Auditor Report of Gokak Textiles Ltd.

Mar 31, 2016

INDEPENDENT AUDITOR''S REPORT TO THE MEMBERS OF GOKAK TEXTILES LIMITED

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of GOKAK TEXTILES LIMITED ("the Company"), which comprises the Balance Sheet as at March 31, 2016, the Statement of Profit and Loss, the Cash Flow Statement for the six months then ended, and a summary of significant accounting policies and other explanatory information.

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 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 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 provision of the Act for safeguarding 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.

Auditor''s Responsibility

Our responsibility is to express an opinion on these 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 the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company''s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2016, and its losses and its cash flows for the six months ended on that date.

Emphasis of Matters

In forming our opinion on the financial statements, in view of the accumulated losses and the labour related problems, we have considered and relied on the parent company''s commitment to and the active involvement in the Company and based on the above, the financial statements have been prepared on the Going Concern basis.

Our opinion is not modified in respect of the above matter.

Report on Other Legal and Regulatory Requirements

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

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

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.

In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditor''s report has been forwarded to us and has been appropriately dealt with.

The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account and with the audited returns received from the branches.

In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

On the basis of the written representations received from the directors as on March 31, 2016, and taken on record by the Board of Directors, we report that 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.

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

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:

The Company has disclosed the impact of pending litigations on its financial position in its financial statements - refer note 29 to the financial statements.

The Company does not have any material foreseeable losses on long term contracts including derivative contracts requiring provision under the applicable law or accounting standards.

There are no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

As referred to in Paragraph 1 under the heading "Report on Other Legal and Regulatory Requirements" of our Independent Auditor''s Report of even date on the standalone financial statements of Gokak Textiles Limited for the six months ended March 31, 2016.

Statement on Matters specified in paragraphs 3 and 4 of the Companies (Auditor''s Report) Order, 2016:

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

(b) As informed to us, the Company has a program for physical verification of fixed assets at periodic intervals. As informed to us, the fixed assets have been verified by the Company as per the program and we were informed that no material discrepancies were noticed.

(c) Based on the information and explanations given to us and on the basis of examination of the records of the Company, the details of title deeds of immovable properties are as under:

Sr. No.	Nature of asset	No. of Cases	Whether Leasehold / Freehold	Gross Block as on March 31, 2016	Net Block as on March 31, 2016	Remarks
				Rupees	Rupees
1.	Land	1	Freehold	11,35,177	11,35,177	* The title deeds of the property are in the name of erstwhile entities (Mills Division). * As per the government records, some portion of the land is neither in the name of the Company nor in the name of erstwhile entities.
2.	Land	1	Freehold	11,10,273	11,10,273	The title deeds of the properties are in the name of erstwhile entity (Knitwear Division).
3.	Land	1	Leasehold	1,50,000	1,50,000	The lease deed of the land is in the name of erstwhile entity (Mills Division).
4.	Building	2	Freehold	7,77,500	380,335	The title deeds of all the properties are in the name of erstwhile entity (Mills Division).
5.	Building	Refer note below	Refer note below	21,02,355	15,27,062	The title deeds were not made available for verification. Consequently, we are not able to comment.

Note : Information not available

ii. In our opinion and according to the information and explanations given to us, physical verification of inventory has been conducted at reasonable intervals by the management. As informed to us, the discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

iii. The Company has not granted any loans, secured or unsecured, to companies, firms, and limited liability partnerships or other parties covered in the register maintained under section 189 of the Act. Therefore, the provisions of sub-clause (a), (b) and (c) of paragraph 3(iii) of the Order are not applicable.

iv. In our opinion and according to the information and explanations given to us and the records examined by us, the Company has complied with the provision of section 185 and 186 of the Act with respect to investments made and securities provided.

v. In our opinion and according to the information and explanations given to us, the Company has not accepted any deposits from the public and hence the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Act and the Rules framed there under are not applicable.

vi. In our opinion and according to the information and explanations given to us, the maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Act. We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under section 148 of the Act, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained.

vii. (a) According to the information and explanations given to us by the Company and the Branch Auditors and the records examined by us, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Employees'' State Insurance, Income Tax, Sales Tax, Service Tax, Duty of Customs, Duty of Excise, Value Added Tax, Cess and other material statutory dues to the appropriate authorities. According to the information and explanations given to us by the Company and the Branch Auditors, there are no arrears of outstanding statutory dues in respect of above as on 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 by the Company and the Branch Auditors and on the basis of our examination of the books of account and the records, there are no dues of Income Tax, Sales Tax, Service Tax, Duty of Customs, Duty of Excise and Value added tax outstanding on account of any dispute, other than the following:

Name of Stature	Amount(Rs)	Period to while the amount relates	Forum where dispute is pending
The Karnataka Special Tax on Entry of Certain Goods Act, 2004	1,14,58,194	October-2004 to March-2007	High Court of Karnataka, Bangalore
The Excise Duty Act, 1944	32,62,241	2004-2005 and 2005-2006	The Central Excise and Service Tax Appellate Tribunal, Mangalore
The Employees Provident Fund and Miscellaneous Provision Act, 1952	40,14,265	January -1990 December - 2001	The Employees Provident Fund Appellate Tribunal
The Excise Duty Act, 1994	1,10,37,577	December 2004 to May-2005	The Supreme Court of India

The Company has deposited Rs.12, 04,583 and Rs.8, 15,561 under protest towards provident fund and excise duty respectively.

viii. According to the records of the Company examined by us and the information and explanations given to us by the Company and the Branch Auditors, the Company has not defaulted in repayment of dues to financial institutions, banks and government. There are no dues to debenture holders.

ix. The Company has not raised money through initial public offer or further public offer (including debt instruments). In our opinion and according to the information and explanations given to us and based on the documents and records examined by us on an overall basis, the term loans obtained by the Company were applied for the purpose for which the loans were obtained.

x. During the course of our examination of the books of account and records of the Company, and according to the information and explanation given to us by the Company and the Branch Auditors and representations made by the Management, no material fraud by or on the Company by its officers or employees, has been noticed or reported during the financial year.

xi. According to the information and explanation given to us and based on our examination of the records of the Company, the Company has paid/provided for managerial remuneration in accordance with requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act.

xii. In our opinion and according to the information and explanation given to us, the Company is not a Nidhi Company. Accordingly, provisions of paragraph 3(xii) of the Order are not applicable.

xiii. According to the information and explanation given to us and based on our examination of the records of the Company, transactions with related parties are in compliance with sections 177 and 188 of the Act, where applicable, and details of such transactions have been disclosed in the financial statements as required by the applicable accounting standards.

xiv. According to the information and explanation given to us and based on our examination of the records of the Company, the allotment of 7% Non-cumulative, non-convertible, Redeemable Preference Shares made by the Company through private placement basis is in compliance with the requirements of section 42 of the Companies Act, 2013. According to the information and explanation given to us and based on our examination of the records of the Company, the amount raised through private placement has been used for the purpose for which the funds were raised.

xv. According to the information and explanation given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with the directors or persons connected with them. Hence, the provisions of section 192 of the Act are not applicable.

xvi. The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 hence the provisions of paragraph 3 (xvi) of the Order are not applicable.

As referred to in Paragraph 2 (f) under the heading "Report on Other Legal and Regulatory Requirements" of our Independent Auditor''s Report of even date on the standalone financial statements of Gokak Textiles Limited for the six months ended March 31, 2016.

Report on the Internal Financial Controls under Clause

(1) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of GOKAK TEXTILES LIMITED ("the Company") as of March 31, 2016 in conjunction with our audit of the financial statements of the Company for the six months ended on that date.

Management’s Responsibility for Internal Financial Controls

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

Auditors’ Responsibility

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

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness.

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

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

Meaning of Internal Financial Controls over Financial Reporting

A Company''s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company''s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company''s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

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

Opinion

In our opinion, to the best of our knowledge and information and based on the explanations, information and records given to us, the Company has, in all material respects, maintained adequate internal financial controls systems over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India.

For KALYANIWALLA & MISTRY

CHARTERED ACCOUNTANTS

(Firm Registration No. 104607W)

Anil A. Kulkarni

Partner

Membership No. 47576

Place: Mumbai

Date: July 8, 2016

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Sep 30, 2015

We have audited the accompanying financial statements of Gokak Textiles Limited ("the Company"), which comprise the Balance Sheet as at September 30, 2015, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these 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 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.

Auditor's Responsibility

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

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

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid 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 September 30, 2015, and its loss and its cash flows for the year ended on that date.

Our opinion is not modified in respect of these matters.

Other Legal and Regulatory Requirements

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

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

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

b. In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditor's report has been forwarded to us and has been appropriately dealt with.

c. The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account and with the audited returns received from the branches.

d. In our opinion, the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

e. On the basis of written representations received from the directors as on September 30, 2015, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on September 30, 2015, from being appointed as a director in terms of Section 164(2) of the Act.

f. With respect to 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 29 to the financial statements.

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

iii. There are no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

ANNEXURE TO THE AUDITOR'S REPORT

Referred to in Paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date on the financial statements of Gokak Textiles Limited for the year ended September 30, 2015.

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

(b) The Company has a program for physical verification of fixed assets at periodic intervals. As informed to us, the fixed assets have been verified by the Company during the year and were informed that no material discrepancies were noticed.

ii. (a) The Management has conducted physical verification of inventory at reasonable intervals.

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

(c) The Company is maintaining proper records of inventory. As informed to us, the discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

iii. The Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under section 189 of the Act. Accordingly sub-clauses (a) and (b) of clause (iii) of paragraph 3 of the Order are not applicable to the Company for the current year.

iv. In our opinion and according to the information and explanations given to us by the Company, there are adequate internal control procedures 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. During the course of our audit, no major weakness has been noticed in the internal controls.

v. According to the information and explanations given to us, the Company has not accepted any deposits from the public.

vi. According to the information and explanations given to us, the maintenance of cost records has not been specified by the Central Government under sub-section (1) of section 148 of the Act, for the activities of the Company.

vii. (a) According to the information and explanations given to us by the Company and the branch auditors and the records examined by us, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Employees' State Insurance, Income-tax, Sales Tax, Wealth Tax, Service Tax, Duty of Customs, Duty of Excise, Value Added Tax, Cess and any other statutory dues with the appropriate authorities.

According to the information and explanations given to us by the Company and the branch auditors, there are no arrears of outstanding statutory dues in respect of above as at the last day of the financial year for a period of more than six months from the date they became payable except for sales tax and value added tax amounting to Rs.120,709 and service tax amounting to Rs.8,665.

(b) According to the information and explanations given to us by the Company and the branch auditors and on the basis of our examination of the books of account and records, there are no dues of Income Tax, Sales Tax, Wealth Tax, Service Tax, Duty of Customs, Duty of Excise, Value Added Tax, or Cess on account of any dispute, other than the following:

Name of Statute Amount (Rs) Period to which the amount relates Forum where dispute is pending

The Karnataka Special Tax 114,58,194 October-2004 to on March-2007 High Court of Karnataka, Bangalore

on Entry of Certain Goods Act, 2004

The Excise Duty Act, 1944 32,62,241 2004-2005 and 2005-2006 The Central Excise and Service Tax

Appellate Tribunal, Mangalore

The Employees Provident 40,14,265 January-1990 to December- 2001 The Employees Provident Fund

Fund and Miscellaneous Appellate Tribunal

Provision Act, 1952

The Excise Duty Act, 1944 110,37,57 December 2004 to May 2005 The Supreme Court of India

The Company has deposited Rs.12,04,583 and Rs.8,15,561 under protest towards provident fund and excise duty respectively.

(c) According to the information an d explanations given to us, there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

viii.The Company has accumulated losses exceeding fifty percent of the net worth as at the end of the financial year and has incurred cash losses in the current financial year and in the immediately preceding financial year.

ix. According to the records of the company examined by us and the information and explanations given to us by the Company and the branch auditors, the Company has not defaulted in repayment of dues to banks and financial institutions. There are no dues to debenture holders.

x. According to the information and explanations given to us by the Company, the Company has not given any guarantee for loans taken by others from banks or financial institutions except investments of the Company in Gokak Power and Energy Limited (a subsidiary company), equivalent to 14,700,000 shares at a carrying cost of Rs.1,470 lac, have been pledged with a bank against loan obtained by the said subsidiary company.

xi. According to the information and explanations given to us by the Company and the records examined by us, the Company has applied the term loans for the purpose for which the loans were obtained.

xii. Based on the audit procedures performed and information and explanations given by the management and branch auditors, we report that no fraud on or by the Company has been noticed or reported during the year.

For and on behalf of

Kalyaniwalla & Mistry

Chartered Accountants

Firm Regn No. 104607W



Anil A. Kulkarni

Mumbai, Partner

November 23, 2015 Membership No. 47576

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Sep 30, 2014

1. We have audited the accompanying financial statements of Gokak Textiles Limited ("the Company"), which comprise the Balance Sheet as at September 30, 2014, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

2. 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 notified under 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 presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

3. 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.

4. 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 the management, as well as evaluating the overall presentation of the financial statements.

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

Opinion

6. In our opinion and to the best of our information and according to the explanations given to us 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:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at September 30, 2014;

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

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

Other Legal and Regulatory Requirements

7. As required by the Companies (Auditor''s Report) Order, 2003, as amended by the Companies (Auditors'' Report) Order (Amendment) Order 2004 ("the Order"), issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

8. As required by sub-section (3) of section 227 of the Act, we report that:

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

b. In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditor''s report has been forwarded to us and has been appropriately dealt with.

c. The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account and with the audited returns received from the branches.

d. In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the Accounting Standards notified under 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, to the extent applicable.

e. On the basis of written representations received from the directors as on September 30, 2014, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on September 30, 2014, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act.

f. Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Act nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.

ANNEXURE TO THE AUDITORS'' REPORT

Referred to in Paragraph 7 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date on the financial statements of Gokak Textiles Limited for the year ended September 30, 2014.

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

(ii) As explained to us, the Company has a program for physical verification of fixed assets at periodic intervals. As informed to us, the fixed assets have been verified by the Company during the year and were informed that no material discrepancies were noticed.

(iii) In our opinion, the fixed assets disposed off during the year were not substantial and do not affect the going concern status of the Company.

2) (i) The Management has conducted physical verification of inventory at reasonable intervals.

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

(iii) The Company is maintaining proper records of inventory. As informed to us, the discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

3) (a) As informed, the Company has not granted any loan, secured/ unsecured to any Companies, firms or parties covered in the register maintain ed under Section 301 of the Companies Act, 1956. Accordingly, the provisions of Para 4 clause (iii) (b) to (d) of the said order are not applicable. (b) The Company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of Para 4 clause (iii) (f) to (g) of the said order are not applicable.

4) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures 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. During the course of our audit, no major weakness has been noticed in the internal controls.

5) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, there were no contracts or arrangements referred to in section 301 of the Act to be entered in the register required to be maintained under that section.

Consequently, comment on sub clause (b) of clause 5 of the Companies Auditor''s report 2003 is not required.

6) During the year under audit, the company has not accepted fixed deposits from the public.

7) The Company has an internal audit system, which in our opinion is commensurate with the size of the company and the nature of its business.

8) We have broadly reviewed the books of account maintained by the Company in respect of cost records as prescribed by the Central Government under section 209(1)(d) of the Companies Act, 1956, and are of the opinion that prima facie the prescribed accounts and records have been maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

9) (a) According to the records examined by us, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees'' State Insurance, Income Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, cess and other statutory dues applicable to it with the appropriate authorities. We have been also informed that there are no undisputed dues which have remained outstanding at the end of the financial year for a period of more than six months from the date they became payable except for Rs.8,665 towards service tax. (b) According to the information and explanations given to us, there are no dues of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Service tax, Excise Duty or cess outstanding on account of any dispute other than following:

Name of Statute Amount(Rs) Period to which the amount relates

The Karnataka Special 11,458,194 October-2004 to March-2007 Tax on Entry of Certain Goods Act,2004

The Income Tax Act, 1961 300,912 2001-02 and 2002-03

The Excise Duty Act, 1944 5,562,848 July-2004 to April-2010

The Employees Provident 4,014,265 January-1990 to December-2001 Fund and Miscellaneous Provision Act, 1952

The Excise Duty Act, 1944 11,037,577 December 2004 to May 2005

Name of Statute Forum where dispute is pending

The Karnataka Special Tax on High Court of Karnataka, Bangalore Entry of Certain Goods Act,2004

The Income Tax Act, 1961 The Commissioner of IncomeTax (Appeals)

The Excise Duty Act, 1944 The Central Excise and Service Tax Appellate Tribunal, Mangalore

The Employees Provident The Employees Provident Fund Appelate Fund and Miscellaneous Tribunal Provision Act, 1952

The Excise Duty Act, 1944 The Supreme Court of India

The Company has deposited Rs.1,204,583 towards provident fund under protest.

10) The Company has accumulated losses exceeding fifty percent of the net worth as at the end of the financial year and has incurred cash losses in the current financial year and in the immediately preceding financial year.

11) According to the records of the company examined by us and the information and explanations given to us by the Company and the branch auditor, the Company has not defaulted in repayment of dues to banks or financial institutions.

12) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares and other securities.

13) According to the information and explanations given to us, the nature of activities of the Company does not attract any special statute applicable to chit fund and nidhi/ mutual benefit fund/ societies.

14) According to the information and explanations given to us, the Company is not dealing in or trading in shares, securities, debentures or investments. Accordingly clause 4 (xiv) of the order is not applicable to the Company.

15) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions except investments of the Company in Gokak Power and Energy Limited (a subsidiary company), equivalent to 14,700,000 shares at a carrying cost of Rs. 1,470 lac, have been pledged with a bank against loan obtained by the said subsidiary company.

16) According to the information and explanations given to us and the records examined by us, the Company has applied the term loans for the purpose for which the loans were obtained.

17) On the basis of an overall examination of the balance sheet and cash flows of the Company and the information and explanations given to us, we report that the Company has not utilized the funds raised on short-term basis for long-term investment.

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

19) The Company did not issue any debentures during the year.

20) The Company has not raised any money through a public issue during the year.

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

For and on behalf of Anil A. Kulkarni Kalyaniwalla & Mistry Partner Chartered Accountants Membership No. 47576 Firm Regn No. 104607W Mumbai, November 10, 2014

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Sep 30, 2013

Report on Financial Statements

1. We have audited the accompanying financial statements of Gokak Textiles Limited ("the Company"), which comprise the Balance Sheet as at September 30, 2013, and the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

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

Auditor''s Responsibility

3. 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.

4. 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. 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.

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

Opinion

6. In our opinion and to the best of our information and according to the explanations given to us 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:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at September 30, 2013;

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

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

Other Legal and Regulatory Requirements

7. As required by the Companies (Auditor''s Report) Order, 2003, as amended by the Companies (Auditors'' Report) Order

(Amendment) Order 2004, issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

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

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

b. In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Brach Auditor''s report has been forwarded to us and has been appropriately dealt with.

c. The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account and with audited returns from the branches.

d. In our opinion, the Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956, to the extent applicable;

e. On the basis of written representations received from the directors as on September 30, 2013, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on September 30, 2013, from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Companies Act, 1956.

Referred to in Paragraph 7 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date on the accounts of Gokak Textiles Limited for the year ended September 30, 2013

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

(ii) The Company has a program for physical verification of fixed assets at periodic intervals. As informed to us the fixed assets have been verified by the Company during the year and were informed that no material discrepancies were noticed.

(iii) In our opinion, the fixed assets disposed off during the year were not substantial and do not affected the going concern status of the Company.

2) (i) The Management has conducted physical verification of inventory at reasonable intervals.

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

(iii) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

3) (a) As informed, the Company has not granted any loan, secured/ unsecured to any Companies, firms or parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly the provisions of Para 4 clause (iii) (a) to (d) of the said order are not applicable.

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

4) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures 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.

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

(b) In our opinion and according to the information and explanations given to us, having regard to the explanation that many of the items are of a special nature and their prices cannot be compared with alternative quotations, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6) During the year under audit, the Company has not accepted fixed deposits from the public.

7) The Company has an internal audit system, which in our opinion is commensurate with the size of the Company the nature of its business.

8) We have broadly reviewed the books of account maintained by the Company in respect of cost records as prescribed by the Central Government under Section 209(1)(d) of the Companies Act, 1956, and are of the opinion that prima facie the prescribe accounts and records have been maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

9) (a) According to the records examined by us, the Company is generally regular in depositing undisputed statutory dues including

Provident Fund, Investor Education and Protection Fund, Employees'' State Insurance, Income Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, cess and other statutory dues applicable to it with the appropriate authorities.

(b) According to the information and explanations given to us, there are no dues of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Service tax, Excise Duty or cess outstanding on account of any dispute other than following:

Name of Statute Amount Period to which the amount Forum where dispute is pending (Rs.) relates

Entry Tax 14,458,194 October 2004 to March 2007 High court of Karnataka Bangalore

Income tax 300,912 2001-02 & 2002-03 CIT (A)

Excise Duty 5,562,848 July 2004 to April 2010 High court of Karnataka Bangalore

Provident Fund 2,810,682 January 1990 to December 2001 Employees Provident Fund Appelate Tribunal Exice Duty 11,037,577 December 2004 to May 2005 Supreme Court of India 34,170,213

10) The Company has accumulated losses not exceeding fifty percent of the net worth as at the end of the financial year and has incurred cash losses in the current financial year, however the Company has not incurred cash losses in the immediately preceding financial period.

11) According to the records of the Company examined by us and the information and explanations given to us by the Company and the branch auditor, the Company has not defaulted in repayment of dues to a bank or a financial institution.

12) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of Shares and other securities.

13) In our opinion and according to the information and explanations given to us, the nature of activities of the Company does not attract any special statute applicable to chit fund and nidhi/ mutual benefit fund/ societies.

14) In our opinion and according to the information and explanations given to us, the Company is not dealing in or trading in shares, securities, debentures or investments. Accordingly clause 4 (xiv) of the order is not applicable to the Company.

15) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions except investments in Gokak Power and Energy Limited (a subsidiary company), equivalent to 14,700,000 shares at a carrying cost ofRs.1, 470 lacs have been pledged with a bank against loan obtained by the said subsidiary Company.

16) According to the information and explanations given to us and the records examined by us, the Company has applied the term loans for the purpose for which the loans were obtained.

17) On the basis of an overall examination of the balance sheet and cash flows of the Company and the information and explanations given to us, we report that the Company has not utilized the funds raised on short-term basis for long-term investment.

18) The Company has not made any preferential allotment of shares to parties or companies covered in the register maintained under section301 of the Companies Act, 1956.

19) The Company did not issue any debentures during the year.

20) The Company has not raised any money through a public issue during the year.

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

For and on behalf of

Kalyaniwalla & Mistry

Chartered Accountants

Firm Regn No. 104607W

Vinayak M Padwal

Mumbai, Partner

November 07, 2013. Membership No. 49639

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Sep 30, 2012

1. We have audited the attached Balance Sheet of Gokak Textiles Limited as at September 30, 2012 and the Statement of Profit and Loss and the Cash Flow Statement of the Company for the eighteen months ended on that date, annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditors' Report) Order (Amendment) Order 2004, issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph (3) above, we report that:

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

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of the books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditor's Report has been forwarded to us and has been appropriately dealt with.

c) The Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement dealt with by this report are in agreement with the books of account and with the audited returns from the branches.

d) In our opinion, the Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

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

i) in the case of the Balance Sheet, of the state of affairs of the Company as at September 30, 2012,

ii) in the case of the Statement of Profit and Loss, of the profit for the eighteen months ended on that date, and

iii)in the case of Cash Flow Statement, of the cash flows for the eighteen months ended on that date.

5. On the basis of the written representations received from the Directors as on September 30, 2012, and taken on record by the Board of Directors, we report that, none of the Director is disqualified as on September 30, 2012 from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

Referred to in Paragraph (3) of our report of even date on the accounts of Gokak Textiles Limited

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

(ii) The Company has a program for physical verification of fixed assets at periodic intervals. As informed to us the fixed assets have been verified by the Company during the year and were informed that no material discrepancies were noticed.

(iii) The fixed assets disposed off during the year, in our opinion, constitute 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.

2) (i) The Management has conducted physical verification of inventory at reasonable intervals.

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

(iii) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

3) (a) As informed, the company has not granted any loan, secured/ unsecured to any Companies, firms or parties covered in the register

maintained under Section 301 of the Companies Act, 1956. Accordingly the provisions of Para 4 clause (iii) (a) to (d) of the said order are not applicable.

(b) The Company has taken loans amounting to Rs. 5,300 lac from a company covered in the register maintained under Section 301 of the Companies Act, 1956. In respect of the said loans, the maximum amount outstanding at any time during the year is Rs. 5,300 lac and the year-end balance is Rs. Nil.

(c) In our opinion and according to the information and explanations given to us, the said loan is interest free and other terms and conditions of the loans taken by the Company, are not prejudicial to the interest of the Company.

(d) The loan has been paid on demand and there are no specific terms of repayment of principal hence whether the principal has been paid regularly or not cannot be commented upon.

4) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures 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.

5) (a) Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are

of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Act have been entered in the register required to be maintained under that section.

(b) In our opinion and according to the information and explanations given to us, having regard to the explanation that many of the items are of a special nature and their prices cannot be compared with alternative quotations, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6) During the year under audit, the company has not accepted fixed deposits from the public.

7) The Company has an internal audit system, which in our opinion is commensurate with the size of the company the nature of its business.

8) We have broadly reviewed the books of account maintained by the Company in respect of cost records as prescribed by the Central Government under section 209(1)(d) of the Companies Act, 1956, and are of the opinion that prima facie the prescribe accounts and records have been maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

9) (a) According to the records examined by us, the Company is generally regular in depositing undisputed statutory dues including

Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, cess and other statutory dues applicable to it with the appropriate authorities.

(b) According to the information and explanations given to us, there are no dues of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Service tax, Excise Duty or cess outstanding on account of any dispute other than following:

10) The Company has no accumulated losses as at the end of the financial period and it has not incurred any cash losses in the current period and in the immediately preceding financial year.

11) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares and other securities.

12) In our opinion and according to the information and explanations given to us, the nature of activities of the Company does not attract any special statute applicable to chit fund and nidhi/ mutual benefit fund/ societies.

13) In our opinion and according to the information and explanations given to us, the company is not dealing in or trading in shares, securities, debentures or investments. Accordingly clause 4 (xiv) of the order is not applicable to the Company.

14) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

15) According to the information and explanations given to us and the records examined by us, the Company has applied the term loans for the purpose for which the loans were obtained.

16) On the basis on an overall examination of the balance sheet and cash flows of the Company and the information and explanations given to us, we report that the Company has not utilized the funds raised on short-term basis for long-term investment.

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

18) The Company did not issue any debentures during the period.

19) The Company has not raised any money through a public issue during the period.

20) Based on the audit procedures performed and information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the period.

For and on behalf of

Kalyaniwalla & Mistry

Chartered Accountants

Firm Regn No. 104607W

Mumbai, Vinayak M Padwal

October 31, 2012. Partner

Membership No. 49639

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Mar 31, 2011

1. We have audited the attached Balance Sheet of Gokak Textiles Limited as at March 31, 2011 and the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto. These financial statements are the responsibility of the 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 the Auditing Standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditors' Report) Order (Amendment) Order 2004, issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph (3) above, we report that:

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

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of the books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditor's Report has been forwarded to us and has been appropriately dealt with.

c) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account and with the audited returns from the branches.

d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

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

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

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

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

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

ANNEXURE TO THE AUDITORS' REPORT

Referred to in Paragraph (3) of our report of even date on the accounts of Gokak Textiles Limited for the year ended 31st March, 2011.

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

(ii) The Company has a program for physical verification of fixed assets at periodic intervals. As informed to us the fixed assets have been verified by the Company during the year and were informed that no material discrepancies were noticed.

(iii) In our opinion and according to the information and explanations given to us, substantial part of the fixed assets has not been disposed off by the Company during the year.

2) (i) The Management has conducted physical verification of inventory at reasonable intervals.

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

(iii) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

3) The Company has neither granted nor taken any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act. Hence clause iii(b), iii(c), iii(d), iii(f) and iii(g) are not applicable.

4) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures 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.

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

(b) In our opinion and according to the information and explanations given to us, having regard to the explanation that many of the items are of a special nature and their prices cannot be compared with alternative quotations, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6) During the year under audit, the company has not accepted fixed deposits from the public.

7) The Company has an internal audit system, which in our opinion is commensurate with the size of the Company and the nature of its business.

8) We have broadly reviewed the books of account maintained by the Company in respect of cost records as prescribed by the Central Government under section 209(1)(d) of the Companies Act, 1956, and are of the opinion that prima facie the prescribe accounts and records have been maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

9) (a) According to the records examined by us, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, cess and other statutory dues applicable to it with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of aforesaid statutory dues were outstanding, at the year end for a period of more than six months from the date they became payable except Rs.302,245 on account of Service Tax.

(b) According to the information and explanations given to us, there are no dues of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Service tax, Excise Duty or cess outstanding on account of any dispute other than following:

Name of Statute Amount Period to which the Forum where dispute (Rs.) amount is pending relates

Entry Tax 14,458,194 Oct,04 to Mar,07 High court of Karnataka Bangalore

Income tax 300,912 2001-02 & 2002-03 CIT (A)

Excise Duty 5,938,424 July,04 to April,10 High court of Karnataka Bangalore 20,697,530

10) The Company's accumulated losses at the end of the financial year are not in excess of fifty percent of its net worth. The Company has not incurred cash losses during the financial year, however the company incurred cash losses in the immediately preceding financial year.

11) According to the information and explanations given to us and based on the documents and records produced to us, the Company has not defaulted in repayment of dues to a financial institution, bank or debenture holders.

12) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares and other securities.

13) In our opinion and according to the information and explanations given to us, the nature of activities of the Company does not attract any special statute applicable to chit fund and nidhi/ mutual benefit fund/ societies.

14) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

15) According to the information and explanations given to us and the records examined by us, the Company has applied the term loans for the purpose for which the loans were obtained.

16) On the basis on an overall examination of the balance sheet and cash flows of the Company and the information and explanations given to us, we report that the Company has not utilized the funds raised on short-term basis for long-term investment.

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

18) The Company did not issue any debentures during the year.

19) The Company has not raised any money through a public issue during the year.

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

21) In our opinion and according to information and explanation given to us, clause 4(xiv) is not applicable.

For and on behalf of Kalyaniwalla & Mistry Chartered Accountants Firm Regn No. 104607W

Vinayak M Padwal Partner Membership No. 49639

Mumbai, May 26, 2011

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Mar 31, 2010

1. We have audited the attached Balance Sheet of GOKAK TEXTILES LIMITED as at March 31, 2010 and the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

3. As required by the Companies (Auditors Report) Order, 2003, as amended by the Companies (Auditors Report) Order (Arrendment) Order 2004, issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the Ainexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph (3) above, we report that:

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

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of the books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditors Report has been forwarded to us and has been appropriately dealt with.

c) The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account and with the audited returns from the branches.

d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

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

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

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

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

5. On the basis of the written representations received from the Directors as on March 31, 2010, and taken on record by the Board of Directors, we report that, none of the Director is disqualified as on March 31, 2010 from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS REPORT Referred to in Paragraph (3) of our report of even date on the accounts of Gokak Textiles Limited for the year ended 31st March, 2010.

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

(ii) The Company has a program for physical verification of fixed assets at periodic intervals. As informed to us the fixed assets have been verified by the Company during the year and were informed that no material discrepancies were noticed.

(iii) In our opinion and according to the information and explanations given to us, substantial part of the fixed assets has not been disposed off by the Company during the year.

2) (i) The Management has conducted physical verification of inventory at reasonable intervals.

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

(iii) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

3) The Company has neither granted nor taken any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act. Hence clause iii(b), iii(c), iii(d), iii(f) and iii(g) are not applicable.

4) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures 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.

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

(b) In our opinion and according to the information and explanations given to us, having regard to the explanation that many of the items are of a special nature and their prices cannot be compared with alternative quotations, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

6) During the year under audit, the company has not accepted fixed deposits from the public.

7) The Company has an internal audit system, which in our opinion is commensurate with the size of the Company and the nature of its business.

8) We have broadly reviewed the books of account maintained by the Company in respect of cost records as prescribed by the Central Government under section 209(1 )(d) of the Companies Act, 1956, and are of the opinion that prima facie the prescribe accounts and records have been maintained. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.

9) (a) According to the records examined by us, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, cess and other statutory dues applicable to it with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of aforesaid statutory dues were outstanding, at the year end for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, there are no dues of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Service tax, Excise Duty or cess outstanding on account of any dispute other than following:

Name of Statute Amount Period to which the amount Forum where dispute is pending (Rs.) relates

Entry Tax 14,458,194 Oct,04 to Mar,07 High court of Karnataka Bangalore

Income tax 300,912 2001-02 & 2002-03 CIT (A)

Excise Duty 105,879,080 July,04 to Feb,06 High court of Karnataka Bangalore 120,638,186

10) In our opinion and according to the records produced before us the company has been registered for a period of less than five years and hence the clause (x) is not applicable.

11) According to the information and explanations given to us and based on the documents and records produced to us, the Company has not defaulted in repayment of dues to a financial institution, bank or debenture holders.

12) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares and other securities.

13) In our opinion and according to the information and explanations given to us, the nature of activities of the Company does not attract any special statute applicable to chit fund and nidhi/ mutual benefit fund/ societies.

14) According to the information and explanations given to us and the records examined by us, it is our opinion that the terms and conditions of the guarantees given by the Company for loans taken by others from banks or financial institutions are not prejudicial to the interest of the Company.

15) According to the information and explanations given to us and the records examined by us, the Company has applied the term loans for the purpose for which the loans were obtained.

16) On the basis on an overall examination of the balance sheet and cash flows of the Company and the information and explanations given to us, we report that the Company has not utilized the funds raised on short-term basis for long-term investment.

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

18) The Company did not issue any debentures during the year.

19) The Company has not raised any money through a public issue during the year.

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

21) In our opinion and according to information and explanation given to us, clause 4(xiv) is not applicable.

For and or behalf of Kalyaniwalla & Mistry

Chartered Accountants

Mumbai, Vinayak M Padwal

May 27, 2010 Partner

Membership No. 49639 Firm Regn No. 104607W