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Auditor Report of ABG Shipyard Ltd.

Mar 31, 2016

To

The Members of ABG Shipyard Limited

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of ABG Shipyard Limited (“the Company”), which comprise the Balance Sheet as at March 31st, 2016, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

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 Companies Act 2013 (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 and cash flows of the Company in accordance with the Accounting principles generally accepted in India including the Accounting Standards specified in section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding 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.

Auditor''s Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We have conducted our audit in accordance with the Standards on Auditing specified under section 143 (10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company''s preparation and fair presentation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. Basis for Qualified Opinion

1. Note No. 11 to the financial statements. Due to prolonged suspension of construction activities of some of the Plant Assets in Dahej Shipyard facilities, expenses incurred and capitalized so far on those assets, related advances given to suppliers and contractors, the physical condition of these assets under construction require technical evaluation to determine impairments or write off, if any. However, in the view of the management, the suspension of construction activities of these assets is temporary in nature and assets under construction are not obsolete, and the company will be able to resume construction activities in the near future and hence no provision is required to be made. Management has informed us that the recoverable amount of Assets within the meaning of Accounting Standard 28 is more than their carrying value and as such no amount needs to be recognized in the financial statements for impairment loss. We have not been able to validate this assertion in the absence of internal exercise or external valuation report of an independent agency and the uncertainty of resumption of future operations/results of operations thereafter. Further, in absence of physical verification of Fixed Assets and capital work in progress at Dahej Shipyard, we are unable to comment on the carrying value of Plant Assets at Dahej Shipyard.

2. Note No. 17 (c) to the financial statements which details various loans, advances and receivables from related parties. In respect of these loans, advances and receivables the deliverables and receipts are outstanding for a long time. Absence of recoveries from these parties since several years indicates the existence of material uncertainty that may cast doubts on the recoverability of the loans and advances. However, in the view of the management no provision is required considering that these entities are related parties and as such the balances are considered good and recoverable by the management. As such loans are interest free, and there is no stipulation of repayment date we consider that, prima facie, the terms and conditions of such loans are prejudicial to the interest of the Company. We are unable to comment on the recoverability of loans and advances and ascertain the impact, if any, on the financial statements.

3. Note No.18 to the financial statements, regarding subsidy receivable. The Company had recognized for subsidy under Ship Building Subsidy Scheme in earlier years, out of which subsidy of Rs. 49,964.89 Lacs is still receivable as on 31st March, 2016. The receipt of aforesaid Subsidy is dependent upon completion of vessels and compliance with other terms and conditions of the Ship Building Subsidy Scheme of the Government of India. In view of the uncertainty involved with respect to availability of working capital as required for completion of vessels and continuing default in CDR terms as well as low key operations at Surat and no operation at Dahej, there is a material uncertainty of completion of vessels and realization of the subsidy. The Company has not made provision for the possible impact of the recoverability of the same.

4. Note No. 39 to the financial statements. The Financial statements have been prepared assuming that the company will continue as a going concern. The Company has defaulted in repayment of loans and covenants of the CDR scheme of lenders. There has been suspension of operations at Dahej unit and low key operation at Surat unit. Further, there are civil and criminal proceedings pending before Judicial Authorities seeking compensations, liquidation of the Company and punishment to Directors/ Officers of the company. The company has suffered recurring losses and its net worth has eroded. All these conditions indicate a significant doubt about the going concern. The Financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid financial statements give the information required by the 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, 2016, and its loss and its cash flows for the year ended on that date.

Emphasis of matters

We draw attention to:

1. Note No. 12(d) to the financial statements. The Company has investments in subsidiaries and related parties amounting to Rs. 22,012.51 Lacs as on the balance sheet date. In absence of availability of the audited financial statements of the investee companies, we are unable to ascertain or quantify whether any provision is required to be made for the impairment of these investments. In the view of the management the investments are long term in nature and there is no permanent diminution in the value of investments requiring adjustment to the financial statements.

2. i) Note No. 14(b) to the financial statements. The company follows accounting practice of recognizing revenue under Accounting

Standard 7 on the basis of estimated cost, cost so far incurred and estimated profit or loss out of shipbuilding contracts. The cost estimates are done by company and we have relied on the same. A technical evaluation was carried out by the Company, of the inventory of Ships and Rigs under construction and the valuation of Work in progress recognized as per AS 7 as well as for the future foreseeable losses in the current economic scenario. The technical evaluation has been done in phases and is not completed for rigs and certain ships. Hence, we are unable to comment on further impairment, if any, which may pertain to the values of rigs and certain ships as appearing in books of Accounts as Work in Progress. In the view of the management, adequate provision for estimated future foreseeable losses is provided in the books of accounts.

ii) Note No. 14(c) to the financial statements. The Company has concluded Rig building contract with respect to two rigs. The Company is in the process of negotiating the final settlement with these customers. Pending settlement, company continues to show a sum of Rs 175,221.86 Lacs as inventory of rigs under the head Work in Progress and as advance received under Progress Money from customers. The impact of this, on the net current asset is Nil.

3. Note No. 17 (d) to the financial statements which details various advances to certain parties that are outstanding for a long time. In respect of these advances, no materials or services have been received by the company. Reduction of company''s activity, aged outstanding, and absence of balance confirmation of outstanding from these parties, indicates the existence of material uncertainty that may cast doubts on the recoverability of these advances or deliverables against the same. However, in the view of the management, no provision is required to be done as such balances are considered good and recoverable.

4. Note No. 40(2) to the financial statements. The Company has not provided Managerial Remuneration for the managing director after October 2015 as it would then exceed the provision of section 197 read with Schedule V to the Companies Act, 2013.

5. The company has defaulted in repayment of loans and covenants of CDR schemes of lenders. As regards contingency related to “compensation payable in lieu of Bank Sacrifice” the outcome is materially uncertain and cannot be determined in terms of its monetary impact on the financial statements. The Company''s Management is of the view that the company is an operative Company and such contingency may not arise

6. Loan statements pertaining to certain Loans from some banks and financial institutions representing book balances of Rs 89,198.57 Lacs, have not been received and reconciled. Further, due to pending clarification and confirmation from some banks for certain current/cash credit accounts, entries have not been reconciled. Hence the effect, if any, of such pending reconciliations, on financial statements remains unascertained.

7. Some customers, creditors as well as Statutory Authorities have initiated legal proceedings against the company, which may result in compensation, interest and penalties. The possible impact of the same on financial result cannot be ascertained, pending such outcome.

Our opinion is not qualified in respect of these matters.

Report on Other Legal and Regulatory Requirements:

1. As required by the Companies (Auditor''s Report) Order, 2016(“the Order”) issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the Annexure A, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by section143(3) of the Act, we report that:

a) Except for the matters described in the basis for qualified opinion paragraph above, we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit,

b) Except for the effects of the matter described in the basis for qualified opinion paragraph above, in our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books

c) The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account.

d) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid standalone financial statements comply with the accounting standards specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

e) The matters described in the Basis for Qualified Opinion and the Emphasis of Matter paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

f) On the basis of written representations received from the directors, except one director, as on March 31, 2016 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2016, from being appointed as a director in terms of section 164 (2) of the Act. We are unable to comment on the eligibility of the one director from whom the written representation has not been received.

g) 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.

h) In our opinion and to the best of our information and according to the explanations given to us, we report as under with respect to other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014:

i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements as referred to in Note No. 28 to the Financial Statements.

ii) Subject to our comment in Emphasis of Matter paragraph, point no. 2 the Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long- term contracts including derivative contracts.

iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of our audit, we report that:

i. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of Fixed

Assets;

(b) The Fixed Assets of the company are substantially located in two Shipyards i.e., Surat and Dahej. Fixed Assets situated at Surat, have been physically verified in a phased manner by the management during the year as per the program of verification. As informed to us, no material discrepancies were noticed between book records and physical verification at Surat. In our opinion, the verification at Surat was reasonable having regard to the size of the Company and nature of its Asset. However we were informed that no physical verification of Fixed Assets has been carried out at Dahej. Such Assets at Dahej constitutes approx 84% of the Total Gross Block of fixed assets, hence we are unable to comment whether there exists any material discrepancies between the physical balance and book balance.

(c) The title deeds of immovable properties are held in the name of the Company, except for certain freehold lands at Dahej having gross block value of Rs 72.93 Lacs and net book value of Rs 72.93 Lacs is yet pending registration with concerned authorities. We have not been provided with information regarding status of pending registration of immovable properties at Surat & Kolkata, hence we are unable to comment on same.

ii. According to the information and explanations given to us, the inventory has been physically verified during the year by the management at its Surat Shipyard. The frequency of verification is reasonable and adequate in relation to the size of the Company and the nature of its business and on the basis of the records of inventory. However as the physical verification had not been carried out during the year under reporting at Dahej Shipyard and inventories lying with Customs Authorities/ Bonded Warehouse, we are unable to make any comment on the same as to whether any discrepancy exists between book balance and physical balance of those inventories.

iii. The Company has not updated register under section 189 of the Companies Act, 2013 hence we cannot rely on the same. The company has given interest free loans to various group companies and attention is drawn to note no. 17 of the Financial Statements.

As such loans are interest free, and there is no stipulation of repayment date, we consider that prima facie the terms and conditions of such loans are prejudicial to the interest of the Company.

As there is no stipulation as to repayment date of principal amount, hence clause (iii) (b) & (c) of the order are not commented on.

iv. According to the information and explanations given to us, the Company has not given loans covered under section 185. The Company had loans to certain parties covered under section 186 of the Companies Act, 2013, in respect of which no interest has been charged, which is not in compliance with section 186 of the Companies Act, 2013.

v. In our opinion and according to the information and explanations given to us, there are no deposits accepted from the public, hence paragraph 3(v) of the Order is not applicable.

vi. We could not review the cost records maintained by the Company pursuant to the Section 148(1) of the Companies Act, 2013 due to non availability of such records for our review, and hence we are unable to give our opinion as to prima facie, whether the prescribed cost records have been maintained.

vii. (a) According to the records of the Company, there has been instances of inordinate delays and defaults during the financial year in depositing with appropriate authorities, the undisputed statutory dues including Provident Fund, Income-tax, Tax Deducted at Source, Sales-tax, Wealth-tax, Service tax, Profession Tax, Custom duty, Excise duty, Cess and other statutory dues applicable to it.

The following undisputed statutory dues are outstanding for a period of more than six months as on March 31, 2016, from the date they became payable:

Name of the Statue

Nature of Dues

Financial Year

Amount in Rs. lacs

The Income Tax Act, 1961

Income Tax

2003-04 to 2009-10 (Assessment by Settlement Commission), 2011-12 & 2012-13

4,466.29

The Income Tax Act, 1961

Tax Deducted at Source, Tax Collected at Source, interest thereon.

2013-14, 2014-15 & 2015-16

460.03

The Finance Act, 1994

Service Tax

2015-16

18.73

Gujarat Vat Act, 2003

Gujarat VAT

2013-14 & 2015-16

543.13

Employees'' Provident Funds & Miscellaneous Provisions Act, 1952

Provident Fund

2015-16

298.66

Profession Tax Act, 1975

Profession Tax

2012-13, 2013-14, 2014-15 & 2015-16

39.23

(b) According to information and explanation given to us, the following dues have not been deposited by the Company on account of disputes:

Name of the Statute

Nature of Dues

Financial Year

Amount in Rs. Lacs

Forum where dispute is pending

The Finance Act, 1994

Service Tax

2004-05 to 2010-11

1,350.18

CESTAT

Income Tax Act, 1961

Income Tax

2010-11

271.58

CIT (Appeal)

Employees'' Provident Funds & Miscellaneous Provisions Act, 1952

Provident Fund

2014-15

415.51

Assistant Provident Fund Commissioner & Recovery Officer

viii. According to the information and explanation given to us and as per the books of account, the Company has defaulted in respect of dues to financial institutions, bank, Government or debenture holders during the financial year. The period and the amount of defaults are as under:

Particulars

Amount of defaults as at the balance sheet data (in Lacs)

Period of defaults (days)

i) Name of the lenders

Banks:

Andhra Bank

472.99

1-367

Bank of Baroda

1,889.34

1-337

Bank of India

3,020.31

337

Canara Bank

239.65

1-519

Central Bank of India

140.05

1-184

Dena Bank

1,866.25

1-214

Deutsche Bank

9,184.59

1-1078

Development Credit Bank

4,318.49

1070

Exam Bank

1,814.08

1-122

ICICI Bank

15,392.7

1-367

IDBI Bank

656.11

1-61

Indian Bank

358.51

1-944

Indian Overseas Bank

2875.77

1-337

Lakshmi Vilas Bank

143.04

1-184

Oriental Bank of Commerce

1,336.86

1-123

Punjab and Sind Bank

547.47

1-721

Punjab National Bank

2,749.72

1-337

Royal Bank of Scotland

3,744.92

710

South Indian Bank

701.24

1-426

State Bank of Patiala

448.33

1-732

State Bank of Travancore

93.39

1-184

Standard Chartered Bank

1,416.34

847

Syndicate Bank

2,334.37

1-245

Yes Bank

40.80

1

Financial Institution :

Industrial Finance Corporation Of India Limited

1,551.08

1-244

SICOM Limited

14,654.04

1-822

ii) Debentures

Life Insurance Corporation of India

6,633.18

1-853

No independent specific confirmation from lenders of above defaults has been provided to us the management. ix. The Company has not raised money by way of initial public offer, further public offer or debt instruments during the year. Due to invocation of certain bank guarantees, the loans and overdrafts from banks have been increased which were utilized for meeting commitments under such guarantees.

x. In our opinion and on the basis of information and explanations provided by the Management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit. However some creditors have issued notices and commenced legal proceedings against the Company alleging fraud for hypothecation of inventory with lenders, without clear title due to non clearance of their dues. Further, Directorate of Revenue Intelligence, Mumbai has also alleged fraud by the Company''s employees pertaining to certain imports and issued a showcase as to why penalty should not be levied on the Company. The management is of the view that no fraud has been noticed by the Company or has been done on the Company.

xi. The Company has paid/provided for managerial remuneration in accordance with requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act, 2013.

xii. In our opinion and according to the information and explanation given to us, the Company is not a Nidhi Company, hence paragraph 3(xii) of the Order is not applicable

xiii. In our opinion and according to the information and explanation given to us, as the register under section 189 has not been updated, we are unable to comment on compliance by the company with section 177 and Section 188 of the Companies Act, 2013 with respect to transactions with the related parties. Details of related party transaction have, however, been disclosed in the Financial Statements as required by the Accounting Standard 18.

xiv. The Company has made preferential allotment or private placement of shares during the year under audit as per the Corporate Debt Restructuring agreement by converting funded interest term loan, and no fresh amounts were raised. The requirements of section 42 of the Companies Act 2013 have been complied with in respect of such allotments.

xv. In our opinion and according to the information and explanations given to us, the Company has not entered into any non-cash transactions with directors or persons connected with them.

xvi. According to the information and explanations given to us, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

Report on the Internal Financial Controls under Clause (f) of Sub-section 3 of Section 143 of the Companies Act, 2013 (“the Act”)

We have audited the internal financial controls over financial reporting of ABG Shipyard Limited (“the Company”) as of March 31, 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management''s Responsibility for Internal Financial Controls

The Company''s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company''s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors'' Responsibility

Our responsibility is to express an opinion on the Company''s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company''s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company''s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company''s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company''s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

According to the information and explanation given to us and based on our audit the following material weakness has been identified as the adequacy and operative effectiveness of the Company''s internal financial controls over financial reporting as at 31st March 2016.

1. The Company''s internal controls on with regard to timeliness and in consolidating the information from remote location and reconciliation of accounts were not operating effectively.

2. The Company had no internal audit department which could carry on internal audit and risk assessment functions.

3. The Company lacks trained personal for their secretarial and legal compliance which could potentially result in failure to comply with laws and regulations in a timely manner.

A ''material weakness'' is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting such that there is a reasonable possibility that a material misstatement of the company''s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the possible effects of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has maintained, in all material respects, adequate internal financial control over financial reporting and such internal financial control over financial reporting were operating effectively as of 31st March, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

We have considered the material weaknesses identified and report above in determining the nature, timing, and extent of audit test applied in our audit of the 31st March, 2016 standalone financial statements of the Company and this material weaknesses do not affect our opinion on the standalone financial statements of the Company.

For Nisar & Kumar

Chartered Accountants

Firm No. 107117W

M.N.Ahmed

Partner M. No. 18380

Place: Mumbai

Date: 30th May, 2016


Mar 31, 2015

We have audited the accompanying standalone financial statements of ABG Shipyard Limited ("the Company"), which comprise the Balance Sheet as at March 31st, 2015, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

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 Companies Act 2013 (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 and cash flows of the Company in accordance with the Accounting principles generally accepted in India including the Accounting Standards specified in section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding 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.

Auditors' Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We have conducted our audit in accordance with the Standards on Auditing specified under section 143 (10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation and fair presentation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and operating effectiveness of such Controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

The Company has not charged any interest on the loans given to few parties, which is not in Compliance with section 186 of Companies Act 2013.The consequential impact of the same on Financial Statement, is unascertainable. Our audit opinion is qualified in respect of the same matter.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid financial statements give the information required by the 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, 2015, and its loss and its cash flows for the year ended on that date.

Emphasis of matters

We draw attention to the following matters in the notes to the financial statements

1. Note No. 14 (b) and (c) to the financial statements which describes the technical evaluation of the inventory of Ships and Rigs under construction, the valuation of Work in progress recognized as per AS 7 and for the future foreseeable losses in the current economic scenario. In view of Company's Directors, adequate provision for estimated future foreseeable losses provided in the books of accounts.

2. Note No. 17 (c) to (e) to the financial statements which details various loans, advances and receivables from related parties. In respect of these loans, advances and receivables the deliverables and receipts are outstanding since long. In view of Company's Directors, considering these entities are related entities, no provision is required as such balances are considered good and recoverable.

3. Note No. 17 (d) to the financial statements which details advances to certain companies. In respect of these advances the deliverables and receipts are outstanding since long. In view of Company's Directors, no provision is required to be done as such balances are considered good and recoverable.

4. Note No. 18 to the financial statements which describes the Company's subsidy receivable from the Government of India amounting to Rs. 500 Crores out of which 345 Crores is for under construction contracts and the compliance with government regulations on the basis of which the receipt of the aforesaid Subsidy is dependent.

5. Note No. 4 to the financial statements which describes the delays and/or defaults in payment of interest and other CDR scheme compliance. The defaults are reported in Note No. 4C of financial statements. The Company's Management is of the view that the company is an operative Company and will be able to meet its obligations to lenders as well as customers/creditors In view of the same the Company is considered as a going concern.

Our opinion is not qualified in respect of these matters.

Report on Other Legal and Regulatory Requirements:

1. As required by the Companies (Auditor's Report) Order, 2015("the Order") issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by section143(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 purpose of our audit;

b) Except for the effects of the matter described in the basis for qualified opinion paragraph above, In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books

c) The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account.

d) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, In our opinion, the aforesaid standalone financial statements comply with the accounting standards specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

e) The matter described in the Basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

f) On the basis of written representations received from the directors as on March 31, 2015 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2015, from being appointed as a director in terms of section 164 (2) of the Act.

g) In our opinion and to the best of our information and according to the explanations given to us, we report as under with respect to other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014

i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements as referred to in Note No. 27 to the Financial Statements.

ii) Subject to our comment in Emphasis of Matter para, point No.1 and Note No.14 (c) of Financial Statements the Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long- term contracts including derivative contracts.

iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

Annexure referred to in paragraph 1 Our Report of even date to the members of ABG Shipyard Limited on the financial statement of the company for the year ended 31st March, 2015

On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of our audit, we report that:

i. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified in a phased manner by the management during the year as per the program of verification which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. As informed to us, no material discrepancies were noticed between book records and physical verification;

ii. (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable;

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of the records of inventory, we are of the opinion that the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.

iii. The company has granted interest free unsecured loans to company and fi rm covered in the register maintained under section 189 of the Companies Act.

(a) As the loan is interest free, and there is no stipulation of repayment date prima facie the terms and conditions are prejudicial to the interest of the company.

(b) A there is no stipulation as to repayment date of principal amount, hence clause (iii)(b) of the order does not apply.

iv In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and the nature of its business with regards to purchase of inventory, fixed assets and with regards to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control.

v. The Company has not accepted any deposits from the public covered under Section 73 to 76 of the Companies Act, 2013.

vi. We have broadly reviewed the cost records maintained by the Company pursuant to the Section 148(1) of the Companies Act, 2013 and are of the opinion that prima facie, the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether these are accurate or complete.

vii. (a) According to the records of the Company, the Company has been generally late during the financial year in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Income-tax, Tax Deducted at Source, Sales-tax, Wealth-tax, Service tax, Profession Tax, Custom duty, Excise duty, Cess and other statutory dues applicable to it.

The following undisputed statutory dues are outstanding for a period of more than six months as on March 31, 2015, from the date they became payable:

Name of the Statute Nature of Dues Financial Year Amount in Rs. Crores

The Income Tax Act, 1961 Income Tax (incl. interest) 2012-13 & 2013-14 46.07

The Income Tax Act, 1961 Tax Deducted at Source 2014-15 0.06

Gujarat Vat Act. 2003 Gujarat VAT 2013-14 3.37

Profession Tax Act, 1975 Profession Tax 2012-13 & 2013-14 0.23

(b) According to information and explanation given to us, the following dues have not been deposited by the Company on account of disputes:

Name of the Statute Nature of Dues Financial Year Amount in Rs. Forum where dispute is pending Crores

The Finance Act, 1994 Service Tax 2004-05 to 13.5 Appellate Tribunal 2010-11

The Customs Act, 1962 Custom Duty 2012-13 14.42 Appellate Tribunal

(c) The amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time.

viii. The Company does not have accumulated losses at the end of the financial year. The Company has incurred cash loss during the financial year covered by our audit and also in the immediately preceding financial year.

ix. Instances of delay between 1 to 712 days were noticed in repayment of principal and interest to banks, financial institutions and debenture holders during the year amounting to Rs.260.46crores and Rs.81.15 crores respectively.

x. According to the information and explanations given to us, the Company has given guarantees for credit facilities taken by body corporates from banks and financial institutions, the terms and conditions whereof in our opinion are not prima facie prejudicial to the interest of the Company.

xi. In our opinion and according to the information and explanations given to us, on the overall basis, term loans have been applied for the purposes for which they were obtained.

xii. Based upon the information and explanations given by the management and audit procedures performed, we report that no fraud on or by the Company has been noticed or reported during the course of our audit nor have we been informed of any such instance by the Management.



For NISAR & KUMAR For GMJ & Co

Chartered Accountants Chartered Accountants

FRN. 107117W FRN. 103429W



CA ATUL. JAIN

CA M. N. AHMED Partner

Partner

M. No. 037097 M No.018380

Place: Mumbai

Date : 26th May 2015


Mar 31, 2014

We have audited the accompanying financial statements of ABG Shipyard Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2014, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub section (3C) of section 211 of the Companies Act, 1956 ("the Act") which shall continue to apply in respect of section 133 of the Companies Act, 2013 in terms of General Circular 15/2013 dated September 13, 2013 issued by the Ministry of Corporate Affairs. This responsibility includes the design, implementation and maintenance of internal control 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.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation to the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements.

Emphasis of matter

Without qualifying our report we draw attention to:

Note no. 4D wherein as explained Corporate Debt Restructuring (CDR) scheme has been approved by the Corporate Debt Restructuring Empowered Group (CDR EG) on March 24, 2014 and applicable with effect from August 1, 2013. The CDR proposal has been partly implemented as on March 31, 2014. The outstanding liabilities of the Company have been substantially restructured under the aegis of CDR Scheme, which extends till June 2023.

Foot note no. 3 of note no. 38 whereby managerial remuneration paid by the Company exceeds the limits prescribed under Schedule XIII of the Companies Act, 1956 and the same is subject to approval from Central Government. The Company is yet to apply to the Central Government for seeking such approval.

Opinion

In our opinion and to the best of our knowledge and according to the information and explanations given to us, information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2014;

(ii) in the case of the Statement of Profit and Loss, of the loss of the Company for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, we report that:

a. we have 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 appears from our examination of those books;

c. the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d. in our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Act which shall continue to apply in respect of section 133 of the Companies Act, 2013 in terms of General Circular 15/2013 dated September 13, 2013 issued by the Ministry of Corporate Affairs.

e. on the basis of written representations received from the directors, as on March 31, 2014, and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on March 31, 2014, from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Act.

Annexure to Independent Auditor''s Report

(Referred to in paragraph 8 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date)

As required by the Companies (Auditor''s Report) Order, 2003 (as amended) ("the Order")issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, on the matters specified in paragraphs 4 and 5 of the said Order, we further report that:

i.) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified in a phased manner by the management during the year as per the program of verification which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. As informed to us, no material discrepancies were noticed between book records and physical verification;

(c) During the year, the Company has not disposed off any substantial part of fixed assets, which would affect the going concern of the Company.

ii.) (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable;

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of the records of inventory, we are of the opinion that the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.

iii.) (a) As informed, during the year under audit the Company has granted interest free unsecured loan to two Companies covered under section 301 of the Companies Act, 1956. The year-end balance of loan granted to such companies was Rs. 239.91 crores. Maximum balance outstanding during the year was Rs. 296.22 crores.

(b) As the loan is interest free, and there is no stipulation of repayment date prima facie the terms and conditions are prejudicial to the interest of the Company.

(c) As there is no stipulation as to repayment date of principal amount, hence clause 4(iii)(c) and (d) of the Order does not apply.

(d) As informed, during the year under audit the Company has taken interest free unsecured loan from two Companies covered under section 301 of the Companies Act, 1956. The year-end balance of loan taken from such companies was Rs. 113.15 crores. Maximum balance outstanding during the year was Rs. 172.53 crores

(e) In our opinion the terms and conditions of such loans are not prima facie pre judicial to the interest of the Company.

(f) As there is no stipulation as to repayment date of principal amount, hence clause 4(iii)(g) of the Order does not apply.

iv.) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control.

v.) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301, of the Companies Act, 1956 have been so entered.

(b) The price at which such contract or arrangement is entered is reasonable compared to prevailing market price.

vi.) The Company has not accepted any deposit from the public during the year.

vii.) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

viii.) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under section 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima facie, the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether these are accurate or complete.

ix.) (a) According to the records of the Company, the Company has been generally late during the financial year in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Income-tax, Tax Deducted at Source, Sales-tax, Wealth-tax, Service tax, Profession Tax, Custom duty, Excise duty, Cess and other statutory dues applicable to it.

The following undisputed statutory dues are outstanding for a period of more than six months as on March 31, 2014, from the date they became payable:

Name of the Nature of Financial Year Amount in Statute Dues Rs. Crores

The Income Tax Income Tax(incl. 2011-12 & 2012-13 59.20 Act, 1961 interest)

The Income Tax Tax Deducted at Source 2012-13 & 2013-14 7.21 Act, 1961

Employees'' Provident Fund 2012-13 & 2013-14 3.87 Provident Fund and Miscellane- ous Provisions Act, 1952

Profession Tax Profession Tax 2012-13 & 2013-14 0.09 Act, 1975

(b) According to information and explanation given to us, the following dues have not been deposited by the Company on account of disputes:

Name of the Nature of Financial Year Amount in Forum where dispute Statute Dues Rs. Crores is pending

The Finance Service 2004-05 to 13.50 Appellate Tribunal Act, 1994 Tax 2010-11

The Customs Custom 2012-13 14.43 Appellate Tribunal Act, 1962 Duty

The Income Income 2003-04 to 3.24 Commissioner of Tax Act, Tax 2005-06 Income Tax(Appeal) 1961

x.) The Company does not have accumulated losses at the end of the financial year. The Company has incurred cash loss during the financial year covered by our audit. The Company has not incurred cash loss during the immediately preceding financial year.

xi.) Instances of delay between 1 to 567 days were noticed in repayment of principal and interest to banks, financial institutions and debenture holders during the year amounting to Rs. 1,915.68 crores and Rs. 214.95 crores respectively.

During the year Company has undergone a debt restructuring process for its outstanding debts, the same being approved by the Corporate Debt Restructuring Empowered Group (CDR EG) on March 24, 2014 and applicable with effect from August 1, 2013. The CDR proposal has been partly implemented as on March 31, 2014. Accordingly the defaults mentioned exclude the defaults incurred by the Company after the cut-off date of August 1, 2013 upto March 31, 2014.

xii.) Based on our examination of documents and records, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii.) The Company is not a chit fund/ nidhi/ mutual benefit fund/ society, to which the provisions of special statute relating to chit fund are applicable. Accordingly, paragraph 4 (xiii) of the Order is not applicable to the Company.

xiv.) The Company is not engaged in dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable to the Company.

xv.) According to the information and explanations given to us, the Company has given guarantees of Rs. 2,275.76 crores for credit facilities taken by body corporates from banks and financial institutions, the terms and conditions whereof in our opinion are not prima facie prejudicial to the interest of the Company.

xvi.) In our opinion and according to the information and explanations given to us, on the overall basis, term loans have been applied for the purposes for which they were obtained.

xvii.) According to the information and explanations given to us and based on an overall examination of the financial statements of the Company, in our opinion, funds raised on short term basis have not been used for long-term purpose.

xviii.) According to the information and explanations given to us, the Company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of paragraph 4(xviii) of the Order are not applicable to the Company.

xix.) According to the information and explanations given to us and on the basis of records made available, we report that security has been created in respect of debentures issued.

xx.) The Company has not raised any money by public issues during the year. Accordingly, paragraph 4(xx) of the Order is not applicable.

xxi.) Based upon the information and explanations given by the management and audit procedures performed, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For Nisar & Kumar Chartered Accountants F. R. No. 107117W

M. N. Ahmed (Partner) M. No. 18380

Place: Mumbai Date : 30th May, 2014


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of ABG Shipyard Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2013, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control 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.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation to the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2013;

(ii) in the case of the Statement of Profit and Loss, of the profit of the Company for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. Attention is drawn to Note no. 38 whereby the Company has applied the principles of Accounting Standard 30 issued by The Institute of Chartered Accountants of India.

3. As required by section 227(3) of the Act, we report that:

a. we have 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 appears from our examination of those books;

c. the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d. in our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Act. Attention is drawn to point no. 2 above whereby the Company has not adopted AS 30 fully but applied the principles of hedging as per AS 30 where there are firm commitments payable and receivable;

e. on the basis of written representations received from the directors, as on March 31, 2013, and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Act.

Annexure to Independent Auditor''s Report

(Referred to in paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date)

As required by the Companies (Auditor''s Report) Order, 2003 (as amended) ("the Order") issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, on the matters specified in paragraphs 4 and 5 of the said Order, we further report that:

i.) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified in a phased manner by the management during the year as per the program of verification which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. As informed to us, no material discrepancies were noticed between book records and physical verification;

(c) During the year, the Company has not disposed off any substantial part of fixed assets, which would affect the going concern of the Company.

ii.) (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable;

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of the records of inventory, we are of the opinion that the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.

iii.) As informed, during the year under audit the Company has neither granted nor taken any loans, secured or unsecured to or from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4(iii)(b)(c)(d)(f) and (g) of the Order are not applicable.

iv.) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control.

v.) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301, of the Companies Act, 1956 have been so entered.

(b) The price at which such contract or arrangement is entered is reasonable compared to prevailing market price.

vi.) The Company has not accepted any deposit from the public during the year.

vii.) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

viii.) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under section 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima facie, the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether these are accurate or complete.

ix.) (a) According to the records of the Company, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees'' State Insurance, Income-tax, Sales-tax, Wealth-tax, Service tax, Custom duty, Excise duty, Cess and other statutory dues applicable to it. However, instances of delay in deposit of Tax Deducted at Source and Employees Profession Tax have been noticed during the year under audit.

The following undisputed statutory dues are outstanding for a period of more than six months as on March 31, 2013, from the date they became payable:

x.) The Company does not have accumulated losses at the end of the financial year. The Company has not incurred any cash loss during the financial year covered by our audit and in the immediately preceding financial year.

xi.) Instances of delay between 1 to 182 days were noticed in repayment of principal and interest to banks during the year amounting to Rs. 952.68 crores and Rs. 199.92 crores respectively.

xii.) Based on our examination of documents and records, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii.) The Company is not a chitfund/ nidhi/ mutual benefit fund/ society, to which the provisions of special statute relating to chitfund are applicable. Accordingly, paragraph 4 (xiii) of the Order is not applicable to the Company.

xiv.) The Company is not engaged in dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable to the Company.

xv.) According to the information and explanations given to us, the Company has given guarantees of Rs. 2113.64 crores for credit facilities taken by body corporates from banks and financial institutions, the terms and conditions whereof in our opinion are not prima facie prejudicial to the interest of the Company.

xvi.) In our opinion and according to the information and explanations given to us, on the overall basis, term loans have been applied for the purposes for which they were obtained.

xvii.) According to the information and explanations given to us and based on our examination of the books of account of the Company, short term funds to the extent of approximately Rs. 122.65 crores have been used for long term purposes.

xviii.) According to the information and explanations given to us, the Company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of paragraph 4(xviii) of the Order are not applicable to the Company.

xix.) According to the information and explanations given to us and on the basis of records made available, we report that security has been created in respect of debentures issued.

xx.) The Company has not raised any money by public issues during the year. Accordingly, paragraph 4(xx) of the Order is not applicable.

xxi.) Based upon the information and explanations given by the management and audit procedures performed, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For Nisar & Kumar

Chartered Accountants

F. R. No. 107117W

M. N. Ahmed

Place: Mumbai (Partner)

Date: 30th May, 2013 M. No. 18380


Mar 31, 2012

1. We have audited the attached Balance Sheet of ABG SHIPYARD LIMITED, as at 31st March, 2012, the Statement of Profit and Loss and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with Auditing Standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over all financial statement presentation. We believe that our audit provides a reasonable basis for our opinion

3. As required by the Companies (Auditor's Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956 of India, we enclose in the annexure a statement on the matters specified in paragraphs 4 and 5 of the said order.

4. Further to our comments in the Annexure referred to above, we report that:

(i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

(ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

(iii) The Balance Sheet the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report are in agreement with the Books of account;

(iv) In our opinion, the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

(v) On the basis of written representations received from the directors, as on 31st March, 2012, and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2012, from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Companies Act, 1956.

5. In our opinion and to the best of our information and according to the explanations given to us, the said accounts together with the notes thereon and attached thereto, give in the prescribed manner the information required by the Companies Act, 1956 and give a true and fair view in conformity with the accounting principles generally accepted in India

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2012;

(ii) in the case of the Statement of Profit and Loss, of the profit of the Company for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Annexure to Auditor's Report

(Referred in paragraph 3 of our report of even date to the members of ABG Shipyard Limited on the financial statements for the year ended 31st March, 2012)

As required by the Companies (Auditor's Report) Order, 2003 (as amended) ("The Order") issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, on the matters specified in paragraphs 4 and 5 of the said Order, we further report that:

i.) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified in a phased manner by the management during the year as per the program of verification which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. As informed to us no material discrepancies were noticed between book records and physical verification;

(c) During the year, the Company has not disposed off any substantial part of fixed assets, which would affect the going concern of the Company.

ii.) (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable;

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of the records of inventory, we are of the opinion that the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.

iii.) As informed, during the year under audit the Company has neither granted nor taken any loans, secured or unsecured to or from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4(iii)(b)(c)(d)(f) and (g) of the order are not applicable.

iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control.

v) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301, of the Companies Act, 1956 have been so entered.

(b) The price at which such contract or arrangement is entered is reasonable compared to prevailing market price.

vi) The Company has not accepted any deposit from the public during the year.

vii.) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

viii.) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under section 209(1 )(d) of the Companies Act, 1956 and are of the opinion that prima facie, the prescribed cost records have been maintained We have, however, not made a detailed examination of the cost records with a view to determine whether these are accurate or complete.

ix.) (a) According to the records of the Company, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth-tax, Service tax, Custom duty, Excise duty, Cess and other statutory dues applicable to it. No statutory dues are outstanding for period of more than six months as on 31st March, 2012.

(b) According to information and explanation given to us, the following dues of Service tax have not been deposited by the Company on account of disputes:

Name of the Statute Nature of Dues Financial Amount in Rs. Forum where dispute is Year Crores pending

The Finance Act, 1994 Service Tax 2004-05 to 2.58 Appellate Tribunal 2008-09

(c) The Company does not have accumulated losses at the end of the financial year. The Company has not incurred any cash loss during the financial year covered by our audit and in the immediately preceding financial year.

(d) The company is generally regular in repayment of principal and interest.

x.) Based on our examination of documents and records, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xi.) The Company is not a chit fund/ nidhi/ mutual benefit fund/ society, to which the provisions of special statute relating to chit fund are applicable. Accordingly, paragraph 4 (xiii) of the Order is not applicable to the Company.

xii.) The Company is not engaged in dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable to the Company.

xiii.) According to the information and explanations given to us, the Company has given guarantees of Rs.2000.92 crores for credit facilities taken by body corporates from banks and financial institutions, the terms and conditions whereof in our opinion are not prima facie prejudicial to the interest of the Company.

xiv.) In our opinion and according to the information and explanations given to us, on the overall basis, term loans have been applied for the purposes for which they were obtained.

xv.) According to the information and explanations given to us and based on our examination of the books of account of the Company, short term funds to the extent of approximately Rs. 131.52 crores have been used for long term purposes.

xvi.) According to the information and explanations given to us, the Company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of paragraph 4(xviii) of the Order are not applicable to the Company.

xvii.)According to the information and explanations given to us and on the basis of records made available, we report that security has been created in respect of debentures issued.

xviii.)The Company has not raised any money by public issues during the year. Accordingly, paragraph 4(xx) of the Order is not applicable.

xix.) Based upon the information and explanations given by the management and audit procedures performed, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For Nisar & Kumar

Chartered Accountants

F.R.No. 107117W

M.N.Ahmed

Place: Mumbai (Partner)

Date : 29th May, 2012 M. No. 18380


Mar 31, 2011

1. We have audited the attached Balance Sheet of ABG SHIPYARD LIMITED, as at 31st March, 2011, the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based onouraudit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor's Report) Order, 2003(as amended) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956 of India, we enclose in the annexure a statement on the matters specified in paragraphs 4 and 5 of the said order.

4. Attention is drawn to Note no. 24 of Schedule 19 whereby the Company has applied the principles of Accounting Standard 30 issued by The Institute of Chartered Accountants of India.

5. Further to our comments in the Annexure referred to above, we report that:

(i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of ouraudit;

(ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

(iii) The Balance sheet and Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

(iv) In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956. Attention is drawn to point no. 4 above whereby the Company has not adopted AS 30 fully but applied the principles of hedging as per AS 30 where there are firm commitments payable and receivable;

(v) On the basis of written representations received from the directors, as on 31st March, 2011, and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2011 from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Companies Act, 1956.

6. In our opinion and to the best of our information and according to the explanations given to us, the said accounts together with the notes thereon and attached thereto, give in the prescribed manner the information required by the Companies Act, 1956 and give a true and fairview in conformity with the accounting principles generally accepted in India

i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2011;

ii) In the case of the Profit and Loss Account, of the Profit of the Company for the year ended on that date; and

iii) In the case of the Cash flow Statement, of the Cash flows of the Company for the year ended on that date.

Annexure to Auditor's Report (Referred in paragraph 3 of our report of even date to the members of ABG Shipyard Limited on the financial statements for the year ended31s,March,2011.)

As required by the Companies (Auditor's Report) Order, 2003 (as amended) ("The Order") issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, on the matters specified in paragraphs^ and 5 of the said Order, we further report that:

i.) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified in a phased manner by the management during the year as per the program of verification which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. As informed to us no material discrepancies were noticed between book records and physical verification;

(c) During the year, the Company has not disposed off any substantial part of fixed assets, which would affect the going concern of the Company.

ii.) (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable;

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of the records of inventory, we are of the opinion that the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.

iii.) (a) The Company had granted unsecured loan to its wholly owned subsidiary which is also a party covered in the Register maintained under Section 301, of the Companies Act, 1956. The maximum amount involved during the year was 368 crores and the year end balance was Rs. 0.002 crores.

(b) According to the information and explanations given to us, there is no stipulation of period of payment or rate of interest. In our opinion the terms of loan given are not, prima facie, prejudicial to the interest of the company

(c) As loan outstanding at the year end is negligible amount, and there is no contemplation of repayment period of principal amount or interest, clause 4 (iii) (c) and (d) of the Order is not commented on.

(d) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the Register maintained under Section 301, of the Companies Act, 1956. Accordingly, clauses 4(iii) (f) and (g) of the Order are not applicable to the Company.

iv.) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control.

v.) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301, of the Companies Act, 1956 have been so entered.

(b) The price at which such contract or arrangement is entered is reasonable compared to prevailing market price.

vi.) The Company has not accepted any deposit from the public during the year.

vii.) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

viii.) As informed to us, the maintenance of cost records have not been prescribed by the Central Government under clause (d) of sub section (1) of Section 209 of the Companies Act, 1956.

ix.) (a) According to the records of the Company, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth-tax, Service tax, Custom duty, Excise duty, Cess and other statutory dues applicable to it. No statutory dues are outstanding for period of more than six months as on 31st March, 2011 except for Rs. 6,775 of Profession Tax. However, the same has been, subsequently paid.

(b) According to information and explanation given to us, the following dues of Service tax have not been deposited by the company on account of disputes:

Name of the Nature of Dues Financial Amount Rs. Forum where dispute is Statute Year in crores pending.

Service Tax Matter under 2004-05 to 2.58 Appellate Tribunal dispute 2008-09

x.) The Company does not have accumulated losses at the end of the financial year. The Company has not incurred any cash loss during the financial year covered by our audit and in the immediately preceding financial year.

xi.) According to the information and explanations given to us, the Company has not defaulted in repayment of dues to any financial institutions, banks ordebenture holders.

xii.) Based on our examination of documents and records, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and othersecurities

xiii) The Company is not a chitfund/ nidhi/ mutual benefit fund/ society, to which the provisions of special statute relating to chitfund are applicable. Accordingly, paragraph 4 (xiii) of the Order is not applicable to the Company.

xiv.) The Company is not engaged in dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable to the Company.

xv.) According to the information and explanations given to us, the Company has given guarantee of Rs. 1,800.23 crores for credit facilities taken by body corporates from banks and financial institutions, the terms and conditions whereof in our opinion are not prima facie prejudicial to the interest of the Company.

xvi.) In our opinion and according to the information and explanations given to us, on the overall basis, term loans have been applied for the purposes for which they were obtained.

xvii.)According to the information and explanations given to us and based on our examination of the books of account of the Company, short term funds to the extent of approximately 7156.74 crores have been used for long term purposes.

xviii.)According to the information and explanations given to us, the Company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of paragraph 4(xviii) of the Order are not applicable to the Company.

xix.) According to the information and explanations given to us and on the basis of records made available, we report that adequate security has been created in respect of debentures issued during the year.

xx.) The Company has not raised any money by public issues during the year. Accordingly, paragraph 4(xx) of the Order is not applicable.

xxi.) Based upon the information and explanations given by the management and audit procedures performed, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For Nisar& Kumar

Chartered Accountants

F.R.NO.107117W

M.N.Ahmed

Place: Mumbai (partner)

Date :30th May, 2011 M No 18380


Mar 31, 2010

1. We have audited the attached Balance Sheet of ABG SHIPYARD LIMITED, as at 31st March 2010, the Profitand Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on .our audit.

2. We conducted our audit in accordance with Auditing Standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over all financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order, 2003(as amended) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956 we enclose in the annexure a statement on the matters specified in paragraphs 4 and 5 of the said order.

4. Attention is drawn to Note no. 25 of Schedule 20 whereby the Company has applied the principles of Accounting Standard 30 issued by The Institute of Chartered Accountants of India.

5. Further to our comments in the Annexure referred to above, we report that:

(i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

(ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

(iv) In our opinion, the Balance Sheet, Profitand Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956. Attention is drawn to point No. 4 above whereby the Company has not adopted AS 30 fully but applied the principles of hedging as per AS 30 where there are firm commitments payable and receivable.

(v) On the basis of written representations received from the directors, as on 31st March, 2010, and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March 2010 from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Companies Act, 1956.

6. In our opinion and to the best of our information and according to the explanations given to us, the said accounts together with the notes thereon and attached thereto, give in the prescribed manner the information required by the Act and give a true and fair view in conformity with the accounting principles generally accepted in lndia

i) In the case of the Balance Sheet ,of the state of affairs of the Company as at 31st March 2010;

ii) In the case of the Profitand Loss Account, of the Profit of the Company for the year ended on that date; and

iii) In the case of the Cash flow Statement, of the Cash flows forthe year ended on that date.

Annexure to Auditors Report (Referred in paragraph 3 of our report of even date to the members of ABG Shipyard Limited on the financial statements for the year ended 31st March 2010.)

As required by the Companies (Auditors Report) Order, 2003(as amended) ("The Order) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, on the matters specified in paragraphs 4 and 5 of the said Order, we further report that:

i.) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets;

(b) The fixed assets have been physically verified in a phased manner by the management during the year as per the program of verification which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. As informed to us no material discrepancies were noticed between book records and physical inventory;

(c) During the year, the Company has not disposed off any substantial part of fixed assets, which would affect the going concern of the Company.

ii.) (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable;

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business;

(c) On the basis of the records of inventory, we are of the opinion that the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.

iii.) (a) During the year under audit the Company has granted unsecured loan to its wholly owned subsidiary which is also a party covered in the Register maintained under Section 301 of the Companies Act, 1956 The maximum amount involved during the year and the year end balance aggregates to Rs. 369 crores.

(b) According to the information and explanations given to us, there is no stipulation of period of payment or rate of interest. In our opinion the terms of loan given are not, prima facie, prejudicial to the interest of the company

(c) As there is no contemplation of repayment period of principal amount or interest, clause 4 (iii) (c) and (d) of the Order is not commented on.

(d) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the Register maintained under Section 301 of the Companies Act, 1956. Accordingly, clauses4(iii) (f)and (g) of the Order are not applicable to the Company.

iv.) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control.

v.) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered.

(b) The price at which such contract or arrangement is entered is reasonable compared to prevailing market price.

vi.) The Company has not accepted any deposit from the public during the year.

vii.) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

viii.) As informed to us, the maintenance of cost records have not been prescribed by the Central Government under clause (d) of sub section (1) of Section 209 of the Companies Act, 1956.

ix.) (a) According to the records of the Company, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income-tax, Sales-tax, Wealth-tax, Service tax, Custom duty, Excise duty, Cess and other statutory dues applicable to it.

(b) According to the records of the Company, there are no dues in respect of disputed liability in respect of Provident Fund,

Income-tax, Sales-tax, Wealth-tax, Service tax, Custom duty, Cess and other statutory dues which have not been deposited on account of dispute.

x.) The Company does not have accumulated losses at the end of the financial year. The Company has not incurred any cash loss during the financial year covered by our audit and in the immediately preceding financial year

xi.) According to the information and explanations given to us, the Company has not defaulted in repayment of dues to any financial institutions, banks or debenture holders

xii.) Based on our examination of documents and records, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities

xiii.) The Company is not a chitfund/ nidhi/ mutual benefit fund/ society, to which the provisions of special statute relating to chitfund are applicable. Accordingly, paragraph4(xiii)ofthe Order is not applicable to the Company.

xiv.) The Company is not engaged in dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause4(xiv) of the Order are not applicable to the Company.

xv.) According to the information and explanations given to us, the Company has given guarantee of Rs. 1005.44 crores for credit facilities taken by body corporates from banks and financial institutions, the terms and conditions whereof in our opinion are not prima facie prejudicial to the interest of the Company.

xvi.) In our opinion and according to the information and explanations given to us, on the overall basis, term loans have been applied for the purposes for which they were obtained.

xvii.) According to the information and explanations given to us and based on our examination of the books of account of the Company, short term funds to the extent of approximately Rs. 190 crores have been used for long term purposes.

xviii.) According to the information and explanations given to us, the Company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of paragraph 4(xviii) of the Order are not applicable to the Company.

xix.) According to the information and explanations given to us and on the basis of records made available, we report that adequate security has been created in respect of debentures issued in the immediately preceding year. No debentures have been issued in the reporting period.

xx.) The Company has not raised any money by public issue during the year. Accordingly, paragraph 4(xx) of the Order is not applicable.

xxi.) Based upon the information and explanations given by the management and audit procedures performed, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For Nisar& Kumar

Chartered Accountants

F. R No. 107117W

M.N.Ahmed

Place: Mumbai (Partner)

Date: 29th May, 2010 M. No. 18380

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