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Auditor Report of SAL Steel Ltd.

Mar 31, 2016

To the Members of

S.A.L. STEEL LIMITED AHMEDABAD

Report on the Financial Statements

We have audited the accompanying financial statements of S.A.L STEEL Limited (''the Company), which comprise the Balance sheet as at March 31, 2016, the Statement of profit and loss , the 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 of adequate accounting records in accordance with the provisions of the Act for safeguarding 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 provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

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. Management is of the view that they do not anticipate execution of its ongoing capital projects. However, the Company has not made adequate provision towards recovery of capital advances for the said project for the amount of Rs.9,41,22,080/- which are currently shown under Long term loans and advances. The consequential impact of adjustment, if any, on the actual realization of said advances on the financial statements is currently not ascertainable. Therefore, we are unable to comment on its consequential financial impact, if any, on the financial statements.

Qualified 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 matter described in the Basis for Qualified Opinion paragraph above , 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 March 31, 2016 , and its loss for the year ended March 31, 2016 and its cash flows for the year ended on that date.

Emphasis of Matters

We draw attention to the following matters in the Notes to the Financial Statements:

1. Note 26 to the financial statements which describes that the Non disclosure of Reportable Segments as required under Accounting Standard - 17 ''Segment Reporting'', there is no impact on the Statement of Profit and Loss due to non disclosure.

2. During the year, the Company has accumulated losses and its net worth has been fully eroded. The Financial Statements indicates that the Company has incurred a net loss during the current and previous year(s) and, the Company''s current liabilities exceeded its current assets as at the current and previous year balance sheet date. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company''s ability to continue as a going concern. However, the financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note 28 to the financial statements.

3. Assignment of dues for various facilities provided to the company by banks to Invent Assets Securitization and Reconstruction Private Limited as per Note 29 to the financial statements.

4. During the year ended 31st March 2016, the company has carried out a techno-economic assessment for the valuations of its Capital Projects to identify the impairment loss and provision thereof, if any. Based on the said techno-economic assessment of the Capital Projects, the Company has provided for Rs. 31,70,24,474/- as per Note 30 to the financial statements The same is in accordance with the notified Accounting Standard 28 on Impairment of asset which states that impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount.

5. Note 27 to the Financials regarding the company''s reference being filed under section 15(1) of SICA (SP) Act, 1985. The Honorable BIFR vide its letter reference no 3(S-10)/BC/2015 dated 24th August 2015 has registered the reference filed by the company vide case no 109/2015.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2016 ("the Order") issued by the Central Government of India in terms of subsection (11) of section 143 of the Act, we give in the Annexure A, a statement on the matters specified in the paragraph 3 and 4 of the Order, to the extent applicable.

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

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes 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 it appears from our examination of those books;

c) The Balance sheet, the Statement of Profit and loss and the 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 above , 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 going concern matter as described in sub-paragraph (2) under the Emphasis of Matters paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in "Annexure B"; and

g) On the basis of the written representations received from the directors as on March 31, 2016 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2016 from being appointed as a director in terms of Section 164 (2) of the Act; and

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

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 18A to the financial statements;

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

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

Annexure A to Independent Auditors'' Report

The Annexure referred to in Independents Auditor''s Report to the members of the Company on the Standalone financial statement for the year ended 31st March 2016, we report that:

i) In respect of its Fixed Assets:

a) The company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets on the basis of available information.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased program of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

c) According to the information and explanation given to us and on the basis of our examination of records of the company, the title deeds of the immovable properties held are in the name of the company.

ii) In respect of its inventories:

As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of the verification is reasonable. The discrepancies noticed on verification between the physical stocks and the book records were not material.

iii) In respect of Loans, Secured or Unsecured granted by the company to companies, firms, Limited liability partnership or other parties covered in the register maintained under section 189 of the Companies Act, 2013:

According to the information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies, Limited liability partnership or firms or other parties covered in the register maintained under section 189 of the Companies Act 2013 and hence sub-clause (a) & (b) & (c) of paragraph 3 of the Companies Auditor''s Report Order 2016 are not applicable to the Company.

iv) The Company has complied with the provision of Section 185 & 186 of Companies Act, 2013 with respect of loans, investments and guaranty made.

v) In our opinion and according to the information and explanations given to us, the Company has not accepted any deposit and hence the provisions of Section 73 to 76 or any other relevant provisions of the Companies Act and the Companies (Acceptance of Deposits) Rules, 2014 with regard to the deposits accepted are not applicable to the Company. Therefore, the provisions of Clause (v) of paragraph 3 of the Companies Auditor''s Report Order 2016 are not applicable to the Company. According to the information and explanations given to us, no order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

vi) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records as specified under Section 148 of the Companies Act, 2013 and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

vii) In respect of the Statutory dues:

a) According to the records of the company, 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 have not been generally regularly deposited during the year with the appropriate authorities. On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2016 for a period of more than six months from the date of becoming payable.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the details of disputed dues of Rs. 25,73,86,625/- have not been deposited as on 31st March, 2016 on account of matters pending before the appropriate authorities. The details of which are as under:

Sr. No.

Name of the Statute

Nature of the Dues

Period to which the amount relates

Forum where the dispute is pending

Amount under dispute not yet deposited (in Rs.)

1

Central Excise Act, 1944

Central Excise Duty

2006-07

Appellate Tribunal Ahmedabad

5,55,781

2

Central Excise Act, 1944

Central Excise Duty

2008-09

Appellate Tribunal Ahmedabad

10,41,057

3

Custom Act, 1962

Custom Duty

2011-12

Appellate Tribunal Ahmedabad

2,41,79,202

4

Central Excise Act, 1944

Central Excise Duty

2012-13

Appellate Tribunal Ahmedabad

4,49,84,993

5

Gujarat Value Added Tax Act 2003

Value Added Tax

2006-07

Jt. Value Added Tax Commissioner (Appeal)

3,65,63,595

6

Central Excise Act, 1944

Central Excise Duty

2008-09 to 2010-11

Supreme Court

5,90,14,068

7

Central Service Tax Act, 1994

Service Tax Duty

2009-10

Service Tax Commissioner

25,36,074

8

Central Excise Act, 1944

Central Excise Duty

2005-06 to Sep 2014

Central Excise Commissioner

6,26,28,410

9.

Central Excise Act, 1944

Central Excise Duty

2012-13

Central Excise Commissioner

80,11,535

10.

Gujarat Value Added Tax Act 2003

Value Added Tax

2011-12

Jt. Value Added Tax Commissioner (Appeal)

1,78,71,910

viii) On the basis of the information and explanation given to us and on the basis of records produced before us, the company has defaulted in repayment of dues as follows:

NAME OF THE BANK

NATURE OF FACILITY

Amount (in Rs.) of Default as at 31-03-2016

Period Of Default ( No of Days)

Union Bank Of India

Term Loan

41,71,00,000

1 to 1170

Working Capital

31,93,91,914

1 to 745

Interest

30,41,67,170

1 to 745

State Bank of India

Term Loan

35,87,00,000

1 to 1170

Working Capital

37,35,80,824

1 to 944

Interest

39,41,86,852

1 to 944

State Bank of Saurashtra

Term Loan

7,00,00,000

1 to 1170

State Bank of Hyderabad

Term Loan

4,42,00,000

1 to 1170

Interest

2,38,72,699

1 to 836

* The Dues of State bank of Hyderabad, Union Bank of India, State bank of India have been assigned to Invent Assets Securitization and Reconstruction Pvt Ltd respectively w.e.f 1st July 2015, 3rd July 15 and 30th Oct 2015 . However, no agreements have been executed between the company and Invent Assets Securitization and Reconstruction Pvt Ltd as on March 31, 2016. And hence, defaults have been considered towards banks as mentioned above till the date of Dues of respective banks being assigned to Invent Assets Securitization and Reconstruction Pvt Ltd..

ix) According to the records of the company, the company has neither raised any monies by way of Initial Public Offer or Further Public Offer nor has the company obtained any term loan. Hence, the comments under the clause are not called for.

x) Based on the audit procedures performed and representation obtained from management we report that, no case of material fraud by the Company or on the Company by its officers and employee has been noticed or reported for the year under audit.

xi) The Company has provided managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V of the Companies Act, 2013.

xii) In our opinion, and to the best of our information and according to the explanations provided by the management, we are of the opinion that the company is not a nidhi company. Hence, in our opinion, the requirements of clause (xii) of Paragraph 3 of the Order do not apply to the Company.

xiii) The Company has complied with Section 177 and 188 of Companies Act, 2013, in respect of transactions with the related parties and relevant details have been disclosed in the financial statements as required by the applicable accounting standards.

xiv) The Company has not made any preferential allotment or private placement of shares or full or convertible debentures during the year under review. Hence, the provisions of Clause (xiv) of paragraph 3 of the Order are not applicable to the Company.

xv) The Company has not entered into any non-cash transactions with directors or persons connected with him. Therefore, the provisions of Clause (xv) of paragraph 3 of the Order are not applicable to the Company.

xvi) The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

ANNEXURE B TO THE INDEPENDENT AUDITOR''S REPORT OF EVEN DATE ON THE FINANCIAL STATEMENTS OF S.A.L. STEEL LIMITED

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of S.A.L STEEL Limited (''the Company) as of March 31, 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management''s Responsibility for Internal Financial Controls

The Company''s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company''s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors'' Responsibility

Our responsibility is to express an opinion on the Company''s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. 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. We believe that the audit evidence I/we have obtained is sufficient and appropriate to provide a basis for my /our audit opinion on the Company''s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company''s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company''s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company''s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

For Talati & Talati

Chartered Accountants

(Firm Reg. No: 110758W)

Umesh Talati

Place : Ahmedabad Partner

Date : May 30, 2016 Mem No. : 034834


Mar 31, 2015

We have audited the accompanying financial statements of S.A.L STEEL Limited ('the Company'), which comprise the Balance sheet as at March 31, 2015, the Statement of profit and loss , the 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 of adequate accounting records in accordance with the provisions of the Act for safeguarding 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 provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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 an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements.

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. Management is of the view that they do not anticipate execution of its ongoing capital projects. However, due provision / write off / impairment which must have been made in the books of accounts has not been made. Out of the total book value of Capital work in progress of Rs. 103,89,20,943/- during the year, the management has charged back only expense of pre operative expense, trial run expense and borrowing cost element for Rs. 47,48,71,471/- to the statement of profit and loss during the current year which was earlier capitalized. For the remaining balance, the company has not carried out any Techno-economic assessment during the year ended 31 March 2015 for the valuations of its ongoing Capital Projects and hence identification of impairment loss and provision thereof, if any, has not been made. The same is not in accordance with the notified Accounting Standard 28 on Impairment of asset which states that impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount . The consequential impact of adjustment, if any, on the financial statements is currently not ascertainable. And hence we are unable to comment on its consequential impact, if any, on the financial statements.

Apart from this, the Company has not made provision towards recovery of capital advances for the said project for the amount of Rs.25,26,09,551/- which are currently shown under Long term loans and advances. The consequential impact of adjustment, if any, on the actual realization of said advances on the financial statements is currently not ascertainable. therefore we are unable to comment on its consequential financial impact, if any, on the financial statements.

Qualified 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 matter described in the Basis for Qualified Opinion paragraph above , 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 March 31, 2015 , and its loss for the year ended March 31, 2015 and its cash flows for the year ended on that date.

Emphasis of Matters

We draw attention to the following matters in the Notes to the Financial Statements:

1) Note No. 26 to the financial statements which describes that the Non disclosure of Reportable Segments as required under Accounting Standard – 17 'Segment Reporting', there is no impact on the Statement of Profit and Loss due to non disclosure.

2) Note No. 29 to the financial statements which describes that the company has reversed the Deferred Tax Asset for the amount of Rs. 16,44,16,320/- and charged it to Statement of Profit and Loss during the Year ended March 31, 2015 due to Management anticipating no sufficient future taxable Income to recover such Deferred Tax Asset. The same is in accordance with the notified Accounting Standard 22 on Accounting for Taxes on Income which states that Deferred Tax asset should be recognized to the extent there is virtually certainty that there will be sufficient future taxable income against which the said deferred tax asset can be realized. Due to reversal of the said deferred tax asset for Rs. 16,44,16,320/-, loss of the current year has been higher by Rs. 16,44,16,320/- and Negative balance of Reserves and Surplus has been lower by Rs. 16,44,16,320/- .

3) During the year, the Company has accumulated losses and its net worth has been fully eroded. The Financial Statements indicates that the Company has incurred a net loss/net cash loss during the current and previous year(s) and, the Company's current liabilities exceeded its current assets as at the current and previous year balance sheet date. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. However, the financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note 27 to the financial statements.

4) Note 30 to the Financial Statements Regarding Dues to banks . Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's 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 the paragraph 3 and 4 of the Order, to the extent applicable.

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

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes 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 it appears from our examination of those books;

(c) The Balance sheet, the Statement of Profit and loss and the 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 above , 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 going concern matter as described in sub-paragraph (3) under the Emphasis of Matters paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

(f) On the basis of the written representations received from the directors as on March 31, 2015 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2015 from being appointed as a director in terms of Section 164 (2) of the Act; and

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

(i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note 18A to the financial statements;

(ii) The Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses;

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

Annexure to Independent Auditors' Report Referred to in paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date.)

i) In respect of its Fixed Assets:

a) The company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets on the basis of available information.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased program of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

ii) In respect of its inventories:

a) As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of the verification is reasonable.

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

c) In our opinion and according to the information and explanations given to us, the company has maintained proper records of inventories. As explained to us, there was no material discrepancies noticed on Physical Verification of Inventories as compared with the book records.

iii) In respect of Loans, Secured or Unsecured granted by the company to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act, 2013: According to the information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies or firms or other parties covered in the register maintained under section 189 of the Companies Act 2013 and hence sub-clause (a) & (b) of paragraph 3 of the Companies Auditor's Report Order 2015 are not applicable to the Company .

iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchases of inventory, fixed assets and for the sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls system.

v) In our opinion and according to the information and explanations given to us, the Company has not accepted any deposit and hence the provisions of Section 73 to 76 or any other relevant provisions of the Companies Act and the Companies (Acceptance of Deposits) Rules, 2014 with regard to the deposits accepted are not applicable to the Company. Therefore, the provisions of Clause (v) of paragraph 3 of the Companies Auditor's Report Order 2015 are not applicable to the Company. According to the information and explanations given to us, no order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

vi) We have broadly reviewed the cost records maintained by the Company as specified Central Government under sub Section (1) of Section 148 of the Companies Act, 2013 and are of the opinion that the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

vii) In respect of the Statutory dues:

a) According to the records of the company, 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 have not been generally regularly deposited during the year with the appropriate authorities.

On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2015 for a period of more than six months from the date of becoming payable.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the details of disputed dues of Rs. 23,15,03,180/- have not been deposited as on 31st March, 2015 on account of matters pending before the appropriate authorities. The details of which are as under :

Sr.Name of the Statute Nature of Period to which No. the Dues the amount relates

1 Central Excise Act, 1944 Central Excise Duty 2006-07

2 Central Excise Act, 1944 Central Excise Duty 2008-09

3 Custom Act, 1962 Custom Duty 2011-12

4 Central Excise Act, 1944 Central Excise Duty 2012-13

5 Gujarat Value Added Value Added Tax 2006-07 Tax Act 2003

6 Central Excise Act, 1944 Central Excise Duty 2008-09 to 2010-11

7 Central Service Tax Act, Service Tax Duty 2009-10 1994

8 Central Excise Act, 1944 Central Excise Duty 2005-06 to Sep 2014

Sr.Name of the Statute Forum where the Amount No. dispute is pending under dispute not yet deposited (in Rs.)

1 Central Excise ACt,1944 Appellate Tribunal 5,55,781 Ahmedabad

2 Central Excise Act,1944 Appellate Tribunal 10,41,057 Ahmedabad

3 Custom Act,1962 Appellate Tribunal 2,41,79,202 Ahmedabad

4 Central Excise Act,1944 Appellate Tribunal 4,49,84,993 Ahmedabad

5 Gujarat Value Added Jt. Value Added Tax 3,65,63,595 Tax Act,2003 Commissioner (Appeal)

6 Central Excise Act,1944 Supreme Court 5,90,14,068

7 Central Service Tax Act, Service Tax 25,36,074 1944 Commissioner

8 Central Excise Act,1944 Central Excise 6,26,28,410 Commissioner

c) According to the information and explanations given to us there is no amount which is required to be transferred to the investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956).

viii) On the basis of information and explanations given to us and on the basis of records produced before us, the company's accumulated losses at the end of the financial year are more than fifty percent of its net worth. The company has incurred cash losses amounting to Rs 2,82,13,058/- during the current year .The company has incurred cash losses amounting to Rs 28,00,81,448/- in the immediately preceding financial year.

ix) On the basis of the information and explanation given to us and on the basis of records produced before us, the company has defaulted in repayment of Principal portion of the Term Loan to the extent of Rs 59,62,00,000/- as at the year end. The company has also defaulted in payment of interest on term loan to the extent of Rs 39,41,29,005/- as at the year end. The period of default on repayment of principal and payment of interest is ranging for a period from 1 day to 912 days and 1 day to 820 days respectively. The company has also defaulted in payment of interest on working capital facilities to the extent of Rs 21,25,93,330/- as at the year end. The period of default in payment of interest is ranging for a period from 1 day to 881 days. Moreover, the company has defaulted in honouring L/C payments to the extent of Rs. 12,50,04,346/- as at the balance sheet date. The period of default in honouring L/C payments is ranging for a period from 609 days to 783 days .

x) The company has given corporate guarantee for Rs 80,00,00,000/- in the earlier years. As on March 31, 2015, the balance of said corporate guarantee is Rs. 6,03,78,259/- . In our opinion, the terms and conditions on which the company has given guarantee is not prejudicial to the interest of the company. The guarantee amount keeps on reducing to the extent SAL Steel Limited repays Inter corporate deposit to Shah Alloys Limited. The Guarantee ceases to exist upon repayment of entire amount of Inter corporate deposit to Shah Alloys Limited.

xi) According to the information & explanations given to us, the Company has not raised any term loan during the year under audit.

xii) In our opinion and according to the information and explanations given to us and based on management representation, no material fraud on or by the company has been noticed or reported during the financial year covered by the audit.

For Talati & Talati

Chartered Accountants

(Firm Reg. No: 110758W)

Umesh Talati

Place:Ahmedabad Partner

Date :May 05, 2015 Mem No. : 034834


Mar 31, 2014

We have audited the accompanying financial statements of M/s S.A.L. Steel Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2014, 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 gives a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards notified under the Companies Act, 1956 ("the Act") read with the General Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors'' Responsibility:

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 misstatements.

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 controls relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Company''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion:

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India :

(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.

Emphasis of Matter:

We draw attention to Note No. 28 to the financial statements which describes the Non disclosure of Reportable Segments as required under Accounting Standard - 17 ''Segment Reporting'', there is no impact on the Statement of Profit and Loss due to non disclosure. Our opinion is not qualified in respect of this matter.

Report on Other Legal and Regulatory Requirements:

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of Section 227(4A) of the Act, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the 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 the Cash Flow Statement dealt with by this Report are in agreement with the books of account;

d. In our opinion, the Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement dealt with this Report comply with the Accounting Standards notified under the Companies Act, 1956 read with the General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013;

e. On the basis of the written representations received from the directors as on March 31, 2014, taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2014, from being appointed as a director in terms of Section 274(l)(g) of the Companies Act, 1956.

Referred to in Paragraph 1 under the heading of "report on other legal and regulatory requirements" of our report of even date

i) In respect of its Fixed Assets:

a) The company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets on the basis of available information.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased program of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

c) According to the information and explanations given to us, Fixed Assets disposed off during the year were not substantial & therefore the going concern status of the company is not affected.

ii) In respect of its inventories:

a) As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of the verification is reasonable.

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

c) In our opinion and according to the information and explanations given to us, the company has maintained proper records of inventories. As explained to us, there was no material discrepancies noticed on Physical Verification of Inventories as compared with the book records.

iii) In respect of Loans, Secured or Unsecured, granted or taken by company to/ from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956:

a) According to the information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies or firms or other parties covered in the register maintained under section 301 of the Companies Act 1956 and hence sub-clause (b), (c) & (d) are not applicable.

e) According to information and explanation given to us and on the basis of records produced before us, the company has taken loan from one company in earlier years, covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 81,23,20,644/- and the year-end balance of loan taken from such parties is Rs. 81,23,20,644/-. During the Year 2013- 14, the company has taken furthermore loan from a company which is covered in the register maintained under section 301 of the Companies Act, 1956 amounting to Rs. 7,62,00,000/-. The Maximum amount involved during the year is 2,80,34,168Rs./- and the year-end balance of loan taken from such party is Rs. 2,35,696.

f) In our opinion, the rate of interest and other terms and conditions on which loan has been taken from the company listed in the register maintained under section 301 of the Act are not prejudicial to the interest of the company.

g) On the basis of records produced before us and on the basis of information and explanation given to us and as per the terms and condition of the schedule stipulated for repayment in respect of loans taken by the company, the repayment of the principal portion of the loan from a company covered in the register maintained under section 301 of the Companies Act, 1956 was due to the extent of Rs. 10,00,00,000/- during the year 2011-12, Rs. 20,00,00,000/- during the year 2012-13 and Rs. 20,00,00,000/- during the year 2013-14 totaling to Rs.50,00,00,000 as at March 31,2014, however till date, the company has not made any payment towards this dues.

iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchases of inventory, fixed assets and for the sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls system.

v) In respect of the contracts or arrangements referred to in section 301 of the Companies Act, 1956:

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

b) In our opinion, and according to information and explanation given to us, the transactions of Purchase and Sale of goods, materials, fixed assets and Services made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rs. 5,00,000/- or more in respect of each party, have been made at prices which are reasonable as per the information available with the company, having regard to the prevailing market prices for such goods, materials, fixed assets and services or the prices at which the transactions for similar goods, materials, fixed assets and services have been made with other parties.

vi) According to information and explanation given to us, the Company has not accepted any deposit from the public during the year. Therefore, the provisions of Clause (vi) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company.

vii) The Company has appointed internal auditors and has carried out internal audit during the year. In our opinion the scope needs to be strengthened to make it commensurate with the size of the company & the nature of its business.

viii) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under Section 209(1) (d) of the Companies Act, 1956 and are of the opinion that the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

ix) In respect of the Statutory dues:

a) According to the records of the company, undisputed Statutory dues including Provident fund. Employees State Insurance, Investor education & protection fund, Income-tax, Wealth-tax, Service Tax, Sales-tax, Customs duties, Excise duty, cess and other Statutory dues have not been generally regularly deposited during the year with the appropriate authorities. On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2014 fora period of more than six months from the date of becoming payable.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the details of disputed dues of Rs. 31,35,45,426/- have not been deposited as on 31st March, 2014 on account of matters pending before the appropriate authorities. The details of which are as under :

Sr. Name of the Nature Period to Forum where the Amount No. Statute of the which the dispute is involved Dues amount pending (in Rs.) Relates

1 Central Excise Central 2006-07 Appellate Trib- 5,55,781 Act, 1944 Excise unal Ahmedabad Duty

2 Central Excise Central 2008-09 Appellate Trib- 10,41,057 Act, 1944 Excise unal Ahmedabad Duty

3 Custom Act, Custom 2011-12 Appellate Trib- 50,00,000 1962 Duty unal Ahmedabad

4 Central Excise Central 2012-13 Appellate Trib- 4,49,84,993 Act, 1944 Excise unal Ahmedabad Duty

5 Gujarat Value Value 2006-07 Jt. Value Added 3,65,63,595 Added Tax Added Tax Commissioner Act, 2003 Tax (Appeal)

6 Central Excise Central 2008-09 to Supreme Court 22,54,00,000 Act, 1944 Excise 2010-11 Duty

x) On the basis of information and explanations given to us and on the basis of records produced before us, the company''s accumulated losses at the end of the financial year are not more than fifty percent of its net worth. The company has incurred cash losses amounting to Rs. 28,00,81,448/ - during the current year .The company has incurred cash losses amounting to Rs. 22,86,05,895/-in the immediately preceding financial year.

xi) On the basis of the information and explanation given to us and on the basis of records produced before us, the company has defaulted in repayment of Principal portion of the Term Loan to the extent of Rs. 36,60,00,000/- as at the year end. The company has also defaulted in payment of interest on term loan to the extent of Rs. 22,91,24,406/- as at the year end. The period of default on repayment of principal and payment of interest is ranging for a period from 90 days to 547 days and 90 days to 455 days respectively. Moreover, the company has also defaulted in payment of interest on working capital facilities to the extent of Rs. 11,71,25,768/- as at the year end. The period of default in payment of interest is ranging fora period from 1 day to 516 days. Also the company has defaulted in honoring L/C payments to the extent of Rs. 36,34,09,044 as at March 31,2014. The period of default in honoring L/C payments is ranging fora period from 244 days to 418 days.

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

xiii) In our opinion, the company is not a chit fund or a nidhi / mutual benefit fund/ society, etc. Therefore, the provisions of Clause (xiii) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company.

xiv) According to the information & explanations given to us, the company is not dealing or trading in shares, securities debentures & other investments. Therefore, the provisions of Clause (xiv) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company

xv) The company has given corporate guarantee for Rs. 80,00,00,000/- in the earlier years . In our opinion, the terms and conditions on which the company has given guarantee is not prejudicial to the interest of the company. The guarantee amount keeps on reducing to the extent SAL Steel Limited repays Inter corporate deposit to Shah Alloys Limited. The Guarantee ceases to exist upon repayment of entire amount of Inter corporate deposit to Shah Alloys Limited

xvi) According to the information & explanations given to us, the Company has not raised any term loan during the year under audit.

xvii) According to the information and explanations given to us and on an overall examination of the financial statements and other records of the company and after placing reliance on the reasonable assumptions made by the company, we are of the opinion that funds raised on shortterm basis have not been used for long term investment.

xviii) During the period covered under audit report, the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

xix) During the period covered under audit report, the company has notissued any debentures. Accordingly the provisions of clause (xix) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the company.

xx) During the period covered under audit report, the company has not raised any money by way of public issue during the year.

xxi) In our opinion and according to the information and explanations given to us and based on management representation, no material fraud on or by the company has been noticed or reported during the financial year covered by the audit.



For Talati % Talati Chartered Accountants (Firm Reg. No : 110758W)

Umesh Talati Place : Ahmedabad Partner Date : May 28, 2014 Membership No: 034834


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of M/s S.A.L. Steel Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2013, 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 principles generally accepted in India including Accounting Standards referred to in Section 211(3C) 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.

Auditors'' 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 misstatements.

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 policies 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.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

Subject to Note No.29 for Non disclosure of Reportable Segments as required under Accounting Standard – 17 ''Segment Reporting'', there is no impact on the Statement of Profit and Loss due to non disclosure.

Without qualifying our opinion, we would like to draw your attention to Note No. 38, regarding income on account of sale of power in the last financial year 2011-12 due to which the results of the company are not comparable to the extent of Rs. 31,09,85,750/- (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 (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of Section 227(4A) of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the 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 the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

d. in our opinion, the Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement comply with the Accounting Standards referred to in section 211(3C) of the Act;

e. On the basis of the written representations received from the directors as on March 31, 2013, taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of Section 274(1)(g) of the Act.

Annexure to Independent Auditors'' Report

Referred to in Paragraph 1 under the heading of "report on other legal and regulatory requirements" of our report of even date

i) In respect of its Fixed Assets:

a) The company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets on the basis of available information.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased program of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

c) According to the information and explanations given to us, Fixed Assets disposed off during the year were not substantial & therefore the going concern status of the company is not affected.

ii) In respect of its inventories:

a) As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of the verification is reasonable.

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

c) In our opinion and according to the information and explanations given to us, the company has maintained proper records of inventories. As explained to us, there was no material discrepancies noticed on Physical Verification of Inventories as compared with the book records.

iii) In respect of Loans, Secured or Unsecured, granted or taken by company to/from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956 :

a) According to the information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies or firms or other parties covered in the register maintained under section 301 of the Companies Act 1956 and hence sub-clause (b), (c) & (d) are not applicable.

e) According to information and explanation given to us and on the basis of records produced before us, the company has taken loans from two companies in earlier years, covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 81,12,40,644/- and the year-end balance of loan taken from such parties is Rs. 81,12,40,644/-. During the Year 2012-13, the company has taken furthermore loan from a company which is covered in the register maintained under section 301 of the Companies Act, 1956 amounting to Rs. 1,50,00,000/-. The Maximum amount involved during the year is Rs. 2,38,14,941/- and the year-end balance of loan taken from such party is Rs. 53,34,168/- f) In our opinion, the rate of interest and other terms and conditions on which loan has been taken from the company listed in the register maintained under section 301 of the Act are not prejudicial to the interest of the company.

g) On the basis of records produced before us and on the basis of information and explanation given to us and as per the terms and condition of the schedule stipulated for repayment in respect of loans taken by the company, the repayment of the principal portion of the loan from a company covered in the register maintained under section 301 of the Companies Act, 1956 was due to the extent of Rs. 10,00,00,000/- during the year 2011-12 and Rs. 20,00,00,000/- during the year 2012-13, however till date, the company has not made any payment towards this dues.

iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchases of inventory, fixed assets and for the sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls system.

v) In respect of the contracts or arrangements referred to in section 301 of the Companies Act, 1956 :

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

b) In our opinion, and according to information and explanation given to us, the transactions of Purchase and Sale of goods, materials, fixed assets and Services made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rs. 5,00,000/- or more in respect of each party, have been made at prices which are reasonable as per the information available with the company, having regard to the prevailing market prices for such goods, materials, fixed assets and services or the prices at which the transactions for similar goods,materials, fixed assets and services have been made with other parties.

vi) According to information and explanation given to us, the Company has not accepted any deposit from the public during the year. Therefore, the provisions of Clause (vi) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company.

vii) The Company has appointed internal auditors and has carried out internal audit during the year. In our opinion based on the size, nature and extent of the business, the internal audit system of the company is commensurate with the size and nature of the business.

viii) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under Section 209(1) (d) of the Companies Act, 1956 and are of the opinion that the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

ix) In respect of the Statutory dues:

According to the records of the company, undisputed Statutory dues including Provident fund, Employees State Insurance, Investor education & protection fund, Income-tax, Wealth-tax, Service Tax, Sales-tax, Customs duties, Excise duty, cess and other Statutory dues have not been generally regularly deposited during the year with the appropriate authorities. On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2013 for a period of more than six months from the date of becoming payable.

x) On the basis of information and explanations given to us and on the basis of records produced before us, the company''s accumulated losses at the end of the financial year are not more than fifty percent of its net worth. The company has incurred cash losses amounting to Rs. 22,86,05,895/- during the current year. The company has not incurred any cash losses in the immediately preceding financial year.

xi) On the basis of the information and explanation given to us and on the basis of records produced before us, the company has defaulted in repayment of Principal portion of the Term Loan to the extent of Rs. 12,05,00,000/- as at the year end. The company has also defaulted in payment of interest on term loan to the extent of Rs. 5,40,47,181/- as at the year end. The period of default on repayment of principal and payment of interest is ranging for a period from 90 days to 182 days and 31 days to 90 days respectively. The company has made a delayed payment of Principal amount of Term Loan to the extent of Rs. 7,89,37,427/- and interest amount of Rs. 13,93,27,614/-. The period of delay in payment of principal and payment of interest is ranging for a period from 65 days to 178 days and 3 days to 173 days respectively. Moreover, the company has also defaulted in payment of interest on working capital facilities to the extent of Rs. 1,78,48,057/- as at the year end. The period of default on repayment of principal and payment of interest is ranging for a period from 1 day to 151 days. The company has defaulted in honouring L/C payments to the extent of Rs. 11,12,84,367/- as at the balance sheet date. The period of default in honouring L/C payments is ranging for a period from 19 days to 53 days. The company has made a delayed payment in honouring L/C to the extent of Rs. 55,14,04,565/- during the year. The period of default in honouring L/C payments is ranging for a period from 1 day to 101 days.

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

xiii) In our opinion, the company is not a chit fund or a nidhi / mutual benefit fund/society, etc. Therefore, the provisions of Clause (xiii) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company.

xiv) According to the information & explanations given to us, the company is not dealing or trading in shares, securities debentures & other investments. Therefore, the provisions of Clause (xiv) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company.

xv) The company has given corporate guarantee for Rs. 80,00,00,000/- in the earlier years. In our opinion, the terms and conditions on which the company has given guarantee is not prejudicial to the interest of the company. The guarantee amount keeps on reducing to the extent SAL Steel Limited repays Inter corporate deposit to Shah Alloys Limited. The Guarantee ceases to exist upon repayment of entire amount of Inter corporate deposit to Shah Alloys Limited

xvi) According to the information & explanations given to us, the Company has not raised any term loan during the year under audit.

xvii) According to the information and explanations given to us and on an overall examination of the financial statements and other records of the company and after placing reliance on the reasonable assumptions made by the company, we are of the opinion that funds raised on short term basis have not been used for long term investment.

xviii) During the period covered under audit report, the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

xix) During the period covered under audit report, the company has not issued any debentures. Accordingly the provisions of clause (xix) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the company.

xx) During the period covered under audit report, the company has not raised any money by way of public issue during the year.

xxi) In our opinion and according to the information and explanations given to us and based on management representation, no material fraud on or by the company has been noticed or reported during the financial year covered by the audit.

For Talati & Talati

Chartered Accountants

(Firm Reg. No : 110758W)

Sd/-

Umesh Talati

Place : Ahmedabad Partner

Date : May 28, 2013 Membership No: 034834


Mar 31, 2012

1) We have audited the attached Balance Sheet of M/s. S.A.L. STEEL LIMITED as at March 31, 2012, the Statement of Profit and Loss and the 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.

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

3) As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment) Order, 2004 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956 of India (the 'Act') we enclose in the Annexure a statement on the matters specified in paragraphs 4 & 5 of the said order to the extent applicable.

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

(a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the 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, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account;

(d) In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in sub section (3C) of Section 211 of the Companies Act, 1956.

Subject to Note No.29 for Non disclosure of Reportable Segments as required under Accounting Standard - 17 'Segment Reporting' issued by the Institute of Chartered Accountants of India, there is no impact on the Statement of Profit and Loss due to non disclosure.

Without qualifying our opinion, we would like to draw your attention to Note No. 37, regarding income on account of sale of Power due to which the results of the company are not comparable to the extent of Rs. 31,09,85,750/-

(e) 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 director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements read together with the Significant accounting policies and notes thereon give the information required by the Companies Act, 1956 , in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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

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

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

Annexure to Auditor's Report

Referred to in Paragraph 3 of our report of even date

i) In respect of its Fixed Assets:

a) The company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets on the basis of available information.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased program of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

c) According to the information and explanations given to us, Fixed Assets disposed off during the year were not substantial & therefore the going concern status of the company is not affected.

ii) In respect of its inventories:

a) As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of the verification is reasonable.

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

c) In our opinion and according to the information and explanations given to us, the company has maintained proper records of inventories. As explained to us, there was no material discrepancies noticed on Physical Verification of Inventories as compared with the book records.

iii) a) In respect of Loans, Secured or Unsecured, granted or taken by company to/from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956: According to the information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies or firms or other parties covered in the register maintained under section 301 of the Companies Act 1956 and hence sub-clause (b), ( c) & (d) are not applicable.

e) According to information and explanation given to us and on the basis of records produced before us, the company has taken a loan from a company in earlier years, covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 80,00,00,000/- and the year-end balance of loan taken from such party is Rs. 80,00,00,000/-. During the Year 2011-12, the company has taken loan from two companies which are covered in the register maintained under section 301 of the Companies Act, 1956 amounting to Rs. 2,75,00,000/- . The Maximum amount involved during the year and the year-end balance of loans taken from such parties is Rs. 2,77,95,150/-.

f) In our opinion, the rate of interest and other terms and conditions on which loan has been taken from the company listed in the register maintained under section 301 of the Act are not prejudicial to the interest of the company.

g) On the basis of records produced before us and on the basis of information and explanation given to us and as per the terms and condition of the schedule stipulated for repayment in respect of loans taken by the company , the repayment of the principal portion of the loan from a company covered in the register maintained under section 301 of the Companies Act, 1956 was due to the extent of Rs. 10,00,00,000/- during the year 2011-12 , however the company has defaulted in repayment of Rs. 10,00,00,000/- during the year.

iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchases of inventory, fixed assets and for the sales of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls system.

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

b) In our opinion, and according to information and explanation given to us, the transactions of Purchase and Sale of goods, materials, fixed assets and Services made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rs. 5,00,000/- or more in respect of each party, have been made at prices which are reasonable as per the information available with the company , having regard to the prevailing market prices for such goods ,materials ,fixed assets and services or the prices at which the transactions for similar goods ,materials, fixed assets and Services have been made with other parties.

vi) According to information and explanation given to us, the Company has not accepted any deposit from the public during the year. Therefore, the provisions of Clause (vi) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company.

vii) The Company has appointed internal auditors and has carried out internal audit during the year. In our opinion based on the size, nature and extent of the business, the internal audit system of the company is commensurate with the size and nature of the business.

viii) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under Section 209(1) (d) of the Companies Act, 1956 and are of the opinion that the prescribed cost records have been maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

ix) a) In respect of the Statutory dues:According to the records of the company, undisputed Statutory dues including Provident fund, Employees State Insurance, Investor education & protection fund, Income-tax, Wealth-tax, Service Tax, Sales-tax Customs duties, Excise duty, cess and other Statutory dues have not been generally regularly deposited during the year with the appropriate authorities. On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2012 for a period of more than six months from the date of becoming payable.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the details of disputed dues of Rs. 26,35,60,433/- have not been deposited as on 31st March, 2012 on account of matters pending before the appropriate authorities. The details of which are as under:

Sr. Name of the Statute Nature of Period to which Forum where the Amount No. the Dues the amount relates dispute is pending involved (in Rs.)

1. Gujarat Value Added Tax Value Added Tax 2006-07 Jt. Value Added tax 3,65,63,595 Act 2003 Commissioner (Appeal)

2. Central Excise Act, 1944 Central Excise Duty 2008-09 Supreme Court 22,54,00,000 to 2010-11

3. Central Excise Act, 1944 Central Excise Duty 2008-09 Appellate Tribunal 10,41,057 to 2010-11 Ahmedabad

4. Central Excise Act, 1944 Central Excise Duty 2006-07 Appellate Tribunal 5,55,781 Ahmedabad

x) On the basis of information and explanations given to us and on the basis of records produced before us , the company does not have any accumulated loss at the end of the financial year. The company has not incurred cash losses during the financial year covered by the audit and in the immediately preceding financial year.

xi) On the basis of the information and explanation given to us and on the basis of records produced before us, the company has defaulted in repayment of Principal portion of the Term Loan to the extent of Rs. 2,45,60,397/- as at the year end. The company has also defaulted in payment of interest on term loan to the extent of Rs. 1,69,08,531/- as at the year end. The period of default on repayment of principal and payment of interest is ranging for a period from 3 days to 87 days and 12 days to 47 days respectively.

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

xiii) In our opinion, the company is not a chit fund or a nidhi / mutual benefit fund/ society, etc. Therefore, the provisions of Clause (xiii) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company.

xiv) According to the information & explanations given to us, the company is not dealing or trading in shares, securities debentures & other investments. Therefore, the provisions of Clause (xiv) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the Company

xv) The company has given corporate guarantee for Rs. 80,00,00,000/- in the earlier years. In our opinion, the terms and conditions on which the company has given guarantee is not prejudicial to the interest of the company. The guarantee amount keeps on reducing to the extent SAL Steel Limited repays Inter corporate deposit to Shah Alloys Limited. The Guarantee ceases to exist upon repayment of entire amount of Inter corporate deposit to Shah Alloys Limited

xvi) According to the information & explanations given to us, the Company has not raised any term loan during the year under audit.

xvii) According to the information and explanations given to us and on an overall examination of the financial statements and other records of the company and after placing reliance on the reasonable assumptions made by the company, we are of the opinion that funds raised on short term basis have not been used for long term investment.

xviii) During the period covered under audit report, the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

xix) During the period covered under audit report, the company has not issued any debentures. Accordingly the provisions of clause (xix) of paragraph 4 of the Companies (Auditors Report) Order, 2003 are not applicable to the company.

xx) During the period covered under audit report, the company has not raised any money by way of public issue during the year.

xxi) In our opinion and according to the information and explanations given to us and based on management representation, no material fraud on or by the company has been noticed or reported during the financial year covered by the audit.

For Talati & Talati

Chartered Accountants

(Firm Reg. No. : 110758W)

Umesh Talati

Place : Ahmedabad Partner

Date : June 30, 2012 Membership No: 034834


Mar 31, 2011

1) We have audited the attached Balance Sheet of M/s S.A.L. STEEL LTD. as at 31st March 2011, and the Profit and Loss Account and also the Cash-flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's Management. Our responsi- bility 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 stan- dards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3) As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment) Order,2004 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of 'The Companies Act, 1956' of India (the 'Act') we annex hereto a statement on the matters specified in paragraphs 4 &5 of the said order to the extent applicable.

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

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

(c) The Balance Sheet, the 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, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub section (3C) of Section 211 of the Act;

Subject to Note No.4 of Schedule 19 for Non disclosure of Reportable Segments as required under Ac- counting Standard – 17 'Segment Reporting' issued by the Institute of Chartered Accountants of India. There is no impact on Profit and Loss Account due to non disclosure.

(e) On the basis of the 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 of the company are disqualified as on March 31, 2011 from being appointed as director in terms of clause (g) of sub- section (1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with significant accounting policies and notes thereon and at- tached thereto give in the prescribed manner the information required by the Act and give a true and fair view in conformity with the accounting principles generally accepted in India:

i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2011;

ii) In the case of the Profit and Loss Account, of the profit of the company for the year ended on that date; and

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

ANNEXURE TO AUDITOR'S REPORT Referred to in Paragraph 3 of our report of even date

i) a) The company has maintained proper records showing full particulars including quantita- tive details and situation of the fixed assets.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased program of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

c) According to the information and explanations given to us, Fixed Assets disposed off during the year were not substantial & therefore do not affect the Going Concern assumption.

ii) a) As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of verification is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management are rea- sonable and adequate in relation to the size of the company and nature of its business.

c) In our opinion and according to the information and explanations given to us, the company has maintained proper records of inventories. As explained to us, there was no material discrepancies noticed on Physical Verification of Inventories as compared with the book records.

iii) In respect of Loans, Secured or Unsecured,, granted or taken by company to/from companies, firms or other parties covered in the register maintained under section 301 of the Act:

a) According to information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies or firms or other parties covered in the register maintained under section 301 of the Companies Act 1956 and hence sub-clause b, c & d are not applicable.

b) According to information and explanation given to us and on the basis of records produced before us the company has taken loan from a company in earlier years, covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 80 Crores and year end balance of loans taken from such party is Rs. 80 Crores.

c) In our opinion, the rate of interest and other terms and conditions on which loan has been taken from company listed in the register maintained under section 301 of the Act are prima facie not prejudicial to the interest of the company.

d) On the basis of records produced before us and on the basis of information and explana- tion given to us and as per the schedule stipulated for the terms and condition in respect of loans taken by the company, the repayment of the said loan is not due for repayment during the year 2010-11.

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

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

b) In our opinion, and according to information and explanation given to us, the transac- tions of Purchase of goods, and materials and Sale of goods, materials, Fixed Assets and Services made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rupees Five lacs or more in respect of each party, have been made at prices which are reasonable, having regard to the prevailing market prices for such Goods ,Materials ,Fixed assets and Services or the prices at which the transactions for similar Goods, Materials, Fixed Assets and Services have been made with other parties.

vi) The Company has not accepted any deposit from the public during the year.

vii) The Company has appointed internal auditors and has carried out internal audit during the year. In our opinion based on the size, nature and extent of the business the internal audit system of the company is commensurate with the size and nature of the business.

viii) The Central Government has prescribed maintenance of cost records under section 209 (1) (d) of the Act. We have broadly reviewed the accounts and records of the company in this connection and are of the opinion, that prima facie, the prescribed accounts and records have been made and maintained. We have however not made a detailed examination of the same.

ix) a) According to the records of the company, undisputed Statutory dues including provi- dent fund, employees State Insurance, Income-tax, Wealth-tax, Service Tax, Sales-tax Customs duties, excise duty, cess and other statutory dues have not been generally regularly deposited during the year with the appropriate authorities. On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2011 for a period of more than six months from the date of becoming payable. Amount due and outstanding for a period exceeding six months as at 31st March, 2011 is of Rs 48.99 lacs in respect of Service Tax and of Rs 22.24 lacs in respect of Tax deducted at source.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the details of disputed VAT dues of Rs 365.63 lacs have not been deposited as on 31st March, 2011 on account of matters pending before the appropriate authorities. The details of which are as under:

Sr Nature Financial Year Forum where Amount No. of Dues to which the the matter Rs. (in Lacs) matter relates is pending Net of Payment

1 Value Addes Tax 2006-07 Jt. Value Added 365.63 Tax Commissioner (Apeal)

x) On the basis of information and explanations given to us and on the basis of records produced before us the company does not have any accumulated loss at the end of the year and has not incurred cash losses in the relevant financial year and in the immediately preceding financial year.

xi) On the basis of information and explanation given to us and on the basis of records produced the company has delayed the payment in respect of interest to the banks and institutions during the year. As per the information given to us, payments have been delayed generally in a range of 1 day to 89 days from the due date. The total delayed interest payment made by the company is Rs.1719.42 Lacs during the year.

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

xiii) In our opinion, the company is not a chit fund or a nidhi / mutual benefit fund/ society etc.

xiv) According to the information & explanations given to us, the company is not dealing or trading in shares, securities debentures & other investments.

xv) The company has given corporate guarantee for Rs. 80 Crores in the earlier years for loans taken from Shah Alloys Limited, in our opinion, the terms and conditions on which the company has given guarantee for loans taken by Shah Alloys Limited from banks or financial institutions are prime facie, not prejudicial to the interest of the company.

xvi) According to the information & explanations given to us, the term loans have been applied for the purpose for which they have been raised.

xvii) According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company and after placing reliance on the reasonable assumptions made by the company, there are no funds raised on short term basis that have been used for long term basis.

xviii) During the period covered under audit report the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

xix) During the period covered under audit report the company has not issued any debentures. Accordingly the provisions of clause (xix) of the Companies (Auditors Report) Order, 2003 are not applicable to the company.

xx) During the period covered under audit report the company has not raised any money by way of public issue during the year.

xxi) According to the information & explanations given to us and based on management representa- tion, no fraud on or by the company has been noticed or reported during the course of our Audit.

Place : Ahmedabad For TALATI & TALATI Date : 23rd July 2011 Chartered Accountants (Firm Reg. No. : 110758W)

Umesh Talati Partner Membership No: 034834


Mar 31, 2010

1) We have audited the attached Balance Sheet of M/S. S.A.L. STEEL LTD. as at 31st March 2010, and the Profit and Loss Account and also the Cash-flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys Management. Our responsi- bility 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 stan- dards 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, as amended by the Companies (Auditors Report) (Amendment) Order,2004 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of The Companies Act, 1956 of India (the Act) we annex here to a statement on the matters specified in paragraphs 4 &5 of the said order to the extent applicable.

4) Further to our comments in the Annexure referred to in paragraph 3 above, we report that:%

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

(c) The Balance Sheet, the 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, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub section (3C) of Section 211 of the Act;

Subject to Note No. 4 of Schedule 19 for Non disclosure of Reportable Segments as required under Ac- counting Standard -17 Segment Reporting issued by the Institute of Chartered Accountants of India. There is no impact on Profit and Loss Account due to non disclosure.

(e) On the basis of the written representations received from the directors, as on March 31, 2010 and taken on record by the Board of Directors, we report that none of the directors of the company are disqualified as on March 31, 2010 from being appointed as director in terms of clause (g) of sub- section (1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the pre- scribed manner the information required by the Act and give a true and fair view in conformity with the accounting principles generally accepted in India:

i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2010; ii) In the case of the Profit and Loss Account, of the profit of the company for the year ended on that date; and iii) In the case of Cash Flow Statement, of the cash flows for the year ended on that date.

ANNEXURE TO AUDITORSREPORT 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 the fixed assets.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased pro- gram of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company and nature of its assets. As informed to us, no material discrepancies were noticed on such physical verification.

c) According to the information and explanations given to us, Fixed Assets disposed off during the year were not substantial & therefore do not affect the Going Concern assumption.

ii) a) As explained to us, inventories (excluding Goods in Transit and Goods lying at Port) were physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of verification is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management are rea- sonable and adequate in relation to the size of the company and nature of its business.

c) In our opinion and according to the information and explanations given to us, the company has maintained proper records of inventories. As explained to us, there was no material discrepancies noticed on Physical Verification of Inventories as compared with the book records.

iii) In respect of Loans, Secured or Unsecured, granted or taken by company to/from companies, firms or other parties covered in the register maintained under section 301 of the Act:

a) According to information and explanations given to us and on the basis of the records produced before us, the company has not granted any Loan, Secured or Unsecured to the companies or firms or other parties covered in the register maintained under section 301 of the Companies Act 1956 and hence sub-clause b, c & d are not applicable.

b) According to information and explanation given to us and on the basis of records produced before us the company has taken loan from one company in earlier years, SHAH ALLOYS LIMITED covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 80 Crores and year end balance of loans taken from such party is Rs. 80 Crores.

c) In our opinion, the rate of interest and other terms and conditions on which loan has been taken from company listed in the register maintained under section 301 of the Act are prima facie not prejudicial to the interest of the company.

d) On the basis of records produced before us and on the basis of information and explana- tion given to us and as per the revised schedule stipulated for the terms and condition in respect of loans taken by the company, the repayment of the said loan is not due for repayment as on 31st March 2010.

iv) In our opinion & according to the information & explanations given to us, there are adequate internal control systems which commensurate with the size of the company & nature of its business for the purchase of inventory, fixed assets & also for the sales of goods and services.

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

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

b) In our opinion, and according to information and explanation given to us, the transac- tions of Purchase of goods, and materials and Sale of goods, materials, Fixed Assets and Services made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rupees Five lacs or more in respect of each party, have been made at prices which are reasonable, having regard to the prevailing market prices for such Goods ,Materials ,Fixed assets and Services or the prices at which the transactions for similar Goods ,Materials, Fixed Assets and Services have been made with other parties.

vi) The Company has not accepted any deposit from the public during the year.

vii) The Company has appointed internal auditors and has carried out internal audit during the year. In our opinion based on the size, nature and extent of the business the internal audit system of the company is commensurate with the size and nature of the business.

viii) The Central Government has prescribed maintenance of cost records under section 209 (1) (d) of the Act. We have broadly reviewed the accounts and records of the company in this connection and are of the opinion, that prima facie, the prescribed accounts and records have been made and maintained. We have however not made a detailed examination of the same.

ix) a) According to the records of undisputed Statutory dues including provident fund, em- ployees State Insurance, Income-tax, Wealth-tax, Service Tax, Sales-tax Customs duties, excise duty, cess and other statutory dues have not been generally regularly deposited during the year with the appropriate authorities. On the basis of records produced before us for our verification and according to the information & explanation given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March, 2010 for a period of more than six months from the date of becoming payable.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the company has no disputed statutory dues that have not been deposited on account of matters pending before appropriate au- thorities.

x) On the basis of information and explanations given to us and on the basis of records produced before us the company does not have any accumulated loss at the end of the year and has not incurred cash losses in the relevant financial year and in the immediately preceding financial year.

xi) On the basis of information and explanation given to us and on the basis of records produced the company has delayed the payment in respect of interest/installment to the banks and institutions during the year. However, as explained to us, the company has repaid the respec- tive installment/interest so that the accounts of the company with the banks and institutions have remained in order. As per the information given to us, repayments have been delayed generally in a range of 1 day to 91 days from the due date. The total interest payment made by the company with delay is Rs. 1,099 Lacs during the year and delay in total principal installment by the company is Rs. 1,606 Lacs.

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

xiii) In our opinion, the company is not a chit fund or a nidhi / mutual benefit fund/ society etc.

xiv) According to the information & explanations given to us, the company is not dealing or trading in shares, securities debentures & other investments.

xv) The company has given guarantee for Rs. 80 Crores in the earlier years for loans taken by Shah Alloys Limited, in our opinion, the terms and conditions on which the company has given guarantee for loans taken by Shah Alloys Limited from banks or financial institutions are prime facie, not prejudicial to the interest of the company.

xvi) According to the information & explanations given to us, the term loans have been applied for the purpose for which they have been raised.

xvii) According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company and after placing reliance on the reasonable assumptions made by the company, funds raised on short term basis amounting to Rs.338.31 Lacs have been used for long term purpose.

xviii) During the period covered under audit report the company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

xix) During the period covered under audit report the company has not issued any debentures. Accordingly the provisions of clause (xix) of the Companies (Auditors Report) Order, 2003 are not applicable to the company.

xx) During the period covered under audit report the company has not raised any money by way of public issue during the year.

xxi) According to the information & explanations given to us, no fraud on or by the company has been noticed or reported during the course of our Audit.

PLACE : AHMEDABAD For TALATI &TALATI

DATE: 22nd July 2010 Chartered Accountants

(Firm Reg. No.: 110758W)

Umesh Talati

Partner

Membership No: 034834

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