Kothari Industrial Corporation Ltd Forensic Report - SOIC x StockScans Report

as of Sep 2026

Kothari Industrial's FY2025-26 audit is qualified for the fifth straight year, with unresolved balances, statutory arrears, and cash losses. The company is also carrying a large, loss-making acquisition from a related party and a stack of old legal and tax claims, while its true debt is hidden in high-cost promoter loans.

Key findings

  1. Five straight years of qualified or modified audit opinions, with FY2025-26 qualifications spanning unverified balances of ₹130+ crore, unreconciled GST of ₹22+ crore, and unreviewed inventory valuation of ₹10.98 crore Critical - M/s. Ray & Ray issued a Qualified Opinion on the standalone financial statements for FY2025-26 (year ended March 31, 2026), citing seven basis-for-qualification items including an ₹80 lakh government subsidy receivable outstanding over 8 years with no documentary evidence and no provision made, a matter also reported in the prior year audit report. Year-end direct balance confirmations were not provided for promoters ₹1.80 crores, trade receivables ₹33.49 crores, trade payables ₹23.24 crores, vendor advances ₹15.06 crores, advances from customers ₹3.99 crores, and other loans payable ₹52.88 crores in FY2025-26. GST input credit of ₹10.41 crores, GST output liability of ₹10.55 crores, and a debit balance of ₹1.41 crores in the GST payable account were not reconciled with the GST portal/GSTR-2B in FY2025-26, leaving the auditor unable to verify accuracy. Out of total recorded inventory of ₹17.02 crores in FY2025-26, detailed stock valuation reports for ₹10.98 crores were not made available, and the system does not track non-moving or slow-moving inventories. The auditor issued a modified opinion on the adequacy and operating effectiveness of internal financial controls over financial reporting for FY2025-26, identifying certain deficiencies constituting significant deficiencies that indicate increased risk of misstatements not being prevented or detected on a timely basis. CARO clause (vii) for FY2025-26 states the Company was not regular in depositing undisputed statutory dues including PF, ESI, Income Tax (TDS), GST, and Professional Tax, with undisputed amounts in arrears for more than six months as at March 31, 2026. CARO clause (ix) for FY2025-26 states loans of ₹1.81 crore from promoters and ₹53.89 crore from others have no stipulated repayment schedule for principal or interest, and a loan of ₹100 lakhs repayable in full during the year remained outstanding as at March 31, 2026. CARO clause (xvii) for FY2025-26 records cash losses of ₹19.28 crore in the current financial year and ₹17.29 crore in the immediately preceding financial year. The consolidated financial statements for FY2025-26 also received a Qualified Opinion, with an additional basis item: proceedings initiated by the Collector of Nilgiris for repossession of certain plots of land in Coonoor earmarked for public use, challenged by the Holding Company via Writ Petition before the Madras High Court, pending adjudication. The consolidated audit report for FY2025-26 includes an Emphasis of Matter on no provision made for royalty payable to Royer Group for the period July 2025 to June 2026 since negotiations are ongoing and Management is optimistic of obtaining a waiver. One associate was not audited by the principal auditor in FY2025-26; the Group's share of net loss (including OCI) of ₹40.99 crore for the year ended March 31, 2026 was considered in the consolidated financial statements based solely on other auditors' reports. The FY2024-25 standalone audit report contained a qualified opinion due to inability to obtain sufficient audit evidence for related party balances of ₹4,90,000 out of total ₹11,63,11,633. The FY2023-24 standalone audit report contained a qualified opinion with six basis items, including sale of land and plant & machinery at Ennore factory to Coromandel International Ltd for ₹48,95,00,000 and ₹1,33,00,000 respectively with sale registration pending, and Gujarat land held at cost ₹1,85,174 with only Form 7 produced and no sale deed or allotment letter. The FY2022-23 standalone audit opinion was unmodified except for a qualification that the company charged ₹22.3 crore prior-year interest on a loan from related party M/s Parveen Roadways (P) Limited directly to retained earnings instead of restating prior-year financials per Ind AS 8.
  2. Kothari Industrial repeatedly routes large cash advances and acquisitions through its Chairman & MD and promoter-linked entities, including ₹70 crore advanced to Mr. Rafiq Ahmed for shares in a nil-turnover company and a ₹24 crore slump purchase from a related sole proprietorship that produced ₹11.93 crore of goodwill Major - In FY2024-25, KICL advanced ₹70 crore to Mr. Rafiq Ahmed in connection with a proposed acquisition of his 30% stake in Phoenix Kothari Footwear Limited (PKFL), with total consideration agreed at ₹99.06 crore; the advance was adjusted in FY2025-26. PKFL, the target of the ₹99.06 crore acquisition from Mr. Rafiq Ahmed, had nil turnover in FY2022-23, FY2023-24, and FY2024-25. On 15 April 2026, KICL acquired 2,70,00,000 equity shares of Phoenix Kothari Footwear Private Limited at ₹10 per share aggregating ₹27,00,00,000, taking its holding to 30%; the transaction is a related-party transaction because Mr. Rafiq J Ahmed, Promoter, Chairman and Managing Director, holds directorship in the target. KICL acquired the logistics business of Parveen Roadways, a sole proprietorship whose seller is a related party under Ind AS 24, for total consideration of ₹24.04 crore effective 08 April 2025; fair value of identifiable net assets was ₹12.11 crore, producing goodwill of ₹11.93 crore. The Parveen Roadways acquisition was approved by shareholders on 14 March 2025 for an aggregate lump-sum purchase consideration not exceeding ₹24.04 crore, with the materiality threshold stated as 10% of FY2023-24 annual consolidated turnover of ₹13.63 crore. Unsecured loans of ₹53.89 crore from promoters/related parties carried interest at 24% per annum in FY2025-26, while interest-free borrowings from promoters were repayable on demand. In FY2025-26, related party balances of ₹15.26 crore had balance confirmations not provided for ₹1.44 crore; the auditor also noted year-end direct balance confirmations were not provided for promoters ₹1.80 crore and other loans payable ₹52.88 crore. Shareholders approved material related party transactions with JR One Kothari Footwear Private Limited and JR Trading & Services W.L.L on 13 June 2025, each capped at ₹100,00,00,000 per financial year for FY2025-26, FY2026-27, and FY2027-28. On 15 February 2024, the auditor reported a loan from the Managing Director of ₹24.34 crore outstanding as of 31 December 2023 with no interest provided or paid because terms were unspecified, and stated profit for the quarter ended 31 December 2023 was overstated to the extent of interest/penalty.
  3. Kothari Industrial recognised ₹11.93 crore of goodwill on its April 2025 acquisition of Parveen Roadways from a related party, while the acquired business immediately contributed a loss before tax of ₹2.26 crore Major - Goodwill of ₹11.93 crores was recognised on the acquisition of Parveen Roadways and allocated to the Logistics CGU in FY2025-26. The Parveen Roadways logistics business was acquired as a going concern effective 08 April 2025 for total consideration of Rs. 24.04 crore, with fair value of identifiable assets acquired and liabilities assumed of Rs. 12.11 crore, producing goodwill of Rs. 11.93 crore attributed to assembled workforce, expected synergies, and future customer growth. The seller of Parveen Roadways is a related party per Ind AS 24, and the transaction was approved by the Audit Committee on 19 February 2026 based on an independent valuation by Mr. Jaypal Parmar, Registered Valuer (IBBI/RV/06/13110) dated 10 February 2026. The acquired Parveen Roadways business contributed revenue of Rs. 21.39 crore and a loss before tax of Rs. 2.26 crore from the acquisition date of 08 April 2025 to the FY2025-26 reporting period. Goodwill impairment testing for the Logistics CGU used value-in-use based on discounted cash flows with a perpetual growth rate of 4.00% and a discount rate of 20.78%, per an independent valuer's report dated 19 February 2025, with recoverable amount exceeding carrying amount. Kothari Industrial acquired a 30% equity interest in Phoenix Kothari Footwear Private Limited for consideration of Rs. 13.896 crores, classified as an associate under Ind AS 28; the associate is in pre-commercialisation phase and incurred losses, but no impairment provision was recognised as recoverable amount exceeds carrying amount.
  4. A multi-year stack of unresolved land, tax and legacy claims, including a 26-year-old Supreme Court consent decree still not implemented and a ₹52.15 crore assignee claim, sits on the company with no provision for most items Major - The Collector of Nilgiris initiated repossession proceedings for certain Coonoor land plots earmarked for public use, which the company challenged via writ petition before the Madras High Court; the matter remained pending with next hearing scheduled for 14.07.2026, and no provision was made as the potential liability was unascertainable. The company disclosed contingent liabilities in FY2025-26 comprising an income tax demand under Section 156 for FY2021-22 of Rs. 95.34 lakhs, a legal opinion on the 5.33 acres Nungambakkam land dispute of Rs. 8.83 crore, and capital gains tax under Section 50C on the Ennore factory sale of Rs. 12.85 crore. GST demand notices (DRC-01) aggregating Rs. 66,27,248 for FY2022-23 and FY2023-24 were pending before GST authorities as of FY2025-26, with replies submitted and no provision recognised. A notice under Section 148A(1) of the Income Tax Act dated 21 March 2026 for FY2021-22 (AY 2022-23) proposed a disallowance of Rs. 3,37,04,222 resulting in a demand of Rs. 1,16,26,892, which the company stated it believed was erroneous and was filing a reply against. Consent terms filed on 05.03.2000 with the Supreme Court regarding share allotment and sale of 5.33 grounds of land remained unimplemented as of FY2025-26, with the decree effects not considered in the books and a suit filed in the Madras High Court for implementation. The company did not provide for the contractual royalty payable to Royer Group of EUR 189,048 for July 2025 to June 2026, stating negotiations were ongoing and management was optimistic of obtaining a waiver. Parveen Roadways Private Limited, assignee of dues from Kotak Mahindra Bank, made a contingent claim of Rs. 52.15 crore on the company, being debt originally indicated in the Assignment Deed, as disclosed in FY2021-22 and FY2022-23. The company sold land and plant & machinery at Ennore to Coromandel International Limited for Rs. 50.28 crore in FY2023-24, but the Sub-Registrar valued the land at Rs. 128.74 crore and plant & machinery at Rs. 8.51 crore, with stamp duty paid on these higher values and the company stating it intended to seek valuation assessment from the Income Tax Valuation Officer if action was initiated.
  5. Kothari Industrial's reported borrowings understate its true debt burden, the company funds itself through 24%-interest unsecured party loans, promoter-arranged associate-company credit, and debt-like obligations charged directly to retained earnings Major - Unsecured loans of Rs. 54.89 crore availed from parties carry interest at 24% per annum, repayable per loan agreement terms, as disclosed in the FY2025-26 standalone financial statements. In FY2022-23 and FY2021-22, the company had no outside credit facilities and working capital was arranged by the Vice Chairman and MD through associate companies out of credit obtained, with risk not borne by the company. A loan aggregating 62.53 crore with interest up to 31.03.2021 was charged to retained earnings, with the company committed to future term loan and interest obligations, as stated in the FY2021-22 and FY2022-23 consolidated financial statements. The company defaulted in repayment of loans/borrowings to financial institutions, subsequently settled through court, NCLT proceedings and assignments, per the FY2021-22 independent auditor's report. Long-term borrowings from banks fell to Rs. 21.55 lakhs in FY2023-24 from 72.66 crore in FY2022-23, a decrease of approximately 72.44 crore. The debt-equity ratio at year end was 6.96 in the standalone financial statements and 6.94 in the consolidated financial statements for FY2023-24.
  6. Accounting choices repeatedly reshape reported results, a ₹22.3 crore related-party interest charge bypassed the P&L, a 32.79 crore revaluation-reserve transfer offset accumulated losses, and deferred-tax recognition flipped from "prudence" to "reasonable certainty" within two years Major - In FY2022-23, the company charged ₹22.3 crore prior-year interest on a loan from related party M/s Parveen Roadways (P) Limited directly to retained earnings instead of restating prior-year financials per Ind AS 8, drawing an auditor qualification on standalone statements and an Emphasis of Matter on consolidated statements. The same ₹22.3 crore prior-year interest charge to retained earnings was flagged as an Emphasis of Matter in the FY2021-22 standalone auditor's report. In FY2023-24, the company transferred 32.79 crore from revaluation reserve to offset the deficit in retained earnings, reducing the standalone deficit from Rs. (8,293.08) lakhs at the beginning of the year to Rs. (5,013.79) lakhs at year-end. Deferred tax asset was not recognised "as a matter of prudence" in FY2021-22 standalone and consolidated statements and in FY2022-23 consolidated statements. A deferred tax asset of INR 45,39,133 was recognised in FY2023-24 and FY2024-25 "based on reasonable certainty of future taxable profits". In FY2025-26, deferred tax assets were not recognised on carry-forward losses and deductible temporary differences, with management determining recognition "not appropriate at this stage". The NCLT Chennai approved a Scheme of Reduction of Share Capital on 10 May 2023, extinguishing 66,27,000 equity shares held by the promoters group and reducing paid-up capital from Rs. 9,55,54,425 to Rs. 6,24,19,425, set off against past accumulated losses as reflected in the standalone balance sheet as at 31.03.2021. In FY2025-26, the company decided to recognise a SIPCOT land allotment at Melur, Tamil Nadu (cost Rs. 32.13 crores) as a lease arrangement under Ind AS 116 only from FY2026-27, with Rs. 31 lakhs interest treated as a non-adjusting event under Ind AS 10.
  7. A 21-year-old daughter of the MD was appointed to the board while the MD's own remuneration was approved at ₹27.5 lakh per month, and promoter shareholding was rebuilt from near-zero to majority control through preferential allotments after a capital reduction cancelled promoter shares Major - NCLT Chennai order dated 10.05.2024 cancelled 66,27,000 equity shares of Rs. 5 each (aggregating Rs. 3.31 crore) allotted to promoters and associates on 31 March 2016, reducing promoters and promoter group holding from 93,05,038 to 26,78,038 shares. Mr. Rafiq Ahmed was re-appointed as Executive Chairman & Managing Director for 3 years w.e.f. 28.09.2025 at remuneration of Rs. 27,50,000 per month plus perquisites, with the statement that "Company has not committed any default in payment of dues to any Banks". Ms. Rafiq Ahmed Sulaiha Banu, daughter of Managing Director Mr. Rafiq Ahmed, was appointed as Non-executive Non-independent Director w.e.f. 20.03.2026 at age 21, with shareholding NIL and remuneration proposed Nil. Mr. Rafiq Ahmed acquired 2,00,00,000 equity shares (47.07% of total diluted share/voting capital) via preferential issue and open offer on 19th Oct 2024, making him a promoter with majority control. CFO turnover: Mr. N. Balajee appointed 01.12.2022 and resigned 24.04.2023; Mr. S. Vijayaraghavan appointed 25.05.2023 and resigned 06.02.2024; Mr. Hari Kishore appointed 14.02.2024 and resigned 16.08.2025; Mr. Viruthagiri Anand appointed CFO w.e.f. 28.10.2025. Mr. Rafiq Ahmed's remuneration ratio to median employee remuneration is 61.19:1 in FY2024-25.
  8. Revenue recognition carries unresolved billing risk from acquired contracts and a customer-credit policy that is informal and unsecured Minor - Unbilled receivables from contracts acquired via the Parveen Roadways acquisition cannot be billed until government authorities approve changing the contracting entity name from Parveen Roadways to KICL. The FY2022-23 consolidated auditor's report identified revenue recognition under Ind AS 115 as a Key Audit Matter, stating credit terms vary by product with "no standard policy" and no overdue interest charged on overdue accounts. Consolidated trade receivables aging as of FY2023-24 shows Rs. 34.53 lakhs outstanding for 1-2 years and Rs. 2.51 lakhs outstanding for more than 2 years. KICL commenced retail operations for the Kickers brand under a 30-year license agreement with Groupe Royer, France, with plans for 100 exclusive stores and 700 MBO counters across India and eight neighbouring countries.
  9. Kothari Industrial rotated its statutory auditor from Arockiasamy & Raj to Ray & Ray in FY2023-24, with no resignations or adverse actions against auditors disclosed across the period Clean - M/s. Arockiasamy & Raj, Chartered Accountants (Reg. No. 006850S), partner A. Nagarajan (Membership No. 020680), signed the standalone and consolidated auditor's reports for FY2021-22 dated 28 May 2022, Chennai. M/s. Arockiasamy & Raj, Chartered Accountants (Reg. No. 006850S), partner A. Nagarajan (Membership No. 020680), signed the standalone auditor's report for FY2022-23 dated 25 May 2023, Chennai. Shareholders approved the appointment of M/s. Ray & Ray, Chartered Accountants, Chennai (FRN: 301072E) as statutory auditors for a first term of five consecutive years from the conclusion of the 53rd AGM until the conclusion of the 58th AGM in 2028, with audit fee of Rs. 3,00,000 plus applicable taxes and reimbursement of actual out-of-pocket expenses for FY2023-24. M/s. Ray & Ray, Chartered Accountants (FRN: 301072E), partner Swetha Srinivasan (Membership No. 240553), signed the standalone auditor's report for FY2024-25 dated 30 May 2025, Chennai, with UDIN 25240553BMLXEN6062. The FY2024-25 standalone auditor's report Annexure A, clause xviii states there was no resignation of statutory auditors during the year.

What to watch

Bottom line: This is a company with a clean auditor-rotation record but a deeply qualified financial history. The risk sits in the related-party transactions, the loss-making acquisition, and the unresolved legal and tax claims. Watch the Phoenix Kothari investment, the Coonoor land case, and the repayment of the 24% loans.