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Auditor Report of Pearl Engineering Polymers Ltd.

Mar 31, 2010

1) We have audited the attached Balance Sheet of Pearl Engineering Polymers Limited, as at March 31, 2010 and the related Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2) We conducted our audit in accordance with 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 financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3) As required by the Companies (Auditor’s Report) Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956 of India (the ‘Act’) and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanation given to us, we further report that:

i) (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) The management during the year has physically verified fixed assets and no material discrepancies between the book records and the physical inventory have been noticed as explained to us. In our opinion, the frequency of verification is reasonable.

(c) In our opinion, and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed off by the company during the year and hence, going concern status of the Company is not affected.

ii) (a) Inventories other than those lying with third parties and in transit have been physically verified by the Management to the extent practicable at reasonable intervals during the year and at the year end at all locations of the Company. In our opinion, the frequency of verification is reasonable.

(b) In our opinion, the procedures for physical verification of the inventory followed by the management are reasonable and adequate in relation to the size of the company and nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion the Company is maintaining proper records of inventory. The discrepancies noticed on such verification as compared to the book records were not material having regard to the size and nature of the operations of the company and have been properly adjusted in the books of account.

iii) (a) In our opinion and according to information given to us, 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 Companies Act, 1956. Accordingly provisions of clause 4(iii)(b) to 4(iii)(d) of the Order are not applicable to the company.

(b) According to the information and explanations given to us, the company has not taken any loan, secured or unsecured, from companies, firms or other parties covered in the register maintained u/s 301 of the Companies Act, 1956. Accordingly clauses (iii)(f) and (iii)(g) of the Companies (Auditors’ Report) Order, 2003 are not applicable to the company.

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

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

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 exceeding the value of Rupees Five Lakh or more 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 except for certain transactions of unique and specialized nature where in the absence of similar contract with other parties and comparable prices, we are unable to comment whether the transactions were made at prevailing market price at the relevant time.

vi) The company has not accepted any deposits from public during the year within the meaning of sections 58A and 58AA or any other relevant provisions of the Act and the Companies (Acceptance of Deposits) Rules 1975 framed there under.

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

viii) We have broadly reviewed the books of accounts maintained by the company pursuant to the order made by the Central pGovernment for maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956, in respect of products manufactured by the company and are of the opinion that prima facie the prescribed accounts and records have been maintained. However, we are not required to carry out and have not carried out a detailed examination of the records with a view to determine whether they are accurate or complete.

ix) (a) According to the information and explanations given to us and the records of the company examined by us, in our opinion, the company is generally regular in depositing with appropriate authorities undisputed Statutory dues including provident fund, investor education and protection fund, employee’s state insurance, income tax, sales tax, service tax, wealth tax, custom duty, excise duty, cess and other statutory dues applicable to it.

(b) According to the information and explanations given to us, there are no dues of income tax, wealth tax, excise duty, service tax, sales tax, and cess which have not been deposited on account of any dispute. Disputed custom duty which has not been deposited on account of matters pending before the appropriate authorities are as follows:

Name of the Nature of the dues Amount Period to which Forum where

Statute (Rs.000) the amount relates dispute is

pending

Customs and Customs duty demand on 36,812 1993-94 CEGAT

Central Excise Act Technical Know how Fee

-do- Customs Duty 3,103 1994-95 CESAT

x) In our opinion the accumulated losses of the company are not more than the fifty percent of its net worth as on 31st March, 2010.

The company has incurred cash losses during the financial year ended on that date but not in the immediately preceding financial year.

xi) According to the records of the company examined by us and the information and explanations given to us, the company has defaulted in repayment of dues to Financial Institutions or Banks as stated hereunder:

Name of Nature of Period to Amount Due Date Date of Payment

S. No. Bank/ the Dues which (Rs.)

Institution amount

relatess

1 ICICI Bank Ltd. Installment July09-Sep09 3,626,470 30.09.09 22.12.0

Installment Oct09-Dec09 3,626,470 31.12.09 16.03.10

Installment Jan10-March10 3,626,470 31.03.10 Not Paid till yet

Interest July09-Sep09 1,256,846 30.09.09 18.12.09

Interest Oct09-Dec09 1,403,048 31.12.09 16.03.10

Interest Jan10-March10 1,254,693 31.03.10 Not Paid till yet

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

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

(xiii) of the Companies (Auditors Report) Order, 2003 is not applicable to the Company.

xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, Clause 4 (xiv) of the Companies (Auditors Report) Order, 2003 is not applicable to the Company.

xv ) In our opinion, and according to the information and explanation given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions during the year.

xvi) In our opinion, and according to the information and explanation given to us, on an overall basis, the term loans raised have been applied for the purpose for which they were raised.

xvii) On the basis of an overall examination of the Balance Sheet of the Company, we report that no funds raised on short-term basis have been used for long term investment.

xviii) 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.

xix) According to the information and explanations given to us during the period covered by our audit, the Company has not issued any debentures.

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

xxi) During the course of our examination of the books of accounts and records of the company, carried out 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 nor have been informed of such case by the management.

4) Further to our comments in paragraph 3 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 accounts as required by law have been kept by the company so far as appears from our examination of those books;

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

(d) Read with Note 21 on Schedule 18 regarding related party disclosures being identified and certified by the management, in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act;

(e) 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 director 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;

(f) We draw attention to note no.4(b) of schedule 18 – We are unable to form an opinion on the claim of the company, that the loan of Rs.161,924 thousands from a Foreign Financial Institution can not be enforced and on the non inclusion of the above amount due to the Foreign Financial Institution under the head “Loan Funds” in schedule 3 and 4 of the Balance Sheet and on the inclusion in the Balance Sheet under the head “Erstwhile loan barred by Limitation”.

(g) Subject to our comments in para 4(f) above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) In the case of the Balance Sheet, of the state of affairs of the company as at March 31, 2010;

(ii) In the case of the Profit and Loss Account, of the loss for the year ended on that date; (iii) In the case of Cash Flow Statement, of the Cash Flows for the year ended on that date.

For J. C. Bhalla & Co.

Chartered Accountants

(Firm Registration No.001111N)

(Akhil Bhalla)

Place : New Delhi Partner

Dated : 28th May, 2010 M. No.505002