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Auditor Report of Smiths & Founders (India) Ltd.

Mar 31, 2015

We have audited the accompanying financial statements of M/s. SMITHS & FOUNDERS (INDIA) LIMITED ("the Company") which comprise the Balance Sheet as at March 31, 2015, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

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

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We have taken into account the 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.

Opinion

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

(a) In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2015;

(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, 2015 ("the Order") issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order.

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

a. We have sought and 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 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. In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under section 133 of the Companies Act, 2013, read with the Rule 7 of the Companies (Accounts) Rules, 2014;

e. On the basis of 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;

f. 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 does not have any pending litigation which would impact its financial position;

(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 the Independent Auditors' Report

(i) Fixed Assets

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

b) The Management has conducted physical verification of fixed assets at reasonable intervals and no material discrepancies were noticed on such verification.

(ii) Inventory

a) The inventory has been physically verified during the year by the management. In our opinion the frequency of verification is reasonable.

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

c) The Company is maintaining proper records of inventory. There were no material discrepancies noticed on verification between physical stock and books of account.

(iii) Loans and Advances

The Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of Companies Act, 2013. Accordingly the provisions of clause (iii) (a) & (b) of the above said order are not applicable to the company.

(iv) Internal Control

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, with regard to purchase of inventory, fixed assets and for sale of goods and services. We have not noted any continuing failure to correct major weakness in the internal controls during the course of audit.

(v) Deposits

According to the information and explanation given to us, and based our verification, the Company has not accepted any deposits from public during the year and the provisions of Section 73 to 76 and the directives of Reserve Bank of India have been complied with by the Company.

(vi) Cost records

According to information and explanation given to us, the company is not required to maintain cost records as per section 148 of the Act, hence no comment is required on the same.

(vii) Statutory Dues

a) According to the records of the Company, the Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, employee's state insurance, income tax, sales tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and other statutory dues applicable to it.

b) According to the records of the Company, there are no dues of income tax or sale tax or wealth tax or service tax or duty of customs or duty of excise or value added tax or cess which have not been deposited on account of any dispute.

c) According to the information and explanation given to us, the company did not have amount required to be transferred to Investors Education and Protection Fund, hence no comment is required on the same.

(viii) Erosion of net worth

Consequent to a one-time charge of Rs.1,15,57,079/-, being the carrying amount of Assets whose written down value has been written off since the useful life is nil as at 01.04.2014 pursuant to the provisions of Companies Act, 2013, to the retained earnings / accumulated losses, the Company's accumulated losses has exceeded fifty percent of its net-worth at the end of the financial year. The Company has incurred cash losses of Rs. 1,41,12,954/- during the financial year covered by our audit and Rs. 80,00,966/- in the immediately preceding financial year.

(ix) Based on our audit procedures and on the information and explanations given by the management, we are of the opinion that the company has not defaulted in repayment of dues to banks. The Company has no dues to any other financial institution or debenture holders.

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

(xi) According to the information and explanations given to us, the Company has applied the term loans for the purpose for which they were obtained.

(xii) In our opinion and to the best of our information and according to the explanations given to us no fraud on or by the Company have been noticed or reported during the year.

For B N Subramanya & Co. Chartered Accountants Firm Reg.No.004142S

DEVENDRA NAYAK Place: Bangalore Partner Date: 30th May, 2015 Membership No. 27449


Mar 31, 2014

We have audited the accompanying financial statements of M /s. SMITHS AND FOUNDERS (INDIA) LIMITED [FORMERLY KNOWN AS SHIMOGA TECHNOLOGIES LIMITED] ("the Company") which comprise the Balance Sheet as at March 31, 20I4, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

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

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity''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 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

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the 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, 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 comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956;

e. on the basis of written representations received from the directors as on March 31, 2014, and 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 clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

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

Annexure to the Independent Auditors'' Report

(i) Fixed Assets

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

b) The Company has a regular programme for physical verification of its fixed assets by which the fixed assets are verified on a phased manner. In accordance with this programme, certain fixed assets were verified during the year and no material discrepancies were noticed on such verification.

c) On the basis of our examination of the books and records of the Company, and according to the information and explanations given to us, in our opinion, there was no disposal of substantial part of fixed assets during the year.

(ii) Inventory

a) The inventory has been physically verified during the year by the management. In our opinion the frequency of verification is reasonable.

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

c) The Company is maintaining proper records of inventory. There were no material discrepancies noticed on verification between physical stock and books of account.

(iii) Loans and Advances

a) During the year, the Company has granted secured loans to parties, covered In the register maintained under section 301 of the Act and the same is as follows:

Number Maximum Amount of parties Amount Involved as at 31.03.2014

1 Rs. 20,00,000/- NIL

The above loan was squared off during the year.

b) In our opinion the terms and conditions for repayment of the principal and interest are not prejudicial to the interest of the company.

c) Based on our scrutiny of the Company''s records and according to information and explanation given to us, the Company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of Companies Act, 1956 during the year. Accordingly provisions of clause (iii) (b) (c) & (d) of the above said order are not applicable to the company.

(iv) Internal Control

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, with regard to purchase of inventory, fixed assets and for sale of goods. We have not noted any continuing failure to correct major weakness in the internal controls during the course of audit.

(v) Particulars of contracts and arrangements required to be entered in the register maintained under section 301 :

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

(vi) Deposits

According to the information and explanation given to us, the Company has accepted deposits from the public. The directives issued by the Reserve Bank of India and the provisions of sections 58A and 58AA of the Act and the rules framed there under, where applicable, have been complied with.

(vii) Internal Audit

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

(viii) According to the information and explanation given to us, the maintenance of cost records have been prescribed by the Centra! Government under clause

(d) of sub-section (1) of section 209, of the Companies Act, 1956 and the same has been maintained by the Company.

(ix) Statutory Dues :

a) According to the records of the Company, the Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, employee''s state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty, cess and other statutory dues applicable to it.

b) According to the information and explanation given to us and based on the records available, the Company had no undisputed amounts payable in respect of provident fund, investor education and protection fund, employees state insurance, income tax, wealth tax, sales tax, service tax, customs duty, excise duty, cess and any other statutory dues with the appropriate authorities as at the last day of the financial year concerned, for a period more than six months from the date they were payable.

c) According to the information and explanations given to us there is no disputed dues as at 31st March 2014.

(x) Erosion of net worth :

The company does not have accumulated losses exceeding the net worth as at the end of the financial year. The company has incurred cash losses of Rs.80,00,966/- during the financial year covered by our audit and Rs.9,54,615/- in the immediately preceding financial year.

(xi) Based on our audit procedures and on the information and explanations given by the management, we are of the opinion that the company has not defaulted in repayment of dues to banks. The Company has no dues to any other financial institution or debenture holders.

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

(xiii) In our opinion, the Company is not a Chit fund or a Nidhi or a Mutual benefit fund or a Society. Accordingly clause 4(xiii) of the order is not applicable.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly clause 4 (xiv) of the Order is not applicable

(xv) According to the information and explanation given to us, the Company has not given any guarantee for the loans taken by others from the bank or financial institutions.

(xvi) According to the information and explanation given to us and based on our audit procedures, the term loans availed from Bank during the year were applied for the purposes for which they were obtained.

(xvii) According to the information and explanation given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment by the Company.

(xviii) According to information and explanations given to us, the Company has not made any preferential allotment during the year.

(xix) Based on the examination of records and information and explanation given to us, no debentures were issued during the year. Hence clause 4(xix) of the Order is not applicable.

(xx) The Company has not raised any money by public issues during the year. Accordingly clause 4(xx) of the Order is not applicable.

(xxi) In our opinion and to the best of our information and according to the explanations given to us no fraud on or by the Company have been noticed or reported during the year.

For B N Subramanya & Co.

Chartered Accountants Firm Reg.No.004142S DEVENDRA NAYAK

Place: Bangalore Partner

Date : 30th May, 2014 Membership No. 027449


Mar 31, 2012

1. We have audited the attached Balance Sheet of Shimoga Technologies Limited as at 31 March 2012 and the Statement of Profit and Loss and Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We have 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 Companies (Auditors Report) (Amendment) Order, 2004, (together the order') issued by the Government of india in terms of sub-section (4A) of section 227 of the Companies Act, 1956, and on the basis of such checks of the books and records of the company as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. We report that:

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

ii) in our opinion, proper books of account, as required by law have been kept by the company so far as appears from our examination of those books;

iii) The Balance Sheet and Statement of Profit and Loss dealt with by this report are in agreement with the books of account.

iv) in our opinion the Balance Sheet and, Statement of Profit & Loss and the Cash Flow Statement dealt with this report, comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 to the extent it is applicable.

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

vi) Attention is invited to :

a.) Point No.8 of Part I of Note 2 regarding preparation of accounts on going concern basis although the net worth of the company has substantially eroded and Point 9 of Part II of Note 2 regarding leasing plant and machinery. Accordingly, the financial statements do not include adjustments aforesaid in case the management's business plans do not materialise.

b.) Point No.11 of Part II of Note 2 regarding the company being a sick industrial company within the meaning of clause (o) of sub section (1) of section 3 of the Sick industrial Companies Act, 1985, and the company has been directed to file rehabilitation scheme with the Board for industrial and Financial Reconstruction ('BIFR') under the provisions of the Sick industrial Companies Act, 1985.

vii) Subject to the matters referred above, in our opinion and to the best of information and according to the explanations given to us, the said accounts read with the 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;

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

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

c) in the case of the cash flow statement, of the cash flows for the year ended on that date;

Annexure to the Auditors' Report

(as referred in paragraph 3 of our report)

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

(b) the Company has a regular programme for physical verification of its fixed assets by which fixed assets are verified in a phased manner. In accordance with this programme, certain fixed assets were verified during the year and no material discrepancies were noticed on such verification. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets;

(c) During the year, the company has not disposed off substantial / major part of fixed assets.

ii) The company did not have inventories at any time during the year. Consequently, the requirements regarding physical verification of inventories, maintenance of records of inventory and discrepancies between physical stocks and book records are not applicable to the company for the year.

iii) (a) The Company has not granted any loans, secured

or unsecured, to companies, firms or other parties listed in the Register maintained under Section 301 of the Companies Act, 1956, during the period. As the Company has not granted any loans, secured or unsecured, to parties listed in the register maintained under Section 301 of the Companies Act, 1956, clauses iii(b), iii(c), and iii(d) of the paragraph 4 of the Order, are not applicable;

(b) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties listed in the Register maintained under Section 301 of the Companies Act, 1956, during the period. As the Company has not taken any loans, secured or unsecured, from parties listed in the register maintained under Section 301 of the Companies Act, 1956, clauses iii(f) and iii(g) of the paragraph 4 of the Order, are not applicable;

iv) in our opinion and according to the information and explanations given to us, there is an internal control system commensurate with the size of the Company and the nature of its business with regards to the purchase of inventory and fixed assets and for the sale of goods. During the course of our audit no major weakness has been noticed in respect of these areas;

v) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that all transactions that need to be entered into the register in pursuance of Section 301 of the Act have been so entered;

vi) The Company has not accepted any deposits from the public within the meaning of sections 58A and 58AA of the Companies Act, 1956 and the Rules framed there under;

vii) The company has an internal audit system, which in our opinion needs to be strengthened;

viii) According to the information and explanation given to us, the Central Government has not prescribed the maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956;

ix) (a) According to the records of the Company and information and explanations given to us, the Company has been regular in depositing undisputed statutory dues including tax deducted at source, excise duty, sales tax/value added tax, entry tax and professional tax and other statutory dues with the appropriate authorities during the year;

(b) According to the information and explanation given to us, and on the basis of our examination of the books of account, there is no undisputed dues in respect of income tax, wealth tax, sales tax, customs duty and excise duty outstanding, as at the last day of the financial year, for a period of more than six months since they became payable;

(c) As at 31 March 2012, according to the records of the Company, no dues outstanding on sales-tax, income-tax, custom duty, wealth-tax, excise duty, cess and investor education and protection fund, on account of any dispute.

x) in our opinion, the accumulated losses of the company at the end of the financial year is greater than fifty percent of its net worth as at the last day of the financial period and has incurred cash loss during the financial year ended on that date;

xi) according to the information and explanation given to us and based on our audit procedures, we are of the opinion that the Company, has not defaulted in repayment of its dues to any financial institution, bank or to debenture holder during the period;

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

xiii) in our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. Therefore, clause (xiii) of the Order is not applicable to the Company;

xiv) in our opinion and according to information and explanations given to us, the Company is not a dealer or trader in securities;

xv) according to the information and explanations given to us and the records examined by us, the Company has not given any guarantees for loans taken by others from banks or financial institutions;

xvi) according to the information and explanations given to us, no term loan has been borrowed by the company;

xvii) based on the information and explanations given to us and on an overall examination of the balance sheet of the Company, in our opinion, there are no funds raised on short term basis which have been used for long-term investment;

xviii) the Company has not made any preferential allotment of shares to parties and the companies covered in the register maintained under Section 301 of the Companies Act, 1956;

xix) the Company has not issued any debentures during the year;

xx) the Company has not raised any money by public issue during the period, accordingly clause 4(xx) of the order is not applicable;

xxi) During the course of examination of the books and records of the company, carried out in accordance with the auditing practices generally accepted in india and according to the information and explanation given to us, we have neither come across any instance of fraud on or by the company for the year, nor have we been informed of such case by management;

For Naik & Shah,

Chartered Accountants FRN010270S

Place : Bangalore SHIRISH SHAH

Date : 28.05.2012 Partner

Membership Number : 212813


Mar 31, 2010

1. I have audited the attached Balance Sheet of Shimoga Technologies Limited as at 31st March 2010, the Profit and Loss Account and the Cash Flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the companys management. My responsibility is to express an opinion on these financial statements based on my audit.

2. I conducted my audit in accordance with the auditing standards generally accepted in India. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion.

3. As required by the Companies (Auditors Report) Order, 2003 as amended by Companies (Auditors Report) (Amendment) Order, 2004, (together the order) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, and on the basis of such checks of the books and records of the company as I considered appropriate and according to the information and explanations given to me, I enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to my comments in the Annexure referred to in paragraph 3 above, I report that:

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

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

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

iv) In my opinion the Balance Sheet , Profit & Loss Account and the Cash Flow statement dealt with by this report subject to note 4(b) of Schedule VII comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 to the extent it is applicable.

v) On the basis of written representations received from the Directors, as on 31st March 2010 and taken on record by the Board of Directors, I report that none of the Directors are disqualified as on 31st March 2010 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

vi) Attention is invited to :

a) Note No.2 of Schedule VII regarding preparation of accounts on a going concern basis even though the net worth of the Company has been substantially eroded and leasing of the land, Building and Plant and Machinery to Bhagavathi Enterprises Ltd, taking into account repayment of dues to IDBI and Bank of India and the managements assessment of improvement in the economic conditions, and the fact that manufacturing facilities are in use and the short period of lease. Accordingly, these accounts do not include adjustments aforesaid in case the managements business plans do not materialise.

b) Note No.5(i) of Schedule VII regarding non- provision of penalty proposed by sales tax authorities .

c) Note No. 7 of Schedule VII regarding non-obtaining of confirmation of balances in the accounts of advances, deposits, some creditors and bank accounts.

d) Note No.5(iv) of Schedule VII regarding orders passed by PF authorities levying penalties and enhancing the taxes payable for which the company is in the process of filing necessary applications/appeals for reduction/deletion of demands.

The effect of (a) to (c) above could not be quantified and hence the effect on accounts of the same could not be ascertained.

vii) Subject to the matters referred to above, and my report in the annexure, in my opinion and to the best of information and according to the explanations given to me, the said accounts read with the notes thereon gives the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in confirmity with the accounting principles generally accepted in India;

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

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

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

Annexure to the Auditors Report Referred to in paragraph 3 of my report of even date,

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

(b)AII the fixed assets have not been verified by the management during the year but, according to the information and explanations given to me, there is a regular programme of verification which, in my opinion, is reasonable having regard to the size of the Company and the nature of its assets. The discrepancies noticed on physical verification have been properly dealt with in the books of account.

(c) There was no disposal of a substantial part of fixed assets during the year. The company has leased its factory building and plant and machinery in order to curtail future losses, gain time to negotiate with the creditors and restart after improvement in the general economic scenario, w.e.f. 11412009 for a period of 11 months which may be extended upto a maximum of three years. The lease agreement has been renewed for a further period of 11 months w.e.f. 24/05/2010. The assumption of a going concern has been followed in view of the reasons set forth in note no~.2 of notes to accounts Schedule VII.

ii) The Company did not have inventories at any time during the year. Consequently, the requirements regarding physical verification of inventories, maintenance of records of inventory and discrepancies between physical stocks and book records are not applicable to the company for the year.

iii) (a) During the year the Company has not granted any loans, secured or unsecured, to Companies, firms or other parties listed in the Register maintained under Section 301 of the Companies Act, 1956. As the Company has not granted any loans, secured or unsecured, to parties listed in the registers maintained under Section 301 of the Companies Act, 1956 clauses iii(b), iii(c) and iii(d) of paragraph 4 of the order are not applicable.

(b) During the year the Company has not taken any loans, secured or unsecured, from companies, firms or other parties other than a director amounting to Rs. 1 crore as listed in the Register maintained under Section 301 of the Companies Act, 1956. The rate of interest and other terms and conditions of the loan are not prima facie prejudcial to the interests of the Company. The Company has been regular in payment of interest.

(V) In my opinion and according to the information and explanations given to me,there are adequate internal control procedures to make it commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and for sale of goods and services. Further, on the basis of my examination of the books and records of the Company, and according to the information and explanations given to me, other than items covered in Note 5 (ii) to 5(iv) of Schedule VII, I have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system.

v) (a) Based on the audit procedures applied by me and according to the information and explanations given to me, I am of the opinion that the contracts or arrangements that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered.

(b) In respect of transactions made in pursuance of such contracts or arrangements exceeding Rs.5 lakhs entered into during the financial year, because of the absence of any comparable prices for the current year, we are unable to comment whether the transactions are made at prevailing market prices at the relevant time.

vi) In my opinion and according to the information and explanations given to me the Company has not accepted any deposits from the public during the year and consequently, the directives issued by the Reserve Bank of India, the provisions of section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed thereunder are not applicable.

vii) The company has an internal audit system, which in my opinion needs to be improved.

viii) According to the information and explanations given to me, the Central Government has not prescribed the maintenance of cost records under clause (d) of sub- section (1) of Section 209 of the Companies Act, 1956 in respect of the activities carried out by the company.

ix) (a) According to the information and explanations given to me, and on the basis of my examination of the books of account, the company has not been regular in depositing with appropriate authorities undisputed statutory dues including income tax deducted at source.excise duty, sales-tax/ value added tax , service tax, entry tax, and professional tax. Barring a few instances, the company has been regular in payment of Provident Fund and Employees State Insurance dues.

(b) According to the information and explanations given to me, and on the basis of my examination of the books of account, the following undisputed dues in respect of sales tax, entry tax.service tax, income tax deducted at source, provident fund, professional tax and employees state insurance dues are outstanding at 31, March 2010 for a period of more than six months from the date they became payable.

Name of the Statute Nature Amount Period to which of Dues (Rs.) the amount relates

The Central Sales CST Payable including 8,801 Aug 02 to May 03 Tax Act,1956 interest on delayed 2002-03 payment 28,747

The Karnataka Sales KST Payable including 14,053 2000-01

Tax Act, 1957 interest on delayed 1,583,914 2001-02 payment 838,995 2002-03 1,858,587 2003-04 4,131,427 2004-05

The Karnataka Tax Profession Tax Payable 320,324 Sept 04, Dec 04 on Professions, Trade including interest on to March 09 and Callings Act. delayed payment

The Employees State ESI payable and 8,157 October 08 to Insurance Act, Interest on delayed March 09 and June 09 payment of ESI

The Provident Fund Act, Provident Fund 72 March 09 interest on delayed May 07, June 07, payment 3,805 August 07 & September 07 Interest & Penal 57,792 1996-2001 Damages 55,443 2002-2005

Service Tax Service tax & 79,749 Feb 06 to Mar 09 Education Cess and July 09 on GTA including interest on delayed payment

The Karnataka Tax on Entry Tax including 618,757 2001-2005 Entry of Goods into interest on delayed 59,025 2006-07 Local Area for payment 150,495 2007-08 Consumption, 48,297 2005-06 & 2006-08 Use or sale therein, 1979 20,000 2003-04

Penalty 50,000 2004-05

Income Tax Act, 1961 Tax Deducted at 146,470 April 09 to source/ Tax Collected Sept 09 at source including interest on delayed payment

The Karnataka Value VAT including interest 50,660 2005-06 Added Tax Act, 2003 on delayed payment 103,267 2006-07 13,935 2007-08 6,352 2008-09

The Central Excise and Excise duty, 8,198 Sept 08 & March 09 Salt Act Education cess and Secondary & Higher Education Cess including interest

Name of the Statute Due Date Date of Payment

The Central Sales Tax Act,1956 On monthly basis, Not Yet Paid on 20th of the following month

The Karnataka Sales Tax Act, 1957 On monthly basis, Not Yet Paid on 20th of the following month

The Karnataka Tax on Professions, Trade and Callings Act. On monthly basis, Not Yet Paid on 20th of the following month

The Employees State Insurance Act, On monthly basis, Not Yet Paid on 21st of the following month

The Provident Fund Act, On monthly basis, Not Yet Paid on 20th of the following month including grace days Not Yet Paid

Service Tax On monthly basis Not Yet paid on 5th of the following month

The Karnataka Tax on Entry of Goods into Local Area for Consumption, Use or sale therein,1979 Penalty On monthly basis, Not Yet Paid on 20th of the following month

Income Tax Act, 1961 On monthly basis, Not yet paid on 7th of the following month

The Karnataka Value Added Tax Act, 2003 On monthly basis, Not yet paid on 20th of the following month

The Central Excise and Salt Act On the 5th of the Not yet paid following month

c) As at 31st March 2010, according to the records of the company, the following are the particulars of disputed dues on account of sales-tax, income tax, customs duty, wealth tax, service tax, excise duty and cess matters that have not been deposited.

Name of the Statute Nature of Dues Amount Period to (Rs.) which the Forum where amount dispute is pending relates

The Karnataka Sales Tax Act, 1957 & Sales Tax 27,775 June 02 to Dec 02 High Court of The Central Sales Karnataka Tax Act, 1956. Bangalore.

x) In my opinion, the accumulated losses of the Company at the end of the financial year is greater than fifty per cent of its net worth. The company has not incurred cash losses during the financial year covered by my audit but has incurred cash losses in the immediately preceding financial year.

xi) In my opinion and according to the information and explanations given to me, the company has not defaulted during the year in repayment of dues to its bankers or to any financial institution. The company has not issued any debentures.

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

xiii) In my opinion and according to the information and explanations given to me , the company is not a chit fund or nidhi / mutual benefit fund/ society. Therefore, the provisions of clause 4(xiii) of the order are not applicable to the company.

xiv) According to the information and explanations given to me, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the order are not applicable to the Company.

xv) According to the information and explanations given to me, the Company has not given any guarantee for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the order is not applicable.

xvi) The company has not obtained any term loans during the year. Accordingly, clause 4(xvi) of the order is not applicable.

xvii) According to the information and explanations given to me, the cash flow statement examined by me and on an overall examination of the balance sheet of the Company, I report that funds raised on short-term basis have not been used for long term investment.

xviii) The Company has not made any preferential allotment of shares to companies/firms/ parties covered in the register maintained under section 301 of the Companies Act, 1956 during the year. Accordingly, clause 4(xviii) of the order is not applicable.

xix) The company has not issued any debentures. Accordingly, clause 4(xix) of the order is not applicable.

xx) The Company has not raised any money by public issues during the year. Accordingly, clause 4(xx) of the order is not applicable.

xxi) During the course of examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to me, I have neither come across any instance of fraud on or by the Company, noticed or reported during the year, nor have I been informed of such case by the management.

For H.R. Sudarshan & Associates

Chartered Accountants Firm Reg. Number : 004162S

Place : Bangalore H.R.SUDARSHAN

Date : 31.05.2010 Proprietor

Membership Number : 27981

 
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