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Auditor Report of Parekh Platinum Ltd.

Mar 31, 2010

1. We were engaged to audit the attached Balance Sheet of Parekh Platinum Limited as at 31st March, 2010, the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management.

2. Our responsibility is to express an opinion on these financial statements based on our audit in accordance with the standards on auditing issued by the Institute of Chartered Accountants of India. In view of matters described in para 3 herein below we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

3 (a) As referred to in Note 6 and 7 to accounts under Schedule 18 the Company defaulted in repayment of borrowings from banks and financial institutions. The lenders initiated recovery proceedings and accordingly IFCI Ltd.("IFCI"), representing the consortium of lenders, initiated action against the Company under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFESI) Act, 2002. In September, 2009, IFCI took forceful physical possession of the Companys manufacturing plant at Gandhinagar including land, building, plant & machinery. These assets aggregating Rs. 6729.44 lakhs comprise almost the entire fixed assets of the Company. It issued a public notice for auction of these assets and eventually sold off some of the said assets. The Company requested IFCI to furnish the details thereof. However, IFCI has not responded till date. In view thereof, the Company does not have details to record accounting entries in respect of deletion of the assets from the Balance Sheet, profit or loss arising therefrom, resulting tax liabilities and it continues to show these assets in its books of account. Further, since the Company does not have details regarding discharge of its various liabilities out of the realizations, its liabilities also have not been given any effect for such discharge.

We have also tried to seek confirmations from IFC! regarding related details and realizations from the sale of the Companys Fixed Assets, discharge of liabilities etc, but, IFCI has not yet responded to us.

As a result, we are unable to comment on the amount of Fixed Assets aggregating to Rs. 6729.44 lakhs carried in the Balance Sheet as well as profit or loss on account of sale thereof which should have been reflected in the profit and loss account.

(b) As referred to in Note 6 to Accounts under Schedule 18 the Company has defaulted in the payments of its dues to Secured Lenders and has provided interest in this respect on the basis of the sanctioned terms upto March 31, 2005. Provision for interest for the period April 1, 2005 to March 31, 2010 has not been made. As such considering (a) and (b) above, the balances in respect of borrowings from Banks and Financial Institutions aggregating Rs. 44459.57 lakhs are subject to confirmation and reconciliation and accordingly, we are unable to comment on the quantification of liability in respect of borrowings from Banks and Financial Institutions, and are also unable to comment on the amount of provision that may be required on account of interest on these borrowings.

(c) As referred to in note no. 11 to Accounts under Schedule 18, Sundry Debtors, Loans & Advances and Deposit include debts due from related parties aggregating Rs.11.97 Lacs , Rs 6468.40 Lacs and Rs 1500.00 Lacs respectively. No provision has been made in the accounts and the amount of provision has not been ascertained for any possible loss arising on account of erosion in the net worth of these related parties due to losses suffered by them and doubtful nature of their Debts, Loans & Advances, etc.

In respect of this matter, based on the evidence made available to us, we are unable to comment on the realisability of these Debtors, Loans & Advances and Deposits, ana are also unable to express an opinion as to the amount of provision that may be required in this respect .

(d) As referred to in note no. 16 of Schedule 18 being Notes on Accounts, the company has during the year under consideration written back long outstanding current liabilities aggregating Rs. 2068.60 Lacs as no longer payable. In the absence of availability of adequate direct evidences, we have not been able to verify the above write back.

(e) As referred to in note no. 4 of Schedule 18 being Notes on Accounts, the management is of the opinion that the provisions in respect of current liabilities is not in excess of the amount reasonably considered necessary. However, in view of absence of positive direct confirmation of various parties in this respect we are unable to express an opinion in this respect.

4. In view of the significance of the matters described in para 3 herein above, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly we do not express an opinion on the financial statements.

5. As stated in Notes 5 and 9 to Accounts under Schedule 18 the net worth of the Company has eroded. The Company has not been able to renegotiate its borrowings from the lenders. The properties of the Company have been taken over and some of them have been sold off. The products of the Company continued to be manufactured at Mumbai from leased assets upto 5th Novemeber 2010 when the Company declared a lock out in view of labour unrest.The Management is confident of continued operations on lifting of lock out and the accounts are prepared on a going concern basis. In our opinion, this situation indicates the existence of a material uncertainty which casts significant doubt on the Companys ability to continue as a going concern.

6. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, (The Act) we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said order.

7. As required by section 227(3) of the Companies Act, 1956, we report that:

(a) As described in para 3 hereinabove, we were unable to obtain all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit.

(b) Due to the possible effects of the matters described in para 3 hereinabove, we are unable to state whether 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 and Cash Flow Statement dealt with by this report, are in agreement with the books of account.

(d) Due to the possible effects of the matters described in para 3 hereinabove we are unable to state whether the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956.

(e) Subject to the reliance placed by us on the legal opinion obtained by the Company from a practicing Company Secretary stating that privately placed debentures cannot be construed as "Debentures" for the purpose of section 274 (1)(g) of the Companies Act 1956 (refer note no. 13 of Schedule 18 and on the basis of written representations received from Directors as on 31s March 2010 and taken on record by the Board of Directors, we report that none of the directors is 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.

ANNEXURE REFERRED TO IN PARAGRAPH "3" OF THE AUDITORS REPORT TO THE MEMBERS OF PAREKH PLATINUM LIMITED ON THE ACCOUNTS FOR THE YEAR ENDED 31st MARCH, 2010.

1 (a) The records containing the quantitative details and situation of Fixed Assets maintained by the Company were destroyed in the floods at the Companys office in July, 2005.

(b) As referred to in para 3a of our audit report, physical possession of almost the entire fixed assets of the company have been taken over by IFCI. Hence the fixed assets have not been physically verified by the Management during the year under consideration.

(c) As referred to in para 3a of our audit report and note no. 6 & 7 to Accounts under Schedule 18, IFCI has taken over physical possessions of almost the entire fixed Assets of the Company and accordingly this situation indicates the existence of a material uncertainty which casts significant doubts on the Companys ability to continue as a going concern.

2 (a) As explained to us, in respect of Mumbai operations, inventories have been physically verified during the year by the Management and in our opinion, the frequency of verification is reasonable. In respect of Gandhinagar operations, as referred to in note no. 6 & 7 of Schedule 18 being Notes on Accounts, in view of the action taken by IFCI Ltd., the inventories are no longer in the possession of the Company.

(b) In our opinion and according to the information and explanations given to us the procedures of physical verification of inventory followed by the Management in respect of the Mumbai operations, are 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 inventory records of the Mumbai operations of the Company, we are of the opinion that, except for process inventory the Company is maintaining proper records of its inventory. The discrepancies noticed on physical verification of inventory, taken at the year-end, as compared to book records, have been properly dealt with in the books of accounts and the same were not material.

3 (a) During the year under consideration, the Company has granted interest free unsecured loan to a firm covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 6468.40 lakhs and the year end balance is Rs. 6468.40 lakhs

(b) In respect of interest free unsecured loans aggregating Rs. 6468.40 lakhs at the year end granted by the Company, the terms of repayment are not stipulated. In our opinion, the granting of these unsecured loans without interest and without any stipulation as regards its repayment is prima facie prejudicial to the interest of the Company. Reference is invited in this respect to Note No 11 of Schedule18 being Notes on Accounts and to our observation in para 3(c) of the Auditors Report of even date.

(c) Since the unsecured loans granted are interest free and no terms and conditions are stipulated in respect of the principal amount, in our opinion, the recovery of the principal amount and interest cannot be termed as regular.

(d) The Company has not taken any steps for recovery of the principal amount.

(e) The Company has taken a loan from an individual covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 30.06 lakhs and the year end balance was Rs. 22.55 lakhs

(f) According to the information and explanations provided to us, the loan is interest free and no terms and conditions are stipulated in respect of the principal amount and hence cannot be prejudicial to the interest of the Company.

(g) Since the unsecured loan received is interest free and no terms and conditions are stipulated in respect of the principal amount, in our opinion, the repayment of the principal amount and interest cannot be termed as irregular.

4. In our opinion and according to the information and explanations given to us, there are generally adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of inventory and fixed assets and for sale of goods. Further, on the basis of our examination of the books and records of the Company and according to the information and explanations given to us we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control procedures.

5 (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the Register required to be maintained under that section. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and exceeding the value of rupees five lakhs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6 The Company has not accepted deposits from public. Hence directives issued by the Reserve Bank of India and the provisions of Section 58A and 58AA and any other relevant provisions of the Companies Act 1956 and the rules framed thereunder are not applicable for the year under audit.

7 The Company has no formal internal audit system commensurate with the size and nature of its business. However the Company has built-in internal control system.

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

9. (a) According to the records of the Company and the information and explanations given to us, we have to state that,

i. Undisputed statutory dues in respect of Provident Fund, Employees State Insurance, Sales tax, customs duty, excise duty and cess have generally been regularly deposited with the appropriate authorities though there has been a slight delay in a few cases.

ii. Undisputed statutory dues in respect of Investor Education and Protection Fund and Income tax have not been regularly deposited with the appropriate authorities and there have been delays. The undisputed dues outstanding for more than six months, as at 31s March 2010, from the date they became payable are as under:

Name of the statute Nature of the dues Amount - Rs. lakhs Period to which the amt relates

Investor Education & Unclaimed 2.04 1996-97 Protection Fund Dividend 5.06 1997-98

Income tax Act, 1961 TDS, 8.54 FY 2003-04 & 2005-06 Income tax and Interest 21.35 AY 1996-97, 1999-2000 & 2001-02

b) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the following disputed statutory dues have not been deposited with the appropriate authorities:

Name of the statute Nature of dues Amount Period to which Rs. lakhs the amt relates

Sales tax, Ahmedabad Tax, interest and 45.05 FY 2000-01 penalty

66.38 FY 2001-02

Income tax, Mumbai Interest 38.45 A.Y.2000-01 on MAT Income

Income tax, Mumbai Block Assessment 23949.72 Block Assessment



Name of the Statue Forum where dispute is pending

Sales tax, Ahmedabad Deputy Commissioner of SalesTax, Ahmedabad Joint Commissioner of Salestax, Ahmedabad

Income tax, Mumbai Commissioner of Income Tax (Appeals)

Income tax,Mumbai ITAT, Mumbai

10. The accumulated losses of the Company exceeded 50% of its net worth at the end of the financial year and the Company has earned a profit during the current financial year but has incurred cash losses during the immediately preceding financial year.

11 The Company has defaulted in repayment of dues to financial institutions, banks and debenture holders. Further as referred to in Note No 6 of Schedule 18 being Notes on Accounts, no provision for interest has been made for the period from 1st April 2005 to 31s March 2010. Subject to this the period and amount of default which are continuing as at the balance sheet date are as under:

Particulars Period Amount Since Rs. Lakhs Outstanding

Dues to Financial Dec, 1998 14909.91 Institution (Including interest)

Dues to Banks July, 2001 27365.44 (Including interest)

Dues to Debenture Jan., 2001 2078.08 holders (Including interest)

Total 44353.43

12 Based on our examination of documents and records and information given by the Company, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13 In our opinion, the provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/ societies are not applicable to the company.

14 In our opinion, the Company is not dealing/trading in shares, securities, debentures and other investments.

15 According to the information and explanations given to us and the representations made by the Management, the Company has not given any guarantee for loans taken by others from Banks and Financial Institutions .

16 On the basis of the records examined by us and according to the information and explanations given to us the Company has not obtained any term loans during the year under consideration and in respect of term loans obtained by the Company in the earlier years, we are informed that the same were applied for the purpose for which they were obtained. .

17 According to the information and explanations given to us and on the overall examination of the balance sheet of the company, in our opinion, no funds raised on short- term basis have been used for long-term investments.

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

19 On the basis of the records and documents examined by us and according to the information and explanations given to us, in our opinion the company has created securities in respect of debentures issued.

20 According to the information and explanations given to us, the Company has not raised any money by way of public issues during the year under consideration.

21 During the course of our examination of the books and records of the company carried out in accordance with the generally accepted auditing practices in India and according to the information and explanations given to us, subject to note no.6 of schedule 18 being Notes on Accounts, we have neither come across any instance of materia! fraud on or by the company, noticed or reported during the year, nor have we been informed of such a case by the management.

For M/s. Kastury & Talati

Chartered Accountants Firm Registration No 104908W

Dhiren P. Talati

Partner M.NO.F41867

Place: Mumbai

Date: 27,th November, 2010

 
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