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Auditor Report of Essar Shipping Ltd.

Mar 31, 2016

To the Members of

Essar Shipping Limited

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of Essar Shipping Limited (‘the Company''), which comprise the Balance Sheet as at March 31, 2016, 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 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 and presentation 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 under 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 misstatements, 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 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 the 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 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 the 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 except for the matter described in Basis for Qualified opinion paragraph, the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Basis for Qualified Opinion

Attention is invited to note 13(a)(ii) of the financial statements regarding Managements ongoing assessment of ‘other than temporary'' decline in the value of long term investment of Rs.4747.78 crores as at March 31, 2016 in equity shares of Essar Oilfileds Services Limited, Mauritius, a wholly owned subsidiary of the Company, in terms of Accounting Standard 13, ‘Accounting for Investments''. We have been informed that the Management has not yet concluded the process of validating various operational assumptions impacting the estimated future cash flows from the operations of the rigs of the said subsidiary, and the consequent effect on the valuation of the subsidiary to determine whether there is a decline, other than temporary, in the value of the aforesaid investment. Pending conclusion of the said exercise, we are unable to comment on the extent of diminution, if any, which may be required in respect of the carrying amount of the said investment.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph above, the aforesaid standalone 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 March 31, 2016 and its loss and its cash flows for the year ended on that date.

Emphasis of matter paragraph

Managerial Remuneration paid to a Director of the Company for the year ended March 31, 2016, to the extent of Rs.0.16 crores exceeds the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Companies Act, 2013. We have been informed by the management that approval has already been sought for the same and is currently awaited.

Our opinion is not modified in respect of this Matter.

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 Act, we give in the ‘Annexure A'', a statement on the matters specified in the paragraph 3 and 4 of the order.

2. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and, except for the possible effects of the matter described in Basis for Qualified Opinion paragraph above, 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, except for the possible effects of the matter described in Basis for Qualified Opinion paragraph above, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

(c) 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;

(d) In our opinion, except for the possible effects of the matter described in Basis for Qualified Opinion paragraph above, 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 the written representations received from the directors as on March 31, 2016, taken on record by the Board of Directors, none of the directors are disqualified as on March 31, 2016 from being appointed as a director in terms of Section 164 (2) of the Act;

(g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.

(h) 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’; and

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

(i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer note 27(a) to the financial statements.

(ii) 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- Refer note 31 to the financial statements.

(iii) There were no amounts that were required to be transferred to the investor education protection fund by the Company.

ANNEXURE - A TO THE INDEPENDENT AUDITORS’ REPORT

(Referred to in paragraph 1 under ‘Report on Other Legal and Regulatory Requirements’ section of our report of even date)

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

(b) During the year, the fixed assets were physically verified by the Management in accordance with a regular programme of verification which, in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us, no material discrepancies were noticed on such verification;

(c) The title deeds of immovable properties are held in the name of the company;

(ii) As informed to us, the inventory has been physically verified by the Management at reasonable intervals during the year and no material discrepancies have been noticed on such verification;

(iii) The Company has granted unsecured loan, to one company covered in the register maintained under Section 189 of the Companies Act 2013;

(a) In respect of the aforesaid loan, the terms and conditions of the grant of such loan are not prejudicial to the company''s interest;

(b) In respect of the aforesaid loan, since the loan is repayable on demand the regularity of the repayments of principal and payment of interest cannot be commented upon;

(c) In respect of the aforesaid loan, since the loan is repayable on demand the overdue amounts cannot be determined;

(iv) In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of section 185 and 186 of the Act, with respect to the loans, Investments, guarantees and security;

(v) The Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the rules framed there under to the extent notified;

(vi) According to the information and explanations given to us, the Company is not required to maintain cost records pursuant to the Companies (Cost Records and Audit) Rules, 2014, as amended and prescribed by the Central Government under sub-section (1) of section 148 of the Companies Act 2013;

(vii) (a) According to the information and explanation given to us and the records of the Company examined by us, in our opinion, the Company is regular in depositing undisputed statutory dues including provident fund, duty of customs and value added tax and other material statutory dues as applicable with appropriate authorities. However delays in deposits of tax deducted at source and service tax were observed ranging from 228 to 289 days. The extent of the arrears of tax deducted at source and service tax outstanding as at March 31, 2016, for a period of more than six months from the date the same became payable is Rs.27.38 crores and Rs.7.66 crores due for 206 to 238 days and 206 to 694 days respectively;

(b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of dues of income tax and duty of customs at March 31, 2016 which have not been deposited on account of a dispute, are as follows:

Name of the Statute

Nature of Dues

Amount in crores

Period to which the amount relates

Forum where the matter is pending

Income Tax Act, 1961

Income Tax

7.29

1993-94

The High Court of Bombay

Foreign Trade (Development and Regulation Act, 1992)

Custom Duty

27.40

2006-07

The High Court of Bombay

(viii) According to the records of the Company examined by us and the information and explanations given to us, except for the loans, borrowings and dues mentioned in the below table, the Company has not defaulted in repayment of loans or borrowings to any Financial Institution, Bank, Government or dues to Debenture Holders as at the balance sheet date;

(Amounts in crores)

Lender Name

Amount of Default

Total

Period of Default

Principal | Interest

Debenture Holders

Life Insurance Corporation

700.00

178.00

878.00

1 to 740 days

CSEB (Chattisgarh State Electricity Board) Gratuity and Pension fund Trust

1.38

1.38

4 to 300 days

MTNL - Employees Provident Fund Trust

-

0.16

0.16

15 days

Rajasthan Rajya Vidyut Prasaran Nigam Limited

-

0.54

0.54

53 to 145 days

Banks

State Bank of India

3.52

-

3.52

1 day

State Bank of Patiala

1.35

-

1.35

1 day

State Bank of Bikaner & Jaipur

2.43

-

2.43

1 day

State Bank of Travancore

1.50

-

1.50

1 day

Syndicate Bank

5.57

-

5.57

63 to 155 days

Indian Overseas Bank

4.58

-

4.58

67 to 159 days

Export Import Bank of India

2.35

-

2.35

31 days

Financial Institutions

IL&FS Financial Services Limited

1.40

-

1.40

1 day

Total

722.70

180.08

902.78

(ix) According to the records of the Company examined by us and the information and explanation given to us, the Company has not raised money by way of initial public offer or further public offer (including debt instruments) during the year and in case of term loans taken during the year, the same were applied for the purposes for which those were raised;

(x) According to the information and explanations given to us, no fraud by the Company or on the Company by its officers or employees has been noticed or reported during the course of our audit;

(xi) According to the records of the Company examined by us and the information and explanations given to us, managerial remuneration to the extent of Rs.0.16 crores exceeds the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Companies Act, 2013. Approval has already been sought for the same and is currently awaited;

(xii) The Company is not a Nidhi company and therefore the provisions of clause 3 (xii) of the Order are not applicable to the company;

(xiii) According to the records of the Company examined by us and the information and explanation given to us, all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details thereof have been disclosed in the Financial Statements etc., as required by the applicable accounting standards;

(xiv) The company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review. Therefore clause 3(xiv) is not applicable to the Company;

(xv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him. Accordingly, clause 3(xv) of the Order is not applicable to the Company;

(xvi) According to the information and explanations given to us and based on our examination of the records of the Company, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act 1934;

ANNEXURE - B TO THE AUDITORS’ REPORT

Report on the Internal Financial Controls under Clause (i) 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 Essar Shipping 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 (‘ICAI''). 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

In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31 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.

For CNK & ASSOCIATES LLP

Chartered Accountants

Firm''s registration number: 101961W

Himanshu Kishnadwala

Partner

Membership number: 37391

Mumbai, May 25, 2016


Mar 31, 2015

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

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 under 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 preparation of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgements 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 thereunder.

We 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 the 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 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 control system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the 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 on the standalone financial statements.

Basis for Qualified Opinion

Attention is invited to note 13(a)(ii) of the financial statements regarding Management's ongoing assessment from the last financial year of 'other than temporary' decline in the value of long term investment ofRs. 4,747.78 Crore as at 31st March, 2015 in equity shares of Essar Oilfields Services Limited, Mauritius, a wholly owned subsidiary of the Company, in terms of Accounting Standard (AS) 13, Accounting for Investments. We have been informed that the Management has not yet concluded the process of validating various operational assumptions impacting the estimated future cash flows from the operations of the rigs of the said subsidiary, and the consequent effect on the valuation of the subsidiary to determine whether there is any decline, other than temporary, in the value of the aforesaid investment. Pending conclusion of the said exercise, we are unable to comment on the extent of diminution, if any, which may be required in respect of the carrying amount of the investment.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid standalone 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 Matter

We draw attention to Note 35 regarding preparation of the financial statements on a going concern basis which is predicated on the expectation that the Company will be able to refinance its existing borrowings in a manner such that repayment schedules are aligned with projected debt servicing ability of the fleet.

Our report is not modified in respect of this matter.

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 in terms of Section 143(11) of the Act, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order.

2. As required by Section 143(3) of the Act, we report that:

(a) We have sought, and except for the matter described in the Basis for Qualified Opinion paragraph obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

(b) Except for the possible 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 it appears from our examination of those books.

(c) 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.

(d) Except for the possible 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 may have an adverse effect on the functioning of the Company. The matter described in the Emphasis of Matter Paragraph above may have an adverse effect on the functioning of the Company if the existing borrowings are not refinanced in a manner such that repayment schedules are aligned with projected debt servicing ability of the fleet.

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

(g) The qualification relating to the maintenance of accounts and other matters connected therewith is as stated in the Basis for Qualified Opinion paragraph above.

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

(i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer note 27(a) to the financial statements;

(ii) 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 - Refer Note 31 to the financial statements;

(iii) There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

ANNEXURE TO THE INDEPENDENT AUDITOR'S REPORT (Referred to in paragraph 1 under 'Report on Other Legal and Regulatory Requirements' section of our report of even date)

(i) In respect of its fixed assets:

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

(b) The fixed assets were physically verified in the previous year by the Management in accordance with a regular programme of verification which, in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(ii) In respect of its inventories :

(a) The Company carries inventories of fuel oil and lubricants on board the fleet. The Company purchases stores and spare parts for the fleet, which are directly treated as consumed as and when supplied to fleet. As explained to us, the inventories of fuel oil and lubricants were physically verified during the year by the Master of fleet at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, having regard to the nature and location of inventory, the procedures of physical verification of inventories followed by the Management were reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) Having regard to the nature of the Company's business and scale of operations, quantities of fuel oil and lubricants are determined by physical count and it is not considered feasible by the Management to maintain records of movements of inventories of such items by the fleet in which they are carried. As quantities are determined by physical count and records of movements are not maintained on board the fleet, the question of discrepancies on physical verification thereof does not arise.

(iii) The Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the Register maintained under Section 189 of the Act.

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

(v) According to the information and explanations given to us, the Company has not accepted any deposit during the year.

(vi) The Company is not required to maintain cost records pursuant to the Companies (Cost Records and Audit) Rules, 2014, as amended and prescribed by the Central Government under sub-section (1) of Section 148 of the Companies Act, 2013.

(vii) According to the information and explanations given to us, in respect of statutory dues:

(a) The Company has generally been regular in depositing undisputed statutory dues, including Income-tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Value Added Tax, Cess and other material statutory dues applicable to it except that there have been delays in number of cases in depositing undisputed statutory dues of service tax, Provident Fund and tax deducted at source with the appropriate authorities. As informed to us, the provisions for Employee's State Insurance and Excise duty were not applicable to the Company during the year.

(b) There are no undisputed amounts payable in respect of Provident Fund, Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Value Added Tax, Cess and other material statutory dues in arrears as at 31st March, 2015 for a period of more than six months from the date they became payable except arrears of Tax Deducted at Source amounting to Rs.13.52 Crore due for 205-328 days.

(c) Details of dues of Income-tax and Customs duty which have not been deposited as on 31st March , 2015 on account of disputes are given below:

Name of Nature Amount Period to Forum statute of dues (Rs. in which the where Crore) amount dispute is relates pending

Income tax Income 7.29* 1993-94 The High Act, 1961 Tax Court of Bombay

Foreign Customs 27.40 2006-07 The High Trade duty Court of (Development Bombay and Regulation) Act, 1992

*The Income Tax Department has preferred an appeal against the order of the Appellate Tribunal pursuant to which the said amount deposited earlier was refunded to the Company.

(d) There are no amounts that are due to be transferred to the Investor Education and Protection Fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and Rules made thereunder.

(viii) The Company is registered for a period of less than five years as of the balance sheet date. Accordingly, the provisions of clause (viii) of the Order are not applicable to the Company.

(ix) Delays in repayment of dues (including interest) to banks, financial institutions and debenture holders aggregating to Rs. 122.53 Crore, Rs. 11.23 Crore and Rs. 43.19 Crore have been regularised within 90 days, 91-150 days and 151-214 days respectively, from due dates. Dues aggregating to Rs. 245.44 Crore, Rs. 60.71 Crore and Rs. 41.30 Crore outstanding for a period of less than 90 days, 91-150 days and 151-283 days respectively, as at 31st March, 2015 have not been paid till the date of this report.

(x) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by others from banks and financial institutions are not, prima facie, prejudicial to the interests of the Company.

(xi) In our opinion and according to the information and explanations given to us, term loans have been applied by the Company during the year for the purposes for which they were obtained, other than temporary deployment pending application.

(xii) To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company has been noticed or reported during the year.

For DELOITTE HASKINS & SELLS

Chartered Accountants (Firm Registration No. 117365W)

Samir R. Shah

Partner

Mumbai, May 21,2015 Membership No. 101708


Mar 31, 2014

We have audited the accompanying financial statements of ESSAR SHIPPING 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 the significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s 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 notified under the Companies Act, 1956 ("the Act") (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 in terms of General Circular 15/2003 dated September 13, 2013 of the Ministry of Corporate Affairs) and in accordance with the accounting principles generally accepted in India. 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.

Auditors'' 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 misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the 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 control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company''s internal control. An audit also includes evaluating the appropriateness of the 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 qualified audit opinion.

Basis of Qualified Opinion

Attention is invited to note 12(a) to the financial statements regarding Management''s assessment of ''other than temporary'' decline in the value of long term investment of Rs. 4,747.78 Crore as at March 31, 2014 in equity shares of Essar Oilfields Services Limited, Mauritius, a wholly owned subsidiary of the Company, in terms of Accounting Standard (AS) 13, Investments. We have been informed that the Management of the Company is in the process of validating various operational assumptions impacting the estimated future cash flows from the operation of the rigs of the said subsidiary, and the consequent effect on the valuation of the subsidiary to determine whether there is any decline, other than temporary, in the carrying value of the aforesaid investment. Pending conclusion of the said exercise, we are unable to comment on the provision for diminution, if any, which may be required in respect of the carrying amount of the aforesaid investment.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis of Qualified Opinion paragraph, 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:

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

(b) in the case of the Statement of Profit and Loss, of the loss of the Company for the Year Ended on that date; and

(c) 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 in terms of Section 227(4A) 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) Except for the matter described in Basis of Qualified Opinion paragraph, 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) Except for the possible effect of the matter described in Basis of Qualified Opinion paragraph, in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

(c) 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.

(d) Except for the possible effect of the matter described in Basis of Qualified Opinion paragraph, in our opinion, the Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement comply with the Accounting Standards notified under the Act (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 in terms of General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs).

(e) On the basis of the written representations received from the directors as on March 31, 2014 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2014 from being appointed as a director in terms of Section 274(1)(g) of the Act.

ANNEXURE TO THE INDEPENDENT AUDITORS'' REPORT

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

(i) In respect of its fixed assets:

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

(b) The fixed assets of the Company were physically verified during the year by the Management in accordance with a regular programme of verification which, in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(ii) In respect of its inventories:

(a) The Company carries inventories of fuel oil and lubricants on board the fleet. The Company purchases stores and spare parts for the fleet, which are directly treated as consumed as and when supplied to fleet. As explained to us, the inventories of fuel oil and lubricants were physically verified during the year by the Master of fleet at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, having regard to the nature and location of inventory, the procedures of physical verification of inventories followed by the Management were reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) Having regard to the nature of the Company''s business and scale of operations, quantities of fuel oil and lubricants are determined by physical count and it is not considered feasible by the Management to maintain records of movements of inventories of such items by the fleet in which they are carried. As quantities are determined by physical count and records of movements are not maintained on board the fleet, the question of discrepancies on physical verification thereof does not arise.

(iii) According to the information and explanations given to us, the Company has neither granted nor taken any loans, secured or unsecured, to/ from companies, firms or other parties covered in the register maintained under section 301 of the Act. Accordingly, the provisions of clause 4 (iii) (a) to (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 is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of services. During the course of our audit, we have not observed any major weakness in such internal control system. The activities of the Company do not involve sale of goods.

(v) According to the information and explanations given to us, there are no transactions made in pursuance of contracts or arrangements that need to be entered into the register maintained under Section 301 of the Act. Accordingly, the provisions of clause 4 (v) of the Order are not applicable to the Company.

(vi) According to the information and explanations given to us, the Company has not accepted any deposits from the public during the year to which the directives issued by the Reserve Bank of India and the provisions of Section 58A and 58AA or any other relevant provisions of the Act and the rules framed thereunder would apply. Accordingly, the provisions of clause 4 (vi) of the Order are not applicable to the Company.

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

(viii) To the best of our knowledge and as explained to us, the Central Government has not prescribed maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 for the services provided by the Company.

(ix) According to the information and explanations given to us, in respect of statutory dues:

(a) The Company has generally been regular in depositing undisputed statutory dues, including Investor Education and Protection Fund, Income-tax, Sales Tax, Wealth tax, Customs Duty, Cess, and other material statutory dues applicable to it except that there have been delays in number of cases in depositing undisputed statutory dues of service tax, Provident fund and tax deducted at source with the appropriate authorities. As informed to us, the provisions of Employee''s State Insurance and Excise Duty were not applicable to the Company during the year.

(b) There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Income-tax, Sales Tax, Wealth tax, Service Tax, Customs Duty, Cess, and other material statutory dues in arrears as at March 31, 2014 for a period of more than six months from the date they became payable.

(c) Details of dues of Income Tax and Customs duty which have not been deposited as on March 31, 2014 on account of disputes are given below:

Name of Nature Amount Period to Forum statute of dues (Rs. in which the where Crore) amount dispute is relates pending

Income tax Income 7.29* 1993-94 The High Act, 1961 Tax Court of Bombay

Foreign Trade Customs 27.40 2006-07 The High (Development duty Court of and Bombay Regulation) Act. 1992

* The Income Tax Department has preferred an appeal against the order of the Appellate Tribunal pursuant to which the said amount deposited earlier was refunded to the Company.

According to the information and explanations given to us, there were no dues pending to be deposited on account of any dispute in respect of Sales Tax, Wealth Tax, Service Tax and Cess as on March 31, 2014.

(x) The Company is registered for a period of less than five years. Accordingly, the provisions of clause 4(x) of the Order are not applicable to the Company.

(xi) Delays in repayment of dues (including interest) to banks, financial institutions and debenture holders aggregating to Rs. 167.44 Crore, Rs. 32.76 Crore and Rs. 30.77 Crore have been regularised within 90 days, 91-150 days and 151-212 days respectively, from due dates. There are no outstanding dues to banks as at March 31, 2014.

(xii) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, the provisions of clause 4

(xii) of the Order are not applicable to the Company.

(xiii) According to the information and explanations given to us, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Accordingly, the provisions of clause 4(xiii) of the Order are not applicable to the Company.

(xiv) According to the information and explanations given to us, the Company is not dealing in 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) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by others from banks and financial institutions are not, prima facie, prejudicial to the interests of the Company.

(xvi) In our opinion and according to the information and explanations given to us, the term loans have been applied by the Company during the year for the purposes for which they were obtained, other than temporary deployment pending application.

(xvii) In our opinion and according to the information and explanations given to us, and on an overall examination of the Balance Sheet of the Company, we report that short term funds (other than borrowings) of Rs. 72.98 Crore have, prima facie, been used for long-term investment/ purposes.

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

(xix) According to the information and explanations given to us, the Company has not issued any debentures during the year. Accordingly, the provisions of clause 4 (xix) of the Order are not applicable to the Company.

(xx) The Company has not raised any money by way of public issues during the financial year. Accordingly, the provisions of clause 4 (xx) of the Order are not applicable to the Company.

(xxi) To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company has been noticed or reported during the year.

For DELOITTE HASKINS & SELLS Chartered Accountants (Firm''s Registration No. 117365W)

Samir R. Shah Partner Mumbai, May 20, 2014 Membership No. 101708


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying fnancial statements of ESSAR SHIPPING LIMITED ("the Company"), which comprise the Balance Sheet as at March 31, 2013, the Statement of Proft and Loss and the Cash Flow Statement for the year then ended, and a summary of the signifcant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s Management is responsible for the preparation of these fnancial statements that give a true and fair view of the fnancial position, fnancial performance and cash fows of the Company in accordance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 ("the Act") and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the fnancial 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 fnancial 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 fnancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the fnancial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the fnancial 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 of the fnancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company''s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the fnancial statements.

We believe that the audit evidence we have obtained is suffcient 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 aforesaid fnancial 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:

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

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

(c) in the case of the Cash Flow Statement, of the cash fows 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 in terms of Section 227(4A) of the Act, we give in the Annexure a statement on the matters specifed 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 it appears from our examination of those books.

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

(d) In our opinion, the Balance Sheet, the Statement of Proft and Loss, and the Cash Flow Statement comply with the Accounting Standards referred to in Section 211(3C) of the Act.

(e) On the basis of the written representations received from the directors as on March 31, 2013 taken on record by the Board of Directors, none of the directors is disqualifed as on March 31, 2013 from being appointed as a director in terms of Section 274(1)(g) of the Act.

ANNEXuRE TO THE INDEPENDENT AuDITORS'' REPORT

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

(i) In respect of its fxed assets:

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

(b) Some of the fxed assets of the Company were physically verifed during the year by the Management in accordance with a regular programme of verifcation which, in our opinion, provides for physical verifcation of all the fxed assets at reasonable intervals. According to the information and explanations given to us, no material discrepancies were noticed on such verifcation.

(c) The fxed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fxed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(ii) In respect of its inventories:

(a) The Company carries inventories of fuel oil and lubricants on board the feet. The Company purchases stores and spare parts for the feet, which are directly treated as consumed as and when supplied to feet. As explained to us, the inventories of fuel oil and lubricants were physically verifed during the year by the Master of feet at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, having regard to the nature and location of inventory, the procedures of physical verifcation of inventories followed by the Management were reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) Having regard to the nature of the Company''s business and scale of operations, quantities of fuel oil and lubricants are determined by physical count and it is not considered feasible by the Management to maintain records of movements of inventories of such items by the feet in which they are carried. As quantities are determined by physical count and records of movements are not maintained on board the feet, the question of discrepancies on physical verifcation thereof does not arise.

(iii) According to the information and explanations given to us, the Company has neither granted nor taken any loans, secured or unsecured, to/ from companies, frms or other parties covered in the register maintained under section 301 of the Act. Accordingly, the provisions of clause 4 (iii) (a) to (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 is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fxed assets and for the sale of services. During the course of our audit, we have not observed any major weakness in such internal control system. The activities of the Company do not involve sale of goods.

(v) According to the information and explanations given to us, there are no transactions made in pursuance of contracts or arrangements that need to be entered into the register maintained under Section 301 of the Act. Accordingly, the provisions of clause 4 (v) of the Order are not applicable to the Company.

(vi) The management of the Company has obtained a legal opinion confrming that the directives issued by the Reserve Bank of India relating to public deposits, the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the rules framed thereunder, are not applicable to the non-convertible unsecured debentures issued by the Company during the year as the Company cannot be said to have accepted ''deposits from the public''. Accordingly, the question of compliance with the directives issued by the Reserve Bank of India and the provisions of section 58A and 58AA of the Company Act, 1956 and the rules framed thereunder does not arise.

We have been informed that security has been created for the said debentures subsequent to balance sheet date.

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

(viii) To the best of our knowledge and as explained to us, the Central Government has not prescribed maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 for the services provided by the Company.

(ix) According to the information and explanations given to us, in respect of statutory dues:

(a) The Company has generally been regular in depositing undisputed statutory dues, including Provident Fund, Investor Education and Protection Fund, Income-tax, Sales Tax, Wealth tax, Service Tax, Customs Duty, Cess, and other material statutory dues applicable to it with the appropriate authorities. However, there have been delays in depositing undisputed statutory dues of service tax and tax deducted at source with the appropriate authorities. As informed to us, the provisions of Employee''s State Insurance and Excise Duty were not applicable to the Company during the year.

(b) There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Income-tax, Sales Tax, Wealth tax, Service Tax, Customs Duty, Cess, and other material statutory dues in arrears as at March 31, 2013 for a period of more than six months from the date they became payable.

(c) Details of dues of Income Tax and Customs duty which have not been deposited as on March 31, 2013 on account of disputes are given below:

Name of the Nature of Amount Period to Forum where statute dues (Rs. in which the dispute is crore) a m o u n t pending relates

Income Tax Act, Income Tax 7.29* 1993-94 The High 1961 Court of Bombay

Foreign Trade C u s t o m s 27.40 2006-07 The High (Development and Duty Court of Regulation) Act. Bombay 1992

* The Income Tax Department has preferred an appeal against the order of the Appellate Tribunal pursuant to which the said amount deposited earlier was refunded to the Company.

According to the information and explanations given to us, there were no dues pending to be deposited on account of any dispute in respect of Sales Tax, Wealth Tax, Service Tax and Cess as on March 31, 2013.

(x) The Company is registered for a period of less than fve years. Accordingly, the provisions of clause 4(x) of the Order are not applicable to the Company.

(xi) Delays in repayment of dues (including interest) to banks, fnancial institutions, foreign currency convertible bond holders and debenture holders amounting to Rs. 235.44 crores have generally been regularised within 90 days from due dates.

(xii) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, the provisions of clause 4 (xii) of the Order are not applicable to the Company.

(xiii) According to the information and explanations given to us, the Company is not a chit fund or a nidhi/mutual beneft fund/society. Accordingly, the provisions of clause 4(xiii) of the Order are not applicable to the Company.

(xiv) According to the information and explanations given to us, the Company is not dealing in 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) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by others

from banks and fnancial institutions are not, prima facie, prejudicial to the interests of the Company.

(xvi) In our opinion and according to the information and explanations given to us, the term loans have been applied by the Company during the year for the purposes for which they were obtained, other than temporary deployment pending application.

(xvii) In our opinion and according to the information and explanations given to us, and on an overall examination of the Balance Sheet of the Company, we report that short term funds (other than borrowings) of Rs. 91.81 crores have, prima facie, been used for long-term investment/ purposes.

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

(xix) According to the information and explanations given to us, during the period covered by our audit report, the Company had issued unsecured debentures [Refer clause (vi) above]. Accordingly, the provisions of clause 4 (xix) of the Order are not applicable to the Company.

(xx) The Company has not raised any money by way of public issues during the fnancial year. Accordingly, the provisions of clause 4 (xx) of the Order are not applicable to the Company.

(xxi) To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company has been noticed or reported during the year.



For DELOITTE HASKINS & SELLS

Chartered Accountants

(Firm Registration No. 117365W)

Samir R. Shah

Partner

Membership No. 101708

MuMBAI

28th May, 2013


Mar 31, 2012

1. We have audited the attached Balance Sheet of Essar Shipping Limited (formerly Essar Ports & Terminals Limited) ("the Company") as at March 31, 2012, the Statement of Profit and Loss and Cash Flow Statement of the Company for the year ended March 31, 2012 both 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 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 (CARO) issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give 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 in paragraph 3 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 are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956;

(v) In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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

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

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

5. On the basis of written representations received from Directors as on 31st March, 2012 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 Section 274(1 )(g) of the Companies Act, 1956.

ANNEXURE TO THE AUDITOR'S REPORT TO THE MEMBERS OF ESSAR SHIPPING LIMITED

(Referred to in paragraph 3 of our report of even date)

In our opinion and according to the information and explanations given to us, the nature of the Company's business/activities during the year are such that clauses (vi), (viii), (x),(xiii), (xiv), (xviii), and (xx) of para 4 of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company.

1. In respect of its fixed assets:

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

b. The fixed assets of the Company are physically verified by the management according to a phased programme designed to cover all the items over a period of three years, which in our opinion, is largely reasonable having regard to the size of the Company and the nature of its assets. As per the information given to us by the management, no material discrepancies as compared to book records were noticed in respect of fixed assets verified during the year.

c. In our opinion and according to the information and explanations given to us, the Company has not made substantial disposals of fixed assets during the year and the going concern status of the Company is not affected.

2. In respect of its inventories:

a. As explained to us, inventories were physically verified during the year by the management at reasonable intervals.

b. In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business.

c. According to the information and explanations given to us, the Company's inventories comprise fuel oil and lube oil on board the ships. Having regard to the nature of the Company's business and scale of operations, quantities are determined by physical count and it is not considered feasible to maintain records of movements of inventories of such items by the vessel in which they are carried. As quantities are determined by physical count and records of movements are not maintained on board the ships, the question of discrepancies on physical verification thereof does not arise.

3. In our opinion and according to the information and explanations given to us, there are no companies, firms or parties required to be entered into the register maintained under section 301 of the Companies Act, 1956. Accordingly, paragraphs 4(iii) (a) to (g) of the Order are not applicable to the Company.

4. In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in such internal controls. The nature of the Company's business does not involve sale of goods.

5. In our opinion and according to the information and explanations given to us, there are no contracts or arrangements that need to be entered into the register maintained under section 301 of the Companies Act 1956.

6. In our opinion, the internal audit system of the Company is commensurate with the size of the Company and nature of its business.

7. According to the information and explanations given to us in respect of statutory dues:

a. The Company has been generally regular in depositing undisputed statutory dues, including Provident Fund, Service tax, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Value Added Tax, Customs Duty, Excise Duty, Cess and any other material statutory dues, as applicable, with the appropriate authorities during the year. As informed to us Employees State Insurance Scheme is not applicable to the Company.

There are no undisputed amounts payable in respect of the above statutory dues that are outstanding as at 31st March, 2012 for a period exceeding six months from the date they became payable.

b. The details of Income Tax and Sales Tax dues which have not been deposited as at March 31, 2012 on account of disputes pending, are given below:

Name of Nature of Amount Period to Forum where the statute the disputed (Rs. in crore) which the dispute dues amount relates is pending

Income tax Income Tax 7.29 Assessment Appellate Act, 1961 Year from Authority- 1994-1995 Tribunal Level

Director Customs duty 27.40 FY 07 to 09 Bombay High General of court Foreign Trade, Bangalore

According to the information and explanation given to us, there were no dues pending to be deposited on account of any dispute in respect of Wealth Tax, Service Tax, sales tax, Excise Duty and Cess as on 31st March, 2012.

8. In our opinion, on the basis of audit procedures and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to banks, financial institutions or debenture holders.

9. According to the information and explanations given to us and based on the documents and records produced to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

10. In our opinion and according to the information and explanations given to us, the terms and conditions on which the Company has given guarantees for the loans taken by others from banks and financial institutions, are not, prima facie, prejudicial to the interests of the Company.

11. To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, term loans availed by the Company were, prima facie, applied by the Company during the year for the purposes for which the loans were obtained, other than temporary deployment pending application.

12. According to the information and explanations given to us, and on an overall examination of the Balance Sheet of the Company, we report that the funds raised on short-term basis have, prima facie, not been used during the year for long-term investment.

13. According to the information and explanations given to us, during the period covered by our audit report, in respect of the debentures outstanding the securities created fully cover the amount of debentures.

14. To the best of our knowledge and belief and according to the information and explanations given to us, no material fraud on or by the Company was noticed or reported during the year.

For Deloitte Haskins & Sells

Chartered Accountants

(Registration No. 117365W)

Khurshed Pastakia

Partner

(Membership No.31544)

Mumbai,

May 17, 2012