Auditor Report of Gammon India Ltd.

Mar 31, 2016

To

The members of Gammon India Limited

1. Report on Financial Statements

We have audited the accompanying Financial Statements of Gammon India Limited ("the Company"), which comprises of the Balance sheet as at March 31, 2016, the Statement of Profit and Loss and the Cash Flow Statement for the period October 01, 2014 to March 31, 2016 ("Period"), and a summary of significant accounting policies and other explanatory notes.

We did not audit the financial statement of Gammon India Limited - Nagpur Branch that incorporates the financial results of the overseas branches at Algeria, Nigeria, Bhutan, Afghanistan, Ethiopia, Rwanda, Yemen & Italy. The financial statements of the Nagpur Branch include total assets of Rs. 1118.29 crores and total revenues of Rs. 1277.63 crores for the eighteen-month period ended 31st March 2016. The financial information of the aforesaid branch has been audited by the Branch Auditors whose report has been received by us. Our conclusion so far as transactions of the said Branches are concerned, is based solely on the Auditors'' Report of the Branch Auditor.

2. Management''s Responsibility for the Financial Statements

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

3. Auditor''s Responsibility

Our responsibility is to express an opinion on these 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 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 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 the effectiveness of the entity''s internal control . An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by 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.

4. Basis of Qualified Opinion

a. We invite attention to note no 33(c) relating to one of the subsidiaries M/s Franco Tosi Meccanica S.p.A (FTM). As described in the note, the control of the operating/core asset of the said FTM has been transferred to the successful bidder and the Company is entitled only to the surplus arising out of disposal of non-core assets of FTM after paying off all other creditors/liabilities of FTM. The funded and non-funded exposure of the Company to FTM is Rs. 892.19 crores as at 31st March 2016 including towards the corporate guarantees issued towards the bank guarantees issued in favour of the said FTM. The management as detailed in the said note is awaiting the details of the surplus arising out of the disposal of the non-core assets and the recovery of the liabilities there from. The management expects that the surplus will be adequate to cover the exposure however in the absence of any indication of the value of the non-core assets or the surplus we are unable to quantify the possible provision towards the exposure of the Company and therefore also the effect on the loss/profit of the Company for the quarter and the period ended 31st March 2016.

b. We invite attention to note no 32, detailing the recognition of claims during the year ended 31st March 2016 in respect of ongoing, completed and/or terminated contracts aggregating to Rs. 1343.97 crores including a further claim of Rs. 300 crores during the quarter ended 31st March 2016 but excluding amounts recognized in quarters before September 2015 of Rs. 313.25 based on management estimates of reasonable realization which were subject matter of our emphasis of matter in our earlier reports. These additional claims are recognized only on the basis of opinion of an expert in the field of claims and arbitration as part of the requirement of the Strategic Debt Restructuring scheme with the lenders. In view of the above-mentioned circumstances and facts we are unable to comment upon the amounts recognized, its realization and the consequent effect on the financial results of the quarter ended 31st March 2016 and the eighteen-month period ended 31st March 2016.

c. We invite attention to note no 33(e), As reported by the branch auditors, the exposure of the Company through the Branch in SAE Powerlines Srl, Italy ("SAE"), a subsidiary of the Company and ATSL BV, Netherlands, the holding company of SAE, towards investments, loans, including guarantees towards the acquisition loan taken by the SPV are Rs. 196.84 crores. The Branch has made provision for impairment of investments and Loan aggregating to Rs. 62.52 crores and provision of Rs. 88.29 crores for risk and contingencies for corporate guarantees for acquisition loan of the SPV and thus, the net exposure of the Branch is Rs. 46.03 crores. The Branch has a further net exposure of Rs. 139.48 crores after provision of Rs. 65.57 crores towards receivables due from SAE, which are outstanding for a long time. The Company had carried out a valuation of the business of SAE by an independent valuer in September, 2014, who determined an enterprise value of Rs. 71.34 crores, which however is not updated to cover the present financial position. In the absence of a fresh valuation of the business of SAE and in the absence of audited financial Statements of SAE for the period ended 31st December 2015, we are unable to comment whether further impairment provision is required with respect to the total net exposure of the Branch of Rs. 185.51 crores in respect of loans, investment and receivables.

d. The Company''s Application for managerial remuneration aggregating to Rs. 26.29 crores for the Chairman and Managing Director has been rejected for the accounting years 2012-13 and 9-month period ended December 2013 and 30th September 2014 and for the current eighteen months ended 31st March 2016 for want of NOC from the CDR lenders. The MCA has directed to recover the excess remuneration or make an application for waiver. The Company had once again made applications to the Ministry for the aforementioned periods on obtaining the NOC from the CDR Lenders. The Board however on the recommendation of the Nomination and Remuneration Committee has, subject to shareholders’ approval, decided to seek approval from the Central Government for waiver of excess remuneration paid. Pending the same no adjustments have been made for the amount of Rs. 26.29 crores. In the absence of the final decision of the MCA pursuant to the application being made by the Company we are unable to ascertain the impact on profits on this account for the eighteen-month period ended 31st March 2016 (Refer Note 23(a)).

e. Trade receivables and loans and advances includes an amount of Rs 355.56 crores in respect of disputes in six projects of the Company and/or its SPVs. The Company is pursuing legal recourse/ negotiations for addressing the disputes in favour of the Company Pending the conclusion of the matters we are unable to state whether any provisions would be required against the Company''s exposure (refer Note 35(iv)).

f. The Company has given unsecured loans of Rs. 19.83 crores to its joint ventures as a lead partner for which it does not have any prior approval of the members (refer Note 12(vi)).

g. We invite attention to note no 11A(f) relating to the decision for sale of 30% interest of Gammon Infrastructure Projects Limited (GIPL) held through two wholly owned subsidiaries and its consequent classification and valuation in these financial statements. The carrying value of the equity interest in GIPL is Rs. 884.41 crores held through the two wholly owned subsidiaries. The current market value based on the traded price as on March 31, 2016 is Rs. 270.25 crores. The management contends that the market price is not indicative of the intrinsic value of GIPL considering that the same is a strategic Investment. However in the absence of a detailed valuation of the intrinsic value of GIPL being carried out by the Management we are unable to comment whether any provision for diminution or impairment in the carrying amount of the equity interest is required.

5. Qualified Opinion

Except for the possible effects of the matter mentioned hereinabove in the basis of qualified opinion, in our opinion and to the best of our information and according to the explanations given to us, the 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, its profit and its cash flows for the period October 01, 2014 to March 31, 2016.

6. Emphasis of Matter:

Without qualifying our opinion, we draw attention to the following matters:

(a) We draw attention to Note no 35(i), 35(ii) and 35(iii) of the Statement relating to recoverability of an amount of Rs.135.75 crores as at 31st March 2016 under trade receivables in respect of contract revenue where the Company has received arbitration awards in its favour in respect of which the client has preferred an appeal for setting aside the said arbitration awards, recognition of claims while evaluating the jobs of Rs. 153.29 crores and Rs. 155.03 crores where the Company is confident of recovery based on advanced stage of negotiation and discussion. The recoverability is dependent upon the final outcome of the appeals & negotiations getting resolved in favour of the company.

(b) Note no 36 detailing that the lenders have invoked Strategic Debt Restructuring and have converted part of their principal and interest outstanding into equity shares and as part of the SDR scheme is in the process of approving the restructuring scheme, which includes carving out the EPC business, and the T & D business into separate entities wherein new investors would be invited to take control as detailed in the Note. Pending the same due to the liquidity situation and the continuing losses the Company is unable to meet its various liabilities on time. These conditions, along with other matters as set forth in the Note, indicate the existence of a significant uncertainty as to timing and realization of cash flow to support the going concern assumption and operations of the Company.

(c) The Company as detailed in Note 33(b) has exposure of Rs. 887.82 crores towards the combined stake of 67.50 %, which includes 35% stake which is under process of being transferred in favour of M/s Gammon Holding Mauritius Limited, wholly owned subsidiary of the Company, that is pending from a long time. Considering the combined stake held through two separate SPVs, the Company''s exposure does not require any impairment which is supported by the order book position and valuation made by an independent valuer.

(d) Note no 33(g) the accounts of a subsidiary M/s Campo Puma Oriente S.A. have not been audited since December 2012, due to certain disputes with the partner in the project. The exposure of the Company in the said subsidiary is Rs. 411.67 crores net of provisions made. The company has received a valuation report for $ 60 Million approximately from an independent merchant banker for its share. On the basis of this report and the other matters detailed in the note the management is confident that there will be no provision required for impairment

(e) (e) Note no 12(v) G&B Contracting LLC where the management has made assertions about the investment and reasons why the same does not require any provision towards diminution in the value of investment and loans provided. Relying on the assertions no adjustments have been made in the financials towards possible impairment.

7. Report on Other Legal and Regulatory Requirements

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

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

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

(b) In our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from branches not visited by us. As stated above we have received the audit report of the branches not visited by us from the branch auditors.

(c) The report on the accounts of the branch office of the company not audited by us but audited under sub-section 143(8) by the branch auditor has been received by us under the proviso to that sub-section and the same has been properly dealt with it in preparing our report.

(d) The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account.

(e) In our opinion, except for the possible effect of the matters mentioned in the basis of qualified opinion paragraph, 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.

(f) The matters mentioned in the basis of qualified opinion paragraph and the matters mentioned in paragraph (b) of the emphasis of matter paragraph, relating to the matter of significant uncertainty in the timing and realization of cash flows, may have an adverse impact on the functioning of the Company.

(g) On the basis of written representations received from the directors as on March 31, 2016 and 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.

(h) The possible effects of matters mentioned in the basis for qualified opinion paragraph may have an adverse effect on the maintenance of the records of the Company.

(i) 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 on its financial position in its financial statements - Refer Note 41 to the financial statements.

ii. The Company has provided for all material foreseeable losses arising out of long-term contracts including derivative contracts..

iii. The Company has to transfer amount of Rs. 0.33 Crore to the Investor Education and Protection Fund during the year.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS OF OUR REPORT OF EVEN DATE

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

(b) Fixed assets have been physically verified by the management during the period at reasonable intervals and no material discrepancies were identified on such verification except assets at some of their terminated sites where the access to the assets are presently prohibited and the matter is under dispute. The total value of assets at such sites is Rs. 23.56 crores (Net WDV).

(ii) (a) Inventories, being project materials have been physically verified by the management at reasonable intervals during the year.

In our opinion, the frequency of such verification is reasonable.

(b) In our opinion and according to the information and explanations given to us, the procedure of physical verification of stock followed by the management is reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The discrepancies noticed between the physical stocks and books stocks were not material and the valuation of stock has been done on the basis of physically verified quantity. Therefore Shortage / Excess automatically get adjusted and the same is properly dealt in the books of accounts.

(iii) According to the information and explanation given to us, the Company has granted unsecured loan to 5 parties covered in the register maintained u/s 189 of the Companies Act 2013. In respect of such loans;

(a) Loans granted during the year amounts to Rs. 889.48 crores and the amount outstanding as at the end of the year is Rs.907.17 crores. As per the terms of the loan the same is given for long term and hence the repayment of interest and loan is not due as at Balance sheet date.

(b) Since repayment of aforesaid loans is not due, there is no overdue amounts for more than Rs one lakhs from parties covered under section 189 and therefore the requirements of clause 4(iii)(b) of the Companies (Auditors Report) Order, 2015 are not applicable.

(iv) In our opinion and according to the information and explanations given to us, the implementation of the internal control procedure and assessment of risks in respect of the sub-contract and other site expenditure, material reconciliations, purchases needs strengthening to make it commensurate with the size and nature of its operations. In respect of the purchase of fixed assets and sale of goods and services the internal control procedures are commensurate with the size of the Company and the nature of its business. The weakness with respect to the adherence to the Internal control procedures for above referred activities are still continuing as at the Balance Sheet date which were reported upon in the previous audit reports.

(v) The Company has not accepted any deposits from the public pursuant to sections 73 to 76 or any other relevant provisions of the Companies Act 2013 and rules framed there under. Therefore, the provisions of clause 3(v) of the Companies (Auditors Report) Order 2015 are not applicable to the Company. As informed to us, there is no order that has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in respect of the said sections.

(vi) As informed to us the maintenance of the cost records under the sub-section (1) of section 148 of the Companies Act, 2013 has been prescribed and we are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, carried out a detailed examination of the records to ascertain whether they are accurate or complete.

(vii) (a) The company has several instances of delay in depositing undisputed statutory dues including Provident Fund, Professional

Tax, Employees State Insurance, works contract tax, Service tax/VAT, Cess and sales tax dues with the appropriate authorities observed on a test check basis. On the basis of the audit procedures followed, test checks of the transaction and the representation from the Management there are arrears amounting to Rs 11.45 crores in case of Income Tax, Rs 1.62 crores in case of Provident Fund, Rs. 1.90 crores in case of Works contract tax, Rs.0.61 crores in case of Entry tax, Rs. 0.04 crores in case of Value added tax, Rs.0.34 crores in case of Professional tax, Rs. 0.01 crores in case of labour welfare fund , Rs 0.01 crores in case of Health Contribution Bhutan, Rs.0.26 crores in case of Employee''s State Insurance Scheme, Rs 1.23 crores in case of Royalty and Rs.0.49 crores in case of Road tax which were outstanding as at the last day of the financial year for a period of more than six months from the date they became payable.

(b) According to the information and explanation given to us, the details of Sales tax, Income Tax, Service Tax and Excise duty that have not been deposited on account of dispute are stated in the Statement of statutory dues outstanding attached herewith.

(c) The amounts to be transferred to the investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time except for Rs 0.33 crores which is required to be transferred to Investor Education and protection funds.

(viii) The Company has accumulated losses at the end of the financial period which is more than 50% of its net worth. However, except for the possible effect of the matters mentioned in our basis of qualified opinion, the Company has not incurred cash losses during the current financial period and in the immediately preceding financial period.

(ix) According to information and explanations given to us, the company has defaulted in servicing interest and principal repayment due to debenture holders, financial institutions and banks. The amounts of delays in interest servicing in respect of Rupee Term Loan, FITL, Priority Loan, Working capital term loan, Short term Loan, NCD, NCD FITL, CC and OD were Rs 646.61 Crores for a period ranging from 1 to 366 days. And Principal for the said facility amounts to Rs 231.98 Crores ranging from 16 to 366 days The amounts of default on account of overdrawn of Cash credit facility was Rs.150.58 Crores as at March 2016. The amounts include the continuing defaults at balance sheet on repayment of interest and principal which is annexed to the financial statements.

(x) According to the information and explanations given to us and the records examined by us, the terms and conditions of guarantee given by the Company for loan taken by its wholly owned subsidiary from bank are not prima facie prejudicial to the interest of the Company.

(xi) Based on information and explanations given to us by the management, no fresh term loans were taken during the year except availing of working capital term loan which were applied for the business. Therefore the requirements of clause 4(xi) of the Companies (Auditors Report) Order, 2015 are not applicable.

(xii) According to the information and explanations given to us and to the best of our knowledge and belief no fraud on or by the Company has been noticed or reported during the current eighteen month period.

For Natvarlal Vepari & Co.

Firm Registration Number: 106971W

Chartered Accountants

N Jayendran

Partner M.No. 40441

Place: Mumbai

Dated: June 17, 2016

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Sep 30, 2014

Report on Financial Statements

We have audited the accompanying Financial Statements of Gammon India Limited ("the Company”), which comprises the Balance Sheet as at 30 September 2014 and the Statement of Profit and Loss and the Cash Flow Statement for the period 1 January 2014 to 30 September 2014 ("period”) and a summary of significant accounting policies and other explanatory notes on that date in which are incorporated the returns of the Nagpur branch including the overseas branches at Algeria, Nigeria, Kenya, Bhutan, Ethiopia, Rwanda, Yemen & Italy audited by branch auditors.

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”) read with the General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act 2013 read with General Circular 8/2014 dated 4 April 2014. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor''s 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 judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Basis For Qualified Opinion

a. We invite attention to Note 33 (c) (i) and (ii) relating to the accounts of one of the subsidiaries M/s Franco Tosi Meccanica S.p.A (FTM) which have not been audited since December 2011 and the details of the application for pre-insolvency composition agreement including the plans to sell the business of the subsidiary. In view of the non- availability of the financial statements for reasons detailed in the aforesaid notes we are unable to comments on the adjustments to be made in the financials in respect thereof. The Company''s exposure in the said subsidiary (net of provisions and credit balance in Foreign Exchange Translation Reserve) is Rs. 1162.87 Crore which includes the loans made and Investments made (net of provisions) of Rs. 268.06 Crore, the exposure of corporate guarantee towards the borrowing made by the overseas SPV through which the step down subsidiary is held ofRs. 302.94 Crore and corporate guarantee exposures in respect of the said FTM by way of corporate guarantee issued by the Company towards the non-fund based limits granted to the said FTM based on which guarantees were given to the projects of the said subsidiary of Rs. 591.87 Crore. In the absence of the financial statements and any indication of the outcome of the pre-insolvency composition agreement we are unable to comment on the adequacy of the provision towards diminution in the value of investments and loans resulting in the net carrying value as aforesaid.

b. In respect of the corporate guarantees issued towards the jobs of FTM as detailed in Note 33(c)(iii) the Company has received fresh demand for Euro 21.84 Million Rs. 170.80 Crore) against which the Company has made a provision of Euro 4.04 Million Rs. 31.59 Crore) towards liabilities arising from demand against some of the corporate guarantees. In respect of the other demand of Euro 17.80 Million Rs. 139.21 Crore) in respect of another project no provision is made as the Company is in active negotiation with the clients of the subsidiary for the cancellation of the demand. In view of the uncertainties involved in the negotiation settling in favour of the Company and the future of the business of FTM we are unable to comment upon possible further liabilities arising from such corporate guarantees.

c. The Auditors of M/s SAE Powerlines S.r.l, Italy (SAE), a subsidiary of the Company have expressed their inability to opine on the financial statements in view of the said SAE''s ability to operate as a going concern being at risk and the directors of the said SAE have highlighted the liquidity crisis. The total exposure of the Company in SAE and ATSL Holdings B.V., Netherlands the Holding Company of SAE towards investments including guarantees towards the acquisition loan taken by SPV and guarantees towards the operating business of SAE is Rs. 328.06 Crore. The Company has made provision for impairment of investments and loan of Rs. 110.45 Crore and provision for risk and contingencies towards corporate guarantees for acquisition loan of the SPV of Rs. 88.29 Crore resulting in the net exposure of the Company at Rs. 129.32 Crore. Attention is invited to Note 33 (e) where the Company contends that the carrying value of Rs. 129.32 Crore does not need any provision despite the valuation of the business of SAE by independent valuers indicating an excess carrying value of Rs. 55.02 Crore that has not been provided for.

d. The Company''s application for managerial remuneration aggregating to Rs. 14.32 Crore for the Chairman and Managing Director has been rejected for the accounting years

2011- 2012,2012-2013 and 9 month period ended December 2013. The Company has preferred appeals for review of the matters with the Central Government for all the years for which the same is rejected. The Chairman and Managing Director has pending disposal of the review during the year refunded an amount of Rs. 1.85 Crore being the excess remuneration for the year ended2011-2012. The remuneration for the period ended September 2014 of the Chairman and Managing Director is Rs. 4.71 Crore, of which an amount of Rs. 0.94 Crore is pending payment, for which application is being made. Pending the review and appeal of the Company for the accounting periods 2011-2012,

2012- 2013,9 month period ended December 2013 and 30 September 2014 no adjustments have been made for an amount of Rs. 17.18 Crore.

e. The Company has during the year after 1 April 2014 granted unsecured loans to one of its Joint Ventures beyond the limits specified in Section 186 of the Companies Act 2013 without the prior approval of the members in general meeting.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in our basis for qualified

opinion paragraph, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the

accounting principles generally accepted in India:

(a) In the case of the Balance Sheet, of the state of affairs of the Company as at 30 September 2014;

(b) In the case of the Statement of Profit and Loss of the profit for the period 1 January 2014 to 30 September 2014; and

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

Emphasis of Matter

Without qualifying our report we invite attention to

(a) We draw attention to Note 35 of the explanatory notes relating to recoverability of an amount of Rs. 167.23 Crore as at September 2014 under trade receivables in respect of contract revenue where the Company has received arbitration awards in its favour in respect of which the client has preferred an appeal for setting aside the said arbitration awards, recognition of claims while evaluating the jobs of Rs. 451.56 Crore towards work done on account of cost overruns arising due to client delays, changes of scope, deviation in design and other charges recoverable from the client which are pending approval or certification by the client and Rs.123.80 Crore where the Company is confident of recovery based on advanced stage of negotiation and discussion. The recoverability is dependent upon the final outcome of the appeals & negotiations getting resolved in favour of the Company.

(b) The Company has cash losses from operations after reducing the interest payments and has unabsorbed losses to the tune of Rs. 775.32 Crore. These conditions, along with other matters as set forth in Note 36 of the financial statements, indicate the existence of an uncertainty as to timing and realisation of cash flow.

(c) Note 33(b) relating to the exposure of Rs. 197.16 Crore which includes non-fund based guarantees of Rs. 110.90 Crore towards acquisition of further stake of 35% in Sofinter. The transfer of shares to be done as detailed in the aforesaid note is essential to support the exposure of the Company towards the funded and non- funded exposure towards M/s Gammon Holdings (Mauritius) Limited for the additional 35% equity stake in Sofinter. Further the management has made assertions about the investment and reasons why the same does not require any provision towards diminution in the value of investment and loans provided. Relying on the assertions and on the further acquisition of interest in M/s Sofinter as detailed in the aforesaid note no adjustments have been made in the financials towards possible impairment.

(d) We also invite attention to Note 12(iv) & Note 12(v) in case of Gactel Turnkey Projects Limited & G&B Contracting LLC where the management has made assertions about the investment and reasons why the same does not require any provision towards diminution in the value of investment and loans provided. Relying on the assertions as detailed in Note 12(iv) and (v) no adjustments have been made in the financials towards possible impairment.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 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. As detailed in the annexure the statement has been prepared with reference to the various sections of the Companies Act 1956, till its applicable date i,e. upto 31 March 2014

2. As required by Section 227(3) of the Companies Act 1956, we report that:

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

ii) In our opinion, proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of the books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us.

iii) The reports on accounts of the branches audited by the other auditors have been forwarded to us as required by clause (c) of Sub-Section (3) of Section 228 and have been appropriately dealt by us in preparing our report.

iv) The Balance Sheet, Statement of Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts and with the returns received from the branches not visited by us.

v) In our opinion, except for the possible effects of the matters described in our basis for qualified opinion paragraph , the Balance Sheet, Statement of Profit and Loss Account and the 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 read with the General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs and read with General Circular 8/2014 dated 4 April 2014 issued by the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act 2013.

vi) On the basis of the written representation received from the Directors and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 30 September 2014 from being appointed as a Director in terms of Sub-Section (2) of Section 164 of the Companies Act 2013 (corresponding to clause (g) of Sub-Section (1) of Section 274 of the Companies Act 1956).

ANNEXURE TO THE AUDITOR''S REPORT

Gammon India Limited

(Referred to in our report of even date)

(i) (a) The Company is maintaining proper records showing particulars, including quantitative details and situation of fixed assets;

(b) The Company has a program for physical verification of its fixed assets at periodic intervals. In our opinion, the period of verification is reasonable having regard to the size of the Company and the nature of its assets and operations. The discrepancies reported on such verification are not material and have been properly dealt with in the books of account.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(ii) (a) Inventories, being project materials have been physically verified by the management at reasonable intervals during the year. In our opinion,

the frequency of such verification is reasonable.

(b) In our opinion and according to the information and explanations given to us, the procedure of physical verification of stock followed by the management is reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The discrepancies noticed between the physical stocks and books stocks were not material and the valuation of stock has been done on the basis of physically verified quantity. Therefore Shortage / Excess automatically get adjusted and the same is properly dealt in the books of accounts.

(iii) (a) The Company has during the year granted unsecured loans to six parties covered in the register maintained under Section 301 of the

Companies Act 1956. The maximum amount involved during the year was Rs. 1130.62 Crore and at the end of the year balance of loans granted to such parties was Rs. 1116.91 Crore.

(b) In our opinion the rate of interest, wherever charged, and the other terms and conditions of such loans are not prima-facie prejudicial to the interest of the Company.

(c) There are no stipulations for the repayment of principal and the interest, wherever charged. The outstanding overdue interest receivable as at 30 September 2014 was Rs. 57.76 Crore.

(d) Most of these parties are subsidiaries of the Company and therefore are being monitored for the recovery.

(e) The Company has not taken any fresh loans during the year from parties covered in the register maintained under Section 301 of the Companies Act 1956. In respect of the existing loans, taken from promoter group as part of the CDR agreement, the maximum amount involved during the year was Rs. 100 Crore and the end of the year balance of loans was Rs. 100 Crore.

(f) In our opinion and according to the information and explanations given to us, the rate of interest, wherever charged and other terms and conditions for such loans are not prima-facie prejudicial to the interest of the Company.

(g) Based on the terms of the Master Restructuring Agreement signed with the CDR lenders the promoter loans are subordinate to the restructured facilities and hence there are no repayments stipulated.

(iv) In our opinion and according to the information and explanations given to us, the implementation of the internal control procedure and assessment of risks in respect of the sub-contract and other site expenditure, material reconciliations, purchases needs strengthening to make it commensurate with the size and nature of its operations. In respect of the purchase of fixed assets and sale of goods and services the internal control procedures are commensurate with the size of the Company and the nature of its business. The weakness with respect to the adherence to the Internal control procedures for above referred activities are still continuing as at the Balance Sheet date which were reported upon in the previous audit reports.

(v) a) In our opinion and according to the information and explanations given to us the transactions that need to be entered into a register in

pursuance of Section 301 of the Act have been so entered.

b) All the transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time and the nature of services rendered by such parties.

(vi) The Company has not accepted any deposits from the public during the year under review and consequently the directives issued by the Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and the rules framed there under are not applicable. We are further informed that no orders have been passed by the Company Law Board in the case of the Company requiring compliances.

(vii) In our opinion the internal audit system is presently commensurate with the size and nature of its business.

(viii) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules 2011 prescribed by the Company under 209(1)(d) of the Companies Act 1956 and are of the opinion that prima-facie the prescribed records have been maintained. We have however not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

(ix) (a) The Company has several instances of delay in depositing undisputed statutory dues including Provident Fund, Professional Tax, Employees State Insurance, Works Contract Tax, Service Tax/VAT, Cess and Sales Tax dues with the appropriate authorities observed on a test check basis.

(b) On the basis of the audit procedures followed, test checks of the transaction and the representation from the Management there are arrears amounting to Rs. 0.25 Crore to be deposited with Investor Education and Protection Fund, 0.68 Crore in case of Service Tax ,Income Tax of Rs. 0.06 Crore, Rs. 0.16 Crore in case of Provident Fund, Rs. 0.13 Crore in case of Works Contract Tax, Rs. 1.08 Crore in case of Road Tax, Rs. 0.08 Crore in case of Value Added Tax, Rs. 0.22 Crore in case of Professional Tax, Rs. 0.01 Crore in case of Deposit Linked Insurance Scheme, Rs. 0.14 Crore in case of Pension Fund Rs. 0.01 Crore in case of Labour Welfare Fund,Rs. 0.07 Crore in case of Employee''s State Insurance Scheme and Rs. 5.32 Crore in case of Royalty which were outstanding as at the last day of the financial year for a period of more than six months from the date they became payable.

(c) According to the information and explanation given to us, the details of Sales Tax, Income Tax, Service Tax and Excise Duty that have not been deposited on account of dispute are stated in the statement of statutory dues outstanding attached herewith.

(x) The accumulated losses of the Company are in excess of 50% of the net worth of the Company. The Company has incurred cash losses in the current year and in the previous year.

(xi) According to the information and explanations given to us, the Company has defaulted in payment of interest dues to debenture holders, financial institution and Banks. The amounts of delays in interest servicing in respect of Rupee Term Loan, FITL, Priority Loan and Working Capital Term Loan were Rs. 270.76 Crore for a period ranging from 1 days to 78 days. The amounts of default in payment of interest and amounts overdrawn on cash credit facility was Rs. 24.09 Crore as at September 2014. The amount of default in payment of interest on Debentures was 19.14 Crore ranging from 1 days to 118 days. The amounts include the continuing default as at Balance Sheet date on repayment of interest which is annexed to the financial statements.

(xii) According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures or other securities. Accordingly the provisions of clause 4(xii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xiii) The Company is not a nidhi / mutual benefit fund / societies. Accordingly the provisions of clause 4(xiii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xv) According to the information and explanations the Company has given corporate guarantee for loans taken by other companies being subsidiary companies of this Company from banks or financial institutions. The other terms and conditions are not prima-facie prejudicial to the interest of the Company.

(xvi) Based on the information and explanation given by the management the terms loans during the year were taken for funding the cash flow mismatches and for working capital thereby the term loans taken during the year have been applied for the purpose for which the loans were obtained.

(xvii) In our opinion and according to the information and explanation given to us and on an overall examination of the Balance Sheet of the Company as at 30 September 2014, we report that no short terms funds were used for long-term purposes.

(xviii) The Company during the year has not made any preferential allotment of shares to any parties or companies covered in the register maintained under Section 301 of the Companies Act 1956. Accordingly, the provisions of clause 4(xviii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xix) The Company has not issued any debentures during the year. Accordingly, the provisions of clause 4(xix) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xx) The Company has not raised any money by public issues during the year. Accordingly, the provisions of clause 4(xx) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xxi) Based on the audit procedures performed and the information and explanation given by the management we report that no fraud on or by the Company has been noticed or reported during the year except for instances of malafide conduct by certain employees resulting in their dismissal from the employment from the Company.

For Natvarlal Vepari & Co.

Chartered Accountants

Firm Registration No 106971W

N Jayendran

Partner

M. No. 40441

Mumbai, Dated: 5 December 2014

---

Dec 31, 2013

We have audited the accompanying Financial Statements of Gammon India Limited ("the Company"), which comprises the Balance Sheet as at 31 December, 2013 and the Statement of Profit and Loss and the Cash Flow Statement for the period April 1, 2013 to December 31, 2013 ("period") and a summary of significant accounting policies and other explanatory notes on that date in which are incorporated the returns of the Nagpur branch including the overseas branches at Algeria, Nigeria, Kenya, Bhutan, Ethiopia & Italy audited by branch auditors.

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") read with the General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that 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 control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Basis For Qualified Opinion

a. The accounts of one of the subsidiaries M/s Franco Tosi Meccanica S.p.A (FTM) have not been audited since December 2011 for reasons mentioned in note 33(c) of the financial statements which inter-alia covers the application for pre-insolvency composition agreement with creditors in Italian court and continuous shifting of dates and delays in conclusion of the process of restructuring. In the light of the on-going procedure the Commissioner in charge of the restructuring procedure has not released any financials. There are therefore no financials available after December 2012 being the date when the Management prepared the last financial statements, which were subject to audit. The management had during the previous year ended 31 March 2013 on a prudent basis made an ad-hoc provision towards possible impairment towards the investment in FTM. The management is actively pursuing sale of the stake in FTM as mentioned in note 33 (c). The group''s exposure in the said subsidiary (net of provisions and credit balance in Foreign Exchange Translation Reserve) is Rs. 570.42 Crore which includes the loans made and Investments made oft 268.44 Crore and the exposure of corporate guarantee towards the borrowing made by the overseas SPV through which the step down subsidiary is held of Rs. 301.98 Crore. Further there are guarantee exposures towards the non-fund based guarantees given to the projects of the said subsidiary oft 415.15 Crore outstanding as at 31 December 2013. In the absence of financial statements and financial information after 31 December 2012 we are unable to comment upon the adequacy or otherwise of the provision already made which cannot be quantified.

b. The accounts of M/s SAE Powerlines S.r.l, (SAE) a subsidiary of the Company, are as per unaudited management prepared accounts for which audit is not completed. On account of the accumulated losses and the lack of financial support from banks the going concern assumption needs to be tested by comprehensive audit procedures, which in the absence of audit being completed has not been ascertained. On the basis of bids available for which negotiations are going on for the stake sale of SAE, the Company has made provisions for impairment of investments, loans and towards corporate guarantee for acquisition loan of the said SAE, in excess of the offer price being negotiated as detailed in explanatory note no. 33(e). In the absence of firm offer for purchase of the stake in SAE, we are unable to comment on the adequacy of the provisions made thereof.

c. The Company has made contribution to various funds during the period of an amount oft 0.36 Crore. In view of the losses in the last three years the Company requires the permission of the members in the General meeting for making such donations and contributions to charitable institutions, which it has not obtained as required by clause (e) of sub-section (1) of Section 293 of the Companies Act, 1956. Had the donations not been made the losses would have been lower byt 0.36 Crore.

d. The Company''s Application for managerial remuneration for the Chairman and Managing Director and other executive directors is rejected for some of the previous years, partly accepted for some years and no decision has been taken for the balance years. In view of the same no effect has been given in the attached financial statements for the following:

i. Recovery of Managerial Remuneration of 2.10 Crore for year ended 31 March 2012 and 2013 for application rejected and partly allowed for which the company has gone into a review appeal.

ii. Managerial remuneration paid in excess of limits of 10.98 Crore for which no decision has been taken.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in our basis for qualified opinion paragraph, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) In the case of the Balance Sheet, of the state of affairs of the Company as at December 31, 2013;

(b) In the case of the Statement of Profit and Loss of the Loss for the period April 1, 2013 to December 31, 2013; and

(c) In the case of the Cash Flow Statement, of the cash flows for the year ended on that date. Emphasis of Matter

(a) We draw attention to Note no. 15(a) of the explanatory notes relating to recoverability of an amount of Rs. 150.09 Crore as at March 2013 out of which Rs.14.12 Crore has been collected under trade receivables in respect of contract revenue where the Company has received arbitration awards in its favor in respect of which the client has preferred an appeal for setting aside the said arbitration awards and Rs. 58 Crore where the Company is confident of recovery based on advanced stage of negotiation and discussion. The recoverability is dependent upon the final outcome of the appeals & negotiations getting resolved in favour of the company.

(b) We also invite attention to note 33(b) in case of Sofinter S.p.A where the management has made assertions about the investment and reasons why the same does not require any provision towards diminution in the value of investment and loans provided. Relying on the assertions no adjustments have been made in the financials towards possible impairment.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 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.

2. As required by Section 227(3) of the Companies Act 1956, we report that:

i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our Audit.

ii) In our opinion, proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of the books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us.

iii) The reports on accounts of the branches audited by the other Auditors have been forwarded to us as required by clause (c) of sub-section (3) of Section 228 and have been appropriately dealt by us in preparing our report.

iv) The Balance Sheet, Statement of Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts and with the returns received from the branches not visited by us.

v) In our opinion, the Balance Sheet, Statement of Profit and Loss Account and the 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 read with the General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013.

vi) On the basis of the written representation received from the directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 December 2013 from being appointed as a director in terms of Clause (g) of Sub-section (1) of Section 274 of the Companies Act, 1956 on the said date.

ANNEXURE TO THE AUDITOR''S REPORT

Gammon India Limited

(Referred to in our report of even date)

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

(b) The company has a program for physical verification of its fixed assets at periodic intervals. In our opinion, the period of verification is reasonable having regard to the size of the company and the nature of its assets and operations. The discrepancies reported on such verification are not material and have been properly dealt with in the books of account.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(ii) (a) Inventories, being project materials have been physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of such verification is reasonable.

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

(c) The discrepancies noticed between the physical stocks and books stocks were not material and the valuation of stock has been done on the basis of physically verified quantity. Therefore Shortage / Excess automatically get adjusted and the same is properly dealt in the books of accounts.

(iii) (a) The company has during the year granted unsecured loans to twelve parties covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 1123.85 Crore and at the end of the year balance of loans granted to such parties was Rs. 1122.33 Crore.

(b) In our opinion the rate of interest, wherever charged, and the other terms and conditions of such loans are not prima-facie prejudicial to the interest of the Company.

(c) There are no stipulations for the repayment of principal and the interest, wherever charged. The outstanding overdue interest receivable as at 31 December 2013 was Rs. 48.60 Crore.

(d) Most of these parties are subsidiaries of the Company and therefore are being monitored for the recovery.

(e) The company has during the year taken interest free unsecured loans as promoters contribution as per the CDR scheme from three parties covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 100 Crore and at the end of the year balance of loans granted to such parties was Rs. 100 Crore.

(f) In our opinion and according to the information and explanations given to us, the rate of interest, wherever charged and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

(g) Based on the terms of the Master Restructuring agreement signed with the CDR lenders the loans are subordinate to the restructured facilities and hence there are no repayments stipulated and the loans are interest free.

(iv) In our opinion and according to the information and explanations given to us the implementation of the internal control procedure and assessment of risks in respect of the sub contract and other site expenditure, material reconciliations, purchases needs strengthening to make it commensurate with the size and nature of its operations. In respect of the purchase of fixed assets and sale of goods and services the internal control procedures are commensurate with the size of the company and the nature of its business. The weakness with respect to the adherence to the Internal control procedures for above referred activities are still continuing as at the balance sheet date which were reported upon in the previous audit reports. However the company has taken steps to correct the same by strengthening internal audits and control mechanisms and centralising many of the activities to make the overall internal control procedures commensurate with the size and nature of operations.

(v) a) In our opinion and according to the information and explanations given to us the transactions that need to be entered into the register in pursuance of Section 301 of the Act have been so entered.

b) All the transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time and the nature of services rendered by such parties.

(vi) The Company has not accepted any deposits from the public during the year under review and consequently the directives issued by the Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and the rules framed there under are not applicable. We are further informed that no orders have been passed by the company law board in the case of the company requiring compliances.

(vii) In our opinion the internal audit system is presently commensurate with the size and nature of its business.

(viii) We have broadly reviewed the cost records maintained by the company pursuant to the Companies (Cost Accounting Records) Rules 2011 prescribed by the company under 209(1 )(d) of the Companies Act, 1956 and are of the opinion that prima facie the prescribed records have been maintained. We have however not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

(ix) (a) The company has several instances of delay in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Works Contract Tax, Service Tax / VAT, Cess and Sales Tax dues with the appropriate authorities observed on a test check basis.

(b) On the basis of the audit procedures followed, test checks of the transaction and the representation from the Management there are arrears amounting to Rs. 0.25 Crore to be deposited with Investor Education and Protection Fund, Rs. 0.11 Crore in case of Service Tax, Rs. 2.36 Crore in case of

Provident Fund, Rs. 0.13 Crore in case of Works Contract Tax, Rs. 1.08Crore in case of Road Tax, Rs. 0.48 Crore in case of Value Added Tax, Rs. 0.27 Crore in case of Professional Tax, Rs. 0.06 Crore in case of Deposit Linked Insurance Scheme, Rs. 0.19 Crore in case of Pension Fund, Rs. 0.01 Crore in case of Labour Welfare Fund, Rs. 0.02 Crore in case of Employee''s State Insurance Scheme and Rs. 5.34 Crore in case of Royalty which were outstanding as at the last day of the financial year for a period of more than six months from the date they became payable.

(c) According to the information and explanation given to us, the details of Sales Tax, Income Tax, Service Tax and Excise Duty that have not been deposited on account of dispute are stated in the Statement of statutory dues outstanding attached herewith.

(x) The accumulated losses of the company are in excess of 50% of the Net worth of the company and the Company has incurred cash losses in the current year as well as in the previous year.

(xi) According to the information and explanations given to us, the Company has defaulted in repayment of dues to financial institution and Banks. The amounts of defaults in repayment of short term demand Loan were aggregating to Rs. 11.38 Crore for a period ranging from 16 days to 148 days. The amounts of default in payment of interest on long-term and short term loans were aggregating to Rs. 59.57 Crore respectively for a period ranging from 1 to 284 days.

Further, there are defaults as at Balance Sheet date, which includes amount of Rs. 32.42 Crore in case of Interest payments of various facilities, availed by the company. The company has overdrawn the Working Capital and Cash Credit limit amounting to Rs. 10.65 Crore as on the date of Balance Sheet. The company has also defaulted in payment of professional fees for the service rendered by to one of its bankers amounting to Rs. 1.38 Crore. The facilities wise break-up of continuing default is disclosed by the Company in Annexure 1 to the financial statements.

The defaults above do not include the defaults in repayments which were subsequently cured by the Master Restructuring Agreement signed with the CDR lenders amounting to Rs. 46.28 Crore.

(xii) According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures or other securities. Accordingly the provisions of clause 4(xii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xiii) The Company is not a nidhi / mutual benefit fund / societies. Accordingly the provisions of clause 4(xiii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xv) According to the information and explanations the company has given corporate guarantee for loans taken by other companies being subsidiary companies of this Company from banks or financial institutions. The other terms and conditions are not prima-facie prejudicial to the interest of the Company.

(xvi) Based on the information and explanation given by the management the terms loans during the year were taken for funding the cash flow mismatches and for working capital thereby the term loans taken during the year have been applied for the purpose for which the loans were obtained.

(xvii) In our opinion and according to the information and explanation given to us and on an overall examination of the balance sheet of the company as at December 31, 2013, we report that no short term funds were used for long-term purposes.

(xviii) The Company during the year has not made any preferential allotment of shares to any parties or companies covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4(xviii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xix) The Company has not issued any debentures during the year. Accordingly, the provisions of clause 4(xix) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xx) The Company has not raised any money by public issues during the year. Accordingly, the provisions of clause 4(xx) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

(xxi) Based on the audit procedures performed and the information and explanation given by the management we report that no fraud on or by the Company has been noticed or reported during the year except for instances of malafide conduct by certain employees including fraud, dishonesty and misconduct amounting to Rs. 4.02 Crore. The management has accounted for these costs in the financial statements.

For Natvarlal Vepari & Co.

Chartered Accountants

Firm Registration No 106971W

N.Jayendran

Partner

M. No. 40441

Mumbai, Dated: March 18, 2014

---

Mar 31, 2012

1. We have audited the attached Balance Sheet of Gammon India Limited ("the Company") as at 31st March 2012 and the Statement of Profit and Loss and the Cash Flow Statement of the Company for the year ended on that date in which are incorporated the returns of the Nagpur branch including the overseas branches at Algeria, Nigeria, Kenya, Bhutan, Ethiopia & Italy audited by branch auditors. These financial statements are the responsibility of the CompanyRs.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. Without qualifying our report we invite attention to

a. Note no 15(a) of the explanatory notes relating to recoverability of an amount of Rs. 109.09 Crore under trade receivables in respect of recognition of contract revenue in previous years where the Company has received arbitration awards in its favor in respect of which the client has preferred an appeal for setting aside the said arbitration awards. The recoverability is dependent upon the final outcome of the appeals getting resolved in favor of the Company.

b. Note no 32(c) to the notes to accounts relating to the investments in one of the Joint Ventures of a wholly owned subsidiary which has applied for creditorsRs. protection in a Court in Italy. The final outcome and the resultant investment would be dependent upon the approval of the courts to the composition scheme pending which no effects have been taken in these accounts.

c. Note no 23(a) regarding payment of remuneration to the managerial persons being in excess of the limits specified by the relevant provisions of Companies Act 1956 by Rs. 2.87 Crore. The Company is in process of seeking shareholders approval for the remuneration paid as the minimum remuneration and pursuant thereto making an application to the Central Government in this regard for such excess payment of managerial remuneration. Pending the final outcome of the Company's application no adjustments have been made to the accompanying financial statements in this regard.

4. As required by the Companies (Auditor's Report) Order, 2003 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 Annexurea statement on the matters specified in paragraphs 4 and 5 of the said Order on the basis of information and explanations received by us and reports of the branch auditors on which we have relied.

5. Attention is invited to note no 41 of the explanatory notes in respect of the Joint Venture in Oman. The statutory auditors of the Joint Venture have qualified that the Joint Venture has certain contingent liabilities amounting to RO 615637 ft 8.26 Crore), which in their opinion, is more likely than not that the Joint Venture would be liable to incur the expenses. The Company in turn would be liable to make good the losses in the event such liabilities are accrued in the Joint Venture.

6. 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 purpose of our Audit.

ii) In our opinion, proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of the books. Proper returns adequate for the purpose of our audit have been received from the branches not visited by us.

iii) The reports on accounts of the branches audited by the other Auditors have been forwarded to us and have been appropriately dealt by us in preparing our report.

iv) The Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of accounts.

v) In our opinion, the Balance Sheet, Statement of Profit and Loss and the 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.

vi) On the basis of the written representation received from the Directors and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March 2012 from being appointed as a Director in terms of Clause (g) of Sub-section (1) of section 274 of the Companies Act, 1956 on the said date.

vii) In our opinion and to the best of our information and according to the explanation given to us, subject to paragraph 5 above regarding the operations in Oman, the said accounts and the notes thereon give the information required by the Companies Act, 1956 in the manner so require 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 31st March 2012 And

b) In the case of Statement of Profit and Loss of the profit for the year ended on 31st March 2012.

c) In the case of the Cash Flow Statement of the net cash flow for the year ended on that date.

Annexure To The Auditors' Report

(REFERRED TO IN PARAGRAPH 6 OF OUR REPORT OF EVEN DATE)

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

(b) The Company has a program for physical verification of its fixed assets at periodic intervals. In our opinion, the period of verification is reasonable having regard to the size of the Company and the nature of its assets and operations. The discrepancies reported on such verification are not material and have been properly dealt with in the books of account.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(ii) (a) Inventories, being project materials and the stocks of finished goods, stores and raw materials in respect if its manufacturing operations have been physically verified by the management at reasonable intervals during the year. In our opinion, the frequency of such verification is reasonable.

(b) In our opinion and according to the information and explanations given to us, the procedure of physical verification of stock followed by the management is reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The discrepancies noticed between the physical stocks and books stocks were not material and the valuation of stock has been done on the basis of physically verified quantity. Therefore Shortage / Excess automatically get adjusted and the same is properly dealt in the books of accounts.

(iii) (a) The Company has during the year granted unsecured loans to 2 party covered in the register maintained under section 301 of the Companies Act, 1956.

The maximum amount involved during the year was Rs. 168.2 Crore and at the end of the year balance of loans granted to such parties was Rs. 156.59 Crore.

(b) In our opinion the rate of interest, wherever charged, and the other terms and conditions of such loans are not prima-facie prejudicial to the interest of the Company.

(c) There are no stipulations for the repayment of principal and the interest, wherever charged. The outstanding overdue interest receivable as at 31s March 2012 was Rs. 38.55 Crore.

(d) The Company has not taken any loans from 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 the internal control procedure in respect of the purchase of inventory needs strengthening to make it commensurate with the size and nature of its operations. In respect of the purchase of fixed assets and sale of goods and services the internal control procedures are commensurate with the size of the Company and the nature of its business. The Company is taking steps to strengthen its internal control procedure in respect of inventory to make it commensurate with the size and nature of its operations. There are however no cases of continuing failure to correct major weaknesses in internal controls.

(v) (a) In our opinion and according to the information and explanations given to us the transactions that need to be entered into a register in pursuance of section 301 of the Act have been so entered.

(b) All the transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time and the nature of services rendered by such parties.

(vi) The Company has not accepted any deposits from the public during the year under review and consequently the directives issued by the Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and the rules framed there under are not applicable. We are further informed that no orders have been passed by the Company law board in the case of the Company requiring compliance.

(vii) In our opinion the internal audit system is presently commensurate with the size and nature of its business.

(viii) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules 2011 prescribed by the Company under 209(1)(d) of the Companies Act 1956 and are of the opinion that prima facie the prescribed records have been maintained. We have however not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

(ix) (a) The Company is by and large regular in depositing Provident Fund, Employees State Insurance, Income Tax, Wealth Tax, Service Tax/VAT and Sales Tax dues with the appropriate authorities observed on a test check basis except for many cases of delays observed in deposit of Tax Deducted at Source , VAT, Service tax and Provident fund at sites.

(b) On the basis of the audit procedures followed, test checks of the transaction and the representation from the Management there are no arrears of outstanding statutory dues as at the last day of the financial year for a period of more than six months from the date they became payable except Rs. 0.18 Crore to be deposited with Investor Education and Protection Fund.

(c) According to the information and explanation given to us, the details of Sales tax, Service tax and Excise duty that have not been deposited on account of dispute are stated in the statement attached herewith.

(x) The Company does not have any accumulated losses and has not incurred cash losses in current year and the previous year.

(xi) Based on our audit procedures and as per the information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to a financial institution or bank or debenture holders.

(xii) According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures or other securities.

(xiii) The Company is not a nidhi / mutual benefit fund / societies. Accordingly the provisions of clause 4(xiii) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

(xv) According to the information and explanations the Company has given corporate guarantee for loans taken by other companies from banks or financial institutions. The other terms and conditions are not prima-facie prejudicial to the interest of the Company.

(xvi) The term loans taken during the year have been applied for the purpose for which the loans were obtained.

(xvii) In our opinion and according to the information and explanation given to us and on an overall examination of the balance sheet of the Company as at March 31, 2012, we report that funds raised on short term basis of Rs. 199.63 Crore have been applied for long term purposes.

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

(xix) The Company has not issued any debentures during the year. Accordingly, the provisions of clause 4(xix) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

(xx) The Company has not raised any money by public issues during the year. Accordingly, the provisions of clause 4(xx) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

(xxi) The management has represented that during internal investigations by the Company, instances of malafide conduct by certain employees were observed at two sites by the Company. The Company has lodged an FIR on some counts and is in the process of filing FIR on other counts. The total quantum of amount attributable to malafide conduct is yet to be determined and finalised and will crystallise on completion of Investigation jointly with the Authorities. The Management does not expect any impact on the financials as all possible losses attributable to the matter have already been booked and appropriate intimation towards fidelity insurance have been given to the Insurance Company.

Statement Of Statutory Dues Outstanding On Account Of Disputes, As On 31st March, 2012,

(Referred to in Para (ix)(c) of the Annexure to Auditors' Report)

Name of the State Nature of the dues Statute

Sales Tax A.P. Sales in Transit (E-1)

A.P. Reassessment matter

A. P. Tax levied on value of material instead of purchase price. Rule 6(3)(i)

A. P. Tax levied on value of material instead of purchase price. Rule 6(3)(i)

A.P. Disallowance of Inter state purchase

A.P. Levy of Penalty

Sales Tax Gujarat Levy of Penalty

Gujarat Levy of Penalty

Gujarat Disallowance of TDS Credit & Penalty charged

Sales Tax M.P. Entry Tax

Sales Tax Maharashtra Denial of deduction on Pre cost component

Disallowance of WCT & BST

Lease Matter

Lease Matter

Sales Tax Orissa Lab. and Service Charges disallowed

Various disallowance

Sales Tax West Bengal CTO wrongly estimated Transfer Price

Arbitary Demand

Arbitary order

Demand reassessment reopened

Sales Tax Jharkhand Non Receipt of F Form

Sales Tax Chattisgarh Entry Tax

Sales Tax Assam Arbitary Demand

Sales Tax Rajasthan Increase in EC fees, Interest

Service Tax Gujarat River Development Matter

Service Tax Gujarat Whether for commercial purpose or not

Service Tax Bhilai Show Cause cum Demand notice

Service Tax Karnataka Non Inclusion of Value of Material

Service Tax Karnataka Non Inclusion of Value of Material

Service Tax Imports Show Cause cum Demand notice

Service Tax Chhattis garh Stay of Demand application

Service Tax Chhattis garh Pending for adjudication with commissioner

Service Tax Various Projects where materials are provided by client as free of Cost

Excise Chennai Disputed Demand

Name of the Statute Amount in Period to which it Forum where Dispute is Crore relates pending

Sales Tax 0.13 1987-1988 D.C. Appeals

0.19 2001-2002 H.C.

2.10 2002-2003 Tribunal / H.C.

1.64 2003-2004 Tribunal / H.C.

0.23 2005 to 2007 H.C.

1.90 2005 to 2007 H.C.

Sales Tax 0.01 2001-2002 J C Appeals

0.22 2003-2004 J C Appeals

0.11 2004-2005 Asst. Commisioner of Commercial tax

Sales Tax 0.10 2009-2010 DC Appeals

Sales Tax 0.79 1993-1994 to 1997-1998 Tribunal / A.C. Appeals

5.84 2000 to 2002 Jt. Appeals / Tribunal

0.19 1998-1999 to 2001-2002 Bombay High Court / Jt. Appeals

0.10 2005-2006 Jt. Appeals II

Sales Tax 0.11 1992-1993 to 1999-2000 A.C. Appeals

0.40 2001 to 2004 A.C. Appeals

Sales Tax 0.64 1994-1995 to 2002-2003 Tribunal

4.99 2007-2008 Tribunal

1.31 2007-2008 (CST) Tribunal

6.76 2005 to 2007 High Court

Sales Tax 0.04 2001-2002 C.T.

Sales Tax 0.05 1979-1980 to 1998-1999 Tribunal

Sales Tax 1.12 2006-2007 Appeal

Sales Tax 0.74 2005 to 2009 DC Appeals/ Tax Law Board

Service Tax 5.65 2005 to 2010 A.D.G / C.T.

Service Tax 5.73 2005 to 2007 A.D.G.

Service Tax 1.00 2006 to 2010 A.D.G./ C.T

Service Tax 0.25 2006-2007 DG -CEI

Service Tax 2.58 2006 to 2009 DG -CEI

Service Tax 1.92 2004 to 2008 A.D.G-CET

Service Tax 1.34 2004 to 2007 DGCEI

Service Tax 0.18 2007 to 2011 SCN/ST/MUM/DIV

Service Tax 2.48 2004 to 2009 ST / HQ.

Excise 0.03 2006 CESTAT Chennai

GRAND TOTAL 50.87



For Natvarlal Vepari & Co.

Chartered Accountants

Firm Registration No 106971W

N. Jayendran

Partner

M. No. 40441

Mumbai, Dated: 14th August 2012

---

Mar 31, 2011

1. We have audited the attached Balance Sheet of Gammon India Limited ("the Company") as at 31st March 2011 and the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date in which are incorporated the returns of the Nagpur branch including the overseas branches at Algeria, Nigeria, Kenya, Bhutan & Italy audited by branch auditors. 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. Without qualifying our report we invite attention to:

a. Note no. 13 to the notes to accounts relating to recoverability of an amount of Rs. 94.54 crores under sundry debtors in respect of recognition of contract revenue in previous years where the company has received arbitration awards in its favour in respect of which the client has preferred an appeal for setting aside the said arbitration awards. The recoverability is dependent upon the final outcome of the appeals getting resolved in favour of the company.

b. Note no. 29C to the notes to accounts relating to the investments in one of the joint ventures of a wholly owned subsidiary which has applied for creditors' protection in a Court in Italy. The final outcome and the resultant investment would be dependent upon the approval of the courts to the composition scheme pending which no effects have been taken in these accounts.

c. Note no. 37(b) to the notes to accounts relating to recognition of variation claims and revenue in respect of works carried out by the joint venture in Oman, where the final outcome of the project is dependent on the resolution of the disputes and settlement of the claims by the client.

4. As required by the Companies (Auditor's Report) Order, 2003 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 on the basis of information and explanations received by us and reports of the branch auditors on which we have relied.

5. 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 purpose of our Audit.

(ii) In our opinion, proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of the books. Proper returns adequate for the purpose of our audit have been received from the branches not visited by us.

(iii) The reports on accounts of the branches audited by the other Auditors have been forwarded to us and have been appropriately dealt by us in preparing our report.

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

(v) In our opinion, the Balance Sheet, Profit and Loss Account and the 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.

(vi) On the basis of the written representation received from the directors 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 on the said date.

(vii) In our opinion and to the best of our information and according to the explanation given to us, the said accounts and the notes thereon give the information required by the Companies Act, 1956 in the manner so require 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 31st March 2011 and

(b) in the case of Profit and Loss Account of the profit for the year ended on 31st March 2011.

(c) in the case of the Cash Flow Statement, of the net cash flow for the year ended on that date.

Annexure to the Auditors' report (referred to in pArAGrAph 5 of our report of even dAte)

(i) (a) The Company is maintaining proper records showing particulars, including quantitative details and situation of fixed assets;

(b) The Company has a regular program for 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 and operations. In accordance with this programme, the management during the current year has physically verified significant fixed assets and no material discrepancies have been identified on such verification.

(c) The Company has not disposed off any substantial part of the fixed assets.

(ii) (a) The Company is primarily a construction company having work sites spread all over India and Abroad. The records of materials, stores are maintained at the respective sites, which have been verified by the management during the year at reasonable intervals. In respect of its manufacturing operations the stock of finished goods, stores, spare parts and raw materials has been physically verified by the management at reasonable intervals during the year.

(b) In our opinion and according to the information and explanations given to us, the procedure of physical verification of stock followed by the management is reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The discrepancies noticed between the physical stocks and books stocks were not material and the valuation of stock has been done on the basis of physically verified quantity. Therefore Shortage/Excess automatically get adjusted and the same is properly dealt in the books of accounts.

(iii) (a) The Company has during the year granted unsecured loans to 2 party covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 160.92 crores and at the end of the year balance of loans granted to such parties was Rs. 160.92 crores.

(b) In our opinion the rate of interest, wherever charged, and the other terms and conditions of such loans are not prima-facie prejudicial to the interest of the Company.

(c) There are no stipulations for the repayment of principal and the interest, wherever charged. The outstanding interest receivable as at 31st March 2011 was Rs. 23.79 crores.

(d) The Company has not taken any loans from 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 a reasonable internal control procedure commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services which has scope for further improvement. We have however not come across any continuing failure to correct major weaknesses in internal control.

(v) (a) In our opinion and according to the information and explanations given to us the transactions that need to be entered into a register in pursuance of Section 301 of the Act have been so entered.

(b) All the transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time and the nature of services rendered by such parties.

(vi) The Company has not accepted any deposits from the public during the year under review and consequently the directives issued by the Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and the rules framed there under are not applicable. We are further informed that no orders have been passed by the Company law board in the case of the Company requiring compliance.

(vii) In our opinion the internal audit system is presently commensurate with the size and nature of its business.

(viii) According to the information and explanations given to us, the Central Government has prescribed the maintenance of cost records under Section 209 (1) (d) of the Companies Act, 1956 with respect to the Branch's Conductor Division and that the Branch has maintained such accounts and records. No examination of such records has been carried out by us.

(ix) (a) The Company is generally regular in depositing Provident Fund, Employees State Insurance, Income tax, wealth tax and sales tax dues with the appropriate authorities observed on a test check basis except for many cases of delays observed in deposit of TDS, service tax and PF at sites.

(b) On the basis of the audit procedures followed, test checks of the transaction and the representation from the Management there are no arrears of outstanding statutory dues as at the last day of the financial year for a period of more than six months from the date they became payable except Rs. 0.19 crores to be deposited with Investor Education and Protection Fund.

(c) According to the information and explanation given to us, the following Tax / duty etc. has not been deposited on account of dispute.

Name of State Nature of the dues Amount Period to which it Forum where the Statute in Crores relates Dispute is pending

Sales Tax A.P. Sales in Transit (E-1) 0.13 1987-88 D.C. Appeals

A.P. Reassessment matter 0.23 1999-00 Tribunal

A.P. Reassessment matter 0.19 2001-02 H.C.

A.P. Tax levied on value of material 2.10 2002-03 Tribunal/H.C. instead of purchase price. Rule 6(3)(i)

A.P. Tax levied on value of material 1.64 2003-04 Tribunal/H.C. instead of purchase price. Rule 6(3)(i)

A.P. Disallowance of Inter state 0.23 2005-07 H.C. purchase

A.P. Levy of Penalty 1.89 2005-07 H.C.

Sales Tax Gujarat Levy of Penalty 0.01 2001-02 J. C. Appeals

Gujarat Levy of Penalty 0.22 2003-04 J. C. Appeals

Gujarat Disallowance of TDS Credit & 0.11 2004-05 Asst. Commisioner Penalty charged of commercial tax

Sales Tax M.P. Entry Tax 0.01 1992-93 & A.C. Appeals 1993-94

Entry Tax 0.10 2009-10 D.C. Appeals

Sales Tax Mahara -shtra Denial of deduction on Pre cost 0.79 1993-94 to 1997-98 Tribunal/A.C. component Appeals

Disallowance of WCT & BST 5.84 2000 to 2002 Jt. Appeals/ Tribunal

Lease Matter 0.19 1998-99 to 2001-02 Bombay High Court / Jt. Appeals

Lease Matter 0.10 2005-06 Jt. Appeals II

Sales Tax Orissa Lab. and Service Charges 0.11 1992-93 to 1999-00 A.C. Appeals disallowed

various disallowance 0.88 2001-04 A.C. Appeals

Sales Tax West Bengal CTO wrongly estimated Transfer 0.64 1994-95 to 2002-03 Tribunal Price

Arbitary demand 4.98 2007-08 Tribunal

Sales Tax Jharkhand Non Receipt of F Form 0.04 2001-02 C.T.

Sales Tax H.P. Disallowance of deduction 1.82 2006-09 High Court

Sales Tax Chattis -garh Entry Tax 0.05 1979-80 to 1998-99 Tribunal

Sales Tax Kerala Best Judgment Offer 0.45 1999-00 to 2000-01 D.C. Appeals

Sales Tax Assam Arbitary Demand 1.12 2006-07 Appeal

Service Tax Gujarat River Development Matter 5.65 2005 to 2010 A.D.G / C.T.

Service Tax Gujarat Show Cause cum demand notice 1.48 2005-10 A.D.G / C.T.

Service Tax Gujarat Whether for commercial purpose 5.72 2005-07 A.D.G. or not

Service Tax Bhilai Show Cause cum demand notice 1.00 2006-2010 A.D.G. / C.T

Service Tax Karnataka Non Inclusion of value of Material 0.25 2006-07 DG – CEI

Service Tax Karnataka Non Inclusion of value of Material 2.57 2006-09 DG – CEI

Service Tax Imports Show Cause cum demand notice 1.92 A.D.G-CET

Excise Chennai Disputed Demand 0.03 2006 CESTAT Chennai

Custom Disputed Demand of NHAI 0.32 2001-02 S.C. Duty Project

Sales Tax Rajasthan Dispute in Increase in EC fees, 0.81 2005-06 to 2007-08 DC – Appeals Interest

(x) The Company does not have any accumulated losses and has not incurred cash losses in current year and the previous year.

(xi) In our Opinion and according to the information and explanation given to us by the Management the Company has not defaulted in repayment of dues to a financial institution or bank or debenture holders.

(xii) On the basis of the audit procedures followed, the test checks of the transactions during the course of our audit and the representations from the management, the Company has maintained adequate records for loans granted on the basis of security by way of pledge of shares.

(xiii) The Company is not a nidhi/mutual benefit fund/societies and accordingly clause (xiii) is not applicable.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

(xv) According to the information and explanations the Company has given corporate guarantee for loans taken by other companies from banks or financial institutions. The other terms and conditions are not prima-facie prejudicial to the interest of the Company.

(xvi) The term loans taken during the year have been applied for the purpose for which the loans were obtained.

(xvii) According to the information and explanation given to us, on an over all examination of the Balance sheet of the Company, we report that no short term funds have been applied towards long term purposes.

(xviii) The Company has made allotment of equity shares against equity warrants allotted in the previous year to parties and Companies covered in the Register maintained under Section 301 of the Act. The equity warrants were priced at a price prescribed in SEBI Issue of Capital and Disclosure Regulations 2009 and therefore the same are not prejudicial to the interests of the Company.

(xix) The Company has raised secured redeemable debentures aggregating to Rs. 100 crores during the year the securities in respect of which have been created before the balance sheet date.

(xx) The Company has not raised any money by public issues during the year and accordingly clause (xx) of Companies (Auditors' Report) Order, 2003 is not applicable.

(xxi) Based on the audit procedures performed and the information and explanation given by the management we report that no fraud on or by the Company has been noticed or reported during the year.

For NATVARLAL VEPARI & CO.

Chartered Accountants

Firm Registration No. 106971W

N. Jayendran

Partner

M. No. 40441

Mumbai, Dated: 12th August, 2011

---

Mar 31, 2010

1. We have audited the attached Balance Sheet of Gammon India Limited as at 31st March 2010 and the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date in which are incorporated the returns of the Nagpur branch including the overseas branches at Algeria, Nigeria, Kenya, audited by other auditors. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting 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. We did not audit the financial statements of Gammon India Limited – Nagpur Branch which was audited by the branch auditors refecting total assets of Rs. 1,439.46 Crores and total revenue of Rs. 1,291.48 Crores whose reports have been received by us.

4. Without qualifying our report we invite attention to:

a. Note no B-12 to the notes to accounts relating to recoverability of an amount of 94.54 Crores under sundry debtors in respect of recognition of contract revenue in previous years where the Company has received arbitration awards in its favour in respect of which the client has preferred an appeal for setting aside the said arbitration awards. The recoverability is dependent upon the final outcome of the appeals getting resolved in favour of the Company.

b. Note no. 28C to the notes to accounts relating to the investments in one of the joint ventures of a wholly owned subsidiary which has applied for creditors protection in a Court in Italy. The final outcome and the resultant investment would be dependent upon the approval of the courts to the composition scheme pending which no effects have been taken in these accounts.

c. Note no. 38(b) to the notes to accounts relating to recognition of variation claims and revenue in respect of works carried out by the joint venture in Oman, where the final outcome of the project is dependent on the resolution of the disputes and settlement of the claims by the client.

5. As required by the Companies (Auditors Report) Order, 2003 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 on the basis of information and explanations received by us and reports of the branch auditors on which we have relied.

6. 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 purpose of our Audit.

(ii) In our opinion, proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of the books. Proper returns adequate for the purpose of our audit have been received from the branches not visited by us.

(iii) The reports on accounts of the branches audited by the other Auditors have been forwarded to us and have been appropriately dealt by us in preparing our report

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

(v) In our opinion, the Balance Sheet, Profit and Loss Account and the 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.

(vi) On the basis of the written representation received from the directors 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 on the said date.

(vii) In our opinion and to the best of our information and according to the explanation given to us, the accounts and the notes thereon give the information required by the Companies Act, 1956 in the manner so require and give a true and fair view.

(a) in the case of Balance Sheet of the State of Affairs of the Company as at 31st March 2010;

(b) in the case of Profit and Loss Account of the profit for the year ended on 31st March 2010; and

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

ANNEXURE TO THE AUDITORS REPORT (REfERRED TO IN PARAGRAPH 5 Of OUR REPORT Of EvEN DATE)

(i) (a) The Company is maintaining proper records showing particulars, including quantitative details and situation of fixed assets;

(b) The Company has a regular program for 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 and operations. In accordance with this programme, the management during the current year has physically verified significant fixed assets and no material discrepancies have been identified on such verification.

(c) The Company has not disposed off any substantial part of the fixed assets.

(ii) (a) The Company is primarily a construction company having work sites spread all over India and Abroad. The records of materials, stores are maintained at the respective sites, which have been verified by the management during the year at reasonable intervals. In respect of its manufacturing operations the stock of finished goods, stores, spare parts and raw materials has been physically verified by the management at reasonable intervals during the year.

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

(c) The discrepancies noticed between the physical stocks and books stocks were not material and the valuation of stock has been done on the basis of physically verified quantity. Therefore Shortage/excess automatically get adjusted and the same is properly dealt in the books of accounts.

(iii) (a) The Company has during the year granted unsecured loans to one party covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 139.46 Crores and at the end of the year balance of loans granted to such parties was Rs. 67.20 Crores.

(b) In our opinion the rate of interest, wherever charged, and the other terms and conditions of such loans are not prima facie prejudicial to the interest of the Company.

(c) There are no stipulations for the repayment of principal and the interest, wherever charged. The outstanding interest receivable as at 31st March 2010 was Rs. 13.19 Crores.

(d) The Company has not taken any loans from 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 a reasonable internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services which has scope for further improvement. We have however not come across any continuing failure to correct major weaknesses in internal control.

(v) (a) In our opinion and according to the information and explanations given to us the transactions that need to be entered into a register in pursuance of Section 301 of the Act have been so entered.

(b) All the transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time and the nature of services rendered by such parties.

(vi) The Company has not accepted any deposits from the public during the year under review and consequently the directives issued by the Reserve Bank of India and the provisions of Sections 58A and 58AA of the Act and the rules framed there under are not applicable. We are further informed that no orders have been passed by the Company Law Board in the case of the Company requiring compliance.

(vii) In our opinion the internal audit system is presently commensurate with the size and nature of its business.

(viii) According to the records produced and information given to us, the Central Government has not prescribed the maintenance of the cost records and accounts under Section 209(1)(d) of the Companies Act, 1956.

(ix) (a) The Company is generally regular in depositing Provident Fund, employees State Insurance, Income tax, wealth tax and sales tax dues with the appropriate authorities observed on a test check basis except for many cases of delays observed in deposit of TDS, service tax and PF at sites. Further the tax on dividend also was not paid on time and has been paid since the balance sheet date.

(b) On the basis of the audit procedures followed, test checks of the transaction and the representation from the Management there are no arrears of outstanding statutory dues as at the last day of the financial year for a period of more than six months from the date they became payable except vAT Tax/Works Contract Tax of Rs. 0.13 Crores, Profession Tax of Rs. 0.01 Crores, and Provident Fund/Family Pension Fund of Rs. 0.55 Crores and Rs. 0.26 Crores to be deposited with Investor education and Protection Fund.

(c) According to the information and explanation given to us, the following Tax/duty etc. has not been deposited on account of dispute.

Name of State Nature of the dues Rs. in Crores the Statute

Sales Tax A.P. Sales in Transit (e-1) 0.13

A.P. Reassessment matter 0.23 A.P. Reassessment matter 0.19

A.P. Tax levied on value of material 2.10

instead of purchase price.

Rule 6(3)(i)

A.P. Tax levied on value of material 1.64

instead of purchase price.

Rule 6(3)(i)

A.P. Rejection of Form G 1.77 A.P. Disallowance of Inter state 0.24

purchase

A.P. Levy of Penalty 1.89

Sales Tax Gujarat Levy of Penalty 0.01

Gujarat Levy of Penalty 0.20

Sales Tax M.P. Entry Tax 0.01

Sales Tax Maharashtra Denial of deduction on Pre cost 0.79

component

Disallowance of WCT & BST 5.66

Lease Matter 0.19

Sales Tax Orissa Lab. and Service Charges 0.11

disallowed

various disallowance 0.88

Sales Tax West Bengal CTO wrongly estimated Transfer 0.64

Price

Sales Tax Jharkhand Non Receipt of F Form 0.04

Sales Tax H.P. Disallowance of deduction 0.92

Sales Tax Chattisgarh Entry Tax 0.05

Disallowance of Sales in Transit 2.79

Sales Tax Kerala Best Judgment Offer 1.70

Sales Tax Assam Penalty u/s 10 of CST Act 0.84

excise AP Disputed Demand 1.38

Service Tax Gujarat - River Development Matter 5.60

Sabarmati Job

Service Tax Gujarat - Sipat Show Cause cum demand notice 1.43 Job

Service Tax Gujarat - Whether for commercial purpose 5.72

Surendran- agar or not

Name of the Statute Period to which it Forum where

relates Dispute is pending

Sales Tax 1987-88 D.C. Appeals

1999-00 Tribunal

2001-02 H.C.

2002-03 Tribunal / H.C.

2003-04 Tribunal / H.C.

2001-02 to D.C. Appeals

2004-05

2005-07 H.C.

2005-07 H.C.

Sales Tax 2001-02 J.C. Appeals

2003-04 J.C. Appeals

1992-93 & 1993-94 A.C. Appeals

1993-94 to 1997-98 Tribunal / A.C.

Appeals

1999-2002 Jt. Appeals / Tribunal

1998-99 to 2001-02 D.C. Appeals / Tribunal

Sales Tax 1992-93 to 1999-00 A.C. Appeals

2001-04 A.C. Appeals

Sales Tax 1994-95 to 2002-03 Tribunal

Sales Tax 2001-02 C.T.

Sales Tax 2006-09 High Court

Sales Tax 1979-80 to 1998-99 Tribunal

2005-06 D.C. Appeals

Sales Tax 1999-00 to 2000-01 D.C. Appeals

Sales Tax 2006-07 D.C. Appeals

Excise 2006-07 Commissioner-C ex

Service Tax 2005-2009 A.D.G / C.T.

2005-06 A.D.G / C.T.

Service Tax 2005-06 A.D.G.

Name of State Nature of the dues Rs. in Crores

the Statute

Service Tax Bhilai Demand Notice 0.96

Service Tax New India Non Inclusion of value of Material 0.25

Hotel

Service Tax Godrej Non Inclusion of value of Material 2.57 Woodsman

Excise Chennai Disputed Demand 0.03

Custom Disputed Demand of NHAI Project 0.32

Duty

Name of the Statute Period to which it Forum where

relates Dispute is pending

Service Tax A.D.G.

2006-09 DG -CeI

Service Tax 2006-09 DG -CeI

Excise 2006 CESTAT Chennai

Custom Duty 2001-02 S.C.

(x) The Company does not have any accumulated losses and has not incurred cash losses in current year and the previous year.

(xi) In our Opinion and according to the information and explanation given to us by the Management the Company has not defaulted in repayment of dues to a financial institution or bank or debenture holders.

(xii) On the basis of the audit procedures followed, the test checks of the transactions during the course of our audit and the representations from the management, the Company has maintained adequate records for loans granted on the basis of security by way of pledge of shares.

(xiii) The Company is not a nidhi/mutual benefit fund/societies and accordingly Clause (xiii) is not applicable.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause 4(xiv) of the Companies (Auditors Report) Order, 2003 (as amended) are not applicable to the Company.

(xv) According to the information and explanations the company has given corporate guarantee for loans taken by other companies from banks or financial institutions for which it has obtained counter guarantee from the other entities. The other terms and conditions are not prejudicial to the interest of the Company.

(xvi) The term loans taken during the year have been applied for the purpose for which the loans were obtained.

(xvii) According to the information and explanation given to us, on an over all examination of the Balance sheet of the Company, we report that no short term funds have been applied towards long term purposes.

(xviii) The Company has made preferential allotment of equity warrants during the year to parties and companies covered in the Register maintained under Section 301 of the Act, at a price prescribed in SEBI Issue of Capital and Disclosure Regulations 2009 and therefore the same are not prejudicial to the interests of the Company.

(xix) The Company has raised secured redeemable debentures aggregating to Rs. 74 crores during the year the securities in respect of which have been created before the balance sheet date.

(xx) The Company has not raised any money by public issues during the year and accordingly Clause (xx) of Companies (Auditors Report) Order, 2003 is not applicable.

(xxi) Based on the audit procedures performed and the information and explanation given by the management we report that no fraud on or by the company has been noticed or reported during the year.



For NATVARLAL VEPARI & CO.

Chartered Accountants

Firm Registration No. 106971W



N. Jayendran

Partner

M. No. 40441

Mumbai , Dated : 14th August, 2010