Auditor Report of Malwa Cotton Spinning Mills Ltd.

Mar 31, 2015

1. We have audited the accompanying financial statements of Malwa Cotton Spinning Mills Limited ('the Company'), which comprise the Balance Sheet as at March 31, 2015, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements:

2. 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:

3. 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 subject to matters stated in para 5 below we have obtained the audit evidence which is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

Emphasis on Matter:

4. We draw attention to the mater disclosed in the notes to the financial statement:

i) The Company has not been able to redeem 9% cumulative redeemable preference share capital. The unredeemed preference capital of Rs. 2,750 lacs have been shown under the schedule of Share Capital. (Refer disclosure under the Note 1 to the financial statement).

ii) Sundry debtors for the current year are shown at gross amount whereas in the preceding year were shown net of advance of Rs. 5,108.26. Therefore sundry debtors are not comparable to this extent.

Basis for Qualified Opinion

5. We report that:

i) We draw attention to note no. 37 in the financial statements. The Company has incurred a net loss of Rs. 3,688 lacs during the year ended 31st March, 2015, which together with brought forward losses of Rs. 21,885 lacs exceeds the net worth of the company, and as of that date, the company's current liabilities exceeded its current assets by Rs. 19,525 lacs and its total liabilities exceeded its total assets by Rs. 22,248 lacs. The Consortium banks have recalled their debts to the company. These events cast significant doubt on the ability of the company to continue as a going concern. The appropriateness of the going concern assumption is dependent on the company's ability to establish consistent profitable operations and generate positive cash flows as well as raising adequate finance to meet its short term and long term obligations. Based on the mitigating factors stated in the said note, the management of the company believes that the going concern assumption is appropriate. However, we do not agree with the management in this respect.

ii) The company has not arranged to make available the confirmations and/or reconciliations to verify the balances stated in the financial statements in respect of:

i .Trade Receivables Rs. 5,535.30 lacs

ii. Loans & Advances: Rs. 1,472.64 lacs

iii. Trade payables: Rs. 5,325.88 lacs,

We have also not been able to perform any alternative procedures with regard to verification of the aforesaid balances and thereby have been unable to obtain sufficient appropriate audit evidence regarding the aforesaid accounts .We are unable to comment upon the difference, if any, which may arise upon the receipt of confirmations and/or the carrying out of such reconciliation.

iii) The management of the company has represented to us that the recoverable amount of assets within the meaning of Accounting Standard 28 "Impairment of Assets " is more than their carrying value and as such no amount needs to be recognized in the financial statements for impairment loss. In the absence of the workings of impairment having been prepared and made available to us for our review, we are unable to comment on whether; the company needs to make a provision in respect of impairment loss on such assets and the amount of such provision.

iv) Refer note no.36 of the financial statements, the company has not made provision in respect of balances recoverable from Trade Receivables, Loans and Advances and Other Recoverable including for employees, which are doubtful in nature amounting to Rs. 4,144.31 lacs as on the date of the financial Statements.

v) Refer note no.38 of the financial statements, the Company has not provided for the Interest on borrowings amounting to Rs.2,978.52 lacs. The Company has also not provided interest of Rs. 2935.08 lacs on it's borrowings pertaining to the preceding year.

vi) We further report that, except for the effect, if any, of the matters stated in paragraph (i) and (ii) above which are not ascertainable, had the impact of our observation made in paragraph (iv) and (v) above been considered, then loss for the year ended 31st March, 2015 would have been Rs.13,746 lacs (against the reported figure of Rs.3,688 lacs) and reserves and surplus would have been Rs. 35,821 lacs (against the reported figure of Rs. 25,763 lacs) and current assets would have been ((Rs. 1,219 lacs) (against the reported figure of Rs. 8,839 lacs).

vii) The earning (loss) per share for the year ended 31 March, 2015 would have been Rs.(177.61) against reported earning (loss) per share of Rs.(50.37).

Opinion

6. In our opinion and to the best of our information and according to the explanations given to us, subject to our comments in paragraph 5 above 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:

a. In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2015;

b. In the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and

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

Report on Other Legal and Regulatory Requirements

7. (i) 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, which forms part of this report, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

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

a. We have sought and obtained all the information and explanations, except as stated in note 5 above, 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, except as stated in note 5 above, as required by law have been kept by the Company so far as it appears from our examination of those books;

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

d. In our opinion, 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, except non disclosure of segment results separately in respect of sewing thread segment in accordance with the requirement of Accounting Standard (AS) - 17 on " Segment Reporting" notified by the Company (Accounting Standard) Rules, 2006.

e. On the basis of written representations received from the directors as on 31st March 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of sub-section (2) of section 164 of the Act; and

f. 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, we have to state that in our opinion and to the best of our information and according to explanations given to us:

i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements, except where impact is not ascertainable.

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

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

Annexure to the Independent Auditor’s Report

(Referred to in paragraph 7(i) under 'Report on Other Legal and Regulatory Requirements' section of even date)

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

b) According to the information and explanations given to us, the fixed assets except furniture and fittings and office equipments have been physically verified by the management during the year under the supervision of internal auditors of the company (an independent firm of Chartered Accountants). In respect of furniture and fittings and office equipments, the company has adopted a policy of physical verification of these assets at least once in every three year. The entire block of these assets have been physically verified by the management during the year ended 31st March 2015. The discrepancies noticed on physical verification of fixed assets which were not material, have been properly dealt in the books of account. In our opinion the frequency of physical verification of fixed assets is reasonable having regard to the size of the Company and nature of its business.

(ii) a) According to the information and explanations given to us, the inventories have been physically verified by the management at the end of the year. In our opinion the frequency of verification is reasonable.

b) Based on information and explanations given to us and the records produced to us, in our view, the procedures of physical verification of inventories followed by the management during the year 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 inventories. As per the information given to us, the discrepancies noticed on physical verification of inventories as compared to book records were not material and has been properly dealt with in the books of account.

(iii) According to the information and explanations given to us and based on such tests which we considered necessary, we report that the Company has not granted any loans, secured or unsecured to firms, companies, or other parties covered in the register maintained under section 189 of the Companies Act. Therefore the provisions of paragraph (iii) (a) and (b) of the above order are not applicable to the Company.

(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system, considered adequate, commensurate with the size of the Company and the nature of its business with regard to the purchase of inventory and fixed assets and for to sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control systems.

(v) According to the information and explanations given to us, the Company has not accepted deposits covered under the provisions of sections 73 to 76, other relevant provisions of the Companies Act and the rules framed there under. According to the information and explanations given to us, no order under the aforesaid sections has been passed by the Company Law Board or the Reserve Bank of India or any Court or any other Tribunal on the Company.

(vi) According to the information and explanations given to us, we are of the opinion that prima-facie the prescribed accounts and records have been made and maintained pursuant to the sub-section (1) of section 148 of the Act, specified by the Central Government. We have, however, not made a detailed examination of the records with a view to determine whether they are accurate or complete.

(vii) (a) According to the information and explanations given to us and on the basis of the records of the Company examined by us, in our opinion, the Company has not been regular in depositing undisputed statutory dues including provident fund, employees' state insurance, professional tax, income tax, vat, service tax, and other statutory dues with the appropriate authorities.

(b) In our opinion and according to the information and explanations given to us, undisputed dues in respect of provident fund, employees' state insurance, labour welfare fund, sales tax (VAT and CST), tax deducted at source and tax collected at source which were outstanding at the yearend for a period of more than six months from the date they became payable are as follows:

Nature of Statute Nature of Dues Amount (Rs. Period to which in Lacs) the amount relates

Income Tax Act, 1961 Tax deducted at 20.91 F.Y 2013-14 and Source 2014-2015.

Income Tax Act, 1961 Tax collected at 0.41 F.Y 2014-15 Source

Employees' Provident Provident Fund 194.37 F.Y 2012-13, Fund and Miscellaneous 2013-14 and Provisions Act, 1952 2014-2015.

Employees' State Employee State 186.13 F.Y 2011-12, Insurance Act, 1948 Insurance 2012-13, 2013- 14, and 2014- 2015.

Punjab Labour Welfare Labour Welfare 1.24 F.Y 2012-13, Fund Act, 1965 fund 2013-14 and 2014-2015.

Punjab Value Added Tax VAT/CST 36.62 F.Y 2013-14 and Act, 2005/ Central Sales 2014-2015. Tax Act, 1956

Nature of Statute Due Date Date of Payment



Income Tax Act, 1961 Various Not yet paid

Income Tax Act, 1961 Various Not yet paid

Employees' Provident Various Not yet paid Fund and Miscellaneous Provisions Act, 1952

Employees' State Various Not yet paid Insurance Act, 1948



Punjab Labour Welfare Various Not yet paid Fund Act, 1965



Punjab Value Added Tax Various Not yet paid Act, 2005/ Central Sales Tax Act, 1956

(c) According to the information and explanations given to us, the disputed statutory dues aggregating to Rs.778.93 lacs that have not been deposited on account of matters pending before the appropriate authorities in respect of sales tax, service tax and excise duty are given below:

Sr. Name of the Statute Nature of Dues Period to which No. the amount relates

1. The Punjab General Sales Tax 2003 Sales Tax Act, 1948



2. The Punjab Value Value 2005, 2008, 2009 Added Tax Act, 2005 Added Tax and 2011.



3. The Central Sales Tax, Central 2003 1956 Sales Tax



4. The Central Sales Tax, Central 2005, 2008, 2009 1956 Sales Tax and 2011.



5. Himachal Pradesh Tax Entry Tax 2011, 2012, 2013, on entry of goods into 2014 and 2015 Local Area Act, 2010

6. Himachal Pradesh Sales Tax 2005 Sales Tax Act.

7. Himachal Pradesh VAT 2006 Value Added Tax Act, 2005

8. Central Excise Act, Excise Duty 1995,1999 and 1944. 2005.



9. Central Excise Act, Excise Duty 2005, 2006, 1944. 2007,2012 and 2013

10. Central Excise Act, Excise Duty 2009 1944.

11. Central Excise Act, Excise Duty 2011 and 2012. 1944.

12. The Finance Act, 1994 Service Tax 1996 (Chapter V)

13. Central Excise Act, Excise Duty 2013 1944.

14. Central Excise Act, Excise Duty 2014

1944.

15. Central Excise Act, Excise Duty 2007 - 2013 1944.



16. Central Excise Act, Excise Duty 2002 1944.



17. Central Excise Ac, Excise Duty 2015 1944

Sr. Name of the Statute Disputed Forum where the dispute No. Amount is pending (Rs. In lacs)

1. The Punjab General 58.83 The Hon'ble High Court Sales Tax Act, 1948 of Punjab and Haryana,Chandigarh

2. The Punjab Value 378.72 The Deputy Excise & Added Tax Act, 2005 Taxation Commissioner ( Appeals) Patiala

3. The Central Sales Tax, 4.53 The Hon'ble High Court 1956 of Punjab and Haryana,Chandigarh

4. The Central Sales Tax, 117.56 The Deputy Excise & 1956 Taxation Commissioner ( Appeals) Patiala

5. Himachal Pradesh Tax 89.70 The Hon'ble High Court on entry of goods into of Himachal Pradesh. Local Area Act, 2010

6. Himachal Pradesh 0.49 Himachal Pradesh Tax Sales Tax Act. Tribunal.

7. Himachal Pradesh 0.23 Himachal Pradesh VAT Value Added Tax Act, 2005 Tribunal.

8. Central Excise Act, 3.87 Custom, Excise and 1944. Service Tax Appellate Tribunal

9. Central Excise Act, 2.77 Additional Commissioner, 1944. Shimla.

10. Central Excise Act, 27.85 Additional Commissioner, 1944. Chandigarh.

11. Central Excise Act, 36.03 Commissioner of Central 1944. Excise, Chandigarh.

12. The Finance Act, 1994 2.30 Commissioner of Central (Chapter V) Excise, (Appeals)

13. Central Excise Act, 1.16 Commissioner of Central 1944. Excise, Sangrur.

14. Central Excise Act, 0.41 Commissioner of Central

1944. Excise, Sangrur.

15. Central Excise Act, 42.24 Additional Commissioner 1944. of Central Excise, Sangrur.

16. Central Excise Act, 11.91 Assistant Commissioner 1944. of Central Excise, Sangrur.

17. Central Excise Ac, 0.33 Superintendent, Central 1944 Excise,Barnala.

According to information and explanation given to us, there are no disputed statutory dues ending in respect of income tax, wealth tax and cess.

(d) According to the information and explanations given to us, there was no amount required to be transferred to Investor Education and Protection Fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under. The undisputed dues in respect of wealth tax, income tax, custom duty, excise duty and cess have been regularly deposited with appropriate authorities.

(viii) In our opinion and according to the information and explanations given to us, the accumulated losses at the end of financial year are more than fifty percent of its net worth. Further, the company has incurred cash losses during the financial year covered under audit and in the immediately preceding financial year.

(ix) According to the information and explanations given to us, the company has defaulted in repayment of dues to banks and financial institutions. The details of the defaults are as under:

Sr.No. Particulars Amount(Rs in Nature of Dues Lacs)

1. IFCI Ltd. 7,862.57 Term loan - Principal

2,292.78 Term loan - Interest

509.80 Cash Credit - Principal and Interest

2. IDBI Bank Ltd. 1,834.55 Term loan - Principal

486.98 Term loan - Interest

149.98 Cash Credit - Principal and Interest

3. SIDBI 214.53 Term loan - Principal

52.89 Term loan - Interest

4. Punjab 3,165.07 Term loan - Principal

National Bank 664.46

10,688.46 Cash Credit - Principal and Interest

5. State Bank of India 2,290.40 Term loan - Principal

516.01 Term loan - Interest

3,484.32 Cash Credit - Principal and Interest

6. Vijaya Bank 377.76 Term loan - Principal

83.73 Term loan - Interest

1,399.49 Cash Credit - Principal and Interest

7. J & K Bank 141.07 Term loan - Principal

29.99 Term loan - Interest

528.64 Cash Credit - Principal and Interest

Sr.No. Particulars Period of Default of repayments

1. IFCI Ltd. Refer Note 9 (a)and (b) below

2. IDBI Bank Ltd. Refer Note 9 (a)and (b) below

3. SIDBI Refer Note 9 (a)and (b) below

4. Punjab National Bank Refer Note 9 (a)and (b) below

5. State Bank of India Refer Note 9 (a)and (b) below

6. Vijaya Bank Refer Note 9 (a)and (b) below

7. J & K Bank Refer Note 9 (a)and (b) below

a) The long term and short term borrowings recalled by the consortium banks not paid by the company have been considered as defaulted for the purpose of above disclosures.

b) Interest includes interest accrued on long term and short term borrowings not provided in the statement of profit and loss. (Refer note no.38)

(x) According to the information and explanations given to us, the company has given guarantee for loans taken by others from banks and financial institutions. In our opinion and according to the information and explanations given to us, the terms and conditions of such guarantee are not prima-facie prejudicial to the interest of the company.

(xi) In our opinion and according to information and explanations given to us and on an overall examination of the balance sheet of the company, we report that Rs. 1,692.18 lacs raised on short-term basis has been used for repayment of long term borrowings, purchase of fixed assets and funding of cash losses.

(xii) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit.

For S.C. Vasudeva & Co. Chartered Accountants (Reg. No. 000235N)

Place: Ludhiana (Sanjiv Mohan) Dated: May 30, 2015 Partner M. No. 86066

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Mar 31, 2014

1. We have audited the accompanying financial statements of Malwa Cotton Spinning Mills Limited, which comprise the Balance sheet as at March 31, 2014, and the Statement of profit and loss and Cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the 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. 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.

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 internal controls. 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 basis for our audit opinion.

Emphasis on Matter

4. Without qualifying our opinion, we draw attention to note no. 39 in the financial statements. The Company has incurred a net loss of Rs.4,866 lacs during the year ended 31st March, 2014, which together with brought forward losses of Rs.17,020 lacs exceeds the net worth of the company, and as of that date, the company''s current liabilities exceeded its current assets by Rs.13,811 lacs and its total liabilities exceeded its total assets by Rs.18,370 lacs. The Consortium banks have recalled their total debts due from the company. These events cast significant doubt on the ability of the company to continue as a going concern. The appropriateness of the going concern assumption is dependent on the company''s ability to establish consistent profitable operations and generate positive cash flows as well as raising adequate finance to meet its short term and long term obligations. Based on the mitigating factors stated in the said note, the management of the company believes that the going concern assumption is appropriate.

Basis for Qualified Opinion

5. We report that:

i. The company has not arranged to make available the confirmations and/or reconciliations to verify the balances stated in the financial statements in respect of:

i .Trade Receivables Rs. 3796 lacs ii. Loans and Advances: Rs. 4005 lacs and iii. Trade payables: Rs.6515 lacs,

We have also not been able to perform any alternative procedures with regard to verification of the aforesaid balances and thereby have been unable to obtain sufficient appropriate audit evidence regarding the aforesaid accounts .We are unable to comment upon the difference, if any, which may arise upon the receipt of confirmations and/or the carrying out of such reconciliation.

ii. The management of the company has represented to us that the recoverable amount of assets within the meaning of Accounting Standard 28 "Impairment of Assets" is more than their carrying value and as such no amount needs to be recognized in the financial statements for impairment loss. In the absence of the workings of impairment having been prepared and made available to us for our review, we are unable to comment on whether the company needs to make a provision in respect of impairment loss on such assets and the amount of such provision.

iii. Refer note no.36 of the financial statements, the company has not made provision in respect of balances recoverable from Trade Receivables, Loans and Advances and Other Recoverable, which are doubtful in nature amounting to Rs. 5807lacs as on the date of the financial Statements.

iv. Refer note no.38 of the financial statements, the Company has not provided for the Interest on borrowings amounting to Rs. 2,935 lacs pertaining to year ended on 31st March, 2014.

v. We further report that, except for the effect, if any, of the matters stated in paragraph (i) and (ii) above which are not ascertainable, had the impact of our observation made in paragraph (iii) and (iv) above been considered, then loss for the year ended 31st March, 2014 would have been Rs. 13,608 lacs (against the reported figure of Rs. 4,866 lacs) and reserves and surplus would have been Rs. (30,627) lacs (against the reported figure of Rs. (21,885) lacs) and current assets would have been Rs. 4,492 lacs (against the reported figure of Rs. 13,234 lacs).

vi. The earning (loss) per share for the year ended 31st March, 2014 would have been Rs. (175.75) against reported earning (loss) per share of Rs. (65.16).

Qualified Opinion

6. In our opinion and to the best of our information and according to the explanations given to us, subject to our comments in paragraph 5 above, the said financial statements read together with significant accounting policies and notes thereon give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

a. In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2014;

b. In the case of Statement of Profit and Loss, of the loss for the year ended on that date; and

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

Report on Other Legal and Regulatory Requirements

7. 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 give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

8. As required by section 227(3) of the Companies Act, 1956, 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;

c. 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;

d. in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 except non-disclosure of segment results separately in respect of sewing thread segment in accordance with the requirements of Accounting Standard (AS) - 17 on "Segment Reporting" notified by The Companies (Accounting Standards) Rules, 2006.

e. On the basis of written representations received from the directors as on March 31, 2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2014, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

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 Companies Act, 1956 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 Auditor''s Report (Referred to in paragraph 7) (1) a) The company has maintained proper records showing full particulars including quantitative details and situation of fixed assets.

b) According to the information and explanations given to us, the fixed assets except furniture and fittings and office equipments have been physically verified by the management during the year under the supervision of internal auditors of the company (an independent firm of Chartered Accountants). In respect of furniture and fittings and office equipments, the company has adopted a policy of physical verification of these assets at least once in every three year. The entire block of these assets have been physically verified by the management during the year. The discrepancies noticed on physical verification of fixed assets which were not material, have been properly dealt in the books of account. In our opinion the frequency of physical verification of fixed assets is reasonable having regard to the size of the Company and nature of its business.

c) According to information and explanations given to us, the company has not disposed off substantial part of its fixed assets during the year.

(2) a) According to the information and explanations given to us, the inventories have been physically verified by the management during the year, in our opinion the frequency of physical verification of inventories is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management as evidenced by the written procedures and instructions is adequate having regard to the size of the company and nature of its business.

c) In our opinion and according to the information and explanations given to us, the company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to the book records which were not material have been properly dealt with the books of account.

(3) a) According to the information and explanations given to us, the company has not granted loans secured or unsecured to companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4 (iii) (b) (c) and (d) of the above said order are not applicable to the company.

b) According to the information and explanations given to us, the company has not taken loans secured or unsecured from companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4 (iii) (f) and (g) of the above said order are not applicable to the company.

(4) According to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system.

(5) According to the information and explanations given to us, the company has not entered into any contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered in the register maintained under the said section.

(6) According to the information and explanations given to us, the company has not accepted any deposits from public. Therefore, the provisions of section 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable to the company. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other Tribunal.

(7) In our opinion, the company has an internal audit system commensurate with its size and nature of its business.

(8) We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records with a view to determine whether they are accurate or complete.

(9) (a) According to the information and explanations given to us, the company has not been regular in depositing undisputed dues in respect of provident fund, employees'' state insurance, sales tax (VAT and CST), tax deducted at source and tax collected at source.

(b) According to the information and explanations given to us, there are no amounts to be deposited towards investor education and protection fund. The undisputed dues in respect of wealth tax, income tax, custom duty, excise duty and cess have been regularly deposited with appropriate authorities.

(c) In our opinion and according to the information and explanations given to us, undisputed dues in respect of provident fund, employees'' state insurance, labour welfare fund, sales tax (VAT and CST), tax deducted at source and tax collected at source which were outstanding at the year end for a period of more than six months from the date they became payable are as follows:

Nature of Statute Nature of Dues Amount (Rs. in Lacs)

Income Tax Act, Tax deducted at 17.98 1961 Source

Income Tax Act, Tax collected at 0.65 1961 Source

Employees '' Provident Fund 169.85 Provident Fund and Miscellaneous Provisions Act, 1952

Employees'' State Employee State 129.10 Insurance Act, 1948 Insurance

Punjab Labour Labour Welfare 0.60 Welfare Fund Act, fund 1965

Punjab Value VAT/CST 36.62 Added Tax Act, 2005/ Central Sales Tax Act, 1956



Nature of Statute Period to which Due Date Date of the amount Payment relates

Income Tax Act, 1961 F.Y 2013-14 Various Not yet paid

Income Tax Act, 1961 F.Y 2013-14 Various Not yet paid

Employees'' Provident Fund and Miscellaneous Provisions Act, 1952 F. Y 2011 -12, Various Not yet paid

2012-13 & 2013-14

Employees'' State Insurance Act, 1948 F. Y 2011 -12, Various Not yet paid 2012- 13 & 2013- 14

Punjab Labour Welfare Fund Act, 1965 F.Y 2012-13 & Various Not yet paid 2013- 14

Punjab Value Added Tax Act, 2005/ Central Sales Tax Act, 1956 F.Y 2013-14 Various Not yet paid

(d) According to the information and explanations given to us, the disputed statutory dues aggregating to Rs.769.22 lacs that have not been deposited on account of matters pending before the appropriate authorities in respect of sales tax, service tax and excise duty are given below:

Name of the Statute Nature of Dues Disputed Amount (Rs. in Lacs)

The Punjab General Sales Tax 58.83 Sales Tax Act,1948

The Punjab Value Value Added Tax 378.72 Added Tax Act, 2005

The Central Sales Central Sales Tax 4.53 Tax Act, 1956 Act,196

The Central Sales Central Sales Tax 117.56 Tax Act,1956

Himachal Pradesh Entry Tax 78.77 Tax on Entry of Goods into Local Area Act, 2010

Himachal Pradesh Sales Tax 0.98 Sales Tax Act

Himachal Pradesh VAT 0.46 Value Added Tax Act, 2005

Central Excise Excise Duty 3.87 Act,1944

Central Excise Excise Duty 2.77



Name of the Statute Period to which Forum where Dispute amount relates is pending

The Punjab General Sales Tax Act,1948 2003 The Hon''ble High Court of Punjab and Haryana,Chandigarh

The Punjab Value Added Tax Act, 2005 2006, 2009, 2010 The Deputy Excise & and 2012 Taxation Commissioner (Appeals) Patiala

The Central Sales Tax Act, 1956 Act,196 2003 The Hon''ble High Court of Punjab and Haryana, Chandigarh

The Central Sales Tax Act,1956 2006, 2008, 2009, The Deputy Excise & 2010 and 2012 Taxation Commissioner ( Appeals) Patiala

Himachal Pradesh Tax on Entry of Goods into Local Area Act, 2010 2011, 2012 and Hon''ble High Court 2013 of Himachal Pradesh

Himachal Pradesh Sales Tax Act 2005 Himachal Pradesh Tax Tribunal

Himachal Pradesh Value Added Tax Act, 2005 2006 Himachal Pradesh VAT Tribunal

Central Excise Act,1944 1995,1999 Custom, Excise & and 2005 Service Tax Appellate Tribunal

Central Excise 2005, 2006, 2007, Additional



Name of the Statute Nature of Dues Disputed Amount (Rs. in Lacs)

Act,1944

Central Excise Excise Duty 27.85 Act,1944

Central Excise Excise Duty 36.03 Act,1944

The Finance Service Tax 2.30 Act,1994 (Chapter V)

Central Excise Excise Duty 1.16 Act,1944

Central Excise Excise Duty 0.41 Act,1944

Central Excise Excise Duty 42.24 Act,1944

Central Excise Excise Duty 11.91 Act,1944

Central Excise Service Tax 0.83 Act,1944



Name of the Statute Period to which Forum where Dispute amount relates is pending

Act,1944 2012 and 2013 Commissioner, Shimla

Central Excise Act,1944 2009 Additional Commissioner, Chandigarh

Central Excise Act,1944 2011 and 2012 Commissioner of Central Excise Chandigarh

The Finance Act,1994 (Chapter V) 1996 Commissioner of Central Excise (Appeals)

Central Excise Act,1944 2013 Commissioner of Central Excise, Sangrur

Central Excise Act,1944 2014 Commissioner of Central Excise , Sangrur

Central Excise Act,1944 2007-2013 Additional Commissioner of Central Excise, Sangrur

Central Excise Act,1944 2002 Assistant Commissioner of Central Excise ( Appeals )

Central Excise Act,1944 2007 Deputy Commissioner, Sangrur

According to information and explanation given to us, there are no disputed statutory dues pending in respect of income tax, wealth tax and cess.

(10) In our opinion and according to the information and explanations given to us, the accumulated losses at the end of financial year are more than fifty percent of its net worth. Further, the company has incurred cash losses during the financial year covered under audit and in the immediately preceding financial year.

(11) According to the information and explanations given to us, the company has defaulted in repayment of dues to banks and financial institutions. The details of the defaults are as under:

Sr. No. Particulars Amount (Rs Lacs) Nature of Dues Period of Default of repayment

1. IFCI Ltd. 7862.57 Term loan - Principal

1616.56 Term loan - Interest

Refer Note 11(a) below

462.55 Cash Credit - Principal and Interest

2. IDBI Bank Ltd. 1834.55 Term loan - Principal

329.73 Term loan - Interest

Refer Note 11(a) below

135.43 Cash Credit -

Principal and Interest

3. SIDBI 214.53 Term loan - Principal

Refer Note 11(a) below

34.32 Term loan - Interest 4. Punjab National Bank 3165.07 Term loan - Principal

407.59 Term loan - Interest

Refer Note 11(a) below

9754.42 Cash Credit - Principal and Interest

5. State Bank of India 2290.40 Term loan - Principal

321.80 Term loan - Interest

Refer Note 11(a) below

3145.84 Cash Credit - Principal and Interest

6. Vijaya Bank 377.76 Term loan - Principal

51.44 Term loan - Interest Refer Note 11(a) below

1258.31 Cash Credit - Principal and Interest

7. 141.07 Term loan - Principal J & KBank 18.25 Term loan - Interest

Refer Note 11(a) below 473.24 Cash Credit - Principal and Interest

a) The long term and short term borrowings recalled by the consortium banks not paid by the company have been considered as defaulted for the purpose of above disclosures.

b) Interest includes interest accrued on long term and short term borrowings not provided in the statement of profit and loss. (Refer note no.38)

(12) In our opinion and according to the information and explanations given to us, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Therefore, the provisions of clause 4(xii) of the above said order are not applicable to the company.

(13) According to the information and explanations given to us, the company is not a chit fund, or a nidhi/mutual benefit fund/ society. Accordingly, the provisions of clause 4 (xiii) of the above said order are not applicable to the company.

(14) According to the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investments. Therefore, the provisions of clause 4(xiv) of the above said order are not applicable to the company.

(15) According to the information and explanations given to us, the company has given guarantee for loans taken by others from banks and financial institutions. In our opinion and according to the information and explanations given to us, the terms and conditions of such guarantee are not prima-facie prejudicial to the interest of the company.

(16) According to the information and explanations given to us, the company had applied the term loans for the purpose for which the loans were taken.

(17) In our opinion and according to information and explanations given to us and on an overall examination of the balance sheet of the company, we report that Rs. 2344.45 lacs raised on short-term basis has been used for purchase of fixed assets and funding of cash losses.

(18) According to the information and explanations given to us, the company has not made any preferential allotment of shares during the year to parties or companies covered in the register maintained under section 301 of the companies Act, 1956.

(19) According to the information and explanations given to us, the company has not issued debentures during the year. Accordingly, the provisions of clause 4(xix) of the above said order are not applicable to the company.

(20) According to the information and explanations given to us, the company has not raised money by way of public issue during the year. Accordingly, the provisions of clause 4(xx) of the above said order are not applicable to the company.

(21) According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the period covered by our audit.

FOR S.C. VASUDEVA & CO.

Chartered Accountants

Firm Reg. No. 000235N

(SANJIV MOHAN)

Partner

PLACE: LUDHIANA M. No. 86066

DATED: 30th May, 2014

---

Mar 31, 2013

Report on the Financial Statements

1. We have audited the accompanying financial statements of Malwa Cotton Spinning Mills Limited, which comprise the Balance sheet as at March 31, 2013, and the Statement of profit and loss and Cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the 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. 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.

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

4. Without qualifying our opinion, we draw attention to note no. 39 in the financial statements. The Company has incurred a net loss of * 1R171 T! lacs during the year ended 31st March, 2013, which together with Drought forward losses of 1848.11 lacs exceeds the net worth of the company, and as of that date, the company''s current liabilities exceeded its current assets by RS. 6972.79 lacs and its total liabilities exceeded its total assets by X 13504.88 lacs. This condition indicates the existence of a material uncertainty that may cast doubt about the Company''s ability to continue as a going concern. Basis for Qualified Opinion

5. Further we report that:

i. Non confirmation of balances of trade receivables, trade payables, loans and advances and recoverables and its impact on loss, assets and liabilities is not ascertainable.

ii. Refer note no. 37 In absence of availability of net realizable value of slow moving items of inventories to the tune of RS. 236.14 lacs, these have been valued at cost instead of lower of cost and net realizable value. The impact of valuation on loss and current assets is not ascertainable.

Hi. Refer note no. 36 No provision has been made for doubtful trade receivables, advances and other recoverables aggregating to RS. 6,591.94 lacs. Had the impact of our observation been considered, then loss for the year would have been RS. 22,763.61 lacs (against the reported figure of RS. 16,171.67 lacs) and reserves and surplus would have been RS. (23,611.72) lacs (against the reported figure of 1(17,019.78) lacs and Current assets would have been RS.10,1''69.66 lacs (against the reported figures of 116,997.94 lacs.) Qualified Opinion

6. In our opinion and to the best of our information and according to the explanations given to us subject to our comments in paragraph 5 above, the said financial statements read together with significant accounting policies and notes thereon give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

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

(b) in the case of statement of Profit and Loss, of the loss for the year ended on that date; and

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

Report on other Legal and Regulatory Requirements

7. 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 Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

8. As required by section 227(3) of the Companies Act, 1956, 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;

c) 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;

d) in our opinion, the balance sheet, statement of profit and loss, and cash flow statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 except non-disclosure of segment results separately in respect of sewing thread segment in accordance with the requirements of Accounting Standard (AS) - 17 on "Segment Reporting" notified by The Companies (Accounting Standards) Rules, 2006.

e) On the basis of written representations received from the directors as on March 31, 2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

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 Companies Act, 1956 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 AUDITOR''S REPORT

(Referred to in paragraph 3) 1. a) The company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. b) According to the information and explanations given to us, the fixed assets except furniture and fittings and office equipments have been physically verified by the management during the year under the supervision of internal auditors of the company (an independent firm of Chartered Accountants). In respect of furniture and fittings and office equipments, the company has adopted a policy of physical verification of these assets at least once in every three year. The entire block of these assets have been physically verified by the management during the year ended 31st March 2011. The discrepancies noticed on physical verification of fixed assets which were not material, have been properly dealt in the books of account. In our opinion the frequency of physical verification of fixed assets is reasonable having regard to the size of the company and nature of its business. c) According to information and explanations given to us, the company has not disposed off substantial part of its fixed - assets during the year.

2. a) According to the information and explanations given to us, the inventories have been physically verified by the management during the year. In our opinion the frequency of physical verification of inventories is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management as evidenced by the written procedures and instructions is adequate having regard to the size of the company and nature of its business.

c) In our opinion and according to the information and explanations given to us, the company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to the book records which were not material have been properly dealt with the books of account.

3. a) According to the information and explanations given to us,

the company has not granted loans secured or unsecured to companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4 (iii) (b) (c) and (d) of the above said order are not applicable to the company. b) According to the information and explanations given to us, the company has not taken loans secured or unsecured from companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4 (iii) (f) and (g) of the above said order are not applicable to the company.

4. According to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system.

5. According to the information and explanations given to us, the company has not entered into any contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered in the register maintained under the said section.

6. According to the information and explanations given to us, the company has not accepted any deposits from public. Therefore, the provisions of section 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable to the company. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other Tribunal.

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

8. We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1 )(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records with a view to determine whether they are accurate or complete.

9. a) According to the information and explanations given to us, the company has not been regular in depositing undisputed dues in respect of provident fund, employees'' state insurance, sales tax (VAT and CST), tax deducted at source and tax collected at source.

b) According to the information and explanations given to us, there are no amounts to be deposited towards investor education and protection fund. The undisputed dues in respect of wealth tax, income tax, custom duty, excise duty and cess have been regularly deposited with appropriate authorities.

10. In our opinion and according to the information and explanations given to us, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Therefore, the provisions of clause 4(xii) of the above said order are not applicable to the company.

11. According to the information and explanations given to us, the company is not a chit fund, or a nidhi/mutual benefit fund/ society. Accordingly, the provisions of clause 4 (xiii) of the above said order are not applicable to the company.

12. According to the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investments. Therefore, the provisions of clause 4(xiv) of the above said order are not applicable to the company.

1. According to the information and explanations given to us, the company has given guarantee for loans taken by others from banks and financial institutions. In our opinion and according to the information and explanations given to us, the terms and conditions of such guarantee are not prima-facie prejudicial to the interest of the company.

13. According to the information and explanations given to us, the company had applied the term loans for the purpose for which the loans were taken.

1. In our opinion and according to information and explanations given to us and on an overall examination of the balance sheet of the company, we report that RS. 16178.28 lacs raised on short-term basis has been used for repayment of long term borrowings, purchase of fixed assets and funding of cash losses.

14. According to the information and explanations given to us, the company has not made any preferential allotment of shares during the year to parties or companies covered in the register maintained under section 301 ofthe companies Act, 1956.

15. According to the information and explanations given to us, the company has not issued debentures during the year. Accordingly, the provisions of clause 4(xix) of the above said order are not applicable to the company.

16. According to the information and explanations given to us, the company has not raised Money by way of public issue during the year. Accordingly, the provisions of clause 4(xx) of the above said order are not applicable to the company.

21. According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the period covered by our audit.

FOR S. C. VASUDEVA & CO.

Chartered Accountants

Firm Reg. No. 000235N

(SANJIV MOHAN)

PLACE: LUDHIANA Partner

DATED :15th April, 2013 M. No. 86066

---

Mar 31, 2012

1. We have audited the attached Balance sheet of M/s Malwa Cotton Spinning Mills Ltd. as at 31st March 2012 and also the Statement of profit and loss and the Cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. These 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 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 paragraph 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 purposes of our audit;

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

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

d) In our opinion, the balance sheet, statement of profit and loss and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 except non- disclosure of segment results separately in respect of sewing thread segment in accordance with the requirements of Accounting Standard (AS) -17 on "Segment Reporting" notified by The Companies (Accounting Standards) Rules, 2006.

e) On the basis of the written representations received from the directors as on 31 st March, 2012 and taken on record by the Board of Directors, we report that none of the directors are disqualified as on 31 st 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;

f) Further we report that;

i) Non confirmation of balances of trade receivables, trade payables, loans and advances and recoverable and its impact on loss, assets and liabilities is not ascertainable.

ii) Refer note no 37 In absence of availability of net realizable value of slow moving items of inventories to the tune ofRs. 2198 lacs, these have been valued at cost instead of lower of cost and net realizable value. The impact of valuation on loss and assets is not ascertainable.

iii) Refer note no.36 No provision has been made for doubtful trade receivables, advances and other recoverable aggregating to Rs. 5079.45 lacs. Had the impact of our observation been considered, then loss for the year would have been higher and reserves and surplus would have been lower to that extent.

g) In our opinion and to the best of our information and according to the explanations given to us, subject to our comments in para (f) above, the said accounts read together with the significant accounting policies and notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

i) in the case of balance sheet, of the state of affairs of the company as at 31 st March, 2012; ii) in the case of statement of profit and loss, of the loss for the year ended on that date; and iii) in the case of cash flow statement, of the cash flows for the year ended on that date.

ANNEXURE TO THE AUDITOR'S REPORT

(Referred to in paragraph 3) 1. a) The company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. b) According to the information and explanations given to us, the fixed assets except furniture and fittings and office equipments have been physically verified by the management during the year under the supervision of internal auditors of the company (a firm of Chartered Accountants). In respect of furniture and fittings and office equipments, the company has adopted a policy of physical verification of these assets at least once in every three year. The entire block of these assets have been physically verified by the management during the year ended 31st March 2011. The discrepancies noticed on physical verification of fixed assets which were not material, have been properly dealt in the books of account. In our opinion the frequency of physical verification of fixed assets is reasonable having regard to the size of the company and nature of its business. c) According to information and explanations given to us, the company has not disposed off substantial part of its fixed assets during the year.

2. a) According to the information and explanations given to us,

the inventories have been physically verified by the management during the year. In our opinion the frequency of physical verification of inventories is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management as evidenced by the written procedures and instructions is adequate having regard to the size of the company and nature of its business.

c) In our opinion and according to the information and explanations given to us, the company is maintaining proper records of inventory. The discrepancies noticed on physical verification of inventory as compared to the book records which were not material have been properly dealt with the books of account.

3. a) According to the information and explanations given to us,

the company has not granted loans secured or unsecured to companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4 (iii) (b) (c) and (d) of the above said order are not applicable to the company. b) According to the information and explanations given to us, the company has not taken loans secured or unsecured from companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4 (iii) (f) and (g) of the above said order are not applicable to the company.

4. According to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system.

5. According to the information and explanations given to us, the company has not entered into any contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered in the register maintained underthe said section,

6. According to the information and explanations given to us, the company, has not accepted any deposits from public. Therefore, the provisions of section 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable to the company. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any otherTribunal.

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

8. We have broadly reviewed the books of account' relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1 )(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records with a view to determine whether they are accurate or complete.

9. a) According to the information and explanations given to us, the company has not been regular in depositing undisputed dues in respect of provident fund, employees' state insurance, sales tax (Vat and CST), tax deducted at source and tax collected at source.

b) According to the information and explanations given to us, there are no amounts to be deposited towards investor education and protection fund. The undisputed dues in respect of wealth tax, income tax, custom duty, excise duty and cess have been regularly deposited with appropriate authorities.

c) In our opinion and according to the information and explanations given to us, undisputed dues in respect of provident fund, tax deducted at source and tax collected at source which were outstanding at the year end for a period of more than six months from the date they became payable are as follows:



Nature of Nature of Amt. Period to Due Date Date of Statute Dues (Rs. which Payment in Lacs) amount relates

IncomeTax Tax deducted 30.35 F.Y. 2011-12 Various Notyetpaid Act, 1961 at Source

IncomeTax Tax collected 11.11 F.Y. 2011-12 Various Notyetpaid Act, 1961 at Source

Employees' Provident 45.76 F.Y. 2011-12 Various Notyetpaid Provident Fund Fund and Miscel laneous Provisions Act, 1952



d) According to the information and explanations given to us, the disputed statutory dues aggregating to Rs. 285.09 lacs that have not been deposited on account of matters pending before the appropriate authorities in respect of sales tax, service tax and excise duty are given below:



Name of the Statute Nature of Dues Disputed Amount Forum where dispute (Rs. in Lacs) is pending

The Punjab General Sales SalesTax The HonW. High Court Tax Act 1948 58.83 of Punjab and Haryana, Chandigarh.

The Central Sale Tax TheHon'ble High Court Act 1956 Central Sales Tax 4.53 of Punjab and Haryana, Chandigarh

The Central Sales Tax The Deputy Excise & Act 1956 Central Sales Tax 98.60 Taxation Commissioner (Appeals) Pallala

ThePunjab Value Added Value Added The Deputy Exise & Tax Taxation Commissi caer Tax Act, 2005 (Appeals) Patiala



Himachal Pradesh Tax Entry Tax' 40.79 Hon'Ne High Court of on Entry of Goods into Himachal Pradesh Local Area Act, 2010

Himachal Pradesh Sales Sales Tax 0.98 Himachal Pradesh Tax Tax Act Tribunal

Himachal Pradesh Value VAT 0.46 Himachal Pradesh VAT¦' Added Tax Act, 2005 Tribunal

Custom, Excise & Central Excise Act.1944 Excise Duty 3.87 Service Tax Appellate Tribunal

Central Excise Act,1944 Excise Duty 3.50 Joint Secretary. Deptt. of Revenue ,

The Finance Act,1994 Service Tax 2.30 Commissioner of (ChapterV} Central Excise (Appeals)

Central ExciseAct.1944 ExciSe Duty 11.91 Assistant Commissioner of Central Exice (Appeals)

Central ExciseAct, Service Tax 0.83 Deputy Commlsstaer, 1944 Sanpriir



According to information and explanation given to us, there are no disputed statutory dues pending in respect of income tax, wealth tax and cess.

10. In our opinion and according to the information and explanations given to us, the accumulated losses at the end of financial year are more than fifty percent of its net worth. Further, the company " has incurred cash losses during the financial year covered under audit but has not incurred cash losses in the immediately preceding financial year. The .company is in process of complying with provisions of Section 23 of Sick Industrial Companies (Special Provision) Act, 1985.

11. According to the information and explanations given to us, the company has defaulted in repayment of dues to banks and financial institutions. The details of the defaults are as under:

Sr Particulars Amount Nature of Dues Period of default of No. (Rs. In Laos) repayment

1. IFCI Ltd. 117.77 Principal 15th0ci. 2011-14th Jan. 2012 repayment

72.90 Interest 15th Oct. 2011-14th jan 2012

2. IDBI Bank Ltd, 19.76 Principal Jan 2012-March 2012 repayment

0.02 March -12

3. SIDBI 1.50 Principal Jan2012-March2012 repayment

1.53 Interest March-12

4. Punjab National 49.01 Principal Jan2012-March2012 Bank

22.68 interset March-12

5. State Bank of India 28.75 Principal Jan 2012 -March_2012 repayment

16.94 Interest March-12

6. VljayaBank 5.49 Principal Jan 2012-March 2012 repayment

2.01 interest March-12



12. In our opinion and according tothe information and explanations given to us, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures there securities There, provisions of clause if said order are not applicable to the company.

13, According to the information and explanations given to us, the company is not a chit fund, or a nidhi/mutual benefit fund/society. Accordingly, the provisions of clause 4 (xiii) of the above said order are not applicable to the company.

14. According to the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investments. Therefore, the provisions of clause 4(xiv) of the above said order are not applicable, to the company.

15. According to the information explanations given to us, the - company has given guarantee for loans taken by others from banks and financial institutions. In pure opinion and according to the information and explanations given to us, the terms and conditions of such guarantee are not prima-facie prejudicial to the interest of the company.



16. According to the information and explanations to us, the company has applied the term loans for the purpose for which the loans were taken.

17. In our opinion and according to information and explanations given to us and on an overall examination of the balance sheet of the company, we report that Rs. 1636.87 lacs raised on short- term basis has been temporarily used for repayment of long-term borrowings and funding of cash losses.

18. According to the information and explanations give to' us, the company has not made any preferential allotment of shares during the year to parties or compares covered in .toe-reflector maintained under section 301 of the companies Act, 1956.

19. According to the information and explanations given to us, the company has not issued debentures during the year. Accordingly, the provisions of clause 4(xix) bf the=above said order are not applicable to the company

20. According to the information and explanations given to us, the - company has not raised money by way of public issue during the year. Accordingly, the provisions of clause 4(xx) of the. above said order are not applicable to the company.

21. According to the information and explanations given to us, no fraud on or by the company has been noticed-or reported during the period covered by our audit.

FOR S. C: VASUDEVA & CO.

Chartered Accountants

Firm Reg. No. 000235N

(SANJIVMOHAN)

PLACE :LUDHIANA. Parmer

DATED :30th May, 2012 M, No. 86066

---

Mar 31, 2010

1. We have audited the attached Balance sheet of M/s Malwa Cotton Spinning Mills Ltd. as at 31 st March 2010 and also the Profit and loss account and the Cash flow statement for the year ended on that date annexed thereto.These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance 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 issued by the Central Government of India in terms of subsection (4A) of section 227 of the Companies Act, 1956, we enclose in the annexure a statement on the matters specified in paragraph 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 purposes of our audit;

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

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

d) In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 except non-disclosure of segment results separately in respect of sewing thread segment in accordance with the requirements of Accounting Standard (AS) -17 on " Segment Reporting" notified by The Companies (Accounting Standards) Rules, 2006.

e) On the basis of the written representations received from the directors as on 31st March, 2010 and taken on record by the Board of Directors, we report that none of the directors are disqualified as on 31 st March, 2010 from being appointed as a director in terms of clause (g) of subsection (1) of Section 274 of the Companies Act, 1956;

f) In our opinion and to the best of our information and according to the explanations given to us, subject to Note No.24 (Notes on Accounts) regarding non confirmation of balances of sundry debtors and advances aggregating to Rs.4177.58 lac and no provision has been made for doubtful debts and advances in respect of these debtors and advances, the said accounts read together with the

significant accounting policies, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

i) in the case of balance sheet, of the state of affairs of the company as at 31 st March, 2010;

ii) in the case of profit and loss account, of the loss for the year ended on that date; and

iii) in the case of cash flow statement, of the cash flows for the year ended on that date

ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph 3)

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

b) According to the information and explanations given to us, the fixed assets have been physically verified by the management during the year. The discrepancies noticed, as such physical verification of fixed assets which were not material, have been dealt in the books of account. In our opinion the frequency of physical verification of fixed assets is reasonable having regard to the size of the company and nature of its business.

c) According to information and explanations given to us, the company has not disposed off substantial part of its fixed assets during the year.

(2) a) According to the information and explanations given to us, the inventories have been physically verified by the management at the close of the year. In our opinion the frequency of verification is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management as evidenced by the written procedures and instructions are reasonable and adequate in relation to the size of the company and nature of its business.

c) In our opinion, the company is maintaining proper records of inventory. As explained to us, no discrepancies were noticed on physical verification of inventory as compared to the book records.

(3) a) According to the information and explanations given to us,

the company has not granted loans secured or unsecured to companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly the provisions of clause 4 (iii) (b) (c) and (d) of the above said order are not applicable to the company. b) According to the information and explanations given to us, the company has not taken loans secured or unsecured from companies, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

Accordingly the provisions of clause 4 (iii) (f) and (g) of the above said order are not applicable to the company.

(4) According to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchase of inventory and fixed assets and sale of goods and services. During the course of our audit, we nave not observed any continuing failure to correct major weaknesses in internal control system.

(5) According to the information and explanations given to us, the company has not entered into any contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered in the register maintained under that section.

(6) According to the information and explanations given to us, the company has not accepted any deposits from public. Therefore, the provisions of section 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable to the company. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other Tribunal.

(7) In our opinion, the company has an internal audit system commensurate with its size and nature of its business.

(8) We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1 )(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records with a view to determine whether they are accurate or complete.

(9) (a) According to the information and explanations given to us and on an examination of the records of the company, we are of the opinion that the company has been regular in depositing undisputed statutory dues includinq provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax, custom duty, excise duty, cess and other applicable statutory dues with the appropriate authorities. No undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31 st March 2010, for a period of more than six months from the date of they becoming payable.

(b) According to the information and explanations given to us, the disputed statutory dues aggregating to Rs. 311.54 lac that have not been deposited on account of matters pending before the appropriate authorities in respect of sales tax and excise duty are given below:

Name of the Statute Nature of Disputed Forum where dispute the Dues Amount is pending (Rs. Lac)

The Punjab General Sales Tax 58.83 The Honble High Court Sales Tax Act, 1948 of Punjab and Haryana, Chandigarh

The Central Sales Central 4.53 The Honble Higii Court TaxAct,1956 Sales Tax of Punjab and Haryana, Chandigarh

The Central Sales Central 98.60 The Deputy Excise & Tax Act,1956 Sales Tax Taxation Commissioner (Appeals), Patiala.

The Punjab Value Value 89,77 The Deputy Excise & Added Tax Act,2005 Added Tax Taxation Commissioner (Appeals),Patiala.

Central Excise Excise Duty 3.87 Custom, Excise & Service Act,1944 Tax Appellate Tribunal

Central Excise Excise Duty 6.75 Commissioner of Central Act, 1944 Excise (Appeals)

Central Excise Excise Duty 3.50 Joint Secretary, Act,1944 Deptt. of Revenue

Central Excise Excise Duty 27.85 Additional Commissioner Act, 1944 Chandigarh

The Finance Service Tax 2.30 Commissioner of Act, 1994 (Chapter V) Central Excise (Appeals)

Central Excise Excise Duty 11.91 Assistant Commissioner of Act,1944 Central Excise (Appeals)

The Finance Service Tax 3.63 Deputy Commissioner, Act, 1994 (Chapter V) Sangrur

According to information and explanation given to us, there are no disputed statutory dues pending in respect of Income Tax, Service Tax, Wealth Tax and Cess..

(10) In our opinion and according to the information and explanations given to us, the accumulated losses at the end of financial year are more than fifty percent of its net worth . Further, the company has incurred cash losses during the financial year covered under audit and in the immediately preceding financial year.

(11) In our opinion and according to the information and explanations given to us, during the year the company has not defaulted in repayment of dues to banks and financial institutions.

(12) In our opinion and according to the information and explanations given to us, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Therefore, the provisions of clause 4(xii) of the above said order are not applicable to the company.

(13) According to the information and explanations given to us, the company is not a chit fund, or a nidhi/mutual benefit fund/ society. Accordingly, the provisions of clause 4 (xiii) of the above said order are not applicable to the company.

(14) According to the information and explanations given to us, the company is not dealing or trading in shares, securities, debentures and other investments. Therefore, the provisions of clause 4(xiv) of the above said order are not applicable to the company.

(15) According to the information and explanations given to us, the company has given guarantee for loans taken by others from banks and financial institutions. In our opinion and according to the information and explanations given to us, the terms and conditions of such guarantee are not prima-facie prejudicial to the interest of the company.

(16) According to the information and explanations given to us, the company has applied the term loans for the purpose for which the loans were taken.

(17) In our opinion and according to information and explanations given to us and on an overall examination of the balance sheet of the company, we report that no funds raised on short-term basis have been used for long-term investment.

(18) The company has allotted 550,000 equity shares on conversion of equivalent number of equity shares warrants to the companies covered in the register maintained under section 301 of the Companies Act, 1956. According to the information and explanation given to us, the Price at which equity shares has been issued are not prima-facie prejudical to the interest of the company.

(19) According to the information and explanations given to us, the company has not issued debentures during the year. Accordingly, the provisions of clause 4(xix) of the above said order are not applicable to the company.

(20) According to the information and explanations given to us, the company has not raised money by way of public issue during the year. Accordingly, the provisions of ciause 4(xx) of the above said order are not applicable to the company.

(21) According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the period covered by our audit.



For S.C.VASUDEVA&CO. Chartered Accountants Firm Reg.No.00235N

Place : Ludhiana (SANJIV MOHAN) Dated: 28th May, 2010 Partner M.No.86066