Auditor Report of Manipal Finance Corporation Ltd.

Mar 31, 2015

We have audited the accompanying financial statements of MANIPAL FINANCE CORPORATION LIMITED ("the company"), which comprise the Balance Sheet as at 31 March, 2015, the Statement of Profit and Loss, the Cash Flow Statement for the year 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 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 the maintenance of adequate accounting records in accordance with the provision of the Act for safeguarding of the assets of the Company and for preventing and detecting the 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 internal financial control, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility:

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

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

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, 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.

Basis for the qualified opinion:

1. We draw attention to Note No. 23.02 of the financial statements. The Company has incurred losses and its majority of funds are blocked in Non Performing Assets, raising a doubt about the Company to continue as a going concern. The Company has presented a scheme of arrangement for restructure of liabilities as detailed in Note No. 5.01 of the financial statements and subsequently withdrawn the same, for reasons given therein. The Company is exploring the possibility of presenting the new scheme of arrangement, as detailed in the aforesaid Notes. The account, however have been prepared on a "going concern basis" in view of management perception as detailed in Note No. 23.02 as aforesaid. However we are unable to comment on the ultimate realisability of Company's assets including the Fixed Assets under lease. Accordingly we are also unable to comment on the Company's ability to settle its debts/liabilities (including Deposits, subordinated debts and secured Redeemable Debentures.)

2. We draw the attention to Note 5.01 of the Financial Statements. The Company has stopped (i) repayment of matured debentures & matured subordinated debts and (ii) payment of interest on debentures and subordinated debts from 1st day of July 2002 and proposed a scheme of arrangement before the Hon'ble High Court of Karnataka, as referred to in the aforesaid Note (which is since withdrawn and we are informed that the Company is exploring the possibility presenting a new scheme of arrangement). Further the Company has also stopped repayment of deposits matured for repayment from the aforesaid date. All the debts of the Company i.e. debentures, subordinated debts and deposits are matured for repayment. The Company has provided for interest on deposits/debentures/debts upto 30th June, 2002 and not thereafter.

There are also many instances of settlement of debentures, debts and public deposits at the discounted rates with partial/full waiver of interest, which has been done with mutual consent. We are also informed that the remaining depositors/debenture

holders/debt holders have approached the Company for settlement of the dues and the Company is in the process for the same.

As per the information given to us various consumer courts (including the Appellate Authorities/Courts acting under the Consumer Protection Act) have passed the orders, for the repayment of certain deposits/debentures/debts with interest and other costs. The detailed information on these orders have not been made available to us. However we are informed that the Company has settled the dues of such customers in many cases, which also includes settlement at discounted rates with partial/full waiver of interest and many of the remaining such persons have approached the Company for settlement.

We draw the attention to the Statement made by the Management of the Company in Note No. 5.01 of the Financial Statement which is as follows: "Considering the facts that the Company has settled the dues of depositors/debenture holders/debt holders at the discounted rates as stated above, that the remaining customers have approached the Company for settlement of their dues, that the orders issued by the various consumer courts including the appellate authorities/courts therein, that the Company has settled the many of such consumer court cases, that the total debts of the Company have reduced considerably because of settlement as aforesaid and that the Company is exploring the possibility of framing the new scheme of arrangement, it is not feasible for the Company to ascertain accurately its liability on any given date".

Considering all the facts as given above, we qualify our opinion that it is not feasible for us to ascertain accurately the liability of the Company as on the date of the Balance Sheet.

Qualified Opinion:

In our opinion and to the best of our information and according to the explanations given to us, except for the effect of the matter described in the Basis of Qualified Opinion paragraph, 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 March 31,2015;

(b) in the case of the Statement of Profit and Loss, 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.

Emphasis of Matter:

We draw the attention to Note 2.01 of the Financial Statements. The Company during the year with a view towards restructuring its liabilities has settled deposits/debentures/ subordinated debts at discounted rates. The same has been done with due consent of the parties to deposits, debentures and debts. The interest write back arising out of such settlement is considered as Extraordinary Income in the Statement of Profit and Loss. Principal write back arising out of such settlement is considered as capital receipt and taken directly to Capital Reserve (viz: Capital Reserve 2) in the Balance Sheet. This has been done as per the accounting policy followed by the Company, as stated in Note No. 23.01 (J). The Company had made similar settlements during the earlier years also, by giving the similar accounting treatment. Our opinion is not qualified on this matter.

Report on other Legal and Regulatory Requirements:

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

2. In terms of press release issued by Reserve Bank of India dated 27.06.2001, we state that:

a) The Certificate of Registration as issued by the Reserve Bank of India is not in force, since same was cancelled during December 2004.

b) The Company has not obtained credit rating.

c) The capital adequacy ratio is negative and accordingly the Company's Loans, advances and investments are above the credit exposure limits.

d) The Company has not filed the prudential returns and annual returns as per revised directives. However the Company has filed such returns as per the directives as prevailed till 31st March, 2011 i.e. prudential returns on half yearly basis and annual return once a year.

e) The public deposits are matured for repayment, but remained unpaid by the Company. However the company has settled some of the deposits at discounted rates without interest. The Company has not provided/paid interest on deposits after 30th June, 2002.

f) The Company has not created floating charge in favour of the depositors, on the statutory liquid assets invested.

g) The Company has not closed any of its branches during the year. Therefore the question of making any comments therein does not arise.

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

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 appears from our examination of those books.

c. the Balance Sheet, the 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. Our Qualifications as given under paragraph titled "Basis for qualified opinion" may have adverse effect on the functioning of the Company, if the management perception as detailed in para 23.02 does not materialize. However our observation as given under paragraph titled "Emphasis of matter" will not have adverse effect on the functioning of the Company.

f. We are of the opinion that the Directors of the Company are disqualified from being appointed as Directors of other public companies under 164(2) of the Companies Act, 2013, for the reason that the Company has not fully discharged its liability towards matured deposits/debentures/subordinated debts. One of the Directors of the Company Sri Chandappa R. Sherigar is also the Director of another Company, which has not fully discharged its liability towards matured deposits/ debentures. Therefore we are also of the opinion that the disqualification under Section 164(2) of the Act is applicable to him, from becoming the Director of other Public Companies. However the management of the Company are of the opinion that its directors are not disqualified u/s 164(2) of the Companies Act, 2013 for the reasons as stated in note 23.06 of the financial statement.

g. With respect to the other matters 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:

1) The Company has stated vide 23.05 and 23.13 of the financial statement that the impact of pending litigations on its financial position is not ascertainable for the reasons as stated in the aforesaid notes.

2) The Company did not have any long-term contracts including derivatives contracts for which there were any material foreseeable losses, which has been confirmed by the management vide note 23.14 of the financial statement.

3) The Company has not transferred any amount to the credit of Investor Education and Protection Fund during the year under audit, for the reason as given in note 5.01 and 23.15 of financial statement. Accordingly commenting on delay in transferring the amounts to the aforesaid fund does not arise.

ANNEXURE TO INDEPENDENT AUDITOR'S REPORT (issued to the Members of MANIPAL FINANCE CORPORATION LIMITED) REFERRED TO IN PARAGRAPH 1 UNDER THE HEADING "REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS" OF EVEN DATE

As required by the Companies (Auditor's Report) Order 2015 (hereinafter referred to as "the order"), issued by the Central Government under Section 143(11) of the Companies Act, 2013, and on the basis of such checks as we considered appropriate, and according to the information and explanations given to us, we further report that:

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

b) According to the information and explanations given to us the fixed assets other than those under lease, have been physically verified by the management during the period and no material discrepancies were noticed on such verification as compared to available records. In respect of leased assets physical verification has not been done during the year. We are informed that the Company is in the process of verifying those assets.

2. a) According to the information and explanation given to us, inventory which consist of the shares and securities, have been physically verified by the management at regular intervals.

b) In our opinion the procedure of physical verification adopted by the management is reasonable and adequate in relation to the size of the company and the nature of its business.

c) On the basis of our examination of the records of stock of shares and securities, we are of the opinion that the company is maintaining proper records of stock. During the year no material discrepancies have been noticed on physical verification of stock.

3. As per the information and explanation given to us, the company during the year has not granted loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under Section 189 of the Act. Hence further commenting on Clause (iii) of para 3 of the said order does not arise.

4. In our opinion, According to the information and explanation given to us, the company has an adequate internal control procedure in commensurate with its size and nature of business, for the purchase of inventory and fixed assets and for the sale of assets/services. There is no major continuing failure to correct major weakness in internal control system.

5. In our opinion and according to the information and explanation given to us the Company has complied with the directives issued by the Reserve Bank of India, the provision of Section 73 to 76 of the Companies Act, 2013, Companies (Acceptance of Deposit) Rules 2014 and Non Banking Financial Companies (Reserve Bank Directions) with regard to acceptance of deposit from public subject to the exception of renewal of deposits up to 18.01.2000 with maturity dates falling beyond 31stDecember, 2003, non payment of principal/ interest as and when it became due. Our other observations are being made in main audit report under the head "Basis for qualified opinion". However no fresh deposits accepted/renewed during the year under audit. We are informed by the management that the company has not received any order by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in respect of deposits, except the orders from various Consumer Courts (including the Appellate Authorities/Courts acting upon under Consumer Protection Act) regarding repayment of proceeds of debentures/debts/deposits with interest and other costs. The detailed information on these are not made available to us. Therefore we are not in a position to comment on the compliance of aforesaid orders. However we are informed that the Company has settled the dues of many of such cases, which also includes settlement at discounted rates. The Company has also received the order from Reserve Bank of India during December 2004, canceling the certificate of registration.

6. The Central Government has not prescribed maintenance of cost records under Clause (d) of Sub-section (1) of Section 148 of the Companies Act, 2013. Therefore the question of making further comments therein does not arise.

7. a) According to the information and explanation given to us, the company is regular in depositing undisputed statutory dues as detailed in Para 4(ix) (a) of the Order (i.e. provident fund, employees' state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess, value added tax and other statutory dues) with the appropriate authorities, and there are no arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable.

b) According to the records of the company there are no dues of Sales Tax, Income Tax, Custom Duty, Wealth Tax, Service Tax, Excise Duty, Cess, value added tax which have not been deposited due to any dispute.

c) The Company has disclosed the matured debentures/subordinated debts as current liabilities, which are not due to be transferred to Investor Education and Protection Fund, for the reasons given in Note. 5.01 of the Accounts. We are informed by 'he management that, there are no unclaimed matured deposits/deben'ures/deb's and interest thereon and therefore the same are not required to be remitted to the credit of Investor Education and Protection Fund. Accordingly we are not expressing our opinion on the contribution to the aforesaid fund.

8. The accumulated losses at the end of the financial year are not less than fifty per cent of its net worth. The company has not incurred cash losses during the current year and also during the immediately preceding financial year.

9. Based on our audit and according to the information and the explanations given to us, we are of the opinion that the company has during the year defaulted in payment of dues to the debenture holders amounting Rs. 67136 thousands (P. Y Rs. 68043 thousands). Interest on debentures not paid/provided since 1st day of July 2002. However a scheme of arrangement was submitted before the Hon'ble High Court of Karnataka to repay the debenture with interest thereon in the manner mentioned in the Note No. 5.01 to the financial statements. But the scheme is since withdrawn and the Company is exploring the possibility of presenting a new scheme of arrangement, as detailed in Note No. 5.01 as aforesaid.

10. According to the information and explanation given to us the company has not given any guarantee for loans taken by others from bank or financial institution, hence further commenting on this aspect does not arise.

11. The company has not obtained any term loans from banks or financial institutions during the year. Therefore the question of making comments as required under Para 3(xi) does not arise.

12. Based on our audit, which we have conducted in accordance with the Generally Accepted Auditing Practices in India and according to the information and explanation given to us no fraud on or by the company has been noticed or reported during the year.

For PAI NAYAK & ASSOCIATES Chartered Accountants Firm's Registration Number: 009090S

sd/- CA ANANTHANARAYANA PAI K. Place of Signature: MANIPAL Partner Date : 29th May, 2015 Membership Number: 024541

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Mar 31, 2014

We have audited the accompanying financial statements of Manipal Finance Corporation Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2014, 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 Sub-section (3G) of Section 211 of the Companies Act, 1956 ("the Act") read with the General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013. This responsibility inpludes 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, but not for the purpose of expressing an opinion on the effectiveness of the Companies Internal Control. 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.

Basis for the qualified opinion:

1. We draw attention to Note No. 24.02 of the financial statements. The Company has incurred losses and its majority of funds are blocked in Non Performing Assets, raising a doubt about the Company to continue as a going concern. The Company has presented a scheme of arrangement for restructure of liabilities as detailed in Note No. 5.01 of the financial statements and subsequently withdrawn the same, for reasons given therein. The Company is exploring the possibility of presenting the new scheme of arrangement, as detailed in the afore said Notes. The account, however have been prepared on a "going concern basis" in view of management perception as detailed in Note No. 24.02 as aforesaid. However we are unable to comment on the ultimate reliability of Company''s assets including the Fixed Assets under lease. Accordingly we are also unable to comment on the Company''s ability to settle its debts/liabilities (including Deposits, Subordinated debts and Secured Redeemable Debentures.)

2. We draw the attention to Note 5.01 of the Financial Statements. The Company has stopped (i) repayment of matured debentures & matured subordinated debts and (ii) payment of interest on debentures and subordinated debts from 1st day of July, 2002 and proposed a scheme of arrangement before the Hon''ble High Court of Karnataka, as referred to in the aforesaid Note (which is since withdrawn and we are informed that the Company is exploring the possibility presenting anew scheme of arrangement). Further the Company has also stopped repayment of deposits matured for repayment from the aforesaid date. All the debts of the Company i.e. debentures, subordinated debts and deposits are matured for repayment. The Company has provided for interest on deposits/debentures/debts upto 30th June, 2002 and not thereafter.

There are also many instances of settlement of debentures, debts and public deposits at the discounted rates with partiai/fuil waiver of interest, which has been done with mutual consent. We are also informed that many of the remainihg depositors/debenture holders/debt holders have approached the Company for settlement of the dues arid the Company is in the process for the same.

As per the information given to us various consumer courts (including the Appellate Authorities/Courts acting under the Consumer Protection Act) have passed the orders, for the repayment of certain deposits/ debentures/debts with interest and other costs. The detailed information on these orders not made available to us. However we are informed that the Company has settled the dues of such customers in many cases, which also includes settlement at discounted rates with partial/full waiver of interest and many of the remaining persons have approached the Company for settlement,

We draw the attention to the Statement made by the Management of the Company in Note No. 5.01 of the Financial Statement which is as follows: "Considering the facts that the Company has settled the dues of depositors/debenture holders/debt holders at the discounted rates as stated above, that the many of the remaining customers have approached the Company for settlement of their dues, that the orders issued by the various consumer courts including the appellate authorities/courts therein, that the Company has settled the many of such consumer court cases, that the total debts of the Company reduced considerably because of settlement as aforesaid and that the Company is explonng the possibility of framing the new scheme of arrangement, it is not feasible for the Company to ascertain accurately its liability on any given date".

Considering all the facts as given above, we qualify our opinion that it is not feasible for us to ascertain accurately the liability of the Company as on the date of the Balance Sheet.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effect of the matter described in the Basis of Qualified Opinion paragraph, 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 March 31, 2014;

(b) in the case of the Statement of Profit and Loss, 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.

Emphasis of the matter:

We draw the attention to Note 2.01 of the Financial Statements. The Company during the year with a view towards restructuring its liabilities has settled deposits/debentures/subordinated debts at discounted rates. The same has been done with due consent of the parties to deposits, debentures and debts. The interest write back arising out of such settlement is considered as Extraordinary Income in the Statement of Profit and Loss. Principal write back arising out of such settlement is considered as capital receipt and taken directly to Capital Reserve (viz: Capital Reserve 2) in the Balance Sheet. This has been done as per the accounting policy followed by the Company, as stated in Note No. 24.01 (J). The Company had made similar settlements during the earlier years also, by giving the similar accounting treatment. Our opinion is not qualified on this matter.

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. In terms of press release issued by Reserve Bank of India dated 27.06.2001, we state that:

a) The Certificate of Registration as issued by the Reserve Bank of India is not in force, since same was cancelled during December 2004.

b) The Company has not obtained credit rating.

c) The capital adequacy ratio is negative and accordingly the Company''s Loans, advances and investments are above the credit exposure limits.

d) The Company has not filed the prudential returns and annual returns as per revised directives. However the Company has filed such returns as per the directives as prevailed till 31st March, 2011 i.e. prudential returns on half yearly basis and annual return once a year.

e) The public deposits are matured for repayment, but. remained unpaid by the Company. However the company has settled some of the deposits at discounted rates without interest. The Company has not provided/paid interest on deposits after 30th June, 2002.

f) The Company has not created floating charge in favour of the depositors, on the statutory liquid assets invested.

g) The Company has not closed any of its branches during the year. Therefore the question of making any comments therein does not arise.

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

a. we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the 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 read with the General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013 and

e. We are of the opinion that the Directors of the Company are disqualified from being appointed as Directors of other public companies under clause (g) of Sub-section (1) of Section 274 of the Companies Act, 1956, for the reason that the Company has not fully discharged its liability towards matured deposits/debentures/ subordinated debts. One of the Directors of the Company Sri Chandappa R. Sherigar is also the Director of another Company, which has not fully discharged its liability towards matured deposits/debentures. Therefore we are also of the opinion that the disqualification under Section 274(1)(g) of the Act is applicable to him, from becoming the Director of other Public Companies. However the management of the Company are of the opinion that its directors are not disqualified u/s 274(1 )(g) of the Companies Act, 1956 for the reasons as stated in note 24.06 of the financial statement. Accordingly the directors have given the written representation that they are not disqualified u/s 274(1 )(g) of the Companies Act, 1956, to be the directors of the Company, which has been taken on record by the Board bf Directors.

ANNEXURE TO INDEPENDENT AUDITOR''S REPORT (issued to the Members of MANIPAL FINANCE CORPORATION LIMITED) REFERRED TO IN PARAGRAPH 1 UNDER THE HEADING "REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS" OF EVEN DATE

As required by the Companies (Auditor''s Report) Order 2003 (hereinafter referred to as "the order"), issued by the Central Government under Section 227(4A) 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 further report that

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

b) According to the information and explanations given to us the fixed assets other than those under lease, have been physically verified by the management during the period and no material discrepancies were noticed on such verification as compared to available records. In respect of leased assets physical verification has not been done during the year. However the value of depreciated leased assets is insignificant. We are also informed that the Company is in the process of verifying those assets.

c) The Company during the year has not disposed substantial part of its fixed assets. Hence making further comments as per clause (i) (c ) of para 4 of the said order does not arise.

2. a) According to the information and explanation given to us, inventory which consist of the shares and securities, have been physically verified by the management at regular intervals.

b) In our opinion the procedure of physical verification adopted by the management is reasonable and adequate having regard to the nature and size of the company and nature of its business,

c) On the basis of our examination of the records of stock of shares and debentures, we are of the opinion that the company is maintaining proper records of stock. During the year no material discrepancies have been noticed on physical verification of stock.

3. As per the information and explanation given to us, the company during the year has neither granted nor taken any loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under section 301 of the Act. Hence further commenting on clause (iii) of para 4 of the said order does not arise.

4. In our opinion, According to the information and explanation given to us, the company has an adequate internal control procedure in commensurate with its size and nature of business, for the purchase of inventory and fixed assets and for the sale of assets. There is no major continuing failure to correct major weakness in internal control system.

5. In respect of transactions entered in the register maintained in pursuance of section 301 of the Companies Act, 1956.

a) To the best of our knowledge and belief and according to the information and explanations given to us, there are no transactions that needed to be entered into the register, during the year.

b) For the reasons given in sub clause (a) above, the provisions of sub clause (b) of clause (v) of Para 4 ol the Order is not applicable.

6. In our opinion and according to the information and explanation given to us the Company has complied with the directives issued by the Reserve Bank of India, the provision of Section 58A of the Companies Act, 1956, Companies (Acceptance of Deposit) Rules 1975 and Non Banking Financial Companies (Reserve Bank Directions) with regard to acceptance of deposit from public subject to the exception of renewal of deposits up to 18.01.2000 with maturity dates falling beyond 31st December, 2003, non payment of principal/interest as

and when it became due. Our other observations are being made in main audit report under the head ''Basis for qualified opinion". However no fresh deposits accepted/renewed during the year under audit. We are informed by the management that the company has not received any order by Company Law Board or Reserve Bank of India or any Court or any other Tribunal in respect of deposits, except the orders from various Consumer Courts (including the Appellate Authorities/Courts acting upon under Consumer Protection Act) regarding repayment of proceeds of debentures/debts/deposits with interest and other costs. The detailed information on these are not made available to us. Therefore we are not in a position to comment on the compliance of aforesaid orders. However we are informed that the Company has settled the dues of many of such cases, which also includes settlement at discounted rates. The Company has also received the order from Reserve Bank of India during December 2004, canceling the certificate of registration.

7. As per the information received and explanations given to us, there is no internal audit system. Therefore the question of commenting as required under para 4(vii) of the order does not arise. The management has given the reason for the same vide Note No. 24.08 of the financial statements.

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. Therefore the question of making further comments therein does not arise.

9. a) According to the information and explanation given to us, the company is regular in depositing with appropriate authorities undisp -uted statutory dues as detailed in Para 4(ix) (a) of the Order (i.e. provident fund, employees'' state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess and other statutory dues), by remitting them within 6 months from the date they became payable. The Company has disclosed the matured debentures / subordinated debts as current liabilities, which are not due to be transferred to Investor Education and Protection Fund, for the reasons given in Note. 5.01 of the Accounts. We are informed by the management that, there are no unclaimed matured deposits/ '' debentures/debts and interest thereon and therefore the same are not required to be remitted to the credit of Investor Education and Protection Fund. Accordingly we are not expressing our opinion on the contribution to the aforesaid fund.

b) According to the records of the company there are no dues of Sales Tax, Income Tax, Custom Duty, Wealth Tax, Service Tax Excise Duty, Cess which have not been deposited due to any dispute.

10. The net worth of the company has been fully eroded. The company has not incurred cash losses during the current year. The Company has incurred cash loss in the immediately preceding financial year.

11. Based on our audit and according to the information and the explanations given to us, we are of the opinion that the company has during the year defaulted in payment of dues to the debenture holders amounting Rs. 68043 thousands (P. Y. Rs. 69037 thousands). Interest on debentures not paid/provided since 1st day of July, 2002. However a scheme of arrangement was submitted before the Hon''ble High Court of Karnataka to repay the debenture with interest thereon in the manner mentioned in the Note No. 5.01 to the financial statements. But the scheme is since withdrawn and the Company is exploring the possibility of presenting a new scheme of arrangement, as detailed in Note No. 5.01 as aforesaid.

12. In our opinion and according to the information and the explanations given to us, adequate documents and records have been maintained by the Company in respect of Loans and Advances granted on the basis of security by way of pledge of shares, debentures and other securities if any.

13. The company is not a chit fund or a Nidhi or a mutual benefit fund/society. Therefore clause (xiii) of Para 4 the Companies Auditor''s Report Order 2003 is not applicable to the Company.

14. The Company has maintained proper records of transactions and contracts in respect of trading in shares, debentures and other investments and timely entries have been made therein. On the basis of records produced before us, we also report that the shares, securities, debentures and other securities are held by the Company in its own name, except for the cases if any, covered u/s 49(5) of the Companies Act, 1956.

15. According to the information and explanation given to us the company has not given any guarantee for loans taken by others from bank or financial institution, hence further commenting on this aspect does not arise.

16. The company has not taken any term loans from banks or financial institutions during the year. Therefore the question of making comments as required under Para 4(xvi) does not arise.

17. In our opinion and according to the information and explanation given to us and on an overall view of the Balance Sheet of the Company, we report that as the accumulated losses are much more than the own funds and as majority of the long term funds are overdue and as a result there are no long term funds, except for Share Capital, Share Premium, advance received towards sale of property and lease deposits. Therefore, we are of the opinion that short-term funds amounting to Rs. 277081 thousands (RY. Rs. 281218 thousands) have been utilized for long term investments, acquisition of Fixed assets, Investments, Bank Deposits and accumulated losses.

18. During the year the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956.

19. As per our verification and''according to the information and explanation given to us the company has created securities or charge in respect of debentures issued.

20. The Company has not raised any money by public issue during the year and therefore the question of making any comments therein does riot arise.

21. Based on our audit, which we have conducted in accordance with the Generally Accepted Auditing Practices in India and according to the information and explanation given to us we report that no fraud on or by the company has been noticed or reported during the year.

For PAI NAYAK & ASSOCIATES Chartered Accountants Firm''s Registration Number: 009090S Sd/- CA ANANTHANARAYANA PAI K. Place of Signature: MANIPAL Partner Date : 30th May, 2014 Membership Number 024541

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Mar 31, 2012

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

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 the management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

1. As required by the Companies (Auditors' Report) Order, 2003 issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the annexure statement on the matters specified in Paragraphs 4 and 5 of the said order, to the extent applicable to the Company.

2. Further to our comments in the Annexure referred to in Paragraph (1) 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 those books.

c) The Balance Sheet, Statement of Profit and Loss & Cash Flow Statement referred to in this report are in agreement with the examination of those books.

d) In our opinion, the Balance Sheet, Statement of Profit and Loss & Cash Flow Statement, dealt with by this report, have been prepared in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act,1956.

e) On the basis of written representations received from the Directors as on 31st March, 2012 and taken on record by the Board of Directors and subject to note no.24.06 we report that none of the directors are disqualified as on 31st March, 2012 from being appointed as Director in terms of Clause (g) of Sub-Section 1 of Section 274 of the Companies Act,19566.

f) In terms of press release issued by Reserve Bank of India dated 27.06.2001, we state that:

i) The Certificate of Registration as issued by the Reserve Bank of India is not in force, since same was cancelled during December,2004.

ii) The Company has not obtained credit rating.

iii) The capital adequacy ratio is negative and accordingly the Companies; Loans, advances and investments are above the credit exposure limits.

iv) The Company has not filed the prudential returns and annual returns as per revised directives. However the Company has filed such returns as per the directives as prevailed till 31st March, 2011 i.e prudential returns on half yearly basis and annual return once a year.

v) The public deposits are matured for repayment, but remained unpaid by the Company. However the company has settled some of the deposits at discounted rates without interest. The Company has not provided/paid interest on deposits after 30th June, 2002.

vi) The Company has not created floating charge in favour of the depositors, on the statutory liquid assets invested.

vii) The Company has not strictly adhered RBI guidelines on closure of branches.

3. a) We draw attention to Note No.24.02 of the financial statements. The Company has incurred losses and its majority of funds are blocked in Non Performing Assets, raising a doubt about the Company to continue as a going concern. The Company has presented a scheme of arrangement for restructure of liabilities as detailed in Note No.5.01 of the financial statements and subsequently withdrawn the same, for reasons given therein. The Company is exploring the possibility of presenting the new scheme of arrangement, as detailed in the aforesaid Notes. The account, however have been prepared on a "going concern basis" in view of management perception as detailed in Note No.24.02 as aforesaid. However we are unable to comment on the ultimate reliability of Company's assets including the Fixed Assets under lease.

b) The Company has stopped (i) repayment of matured debentures & matured subordinated debts and (ii) payment of interest on debentures and subordinated debts from 1st day of July 2002, in view of the scheme of arrangement imposed before the Honble High Court of Karnataka, as referred to in Note No 5.01 of the financial statement (which is since withdrawn and we are informed that the Company is exploring the possibility presenting a new scheme of arrangement). Accordingly Interest on debentures/debts are provided up to 30th June, 2002 only and not thereafter. The Company has also not provided for the interest on public deposits from 1st July 2002. However all the public deposits are matured for repayment and remained unpaid as on the date of the Balance Sheet. No provision for interest on such debentures/debts/ deposits is being made during the year under audit. The effect on the loss is not ascertainable, since the Company has not quantified such interest. There are also instances of settlement of debentures, debts and public deposits as stated in note no. 2.01 of the financial statements. As per the information given to us various consumer courts (including the Appellate Authorities/Courts acting under the Consumer Protection Act) have passed the orders, for the repayment of certain deposits/debentures/debts with interest and other costs. The detailed information on these orders not made available to us and therefore we are unable to ascertain the ultimate effect on the profit/loss, on account of the aforesaid orders.

c) We draw the attention to note no. 24.10 of financial statement, wherein the management has explained the reason for earning the profit during the year under audit. The Company would have incurred loss, if the income as stated in the aforesaid note (i.e. exceptional/extra ordinary incomes and revenue earned on settlement with the borrowers ) were not earned.

4. Subject to the comments made in paragraph 2(e), 2(f) and paragraph 3 above, in our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and in particular note no 2.01 on write back of deposits/debenture/subordinated debts & treatment of principal write back as capital receipt, note no 5.02, on balances of deposits/interest lying in sundry creditors pending reconciliation, note no 5.03 & 3.01, on adequacy of security of debenture considering the provisions made & agreement to sell the property as detailed therein, note no. 6.01 regarding adjustment of revalued portion of lease hold land to revaluation reserve on termination of lease, note no. 21.01 on treating the provision reversal, bad debts written off & bad debts recovered as exceptional item, note No 24.07, on impairment of assets, Note No 4.01 on provision for leave encashment on estimated basis, rather than opting for actuarial valuation Note 19.01 disclosing lease equalization credit as reduction from depreciation,, give the information required under 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:-

(i) In so far as it relates to Balance Sheet, of the State of Affairs of the Company as at 31st March, 2012.

(ii) In so far as it relates to the Statement of Profit and Loss, of the profit for the year ended on that date.

(iii) In so far as it relates to the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF THE AUDITORS' REPORT OF EVEN DATE

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

b) According to the information and explanations given to us the fixed assets other than those under lease, have been physically verified by the management during the period and no material discrepancies were noticed on such verification as compared to available records. In respect of leased assets physical verification has not been done during the year. However the value of depreciated leased assets is insignificant. We are also informed that the Company is in the process of verifying those assets.

c) The Company during the year has not disposed substantial part of its fixed assets. Hence making further comments as per Clause (i) (c) of para 4 of the said order does not arise.

2. a) According to the information and explanation given to us, inventory which consist of the shares and securities, have been physically verified by the management at regular intervals.

b) In our opinion the procedure of physical verification adopted by the management is reasonable and adequate having regard to the nature and size of the company and nature of its business.

c) On the basis of our examination of the records of stock of shares and debentures, we are of the opinion that the company is maintaining proper records of stock. During the year no material discrepancies have been noticed on physical verification of stock.

3. As per the information and explanation given to us, the company during the year has neither granted nor taken any loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under Section 301 of the Act. Hence further commenting on Clause (iii) of Para 4 of the said order

4. In our opinion, according to the information and explanation given to us, the company has an adequate internal control procedure in commensurate with its size and nature of business, for the purchase of inventory and fixed assets and for the sale of assets. There is no major continuing failure to correct major weakness in

5. In respect of transactions entered in the register maintained in pursuance of Section 301 of the Companies act,1956.

a) To the best of our knowledge and belief and according to the information and explanations given to us, there are no transactions that needed to be entered into the register, during the year.

b) For the reasons given in sub Clause (a) above, the provisions of sub Clause (b) of Clause (v) of Para 4 of the Order is not applicable.

6. In our opinion and according to the information and explanation given to us the Company has complied with the directives issued by the Reserve Bank of India, the provision of Section 58A of the Companies Act, 1956, Companies (Acceptance of Deposit) Rules, 1975 and Non Banking Financial Companies (Reserve Bank Directions) with regard to acceptance of deposit from public subject to the exception of renewal of deposits up to 18.01.2000 with maturity dates falling beyond 31st December, 2003, non payment principal/ interest as and when it became due. Our other observations are being made in Para 2 (f) of main audit report, however no fresh deposits accepted/renewed during the year under audit. We are informed by the management that the company has not received any order by Company Law Board or Reserve Bank of India or any Court or any other Tribunal in respect of deposits, except the orders from various Consumer Courts (including the Appellate Authorities/Courts acting upon under Consumer Protection Act) regarding repayment of proceeds of debentures/debts/deposits with interest and other costs. The detailed information on these are not made available to us. Therefore we are not in a position to comment on the compliance of aforesaid orders. The Company has also received the order from Reserve Bank of India during December 2004, canceling the certificate of registration.

7. As per the information received and explanations given to us, there is no internal audit system. Therefore the question of commenting as required under Para 4(vii) of the Order does not arise. The management has given the reason for the same vide Note No. 24.08 of the financial statements.

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. Therefore the question of making further comments therein does not arise.

9. a) According to the information and explanation given to us, the company is regular in depositing with appropriate authorities undisputed statutory dues as detailed in Para 4(ix) (a) of the Order (i.e. provident fund, employees' state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess and other statutory dues), by remitting them within 6 months from the date they became payable. The Company has disclosed the matured debentures /subordinated debts as current liabilities, which are not due to be transferred to Investor Education and Protection Fund, for the reasons given in Note. 5.01 of the Accounts. We are informed by the management that, there are no unclaimed matured deposits and interest thereon and therefore the same are not required to be remitted to the credit of Investor Education and Protection Fund. Accordingly we are not expressing our opinion on the contribution to the aforesaid fund.

b) According to the records of the company there are no dues of Sales Tax, Income Tax, Custom Duty, Wealth Tax, Service Tax, Excise Duty, Cess which have not been deposited due to any dispute.

10. The net worth of the company has been fully eroded. The company has not incurred cash losses during the current year and also in the immediately preceding financial year. We have considered the exceptional items, extra ordinary items and lease equalization credit as the cash item, to arrive at the aforesaid conclusion.

11. Based on our audit and according to the information and the explanations given to us, we are of the opinion that the company has during the year defaulted in payment of dues to the debenture holders amounting Rs. 70093 thousands (P Y Rs. 79963 thousands). Interest on debentures not paid since 1st day of July 2002. However a scheme of arrangement was submitted before the Honble High Court of Karnataka to repay the debenture with interest thereon in the manner mentioned in the Note No. 5.01 to the financial statements. But the scheme is since withdrawn and the Company is exploring the possibility of presenting a new scheme of arrangement, as detailed in Note No. 5.01 as aforesaid.

12. In our opinion and according to the information and the explanations given to us, adequate documents and records have been maintained by the Company in respect of Loans and Advances granted on the basis of security by way of pledge of shares, debentures and other securities if any.

13. The company is not a chit fund or a Nidhi or a mutual benefit fund /society. Therefore clause (xiii) of Para 4 the Companies Auditor's Report Order 2003 is not applicable to the Company.

14. The Company has maintained proper records of transactions and contracts in respect of trading in shares, debentures and other investments and timely entries have been made therein. On the basis of records produced before us, we also report that the shares, securities, debentures and other securities are held by the Company in its own name, except for the cases if any, covered u/s 49(5) of the Companies Act, 1956.

15. According to the information and explanation given to us the company has not given any guarantee for loans taken by others from bank or financial institution, hence further commenting on this aspect does not arise.

16. The company has not taken any term loans from banks or financial institutions during the year. Therefore the question of making comments as required under Para 4(xvi) does not arise.

17. In our opinion and according to the information and explanation given to us and on an overall view of the Balance Sheet of the Company, we report that as the accumulated losses are much more than the own funds and as majority of the long term funds are overdue and as a result there are no long term funds, except for Share Capital, Share Premium, advance received towards sale of property and lease deposits. Therefore, we are of the opinion that short-term funds amounting to Rs.2,88,127 thousands (P Y Rs.3,37,255 thousands) have been utilized for long term investments, acquisition of Fixed assets, Investments, Bank Deposits and

18. During the year the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956.

19. As per our verification and according to the information and explanation given to us the company has created securities or charge in respect of debentures issued.

20. The Company has not raised any money by public issue during the year and therefore the question of making any comments therein does not arise.

21. Based on our audit, which we have conducted in accordance with the Generally Accepted Auditing Practices in India and according to the information and explanation given to us we report that no fraud on or by the company has been noticed or reported during the year.

For PAI NAYAK & ASSOCIATES

Chartered Accountants

Registration Number: 009090S

sd/-

Place: Udupi Ammunje Venkatesh Nayak

Partner

Date: 30.05.2012 Membership No: 204685

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Mar 31, 2010

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

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 the management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

1. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the annexure statement on the matters specified in Paragraphs 4 and 5 of the said order, to the extent applicable to the Company.

2. Further to our comments in the Annexure referred to in Paragraph (1) 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 those books.

c) The Balance Sheet, Profit and Loss Account & Cash Flow Statement referred to in this report are in agreement with the books of account.

d) In our opinion, the Balance Sheet, Profit and Loss Account & Cash Flow Statement, dealt with by this report, have been prepared in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956.

e) On the basis of written representations received from the Directors as on 31st March, 2010 and taken on record by the Board of Directors and subject to Note No. 11(19) to the Schedule K we report that none of the directors are disqualified as on 31st March, 2010 from being appointed as Director in terms of Clause (g) of Sub-Section 1 of Section 274 of the Companies Act 1956 .

f) In terms of press release issued by Reserve Bank of India dated 27-06-2001, we state that:

i) The Certificate of Registration as issued by the Reserve Bank of India is not in force, since same was cancelled during December 2004.

ii) The Company has not obtained credit rating.

iii) The capital adequacy ratio is negative and accordingly the Companies; Loans, advances and investments are above the credit exposure limits.

iv) The public deposits are matured for repayment, but remained unpaid by the Company. However the company has settled some of the deposits at discounted rates without interest. The Company has not provided/paid interest on deposits after 30th June, 2002.

v) The Company has not created floating charge in favour of the depositors, on the statutory liquid assets invested.

vi) The Company has not strictly adhered RBI guidelines on closure of branches.

3. a) We draw attention to Note No. II (2) of Schedule "K" in the financial statements. The Company has incurred losses and its majority of funds are blocked in Non performing Assets, raising a doubt about the Company to continue as a going concern. The Company has presented a scheme of arrangement for restructure of liabilities as detailed in Note No. II (1) of Schedule "K" in the financial statements and subsequently withdrawn the same, for reasons given therein. The Company is exploring the possibility of presenting the new scheme of arrangement, as detailed in the aforesaid Notes. The account, however have been prepared on a "going concern basis" in view of management perception as detailed in Note No. II (2) of Schedule K. However we are unable to comment on the ultimate reliability of Companys assets including the Fixed Assets under lease.

b) Provision has not been made for Non-performing Assets amounting to Rs. 170,00 thousands (P.Y. Rs. 5,41,82 thousands) under Reserve Bank of India Prudential Norms. (Refer Note No. 11(4) of Schedule K).

c) The Company has stopped (i) repayment of matured debentures & matured subordinated debts and (ii) payment of interest on debentures and subordinated debts from 1st day of July 2002, in view of the scheme of arrangement proposed before the Hon ble High Court of Karnataka, as referred to in Note No. 11(1) of Schedule K to the financial statement (which is since withdrawn and we are informed that the Company is exploring the possibility presenting a new scheme of arrangement). Accordingly Interest on debentures/ debts are provided up to 30th June, 2002 only. The Company has also not provided for the interest on public deposits from 1st July 2002. However all the public deposits are matured for repayment and remained unpaid as on the date of the Balance Sheet. No provision for interest on such debentures/debts/deposits is being made during the year under audit. The effect on the loss is not ascertainable, since the Company has not quantified such interest. There are also instances of settlement of debentures, debts and public deposits as stated in Note No. II (5) of Schedule K. As per the information given to us various consumer courts (including the Appellate Authorities/Courts acting under the Consumer Protection Act) have passed the orders, for the repayment of certain deposits/debentures/debts with interest and other costs. The detailed information on these orders not made available to us and therefore we are unable to ascertain the ultimate effect on the profit/loss, on account of the aforesaid orders.

d) We further report that had the observation made in 3 (b) above, been considered loss for the year, would have been Rs.184,03 thousands (P.Y. Rs. 5,17,47 thousands) (as against reported figures of loss Rs.14,03 thousands {P.Y. Profit Rs.24,35 thousands}) and accumulated losses would have been Rs. 68,50,58 thousands (P.Y. Rs. 72,08,37 thousands) (as against the reported figure of Rs.66,80,58 thousands {P.Y. Rs. 66,66,55 thousands}), (without considering the non-provision of interest and other costs as detailed in para (c) above.)

4. Subject to the comments made in paragraph 2(e), 2(f) and paragraph 3 above, in our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and in particular Note No. II (5) of Schedule K, on write back of deposits/debenture/subordinated debts & treatment of principal write back as capital receipt, Note No. II (6) of Schedule K, on balances of deposits/interest lying in sundry creditors pending reconciliation, Note No. II (7) & II (8) of Schedule K, on adequacy of security of debenture considering the provisions made & agreement to sell the property as detailed therein & disclosing such debentures as Current Liabilities, Note No. 2(11) regarding adjustment of revalued portion of lease hold land to revaluation reserve on termination of lease, Note No. II (20) of Schedule K, on impairment of assets, Note No. 11(23) provision for leave encashment on estimated basis, rather than opting for actuarial valuation, give the information required under 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:-

(i) In so far as it relates to Balance Sheet, of the State of Affairs of the Company as at 31st March, 2010

(ii) In so far as it relates to the Profit and Loss Account, of the loss for the year ended on that date.

(iii) In so far as it relates to the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF THE AUDITORSREPORT OF EVEN DATE

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

b) According to the information and explanations given to us the fixed assets other than those under lease, have been physically verified by the management during the period and no material discrepancies were noticed on such verification as compared to available records. In respect of leased assets physical verification has not been done during the year. However the value of depreciated leased assets is insignificant. We are also informed that the Company is in the process of verifying those assets.

c) The Company during the year has not disposed substantial part of its fixed assets. Hence making further comments as per Clause (i) (c) of Para 4 of the said order does not arise.

2. a) According to the information and explanation given to us, inventory which consist of the shares and securities, have been physically verified by the management at regular intervals.

b) In our opinion the procedure of physical verification adopted by the management is reasonable and adequate having regard to the nature and size of the company and nature of its business.

c) On the basis of our examination of the records of stock of shares and debentures, we are of the opinion that the company is maintaining proper records of stock. During the year no material discrepancies have been noticed on physical verification of stock.

3. As per the information and explanation given to us, the company during the year has neither granted nor taken any loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under Section 301 of the Act. Hence further commenting on Clause (iii) of Para 4 of the said order does not arise.

4. In our opinion, according to the information and explanation given to us, the company has an adequate internal control procedure in commensurate with its size and nature of business, for the purchase of inventory and fixed assets and for the sale of assets. There is no major continuing failure to correct major weakness in internal control system.

5. In respect of transactions entered in the register maintained in pursuance of Section 301 of the Companies Act, 1956.

a) To the best of our knowledge and belief and according to the information and explanations given to us, there are no transactions that needed to be entered into the register, during the year.

b) For the reasons given in Sub-clause (a) above, the provisions of Sub-clause (b) of Clause (v) of Para 4 of the Order is not applicable.

6. In our opinion and according to the information and explanation given to us the Company has complied with the directives issued by the Reserve Bank of India, the provision of Section 58A of the Companies Act, 1956, Companies (Acceptance of Deposit) Rules 1975 and Non-Banking Financial Companies (Reserve Bank Directions) with regard to acceptance of deposit from public subject to the exception of renewal of deposits up to 18-01-2000 with maturity dates falling beyond 31st December, 2003, non-payment principal/interest as and when it became due. Our other observations are being made in Para 2 (f) of main audit report. However no fresh deposits accepted/renewed during the year under audit. We are informed by the management that the company has not received any order by Company Law Board or Reserve Bank of India or any Court or any other Tribunal in respect of deposits, except the orders from various Consumer Courts (including the Appellate Authorities/Courts acting upon under Consumer Protection Act) regarding repayment of proceeds of debentures/debts/deposits with interest and other costs. The detailed information on these are not made available to us. Therefore we are not in a position to comment on the compliance of aforesaid orders. The Company has also received the order from Reserve Bank of India during December 2004, canceling the certificate of registration.

7. As per the information received and explanations given to us, there is no internal audit system. Therefore the question of commenting as required under Para 4(vii) of the order does not arise. The management has given the reason for the same vide Note No. 11(22) of Schedule K to the financial statements.

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. Therefore the question of making further comments therein does not arise.

9. a) According to the information and explanation given to us, the company is regular in depositing with appropriate authorities undisputed statutory dues as detailed in Para 4(ix) (a) of the Order (i.e. provident fund employees state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess and other statutory dues), by remitting them within 6 months from the date they became payable. The Company has disclosed the matured debentures/subordinated debts as current liabilities, which are not due to be transferred to Investor Education and Protection Fund, for the reasons given in Note II (1) of the Schedule K of the Accounts. We are informed by the management that, there are no unclaimed matured deposits and interest thereon and therefore the same are not required to be remitted to the credit of Investor Education and Protection Fund. Accordingly we are not expressing our opinion on the contribution to the aforesaid fund.

b) According to the records of the company there are no dues of Sales Tax, Income Tax, Custom Duty, Wealth Tax, Service Tax, Excise Duty, Cess which have not been deposited due to any dispute.

10. The net worth of the company has been fully eroded. The company has not incurred cash losses during the current year and also in the immediately preceding financial year. Had the Company provided for the Non-Performing Assets fully (as detailed in Note No. II (4) of Schedule K, the Company would have incurred the Cash Losses.

11. Based on our audit and according to the information and the explanations given to us, we are of the opinion that the company has during the year defaulted in payment of dues to the debenture holders amounting Rs. 868 Lakhs (P.Y. Rs.1046 Lakhs). Interest on debentures not paid since 1st day of July, 2002. However a scheme of arrangement was submitted before the Honble High Court of Karnataka to repay the debenture with interest thereon in the manner mentioned in the Note No. 11(1) of Schedule K to the financial statements. But the scheme is since withdrawn and the Company is exploring the possibility of presenting a new scheme of arrangement, as detailed in Note No. 11(1) of the Schedule K to the Accounts.

12. In our opinion and according to the information and the explanations given to us, adequate documents and records have been maintained by the Company in respect of Loans and Advances granted on the basis of security by way of pledge of shares, debentures and other securities if any.

13. The company is not a chit fund or a Nidhi or a mutual benefit fund/society. Therefore Clause (xiii) of Para 4 the Companies Auditors Report Order 2003 is not applicable to the Company.

14. The Company has maintained proper records of transactions and contracts in respect of trading in shares, debentures and other investments and timely entries have been made therein. On the basis of records produced before us, we also report that the shares, securities, debentures and other securities are held by the Company in its own name, except for the cases if any, covered u/s 49(5) of the Companies Act, 1956.

15. According to the information and explanation given to us the company has not given any guarantee for loans taken by others from bank or financial institution, hence further commenting on this aspect does not arise.

16. The company has not taken any term loans from banks or financial institutions during the year. Therefore the question of making comments as required under Para 4(xvi) does not arise.

17. In our opinion and according to the information and explanation given to us and on an overall view of the Balance Sheet of the Company, we report that as the accumulated losses are much more than the own funds and as majority of the long-term funds are overdue and as a result there are no long term funds, except for Share Capital & Share Premium. Therefore, we are of the opinion that short-term funds amounting to Rs. 3,94,516 thousands (P. Y. Rs. 4,31,531 thousands) have been utilized for long-term investments, acquisition of fixed assets, loans & advances. Hire Purchase etc. and accumulated losses.

18. During the year the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956.

19. As per our verification and according to the information and explanation given to us the company has created securities or charge in respect of debentures issued.

20. The Company has not raised any money by public issue during the year. Therefore the question of making further comments therein does not arise.

21. Based on our audit, which we have conducted in accordance with the Generally Accepted Auditing Practices in India and according to the information and explanation given to us we report that no fraud on or by the company has been noticed or reported during the year.

For PAI NAYAK & ASSOCIATES

Chartered Accountants

Registration Number: 009090S

Sd/-

Place : Udupi Ammunje Venkatesh Nayak

Date : 29-05-2010 Partner (Membership No.: 204685)