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Auditor Report of Varun Industries Ltd.

Mar 31, 2011

1) We have audited the attached Balance Sheet of Varun Industries Limited as at 31st March 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. These Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from any 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 and amendments thereto (together referred to as ‘the Order') issued by the central government of India in terms of sub- section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 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 purpose of our audit;

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

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

e) On the basis of representations made by the Directors and taken on record by the Board of Directors and the information and explanations given to us, 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 on said date;

f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements, read together with the Company's Accounting Policies and Notes thereto, 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 the Balance Sheet, of the state of affairs of the Company as at 31st March 2011;

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

iii) in the case of the Cash Flow Statement, of the Cash Flows for the year ended on that date.



ANNEXURE TO AUDITORS' REPORT

Re: VARUN INDUSTRIES LIMITED

Referred in para 3 of our report of even date:

i. In respect of its Fixed Assets: -

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

b) The fixed assets have been physically verified during the year by the management at a regular interval 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) During the year, Company has disposed off certain fixed assets which are not substantial or major part of fixed assets. Therefore, it has no effect on the going concern status of the Company.

ii. In respect of its Inventories: -

a) As explained to us, the inventories have been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable.

b) In our opinion, and according to the information and explanations given to us, the procedure 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) In our opinion, and according to the information and explanations given to us and on the basis of our examination of the record of inventory, 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.

iii. (a) The Company has granted unsecured loans to its subsidiary companies which are covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount outstanding during the year was Rs. 300.56 lacs and the year-end balance of such loans was Rs. 300.56 lacs.

(b) In our opinion, the rate of interest and other terms and conditions on which loans have been granted to the companies listed in register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the company.

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

iv. In our opinion, and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the company and the nature of its business with regard to purchase of inventory and fixed assets and with regard to the sale of goods. During the course of our audit, no major weakness has been noticed in the internal controls.

v. According to the information and explanations given to us, there are no contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered in the register required to be maintained under that section;

vi. In our opinion and according to the information & explanations given to us, the Company has not accepted any deposits from the public and therefore the provisions of Section 58A and 58AA of the Companies Act, 1956 & Rules there under are not applicable to the Company;

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

viii. We have broadly reviewed the records made and maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under the provisions of Section 209(1) (d) of the Companies Act, 1956 in respect of the Company's products to which the said rules are made applicable, are of the opinion that, prima-facie, the prescribed accounts and records have been made and maintained. We have, however not made a detailed examination of the records with a view to determine whether they are accurate or complete;

ix. In respect of Statutory dues.

a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/accrued in the books of the account in respect of undisputed statutory dues including Provident Fund, Income Tax, Service Tax and other material statutory dues have been generally regularly deposited during the year by the Company with the appropriate authorities. As explained to us, the company did not have any dues on account of Employees' State Insurance, Sales-Tax, Wealth-Tax, Custom Duty, Excise Duty, Cess and Investor Education and Protection fund.

b) According to the information & explanations given to us, there were no undisputed amounts payable in respects of Provident Fund, Sales Tax, Customs Duty, Excise Duty, Income Tax and other material statutory dues were in arrears as at 31st March 2011 for a period of more than six months from the date they became payable.

c) According to information and explanations given to us, there are no dues of Income Tax, Provident Fund, Wealth Tax, Service Tax and other Material statutory dues which have not been deposited with the appropriate authorities on account of any dispute. As per the information available with us and explanations given by the company, applications for rectification are made with Income Tax Department.

x. The Company does not have accumulated losses as at the end of the year and the Company has not incurred any cash losses in the current and the immediately preceding financial year.

xi. Based on our audit procedure and on the basis of information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to financial institutions/banks.

xii. 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.

xiii. The provisions of any Special Statute applicable to Chit Fund, Nidhi or Mutual Benefit Fund / Societies are not applicable to the Company.

xiv. a) Based on the records examined by us and according to the information and explanations given to us, we are of the opinion that the company is maintaining proper record of the transactions and contracts of dealing in shares and securities and timely entries have been made in these records.

b) Based on our audit procedures and to the best of our knowledge and belief and according to the information and explanations given to us, the shares and securities have been held by the company in its own name.

xv. In our opinion and according to the information and explanations given to us, the terms and conditions on which the Company has given guarantees for loans taken by others form banks are not prejudicial to the interest of the company.

xvi. To the best of our knowledge and belief and according to the information and explanations given to us, term loan availed by the company was, prima facie, applied by the company during the year, for which the loan was obtained.

xvii. According to the Cash Flow Statement and records examined by us and according to the information and explanations given to us, on an overall basis, funds raised on short term basis have, prima facie, not been used during the year for long term investment.

xviii. The Company has made allotment of 70,00,000 Equity Shares of Rs. 10/- each on conversion of equal numbers of warrants at a price of Rs. 43.20/- including a premium of Rs.33.20/- per share, on exercise of option for conversion warrant holders. These allotments have been made in accordance with Companies Act, 1956, Chapter XIII of Securities and Exchange Board of India (Disclosure and Investor Protection Guidelines), 2000 as replaced by Chapter VII of SEBI (Issue of Capital and Disclosure Requirements) Regulations,2009 (the "Guidelines"/ "SEBI Guidelines"). In our opinion, the price at which the convertible Equity Share Warrants have been converted is not prejudicial to the interest of the Company.

xix. According to the information and explanations given to us and records examined by us, there were no debentures issued during the year so the question of charge does not arise.

xx. The Company has not raised money by making any public issues during the year and hence the question of disclosure and verification of end use of such money does not arise.

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

For CHUNNILAL & COMPANY

Chartered Accountants Firm Registration No.101947W

CA. Amit Chunnilal Choudhary

Partner Membership No. 133866 Place: Mumbai Dated: 6th May, 2011


Mar 31, 2010

1) We have audited the attached Balance Sheet of Varun Industries Limited as at 31st March 2010 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 Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2) We conducted our audit in accordance with auditing standards generally accepted in India. These Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from any 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 and amendments thereto (together referred to as the Order") issued by the Central Government of India in terms of sub- section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 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 purpose of our audit;

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

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

e) On the basis of representations made by the Directors and taken on record by the Board of Directors and the information and explanations given to us, 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 on said date;

f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements, read together with the Companys Accounting Policies and Notes thereto, 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 the Balance Sheet, of the state of affairs of the Company as at 31st March 2010;

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

iii) in the case of the Cash Flow Statement, of the Cash Flows for the year ended on that date.

ANNEXURE TO AUDITORS REPORT Re: VARUN INDUSTRIES LIMITED Referred In para 3 of our report of even date:

i. In respect of its Fixed Assets: -

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

b) The fixed assets have been physically verified during the year by the management at a regular interval 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) During the year, Company has disposed off certain fixed assets which are not substantial or major part of fixed assets. Therefore, it has no effect on the going concern status of the Company.

ii. In respect of its Inventories: -

a) As explained to us, the inventories have been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable.

b) In our opinion, and according to the information and explanations given to us, the procedure 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) In our opinion, and according to the information and explanations given to us and on the basis of our examination of the record of inventory, 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.

iii. (a) The Company has granted unsecured loans to its subsidiary companies which are covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount outstanding during the year was Rs. 130.76 lac and the year-end balance of such loans was Rs. 130.76 lac.

(b) In our opinion, the rate of interest and other terms and conditions on which loans have been granted to the companies listed in register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the company.

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

iv. In our opinion, and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the company and the nature of its business with regard to purchase of inventory and fixed assets and with regard to the sale of goods. During the course of our audit, no major weakness has been noticed in the internal controls.

v. According to the information and explanations given to us, there are no contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered in the register required to be maintained under that section;

vi. In our opinion and according to the information & explanations given to us, the Company has not accepted any deposits from the public and therefore the provisions of Section 58A and 58AA of the Companies Act, 1956 & Rules there under are not applicable to the Company;

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

viii. We have broadly reviewed the records made and maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under the provisions of Section 209(1) (d) of the Companies Act, 1956 in respect of the Companys products to which the said rules are made applicable, are of the opinion that, prima-facie, the prescribed accounts and records have been made and maintained. We have, however not made a detailed examination of the records with a view to determine whether they are accurate or complete;

ix. In respect of Statutory dues.

a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/accrued in the books of the account in respect of undisputed statutory dues including Provident Fund, Income Tax, Service Tax and other material statutory dues have been generally regularly deposited during the year by the Company with the appropriate authorities. As explained to us, the company did not have any dues on account of Employees State Insurance, Sales-Tax, Wealth-Tax, Custom Duty, Excise Duty, Cess and Investor Education and Protection fund.

b) According to the information & explanations given to us, there were no. undisputed amounts payable in respects of Provident Fund, Sales Tax, Customs Duty; Excise Duty, Income tax and other material statutory dues were in arrears as at 31st March 2010 for a period of more than six months from the date they became payable.

c) According to information and explanations given to us, other than Income Tax aggregating to Rs. 10.11 lac for the Assessment Year 2006-2007, there are no dues of, Provident Fund, Wealth Tax, Service Tax and other Material statutory dues which have not been deposited with the appropriate authorities on account of any dispute. As per the information available with us and explanations given by the company, applications for rectification are made with Income Tax Department.

x. The Company does not have accumulated losses as at the end of the year and the Company has not incurred any cash losses in the current and the immediately preceding financial year.

xi. Based on our audit procedure and on the basis of information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to financial institutions/banks.

xii. 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.

xiii. The provisions of any Special Statute applicable to Chit Fund, Nrdhi or Mutual Benefit Fund / Societies are not applicable to the Company.

xiv. a) Based on the records examined by us and according to the information and explanations given to us, we are of the opinion that the company is maintaining proper record of the transactions and contracts of dealing in shares and securities and timely entries have been made in these records.

b) Based on our audit procedures and to the best of our knowledge and belief and according to the information and explanations given to us, the shares and securities have been held by the company in its own name.

xv. In our opinion and according to the information and explanations given to us, the terms and conditions on which the Company has given guarantees for loans taken by others form banks are not prejudicial to the interest of the company.

xvi. To the best of our knowledge and belief and according to the information and explanations given to us, term loan availed by the company was, prima facie, applied by the company during the year, for which the loan was obtained.

xvii. According to the Cash Flow Statement and records examined by us and according to the information and explanations given to us, on an overall basis, funds raised on short term basis have, prima facie, not been used during the year for long term investment.

xviii.The Company has made preferential allotment of convertible Equity Share Warrants to Mr. Kiran N. Mehta and Mr. Kailash S. Agarwal, both parties covered in the register maintained under section 301 of the Companies Act, 1956, during the year. These allotments have been made in accordance with Preferential Issue Guidelines issued by Securities & Exchange Board of India ("SEBI") contained in Chapter XIII of Securities and Exchange Board of India (Disclosure and Investor Protection Guidelines), 2000 as amended (the "Guidelines"/ "SEBI Guidelines"). In our opinion, the price at which the convertible Equity Share Warrants have been issued is not prejudicial to the interest of the Company.

xix. According to the information and explanations given to us and records examined by us, there were no debentures issued during the year so the question of charge does not arise.

xx. The Company has not raised money by making any public issues during the year and hence the question of disclosure and verification of end use of such money does not arise.

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

For CHUNNILAL & COMPANY Chartered Accountants Firm Registration No.101947 W

CA. Chunnilal Choudhary Partner M. No.: 037784

Place: Mumbai. Dated: 22nd July 2010