KANEL INDUSTRIES LIMITED
Report on the audit of the Standalone Financial Statements
Opinion
1. I have audited the accompanying Ind AS standalone financial statements of KANEL INDUSTRIES LIMITED ("the Company”), which comprise the Balance Sheet as at 31st March 2025, and the Statement of Profit and Loss (including other comprehensive income), Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information ("the Financial Statements”).
2. In my opinion and to the best of my information and according to the explanations given to me, the aforesaid Financial Statements give the information required by the Companies Act, 2013 ("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 31st March 2025, and its loss and other comprehensive income, changes in equity and its cash flows for the year then ended.
Basis for Opinion
3. I conducted my audit in accordance with the Standards on Auditing ("SAs”) specified under section 143(10) of the Act. My responsibilities under those SAs are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India ("ICAI”) together with the ethical requirements that are relevant to my audit of the Financial Statements under the provisions of the Act, and the rules thereunder, and I have fulfilled my other ethical responsibilities in accordance with these requirements and the Code of Ethics. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion on the Financial Statements.
Key Audit Matters
4. Key audit matters are those matters that, in my professional judgment, were of most significance in my audit of the Financial Statements of the current year. These matters were addressed in the context of my audit of the Financial Statements as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters.
A. Approval of Resolution Plan:
The National Company Law Tribunal (NCLT), Ahmedabad Bench, vide its order under Section 30(6) read with Section 31(1) of the Insolvency and Bankruptcy Code, 2016 and Regulation 39(4) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, has approved a Resolution Plan submitted for the Company.
The Resolution Plan inter alia provides for:
a) waiver of liabilities by secured and unsecured creditors,
b) partial debt restructuring including conversion of loan into equity shares,
c) cancellation of certain equity shares,
d) revaluation of fixed assets at fair market value, and
e) writing off losses relating to current assets and investments.
The Company has accounted for the above impacts in accordance with the approved Resolution Plan, applicable requirements of Ind AS and the NCLT order. These transactions are significant in terms of their size and nature, and required considerable audit attention due to the complexity of accounting, judgments involved in valuation and classification, and extensive disclosures.
Auditor's Response:
My audit procedures included, among others:
a) Reading and evaluating the NCLT Order approving the Resolution Plan;
b) Assessing management's process for implementing the accounting effects of the Resolution Plan;
c) Evaluating the appropriateness of accounting treatment for waiver of liabilities, restructuring of borrowings, issue of equity shares, cancellation of shares and write-off of current assets and investments in accordance with applicable Ind AS;
d) Assessing the basis of revaluation of fixed assets including involvement of independent valuer and assumptions used;
e) Verifying necessary approvals, resolutions and supporting documentation relating to the implementation of the Resolution Plan; and
f) Evaluating the adequacy of related disclosures made in Note 49 of the financial statements.
Based on the above procedures, I found management's accounting and disclosures in respect of the Resolution Plan to be reasonable and in accordance with the applicable financial reporting framework.
B. Revaluation of Assets:
I draw attention to Note 49 of the financial statements, which describes that, pursuant to approval of the Resolution Plan by the Hon'ble NCLT, Ahmedabad Bench, the Company has revalued its fixed assets at fair value based on valuation carried out by an independent valuer. The resultant revaluation impact has been accounted for in the books of account in accordance with the Resolution Plan and applicable Ind AS. My opinion is not modified in respect of this matter.
Auditor's Response:
In addressing the above Key Audit Matter, my procedures included, among others:
a) Understanding and evaluating the terms of the approved Resolution Plan with respect to revaluation of fixed assets.
b) Assessing the competence, independence and objectivity of the independent valuer engaged by the Company.
c) Evaluating the valuation methodology, assumptions and inputs adopted by the valuer for reasonableness and consistency with Ind AS 16 requirements.
d) Reconciling the revalued amounts with the valuation report and ensuring appropriate accounting treatment of the resultant revaluation reserve in the books of account.
e) Reviewing disclosures made in the financial statements, particularly Note 49, for compliance with Ind AS and Schedule III requirements.
Based on the procedures performed, we found the management's accounting and disclosure for revaluation of fixed assets to be reasonable and in line with the applicable financial reporting framework.
C. Conversion on Loan into Equity:
The Hon'ble National Company Law Tribunal (NCLT), Ahmedabad Bench, vide its order under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 read with Regulation 39(4) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, approved the Resolution Plan of the Company. The Resolution Plan inter alia provided for:
a) Waiver of secured and unsecured debt aggregating to ?1575.84 lakhs;
b) Conversion of balance debt of ?1496.25 lakhs into 1,49,62,500 equity shares of ?10 each at par; and
c) Extinguishment of existing liabilities in accordance with the approved Resolution Plan.
The accounting treatment of waiver of debt and conversion of debt into equity has been carried out in accordance with the provisions of applicable Ind AS, particularly Ind AS 32 Financial Instruments: Presentation, Ind AS 109 Financial Instruments and Ind AS 107 Financial Instruments: Disclosures.
Given the materiality of the transaction and significant impact on the financial statements, this matter has been identified as a Key Audit Matter.
Auditor's Response:
I have performed the following audit procedures:
a) Verified the NCLT order approving the Resolution Plan.
b) Evaluated the accounting treatment of waiver of debt and debt-to-equity conversion with reference to Ind AS 32/109 requirements.
c) Checked the computation of equity shares issued against the converted debt.
d) Ensured appropriate disclosure has been made in the Notes to Accounts (Refer Note 49).
e) Based on the above procedures, I found the accounting and disclosure of debt waiver and debt-to-equity conversion to be appropriate.
Other Information
5. The Company's Board of Directors are responsible for the other information. The other information comprises the information included in the Company's annual report, but does not include the Financial Statements and my auditors' report thereon.
6. My opinion on the Financial Statements does not cover the other information and I do not express any form of assurance conclusion thereon.
7. In connection with my audit of the Financial Statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or my knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work I have performed, I conclude that there is a material misstatement of this other information; I am required to report that fact. I have nothing to report in this regard.
Management's responsibility for the Financial Statements
8. 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 Financial Statements that give a true and fair view of the state of affairs, profit and other comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian accounting standards ("Ind AS”) specified under section 133 of the Act. 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.
9. In preparing the Financial Statements, the 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 the management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
10. The Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor's responsibilities for the audit of the Financial Statements
11. My 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 my 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 Financial Statements.
12. As part of an audit in accordance with SAs, I exercise professional judgment and maintain professional scepticism throughout the audit. I also:
12.1. Identify and assess the risks of material misstatement of the 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 my 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 control.
12.2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) the Act, I am also responsible for expressing my opinion on whether the Company has adequate internal financial controls with reference to Financial Statements in place and the operating effectiveness of such controls.
12.3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by themanagement.
12.4. Conclude on the appropriateness of the 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 I conclude that a material uncertainty exists, I am required to draw attention in my auditor's report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify my opinion. The company has suffered huge losses in past and its net worth has been eroded. The management has produced detailed plan for revival. This includes efforts to increase sales and cash flow, negations with the banking institution of finance and redrafting of its credit policy. Company
has not incurred cash lose in the current year. The profitability shows upward trend. This evidence justifies management's conclusion of company's ability to continue as going concern. My conclusions are based on the audit evidence obtained up to the date of my auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
12.5. Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
13. I 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 I identify during my audit.
14. I also provide those charged with governance with a statement that I 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 my independence, and where applicable, related safeguards.
15. From the matters communicated with those charged with governance, I determine those matters that were of most significance in the audit of the Financial Statements of the current year and are therefore the key audit matters. I describe these matters in my auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
I determine that a matter should not be communicated in my 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
16. 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, I give in the "Annexure A"a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
17. As required by Section 143(3) of the Act, I report that:
17.1. I have sought and obtained all the information and explanations which to the best of my knowledge and belief were necessary for the purposes of my audit.
17.2. In my opinion, proper books of account as required by law have been kept by the Company so far as it appears from my examination of those books for the matters stated in the paragraph 18.8 below, on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
17.3. The balance sheet, the statement of profit and loss including other comprehensive income, the statement of changes in equity and the cash flow statement dealt with by this Report are in agreement with the books of account.
17.4. In my opinion, the aforesaid Financial Statements comply with the Ind AS specified under Section 133 of the Act.
17.5. On the basis of the written representations received from the directors as on 31 March 2025 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2025 from being appointed as a director in terms of Section 164(2) of the Act.
17.6. With respect to the adequacy of the internal financial controls with reference to Financial Statements of the Company and the operating effectiveness of such controls, refer to my separate Report on internal financials control over financials reporting as per Annexure-2; and
17.7. In my opinion and according to the information and explanations given to me, Company has not paid remuneration to directors.
17.8. The modifications relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 17.2 above on reporting under section 143(3)(b) of the Act and paragraph 18.8 below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
18. 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 my opinion and to the best of my
information and according to the explanations given to me:
18.1. The Company does not have any pending litigations which would impact its financial position.
18.2. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
18.3. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
18.4. The management has represented that 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 person(s) or entity(ies), 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. Based on reasonable audit procedures adopted by me, nothing has come to my notice that such representation contains any material misstatement.
18.5. The management has represented that no funds have been received by the Company from any person(s) or entity(ies), 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. Based on reasonable audit procedures adopted by me, nothing has come to my notice that such representation contains any material misstatement.
18.6. Based on the audit procedures that have been considered reasonable and appropriate in the circumstances, nothing has come to my notice that has caused me to believe that the representations under sub-clause (i) and (ii) of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement.
18.7. In my opinion and according to the information and explanations given to me, no dividend has been declared and / or paid during the year by the Company.
18.8. Based on my examination which included test checks and information given to me, the Company has used accounting software for maintaining its books of account, which has a feature of recording audit trail (edit log) facility throughout the year for all relevant transactions recorded in the respective software, Further, during the course of my audit I did not come across any instance of audit trail feature being tampered with.
Further, the audit trail, to the extent maintained in the prior year, has been preserved by the Company as per the statutory requirements for record retention.
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