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Auditor Report of Soma Textiles & Industries Ltd.

Mar 31, 2015

We have audited the accompanying financial statements of SOMA TEXTILES & INDUSTRIES LIMITED, which comprise the Balance Sheet as at March 31, 2015, 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.

2. 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 with respect to the preparation and presentation 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 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.

3. 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 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.

4. 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, 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 of the Company for the year ended on that date.

5. Emphasis of Matter

(a) We draw attention to Note 12.2 to the Financial Statement, relating to Account Receivables of Soma Textiles FZC, an associate enterprise of the company, whereby the debtors have requested the company for 2 years cooling period i.e. till March 2016. The amount of such debtors is AED 6,26,31,823. We are unable to comment on said receivables of Soma Textiles FZC, which are deemed to be good by Independent Auditor of Soma Textiles FZC-'Business Management World Auditors & Business Consultants'. The company has shown a loan amount of Rs.9852.39 lakhs (Previous year Rs.9444.17 lakhs) given to Soma Textile FZC (UAE) out of GDR proceeds, classifies as long term loan. This loan had been advanced by the company as a Quasi- Equity (Note 12) in addition to the capital of Soma Textile FZC when the said loan was given, the said company was a wholly owned subsidiary, however, with effect from 31st March 2010, the company's holding in this company has diluted from 100% to 40%. In the financial statements of Soma Textile FZC ended as at 31.03.2015 the accumulated loss reflects at AED 5,64,690 as against Total Capital of AED 9,00,000 (including Statutory Reserves). Our opinion is not qualified in this matter.

(b) Attention to the following is invited:

As per the provisions of Section 23 of SICA Act, 1985 the Accumulated Losses of the company as at 31st March, 2015 have resulted in erosion of more than 50% of its peak net worth during the four financial years immediately preceding the financial year ended on 31st March, 2015. Consequent upon, the company has become a "Potentially Sick Company" under the said provision.

6. Report on Other Legal and Regulatory Requirements

(i) 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 section143 of the Act, we give in the Annexure a statement on the matters specified in paragraph 3 & 4 of the said Order to the extent applicable.

(ii) 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) 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 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) On the basis of the written representations received from the directors as on 31st March, 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of Section 164 (2) of the 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 has disclosed the impact of pending litigation on its financial position in its financial statements- (Refer Note 31 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 has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company.

ANNEXURE TO INDEPENDENT AUDITOR'S REPORT

(Reffered to in paragraph 1 under 'Report on Other Legal and Regulatory Requirements' section 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 fixed assets.

(b) The Company has a phased programme of physical verification of fixed assets which, in our opinion, is reasonable having regard to the size of the company and nature of its assets. In accordance with this programme, the management has verified fixed assets during the year and no material discrepancies have been noticed on such verification.

(ii) In respect of its inventory:

(a) The management conducts regular physical verification of inventory at reasonable intervals commensurate and adequate to the size of its operations. In our openion the frequency of physical verification is reasonable having regard to the size and nature of business of company.

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

(c) In our opinion and according to the information and explanation given to us, the Company has maintained proper records of its inventories. Some immaterial discrepancies were noticed on physical verification which have been properly dealt with in the books of account.

(iii) (a) The company has granted interest free loan (quasi-equity) to its Associate, Soma Textile FZC. Total amount

outstanding on 31st March 2015 was Rs. 9852.39 lakhs.

(b) There are no terms and conditions set out by the Company as on date for the loans given to Soma Textile FZC therefore, we are unable to report on regularity of receipt of principal amount.

(c) As there is no stipulation of repayment of loan by Associate, we are unable to report on overdue amount and reasonability of the steps taken by the company for the recovery of the principal.

(iv) In our opinion, and according to the information and explanations given to us, there is an adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, we have not observed any major weakness in such internal control system.

(v) According to the information and explanations given to us,the Company has not accepted any deposits from the public thus, directives issued by Reserve Bank of India the Provisions of the section 73 to 76 and other relevant provisions of the Companies Act, 2013 and the rules framed there under or any order passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal do not apply to Company.

(vi) We have broadly reviewed the books of accounts maintained by the company pursuant to the rules made by the Central Government of India, regarding the maintenance of cost record under sub-section (1) of section 148 of the Companies Act, 2013 and are of opinion that, prima facie, the prescribed accounts & 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) According to information and explanation given to us in respect of statutory dues:

(a) According to the information and explanations given to us, and on the basis of our examination of the books of accounts, the Company has generally been regular in depositing the undisputed statutory dues including Income- Tax, Sales Tax, Wealth Tax, Service Tax, Excise Duty, Custom Duty, Cess and other material Statutory dues during the period with the appropriate authorities. At the end of the year, there were no undisputed amount payable for a period of more than six months from the date they became payable.

(b) Details of dues of Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and Cess which have not been deposited as on 31.03.2015 on account of dispute are given below:

Name of Nature of Amount Period to Forum Statute Dues (Rs. in which it where Lacs) dispute is pending relates

Central Recovery 1.59 2004-05 The Dy. Excise Act, of CENVAT Commissi 1944 oner of C. Excise, Div-I, Ahmedabad.

Central Recovery 24.85 2002-03 The Dy. Excise Act, of additional Commissi 1944 TTA duty oner of C. of Yarn Excise, captively Div-III, consumed Ahmedabad.

Central Refund claim for 0.98 2005-06 Commissioner Excise Act, amount of Central 1944 short Excise, received (Appeals), against Ahmedabad refund claim of yarn duty after adjusting the old recovery

Central Demand for 0.50 2008-09 CESAT, West Excise Act, old duty Zone, 1944 Ahmedabad

Central Recovery 5.81 2012-13 CESAT, Excise Act, of West 1944 transit Zone, ional Cenvat Ahmedabad (Appeal)

The Income Demand of 9.77 A.Y.Asst. Commissioner Tax Income Tax of Income Act-1961 2006-07 Tax,Cir.-8, Ahmedabad

The Income Demand of 14.55 A.Y Commissioner Tax Income Tax of Income Act-1961 2007-08 Tax(Appeal), Ahmedabad

Gujarat Additional 6.17 1997-98, Gujarat Sales Tax Sales Tax 1998-99 Value Act-1969 & 2000-01 Added Tax Tribunal

(c) There has been no delay in transferring amount, required to be transferred, to the Investor Education and Protection Fund By Company.

(viii) The accumulated loss of the Company at the end of the financial year exceeds fifty percent of its net worth and also the company has incurred cash losses in the current financial year.

(ix) In our opinion and according to the information & explanations given to us, the company has defaulted in repayment of dues to financial institution and banks. (Please Refer Note 3.3 to Financial Statements)

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

(xi) In our opinion and according to the explanations given to us the term loans were applied only for the purpose for which they were obtained.

(xii) To the best of our knowledge and according to the information and explanations given to us, we report that no fraud on or by the company has been noticed or reported during the year under audit and even up to the date of our audit.

For PIPARA & COMPANY Chartered Accountants Firm Regn. No. : 107929W



GYAN PIPARA Place : Ahmedabad (Partner) Date : 30th May, 2015 Membership No.034289


Mar 31, 2014

1. We have audited the accompanying financial statements of Soma Textiles & Industries 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

2. 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 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.

Auditor''s Responsibility

3. 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.

4. 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.

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

6. Emphasis of Matter

(a) We draw attention to Note 12.2 to the Financial Statements, relating to Account Receivables of Soma Textiles FZC, an associated enterprise of the company, whereby the debtors have requested the company for 2 years cooling period. The amount of such debtors is AED 6,28,38,125/-. We are unable to comment on the said receivables of Soma Textiles FZC, which are deemed to be good by the Independent Auditor of Soma Textiles FZC– ''Business Management World Auditors & Business Consultants''. The company has shown a loan amount of Rs. 9444.17 Lakhs (Previous Year Rs. 8558.24 Lakhs) given to Soma Textile FZC (UAE) out of GDR proceeds, classified as a long term loan. This loan had been advanced by the Company as a Quasi- Equity (Note 12) in addition to the Capital of Soma Textiles FZC. When the said loan was given, the said Company was a wholly owned subsidiary, however, with effect from 31st March, 2010, the Company''s holding in this company has diluted from 100% to 40%. In the financial statements of Soma Textile FZC ended as at 31.03.2014 the accumulated loss reflects at AED 585,540 as against Total Capital of AED 9,00,000 (including Statutory Reserves). Our opinion is not qualified in this matter.

(b) We draw attention to Note 4 ''Other Long Term Liabilities'' [Non-Current Liabilities] whereby Trade Payables by the company against purchase of goods, to the tune of Rs. 20,43,58,109/-, have been restated as Long Term [Non-Current Liabilities] from its ordinary classification as Short Term [Current Liabilities]. The company has obtained and presented letter of confirmations from its creditors stating that their payment is re-scheduled, becoming due as at April 2015, and that the same is acceptable to these creditors. We have relied upon these confirmation letters as received by the company from its vendors. Our opinion is not qualified in this matter.

(c) We draw attention to Note 35 to the Financial Statements, whereby the company has sold its Cotton Spinning Unit at Baramti, Pune to M/s GTN Engineering (India) Ltd. at a Lump-sum consideration of Rs. 29.8 Crores under a Business Transfer Agreement signed on 01st April 2013,and the company has handed over the possession of the said unit to M/s GTN Engineering (India) Ltd. on 09th June, 2013. Our opinion is not qualified in this matter.

7. 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:

(i) In the case of the Balance Sheet, of the state of affairs of the Company as at March31, 2014;

(ii) In the case of the Statement of Profit and Loss, of the Loss 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;

8. Attention to the following is invited:

As per the provisions of section 23of SICA Act,1985, the Accumulated Losses of the Company as at 31st March, 2014 have resulted in erosion of more than 50% of its peak net worth during the four financial years immediately preceding the financial year ended on 31st March, 2014. Consequent upon, the Company has become a "Potentially Sick Company" under the said provision.

9. Report on Other Legal and Regulatory Requirements

As required by the Companies (Auditors'' Report) Order, 2003 as amended by the 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 of India 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.

10. As required by section 227(3) of the Act, 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 purpose 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 and proper reports adequate for the purposes of our audit have been received from the branch not audited by us. The financial records of Baramati unit of the company for the period upto 9-6-2013 have been audited by M/S Shankarlal Jain & Associates, Chartered Accountants, Mumbai, (Firm Registration No. 109901W) a copy of whose report has been forwarded to us. We have relied on that report and have appropriately dealt with the same in our report.

(iii) The Balance Sheet, Statement of Profit & Loss and Cash Flow Statement dealt with by this Report are in agreement with the books of accounts along with the audited report of the branch.

(iv) In our opinion, the Balance Sheet, the Statement of Profit and Loss and the Cash flow statement comply with the Accounting Standards notified under the Companies Act, 1956 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.

(v) 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.

ANNEXURE TO INDEPENDENT AUDITOR''S REPORT (Reffered to in paragraph 1 under ''Report on Other Legal and Regulatory Requirements'' section 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 fixed assets.

(b) The Company has a phased programme of physical verification of fixed assets which, in our opinion, is reasonable having regard to the size of the company and nature of its assets. In accordance with this programme, the management has verified fixed assets during the year and no material discrepancies have been noticed on such verification.

(c) The fixed assets disposed off during the year, including the Sale of Cotton Spinning Unit of Baramati, in our opinion, although consituted a division of the company, such disposal has, in our opinion, not affected the going concern status of the Company.

(ii) In respect of its inventory:

(a) The management conducts regular physical verification of inventory at reasonable intervals commensurate and adequate to the size of its operations.

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

(c) In our opinion and according to the information and explanation given to us, the Company has maintained proper records of its inventories. Some immaterial discrepancies were noticed on physical verification which have been properly dealt with in the books of account.

(iii) (a) The company has granted interest free loan (quasi-equity) to its Associate, Soma Textile FZC. Total amount outstanding on 31st March 2014 was Rs. 9444.17 lakhs.

(b) There are no terms and conditions set out by the Company as on date for the loans given to Soma Textile FZC and therefore, we are unable to comment on terms and conditions of the said loan.

(c) As there is no stipulation made for repayment of loan by Associate, we are unable to report on regularity of receipt of principal amount.

(d) As there is no stipulation of repayment of loan by Associate, we are unable to report on overdue amount.

(e) According to the information and explanations given to us the Company has taken unsecured loans from companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956 and the same are as under.

(Rs. In lacs)

Opening Balance 500

No. of Parties involved : 1

Maximum Amount Involved during the year : 50

Amount Outstanding as on 31.03.2014 : 562

(f) Interest free unsecured loan has been taken from promoters to fulfill stipulation of Financial Institutions so there is no rate of interest specified. Terms and conditions of loans taken are prima facie not prejudicial to the interest of the company;

(g) No stipulation has been specified for the repayment of these loan.

(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, we have not observed any major weakness in such internal control system.

(v) In respect of contracts or arrangements entered in Register maintained in pursuance Section 301 of Companies Act,1956, to the best of our knowledge and belief and according to the information and explanation given to us :

(a) The particulars of contracts or arrangements reffered to in section 301 that need to be entered in the Register maintained under the said Section have been so entered.

(b) where each of such transaction is in excess of Rs. Five Lakhs in respect of any party, the transaction have been made at prices which are prima facie reasonable having regard to the prevailing market prices at the relevant time.

(vi) According to the information and explanations given to us, the Company has not accepted any deposits from the public thus, the Provisions of the section 58A and 58AA and other relevant provisions of the Companies Act,1956 and the rules framed there under or any order passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal do not apply to Company.

(vii) In our opinion and according to information and explanations given to us, the Company has an adequate internal audit system commensurate with its size and nature of its business.

(viii) We have broadly reviewed the books of accounts maintained by the Company pursuant to the rules made by the Central Government of India, regarding the maintenance of cost records under clause (d) of sub- section (1)of section 209 of the Act and are of opinion that, prima facie,the prescribed accounts & 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) According to information and explanation given to us in respect of statutory dues:

(a) According to the information and explanations given to us, and on the basis of our examination of the books of accounts, the Company has generally been regular in depositing the undisputed statutory dues including Income-

Tax, Sales Tax, Wealth Tax, Service Tax, Excise Duty, Custom Duty, Cess and other material Statutory dues during the period with the appropriate authorities. At the end of the year, there were no undisputed amount payable for a period of more than six months from the date they became payable. (b) Details of dues of Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and Cess which have not been deposited as on 31.03.2014 on account of dispute are given below:

Name of Statute Nature of Dues Amount Period to (Rs. in Lacs) which it relates

Central Excise Act, Recovery of CENVAT 1.59 2004-05 1944

Central Excise Act, Recovery of additional 24.85 2002-03 1944 TTA duty of Yarn captively consumed

Central Excise Act, Refund claim for 0.98 2005-06 1944 amount short received against refund claim of yarn duty after adjusting the old recovery

Central Excise Act, Demand for old duty 0.50 2008-09 1944

Central Excise Act, Recovery of transitional 5.81 2012-13 1944 Cenvat

The Income Tax Demand of Income Tax 9.77 A.Y. Act-1961 2006-07

The Income Tax Demand of Income Tax 14.55 A.Y. Act-1961 2007-08

Gujarat Sales Tax Additional Sales Tax 6.17 1997-98, Act-1969 1998-99 & 2000-01

Name of Statute Forum where dispute is pending

Central Excise Act, 1944 The Dy. Commissioner of C. Excise, Div-I, Ahmedabad.

Central Excise Act, 1944 The Dy. Commissioner of C. Excise, Div-III, Ahmedabad.

Central Excise Act, 1944 Commissioner of Central Excise, (Appeals), Ahmedabad

Central Excise Act, 1944 CESAT, West Zone, Ahmedabad

Central Excise Act, 1944 CESAT, West Zone, Ahmedabad (Appeal)

The Income Tax Act-1961 Asst. Commissioner of Income Tax, Cir.-8, Ahmedabad

The Income Tax Act-1961 Commissioner of Income Tax (Appeal), Ahmedabad

Gujarat Sales Tax Act-1969 Gujarat Value Added Tax Tribunal

(x) The accumulated loss of the Company at the end of the financial year exceeds fifty percent of its net worth and also the company has incurred cash losses in the current financial year.

(xi) Company is under Corporate Debt Restructuring (CDR) package under scheme of RBI which was duly approved and implemented. In our opinion and according to the information & explanations given to us, the company has not defaulted in repayment of dues to financial institution and banks.

(xii) The company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly the provisions of clause 4(xii) of the order are not applicable to the Company.

(xiii) The company is not a chit fund / nidhi company / mutual benefit fund or society which would be governed by any special statute. Accordingly this clause along with sub clauses does not apply.

(xiv) The company is not dealing or trading in shares, securities, debentures and other investments. Accordingly this clause does not apply.

(xv) In our opinion and according to the information and explanations given to us and management representation received, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

(xvi) In our opinion and according to the explanations given to us and management representation received the term loans were applied only for the purpose for which they were obtained.

(xvii) In our opinion, and according to the information & explanations given to us and management representation received, funds raised on short-term basis have, prima facie, not been used during the year for long-term investment .

(xviii) According to the information & explanations given to us, during the period under our audit report, the Company has not allotted any shares on preferential basis to the parties and companies covered in the register maintained under section 301 of the Act.

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

(xx) According to the information and explanations given to us, the Company has not raised any money by way of public issue during the year.

(xxi) To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company has been noticed or reported during the year.

For PIPARA & COMPANY Chartered Accountants Firm Regn. No. : 107929W

GYAN PIPARA Place: Ahmedabad (Partner) Date:30th May, 2014 Membership No.034289


Mar 31, 2013

Report On Financial Statement

1. We have audited the accompanying financial statements of Soma Textiles & Industries Limited, which comprise the Balance Sheet as at March 31, 2013, the Statement of Profit and Loss and Cash Flow Statement for the year ended, and a summary of Significant Accounting Policies and other explanatory information.

Management''s Responsibility For The Financial Statement

2. 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. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

3. 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.

4. 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.

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

6. 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:

(i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2013; (ii) In the case of the Statement of Profit and Loss, of the Loss 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. 7 Without qualifying our opinion, we draw attention to Note No. 13, 13.1 and 13.2 regarding loan amount of

Rs. 8,558.24 Lacs (Previous Year Rs. 8,021.18 Lacs) given to Soma Textile FZC (UAE) out of GDR proceeds, being classified as a long term loan which had been advanced by the Company as a quasi- equity. When the loan was given, the said Company was a wholly owned subsidiary, however, with effect from 31st March, 2010, the Company''s holding has diluted from 100% to 40% (of the paid up Capital of Soma Textile FZC – UAE). Hence the said Company has become an associate of Soma Textiles & Industries Ltd. The loan amount is classified as Long Term under "Loans & Advances" (Note 13 of Financial Statements).

In the financial statements of Soma Textile FZC the accumulated loss reflects at AED 623,647 as against Total Capital of AED 900,000 (including Statutory Reserves); The said advance has been considered good by the management placing reliance on the Statutory Auditor''s Report of Soma Textile FZC (UAE) dated 16th April, 2013. The Audit was conducted by an independent Auditor viz Business Management World Auditors & Business Consultants, Dubai, U.A.E. for the financial year ended 31st March, 2013.

8. The Company has signed Business Transfer Agreement on 01.04.2013 to dispose off the Baramati Unit, situated at D-49, M.I.D.C., Baramati on a slump sale basis as a going concern for a lumpsum consideration of Rs. 29.80 crores. The sale of the unit is governed by the terms & conditions laid down in Business Transfer Agreement, transaction will be given effect in books of accounts in the Financial Year 2013-14.

Report On Other Legal And Regulatory Requirements

9. As required by the Companies (Auditors'' Report) Order, 2003 as amended by the 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 of India 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.

10. As required by section 227(3) of the Act, 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 purpose 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 and proper reports adequate for the purposes of our audit have been received from the branch not audited by us. The financial records of Baramati unit of the Company have been audited by M/S Shankarlal Jain & Associates, Chartered Accountants, Mumbai, (Firm Registration No. 109901W) a copy of whose report has been forwarded to us. We have relied on that report and have appropriately dealt with the same in our report.

(iii) The Balance Sheet, Statement of Profit & Loss and Cash Flow Statement dealt with by this Report are in agreement with the books of accounts along with the audited report of the branch.

(iv) In our opinion, the Balance Sheet, Statement of Profit & Loss along with the Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

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

Annexure referred to in paragraph 3 of our report of even date to the members of SOMA TEXTILES & INDUSTRIES LIMITED on the accounts for the year ended on 31st March, 2013.

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

(b) The Company has a phased programme of physical verification of fixed assets which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. In accordance with this programme, the management has verified fixed assets during the year and no material discrepancies have been noticed on such verification.

(c) The Company has not disposed off a substantial part of its fixed assets during the year and the "Going Concern" status of the Company is not affected.

(ii) (a) The management conducts regular physical verification of inventory at reasonable intervals commensurate and adequate to the size of its operations.

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

(c) The Company is maintaining proper records of inventory. Some immaterial discrepancies were noticed on physical verification which have been properly dealt with in the books of account.

(iii) (a) The Company has granted interest free loan (quasi-equity) to its Associate, Soma Textile FZC. Total amount outstanding on 31st March, 2013 was Rs. 8,558.24 lacs.

(b) There are no terms and conditions set out by the Company as on date for the loans given to Soma Textile FZC and therefore, we are unable to comment on terms and conditions of the said loan.

(c) As there is no stipulation made for repayment of loan by Associate, we are unable to report on regularity of receipt of principal amount.

(d) As there is no stipulation of repayment of loan by Associate, we are unable to report on overdue amount.

(e) According to the information and explanations given to us the Company has taken unsecured loans from companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956 and the same are as under.

(Rs. In lacs)

No. of Parties Involved Two Parties

Opening Balance 500

Loan Taken 244

Balance Outstanding at the end of year 744

(f) Interest free unsecured loan has been taken from promoters to fulfill stipulation of Financial Institution so there is no rate of interest specified. Terms and conditions of loans taken are prima facie not prejudicial to the interest of the Company;

(g) No stipulation has been specified for the repayment of these loan.

(iv) There is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and service. (v) (a) According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered into the register maintained under Section 301 of the Companies Act, 1956 have been so entered. (b) In our opinion and as explained to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 and exceeding value of Rupees Five Lacs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time. (vi) The Company has not accepted any deposits from the public during the year. Therefore the provisions of Sections 58A, 58AA or any other relevant provisions of the Act and the rules framed thereunder or any order passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal do not apply to Company. (vii) In our opinion and according to information and explanations given to us, the Company has an internal audit system

commensurate with its size and nature of its business. (viii) In our opinion, prima facie the Company has maintained proper cost records as prescribed by the Central Government under clause (d) of sub-section (1) of Section 209 of the Companies Act,1956. We have, however, not made a detailed examination of cost records with a view to determine whether they are accurate or complete.

(ix) (a) According to the information and explanations given to us and on the basis of our examination of books of account, we are of the opinion that the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees'' State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and any other statutory dues with the appropriate authorities. At the end of the year, there were no undisputed dues payable for a period of more than six months from the date they became payable. (b) As on 31st March 2013, according to records of the Company, some statutory dues were disputed and not deposited as given below:

Name of Statute Nature of Dues Amount Period to Forum where dispute is pending (Rs. in Lacs) which it relates

Central Excise Act, Recovery of CENVAT 1.59 2004-05 The Dy. Commissioner of C. Excise, Div-I, 1944 Ahmedabad.

Central Excise Act, Recovery of additional 24.85 2002-03 The Dy. commissioner of C. Excise, Div-III, 1944 TTA duty of Yarn Ahmedabad. captively consumed

Central Excise Act, Refund claim for 0.98 2005-06 Commissioner of Central Excise, (Appeals), 1944 amount short received Ahmedabad against refund claim of yarn duty after adjusting the old recovery

Central Excise Act, Demand for old duty 0.50 2008-09 CESAT, West Zone, Ahmedabad 1944

Central Excise Act, Recovery of transitional 5.81 2012-13 CESAT, West Zone, Ahmedabad (Appeal) 1944 Cenvat

The Income Tax Demand of Income 9.77 A.Y. Asst. Commissioner of Income Tax, Act-1961 Tax 2006-07 Cir.-8, Ahmedabad

The Income Tax Demand for Penalty 7.43 A.Y. Asst. Commissioner of Income Tax, Cir.-8, Act-1961 U/s. 271(1)(C) 2008-09 Ahmedabad

The Income Tax Demand of Income Tax 14.55 A.Y. Commissioner of Income Tax (Appeal), Act-1961 2007-08 Ahmedabad

Gujarat Sales Tax Additional Sales Tax 6.17 1997-98, Gujarat Value Added Tax Tribunal Act-1969 1998-99 & 2000-01

(x) The Company has accumulated losses at the end of the Financial Year. However such losses do not exceed 50% of its net worth.

(xi) Company is under Corporate Debt Restructuring (CDR) package under scheme of RBI which was duly approved and implemented. Company has defaulted in repayment of Loans and interest as stated in Note No 4.3 which is mentioned under head "Long term borrowing".

(xii) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly the provisions of clause 4(xii) of the order are not applicable to the Company.

(xiii) The Company is not a chit fund / nidhi Company / mutual benefit fund or society which would be governed by any special statute. Accordingly this clause along with sub clauses does not apply.

(xiv) The Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly this clause does not apply.

(xv) The Company has not given any guarantee for loans taken by others from bank or financial institutions. Accordingly this clause does not apply.

(xvi) In our opinion and according to the explanations given to us the term loans were applied only for the purpose for which they were obtained.

(xvii) In our opinion and according to explanations given to us, the 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 parties and companies covered in the Register maintained under Section 301 of the Act during the year and accordingly this clause does not apply.

(xix) The Company has not issued debentures during the year. Accordingly this clause does not apply.

(xx) The Company has not raised any money from public issue during the financial year. Accordingly this clause does not apply.

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

For Pipara & Co.

Chartered Accountants

(Firm Registration No. 107929W)

Gyan Pipara

Place: Ahmedabad Partner

Date:24th May, 2013 Membership No. 034289


Mar 31, 2012

We have audited the attached Balance Sheet of SOMA TEXTILES & INDUSTRIES LIMITED, as at 31st March, 2012 and also the Profit and Loss Statement and Cash Flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audit.

We have conducted our auditing & assurance procedures in accordance with Auditing Standards generally accepted in India. Those standards require that we plan and perform the audit procedures to obtain reasonable assurance if the financial statements are free from material misstatements. An audit includes examining, on 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.

As required by the Companies (Auditors' Report) Order, 2003 as amended by the Companies (Auditors' Report) (Amendment) Order, 2004 (together the 'Order') issued by the Central Government 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.

Further to our comments in the Annexure referred to above, we report that:

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

(ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books and proper reports adequate for the purposes of our audit have been received from the branch not audited by us. The financial records of Baramati branch of the Company have been audited by M/S Shankarlal Jain & Associates, Chartered Accountants, Mumbai, (Firm Registration No. 109901W) a copy of whose report has been forwarded to us. We have relied on that report and have appropriately dealt with the same in our report;

(iii) The Balance Sheet, Profit and Loss Statement and Cash Flow Statement dealt with by this report are in agreement with the books of account and with the audited reports from the branch;

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

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

(vi) Without qualifying our opinion, we draw attention to Note No. 13, 13.1 and 13.2 regarding loan amount of Rs. 8021.18 lakhs given to Soma Textile FZC out of GDR proceeds, being long term loan which has been termed by the Company as quasi-equity as when the loan was given, the said Company was a wholly owned subsidiary. However, with effect from 31st March, 2010, upon dilution of the Company's holding to 40% from 100% of the paid up Capital of the said subsidiary, the said Company has become an associate of the Company. However, the loan amount as shown in the long term "Loans & Advances" has been considered as good, relying on the statutory auditor report of Soma Textile FZC conducted by the independent Auditor viz AL SAIF AUDITING & ACCOUNTANTS, Sharjah,U.A.E. (as per the audited accounts as on 31st March 2012) though the accumulated loss incured by the said Soma Textile FZC as on 31st March 2012 is AED 6,56,046 as against Total Capital of AED 9,00,000 (including Statutory Reserves).

(vii) In our opinion and to the best of our information and according to the explanations given to us, accounts read together 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 31st March, 2012;

(b) In the case of the Profit and Loss Statement, of the LOSS for the year ended on that date; and

(c) In the case of Cash Flow Statement, of the Cash Flows for the year ended on that date.

Annexure referred to in paragraph 3 of our report of even date to the members of SOMA TEXTILES & INDUSTRIES LIMITED on the accounts for the year ended on 31st March 2012.

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

(b) The Company has a phased programme of physical verification of fixed assets which, in our opinion, is reasonable having regard to the size of the Company and nature of its assets. In accordance with this programme, the management has verified fixed assets during the year and no material discrepancies have been noticed on such verification.

(c) The Company has not disposed off a substantial part of its fixed assets during the year and the "Going Concern" status of the Company is not affected.

(ii) (a) The management conducts regular physical verification of inventory at reasonable intervals commensurate

and adequate to the size of its operations.

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

(c) The Company is maintaining proper records of inventory. Some immaterial discrepancies were noticed on physical verification which have been properly dealt with in the books of account.

(iii) (a) The Company has granted interest free loan (quasi-equity) to its Associate, Soma Textile FZC. Total amount outstanding on 31st March 2012 was Rs. 8021.18 lakhs.

(b) There are no terms and conditions set out by the Company as on date for the loans given to Soma Textile FZC and therefore, we are unable to comment on terms and conditions of the said loan.

(c) As there is no stipulation made for repayment of loan by Associate, we are unable to report on regularity of receipt of principal amount.

(d) As there is no stipulation of repayment of loan by Associate, we are unable to report on overdue amount.

(e) According to the information and explanations given to us the Company has taken unsecured loans from companies, firm or other parties covered in the register maintained under Section 301 of the Companies Act, 1956 and the same areas under.

(Rs. In lakhs)

No. of Parties involved Three Parties

Opening Balance 355

Loan Taken 145

Balance Outstanding at the end of year 500

(f) Interest free unsecured loan has been taken from promoters to fulfill stipulation of Financial Institution so there is no rate of interest specified. Terms and conditions of loans taken are prima facie not prejudicial to the interest of the Company;

(g) No stipulation has been specified for the repayment of these loan.

(iv) There is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and service.

(v) (a) According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered into the register maintained under Section 301 of the Companies Act, 1956 have been so entered.

(b) In our opinion and as explained to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act 1956 and exceeding value of Rupees Five Lacs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the public. Therefore the provisions of Sections 58A, 58AA or any other relevant provisions of the Act and the rules framed there under or any order passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal do not apply to Company.

(vii) In our opinion and according to information and explanations given to us, the Company has an internal audit system commensurate with its size and nature of its business.

(viii) In our opinion, prima facie the Company has maintained proper cost records as prescribed by the Central Government under clause (d) of sub-section (1) of Section 209 of the Companies Act,1956. 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) According to the information and explanations given to us and on the basis of our examination of books of account, we are of the opinion that the Company is generally regular in depositing undisputed statutory dues

including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and any other statutory dues with the appropriate authorities. At the end of the year, there were no undisputed dues payable for a period of more than six months from the date they became payable.

(b) As on 31st March 2012, according to records of the Company, some statutory dues were disputed and not deposited as given below:

Name of Statute Nature of Dues Amount Period to Forum where dispute is pending (Rs. in Lakhs) which its relates

Central Excise Act, Recovery of CENVAT 1.59 2004-05 The Dy. Commissioner of C. Excise Div-I, 1944 Ahmadabad.

Central Excise Act, Recovery of additional 24.85 2002-03 The Dy. Commissioner of C. Excise Div-III, 1944 TTA duty of Yarn Ahmadabad. captively consumed

Central Excise Act, Refund claim for 0.98 2005-06 Commissioner of Central Excise, (Appeals), 1944 amount short received Ahmadabad against refund claim of yarn duty after adjusting the old recovery

Central Excise Act, Demand for old duty 0.50 2008-09 CESAT, West Zone, Ahmadabad 1944

The Income Tax Demand of Income 9.77 A.Y. Asst. Commis sioner of Income Tax, Act-1961 Tax 2006-07 Cir.-8, Ahmadabad

The Income Tax Demand for Penalty 7.43 A.Y. Asst. Commis sioner of Income Tax, Cir.-8, Act-1961 U/s. 271(1)(C) 2008-09 Ahmadabad

The Income Tax Demand for Penalty 17.42 A.Y. Commissioner of Income Tax (Appeal),

Act-1961 U/s. 271(1)( C) 2006-07 Ahmadabad

The Income Tax Demand of Income Tax 14.55 A.Y. Commissioner of Income Tax (Appeal),

Act-1961 2007-08 Ahmadabad

Gujarat Sales Tax Additional Sales Tax 6.17 1997-98, Gujarat Value Added Tax Tribunal Act-1969 1998-99

&2000-01

(x) The Company has accumulated losses at the end of the financial year not exceeding 50% of its net worth.

(xi) Company is under Corporate Debt Restructuring (CDR) package under scheme of RBI which was duly approved and implemented. Company has defaulted in repayment of Loans and interest at Note No 4.3 which is mentioned under head "Long term borrowing".

(xii) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly this clause does not apply.

(xiii) The Company is not a chit fund / nidhi Company / mutual benefit fund or society which would be governed by any special statute. Accordingly this clause along with sub clauses does not apply.

(xiv) The Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly this clause does not apply.

(xv) The Company has not given any guarantee for loans taken by others from bank or financial institutions. Accordingly this clause does not apply.

(xvi) The term loans were applied only for the purpose for which they were obtained.

(xvii) In our opinion and according to explanations given to us, the 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 parties and companies covered in the Register maintained under Section 301 of the Act during the year and accordingly this clause does not apply.

(xix) The Company has not issued debentures during the year. Accordingly this clause does not apply.

(xx) The Company has not raised any money from public issue during the financial year. Accordingly this clause does not apply.

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

For PIPARA & COMPANY

Chartered Accountants

Firm Registration No. 107929W

GYAN PIPARA

Place : Ahmedabad (Partner)

Date : 24th May, 2012 Membership No.034289


Mar 31, 2010

We have audited the attached Balance Sheet of SOMA TEXTILES & INDUSTRIES LIMITED, as at 31st March, 2010 and also the Profit and Loss Account and Cash Flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

As required by the Companies (Auditors Report) Order, 2003 as amended by the 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 of India 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.

Further to our comments in the Annexure referred to above, we report that:

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

(ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books and proper report adequate for the purposes of our audit have been received from the branches not audited by us. The financial records of Baramati branch of company have been audited by Shankarlal Jain & Associates, Chartered Accountants, Mumbai, a copy of whose report has been forwarded to us. We have relied on that report and have appropriately dealt with the same in our report;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow statement dealt with by this report are in agreement with the books of account and with the audited reports from the branches;

(iv) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow statement dealt with by this report comply with the accounting standards referred to in sub-section(3C) of section 211 of the Companies Act, 1956;

(v) On the basis of written representations received from the directors, as on 31st March, 2010, and taken on record by the Board of Directors, we report that none of the directors 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) In our opinion and to the best of our information and according to the explanations given to us, and subject to our observations as aforesaid, and particularly Note No. 23 of Schedule 22(B) of Notes on Accounts, the said accounts read together with 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 31st March, 2010;

(b) In the case of the Profit and Loss Account, of the LOSS for the year ended on that date; and

(c) In the case of Cash Flow Statement, of the Cash Flows for the year ended on that date.

Annexure referred to in paragraph 3 of our report of even date to the members of SOMA TEXTILES & INDUSTRIES LIMITED on the accounts for the year ended on 31st March 2010.

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

(b) The Company has a phased programme of physical verification of fixed assets which, in our opinion, is reasonable having regard to the size of the company and nature of its assets. In accordance with this programme, the management has verified fixed assets during the year and no material discrepancies have been noticed on such verification.

(c) In our opinion, the Company has not disposed off a substantial part of its fixed assets during the year and the going concerns status of the company is not affected.

(ii) (a) The management conducts regular physical verification of inventory at reasonable intervals.

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

(c) The company is maintaining proper records of inventory. Some immaterial discrepancies were noticed on physical verification which have been properly dealt with in the books of account.

(iii) (a) The company has granted interest free loan to its 100% subsidiary, Soma Textiles FZE. Total amount outstanding on 31st March 2010 was Rs.707,878,454/-.

(b) The terms and conditions of loans given by the company are prima facie not prejudicial to the interest of the company.

(c) As there is no stipulation made for repayment of loan by subsidiary, we are unable to report on regularity of receipt of principal amount.

(d) As there is no stipulation of repayment of loan by subsidiary, we are unable to report on overdue amount.

(e) 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 the Act. Accordingly sub-clauses (f) and (g) are not applicable.

(iv) There is an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and service.

(v) (a) According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered.

(b) In our opinion and as explained to us, the transactions made in pursuance of contracts or arrangements entered into the register maintained under section 301 of the Companies Act, 1956 and exceeding value of Rupees Five Lacs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

(vi) The company has not accepted any deposits from the public. Therefore the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the rules framed thereunder or any order passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal do not apply to company.

(vii) In our opinion and according to information and explanations given to us, the company has a internal audit system commensurate with its size and nature of its business, which may be further strengthened.

(viii) In our opinion, the company has maintained proper cost records prescribed by the Central Government under clause (d) of sub-section (1) of section 209 of the Act. However, we are not required to carry out and have not carried out any detailed examination of such accounts and records.

(ix) (a) According to the information and explanations given to us and on the basis of our examination of books of account, we are of the opinion that the company is generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and any other statutory dues with the appropriate authorities. At the end of the year, there were no undisputed dues payable for a period of more than six months from the date they became payable.

(b) As on 31st March 2010, according to records of the company, some statutory dues were disputed and not deposited as given below:

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

Central Excise Act, Penalty for filing 25,428 1996-97 1944 wrong declaration 1997-98 Central Excise Act, Recovery of CENVAT 158,973 2004-05 1944

Central Excise Act, Recovery of additional 2,485,486 2002-03 1944 TTA duty of Yarn captively consumed

Central Excise Act, Refund claim for 97,711 2005-06 1944 amount short received against refund claim of yarn duty after adjusting the old recovery

Central Excise Act, Demand for service tax 444,139 2005-06 1944 on goods transport

Central Excise Act, Demand for excise on 251,047 2006-07 1944 scrap sale

Central Excise Act, Demand for old duty 50,179 2008-09 1944

Gujarat Sales Tax Additional Sales Tax 617,257 1997-98 Act, 1969 1998-99 &2000-01

Name of Statute Forum where dispute is pending

Central Excise Act, CEGAT, Mumbai and the Honble High Court 1994 of Gujarat, Ahmedabad.

Central Excise Act, The Dy. Commissioner of C. Excise, Div-I, 1994 Ahmedabad.

Central Excise Act, The Dy. Commissioner of C. Excise, Div-III, 1994 Ahmedabad.

Central Excise Act Commissioner of Central Excise, (Appeals), 1994 Ahmedabad

Central Excise Act Dy. Commissioner Service Ta x Div - II 1994

Central Excise Act Asst. Commissioner of Central Excise. 1994 Central Excise Act CESAT, West Zone, Ahmedabad 1994

Central Sales Act Gujarat Value Added Ta x Tribunal 1969



(x) The company has accumulated losses at the end of the financial year but the same are less than 50% of its net worth. It has incurred cash losses in the financial year as well as in the immediately preceding financial year.

(xi) Company is under Corporate Debt Restructuring (CDR) package under scheme of RBI which was duly approved and implemented. Company has not defaulted in repayment of dues to any financial institution or bank as per reschedule under CDR package.

(xii) In our opinion and according to explanations given to us, the company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly this clause does not apply.

(xiii) The company is not a chit fund / nidhi company / mutual benefit entity or society which would be governed by any special statute. Accordingly this clause along with sub clauses does not apply.

(xiv) In our opinion and according to explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investments. Accordingly this clause does not apply. (xv) In our opinion and according to explanations given to us, the company has not given any guarantee for loans taken by others from bank or financial institutions. Accordingly this clause does not apply.

(xvi) In our opinion and according to explanations given to us, the term loans were applied only for the purpose for which they were obtained.

(xvii) In our opinion and according to explanations given to us, the 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 parties and companies covered in the Register maintained under section 301 of the Act during the year and accordingly this clause does not apply.

(xix) The company has not issued debentures during the year. Accordingly this clause does not apply. (xx) The company has not raised any money from public during the financial year. Accordingly this clause does not apply.

(xxi) In our opinion and according to explanations given to us, no fraud on or by the company has been noticed or reported during the year.



For PIPARA & COMPANY CHARTERED ACCOUNTANTS Firm Registration No. 107929W

GYAN PIPARA

Place: Ahmedabad PARTNER Date:29th May, 2010 Membership No.034289

 
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