax demand 1976

Maharashtra Value Sales Tax Demand Added Tax Act, 2002

Central Sales Sales Tax Demand Tax,1956

Finance Act

Finance Act, 1994 Refund against export services

Finance Act, 1994 Service Tax on GTA paid including penalty

Finance Act, 1994 Service Tax on Foreign Commission paid to overseas agents

Finance Act, 1994 Suo Moto credit taken from Additional Excise Duty

Finance Act, 1994 Service Tax taken on invoices not having Serial No. & Registration No.

Finance Act, 1994 Service Tax taken on photocopied copies of Bill of Entry and foreign commission

Finance Act, 1994 Service Tax taken on tour operator services bill

Finance Act, 1994 Service Tax taken on foreign commission

Central Excise Act

The Central Excise Excise duty demands Act, 1944 (Baramati unit)

The Central Excise Excise duty - demand of Act, 1944 duty on clearance of goods under notification 30/2004 without payment of duty (Butibori unit)

The Central Excise Cenvat demand for packing material Act, 1944 including penalty (Pithampur unit)

The Central Excise Cenvat demand on packing Act, 1944 material/scrap (Butibori unit)

The Central Excise Cenvat on samples used in Act, 1944 quality control (Butibori unit)

The Central Excise Refund of cenvat on inputs Act, 1944 under Rule 18 (Pithampur unit)

The Central Excise Excise duty-demand of duty on Act, 1944 clearance of goods under notification 30/2004 without payment of duty (Pithampur unit)

The Central Excise Demand under Act, 1944 section Rule 6(3)(i)

The Central Excise Cenvat on Capital Act, 1944 Goods

Name of the Amount (Rs.) Period to which statute the amount relates (F.Y.)

Income Tax

The Income Tax 10,875,657 (incl. amt. AY 2001-02 Act, 1961 paid Rs.3,981,354) AY 2003-04

The Income Tax 27,095,747 AY 2003-04 Act, 1961 (including amount AY 2005-06 paid Rs.2,000,000) AY 2006-07

The Income Tax 36,403,835 AY 2008-09 Act, 1961

Sales Tax

The MP Commercial 164,195 (incl. amt. 1996-97 Tax Act, 1994 paid Rs. 128,195)

The MP Commercial 815,157 (incl. amt. 2009-10 Tax Act, 1994 paid Rs.815,157)

The MP Commercial 1,970,233 2001-03 Tax Act, 1994

The MP Commercial 375,803 (incl. amt. 2010-11 Tax Act, 1994 paid Rs. 37,600)

Entry Tax Act, 1,538,453 (incl. amt. 1992-1997 1976 paid Rs.414,844)

Maharashtra Value 532,870 (incl. amt. 2004-05 Added Tax Act, 2002 paid Rs.200,000)

Central Sales 2,999,290 (incl. amt. 2004-05 Tax,1956 paid Rs.1,000,000)

Finance Act

Finance Act, 1994 3,439,884 2006-12

Finance Act, 1994 280,282 April 2005 to Sept 2006

Finance Act, 1994 1,079,549 (incl. amt. 2009-10 to paid Rs. 107,955) 2010-11

Finance Act, 1994 145,531 (incl. amt. Aug- 12 paid Rs. 10,915)

Finance Act, 1994 3,744,510 (incl. amt. Apr-09 to paid Rs. 140,419) Oct- 13

Finance Act, 1994 290,599 Apr-09 to Oct- 13

Finance Act, 1994 490,872 Apr-09 to Apr- 13

Finance Act, 1994 375,464 (incl. amt. Apr-11 to paid Rs. 13,705) Mar- 12

Central Excise Act

The Central Excise 10,806,176 June 1999 to Act, 1944 Dec 2001

The Central Excise 75,185,214 Aug, 2004 to Act, 1944 (including amount Apr, 2007 paid Rs.2,314,143)

The Central Excise 168,812 April, 2000 to Act, 1944 March, 2004

The Central Excise 794,266 April, 2003 to Act, 1944 December, 2012

The Central Excise 309,475 (Incl. amt. Apr, 2003 to Act, 1944 paid Rs.67,597) October, 2013

The Central Excise 60,216,366 Oct, 2004 to Act, 1944 Jan, 2006

The Central Excise 53,291,002 March, 2004 to Act, 1944 (including amount Feb, 2007 paid Rs.13,322,751)

The Central Excise 167,747,574 April-12 to Act, 1944 March, 13

The Central Excise 5,269,616 2002-2003 to Act, 1944 (including amount 2010-11 paid Rs. 673,329

Name of the Forum where the statute dispute is pending

Income Tax

The Income Tax Income Tax Tribunal Delhi Bench - Act, 1961 Rs.3,981,354/- High Court - Rs.6,894,303/-

The Income Tax Commissioner of Income Tax Act, 1961 (Appeal), New Delhi

The Income Tax High Court, New Delhi Act, 1961

Sales Tax

The MP Commercial First Appellate Authority Tax Act, 1994

The MP Commercial First Appellate Authority Tax Act, 1994

The MP Commercial Assessing Authority, Indore Tax Act, 1994 2009-10

The MP Commercial First Appellate Authority Tax Act, 1994

Entry Tax Act, Assessing Authority, Indore 1976

Maharashtra Value Deputy Commissioner, Nagpur Added Tax Act, 2002

Central Sales Deputy Commissioner, Nagpur Tax,1956

Finance Act

Finance Act, 1994 Assistant Commissioner of Central Excise, Nagpur

Finance Act, 1994 Customs, Excise & Service Tax Appellate Tribunal, New Delhi - Rs.280,282/-

Finance Act, 1994 Customs, Excise & Service Tax Appellate Tribunal, New Delhi

Finance Act, 1994 Commissioner (Appeals), Central Excise, Bhopal

Finance Act, 1994 Commissioner (Appeals), Central Excise, Bhopal

Finance Act, 1994 Commissioner (Appeals), Central Excise, Bhopal

Finance Act, 1994 Commissioner (Appeals), Central Excise, Bhopal

Finance Act, 1994 Commissioner (Appeals), Central Excise, Bhopal

Central Excise Act

The Central Excise Customs, Excise & Service Tax Act, 1944 Appellate Tribunal, Mumbai

The Central Excise Deputy Commissioner of Central Excise, Act, 1944 Nagpur - Rs.77,371/- Commissioner, Central Excise Nagpur - Rs.72,693,700/-

Customs, Excise & Service Tax Appellate Tribunal, New Delhi - Rs.2,414,143/-

The Central Excise Commissioner (Appeals), Central Act, 1944 Excise, Indore

The Central Excise Customs, Excise & Service Tax Appellate Act, 1944 Tribunal, New Delhi Rs.81,195/-

Deputy Commissioner, Central Excise, Nagpur - Rs.713,071/-

The Central Excise Customs, Excise & Service Tax Appellate Act, 1944 Tribunal, Nagpur - Rs.117,762/-

Deputy Commissioner, Central Excise, Nagpur - Rs.191,713/-

The Central Excise Joint Secretary, Ministry of Finance, Act, 1944 New Delhi

The Central Excise High Court , Indore Act, 1944

The Central Excise Customs, Excise & Service Tax Appellate Act, 1944 Tribunal, New Delhi

The Central Excise Customs, Excise & Service Tax Appellate Act, 1944 Tribunal, Nagpur - Rs. 2,565,854/-

Additional Commissioner of Central Excise, Nagpur - Rs.2,551,564/-

Deputy Commissioner of Central Excise, Nagpur- Rs.152,198/-

(c ) There were no amount which were required to be transferred to the Investor Education and Protection Fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder.

8. The Company has accumulated losses as at March 31,2015 which are more than fifty percent of its net worth. The company has incurred cash losses in the financial year covered by our audit and has not incurred cash losses in the immediately preceding financial year.

9. Based on our audit procedures and according to the information and explanations given to us, we are of the opinion that the Company has defaulted in repayment of dues to banks, financial institutions or debenture holders as follows:

S. Particulars Amount of Default NO.

1 Non Convertible Debenture 95,781,428

2 Term Loan 683,325,713

3 Funded Interest Term Loan 78,360,643

4 Working Capital Term Loan I 70,882,616

5 Working Capital Term Loan II 112,438,732

6 Working Capital Term Loan IV 150,919,395

7 Corporate Loan 144,772,674

8 Short Term Loans other than cash credit 738,623

Total 1,337,219,824

S. Particulars Period of Default NO. (In days)

1 Non Convertible Debenture 27 - 89

2 Term Loan 1 - 90

3 Funded Interest Term Loan 1 - 90

4 Working Capital Term Loan I 1 - 90

5 Working Capital Term Loan II 1 - 90

6 Working Capital Term Loan IV 1 - 90

7 Corporate Loan 1 - 90

8 Short Term Loans other than cash credit 1 - 90

Total

Further, as informed to us, the loan facilities availed from ING Bank as term loan (outstanding balance as on 31.3.2015 amounting to Rs.155,530,998/- with interest) and cash credit facilities (outstanding balance as on 31.3.2015 amounting to Rs.164,867,234/-) have become non-performing asset (NPA) for the lender as the company has not paid the dues within 90 days of payments being falling due.

In addition to above, Cash Credit Facilities taken from the banks have remained overdue during the substantial part of the year. The overdue amounts aggregated to Rs.94,622,613/- as at 31.03.2015.

10. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year.

11. In our opinion, the term loans have been applied for the purpose for which they were obtained.

12. During the course of our examination of the books of accounts and records carried out in accordance with the generally accepted auditing practices and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year nor we have been informed of such case by the management.

For J.C. Bhalla & Company Chartered Accountants Firm Regn. No. 001111-N

Sd/- (Akhil Bhalla) Place : New Delhi Partner Dated : May 29, 2015 Membership No.505002






Mar 31, 2014

We have audited the accompanying financial statements of Spentex Industries Limited ("the Company"), which comprise the Balance Sheet as at March 31,2014, and the Statement of Profit and Loss and Cash Flow Statement for the year then 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") read with the General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013. 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 but not for the purpose of expressing an opinion on the effectiveness of the entity''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 qualified audit opinion. Basis for Qualified Opinion We draw attention to:

a. i. Note No. 41 of the financial statements, wherein, we are unable to determine the extent of provision that may be required

for diminution in the value of long term investment amounting to Rs 20,44,69,921 in Amit Spinning Industries Limited, subsidiary of the company. Uncertainties exist in relation to the recoverability of loans amounting to Rs 32,01,28,019, interest accrued thereon Rs 9,59,50,582 and advances amounting to Rs 13,21,98,605 due from above subsidiary. Further, we are unable to determine the amount of liability that may arise on account of corporate guarantee mentioned in Note No. 30 of the financial statements on behalf of above subsidiary.

ii. Note No. 42 of the financial statements, wherein, we are unable to determine the extent of provision that may be required for diminution in the value of long term investment amounting to Rs 56,10,11,339 and Rs 93,23,779 in Spentex Netherland B.V. and Spentex Tashkent Toytepa LLC respectively, subsidiary/step down subsidiary of the company. Uncertainties exist in relation to the recoverability of Rs 9,50,70,902 and Rs 7,00,12,404 due from above subsidiary/step down subsidiary respectively. Further, we are unable to determine the amount of liability that may arise on account of corporate guarantee mentioned in Note No. 30 of the financial statements on behalf of above subsidiary/step down subsidiary.

The aggregate amount of investments and other recoverables referred to in para (i) and (ii) as above amounts to Rs 77,48,05,039 (Previous Year Rs 77,48,05,039) and Rs 71,33,60,512 (Previous year Rs 63,61,30,566) respectively.

b. Note No. 44 of the financial statements, wherein, the Company has not charged to statement of profit and loss Rs 1,01,35,376 and Rs 26,95,093 shown as claim receivable and export incentive respectively.

We further report that, without considering the impact of paragraph (a) above the effect of which could not be determined, had the observations made by us in paragraph (b) above been considered, the loss before tax for the year would have been Rs 13,14,67,277 (as against the reported figure of Rs 11,86,36,808), Reserves and Surplus would have been negative Rs 1,55,14,85,221 (as against the negative reported figure of Rs 1,53,86,54,752), Export Incentive included under the head "Other Non Current Assets" would have been Rs 1,78,69,256 (as against the reported figure of Rs 2,05,64,349) and claim receivable included under the head "Other Non Current assets" would have been Rs 1,83,29,992 (as against the reported figure of Rs 2,84,65,368).

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, 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:

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

(b) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and

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

Emphasis of Matter

Without qualifying our opinion, we draw attention to:

(a) Note No. 43 of the financial statements regarding preparation of these accounts on a going concern basis due to reasons indicated therein.

(b) Note No. 44 of the financial statements regarding amounts recoverable relating to certain trade recievable, advance balances and export incentive recoverable Rs 63,71,477, Rs 2,73,14,712 and Rs 1,78,69,256 respectively which has been considered good by the management in view of the reasons stated therein. We have relied upon the assertion given by the management as to the recoverability of the said amounts.

(c) Note No. 45 of the financial statements requiring deposit/invest a sum of atleast 15% of the amount of its debentures maturing during the financial year 2013-14 in one or more of the prescribed methods vide circular no. 04/2013 dated February 11,2013 issued by Ministry of Corporate Affairs. However the company has not complied with the requirement of the said circular.

(d) Note No. 46 of the financial statements regarding balances of parties under the head trade receivables, trade payables and loans & advances which are subject to confirmation, reconciliation and consequential adjustments, if any.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order"), as amended, issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, we report that:

i. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit except for the matter described in the Basis for Qualified Opinion paragraph;

ii. 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;

iii. 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;

iv. except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956 read with the General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013 and;

v. on the basis of written representations received from the directors as on March 31,2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2014, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

vi 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 has 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 to Independent Auditor''s Report of Spentex Industries Limited Referred to in Paragraph 1 under the heading of "report on other legal and regulatory requirements" of our report of even date

1. (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the management according to a phased programmed designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the year and material discrepancies between the book records and physical inventory have been noticed.

(c) In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed off by the Company during the year.

2. (a) The inventory other than inventory lying with third party has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

(b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

3. (a) The Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under Section 301 of the Act. Accordingly, paragraphs 4(iii)(b), 4(iii) (c), 4(iii)(d) of the order are not applicable.

(b) The company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Act. Accordingly, paragraph 4(iii) (f) and 4(iii) (g) of the order are not applicable.

4. In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weakness in the aforesaid internal control system.

5. (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Companies Act 1956 have been entered in the register required to be maintained under that section.

(b) In our opinion and according to the information and explanations given to us, there were no transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 exceeding the value of Rupees Five Lakhs or more in respect of any party during the year other than those reported in para 18 below pursuant to paragraph 4 (xviii) of the Companies (Auditor''s Report) Order, 2003.

6. The Company has not accepted any deposits from the public within the meaning of Section 58A and Section 58AA of the Act and the rules framed there under.

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

8. We have broadly reviewed the books of account, maintained by the Company in respect of products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of sub section (1) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

9. (a) The company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, sales tax, wealth tax, custom duty, excise duty, cess and other statutory dues and is generally regular in depositing undisputed statutory dues in respect of income tax and service tax applicable to it. According to the information and explanation given to us, no undisputed amounts payable in respect of aforesaid dues were in arrears as at March 31,2014 for a period of more than six months from the date they became payable except for State Entry Tax of Rs 26,22,198/-.

(b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of dues of income tax, sales tax, entry tax, service tax and excise duty at March 31,2014, which have not been deposited

Name of the Nature of dues Amount (Rs.) Period to which statute the amount relates (A.Y.)

Sales Tax

The M.P. Penalty - Purchase 1,64,195 1996-97 Commercial Tax tax demand (including amount Act, 1994 paid Rs 1,28,195) The M.P. Commercial Sales Tax Demand 8,15,157 2009-10 Tax Act, 1994 (including amount paid 8,15,157)

The M.P. Commercial Sales tax demand on 19,70,233 2001-03 Tax Act, 1994 sale of DEPB licenses 2009-10

The M.P. Commercial Sales Tax Demand 3,75,803 2010-11 Tax Act, 1994 (including amount paid 37,600)

Entry Tax Act, 1976 Entry tax demand 15,38,453 1992-1997 (including amount paid Rs 4,14,844)

Maharashtra Value Sales Tax Demand 12,18,223 2009-10 Added Tax Act, 2002

Maharashtra Value Sales Tax Demand 5,32,870 2004-05 Added Tax Act, 2002 (including amount paid 2,00,000)

Central Sales Tax, Sales Tax Demand 29,99,290 2004-05 1956 (including amount paid Rs 10,00,000)

Income tax

Income Tax Act, 1961 Disallowance of 1,08,75,657 AY 2001-02 goodwill amortisation (including amount AY 2003-04 & other expenses paid Rs.39,81,354)

The Income Tax Disallowances of 2,70,95,747 AY 2003-04 Act,1961 various expenses viz. (including amount AY 2005-06 sales tax subsidy, etc paid Rs20,00,000) AY 2006-07

Central Excise and Service Tax Act

Central Excise Excise duty demands 1,08,06,176 June 1999 Act, 1944 (Baramati unit) Dec 2001

Central Excise Excise duty demands 2,78,61,240 Apr-00 to Act, 1944 (Ahmedabad unit) Sept-01 and Feb-01 to Dec-01

Central Excise Excise duty demands 15,65,015 Feb-04 Act, 1944 (Ahmedabad unit) (including amount paid 15,65,015)

The Central Excise Excise duty-demand 7,51,85,214 Aug 2004 Act, 1944 of duty on clearance (including amount Apr, 2007 of goods under paid Rs 23,14,143) notification 30/2004 without payment of duty (Butibori unit)

The Central Excise Cenvat demand for 1,68,812 Apr 2000 Act, 1944 packing material Mar, 2004 including penalty (Pithampur unit)

The Central Excise Cenvat demand on 7,94,266 Apr 2003 - Act, 1944 packing material / Dec,2012 scrap (Butibori unit)

The Central Excise Cenvat on samples 3,09,475 Apr, 2003 Act, 1944 used in quality control (including amoun Octr 2013 (Butibori unit) paidRs 67,597)

The Central Excise Demand for Cenvat 1,10,32,499 Apr,2003 Act, 1944 reversal of furnace oil Aug, 2006 used in generation of electricity on job-work (Butibori unit)

The Central Excise Refund of cenvat on 6,02,16,366 Oct 2004 Act, 1944 inputs under Rule 18 Jan 2006 (Pithampur unit)

The Central Excise Rejection export 24,50,214 June, 2006 Act, 1944 claims June, 2012

The Central Excise Excise duty-demand 5,32,91,002 Mar 2004 Act, 1944 of duty on clearance (including Feb, 2007 of goods under amount paid notification 30/2004 Rs 1,33,22,751) without payment of duty (Pithampur unit)

The Central Excise Demand under 16,77,47,574 April-12, Act, 1944 section Rule 6(3)(i) March, 13

The Central Excise Rebate claim 7,18,287 2010-11 Act, 1944 deducted (including amount paidRs 7,18,287

The Central Excise Cenvat on Capital 52,69,616 2002-2003 Act, 1944 Goods (including amount 2010-11 paidRs 6,73,329

Finance Act, 1994 Refund against 22,59,287 2006-12 export services

Finance Act, 1994 Service Tax on GTA 13,30,248 Apr 2005 paid including penalty (including amount Sep 2006 paidRs 10,49,966

Finance Act, 1994 Service Tax on 5,44,852 2004-05 Garden labour 2008-09

Name of the Statute Forum where the dispute is pending

Sales Tax

The MP Commercial Tax ACt 1994 First Appellate Authority

The MP Commercial Tax ACt 1994 First Appellate Authority

The MP Commercial Tax ACt 1994 Assessing Authority Indore

The MP Commercial Tax ACt 1994 First Appellate Authority

Entry Tax Act 1976 Assessing Authority, Indore

Maharashtra Value Added Tax Act Joint Commissioner of Sales Tax, 2002 Kolhapur Maharashtra Value Added Tax Act Deputy Commissioner, Nagpur 2002

Central Sales Tax 1956 Deputy Commissioner, Nagpur

Income Tax

Income Tax Act 1961 Income Tax Tribunal Delhi Bench 39,81,354 High Court - Rs 68,94,303

Income Tax Act 1961 Commissioner of Income Tax (Appeal), New Delhi

Central Excise and Service Tax Act

Central Excise Act 1944 Customs, Excise & Service Tax Appellate Tribunal, Mumbai

Central Excise Act 1944 Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad

Central Excise Act 1944 Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad

Central Excise Act 1944 Deputy Commissioner of Central Excise, Nagpur - Rs 77,371

Commissioner, Central Excise Nagpur - Rs 7,26,93,700

The Central Excise Act 1944 Customs, Excise & Service Tax Appellate Tribunal, New Delhi - Rs 24,14,143

The Central Excise Act 1944 Commissioner (Appeals), Central Excise, Indore

The Central Excise Act 1944 Customs, Excise & Service Tax Appellate Tribunal New Delhi Rs 81,195

The Central Excise Act 1944 Deputy Commissioner, Central Excise, Nagpur - Rs 7,13,071

The Central Excise Act 1944 Customs, Excise & Service Tax Appellate Tribunal, Nagpur - Rs 1,17,762

The Central Excise Act 1944 Deputy Commissioner, Central Excise, Nagpur - Rs 1,91,713

The Central Excise Act 1944 Deputy Commissioner of Central Excise, Nagpur - Rs 6,94,852

The Central Excise Act 1944 Customs, Excise & Service Tax Appellate Tribunal - Rs 1,03,37,647

The Central Excise Act 1944 Commissioner (Appeals), Central Excise, Indore

The Central Excise Act 1944 Assistant Commissioner of Central Excise, Nagpur

The Central Excise Act 1944 High Court, Indore

The Central Excise Act 1944 Commissioner, Central Excise, Indore

The Central Excise Act 1944 Commissioner (Appeals), Central Excise, Indore

The Central Excise Act 1944 Additional Commissioner of Central Excise, Nagpur - Rs 51,17,418

Deputy Commissioner of Central Excise - Rs 1,52,198

Finance Act 1994 Assistant Commissioner of Central Excise, Nagpur

Finance Act 1994 Customs, Excise & Service Tax Appellate Tribunal - Rs 2,80,282

Finance Act 1994 Commissioner (Appeals), Central Excise, Indore- Rs 10,49,966

Finance Act 1994 Customs, Excise & Service Tax Appellate Tribunal - Rs 5,44,852

10 The Company has accumulated loss as at March 31,2014 which is more than fifty percent of its net worth. The company has not incurred cash losses in the financial year ended on that date and in the immediately preceding financial year.

11 According to the records of the Company examined by us and the information and explanation given to us, based on our audit procedures, we are of the opinion that the company has defaulted in repayment of dues to financial institutions, banks or debenture holders during the year as follows:

Particulars Amount of Default Period of Default (In days)

Non Convertible Debenture 8,62,14,712 28 - 90

Term Loan 83,12,78,837 1 - 90

Funded Interest Term Loan 8,04,48,319 1 - 90

Working Capital Term Loan I 6,47,86,062 1 - 90

Working Capital Term Loan II 10,97,81,542 1 - 90

Working Capital Term Loan III 8,92,872 1 - 42

Working Capital Term Loan IV 14,97,51,149 1 - 90

Corporate Loan 21,21,076 1 - 58

Total 1,32,52,74,569

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

13. The provisions of any special statute applicable to chit fund/ Nidhi/ mutual benefit fund/ Societies are not applicable to the Company.

14. In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments.

15. In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company, for loans taken by others from banks or financial institutions during the year, are not prejudicial to the interest of the Company.

16. In our opinion, and according to the information and explanations given to us, term loan has been applied for the purpose it was obtained.

17. According to the information and explanations given to us and on the overall examination of the balance sheet of the company as at March 31,2014, we report that short term fund of Rs 15,48,51,363 (without considering the impact of other recoverables as mentioned in para a under the head "Basis for qualified opinion" of the independent auditor''s report) have been used for long term investments primarily in repayment of long term borrowing and funding its losses.

18. According to the information and explanations given to us, the company has made preferential allotment of shares to a company covered in the register maintained under Section 301 of the Act. In our opinion, the price at which shares have been issued is not prejudicial to the interest of the company.

19. The Company has created security or charge in respect of debentures issued and outstanding at the year end.

20. The Company has not raised any money by 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 J.C. Bhalla & Company Chartered Accountants Firm Regn. No. 001111-N

Sd/- (Akhil Bhalla) Place : New Delhi Partner Dated : May 28, 2014 Membership No.505002


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of Spentex Industries Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2013, and the Statement of Profit and Loss and Cash Flow Statement for the year then 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 qualified audit opinion.

Basis for Qualified Opinion

We draw attention to:

Note No. 41 of the financial statements, wherein, we are unable to determine the extent of provision that may be required for diminuition in the value of long term investment amounting to Rs.20,44,69,921 in Amit Spinning Industries Limited subsidiary of the company. Further, uncertainities exist in relation to the recoverability of loans amounting to Rs.32,01,28,019, interest accrued thereon Rs.9,59,50,582 and advances amounting to Rs.5,49,68,659 due from above S ubsidiary.

The impact due to above observation on the financial statements could not be ascertained.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, 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:

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

(b) in the case of the Statement of Profit and Loss, of the profit for the year ended on that date; and

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

Emphasis of Matter

Without qualifying our opinion, we draw attention to:

(a) Note No. 42 of the financial statements regarding long term investment amounting to Rs. 56,10,11,339 and Rs. 93,23,779 in Spentex Netherland B.V. and Spentex Tashkent Toytepa LLC respectively, subsidiaries of the company, and advance amounting to Rs. 9,50,70,902 from Spentex Netherland B.V. and trade recievable amounting to Rs. 7,00,12,404 from Spentex Tashkent Toytepa LLC which has been considered good by the management in view of the reasons stated therein. We have relied upon the assertion given by the management as to the recoverability of the investments and amounts due stated above.

(b) Note No. 43 of the financial statements regarding amounts recoverable relating to certain trade recievable and advance balances Rs.63,71,477 and Rs.2,73,14,712 respectively which has been considered good by the management in view of the reasons stated therein. We have relied upon the assertion given by the management as to the recoverability of the said amounts.

(c) Note No. 47 of the financial statements regarding preparation of these accounts on a going concern basis due to reasons indicated therein.

Report on Other Legal and Regulatory Requirements

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 give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

a. As required by section 227(3) of the Act, we report that:

i. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit except for the matter described in the Basis for Qualified Opinion paragraph;

ii. 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;

iii. 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;

iv. except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956;

v. on the basis of written representations received from the directors as on March 31, 2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause

(g) of sub-section (1) of section 274 of the Companies Act, 1956;

vi 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 has 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 to Independent Auditors'' Report

Referred to in Paragraph 1 under the heading of "report on other legal and regulatory requirements" of our report of even date

1. (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the management according to a phased programmed designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. However, the fixed assets have not been physically verified by the management during the year.

(c) In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed off by the Company during the year.

2. (a) The inventory other than inventory lying with third party has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable.

(b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

3. (a) The Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under Section 301 of the Act. Accordingly, paragraph 4(iii)(b), 4(iii)(c), 4(iii)(d) of the order are not applicable.

(b) The company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Act. Accordingly, paragraph 4(iii) (f) and 4(iii) (g) of the order are not applicable.

4. In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weakness in the aforesaid internal control system.

5 a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Companies Act 1956 have been entered in the register required to be maintained under that section.

b) In our opinion and according to the information and explanations given to us, there were no transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 exceeding the value of Rupees Five Lakhs or more in respect of any party during the year other than those reported in para 18 below pursuant to paragraph 4 (xviii) of the Companies (Auditor''s Report) Order, 2003.

6 The Company has not accepted any deposits from the public within the meaning of Section 58A and Section 58AA of the Act and the rules framed there under.

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

8 We have broadly reviewed the books of account, maintained by the Company in respect of products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of sub section (1) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

9 a) The company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, sales tax, wealth tax, custom duty, excise duty, cess and other statutory dues and is generally regular in depositing undisputed statutory dues in respect of income tax and service tax applicable to it. According to the information and explanation given to us, no undisputed amounts payable in respect of aforesaid dues were in arrears as at March 31, 2013 for a period of more than six months from the date they became payable except for State Entry Tax of Rs. 26,22,198/-.

b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of dues of income tax, sales tax, entry tax, service tax and excise duty at March 31, 2013, which have not been deposited on account of dispute, are as follows:

Name of the Nature of dues Amount (Rs.) Year to which Forum where the statute the amount dispute is pending relates

Sales Tax

The M.P. Penalty - Purchase 1,64,195 1996-97 First Appellate Authority Commercial Tax tax demand (including amount Act, 1994 paid Rs.1,28,195)

The M.P. Commercial Sales Tax Demand 8,15,157 (including 2009-10 First Appellate Authority Tax Act, 1994 amount paid Rs.8,15,157)

The M.P. Commercial Sales tax demand on 19,70,233 2001-03 Assessing Authority Indore Tax Act, 1994 sale of DEPB licenses 2009-10

Entry Tax Act, 1976 Entry tax demand 15,38,453 (including 1992-1997 Assessing Authority Indore amount paid Rs. 4,14,844)

Maharashtra Value Sales Tax Demand 12,18,223 2009-10 Joint Commissioner of Sales Tax, Added Tax Act, 2002 Kolhapur

Maharashtra Value Sales Tax Demand 5,32,870 (including 2004-05 Deputy Commissioner, Nagpur Added Tax Act, 2002 amount paid Rs. 2,00,000)

10 The Company has accumulated loss as at March 31, 2013 which is more than fifty percent of its net worth. The company has not incurred cash losses in the financial year ended on that date but has incurred cash losses in the immediately preceding financial year.

11 According to the records of the Company examined by us and the information and explanation given to us, based on our audit procedures, we are of the opinion that the company has defaulted in repayment of dues to financial institutions, banks or debenture holders during the year as follows:

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

13 The provisions of any special statute applicable to chit fund/ Nidhi/ mutual benefit fund/ Societies are not applicable to the Company.

14 In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments.

15 In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company, for loans taken by others from banks or financial institutions during the year, are not prejudicial to the interest of the Company.

16 In our opinion, and according to the information and explanations given to us, term loan has been applied for the purpose it was obtained.

17 On the basis of an overall examination of the balance sheet of the company, in our opinion and according to the information and explanations given to us, there are no funds raised on short term basis which have been used for long-term investment.

18 According to the information and explanations given to us, the company has made preferential allotment of shares to a company covered in the register maintained under section 301 of the Act. In our opinion, the price at which shares have been issued is not prejudicial to the interest of the company.

19 The Company has created security or charge in respect of debentures issued and outstanding at the year end.

20 The Company has not raised any money by 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 J.C. Bhalla & Company

Chartered Accountants

Firm Regn. No. 001111-N

(Akhil Bhalla)

Place : New Delhi Partner

Dated : May 29, 2013 Membership No.505002


Mar 31, 2010

1. We have audited the attached Balance Sheet of Spentex Industries Limited, as at March 31, 2010 and the related profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. 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 required 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 of India in terms of sub-section(4A) of Section 227 of The Companies Act, 1956 of India(the Act) and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we further report that:

3.1 (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the management according to a phased programmed designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during the year and no material discrepancies between the books records and physical inventory have been noticed.

(c) In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed of by the Company during the year.

3.2 (a) The inventory (excluding stocks with third parties) has been physically verified by the management during the year. In respect of inventory lying with third parties, these have substantially been confirmed by them. In our opinion, the frequency of verification is reasonable.

(b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

3.3 (a) The Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under Section 301 of the Act. Accordingly, paragraph 4(iii)(b), 4(iii)(c), 4(iii)(d) of the order are not applicable.

(b) The company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Act. Accordingly, paragraph 4(iii) (f) and 4(iii) (g) of the order are not applicable.

3.4 In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weakness in the aforesaid internal control system.

3.5 (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Companies Act 1956 have been entered in the register required to be maintained under that section.

(b) In our opinion and according to the information and explanations given to us, there were no transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 exceeding the value of Rupees Five Lakhs or more in respect of any party during the year other than those reported in para 3.18 below pursuant to paragraph 4 (xviii) of the Companies (Auditors Report) Order, 2003.

3.6 The Company has not accepted any deposits from the public within the meaning of Section 58A and Section 58AA of the Act and the rules framed there under.

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

3.8 We have broadly reviewed the books of account, maintained by the Company in respect of products where, pursuant to the Rules made by the Central Government of India, the maintenance of cost records has been prescribed under clause (d) of sub section (1) of Section 209 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

3.9 (a) The company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, sales tax, wealth tax, custom duty, excise duty, cess and other statutory dues and is generally regular in depositing undisputed statutory dues in respect of income tax and service tax applicable to it. According to the information and explanation given to us, no undisputed amounts payable in respect of aforesaid dues were in arrears as at March 31, 2010 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of dues of income tax, sales tax, entry tax, service tax and excise duty at March 31, 2010, which have not been deposited on account of dispute, are as follows:

Name of the Nature of dues Amount(C)

statute

Sales Tax

The MP. Penalty - Purchase 164,195

Commercial Tax tax demand (including amount

Act, 1994 paid Rs 128,195)

The M.P Commercial Sales tax demand on 3,154,447 Tax Act, 1994 sale of DEPB licenses (including amount paid Rs.2,855,900)

Entry Tax Act, 1976 Entry tax demand 1,738,138

(including amount paid Rs.414,844)

Maharashtra Sales BST Sales Tax dues 178,493

Tax Act, 1975 (including amount paid Rs 17,040)



Name of the Period to which Forum where the Statute the amount dispute is pending

relates

Sales Tax

The M.P. Commercial 2004-05 First Appellate Authority Tax Act, 1994

The M.P. Commercial 2001-03 Deputy Commissioner Tax Act, 1994 (Appeals),

2009-10 Indore - Rs.369,057

Assessing Authority Rs.2,785,390

Entry Tax Act, 1976 1992-2008 The M.P. High Court - Rs.567,816

Deputy Commissioner (Appeals), Indore - Rs.371,076 Assessing Authority - Rs.799,246 Maharashtra Sales 2003-04 Joint Commissioner of Sales Tax Tax Act, 1975 (Appeal), Pune



Income tax

Income Tax Act, 1961 Disallowance u/s 80 31,061,929

HHC on export (including amount

incentives paid Rs.5,541,674)

Income Tax Act, 1961 Disallowance of 10,875,657

goodwill amortisation (including amount

& other expenses paid Rs.3,981,354)

The Income Tax Disallowances of 27,095,747

Act,1961 various expenses viz. (including amount

sales tax subsidy, etc. paid Rs.2,000,000)



Income Tax Act, 1961 A.Y. 2000-01 Income Tax Tribunal Delhi Bench- to Rs.11,207,472

A.Y. 2004-05 Commissioner of Income Tax

(Appeal), New Delhi - Rs.19,854,457

Income Tax Act, 1961 A.Y. 2001-02 Income Tax Tribunal Delhi Bench - A.Y. 2003-04 Rs. 3,981,354 High Court - Rs. 6,894,303

The Income Tax A.Y. 2003-04 Income Tax Tribunal Delhi Bench - Act, 1961 A.Y. 2005-06 Rs.8,315,813

A.Y. 2006-07 Commissioner of Income Tax

(Appeal), New Delhi - Rs.18,779,934



Central Excise and Service Tax Act

Central Excise Excise duty demands 10,806,176

Act, 1944 (Baramati unit)

Central Excise Excise duty demands 27,861,240

Act, 1944 (Ahmedabad unit)

Central Excise Excise duty demands 1,565,015

Act, 1944 (Ahemdabad unit) (including amount

paid Rs.1,565,015)

The Central Excise Excise duty-demand 75,185,214

Act, 1944 of duty on clearance (including amount

of goods under paid Rs.2,314,143)

notification 30/2004

without payment of duty (Butibori unit)

The Central Excise Cenvat demand for 168,012

Act, 1944 packing material

including penalty

(Pithampur unit)



Central Excise June 1999 to Customs, Excise & Service Tax

Act, 1944 Dec 2001 Appellate Tribunal, Mumbai

Central Excise Apr-00 Customs, Excise & Service Tax

Act, 1944 to Sept-01 and Appellate Tribunal, Ahmedabad

Feb-01 to Dec-01

Central Excise Feb-04 Joint Commissioner -Central Act, 1944 Excise

The Central Excise Aug, 2004 to Deputy Commissioner of Central

Act, 1944 Apr, 2007 Excise, Nagpur - Rs. 77,371

Commissioner, Central Excise Nagpur * Rs.72,187,903

Additional Commissioner of Central Excise, Nagpur - Rs.505,797

Customs, Excise & Service Tax Appellate Tribunal, New Delhi - Rs. 2,414,143

The Central Excise April, 2000 - Customs, Excise & Service Tax

Act, 1944 March, 2004 Appellate Tribunal, New Delhi



The Central Excise Cenvat demand on 1,103,017

Act, 1944 packing material / (including amount

scrap (Butibori unit) paid Rs.35,536)

The Central Excise Cenvat on samples 213,846

Act, 1944 used in quality control (including amount

(Butibori unit) paid Rs.67,597) The Central Excise Demand for Cenvat 31,855,017

Act, 1944 reversal of furnace

oil used in generation of electricity on job- work (Butibori unit)

The Central Excise Refund of cenvat on 60,216,366

Act, 1944 inputs under Rule 18

(Pithampur unit)

The Central Excise Rejection export 1,793,732

Act, 1944 claims

Finance Act, 1994 Refund against 1,262,396

export services

The Central Excise Excise duty-demand 53,291,002

Act, 1944 of duty on clearance (including amount

of goods under paid Rs.13,322,751)

notification 30/2004

without payment of

duty (Pithampur unit)

The Central Excise Duty on Yarn 41,871

Act, 1944

The Central Excise Cenvat on Capital 2,570,898

Act, 1944 Goods



The Central Excise April, 2003 - Customs, Excise & Service Tax

Act, 1944 November, 2009 Appellate Tribunal, New Delhi Rs.94,860 Commissioner(Appeals), Nagpur - Assistant Commissioner - Rs.4,006

Deputy Commissioner, Central Excise, Nagpur - Rs. 1,004,151

The Central Excise Apr, 2003 to Customs, Excise & Service Tax Act, 1944 Aug, 2009 Appellate Tribunal, Nagpur - Rs.117,762

Deputy Commissioner, Central Excise, Nagpur - Rs. 74,130

Assistant Commissioner, Central Excise, Nagpur - Rs. 21,954

The Central Excise Apr, 2003 to Deputy Commissioner of Act, 1944 Central Aug, 2006 Excise, Nagpur - Rs. 694,852

Customs, Excise & Service Tax Appellate Tribunal - Rs.20,822,518

Additional Commissioner of Central Excise, Nagpur - Rs.10,337,647

The Central Excise Oct, 2004 to Commissioner (Appeals), Act, 1944 Central

Jan, 2006 Excise, Indore

The Central Excise Jun, 2006 to Additional Commissioner of Act, 1944 Central Jan,2007 Excise, Nagpur

Finance Act, 1994 2006-09 Additional Commissioner of Central

Excise, Nagpur

The Central Excise March, 2004 to Customs, Excise & Service Tax

Act, 1944 Feb, 2007 Appellate Tribunal

The Central Excise 2006 Commissioner (Appeals), Act, 1944 Central Excise, Indore

The Central Excise 2002-2003 Additional Commissioner of Act, 1944 Central Excise, Nagpur



3.10 The Company has accumulated loss as at March 31, 2010 which is more than fifty percent of its net worth and read with comments in para 4(b) of our report, the company has incurred cash losses in the financial year ended on that date and in the immediately preceding financial year.

3.11 According to the records of the Company examined by us and the information and explanation given to us, based on our audit procedures, we are of the opinion that the company has not defaulted in repayment of dues to financial institutions, banks or debenture holders during the year.

3.12 The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

3.13 The provisions of any special statute applicable to chit fund/ Nidhi/ mutual benefit fund/ Societies are not applicable to the Company.

3.14 In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments.

3.15 In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company, for loans taken by others from banks or financial institutions during the year, are not prejudicial to the interest of the Company.

3.16 In our opinion, and according to the information and explanations given to us, no new term loan has been obtained during the year.

3.17 On the basis of an overall examination of the balance sheet of the company, in our opinion and according to the information and explanations given to us, there are no funds raised on a short term basis which have been used for long-term investment.

3.18 According to the information and explanations given to us, the company has made preferential allotment of shares to a company covered in the register maintained under section 301 of the Act. In our opinion, the price at which shares have been issued is not prejudicial to the interest of the company.

3.19 The Company has created security or charge in respect of debentures issued and outstanding at the year end.

3.20 The Company has not raised any money by public issue during the year.

3.21 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.

4. We draw attention to:

(a) Note 9(a) on Schedule XXI, wherein we are unable to determine the extent of provision that may be required for diminution in the value of long term investment amounting to Rs. 20,44,69,921 in Amit Spinning Industries Limited subsidiary of the company. Further, uncertainties exist in relation to the recoverability of loans amounting to Rs.270,128,019 ( net of Amount received subsequently Rs. 170,400,000,) interest accrued thereon amounting to Rs.60,414,121 and advances amounting to Rs.17,726,208 due from the above subsidiary.

(b) Note 9(b) on Schedule XXI, wherein the Company has not charged to Profit and Loss Account a sum of Rs.329,563,767 due from Schoeller Litvinov k.s. (SLKS), the Czech step down subsidiary of the Company pursuant to reorganization plan approved by the court. Accordingly loss for the year is lower by Rs.329,563,767 with consequent impact on net assets for the year then ended.

(c) Note 10 on Schedule XXI, wherein we are unable to comment on the amounts recoverable relating to certain debtor and advance balances aggregating to Rs.17,408,913 and Rs.22,473,335, respectively, for which no provision has been made in the books of account.

We further report that, without considering the impact of paragraphs 4(a) and 4(c) above the effect of which could not be determined, had the observations made by us in paragraph 4(b) above been considered, the loss before tax for the year would have been Rs. 55,30,08,482 (as against the reported figure of Rs 22,34,44,715), Accumulated loss would have been Rs. 1,53,38,78,558 (as against the reported figure of Rs.1,20,43,14,791), Sundry Debtors and Loans and Advances to subsidiary would have been Rs.77,91,36,218 & Rs. 59,79,62,210 respectively (as against the reported figure of Rs. 1,09,42,10,537 & Rs. 61,24,51,658 respectively) .

5. Further to our comments in paragraphs 4 above, we report that:

(a) 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, subject to our remarks in paragraph 4(b) above, the Balance Sheet, Profit and Loss Account 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) On the basis of written representations received from the directors, as on March 31, 2010 and taken on record by the Board of directors, none of the directors is disqualified as on March 31, 2010 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the prescribed manner the information required by the Act and subject to our remarks in paragraph 4 above, 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, 2010;

(ii) in the case of the Profit and LossAccount, of the loss for the year ended on that date; and

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

For J.C. Bhalla & Company

Chartered Accountants

Firm Regn. No. 001111-N

(Akhil Bhalla)

Place : New Delhi Partner

Dated : August 13, 2010 Membership No.505002

 
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