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Auditor Report of KMC Speciality Hospitals (India) Ltd.

Mar 31, 2016

INDEPENDENT AUDITORS'' REPORT

To

The Members,

KMC Speciality Hospitals (India) Limited

Report on the financial statements

We have audited the accompanying financial statements of KMC Specialty Hospitals (India) Limited (“the Company”), which comprise the balance sheet as at March 31, 2016, the statement of profit and loss, the cash flow statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s responsibility for the financial statements

The Company''s board of directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation and presentation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the accounting standards specified under section 133 of the Act, read with rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors'' responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the rules made thereunder.

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

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

We believe that the audit evidence obtained by us, is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

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, of the state of affairs of the Company as at March 31, 2016 and its profits and cash flows for the year ended on that date.

Report on other legal and regulatory requirements

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

2. As required by section 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 purposes of our audit;

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

(c) the balance sheet, 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 aforesaid financial statements comply with the accounting standards specified under section 133 of the Act, read with rule 7 of the Companies(Accounts) Rules, 2014;

(e) on the basis of the written representations received from the directors as on March 31, 2016 taken on record by the board of directors, none of the directors is disqualified as on March 31, 2016 from being appointed as a director in terms of section 164 (2) of the Act ;

(f) with respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in “Annexure B”; and

(g) with respect to the other matters to be included in the auditor''s report in accordance with rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us :

i the Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer note 30 to the financial statements;

ii the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses; and

iii there were no amounts which were required to be transferred to the investor education and protection fund by the Company.

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

(b) The Company has a regular programme of physical verification of its fixed assets by which all fixed assets are verified in a phased manner over a period of three years. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the aforesaid program, a portion of fixed asset has been physically verified by the management during the year and no material discrepancies were noticed on such verification.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company

(ii) The inventory has been physically verified by the management during the year. In our opinion, the frequency of such verification is reasonable. During the course of reconciliation of inventory records with the physical inventory for the current year, the management has observed certain discrepancies. The management is in the process of carrying out a comprehensive evaluation for identification of the reasons for these discrepancies and in the opinion of the management, the impact, if any, arising on account of the said evaluation will be not be material to the financial statements.

(iii) The Company has not granted any loan, secured or unsecured to companies, firms or other parties covered by section 2(76) of the Companies Act, 2013. Accordingly, paragraph 3(iii) of the Order is not applicable.

(iv) In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of section 185 and 186 of the Act, with respect to the loans and investments made.

(v) In our opinion, and according to the information and explanations given to us, the Company has not accepted any deposits and accordingly paragraph 3 (v) of the Order is not applicable.

(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the rules prescribed by the Central Government for the maintenance of cost records under section 148 of the Companies Act, 2013 and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records.

(vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including provident fund, employees'' state insurance, income-tax, sales tax, service tax, value added tax and other material statutory dues have generally regularly been deposited by the Company with the appropriate authorities except for certain delays in remittances of tax deducted at source ranging from 1 to 11 days, remittances of service tax ranging from 1 to 30 days and with respect to remittances of provident fund ranging from 1 to 4 days. As explained to us, the Company did not have any dues on account of excise duty, customs duty and cess.

According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees'' state insurance, income-tax, sales tax, service tax, value added tax and other material statutory dues were in arrears as at March 31, 2016 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, the following are the dues which have not been deposited by the Company on account of disputes;

Nature of the Statute

Nature of the Dues

Amount

(Rs.)

Period to which the amount relates

Forum where the dispute is pending

Customs Act, 1962

Customs

Duty

8,524,905 1

1989 to 1993

Director General of Health Services

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

(xiii) According to the information and explanations given to us and based on our examination of the records of the Company, transactions with the related parties are in compliance with sections 177 and 188 of the Act, where applicable. The details of such related party transactions have been disclosed in the financial statements as required by the applicable accounting standards.

(xiv) According to the information and explanations give to us and based on our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review.

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

(xvi) The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

Annexure "B” to Independent Auditors’ Report on the Internal Financial Controls under clause (i) of subsection 3 of section 143 of the Companies Act, 2013 ( " the Act " )

Page 1 of 2

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

Management''s Responsibility for Internal Financial Controls

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

Auditors'' Responsibility

Our responsibility is to express an opinion on the Company''s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing, to the extent applicable to an audit of internal financial controls, both issued by ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

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

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

Annexure "B” to Independent Auditors’ Report on the Internal Financial Controls under clause (i) of subsection 3 of section 143 of the Companies Act, 2013 ( " the Act " ) Meaning of Internal Financial Controls over Financial Reporting

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

Inherent Limitations of Internal Financial Controls Over Financial Reporting

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

Opinion

In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the said Guidance Note.

for B S R & Co. LLP

Chartered Accountants

ICAI Firm Registration Number: 101248W/W-100022

Chinnsamy Ganesan

Partner

Membership No: 27501

Place : Chennai

Date : May 30, 2016


Mar 31, 2015

We have audited the accompanying financial statements of KMC Speciality Hospitals (India) Limited (the "Company"), which comprise the balance sheet as at March 31,2015, the statement of profit and loss, 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 section 134 (5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the accounting standards specified under section 133 of the Act, read with rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

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

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

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

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, of the state of affairs of the Company as at March 31,2015, and its profits and cash flows for the year ended on that date.

Report on other legal and regulatory requirements

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

2. As required by Section 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;

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

(c) the balance sheet, 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 aforesaid financial statements comply with the accounting standards specified under section 133 of the Act, read with rule 7 of the Companies (Accounts) Rules, 2014;

(e) on the basis of written representations received from the directors as on March 31,2015, taken on record by the board of directors, none of the directors is disqualified as on March 31,2015 from being appointed as a director in terms of Section 164 (2) of the Act; and

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

i the Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer note 31 and note 40 to the financial statements;

ii the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses; and

iii there were no amounts which were required to be transferred to the investor education and protection fund by the Company.

Annexure to the Independent Auditors' Report To the members of KMC Speciality Hospitals (India) Limited for the year ended March 31, 2015

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

(b) The Company has a regular programme of physical verification of its fixed assets by which all fixed assets are verified in a phased manner over a period of three years. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the aforesaid program, a portion of fixed asset has been physically verified by the management during the year and as per information provided to us, the Company is in the process of reconciling the physical assets with the books and is not expecting any material discrepancy.

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

(b) In our opinion, 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. The discrepancies noticed on verification between the physical stocks and the book records were not material.

(iii) The Company has not granted any loan, secured or unsecured to companies, firms or other parties covered in the register required under section 189 of the Companies Act, 2013. Accordingly, paragraph 3 (iii) of the Order is not applicable.

(iv) In our opinion and according to the information and explanations given to us, and having regard to the explanation that purchase of certain items of fixed assets are for the specialised requirements of the Company and similarly purchase and sale of certain items of medicines and services rendered are for the specialised requirements of the patients and suitable alternative sources are not available to obtain comparable quotations, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventories and fixed assets and sale of goods and services. We have not observed any major weakness in the internal control system during the course of the audit. As per the information and explanations given to us, the Company has appointed an independent expert for carrying out a detailed review of internal financial controls and the work is in progress. The management had confirmed to us that the internal financial controls existing are adequate and are operating effectively and accordingly no material impact is expected to arise on completion of the aforesaid detailed review by an independent expert.

(v) In our opinion, and according to the information and explanations given to us, the Company has not accepted any deposits and accordingly paragraph 3 (v) of the Order is not applicable.

(vi) The Central Government has not prescribed the maintenance of cost records under section 148 (1) of the Companies Act, 2013 for any of the services rendered by the Company.

(vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including provident fund, employees' state insurance, income-tax, sales tax, service tax, value added tax and other material statutory dues have generally regularly been deposited on a regular basis during the year by the Company with the appropriate authorities except for certain delays in remittances of employees' state insurance ranging from 1 to 2 days and with respect to remittances of value added tax ranging from 1 to 4 days. As explained to us, the Company did not have any dues on account of wealth tax, excise duty, customs duty and cess.

According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees' state insurance, income-tax, sales tax, service tax, value added tax and other material statutory dues were in arrears as at March 31, 2015 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, the following are the dues which have not been deposited by the Company on account of disputes;

Nature of Nature of Amount Period to which Forum the Statute the Dues Rs. the amount where the relates dispute is pending

Customs Customs Director Act 1962 Duty 8,524,905 * 1989 to 1993 General of Health Services

* Includes amount paid under dispute amounting to Rs. 913,510/-

(c) According to the information and explanations given to us, the Company did not have any dues on account of investor education and protection fund.

(viii) The accumulated losses are not more than 50% of the Company's net worth as at the end of the financial year. The Company has not incurred cash losses in the current financial year and in the immediately preceding financial year.

(ix) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to its bankers. The Company did not have any outstanding dues to any financial institutions and debenture holders during the year.

(x) According to the 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.

(xi) In our opinion and according to the information and explanations given to us, the term loans taken by the Company have been applied for the purpose for which they were raised.

(xii) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit. In this connection, we also draw attention to note 40 to the financial statements regarding certain allegations made by a group of shareholders of the parent company on the management.

for B S R & Co. LLP Chartered Accountants ICAI Firm Registration Number: 101248W/W-100022

Chinnsamy Ganesan Partner Membership No: 27501

Place : Chennai Date : May 29, 2015


Mar 31, 2014

We have audited the accompanying financial statements of KMC Speciality Hospitals (India) Limited (the "Company"), which comprise the balance sheet as at March 31,2014, the statement of profit and loss and the cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory information.

Management''s responsibility for the financial statements

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

Auditors'' responsibility

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

An audit involves performing procedures to obtain audit evidence, about the amounts and disclosures in the financial statement. The procedures selected depend on the auditors'' judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, and to the best of our information and according to the explanations given to us, the 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:

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

(b) in case of the statement of profit and loss, of the loss for the year ended on that date; and

(c) in case of the cash flow statement, of the cash flows 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 the Central Government of India in terms of sub-section (4A) of section 227 of the Act, 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 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 the books of account;

( c ) the balance sheet, statement of profit and loss and cash flow statement dealt with by this report are in agreement with the books of account;

(d) in our opinion, the balance sheet, statement of profit and loss and cash flow statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Act; and

(e) on the basis of written representations received from the directors as at March 31,2014, and taken on record by the board of directors, we report that none of the directors is disqualified as at 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.

Annexure to the Independent Auditors'' report to the Members of KMC Speciality Hospitals (India) Limited (referred to 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 Company has a regular programme of physical verification of its fixed assets, by which all fixed assets are verified in a phased manner over a period of three years. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the aforesaid program, a portion of fixed asset has been physically verified by the management during the year and no material discrepancies have been noticed on such verification.

1c) Fixed assets disposed off during the year were not substantial, and therefore, do not affect the going concern assumption.

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

(b) The procedures for 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.

1c) 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) The Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, paragraph 4 (iii) of the Order is not applicable.

(iv) In our opinion and according to the information and explanations given to us, and having regard to the explanation that purchases of inventories and fixed assets are for the Company''s specialised requirements and similarly certain goods sold and services rendered are for the specialised requirements of the buyers and suitable alternative sources are not available to obtain comparable quotations, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventories and fixed assets, and with regard to sale of goods and services. We have not observed any major weakness in the internal control system during the course of audit.

(v) (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 have been entered in the register required to be maintained under that section.

(b) In our opinion, and according to the information and explanations given to us, the transactions made in pursuance of contracts and arrangements referred to in (a) above and exceeding the value of Rs 5 lakh with any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

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

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

(viii) The Central Government has not prescribed the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 for any of the services rendered by the Company.

(ix) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/accrued in the books of account in respect of undisputed statutory dues including provident fund, employees'' state insurance, income tax, sales tax, service tax, customs duty, and other material statutory dues have generally regularly been deposited on a regular basis during the year by the Company with the appropriate authorities. As explained to us, Company did not have any dues on account of excise duty, wealth tax and investor education and protection fund.

According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees'' state insurance, income tax, sales tax, service tax, customs duty and other material statutory dues were in arrears as at March 31,2014 for a period of more than six months from the date they became payable.

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

Nature of Nature of Amount Period to which the Statute the Dues Rs. the amount relates

Customs Customs 8524 905 1989 to 1993 Act 1962 Duty

Nature of the statue Forum where the dispute is pending

Customs Director General of Health Services Act 1962

* Includes amount paid under dispute amounting to Rs. 913,510

(x) The accumulated losses are not more than 50% of the Company''s net worth as at the end of the financial year. The Company has not incurred cash losses in the current financial year and in the immediately preceding financial year.

(xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to its bankers. The Company did not have any outstanding debentures and dues to any financial institutions during the year.

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

(xiii) In our opinion and according to the information and explanations given to us, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society.

(xiv) According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments

(xv) 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 are not prejudicial to the interest of the Company. The Company has not given any guarantee for loans taken by others from financial institutions.

(xvi) In our opinion and according to the information and explanations given to us, the term loans taken by the Company have been applied for the purpose for which they were raised.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we are of the opinion that short-term funds estimated at Rs.33,682,844/- have been used for long-term purposes.

(xviii) The Company has not made any preferential allotment of shares to companies/firms/parties covered in the register maintained under Section 301 of the Act.

(xvix) The Company did not have any outstanding debentures during the year.

(xx) The Company has not raised any money by public issues.

(xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit.

for B S R & Co. LLP Chartered Accountants Firm registration No. 101248W Chinnsamy Ganesan Partner Membership No: 27501

Place: Chennai Date : June 6, 2014


Mar 31, 2013

Report on the Financial Statements

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

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in subsection (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 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 audit opinion.

Opinion

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

(a) in the case of the Balance Sheet, of the state of affairs of the Company as at March31,2013;

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

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

Report on Other Legal and Regulatory Requirements

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

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

a. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the 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 sub-section (3C) of section 211 of the Companies Act,1956;

e. on the basis of written representations received from the directors as on March 31, 2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act,1956.

Annexure Referred to paragraph of our report of even date to the members of KMC Specialty Hospitals(India) Limited

i) In respect of its Fixed Assets:

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

b) As explained to us, the management has a verification programme for fixed assets in a phased manner and all the assets are covered by physical verification once in three years. According to the information and explanation given to us no material discrepancies were noticed by the management on such verification.

c) In our opinion and according to the information and explanation given to us, the fixed assets that have been sold/ disposed off during the year under audit do not constitute a substantial part of the total fixed assets of the company.

ii) In respect of its Inventories:

a) The inventory of medicines, consumables etc. has been physically verified by the management during the year. In our opinion, the frequency of such verification is reasonable.

b) The procedures for 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 of inventory as compared to book records were not material and have been properly dealt with in the books of accounts.

iii) Loans taken/Advanced by the company :

a) The company has not granted any loans to companies, firms or other parties covered in the register maintained under Sec 301 of the companies act, 1956. Hence sub clauses (b), (c) and (d) are not applicable.

e) The company has taken unsecured loan from its holding company and the same has been repaid fully before the year end.

f) In our opinion and according to the explanation given to us the terms and conditions of loans taken by the company are prima facie not prejudicial to the interests of the company.

iv) Internal Control procedures:

In our opinion and according to the information and explanation given to us there are adequate internal control procedures commensurate with the size of the company and nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the 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 system.

v) Maintenance of Register u/s 301 and Transactions with the Parties listed:

a) In our opinion and according to the information and explanation given to us, the contracts or arrangements referred to section 301 of the companies act, 1956 have been entered in the register required to be maintained under that section.

b) In our opinion and to the information and explanation given to us the transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable, having regard to the prevailing market prices.

vi) Acceptance of Deposits:

The company has neither accepted any deposits during the year nor having any outstanding liability against interest payable on deposits thereon. Hence the provisions of this clause are not applicable.

vii) Internal Audit:

The company has appointed a firm of Chartered Accountants as Internal Auditors. In our opinion the scope of the internal audit is commensurate with the size and nature of the business of the company.

viii) Maintenance of Cost Records :

According to the information and explanations given to us, the central government has not prescribed the maintenance of cost records under Section 209(1) (d) of the companies act, 1956 for any of the activities of the company.

ix) In respect of Statutory Dues:

a) According to the records maintained by the company, undisputed statutory dues including Income Tax, Sales Tax, PF, Service Tax, Customs Duty, Excise Duty, Cess, Gratuity and other material statutory dues, to the extent applicable, have been regularly deposited with the appropriate authorities. According to the information and explanations given to us, there are no undisputed amounts payable in respect of the aforesaid dues were outstanding as at March 31, 2013 for a period of more than six months from the date they became payable.

b) In our opinion and information and explanation given to us there are no other disputes pending regarding dues of Income Tax, Sales Tax, PF, Service Tax, Excise Duty, Cess and Gratuity payable to the Government Authorities except the following.

The Statute under Nature of the Dues Amt involved in Rs. Period to which the Forum where the which dues are found amount relates dispute is Pending Customs Act, 1962 Customs Duty 85,24,905 1989 to 1993 Madras High Court

Income Tax Act 1961 Income tax 13,71,60,209* Assess ment Year Commissioner of 2007-08 Income Tax (Appeals)

* Denotes disallowance of carry forward unabsorbed depreciation (there is no tax demand on the company) Accumulated Losses:

x) The company has not incurred cash losses during the financial year and also immediately preceding the current financial year.

xi) The company has taken loans from banks. On the basis of verification of records, we report that the company has not defaulted in repayment of dues to the bank. The company has not issued any debenture.

xii) In our opinion and the information and explanation given to us and based on the information available, no loans and advances have been granted by the company on the basis of security by way of pledge of shares, debentures and other securities.

xiii) In our opinion and according to the information and explanation given to us, the company is not a chit fund or a nidhi/mutual benefits/society. Therefore, provisions of any special Statute applicable to Chit Funds Nidhi or Mutual Benefit Fund Society do not apply to this Company. Hence the provisions of clause (xiii) (a), (b), (c) and (d) are not applicable to this Company.

xiv) The company is not trading in shares, securities, debentures and other investments. Also the company is not having investment in the nature of shares, securities, debentures and other investments.

xv) Based on the records verified by us, we observe that the company has given guarantee for loan taken by the holding company from banks and the terms of such guarantee are prima facie, in our opinion, not prejudicial to the interests of the company.

xvi) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, the term loans raised by the company have been used for the purpose for which they were raised.

xvii) According to the information and explanation given to us, funds raised on short-term basis by the company have, prima facie not been used during the year for long term investments.

xviii) During the year, the company has not made any preferential allotments of shares to the parties and companies covered in the register maintained u/s 301 of the act.

xix) According to the information and explanation given to us, the company has not issued any debentures during the year.

xx) The company has not raised any money 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 in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, no instance of fraud on or by the company is reported or noticed by us.

For Patel, Mohan, Ramesh & Co

Chartered Accountants

(FRN: 002597S)

S.MOHAN

Partner

(Membership No.019695)

Place: Trichy

Date:28th May 2013


Mar 31, 2012

1. We have audited the attached Balance Sheet of KMC Specialty Hospitals (India) Ltd ('the Company') as at March 31, 2012, and the related Profit and Loss account of the company for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date. These financial statements1 are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditor's Report) Order, 2003 (as amended) 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 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.

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

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

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

iii. The balance sheet, the profit and loss account and the cash flow statement dealt with by this report are in agreement with the books of account;

iv. In our opinion, the balance sheet, the profit and loss account and the cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

v. On the basis of the written representations 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 section 274 of the Companies Act, 1956.

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

a) in the case of the balance sheet, of the state of affairs of the Company as at March 31, 2012; and

b) in the case of the profit and loss account, of the Profit for the year ended on that date.

c) in case of the cash flow statement, of the cash flows of the company for the year ended on that date.

Annexure Referred to paragraph of our report of even date to the members of KMC Specialty Hospitals (India) Limited

i) In respect of its Fixed Assets:

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

b) As explained to us, the management has a verification programme for fixed assets in a phased manner and all the assets are covered by physical verification once in three years. According to the information and explanation given to us no material discrepancies were noticed by the management on such verification.

c) In our opinion and according to the information and explanation given to us, the fixed assets that have been sold/ disposed off during the year under audit do not constitute a substantial part of the total fixed assets of the company.

ii) In respect of its Inventories:

a) The inventory of medicines, consumables etc. has been physically verified by the management during the year. In our opinion, the frequency of such verification is reasonable.

b) The procedures for 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 of inventory as compared to book records were not material and have been properly dealt with in the books of accounts.

iii) Loans taken/Advanced by the company

a) The company has not granted any loans to companies, firms or other parties covered in the register maintained under Sec 301 of the companies act, 1956. Hence sub clauses (b), (c) and (d) are not applicable.

e) The company has taken unsecured loan from the holding company and the balance outstanding at year end amounts to Rs.5.66Crores.

f) In our opinion and according to the explanation given to us the terms and conditions of loans taken by the company are prima facie not prejudicial to the interest of the company.

iv) Internal Control procedures:

In our opinion and according to the information and explanation given to us there are adequate internal control procedures commensurate with the size of the company and nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the 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 system.

v) Maintenance of Register u/s 301 and Transactions with the Parties listed:

a) In our opinion and according to the information and explanation given to us, the contracts or arrangements referred to section 301 of the companies act, 1956 have been entered in the register required to be maintained under that section.

b) In our opinion and to the information and explanation given to us the transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable, having regard to the prevailing market prices.

vi) Acceptance of Deposits:

The company has neither accepted any deposits during the year nor having any outstanding liability against interest payable on deposits thereon. Hence the provisions of this clause are not applicable.

vii) Internal Audit:

The company has appointed a firm of Chartered Accountants as Internal Auditors. On the basis of the reports submitted by them to the management, in our opinion the scope of the internal audit is commensurate with the size and nature of the business.

viii) Maintenance of Cost Records

According to the information and explanations given to us,.the central government has-not prescribed the maintenance of cost records under Section 209(1) (d) of the companies act, 1956 for any of the activities of the company.

ix) In respect of Statutory Dues:

a) According to the records of the Company, undisputed statutory dues including Income Tax, Sales Tax, PF, Service Tax, Customs Duty, Excise Duty, Cess, Gratuity and other material statutory dues, to the extent applicable, have been generally regularly deposited with the appropriate authorities. According to the information and explanations given to us, there are no undisputed amounts payable in respect of the aforesaid dues were outstanding as at March 31, 2012 for a period of more than six months from the date they became payable.

b) In our opinion and information and explanation given to us there are no other disputes pending regarding dues of Income Tax, Sales Tax, PF, Service Tax, Excise Duty, Cess and Gratuity payable to the Government Authorities except the following:

The Statute under Nature of the Amt involved Period to which the Forum where the which dues are found Dues in Rs. amount relates dispute is Pending

Customs Act, 1962 Customs Duty 85,24,905 1989 to 1993 Madras High Court Income Tax Act 1961 Income Tax 13,71,60,209* Assessment Year Commissioner of 2007 - 08 Income Tax (appeal)

* Denotes disallowance of carry forward unabsorbed depreciation (there is no tax demand on the company) Accumulated Losses:

x) The company has not incurred cash losses during the financial year and also immediately preceding the current financial year.

xi) The company has taken loans from a bank. On the basis of verification of records, we report that the company has not defaulted in repayment of dues to the bank.The company has not issued any debenture. "

xii) In our opinion and the information and explanation given to us and based on the information available, no loans and advances have been granted by the company on the basis of security by way of pledge of shares, debentures and other securities.

xiii) In our opinion and according to the information and explanation given to us, the company is not a chit fund or a nidhi/mutual benefits/society. Therefore, provisions of any special Statute applicable to Chit Funds Nidhi or Mutual Benefit Fund Society do not apply to this Company. Hence the provisions of clause (xiii) (a), (b), (c) and (d) are not applicable to this Company.

xiv) The company is not trading in shares, securities, debentures and other investments. Also the Company is not having investment in the nature of shares, securities, debentures and other investments.

xv) According to the information and explanation given to us, the company has given guarantee for loan taken by the holding company from banks and the terms of such guarantee are prima facie, in our opinion, not prejudicial to the interests of the company.

xvi) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, the term loans raised by the company have been used for the purpose for which they were raised.

xvii) According to the information and explanation given to us, funds raised on short-term basis by the company have, prima facie not been used during the year for long term investments.

xviii) The company has not made any preferential allotments of shares to the parties and companies covered in the register maintained u/s 301 of the act.

xix) According to the information and explanation given to us, the company has not issued any debentures during the year. '

xx) The company during the previous year 2010-11 raised a sum of Rs 15, 05, 40,000/- by way of right issue to the existing equity shareholders of the company. The management has disclosed the end use of money raised by rights issue and the same has been verified by us.

xxi) 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, no instance of fraud on or by the company is reported or noticed.

For Patel, Mohan, Ramesh & Co

Chartered Accountants

(Firm Regn No: 002597S)

N.Ramesh (M.No.019136)

Partner

Place: Trichy

Date:28th May 2012


Mar 31, 2011

1. We have audited the attached Balance Sheet of KMC Specialty Hospitals (India) Ltd (‘the Company') as at March 31, 2011, and the related Profit and Loss account of the company for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditor's Report) Order, 2003 (as amended) 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 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.

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

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

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

iii. The balance sheet, the profit and loss account and the cash flow statement dealt with by this report are in agreement with the books of account;

iv. In our opinion, the balance sheet, the profit and loss account and the cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

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

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

a) in the case of the balance sheet, of the state of affairs of the Company as at March 31, 2011; and

b) in the case of the profit and loss account, of the Loss for the year ended on that date.

c) in case of the cash flow statement, of the cash flows of the company for the year ended on that date.

Annexure Referred to in paragraph 3 of our report of even date to the members of KMC Specialty Hospitals (India) Limited

i) In respect of its Fixed Assets:

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

b) As explained to us, the management has a verification programmed for fixed assets in a phased manner and all the assets are covered by physical verification once in three years. According to the information and explanation given to us no material discrepancies were noticed by the management on such verification.

c) In our opinion and according to the information and explanation given to us, the fixed assets that have been sold/ disposed off during the year under audit do not constitute a substantial part of the total fixed assets of the company. Hence the going concern assumption has not been affected by such disposal.

ii) In respect of its Inventories:

a) The inventory of medicines, consumables etc. has been physically verified by the management during the year. In our opinion, the frequency of such verification is reasonable.

b) The procedures for 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 of inventory as compared to book records were not material and have been properly dealt with in the books of accounts.

iii) Loans taken/Advanced by the company:

a) The company has not granted any loans to companies, firms or other parties covered in the register maintained under Sec 301 of the companies act, 1956. Hence sub clauses (b), (c) and (d) are not applicable.

b) The company has taken unsecured loan from the holding company and the balance outstanding at year end amounts to Rs.5.67 Crores .

c) In our opinion and according to the explanation given to us, the terms and conditions of loans taken by the company are prima facie not prejudicial to the interest of the company.

iv) Internal Control procedures:

In our opinion and according to the information and explanation given to us there are adequate internal control procedures commensurate with the size of the company and nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the 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 system.

v) Maintenance of Register u/s 301 and Transactions with the Parties listed

a) In our opinion and according to the information and explanation given to us, the contracts or arrangements referred to section 301 of the companies act, 1956 have been entered in the register required to be maintained under that section.

b) In our opinion and to the information and explanation given to us the transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable, having regard to the prevailing market prices.

vi) Acceptance of Deposits:

The company has neither accepted any deposits during the year nor having any outstanding liability against interest payable on deposits thereon. Hence the provisions of this clause are not applicable.

vii) Internal Audit:

The company has appointed a firm of Chartered Accountants as Internal Auditors. On the basis of the reports submitted by them to the management, in our opinion the scope of the internal audit needs to be enlarged.

viii) Maintenance of Cost Records

According to the information and explanations given to us, the central government has not prescribed the maintenance of cost records under Section 209(1) (d) of the companies act, 1956 for any of the activities of the company.

ix) In respect of Statutory Dues:

a) According to the records of the Company, undisputed statutory dues including Income Tax, Sales Tax, PF, Service Tax, Customs Duty, Excise Duty, Cess, Gratuity and other material statutory dues, to the extent applicable, have been generally regularly deposited with the appropriate authorities. According to the information and explanations given to us, there are no undisputed amounts payable in respect of the aforesaid dues were outstanding as at March 31, 2011 for a period of more than six months from the date they became payable.

b) In our opinion and information and explanation given to us there are no disputes pending regarding dues of Income T ax, Sales Tax, PF, Service T ax, Excise Duty, Cess and Gratuity payable to the Government Authorities except for Customs Duty and Income tax. The details are as follows:-

The Statute Nature of Amt involved Period to Forum where under the dues in Rs. which the the dispute which amount is Pending Dues are relates found

Customs Act, Customs 85,24,905 1989 to 1993 Madras High 1962 Duty Court Income Tax Income Tax 13,71,60,209* Assessment Commissioner Act 1961 Year of Income 2007 - 08 Tax (appeal)

* Denotes the amount disallowed and there is no tax due on the company on such disallowance

Accumulated Losses:

x) The company has not incurred cash losses during the financial year and also immediately preceding the current financial year.

xi) The company has taken loans from a bank. On the basis of verification of records, we report that the company has not defaulted in repayment of dues to the bank. The company has not issued any debenture.

xii) In our opinion and the information and explanation given to us and based on the information available, no loans and advances have been granted by the company on the basis of security by way of pledge of shares, debentures and other securities.

xiii) In our opinion and according to the information and explanation given to us, the company is not a chit fund or a nidhi/mutual benefits/society Therefore, provisions of any special Statute applicable to Chit Funds Nidhi or Mutual Benefit Fund Society do not apply to this Company. Hence the provisions of clause (xiii) (a), (b), (c) and (d) are not applicable to this Company.

xiv) The company is not trading in shares, securities, debentures and other investments. Also the company is not having investment in the nature of shares, securities, debentures and other investments.

xv) According to the information and explanation given to us, the company has given guarantee for loan taken by holding company from banks and the terms of such guarantee are prima facie, in our opinion, not prejudicial to the interests of the company.

xvi) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, the term loans raised by the company have been used for the purpose for which they were raised.

xvii) According to the information and explanation given to us, funds raised on short-term basis by the company have, prima facie not been used during the year for long term investments.

xviii)The company has not made any preferential allotments of shares to the parties and companies covered in the register maintained u/s 301 of the act.

xix) According to the information and explanation given to us, the company has not issued any debentures during the year.

xx) The company has during the year raised a sum of Rs 15,05,40,000/- by way of right issue to the existing equity shareholders of the company. According to the information and explanations given to us, the money raised through the right issue has been utilized for end use as stated in the offer documents submitted to Securities Exchange Board of India (SEBI)

xxi) 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, no instance of fraud on or by the company is reported or noticed.

For Patel Mohan Ramesh & Co. Chartered Accountants

N.Ramesh Partner Membership No.: 019136

Place: Trichy Date: May 23, 2011


Mar 31, 2010

1. We have audited the attached Balance Sheet of KMC Specialty Hospitals (India) Ltd as at March 31, 2010, and the related Profit and Loss account of the company for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit

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

3. As required by the Companies (Auditors Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, and on the basis of such checks 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.

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

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

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

iii. The balance sheet, the profit and loss account and the cash flow statement dealt with by this report are in agreement with the books of account;

iv. In our opinion, the balance sheet, the profit and loss account and the cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

v. On the basis of the written representations 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 section 274 of the Companies Act, 1956.

vi. The quantitative particulars in respect of the trading operations of the company are not compiled and disclosed as required under sub clause (ii) (d) of Clause 3 of Part-ll of Schedule VI to the Companies Act, 1956

vii. Subject to what is stated in clause (vi) above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts read with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India;

a) in the case of the balance sheet, of the state of affairs of the Company as at March 31, 2010; and

b) in the case of the profit and loss account, of the Loss for the period ended on that date.

c) in case of the cash flow statement, of the cash flows of the company for the year ended on that date.

Annexure Referred to in paragraph 3 of our report of even date to the members of KMC Specialty Hospitals (India) Limited

i) In respect of its Fixed Assets:

a) The fixed assets register maintained by the company is not in proper format. The company was found to be maintaining records relating to fixed assets in an electronic format in which location and identification details are not furnished.

b) As explained to us, the management has a verification programmed for fixed assets in a phased manner and all the assets are covered by physical verification once in three years. According to the information and explanation given to us no material discrepancies were noticed by the management on such verification.

c) In our opinion and according to the information and explanation given to us, the fixed assets that have been sold/ disposed off during the year under audit do not constitute a substantial part of the total fixed assets of the company. Hence the going concern assumption has not been affected by such disposal.

ii) In respect of its Inventories:

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

b) The procedures for 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 of inventory as compared to book records were not material and have been properly dealt with in the books of accounts.

iii) In respect of Loans given or taken:

a) The company has not granted any loans to companies, firms or other parties covered in the register maintained under Sec 301 of the companies act, 1956. Hence sub clauses (b), (c) and (d) are not applicable.

b) The company has taken unsecured loan from another company under the same management.

In respect of the said loan the balance as at year end amounts to Rs. 15.54 Crores

c) In our opinion and according to the explanation given to us, the terms and conditions of loans taken by the company are prima facie not prejudicial to the interest of the company.

d) There was no repayment terms fixed as per the records produced.

iv) In our opinion and according to the information and explanation given to us there are adequate internal control procedures commensurate with the size of the company and nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the 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 system.

a) In our opinion and according to the information and explanation given to us, the contracts or arrangements referred to section 301 of the companies act, 1956 have been entered in the register required to be maintained under that section.

b) In our opinion and to the information and explanation given to us the transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable, having regard to the prevailing market prices. In respect of the some of the services received from the group company, the group company has waived the fees payable for their sen/ices.

vi) The company has neither accepted any deposits during the year nor having outstanding liability against interest payable on deposits thereon. Hence the provisions of this clause are not applicable.

vii) The company has appointed a firm of Chartered Accountants as Internal Auditors. On the basis of the reports submitted by them to the management, in our opinion the internal audit system is reasonable having regard to its size and nature of its business.

viii) According to the information and explanations given to us, the central government has not prescribed the maintenance of cost records under Section 209(1) (d) of the companies act, 1956 for any of the activities of the company.

ix) In respect of Statutory Dues:

a) According to the records of the Company, undisputed statutory dues including Income Tax, Sales Tax, PF, Service Tax, Customs Duty, Excise Duty, Cess, Gratuity and other material statutory dues, to the extent applicable, have been generally regularly deposited with the appropriate authorities. According to the information and explanations given to us, there are no undisputed amounts payable in respect of the aforesaid dues were outstanding as at March 31, 2010 for a period of more than six months from the date they became payable.

b) In our opinion and information and explanation given to us there are to disputes pending regarding dues of Income Tax, Sales Tax, PF, Service Tax, Excise Duty, Cess and Gratuity payable to the Government Authorities except for Customs Duty. The details are as follows:-

Name of the Statue Nature of the Amt involved Dues in Rs.

Customs Act, 1962 Customs Duty 85,24,905

Name of the Statue Period to which the Forum where the amount relates dispute is Pending

Customs Act 1962 1989 to 1993 Madras high Court

x) The accumulated losses of the company have exceeded fifty percent of its net worth. The company has incurred no cash losses during the financial year but incurred cash loss in the year immediately preceding the current financial year.

xi) The company has not taken any loans from financial institutions and banks. Hence the question of default of repayment of dues does not arise. The company has not issued any debenture.

xii) In our opinion and the information and explanation given to us and based on the information available, no loans and advances have been granted by the company on the basis of security by way of pledge of shares, debentures and other securities.

xiii) In our opinion and according to the information and explanation given to us, the company is not a chit fund or a nidhi/mutual benefits/society. Therefore, provisions of any special statute applicable to Chit Funds Nidhi or Mutual Benefit Fund Society do not apply to this Company. Hence the provisions of clause (xiii) (a), (b), (c) and (d) are not applicable to this Company.

xiv) The company is not trading in shares, securities, debentures and other investments. Also the company is not having investment in the nature of shares, securities, debentures and other investments.

xv) According to the information and explanation given to us, the company has given guarantee for loans taken by another company under the same management from banks and the terms of such guarantee are prima facie appears to us, as not prejudicial to the interest of the company.

xvi) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, the term loans raised were prima facie been used for the purpose for which they were raised.

xvii) According to the information and explanation given to us funds raised on short-term basis by the company have, prima facie not been used during the year for long term investments.

xviii) The company has not made any preferential allotments of shares to the parties and companies covered in the register maintained u/s 301 of the act.

xix) According to the information and explanation given to us, the company has not issued any debentures during the year under audit.

xx) The company has not raised any money by way of public issue during the year.

xxi) During the course of our examination of the books and records of the Company, and such checks carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, no instance of fraud on or by the company is reported or unearthed.

For Patel, Mohan, Ramesh & Co FRN : 002597 S Chartered Accountants

N.Ramesh (M.No.019136) Partner

Place: Trichy

Date: 21st May 2010

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