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Auditor Report of Vardhman Polytex Ltd.

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, 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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