By Himanshu V. Kishnadwala, Chartered Accountant
New Page 1Spicejet Ltd. — (31-3-2008)
From Notes to Accounts :
3. Legal proceeding by and/or against the company
3.1 Share capital includes 11,624,472 equity shares of Rs.10
each (issued at a premium of Rs.30 each) originally allotted to the three
investment companies of S. K. Modi Group (SKM). These shares were partly paid
and were treated as fully paid by adjusting the calls in arrears of Rs.333.18
million against assignment of security deposit of Rs.360 million by Agache
Associates Limited (belonging to SKM) in favour of the said investment
companies. The Security deposit of Rs.360 million was shown payable to Agache
Associates Limited, under a purported lease agreement dated September 11, 1995,
which was to be effective from April 1, 1996 for a property situated at
Calcutta, West Bengal. Subsequently, the Delhi High Court has passed an order on
July 15, 2005 appointing Receivers to sell shares belonging to SKM’s group
companies and deposit the proceeds with the Court. The manner of receipt of
these sale proceeds by the Company shall be decided by the Court in the pending
proceedings. The Company had also filed a criminal complaint in the Court of
Chief Metropolitan Magistrate, New Delhi against some of the erstwhile promoter
directors and ex-employees of the Company for executing the above transaction.
3.3 In respect of ICDs aggregating Rs.100 million, the
Company has not accrued interest payable amounting to Rs.240.95 million up to
March 31, 2008 (previous year Rs.222.15 million), computed based on interest
rates as per original contract terms for reasons explained below :
l
ICD of Rs.50 million in the name of Agache Associates Limited (affiliated to
SKM) being a party to the fraudulent transactions (Refer Note 3.1 above).
l
In a suit filed by one of the ICD lenders (petitioners), the Company had
deposited a sum of Rs.50 million with the Bombay High Court and the Hon’ble
Bombay High Court later allowed the petitioner to withdraw the said amount
upon furnishing an undertaking that the petitioner will restitute the said sum
or such part thereof, with 9% interest, to the Company, if and as directed by
the Court at the time of the final decision of the suit filed by the
petitioner. Accordingly, pending finality of the matter, both the ICD and
deposit with the High Court have been disclosed under the unsecured loans and
advances, respectively.
3.5 The Company has in its possession the bank-statement of
ICICI Bank, New Delhi, which shows a deposit of Rs.34.29 million on account of
refunds from the Income-tax Department on November 6, 2000 and July 2, 2001 and
subsequent withdrawals (details of amounts appropriated not available with the
Company) on various dates aggregating to Rs.34.29 million against cheques/drafts
issued to several parties, including group companies of SKM, by erstwhile
Director(s) and/or some ex-employees of the Company, which amount to fraudulent
preference under Section 531 of the Companies Act, 1956, which was brought to
the notice of the Hon’ble Court vide CA 606of 2003 and CA797 of 2000. The
difference of Rs.34.29 million between balance as per books (since no accounting
entry has been recorded for unauthorised withdrawals) and that confirmed by the
bankers, is being carried as recoverable under Loans and Advances and is pending
appropriate adjustment on outcome of the ongoing cases and has not been provided
for in the accounts.
3.7 The Company has in its possession the bank statement of
Standard Chartered Grindlays Bank, Mumbai, which shows deposits of Rs.14.20
million and withdrawals of Rs.16.01 million through various transactions made
during the period March 1999 to March 2002. However, in the absence of complete
details of these transactions, appropriate accounting entries could not be
recorded in the books in respect of these transactions. The difference of
Rs.1.81 million between the balance as per books and that confirmed by the bank,
is carried as recoverable under ‘Loans and Advances’ and is pending appropriate
adjustment on the outcome of the ongoing litigations with SKM and entities in
which they are interested.
5. The Management and Board of Directors of the Company are
looking at various steps to improve financial performance of the Company by
rationalising network, improve yield and lower non-fuel costs as a result of
industrywide efforts. Steps are also being taken to evaluate various
alternatives for raising funds for which a merchant banker has been appointed.
The Board of Directors expects improvement in the business results in the
forthcoming years. Accordingly, the financial statements have been prepared on
going concern basis.
From Auditors’ Report :
4. Without qualifying our opinion, we draw attention to Note 5in Schedule XVII to the financial statements which indicate that the Company has suffered recurring losses from operations with net loss for the year ended March 31, 2008, without considering the impact of the matters mentioned in paragraph 5 below, amounting to Rs.1,335.07 million, and as of that date, the Company’s accumulated losses amounted to Rs.5,074.52 million, as against the Company’s share capital and reserves of Rs.5,354.33 million. Also, as discussed in Note 3 in Schedule XVII to the financial statements, realisation of the carrying amount of certain receivable amounting to Rs.68.82 million and dismissal of interest liability amounting to Rs.240.95 million is dependent upon success of the claims filed by the Company against some of the erstwhile directors and employees. These conditions raise significant doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 5. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties and also do not include any adjustments relating to the recoverability and classification of asset carrying amount or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
5. We report that:
(a) As more fully explained in the Note 3.1 of Schedule XVII to the financial statements, an amount of Rs.360 million, given as security deposit towards lease of a property, is carried as recoverable under the head Loans and Advances, of which an amount of Rs.26.82 million appears to be doubtful for recovery. The Company has not made provision for this doubtful amount in the financial statements.
(b) As more fully explained in the Note 3.3 of Schedule XVII to the financial statements, the Company has not accrued interest in respect of outstanding inter-corporate deposits of Rs.10 million, which as at March 31, 2008 amounts to Rs.240.95 million.
6. (e) Subject to our comments in paragraph 5 above, ….
