We have audited the accompanying standalone financial statements of Gokak Textiles Limited (“the Company”) which comprise the Balance Sheet as at March 31,2024, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year ended on that date, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information (hereinafter referred to as “the standalone financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (“the Act”) in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with Companies (Indian Accounting Standards) Rules, 2015 (“Ind AS”), as amended and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31,2024, the loss and the total comprehensive income, changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit of standalone financial statements in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the 'Auditor's Responsibilities for the Audit of the Financial Statements' section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (“ICAI”) together with the independence requirements that are relevant to our audit of the financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI's Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.
Emphasis of Matter
We draw attention to Note 51 of the standalone financial statements which describes the Composite Scheme of Arrangement ('the Scheme') for reduction of share capital and re-organisation of reserves of the Company and amalgamation by absorption of Suryoday One Energy Private Limited with the Company, which has been approved by National Company Law Tribunal -Bengaluru Bench on April 24, 2024 with Appointed Date of April 01,2022. The said Scheme became effective from May 24, 2024. Accordingly, the standalone financial statements have been prepared after taking into consideration the effect of the provisions of the Scheme with effect from the Appointed Date and consequently, the corresponding figures have also been restated. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgement were of most significance in our audit of the standalone financial statements of the current period. Those matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.
a) Accounting for the Composite Scheme of Arrangement
Description of Key Audit Matter:
The Hon'ble National Company Law Tribunal ('NCLT'), in its order dated April 24, 2024 ('the Order') approved the Composite Scheme of Arrangement for reduction of share capital and re-organisation of reserves of the Company and amalgamation (by way of absorption) of Suroyoday One Energy Private Limited ('SOEPL' or 'transferor company') into the Company ('the Scheme').
Pursuant to the Order, the Appointed Date of the Scheme was fixed at April 01, 2022 and the Scheme has become effective from May 24, 2024 i.e. the last date on which the certified copy of the Order was filed with the Registrar of the Companies by the both amalgamating companies.
The amalgamation has been accounted by applying the principles as set out in Appendix C of IND AS 103 “Business
Combinations” and in accordance with the Ministry of Corporate Affairs (MCA) circular dated August 21,2019, the Company has considered the Appointed Date (i.e. April 01,2022) as the date of amalgamation. Accordingly, the Company has prepared its standalone financial statements for the year ended March 31, 2024 after giving effect to the aforesaid Scheme.
Refer Note 51 of the standalone financial statements for detailed accounting treatment and related disclosures.
How the matter was addressed in our audit:
• We pursued the approved Scheme for appropriateness of the determination of the effective date, appointed date and accounting treatment as prescribed in the Scheme.
• We understood the process and controls and their effectiveness for accounting of the Scheme in respect of the capital reduction and amalgamation.
• We traced the balances used for the capital reduction and amalgamation from the respective books of accounts of the companies.
• We reviewed the treatment for alignment in respect of difference in accounting policies for certain items of financial statements and elimination of inter-company balances of the amalgamating companies.
• We assessed the adequacy and appropriateness of the disclosures relating the capital reduction and amalgamation made in the standalone financial statements.
b) Going Concern Assessment Description of Key Audit Matter:
During the year, the Company incurred losses of ' 1,756.70 lakhs for the year ended March 31, 2024 and has accumulated losses of ' 18,345.49 lakhs as on March 31, 2024. Further the Company's current liabilities exceeded its current assets by ' 5,384.40 lakhs as at March 31, 2024. These conditions indicate requirement of assessment of the Company's ability to continue as a going concern.
The Company's financial statements have been prepared on a going concern basis on the reporting date, based on the reasons stated in Note 48 of the standalone financial statements.
How the matter was addressed in our audit:
• We evaluated the appropriateness of management's use of going concern basis of accounting in the preparation of standalone financial statements in accordance with Standard on Auditing issued by ICAI in this regard.
• We evaluated the management's plans for future actions in relation to its going concern assessment, to assess whether the outcome of those plans is likely to improve the situation and whether management's plans are feasible in the circumstances.
• We considered the expected effect of the capital reduction and amalgamation of the solar power business into the Company.
• We assessed the possible mitigating actions identified by management in the event that actual cash flows are below forecast.
• We discussed and obtained a written letter from the holding company indicating its intention and ability to support the Company's financial and operating requirements through infusion of additional capital as and when necessary.
c) Impairment testing of investment in equity shares of subsidiary Description of Key Audit Matter:
The Company has investment of ' 2,499.00 lakhs in the equity shares of Gokak Power & Energy Limited ('GPEL') which represents 51% of its equity capital. GPEL is engaged in the business of generation and distribution of hydro power and significant portion of power generated by GPEL is used by the Company for its textile factory.
Investments in subsidiaries are valued at cost adjusted for impairment losses, if any. In line with “Ind AS 36 Impairment of assets”, in the presence of an impairment indicator, the Company carries out an impairment test by comparing the recoverable amount of the investments, determined according to the value in use method and their carrying amount.
GPEL has accumulated losses of ' 3,344.60 lakhs as on March 31, 2024 which indicates that the investment in GPEL could be impaired and requires impairment testing.
The valuation process adopted by management is complex and is based on a series of assumptions, such as the forecast cash flows, the appropriate discounting rate (WACC) and the long-term growth rate. These assumptions are, by nature,
influenced by future expectations regarding the evolution of external market conditions. Based on the impairment test carried out by the management, it was concluded that impairment is not necessary.
How the matter was addressed in our audit:
We analysed the methods and assumptions applied by management to carry out the impairment test though following procedures:
• identification and understanding of the significant controls implemented by the Company over the impairment testing process;
• analysis of the reasonableness of the principal assumptions made to estimate their cash flows by obtaining information from management that we deemed to be significant;
• We also examined the adequacy of the information provided by the Company about the impairment test and its consistency with the requirements of Ind AS 36;
• analysis of actual data of the year and previous years in comparison with the original plan, in order to assess the nature of variances and the reliability of the planning process;
• assessment of the reasonableness of the discount rate (WACC) and the long-term growth rate;
• verification that the carrying amount of the investment was determined properly and comparison with the value in use resulting from the impairment test.
Information other than the financial statements and auditor's report thereon
The Company's Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the Management Discussion and Analysis and Board's Report including Annexures to Board's Report, but does not include the consolidated financial statements, standalone financial statements and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
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 Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of 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.
In preparing the standalone financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors are responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgement and maintain professional skepticism throughout
the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.
• Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the standalone financial statements.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order, 2020 (“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’ a statement on the matters specified in paragraphs 3 and 4 of the Order.
2. As required by Section 143(3) of the Act, we report that:
a) We have sought and 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 it appears from our examination of those books.
c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows dealt with by this Report are in agreement with the books of account.
d) In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards prescribed under Section 133 of the Act.
e) On the basis of the written representations received from the directors of the Company as on March 31,2024 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 from being appointed as a director in terms of Section 164 (2) of the Act.
f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls over financial reporting.
g) With respect to the other matters to be included in the auditor's report in accordance with the requirements of section 197(16), as amended:
In our opinion and to the best of our knowledge and according to the explanations given to us, the remuneration paid/ provided by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act.
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, as amended, 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 litigations on its financial position in its standalone financial statements. (Refer Note 44 of the standalone 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.
iv. (a) The management has represented that, to the best of its knowledge and belief, no funds have been advanced or
loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other persons or entities, including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(b) The management has represented, that, to the best of its knowledge and belief, other than those disclosed in the financial statements, no funds have been received by the Company from any persons or entities, including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(c) Based on audit procedures performed, nothing has come to our attention that causes us to believe that the representations under sub-clause (i) and (ii) of Rule 11(e), as provided in (a) and (b) above, contain any material misstatement.
v. The Company has not declared or paid any dividend during the year.
vi. Based on our examination, which included test checks, the Company has used accounting software for maintaining its books of account for the financial year ended March 31, 2024 which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of the audit trail feature being tampered with.
As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1,2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31,2024.
For BATLIBOI & PUROHIT
Chartered Accountants ICAI Firm Reg. No.101048W
N. S. Gaur
Partner
Place : Mumbai Membership No. 137138
Date : May 25, 2024 ICAI UDIN: 24137138BKGEMR3783
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