Auditor Report of Kanel Industries Ltd.

Mar 31, 2015

We have audited the accompanying financial statements of KANEL INDUSTRIES LTD, ("the company") which comprise the Balance Sheet as at 31/03/2015, and 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 :

The Company's Board of Directors is responsible for the matters stated in Sec. 134(5) of the companies Act 2013("The Act") with respect to preparation of these financial statements that give a true and fair view of financial position, financial performance and cash flows of the Company in accordance with the Accounting principles generally accepted in India, including Accounting Standards specified U/s 133 of The Act, read with rule 7 of the companies (account) rules 2014.This responsibility also includes the maintenance of adequate accounting records with the provisions of the act for safeguarding the assets of the company and for preventing and detecting the frauds and other irregularities; selection and application of appropriate accounting policies; making judgment and estimates that are reasonable and prudent; and design, implementation and maintenance of internal control, that were operating and presentation of financial statements that give a true and fair view and 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 specified U/s 143(10) of the Act those standard required 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 procedure to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend upon auditor's judgment, including the assessment of the risk of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessment, the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedure that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of financial statements.

We believe that 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 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 case of the Balance Sheet, of the state of affairs of the Company as at 31/03/2015;

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

(c In the case of Cash Flow statement, of the cash flow for the year ended on that date

Report on Other Legal and Regulatory Requirements :

1. As required by Sec 143 (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 except

i. The Company has taken inter corporate loan of Rs 1.34 Lacs [ unsecured ] and unsecured loans from related parties/firms of Rs. NIL and from Non Related person Rs. NIL during the financial year under audit. The Closing Balance at the yearend are Rs. 681.11 Lacs in case of inter corporate loans and Rs.107.60 lacs for related parties and firms and from key management person and Rs.NIL from other parties. No interest provided on loan accounts. In absence of formal agreement or supporting other documents, we could not comment and could not quantify the non provision of interest thereon.

Out of total Inter Corporate Loans as above, the Company has taken Mortgage Loan of Rs. 5 Crore from Adani Enterprises Ltd in earlier years. We are not provided any formal Loan Agreement copy except Mortgage Deed which does not contain any repayment terms and interest rate. No interest is provided on such Loans. We are unable to comment upon non provision of interest, repayment schedule etc. in absence of any formal agreement with the company and related documents and information. Account confirmation copy is not available for our verification and consequently uncertainty arises in Financial Statements as to the exact amount. [Read with Notes No. 5 to the financial Statements].

Company has not made provision for doubtful Debtors of Rs 93.75 Lacs, for the debtors outstanding for the long time, to that extent, Current Assets have been overstated and current years Losses and accumulated losses have been understated. [Read with Notes No. 13 to the financial Statements].

ii. The Company has violated provisions of Income Tax Act, 1961 by non filing Income Tax Returns from FY 2008-09 onwards. Proper records are not made available to us for our verification and to compute Income Tax and related statutory liabilities. In this situation, we are unable to comment upon the non provision of statutory liabilities for current year as well as for the earlier years. [Read with Notes No. 28 to the financial Statements]

iii. The Company has not deducted TDS from Professional fees paid / credited on sum of Rs.290000 during the financial year under audit.

iv. Bank Balance certificate or Bank Statements for various banks for No lien accounts with banks showing total balance of Rs. 89.30 Lacs are not available with the company. Management is of opinion that banks are not providing such required bank statements or certificates hence all accounts are carried forward showing as bank balance. It is also not clarified that whether these bank balances in No-lien accounts are receivable by the company or adjusted against bank loans settled under OTS in earlier years since all respective banks debts have been settled under OTS in earlier years. In absence of such documents and clarifications, we could not comment upon the genuineness of balance with banks and as per our opinion, current assets are overvalued to the extent of this amount and to the extent losses are undervalued. [Read with Notes No. 21 to the financial Statements]

v. The Naroda Unit has been inoperative since last many years. Company is doing Trading activities during the year under audit but majority Financial indicators and operating indicators remained negative and to the date of Audit report and in absence of formal developments for financial support, there is substantial doubt that it will be able to continue as a going concern even though the books of accounts of the Company has been prepared on the assumption of a Going Concern basis. In this situation, adjustments may be required to the recorded assets amounts at current value and classification of liabilities is required. The financial statements do not disclose this fact.

vi. Delhi High Court has remanded back the company to BIFR in its pending appeal on 19th January, 2010 and thereafter in the next hearing held on 29/04/2010, and as per the order of the Honorable Delhi High-court, BIFR had appointed IDBI as OA to inspect the unit and submit the report thereon. In the last date of hearing on 29/08/2013, the honorable BIFR has directed the company to revise and resubmit with OA, the DRS, with cutoff date as 31/03/2013.The Company had submitted the revised DRS to OA as directed by the Honorable BIFR but in the hearing on 27/03/2014 due to late submission by OA (IDBI) with respect to certain query of the BIFR, the BIFR dismissed the company's reference. However the Company is filling an appeal with AAIFR against the order of BIFR.

b. In our opinion proper books of accounts as required by the law have been kept by the Company so far as appears from our examination of the books of accounts.

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 accounts.

d. In our opinion, Balance Sheet, the Statement of Profit and Loss and Cash Flow statements complied with the Accounting Standards referred to in Sec 133 of the companies Act, 2013,read with rules 7 of the Companies (Accounts) rules, 2014.

i. The Company has not complied with AS 28, introduced w.e.f. 1st April, 2004 while preparing the financial statements. The Management have not assessed technically the Plant and Machineries at Naroda Unit to decided about its impairment or carrying Value. The carrying amount of the assets was not reviewed for indication of impairment of assets on basis of internal/external factors. Plant at Naroda Division has been in operative for Seventeen years. Plant & Machinery of book value of Rs.18.27 lacs less residual value has not been written off to the extent to come down to its carry value. Loss for the year has been under stated to the extent of book value of plant and machinery balance not written off.

ii. The Company has not complied with AS 22, Accounting for Taxes on Income. The company failed to file Income Tax Returns for the F Y 2008-09 onwards. In absence proper documents and records, we could not quantify the Income Tax liability for which provision not made. Deferred Ta x Assets/ Deferred Tax Liabilities are not provided for in the books of accounts, in absence of proper working and database from the management. We could not quantify the non provision for DTL or disclosures regarding DTA.[Read with 1(a)(ii) above and read with note no. 28"]

e. On the basis of written representation received from the Directors as on March 31, 2015 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2015 from being appointed as a director in terms of sub-section (2) of the Section 164 of the Companies Act, 2013.

f. With respect to other matters included in Auditor's Report and to best of our information and according to the explanation given to us.

01 The Companies has not disclosed the impact of pending litigations on its financial position in its financial statements. Management informed that there are no pending litigations pending with any departments which may have financial effect in future but as per our opinion the company has not filled Income Tax Return since FY 2008-09, company has not done Tax Audit for the previous years also, No sales tax return filed for the F Y 2007-08 to FY 2012-13, certain matters are pending with different forum in sales tax department [ refer note no.29 ], vandha arji filed with Municipal Corporation is still pending, BIFR matter is still pending with AAIFR and the expenses incurred by the company for professional fees for lawyers which shows some matter might be under litigation and its exact status and its probable effect on financial statement is not disclosed with us.

02 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 contract.

03 There has been delay in transferring amounts, required to be transferred, to the investor's education and protection fund by the company. Dividend declared in year 1995, 1996, 1997 and 1998 and remained unclaimed are due for transfer to Investors Education and Protection Fund under the provisions of Sec 205C of the Companies Act, 1956. It has been informed by the management that details for unclaimed dividend are not provided by the nominated bank, SBI [Previously SBS] , Industrial finance Branch, Ellisbridge, Ahmadabad and SBI [ Previously SBS Isanpur Branch, Ahmedabad]. In absence of proper records and supporting evidences, we could not quantify the amount not transferred as required by the law and its compliance. [Read with Notes No.27 to the financial Statements]

ANNEXURE TO THE AUDITORS' REPORT OF

KANEL INDUSTRIES LTD.

The annexure referred to in our report to the member of KANEL INDUSTRIES LTD. ('the company') for the year ended on 31st March, 2015, we report that;

1. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) During the year, fixed assets of the Company have not been physically verified by the Management. The management decided to implement program of regular physical verification of all fixed assets at least once in a two year, which in our opinion, is reasonable, having regard to the size of Company, present business operations and the nature of the Fixed Assets. In absence of physical verification report, we could not comment on material discrepancy in fixed assets of the company and its accounting effect.

2 (a) According to the information and explanation given to us, inventories have been physically verified by the management at reasonable intervals during the year.

(b) In our opinion and according to the information and explanation given to us, 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) The Company is maintaining proper records of inventories. In our opinion, discrepancies noticed on physical verification of inventory were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account, if any except trading transactions of Ex go down where goods do not move from one place to other place on sale or purchase where no documentary evidence available for our verification regarding movement of goods and its control except invoice bill.

3. The company has not granted any loans, secured or unsecured to companies, firm or other parties covered in the registered maintained u/s 189 of The Companies Act,2013 during the year under audit hence sub clause (a) and (b) are not applicable.

4. 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 and Fixed Assets and for the sale of goods. During the course of audit, no major weakness has been noticed in the internal controls (Read with notes No 2 (C ) above).

5. The company has not accepted deposits during the year under audit, the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other provision of the Companies Act and the rules framed there under are not applicable.

6. As per the information and explanation given by the management, the provisions of sub-section (1) of section 148 of the Companies Act for maintenance of cost records specified by the Central Government are not applicable to the company in the year under audit.

7. (a) According to the information and explanations given to us, the Company is not regular in depositing undisputed statutory dues towards Employees' State Insurance, TDS, Professional Tax, Income Tax and Municipal Tax during the year under audit.

The undisputed dues, as informed by the management, which are outstanding for more than six months as at the Balance Sheet date from the date they became payable were as follows.

SR. NATURE OF DUE AMOUNT OUTSTANDING AS ON 31/03/2015 [Rs. In Lacs] For more than 6 months And already due

01 Income Tax 98.10

02 TDS Payable 1.05

03 Sales Tax 17.53

04 E.S.I.C. 0.56 05 FBT tax 0.06

06 Professional Tax 0.34

07 Municipal Tax 5.40

TDS is not deducted during the year under audit and not paid to central government is Rs.0.29 lacs, such details are not included in above figure since the company has not complied with the provisions of income tax act and not provided in books of accounts. Provisions of ESI and Professional Tax are also not complied with by the company and no provision for such liability provided in books of account. In absence of required statutory records to ascertain the total amount relating to Interest thereon, the above amount does not includes the interest and penalty portion. In absence of Sales Tax Assessment order/Return copy and non filing of Sales tax Returns for the F Y 2007-08 to 2012-13 and in absence of required details and documents, we are unable to quantify the statutory liabilities relating to tax as well as of Interest and penalty there on and total statutory liability outstanding at the end of financial year under audit

Amount due as per demand notice served by the Income Tax department is Rs.136.37 Lacs for the various assessment years previously. In continuation to its folloup, it was explained by the management that no final order received from the concern department consequently no provision made in books of account. No fresh order passed by the department during the year under audit for previous assessment years hence liability could not quantified while preparing books of accounts, as explained by the management.

(b) According to the information and explanation given to us by the management of the Company, there are no dues of Sales Tax and Income Tax which have not been deposited on account of any dispute except as mentioned in clause "a" above and as mentioned below. We are further informed by the management that during the F Y 2014-15, there were no further Order, Notice or other developments relating to matters pending for earlier years with different forum as well as for the year under Audit in case of Income tax and Sales tax Matter.

SR. NATURE OF AMOUNT FORUM WHERE DISPUTE IS PENDING NO. DUES [Rs. In Lacs]

01 Sales Tax 274.63 The Matter is remanded back to Asst. Comm.Of Sales tax. [A.Y. 1998-99]

02 Sales Tax 245.92 Pending with the Appellate tribunal of Sales Tax [A.Y. 1997-98]

03 Sales Tax 24.30 Appeal Pending with Jt. Commercial Tax Commissioner, Appeal Division-1 [A.Y. 1999-2000]

04 Sales Tax 6.14 Appeal pending with Jt. Commercial Tax Commissioner, Appeal Divi.-1 [A.Y. 2000-01]

05 Sales Tax 2.88 Appeal pending with Jt. Commercial Tax Commissioner, Appeal Divi.-1 [A.Y. 2000-01]

06 Municipal Tax 10.95 Ahmedabad Municipal Corporation [Dues up to October, 2004]

[Above details are based on records made available to us for the verification only.]

(c) As per the information and explanations received from the management, there are no such amount required to be transferred to Investors Education and Protection Fund and not transferred except Dividend declared in year 1995, 1996, 1997 and 1998 and remained unclaimed are due for transfer to Investors Education and Protection Fund under the provisions of Sec 205C of the Companies Act, 1956.

It has been informed by the management that details for unclaimed dividend are not provided by the nominated bank, SBI [Previously SBS], Industrial finance Branch, Ellisbridge, Ahmadabad and SBI [Previously SBS Isanpur Branch, Ahmedabad]. In absence of proper records and supporting evidences from management and from the nominated banks, we could not quantify the amount not transferred as required by the law and its compliance.

(viii) In our opinion, the accumulated losses of the Company have exceeded fifty percent of the net worth as at the end of the financial year 2014-15. The Company has incurred Cash Losses of Rs. 1.10 crores during the financial year under audit and the company had incurred cash losses of Rs. 1.08 Crores the immediately preceding financial year.

(ix) We are of the opinion that the company has not defaulted in repayment of dues to banks or financial institutions in the year under audit. Further we have to report that banking dues have been settled under OTS in earlier years. The Company has taken secured Loans from the Company of Rs. 5 Crore in earlier year. There is no repayment towards principal or Interest. Management has not provided us copy of agreement of loans containing terms and conditions for repayment and interest charges. In absence of the required agreements and documents, we could not comment on repayment schedule or default status. The Company has no borrowings from Financial Institutions or by way of Debentures.

(x) According to information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year as per the information given by the management and available records made available for our verification.

(xi) In our opinion, no term loans were taken by the company in the year under audit.

(xii) In our opinion and according to the information and explanation given to us, no fraud on or by the company has been noticed or reported during the course of our audit.

For, SHAH DINESH DAHYALAL & ASSOCIATES

Chartered Accountants

FIRM REGISTRATION NO. 120362W

Shah Dinesh D. Place: Ahmedabad

Proprietor Date : 30/05/2015

MEMBERSHIP NO. 106871

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Mar 31, 2014

We have audited the accompanying financial statements of KANEL INDUSTRIES LTD, ("the company") which comprise the Balance Sheet as at 31/03/2014, and 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 :

The Company''s Management is responsible for the preparation of these financial statements that give a true and fair view of financial position, financial performance and cash flows of the company in accordance with the accounting principles generally accepted in India including Accounting Standards referred to in sub -section (3C) of section 211 of the Companies Act 1956 ("the Act") read with the General Circular No. 15/2013 dated 13th September, 2013.This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of 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 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 misstatements.

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

We believe that 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 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 case of the Balance Sheet, of the state of affairs of the Company as at 31/03/2014;

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

and

(c) In the case of Cash Flow statement, of the cash flow 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"), as amended, issued by Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statements on the matters specified in paragraphs 4 and 5 of the order.

2. Further to our comments in the Annexure referred to above, we comment that:

a. Delhi High Court has remanded back the company to BIFR in its pending appeal on 19th January, 2010 and thereafter in the next hearing held on 29/04/2010, and as per the order of the Honorable Delhi High-court, BIFR had appointed IDBI as OA to inspect the unit and submit the report thereon. In the last date of hearing on 29/08/2013, the honorable BIFR has directed the company to revise and resubmit with OA, the DRS, with cutoff date as 31/03/2013.The Company had submitted the revised DRS to OA as directed by the Honorable BIFR but in the hearing on 27/03/2014 due to late subm -ission by OA (IDBI) with respect to certain query of the BIFR, the BIFR dismissed the company''s reference. However the Company is filling an appeal with AAIFR against the order of BIFR.

b. Dividend declared in year 1995, 1996, 1997 and 1998 and remained unclaimed are due for transfer to Investors Education and Protection Fund under the provisions of Sec 205C of the Companies Act, 1956. It has been informed by the management that details for unclaimed dividend are not provided by the nominated bank, SBI [ Previously SBS ] , Industrial finance Branch, Ellisbridge, Ahmedabad and SBI [ Previously SBS Isanpur Branch, Ahmedabad]. In absence of proper records and supporting evidences, we could not quantify the amount not transferred as required by the law and its compliance.

c. The Company has taken inter corporate loan of Rs 4.91 Lacs [unsecured ] and unsecured loans from related parties/firms of Rs. NIL and from Non Related person Rs.15 lacs unsecured loan during the financial year under audit. The Closing Balance at the year end are Rs. 681.77 Lacs in case of inter corporate loans and Rs.107.68 lacs for related parties and firms and from key management person and Rs.15 lacs from other parties. No interest provided on loan accounts. In absence of formal agreement or supporting other documetns, we could not comment and could not quantify the non provision of interest thereon.

Out of total Inter Corporate Loans as above, the Company has taken Mortgage Loan of Rs. 5 Crore from Adani Enterprises Ltd in earlier years. We are not provided any formal Loan Agreement copy except Mortgage Deed which does not contain any repayment terms and interest rate. No interest is provided on such Loans. We are unable to comment upon non provision of interest, repayment schedule etc. in absence of any formal agreement with the company and related documents and information. Account confirmation copy is not available for our verification.

d. Company has not made provision for doubtful Debtors of Rs 95.93 Lacs, for the debtors outstanding for the long time, to that extent, Current Assets have been overstated and current years Losses and accumulated losses have been understated.

e. The Company has violated provisions of Income Tax Act, 1961 by non filing Income Tax Returns from FY 2008-09 onwards. Proper records are not made available to us for our verification and to compute Income Tax and related statutory liabilities. In this situation, we are unable to comment upon the non provision of statutory liabilities for current year as well as for the earlier years.

f. The Company has not deducted TDS from Professional fees paid / credited on sum of Rs. 405000/- during the financial year under audit.

g. The Company has violated provisions of Sec 383A of the Companies Act., 1956 by non appointing full time company secretary.

h. We have not received report on Corporate Governance as required by Clause 41 of the listing agreement for our verification.

i. Internal Control system needs to be strengthen for recovery of outstanding dues, high cash transactions and high cash on hand on balance sheet date.

j. Bank Balance certificate or Bank Statements for various banks including No lien accounts with banks showing total balance of Rs. 89.30 Lacs are not available with the company. Management is of opinion that banks are not providing such required bank statements or certificates hence all accounts are carried forward showing as bank balance. It is also not clarified that whether these bank balances in No-lien accounts are receivable by the company or adjusted against bank loans setteled under OTS in earlier years since all respective banks debts have been settled under OTS in earlier years. In absence of such documents and clarifications, we could not comment upon the genuineness of balance with banks and as per our opinion, current assets are overvalued to the extent of this amount and to the extent losses are under valued.[ Read with Notes No.26]

In addition to our observation in clause (a) to (j) above, the Naroda Unit has been inoperative since last many years. There is Trading activities during the year under audit but majority Financial indicators and operating indicators remained negative and to the date of Audit report and in absence of formal developments for financial support, there is substantial doubt that it will be able to continue as a going concern even though the books of accounts of the Company has been prepared on the assumption of a Going Concern basis. In this situation, adjustments may be required to the recorded assets amounts at current value and classification of liabilities is required. The financial statements do not disclose this fact.

Further to our comments in the annexure referred to in paragraph 2 above, we report as follows :

a. We have obtained all the information and explanation which to the best of our knowledge and belief were necessary for the purposes of our audit except certain non receipt of confirmation of balances in respect of loans and Advances, Deposits, Debtors and Creditors, Banks and Financial Institutions. [Read with Notes No.27] and certain documents and records in relation to areas of non-compliance as mentioned in para (a) to (i) above.

b. In our opinion proper books of accounts as required by the law have been kept by the Company so far as appears from our examination of the books of accounts.

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 accounts.

d. In our opinion, Balance Sheet, the Statement of Profit and Loss and Cash Flow statements complied with the Accounting Standards referred to in Sub Sec 3C of Sec 211 of the Act read with General Circular 15/ 2013 dated 13/09/2013 of the Ministry of Corporate Affairs in respect of Sec 133 of the Companies Act. 2013.

(i) The Company has not complied with AS 28, introduced w.e.f. 1st April, 2004 while preparing the financial statements. The Management have not assessed technically the Plant and Machineries at Naroda Unit to decided about its impairment or carrying Value. The carrying amount of the assets was not reviewed for indication of impairment of assets on basis of internal/ external factors. Plant at Naroda Division has been in operative for Seventeen years. Plant & Machinery of book value of Rs.18.27 lacs less residual value has not been written off to the extent to come down to its carry value. Loss for the year has been under stated to the extent of book value of plant and machinery balance not written off.

(ii) The Company has not complied with AS 22, Accounting for Taxes on Income. The company failed to file Income Tax Returns for the F Y 2008-09 onwards. In absence proper documents and records, we could not quantify the Income Tax liability for which provision not made. Deferred Tax Assets/Deferred Tax Liabilities are not provided for in the books of accounts, in absence of proper working and database from the management. We could not quantify the non provision for DTL or disclosures regarding DTA.[Read with Notes "2(e) of Main Audit Report and read with note no. 35"]

e. On the basis of written representation 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 the Section 274 of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS'' REPORT OF KANEL INDUSTRIES LTD.

The annexure referred to in our report to the member of KANEL INDUSTRIES LTD. (''the company'') for the year ended on 31st March, 2014, we report that;

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

(b) During the year, fixed assets of the Company have not been physically verified by the Management. The management decided to implement program of regular physical verification of all fixed assets at least once in a two year, which in our opinion, is reasonable, having regard to the size of Company, present business operations and the nature of the Fixed Assets. In absence of physical verification report, we could not comment on material discrepancy in fixed assets of the company.

(c) During the year under audit, the company has not disposed off the fixed assets but Naroda Unit is inoperative since last many years and in a situation of majority negative financial as well as operational indicators, the going concern concept is affected [read with point no. 2(i) of our main audit report]

2. (a) According to the information and explanation given to us, inventories have been physically verified by the management during the year. In our opinion the frequency of verification is reasonable having regard to the size of the company and the nature of its business.

(b) In our opinion and according to the information and explanation given to us, 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) The Company is maintaining proper records of inventory. As there is no Inventory on balance sheet date, question of material discrepancies on physical verification between the physical stocks and the book records does not arise.

3. In respect of Loans Secured or Un-secured granted by the company to companies, firms or other parties covered in register maintained U/S 301 of the Companies Act, 1956, according to the information and explanation given to us

(a) During the year, the company has granted loans of Rs.7.30 lacs [ Rs. Nil in previous year ] to related party and closing balance on balance sheet date Rs.NIL [ Rs. NIL in previous year ] and maximum balance outstanding during the year amounted to Rs. 7.30 Lacs [ Rs. NIL in previous year ]

(b) Above referred loans are interest free and does not carry any other terms and conditions and as such the Loans, in our opinion, are prejudicial to the interest of the company.

(c) During the year, Principal amount granted was received by the company. No interest charged to the party. There is no question of regularity of repayment of interest.

4. (a) The Company has taken Unsecured loans from 1 related party covered in the register maintained U/s 301 of the Companies Act., 1956. The maximum amount involved during the year was Rs.491500.

(b) In absence of proper loan agreement, we could not comment on the interest provided or not. Management explained that above referred loans are interest free, in our opinion, they are not prejudicial to the interest of the company.

(c) During the year, there had been a repayment towards principal. No interest is provided on any loan account. In absence of proper loan agreement and any other terms and conditions on which loan taken, we are unable to comment on the regularity of repayment of principal and payment of interest.

5. 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, the nature of its business and taking into consideration of overall business volume during the year with regard to trading activities, inventory, fixed assets and with regard to the business activities. On basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control procedures except the high cash transactions during the year, high Cash on Hand on many dates and at the end of year, balance confirmation from parties, Banks, ESIC/PF departments and very slow debtors recovery, implementation of verification schedule of fixed assets.

Internal controls should be strengthen in such sensitive area.

6. (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 transaction that need to be entered into the register maintained under section 301 have been so entered, if required.

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the companies act, 1956 and exceeding the value of Rs. Five lacs have been so entered if required.

7. On the basis of information and explanations given to us company has accepted deposit in violation during the year from the public, within in violation of section 58A and 58AA of the companies act 1956 and companies (Acceptance of deposits) Rule 1975 with regard to acceptance and payment of deposits from public.

8. The company has no Internal Audit system during the year under Audit.

9. According to the information and explanation given to us, the Central Government has not prescribed maintenance of cost records under section 209(1) (d) of the Companies Act, 1956, for any of the products of the company.

10. (a) According to the information and explanations given to us, the Company has not been regular in depositing undisputed statutory dues towards Employees'' State Insurance, TDS, Professional Tax, Sales Tax, Income Tax and Municipal Tax during the Financial Year as well as of earlier years outstanding balance.

The undisputed dues, as informed by the management, which are outstanding for more than six months as at the Balance Sheet date from the date they became payable were as follows.

SR. NATURE OF DUE AMOUNT OUTSTANDING AS ON 31/03/2014 [Rs. In Lacs] For more than 6 months And already due

01 Income Tax 98.10

02 TDS Payable 1.05

03 Sales Tax 17.53

04 E.S.I.C. 0.56

05 FBT tax 0.06

06 Professional Tax 0.34

[TDS is not deducted during the year at the time of payment or credit to the parties and not paid to the Central Government such details are not included in above figures. ESI and Professional Tax are not paid during the year under audit and the company is not providing for interest accrued on above all amounts payable. In absence of required statutory records to ascertain the total amount relating to Interest thereon, the above amount does not includes the interest and penalty portion. In absence of Sales Tax Assessment order/Return copy and non filing of Sales tax Returns for the F Y 2007-08 to 2012-13 and in absence of required details and documents we are unable to quantify the statutory liabilities relating to tax as well as of Interest and penalty there on].

Amount due as per demand notice served by the Income Tax department is Rs.136.37Lacs for the various assessment years. It was explained by the management that difference is not reconciled and not provided in books of account.

(b) According to the information and explanation given to us by the management of the Company, there are no dues of Sales Tax and Income Tax which have not been deposited on account of any dispute except as mentioned in clause "a" above and as mentioned below. We further reports that quantum of liability towards TDS payment is not worked out since the Company has not complied with the provisions of Income Tax Act to the extent and no amount provided for. Fact mentioned as below does not includes such liability. We are further informed by the management that during the F Y 2013-14, there were no further Order, Notice or other developments relating to matters pending for earlier years as well as for the year under Audit in case of Income tax and Sales tax Matter.

SR. NATURE OF AMOUNT FORUM WHERE DISPUTE IS PENDING NO. DUES [Rs. In Lacs]

01 Sales Tax 274.63 The Matter is remanded back to Asst. Comm. Of Sales tax. [A.Y. 1998-99]

02 Sales Tax 245.92 Pending with the Appellate tribunal of Sales Tax [A.Y. 1997-98]

03 Sales Tax 24.30 Appeal Pending with Jt. Commercial Tax Commissioner, Appeal Division-1 [A.Y. 1999-2000]

04 Sales Tax 6.14 Appeal pending with Jt. Commercial Tax Commissioner, Appeal Divi.-1 [A.Y. 2000-01]

05 Sales Tax 2.88 Appeal pending with Jt. Commercial Tax Commissioner, Appeal Divi.-1 [A.Y. 2000-01]

06 Municipal 10.95 Ahmedabad Municipal Corporation Tax [Dues up to October, 2004]

[Above details are based on records made available to us for the verification only.]

11. In our opinion, the accumulated losses of the Company have exceeded fifty percent of the net worth as at the end of the financial year 2013-14. The Company has incurred Cash Losses of Rs. 1.08 crores during the financial year under audit and the company had incurred cash losses of Rs. 1.38 Crores the immediately preceding financial year.

12. We are of the opinion that banking dues have been settled under OTS in earlier years and the company has generally not defaulted in repayment of dues to bank or financial institutions in year under audit. Further we report that the Company has taken secured Loans from the Company of Rs. 5 Crore in earlier year. There is no repayment towards principal or Interest. Management had not provided us copy of agreement containing terms and conditions for repayment and interest charges. In absence of the same, we could not comment on repayment schedule or default status.

13. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

14. In our opinion, the Company is not a chit fund, nidhi, mutual benefit fund of society. Therefore the provisions of clause 4 (xiii) of the Companies (Auditor''s Report) Order, 2003 are not applicable the Company.

15. In our opinion, the Company is not dealing in or trading in shares, securities, debenture and other investments. During the year under audit, the company has done transactions with Commodity market for agriculture products and there are Nil position pending on 31st March, 2014

16. In our opinion and according to information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year as per the information given by the management and available records made available for our verification.

17. In our opinion, no term loans were availed by the Company during the financial year except unsecured loans taken from directors and related firms and their relatives as reported in Point No. 4(a).

18. 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 no funds raised on short-term basis have been used for long-term investment and No long-term funds have been used to finance short-term assets except core (permanent) working capital during the year under Audit.

19. Based on our examination of records and information provided to us by management we report that the company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

20. During the year covered by our audit report, the company has not issued any debentures.

21. The Company has not raised any money by public issue during the year.

22. According to the information and explanation given to us, no fraud on or by the company has been noticed or reported during the course of our audit.

For, SHAH DINESH DAHYALAL & ASSOCIATES Chartered Accountants FIRM REGISTRATION NO. 120362W

Place : Ahmedabad Shah Dinesh D. Date : 31/05/2014 Proprietor MEMBERSHIP NO: 106871

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Mar 31, 2013

Report on the Financial Statements :

We have audited the accompanying financial statements of KANEL INDUSTRIES LTD , ("the company") which comprise the Balance Sheet as at 31/03/2013, and the Statement of Profit and Loss for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management Responsibility for the Financial Statements :

Management is responsible for the preparation of these financial statements that give a true and fair view of financial position, financial performance and cash flow 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") The responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of 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 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 misstatements.

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

We believe that 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 and subject to the omission of the information dealt with in the report and all our remarks below, 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:

(a) in case of the Balance Sheet, of the state of affairs of the Company as at 31/03/2013;

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

(c) in the case of Cash Flow statement, of the cash flow 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 Central Government of India in terms of sub-section (4A) of section 227 of the Act, We give in the Annexure a statements on the matters specified in paragraphs 4 and 5 of the order.

2. Further to our comments in the Annexure referred to above, we comment that:

a. Delhi High Court has remanded back the company to BIFR in its pending appeal on 19th January, 2010 and thereafter in the next hearing held on 29/04/2010, and as per the order of the Honorable Delhi High-court, BIFR had appointed IDBI as OA to inspect the unit and submit the report thereon. The last date of hearing on 29/8/2013 the honorable BIFR has directed the company to revise and resubmit with OA, the DRS, with cutoff date as 31/03/2013 . As informed by the management, the company is under the process of submitting revised DRS to OA as directed by the honorable BIFR.

b. Dividend declared in year 1995, 1996, 1997 and 1998 and remained unclaimed are due for transfer to Investors Education and Protection Fund under the provisions of Sec 205C of the Companies Act, 1956.

It has been informed by the management that details for unclaimed dividend are not provided by the nominated bank, SBI [Previously SBS], Industrial finance Branch, Ellisbridge, Ahmedabad and SBI [Previously SBS Isanpur Branch, Ahmedabad]. In absence of proper records and supporting evidences, we could not quantify the amount not transferred as required by the law and its compliance.

c. The Company has taken inter corporate loan of Rs 36.40 Lacs [Rs. 17.91 lacs through havala entries] and unsecured loans from related parties/firms of Rs. 17.54 lacs during the financial year under audit. The Closing Balance at the yearend are Rs. 754.68 Lacs in case of inter corporate loans and Rs.122.68 lacs for related parties and firms. No interest provided on loan accounts. In absence of formal agreement, we could not comment and could not quantify the non provision of interest.

Out of total Inter Corporate Loans as above, the Company has taken Mortgage Loan of Rs. 5 Crore from Adani Enterprises Ltd in previous years. We are not provided any formal Loan Agreement copy except Mortgage Deed. No interest is provided on such Loans. we are unable to comment upon non provision of interest, repayment schedule etc. in absence of any formal agreement with the company and related documents and information.

d. Company has not made provision for doubtful Debtors of Rs 95.93 Lacs, to that extent, Current Assets have been overstated and current years Losses and accumulated losses have been understated [read with clause ''g'' below].

e. Amount payable to 4 parties Rs. 33.84 lacs have been transferred to Jagjivandas Liladhar & Sons, one of the debtors of the Company. Management explained that on instruction of above parties, debt of the company have been transferred. No confirmation from any of the parties available, consequently, Unsecured loans has been undervalued by Rs. 11.60 lacs, Current liabilities have been undervalued by Rs.22.24 lacs and Sundry Debtors have been undervalued by Rs. 33.84 lacs.

f. Amount receivable from one of the party Rs. 15.77 lacs transferred to group company, TJR Sons Ltd for which no confirmation from the respective party available, to the extent, Unsecured loan and sundry debtors have been undervalued.

g. The Company has not filed I Tax Return for the F Y 2008-09 onwards. Proper records are not made available to us for verification. In this situation, we are unable to comment upon the non provision of Income tax and its liabilities for earlier years as well as the year under audit.

h. The Company has not deducted TDS from Professional fees paid / credited on sum of Rs.282500/- during the financial year under audit.

i. Internal Control system needs to be strengthen for recovery of outstanding dues, high cash transactions and high cash on hand on balance sheet date.

j. Bank Balance certificate or Bank Statements for various banks including No lien accounts with banks showing total balance of Rs. 89.30 Lacs are not available with the company. Management is of opinion that banks are not providing such required bank statements or certificates hence all accounts are carried forward showing bank balance. It is also not clarified that whether these bank balances in No-lien accounts are receivable by the company since all respective banks debts have been settled under OTS in earlier years. In absence of such documents and clarifications, we could not comment upon the genuineness of balance with banks and as per our opinion, current assets are overvalued to the extent of this amount and to the extent losses are under valued. [Read with Notes No.5]

k. In addition to our observation in clause (a) to (j) above, the Naroda Unit has been inoperative since last many years. There is no Trading or Manufacturing activities during the year under audit. The majority Financial indicators and operating indicators remained negative and to the date of Audit report and in absence of formal developments for financial support, there is substantial doubt that it will be able to continue as a going concern even though the books of accounts of the Company has been prepared on the assumption of a Going Concern basis. In this situation, adjustments may be required to the recorded assets amounts at current value and classification of liabilities is required. The financial statements do not disclose this fact.

Further to our comments in the annexure referred to in paragraph 2 above, we report as follows :

a. We have obtained all the information and explanation which to the best of our knowledge and belief were necessary for the purposes of our audit except certain non receipt of confirmation of balances in respect of loans and Advances, Deposits, Debtors and Creditors, Banks and Financial Institutions. [Read with Notes No.6] and certain documents and records in relation areas of non-compliance as mentioned in para (a) to (l) above.

b. In our opinion proper books of accounts as required by the law have been kept by the Company so far as appears from our examination of the books of accounts.

c. The Balance sheet, Profit and Loss Accounts and the Cash Flow statements dealt with by this report are in agreement with the books of accounts.

d. In our opinion, Balance Sheet, Profit and Loss accounts and Cash Flow statements have been prepared in compliance with the applicable accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 except non compliance are as follows.

i. The Company has not published Audited / un-audited quarterly results during the year under audit.

ii. The Company has not complied with AS 28, introduced w.e.f. 1st April, 2004 while preparing the financial statements. The Management have not assessed technically the Plant and Machineries at Naroda Unit to decided about its impairment or carrying Value. The carrying amount of the assets was not reviewed for indication of impairment of assets on basis of internal / external factors. Plant at Naroda Division has been inoperative for sixteen years. Plant & Machinery of book value of Rs.21.23 lacs has not been written off to the extent to come down to its carry value. Loss for the year has been under stated to the extent of book value of plant and machinery balance not written off.

iii. The Company has not complied with AS 22, Accounting for Taxes on Income. The company failed to file Income Tax Returns for the F Y 2008-09 onwards. In absence proper documents and records , we could not quantify the Income Tax liability for which provision not made. Deferred Tax Assets / Deferred Tax Liabilities are not provided for in the books of accounts, in absence of proper working and database from the management. we could not quantify the non provision for DTA /DTL. [Read with Notes "1(H)"]

e. On the basis of written representation 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 the Section 274 of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS'' REPORT OF KANEL INDUSTRIES LTD.

The annexure referred to in our report to the member of KANEL INDUSTRIES LTD (''the company'')for the year ended on 31st March, 2013, we report that;

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

(b) During the year, fixed assets of the Company have not been physically verified by the Management. The management decided to implement program of regular physical verification of all fixed assets at least once in a two year, which in our opinion, is reasonable, having regard to the size of Company, present business operations and the nature of the Fixed Assets. In absence of physical verification report, we could not comment on material discrepancy in fixed assets of the company.

(c) During the year under audit, the company has not disposed off the fixed assets but Naroda Unit is inoperative since last many years and in a situation of majority negative financial as well as operational indicators, the going concern concept is affected [read with point no. 2(l) of our main audit report]

2. During the year under Audit, there is no Trading or Manufacturing activities hence requirement of clause (a)(b) and (c) are not applicable.

3. (I) In respect of Loans Secured or Un-secured granted by the company to companies , firms or other parties covered in register maintained U/S 301 of the Companies Act, 1956, according to the information and explanation given to us (a) During the year, the company has not granted any loans to any parties referred above hence clause (b),(c) and (d) are not applicable.

(e) The Company has taken Unsecured loans from 2 parties covered in the register maintained U/s 301 of the Companies Act., 1956. The maximum amount involved during the year was Rs. 50,44,044/-.

(f) In absence of proper loan agreement, we could not comment on the interest provided or not. Management explained that Above referred loans are interest free, in our opinion, they are not prejudicial to the interest of the company.

(g) During the year, there had been a repayment towards principal. No interest is provided on any loan account. In absence of proper loan agreement and any other terms and conditions on which loan taken, we are unable to comment on the regularity of repayment of principal and payment of interest.

4 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, the nature of its business and taking into consideration of overall business volume during the year with regard to manufacturing activities, purchases of raw materials, inventory, fixed assets and with regard to the business activities. On basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control procedures except the high cash transactions during the year, high Cash on Hand on many dates and at the end of year , balance confirmation from parties, Banks, ESIC / PF departments and very slow debtors recovery. Internal controls should be strengthen in such sensitive area.

5. (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 transaction that need to be entered into the register maintained under section 301 have been not so entered.

(b) There are no transactions [ other than as reported under paragraph 3 (I)(a) and para 3(I)(e) above] which are in excess of Rs. 5 Lacs in respect of any party, subject to our inability to express our opinion as mentioned in para 2 of our main Audit Report.

6. In our opinion and according to the information and explanations given to us, the company has not accepted any deposit from public with in the meaning of Sec. 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regards to the deposit accepted from public.

7. The company has no Internal Audit system during the year under Audit.

8. According to the information and explanation given to us, the Central Government has not prescribed maintenance of cost records under section 209(1)(d) of the Companies Act, 1956, for any of the products of the company.

9. (a) According to the information and explanations given to us, the Company has not been regular in depositing undisputed statutory dues towards Employees'' State Insurance, TDS, Professional Tax, Sales Tax, Income Tax and Municipal Tax during the Financial Year as well as of earlier years outstanding balance. The undisputed dues which are outstanding for more than six months as at the Balance Sheet date from the date they became payable were as follows.

SR. NATURE OF DUE AMOUNT OUTSTANDING AS ON 31/03/2013 [Rs. In Lacs] For more than 6 months And already due

01 Income Tax *98.10

02 TDS Payable 1.05

03 Sales Tax 17.53

04 E.S.I.C. 0.56

05 FBT tax 0.06

06 Professional Tax 0.34

[TDS is not deducted during the year at the time of payment or credit to the parties and not paid to the Central Government such details are not included in above figures. ESI and Professional Tax are not paid during the year under audit and the company is not providing for interest accrued on above all amounts payable. In absence of required statutory records to ascertain the total amount relating to Interest thereon, the above amount does not includes the interest and penalty portion. In absence of Sales Tax Assessment order/Return copy and non filing of Sales tax Returns for the F Y 2007- 08 and onwards and in absence of formal details and documents relating to present status, we are unable to quantify the liabilities relating to tax as well as of Interest and penalty thereon]

* Amount due as per demand notice served by the Income Tax department is Rs.136.37 Lacs for the various assessment years. It was explained by the management that difference is not reconciled and not provided in books of account.

(b) According to the information and explanation given to us by the management of the Company, there are no dues of Sales Tax and Income Tax which have not been deposited on account of any dispute except as mentioned in clause "a" above and as mentioned below.. We further reports that quantum of liability towards TDS payment is not worked out since the Company has not complied with the provisions of Income Tax Act to the extent and no amount provided for. Below details does not includes such liability. We are further informed by the management that during the F Y 2012-13, there were no further Income Tax Order, Notice or other developments during the year under audit and there were no further developments in cases pending with Income tax and Sales tax authority.

10. In our opinion, the accumulated losses of the Company have exceeded fifty percent of the net worth as at the end of the financial year 2012-13. The Company has incurred Cash Losses of Rs. 1.08 crores during the financial year under audit and the company had incurred cash losses of Rs. 1.38 Crores the immediately preceding financial year.

11 We are of the opinion that banking dues have been settled under OTS in earlier years and the company has generally not defaulted in repayment of dues to bank or financial institutions in year under audit. Further we report that the Company has taken secured Loans from the Company of Rs. 5 Crore in earlier year. There is no repayment towards principal or Interest. Management had not provided us copy of agreement containing terms and conditions for repayment and interest charges. In absence of the same, we could not comment on repayment schedule or default status.

12 The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13 In our opinion, the Company is not a chit fund, nidhi, mutual benefit fund of society. Therefore the provisions of clause 4 (xiii) of the Companies (Auditor''s Report) Order, 2003 are not applicable the Company.

14 In our opinion, the Company is not dealing in or trading in shares, securities, debenture and other investments. During the year under audit, the company has done transactions with Commodity market for agriculture products and there are Nil position pending on 31st March, 2013.

15 In our opinion and according to information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year as per the information given by the management and available records made available for our verification.

16 In our opinion, no term loans were availed by the Company during the financial year except unsecured loans taken from directors and related firms and their relatives as reported in Point No. 3(e).

17 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 no funds raised on short-term basis have been used for long-term investment and No long-term funds have been used to finance short-term assets except core (permanent) working capital during the year under Audit.

18 Based on our examination of records and information provided to us by management we report that the company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

19 During the year covered by our audit report, the company has not issued any debentures.

20 The Company has not raised any money by public issue during the year.

21 According to the information and explanation given to us, no fraud on or by the company has been noticed or reported during the course of our audit.

For, SHAH DINESH DAHYALAL & ASSOCIATES

Chartered Accountants

FIRM REGISTRATION NO. 120362W

Shah Dinesh D.

Proprietor Place : Ahmedabad

MEMBERSHIP NO. 106871 Date : 02/09/2013

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Mar 31, 2012

01. We have audited the attached Balance Sheet of Kanel Industries Limited As at March 31, 2012, Profit & Loss Account and Cash Flow Statement of the Company 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.

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

03. As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment) order 2004, Issued by the Central Govt of India in terms of Sub Sec (4A) of Sec 227 of Companies Act, 1956, we give, we give in the Annexure, a statement on the matters specified in paragraph 4 and 5 of the said Order.

04. Further to our comments in the Annexure referred to above, we comment that :

a. Delhi High Court has remanded back the company to BIFR in its pending appeal on 19th January, 2010 and thereafter in the next hearing held on 29/04/2010, and as per ‘the order of the Honorable Delhi High-court, BIFR had appointed IDBI as OA to inspect the unit and submit the report thereon. As informed by the management, the company is under the process of submitting a DRS to BIFR as directed.

b. The company has not complied with the requirements under clause 49 of the listing agreement with SEBI on Corporate Governance. In absence of management's report on Corporate Governance, we have not certified the same.

c. Dividend declared in year 1995, 1996, 1997 and 1998 and remained unclaimed are due for transfer to Investors Education and Protection Fund under the provisions of Sec 205C of the Companies Act, 1956. It has been informed by the management that details for unclaimed dividend are not provided by the nominated bank.SBI [ Previously SBS ] , Industrial finance Branch, Ellisbridge, Ahmadabad and SBI [ Previously SBS Isanpur Branch, Ahmadabad . In absence of proper records and supporting evidences, we could not quantify the amount not transferred as required by the law and its compliance.

d. Granting Loans of Rs. 13.64 Lacs [ including Rs. 6.14 lacs to sister concerns ] in the earlier years, which are interest free and without any repayment terms, and outstanding as at the year end amounting to Rs. 13.64 Lacs [ Previous year Rs. 13.64 Lacs ] , which in our opinion, are prejudicial to the interest of the Company.

e. The Company has taken inter corporate loan of Rs 63.65 Lacs and unsecured loans from related parties/firms of Rs. 3.07 lacs during the financial year under audit. The Closing Balance at the yearend are Rs. 664.89 Lacs in case of inter corporate loans and Rs. 106.59 lacs for related parties and firms.

Out of total Inter Corporate Loans as above, the Company has taken Mortgage Loan of Rs. 5 Crore from Adani Enterprises Ltd. We are not provided any formal Loan Agreement copy except Mortgage Deed. No interest is provided on such Loans, we are unable to comment upon non provision of interest, repayment schedule etc. in absence of any formal agreement with the company and related documents and information.

f. Company has not made provision for doubtful Debtors of Rs 112.28 Lacs and advance recoverable in Cash or in Kind of Rs. 13.64 lacs, to that extent, Current Assets and current year's profit have been overstated and accumulated losses have been understated.

g. The Company has not filed I Tax Return for the F Y 2008-09 onwards. Proper records are not made available to us for verification. In this situation, we are unable to comment upon the Non provision of Income tax and its liabilities for earlier years as well as the year under audit.

h. The Company has not deducted TDS from Professional fees paid / credited on sum of Rs. 308500/- during the financial year under audit. TDS for earlier years are also not deducted and paid during the year under Audit.

i. Internal Control system needs to be strengthen for recovery of outstanding dues and high cash transactions

j. Bank Balance certificate or Bank Statements for various banks including No lien accounts with banks showing total balance of Rs. 89.30 Lacs are not available with the company. Management is of opinion that banks are not providing such required bank statements or certificates hence all accounts are carried forward showing bank balance. It is also not clarified that whether these bank balances in No-lien accounts are receivable by the company since all respective banks debts have been settled under OTS in earlier years. In absence of such documents and clarifications, we could not comment upon the genuineness of balance with banks and as per our opinion, current assets are overvalued to the extent of this amount.[ Read with Notes No.5 ]

k. In addition to our observation in clause (a) to (j) above, the Naroda Unit has been inoperative since last fifteen years. There is no material Trading or Manufacturing activities during the year under audit. The majority Financial indicators and operating indicators remained negative and to the date of Audit report and in absence of formal developments for financial support, there is substantial doubt that it will be able to continue as a going concern even though the books of accounts of the Company has been prepared on the assumption of a Going Concern basis. In this situation, adjustments may be required to the recorded assets amounts at current value and classification of liabilities is required. The financial statements do not disclose this fact.

05. Further to our comments in the annexure referred to in paragraph 4 above, we report as follows:

a. We have obtained all the information and explanation which to the best of our knowledge and belief were necessary for the purposes of our audit except certain non receipt of confirmation of balances in respect of loans and Advances, Deposits, Debtors and Creditors, Banks and Financial Institutions. [Read with Notes No.6] and certain documents and records in relation areas of non-compliance as mentioned in para (a) to (j) above.

b. In our opinion proper books of accounts as required by the law have been kept by the Company so far as appears from our examination of the books of accounts.

c. The Balance sheet, Profit and Loss Accounts and the Cash Flow statements dealt with by this report are in agreement with the books of accounts.

d. In our opinion, Balance Sheet, Profit and Loss accounts and Cash Flow statements have been prepared in compliance with the applicable accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 except non compliance are as follows.

1. Company has not complied with AS 15 -Accounting for Retirement benefits while preparing financial statements [Read with note no. G

2. The Company has not published Audited / un-audited quarterly results during the year under audit.

3. The Company has not complied with AS 28, introduced w.e.f. 1st April, 2004 while preparing the financial statements. The Management have not assessed technically the Plant and Machineries at Naroda Unit to decided about its impairment or carrying Value. The carrying amount of the assets was not reviewed for indication of impairment of assets on basis of internal / external factors. Plant at Naroda Division has been inoperative for fourteen years. Plant & Machinery of book value of Rs.25.14 lacs has not been written off to the extent to come down to its carry value. Loss for the year has been under stated to the extent of book value of plant and machinery balance not written off.

4. The Company has not complied with AS 22 , Accounting for Taxes on Income. The company failed to file Income Tax Returns for the F Y 2008-09 onwards. In absence proper documents and records, we could not quantify the Income Tax liability for which provision not made. Deferred Tax Assets / Deferred Tax Liabilities are not provided for in the books of accounts, in absence of proper working and database from the management, we could not quantify the non provision for DTA /DTL. [Read with Notes "H"]

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

f. In our opinion, subject to the omission of the information dealt within the report and all our remarks above, The financial statements gives a true and fair view if conformity with the accounting principles generally accepted in India:

- In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2012,

- In the case of Profit and Loss Account, of the Loss for the year ended on that date and

- In the case of the Cash Flow Statement, of the cash flow for the year ended on that date.





ANNEXURE TO THE AUDITORS' REPORT OF KANEL INDUSTRIES LIMITED

Referred to in paragraph 3 of our report of even date.

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

(b) During the year, fixed assets of the Company have not been physically verified by the Management. The management decided to implement programmers of regular physical verification of all fixed assets at least once in a two year, which in our opinion, is reasonable, having regard to the size of Company, present business operations and the nature of the Fixed Assets. In absence of physical verification report, we could not comment on material discrepancy in fixed assets of the company.

(c) During the year under audit, the company has not disposed off the fixed assets but Naroda Unit is inoperative since last many years and in a situation of majority negative financial as well as operational indicators, the going concern concept is affected [ read with point no. 4(k) of our main audit report]

2. (a) The Inventory have been physically verified by the management at reasonable intervals during the year.

In our opinion, the frequency of verification is reasonable.

(b) The procedure of the 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) The Company is maintaining proper records of inventory. The discrepancies noticed on physical verification were not material and these have been properly dealt with in the books of account.

3. (I) In respect of Loans Secured or Un-secured granted by the company to companies , firms or other parties covered in register maintained U/S 301 of the Companies Act, 1956, according to the information and explanation given to us

(a) During the year, the company has not granted any loans to any parties referred above, however, at the year end, the outstanding balance of such loans granted in earlier years, amounted to Rs. 6.14 Lacs and maximum balance outstanding during the year amounted to Rs. 6.14 Lacs.

(b) Above referred loans are interest free and does not carry any other terms and conditions and as such the Loans, in our opinion, are prejudicial to the interest of the company.

(c) During the year, there have been no recovery towards interest and principal. In absence of any other terms, we are unable to comment on the regularity of repayment of principal and payment of interest.

(d) Based on our observation of the loans account over the years and according to the information available to us, we are of the opinion that the entire loan amount is overdue. We further state that the steps taken by the management for recovery of principal amount with interest if any, need to be intensified.

(e) The Company has taken Unsecured loans from parties covered in the register maintained U/s 301 of the Companies Act., 1956. Details are as follows.



Sr. Name of Party/Person Relationship Amount Year End Mode of No. With Company Rs. Balance Receipt

01 T.J.R. Sons Ltd. Group Co. 638400 9678210 Cr Cheque

02 Dhiren K Thakkar Director 467500 2792132 Cr Cheque

03 Devika Proteins Ltd. Group Co. 1460000 1340000 Cr Cheque

04 TJR Finance Ltd. Group Co. 4266600 5471100 Cr Cheque



(f) Above referred loans are interest free and does not carry any other terms and conditions, in our opinion, they are not prejudicial to the interest of the company.

(g) During the year, there have been a repayment towards principal. No interest is provided on any loan account. In absence of proper loan agreement and any other terms and conditions on which loan taken, we are unable to comment on the regularity of repayment of principal and payment of interest.

4. 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, the nature of its business and taking into consideration of overall business volume during the year with regard to manufacturing activities, purchases of raw materials, inventory, fixed assets and with regard to the business activities. On basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control procedures except the high cash transactions during the year, high Cash on Hand on many dates and at the end of year , balance confirmation from parties, Banks, ESIC / PF departments and very slow debtors recovery. Internal controls should be strengthen in such sensitive area.

5. (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 transaction that need to be entered into the register maintained under section 301 have been not so entered.

(b) There are no transactions [ other than as reported under paragraph 3 (l)(a) and para 3(l)(e) above] which are in excess of Rs. 5 Lacs in respect of any party, subject to our inability to express our opinion as mentioned in para 4 of our main Audit Report.

6. In our opinion and according to the information and explanations given to us, the company has not accepted any deposit from public with in the meaning of Sec. 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 made there under.

7. The company has no Internal Audit system during the year under Audit.

8. According to the information and explanation given to us, the Central Government has not prescribed maintenance of cost records under section 209(1 )(d) of the Companies Act, 1956, for any of the products of the company.

9. (a) According to the information and explanations given to us, the Company has not been regular in depositing undisputed statutory dues towards Employees' State Insurance, TDS, Professional Tax, Sales Tax, Income Tax and Municipal Tax during the Financial Year as well as of earlier years outstanding balance.

The undisputed dues which are outstanding for more than six months as at the Balance Sheet date from the date they became payable were as follows.

SR. NATURE OF DUE AMOUNT OUTSTANDING AS ON 31/03/2010 [Rs. In Lacs] For more than 6 months And already due

01 Income Tax * 98.10

02 TDS Payable 1.05

03 Sales Tax 17.53

04 E.S.I.C. 0.56

05 FBT tax 0.06

06 Professional Tax 0.34



[TDS is not deducted during the year at the time of payment or credit to the parties and not paid to the Central Government such details are not included in above figures. ESI and Professional Tax are not paid during the year under audit and the company is not providing for interest accrued on above all amounts payable. In absence of required statutory records to ascertain the total amount relating to Interest thereon, the above amount does not includes the interest and penalty portion. In absence of Sales Tax Assessment order/Return copy and non filing of Sales tax Returns for the F Y 2007- 08 and onwards and in absence of formal details and documents relating to present status, we cant quantify the liabilities relating to tax as well as of Interest and penalty also.]

* Amount due as per demand notice served by the Income Tax department is Rs. 136.37 Lacs for the various assessment years. It was explained by the management that difference is not reconciled and not provided in books of account.

(b) According to the information and explanation given to us by the management of the Company, there are no dues of Sales Tax and Income Tax which have not been deposited on account of any dispute except as mentioned in clause "a" above and as mentioned below.. We further reports that quantum of liability towards TDS payment is not worked out since the Company has not complied with the provisions of Income Tax Act to the extent and no amount provided for. Below details does not includes such liability. We are further informed that during the F Y 2010-11, Management informed that there were no further Income Tax Order, Notice or other developments during the year under audit and there were no further developments in cases pending with Income tax and Sales tax authority.



SR. NATURE OF AMOUNT FORUM WHERE DISPUTE IS PENDING NO. DUES Rs. In Lacs

01 Sales Tax 274.63 The Matter is remanded back to Asst. Comm. of Sales Tax. [AY 1998-99]

02 Sales Tax 245.92 Pending with the Appellate tribunal of sales Tax [A.Y 1997-98]

03 Sales Tax 24.30 Appeal Pending with Jt. Commercial Tax Commissioner, Appeal Division-1 [AY 1999-2000]

04 Sales Tax 6.14 Appeal pending with Jt. Commercial Tax Commissioner, Appeal Divi.-1 [AY 2000-01]'

05 Sales Tax 2.88 Appeal pending with Jt. Commercial Tax Commissioner, Appeal Divi.-1 [AY 2000-01]

06 Municipal Tax 10.95 Ahmadabad Municipal Corporation [dues upto October, 2004]

[above details are based on records made available to us for the verification only.]

10. In our opinion, the accumulated losses of the Company have exceeded fifty percent of the net worth as at the end of the financial year 2011-12. The Company has incurred Cash Losses of Rs. 1.38 Crores during the financial year under audit and the company had incurred cash losses of Rs. 1.42 Crores the immediately preceding financial year.

In our opinion and according to the information and explanation given to us, we are of the opinion that the Company repaid its dues under OTS and got no due certificate from the parties. Further the Company has taken secured Loans from the Company of Rs. 5 Crore in earlier year. There is no repayment towards principal or Interest. Management had not provided us copy of agreement containing terms and conditions for repayment and interest charges. In absence of the same, we could not comment on repayment schedule or default status.

11. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

12. In our opinion, the Company is not a chit fund, nidhi, mutual benefit fund of society. Therefore the provisions of clause 4 (xiii) of the Companies (Auditor's Report) Order, 2003 are not applicable the Company.

13. In our opinion, the Company is not dealing in or trading in shares, securities, debenture and other investments. During the year under audit, the company has done transactions with Commodity market for Castor and there are 6 lot position pending on 31st March, 2012.

14. In our opinion and according to information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year as per the information given by the management and available records made available for our verification.

15. In our opinion, no term loans were availed by the Company during the financial year except unsecured loans taken from directors related firms and their relatives as reported in Point No. 3(e).

16. 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 no funds raised on short-term basis have been used for long-term investment and No long-term funds have been used to finance short-term assets except core (permanent) working capital during the year under Audit.

17. Based on our examination of records and information provided to us by management we report that the company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

18. During the year covered by our audit report, the company has not issued any debentures.

19. The Company has not raised any money by public issue during'the year.

20. according to the information and explanation given to us, no fraud on or by the company has been noticed or reported during the course of our audit.

For SHAH DINESH DAHYALAL & ASSOCIATES

Chartered Accountants

Shah Dinesh D.

Proprietor

MEMBERSHIP NO. 106871 Date : 01/09/2012

FIRM REGISTRATION NO. 120362W Place : Ahmedabad

---

Mar 31, 2010

01 We have audited the attached Balance Sheet of Kanel Oil & Export Industries ltd. As at March 31, 2010, Profit & Loss Account and Cash Flow Statement of the Company 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.

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

03 As required by the Companies (Auditors Report) Order, 2003, issued by the Central Government in terms of section 227(4A) of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraph 4 and 5 of the said Order.

04 Further to our comments in the Annexure referred to above, we comment that:

a. The companys application to BIFR for its revival and rehabilitation had been rejected by BIFR confirming its prima-facie opinion for winding up of the Company and as against such status, Companys appeal was pending in AAIFR and the same was dismissed by Order dated 18/05/2005.

The Company had also filed reference vide case no. 159/2003, which became in fructuous by order dated 26/04/2005 on the ground of prima facie opinion of BIFR. Against this order, the company has filled an Appeal with AAIFR on 28/07/2005 vide Case No. 67/05. On remanded back of the matter to BIFR, the Appeal No. 67/05 with AAIFR has been withdrawn/ dismissed.

b. The winding-up opinion forwarded by BIFR to the honorable Gujarat High-Court and registered as Case No. 225/03. Final hearing is scheduled on 7/9/2010.

c. Delhi High Court has remanded back the company to BIFR in its pending appeal on 19th January, 2010 and there after in the next hearing held on 29/04/2010, after Financial Year end and as per the order of the Honorable Delhi High-court, BIFR had appointed IDBI as OA to inspect the unit and submit the report thereon. Status report from the IDBI is awaited.

d. The company has not complied with the requirements under clause 49 of the listing agreement with SEBI on Corporate Governance. In absence of managements report on Corporate Governance, we have not certified the same.

e. Dividend declared in year 1995, 1996, 1997 and 1998 and remained unclaimed are due for transfer to Investors Education and Protection Fund under the provisions of Sec 205C of the Companies Act, 1956. It has been informed by the management that details for unclaimed dividend are not provided by the nominated bank, SBS , Industrial finance Branch, Ellisbridge, Ahmedabad. In absence of proper records and supporting evidences, we could not quantify the amount not transferred as required by the law and its compliance.

f. Granting Loans of Rs.13.64 Lacs [ including Rs. 6.14 lacs to sister concerns ] in the earlier years, which are interest free and without any repayment terms, and outstanding as at the year end amounting to Rs. 13.64 Lacs [ Previous year Rs. 13.64 Lacs ] , which in our opinion, are prejudicial to the interest of the Company.

g. The Company has taken inter corporate loan of Rs.26.96 Lacs and unsecured loans from related parties/firms of Rs. NIL during the financial year under audit. The Closing Balance at the year end are Rs. 1118.40 Lacs in case of inter corporate loans and Rs. 98.84 lacs for related parties and firms.

Out of total Inter Corporate Loans as above, the Company has taken Mortgage Loan of Rs. 5 Crore from Adani Enterprises Ltd. We are not provided any formal Loan Agreement copy except Mortgage Deed. No interest is provided on such Loans, we are unable to comment upon non provision of interest, repayment schedule etc. in absence of any formal agreement with the companies and parties.

h. Company has not made provision for doubtful Debtors of Rs 112.28 Lacs and advance recoverable in Cash or in Kind of Rs. 13.64 lacs, to that extent, Current Assets and current years profit have been overstated and accumulated losses have been understated.

i. The Company has not filed I Tax Return for the F Y 2008-09 and in absence of proper records to arrive at Income Tax liability or its status, we are unable to comment upon the Non provision of Income tax and its liabilities for earlier years as well as the year under audit.

j. The Company has not deducted TDS from Professional fees paid / credited on sum of Rs. 871300/- during the financial year under audit. TDS for earlier years are also not deducted during the year under Audit.

k. Internal Control system needs to be strengthen for recovery of outstanding dues and high cash transactions

I. Bank Balance certificate or Bank Statements for various banks including No lien accounts with banks showing total balance of Rs. 91.05 Lacs are not available with the company. Management is of opinion that banks are not providing such required bank statements or certificates hence all accounts are carried forward showing bank balance. It is also not clarified that whether these bank balances in No-lien accounts are receivable by the company since all respective banks debts have been settled under OTS in earlier years. In absence of such documents, we could not comment upon the balance with banks.[ Read with Notes No.5 ]

m. In addition to our observation in clause (a) to (I) above, the Naroda Unit has been inoperative since last thirteen years. There is no Trading or Manufacturing activities during the year under audit. The majority Financial indicators and operating indicators remained negative and to the date of Audit report and in absence of formal developments for financial support, there is substantial doubt that it will be able to continue as a going concern even though the books of accounts of the Company has been prepared on the assumption of a Going Concern basis. In this situation, adjustments may be required to the recorded assets amounts at current value and classification of liabilities is required. The financial statements do not disclose this fact.

05 Further to our comments in the annexure referred to in paragraph 3 above, we report as follows:

a. We have obtained all the information and explanation which to the best of our knowledge and belief were necessary for the purposes of our audit except certain non receipt of confirmation of balances in respect of loans and Advances, Deposits, Debtors and Creditors, Banks and Financial Institutions. [Read with Notes No.6] and certain documents and records in relation areas of non-compliance as mentioned in para (a) to (k) above.

b. In our opinion proper books of accounts as required by the law have been kept by the Company so far as appears from our examination of the books of accounts.

c. The Balance sheet, Profit and Loss Accounts and the Cash Flow statements dealt with by this report are in agreement with the books of accounts.

In our opinion, Balance Sheet, Profit and Loss accounts and Cash Flow statements have been prepared in compliance with the applicable accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 except non compliance are as follows.

1 Company has not complied with AS 15 - Accounting for Retirement benefits while preparing financial statements [Read with note no. G ]

2 The Company has not published Audited / un-audited quarterly results during the year under audit.

3 The Company has not complied with AS 28, introduced w.e.f. 1st April, 2004 while preparing the financial statements. The Management have not assessed technically the Plant and Machineries at Naroda Unit- to decided about its impairment or carrying Value. The carrying amount of the assets was not reviewed for indication of impairment of assets on basis of internal / external factors. Plant at Naroda Division has been inoperative for thirteen years. Plant & Machinery of book value of Rs.33.30 lacs has not been written off to the extent to come down to its carry value. Loss for the year has been under stated to the extent of book value of plant and machinery balance not written off.

4 Entries for Deferred Tax Assets / Deferred Tax Liabilities are not passed in the books of accounts, in absence of proper working and database from the management, we could not quantify the non provision for DTA /DTL.

In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the schedules and notes there on and give the information required by the Companies Act, 1956 in the manner so required and subject to

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

In our opinion, subject to the omission of the information dealt with in the report and all our remarks above, The financial statements gives a true and fair view in conformity with the accounting principles generally accepted in India:

- In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2010,

- In the case of Profit and Loss Account, of the Profit for the year ended on that date and

- In the case of the Cash Flow Statement, of the cash flow for the year ended on that date.

ANNEXURE TO THE AUDITORS REPORT OF KANEL OIL & EXPORT INDUSTRIES LTD. ANNEXURE Referred to in paragraph 3 of our report of even date.

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

(b) During the year, fixed assets of the Company have not been physically verified by the Management. The management decided to implement programme of regular physical verification of all fixed assets at least once in a two year, which in our opinion, is reasonable, having regard to the size of Company and the nature of the Fixed Assets. We are unable to comment upon the material discrepancy in absence of physical verification by the management.

(c) During the year under audit, the company has not sale substantial part of the fixed assets but Naroda Unit is inoperative since last many years and in a situation of majority negative financial as well as operational indicators, the going concern concept is affected [ read with point no. 4(m) of our main audit report ]

2. (a) There is no commercial transaction of sales or purchase and there were no opening

stock, hence this clause No. (a), (b) and (c) are not applicable.

3. (I) In respect of Loans Secured or Un-secured granted by the company to companies ,

firms or other parties covered in register maintained U/S 301 of the Companies Act, 1956, according to the information and explanation given to us

(a) During the year, the company has not granted any loans to any parties referred above, however, at the year end, the outstanding balance of such loans granted in earlier years, amounted to Rs. 6.14 Lacs and maximum balance outstanding during the year amounted to Rs. 6.14 Lacs.

(b) Above referred loans are interest free and does not carry any other terms and conditions and as such the Loans, in our opinion, are prejudicial to the interest of the company.

(c) During the year, there have been no recovery towards interest and principal. In absence of any other terms, we are unable to comment on the regularity of repayment of principal and payment of interest.

(d) Based on our observation of the loans account over the years and according to the information available to us, we are of the opinion that the entire loan amount is overdue.

We further state that the steps taken by the management for recovery of principal amount with interest if any, need to be intensified.

(e)The Company has taken Unsecured loans from parties covered in the register maintained U/s 301 of the Companies Act., 1956. Details are as follows.

Sr. Name of Party / Person Relationship Amount Year End Mode of

No. With Company Rs. Balance Receipt

01 TJ.R. Sons Ltd. Group Co. 2695500 4124710 Cr. Cheque

(f) Above referred loans are interest free and does not carry any other terms and conditions, in our opinion, they are not prejudicial to the interest of the company.

(g) During the year, there have been a repayment towards principal. No interest is provided on any loan account. In absence of proper loan agreement and any other terms and conditions on which loan taken, we are unable to comment on the regularity of repayment of principal and payment of interest.

4. 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, the nature of its business and taking into consideration of overall business volume during the year with regard to manufacturing activities, purchases of raw materials, inventory, fixed assets and with regard to the business activities. On basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control procedures except the high cash transactions during the year, high Cash on Hand on many dates and at the end of year , balance confirmation from parties, Banks, ESIC / PF departments, non verification of Fixed Assets periodically and very slow debtors recovery. Internal controls should be strengthen in such sensitive area.

5. (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 transaction that need to be entered into the register maintained under section 301 have been not so entered.

(b) There are no transactions [ other than as reported under paragraph 3 (I)(a) and para 5 above ]which are in excess of Rs. 5 Lacs in respect of any party, subject to our inability to express our opinion as mentioned in para 4 (d) of our main Audit Report.

6. In our opinion and according to the information and explanations given to us, the company has not accepted any deposit from public with in the meaning of Sec. 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 made there under.

7. The company has no Internal Audit system during the year under Audit.

8. According to the information and explanation given to us, the Central Government has not prescribed maintenance of cost records under section 209(l)(d) of the Companies Act, 1956, for any of the products of the company.

9. (a) According to the information and explanations given to us, the Company has not been regular in depositing undisputed statutory dues towards Employees State Insurance, TDS, Professional Tax, Sales Tax, Income Tax and Municipal Tax during the Financial Year and of earlier years outstanding balance.

The undisputed dues which are outstanding for more than six months as at the Balance Sheet date from the date they became payable were as follows.

SR. NATURE OF DUE AMOUNT

OUTSTANDING AS ON

NO. 31/03/2010 [ Rs. In Lacs ]

For more than 6 months due already And

01 Income Tax * 98.10

02 TDS Payable 1.05

03 Sales Tax 17.53

04 E.S.I.C 0.56

05 FBTtax 0.06

06 Professional Tax 0.34



[ TDS is not deducted during the year at the time of payment or credit to the parties and not paid to the Cent. Govt, such details are not included in above figures. ESI and Professional Tax are not paid during the year under audit and the company is not providing for interest accrued on above all amounts payable. In absence of required statutory records to ascertain the total amount relating to Interest thereon, the above amount does not includes the interest and penalty portion. In absence of Sales Tax Return copy and non filing of Sales tax Returns for the F Y 2007-08 and onwards and in absence of formal details and documents relating to present status, we cant quantify the liabilities relating to tax as well as of Interest and penalty also. ]

* Amount due as per demand notice served by the Income Tax department is

Rs. 136.37 Lacs for the various assessment years. It was explained by the management that difference is not reconciled and not provided in books of account.

(b) According to the information and explanation given to us by the management of the Company, there are no dues of Sales Tax and Income Tax which have not been deposited on account of any dispute except as mentioned in clause "a" above and as mentioned below.. We further reports that quantum of liability towards TDS payment is not worked out since the Company has not complied with the provisions of Income Tax Act to the extent and no amount provided for. Below details does not includes such liability. We are further informed that during the F Y 2009-10, Management informed that there were no further Income Tax Order, Notice or other developments during the year under audit and there were no further developments in cases pending with Sales tax authority.

SR. NATURE OF DUES AMOUNT FORUM WHERE DISPUTE IS

[Rs. In Lacs ] PENDING

01 Sales Tax 274.63 The Matter is remanded back to Asst. Comm.

Of Sales tax. [ AY 1998-99]

02 Sales Tax 245.92 Pending with the Appellate tribunal of Sales Tax

[ A.Y. 1997-98 ]

03 Sales Tax 24.30 Appeal Pending with Jt. Commercial Tax

Commissioner, Appeal Division-1 [ AY 1999-2000 ]

04 Sales Tax 6.14 Appeal pending with Jt. Commercial Tax

Commissioner, Appeal Division-1 [ AY 2000-01 ]

05 Sales Tax 2.88 Appeal pending with Jt. Commercial Tax

Commissioner, Appeal Division-1 [ AY 2000-01 ]

06 Municipal Tax 12.62 Ahmedabad Municipal Corporation



[ above details are based on records made available to us for the verification only. ]

10. In our opinion, the accumulated losses of the Company have exceeded fifty percent of the net worth as at the end of the financial year 2009-10. The Company has incurred Cash Losses of Rs. 1.58 Crores during the financial year under audit and the company had incurred cash losses of Rs. 1.91 lacs the immediately preceding financial year.

11. In our opinion and according to the information and explanation given to us, we are of the opinion that the Company has defaulted in the repayment of dues to Financial Institutions. The Schedule of default is given below.

SR. PARTICULARS AMOUNT OUTSTNDING TOTAL

SINCE 31/03/2004 RUPEES

(in Crore)

PRINCIPAL INTEREW 01 Short Term Loans from 3.00 2.39 5.39 . Institution - SICOM

The Company has taken secured Loans from the Company of Rs. 5 Crore in June, 2008. There is no repayment towards principal or Interest. Management had not provided us copy of agreement containing terms and conditions for repayment and interest charges. In absence of the same, we could not comment on default status.

12. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. In our opinion, the Company is not a chit fund, nidhi, mutual benefit fund of society. Therefore the provisions of clause 4 (xiii) of the Companies (Auditors Report) Order, 2003 are not applicable the Company.

14. In our opinion, the Company is not dealing in or trading in shares, securities, debenture and other investments. During the year under audit, the company has done transactions with Commodity market for Castor and there were 16 lots short sales position on closing date for June,2010 Settlement period.

15. In our opinion and according to information and explanations given to us, the

Company has not given any guarantee for loans taken by others from banks or financial institutions during the year as per the information given by the management and available records made available for our verification.

16. In our opinion, no term loans were availed by the Company during the financial year except unsecured loans taken from directors related firms and their relatives as reported in Point No. 3(e).

17. 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 no funds raised on short-term basis have been used for long-term investment and No long- term funds have been used to finance short-term assets except core (permanent) working capital during the year under Audit.

18. Based on our examination of records and information provided to us by management

we report that the company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

19. During the year covered by our audit report, the company has not issued any debentures.

20. The Company has not raised any money by public issue during the year.

21. according to the information and explanation given to us, no fraud on or by the company has been noticed or reported during the course of our audit.



For,

SHAH DINESH DAHYALAL & ASSOCIATES

Chartered Accountants

Place : Ahmedabad Shah Dinesh D.

Date : 01/09/2010 Proprietor

MEMBERSHIP NO. 106871

FIRM REGISTRATION NO. 120362W

---

Mar 31, 2009

01 We have audited the attached Balance Sheet of Kanel Oil & Export Industries ltd. As at March 31, 2009, Profit & Loss Account and Cash Flow Statement of the Company 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.

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

03 As required by the Companies (Auditors Report) Order, 2003, issued by the Central Government in terms of section 227(4A) of the Companies Act, 1956, we enclose in the Annexure, a statement orithe matters specified in paragraph 4 and 5 of the said Order.

04 Furtherto our comments in the Annexure referred to above, we commentthat:

a. The companys application to BIFR for its revival and rehabilitation has been /ejected by BIFR confirming its prima-facie opinion for winding up of the Company and as against such status, Companys appeal was pending in AAIFR and the same was dismissed by Order dated 18/05/2005.

The Company had also filed reference vide case no. 159/2003, which became in fructuous by order dated 26/04/2005 on the ground of prima facie opinion of BIFR. Against this order, the company has filled an Appeal with AAIFR on 28/07/2005 vide Case No. 67/05 forthe second reference and the Next hearing scheduled on 27/10/2009.

b. The winding-up opinion forwarded by BIFR to the honorable Gujarat High-Court and registered as Case No. 225/03 has been admitted by the Gujarat High-Court The Honorable Court has fixed the matterfor direction on 10/09/2009.

c. As informed to us by the Directors of the company that the debt of State Bank of Saurashtra [KMBL ] have been settled and the debt assigned to ARCIL [ Debts of Dena Bank, State bank of Patiala and State Bankof Bikanerand Jaipur] have been settelled under OTS and no due certificates have been obtained by the company from Kotak Mahindra Bank Ltd and ARCIL. The Secured Creditors under debts settlement have also withdrawn the recovery suits filed with DRT. Necessary forms filing with ROC for release of charges are still pending. Resulting effect of debt settlement with Banks, Rs. 73.13 Crores Have been credited to Profit and Loss account on waiver of Principal outstanding balance including accrued interest due to banks. [Read with Notes no. 5]

d. Dividend declared in year 1995,1996,1997 and 1998 and remained unclaimed are due for transferto Investors Education and Protection Fund underthe provisions of Sec 205C of the Companies Act, 1956. It has been informed by the management that details for unclaimed dividend are not provided by the nominated bank, SBS, Industrial finance Branch, Ellisbridge, Ahmedabad. In absence of proper records and supporting evidences, we could not quantify the amount not transferred as required by the law and its compliance.

e. Granting Loans of Rs.13.64 Lacs [ including Rs. 6.14 lacs to sister concerns ] in the earlier years, which are interest free and without any repayment terms, and outstanding as at the year end amounting to Rs.13.64 Lacs [ Previous year Rs. 13.64 Lacs ], which in our opinion, are prejudicial to the interest of the Company.

f. The Company has taken inter corporate loan of Rs.628.65 Lacs and unsecured loans from related parties/firms of Rs. 14.15 lacs during the financial year under audit. The Closing Balance at the year end are Rs. 572.61 Lacs in case of inter corporate loans and Rs. 98.83 lacs for related parties and firms.

Out of total Inter Corporate Loans as above, the Company has taken Mortgage Loan of Rs. 5 Crore from Adani Enterprises Ltd. We are not provided any formal Loan Agreement copy except Mortgage Deed. No interest is provided on such Loans, we are unable to comment upon non provision of interest, repayment schedule etc. in absence of any formal agreement with the companies and parties.

g. Company has not made provision for doubtful Debtors of Rs 85.24 Lacs and advance recoverable in Cash or in Kind of Rs. 13.65 lacs, to that extent, Current Assets and current years profit have been overstated and accumulated losses have been understated.

h. In absence of proper records and Income Tax computation for the F Y 2008-09, We could not comment upon non provision of Income Tax and its liabilities.

i. The Company has not deducted TDS from Professional fees of Rs. 93500 and Rs. 320000, on account payment to professionals and advocates during the financial year under audit. TDS payable for earlier years are also not paid during the year under Audit.

j. Internal Control system needs to be strengthen for recovery of outstanding dues and high cash transactions

k. Bank Balance certificate or Bank Statements for various banks including No lien accounts with banks showing total balance of Rs. 90.85 Lacs are not available with the company. Management is of opinion that banks are not providing such required bank statements or certificates hence all accounts are carried forward showing bank balance. In absence of such documents, we could not comment upon the balance with banks.[ Read with Notes No.6 ]

l. In addition to our observation in clause (a) to (k) above, The Company in its further move to settle the dues of banks sold out another unit as a whole at Meda-Adraj during the F Y 2008- 09. After sale out of main two units of the Company to the date of report, the Naroda Unit has been inoperative since last twelve years. The majority Financial indicators and operating indicators remained negative and to the date of Audit report and in absence of formal developments for financial support, there is substantial doubt that it will be able to continue as a going concern even though the books of accounts of the Company has been prepared on the assumption of a Going Concern basis. In this situation, adjustments may be required to the recorded assets amounts at current value and classification of liabilities is required. The financial statements do not disclose this fact.

05 Furtherto our comments in the annexure referred to in paragraph 3 above, we report as follows:

a. We have obtained all the information and explanation which to the best of our knowledge and belief were necessary for the purposes of our audit except certain non receipt of confirmation of balances in respect of loans and Advances, Deposits, Debtors and Creditors, Banks and Financial Institutions. [Read with Notes No.8 ] and certain documents and records in relation areas of non-compliance as mentioned in para (a) to (I) above.

b. In our opinion proper books of accounts as required by the law have been kept by the Company so faras appears from ourexamination of the books of accounts.

c. The Balance sheet, Profit and Loss Accounts and the Cash Flow statements dealt with by this report are in agreement with the books of accounts.

In our opinion, Balance Sheet, Profit and Loss accounts and Cash Flow statements have been prepared in compliance with the applicable accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 except non compliance are as follows.

1 Company has not complied with AS 15-Accounting for Retirement benefits while preparing financial statements [Read with note no. G]

2 The Company has not published Audited / un-audited quarterly results during the yearunderaudit.

3 The Company has not complied with AS 28, introduced w.e.f. 1a April, 2004 while preparing the financial statements. The carrying amount of the assets was not reviewed for indication of impairment of assets on basis of internal / external factors. Plant at Naroda Division has been inoperative for twelve years due to obsolescence in production technology and other reasons. Plant & Machinery of book value of Rs.38.68 lacs has not been written off to the extent to come down to its carry value. Loss for the year has been understated to the extent of book value of plant and machinery balance not written off.

4 Entries for Deferred Tax Assets / Deferred Tax Liabilities are not passed in the books of accounts.

In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the schedules and notes there on and give the information required by the Companies Act, 1956 in the mannerso required and subject to

On the basis of written representation received from the Directors as on March 31, 2009 and taken on record by the Board of Directors, we report that non of the directors is disqualified as on March 31,2009 from being appointed as a director in terms of clause (g) of sub-section (1) of the Section 274 of the Companies Act, 1956.

In our opinion, subject to the omission of the information dealt with in the report and alljaur remarks above, The financial statements gives a true and fair view in conformity with the accounting principles generally accepted in India:

- In the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2009,

- In the case of Profit and Loss Account, of the Profit forthe year ended on that date and

ANNEXURE TO THE AUDITORS REPORT OF KANEL OIL & EXPORT INDUSTRIES LTD. ANNEXURE Referred to in paragraph 3 of our report of even date.

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

(b) During the year, fixed assets of the Company have not been physically verified by the Management. The management decided to implement programme of regular physical verification of all fixed assets at least once in a two year, which in our opinion, is reasonable, having regard to the size of Company and the nature of the Fixed Assets. We are unable to comment upon the material discrepancy in absence of physical verification by the management.

(c) During the year under audit, the company has sale out substantial part of the fixed assets, the unit at Meda-Adraj has been sold out. Being a main business operation units of the Company and Naroda Unit is inoperative since last many years and in a situation of all negative financial as well as operational indicators, the going concern concept is affected [ read with point no. 4{k) of our-main audit report]

2. (a) As per the information furnished, the inventories have been physically verified by the management at reasonable intervals during the year under audit. In our opinion, having regards to the nature, volume and location of stocks, the frequency of physical verification is reasonable and proper.

(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 are reasonable and adequate in relation to the size of the company and the nature of its business and overall volume of business during the year.

(c) On the basis of our examination of the records of inventory, the company is maintaining proper records of inventory. As perthe opinion of management, the discrepancies noticed on verification between the physical stocks and the book records were not material.

3. (I) In respect of Loans Secured or Un-secured granted by the company to companies , firms or other parties covered in register maintained U/S 301 of the Companies Act, 1956, according to the information and explanation given to us

(a) During the year, the company has not granted any loans to any parties referred above, however, at the year end , the outstanding balance of such loans granted in earlier years , amounted to Rs. 6.14 Lacs and maximum balance outstanding during the year amounted to Rs. 6.14 Lacs.

(b) Above referred loans are interest free and does not carry any other terms and conditions and as such the Loans, in our opinion, are prejudicial to the interest of the company.

(c) During the year, there have been no recovery towards interest and principal. In absence of any other terms , we are unable to comment on the regularity of repayment of principal and payment of interest.

(d) Based on our observation of the loans account overthe years and according to the information available to us, we are of the opinion that the entire loan amount is overdue.

We further state that the steps taken by the management for recovery of principal amount with interest if any, need to be intensified.

(e) The Company has taken Unsecured loans from parties covered in the register maintained U/s 301 of the Companies Act., 1956. Details are as follows.

Sr. Name of Party /Person Relationship Amount No. With Company Rs.

01 T.J.R. Sons Ltd. Group Co. 12665000

02 Dhiren K Thakkar Director 1415000

Name of Party / Person Year End Mode of Balance Receipt

T.J.R. Sons Ltd. 343671 OCr. Cheque

Dhiren K Thakkar 2324632 Cr. Havala entry

(f) Above referred loans are interest free and does not carry any other terms and conditions, in our opinion, they are not prejudicial to the interest of the company.

(g) During the year, there have been a repayment towards principal. No interest is provided on any loan account, in absence of proper loan agreement and any other terms and conditions on which loan taken, we are unable to comment on the regularity of repayment of principal and payment of interest.

4. 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, the nature of its business and taking into consideration of overall business volume during the year with regard to manufacturing activities, purchases of raw materials, inventory, fixed assets and with regard to the business activities. On basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control procedures except the high cash transactions during the year, high Cash on Hand on many dates and at the end of year, balance confirmation from parties, Banks, ESIC/PF departments, non verification of Fixed Assets periodically and very slow debtors recovery. Internal controls should be strengthen in such sensitive area.

5. (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 transaction that need to be entered into the register maintained undersection301 have been notso entered.

(b) There are no transactions [otherthan as reported under paragraph 3 (l)(a) and para 5 above jwhicharein excess of Rs. 5 Lacs in respect of any party, subject to our inability to express our opinion as mentioned in para 4(d) of ourmain Audit Report.

6. In our opinion and according to the information and explanations given to us, the company has not accepted any deposit from public with in the meaning of Sec. 58Aand 58AAofthe Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 made there under.

7. The company has no Internal Audit system during the year under Audit.

8. According to the information and explanation given to us, the Central Government has not prescribed maintenance of cost records undersection 209(1)(d) of the Companies Act, 1956, forany of the products of the company.

9. (a) According to the information and explanations given to us, the Company has not been regular in depositing undisputed statutory dues towards Employees State Insurance, TDS, Professional Tax, Sales Tax, Income Tax and Municipal Tax during the Financial Year.

The undisputed dues which are outstanding for more than six months as at the Balance Sheet date from the date they became payable were as follows.

SR. NATURE OF DUE AMOUNT OUTSTANDING AS ON NO. 31/03/2009[Rs. In Lacs] For more than 6 months And already due

01 Income Tax * 99.10

02 TDS Payable 1.05

03 Sales Tax 17.53

04 E.S.I.C. 0.56

06 Professional Tax 0.34

[ TDS is not deducted during the year at the time of payment or credit to the parties and not paid to the Cent. Govt, such details are not included in above figures. FBT of Rs. 5796 is also not paid. ESI and Professional Tax are not paid during the year under audit and the company is not providing for interest accrued on above all amounts payable. In absence of required statutory records to ascertain the total amount relating to Interest thereon, the above amount does not includes the interest and penalty portion. In absence of Sales Tax Return copy and non filing of Sales tax Returns for the F Y 2007-08 and onwards, we cant quantify the liabilities relating to tax as well as of Interest and penalty also.]

* Amount due as per demand notice served by the Income Tax department is Rs.136.37 Lacs for the various assessment years. It was explained by the management that difference is not reconciled and not provided in books of account.

(b) According to the information and explanation given to us by the management of the Company, there are no dues of Sales Tax and Income Tax which have not been deposited on account of any dispute except as mentioned in clause "a" above and as mentioned below.. We further reports that quantum of liability towards TDS payment is not worked out since the Company has not complied with the provisions of Income Tax Act to the extent and no amount provided for. Below details does not includes such liability. We are further informed that during the F Y 2008-09, there were no further developments in cases pending with Sales tax authority and there are no cases pending with Income Tax department at any level.

SR. NATURE OF DUES AMOUNT FORUM WHERE DISPUTE IS [Rs. In Lacs] PENDING

01 Sales Tax 274.63 The Matteris remanded backtoAsst. Comm. OfSalestax.[AY 1998-99]

02 Sales Tax 245.92 Pending with the Appelat tribunal of Sales Tax [A.Y. 1997-98]

03 SalesTax 24.30 Appeal Pending with Jt. Commercial Tax Commissioner, Appeal Division-1 [AY 1999-2000]

04 SalesTax 6.14 Appeal pending with Jt. CommerialTax Commissioner, Appeal Divi.-1 [AY2000-01 ]

05 Sales Tax 2.88 Appeal pending with Jt. Commerial Tax Commissioner, Appeal Divi.-1 [AY2000-01 ]

06 Municipal Tax 12.62 Ahmedabad Municipal Corporation [ dues upto October, 2004]

[ above details are based on records made available to us forthe verification only. ]

10. In our opinion, the accumulated losses of the Company have exceeded fifty percent of the net worth as at the end of the financial year 2008-09. The Company has incurred Cash Losses of Rs. 1.91 Crores during the financial year under audit and the company had incurred cash lossess of Rs. 3.12 lacs the immediately preceding financial year.

11. In our opinion and according to the information and explanation given to us, we are of the opinion that the Company has defaulted in the repayment of dues to Financial Institutions. The Schedule of default is given below.

SR PARTICULARS AMOUNT OUTSTNDING TOTAL SINCE 31/03/2004 RUPEES (in Crore)

PRINCIPAL INTEREST

01 Short Term Loans from 3.00 2.39 5.39 Institution - SICOM

The Company has taken secured Loans from the Company ofRs. 5 Crore in June, 2008. There is no repayment towards principal or Interest. Management had not provided us copy of agreement containing terms and conditions for repayment and interest charges. In absence of the same, we could not comment on default status.

We have been informed by the management that the Company had settled the dues of banks during year2008- 09 byway ofOTS and no due certificates have been received, [ Notes-No. 12 of Notes on Accounts]

12. The Company has not granted any loans and advances on the basis of security byway of pledge of shares, debentures and othersecurities.

13. In our opinion, the Company is not a chit fund, nidhi, mutual benefit fund of society. Therefore the provisions of clause 4 (xiii) of the Companies (Auditors Report) Order, 2003 are not applicable the Company.

14. In our opinion , the Company is not dealing in ortrading in shares, securities, debenture and other investments.

15. In our opinion and according to information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year as per the information given by the management and available records made available for our verification.

16. In our opinion , no term loans were availed by the Company during the financial year except unsecured loans taken from directors related firms and their relatives as reported in Point No. 3(e).

17. 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 no funds raised on short-term basis have been used for long-term investment and No long-term funds have been used to finance short-term assets except core (permanent) working capital during the year underAudit.

18. Based on our examination of records and information provided to us by management we report that the company has not made preferential allotment of shares to parties and companies covered in the register maintained undersection 301 ofthe Act.

19. During the year covered by our audit report, the company has not issued any debentures.

20. The Company has not raised any money by public issue during the year.

21. according to the information and explanation given to us, no fraud on or by the company has been noticed or reported during the course of ouraudit.

For, SHAH DINESH DAHYALAL & ASSOCIATES CHARTERED ACCOUNTANTS

Place .Ahmedabad Shah Dinesh D.

Date : 01/09/2009 Membership No. 106871