Notes to Accounts of Vanasthali Textile Industries Ltd.

Mar 31, 2013

1.1 Contingent Liabilities:

Contingent Liabilities not provided for in respect of:

Particulars* (Rs. In lacs) (Rs. In lacs) 2012-13 2011-12

Guarantees given by banks for which counter guarantee 16.50 16.50 has been given by the company

Bonds executed in favour of the Excise Department 1607.77 1607.77

Excise Duty Cases 2044.13 1116.33

Service Tax 18.88 100.51

Income Tax 530.36 530.36

Sales Tax/Entry Tax 23.53 23.53

*The information given above is certified by the management & relied upon by the auditors.

1.2 Auditors'' Remuneration :

a) Audit Fees 3.93 4.46

b) Taxation matters 2.93 1.33

1.3 Status of Income Tax Cases

a) In respect of assessment year 2007-08, the Assessing Officer had disallowed certain expenses on account of Commission, Exhibition, Duty drawback & Sales income and made an addition of Rs.5,81,20,640/- against which the company has filed an appeal before Commissioner of Income Tax(Appeals)and the same is pending for hearing.

b) In respect of assessment year 2008-09, the Assessing Officer had disallowed certain expenses on account of Commission, Exhibition, Stock Loss and Rent against which the company has filed an appeal before Commissioner of Income Tax (Appeals) and the same is pending for hearing.

c) In respect of assessment year 2009-10, the Assessing Officer has assessed the income at NIL, whereas company has claimed a loss of Rs. 14,28,63,830/- against which the company has filed an appeal before Commissioner of Income Tax (Appeals) and the same is pending for hearing.

1.4 Balances with customers, suppliers, other creditors, recoverable advances and loan facility from IDBI & balance with HDFC & SBBJ banks which have been taken as appearing in the books, and are subject to confirmation/reconciliation.

1.5 Since, the company is exclusively engaged in the business of textile products which consists of only Terry Towel, and has a single composite manufacturing unit. Therefore business of the company is considered to constitute single primary reportable segment in the context of Accounting Standard 17 on "Segment Reporting".

1.6 a) Based on the accounts for the period ended 31st March 2011, the company has filed a reference with Hon''ble Board of industrial and financial restructuring (BIFR) u/s 15(1) of Sick Industrial Companies (special provisions) Act''1985 for measures to be adopted with respect to the rehabilitation of the company. The reference so filed has been registered vide reference no.55/2011 and the process for declaration of sickness still in progress.

b) Due to continue default in repayment of loan liability, the lenders have issued notice u/s 13(2) of SARFASI Act, 2002. In view of the proceedings in BIFR and conversation between the lenders & company, the management is of the opinion that once the loan liability is settled no adverse impact will be on the operations of the company.

c) In view of the matter pending before Hon''ble BIFR for restructuring and rehabilitation of the company and in expectancy of relief & con-cessation in form of restructuring of loan liabilities, waiver of interest etc., the management is of the view that financial position of the company will improve by improvement in assets/liabilities mismatch on one hand and profitability on the other. Therefore the account has been prepared on going concern basis.

d) Further based on such restructuring of the financial liabilities of the company, the management believes that profits are expected to accrue once the entire capacity of the plant is utilized and hence no adjustment is required in fixed assets on account of impairment of Assets.

1.7 In view of continuous default in payment of interest on term loan, company has not accounted for subsidy, for the current period under TUF scheme whereas the management has decided to carry forward the amount of accumulated balance of Rs. 316.44 lacs as recoverable under current assets as the same shall be adjusted against full & final settlement of such loan accounts.

1.8 In view of non implication of any financial liabilities in various court cases pending against/for the company, no provision has been considered necessary. Liability in future, if any, would be accounted for in the year of demand.

1.9 Related parties and transactions with them as specified in the Accounting Standard 18 on "Related Parties Disclosures" issued by ICAI has been identified and given below on the basis of information available with the Company and the same has been relied upon by the auditors.

(Subsidiary)

VDR Leasing & Credit Company Private Limited.

Enterprises over which Key Management Personnel and their relative having significant influence

Milleneum Holding Ltd.

Nile Suez Spining & Weaving Co.

Nikki International Inc.

Nikki UK.

Sawan Textiles International Private Limited.

Key Managerial Personnel

Mr. Nikhil Poddar Chairman/Managing Director

Mr. David Soans Director

1.10 In accordance with Accounting standard 22, Companies (Accounting Standard) Rules, 2006, in view of the fact that the company is incurring huge losses as well as have preferred for financial restructuring under BIFR, hence deferred tax asset has not been accounted for in the books since it is not virtually certain whether the company will be able to take advantage of such items.

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Mar 31, 2012

1.1 Contingent Liabilities:

a) Contingent Liabilities not provided for in respect of:

Particulars* 2011-12 2010-11 (Rs. In lacs) (Rs. In lacs)

Guarantees given by banks for which counter guarantee has been given by the company 16.50 16.50

Foreign and Indian Bills Discounted by Bank NIL 1689.23

Bonds executed in favour of the Excise Department* 1607.77 1607.77

Letter of Credits NIL 0.63

Excise Duty Cases 1116.33 1031.64

Custom Authority NIL 2.16

Service Tax Authority 100.51 100.51

ESI Authority NIL 0.64

Income Tax Authority 530.36 530.36

*The information given above is certified by the management & relied upon by the auditors.

1.2 Balances with customers, suppliers, other creditors, recoverable advances and loan facility from IDBI & balance with HDFC banks have been taken as per books, and are subject to confirmation / reconciliation.

1.3 Since, the company is exclusively engaged in the business of textile products which consists of only Terry Towel, and has a single composite manufacturing unit. Therefore business of the company is considered to constitute single primary reportable segment in the context of Accounting Standard 17 on "Segment Reporting".

2.1 a) Based on the accounts for the period ended 31st March 2011, the company has filed a reference with Hon'ble Board of industrial and financial restructuring (BIFR) u/s 15(1) of Sick Industrial Companies (special provi- sions) Act'1985 for measures to be adopted with respect to the rehabilitation of the company. The reference so filed has been registered vide reference no.55/2011 and the process for declaration of sickness is in progress.

b) In view of sharp decline in revenue from operation from Rs. 84.97cr (FY 10-11) to Rs. 14.69cr (FY 11-12) & losses which has arisen from Rs. 1.28cr (FY 10-11) to Rs. 28.88cr (FY 11-12), the management has approached the lender banks for corporate debt restructing (CDR) During the process company has ap- pointed M/s Hardicon Ltd. (A Joint venture of IFCI Ltd. SIDBI, SFC's & Nationalized Banks) for preparing its viability report in consultation with the lender banks & the officials of the company. M/s HARDICON Ltd. has considered the present & future business scenario & submitted its report stating that the company is viable after considering restructuring measures proposed in their report. Therefore the Management has perceived that after restructuring of its debts the company shall be able to repay its debts with the projected future cash flows.

c) Based on financial projections (As per report of M/s HARDICON LTD) the management is of the view that the profits are expected to accrue once the restructuring proposal is implemented and hence no adjustments are required to the carrying amount of fixed assets on account of impairment as required by AS 28 of Company (Accounting Standards) Rules'2006.

d) In view of the facts & circumstances in Para a, b & c above the management is of the view that despite such losses in the current & past financial years & in view of restructuring measures under progress, the going concern assumption of the company has not been vitiated.

2.2 As stated above, M/s HARDICON Ltd. has considered the value of inventory of Semi finished & finished goods at Rs.572.70 lacs against book value of Rs.1909.01 lacs considering a diminution of Rs.1336.31 lacs in the valuation thereof & accordingly provision for loss of inventory has been made in the books of accounts.

2.3 A sum of Rs 124.65lac has been recognized as subsidy under TUF which has been shown by netting off the expenses under the head interest on term loan. In view of default in payment of interest such grant is pending for claim. Therefore the management has decided to carry the accumulated balance amounting to Rs 316.44 Lac as recoverable under current assets. (Refer in Audit report)

2.4 During the Financial year 2008-09 the company was taken over by existing promoters. Consequent to the change in management, the present promoters entered into a share purchase agreement (SPA) through which certain liabilities belonging to erstwhile outgoing promoters were withheld with the right to set off & adjust from the amount recoverable mainly on account of duty drawback and insurances claim receivable are not recovered within agreed time. Therefore, an amount of Rs 1577.79 Lac lying in the credits of earlier promoters has been adjusted from such recoverable resulting into reduction of corresponding assets & liabilities by the same amount.

2.5 In view of non implication of any financial liabilities in various court cases pending against/for the company, no provision has been considered necessary. Liability in future, if any, would be accounted for in the year of demand.

2.6 The earnings per share has been calculated as specified in Accounting Standard 20 on "Earning Per Share" issued by ICAI, the related disclosures are as below:

2.7 Related parties and transactions with them as specified in the Accounting Standard 18 on "Related Parties Disclo- sures" issued by ICAI has been identified and given below on the basis of information available with the Company and the same has been relied upon by the auditors

2.8 In accordance with Accounting standard 22, Companies (Accounting Standard) Rules, 2006, in view of the fact that the company is incurring huge losses as well as have preferred for financial restructuring under BIFR, hence deferred tax asset has not been accounted for in the books since it is not virtually certain whether the company will be able to take advantage of such items.

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Mar 31, 2011

1.a) Contingent Liabilities not provided for in respect of:

(Rs. in lacs) (Rs. in lacs)

2010-2011 2009-2010

i) Guarantees given by banks for which Counter guarantee has been given by the Company 16.50 10.00

ii) Foreign and Indian Bills Discounted by Bank 1689.23 936.48

iii) Bonds executed in favour of the Excise Deptt. 1607.77 1441.77

iv) Letter of Credits 0.63 193.00

b) Pending cases with Excise authority Rs. 1031.64 lacs, Custom Authority Rs. 2.16 lacs, Service Tax Authorities Rs. 100.51 lacs, ESI Authorities Rs. 0.64 lacs, Income Tax Authorities Rs. 877.04 lacs (previous year Rs. 592.00 Lacs).

2. Debit and credit balances including in respect of advances, sundry debtors and creditors are subject to confirmation and reconciliation with respect to the same. Consequential adjustments in this respect will be carried out as and when ascertained.

3. The company does not have any information regarding the status of suppliers under the Micro, Small & Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amount unpaid as at the year end together with interest paid/payable as required under the said Act have not been provided.

4. It is the management's perception that, since the company is exclusively engaged in the business of textile products which consists of Terry Towel, and has a single composite manufacturing unit, therefore business of the company is considered to constitute single primary reportable segment in the context of Accounting Standard 17 on "Segment Reporting" issued by the Institute of Chartered Accountants of India (ICAI).

5. As per information give by the management the company has made refrence to honorable BIFR pursuant to the provision of SICA consequent upon erosion of more than 50% of its per net worth. The accounts have been prepared on a going concern basis.

6. The accounts 'have been prepared on a going concern basis.

7. Related parties and transactions with them as specified in the Accounting Standard 18 on "Related Parties Disclosures" issued by ICAI has been identified and given below on the basis of information available with the Company and the same has been relied upon by the auditors (Subsidiary)

VDR Leasing & Credit Company Private Limited

Enterprises over which Key Management Personnel and their relative having significant influence

Millenium Holding Ltd.

Nile Suez Spinning & Weaving Co.

Niki International Inc.

Niki UK Ltd.

(Figures in Bracket represent previous year figures)

The company has sold goods of Rs. 63,99,99,999 to it's sister concern (Niki International Inc. C/O, 9, coffers LANE, East Brunswick, New Jersey 08816 USA [phone]) that was purchased from various companies from China, The amount of purchase consideration is directly paid by Niki International Inc. on behalf of the company and the difference on sale proceed is adjusted with amount already received from Niki International Inc. by the company.

8. No provision for interest has been made on the loans given to one of the parties amounting to Rs 5.11 lacs as the matter is in litigation and the same shall be accounted for on cash basis on settlement of case.

9. Deferred Tax:

Management is of the view that it is not virtually certain to realize the total deferred tax assets of unabsorbed losses and disallowance u/s 43B amounting to Rs. 3,80,20,640/- in the near future. In the absence of virtual certainty of reliability of deferred tax assets, the deferred tax assets has been recognized only to the extent of deferred tax liability of Rs. 3,50,09,725/-.

Deferred Tax liability comprises of timing differences on account of:

10. Advance Recoverable in cash or kind includes Rs. 90.97 Lacs being the amount of duty drawback receivable on purchase of diesel from DTA Suppliers in accordance with foreign trade policy for the earlier years. The amount has been taken into account on estimated basis in the other income of the F.Y 2008-09 by the management.

11. Fire took place in the factory in the material godown during the last Financial year 2008-09 and the value of the material loss Rs. 950.85 Lacs due to the fire was claimed from the insurance company The company has received an amount of Rs. 460.877 Lacs as full and final settlement from the insurance company. However, for the Balance amount, the company is under arbitration and the same has been shown as insurance claim receivable under the head loans and advances.

12. Previous years figures have been regrouped/re-arranged wherever considered necessary.

13. Figures have been rounded off to the nearest rupees. As per our report of even date annexed

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Mar 31, 2010

1. Contingent Liabilities

a) Contingent Liabilities not provided for in respect of: 2009-2010 2008-2009 (Rs. in lacs) (Rs. in lacs)

1) Guarantees given by banks for which

Counter guarantee has been given by the Company 10.00 10.00

ii) oreign and Indian Bills Discounted by Bank 936.48 338.77

iii) Bonds executed in favour of the Excise Deptt. 1441.77 1441.77

iv) Letter of Credits 193.00 481.00

b) Pending cases with Excise authority Rs. 75.31 lacs, Custom Authority Rs. 2.16 lacs, Service Tax Authorities Rs. 96.85 lacs, Sales Tax Authorities Rs.0.44 lacs, ESI Authorities Rs. 5.44 lacs, Income Tax Authorities Rs. 566.90 lacs (previous year Rs. 176.33 Lacs).

2. Certain debit and credit balances including in respect of advances, sundry debtors and creditors are subject to confirmation and reconciliation with respect to the same. Consequential adjustments in this respect will be carried out as and when ascertained.

3. The company does not have any information regarding the status of suppliers under the Micro, Small & Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amount unpaid as at the year end together with interest paid/payable as required under the said Act have not been provided.

4. It is the managements perception that, since the company is exclusively engaged in the business of textile products which consists of Terry Towel, and has a single composite manufacturing unit, therefore business of the company is considered to constitute single primary reportable segment in the context of Accounting Standard 17 on "Segment Reporting" issued by the Institute of Chartered Accountants of India (ICAI).

5. The accounts have been prepared on a going concern basis

6. Related parties and transactions with them as specified in the Accounting Standard 18 on "Related Parties Disclosures" issued by ICAI has been identified and given below on the basis of information available with the Company and the same has been relied upon by the auditors

(Subsidiary)

VDR Leasing & Credit Company Private Limited

Enterprises over which Key Management Personnel and their relative having significant influence

City Apparel Private Limited

Nascent Leasing & Infotech Pvt. Ltd.

Sarang Exports Private Limited

Quinzane Leasing & Infotech Pvt. Ltd.

Texport Syndicate (India) Limited

Artek Surfin Chemicals Limited

Sterling Auxilieries Pvt. Ltd.

Milleneum Holding Ltd.

Nile Suez Spining & Weaving Co.

Niki International Inc.

Niki UK.

Key Managerial Personnel

Mr. Nikhil Poddar Chairman/Managing Director

Mr. David Soans Director

Mr. Yogesh Gupta Director

Mr. B.P.Saxena Whole Time Director

Mr. R.D.Gupta Whole Time Director

Mr. Rajender Goenka Ex-Director

Mr. Sunil Goenka Ex-Director

Mr. Harivats Sharaff Ex-Director

7. No provision for interest has been made on the loans given to one of the parties amounting to Rs 5.11 lacs as the matter is in litigation and the same shall be accounted for on cash basis on settlement of case.

8. Deferred Tax:

Management is of the view that it is not virtually certain to realize the total deferred tax assets of unabsorbed losses amounting to Rs. 54,860,788 in the near future. In the absence of virtual certainty of reliability of deferred

9. Advance Recoverable in cash or kind includes Rs. 90.97 Lacs being the amount of duty drawback receivable on purchase of diesel from DTA Suppliers in accordance with foreign trade policy for the earlier years. The amount has been taken into account on estimated basis in the other income of the F.Y 2008-09 by the management.

10. Fire took place in the factory in the material godown during the last Financial year 2008-09 and the value of the material loss Rs. 950.85 Lacs due to the fire was claimed from the insurance company The company has received an amount of Rs. 419.77 Lacs as full and final settlement from the insurance company. However, for the Balance amount of Rs. 410.92 Lacs, the company is under arbitration and the same has been shown as insurance claim receivable under the head loans and advances.

11. Previous years figures have been regrouped/re-arranged wherever considered necessary.

12. Figures have been rounded off to the nearest rupees.