Auditor Report of Regency Ceramics Ltd.

Mar 31, 2015

We have audited the accompanying financial statements of REGENCY CERAMICS LIMITED, HYDERABAD, ("the Company"), which comprise the Balance Sheet as at March 31,2015, 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

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

Auditor's Responsibility:

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

We conducted our audit in accordance with the Standards on Auditing secified under Section 143(10) of the Act. Those standard 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 and openion on whether the Company has in place and adequate internal financial control system over financial reporting and the operating effectiveness of such controls.

An audit also includes evaluating the appropriateness of accounting polices 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 on the financial statements.

Basis for qualified opinion:

1. Manufacturing operations of the company were stopped due to riots, strike and malicious damage at factory since 27.01.2012. The company declared lock out of the plant on 31.01.2012 and the condition of the fixed assets & its realizable value could not be estimated. The machinery and building were not insured during the year and disclosed at book value after providing depreciation on account of efflux of time.

2. The condition of the raw materials, stores and spares and its realizable value could not be estimated by the company. The stocks were not insured during the year and disclosed at book value.

3. During the year, the company has not provided the provisional liability towards salary, wages and other benefits to its factory employees pending orders / judgement of the industrial Tribunal. Further, the company has not provided for its liability towards Gratuity and leave encashment in accordance to AS-15 "Employee Benefits". Since the company could not compute the liability in the absence of complete records, we are unable to comment upon the impact of non-provision of additional loss of the company for the year and on the current liabilities as at 31.03.2015.

4. Confirmation of balances was not obtained from Debtors, Creditors, loans and advances and other current assets.

5. The company paid 28.93% of loan Outstanding as One Time Settlement (OTS) to the lenders and requested for extension of time for balance payment. However, the lenders issued a Demand Notice under section 13(2) of SARFAESI Act. State Bank of India on behalf of its bank, Corporation Bank and State Bank of Travancore issued a Possession Notice (Symbolic) under Rule 8(1) of Security Interest (Enforcement) Rules, 2002 stating that they have taken possession of the properties in exercise of powers conferred on him under section 13(4) of the SARFAESI Act on 04.03.2015 State Bank of Bikaner & Jaipur assigned and transferred the facilities sanctioned by them together with all underlying securities in interests thereto to Phoenix ARC Private Limited (Trustee of Phoenix Trust - FY15-5). The lenders filed an application under section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 in the Debts Recovery Tribunal, Hyderabad for recovery of their dues. In view of the above, the Long Term Borrowings are considered as current maturities of long term borrowings and shown under Other Current Liabilities. Hypothecation / Hire purchase loans are repayable within one year and shown under Other Current Liabilities.

6. The company has not provided the liability towards interest and penalties payable on account of statutory dues. The Company is of opinion that the statutory authorities shall waive the same in view of the unprecedented incident.

7. The company filed a reference under section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 with the Board for Industrial and Financial Reconstruction (BIFR) and same has been registered.

8. In view of the above, the Net Loss would increase and the shareholders funds would reduce to this extent.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the basis for qualified opinion paragraph, 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, and its loss and its cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements:

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

2. As required by section 143 (3) of the Act, we report that:

a) We have sought and, except for the matters described in the Basis for qualified opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit.

b) Except for the effects of the matter described in the Basis for qualified opinion paragraph above, 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) Except for the effects of the matter described in the basis for qualified Opinion paragraph, 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) The matter described in the Basis for qualified opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

f) On the basis of written representations received from the Directors as on 31st March, 2015 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 Section 164(2) of the Companies Act.

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

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 25 (2), (3), (8), (9) to financial statements.

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

iii. According to the information and explanations given to us, there were no amounts which were required to be transferred to the investor Education and Protection Fund by the Company.

ANNEXURE TO AUDITOR'S REPORT

The Annexure referred to in Para 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date, to the members of REGENCY CERAMICS LIMITED, Hyderabad, for the year ended March 31, 2015.

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

b) As explained to us, the management could not verify physically the fixed assets situated at Yanam, due to riots, strike and malicious damage.

c) During the year the Company has not disposed off any of the fixed assets.

2) No Physical verification of inventory has been conducted during year.

3) a) During the year the Company has not granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under Section 189 of the Companies Act, 2013.

b) In view of our comment in paragraph (a) above, clause (lll) (a) and (b) of paragraph 3 of the aforesaid order are not applicable to the Company.

4) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business with regard to purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the internal control system.

5) The Company has not accepted any deposits from the public. Hence, the provisions of Sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed there under, do not apply to this Company.

6) During the year, there is no production and its related activity in the factory and as such, cost records pursuant to sub-section (1) of section 148 of the companies Act, 2013 have not been maintained.

7) a) According to the records of the Company, the company is not regular in depositing 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 any other statutory dues with the appropriate authorities.

b) According to information and explanations given to us, the Company is not regular in depositing with appropriate authorities, the following undisputed dues outstanding as at 31st March, 2015 for a period of more than six months from the date they became payble.

Nature of the dues Amount Rs. Period to (in lakhs) which relates

CST 56.65 2011-12

VAT 360.89 2011-12

Service Tax 44.75 2012-14

Provident Fund 0.95 2014.15

Employees State Insurance 8.64 2012-15

Tax Deducted at Source 0.05 2014-15

Income Tax 58.19 2003-04

c) According to the records of the Company and the information and explanations given to us, the dues of Service Tax / Income Tax / Municipal Taxes which have not been deposited on account of any dispute are as follows.

Nature of the Amount Period to which Forum where dues (Rs. in lakhs) the amount is dispute pending related

Service Tax 35.04 2006-2007 CESTAT, Banglore

Income Tax 90.98 2004-2005 Income Tax Appellate Tribunal

Municipal Tax 32.35 1998-2007 Yanam Municipality

d) According to the records of the Company, there were no amounts which were required to be transferred to Investor Education and Protection Fund. Therefore, the provisions of clause 3 (vii) (c) of the Companies (Auditor's Report) Order, 2015 are not applicable to the Company.

8) The accumulated losses of the Company at the end of the financial year ended 31.03.2015 are in excess of 50% of its net worth. The Company has incurred cash losses during the year covered by our audit and also in the immediately preceding financial year.

9) In our opinion and according to the information and explanations given to us, the Company has defaulted in repayment of Rs.9857.30 lakhs dues to any financial institutions and Banks.

10) The company has not given any guarantee for the loans taken by others from bank or financial institutions.

11) In our opinion and according to the information and explanations given to us, the Company has not availed any term loans during the year.

12) Based upon the audit procedures performed and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the year.

For BRAHMAYYA & CO., Chartered Accountants. Firm Registration No. 000513S

(K.S.RAO) Place: Hyderabad Partner Date : 29.05.2015 Membership No.015850

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Mar 31, 2014

We have audited the accompanying financial statements of REGENCY CERAMICS LIMITED, HYDERABAD ("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 (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility:

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing 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 judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting polices 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 qualified opinion:

1. Manufacturing operations of the company were stopped due to riots, strike and malicious damage at factory since 27.01.2012. The company declared lock out of the plant on 31.01.2012 and the condition of the fixed assets & its realizable value could not be estimated. The machinery and building were not insured during the year and disclosed at book value after providing depreciation on account of efflux of time.

2. The condition of the raw materials, stores & spares and its realizable value could not be estimated by the company. The stocks were not insured during the year and disclosed at book value.

3. During the year, the company has not provided the provisional liability towards salary, wages and other benefits to its factory employees pending orders / judgement of the industrial Tribunal. Further, the company has not provided for its liability towards

Gratuity and leave encashment in accordance to AS-15 "Employee Benefits". Since the company could not compute the liability in the absence of complete records, we are unable to comment upon the impact of non-provision of additional loss of the company for the year and on the current liabilities as at 31.03.2014.

4. There are no confirmatory letters in respect of Debtors, Creditors, loans and advances

and other current assets.

5. During the year, the company has not provided interest on term loans, working capital loans to the extent of Rs.978.11 Lakhs calculated @ interest rates as per sanction. The lenders opted for settlement of dues under OTS as a compromise. The company paid part amount and requested for extension of time. However, the lenders issued a Demand Notice under SARFAESI Act for recovery of their dues. During the year, the company has treated the Long term Borrowings from banks under "Current Maturities of Long term Borrowings".

6. The company has not provided the liability towards interest and penalties payable on account of statutory dues and we were informed by the company that the statutory authorities shall waive the same in view of the unprecedented incident.

7. The company during the year filed a reference under section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 with the Board for Industrial and Financial Reconstruction and same has been registered.

8. In view of the above, the Net Loss would increase and the shareholders funds would reduce to this extent.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the basis for 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 loss for the year ended on that date; and

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

Report on Other Legal and Regulatory Requirements:

1. As required by the Companies (Auditors'' 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 said Order.

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

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

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

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

d) Except for the effects of the matter described in the basis for qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in sub section (3C) of section 211 of the Companies Act, 1956;

e) On the basis of written representations received from the Directors as on 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 Companies Act, 1956.

ANNEXURE TO AUDITOR''S REPORT

referred to in paragraph 3 of our report of even date Re : Regency Ceramics Limited, Hyderabad.

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

b) As explained to us, the management could not verify physically the fixed assets situated at Yanam, due to riots, strike and malicious damage.

c) During the year the Company has not disposed off any of the fixed assets.

2) Physical verification of inventory has been conducted in the previous year in the presence of officials of Customs and Central Excise.

3) a) The Company has not granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956.

b) In view of our comment in paragraph 3(a) above, 3(b),(c) & (d) of the aforesaid order are not applicable to the Company.

e) During the year, the Company has taken unsecured loans from a party covered in the register maintained under section 301 of the Companies Act, 1956 and the maximum amount involved during the year was Rs.1053.16 lakhs.

f) In our opinion, the rate of interest and other terms and conditions on which loans have been taken from the other parties listed in the register maintained under section 301 of the Companies Act, 1956 are not prima facie prejudicial to the interest of the Company.

g) The Company has not made any stipulation on payment of principal/ interest.

4) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the internal control system.

5) a) According to the information and explanations given to us by the Management, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Companies Act, 1956 have been entered in the register 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 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 any deposits from the public. Hence, the provisions of Sections 58A, 58AA and other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable to the Company for the time being.

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

8) During the year, there is no production and its related activity in the factory and as such, cost records under Section 209(1)(d) of the companies Act, 1956 have not been maintained.

9) a) According to the records, the Company is not regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees'' State Insurance, Sales Tax, Service Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it.

b) According to information and explanations given to us, the Company is not regular in depositing with appropriate authorities, undisputed dues in respect of CST Rs.56.65 Lakhs, VAT Rs.361.51 Lakhs, Service Tax Rs.44.75 Lakhs, ESI Rs.8.21 Lakhs, TDS Rs.13.94 Lakhs and Income Tax Rs.58.19 Lakhs outstanding as at 31st March, 2014 for a period of more than six months from the date they became payable.

c) According to the records of the Company and the information and explanations given to us, the dues of Service Tax / Income-Tax / Taxes which have not been deposited on account of any dispute are as follows.

Nature of Amount Period to which From where dispute dues (Rs. in Lakhs) the amount is pending relates

Service Tax 35.04 2006-2007 CESTAT, Bangalore

Income Tax 101.17 2003-2004 Income Tax Appellate Tribunal

Municipal Tax 32.35 1998-2007 Yanam Municipality

10) The Company has accumulated losses at the end of the financial year. The Company has incurred cash losses during the financial year covered by our audit and the immediately preceding financial year.

11) In our opinion and according to the information and explanations given to us, the Company has defaulted in repayment of dues to banks.

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

13) The company is not a chit fund or a nidhi/ mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor''s Report) order, 2003 are not applicable to the company.

14) The company is not dealing or trading in shares, securities, debentures and other investments. Therefore, the provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order, 2003 are not applicable to the company.

15) According to the information and explanations given to us, the company has not given any guarantee for loans taken by others from bank or financial institutions.

16) The Company has not availed any term loans during the year.

17) According to the information and explanations given to us and on 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.

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) During the year, the Company has not issued any Debentures, therefore the question of creating security or charge in respect thereof does not arise.

20) During the year, the company has not made any public issue and therefore the question of disclosing the end use of money raised by public issue does not arise.

21) Based upon the audit procedures performed and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the year.

For BRAHMAYYA & CO., Chartered Accountants. Firm Registration No. 000513S

(K.S.RAO) Place:Hyderabad Partner Date :30.05.2014 Membership No.015850

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Mar 31, 2013

Report on the Financial Statements:

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

Management''s Responsibility for the Financial Statements:

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

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. An audit also includes evaluating the appropriateness of accounting polices 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 qualified opinion:

1. Manufacturing operations of the company were stopped due to riots, strike and malicious damage at factory since 27.01.2012. The condition of the fixed assets and the realizable value could not be estimated. The machinery and building were insured and disclosed at book value after providing depreciation on account of efflux of time.

2. During the year, the company has provided the provisional liability towards salary, wages and other benefits to its factory employees ip the absence of complete records for six months only pending orders / judgment of the industrial Tribunal. Further, the company has not provided for its liability towards Gratuity and leave encashment in accordance to AS-15 "Employee Benefits". Since the company could not compute the liability in the absence of complete records, we are unable to comment upon the impact of non-provision of additional loss of the company for the year and on the current liabilities as at 31.03.2013.

3. There are no confirmatory letters in respect of Debtors, Creditors, loans and advances and other current assets.

4. During the year, the company has not provided interest on term loans, working capital loans to the extent of Rs. 1114.23 Lakhs. We were informed by the company that the lenders opted for settlement of dues under OTS as a compromise and agreed the settlement amount to 60% of the outstanding as on the cutoff date of 08"1 June 2012. The last date for payment of entire settlement amount is lapsed and were informed by the management that the lenders are considering extension of time for payment. During the year, the company has treated the Long term Borrowings from banks under "Current Maturities of Long term Borrowings".

5. The company has not provided the liability towards interest and penalties payable on account of statutory dues and we were informed by the company that the statutory authorities shall waive the same in view of the unprecedented incident.

6. Accordingly, the net loss would increase and the shareholders funds would reduce to this extent.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the basis for 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, 2013;

b. in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and

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

Report on Other Legal and Regulatory Requirements :

1. As required by the Companies (Auditors'' 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 said Order.

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

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

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

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

d) Except for the effects of the matter described in the basis for qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956;

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

Re : Regency Ceramics Limited, Hyderabad.

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

b) As explained to us, the management could not verify physically the fixed assets situated at Yanam, due to riots, strike and malicious damage.

c) During the year the Company has not disposed off any of the fixed assets.

2) Physical verification of inventory has been conducted in the previous year in the presence of officials of Customs and Central Excise.

3) a) The Company has not granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956.

b) In view of our comment in paragraph 3(a) above, 3(b),(c) & (d) of the aforesaid order are not applicable to the Company.

e) During the year, the Company has taken unsecured loans from a party covered in the register maintained under section 301 of the Companies Act, 1956 and the maximum amount involved during the year was Rs.321.27 lakhs.

f) In our opinion, the rate of interest and other terms and conditions on which loans have been taken from the other parties listed in the register maintained under section 301 of the Companies Act, 1956 are not prima facie prejudicial to the interest of the Company.

g) The Company has not made any stipulation on payment of principal/ interest.

4) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to sale of goods and services.

During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the internal control system.

5) a) According to the information and explanations given to us by the Management, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Act, 1956 have been entered in the register 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 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 any deposits from the public. Hence, the provisions of Sections 58A, 58AA and other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable to the Company for the time being.

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

8) During the year, there is no production and its related activity in the factory and as such, cost records under Section 209(1 )(d) of the companies Act, 1956 have not been maintained.

9) a) According to the records, the Company is not regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees'' State Insurance, Sales Tax, Service Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it.

b) According to information and explanations given to us, the Company is not regular in depositing with appropriate authorities, undisputed dues in respect of CST of Rs.56.65 Lakhs, VAT Rs.367.11 Lakhs, Service Tax Rs.48.29 Lakhs, Provident Fund of Rs. 24.83 Lakhs, ESI of Rs.6.53 Lakhs, TDS of Rs.12.94 Lakhs and Income Tax of Rs.58.19 Lakhs outstanding as at 31st March, 2013 for a period of more than six months from the date they became payable.

c) According to the records of the Company and the information and explanations given to us, the dues of Service Tax / Income-Tax / Taxes which have not been deposited on account of any dispute are as follows.

Nature of Amount Period to which From where dues (Rs. in Lakhs) the amount relates dispute is pending

Service Tax 35.04 2006-2007 CESTAT, Bangalore

Income Tax 101.17 2003-2004 Income Tax Appellate

Tribunal

Municipal Tax 32.35 1998-2007 Yanam Municipality

10) The Company has accumulated losses at the end of the financial year. The Company has incurred cash losses during the financial year covered by our audit and the immediately preceding financial year.

11) In our opinion and according to the information and explanations given to us, the lenders of the Company opted for settlement of dues under an OTS as a compromise and accordingly the company has not paid the dues to Banks.

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

13) The company is not a chit fund or a nidhi/ mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor''s Report) order, 2003 are not applicable to the company.

14) The company is not dealing or trading in shares, securities, debentures and other investments. Therefore, the provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order, 2003 are not applicable to the company.

15) According to the information and explanations given to us, the company has not given any guarantee for loans taken by others from bank or financial institutions.

16) The Company has not availed any term loans during the year.

17) According to the information and explanations given to us and on 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.

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) During the year, the Company has not issued any Debentures, therefore the question of creating security or charge in respect thereof does not arise.

20) During the year, the company has not made any public issue and therefore the question of disclosing the end use of money raised by public issue does not arise.

21) Based upon the audit procedures performed and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the year.

For Brahmayya & CO.

Chartered Accountants

Firm Registration No. 000513S

KS Rao

Place: Hyderabad Partner

Date : 29.05.2013 Membership No. : 15850

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Mar 31, 2010

1. We have audited the attached Balance Sheet of REGENCY CERAMICS LIMITED, HYDERABAD (A.P) as at 31st March, 2010, the Profit and Loss Account and also the Cashflow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys Management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

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

4. Further to our comments in the Annexure referred to in para 3 above, we report that:

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

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

iii) The Balance Sheet, Profit and Loss Account and Cash Flow statement dealt with by this report are in agreement with the books of account.

iv) 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 Section 211(3C) of the Companies Act, 1956.

v) On the basis of written representations received from the Directors as on 31st 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 a Director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the notes thereon subject to Note No.5 of Schedule 19 Notes to accounts regarding confirmation of balances, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India :

a) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2010;

b) In the case of the Profit and Loss Account, of the Loss of the Company 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.

ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE

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

b) As explained to us, the management has physically verified most of the fixed assets during the year and there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of the assets. No material discrepancies were noticed on such verification.

c) During the year the Company has not disposed off any fixed assets and hence, it has not affected the going concern status of the Company.

ii) a) Physical verification was conducted by the management at reasonable intervals in respect of finished goods, stores & spares and raw materials except clay which is prone to change in quantities.

b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventories. The discrepancies noticed on verification between the physical stock and the book records were not material.

iii) a) During the year the Company has not taken or granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956.

b) In view of our comment in paragraph 3(a) above, (b),(c) & (d) of the aforesaid order are not applicable to the Company.

c) In our opinion the rate of interest and other terms and conditions on which loans have been taken from the other parties listed in the register maintained under section 301 of the Companies Act, 1956 are not prima facie prejudicial to the interest of the Company.

d) The Company is regular in payment of the principal amount and interest thereon as stipulated.

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

v) a) According to the information and explanations given to us, we are of the opinion that 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; and

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

vi The Company has not accepted any deposits from the public. Hence, the provisions of section 58A, 58AA and other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable.

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

viii The Central Government has not prescribed under Section 209 (1) (d) of the Companies Act, 1956 the maintenance of cost records for the products of the Company.

ix a) According to the records of the Company, the Company is regular in depositing with appropriate authorities undisputed statutory dues including Investor Education and Protection Fund, Wealth Tax, Customs Duty and other material statutory dues applicable to the Company.

b) According to the information and explanations given to us, the Company is not regular in depositing with appropriate authorities undisputed dues in respect of sales tax of Rs.32.69 lakhs outstanding as at 31.03.2010 for a period of more than six months from the date it became payable.

c) According to the records of the Company and the information and the explanations given to us, the dues of Excise Duty/Service Tax/Provident Fund/Income Tax/Taxes which have not been deposited on account of any dispute are as follows:

Nature of Amount Period to which Forum where dues (Rs. in lakhs) the amount relates dispute is pending

Service Tax 52.39 2005-06 CESTAT, Bangalore

Service Tax 35.04 2006-07 CESTAT, Bangalore

Service Tax 1.22 2008-09 CESTAT, Bangalore Income Tax 130.97 2003-04 Appellate Tribunal

Provident fund 34.69 2003-09 Appellate Tribunal, New Delhi

Municipal Tax 32.35 1998-2007 Yanam Municipality

x) The Company has accumulated losses at the end of the financial year. It has incurred cash losses in the financial year under report and immediately preceding financial year.

xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to banks.

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

xiii) The Company is neither a chit fund nor a nidhi mutual benefit fund/society. Therefore, the provisions of clause 4

(xiii) of the above referred Order are not applicable to the Company. xiv) The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4

(xiv) of the above referred Order are not applicable to the Company.

xv) The Company has not given any guarantee for loans taken by others from banks or financial institutions.

xvi) The Term Loans were applied for the purpose for which the loans were obtained.

xvii) According to the information and explanations given to us and on all overall examination of the balance sheet of the Company funds raised on short-term basis have not been used for long-term investment.

xviii) During the year the Company issued 128,44,786 equity shares in pursuance to the Scheme of Agreement at a face value of Rs.10/- each along with a premium of Rs.2.37 paise per share to the parties covered in the register maintained under section 301 of the Act. In our opinion the price at which the shares have been issued is not prejudicial to the interest of the Company.

xix) Since no Debentures were issued during the year, clause No.XIX of the said Order is not applicable.

xx) During the year, the Company has not raised money by public issues.

xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year.

Place : Hyderabad for Brahmayya & Co.,

Date : July 31, 2010 Chartered Accountants

Firm Registration No. 000513S

K S Rao

Partner

Membership No.: 15850