Auditor Report of Modern Dairies Ltd.

Mar 31, 2015

1. We have audited the accompanying financial statements of Modern Dairies Limited ("the Company"), which comprise the Balance Sheet as at 31st March, 2015, 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

2. 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 (as amended). This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act; safeguarding the assets of the Company; 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.

Auditor's Responsibility

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

4. 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.

5. 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.

6. 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 controls 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.

7. 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

8. 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 31st March, 2015, its loss and its cash fows for the year ended on that date.

Emphasis of Matter

9. W e draw attention to Note xxix (b) and xxx to the accompanying financial statements, which describes the uncertainty related to the outcome of the pending litigation in connection with the levy of Milk Cess and interest thereon under the provisions of 'The Haryana Murrah Buffalo and Other Milch Animal Breed (Preservation and Development of Animal Husbandry and Dairy Development Sector) Act, 2001, and indicates that as at 31st March, 2015 the net worth of the Company is fully eroded. These conditions, along with other matters as set forth in Note xxIx (b) and xxx, indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. Our opinion is not qualified is respect of this matter.

Report on Other Legal and Regulatory Requirements

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

11. As required by Section143(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 financial statements 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 (as amended);

e. on the basis of the written representations received from the directors as on 31st March, 2015 and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of Section164(2) of the Act;

f. 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. as detailed in Note xxIx (a), xxIx (b) and xxIx (c) to the financial statements, the Company has disclosed the impact of pending litigations on its financial position;

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

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

Annexure to the Independent Auditor's Report of even date to the members of Modern Dairies Limited, on the financial statements for the year ended 31st March, 2015

Based on the audit procedures performed for the purpose of reporting a true and fair view on the financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, we report that:

(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 program of physical verification of its fixed assets under which fixed assets are verified in a phased manner over a period of three years, which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification.

(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year, except for goods-in-transit and stocks lying with third parties. For stocks lying with third parties at the year-end, written confirmations have been obtained by the management.

(b) The procedures of physical verification of inventory 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 and no material discrepancies between physical inventory and book records were noticed on physical verification.

(iii) The Company has not granted any loan, secured or unsecured to companies, firms or other parties covered in the register maintained under Section 189 of the Act. Accordingly, the provisions of clauses 3(iii)

(a) and 3(iii)(b) of the Order are not applicable.

(iv) In our opinion, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fxed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas. (v) The Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Accordingly, the provisions of clause 3(v) of the Order are not applicable. (vi) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under sub-section (1) of Section 148 of the Act in respect of Company's products/services 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 cost records with a view to determine whether they are accurate or complete. (vii) (a) Undisputed statutory dues including provident fund, employees' state insurance, income- tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and other material statutory dues, as applicable, have generally been regularly deposited with the appropriate authorities, though there has been a slight delay in a few cases. Further, no undisputed amounts payable in respect thereof were outstanding at the year-end for a period of more than six months from the date they became payable.

(b) The dues outstanding in respect of income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax and cess on account of any dispute, are as follows:

Name of the Nature Amount Amount statute of A in Paid dues lacs Under Protest (A in lacs)

The Haryana Milk cess 15,02.99 5,91.00 Murrah Buffalo and Other Milch Animal Breed (Preservation and Development of Animal Husbandry and Dairy Development Sector) Act, 2001

The Haryana Interest on 14,95.87 - Murrah milk cess Buffalo and Other Milch Animal Breed (Preservation and Development of Animal Husbandry and Dairy Development Sector) Act, 2001

Central CENVAT 82.40 82.40 Excise Tax, credit, 1944 interest

Central CENVAT 1,78.85 15.00 Excise Tax, credit, 1944 interest

Customs Act, Penalty and 10.60 10.60 1962 redemption fine

Haryana Tax Entry tax 1,16.50 - on Entry of Goods into Local Areas Act, 2003

Income Tax Income tax 11.41 6.06 Act, 1961

Name of the Period to Forum where statute which the dispute is amount pending relates

The Hariyana Murrah 2001-02 to Hon'ble Buffalo and Other 2014-15 Supreme Court Milch Animal Breed of India (Preservation and Development of Amimal Husbandry and Dairy Development Sector)Act,2001

The Hariyana Murrah 2001-02 to Hon'ble Buffalo and Other 2014-15 Supreme Court Milch Animal Breed of India (Preservation and Development of Animal Husbandry and Dairy Development Sector)Act 2001

Central Excise Tax 2005-06 Custom Excise 1944 and Service Tax Appellate Tribunal, New Delhi

Central Excise Tax 2007-08 to Custom Excise 2009-10 and Service Tax Appellate Tribunal, New Delhi

Customs Act,1962 2011-12 Custom Excise and Service Tax Appellate Tribunal, New Delhi

Haryana Tax on Entry 2007-08 to Hon'ble of Goods into Local 2014-15 Supreme Court Areas Act,2003 of India

Income Tax Act,1961 AY 2006-07, Income Tax 2008-09 Appellant and Tribunal, New 2009-10 Delhi and Commissioner of Income Tax (CIT), Gurgaon

(c) There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under. Accordingly, the provisions of clause 3(vii) (c) of the Order are not applicable.

(viii) In our opinion, the Company's accumulated losses at the end of the financial year are more than fifty percent of its net worth. The company has incurred cash losses in the current financial year; however, in the immediately preceding financial year the company had not incurred cash losses.

(ix) There are no dues payable to financial institutions or debenture-holders. During the year ended 31st March, 2015, the Company has defaulted on timely repayment of principal and payment of interest on term loans and corporate loans to banks. The delay with respect to interest and principal on term loans, upto 30 days amounted to M 95,09,695 and M 26,00,000, respectively; the delay between 31 to 90 days amounted to M 1,16,15,089 and M 1,12,99,614 respectively. The delay with respect to interest and principal on corporate loans, upto 30 days amounted to M 56,04,090 and Nil, respectively; the delay between 31 to 90 days amounted to M 27,61,592 and M 44,77,073 respectively.

Apart from above, as at the year end, the interest outstanding on term loans amounting to M 97,96,745 and on corporate loans amounted to M 36,70,170 has not been paid till 31st March 2015. As at the balance sheet date, the periods of delay in these cases were upto 60 days.

(x) The Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, the provisions of clause 3(x) of the Order are not applicable.

(xi) In our opinion, the Company has applied the term loans for the purpose for which these loans were obtained.

(xii) According to the information & explanations given to us, no fraud on or by the Company has been noticed or reported during the period covered by our audit except for an instance as detailed in note xxxVII to the financial statements, identified by the management, wherein an employee of the Company was found to be involved in preparing inappropriate report on the quality test carried out by him on raw milk purchased from a vendor. The management is in the process of quantifying its impact, however, as per the information and explanations given to us, such amount is not expected to be material. Further, the management has fled a first information report with Police department against the employee and the vendor, has terminated the services of such employee, discontinued business with such vendor and is in the process of taking necessary steps for ensuring appropriate recoveries.

For Walker Chandiok & Co LLP

(Formerly Walker, Chandiok & Co)

Chartered Accountants

Firm's Registration No.: 001076N/N500013

per Sumit Mahajan Place : Chandigarh Partner

Date : 29th May, 2015 M. No.: 504822

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Mar 31, 2014

1. We have audited the accompanying financial statements of Modern Dairies Limited, ("the Company"), which comprise the Balance Sheet as at 31st March, 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

2. 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 principles generally accepted in India, including the Accounting Standards notified under 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 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

3. 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.

4. 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 Company''s 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.

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

Opinion

6. 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:

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

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

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

Emphasis of matter

7. We draw attention to Note XXIX (b) of the financial statements, which describes the uncertainty related to the outcome of the pending litigation in connection with the levy of Milk Cess and interest thereon under the provisions of The Haryana Murrah Buffalo and Other Milch Animal Breed (Preservation and Development of Animal Husbandry and Dairy Development Sector) Act, 2001, and indicates that as at 31st March, 2014, the Company''s net worth is fully eroded. These conditions, along with other matters as set forth in Note XXIX (b) and XXIX (c), indicate the existence of a material uncertainty that may cast significant doubt about the Company''s ability to continue as a going concern. Our opinion is not qualified is respect of this matter.

Report on Other Legal and Regulatory Requirements

8. 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.

9. 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 financial statements dealt with by this report are in agreement with the books of account;

d. in our opinion, the financial statements comply with the Accounting Standards notified under 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. on the basis of written representations received from the directors, as on 31st March, 2014 and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2014 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act.

Annexure to the Independent Auditors'' Report of even date to the members of Modern Dairies Limited, on the financial statements for the year ended 31st March, 2014

Based on the audit procedures performed for the purpose of reporting a true and fair view on the financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, we report that:

(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 program of physical verification of its fixed assets under which fixed assets are verified in a phased manner over a period of three year, which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification.

(c) In our opinion, a substantial part of fixed assets has not been disposed off during the year.

(ii) (a) The management has conducted physical

verification of inventory at reasonable intervals during the year, except for goods-in-transit and stocks lying with third parties. For stocks lying with third parties at the year-end, written confirmations have been obtained by the management.

(b) The procedures of physical verification of inventory 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 and no material discrepancies between physical inventory and book records were noticed on physical verification.

(iii) (a) The Company has not granted any loan, secured

or unsecured to companies, firms or other parties

covered in the register maintained under Section 301 of the Act. Accordingly, the provisions of clauses 4(iii)(b) to 4(iii) (d) of the Order are not applicable.

(e) The Company has taken unsecured loans from five parties covered in the register maintained under Section 301 of the Act. The maximum amount outstanding during the year is Rs.799.77 lacs and the year-end balance is Rs.599.03 lacs.

(f) In our opinion, the rate of interest and other terms and conditions of loans taken by the Company are not, prima facie, prejudicial to the interest of the Company.

(g) In respect of loans taken, repayment of the principal amount and the interest is regular.

(iv) In our opinion, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas.

(v) (a) In our opinion, the particulars of all contracts or

arrangements that need to be entered into the register maintained under Section 301 of the Act have been so entered.

(b) Owing to the unique and specialized nature of the items involved and in the absence of any comparable prices, we are unable to comment as to whether the transactions made in pursuance of such contracts or arrangements have been made at the prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the Companies (Acceptance of Deposits) Rules, 1975. Accordingly, the provisions of clause 4(vi) of the Order are not applicable.

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

(viii) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under clause (d) of sub-section (1) of Section 209 of the Act in respect of Company''s products/services 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 cost records with a view to determine whether they are accurate or complete.

(ix)(a) Undisputed statutory dues including provident fund, investor education and protection fund, employees " state insurance, income-tax, sales- tax, wealth tax, service tax, custom duty, excise duty, cess and other material statutory dues, as applicable, have generally been regularly deposited with the appropriate authorities, though there has been a slight delay in a few cases. Further, no undisputed amounts payable in respect thereof were outstanding at the year-end for a period of more than six months from the date they became payable.

(b) The dues outstanding in respect of income-tax, sales-tax, wealth tax, service tax, custom duty, excise duty, cess on account of any dispute, are as follows:

Name of the statute Nature of Dues Amount Amount in Lacs Paid under

The Haryana Murrah Milk cess 27,03.84 5,91.00 Buffalo and Other Milch Animal Breed (Preservation and Development of Animal Husbandry and Dairy Development Sector) Act 2001

Central Excise CENVAT credit, 82.40 82.40 Act,1944 interest

Central Excise CENVAT credit 1,78.85 15.00 Act,1944 interest & penalty

Customs Act, 1962 Penalty and 10.60 10.60 redemption fine

Haryana Tax on Entry Entry Tax 95.51 - of Goods into Local Areas Act, 2003

Income Tax Act, 1961 Income tax 6.46 6.06

Haryana Value Credit on input 9.67 7.90 Added Tax, 2008

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

The Haryana Murrah Buffalo 2001-02 Hon''ble and Other Milch Animal Breed to Supreme (Preservation and 2013-14 Court of India* Development of Animal Husbandry and Dairy Development Sector) Act, 2001 Central Excise Act,1944 2005-06 Custom Excise and Service Tax Appellate Tribunal, New Delhi

Central Excise Act,1944 2007-08 Custom Excise & to2009-10 Service Tax Appellate Tribunal , New Delhi

Customs Act, 1962 2011-12 Custom Excise and Service Tax Appellate Tribunal, New Delhi

Haryana Tax on Entry of Goods 2007-08 to Hon''ble Supreme into Local Areas Act, 2003 2013-14 Court of India

Income Tax Act, 1961 AY 2006-07 Income Tax Appellant and 2008-09 Tribunal, New Delhi

Haryana Value Added Tax, 2008 2005-06 Punjab & Haryana High Court, Chandigarh

(x) In our opinion, the Company''s accumulated losses at the end of the financial year are more than fifty percent of its net worth. The Company has not incurred cash losses during the year or in the immediately preceding financial year.

(xi) In our opinion, the Company has not defaulted in repayment of dues to any financial institution or a bank or to debenture-holders 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. Accordingly, the provisions of clause 4(xii) of the Order are not applicable.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. Accordingly, provisions of clause 4(xiii) of the Order are not applicable.

(xiv) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable.

(xv) The Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, the provisions of clause 4(xv) of the Order are not applicable.

(xvi) In our opinion, the Company has applied the term loans for the purpose for which these loans were obtained.

(xvii) In our opinion, no funds raised on short-term basis have been used for long-term investment by the Company.

(xviii) During the year, the Company has not made any preferential allotment of shares to companies covered in the register maintained under Section 301 of the Act. Accordingly, the provisions of clause 4(xviii) of the Order are not applicable.

(xix) As stated in Note V (c)(iii) to the financial statements, pursuant to Corporate Debt Restructuring Scheme, the Company has during the year converted the outstanding balance of Working capital Term Loan and Funded Interest Term Loan to 496530325 0.001% Optionally Convertible debentures of Rs.1 each. Accordingly, the provision of Clause 4 (xix) of the Order are not applicable.

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

(xxi) No fraud on or by the Company has been noticed or reported during the period covered by our audit.

For Walker Chandiok & Co LLP (formerly Walker, Chandiok & Co) Chartered Accountants Firm Registration No.: 001076N

per B.P. Singh Place : New Delhi Partner Date: 17th May, 2014 M. No.: 70116

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Mar 31, 2012

1. We have audited the attached Balance Sheet of Modern Dairies Limited ('the Company'), as at 31st March, 2012, and also the Statement of Profit and Loss and the Cash Flow Statement for the year ended on that date annexed thereto (collectively referred as the 'financial statements'). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based onouraudit.

2. We conducted our audit in accordance with the 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 (the 'Order') (as amended), issued by the Central Government of India in terms of sub- section (4A) of Section 227 of the Companies Act, 1956 (the 'Act'), we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 ofthe Order.

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

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

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

c. The financial statements dealt with by this report are in agreement with the books of account;

d. On the basis of written representations received

from the directors, as on 31st March, 2012 and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March,

2012 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act;

e. In our opinion and to the best of our information and according to the explanations given to us, the financial statements dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act and 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, in the case of:

i) the Balance Sheet, of the state of affairs ofthe Company as at 31 st March 2012;

ii) the Statement of Profit and Loss, of the loss for the year ended on that date; and

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

Annexure to the Independent Auditors' Report of even date to the members of Modern Dairies Limited on the financial statements for the year ended 31st March, 2012

Based on the audit procedures performed for the purpose of reporting a true and fair view on the financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, we report that:

(i) (a) The Company has maintained proper records

showing full particulars, including quantitative details and situation of fixed assets.

(b) The fixed assets have been physically verified by the management during the year and no material discrepancies were noticed on such verification. In our opinion, the frequency of verification of the fixed assets is reasonable having regard to the size of the Company and the nature of its assets.

(c) In our opinion, a substantial part of fixed assets has not been disposed off during the year.

(ii) (a) The management has conducted physical

' verification of inventory at reasonable intervals

during the year except stock lying with third parties. For stocks lying with third parties at the year-end, written confirmations have been obtained by the management.

(b) The procedures of physical verification of inventory 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 and no material discrepancies were noticed on physical verification.

(iii) (a) The Company has not granted any loan, secured

or unsecured to companies, firms or other parties covered in the register maintained under Section 301 of the Act. Accordingly, the provisions of clauses 4(iii)(b) to 4(iii)(d) of the Order are not applicable.

(e) The Company had taken interest free unsecured loans (including deposits) from five parties covered in the register maintained under Section 301 of the Act. Further the Company has also taken interest bearing unsecured loans (including deposits) from twelve parties covered in the register maintained under Section 301 of the Act. The maximum amount outstanding during the year wasRs. 516.35 Lacs and the year- end balance was Rs. 493.06 Lacs.

(f) In our opinion, the rate of interest and other terms and conditions of loans taken by the company are not, prima facie, prejudicial to the interest of the Company.

(g) In respect of loans taken, payment of the principal amount and interest is regular.

(iv) In our opinion, there is an adequate internal

control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas.

(v) (a) In our opinion, the particulars of all contracts or

arrangements that need to be entered into the register maintained under section 301 of the Act have been so entered.

(b) Owing to the unique and specialized nature of the items involved and in the absence of any comparable prices, we are unable to comment as to whether the transactions made in pursuance of such contracts or arrangements have been made at prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the Companies (Acceptance of Deposits) Rules, 1975. Accordingly, the provisions of clause 4(vi) of the Order are not applicable.

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

(viii) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under clause (d) of sub section (1) of Section 209 of the Act in respect of Company's products 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 cost records with a view to determine whether they are accurate or complete.

(ix) (a) The Company is regular in depositing the

undisputed statutory dues including provident fund, investor education and protection fund, employees' state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty, cess and other material statutory dues, as applicable, with the appropriate authorities. Further, no undisputed amounts payable in respect thereof were outstanding at the year end for a period of more than six months from the date they become payable.

(b) The dues outstanding in respect of sales-tax, income-tax, custom duty, wealth-tax, excise duty, cess on account of any dispute, are as follows:

Name of the Nature Amount Amount Period to Forum statute 0f Rs in Deposited which the where dues Lacs Rs in amount dispute is Lacs relates pending

The Haryana Milk 32,15.26 2,64.17 2001-02 Hon'ble Murrah Buffalo cess to Supreme and Other Mitch 2011-12 Court Animal Breed of India (Preservation and Development of Animal Husbandry and Dairy Development Sector) Act, 2001

Central CENVAT 82.40 82.40 2005-06 Custom Excise credit, Excise & Act, 1944 interest Service Tax Appellate Tribunal New Delhi

Central CENVAT 1,78.85 - 2007-08 Custom Excise credit, to Excise & Act, 1944 interest 2009-10 Service Tax & penalty Appellate Tribunal New Delhi

Haryana Value Credit on 9.67 7.90 2005-06 Punjab Added Tax, input & Haryana 2008 High Court Chandigarh

Haryana Tax Entry 57.69 - 2007-08 Hon'ble on Entry of Tax to Supreme Goods into 2011 -12 Court of Local Areas india Act, 2003

The Finance Service 1.39 - 2009-10 Assistant Act, 1994 Tax Commissioner of Central Excise Ambaia

income Tax Income 6.46 - AY 2006-07 Assistant Act, 1961 Tax and Commissioner 2008-09 of Income Tax



(x) In our opinion, the Company's accumulated losses at the end of the financial year are more than fifty percent of its net worth. The Company has incurred cash losses in the current and the preceding financial year.

(xi) Based on the approval granted by the Corporate Debt Restructuring Empowered Group and the respective banks within the consortium for restructuring of loan repayments and interest thereon, the Company has not defaulted in repayment of dues to any bank during the year. The Company has no dues payable to a financial institution or debenture-holders 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. Accordingly, the provisions of clause 4(xii) ofthe Order are not applicable.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. Accordingly, the provisions of clause 4(xiii) of the Order are not applicable.

(xiv) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) ofthe Order are not applicable.

(xv) The Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, the provisions of clause 4(xv) ofthe Order are not applicable.

(xvi) In our opinion, the Company has applied the term loans for the purpose for which the loans were obtained.

(xvii) On an overall examination of the financial statements of the Company, we report that the Company has used funds raised on short-term basis through cash credit facilities aggregating to Rs. 570.74 lacs for various long term purposes.

(xviii) During the year, the Company has not made any preferential allotment of shares to parties or companies covered in the register maintained under Section 301 of the Act. Accordingly, the provisions of clause 4(xviii) of the Order are not applicable

(xix) The Company has neither issued nor had any outstanding debentures during the year. Accordingly, the provisions of clause 4(xix) of the Order are not applicable.

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

(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 except for a fraudulent activity detected by the management of the Company through its internal control system, wherein a milk vendor was found supplying milk mixed with water. Due to the nature of this fraud, it is not feasible for the management to compute the amount involved, however, the supply from this vendor has been discontinued and Rs. 71 lacs have been recovered by way of a settlement.

for Walker, Chandiok & Co

Chartered Accountants

Firm Reg. No.: 001076N

perB. P. Singh

Place: New Delhi Partner

Date : 25thMay, 2012 M.No.: 70116

---

Mar 31, 2010

1. We have audited the attached Balance Sheet of Modern Dairies Limited ("the Company") as at March 31, 2010 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto (collectively referred as the financial statements). 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 the 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 (the Order) (as amended), issued by the Central Government of India in terms of sub- section (4A) of section 227 of the Companies Act, 1956 (the Act), we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

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

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

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 financial statements dealt with by this report are in agreement with the books of account;

d. On the basis of 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 Act;

e. Without qualifying our opinion, we report the following:

i) We draw attention to note 2 on Schedule 23 regarding the dismissal of the Companys writ petition in favour of the Government of Haryana. The Company has filed the review application before the Honble High Court of Punjab and Haryana and also filed a Special Leave Petition before the Honble Supreme Court of India challenging the impugned judgement and the order passed by the Honble High Court of Punjab and Haryana, pending the final outcome of the case, the Company has not made further provision of ?42,188 thousand in the books of account.

ii) We draw attention to note 22 on schedule 23 regarding the fact that entire shareholding in the Company held by the Promoters, including fresh equity to be brought, is required to be pledged with Corporate Debt Restructuring (CDR) lenders on pari passu basis. This pledging is subject to approval from International Finance Corporation (IFC) by virtue of a subscription agreement with the Promoters. We understand that IFC has not consented to this pledging.

f. In our opinion and to the best of our information and according to the explanations given to us, subject to the effect on the financial statements of the matter referred to in the preceding paragraph, the financial statements dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Act and the Rules framed there under and 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, in the case of:

i) the Balance Sheet, of the state of affairs of the Company as at March 31,2010;

ii) the Profit and Loss Account, of the loss for the year ended on that date; and

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

Annexure to the Auditors report of even date to the members of Modern Dairies Limited, on the Financial Statements for the year ended March 31,2010.

Based on the audit procedures performed for the purpose of reporting a true and fair view on the financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, we report that: (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 fixed assets are verified in a phased manner over a period of two 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. No material discrepancies were noticed on such verification.

(c) In our opinion, a substantial part of fixed assets has not been disposed off during the year.

(ii) (a) Physical verification of inventory (except stocks lying with third parties, confirmations for which have been obtained) have been conducted at reasonable intervals by the management.

(b) The procedures of physical verification of inventory 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 and no material discrepancies were noticed on physical verification.

(iii) (a) The Company has not granted any loan, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act. Accordingly, the provisions of clauses 4(iii)(b) to (d) of the Order are not applicable.

(e) The Company had taken loans from fourteen entities covered in the register maintained under section 301 of the Act. The maximum amount outstanding during the year wasRs.38,910 thousand and the year-end balance wasRs.38,737 thousand.

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

(g) In respect of loans taken, the terms of repayment have not been stipulated and hence we are unable to comment as to whether repayment of principal amount is as stipulated. The payment of interest has been regular.

(iv) In our opinion, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services.

(v) (a) In our opinion, the particulars of all contracts or arrangements that need to be entered into the register maintained under section 301 of the Act have been so entered. (b) In our opinion, the transactions made in pursuance of such contracts or arrangements and exceeding the value of rupees five lakhs in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

(vi) In our opinion, the Company has complied with the provisions of sections 58A and 58AA and other relevant provisions of the Act and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

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

(viii) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government under section 209 (1 )(d) of the Act for the maintenance of cost records in respect of Companys products 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 with a view to determine whether they are accurate or complete.

(ix) (a) Undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty, cess and other material statutory dues, as applicable, have generally been regularly deposited with the appropriate authorities, though there has been a slight delay in a few cases. No undisputed amounts payable in respect thereof of were outstanding at the year end for a period of more than six months from the date they become payable.

(b) The dues outstanding in respect of sales-tax, income-tax, custom duty, wealth-tax, excise duty, cess on account of any dispute, are as follows:

Name of the statute Nature of Amount Period to Forum where

dues in Rs. 000 which the dispute is

amount pending

relates

The Haryana Murrah Milk Cess 7,75,63 2001-02 Honble

Buffalo and Other (Amount to High Court

Milch Animal Breed deposi ted 2009-10 of Punjab

(Presentation under protest- and Haryana

and Development Rs. 2,51,04

of Animal Husbandry thousand)

and Dairy

Development

Sector) Act, 2001

Central Excise Act CENVAT 77,21 2005-06 Honble

credit, 2006-07 Custom Excise

interest & and Service

penalty Tax Appellate

dispute Tribunal,

New Delhi

Service Tax Service tax 19,39 2005-06 Commissioner

under Chapter V penalty (Amount 2006-07 (Appeals),

of Finance Act, 1994 dispute depos ited New Delhi

under pro test-Rs. 4,85 thousand)

Haryana Credit on 14,62 2005-06 Sales-Tax

Value Added Tax Act input (Amount Tribunal,

disallowed deposi ted Chandigarh

under pro test-Rs. 6,00 thousand)

Haryana Tax on Entry Tax 28,97 2007-08 Honble

Entry of Goods into to Supreme

Local Areas Act 2009-10 Court,

New Delhi

(x) In our opinion, the Companys accumulated losses at the end of the financial year are less than fifty per cent of its net worth. Further the Company has not incurred cash losses during the financial year covered by our audit. In the preceding financial year, the Company had incurred cash losses.

(xi) In our opinion, the Company has not defaulted in repayment of dues to a financial institution or a bank or debenture holders 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. Accordingly, the provisions of clause 4(xii) of the Order are not applicable.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. Accordingly,

the provisions of clause 4(xiii) of the Order are not applicable.

(xiv) In our opinion, proper records have been maintained for the transactions and contracts in respect of dealing and/ or trading in shares, securities, debentures and other investments and timely entries have been made therein. These shares, securities, debentures and other securities have been held by the Company in its own name.

(xv) The Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, the provisions of clause 4(xv) of the Order are not applicable.

(xvi) In our opinion, the Company has applied the term loans for the purpose for which the loans were obtained

(xvii) In our opinion, no funds raised on short-term basis have been used for long-term investment.

(xviii) The Company has not made any preferential allotment of shares to parties or companies ¦ covered in the register maintained under section 301 of the Act. Accordingly, the provisions of clause 4(xviii) of the Order are not applicable.

(xix) The Company did not have any outstanding debentures during the year. Accordingly, the provisions of clause 4(xix) of the Order are not applicable.

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

(xxi) No fraud on or by the Company has been noticed or reported during the period covered by our audit.

for Walker, Chandiok & Co.

Chartered Accountants

Firm Reg. No.: 001076N

perB. P. Singh

Place: Chandigarh Partner

Date 2nd November, 2010 M.No.: 70116