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Auditor Report of Karuturi Global Ltd.

Mar 31, 2014

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

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position and financial performance in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

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

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

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

Basis for Qualified Opinion

1. During the year the Company has made Rs.1,409.60 lakhs of total sales turnover, which comprises local sales of Plants, Bud-wood and Root-stock amounting to Rs.860.73 lakhs over which there was no internal control on which we could rely for the purpose of our audit. There were no other satisfactory audit procedures that we could adopt to satisfy ourselves that the recorded turnover was free from material misstatement.

2. During the year the Company has made Rs.543.04 lakhs of the purchases, which comprises local purchases of Plants, Bud-wood and Root-stock amounting to Rs.472.13 lakhs over which there was no internal control on which we could rely for the purpose of our audit. There were no other satisfactory audit procedures that we could adopt to satisfy ourselves that the recorded turnover was free from material misstatement.

3. Attention is invited to note no. 2.29 forming part of the Financial Statements (''Notes'') regarding treatment of accumulated balance of Foreign Currency Monetary Translation Reserve (FCMTR). Wherein, during the year, the Company had opted for conversion of its Advance made to Karuturi Overseas Ltd (KOL), Dubai a wholly owned subsidiary to Equity investment, total amounting to Rs.6,798.66 lakhs (USD 125.00 lakhs). Consequently, an amount of Rs.2,037.79 lakhs had been transferred from the accumulated balance of Foreign Currency Monetary Translation Reserve (FCMTR) to Statement of Profit and Loss as exchange gain and treated as income during the year. As per para 15, read with para 31 and para 32 of the Accounting Standards-11 "The effects of changes in foreign exchange rates", the accumulated amount in FCMTR account can be transferred to Statement of Profit and Loss only at the time of disposal of net investments in the non-integral foreign operations and in our opinion, the said transaction of conversion of advance made to a non- integral foreign operation i.e., to a wholly owned subsidiary into an equity investment will not tantamount to disposal of net investment in the said subsidiary and in our opinion,, the said amount of Rs.2,037.79 lakhs should not have been transferred from FCMTR to Statement of Profit and Loss. Hence, the above transaction constitutes a departure from the Accounting Standards-11 "The effects of changes in foreign exchange rates" as referred to in sub-section (3C) of section 211 of the Companies Act, 1956 resulting overstatement of income to that extent.

Qualified Opinion

In our opinion and to the best of our knowledge and according to the information and explanations given to us, except for the effects of the matters described in paragraphs 1 to 3 of the Basis for Qualified Opinion paragraph, the said financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.

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

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

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

Emphasis of Matters/ Other Matters:

1. Attention is invited to note no. 2.3 B forming part of the Financial Statements (''Notes'') regarding the Company''s Foreign Currency Convertible Bonds (FCCBs) liability, which is carried at Rs.35,990.37 lakhs (USD 606.65 lakhs) in the Balance Sheet as at March 31, 2014. The FCCB Loan was due for repayment on 19th October, 2012 and the Company has defaulted in repayment of the same. During the year the RBI has approved the restructured repayment proposal of the Company, conditionally, and as stated in the said note, the Company in turn is not in a position of meeting certain conditions relating to the all-in-cost as per ECB guidelines as stated in the conditional approval of the RBI. Out of the above liability, Rs.8,911.94 lakhs (USD 148.29 lakhs) has become due for repayment as per the proposed restructure plan also and has been classified under Other Current Liabilities. However, the Company has not disclosed any strategic plan as to how the above liability will be discharged.

2. Attention is invited to note no. 2.12 forming part of the Financial Statements (''Notes'') regarding the Non Current Investments, which includes investment in subsidiaries total amounting to Rs.52,520.89 lakhs, which are stated at cost. However, the realisable value of these investments could not be ascertained as audited accounts of these entities are not received.

3. Attention is invited to note no. 2.16 forming part of the Financial Statements (''Notes'') regarding the Trade Receivables, wherein the overseas trade receivable are disclosed at net of advance received for export sales orders.

4. Attention is invited to note no. 3.2 forming part of the Financial Statements (''Notes'') regarding the outcome of the various contingent liabilities and corporate guarantees given by the Company and the possible exposure of the same on the Company''s financial statement.

5. Attention is invited to note no. 3.2 forming part of the Financial Statements (''Notes'') regarding the seizure of bank accounts by the Income Tax Department.

Our report is not qualified in respect of these matters.

Report on Other Legal and Regulatory Requirements

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

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

a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

b) in our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

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

d) in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956;

e) on the basis of written representations received from the directors as on March 31, 2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2014, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

f) Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

Annexure referred to in paragraph "Report on Other Legal and Regulatory Requirements" of our report of even date on accounts of Karuturi Global Limited for the year ended 31st March, 2014.

1. In respect of its fixed assets:

a. The Company has not maintained proper records showing full particulars including quantitative detail, situation and description of fixed assets.

b. All the fixed assets have not been physically verified by the management during the year and there is no regular program for verification.

c. The Company has not disposed of substantial part of fixed assets during the year and the going concern status of the Company is not affected.

2. In respect of its inventories:

a. As explained to us, inventories have been physically verified by the management during the year. In our opinion, the frequency of verification needs improvement.

b. In our opinion and according to the information and explanations given to us, the existing procedures of physical verification of inventories followed by the management are not adequate in relation to the size of the Company and the nature of its business and needs improvement.

c. The Company is maintaining certain records of inventory. In our opinion, such records need to be improved to have a proper control on the inventory. As explained to us and certified by the management, there were no material discrepancies noticed on physical verification of inventory carried out at the end of the year as compared to the book records, having regard to the size of the operations of the Company.

3. In respect of register maintained under section 301 of the Companies Act, 1956:

a. According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions stated in paragraph 4 (iii) (b), (c) and (d) of the Order are not applicable.

b. During the year, the Company had taken loan from three parties covered in the register maintained under section 301 of the Companies Act, 1956. The Maximum amount involved during the year was Rs. 7,666.62 Lakhs and the year-end balance of all loans taken from all such parties was Rs. 5,511.60 Lakhs.

c. In our opinion, the rate of interest and other terms and conditions for such loans are not, prima facie, prejudicial to the interest of the Company.

d. In respect of the aforesaid loans, the loan is repayable on demand.

4. In our opinion and according the information and explanations given to us, the internal control system is not commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, sale of goods and fixed assets. During the course of audit, we have observed the following weakness in internal control system of the Company;

a) Purchase order and goods receipt notes are not prepared for recording purchase and inventory in certain cases.

b) Sales order and delivery challans are not prepared for recording sale of goods in certain cases.

c) The sales documents such as proof of transportation, proper acknowledgement by the buyer for having the goods received are not made available to us.

d) Purchase of root-stock, bud-wood and plants are paid either in cash or by the barter system basis and the transactions are settled on net basis.

e) Sales of root-stock, bud-wood and plants are received either in cash or by the barter system basis and the transactions are settled on net basis.

5. In respect of transactions covered under Section 301 of the Companies Act, 1956:

a. In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered into in the register maintained under Section 301 of the Companies Act, 1956 have been so entered.

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 rupees five lakhs in respect of any party during the year have been entered into during the financial year at prices which are reasonable having regard to prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us, the Company has not complied with the provisions of Section 58A/ 58AA, Companies (Acceptances of Deposits) Rules, 1975 and other relevant provisions of the Companies Act, 1956 with regards to the deposits accepted from public. The Company has, in earlier years and during the year, accepted deposits from its directors Mr. Sai Ramakrishna Karuturi and Ms. Anitha Karuturi who are also members of the company and the amount accepted during the year were Rs.201.26 lakhs and Rs.509.20 lakhs respectively and the year-end balances were Rs. 622.82 Lakhs and Rs. 1,861.40 Lakhs respectively, which were transferred to a KMP Related Entity, M/s. Rhea Holding (P) Ltd at the year end. Also, it has accepted a loan from a person of general public amounting to Rs.134 lakhs, at the year-end balance of the same is Rs. NIL. According to the information and explanations given to us, no Order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal on the company in respect of the aforesaid deposits.

7. As per the information and explanations given to us, the company has an internal audit system conducted by external auditors on annual basis. However, no internal audit reports have been furnished for our review. Hence, we are unable to comment on the adequacy of the internal audit system existing in the company.

8. The Central Government has not prescribed maintenance of cost records under clause (d) of sub-section (1) of Section 209 of the Companies Act, 1956 for any of the products of the company.

9. In respect of statutory dues:

a. Undisputed statutory dues including provident fund, investor education and protection fund, employees'' state insurance, income-tax, Income Tax Deducted at source (TDS), sales- tax, wealth-tax, service-tax have not been regularly deposited with the appropriate authorities and there have been considerable delays.

b. According the information and explanations given to us, undisputed dues in respect of provident fund, investor education and protection fund, employees'' state insurance, income- tax, income tax deducted at source (TDS), sales-tax, wealth-tax, service-tax and other statutory dues which were outstanding at the year-end for a period of more than six months from the date they became payable are as follows.

Name of the Statute Nature of the Amount Period to which dues the amount relates

Tax Collected at Income Tax Act, 1961 source 0.01 Lakhs AY 2013-14

Tax Collected at Income Tax Act, 1961 source 0.03 Lakhs AY 2014-15

Income Tax Act, 1961 Income Tax 182.24 Lakhs AY 2012-13

AY 2014-15 & Tax Deducted at Income Tax Act, 1961 source 39.70 Lakhs Prior to AY 2014- 15

Tax Deducted at Income Tax Act, 1961 source 469.34 Lakhs AY 2014-15

Tax Deducted at Income Tax Act, 1961 source 187.29 Lakhs AY 2013-14

Karnataka Value Added Value Added 2.49 Lakhs AY 2013-14 Tax Act, 2003 Tax

Karnataka Value Added Value Added 1.71 Lakhs AY 2014-15 Tax Act, 2003 Tax

Finance Act, 1994 Service Tax 9.66 Lakhs AY 2009-10

Finance Act, 1994 Service Tax 0.21 Lakhs AY 2010-11

Finance Act, 1994 Service Tax 0.21 Lakhs AY 2011-12

Finance Act, 1994 Service Tax 37.42 Lakhs AY 2011-12

Finance Act, 1994 Service Tax 0.09 Lakhs AY 2011-12

Finance Act, 1994 Service Tax 2.27 Lakhs AY 2013-14

Finance Act, 1994 Service Tax 0.51 Lakhs AY 2014-15

c. According to the information and explanation given to us, and based on the records of the company, the dues outstanding in respect of income-tax, sales-tax, wealth-tax, service-tax and other statutory duties on account of any dispute, are as follows:

Name of the Nature of Amount Period to Statute the dues which the amount relates

Finance Act, Service Tax 172.62 AY 2006-07 1994 Lakhs

Income Tax Act Income 863.44 AY 2005-06 1961 Tax Lakhs

Income Tax Act Income 792.72 AY 2006-07 1961 Tax Lakhs

Income Tax Act Income 1,850.91 AY 2007-08 1961 Tax Lakhs

Income Tax Act Income 6,902.34 AY 2008-09 1961 Tax Lakhs

Income Tax Act Income 3,254.27 AY 2009-10 1961 Tax Lakhs

Income Tax Act Income 5,064.47 AY 2010-11 1961 Tax Lakhs

Karnataka Tax Entry Tax 0.97 Lakhs AY 2005-06 on Entry of Goods Act, 1979

Karnataka Tax Entry Tax 3.87 Lakhs AY 2007-08 on Entry of Goods Act, 1979

Karnataka Tax Entry Tax 1.57 Lakhs AY 2008-09 on Entry of Goods Act, 1979



Name of the Statute Pending before the authority

Finance Act, 1994 Commissioner/CEST AT (Appeals)

Income Tax Act 1961 Commissioner (Appeals) Bangalore

Income Tax Act 1961 Income Tax Appellate Tribunal Bangalore

Income Tax Act 1961 Commissioner (Appeals) Bangalore

Income Tax Act 1961 Income Tax Appellate Tribunal Bangalore

Income Tax Act 1961 Commissioner (Appeals) Bangalore

Income Tax Act 1961 Dispute Resolution Panel

Karnataka Tax on Entry of Joint Commissioner of Commercial Taxes, Goods Act 1979 Audit-13, VAT DVO - 1

Karnataka Tax on Entry of Joint Commissioner of Commercial Taxes, Goods Act 1979 Audit-13, VAT DVO - 1

Karnataka Tax on Entry of Joint Commissioner of Commercial Taxes, Goods Act 1979 Audit-13, VAT DVO - 1

10. In our opinion, as at 31st March 2014 the accumulated losses of the company are not more than fifty percent of its net worth. Further, the company has not incurred cash losses during the financial year ended on that date or in the immediately preceding financial year and hence reporting under clause 4(x) does not arise.

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

The Company had defaulted in repayment of principal dues to Axis Bank, amounting to Rs.2,000 lakhs which became due for repayment on 13th February 2013. However, the company has repaid the same with interest total amounting to Rs.2,101.27 lakhs on 28th June 2013.

The Company has also defaulted in repayment of dues to Foreign Currency Convertible Bond (FCCB) holders amounting to Rs.35,990.37 lakhs (including additional interest payable till 31st March, 2014) which became due for repayment on 19th October, 2012.

12. According to the information and explanations given to us and based on the documents are records produced to us, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities and hence reporting under Para 4(xii) of the Order does not arise.

13. The Company is not a chit fund or a nidhi /mutual benefit fund/Society. Hence, the provisions of para 4(xiii) of the Companies (Auditor''s Report) Order, 2003 are not applicable to the company.

14. The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of para 4(xiv) of the Companies (Auditor''s Report) Order, 2003 are not applicable to the Company.

15. In our opinion and according to the information and explanations given to us, the terms and conditions on which the company has given guarantees for loans taken by others from banks or financial institutions are not prejudicial to the interest of the company.

16. According to the information and explanations given to us, the Company has not obtained any term loans during the financial year covered by our audit report.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company and due to the accounting transactions passed in the books of account,

we are not able to comment on whether funds raised on short-term basis have been used for long- term investment.

18. According to the information and explanations given to us, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Act during the year under audit and hence reporting under Para 4(xviii) of the Order does not arise.

19. According to the information and explanations given to us, during the period covered by our audit report, the company has not issued debentures. Accordingly, the provisions of para 4(xix) of the Companies (Auditor''s Report) Order, 2003 are not applicable to the Company.

20. According to the information and explanations given to us, during the period covered by our audit report, the company has not raised money by way of public issue. Accordingly, the provisions of para 4(xx) of the Companies (Auditor''s Report) Order, 2003 are not applicable to the Company.

21. During the course of our examination of the books and records of the company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of fraud on or by the company, noticed or reported during the year, nor have we been informed on such case by the management.

Place: Bangalore For YCRJ & Associates Date: 30th May 2014 Chartered Accountants Firm Regn No. 006927S

Yashavanth Khanderi Partner M.No: 029066


Mar 31, 2012

We have audited the attached Balance Sheet of Karuturi Global Limited, Bangalore as at 31st March 2012 and also the Profit and 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. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in 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 statement presentation. We believe that our audit provides a reasonable basis for our opinion. In accordance with the provisions of Section 227 of the Companies Act, 1956, we report that:

1. As required by the Companies (Auditor's Report) Order, 2003 as amended by Companies (Auditor's Report) (Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

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

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

b) in our opinion, proper books of accounts as required by law, have been kept by the Company so far as appears from our examination of those books;

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

d) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; and

e) on the basis of the written representations received from the Directors as on 31st March 2012, and taken on record by the Board of Directors, we report that none of the Director is disqualified from being appointed as a Director of the Company in terms of clause (g) of Sub Section (1) of Section 274 of the Companies Act, 1956 as on 31st March 2012.

In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with significant accounting policies and the notes appearing thereon, give the information required by the Companies Act, 1956, in the manner so required and gives a true and fair view in conformity with the accounting principles generally accepted in India:

1. In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2012;

2. In the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and

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

Annexure To The Auditors' Report (Referred to paragraph (1) of our report of even date)

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

b) The fixed assets have been physically verified by the management during the year in a phased periodical manner, which in our opinion is reasonable, having regard to the size of the Company and nature of its business. No material discrepancies were noticed on such physical verification.

c) In our opinion, the Company has not disposed off any substantial part of fixed assets so as to affect its going concern status.

II. a) As explained to us, inventories have been physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of verification is reasonable.

b) As per the information given to us, the procedures of physical verification of inventory followed by the management are in our opinion, 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 verification between the physical stocks and the book records were not material.

III. a) As per the information and explanation given to us, the Company has not granted any loans to Companies ,firms or other parties listed in the register maintained under section 301 of the Companies Act,1956.

b) The Company has in previous years taken unsecured interest free loans from two directors and from a Company listed in the register maintained under section 301 of the Companies Act,1956. maximum amount outstanding during the year is Rs 4658.25 lakhs and year end outstanding is Rs 3965.32Lkahs

c) These loans are interest free in nature and we are of the opinion that the other terms and conditions are prima facie not prejudicial to the interest of the Company.

d) As per the information furnished to us, there are no irregularities in repayment of principle amount

IV. In our opinion and according to the information and explanations provided to us, there are adequate internal control system commensurate with the size of the Company and nature of its business for purchase of inventories, fixed assets and sale of goods and services. During the course of audit, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system.

V. a) According to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements that need to be entered in the Register maintained under Section 301 of the Companies Act, 1956 have been entered.

b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements entered in the Register maintained under Section 301 of the Companies Act, 1956 in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

VI. The Company has not accepted any deposits from the public and hence provisions of Section 58A and 58AA of the Companies Act, 1956 and Companies (Acceptance of Deposit) Rules, 1975 are not applicable to the Company for the year under review.

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

VIII. The Central Government has not prescribed maintenance of cost records under clause (d) of sub-section (1) of Section 209 of the Companies Act, 1956 in respect of any of the activities of the Company.

IX. a) The Company has been generally regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax, , custom duty, service tax, excise duty, cess and other material statutory dues as applicable to it though there has been a slight delay in few cases.

b) According to information and explanation given to us, no undisputed amount payable in respect of income tax, sales tax, wealth tax, service tax customs duty, excise duty and cess were in arrears as at 31st March 2012 for a period of more than six months from the date they became payable except Service Tax dues of Rs 37.42 Lakhs

c) According to the records of the Company, the dues outstanding of income tax, sales tax, custom duty, wealth tax, service tax ,excise duty and cess that have not been deposited on account of any dispute are as follows:

Name of the Nature of Amount un Period to which From where disputing is Statute dues paid the amounts relates pending

Income Tax Income Tax 7667.99 Assessment Year Commissioner Act,1961 Liability 2007-08 (Appeals) Bangalore

Karnataka Entry Tax 2.50 Financial Year Deputy Commissioner Taxon Entry of 2006-07 & of Commercial Tax Goods Act 2007-08 Audit-13,VAT Division -1

The Finance Act, Service Tax 172.62 Financial Year Commissioner/ 1994 2005-06 CESTAT(Appeals)

X. The Company has no accumulated losses as at 31st March 2012 and it has not incurred cash losses in the financial year ended on that date or in the immediately preceding financial year.

XI. Based on our audit procedures and according to the information and explanation given to us, the Company has not defaulted in repayment of dues to any financial institution or banks.

XII. Based on our examination and according to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities, during the year.

XIII. The provisions of any special statute applicable to chit fund / nidhi / mutual benefit fund / societies are not applicable to the Company.

XIV. In our opinion and according to the information and explanations given to us, the Company is not a dealer or trader in securities. The investment made by the Company are held in its own name.

XV. According to the information and explanation given to us, the Company has given guarantee for loans taken by its subsidiaries /step down subsidiaries from banks, the terms and conditions whereof in our opinion are not prima-facie prejudicial to the interests of the Company.

XVI. In our opinion and according to the information and explanations given to us, and on overall basis, the term loans taken by the Company have been applied for the purpose for which they were obtained.

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

XVIII. According to the information and explanations given to us, during the year under review, the Company has not made preferential allotment of shares to parties covered in the register maintained under section 301 of the Act .

XIX. The Company did not have any outstanding debentures during the year under review.

XX. The Company has not raised any monies by way of public issue during the year.

XXI. During the course of our examination of the books and records of the Company, carried out with the generally accepted auditing practices in India, and according to the information and explanations given to us by the management, we have neither come across any instances of material fraud on or by the Company, noticed or reported during the year, nor we have been informed of such case by the management.

For Ishwar & Gopal,

Chartered Accountants

K V Gopalakrishnayya

Membership No.: 021748

Firm Registration No.: 001154S

Place: Bangalore

Date : 4th September,2012


Mar 31, 2011

We have audited the attached Balance Sheet of Karuturi Global Limited, Bangalore as at 31st March 2011 and also the Profit and 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.

We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in 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 statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In accordance with the provisions of Section 227 of the Companies Act, 1956, we report that:

1. As required by the Companies (Auditor's Report) Order, 2003 as amended by Companies (Auditor's Report) (Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

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

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

b) in our opinion, proper books of accounts as required by law, have been kept by the Company so far as appears from our examination of those books;

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

d) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; and

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

In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with significant accounting policies and the notes appearing thereon, give the information required by the Companies Act, 1956, in the manner so required and gives a true and fair view in conformity with the accounting principles generally accepted in India:

1. in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2011;

2. in the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and

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

Annexure To The Auditors' Report (Referred to paragraph (1) of our report of even date)

I. a) The Company is maintaining proper records to show full particulars including quantitative details and situation of fixed assets;

b) The fixed assets have been physically verified by the management during the year in a phased periodical manner, which in our opinion is reasonable, having regard to the size of the Company and nature of its business. No material discrepancies were noticed on such physical verification.

c) In our opinion, the Company has not disposed off any substantial part of fixed assets so as to affect its going concern status.

II. a) As explained to us, inventories have been physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of verification is reasonable.

b) As per the information given to us, the procedures of physical verification of inventory followed by the management are in our opinion, 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 verification between the physical stocks and the book records were not material.

III. a) The Company has granted unsecured interest free unsecured loans to four wholly owned subsidiary

Companies listed in the Register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs 53,005.17 Lakhs and the year end balance was Rs 52,892.62 Lakhs.

b) These loans are given to wholly owned subsidiaries, and hence we are of the opinion that the non- charging interest is prima facie not prejudicial to the interest of the company.

c) Since the repayment schedule has not been fixed, we cannot comment whether there are any overdue and receipt of the principal amount is regular.

d) The Company has taken unsecured interest free loan from four parties listed in the Register maintained under section 301 of the Companies Act, 1956. Amounting Rs 3,014.87 Lakhs The maximum amount involved during the year was Rs 3,951.02 Lakhs and the year end balance was Rs 3,014.87 Lakhs.

e) These loans are interest free in nature and hence we are of the opinion that they are prima facie not prejudicial to the interest of the company.

f) Since the repayment schedule is not fixed we cannot comment whether repayment of the principal amount is regular.

IV. In our opinion and according to the information and explanations provided to us, there are adequate internal control systems for purchase of inventories, fixed assets and sale of goods and services, commensurate with the size of the Company and the nature of its business. With regard to the purchase of flowers and inventories the existing internal control system needs to be strengthened to make it commensurate with the size of company and the nature of its business. However we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system.

V. a) According to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements that need to be entered in the Register maintained under Section 301 of the Companies Act, 1956 have been entered. b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements entered in the Register maintained under Section 301 of the Companies Act, 1956 in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

VI. The Company has not accepted any deposits from the public and hence provisions of Section 58A and 58AA of the Companies Act, 1956 and Companies (Acceptance of Deposit) Rules, 1975 are not applicable to the Company for the year under review.

VII. In our opinion, the internal audit system of the Company needs to be strengthened to make it commensurate with the size and nature of its business.

VIII. The Central Government has not prescribed maintenance of cost records under clause (d) of sub- section (1) of Section 209 of the Companies Act, 1956 in respect of any of the activities of the Company.

IX. a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion, the Company is generally regular in depositing with undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities. There are no arrears of outstanding statutory dues as at 31st March 2011 for a period of more than six months from the date they became payable. b) According to the records of the company and the information and explanations given to us, there are no dues in respect of Sales tax, Income tax, Custom duty, wealth tax, Excise duty and Cess, Service Tax that have not been deposited on account of any dispute other than as stated here in under:

Name of the Nature of Amount un Period to which From where disputing is pending

Statute dues paid the amounts relates

Rs in lakhs (Assessment Year) Income Tax Act,1961 Income Tax 219.00 2006-07 Commissioner of IncomeTax (Appeals) -IBangalore

Karnataka Tax Entry Tax 2.50 Financial The Deputy Commercial of Commercial Taxes, Audit -13, VAT Division -1 Year on Entry of 2006-07 and 2007-08 Goods Tax Act

Finance Act,1994 Service Tax 172.62 2005-06 Commissioner/ CESTAT (Appeals)

X. The Company has no accumulated losses as at 31st March 2011 and it has not incurred cash losses in the financial year ended on that date or in the immediately preceding financial year.

XI. Based on our audit procedures and according to the information and explanation given to us, the Company has not defaulted in repayment of dues to any financial institution or bank as at the Balance Sheet date.

XII. Based on our examination and according to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities, during the year.

XIII. The provisions of any special statute applicable to chit fund / nidhi / mutual benefit fund / societies are not applicable to the Company.

XIV. In our opinion and according to the information and explanations given to us, the Company is not a dealer or trader in securities. The Company has not invested in any securities in its own name.

XV. As per the information furnished to us, the corporate guarantee given by the Company for loans taken by an erstwhile 100%subsidiary from a bank is continuing even after the sale of entire holdings by the Company. Further the Company has given guarantees for the loans availed by the wholly owned subsidiaries from banks and financial institutions. In our opinion the terms and conditions of this guarantee are prima facie not prejudicial to the interest of the Company.

XVI. In our opinion and according to the information and explanations given to us, and on overall basis, the term loans taken by the Company have been applied for the purpose for which they were obtained.

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

XVIII. According to the information and explanations given to us, the company has made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act. In our opinion, the price at which shares have been issued is not prejudicial to the interest of the Company.

XIX. During the year under review, the Company has not issued any debentures. Hence, this clause is not applicable.

XX. We have verified the end use of money raised by the issue of Global Depository Receipts during the year under review as disclosed in the notes to the financial statements.

XXI. During the course of our examination of the books and records of the Company, carried out with the generally accepted auditing practices in India, and according to the information and explanations given to us by the management, we have neither come across any instances of material fraud on or by the Company, noticed or reported during the year, nor we have been informed of such case by the management..

For Ishwar & Gopal, Chartered Accountants

K V Gopalakrishnayya Membership No.: 021748 Firm Registration No.:001154S

Place: Bangalore

Date : August 12, 2011

 
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