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Auditor Report of Vardhman Polytex Ltd.

Mar 31, 2016

INDEPENDENT AUDITORS'' REPORT

To The Members of Vardhman Polytex Limited

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of Vardhman Polytex Limited ("the Company"), which comprise the balance sheet as at March 31, 2016, 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 Standalone Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial control, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these standalone 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 issued by the Institute of Chartered Accountants of India, as 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 standalone financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the standalone financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the standalone 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 standalone financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the standalone 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 standalone financial statements.

Basis for Qualified Opinion

1. During the year ended March 31, 2015, the Company had transferred land used for real estate development from fixed assets into stock in trade as explained in note 37 of the financial statements. This is at variance with Accounting Standard AS-2 ''Valuation of Inventories'' and Accounting Standard AS-10 ''Accounting for Fixed Assets'', specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This has resulted in overstatement of cost of development by Rs.2,958.51 lakh and overstating other income by an amount of Rs.3,050.17 lakh during the year ended March 31, 2016.

2. No provision has been made on the investment and loans and advances made in one of the subsidiary company F.M. Hammerle Textiles Limited of Rs. 9,126.41 lakh and Rs. 2,662.93 lakh respectively whose net worth has been completely eroded and having a loss of Rs. 15,452.51 lakh against share capital of Rs. 12,386.75 lakh as on March 31, 2016. This is at variance with Accounting Standard AS-13 ''Accounting for Investments'' specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014). This has resulted in profit for the year ended March 31, 2016 being overstated and investments, loans and advances and reserves and surplus being overstated by the same amount at March 31, 2016.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the matter described in the basis for Qualified Opinion paragraph above, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2016, and its profit and its cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements

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

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

a. We have sought and, except for the possible effect of the matters described in the Basis for Qualified Opinion paragraph above, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the aforesaid standalone financial statements;

b. In our opinion, except for the effect of the matters described in the Basis for Qualified Opinion paragraph above, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

c. The balance sheet, the statement of profit and loss, and the cash flow statement dealt with by this Report are in agreement with the books of account;

d. In our opinion, except for the effect of the matters described in the Basis for Qualified Opinion paragraph above, the aforesaid standalone 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 written representations received from the directors as on March 31, 2016 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2016 from being appointed as a director in terms of Section 164 (2) of the Act;

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

g. The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above;

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

i. The Company has disclosed the impact of pending litigations as at March 31, 2016 on its financial position in its standalone financial statements - Refer Note 28 & 29 to the standalone financial statements;

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

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

Annexure A to the Independent Auditor''s Report to the members of Vardhman Polytex Limited on its standalone financial statements dated May 30, 2016

Report on the matters specified in paragraph 3 of the Companies (Auditor''s Report) Order, 2016 ("the Order'') issued by the Central Government of India in terms of section 143(11) of the Companies Act, 2013 ("the Act") as referred to in paragraph 1 of ''Report on Other Legal and Regulatory Requirements'' section

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

(b) All fixed assets have not been physically verified by the management during the year but there is a regular program of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification.

(c) According to the information and explanations given by the management, the title deeds of immovable properties included in property, plant and equipment/ fixed assets are held in the name of the company except for one case of immovable property of leasehold land costing Rs. 136.77 lakh out of Rs. 1,969.35 lakh (freehold/leasehold) as at March 31, 2016 for which during the year, Maharashtra Industrial Development Corporation has asked the Company to surrender and vacate the possession of this land, as the management has decided not to set up the factory on such land.

ii. The inventory has been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable. No material discrepancies were noticed on such physical verification. In respect of inventories lying with third parties we have relied on the confirmations given by such parties as at year end and no material discrepancies were noticed in respect of such confirmations.

iii. (a) The Company has granted loan to one of its subsidiary company covered in the register maintained under section 189 of the Act. In our opinion and according to the information and explanations given to us, the terms and conditions of this loan is not prejudicial to the Company''s interest.

(b) The above loan is re-payable on demand as agreed. In respect of this loan, we are informed that the company has not demanded repayment of such loan, thus there is no default on repayment of such loan. In respect of interest on such loan, the company has charged interest for the period 1^st April 2015 to 30^th June 2016 and waived interest for the balance period -31^st March 2016 as approved vide its Board Meeting dated May 30, 2016.

iv. As per the information and explanations given to us and on the basis of our examination of the records, the Company has complied with provision of section 185 and 186 of the Act, except for a loan given to its subsidiary covered under section 186 of the Act, where interest has been charged for part of the year from 1^st April 2015 to 30^th June 2015 and waived for the balance period -31st March, 2016 as approved vide its Board Meeting dated May 30, 2016.

Name of the statute	Nature of dues	Period to which it pertains	Amount in dispute (Rs. in lakh)	Forum where the dispute is pending	Amount deposited (Rs. in lakh)	Matter of dispute
Central Excise Act, 1944	Excise Duty	2006-09	4.63	The Commissioner of Central Excise, Chandigarh	-	Interest on cenvat credit taken wrongly duly reversed thereafter.
Central Excise Act, 1944	Excise Duty	2004-05	28.92	CESTAT, New Delhi	-	Cenvat credit on input has been reversed.
Central Excise Act, 1944	Excise Duty	1997-98 & 2004-05	42.34	Hon''ble Punjab & Haryana High Court, Chandigarh	42.34	Difference on account of loose and packed yarn
Central Excise Act, 1944	Excise Duty	2004-05	14.75	Joint Secretary, New Delhi	13.85
Central Excise Act, 1944	Excise Duty	2009-10	89.07	Chief Commissioner of Central Excise, Ludhiana	-
Central Excise Act, 1944	Excise Duty	2009-10	1.82	Chief Commissioner of Central Excise, Ludhiana
Finance Act, 1994	Service tax	2004 -05, 2005-06 and 2006-07	14.11	Additional Commissioner of C.E., Ludhiana	1.91	Service Tax on overseas commission
Income Tax Act, 1961	Income tax	AY 1998-99 to 2002-2003, 2007-2008, 2008-2009, 2011-2012	594.89	CIT (Appeals), Ludhiana	92.11	Disallowance of deduction under section 80HHC & 80M Disallowance of Interest u/s 36(1)(iii) for investment in subsidiary companies and interest disallowance u/s 14A.
Income Tax Act, 1961	Income tax	AY 2003-2004, 2004-2005, 2005-2006, 2006-2007,	162.70	ITAT, Bench Chandigarh	32.98	Disallowance of deduction under section 80HHC & 80M.
Income Tax Act, 1961	Income tax	AY 1998-99 to 2001-2002,	218.08	Hon''ble Punjab & Haryana High Court, Chandigarh	120.00	Disallowance of Interest u/s 36(1)(iii) & as revenue expenditure or capital expenditure though matter decided by Hon''ble SC in our favor and levy of interest u/s 234 D, Disallowance u/s 14-A.
Punjab General Sales Tax Act, 1948	Punjab Vat	2000-01, 2001-02	17.61	DETC Appeal	5.10	Incremental production in respect of additional fixed capital investment.
Punjab General Sales Tax Act, 1948	Punjab Vat	2005-06, 2006-07	0.48	DETC, Patiala	0.38
Punjab General Sales Tax Act, 1948	Punjab Vat	2003-04	0.51	Assistant Commissioner Sales Tax, Ludhiana		Difference on account of job charges under service tax and excise
Wealth Tax Act, 1957	Wealth Tax	AY 1998-99	2.11	ITAT, Chandigarh	-	Dispute on valuation of land

v. As the Company has not accepted deposits, the directives issued by the Reserve Bank of India and the provisions of section 73 to 76 or any other relevant provisions of the Act and the rules framed there under, are not applicable.

vi. We have broadly reviewed the books of account maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 148(1) of the Act and are of the opinion that prima facie, the specified accounts and records have been made and maintained by the Company, However, we are not required to make a detailed examination of such accounts and records.

vii. (a) According to the information and explanations

given to us, undisputed statutory dues including provident fund, employees'' state insurance, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, value added tax, cess and other material statutory dues have generally been regularly deposited with the appropriate authorities.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees'' state insurance, income-tax, wealth-tax, service tax, sales-tax, customs duty, excise duty, value added tax, cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us and the records of the company examined by us, there are no dues of duty of customs and value added tax which have not been deposited on account of any dispute except the following dues of income-tax, sales-tax, wealth-tax, service tax and excise duty along with the forum where the dispute is pending:

viii. In our opinion, and according to the information and explanations given to us, we report as follows:

The Company has defaulted in repayment of dues to financial institutions/banks in respect of various loans and interest aggregating Rs. 5,825.88 lakh (with delays ranging from 1 to 59 days) were delayed and either paid during the current financial year or subsequently. Principal and interest aggregating to Rs. 1,083.33 lakh are outstanding as on balance sheet date and paid subsequently by 27^th May, 2016.

The Company has defaulted in repayment borrowing and premium on Foreign Currency Convertible Bonds (payable to Bank), amounting to Rs. 862.94 lakh and was outstanding as at balance sheet date .

ix. In our opinion, and according to the information and explanations given to us, the company has not raised any monies by way of initial public offer or further public offer or term loan during the financial year, hence the related reporting requirement of the Order are not applicable.

x. Based upon the audit procedures performed for the purpose of reporting the true and fair view of the standalone financial statements and according to the information and explanations given by the management, we report that no fraud by the Company or no fraud on the Company by the officers and employees of the Company has been noticed or reported during the year.

xi. According to the information and explanations given by the management, the managerial remuneration has been paid / provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act.

xii. In our opinion, the Company is not a Nidhi Company.

Therefore, the provisions of clause 3(xii) of the order are not applicable to the Company and hence not commented upon.

xiii. According to the information and explanations given by the management, transactions with the related parties are in compliance with section 177 and 188 of Act, where applicable and the details have been disclosed in the notes to the financial statements, as required by the applicable accounting standards.

xiv. According to the information and explanations given to us and on an overall examination of the balance sheet, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and hence, reporting requirements under clause 3(xiv) are not applicable to the Company and, not commented upon.

xv. According to the information and explanations given by the management, the Company has not entered into any non-cash transactions with directors or persons connected with him as referred to in section 192 of Act.

xvi. According to the information and explanations given to us, the provisions of section 45-IA of the Reserve Bank of India Act, 1934 are not applicable to the Company.

Annexure B to the Independent Auditor''s Report to the Members of Vardhman Polytex Limited (''the Company'') on its standalone financial statements dated May 30, 2016

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

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

Management''s Responsibility for Internal Financial Controls

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

Auditor''s Responsibility

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

An audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the internal financial controls over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

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

Inherent Limitations of Internal Financial Controls over Financial Reporting

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

Qualified Opinion

According to the information and explanations given to us and based on our audit, the following material weakness has been identified in the operating effectiveness of the Company''s internal financial controls over financial reporting as at March 31, 2016.

The Company''s internal financial controls over evaluation and assessment of recoverability including any provision to be made there against in respect of investments made in subsidiaries and loans/advances given to subsidiaries were not operating effectively which could potentially result in the Company not recognizing sufficient provision there against.

A ''material weakness'' is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company''s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, the Company has, in all material respects, maintained adequate internal financial controls over financial reporting as of March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal controls stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India, and except for the possible effects of the material weakness described above on the achievement of the objectives of the control criteria, the Company''s internal financial controls over financial reporting were operating effectively as of March 31, 2016.

For S.S. KOTHARI MEHTA & CO

Chartered Accountants

Firm Registration No. 000756N

Sd/-

Sunil Wahal

Place: New Delhi Partner

Date: May 30, 2016 Membership No: 087294

Mar 31, 2015

We have audited the accompanying standalone financial statements of Vardhman Polytex Limited ("the Company"), which comprise the balance sheet as at March 31,2015, the statement of profit and loss, the cash flow statement, and a summary of significant accounting policies and other explanatory information for the year then ended.

Management's Responsibility for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with 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 the design, implementation and maintenance of adequate internal financial control, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these standalone 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 provision of the Act and Rules made thereunder.

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

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the financial statements that give a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements.

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

Basis for qualified opinion

1. During the financial year ended 31st March 2015 the Company has transferred land used for real estate development from fixed assets into stock in trade (refer note 39 to the financial statements). The transfer was done at the rate as assessed by the management of the Company thereby crediting an amount of Rs. 4,076.02 lacs to 'Capital Reserve' being excess of rate as assessed over cost price. The income from real estate transactions have been accounted on percentage completion method as per revised guidance note "Accounting for Real Estate transactions (Revised 2012)" as prescribed by Institute of Chartered Accountants of India. The Company has transferred amount from capital reserve to the Statement of Profit and Loss being an amount in proportion of revenue recognized under the percentage of completion method on entering into an agreement/ contract for sales. This is at variance with Accounting Standard (AS-2) 'Valuation of Inventories' and Accounting Standard (AS-10) 'Accounting for Fixed Assets', Specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014.This has resulted in overstating the reserves by an amount of Rs 3,050.17 lacs and overstating the current assets by Rs. 2,962.86 lacs as on March 31, 2015 and overstating of revenue by Rs. 398.66 lacs, overstating of cost of development by Rs.1,115.08 lacs and overstating other income by an amount of Rs. 1,025.85 lacs during the year ended March 31, 2015.

2. Do provision has been made for other than temporary diminution in the value of investment in one of the subsidiary company, FM Hammerle Textiles Limited (Formerly known as Oswal FM Hammerle Textiles Limited) of Rs. 9,126.41 lacs whose net worth has been completely eroded and having a loss of Rs. 13,020.97 lacs against share capital of Rs. 12,386.75 lacs as on March 31, 2015. This is at variance with Accounting Standard AS-13 'Accounting for Investments' Specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014, resulting in Loss for the year ended March 31, 2015 being understated by the same amount, investments and reserve and surplus being overstated by the same amount.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the matter described in the basis for qualified opinion paragraph above, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2015, and its loss and its cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order, 2015, ("the Order")issued by the Central Government of India in terms of section 143(11) of the Act , we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order.

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

(a) . We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

(b) . Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

(c) . The balance sheet, the statement of profit and loss, and the cash flow statement dealt with by this Report are in agreement with the books of account;

(d) . Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, In our opinion, the aforesaid standalone 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 written representations received from the directors as on March 31, 2015 taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2015 from being appointed as a director in terms of Section 164 (2) of the Act.

(f) . The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.

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

i. The Company has disclosed the impact of pending litigations as at March 31, 2015 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; and

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 THE INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF VARDHMAN POLYTEX LIMITED

The Annexure referred to in our Independent Auditor's Report to the Members of the Company on the standalone financial statements for the year ended 31 March 2015, we report that:

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

(b) The Company has a program of physical verification of fixed assets that covers every item of fixed assets over a period of three years. In our opinion, this periodicity and manner of physical verification is reasonable having regard to the size of the Company and the nature of its assets. The fixed assets of the Company have not been physically verified by the Management during the year.

ii. (a) The physical verification of inventory has been

conducted at reasonable intervals during the year by the management.

(b) 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, discrepancies noticed on physical verification of inventory as compared to book records were not material, and have been dealt with in the books of accounts.

iii. (a) The Company has granted unsecured loans to one of its subsidiary company covered in the register maintained under Section 189 of the Act. The maximum balance outstanding during the year was amounting of Rs. 3,591.33 lacs. The year-end balance of such loan is Rs. 3,292.71 lacs. In respect of loans granted, repayment of the principal amount is as stipulated and payment of interest has been regular, we were explained that this loan is repayable on demand and, therefore, there are no overdue amounts at the year end (b) Based on our audit procedures and the information and explanations made available to us, in case where overdue amount is more than rupees one lakh, reasonable steps have been taken by the Company for recovery of the principal and interest.

iv. According to the information and explanations given to us, there seems to be 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. The activities of the Company do not involve rendering of services. During the course of our audit, we have not observed any major weakness or continuing failure to correct any major weakness in the internal control system of the company in respect of these areas.

v. During the current year the Company has paid all its deposits and has not accepted any further deposits. The Company has complied the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules framed there under.

vi. The Central Government of India has not specified the maintenance of cost records under sub-section (1) of Section 148 of the Act for any of the products of the Company

vii (a) According to the information and explanations given to us, undisputed statutory dues including provident fund, employees' state insurance, income-tax, sales-tax, wealth- tax, service tax, customs duty, excise duty, value added tax, cess and other material statutory dues have generally been regularly deposited with the appropriate authorities.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees' state insurance, income-tax, wealth-tax, service tax, sales-tax, customs duty, excise duty, value added tax, cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us and the records of the company examined by us, there are no dues of Cess and Custom duty which have not been deposited on account of any dispute except the following dues of income-tax, sales-tax, wealth-tax, service tax and excise duty along with the forum where the dispute is pending:

Name of the Nature of Period to which Amount statute dues it pertains in dispute (Rs. In Lakhs)

Central Excise Duty 2006 - 09 4.63 Excise Act

Excise Duty 2004 - 05 28.92

Excise Duty 1997 - 98 & 42.34 2004 - 05

Excise Duty 2004 - 05 14.75

Excise Duty 2009 - 10 89.07

Excise Duty 2009 - 10 1.82

Service Tax Service tax 2004 - 05, 14.11 Act 2005 - 06 and 2006 - 07

Income Tax Income tax AY 1998-99- 558.76 Act 2002 - 2003,

2004 - 2005, 2005 - 2006, 2011 - 2012

Income tax AY 2003 -2004, 139.39 2004- 2005, 2006-2007, 2008- 2009

Income tax AY 1998 - 99 to 204.36 2002 - 2003

Punjab Punjab Vat 2000 - 01, 17.61 General 2001 - 02 Sales Tax Act Punjab Vat 2005 - 06, 0.48 2006 - 07 Punjab Vat 2003 - 04 0.51

Wealth Tax Wealth Tax A.Y. 1998 - 99 2.11 Act

Name of the Forum Amount Matter of statute where deposited disputed dispute is pending

Central The Commissioner - Interest on cenvat Excise Act of Central Excise , credit taken Chandiarh wrongly duly reversed thereafter.

CESTAT, New Delhi - Cenvat credit on input has been reversed.

Hon'ble Punjab & 42.34 Difference on Haryana High Court, account of loose Chandigarh and packed yarn

Joint Secretary, 13.85 New Delhi

Chief Commissioner of - Central Excise, Ludhiana

Chief Commissioner of - Central Excise, Ludhiana

Service Tax Additional Commissioner 1.05 Service Tax on Act of C.E., Ludhiana Overseas commission

Income Tax CIT (Appeals), Ludhiana 92.11 Disallowance of Act deduction under section 80HHC & 80M, Disallowance of Interest 6Tu/s 36(1)(iii) for investment in subsidiary companies, computation u/s 14A, Interest disallowance on advances to subsidiary companies u/s 36(1)(iii)

ITAT, Chandigarh 32.98 Disallowance of deduction under section 80HHC & 80M.

Hon'ble Punjab & 120.00 Disallowance of Haryana High Court, Interest u/s 3 6(1) Chandigarh (i i i) &as revenue expenditure or capitalexpenditure though matter decided by Hon'ble SC in our favor and levy of interest u/s 234 D, Disallowance u/s 14-A.

Punjab DETC Appeal 5.10 Incremental General production in Sales Tax Act DETC, Patiala 0.38 respect of additional fixed capital investment.

Assistant Commissioner - Difference on Sales Tax, Ludhiana account of job charges under service tax and excise

Wealth Tax ITAT, Chandigarh - Dispute on Act valuation of land

(d) According to the information and explanation given to us the company is not required to transfer any amount to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder within time.

viii. The company has accumulated losses less than fifty percent of its net worth as at the end of the financial year. The company has incurred cash losses in the current financial year but not in the immediately preceding financial year.

ix. According to the information and explanations given to us, up to 31st December 2014 the Company had defaulted in repayment of dues to financial institutions/banks in respect of various loans and interest aggregating to Rs. 4,924.54 lacs (with delay ranging from 1 to 70 days) were paid during the current financial year.

x. As per the information and explanations given to us and on the basis of our examination of the records, the Company has given a corporate guarantee in favor of bankers of the subsidiary company. The term and conditions of such guarantee are prima facie, not prejudicial to the interest of the company.

xi. In our opinion and on the basis of information and explanations given to us, the term loans raised during the year by the Company have been applied for the purpose for which the said loans were obtained, where such end use has been stipulated by the lender.

xii. 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 or reported during the year, nor have we been informed of such case by the management.

For S. S. KOTHARI MEHTA & CO Chartered Accountants Firm Registration No. 000756N

Sd/-

(Sunil Wahal) Place: New Delhi Partner Date: 25th May, 2015 Membership No: 087294

Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of Vardhman Polytex Limited ("the Company") which comprise the Balance Sheet as at March 31, 2013, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s responsibility for the Financial Statements

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

Auditors'' Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Basis for Qualified Opinion

No provision has been made for investment made (net) in one of the subsidiary companies Oswal Industrial Enterprise Private Limited of Rs. 4,501 lac whose net worth is substantially eroded, the company having accumulated losses of Rs. 4,425.76 lac against share capital of Rs. 5,005 lac. This is at variance with Accounting Standard AS-13 ''Accounting for Investments'' notified under the Companies (Accounting Standards) Rules, 2006 resulting in profit for the year, investments and reserves and surplus being overstated by the same amount.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the matter described in the Basis for Qualified Opinion paragraph, the financial statement 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 Balance Sheet, of the state of affairs of the Company as at March 31, 2013;

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

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

Emphasis of Matter

We draw attention to note no. 13 of the financial statements wherein the company has made investment in the equity shares of its subsidiary company Oswal F.M. Hammerle Textiles Limited, whose net worth is substantially eroded. We understand from the management that the investment is long term strategic in nature and the erosion in net worth is due to slump in the textile sector; this being a temporary phenomenon, the net worth will revive in the near future. We have not qualified our opinion in respect of this matter.

Report on other Legal and Regulatory Requirements

1) As required by the Companies (Auditors'' Report) Order, 2003 ( the Order ), issued by the Central Government of India in terms of Section 227(4A) of the Act, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the 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 so far as appears from our examination of those books;

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

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

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

Annexure to the Independent Auditors'' Report

(Referred to in Paragraph 1 under the heading of "Report on other Legal and Regulatory Requirements" of our report of even date)

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

(b) Verification of the fixed assets is being conducted by the management based on a programme designed to cover all assets over a period of three years which, in our opinion, is reasonable having regard to the size of the company and nature of its business. The discrepancies noticed on physical verification of fixed assets as compared to books records were not material and have been properly dealt with in the books of account.

(c) There was no disposal of a substantial part of fixed assets during the year; however during the year, company has sold major assets at one of the units namely Anshupati Textiles, Ludhiana. It has no impact on the going concern assumption.

2. (a) The inventory has been physically verified during the year by the management at all its locations, except stocks lying with third parties and in transit, which have been verified with reference to correspondence of third parties or subsequent receipt of goods. In our opinion, the frequency of such verification is reasonable.

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

(c) In our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material and have been properly dealt with in the books of account.

3. (a) As informed to us, the Company has not granted any loan, secured or unsecured, to companies, firms or other parties covered in the register maintained under section 301 of the Act. Accordingly, clauses 4 (iii) (b) to (d) of the Order are not applicable.

(b) The Company has taken loans (including public deposits) from seven parties including two directors, four relatives of the directors and a company covered in the register maintained under section 301 of the Act. The maximum amount involved during the year in respect of such parties and the year end balance of such loans are Rs. 87.00 lac and Rs. 87.00 lac respectively.

(c) In our opinion and according to the information and explanations given to us, the rate of interest and other terms & conditions on which loans have been taken are not, prima facie, prejudicial to the interest of the company.

(d) In our opinion and according to the information and explanations given to us, the Company is regular in repayment of principal together with interest as per terms of arrangement. There is no overdue amount as at the end of the year.

4. In our opinion, and according to the information and explanations given to us during the course of audit, there are adequate internal control systems commensurate with size of the Company and the nature of its business with regard to purchase of inventory and fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books & records of the company, carried out in accordance with the generally accepted auditing practices in India, we have neither come across nor have we been informed of any instance of major weaknesses in the aforesaid internal control systems.

5. (a) Based upon the audit procedures applied by us and according to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Act have been entered in the register required to be maintained under that section.

(b) In our opinion, and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Act and aggregating during the year to rupees five lacs or more in respect of each party have been made at prices which are reasonable having regard to market prices for such transactions, prevailing at the relevant time, where such market prices are available.

6. In respect of fixed deposits accepted from the public, the provisions of section 58A and 58AA or any other relevant provisions of the Act including the Companies (Acceptance of Deposits) Rules, 1975 have been complied with. We have been informed that no order has been passed by Company Law Board or National Company Law Tribunal or RBI or any Court or any other Tribunal in this regard.

7. In our opinion, the Company has an in-house internal audit system commensurate with the size & nature of its business. However, it needs further improvement in terms of scope and coverage.

8. We have broadly reviewed the Cost accounting records, maintained by the Company pursuant to the Rules prescribed by the Central Government for the maintenance of cost records under clause (d) of sub- section (1) of section 209 of the Act and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We are, however, not required to make a detailed examination of such books and records.

9. (a) The Company is generally regular in depositing with appropriate authorities 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 it. However some delay is noticed in payment of Work Contract Tax.

10. The Company has accumulated losses as at the end of the current financial year which are less than fifty percent of the net worth. The company has not incurred cash losses in the current financial year but has incurred cash losses in the immediately preceding financial year.

11. In our opinion, on the basis of audit procedures and according to the information and explanations given to us, the company has not defaulted in repayment of dues to financial institution/banks except, in view of the debt restructuring approved under Corporate Debt Restructuring mechanism as stated in note no. 37 and read together with note no. 5 of the financial statements in which company has defaulted in payment of Foreign Currency Convertible Bonds borrowing and interest thereon amounting to Rs. 4613.80 lac and Rs. 849.40 lac respectively from the date of February 18, 2013 upto the date of issue of this report.

12. 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. The Company has given corporate guarantees for loans taken by others from banks, the terms & conditions of such guarantees are, prima facie, not prejudicial to the interest of the Company.

16. In our opinion, and according to the information and explanations given to us, the term loans raised during the year by the Company have been applied for the purpose for which the said loans were obtained, where such end use has been stipulated by the lender.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, the funds raised by the Company on short term basis have not been applied for long term investment.

18. The Company has made preferential allotment of shares to a company covered in the register maintained under section 301 of the Act, the price at which the shares have been issued is not, prima facie, prejudicial to the interest of the company.

19. The Company has not issued any debentures nor has any outstanding debentures during the year.

20. The Company has not raised any money through public issues during the year.

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 S.S. KOTHARI MEHTA & CO.

Chartered Accountants

Firm Regn. No.: 000756N

Sd/-

Place: Ludhiana (Arun K. Tulsian)

Date : 30th May, 2013 Partner

M. No. 089907

Mar 31, 2012

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

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

3. As required by the Companies (Auditors' Report) Order, 2003 as amended by the Companies (Auditors' Report) (Amendment) Order, 2004 (collectively the Order) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to information and explanation given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. 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;

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

iv) In our opinion, the Balance Sheet, Statement of Profit & Loss 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 except variance with Accounting Standard AS-13 as mentioned in clause (vii) below;

v) On the basis of written representations received from the directors as on March 31, 2012 and taken on record

by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2012 from being appointed as a director in terms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956;

vi) Without qualifying our opinion, we draw attention to note no. 13 to the financial statements where in the company has made investment in the equity shares of its subsidiary company Oswal F. M. Hammerle Textiles Limited, whose net worth is partly eroded. We understand from the management that the investment is long term strategic in nature and the erosion in net worth is due to slump in the textile sector; this being a temporary phenomenon, the net worth will revive in the near future.

vii) No provision has been made for investment made in one of the subsidiary companies Oswal Industrial Enterprise Pvt Limited of Rs. 4501 lacs whose net worth is substantially eroded, the company having accumulated losses of Rs. 4874.26 lacs against share capital of Rs. 5005.00 lacs. This is at variance with Accounting Standard AS-13 'Accounting for Investment' notified under the Companies (Accounting Standard) Rules, 2006 resulting in loss for the year being understated and investments and reserve and surplus being overstated by the same amount.

viii) Subject to the aforesaid clause (vii) above, In our opinion and to the best of our information and according to the explanations given to us, the said accounts read with the Accounting policies and Notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) In the case of Balance Sheet, of the state of affairs of the Company as at March 31, 2012;

b) In the case of Statement of Profit and Loss, 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 to the Auditors' Report

(Annexure referred to in paragraph 3 of our report of even date) Re: Vardhman Polytex Limited ('the Company')

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

(b) Verification of the fixed assets is being conducted by the management based on a programme designed to cover all assets over a period of three years, which, in our opinion, is reasonable having regard to the size of the company and nature of its business. Read with our comments in clause 1(a) above, there were no discrepancies noticed on such verification between the physical balances and fixed assets records.

(c) There was no disposal of a substantial part of fixed assets during the year; however during the year, company has temporarily shut down one of the units Anshupati Textiles, Ludhiana. It has no impact on the going concern assumption.

2. (a) The inventory has been physically verified during the year by the management at all its locations, except stocks lying with third parties and in transit, which have been verified with reference to correspondence of third parties or subsequent receipt of goods. In our opinion, the frequency of such verification is reasonable.

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

(c) In our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material and have been properly dealt with in the books of account.

3. (a) As informed to us, the Company has not granted any loan, secured or unsecured, to the companies, firms or other parties 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 Order are not applicable.

(b) The company has taken loans (including public deposits) from two directors and four relatives of the directors covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year in respect of such parties and the year end balance of such loans are Rs. 196.00 lacs and Rs. 19.00 lacs respectively.

(c) In our opinion and according to the information and explanations given to us, the rate of interest and other terms & conditions on which loans have been taken are not, prima facie, prejudicial to the interest of the Company.

(d) In our opinion and according to the information and explanations given to us, the company is regular in repayment of principal together with interest as per terms of arrangement. There is no overdue amount as at the end of the year.

4. In our opinion, and according to the information and explanations given to us, there are adequate internal control systems commensurate with 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 services. During the course of our audit carried out in accordance with the generally accepted auditing practices in India, we have neither come across nor have we been informed of any instance of major weaknesses in the aforesaid internal control systems.

5. (a) Based upon the audit procedures applied by us and according to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that section.

(b) In our opinion, and according to the information and explanations given 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 aggregating during the year to rupees five lakhs or more in respect of each party have been made at prices which are reasonable having regard to market prices for such transactions, prevailing at the relevant time, where such market prices are available.

6. In respect of fixed deposits accepted from the public, the provisions of section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 including the Companies (Acceptance of Deposits) Rules, 1975 have been complied with. We have been informed that no order has been passed by Company Law Board or National Company Law Tribunal or RBI or any Court or any other Tribunal in this regard.

7. In our opinion, the Company has an internal audit system commensurate with the size & nature of its business. It needs further improvement in terms of scope and coverage.

8. We have broadly reviewed the Cost accounting records maintained by the Company pursuant to the Rules prescribed by the Central Government for the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We are, however, not required to make a detailed examination of such books and records.

9. (a) According to the records of the Company, 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 other material statutory dues, wherever applicable, have been generally regularly deposited with the appropriate authorities during the year and there are no such undisputed statutory dues outstanding as on the date of Balance Sheet for a period exceeding six months from the date they became payable.

(b) According to the information & explanations given to us and as per the books and records examined by us, there are no dues of Custom duty and Cess which have not been deposited on account of any dispute, except the following in respect of Income Tax, Wealth Tax, Excise Duty, Service Tax and Sales Tax along with the forum where dispute is pending:

Name of Nature Period to Amount the Statute of Dues which it in dispute pertains

Central Excise Act Excise Duty 1997-98 and 2004-05 42.34

Excise Duty 2004-05 14.75

Excise Duty 2009-10 89.07

Excise Duty 2009-10 1.82

Excise Duty 2008-09 103.20

Excise Duty 2006-09 4.63

Excise Duty 2010-11 70.79

2011-12

Excise Duty 2004-05 28.92

Excise Duty 2009-10 83.45

Income Tax Act Income Tax A.Y. 1998-99 to 34.50 2002-03, 2004-05

Income Tax A.Y 2003-04 49.60 & 2004-05

Income Tax A.Y 1992-93 & 86.63 93-94

Income Tax A.Y 1994-95 122.30 & 96-97

Punjab General Sales Punjab VAT 2005-06 1.48 Tax Act and 2006-07

Punjab VAT 2003-04 0.51

Wealth Tax Act Wealth Tax 1997-98 1.98

Finance Act 1994 Service Tax 09/07/04 to 31/03/07 13.52

Finance Act 1994

Name of the Statute Forum where dispute Amount Matter of dispute is Pending Deposited

Central Excise Act Hon'ble Punjab & Haryana Difference on account of High Court, Chandigarh 42.34 loose and packed yarn.

Joint Secretary, New Delhi 13.85

Chief Commissioner of Ã Central Excise, Ludhiana

The Commissioner of Central Ã Excise, Ludhiana

The Commissioner of Central Ã Rebate claim against export Excise, Chandigarh

The Commissioner of Central Ã Interest on Cenvat credit taken Excise, Chandigarh wrongly duly reversed thereafter. Joint Commissioner of Central Ã Case of demanding refund Excise, Chandigarh instead of Cenvat credit.

CESTAT, New Delhi Ã Cenvat credit on inputs has been reversed.

The Commissioner of Central Ã Case of demanding refund Excise (Appeal), Chandigarh instead of Cenvat credit

Income Tax Act CIT (Appeals), Ludhiana 34.10 Disallowance of expenditure under section 80M & 80 HHC.

ITAT, Chandigarh 30.26 Disallowance of deduction under section 80 HHC.

Hon'ble Supreme Court 82.91 Disallowance on account of taking interest u/s 36 (1) (iii) as revenue expenditure as capital expenditure.

Hon'ble Punjab & Haryana Ã Disallowance on account of High Court, Chandigarh taking interest u/s 36 (1) (iii) as revenue expenditure as capital expenditure.

Punjab General Sales Tax Act DETC, Patiala 0.38

Assistant Ã Difference on account of job Commissioner Sales charges under service tax

Tax, Ludhiana or excise act.

Wealth Tax Act ITAT, Chandigarh Ã

Finance Act 1994 CESTAT, New Delhi 0.50

10. The Company has accumulated losses which are less than fifty percent of the net worth as at the end of the financial year. The Company has incurred cash losses in the current financial year but has not incurred cash losses in the immediately preceding financial year.

11. According to the information and explanations given to us and as per the books and records examined by us, we report as follows:

(a) Amounts due in respect of Term Loans (TL)/Working Capital Term Loans (WCTL) from Banks on account of Principal & Interest aggregating Rs. 6420.04 Lacs (as per detail noted hereunder) were delayed and either paid during the financial year or subsequently. As explained by the management, the delays are attributable due to current year losses on the account of the fluctuations in cotton fibre and yarn prices.

(b) In respect of other amounts due to Banks aggregating to Rs. 680.64 Lacs (as per details noted hereunder), the payments have been delayed from 1 days to 120 days and are outstanding as on date.

Note: -

1. The details of amount reffered to in clause (a) above are as under:

- Allahabad Bank TL, 12 instances of Rs. 159.72 Lacs (Rs. 159.72 Lacs during the financial year and Rs. NIL subsequently) with delay ranging from 1 to 94 days.

- Punjab and Sind Bank WCTL, 7 instances of Rs. 87.60 Lacs (Rs. 87.60 Lacs during the financial year and Rs. NIL subsequently) with delay ranging from 1 to 87 days.

- Corporation Bank TL, 13 instances of Rs. 194.99 Lacs (Rs. 186.33 Lacs during the financial year and Rs. 8.66 Lacs subsequently) with delay ranging from 1 to 6 days.

- Bank of Maharashtra TL, 15 instances of Rs. 746.32 Lacs (Rs. 620.83 Lacs during the financial year and Rs. 125.49 Lacs subsequently) with delay ranging from 1 to 138 days.

- Bank of Baroda TL, 11 instances of Rs. 150.79 Lacs (Rs. 140.07 Lacs during the financial year and Rs. 10.72 Lacs subsequently) with delay ranging from 1 to 81 days.

- Canara Bank TL-1, 14 instances of Rs. 419.66 Lacs (Rs. 399.98 Lacs during the financial year and Rs. 19.68 Lacs subsequently) with delay ranging from 1 to 18 days.

- Canara Bank TL-2, 15 instances of Rs. 156.08 Lacs (Rs. 148.72 Lacs during the financial year and Rs. 7.36 Lacs subsequently) with delay ranging from 1 to 18 days.

- Canara Bank WCTL, 15 instances of Rs. 952.47 Lacs (Rs. 921.23 Lacs during the financial year and Rs. 31.24 Lacs subsequently) with delay ranging from 1 to 18 days.

- Bank of Baroda TL, 6 instances of Rs. 147.98 Lacs (Rs. 121.26 Lacs during the financial year and Rs. 26.72 Lacs subsequently) with delay ranging from 1 to 120 days.

- Jammu and Kashmir Bank TL, 4 instances of Rs. 90.55 Lacs (Rs. 90.55 Lacs during the financial year and Rs. Nil subsequently) with delay ranging from 1 to 93 days.

- United Bank of India TL, 4 instances of Rs. 27.44 Lacs (Rs. 18.34 Lacs during the financial year and Rs. 9.10 Lacs subsequently) with delay ranging from 1 to 113 days.

- State Bank of Patiala TL, 15 instances of Rs. 94.54 Lacs (Rs. 90.90 Lacs during the financial year and Rs. 3.64 Lacs subsequently) with delay ranging from 1 to 91 days.

- State Bank of India WCTL, 16 instances of Rs. 791.66 Lacs (Rs. 769.50 Lacs during the financial year and Rs. 22.16 Lacs subsequently) with delay ranging from 1 to 47 days.

- Punjab National Bank TL, 3 instances of Rs. 194.35 Lacs (Rs. 144.57 Lacs during the financial year and Rs. 49.78 Lacs subsequently) with delay ranging from 1 to 126 days.

- Punjab National Bank WCTL, 11 instances of Rs. 160.13 Lacs (Rs. 160.13 Lacs during the financial year and subsequently NIL) with delay ranging from 1 to 29 days.

- Axis Bank WCTL, 16 instances of Rs. 232.58 Lacs (Rs. 228.14 Lacs during the financial year and Rs. 4.44 Lacs subsequently) with delay ranging from 1 to 24 days.

- Bank of India WCTL, 5 instances of Rs. 44.59 Lacs (Rs. 44.59 Lacs during the financial year and Rs. NIL subsequently) with delay ranging from 1 to 88 days.

- Bank of India TL, 12 instances of Rs. 644.60 Lacs (Rs. 644.60 Lacs during the financial year and Rs. NIL subsequently) with delay ranging from 1 to 200 days.

- United Bank of India TL, 13 instances of Rs. 647.70 Lacs (Rs. 614.12 Lacs during the financial year and Rs. 33.57 Lacs subsequently) with delay ranging from 1 to 121 days.

- State Bank of Patiala TL, 15 instances of Rs. 56.50 Lacs (Rs. 55.51 Lacs during the financial year and Rs. 0.99 Lacs subsequently) with delay ranging from 1 to 89 days.

- State Bank of Patiala TL, 15 instances of Rs. 94.12 Lacs (Rs. 92.50 Lacs during the financial year and Rs. 1.62 Lacs subsequently) with delay ranging from 1 to 89 days.

- State Bank of Patiala WCTL, 15 instances of Rs. 325.67 Lacs (Rs. 306.95 Lacs during the financial year and Rs. 18.72 Lacs subsequently) with delay ranging from 1 to 91 days.

The Detail of amounts referred to in clause (b) above

- Allahabad Bank TL, 4 instances of Rs. 51.11 Lacs,

- Punjab and Sind Bank WCTL, 1 instances of Rs. 4.51 Lacs,

- Bank of Maharashtra TL, 1 instances of Rs. 33.99 Lacs,

- Bank of Baroda TL, 2 instances of Rs. 21.38 Lacs,

- Bank of Baroda TL, 2 instances of Rs. 52.80 Lacs,

- Jammu and Kashmir Bank TL, 2 instances of Rs. 47.44 Lacs,

- United Bank of India TL, 2 instances of Rs. 17.98 Lacs,

- State Bank of Patiala TL, 1 instances of Rs. 3.91 Lacs,

- Bank of India 4 instances of Rs. 64.12 Lacs,

- Bank of India 3 instances of Rs. 201.18 Lacs,

- United Bank of India 3 instances of Rs. 169.77 Lacs,

- State Bank of Patiala 1 instance of Rs. 1.07 Lacs,

- State Bank of Patiala 1 instance of Rs. 1.74 Lacs,

- State Bank of Patiala WCTL 1 instance of Rs. 9.64 Lacs.

12. 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. The Company has given corporate guarantees for loans taken by others from banks, the terms & conditions of such guarantees are, prima facie, not prejudicial to the interest of the Company.

16. In our opinion, and according to the information and explanations given to us, the term loans raised during the year by the Company have been applied for the purpose for which the said loans were obtained, where such end use has been stipulated by the lender.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, the funds raised by the Company on short term basis have been applied for long term investment to the extent of Rs. 18,180.55 lacs.

18. The Company has not made any preferential allotment of shares during the year to any parties or companies covered in the register maintained under section 301of the Companies Act, 1956.

19. The Company has not issued any debentures nor has any outstanding debentures during the year.

20. The Company has not raised any money through public issues during the year.

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 S.S. KOTHARI MEHTA & CO.

Firm Regn. No.: 000756N

Chartered Accountants

Sd/-

Place:Ludhiana (Arun K. Tulsian)

Date : 30th May, 2012 Partner

M. No. 089907

Mar 31, 2011

1. We have audited the attached Balance Sheet of Vardhman Polytex Limited ('the Company') as at March 31, 2011 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date, annexed thereto. These financial statements are the responsibility of the 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 the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor's Report) Order, 2003 as amended by the Companies (Auditors' Report) (Amendment) Order, 2004 (collectively the Order) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to information and explanation given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 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 so far as appears from our examination of those books;

c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d) In our opinion, the Balance Sheet, Profit & 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.

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

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

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

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

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

Annexure to the Auditors' Report (Annexure referred to in paragraph 3 of our report of even date)

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

(b) Verification of the fixed assets is being conducted by the management based on a programme designed to cover all assets over a period of three years, which, in our opinion, is reasonable having regard to the size of the company and nature of its business. Read with our comments in clause 1(a) above, there were no discrepancies noticed on such verification between the physical balances and fixed assets records.

(c) There was no disposal of a substantial part of fixed assets during the year.

2. (a) The inventory has been physically verified during the year by the management at all its locations, except stocks lying with third parties and in transit, which have been verified with reference to correspondence of third parties or subsequent receipts of goods. In our opinion, the frequency of such verification is reasonable.

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

(c) In our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material and have been properly dealt with in the books of account.

3. (a) The Company has not granted any loan, secured or unsecured, to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. However, the company had granted an interest bearing housing loan to the Managing director in earlier years, the maximum amount outstanding during the year and the year end balance of such loan is Rs. 1.86 lacs and Nil respectively.

(b) The rate of interest and other terms & conditions of the aforementioned loan is, prima facie, not prejudicial to the interest of the company. Since the loan is repaid in full, comment in regards to overdue amount is not applicable.

(c) The company has taken loans from two directors covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year in respect of such parties and the year end balance of such loans are Rs.185.00 lacs and NIL respectively.

(d) In our opinion and according to information and explanations given to us, the rate of interest and other terms and conditions on which loans have been taken are not, prima facie, prejudicial to the interest of the Company.

(e) In respect of the aforesaid loans, the amount of interest has been paid wherever applicable. Since the loan is repaid in full, comment in regards to overdue amount is not applicable.

4. In our opinion, and according to the information and explanations given to us during the course of audit, there are adequate internal control systems commensurate with size of the Company and the nature of its business with regard to purchase of inventory and fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books & records of the company, carried out in accordance with the generally accepted auditing practices in India, we have neither come across nor have we been informed of any instance of major weaknesses in the aforesaid internal control systems.

5. (a) Based upon the audit procedures applied by us and according to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that section.

(b) In our opinion, and according to the information and explanations given 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 aggregating during the year to Rupees five lakhs or more in respect of each party have been made at prices which are reasonable having regard to market prices for such transactions, prevailing at the relevant time, where such market prices are available.

6. In respect of Fixed deposits accepted from the public, the provisions of section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 including the Companies (Acceptance of Deposits) Rules, 1975 have been complied with. We have been informed that no order has been passed by Company Law Board or National Company Law Tribunal or RBI or any Court or any other Tribunal in this regard.

7. In our opinion, the Company has an internal audit system commensurate with the size & nature of its business.

8. We have broadly reviewed the Cost Accounting records, maintained by the Company pursuant to the Rules prescribed by the Central Government for the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We are, however, not required to make a detailed examination of such books and records.

9. (a) According to the records of the Company, 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 other material statutory dues, wherever applicable, have been generally regularly deposited with the appropriate authorities during the year and there are no such undisputed statutory dues outstanding as on the date of Balance Sheet for a period exceeding six months from the date they became payable.

(b) According to the information & explanations given to us and as per the books and records examined by us, there are no dues of Custom duty and Cess which have not been deposited on account of any dispute, except the following in respect of Income tax, Wealth tax, Excise duty, Service tax and Sales tax along with the forum where dispute is pending:

Name of Nature Period to Amount Forum where Amount the Statute of dues Which it (Rs. in lac) dispute is Deposited pertains Pending (Rs.in lac)

Central Excise Act Excise Duty 1997-98 and Hon'ble Punjab & Haryana 2004-05 42.34 High Court, Chandigarh 42.34

Excise Duty 2004-05 14.75 Joint Secretary, New Delhi 13.85

Excise Duty 2009-10 89.07 Chief Commissioner of Ã Central Excise, Ludhiana

Excise Duty 2009-10 1.82 The Commissioner of Central Ã Excise, Ludhiana

Excise Duty 2008-09 103.20 The Commissioner of Central Ã Excise, Chandigarh

Excise Duty 2006-09 4.63 The Commissioner of Central Ã Excise, Chandigarh

Income Tax Act Income Tax 2002-03, 04-05, 05-06 and 2008-09 154.14 CIT (Appeals), Ludhiana 81.21

Income Tax 1998-99 to 2002-03 and 2004-05 37.46 ITAT, Chandigarh 37.46

Income Tax 1993-94 8.45 Hon'ble Supreme Court 8.18

Punjab General Sales Punjab VAT 2005-06 Tax Act and 2006-07 1.48 DETC, Patiala 0.38

Punjab VAT 2003-04 0.51 Assistant Commissioner Sales Tax, Ludhiana Ã

Wealth Tax Act Wealth Tax 1997-98 1.87 ITAT, Chandigarh Ã

Finance Act 1994 Service Tax 09/07/04 to 31/03/07 13.52 CESTAT, New Delhi 0.50

Service Tax 09/07/04 to 31/03/07 17.93 Commissioner of Central Ã Excise, Chandigarh

10. There are no accumulated losses of the Company as at the end of the financial year. There are no cash losses in the current financial year and in the immediately preceding financial year.

11. According to the information and explanations given to us and as per the books and records examined by us, the Company has not defaulted in repayment of dues to any financial institution or bank.

12. 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. The company has given corporate guarantees for loans taken by others from banks, the terms & conditions of such guarantees are, prima facie, not prejudicial to the interest of the company.

16. In our opinion, and according to the information and explanations given to us, the term loans raised during the year by the Company have been applied for the purpose for which the said loans were obtained, where such end use has been stipulated by the lender.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, the funds raised by the Company on short term basis have not been applied for long term investment.

18. The Company has made preferential allotment of 13,20,000 equity shares to parties and Companies covered in the register maintained under section 301 of the Companies Act, 1956 in accordance with SEBI (Issue of Capital and Disclosures Requirements) Regulations, 2009.

19. The Company has not issued any debentures nor has any outstanding debentures during the year.

20. During the year, the companies has issued 2297000 equity shares to non- promoter group at a price determined in accordance with SEBI (Issue of Capital & Disclosures Requirements) Regulations, 2009. As explained by the management, the proceedings of the issue have been utilized for the purpose of long term working capital requirements and future expansions projects of 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 S.S. KOTHARI MEHTA & CO.

Firm Regn. No.: 000756N

Chartered Accountants

Place :Ludhiana (Arun K. Tulsian)

Date : 14th May, 2011 Partner

M. No. 089907

Mar 31, 2010

We have audited the attached Balance Sheet of Vardhman Polytex Limited as at 31st March, 2010 and also the Profit & Loss Account and the Cash Flow Statement of the Company 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 have 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 the 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 (collectively the Order) issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956 and on the basis of such checks 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:

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

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

c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d) In our opinion, the Balance Sheet, Profit & 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.

e) 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 is 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.

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

i) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2010;

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

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

ANNEXURE TO THE AUDITORS REPORT (Annexure referred to in our report of even date)

1. (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 its fixed assets which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Management has physically verified certain fixed assets during the year. Read with our comments in clause 1(a) above, there were no discrepancies noticed on such verification between the physical balances and fixed assets records.

(c) Fixed assets disposed off during the year were not substantial.

2. (a) The inventory, except material lying with third parties, has been physically verified by the management during the year. In our opinion, the frequency of such verification is reasonable.

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

(c) In our opinion, the Company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material and have been properly dealt with in the books of account.

3. (a) The Company has not granted any loan, secured or unsecured, to Companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. However, the Company had granted an interest bearing housing loan to the Managing director in earlier years, the maximum amount outstanding during the year and the year end balance of such loan is Rs. 3.08 lacs and Rs. 1.86 lacs respectively.

(b) The rate of interest and other terms & conditions of the aforementioned loan are, prima facie, not prejudicial to the interest of the Company. There are no overdue amounts at the year end in respect of principal and interest.

(c) The Company has not taken any loan, secured or unsecured, from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

(d) Since there are no such loans, the comments regarding terms & conditions, repayment of the principal amount & interest thereon and overdue amounts are not required.

4. In our opinion, and according to the information and explanations given to us during the course of audit, there are adequate internal control systems commensurate with size of the Company and the nature of its business with regard to purchase of inventory and fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books & records of the Company, carried out in accordance with the generally accepted Auditing Practices in India, we have neither come across nor have we been informed of any instance of major weaknesses in the aforesaid internal control systems.

5.(a) Based upon the audit procedures applied by us and 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 section 301 of the Act have been so entered.

(b) In our opinion, and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Act and aggregating during the year to Rupees five lacs or more in respect of each party have been made at prices which are reasonable having regard to market prices for such transactions, prevailing at the relevant time, where such market prices are available.

6. The Company has not accepted any deposits from the public within the meaning of section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 including the Companies (Acceptance of Deposits) Rules, 1975.

7. In our opinion, the Company has an internal audit system commensurate with the size & nature of its business.

8. We have broadly reviewed the Cost Accounting records, maintained by the Company pursuant to the Rules prescribed by the Central Government for the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Act, and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We are, however, not required to make a detailed examination of such books and records.

9. (a) According to the records of the Company, 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 other material statutory dues, wherever applicable, have been generally regularly deposited with the appropriate authorities during the year and there are no such undisputed statutory dues outstanding as on the date of Balance Sheet for a period exceeding six months from the date they became payable.

(b) According to the information & explanations given to us and as per the books and records examined by us, there are no dues of Custom duty and Cess which have not been deposited on account of any dispute, except the following in respect of Income Tax, Wealth Tax, Excise Duty, Service Tax and Sales Tax along with the forum where dispute is pending:

Amount Amount Forum Deposite Name of the Nature of (Rs.in where Deposite d(Rs.in Statute Dues lac) is pending lac) Central Honble Punjab & Haryana Excise Duty 42.34 42.34 Excise Act High Court, Chandigarh Excise Duty 14.75 Joint Secretary, New Delhi 13.85 Commissioner of Central Excise Duty 103.20 Excise, Chandigarh Chief Commissioner of Excise Duty 89.07 Central Excise, ludniana Deputy Commissioner, Excise Duty 2.58 Sangrur Income Tax Honble Supreme Court, New Act Income Tax 8.87 Delhi Income Tax 109.38 Honble Punjab & Haryana 220 00 High Court, Chandigarh Income Tax 80.64 ITAT, Chandigarh Commissioner Income Tax Income Tax 8.77 (Appeal), Ludniana Finance Act Commissioner of Central Service Tax 17.93 1994 Excise,Chandigarh Commissioner of Central Service Tax 2.17 Excise, Ludhiana Commissioner (Appeals), Service Tax 0.86 Chandigarh Service Tax 8.40 CESTAT, New Delhi 0.50 Assistant Commissioner, Service Tax 1.46 Punjab VAT Punjab VAT Act Act 0.51 Lubhiana 1.48 Punjab VAT Astt. Commissioner Sales Tax, Act Ludhiana Wealth Tax Wealth Tax 1.76 ITAT, Chandigarh Act

10. The accumulated losses, shown as reduction from general reserves, are less than fifty percent of networth of the company. There are no cash losses in the current financial year however there are cash losses in the immediately preceding financial year.

11. According to the information and explanations given to us and as per the books and records examined by us, the Company has not defaulted in repayment of dues to any financial institution or bank.

12. 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.The Company had given corporate guarantee for loans taken by others from a bank, the terms & conditions of such guarantees were, prima facie, not prejudicial to the interest of the Company. The guarantee has been released during the year and there are no guarantees outstanding at the year end.

16.In our opinion, and according to the information and explanations given to us, the term loans raised during the year by the Company have been applied for the purpose for which the said loans were obtained, where such end use has been stipulated by the lender.

17. According to the information and explanations given to us and as per the books and records examined by us, as on the date of balance sheet, the funds raised by the Company on short term basis have not been applied for long term investment.

18.The Company has made preferential allotment of 6,60,000 warrants convertible into equity shares during the year to a company covered in the register maintained under section 301 of the Companies Act, 1956.

19.The Company has not issued any debentures nor has any outstanding debentures during the year.

20.The Company had raised USD 12 million by way of 2% Foreign Currency Convertible Bonds (FCCB) during the earlier years amounting to Rs.4802.40 lac. Pending utilization, part of the amount of Rs. 3781.31 !ac which was temporarily invested outside India till the end of previous financial year, has been fully utilized during the year (Refer note no. 14 of Schedule 20)

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, a case was informed to us in previous years, of fraudulent practice by one of the companys overseas customers whereby the customers banker have released the documents and material sold without remitting the payment to companys bankers over a period of time. Legal proceedings are still continuing for the outstanding amount. Apart from this, we have not come across any instance of fraud on or by the company, noticed and reported during the year, nor have we been informed of any other case by the management.

For S.S. KOTHAR1 MEHTA & CO. Chartered Accountants (Firm Registration No. 000756N) (ARUN K. TULSIAN) Place : Ludhiana Partner Dated : 8th May, 2010 M. No. 89907

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