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Auditor Report of Southern Ispat & Energy Ltd.

Mar 31, 2014

Report on the Financial Statements

We have audited the accompanying financial statements of M/s Southern Ispat & Energy Limited, which comprise the Balance Sheet as at 31 March 2014, Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s 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 Group in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors'' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 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 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 Company''s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the 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 and subject to the comments given in Annexure-I and Annexure-II, the said Balance Sheet and Profit and Loss Account read together with the notes and accounting policy annexed, give the information required by the Companies Act, 1956 in the manner so required and give a true & fair view in conformity with the accounting principles generally accepted in India:

1. In the case of balance sheet, of the state of affairs of the company as at 31st March 2014.

II. In the case of profit & loss account, of the Profit for the period ended on that date; and

III. In the case of cash flow statement, of the cash flow for the period ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 including Companies (Auditor''s Report) (Amendment) Order'' 2004 issued by the Central Government of India in terms of Sub-section (4A) of section 227 of the companies Act, 1956, we enclose in the Annexure-II, a Statement on the matters specified in paragraphs 4 & 5 of the said order.

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

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

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

c) The Balance sheet and profit & loss account and cash flow statement dealt with this report are in agreement with the books of account.

d) In our opinion the Balance Sheet and Profit & Loss account dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the companies Act, 1956.

e) On the basis of written representation received from the Directors, as on 31st March 2014, and taken on record by the Board of Directors, we report that none of the Directors are disqualified as on 31st March 2014 from being appointed as Directors in terms of Clause (g) of sub-section (1) of section 274 of the companies Act, 1956.

f) We further report that without considering Item No. 1 and 2 in Annexure -I mentioned above the effect of which could not be determined.

ANNEXURE I TO INDEPENDENT AUDITOR''S REPORT

[Referred to in Paragraph 1 under the heading "Opinion" of our report of even date]

1. Non provision of terminal Benefits to Employees as detailed in Accounting Policy No.5 in preference to the Accounting Standard No. AS-15.

2. Note No.5, 7, 12 & 14 regarding confirmation of Sundry Creditors, Long term Advances, Sundry Debtors and short term Advances and other personal accounts and consequential adjustments thereof if any.

3. Company is yet to file e-forms 5 & 2 related to capital increase and share allotment to members respectively as required under Companies Act, 1956

4. During the year, State Bank of India has assigned Advances to ARCIL under section 5 of SARFAESI Act, Vide Assignation Agreement Dated 26.03.2014 together with all underlying securities, rights, title and interest in respect there of. However Balances Shown under Secured Loans are subject to confirmation from ARCIL.

5. No provision has been made for Advances grouped in Capital Advance shown under Note 7. Long Term Loans & Advances amounting to Rs. 1482.36 lacs, which are prima facie doubtful of recovery and in our opinion current year''s profit and accumulated profit of the company, are over stated by provision of such doubtful advances.

ANNEXURE II TO INDEPENDENT AUDITOR''S REPORT [Referred to in Paragraph 1 under the heading "Report on Other Legal and Regulatory Requirements" of our report of even date]

1. a. In respect of fixed assets, the company has maintained records showing full particulars including quantitative details and situation in most cases of such assets.

b. As explained to us, the assets have been physically verified by the management, in accordance with the established system of periodical verification of fixed assets once in 2/3 months. In our opinion, the frequency of verification is reasonable, considering the size of the operations of the company. No material discrepancies between the book records and the physical records were noticed in respect of the assets physically verified.

c. In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed of by the company during the year.

2. a. As explained to us, the inventory of the company has been physically verified during the financial year by the management. In our opinion the frequency of verification is reasonable.

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

c. On the basis of our examination of records of inventory, in our opinion, the Company has maintained proper records of inventory and the discrepancies noted on physical verification between the physical stocks and book records were not material, having regard to the size of the operations of the company .

3. a. According to the information and explanations given to us, during the period covered by audit report the Company has not given any unsecured loans to / from the Company covered in the register maintained under section 301 of the Company Act, 1956. Accordingly, the provisions of clause 4(iii) (b) to (d) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

e. The Company had taken loan from one party covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs.35.00 Lacs and the year-end balance of loans taken from such party was Rs. 5.00 Lacs.

f. fn our opinion, the rate of interest and other terms and conditions for such loans are not, prima facie, prejudicial to the interest of the Company.

g. In respect of the aforesaid loans, the company is regular in repaying the principal amounts as stipulated and has been regular in payment of interest.

4. In our opinion and according to the information and explanations given to us, there exists 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 with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct weakness in internal control system of the company.

5. In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements exceeding value of Rupees five lakhs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us the Company has not accepted any deposits during the year from the Public within the meaning of Section 58A and 58AA of the Companies Act and the rules framed there under.

7. In our opinion, the Company does not have a formal internal audit system.

8. Maintenance of Cost records under Section 209(1) (d) of the Act and Cost Accounting Rules 2011 has been complied with.

9. a. According to the information and explanations given to us and according to the books and records as produced and examined by us, in our opinion, undisputed statutory dues including provident fund, investor education and protection fund, employee''s state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess and other material statutory dues applicable to the Company have generally been regularly deposited with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty, excise duty and cess were in arrears, as at 31st March 2014 for a period of more than six months from the date they became payable except TDS Rs 18.92 Lacs, VAT Rs 0.02 Lacs, Listing Fees Rs 8.51 Lacs & MCA Filing Fee Rs 143.20 Lacs.

b. As at 31st March 2014, according to the records of the Company and the information and explanations given to us, the following are the particulars of disputed dues on account of excise duty and cess matters, commercial tax and income tax that have not been deposited:-

Name of the Nature of the Amount Period to Statute Dues (Rs. In which the Lakhs) amounts Forum where pending relates

30.74 2005-06

120.45 2006-07 Sales Tax Appellate Tribunal, Additional Kerala Commercial 2.80 2006-07 Bench, Palakkad Commercial Taxes, Value Taxes Added Tax Assistant 105.06 2007-08 Commissioner (Assessment), Commercial Taxes, Palakkad

10. The Company does not have accumulated losses as at the end of the financial year. There are no cash losses during the financial year under report and in the immediately preceding financial year.

11. In our opinion and according to the information and explanations given to us, during the year the Company has defaulted in repayment of dues to State Bank of India amounting to Rs.319.57 Lacs. Further, State Bank of India has assigned Advances to ARCIL under section 5 of SARFAESI Act, Vide Assignation Agreement Dated 26.03.2014 together with all underlying securities, rights, title and interest in respect there of.

12. In our opinion and according to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company does not fall within the category of Chit fund / Nidhi / Mutual Benefit fund / Society and hence the related reporting requirements of the Order are not applicable.

14. According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments and hence the related reporting requirements of the Order are not applicable.

15. In our opinion and according to the information and explanations given to us, the Company has not given guarantees for loans taken by others from bank or financial institutions.

16. The Company has not obtained any term loans from any banks or Financial Institutions.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the Company has used no funds raised on short-term basis for long-term investment.

18. The Company has not made preferential allotment of shares to parties covered in the Register maintained under Section 301 of the Companies Act, 1956 during the financial year,

19. The company has not issued debentures; hence question of creation of securities does not arise.

20. According to the information and explanations given to us, during the period covered by audit report the company has not raised any money by public issue. Accordingly, the provisions of clause 4(xx) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

21. During the course of our examination of the books and records of the Company carried out in accordance with the generally accepted auditing practices in India, we have neither come across any instance of fraud on or by the Company, noticed and reported during the year, nor have we been in formed of such case by the management.

For SUNIL JOHRI & ASSOCIATES CHARTERED ACCOUNTANTS FRN 005960 C

Sd/- (SUNIL JOHRI) PARTNER M. No. 074654

PLACE: RAIPUR DATE: MAY 31.2014


Jun 30, 2013

Report on the Financial Statements

We have audited the accompanying Financial Statements of M/s Southern Ispat & Energy Limited, which comprise the Balance Sheet as at 30 June, 2013, Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s 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 Group in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors'' Responsibility

Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with 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 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 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 Company''s Internal Control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the 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 and subject to the comments given in Annexure-I and Annexure-II, the said Balance Sheet and Profit and Loss Account read together with the notes and accounting policy annexed, give the information required by the Companies Act, 1956 in the manner so required and give a true & fair view in conformity with the accounting principles generally accepted in India:

I. In the case of Balance Sheet, of the state of affairs of the Company as at 30th June 2013.

II. In the case of Profit & Loss Account, of the Profit for the period ended on that date; and

III. In the case of Cash Flow Statement, of the cash flow for the period ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 including Companies (Auditor''s Report) (Amendment) Order'' 2004 issued by the Central Government of India in terms of Sub-section (4A) of section 227 of the companies Act, 1956, we enclose in the Annexure-II, a Statement on the matters specified in paragraphs 4 & 5 of the said order.

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

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

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

c) The Balance Sheet and Profit & Loss Account and Cash Flow Statement dealt with this report are in agreement with the books of accounts.

d) In our opinion the Balance Sheet and Profit & Loss Account dealt with by this report comply with the Accounting Standards referred to in Sub-Section (3C) of Section 211 of the Companies Act, 1956.

e) On the basis of written representation received from the Directors, as on 30th June 2013, and taken on record by the Board of Directors, we report that none of the Directors are disqualified as on 30th June 2013 from being appointed as Directors in terms of Clause (g) of Sub- Section (1) of Section 274 of the Companies Act, 1956.

f) We further report that without considering Item No.1 and 2 in Annexure I mentioned above the effect of which could not be determined.

ANNEXURE I TO INDEPENDENT AUDITOR''S REPORT ON STANDALONE

FINANCIAL STATEMENTS

[Referred to in Paragraph 1 under the heading

"Opinion” of our report of even date]

1. Non provision of terminal Benefits to Employees as detailed in Accounting Policy No.5 in preference to the Accounting Standard No.AS-15.

2. Note No.5, 7, 12 & 14 regarding confirmation of Sundry Creditors, Long term Advances, Sundry Debtors and short term Advances and other personal accounts and consequential adjustments thereof if any.

3. Company is yet to file e-forms 5 & 2 related to Capital Increase and share allotment to members respectively as required under Companies Act, 1956

ANNEXURE II TO INDEPENDENT AUDITOR''S REPORT ON STANDALONE

FINANCIAL STATEMENTS

[Referred to in Paragraph 1 under the heading

"Report on Other Legal and Regulatory Requirements” of our report of even date]

1 a. In respect of Fixed Assets, the Company has maintained records showing full particulars including quantitative details and situation in most cases of such assets.

b. As explained to us, the assets have been physically verified by the management, in accordance with the established system of periodical verification of Fixed Assets once in 2/3 months. In our opinion, the frequency of verification is reasonable, considering the size of the operations of the Company. No material discrepancies between the book records and the physical records were noticed in respect of the assets physically verified.

c. In our opinion and according to the information and explanations given to us, a substantial part of Fixed Assets has not been disposed of by the Company during the year.

2. a. As explained to us, the inventory of the Company has been physically verified during the

Financial Year by the management. In our opinion the frequency of verification is reasonable.

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

c. On the basis of our examination of records of inventory, in our opinion, the Company has maintained proper records of inventory and the discrepancies noted on physical verification between the physical stocks and book records were not material, having regard to the size of the operations of the Company.

3. a. According to the information and explanations given to us, during the period covered by

Audit Report the Company has not given any unsecured loans to / from the Company covered in the Register maintained under Section 301 of the Companies'' Act, 1956. Accordingly, the provisions of Clause 4(iii) (b) to (d) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

b. The Company had taken loan from one party covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 35.00 Lacs and the year-end balance of loans taken from such party was Rs. 35.00 Lacs.

c. In our opinion, the rate of interest and other terms and conditions for such loans are not, prima facie, prejudicial to the interest of the Company.

d. In respect of the aforesaid loans, the Company is regular in repaying the principal amounts as stipulated and has been regular in payment of interest.

4. In our opinion and according to the information and explanations given to us, there exists 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 with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct weakness in internal control system of the Company.

5. In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements exceeding value of Rupees Five Lakhs have been entered into during the Financial Year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us the Company has not accepted any deposits during the year from the Public within the meaning of Section 58A and 58AA of the Companies Act and the rules framed there under.

7. In our opinion, the Company should maintain an Internal Audit System.

8. Maintenance of Cost records under Section 209(1) (d) of the Act and Cost Accounting Rules 2011 has not been complied with.

9. a. According to the information and explanations given to us and according to the books and records as produced and examined by us, in our opinion, undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employee''s State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to the Company have generally been regularly deposited with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs Duty, Excise Duty and Cess were in arrears, as at 30th June 2013 for a period of more than six months from the date they became payable except TDS Rs 17.75 Lacs, VAT Rs 1.67 Lacs, Listing Fees Rs 24.46 Lacs & MCA Filing Fee Rs 114.66 Lacs.

10. The Company does not have accumulated losses as at the end of the Financial Year. There are no cash losses during the Financial Year under report and in the immediately preceding Financial Year.

11. In our opinion and according to the information and explanations given to us, during the year the Company has defaulted in repayment of dues to State Bank of India amounting to Rs.11.79 Lacs, towards Principal Over drawings in Cash Credit Account.

12. In our opinion and according to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company does not fall within the category of Chit fund / Nidhi / Mutual Benefit Fund / Society and hence the related reporting requirements of the Order are not applicable.

14. According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments and hence the related reporting requirements of the Order are not applicable.

15. In our opinion and according to the information and explanations given to us, the Company has not given guarantees for loans taken by others from bank or Financial Institutions.

16. The Company has not obtained any term loans from any banks or Financial Institutions.

17. According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, we report that the Company has used no funds raised on short-term basis for long-term investment.

18. The Company has not made preferential allotment of shares to parties covered in the Register maintained under Section 301 of the Companies Act, 1956 during the Financial Year,

19. The Company has not issued debentures; hence question of creation of securities does not arise.

20. According to the information and explanations given to us, during the period covered by audit report the Company has not raised any money by Public Issue. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

21. During the course of our examination of the books and records of the Company carried out in accordance with the generally accepted auditing practices in India, we have neither come across any instance of fraud on or by the Company, noticed and reported during the year, nor have we been informed of such case by the management.

For Sunil Johri & Associates

Chartered Accountants

Frn 005960 C

Place: Palakkad, Kerala Sd/-

Date: August 30, 2013 (Sunil Johri)

Partner

M. No. 074654


Jun 30, 2011

1) We have audited the attached balance sheet of M/s Southern Ispat & Energy Limited, as at 30th June 2011 and also the Profit & Loss A/c and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2) We conducted our audit in accordance with 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 that 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 including Companies (Auditor's Report) (Amendment) Order' 2004 issued by the Central Government of India in terms of Sub-section (4A) of section 227 of the companies Act, 1956, we enclose in the Annexure, a Statement on the matters specified in paragraphs 4 & 5 of the said order.

4) Further to our comments in the annexure referred to above, we report that-

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

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

c. The Balance sheet and profit & loss account and cash flow statement dealt with this report are in agreement with the books of account.

d. In our opinion the Balance Sheet and Profit & Loss account dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the companies Act, 1956.

e. On the basis of written representation received from the Directors, as on 30th June 2011, and taken on record by the Board of Directors, we report that none of the Directors are disqualified as on 30th June 2011 from being appointed as Directors in terms of Clause (g) of sub-section (1) of section 274 of the companies Act, 1956.

f. In our opinion and to the best of our information and according to the explanations given to us, and the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.

i. In the case of balance sheet, of the state of affairs of the company as at 30th June 2011.

ii. In the case of profit & loss account, of the Profit for the period ended on that date; and

iii. In the case of cash flow statement, of the cash flow for the period ended on that date.

Annexure referred to in paragraph (3) of our report of even date on the accounts of Southern Ispat & Energy Limited for the year ended on 30-06-2011

1 a. In respect of fixed assets, the company has maintained records showing full particulars including quantitative details and situation in most cases of such assets.

b. As explained to us, the assets have been physically verified by the management, in accordance with the established system of periodical verification of fixed assets once in 2/3 months. In our opinion, the frequency of verification is reasonable, considering the size of the operations of the company. No material discrepancies between the book records and the physical records were noticed in respect of the assets physically verified.

c. In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed of by the company during the year.

2. a. As explained to us, the inventory of the company has been physically verified during the financial year by the management. In our opinion the frequency of verification is reasonable.

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

c. On the basis of our examination of records of inventory, in our opinion, the Company has maintained proper records of inventory and the discrepancies noted on physical verification between the physical stocks and book records were not material, having regard to the size of the operations of the company.

3. a. In our opinion and according to the information and explanations given to us, the Company has granted unsecured loans to one Company covered in the register maintained under section 301 of the Company Act, 1956. The Maximum amount involved during the year was Rs.420.56 Lacs and the year end balance is NIL.

b. In our opinion and according to the information and explanation given to us, the rate of Interest and other terms and condition for such loan are prima facie, prejudicial to the interest of the company.

c. The Party has repaid the principal amount to the company.

d. There is no overdue amount of loans granted to companies covered in the register maintained under section 301 of the Company Act, 1956.

e. The Company has taken loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301of the companies act, 1956. Total number of parties is 2 and amount involved (maximum outstanding during the year) is Rs.15.34 Lacs and year-end balance is Rs.12.18.

f. In our opinion the rate of interest and other terms and condition on which loan have been taken from the parties listed in the register maintained under section 301 of the companies act, 1956 are not prima facie prejudicial to the interest of the company.

g. In our opinion and according to the information and explanations given to us, company has been paying principal and interest amount on secured loan. In respect of unsecured loan the terms of repayment have not been stipulated, therefore we have not made any comments.

4. In our opinion and according to the information and explanations given to us, there exists 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 with regard to the sale of goods arid services. During the course of our audit, we have not observed any continuing failure to correct weakness in internal control system of the company.

5. In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements exceeding value of Rupees five lakhs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us the Company has not accepted any deposits during the year from the Public within the meaning of Section 58A and 58AA of the Companies Act and the rules framed there under.

7. In our opinion, the Company should maintain an internal audit system.

8. Company has not maintained cost records under Section 209 (1) (d) of the Companies Act 1956 as prescribed by the Central Government.

9. a. According to the information and explanations given to us and according to the books and records as produced and examined by us, in our opinion, undisputed statutory dues including provident fund, investor education and protection fund, employee's state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess and other material statutory dues applicable to the Company have generally been regularly deposited with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty, excise duty and cess were in arrears, as at 30th June 2011 for a period of more than six months from the date they became payable except Income Tax Rs.97.35 Lacs, Fringe Benefit Tax Rs 0.24 Lacs, TDS Rs.9.27 Lacs, MVAT Rs.2.05 Lacs, Listing Fees Rs.2.95 & MCA Filing Fee Rs.71.03 Lacs.

b. As at 30th June 2011, according to the records of the Company and the information and explanations given to us, the following are the particulars of disputed dues on account of excise duty and cess matters, commercial tax and income tax that have not been deposited:-

Name of the Name of the Amount Period to Forum where pending statute dues (Rs. In which the Lacs) amounts release

Commercial Commercial 15.66 2004-05 Sales Tax Applellate

Tax&CST Tax&CST 30.74 2005-06 Tribunal Additional Bench

120.45 2006-07 Palakkad Kerala

10. The Company does not have accumulated losses as at the end of the financial year. There are no cash losses during the financial year under report and in the immediately preceding financial year.

11. In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to any financial institution or bank during the period. There are no debenture holders in the company.

12. In our opinion and according to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company does not fall within the category of Chit fund / Nidhi / Mutual Benefit fund / Society and hence the related reporting requirements of the Order are not applicable.

14. According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments and hence the related reporting requirements of the Order are not applicable.

15. In our opinion and according to the information and explanations given to us, the Company has not given guarantees for loans taken by others from bank or financial institutions.

16. Company has not taken any term loan from any banks or Financial Institutions.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the Company has used no funds raised on short-term basis for long-term investment.

18. The Company has not made preferential allotment of shares to parties covered in the Register maintained under Section 301 of the Companies Act, 1956 during the financial year,

19. The company has not issued debentures; hence question of creation of securities does not arise.

20. Management has disclosed the end use of money raised by way of GDRs registered with Luxemburg Stock Exchange (underlying companies Shares). The details issue and its end use as disclosed by the management is given below:

GDR Issue Launched on 4th August 2010 & 6th June 2011

TotalNoofGDR's 1090780 & 2946666

Total Amount Raised_:Rs 136.72 Crores

No. of Shares underlying each GDR : 32723400 & 88399980

Fund Utilization

Issue Expenses_: Rs.2.62 Crores

Investment for Mining Operations: Rs.9.70 Crores

Investment for Integrated Steel Unit Rs.0.44 Crores

For Expansion : Rs.0.67 Crores

Investment / Advances in Subsidiary : Rs.33.06 Crores

Unutilsed Money Kept with Foreign Bank : Rs.90.23 Crores

21. During the course of our examination of the books and records of the Company carried out in accordance with the generally accepted auditing practices in India, we have neither come across any instance of fraud on or by the Company, noticed and reported during the year, nor have we been informed of such case by the management.

For SUNIL JOHR1 & ASSOCIATES For MAHADEVAN & SIVARAJAN

CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS

FRN 005960 C FRN006388S

Sd/- Sd/-

(SUNIL JOHRI) (P. SIVARAJAN)

PARTNER PARTNER

M. No. 074654 M. No. 200652

PLACE: PALAKKAD PLACE: PAL AKK AD

DATE:21/11/2011 DATE:21/11/2011


Jun 30, 2010

1) We have audited the attached balance sheet of M/s Southern Ispat & Energy Limited (Formerly Southern Ispat Limited)., as at 30th June 2010 and also the Profit & Loss A/c and the Cash Flow Statement for the 15 Months period ended on that date annexed thereto. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2) We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting that 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) Our comments on above accounts are given in ANNEXURE -1

4) As required by the Companies (Auditors Report) Order, 2003 including Companies (Auditors Report) (Amendment) Order 2004 issued by the Central Government of India in terms of Sub-section (4A) of section 227 of the companies Act, 1956, we enclose in the Annexure-II, a Statement on the matters specified in paragraphs 4 & 5 of the said order.

5) Further to our comments in the Annexures referred to above, we report that :-

1. 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.

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

3. The Balance sheet and profit & loss account and cash flow statement dealt with this report are in agreement with the books of account.

4. In our opinion the Balance Sheet and Profit & Loss account dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211of the companies Act, 1956.

5. On the basis of written representation received from the Directors, as on 30th June 2010, and taken on record by the Board of Directors, we report that none of the Directors are disqualified as on 30"1 June 2010 from being appointed as a Directors in terms of Clause (g) of sub-section (1) of section 274 of the companies Act, 1956.

6. In our opinion and to the best of our information and according to the explanations given to us, and the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.

a. In the case of balance sheet, of the state of affairs of the company as at 30th June 2010.

b. In the case of profit & loss account, of the Profit for the period ended on that date; and

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

ANNEXUREIREFFERED TO IN PARAGRAPH (3) OF OUR REPORT OF EVEN DATE ON THE ACCOUNTS OF SOUTHERN ISPAT & ENERGY LIMITED (FORMERLY KNOWN AS SOUTHERN ISPAT LIMITED) FOR THE 15 MONTHS PERIOD ENDED ON 30-06-2010.

1. Note No. 4 regarding non-confirmation of Banks, Sundry Debtors, Sundry Creditors, Loan & Advances and other Personal Accounts and effects thereof, if any.

2. Note No. 14 Regarding non-provision of liabilities if any as required under the Micro, Small and Medium Enterprises Development Act, 2006.

3. Accounting Policy No. (L) regarding non-provision of retirement benefits which is at variance with AS15 issued by the Institute of Chartered Accountants of India.

ANNEXUREIIREFFERED TO IN PARAGRAPH (4) OF OUR REPORT OF EVEN DATE ON THE ACCOUNTS OF SOUTHERN ISPAT & ENERGY LIMITED (FORMERLY KNOWN AS SOUTHERN ISPAT LIMITED) FOR THE 15 MONTHS PERIOD ENDED ON 30-06-2010

1 a. In respect of fixed assets, the company has maintained records showing full particulars including quantitative details and situation in most cases of such assets.

b. As explained to us, the assets have been physically verified by the management, in accordance with the established system of periodical verification of fixed assets once in 2/3 months. In our opinion, the frequency of verification is reasonable, considering the size of the operations of the company. No material discrepancies between the book records and the physical records were noticed in respect of the assets physically verified.

c. In our Opinion the company has not disposed off any of the fixed assets during the financial year and the question of affecting the going concern does not arises.

2. a. As explained to us, the inventory of the company has been physically verified during the financial year by the management. In respect of materials lying with third parties, they have substantially confirmed these. In our opinion the frequency of verification is reasonable.

b. According to the information and explanations given to us, in our opinion, the procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. In our opinion, it would be preferable if verification were made by persons who do not have responsibility for custody.

c. On the basis of our examination of records of inventory, in our opinion, the Company has maintained proper records of inventory and the discrepancies noted on physical verification between the physical stocks and book records were not material, having regard to the size of the operations of the company.

3. a. In our opinion and according to the information and explanations given to us, the Company has not granted unsecured loans to Companies & firms or other parties covered in the register maintained under section 301 of the Company Act, 1956.

b. As per point stated in para (a) above para 4(111) (b) (c) & (d) of said Orders are not applicable.

c. The Company has taken loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301of the companies act, 1956. Total number of parties is 2 and amount involved (maximum outstanding during the year) is Rs. 5.80 Lacs and year- end balance is Rs 2.90 Lacs.

d. In our opinion the rate of interest and other terms and condition on which loan have been taken from the parties listed in the register maintained under section 301 of the companies act, 1956 are not prima facie prejudicial to the interest of the company.

e. In our opinion and according to the information and explanations given to us, company has been paying principal and interest amount on secured loan. In respect of unsecured loan the terms of repayment have not been stipulated, therefore we have not made any comments.

4. In our opinion and according to the information and explanations given to us, having regard to the explanations that some of the items purchased are of a special nature and suitable alternative sources do not exist for obtaining comparable quotations. There are adequate internal control procedures commensurate with the size of the company and the nature of its business with regard to purchase of inventory, fixed assets and with regard to the sale of goods & services. Further, on the basis of our examination, and according to the information and explanations given to us, we have neither come across nor have we been informed of any instance of major weaknesses in the aforesaid internal control procedures.

5. a) According to information and explanations given transactions that need to be entered in the register maintained in pursuance of Section 301 of the Act has been entered.

b) All the above transactions are made at prices which are reasonable having regard to prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us the Company has not accepted any deposits during the year from the Public within the meaning of Section 58A and 58AA of the Companies Act and the rules framed there under.

7. In our opinion, the Company should maintain an internal audit system.

8. Company has not maintained cost records under Section 209 (1) (d) of the Companies Act 1956 as prescribed by the Central Government.

9. a. According to the information and explanations given to us and according to the books and records as produced and examined by us, in our opinion, undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cess and other material statutory dues applicable to the Company have generally been regularly deposited with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty, excise duty and cess were in arrears, as at 30lh June 2010 for a period of more than six months from the date they became payable except as mentioned below:

S. No. Nature of Dues Year (Rs in Lacs)

1 Income Tax A.Y.2009-10 13.69

2 Fringe Benefit Tax A.Y.2009-10 0.24

3 Tax Deducted at Source A.Y.2009-10 0.76

4 MVAT F.Y.2009-10 0.99

b. As at 30th June 2010, according to the records of the Company and the information and explanations given to us, the following are the particulars of disputed dues on account of excise duty and cess matters, commercial tax and income tax that have not been deposited:-

Name of the Nature of the Amount statute dues (Rs. In Lacs)

Commercial Commercial 15.66 Tax & CST Tax & CST

Commercial Tax Commercial Tax 168.42 165.54

Name of the Period to which Forum where statue the amounts release pending

Commercial Tax & CST 2004-05 Sales Tax Appelate Tribunal Additional Bench Palakkad, Kerala

Commercial Tax 2005-06 Deputy Commissioner 2006-07 Appeals Commercial Taxes, Ernakulam

10. The Company does not have accumulated losses of more than 50% of its net worth as at 30thJune, 2010 and has not incurred cash losses during the financial year ended on the date or in the immediately preceding financial year.

11. In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to any financial institution or bank during the period. There are no debenture holders in the company.

12. In our opinion and according to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The provisions of any special statute as applicable to Chit Fund/Nidhi/Mutual Benefit Fund/Societies are not applicable to the Company.

14. In our opinion and according to the information and explanations given to us, the Company is not a dealer or trader in securities.

15. In our opinion and according to the information and explanations given to us, the Company has not given guarantees for loans taken by others from bank or financial institutions.

16. Company has not taken any term loan from any banks or Financial Institutions.

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

18. The Company has not made preferential allotment of shares to parties covered in the Register maintained under Section 301 of the Companies Act, 1956 during the Financial year,

19. The company has not issued debentures; hence question of creation of securities does not arise.

20. Company has granted share warrants in respect of the Companys Equity Share Capital as follows :

a. To Promoters .On 22nd July 2009, 50,00,000 Share Warrants @ Premium of Rs 5/- with an option for conversion within 18 Months against which company has received a sum of Rs 2,61,50,000.00 (Rupee Two Crores Sixty one Lacs Fifty Thousand only) till Balance sheet date.

b. To Non Promoters: On 27th May 2010, 1,00,00,000 Share Warrants @ Premium of Rs. 22/- with an option for conversion within 18 Months against which company has received a sum of Rs. 8,00,00,000.00 (Rupee Eight Crores only ) till Balance sheet date.

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

For SUNIL JOHRI & ASSOCIATES For MAHADEVAN & SIVARAJAN

Chartered Accountants Chartered Accountants

FRN. 005960 C FRN. 006388 S

Sd/- Sd/-

(SUNIL JOHRI) (P. SIVARAJAN)

Partner Partner

Membership No. 074654 Membership No. 200652

Place : Palakkad Date : 27.11.2010

 
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