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Auditor Report of Saffron Industries Ltd.

Mar 31, 2013

We have audited the accompanying financial statements of SAFFRON INDUSTRIES LIMITED(Formerly-Madhyadesh Papers Ltd.) as at March 31,2013, which comprise the Balance Sheet as at March 31, 2013, the Statement of Profit and Loss and Cash Flow for the year then ended and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for Financial Statements :

Management is responsible of responsible for the preparation of these financial sttements that give a true and fair view of the financial position, financial performance of the Company in accordance with the Accounting Standards referred to in section 211 (3C) of the Companies Act, 1956. Our responsibility is to express an opinion on these financial statements based on our audit.

Auditor''s Responsibility:

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

Opinion:

In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information reuired by the Companies Act, 1956, in the manner so required and give a true and 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 and

b. In the case of the Profit and Loss Account, of the Lose for the year ended on that date.

c. In case of cash flow statement, of the cash flows for the year ended on that date.

Subject to our comments :

i) The Closing Sock as on March 31, 2013, as taken valued and certified by the Directors, is taken and accepted as correct.

ii) The value of loss on fire of stock and fixed assets, occurred in company''s factory premises during the financial year, is taken as per insurance claim lodged by the company with the Insurers.

Report on other Legal and Regulatory Requirements :

01. As required by secton 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 purposes of our audit.

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

c. The Balance Sheet and Profit and Loss Account and cash flow statement dealt with by this report are in agreement with the books of account.

d. In our opinion, the Balance Sheet and 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 ofthe Companies Act, 1956.

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

f. Since the Central Government has not issued anynotification as to the rate at which the cess is to be paid under section 441A ofthe Companies Act, 1956 nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

02. As required by the Companies (Auditors'' Reports) Order, 2003 issued by the Company Law Board in terms of Section 227(4A) ofthe Companies Act, 1956 and on the basis of such checks, as we considered appropriate and on the basis of information given to us and to the extent the above order, in our opinion, is relevant to the Company for the year, we further report that:

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

b) The fixed assets of the Company have been physically verified during the year by the management at reasonable intervals and no material discrepancies between the book records and the physical inventory have been noticed.

c) As informed to us, the Company has not disposed off any substantial part of its , Fixed Assets and this has not affected the Company, as a going concern.

ii) a) As explained to us, the stocks of inventory of the Company have been physically verified by the management from time to time, during the year. In our opinion, the frequency of the verification was reasonable.

b) In our opinion and according to information and explanations given to us, the procedures of physical verification of stocks, followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

c) The company is maintaining proper records of inventory and the material discrepanices noticed on physical verification, have been properly dealt with in the books of account.

iii) a) The Company has interest free unsecured loan of f 816995.87 hundreds from four associate concerns covered in the register maintained under saction 301 of the the Companies Act and has not granted any unsecured loan to any such firm, company or other party, except during the normal course of business.

b) In our opinion and according to information and explanations given to us, the rate of interest and other terms and conditions of loans given or taken by the company secured or unsecured, are prima facie, not prejudicial to the interest of the company.

c) As per the information and explanation given to us, the company is not regular in payment of term loans and working capital facilities availed from the State Bank of India.

d) The following amounts of interest and principal are overdue for payments to State Bank of India.

(Rs. In Hundreds)

Principal Interest

Term loans-State Bank of India 1327001.70 1057110.36

Working Capital Loans-State Bank of India - 102376.02

Term Loan from ASREC India Ltd. 292000.00 23033.90

iv) In our opinion, there is an adequate internal control procedure commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for sale of goods. During the course of audit, we have not observed any area of continuous failure to correct major weakness in internal control system.

v) a) The company has entered the transactions that need to be entered into a register, in pursuance of section 301 of the Act.

b) In our opinion, these transactions during the year, in cases of transactions exceeding Rupees five lacs, in respect of any party, have been made at the prices, which are reasonable having regard to prevailing market prices, at the relevant time.

vi) In our opinion and according to information and explanations given to us, the Company has not accepted during the year, any deposit from public in contravention of the directives of Reserve Bank of India and Section 58Aand 58AAof the Companies Act, 1956 and rules framed thereunder.

vii) The company has an internal audit system, conducted by the employees of the company. In our opinion this needs to be strengthened, in view of volume and nature of transactions of the company to make it commensurate with the size and the 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 government for maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 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) The Company is generally regular in payment of undisputed statutory dues including Provident Fund, Profession Tax, Sales Tax and other statutory dues.

(b) Undisputed Income Provident Fund dues of f 9192.15 hundreds outstanding for a period exceeding six months, as on March 31, 2013.

x) The company has accumulated losses of Rs. 1703705.75 hundreds at the end of the year which is more than its net worth. The company has incurred cash losses of Rs. 526879.63 hundreds during the current year and Rs. 466088.46 hundreds in last year..

xi) On the basis of the information and explanations given to us by the management and read with our comments in Para (iii) (d) above, the company has defaulted in repayment of dues to its bankers.

xii) As per the information and explanations given to us, the company has not granted loans or advances on the basis of security by way of pledge of shares and other securities.

xiii) The company is not a Chit Fund / Nidhi / Mutual benefit company. Therefore, clause 4 (xiii) of the Companies (Auditor''s Report) Order 2003 is not applicable to the company.

xiv) As per the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investment.

xv) As explained to us, the company has not given any guarantee for loan taken by others, from banks or financial institutions.

xvi) In our opinion and according to explanations given to us, the company has applied term loans for the purpose for which these loans were obtained.

xvii) According to the records examined by us and as per information and explanations given to us, we are of the opinion that, the funds raised on short term basis, have not been used for long term investment and vice versa.

xviii) The company has not made preferential allotment of any shares during the year.

xix) The company has not issued any debenture during the year.

xx) The company has not raised any money by public issue during the year.

xxi) To the best of our knowledge and belief and according to information and explanations given to us, no fraud on or by the company has been noticed or reported.

For KHATRI & IYER

Chartered Accountants

Firm Reg. No.113433W

JAGDISH KHATRI

Partner

Membership No.035495

NAGPUR

Date: May 29,2013


Mar 31, 2012

We have audited the attached Balance Sheet of SAFFRON INDUSTRIES LIMITED(Formerly- Madhyadesh Papers Ltd.) as at March 31. 2012, and the related Profit and Loss Account and Cash Flow Statement, for the year ended on that date annexed thereto. 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.

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.

Further to our comments above, we report that:

01. 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.

02. 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.

03. The Balance Sheet and Profit and Loss Account and cash flow statement dealt with by this report are in agreement with the books of account.

04. In our opinion, the Balance Sheet and 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.

05. On the basis of written representations received from the Directors, as on March 31, 2012, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31,2012 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

06. 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 :

a. In the case of the Balance Sheet, of the state of affairs of the Company as at March 31,2012 and

b. In the case of the Profit and Loss Account, of the Loss for the year ended on that date.

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

07. As required by the Companies (Auditors'' Reports) Order, 2003 issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956 and on the basis of such checks, as we considered appropriate and on the basis of information given to us and to the extent the above order, in our opinion, is relevant to the Company for the year, we further report that:

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

b) The fixed assets of the Company have been physically verified during the year by the management at reasonable intervals and no material discrepancies between the book records and the physical inventory have been noticed.

c) As informed to us, the Company has not disposed off any substantial part of its Fixed Assets and this has not affected the Company, as a going concern.

ii) a) As explained to us, the stocks of inventory of the Company have been physically verified by the management from time to time, during the year. In our opinion, the frequency of the verification was reasonable.

b) In our opinion and according to information and explanations given to us, the procedures of physical verification of stocks, followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

c) The company is maintaining proper records of inventory and the material discrepancies noticed on physical verification, have been properly dealt with in the books of account.

iii) a) The Company has interest free unsecured loan of Rs. 41849.59 thousands form three associate concern covered in the register maintained under section 301 of the Companies Act and has granted unsecured loan of f 5811.80 thousands to one such party.

b) In our opinion and according to information and explanations given to us, the rate of interest and other terms and conditions of loans given or taken by the company secured or unsecured, are prima facie, not prejudicial to the interest of the company.

c) As per the information and explanation given to us, the company is not regular in payment of term loans and working capital facilities availed from the State Bank of India.

a) The following amounts of interest and principal are overdue for payments to State Bank of India.

(Rs. In thousands)

Principal Interest

Term loans-State Bank of India 114300 78751

Working Capital Loans - 7243

iv) In our opinion, there is an adequate internal control procedure commensurate within size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for sale of goods. During the course of audit, we have not observed any area of continuous failure to correct major weakness in internal control system.

v) a) The company has entered the transactions that need to be entered into a register, in pursuance of section 301 of the Act.

b) In our opinion, these transactions during the year, in cases of transactions exceeding Rupees five lacs, in respect of any party, have been made at the prices, which are reasonable having regard to prevailing market prices, at the relevant time.

vi) In our opinion and according to information and explanations given to us, the Company has not accepted during the year, any deposit from public in contravention of the directives of Reserve Bank of India and Section 58Aand 58AAof the Companies Act, 1956 and rules framed There under.

vi) The company has an internal audit system, conducted by the employees of the company. In our opinion this needs to be strengthened, in view of volume and nature of transactions of the company to make it commensurate with the size and the 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 government for maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 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) The Company is generally late in payment of undisputed statutory dues including Employees Provident Fund and Profession tax.

(b) Undisputed Income tax dues of Rs. 2471.05 thousands, Service Tax Rs. 220.54 thousands and Provident Fund dues of Rs. 638.40 thousands, were outstanding for a period exceeding six months, as on March 31,2012.

x) The company has accumulated losses of Rs. 96817.30 thousands at the end of the year. The company has not incurred cash losses of f 46608.86 thousands during the current year and Rs. 40076.81 thousands in last year..

xi) On the basis of the information and explanations given to us by the management and read with our comments in Para (iii) (d) above, the company has defaulted in repayment of dues to its bankers.

xii) As per the information and explanations given to us, the company has not granted loans or advances on the basis of security by way of pledge of shares and other securities.

xiii) The company is not a Chit Fund / Nidhi / Mutual benefit company. Therefore, clause 4 (xiii) of the Companies (Auditor''s Report) Order 2003 is not applicable to the company.

xiv) As per the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investment.

xv) As explained to us, the company has not given any guarantee for loan taken by others, . from banks or financial institutions.

xvi) In our opinion and according to explanations given to us, the company has applied term loans for the purpose for which these loans were obtained.

xvii) According to the records examined by us and as per information and explanations given to us, we are of the opinion that, the funds raised on short term basis, have not been used for long term investment and vice versa.

xviii) The company has not made preferential allotment of any shares during the year.

xix) The company has not issued any debenture during the year.

xx) The company has not raised any money by public issue during the year.

xxi) To the best of our knowledge and belief and according to information and explanations given to us, no fraud on or by the company has been noticed or reported.

For KHATRI& IYER

Chartered Accountants

Firm Reg. N0.113433W

JAGDISH KHATRI

Partner

Membership No.035495

NAGPUR

Date: May 30,2012


Mar 31, 2011

We have audited the attached Balance Sheet of MADHYADESH PAPERS LIMITED as at March 31,2011 and the related Profit and Loss Account and Cash Flow Statement, for the year ended on that date annexed thereto. 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.

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 overallflnancial statement presentation We believe that our audit provides a reasonable basis for our opinion.

Further to our comments above, we report that:

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

02. 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.

03. The Balance Sheet and Profit and Loss Account and cash flow statement dealt with by this report are in agreement with the books of account.'

04. In our opinion, the Balance Sheet and 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.

05. On the basis of written representations received from the Directors, as on March 31 2011 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31,2011 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

06. 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:

a. In the case of the Balance Sheet, of the state of affairs of the Company as at March 31,201 land

b. In the case of the Profit and Loss Account, of the Profit for the year ended on that date.

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

07. As required by the Companies (Auditors' Reports) Order, 2003 issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956 and on the basis of such checks, as we considered appropriate and on the basis of information given to us and to the extent the above order, in our opinion, is relevant to the Company for the year, we further report that:

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

b) The fixed assets of the Company have been physically verified during the year by the management at reasonable intervals and no material discrepancies between the book records and the physical inventory have been noticed.

c) As informed to us, the Company has not disposed off any substantial part of its Fixed Assets and this has not affected the Company, as a going concern.

ii) a) As explained to us, the stocks of inventory of the Company have been physically verified by the management from time to time, during the year. In our opinion, the frequency of the verification was reasonable.

b) In our opinion and according to information and explanations given to us, the procedures of physical verification of stocks, followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

c) The company is maintaining proper records of inventory and the material discrepanices noticed on physical verification, have been properly dealt with in the books of account.

iii) a) The Company has neither taken nor granted any loan from any company, firm or other party covered in the register maintained under section 301 of the Companies Act except during the regular course of business.

b) In our opinion and according to information and explanations given to us, the rate of interest and other terms and conditions of loans given or taken by the company secured or unsecured, are prima facie, not prejudicial to the interest of the company.

c) As per the information and explanation given to us, the company is not regular in payment of term loans and working capital facilities availed from the State Bank of India and Federal Bank Ltd.

d) The following amounts of interest and principal are overdue for payments to State Bank of India and the Federal Bank Ltd.

(Rs. In lacs)

Principal Interest

Term loans - State Bank of India 927.00 548.39

- Federal Bank Ltd. 375.99 133.68

Working Capital Loans - 45.96



iv) In our opinion, there is an adequate internal control procedure commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for sale of goods. During the course of audit, we have not observed any area of continuous failure to correct major weakness in internal control system.

v) a) The company has entered the transactions that need to be entered into a register in pursuance of section 301 of the Act. .

b) In our opinion, these transactions during the year, in cases of transactions exceeding Rupees five lacs, in respect of any party, have been made at the prices, which are reasonable having regard to prevailing market prices, at the relevant time.

vi) In our opinion and according to information and explanations given to us, the Company has not accepted during the year, any deposit from publicin contravention of the directives of Reserve Bank of India and Section 58Aand 58AAof the Companies Act, 1956 and rules framed thereunder.

vii) The company has an internal audit system, conducted by the employees of the company. In our opinion this needs to be strengthened, in view of volume and nature of transactions of the company to make it commensurate with the size and the 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 government for maintenance of cost records under section 201 (1) (d) of the Companies Act, 1956 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) The Company is generally late in payment of undisputed statutory dues including Employees Provident Fund and Profession tax.

(b) Undisputed Income tax dues of Rs. 26.47 lacs, Service Tax Rs. 2.21 lacs and Provident Fund dues of Rs. 28.09 lacs, were outstanding for a period exceeding six months as on March 31,2011.

The company has accumulated losses of Rs. 585.06 lacs at the end of the year The company has not incurred cash losses of Rs. 400.77 lacs during the current year and Rs. 357.77 lacs in last year..

c) On the basis of the information and explanations given to us by the management and read with our comments in Para (iii) (d) above, the company has defaulted in repayment of dues to its bankers.

xii) As per the information and explanations given to us, the company has not granted loans or advances on the basis of security by way of pledge of shares and other securities.

xiii) The company is not a Chit Fund / Nidhi / Mutual benefit company. Therefore, clause 4 (xiii) of the Companies (Auditor's Report) Order 2003 is not applicable to the company.

xiv) As per the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investment.

xv) As explained to us, the company has not given any guarantee for loan taken by others, from banks or financial institutions.

xvi) In our opinion and according to explanations given to us, the company has applied term loans for the purpose for which these loans were obtained.

xvii) According to the records examined by us and as per information and explanations given to us, we are of the opinion that, the funds raised on short term basis, have not been used for long term investment and vice versa.

xviii) The company has not made preferential allotment of any shares during the year.

xix) The company has not issued any debenture during the year.

xx) The company has not raised any money by public issue during the year.

xxi) To the best of our knowledge and belief and according to information and explanations given to us, no fraud on or by the company has been noticed or reported.

Jagdish Khatri Patner

For and on behalf of KHATRI & IYER Chartered Accountants

NAGPUR Date : May 30, 2011


Mar 31, 2010

We have audited the attached Balance Sheet of MADHYADESH PAPERS 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. 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.

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.

Further to our comments above, we report that:

01. 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.

02. 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.

03. The Balance Sheet and Profit and Loss Account and cash flow statement dealt with by this report are in agreement with the books of account.

04. In our opinion, the Balance Sheet and 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.

05. 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 directorsis 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 Companies Act, 1956.

06. 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:

a. In the case of the Balance Sheet, of the state of affairs of the Company, as at March 31,2010 and

b. In the case of the Profit and Loss Account, of the Profit for the year ended on that date.

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

07. As required by the Companies (Auditors Reports) Order, 2003 issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956 and on the basis of such checks, as we considered appropriate and on the basis of information given to us and to the extent the above order, in our opinion, is relevant to the Company for the year, we further report that:

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

b) The fixed assets of the Company have been physically verified during the year by the management at reasonable intervals and no material discrepancies between the book records and the physical inventory have been noticed.

c) As informed to us, the Company has not disposed off any substantial part of its Fixed Assets and this has not affected the Company, as a going concern.

ii) a) As explained to us, the stocks of inventory of the Company have been physically verified by the management from time to time, during the year. In our opinion, the frequency of the verification was reasonable.

b) In our opinion and according to information and explanations given to us, the procedures of physical verification of stocks, followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

c) The company is maintaining proper records of inventory and the material discrepanices noticed on physical verification, have been properly dealt with in the books of account.

iii) a) The Company has neither taken nor granted any loan from any company, firm or other party covered in the register maintained under section 301 of the Companies Act except during the regular course of business.

b) In our opinion and according to information and explanations given to us, the rate of , interest and other terms and conditions of loans given or taken by the company secured or unsecured, are prima facie, not prejudicial to the interest of the company.

c) As per the information and explanation given to us,

The company is not regular in payment of term loans and working capital facilities availed from the State Bank of India and Federal Bank Ltd.

d) The following amounts of interest and principal are overdue for payments to State Bank of India and the Federal Bank Ltd.

(Rs. In lacs)

Principal Interest

Term loans - State Bank of India 515.00 329.92

- Federal Bank Ltd. 111.68 39.87

Working Capital Loans - 22.45

iv) In our opinion, there is an adequate internal control procedure commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for sale of goods. During the course of audit, we have not observed any area of continuous failure to correct major weakness in internal control system.

v) a) The company has entered the transactions that need to be entered into a register, in pursuance of section 301 of the Act.

b) In our opinion, these transactions during the year, in cases of transactions exceeding Rupees five lacs, in respect of any party, have been made at the prices, which are reasonable having regard to prevailing market prices, at the relevant time.

vi) In our opinion and according to information and explanations given to us, the Company has not accepted during the year, any deposit from public in contravention of the directives of Reserve Bank of India and Section 58A and 58AA of the Companies Act, 1956 and rules framed thereunder.

vii) The company has an internal audit system, conducted by the employees of the company. In our opinion this needs to be strengthened, in view of volume and nature of transactions of the company to make it commensurate with the size and the 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 government for maintenance of cost records under section 201 (1) (d) of the Companies Act, 1956 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) The Company is generally late in payment of undisputed statutory dues including Employees Provident Fund and Profession tax.

(b) Undisputed Income tax dues of Rs. 26.47 lacs and Provident Fund dues of Rs. 23.79 lacs, were outstanding for a period exceeding six months, as on March 31, 2010.

x) The company neither has accumulated losses nor less than fifty percent of its net worth has eroded at the end of the year and company has not incurred cash losses income immediately preceding financial year. However, the company has uncured cash losses of Rs. 357.73 lacs during the current year.

xi) On the basis of the information and explanations given to us by the management and read with our comments in Para (iii) (d) above, the company has defaulted in repayment of dues to its bankers.

xii) As per the information and explanations given to us, the company has not granted loans or advances on the basis of security by way of pledge of shares and other securities. J

xiii) The company is not a Chit Fund / Nidhi / Mutual benefit company. Therefore, clause 4 (xiii) of the Companies (Auditors Report) Order 2003 is not applicable to the company,

xiv) As per the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investment.

xv) As explained to us, the company has not given any guarantee for loan taken by others, from banks or financial institutions.

xvi) In our opinion and according to explanations given to us, the company has applied term loans for the purpose for which these loans were obtained.

xvii) According to the records examined by us and as per information and explanations given to us, we are of the opinion that, the funds raised on short term basis, have not been used ; for long term investment and vice versa.

xviii) The company has not made preferential allotment of any shares during the year.

xix) The company has not issued any debenture during the year.

xx) The company has not raised any money by public issue during the year.

xxi) To the best of our knowledge and belief and according to information and explanations given to us, no fraud on or by the company has been noticed or reported.

Jagdish Khatri Patner NAGPUR For and on behalf of KHATRI & IYER

Date : May 29, 2010 Chartered Accountants


Mar 31, 2009

We have audited the attached Balance Sheet of MADHYADESH PAPERS LIMITED, as at March 31, 2009, and the related Profit and Loss Account and Cash Flow 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.

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.

Further to our comments above, we report that:

01. 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.

02. 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.

03. The Balance Sheet and Profit and Loss Account and cash flow statement dealt with by this report are in agreement with the books of account.

04. In our opinion, the Balance Sheet and 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.

05. On the basis of written representations received from the Directors, as on March 31, 2009, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31,2009 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

06. 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 :

a. In the case of the Balance Sheet, of the state of affairs of the Company, as at March 31, 2009 and

b. In the case of the Profit and Loss Account, of the Profit for the year ended on that date.

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

07. As required by the Companies (Auditors Reports) Order, 2003 issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956 and on the basis of such checks, as we considered appropriate and on the basis of information given to us and to the extent the above order, in our opinion, is relevant to the Company for the year, we further report that:

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

b) The fixed assets of the Company have been physically verified during the year by the management at reasonable intervals and no material discrepancies between the book records and the physical inventory have been noticed.

c) As informed to us, the Company has not disposed off any substantial part of its Fixed Assets and this has not affected the Company, as a going concern.

ii) a) As explained to us, the stocks of inventory of the Company have been physically verified by the management from time to time, during the year. In our opinion, the frequency of the verification was reasonable.

b) In our opinion and according to information and explanations given to us, the procedures of physical verification of stocks, followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

c) The company is maintaining proper records of inventory and the material discrepanices noticed on physical verification, have been properly dealt with in the books of account.

iii) a) The Company has neither taken nor granted any loan from any company, firm or other party covered in the register maintained under section 301 of the Companies Act except during the regular course of business.

b) In our opinion and according to information and explanations given to us, the rate of interest and other terms and conditions of loans given or taken by the company secured or unsecured, are prima facie, not prejudicial to the interest of the company.

c) As per the information and explanation given to us,

i) The company is not regular in payment of term loans and working capital facilities availed from the State Bank of India.

ii) The following amounts of interest and principal are overdue for payments to State Bank of India. (Rs. In lacs)

Principal Interest

Term loans 167.00 148.24

Working Capital Loans 7.64 29.49

d) No amount of principal and interest was overdue to the Federal Bank Ltd., reschedulement of their loans.

iv) In our opinion, there is an adequate internal control procedure commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for sale of goods. During the course of audit, we have not observed any area of continuous failure to correct major weakness in internal control system.

v) a) The company has entered the transactions that need to be entered into a register,

in pursuance of section 301 of the Act.

b) In our opinion, these transactions during the year, in cases of transactions exceeding Rupees five lacs, in respect of any party, have been made at the prices, which are reasonable having regard to prevailing market prices, at the relevant time.

vi) In our opinion and according to information and explanations given to us, the Company has not accepted during the year, any deposit from public in contravention of the directives of Reserve Bank of India and Section 58A and 58AA of the Companies Act, 1956 and rules framed thereunder.

vii) The company has an internal audit system, conducted by the employees of the company. In our opinion this needs to be strengthened, in view of volume and nature of transactions of the company to make it commensurate with the size and the 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 government for maintenance of cost records under section 201 (1) (d) of the Companies Act, 1956 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) The Company is generally late in payment of undisputed statutory dues including Employees Provident Fund and Professional tax.

(b) Undisputed Income tax dues of Rs. 20.83 lacs were outstanding for a period of more than six months, as on March 31, 2009.

x) The company neither has accumulated losses nor less than fifty percent of its net worth

has eroded at the end of the year nor has incurred cash losses during the current year and the immediately preceeding financial year.

xi) On the basis of the information and explanations given to us by the management and read with our comments in Para (iii) (d) above, the company has not defaulted in repayment of dues to any financial institution or bank.

xii) As per the information and explanations given to us, the company has not granted loans or advances on the basis of security by way of pledge of shares and other securities.

xiii) The company is not a Chit Fund / Nidhi / Mutual benefit company. Therefore, clause 4 (xiii) of the Companies (Auditors Report) Order 2003 is not applicable to the company.

xiv) As per the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investment.

xv) As explained to us, the company has not given any guarantee for loan taken by others, from banks or financial institutions.

xvi) In our opinion and according to explanations given to us, the company has applied term loans for the purpose for which these loans were obtained.

xvii) According to the records examined by us and as per information and explanations given to us, we are of the opinion that, the funds raised on short term basis, have/iot been used for long term investment and vice versa.

xviii) The company has not made preferential allotment of any shares during the year.

xix) The company has not issued any debenture during the year.

xx) The company has not raised any money by public issue during the year.

xxi) To the best of our knowledge and belief and according to information and explanations given to us, no fraud on or by the company has been noticed or reported.

Jagdish Khatri

Patner

NAGPUR For and on behalf of KHATRI & IYER

Date : June 27, 2009 Chartered Accountants